Judgment

VERMA, J.:- This petition under Article 32 of the Constitution challenges the constitutional validity of Cl. (10C) inserted in S. 10 of the Indian Income-tax Act, 1961 (hereinafter referred to as the Act) by the Finance Act, 1987 with effect from 1-4-1987. S. 10 deals with incomes not included in total income for the purpose of taxation under the Act. The effect of Cl. (10C) so inserted in S. 10 of the Act is that any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf, is not included in the total income of such employee resulting in grant of tax exemption to that extent to him. The petitioners contend that the denial of this benefit to an employee of a private sector company at the time of his voluntary retirement amounts to an invidious. distinction between public sector employees and private sector employees in the matter of taxation and is arbitrary and unintelligible amounting to hostile discrimination.

2. The initial submission on behalf of the petitioners was that the aforesaid Cl. (10C) of S. 10 of the Act is constitutionally invalid for this reason. However, during the course of arguments the stand of the petitioners was modified to contend that the provisions must be so construed as to apply to all employees equally, whether of the public or private sector, in order to uphold its validity. The question, therefore, is whether there is any such hostile discrimination as alleged by the petitioners and if so, is it possible to construe the provision in the manner suggested on behalf of the petitioners to apply it equally to all employees of the public as well as private sectors?

3. The first petitioner is an employee of second respondent - Peico Electronic and Electricals Limited, a private sector company and the second petitioner is a registered trade union representing the employees of the second respondent-company. Counsel for the second respondent-company sought to support the petitioners case. Counsel for the first respondent supporting the validity of the provision indicated that employees of the public sector constituted a distinct class for the purpose of taxation so that there was no discrimination between employees of the same class if the real object of the provision is borne in mind. We shall refer to the arguments of the two sides in some detail later.

3A. Chapter III of the Indian Income-tax Act, 1961 relates to "incomes which do not form part of the total income". S. 10 in Chapter III deals with "incomes not included in total income". It provides that in computing the total income of a previous year of any person, any income failing within any of the clauses therein shall not be included. The several clauses in S. 10 specify different incomes which would ordinarily be included in the total income of the assessee for the purpose of taxation but for such a provision. Cl. (10C) of S. 10 is as under:-

"(10C):- Any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to -the economic viability of such company and other relevant circumstances, approve in this behalf."

4. We may now summarise the arguments advanced before us. Shri Shetye for the petitioners first contended that the reason given for enacting. Cl. (10C) as indicated in the memorandum explaining provisions of the Finance Bill, 1987 is that the tax benefit is given as a welfare measure. He argued, if so, employees whether of private or of public sector are in the same class and are entitled equally to the benefit of a welfare measure for. employees His next contention is that, if that be the only stated basis of the classification, it has no rational nexus with the object of the provision and it violates