TMI Blog2019 (12) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind the role played by them in discharging the sovereign obligation of the State to provide education, despite the economic limitations faced by them. It is trite that Government and Government Aided Educational institutions are subjected to a different system of control when compared to Unaided Educational institutions that do not function under the restrictions imposed on the former category in respect of collection of fees and payment of salaries/wages to teaching and non-teaching staff. The classification brought about is between unequals, and when viewed against the objective of the provision granting exemption, which is to provide relief from the financial burden imposed through taxation, it cannot be said that the classification effected has no nexus with the object sought to be achieved by the legislature through the exemption provision. The challenge to the assessment orders, demand notices and revenue recovery notices would also have to be dismissed, there could be cases where assessees want to prefer statutory appeals against the quantification of their tax liability - the assessment orders, demand notices and revenue recovery notices impugned in these writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................................................. (b) building exclusively used for educational purposes or allied purposes under the ownership of educational institutions owned by the Government, aided or functioning with the financial assistance of the Government and the hostel buildings wherein the students of the said institutions reside; 3. It is the case of the petitioners that inasmuch as their educational institutions are not housed in buildings owned by the Government or aided or functioning under the financial assistance from the Government, they are denied the benefit of the exemption granted under the Acts. They therefore impugn the exemption provision as discriminatory inasmuch as it discriminates between Government/aided educational institutions on the one hand, and unaided educational institutions on the other. It is pointed out that unaided educational institutions were not liable to pay tax under the Act till 7.10.2009, when the exemption provision was amended to exclude the said institutions from the ambit of the exemption. It is also pointed out that some of the educational institutions were established at a time when the buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial assistance of the Government which are exempted. It is submitted that those are supported by the Government and their exemption from the payment of property tax cannot be held to be invalid. 10. It is submitted that it can be said that buildings and hostel constructed and maintained by using public money are exempted from payment of property tax and the people as a whole are the beneficiary of this exemption. If property tax is imposed on buildings and hostels owned by the Government, that amount also will be met from the public fund. More importantly, exemption given to the institutions, functioning under the administrative control of the Government are subject to Government auditing of funds and expenditure and it is a statutory process in Government institutions unlike in the case of self-financing institutions. 11. As property tax is one of the main sources of revenue of Local Self Government Institutions, more exemption of property tax for unaided or private educational institutions and for those educational institutions including professional colleges in the higher education sector may lead to huge financial loss to Local Self Government Inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s while examining a challenge to a statutory provision on the ground of discrimination. In the decision in Ram Krishna Dalmia v. Justice S.R. Tendolkar [1959 SCR 279], the Court enumerated the principles thus: The principle enunciated above has been consistently adopted and applied in subsequent cases. The decisions of this Court further establish - (a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognise degrees of harm and may confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i v. B. N. Desai, 1955-2 SCR 887: ( (S) AIR 1956 SC 20) and K.T. Moopil Nair v. State of Kerala, 1961- 3 SCR 77 : (AIR 1961 SC 552). But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse element, permit a larger discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways. (8) .............................. ........................... ............................ (9) .............................. ........................... ............................ (10) But it is said that the mode of ascertaining the average annual income for the purpose of finding the rate is arbitrary and unreasonable and that discrimination is inherent in such a law adopting such arbitrary process. This argument is elaborated thus: The major income of the petitioner's family is from arecanut, pepper and coconut; the said crops are gathered between the months of No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory demands of legislative specialization and constitutional generality by a doctrine of reasonable classification. [See Joseph Tussman and Jacobusten Brook The Equal Protection of the Law, 37 California Rev 341] . 54. A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase similarly situated mean? The answer to the question is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons who are similarly situated with respect to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good. 55. A classification is under-inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metry, that exact wisdom and nice adaption of remedies cannot be required, that judgment is largely a prophecy based on meagre and uninterpreted experience, should stand as reminder that in this area the Court does not take the equal protection requirement in a pedagogic manner [ See General Theory of Law and State , p. 161] . 67. In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. [See General Theory of Law and State , p. 161] xxx xxx xxx 71. The Court must be aware of its own remoteness and lack of familiarity with local problems. Classification is dependent on the peculiar needs and specific difficulties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or equally circumstanced. In the case of State of U.P. v. Deoman Upadhyaya [AIR 1960 SC 1125 : 1961 (1) SCR 14 : 1961 (2) SCJ 334] Subba Rao, J., observed as follows: No discrimination can be made either in the privileges conferred or in the liabilities imposed. But these propositions conceived in the interests of the public, if logically stretched too far, may not achieve the high purpose behind them. In a society of unequal basic structure, it is well-nigh impossible to make laws suitable in their application to all the persons alike. So, a reasonable classification is not only permitted but is necessary if society should progress. 9. In Venkateshwara Theatre v. State of A.P. [(1993) 3 SCC 677], where the legislature concerned had prescribed different rates of tax by classifying theatres into different classes, namely, air-conditioned, air-cooled, ordinary (other than airconditioned and air-cooled), permanent and semi-permanent and touring and temporary, it was contended that the classification effected was not perfect, in that, there could not be a further classification amongst theatres falling in the same class on the basis of the location of the theat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the law. 10. In Union of India and Others v. N.S. Rathnam and Sons [(2015) 10 SCC 681], while upholding the decision of a Division Bench of the High Court, which held that when the benefit of a concessional rate under the Customs Act is restored by a notification, there cannot be any discriminatory treatment to some persons who fall in the same category, it was observed as follows at paragraphs 13 and 14 of the said judgment: 13. It is, thus, beyond any pale of doubt that the justiciability of particular Notification can be tested on the touchstone of Article 14 of the Constitution. Article 14, which is treated as basic feature of the Constitution, ensures equality before the law or equal protection of laws. Equal protection means the right to equal treatment in similar circumstances, both in the privileges conferred and in the liabilities imposed. Therefore, if the two persons or two sets of persons are similarly situated/placed, they have to be treated equally. At the same time, the principle of equality does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstances in the same position. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel on behalf of the Petitioners that if at all real estate developers were to be brought within the clutches of the Code, being like operational debtors, at best they could have been brought in under this rubric and not as financial debtors. Here again, what is unique to real estate developers vis- -vis operational debts, is the fact that, in operational debts generally, when a person supplies goods and services, such person is the creditor and the person who has to pay for such goods and services is the debtor. In the case of real estate developers, the developer who is the supplier of the flat/apartment is the debtor inasmuch as the home buyer/allottee funds his own apartment by paying amounts in advance to the developer for construction of the building in which his apartment is to be found. Another vital difference between operational debts and allottees of real estate projects is that an operational creditor has no interest in or stake in the corporate debtor, unlike the case of an allottee of a real estate project, who is vitally concerned with the financial health of the corporate debtor, for otherwise, the real estate project may not be brought to fruition. Also, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon and included real estate developers as financial debtors. This being the case, it is clear that there cannot be said to be any infraction of equal protection of the laws. 12. On an analysis of the precedents referred above, and applying the principles discernible therefrom to the facts in the instant cases, it can be seen that the tax concessions envisaged under the Acts are intended to provide a level playing field for Government/aided educational institutions on the one hand and the self-financing educational institutions on the other. Tax concessions have been granted to the former category, keeping in mind the role played by them in discharging the sovereign obligation of the State to provide education, despite the economic limitations faced by them. It is trite that Government and Government Aided Educational institutions are subjected to a different system of control when compared to Unaided Educational institutions that do not function under the restrictions imposed on the former category in respect of collection of fees and payment of salaries/wages to teaching and non-teaching staff. In that sense therefore, this is not a case where there is an under-incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax is imposed on buildings and hostels owned by the Government, that amount also will be taken from the public fund. More importantly, exemption is given to the institutions, functioning under the administrative control of the Government and to which Governmental auditing of funds and expenditure is made compulsory, whereas, the case of self-financing institutions, such control and auditing of funds are absent. 9. Secondly, the expression 'self financing' itself shows that such institutions are having their own fee structure, which cannot be compared with fees of a Government College. Though, it is regulated and controlled by the above referred Statute, it is much higher than that of Government Colleges, wherein a nominal fee alone is collected from the students and certain rooms are reserved for students from socially and economically backward classes, in the hostels owned by the Government. In my view, this classification on the aforesaid basis is a rational one and there is an intelligible differentia in this classification. Self-financing Educational Institutions form a separate class, different from the Educational Institutions owned and financed or aide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of discrimination and hence, for the reasons stated in the said judgment, read together with the reasons given in this judgment, I dismiss the writ petitions in their challenge against the constitutional validity of Section 207(b) of the Kerala Panchayath Raj Act/Section 235(b) of the Kerala Municipality Act. While with the above declaration, the challenge to the assessment orders, demand notices and revenue recovery notices would also have to be dismissed, I note that there could be cases where assessees want to prefer statutory appeals against the quantification of their tax liability. I therefore quash the assessment orders, demand notices and revenue recovery notices impugned in these writ petitions only for the limited purpose of enabling the respondent Panchayats/Municipalities to issue fresh assessment orders and demand notices to the petitioners showing the basis of computation of tax and interest therein. On receiving fresh assessment order and demand notices, the petitioners may, if aggrieved by the computation aspects of the tax, approach the Appellate authorities under the Statute for a redressal of their grievances. Otherwise, the tax and interest shall be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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