Bal Raj Tuli, J. - (1.) THIS petition under Articles 226 and 227 of the Constitution of India came up for hearing before a Division Bench of this Court on November 15, 1973, and was referred to a large Bench of at least five Judges to decide the following points of law, which the learned Judges thought, raised very important and fundamental questions :- (1) Whether the rate of wealth tax imposed on urban immovable property is of a confiscatory nature; and (2) Whether the penalty provisions as embodied in Section 18 of the Wealth Tax Act are also confiscatory in nature Another contention that had been raised in the writ petition was that no wealth-tax could be imported on agricultural land. That matter stands concluded by the decision of their Lordships of the Supreme Court in Union of India vs . Harbhajan Singh, 1972 83 ITR 582and 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.
(2.) 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 Rs. 1,00,000 but does not exceed Rs. 5,00.000 1 per cent of the amount by Which net wealth exceeds Rs. 1,00,000. (c) Where the net wealth exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,000 Rs. 4,000 plus 2 per cent of the amount by which the net wealth exceeds Rs. 5,00,000. (d) Where the net wealth exceeds Rs. 10,00,000 but does not exceed Rs. 15,00,000 Rs. 14,000 plus 3 per cent of the amount by which the net wealth exceeds Rs. 10,00,000, (e) Where the net wealth exceeds Rs. 15,00,000 but does not exceed Rs. 20,00,000 Rs. 29,000 plus 4 per cent of the amount by which the net wealth exceeds Rs. 15,00,000, (f) Where the net wealth exceeds Rs. 20,00,000 Rs. 49,000 plus 5 per cent of by which the net wealth exceeds Rs. 20,00,000, In addition thereto, every individual holder of urban assets has to pay the following tax :- (a) Where the total value of urban assets determined in accordance with the rules in paragraph B does not exceed Rs. 5,00,000 Nil (b) Where the total value of urban assets determined in accordance with the rules in Paragraph B exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,000 5 per cent of the amount by 5 per cent of the amount by Rs. 5,00,000, (b) Where the total value of 5 per cent of the amount by urban assets determined in which such total value exceeds accordance with the rules Rs. 5,00,000, in Paragraph B exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,000 (c) Where the total value of Rs. 25,000 plus 7 per cent of urban assets determined in the amount by which such total accordance with the rules in value exceeds Rs. 10,00,000. Paragraph B exceeds Rs. 10,00,000 It has been stated in the petition that the urbain assets of the petitioner for the assessment year 1969-70 were as under :- (i) Raj Mahal Rs. 2,50,000 (ii) Screw factory and the country club Rs. 8,000 (iii) Faridkot House, Lytton Road, New Delhi Rs. 9,50,075 (iv) Faridkot House Diplomatic Enclave, New Delhi Rs. 3,29.427 Rs. 15,37,502 and that no income was being derived therefrom. His assessable income shown by him in the return for the assessment year 1970-71 was Rs. 4,99,800. THE value of the net wealth, according to the last completed wealth-tax assessment for the year 1966-67 was Rs. 79,55,776. If we take the net wealth for the purposes of tax to be Rs. 80,00,000 in round figures, the ordinary tax will work out to Rs. 3,49,000. On urban assets of the value of Rupees 15,37,502, the additional tax will work out to be Rs. 62,625. Thus, the total liability of wealth-tax on the net wealth of about Rs. 80,00,000 including urban assets will be Rs. 4,11,625. THE petitioner does not challenge the levy of wealth-tax at the ordinary rate amounting to Rupees 3,49,300 but challenges the constitutional validity of the additional tax of Rupees 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 consist 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 prononncements of the Supreme Court on the point. It was held by their Lordships in V. Venugopala Ravi Varma Rajah vs. Union of India, 1969 74 ITR 49 that. "Equal protection clause of the Constitution does not enjoin equal protection of the law as abstract propositions. Laws being the expression of legislative will intended to solve problems or to achieve definite objectives by specific remedies, absolute equality or uniformity of treatment is impossible of achievement. Again tax laws are aimed at dealing with complex problem of infinite variety necessitating adjustment of several disparate elements. The courts accordingly admit, subject to adherence to the fundamental principles of the doctrine of equality a larger play to legislative discretion in the matter of classification. The power to classify may be exercised so as to adjust the system of taxation in all proper and reasonable ways; the legislature may select person, properties, transactions and objects, and apply different methods and even rates for tax if the legislature does so reasonably. Protection of the equality clause does not predicate a mathematically precise or logically complete or symmetrical classification : it is not a condition of the guarantee of equal protection that all transactions, properties, objects or persons of the same genus must be effected by it or none at all. If the classification is rational the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject different classes of property to tax in different ways and adopt different modes of assessment. A taxing statute may contravene Article 14 of the Constitution if it seeks to impose on the same class of property, persons, transactions or occupations similarly situate incidence of taxation, which leads to obvious inequality. A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects." It is for the legislative to determine the objects on which tax shall be levied, and the rates thereof. The courts will not strike down an Act as denying the equal protection of laws merely because other objects could have been, but are not taxed by the legislature Jagannath Bakshi Singh vs. State of Uttar Pradesh. The same rule has been accepted by the Courts in America. Wills in his Constitutional Laws of the United States has stated at page 587 : A state does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects persons, methods, and even rates for taxation if it does so reasonably. As stated in Weavers Constitutional Law, Article 275 at page 405; The fourteenth amendment was not designed to prevent a State from effecting a change in its system in all proper and reasonable ways, nor to require the States to adopt an ironclad rule of equality to prevent the classification of property for purposes of taxation or the imposition of different rates upon different persons. 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 unreasonable and arbitrary. It is unnecessary to multiply citations." Section 2 (1) of the Tamil Nadu Additional Sales Tax Act, 1970, provides that the tax payable under the Tamil Nadu General Sales Tax Act, 1959, shall, in the case of a dealer whose total turnover for a year exceeds 10 lakhs of rupees, be increased by additional tax at the rate of 5 per cent of tax payable by that dealer for that year and the provisions of the Tamil Nadu General Sales tax Act, 1959, shall apply in relation to the additional tax payable under the said Act. The validity of this section was challenged on the ground that it imposes different rates of tax upon different dealers depending upon their turnover which in effect meant that the rate of tax on the sale of goods would very with the volume of the turnover of a dealer and was, therefore, violative of Article 14 . This argument was repelled by their Lordships in M/s. S. Kodar vs. State of Kerala and some other cases with the following observations :- "Classification of dealers on the basis of their respective turnover for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of the greater volume of his business. And to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of legislature. The only question for the Court to consider is whether there is rationality in the belief of the legislature that capacity to pay the tax increases by 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. Exception 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 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 dissending judgment (Stewart Dry Goods Co. vs. Lewis, 294 US 550 of Justice Cardoze, Justice Brandies 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 superiority by reason of his volume of business and to make the tax heavier on him both absolutely and relatively is not arbitrary discrimination but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and is consequently discriminatory, really misses the point namely that the former kind of dealers are in a position of economic superiority by reason of their volume of business and from a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society."
(3.) IT is trite to say that the power given to Parliament to make laws with regars to the imposition of wealth-tax includes the power to fix the rates thereof. When Parliament is competent to make law on wealth-tax, it can and should make the laws regarding the rate of tax and the manner in which such tax is to be computed. In Amalgamated Tea Estate Co. vs. State of Kerala, 1974 CTR 192, it was said by the Supreme Court that - "as revenue is the first necessity of the State and as taxes are raised for various purposes and by an adjustment of diverse elements, the court grants to the State greater choice of classification in the field of taxation than in other spheres." and that - "On a challenge to a statute on the ground of Article 14, the court would generally raise a presumption in favour of its constitutionality. Consequently, one who challenges the statute bears the burden of establishing that the statute is clearly violative of Article 14 ." In that case the companies were classified into domestic and foreign companies under section 2(hh) and (kk) and clauses (2) and (3) of Part I of the Schedule to the Kerala Agricultural Income-tax Act 1950, and a higher tax at a fixed rate of 75 per cent was imposed on foreign companies while a lesser tax at graded 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. ;