K.C.Das Gupta, CJ. - (1.) The main point raised in this appeal, which is from an order dismissing an application under Article 226 of the Constitution by which the appellants wanted relief against the assessment order made against them for Income-tax and Super Tax, is whether the Finance Act of 1951 was ultra vires the Constitution of India by reason of contravention of Article 14 of the Constitution in so far as it provides for a graduated scale of Income-tax, the rate of tax rising with the rise in income. As far as we are aware, such an objection against this graduation in the rate of Income-tax has not been taken before any of the Courts in this country. It appears that in Cantonment Board, Poona v. Western India Theatres Ltd. , an objection was taken before the Bombay High Court that the entertainment tax, the validity of which was under consideration in that case, was ultra vires the Constitution on the ground of discrimination. That objection was overruled on the ground that there was good ground to believe that there was such difference in the circumstances of the West-End and Capitol cinemas which would justify the levying of a higher rate in the case of performances given at those cinema theatres, and so there was no unreasonable classification. An objection as regards the validity of trade tax levied under the Bengal Municipal Act was also raised in this Court before Sinha, J., in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Licensing Officer of Tamluk Municipality, on the ground that as the tax was on a graduated scale, it offended against the rule against discrimination. Sinha, J. pointed out that one of the ingredients of taxing power was that the tax is levied according to the paying capacity of the taxpayer, and so the imposition of a higher tax from a company which has greater paid-up capital, and therefore presumed to have the capacity of paying more taxes, than a company which has a less paid-up capital and might be expected to have a lesser capacity for paying taxes, did not amount to discrimination. Neither of these cases is, however, in respect of graduated scales of Income-tax, so that it is necessary for us to consider the objection now raised against the validity of graduated scales of Income-tax the rate of tax rising with the rise in income on recognised principles of law.
(2.) It is helpful to bear in mind the proposition laid down by file Supreme Court as regards the scope of the rule against discrimination embodied in Article 14 of the Constitution. In one of the latest pronouncements of the Supreme Court in Bidi Supply Co. v. The Union of India, Das, C.J., stating the law on the subject quoted the decision of a Full Bench of that Court in Budhan Chowdhry v. State of Bihar, 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, (1) 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 (2) 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 occupation 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."
(3.) In applying the principle thus laid down to our present case it may first be stated that Dr. Pal, who appeared for the appellants, concedes that in this case the statute in question has passed the first test and that the classification on the basis of differences in income must be held to the founded on intelligible differentia distinguishing persons or things that are grouped together from others left out of the group. He contends, however, that as regards the second test, namely, that the differentia must have a rational relation to the object sought to be achieved by the statute in question, the impugned statute is found wanting.;