TMI Blog1975 (3) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded by the decision of their Lordships of the Supreme Court in Union of India v. Harbhajan Singh Dhillon and, therefore, was not referred to the larger Bench. The learned counsel for the petitioner has not pressed question No. 2 mentioned above before us and has confined his arguments only to the following question: That the rate of additional wealth-tax imposed on urban assets is discriminatory and confiscatory and thus violative of articles 14 and 19(1)(f) of the Constitution. The petitioner, Colonel His Highness Raja Sir Harinder Singh Brar Bans Bahadur, Ruler of the former Faridkot State, owns various kinds of property mentioned in the petition. The year of assessment is 1970-71 and the valuation date is April 12, 1970--Chet 30, 2026 BK. For that year, the rate of wealth-tax in the case of every individual was as under: "(a) Where the net wealth does not exceed Rs. 1,00,000. Nil (b) Where the net wealth exceeds 1 per cent. of the amount by which the net Rs. 1,00,000 but does not exceed wealth exceeds Rs. 1,00,000; Rs. 5,00,000 (c) Where the net wealth exceeds Rs. 4,000 plus 2 per cent. of the amount Rs. 5,00,000 but does not exceed by which the not we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utional validity of the additional tax of Rs. 62,625 on the urban assets of the value of Rs. 15,37,502. The argument is that this additional tax is discriminatory and confiscatory and, therefore, violative of articles 14 and 19(1)(f) of the Constitution. The learned counsel for the petitioner, in order to support his argument on the basis of article 14 of the Constitution, has submitted that the object of taxation is wealth and whether it consists of urban assets or non-urban assets, the rate of tax must be the same and since urban assets have been subjected to a higher rate of tax, it has become discriminatory and, therefore, the provisions imposing additional tax on urban assets must be struck down as violative of article 14 of the Constitution. We find no merit in this submission in view of the authoritative pronouncements by their Lordships in V. Venugopala Ravi Varma Raja v. Union of India, at page 54, that: "Equal protection clause of the Constitution does not enjoin equal protection of the laws as abstract propositions. Laws being the expression of legislative will intended to solve specific problems or to achieve definite objectives by specific remedies, absolute equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'The Fourteenth Amendment was not designed to prevent a State from establishing a system of taxation or from effecting a change in its system in all proper and reasonable ways, not to require the States to adopt an iron clad rule of equality to prevent the classification of property for purposes of taxation or the imposition of different rates upon different classes.' Weaver again says at page 397: 'Class legislation is that which makes an improper discrimination by conferring particular privileges upon a class of persons, arbitrarily selected from a large number of persons, all of whom stand in the same relation to the privilege granted and between whom and the persons not so favoured no reasonable distinction or substantial difference can be found justifying the inclusion of one and the exclusion of the other from such privilege......A classification must not be arbitrary, artificial or evasive and there must be a reasonable, natural and substantial distinction in the nature of the class or classes upon which the law operates. In respect to such distinction, a legislative body has a wide discretion and an Act will not be held invalid unless the classification is clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belief of the legislature that capacity to pay the tax increases, by and large, with an increase of receipts. 'Certain it is that merchants have faith in such a correspondence and act upon that faith......If experience did not teach that economic advantage goes along with larger sales, there would be an end to the hot pursuit for wide and wider markets......In brief, there is a relation of correspondence between capacity to pay and the amount of business done. Exceptions, of course, there are. The law builds upon the probable, and shapes the measure of the tax accordingly......At the very least, an increase of gross sales carries with it an increase of opportunity for profit, which supplies a rational basis for division into classes, at all events when coupled with evidence of a high degree of probability that the opportunity will be fruitful.' (See the dissenting judgment in Stewart Dry Goods Co. v. Lewis, of Justice Cardozo, Justice Brandeis and Justice Stone). The reasoning of the minority in that case appeals to us as more in consonance with social justice in an egalitarian State than that of the majority. As we said, a large dealer occupies a position of economic supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rates with a maximum of 65 per cent. was imposed on domestic companies and it was held that the provisions of the Act were not violative of article 14 of the Constitution of India. It was held in Smt. Komanduri Seshamma v. Appellate Controller of Estate Duty that: "Merely on the ground that in a class, one gets an advantage over another in special and uncommon circumstances, a taxing statute cannot be struck down as offending article 14 of the Constitution, unless the law has singled out such person for a special treatment." In N. V. Somaraju v. Government of India, it was held that: "........while considering the provisions of article 14 of the Constitution, no precise or mathematical accuracy is contemplated and what is to be seen is overall equality given to the same class........" and "In matters of taxation it must be borne in mind that the legislature has greater freedom not only to classify the different persons or objects in regard to whom or which tax is to be levied but different modes of taxation can also be adopted." In the light of these legal propositions, which should be held to be well established, it can be safely said that urban assets, as defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of wealth in fewer hands and to provide revenue to the exchequer for carrying out its administration and socio-economic activities. The legislative trend is to impose a ceiling on all kinds of property, urban and rural, and if on urban assets a higher rate of wealth-tax is imposed, there is a reasonable nexus between the provision and the object of the Act. It should be remembered that in the same case their Lordships said that article 14 forbids class legislation and does not forbid reasonable classification for the purposes of legislation. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. In Kunnathat Thathunni Moopil Nair v. State of Kerala, their Lordships said in paragraph 7 of the report as under: "The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, hold that the provision of the Wealth-tax Act imposing additional tax on urban assets is not violative of article 14 of the Constitution and is perfectly valid and intra vires. The submission of the learned counsel for the petitioner that wealth-tax is confiscatory in nature because it is levied as a percentage of the capital value of the net wealth and not as a percentage of the annual letting value thereof, has no merit. I have already said above that the learned counsel does not challenge the levy of wealth-tax which is also a percentage of the capital value of all assets constituting the net wealth of an assessee but only challenges the additional tax levied on urban assets. The mode of tax is thus the same and if it is not challenged in one case, it cannot be challenged in the other. It is not a universal rule that every tax on property must be levied as a percentage of its annual letting value. The wealth-tax is on the net wealth possessed by an individual or a Hindu undivided family or any other assessee mentioned in the Act and, therefore, it has to be imposed as a percentage of the capital value of that net wealth. It was held by their Lordships in Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is confiscatory in nature. According to the above decision, wealth-tax is levied on the total assets constituting the net wealth of the assessee and not on each component of such assets. The yield of income from each component asset cannot, therefore, be a criterion for imposing tax on that asset. I have already pointed out above that in the case of the petitioner, the wealth-tax under the Act is to be levied on his net wealth of about Rs. 80 lakhs as disclosed by him which will amount to Rs. 4,11,625 including the additional tax. The additional tax amounting to Rs. 62,625 on urban assets of the value of Rs. 15,37,502 forms only a small fraction of the total amount of wealth-tax payable by the petitioner. It should not be difficult to pay that tax out of the wealth that is possessed by the petitioner and even if a part of the assets has to be sold to meet that liability, the tax imposed under the Act does not become confiscatory or violative of article 19(1)(f) of the Constitution on that ground. It cannot be universally said that urban assets are non-productive of income in the case of every assessee. Even in the case of the petitioner they are deemed to yield income to him as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay. The learned counsel has laid stress on the words "capacity to pay". A person having wealth worth Rs. 80 lakhs certainly has the capacity to pay Rs. 4,11,625 on account of tax thereon. The entire wealth is not unproductive and the petitioner himself has shown that he has an income of about Rs. 5 lakhs. To reinforce his argument, the learned counsel has relied on the Supreme Court decision in Kunnathat Thathunni Moopil Nair v. State of Kerala. In that case, the Travancore-Cochin Land Tax Act (15 of 1955 as amended by Act 10 of 1957), imposed a tax called "land tax" at a flat rate of Rs. 2 per acre which was held to be discriminatory on the ground that "inequality is writ large on the Act and is inherent in the very provisions of the taxing section". It was said in para. 8 of the report 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unless he was very enamoured of the property and of the right to hold it, it might be assumed that he would not be able to pay the demand of Rs. 54,000 per year in respect of the forests in his possession. On these facts, the tax was held to be confiscatory in character and effect. The facts are not in pari materia and the ratio of that decision does not apply to the facts of the present case wherein the value of the net wealth is about Rs. 80 lakhs on which the liability for tax is only Rs. 4,11,625. Moreover, in that case the tax was on land and not on all the assets of the owner thereof and, therefore, had to be paid out of the income of the land. The capacity to pay was thus the determining factor in that case. In our case the tax is payable on the total assets and not on each component thereof constituting the net wealth of the assessee. The decision of the Supreme Court in Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad, relied upon by the learned counsel for the petitioner, is clearly distinguishable. In that case, section 73(1)(i) of the Bombay Municipal Boroughs Act (18 of 1925) empowered a municipality to impose a tax, namely, a rate on buildings or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account." It is evident from these observations that a tax can be imposed on the capital value of the assets as has been done in the case of wealth-tax. In Raja Jagannath Baksh Singh v. State of Uttar Pradesh it was argued that the U. P. Large Land Holdings Tax Act (31 of 1957) was confiscatory in character and must be struck down as being a colourable piece of legislation. In support of that argument it was suggested that the rates prescribed by the Schedule were so heavy that the assessee would virtually have to part with his properties within a short time in order to bear the burden of the tax. Dealing with this argument, it was observed at page 181: "This plea raises the question as to whether a taxing statute can be challenged on the ground that the burden of tax imposed by it is unreasonably high or excessive. We have already seen that the provisions of article ..... X X X X Extracts X X X X X X X X Extracts X X X X
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