TMI Blog1965 (10) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... y to pay additional income-tax.. It is difficult to regard the provision exempting this class of persons from liability to pay additional tax as depriving other taxpayers below the age of seventy who have exercised the option under section 280X(1) of the guarantee of equal protection of the laws. The classification is prima facie reasonable, and the petitioner has placed no materials before us to prove that it is not genuine or has no rational nexus to the object sought to be achieved by the Parliament. Appeal dismissed. - - - - - Dated:- 6-10-1965 - Judge(s) : P. B. GAJENDRAGADKAR., K. N. WANCHOO., M. HIDAYATULLAH., J. C. SHAH., S. M. SIKRI JUDGMENT [The judgment of Gajendragadkar C.J., Wanchoo, Shah and Sikri JJ. was delivered by Shah J. Hidayatullah J. delivered a separate judgment.] SHAH J.---The petitioner, who is a trader at Meerut, was ordered by the Income-tax Officer, D-Ward, Meerut, to pay Rs. 1,800 as annuity deposit under Chapter XXII-A of the Income-tax Act, 1961. The petitioner has filed this petition challenging the validity of the demand on the plea that Chapter XXII-A of the Income-tax Act is unconstitutional and is otherwise violative of the funda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deposit may exercise his option not to make it, by a notice in writing to the Income-tax Officer before the 30th of June of the assessment year. The option once exercised is irrevocable, and operates in respect of the assessment year and all subsequent years. The taxpayer who exercises the option has to pay besides the income-tax payable on his total income, additional income-tax which is equal to half of the amount which he saves by not making the deposit. But an individual who on the last day of the relevant previous year is more than seventy years of age is exempt from payment of this additional income-tax. Section 280B defines, amongst other expressions, "adjusted total income", a percentage of which is by the Second Schedule liable to be deposited as annuity deposit. Annuity deposit has to be made in advance on the adjusted total income of the previous year, at the rate or rates prescribed by any Central Act. Authors, playwrights, artists, musicians and actors are permitted to make at their option, deposit up to 25 per cent. of the amount derived from their profession, in addition to the amount which they are required to make. A person receiving gratuity from his employer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to recompute the annuity deposit, when the total income of the assessee is enhanced or reduced or the status under which he is assessed is altered or when the registration of a firm is cancelled. Arrears of annuity deposit and penalty are recoverable in the manner provided in Chapter XXII-D of the Income-tax Act for the recovery of income-tax. Broadly stated, the scheme of Chapter XXII-A is that certain classes of taxpayers in the comparatively higher income groups are required to make out of their total income deposits at the specified rates on the adjusted total income with the Central Government. The amount so deposited is made returnable with interest in ten annual instalments. In computing the total income of the year in which it is made the deposit is an admissible deduction. But the instalment due in any year is liable to be adjusted in the total income of the year in which it is due. The taxpayer, however, has the option not to pay the deposit, and pay tax on his total income and fifty per cent. of the amount saved by not making the deposit. The petitioner submits that the scheme of annuity deposit incorporated in Chapter XXII-A is invalid because (a) the Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e residuary entry does not also attract any disability. The question is one of convenience and not of power. It appears that the Parliament thought that the provisions relating to annuity deposits could appropriately be incorporated in the ( Indian ) Income-tax Act, 1961. The Parliament did enact the Compulsory Deposit Scheme Act, 1963, as a separate statute, but that does not mean that it had no power to incorporate it within the Income-tax Act, if the Parliament so desired. The Income-tax Act, 1961, is a longish statute and incorporation of other provisions therein may make it somewhat unwieldy. But it must be said that the Chapter relating to the annuity deposit scheme is closely related to the scheme of levy of income-tax. The power of assessment and collection of annuity deposit is entrusted to Income-tax Officers, and the machinery of the Income-tax Act is utilised for that purpose. The annuity deposit is based on the total income of the taxpayer : if the taxpayer pays the deposit he is entitled to deduction of the amount in the computation of income-tax, and if he exercises the option not to pay the deposit, he is rendered liable to pay additional income-tax. The annuity dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule. If the Parliament has the power to enact legislation for levying, assessing and collecting annuity deposits and for repayment in annual instalments, by enacting that legislation the Parliament does not trespass upon powers outside its domain. In exercising power to legislate for collecting annuity deposits, the Parliament has not sought to resort to any pretence, disguise or subterfuge with the object of trespassing upon power not vested in it by the Constitution. The doctrine of colourable legislation therefore can have no application where the Parliament is invested with the authority to legislate in respect of annuity deposit and it exercises that power. It was urged that even if the exercise of the powers to compel deposits be regarded as not unconstitutional, its exercise is harsh and the demands made by the State are excessive. Exercise of the taxing power by the State has undoubtedly to be tested in the light of the fundamental freedoms guaranteed by Chapter III of the Constitution. It is not a power which transcends the fundamental rights, as was assumed in certain earlier decisions : Ramjilal v. Income-tax Officer, Laxmanappa Hanumantappa v. Union of India and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot also be said to be unreasonable. It is true that a slab system in vogue for the computation of non-corporate income-tax has not been adopted, and the demand of deposit is made at a steeply rising percentage on the adjusted total income. But that by itself is not a ground for regarding the levy as unreasonable. In order to do away the anomalies the Schedule of rates has provided marginal adjustments. It may also be noticed that simultaneously with the introduction of the annuity deposit scheme, the personal rates of income-tax have been reduced. Again it may be noticed that the scheme for the annuity deposits is in a sense not compulsory. By making a declaration it is open to an assessee not to make the contribution as required by the Act. He may elect not to make the deposit, and pay income-tax on his total income. If he has not attained the age of seventy years on the last day of the previous year he will also have to pay additional income-tax as prescribed by sub-section (2) of section 280X. There is undoubtedly a distinction made between persons who are below the age of seventy years on the last day of the previous year, and those who have attained that age : the former on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry will hardly be necessary. The entry is not a first step in the discussion of such problems but the last resort. One cannot avoid the issue by taking its aid unless such a course is open. It is always necessary to examine the pith and substance of any law impugned on the ground of want of legislative cornpetence with a view to ascertaining the precise entry in which it can come. The entries in the three Lists were intended to be exhaustive and it would be a very remote chance that some entry would not suit the legislation which is impugned. I shall, therefore examine the law relating to annuity deposits from this angle first. The relevant provisions have been summarized by my brother in great detail. The essence of these provisions, apart from the machinery sections which are either supplementary to, or fitted into, the scheme of the (Indian) Income-tax Act, 1961, is that a person, with an income above a certain sum, may, if he so chooses and as an alternative to paying the full tax due on his income, make an annuity deposit and earn some present partial relief from taxation. It is not necessary to state the extent of the relief or the extent of the deposit. This is the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it rightly came under entry No. 82 of List I dealing with taxes on income. The money so collected is returned with interest in equal instalments spread over ten years and the amount is taxable in the year of refund. The entry thus covers it. There is no entry in List II which can be said to take in the law relating to annuity deposits. Entry No. 30 (money-lending and moneylenders) has to be mentioned and rejected. As the subject of the annuity deposit provisions is capable of being comprehended in the entry relating to taxes on income, I do not feel called upon to invoke the aid of entry No. 97 by assuming that no entry covers such provisions. This will be a fundamental error in approach to such problems. The provisions are neither colourable nor discriminatory. They apply to upper income groups and this does not lead to discrimination. They are not colourable because, though called annuity deposits, they only defer payment of tax on a part of the assessable income and the name does not matter at all. Instead of charging income-tax on the amount forthwith the amount is ordered to be kept in deposit with Government, one-tenth being returned with interest every year. The returne ..... 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