SUBHA RAO - (1.) THE following Judgment of the court was delivered by:
(2.) THESE two petitions filed under Art. 32 of the Constitution by different parties are directed against the Agricultural Income-tax Officer, Kasaragod, and the State of Kerala, for a declaration that s, 2A of the Kerala Agricultural Income-tax Act, 1950, as amended by Kerala Act 11 of 1959, (hereinafter referred to as the Act) is constitutionally void and for quashing the orders of assessment made by the first respondent pursuant to the said provision As it is common case that the decision in the first petition would govern the second one, it would suffice if the facts in the first petition were given. Kasaragod Taluk, wherein the agricultural lands of the petitioner's family are situate, formed part of the district of South Kanara in the Madras State. Under the States Reorganization Act, 1956 (Central Act 37 of 1956) the Kerala State comprising the following territories was formed: (a) the territories of the existing State of Travancore-Coching excluding the territories transferred to the State of Madras by Section 4; and (b) the territories comprised in (i) Malabar District, excluding the islands of Laccadive and Minicoy, and (ii) Kasaragod Taluk of South Kanara District. Under the Act the territories comprised in Kasaragod Taluk of South Kanara District and the District of Malabar in the Madras State were constituted into a separate district known as the Malabar District in the State of Kerala. For convenience of reference we shall hereinafter describe the territories carved out of the Madras State as Madras area and the rest as T-C area. After the formation of the State of Kerala on 1/11/1956, the laws in force in the State of Madras were continued in the Madras area and those in force in the Travancore-Cochin State were continued in the T.C. area. In the T.C. area agricultural income was liable to tax under the Travancore-Cochin Agricultural Income-tax Act (22 of 1950) which came into force on 1/04/1951. After the formation of the Kerala State, the Legislature of that State enacted the Travancore- Cochin Agricultural Income-tax (Amendment) Act, 1957. Whereunder the earlier Act of 1950 was extended to the Madras area with appropriate amendments. Under the said Act agricultural income derived from lands situated throughout the State of Kerala became assessable with effect from assessment year 1957 58. Pursuant to the provisions of that Act the Income-tax authorities started proceedings to assess the income derived from lands situated in the Madras area for the year 1957-58, On a petition filed by some of the assessees, the Kerala High court held that the State of Kerala had no authority to levy tax on agricultural income which accrued before 1/11/1956, from lands situated in the Madras area and that the assessments for 1957-58 were not sustainable under the Act even in respect of income which arose after 1/11/1956, on the ground that the previous year, as defined under the Act, was a period of twelve months ending on March 31, preceding the year for which assessment was to be made. The result of the decision was that agricultural income derived from lands in the Madras area was not liable to tax for the assessment year 195768., whereas similar income from agricultural lands situated in the T.C. area was liable to tax, indeed, the income accrued between 1/11/1956, and 31/03/1957, i. e., the income accrued after the Madras area became part of the Kerala State, also could not be taxed. To remedy the situation brought about by historical reasons in the two geographical parts of the Kerala State, the government of Kerala promulgated on 12/01/1959 the Agricultural Income-tax (Amendment) Ordinance 11 of 1959. Subsequently the Kerala Legislature passed the Agricultural Income-tax (Amendment) Act 11 of 1959 replacing the earlier Ordinance, hereinafter called the Amending Act. Before the Amending Act was passed,, the petitioner, who has lands in different villages in Kasaragod Taluk, submitted a return of the income of his family for the assessment year 1957-58, and on 30/06/1958, the concerned Income-tax Officer determined the petitioner's net income for the accounting period 1/04/1956, to 31/03/1957, and the tax payable thereon. The petitioner preferred an appeal to the Assistant Commissioner of Agricultural Income-tax, Kozhikode, against the order of the Income-tax Officer questioning the said assessment on the ground, inter alia, that the assessment was made arbitrarily. When that appeal was pending, the judgment of the Kerala High court was delivered and subsequently Ordinance II of 1959 was promulgated. The Assistant Commissioner, therefore, set aside the order of the Income-tax Officer on the basis of the decision of the Kerala High court and remanded the matter to the Agricultural Income. tax Officer for disposal in accordance with law. After remand, on 23/03/1959, the Income-tax Officer issued a notice to the petitioner to submit his return of agricultural income for the assessment year 1957- 58 in accordance with the provisions of the Ordinance and the subsequent Amending Act replacing the said Ordinance. On 10/11/1960, the Income-tax Officer determined the net income of the petitioner for the assessment year 1958 59 at Rs. 87,745.36 and assessed the tax at Rs. 21,920.41; the tax was calculated on the average net annual income of the petitioner for 12 months under the proviso to s. 2A of the Act. The petitioner seeks to set aside that assessment on the ground that the said section offends Art-14 of the Constitution and therefore the assessment was bad. Mr. Pathak, Learned counsel for the petitioner, argues that the classification of Kerala State into two parts, i.e., the Madras area and the T-C area, has no rational relation to the object of the Act, namely, imposition of agricultural income-tax, for., as the two parts belong to the same State, no post-amalgamation law can treat assessees of the same State differently in the matter of taxation. He further contends that there is discrimination between assessees of Kasaragod Taluk and those of the other part of the Madras area inasmuch as under s.2A of the Act the average annual income would be the average annual income of 12 months out of 17 months, with the result that the assessees of Kasaragod Taluk whose entire income accrued after 1/11/1956, were unjustly discriminated from assessees of the other part of the Madras area whose income accrued only before 1/11/1956. He also contends that in any view the basis adopted for ascertaining the rate was arbitrary and unreasonable as 24 months' income was taken as income for 17 months.
(3.) LEARNED Additional Solicitor General, on the other hand, seeks to sustain the assessment on the ground that the classification was based on historical reasons, that on the face of the Act all the assessees falling within the class to which s.2A applies are treated alike, that the State is entitled to adopt one of the many modes available for ascertaining the rate, that whatever basis is adopted for ascertaining the rate there is bound to be some hard cases and that circumstance cannot conceivable affect the validity of the law. At the outset it would be convenient to notice briefly the law on the doctrine of classification. The law on the subject is well settled and it does not require restatement in extenso. It would suffice if we noticed the principles relevant to the enquiry. The law has been neatly and succinctly summarized in Shri Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar (1) thus: '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 differential which distinguished persons or things that are grouped together from others left out of the group and, (ii) 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. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established that article 14 condemns discrimination not only by a substantive law but also by a law of procedure.' Though a law ex facie appears to. treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinize the effect of the law carefully to ascertain its real impact on the persons or property similarly situated. Conversely, a law may treat persons who appear to be similarly situated differently; but on investigation they may be found not to be similarly situated. To state it differently, it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine : vide Purshottam Govindji Halai v. Shree B. N. Desai, Additional Collector of Bombay (1) and Kunnathat Thatunni Moopil Nair v. State of Kerala (2). 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 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. Now Let us look at the impugned section. Section 2A of the Act reads : 'Notwithstanding anything contained in clause (0) of section 2, 'previous year' for the assessment for the financial year commencing from the 1st day of April 1958 and so far as such assessment relates to the agricultural income derived from lands situated in the Malabar District referred to in Ss. (2) of-section 5 of the States Reorganization Act, 1956 (Central Act 37 of 1956), shall be the whole period commencing on the 1st day of November, 1956 and ending on the 31st day of March, 1958, or, if the accounts of the assessee have been made up to a date 'within the financial year ending on the 31st day of March 1958, then, at the option of the assessee, the period commencing on the 1st day of November, 1956 and ending on the aforesaid date to which, the accounts have been so made up : Provided that (i) notwithstanding anything contained in S. 3 and 56, the agricultural income-tax and super-tax chargeable on the total agricultural income of the previous year as reckoned in this section shall be at the rates applicable to the 'average annual income' according to the Schedule ; such 'average annual income' shall be an amount bearing to the aforesaid total agricultural income the same proportion as the period of twelve months bears to the period of the previous year as defined in this section ; and (ii) the limit of exemption from chargeability to tax shall be determined with reference to the 'average annual income'. ;