1968 PLP 240 (PTD)

Taxing statute‑No immunity from equality clause‑Arbit rariness or oppressiveness‑Several methods of assessing tax-- Selection of one‑Re‑organisation of States‑Transfer of area from one State to another‑Extension of local Agricultural Income‑tax Act to such area‑Court declaring extension ineffective even as regards part of year falling after transfer‑Amendment of Act to correct situation in regard to transferred area‑Whether discrimina tion‑Travancore‑Cochin Agricultural Income‑tax Act, 1950, S. 2‑A‑ Kerala Agricultural Income‑tax (Amendment) Ordinance, 1959-- Kerala Agricultural Income‑tax (Amendment) Act, 1959‑Constitu tion of India, Art.

14. Agricultural income in the Part B State of Travancore Cochin was liable to tax under the Travancore‑Cochin Agricultural Income‑tax Act, 1950. As a result of the passing of the States Reorganisation Act, 1956, the Kerala State was formed compris ing the Part B State of Travancore‑Cochin, excluding certain territories, and certain territories transferred from the State of Madras. The legislature of the Kerala State extended the Act of 1950 to the areas transferred from the Madras State with the result that agricultural income derived from land situated throughout the State of Kerala became assessable to tax with effect from the assessment year 1957‑

58. On a petition presented by some of the assessees the Kerala High Court held that the State of Kerala had no authority to levy tax on agricultural income which accrued before November 1, 1956, from lands situated in the transferred area. As a result of that decision it was not possible to tax assessees in the areas transferred from the Madras State under the scheme of the Act of 1950 even for that part of the year ending March 31, 1957, after it became part of the Kerala State. To remedy this situation the Kerala Agricultural Income‑tax (Amend ment) Ordinance, 1959, was promulgated and later the Kerala Agricultural Income‑tax (Amendment) Act, 1959, was passed to replace that Ordinance. By that amendment section 2‑A was inserted in the Act of 1950 providing that the previous year for the assessment year 1958‑59 in regard to agricultural income in areas transferred from the Madras State commenced from Novem ber 1, 1956, and ended on March 31, 1958, comprising a period of 17 months ; but an assessee could elect a lesser period as the previous year if his accounts were made up to a date within the financial year ending March 31, 1958. The section also prescribed that the rate of tax in regard to the income of that special previous year was the rate applicable to the "average annual income" and "average annual income" was defined as the amount proportion ate to 12 months of that special period. The petitioner, who had lands in Kasaragod Taluk which formed part of the areas transferred from the Madras State, was assessed to tax for the assessment year 1958‑59 by the application of the provisions of section 2‑A. He presented a petition to the Supreme Court under Article 32 of the Constitution of India to have the assessment set aside on the ground that section 2‑A offended Article 14 of the Constitution as the classification of the Kerala State into two parts, viz., the areas transferred from the Madras State and the original areas, had no rational relation to the object of the Act, and, further, that there was discrimination between assessees of Kasaragod and those of the other parts of the areas transferred from the Madras State inasmuch as the arbitrary method of fixing the average annual income involved payment of higher taxes by the assessees in Kasaragod, as the major income of the assessees in that area came out of crops gathered between the months of November and March whereas it was not so as regards assessees of the other areas: Held, (i) that the object of making the classification was not to discriminate against the agriculturists of the Madras area but to bring them into line with the agriculturists from the rest of the Kerala State. The classification was founded on an intelligible differentia between the assessees of the two parts of the State and the differentia had a rational relationship to the object of the amending Act. There was, therefore, no discrimination. (ii) That the method selected for ascertaining the average annual income for purposes of the rate of tax was not unreason able and was neither arbitrary nor capricious. (iii) That, therefore, section 2‑A did not offend Article 14 of the Constitution of India. Taxation law cannot claim immunity from the equality clause of the Constitution. The taxation statute should not also be arbitrary and oppressive, but at the same time the Court cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the Legislature selects one out of them, the Court will not be justified in striking down the law on the ground that the Legislature should have adopted another method which, in the opinion of the Court, is more reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust. In view of the inherent complexity of fiscal adjustment of diverse elements, Courts would permit a larger discretion to the Legislature in the matter of classification. Where the Legislature, in its sincere attempt to meet a difficult situation, makes a law adopting one of diverse methods open to it, if the overall picture indicates that that method works fairly well on all similarly situated, it cannot be struck down as arbitrary or capricious, merely because some hardship may be caused to some in the implementation of the law, which is inevitable in almost every taxation law. It is true that no law, whether it is temporary or permanent, should infringe Article 14 of the Constitution ; but in considering the reasonableness of the legislation, the circumstance that it is a temporary provision intended to apply only for one year to tide over a difficult situation brought about by the reorganisation of States will have some bearing, particularly when the Legislature selects one of many methods open to it. Krishan Singh v. State of Rajasthan (1955) 2 S C R 531 ref.