TMI Blog1961 (8) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... r started a separate business on his own. Thereafter, the petitioner and his wife formed themselves into a partnership to carry on their business and admitted their three minor sons to the benefits thereof On September 22, 1952, a partnership deed was executed giving an equal share to each of the partners. On the basis of the partnership deed, in respect of the assessment year 1952-53 the petitioner filed two applications before the Income-tax Officer, Wardha, one under s. 25-A of the Act for recognizing the partition, and the other under s. 26-A for registration of the firm. Both the applications were finally ordered by the Income-tax Appellate Tribunal, Bombay, by its order dated September 3, 1958, that is, the parti. tion was recognized and the firm was granted registration. For the assessment years 1953-54 and 1954-55 also, the Income-tax Department registered the firm under s. 26-A of the Act. The assessment proceedings in respect of the said three years are pending before the concerned Income-tax authorities. For the assessment year 1955-56 also, the Income-tax Officer allowed the registration of the firm, but determined the total income of the petitioner at ₹ 2,44,625 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 54 of the Federal Legislative List ran : Taxes on income, other than agricultural income . The said Entry is identical with item 82 of List I of' the Seventh Schedule to the Constitution. The argument is that income-tax is a tax imposed upon a person in relation to his income and, therefore, A can only be taxed on his income and not oil the income of B Learned counsel for the respondents, oil the other hand, would contend that the express terms of the Entry did not restrict the legislative power to tax only the income of the person assessed, that what could be taxed under that Entry was in- come and, therefore, nothing prevented the legislature from imposing the incidence of the tax Oil a person other than the person whose income was to be assessed. Alternatively, he would make. a distinction between the taxability of the income and the machinery for its collection and contend that though the income of the wife and the minor sons was only'taxable, there was nothing illegal in imposing the immediate incidence on the father, as there was sufficient intimate nexus between the individual, his wife and minor sons, doing business in partnership, leaving the ultimate liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame time to evade income-tax which he would have otherwise been liable to pay. The Income-tax Enquiry Commission of 1936 made certain recommendation to prevent evasion of tax in such cases. The Legislature accepted those recommendations and the loopholes were sought to be plugged by enacting the said sub-section. Sub-section (3)(a)(1) and (ii) was therefore enacted for preventing evasion of tax and was well within the competence of the Federal Legislature. The constitutional validity of the said provision was next questioned on the ground that it violated the doctrine of equality before the law enshrined in Art. 14 of the Constitution. Under Art. 14, The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. But decisions of this Court permitted classification if there was reasonable basis for the differentiation. It was held that what Art. 14 prohibited was class legislation and not reasonable classification for the purpose of legislation. Two conditions were laid down for passing the test of permissible classification, namely,(i) the classification must be founded on an intelligible differentia which disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no classification between genuine and non-genuine cases: the classification is between cases of partnership between husband, wife and/or minor children, whether genuine or not, and partnerships between others. In demarcating a group, the net was cast a little wider, but it was necessary, as any further sub classification as genuine and Don-genuine partnerships might defeat the purpose of the Act. Strong reliance is. placed upon the decision of the Supreme Court of America, in Albert A. Hoeper v. Tax Commissioner of Wisconsin ((1931) 76 L. Ed. 248, 251.) and it is, therefore, necessary to consider it in some detail. There, the appellant married a widow. Both the parties had separate incomes and made separate returns. Under the relevant tax Act, the incomes of the wife were added to the-income of the husband for the purpose of taxation. The result was to increase the rate of the appellant's income-tax and to charge him with a tax otherwise payable by his wife. It was contended that the said law deprived the tax-payer of the due process and equal, protection of the law. Roberts, J., who expressed the majority view, accepted the contention and struck out the law. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fe in India, particularly if she be illiterate large majority of them are illiterate-would ordinarily be in economic matters a tool in the hands of her husband. Many things are done in her name without her knowledge of the same. When the Legislature of this country, which is assumed to know the conditions of the people and their requirements, with the awareness of this particular widespread fraudulent device in the matter of evasion of taxes, made a law to prevent the said fraud, it is difficult for this Court in the absence of any counterbalancing circumstances to hold, on the analogy drawn from American decisions, that the need for such a law is not in existence. On the contrary there is a direct decision of the Madras High Court in B. M. Amina Umma v. Income Tax Officer, Kozhikode ((1954) 26 I.T.R. 137,150.) sustaining the said provision on the ground of reasonable classification. Rajagopalan, J., speaking for the division bench, after considering the relevant decisions on the subject, observed thus : The reasonableness or otherwise of a classification has to be decided with reference to all the circumstances of the case including the social and economic structure prevalent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and plain reading of the said provisions makes it abundantly clear that a law which is inconsistent with any of the provisions of Part III is void. It cannot be denied that a law providing for levy and collection of taxes is a law within the meaning of Part III of the Constitution, and therefore it must stand the test laid down by Art. 13 of the Constitution. The 'law' in Art. 265 of the Constitution must be a valid law. A law to be valid must not only be one passed by the Legislature in exercise of a power conferred on it, but must also be one that does not infringe the fundamental rights declared by the Constitution. When a licence fee was imposed by a municipality under a bye-law framed in excess of the power conferred on it by the provisions of the U. P. Municipalities Act, this Court in Mohammad Yasin v. The Town Area Committee, Jalalabad((1952) S.C.R. 572.) held that the enforcement of the said bye-law against a citizen constituted an infringement of his right under Art. 19 (1)(g) of the Constitution. Where a State sought to impose sales-tax in exercise of a power conferred under a provision which was ultra vires the State Legislature, this Court held in Himmatlal Har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the restrictions are not reasonable for the following reasons (1) the husband is made to pay tax on the income which his wife derived from the business, that is, a tax is levied on one person on the income of another ; (2) such an imposition 'not only prevents a husband from taking his wife as a partner in his business but also prevents a wife, who has got a business 'of her own, from taking her husband as a partner in the business ; (3) the husband has to pay a tax at a rate higher than that he would have to pay if the income of the wife was not added to his income ; (4) the same situation is created inter se between a parent and his minor children vis-a-vis their joint business. Learned, counsel, therefore, contended that the provisions prevented the honest pooling of resources of the members of a family so intimately connected with each other to the detriment of the family prosperity, and that it amounted to an unreasonable restriction on the said fundamental rights. There is some plausibility in this argument, but if an overall picture of the situation is taken, the reasonableness of the restrictions will be apparent. In the State of Madras v. V. G. Row ((1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
