TMI Blog1984 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, as the II accountable person " under the Estate Duty Act of 1953 (Central Act 34 of 1953) (" the Act "), filed a return before the Assistant Controller of Estate Duty, Hubli (" the Assistant Controller "), declaring the value of the estate passing on the death of her husband at Rs. 1,73,770. On June 15, 1971, the Assistant Controller completed his assessment (exhibit-1) in which he included a sum of Rs. 1,53,303 as the share value of the lineal descendants of the Hindu undivided family for rate purposes under section 34(1)(c) of the Act and levied estate duty on the petitioner on that basis. Against the said order of the Assistant Controller, the petitioners filed an appeal in Appeal No. EDA 11 of 1971-72/HBL before the Appellate Controller of Estate Duty, Southern Zone, Madras (" the Appellate Controller "), who by his order dated October 31, 1972 (exhibit-2), disposed of the same giving certain minor reliefs with which we are not now concerned, but declining to interfere with the aggregation of the share value of the lineal descendants, with which alone we are now concerned. In this petition under article 226 of the Constitution, the petitioner has challenged the validity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of an undivided coparcener (leaving lineal descendants) of a Mitakshara joint family to a higher duty than would have been normally levied under the charging section, it is respectfully submitted, infringes article 14 of the Constitution. It is also unreasonable to fix the rate of tax with reference to the interest of the lineal descendants of the deceased in the case of Mitakshara Hindu joint family when that interest admittedly does not pass on the death of a deceased. There is no reasonable nexus between the object of the statute and the levy of the duty on the principle of aggregation. " Sri Sarangan has urged that section 34(1)(c) of the Act that chooses only the share value of lineal descendants of a Hindu undivided family for aggregation and consequent levy of higher duty under the Act, was violative of article 14 of the Constitution. In support of his contention, Sri Sarangan has strongly relied on a Division Bench ruling of the Madras High Court in V. Devaki Ammal v. Assistant Controller of Estate Duty [1973] 91 ITR 24. Sri K. Srinivasan, learned senior standing counsel, appearing for the Revenue, refuting the contention of Sri Sarangan, has urged that the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appear to be justified. Other amendments have been proposed to clarify assessment procedure, to facilitate collection of duty and also to provide for two appellate authorities. These latter amendments seek to bring the provisions of the Estate Duty Act, 1953, in line with those of the Indian Income Act, 1922, the Wealth-tax Act, 1957, and the Expenditure-tax Act, 1957. 2. The Notes on Clauses explain the object underlying each of the important amendments proposed in the Bill. " The notes to clause 17 of the Bill setting out the specific reasons for substitution of section 34 and the introduction of section 34(1)(c), which is material for our purpose, read thus : "Clause 17 redrafts the provisions relating to aggregation for determining the rate of estate duty so as to bring under aggregation the interests in the joint family property of the lineal descendants of the deceased member as well." The bill was referred to a select committee which did not make any modification or recommendation for the substitution of section 34 and the introduction of section 34(1)(c) thereto, though it suggested various modifications to other provisions of the Bill. The said Bill passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family governed by the Mitakshara, Marumakkattayam or Aliyasantana law as also the interests in the joint family property of the lineal descendants of the deceased member. Under the Act, as it originally stood prior to its amendment by the Amending Act, there were two rates of estate duty, one in the case of property, which consists of an interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law (vide Part I of the Second Schedule to the Act) and the other in the case of other properties (vide Part II of the Second Schedule to the Act). In the case of properties falling under Part 1, the first slab exempt from duty was Rs. 50,000 and in the case of properties falling under Part II, the first slab exempt from duty was Rs. 1,00,000. The Amending Act abolished these distinctions and differences, introduced a uniform first exemption slab at Rs. 50,000 and section 34(1)(c) of the Act (vide Notes on Clause 30 of Bill No. 18 of 1958, page 339 of Gazette of India (Extraordinary) dated February 28, 1958). In the later amendments, the exemption limits have been raised. But, that does not make any difference on the scope and ambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1951 SC 318, State of West Bengal v. Anwar Ali Sarkar [1952] SCR 284 ; AIR 1952 SC 75, Kathi Raning Rawat v. State of Saurashtra [1952] SCR 435; AIR 1952 SC 123, Lachmandas Kewalram v. State of Bombay [1952] SCR 710; AIR 1952 SC 235, Qasim Razvi v. State of Hyderabad (1953] SCR 589; AIR 1953 SC 156 and Habib Mohamad v. State of Hyderabad [1953] SCR 661 ; AIR 1953 SC 287. It is, therefore, not necessary to enter upon any lengthy discussion as to the meaning, scope and effect of the article in question. It is now well-established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification, two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of this court in which the above principles have been enunciated and applied by this court will also show that a statute which may come up for consideration on a question of its validity under article 14 of the Constitution may be placed in one or other of the following five classes : (i) A statute may itself indicate the persons or things to whom its provisions are intended to apply and the basis of the classification of such persons or things may appear on the face of the statute or may be gathered from the surrounding circumstances known to or brought to the notice of the court. In determining the validity or otherwise of such a statute, the court has to examine whether such classification is or can be reasonably regarded as based upon some differentia which distinguishes such persons or things grouped together from those left out of the group and whether such differentia has a reasonable relation to the object sought to be achieved by the statute, no matter whether the provisions of the statute are intended to apply only to a particular person or thing or only to certain class of persons or things. Where the court finds that the classification satisfies the tests, the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embrancer of Legal Affairs [1955] 1 SCR 224; AIR 1954 SC 424. (iv) A statute may not make a classification of the persons or things for the purpose of applying its provisions and may leave it to the discretion of the Government to select and classify the persons or things to whom its provisions are to apply but may at the same time lay down a policy or principle for the guidance of the exercise of discretion by the Government in the matter of such selection or classification; the court will uphold the law as constitutional, as it did in Kathi Raning Rawat v. State of Saurashtra, AIR 1952 SC 123. (v) A statute may not make a classification of the persons or things to whom their provisions are intended to apply and leave it to the discretion of the Government to select or classify the persons or things for applying those provisions according to the policy or the principle laid down by the statute itself for guidance of the exercise of discretion by the Government in the matter of such selection or classification. If the Government in making the selection or classification does not proceed on or follow such policy or principle, it has been held by this court, e.g., in Kathi Rani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. ' As Rottschaefer said in his Constitutional Law at p. 668 `" A statute providing for the assessment of one type of intangibles at its actual value while other intangibles are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax." The decisions of the Supreme Court in this field have permitted a State Legislature to exercise "an extremely wide discretion" in classifying property for tax purposes " so long as it refrained from clear and hostile discrimination against particular persons or classes"' Emphasis (herein " ") added). The burden is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. It is not proved to us how the different plantations can be said to be 'hostilely or unequally' treated. A uniform wheel tax on cars does not take into account the value of the car, the mileage it runs, or in the case of taxis, the profits it makes and the miles per gallon it delivers. An Ambassador t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an exception to this doctrine: vide Purshottam Govindji Halai v. Shree B. M. Desai [1955] 28 ITR 891; 2 SCR 887; AIR 1956 SC 20 and Kunnathat Thathunni 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 elements, permit a larger discretion to the legislature in the matter of classification so long as 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.' In S. Kodar v. State of Kerala, AIR 1974 SC 2272, a Constitution Bench of the Supreme Court has expressed that the economic wisdom of a tax was within the exclusive province of the Legislature. Bearing these principles, it is necessary to examine the challenge of the petitioners based on article 14 of the Constitution. We have earlier noticed the history and object of legislation leading to the introduction of section 34(1)(c) and its true scope and ambit also. Mulla in his Treatise on Principles of Hindu Law, 15th edit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n incidents of the joint family. According to the. Mitakshara law, each son acquires at his birth an equal interest with his father, and on the death of the father, the son takes the property, not as his heir, but by survivorship. The position of the son or grandson in the Mitakshara is somewhat similar to that of sui heredes who under the Roman law are regarded as having a sort of dormant ownership in the estate of their father even during his lifetime. Their succession was not so much succession as coming into the enjoyment of what in a sense had already partly belonged to them. According to the Dayabhaga school, the son does not acquire any interest by birth in ancestral property. His rights arise for the first time on the father's death. On the death of the father, he takes such of the property as is left by the father, whether separate or ancestral, as heir and not by survivorship. Partition is another branch of law on which there is some radical difference between the two principal schools." The Act as also the Hindu Succession Act of 1956 have not interfered with a Hindu undivided family, though the latter has made certain inroads in the traditional law of succession. Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's case [1970] 76 ITR 402 (Mad), which had upheld the validity of the provision rejecting the very ground urged before them, has invalidated the same. The question is whether the principle in Devaki Ammal's case should be accepted. We have stated earlier that the construction placed by their Lordships in Devaki Ammal's case [1973] 91 ITR 24, on the scope and ambit of section 34(1)(c) is not in accord with that provision and the Full Bench ruling of this court in Andal Thayaramma's case [1985] 151 ITR 197 (Kar). With respect to their Lordships, we are of the view that the erroneous construction placed on the provision has necessarily led to an erroneous conclusion on the challenge based on article 14 of the Constitution. Even otherwise, every one of the reasons on which we have sustained the provision but have not been noticed and examined by their Lordships in Devaki Ammal's case [1973] 91 ITR 24 (Mad), compel us, with respect, to dissent from the views expressed by their Lordships in that case and we do so accordingly. On the foregoing discussion, it follows that the challenge of the petitioners to section 34(1)(c) of the Act based on article 14 of the Constitution has no mer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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