S.K. DUTTA, INCOME-TAX OFFICER & ORS. versus LAWRENCE SINGH INGTY

S. K. DUITA, INCOME-TAX OFFICER & ORS.

LAWRENCE SINGH INGTY

November 1, 1967

B. (K. N. WANCHOO, C.J., R. S. BACHAWAT, V. RAMASWAMI, . G. K. MITTER AND K. S. HEGDE, JJ.]

{ncome,-..x Act (11 of 1922), s. 4\3)(xxi) and Income-tax Act (43 of 1961), s. 10(26)-Exemption from. tax-Denied to government servantS-C-lf violative of Art. 14 oj Constitution.

BOtb under s. 4(3).(xxi) of the Income-tax Act, 1922 and s. 10(26) of 11\t Income-tax Act, 1961. income of the members of scheduled tribe ihcluded in Art. 366(25) of the Constitution and residing in· any area specified in Part or Part of the Table appended to Paragraph 20 of the Sixth Schedule of the Constitution. excepting that of govern-ment servants, •is exempt from income-b\X. The respondent was. mem· ber of such scheduled tribe ;esiding in such an area, but, as he was government servant, he was assessed to income-tax. · He challenged the validity of the assessments and the High Court quashed the as'"'"Smcnts D. holding that the two sections. to . the extent they excluded government setvants from the benefit of th!' ex~ption given thereunder, were dis-criminatorv and therefore void. '

In appeal to this Court.

HEID : The State has wide discretion in selecting persons or objects it will tax, but within the range of selection made by it for the purpose of exemption, namely, among :members of cer:tain scheduled tribes ·residing in specified areas, the law as stated in the two oections. operates unequally and the inequality cannot be justified on the basis of any valid classification. [168H; 1698-C) ·

(I") The classification of tribals into government servants and others cannot be jiistified on the basis of administrative convenience viz.. that it was easy to collect taxes from government servants, because. · · their case does ·not stand on different footing from that of the employees. in statutory corporations or well-<:stablished tinm. U69F-OJ

(2) 1bcrc is no legislative practice or history treating government · servants as separate class for purposes of income tax. Tiie reason for making, in the past, persons in the service of the government of British India serving outside British India subject to Indi.an income.tax. is not I.bat 'their income was· treated in manner different from that of· other salaried. ofticers in those areas, but that the Indian Legislature .haif no legislative competence to tax residents of those areas but had compe, tence to tax the iiicome of person• in British Indian g0vernment service, serving in those areas. Further, the notificatiQn of 6th June 1890 under which the inoome' earned by members of eertain scheduled tribes, other than those Jn .. government setvice,. was exempt from income tax, and the notification .of 21.st March 1922. under which income of certain indi-g:Q.OUS bill men, other than those in government service, was exempt from tai. arc not sufficient to prove .well-established' legislative practico. Those notifications were issued at time when the power of ·the legisla-ture to grant or withhold any exemption from tax was not subject to ~y constitutional limitation. aassificatio'n based on past legislative

practice a.nd his'?ry does not mean that because in the past the legislalurc was enaclmg arb11rary laws 11 could do so now. ( l 70A; 17 lD-F]

(J) The s~ial status and economic resources of government ser-vant are ~ot different from that of anothe_r holding similar position in corporat.Jon or that of succe~ful medical praccitioner, lawyer, archi-tect etc .. Thcref.orc, merely ~allc;e tribal becomes government ser-vant .h~ 1s not lifted out of his social cnvironntent and assimilated into the forward scclions of society. [I 72A-BJ

I -t) The portions of the two sc."C"tioas struck doY.n are ~verable from the rest of the provision• in which I hey appear. I 72E·F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 809 of 1966.

Appea! by special leave from the judgment and order dall!d

February 13, 1965 of the Assam and Nagaland High Court in Civil Rule No. 127 of 1963.

Niren De, Solicitor-General, A. N. Kirpa/, S. P. Nayar for

R. N. Sachthey for the appcl!ants.

M. C. Setalvad and D. N. Mukherjee, for the respondent.

D. M. Sell, Advocate-General for the State of Nagaland, A. R. Barthakur and R. Gopa/akrishnan, for the intervener.

The Judgment of the Court was delivered by

Hegde, J.. The only question that arises for decision in this

appeal is whether the eiu:lusion of the government servants from the exemption given under s. 4(3)(;u:i) of the Indian Income Tax Act, 1922 and later on under s. 10(26) of the Income Tax . Act, 1961 is violative of Art. 14 of the Constitution. For our present purpose it may be taken that the said two provisioll~ arc similar.

The respondent who is government servant serving in the State of Assam has been assessed to income tax for the assessment years 1959-60, 1960-61, 1961-62 and 1962-63. He challenged the legality of his assessments in civil rule No. 127 of 1963 on the file of the High Court of Judicature of Assam. The Assam High Court accepted his petition and quashed the as=ents in question holding that s. 4 ( 3 )( xxi) of the Indian Income tax Act, 1922 as well ass. 10(26) of the Income Tax Act, 1961 to the extent they excluded gov~mment servants from the benefit of the exemption given thereunder are void. The income-tax authorities as well a~ the Union of India have come up to this Court in appeal by special leave.

The facts of this case lie within narrow compass. The res-

pondent \:lclongs .to Mikir Scheduled Tribe and is permanent inhabitant of United Khasi-Jainti:t Hills District, an autonomous District included in Part 'A' of the Table appended to Paragraph

· 20 of the. Sixth Schedule of the Constitution of India. He -is government servant. All ihese are admitti:d facts.

The respondent in his petition before the High Court averred (in para. 7 ()f the petition) that "in all the autonomous disrricb under Table, Part_ of paragraph 26 of the 'Sixth Schedule of the· Constitution of India, there are large number of persons belonging to Scheduled Tribe who derive considerable income from trade, commerce and business and other sources and em-ployments and immovable properties . . . ". In the return filed by the_ appellants those allegations were not denied. Adverting to those allegations this is what was stated in the. affidavit ..filed by. Shri S. K. Dutta,, Income-tax Officer (the first appellant in the appeal):

"With reference to the statements made in para-graph 7 of the petition I say that the petitioner being ~overnment servant his case stands on different foot-mg other than the general public of the Scll.eduled Tribe.-"

It ,may be remembered till 15-8-47, Khasi anti J-aintia-iHll!s. were not parts of British. India. They were under native $$ates. They merged with British India only after this country got inde--pendence. Till their metger, none of the Indian laws applied to those areas. .The Finance Act of 1955 incorporated into the Indian Income Tax Act, 1922, s. 4(3) (xxi). The relevant portion of s. 4(3) reads thus :

4{3). "Any income profits, or gains falling within the following classes shall not be included in the total income of the person receiving them . . . "

(xxi). "Apy income of a.member of Scheduled Tribe, as defined in clause (25) of Article 366 of the Constitution, residing in any area specified in Part or Part of the table appended to paragraph 20 of the Sixth Schedule to ihe Constitution, provided that such member is not in the service of Government."

Sec. 10(26) of the Income tax Act of 1961 which corresponds to s. 4(3)(xxi) of the Indian Income Tax Act, 1922, J·eads thus :-

"In the case of member of Scheduled Tribe as defined in clause (25) of Article 366 of the Constitution, residing in any area specified in Part or Part of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the Union Territories of Manipur and Tripura, who is not in the service of Government. any income which accrues or arises to him, (a) from any 1 source in the area or Union Territories aforesaid or

(b) by way of dividend or interest on securities~"

Part of the impugned ~essments were made under the Indian .Income Tax Act, 1922 and the rest, under the Income Tax Act, 1961. If the aforementioned provisions are valid, then the assess-ments in question arc beyond challenge. Therefore the only ques-tion for decision is whether the legislature had.no power to exclude ·the government servants from the benefit of the exemptions given under the aforementioned ss.4(3) (xxi) and 10(26).

It is seen that the income of the members of scheduled tribe included in cl. 25 of Art. 366 of the Constitution and residing in any area specified in Part or Part of the Table appended to .Paragraph 20 of the Sixth Schedule of the Constitution, excepting that of government servants is exempt from income tax. In ·Other words, the government servant alone is excluded from the benefit of the exemption given under the provisions quoted above. It is agreed that the respondent is member of the scheduled tribe included in cl. 25 of Art. 366 of the Constitution, residing in an ,area specified in Part of the Table appended to para. 20 of the Si:tth Schedule to the Constitution, but yet he bad been denied the benefit of the e:temption in question on the sole ground that he is in the service of the government. It may be noted that .exemption both under s. 4(3)(xxi) of the Indian Income Tax Act, 1922 and under s. I 0(26) of the Income Tax Act, 1961 was given to the members of certain scheduled tribes. For the purpose of .of the exemption in question the classification wa~ made on the basis of persons being members of particular tribe. That being so, some of the members of that tribe cannot be excluded from the benefit of those provisions unless they can be considered as belong-ing to well defined class for the purpose of income. 1ax. The respondent's con1ention which has be.en accepted by the High Court is that the government servants cannot be considered as -separate class for the purpose of income tax. On the other hand it is contended on behalf of the Department that the classification made is reasonable one, taking into consideration administrative convenience as well a~ the past legislative practice and history.

It is not in dispute that ta:tation laws must also pass the test of Art. 14. That has been laid down by this Court in Moopil Nair v. State of Kera/a('). But as observed by this Court in East India Tobacco Co. v. State of Andhra Pradesh('), in deciding whether taxation law is discriminatory or not it is necessary to bear in mind that the State has wide discretion in selecting persons or ·objccli it will tax, and that statute is not open to attack on the ground tjlat it ta:tes some persons or objects and not others; it is <>nly when within the range of its selection, the law operates un-~I) (1961} 3 S.C.R. 77. (2} [1963} I S.C.R. 404, 409.

equally, and that cannot be just!fied. on, the basis of an~ valid. classification, that it would be v10lallve of Art. 14. It 1s well settled that State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reason-ably.

The complaint in this case is that within the range of the selec-tion made by the State for the purpose of exemption, namely, members of certain scheduled tribes residing in specified areas, the law operates unequally and the inequality in question cannot be justified on the basis of any valid classification.

There can be no distinction between the income earned bv government servant a.nd that earned by person serving in company or under private individual. More or less similar is the case in respect of the income earned by persons practising one or more of the professions. Admittedly the income earned by the members of the scheduled tribes residing in Khasi-Jaintia Hills excepting in the case of government servants is exempt from in-D come tax be it as. salaried officers, lawyers, doctors or persons in other walks of life. Is there any legal basis for this differentia-tion '? Prima facie it appears that the government servants have· been discriminated against and the discrimination in question i• writ large on the face of the provisions in question.

The learned Solicitor-General contended that the classifica-tion in question can be justified on administrative grounds. He urged that classification based on administrative convenience i~ just classification in the matter of levying taxes. According to him it is easy to collect taxes from government servants. There-hre, it was permissible for the legislature to deny them the exempiion extended to the other members of their tribes. This contention appears to be without merit. It may be that for the purpose of taxation classification can be made on the basis of administrative convenience. But we fail to see how the case "f the government servants stands on footing different frolh that of the employees in statutory corporations or even well recognised firms. That apart, administrative convenience which can afford just basis for classification must be real and substantial one. We see no such administrative convenience. The learred Solici-tor-General, next contended that the classification can be iustified on the basis of past legislative practice and history. In this con-nection he invited our attention to the fact that before this country got independence, the income of the persons in the service of the government but serving outside British India such as in Baluchi-stan, or native States was subject to tax under th~ Indian lncomc Tax laws though other persons residing in those places were not subject' to the income tax .laws in force in Briti>h India. The LlfJ Slip Cl.167~12

reason for the same is that the Indian legislature had no legislative competence to tax the residents of those areas, but it had com-pdence to tax the income of the persons in government service dtough they might be serving outside British India.

The learned Solicitor-General next invited our attention to notification issued by the Government of India as long back as 6-6-1890, under which the income earned by members of certain scbcduled tribes other than those ·serving under the government was exempted from income tax. He also invited our attention to Finance department Notification No. 788F dated 21-3-1922 under which the income of indigenous hill men other than persons in the service of government, residing in certain areas were exempt from tax. On the basis of those notifications, he wanted us to spell out well recognised legislative practice and history under which the government servants as .class were excluded from the benefit of income tax exemption extended to other persons simi-larly situated. In this connection, he placed reliance on the de-cision of this Court in Naro/tam Kishore Dev Varma and Ors. v. Union of .India and Aoorher('). Therein this Court was called upon to consider the validity of s. 87B of the Code of Civil Procedure which prescribed that Ruler of former Indian State cannot be sued in any court otherwise competent to tfy the suit except with the consent of the Central Government certified in writing by Secretary to the Government. The validity of that provision was challenged on the basis of Art. 14. This Court up-held the validily of that provision having regard to the /egislative and historical background of that provision, but at the same time observed that considered in the light of basic principles of equality before law, it would be odd to allow the section to continue pros-pectively for all time lo come. After setting out the legislative background of that provision, this Court observed :

"The legislative background to which we have re-ferred cannot be divorced from the historical back-ground which is to be found for instance, in Art. 362. This Article provides that in the exercise of the power of Parliament or of any legislature of any State to make laws or in the exercise of the executive power of the Union or of State, due regard shall be had to the guarantee or assurance given under any such covenant or agreement as is referred to in clause (I) of Art. 291 with respect to the personal right~. privileges and digni-ties of Ruler of an Indian State. This has reference to the covenants and agreements which had been entered into between the Central Government and the Indian Princes before all the Indian Stales were politi-(1) [1964) 7 S.C.R. SS.

cally completely assimilated with the rest of India. The privilege conferred on the Rulers of former Indian States has its origin in these agreements and covenants. One of the privileges is that of extra territoriality and exemption from civil jurisdiction except with the sanc-tion of the Central Government. It was thought that the privilege which was claimed by foreign Rulers and Rulers of Indian States prior to the independence of the country should be continued even after independence was attained and the States had become part of India, and that is how in 1951, the Civil Procedure Code was amended and present sections 86, 87, 87A and 87B came to be enacted in the present form." In the background set out above this Court upheld the validity of s. 8 7B of the Code of Civil Procedure.We know of no legislative practice or history treating the gov-ernment servants as separate class for the purpose of income tax. The government servants' income has all along been treated in the same manner as the income of other salaried officers. We · do not know under what circumstances the notifications dated 6-6-1890 and 21-3-1922, referred to earlier, came to be issued. But they are insufficient to prove well established legislative practice. At the time those notifications were issued the power of the legislature to grant or withhold any exemption from tax was not subject to any constitutional limitation. Hence the vali-dity of the impugned provisions cannot be tested from what our legislatures or governments did or omitted to do before the Con-stitution came into force.. If that should be considered· as true test then Art. 13(1) would become otiose and most, if not all, of our constitutional guarantees would lose their content. Sri Setalvad learned counsel for the respondent is justified in his com-F ment that classification based on past legislative practice and his-tory does not mean that because. in the past the legislature was enacting arbitrary laws it- could do so now.

It was the contention of the learned Solicitor-General that ex-emption from income tax was given to members of certain sche-G duled tribes due to their economic and social backwardness; it is not possible to consider government servant as socially and eco· nomically backward and hence the exemption was justly denied to him. According to the Solicitor-General, once tribal becomes government servant he -is lifted out of his social environment and assimilated into the forward sections of the society and there-H fore he needs no more any crutch to lean on. This argument ,appears to us to be wholly irrelevant. The exemption in ques-' tion was not given to individuals either on the basis of their social status or economic resources. It was given to class. Hence

individuals as individuals do not come into the picture. We fail to see ia what manner the social status and economic resources of government servant can be different from that of another holding similar position in corporation or that of succcss-f ul medical practitioner, lawyer, architect, etc. To over-paint the picture of government servant as the embodiment of all power and prestige would sound ironical. Today his position in the society to put it at the highest is no higher than that of others who in other walks of life h:ive the ~ame income. For the purpose of valid classification what is required is not some imaginary diffe-rence but reasonable and substantial distinction having regard to the purpose of the law.It was lastly contended by the learned Solicitor-General-a contention which was not taken either in the return or before the High Court or in the appeal memo.-that it is not possible to strike down only portion of s. 4(3) (xxi) of the Indian Income Tax Act. 1922 and s. I 0(26) of the Income Tax Act, I 961, namely, the words "provided that such member is not in the service of gov-ernment"' found ins. 4(3)(xxi) of the Indian Income Tax Act, l 922 ar .. '. the words "who is not in the service of government" in s. I 0(26) of the Income Tax Act, 1961. as those words arc not sever-able from the rest of the provisions in which they appear. Further according to him it cannot be definitely predicated that the legis-lature would have granted the exemption incorporated in those provisions without the exception made in the case of government servants. Therefore if we hold that those provisions as they stand arc violative of Art. 14 then we must strike down the aforemen-tioned ss. 4(3)(xxi) and 10(26) in their entiretv. We .1rc unable to accept the contention that the words mentioned above are not severable from the rest of the provision in which they appear. They arc easily severable. Taking into consideration the reasons which persuaded the legislature to grant the exemption in question we have no doubt that it would have granted that exemption even if it was aware of the fact that it was beyond its competence to ex-clude the government 'ervants from the exemption in question.

For the reasons mentioned above this appeal is dismissed with cost;.

Appeal dismi.1sed.