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TMI Blog1980 (7) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... by sub-para. II mentioned above. The petitioner claims that till the year 1974 various Finance Acts passed by the Union of India used to lay down rates for computing income-tax and surcharge which were uniformly applicable to all assessees. However, the Finance Act, 1974, laid down two different sets of rates mentioned in sub-para. I and sub-para. II of Pt. A to the First Schedule. Whereas, the rates mentioned in sub-para. I were to be applied in the cases of every individual, HUF (other than that mentioned in sub-para. II) registered firm or other association of persons or body of individuals, whether incorporated or not and every artificial person referred to in s. 2(31)(viii) of the Income-tax Act, sub-para. II laid down the rates applicable to an HUF which at any time during the previous year had at least one member whose total income of the previous year relevant to the assessment year commencing on April 1, 1974, exceeded Rs. 5,000. The rates so prescribed is in sub-para. I. Learned counsel for the petitioner contends that the prescription of higher rates for the taxation of an HUF of which at least one member had an income above Rs. 5,000 is unconstitutional for the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of making the provisions of the Hindu Gains of Learning Act otiose. Before the Hindu Gains of Learning Act, 1930, was passed, the legal position was that income earned by a member of a joint family by the practise of a profession or occupation requiring special training was considered to be joint Hindu family income, if such training was imparted at the expense of the joint family. The Hindu Gains of Learning Act, 1930, however, provided that notwithstanding any custom or rule or interpretation of Hindu law, no gains of learning shall be held not to be the exclusive or separate property of the member of joint Hindu family who acquires them, merely by reasons of his learning having been in whole or in part, imparted to him by any member, living or deceased, of his family or with the aid of joint funds of his family or with the aid of the funds of any member thereof, or for the reasons that he himself or his family having, while he was acquiring such learning, been maintained or supported wholly or in part by joint funds of his family or by the funds of any member thereof. The position that gains of learning shall continue to be the gains of the person concerned, has not been affect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons, methods and even rates for taxation if it does so reasonably ...... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation'. In the case of Ram Krishna Dalmia v. S. R. Tendolkar AIR 1958 SC 538, it has been held that art. 14 does not forbid the State from making classification of and differentiation between persons and things, and that in order to have permissible classification the State is required to fulfil two prerequisites; firstly, the classification must be founded on reasonable differentia, and secondly, the differentia must have a reasonable nexus with the object sought to be achieved by the Act. In the case of Venugopala Ravi Varma v, Union of India [1969] 74 ITR 49, it was held that it is not essential for the validity of a tax that it must attain absolute equality and abstract justice, the reason being that it is unattainable in tax proceedings. Determination of the rate at which certain tax should be levied is incidental to the powers of imposition of tax. Field for the exercise of larger discretion has been admitted for this branch as well on the same principle that " absolute or perfect equality or unif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecting the persons or objects it would tax and a statute is not open to attack on the ground that it taxes some persons and objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. It is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification." We now proceed to consider the submission made by the learned counsel for the parties keeping in view the ratio of the afore-mentioned decisions. The I.T. Act treats the following as assessable entities: 1. An individual. 2. Hindu Undivided Family (HUF). 3. A company. 4. A Firm. 5. An association of persons or body of individuals whether incorporated or not. 6. Local authority, and 7. Every artificial juridical person not falling under any of the categories mentioned above. Sub-paragraph I of Para. A of the First Schedule to the Finance Act, 1974, lays down the rates for the following categories of assessees: 1. Individual 2. HUF (other than an HUF of which at least one member had total income excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kinds of HUFs in the Finance Act, 1974, was meant to nullify such an advantage being obtained by members of HUFs. It was further pointed out in the counter-affidavit that the HUF, as a unit of assessment, was being retained in most cases only when it enabled the persons concerned to reduce their tax liability and in other cases, the family property was partitioned without considerations of sentiments coming in the way. If a stepped up slab rate is made applicable to an HUF, which had at least one member with independent income above the maximum not liable to tax, it would serve, as pointed out by the Wanchoo Committee, to cast a more equitable tax burden on the family and would render " ineffective various techniques of the avoidance adopted by the Hindu undivided family and its members ". It would also, to quote the Wanchoo Committee, "put an end to the widely prevalent practice of simultaneously claiming two status, viz., that of a Hindu undivided family and individual ". Having regard to these objects, the classification involved in the proposal appears to be both well defined and properly connected with the objects. Reliance was also placed on the following observations ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s chargeable on his total income of an amount equal to income-tax calculated at the average rate of income-tax on the amount on which no income-tax is payable. It thus appears that although the profits, etc., received by an individual from a firm and other association of persons of which he is a member, other than an HUF, is exempt from tax in his hand, yet it is included in his income for rate purposes as provided in s.110. The position of the amount received by a member of a joint Hindu family as a result of sharing the profits of the Joint family business, however, is different. Section 10(2) of the Act lays down: " In computing the total income of previous year of any person, any income falling within any of the following clauses shall not be included... 1. ... 2. Subject to the provisions of sub-section (2) of section 64.-any sum received by an individual as a member of Hindu undivided family where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family." It thus appears that in respect of the income derived by an HUF, whether any tax is paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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