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TMI Blog2000 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Goa and in the Union Territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head 'Salaries') shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly. (2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head 'Salaries', such income shall be included in the total income of the spouse who has actually earned it." The petitioners contended that the said section excluded in its operation salaried persons which, has no legal justification. All other citizens who are domiciled in Goa and to whom the Portuguese Civil Code of 1860 was applicable are governed by the system of community of property. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1109 enlists what is excluded from the communion. The Division Bench noted that the income of the estate is not what has been excluded under article 1109 of the Portuguese Civil Code and this court has held that a social system which has existed for a long time in the territory has to be recognised and given meaning-while making assessment under the Income-tax Act also. Therefore, this court held that : ". . . having regard to the relevant provisions of the Portuguese Civil Code and article 10 of the Commercial Code, the respective half shares of the husband and wife in the income from the house property which is the property of the communion of the husband and wife married according to the custom of Goa, should be assessed separately in equal shares in the hands of each of them, and not in the hands of 'the body of individuals' of the communion of husband and wife, for the relevant assessment year." In 1983, another Division Bench of the Bombay High Court in Addl. CIT v. Mr. and Mrs. Valentino F. Pinto 119841 150 ITR 408 held that the income from business run by the communion of the husband and wife married as per the custom of Goa should be assessed separately in equal shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of this court has been stated thus : "In view of the foregoing discussion, we are of the clear opinion that the communion of husband and wife married under the custom of Goa and governed by the Portuguese Civil Code constitutes 'a body of individuals' for the purposes of the Income-tax Act and it will have to be decided in respect of each head of income whether the income has accrued or arisen to the body of individuals as such or to its members individually ... It may also not be out of place to mention here that the fact that a particular combination of persons has been held to be a body of individuals or association of persons in respect of a particular activity, does not mean that it will be so in respect of all activities or income therefrom. The status may vary from activity to activity. This aspect of the matter has been dealt at length by us in an earlier decision in CIT v. Shiv Sagar Estates (AOP) [1993] 201 ITR 953 (Bom), Income-tax Reference No. 231 of 1977, dated 17/18th December, 1992. It is observed thus : 'A person or group of persons may work in more than one capacity. The Income-tax Act clearly recognises dual capacity of a person or a group of persons. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case was the husband and that being so, it was assessable in the manner laid down in sections 15 to 17 of the Act, in his hands alone and no part of it can be assessed in the hands of the wife. The interest of the wife in the said income by virtue of the customary law may, at the most, amount to application of income after it has accrued or arisen to the husband who is the employee. Serious anomalies would arise if we were to agree with the contention of the assessee that income from salary derived by one person is to be treated as income derived by two persons, because in that case, the person who is not an employee, who does not have anything to do with the employer and does not receive anything from him, will be deemed to be in receipt of salary from the employer and will also be entitled to standard deduction which is intended to cover expenses incidental to the earning of such income. It may also be observed that though the standard deduction is expressed in terms of percentage of the salary, there is a ceiling fixed for such allowance. If the income is assessed in the hands of the husband and wife separately, both of them would be entitled to claim standard ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Usgaonkar, has contended that the sole purpose of bringing about the amendment to the Income-tax Act by introducing a new section, section 5A, is to recognise the principle of community of property and extend the benefit of sharing the income individually between the husband and wife. In that exercise Parliament has discriminated against the salaried income by excluding that income from the manner of assessment laid down under section 5A. According to him, the classification made in respect of salaried income is not based on any intelligible differentia and, therefore, the salaried persons have been subjected to hostile treatment. Therefore, section 5A, to the extent it excludes in its fold the salaried income, is liable to be quashed as it is violative of article 14 of the Constitution of India. Learned counsel for the petitioners, Mr. Usgaonkar, also challenges the retrospectivity given to that section. Learned counsel for the petitioners demonstrated before us as to how a salaried person is aggrieved if he is excluded from the application of principle of community of property in the matter of assessment. He emphasised that there is no justification at all for such exclusion w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 50,000 1,50,000 ------------------------ Tax due : Nil 21,000." ---- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heads. These heads are in a sense exclusive of one another, and income which falls within one head cannot be assigned to, or taxed under, another head." Therefore, the contention of counsel is that though section 14 denotes separate heads of sources of income, in reality and in law all this is income and one head of income cannot be discriminated or taken away or excluded for a different treatment from another head. Learned counsel further argues if once Parliament recognises the principle of community of property, salary alone cannot be excluded for computing the income of husband and wife. He relied upon the observations made by this court in the case of Mr. and Mrs. Valentino F. Pinto [1984] 150 ITR 408 and also in the case of CIT v. Purushotam Gangadhar Bhende [1977] 106 ITR 932 (Bom). He also brought to our notice a Supreme Court decision in Ram Krishna Dalmia v. Justice S. R. Tendolkar, AIR 1958 SC 538, wherein it was held thus : " 'It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purpose of legislation. In order, however, to pass the test of permissible classification two conditions must be fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. The above principles will have to be constantly borne in mind by the court when it is called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws." A close perusal of the decision of this court, according to counsel for the petitioners, will go to show that there is no circumstance or justification for Parliament to exclude salary when the existing conditions in the territory of Goa were recognised by Parliament and that recognition is reflected in enacting section 5A and the exclusion of salary under any parameters laid down by the Supreme Court as aforesaid is not justified. He also cited a decision of the Supreme Court in S. K. Dutta, ITO v. Lawrence Singh Ingty [1968] 68 ITR 272 ; AIR 1968 SC 658. In that case the Supreme Court was examining the validity of certain exemptions given to Government servants in the matter of assessment. In that context, the Supreme Court has held : "8. It is not in dispute that taxation laws must als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the nature and fertility of the land, income or potentiality, etc. The Supreme Court observed in para graph 8 as follows : "8. It is common ground that the tax, assuming that the Act is really a taxing statute and not a confiscatory measure, as contended on behalf of the petitioners, has no reference to income, either actual or potential, from the property sought to be taxed. Hence, it may be rightly remarked that the Act obliges every person who holds land to pay the tax at the flat rate prescribed whether or not he makes any income out of the property, or whether or not the property is capable of yielding any income. The Act, in, terms, claims to be 'a general revenue settlement of the State'." Learned counsel for the petitioners has demonstrated in the illustration, that the exclusion of salaried persons partakes the character of confiscatory nature and, therefore, liable to be struck down. Learned counsel for the petitioners further submits that having selected a group of persons, without any classification based on intelligible differentia, making further classification among them is arbitrary and irrational. He referred to an observation of the Supreme Court in Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense above mentioned . . . It is well-settled that the latitude for classification in a taxing statute is much greater ; and, in order to tax something, it is not necessary to tax everything. These basic postulates have to be borne in mind while deter mining the constitutional validity of a taxing provision challenged on the ground of discrimination." Mr. Usgaonkar further contended that salaried persons cannot be a separate class for having a separate treatment in the hands of the Legislature. Learned counsel also submitted that since a hostile treatment has been meted out against the salaried persons and liability is cast in the matter of assessment of income-tax than the other group envisaged under section 5A, that section should not have been given retrospective effect. Therefore, this section so far as it ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en stated by respondent No. 2 is that valid reason has been stated by this court in the case of Modu Timblo [1994] 206 ITR 647 for treating separately the salaried persons and the law laid down by this court in that decision is binding. A legal formula has been demonstrated by this court in that judgment and Parliament has recognised that principle in order to exclude the salaried persons from the operation of section 5A of the Income-tax Act. Therefore, the exclusion of salaried persons cannot be assailed on the basis that the classification made for a special treatment of the salaried persons is not made on intelligible It differentia. Learned counsel for respondents Nos. 2 and 3 further submitted that the classification particularly in taxation laws need not be logical. Many times it appears to be harsh. He drew our attention to the observations of the Supreme Court in Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36, wherein Shri Krishna Iyer J. observed thus : "The final shot fired to bring down the fiscal levy on the score of ultra vires is from the customary barrel of article 14. A multi-pronged attack, based on article 14, was launched. The levy cast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en though prime facie the arguments of counsel for the petitioners, Mr. Usgaonkar, appear to be attractive, dwelling on it in a deeper plane, we think it otherwise, because we are dealing with a fiscal statute. The reasons stated for assailing the exclusion of salaried persons from the operation of section 5A is not based on any legal ground. As we indicated earlier, but for section 5A all the citizens in Goa are liable to be taxed under the provisions of the Income tax Act like any other citizen in the other parts of the country. Because of the historical background and social conditions and also because for centuries together the people of the State of Goa have been separated from the main stream of the nation, Parliament thought it fit to enact section 5A. Viewing in that prospective we are of the opinion that section 5A provides certain concessions to the Goan people at the stage of assessment of income-tax. In other words, after considering and treating all the heads of income separately and computed under section 14 of the Income-tax Act at the time of assessment or levying the tax, another manner of computation has been introduced for fixing tax liability in respect of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nteed by article 14 of the Constitution." Therefore, the contention of the petitioners is that they were also to be included in the category for giving benefit of assessment by sharing the income between the spouses is a matter of policy. That policy may not fit in the square of logic. As contended by respondent No. 2 in the reply there is a discernible dissimilarity between the salaried persons and the other persons as has been exposed by the Division Bench of this court in the case of Modu Timblo [1994] 206 ITR 647. According to us, Parliament is justified in grouping the salaried persons as separate and distinct in that context. One has to understand the reality and practical problems in making the classification particularly in taxation laws. Take for example in Goa in a Central Government office there may be employees who are coming from other States and also employees who are citizens of Goa. All are receiving salary equally and their salaries and service conditions are equal and similar. All the salaried people are entitled to compute their income under the provisions of the Income-tax Act. It is difficult or it is not practical for Parliament to discriminate that salaried ..... X X X X Extracts X X X X X X X X Extracts X X X X
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