1. Income tax assessment of a government servant belonging to a Scheduled Tribe — Challenge to exclusion from tax exemptions under Section 4(3)(xxi), 1922 Act and Section 10(26), 1961 Act. (Para 1 , 2 , 3 , 5 )
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1967 Supreme(SC) 314
SUPREME COURT OF INDIA
K.N. WANCHOO C.J.I., R.S. BACHAWAT V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE JJ.
S.K. Dutta Income-tax Officer, Salary-cum-S. I. B. Circle, Assam and others, Appellants
Versus
Lawrence Singh Ingty, Respondent. Treasury Officer, State of Nagaland, Intervener.
Civil Appeal No. 809 of 1966
D/- 7-11-1967.
Advocates Appeared
Mr. Niren De, Solicitor General of India, (Mr. A. N. Kirpal, Advocate and Mr. S. P. Nayar, Advocate for Mr. R. N. Sachthey, Advocate, with him), for Appellants Mr. M. C. Setalvad, Senior Advocate Mr. D. N. Mukherjee, Advocate with him), for Respondent; Mr. D. M. Sen, Advocate General for the State of Nagaland (M/s. A. R. Barthakur and R. Gopalakrishnan an, Advocates, with him), for Intervener.
Advocates:
A.N.KIRPAL, A.R.BARTHAKUR, D.M.SEN, D.N.MUKHERJI, M.C.SETALVAD, NIREN DEY, R.GOPAL KRISHNAN, R.N.SACH
A.N.KIRPAL, A.R.BARTHAKUR, D.M.SEN, D.N.MUKHERJI, M.C.SETALVAD, NIREN DEY, R.GOPAL KRISHNAN, R.N.SACH
The exclusion of government servants from a tax exemption granted to members of Scheduled Tribes in specified areas violates Article 14, as government servants do not form a distinct class for taxation, and administrative convenience or pre-constitutional practice cannot justify such discrimination.
Headnote:(A) Indian Income-tax Act, 1922 - Section 4(3)(xxi); Income-tax Act, 1961 - Section 10(26); Constitution of India - Article 14 - Exemption of income of members of Scheduled Tribes - Exclusion of government servants - Validity of classification - The exclusion of government servants from the benefit of income-tax exemption granted to members of Scheduled Tribes residing in specified areas is violative of Article 14 - Within the range of selection made by the State for exemption, the law operates unequally without a reasonable and substantial distinction. (Paras 7, 9, 10)
(B) Article 14 - Taxation laws - State has wide discretion in selecting persons or objects to tax, but within the range of selection, the law cannot operate unequally without valid classification - Administrative convenience must be real and substantial to justify classification; mere ease of tax collection is insufficient. (Paras 8, 11)
(C) Article 14 - Legislative history - Validity of impugned provisions cannot be tested based on pre-constitutional legislative practice or notifications, as such would render Article 13(1) otiose. (Para 13)
(D) Severability - Words excluding government servants from the tax exemption are severable from the rest of the provision. (Para 15)
Facts of the case:
A member of a Scheduled Tribe residing in an area specified in the Sixth Schedule of the Constitution, who is also a government servant, was assessed for income tax. The relevant tax provisions exempted members of Scheduled Tribes in such areas from income tax, provided they were not in government service. The assessee challenged the assessments on the ground that the exclusion of government servants was discriminatory and violative of Article 14.
Findings of Court:
The court found that government servants do not constitute a separate class for the purpose of income tax and that the discrimination against them within the class of Scheduled Tribes residing in specified areas was unjustified.
Issues: Whether the exclusion of government servants from the income-tax exemption provided to members of Scheduled Tribes under Section 4(3)(xxi) of the Indian Income-tax Act, 1922, and Section 10(26) of the Income-tax Act, 1961, is violative of Article 14 of the Constitution.
Ratio Decidendi: The court held that while the State has discretion in taxation, it cannot discriminate within a selected class without a reasonable basis. Administrative convenience based on the ease of collection is not a substantial ground for classification. Furthermore, pre-constitutional legislative practices cannot justify laws that violate constitutional guarantees. The exemption was granted to a class (the tribe), and the social or economic status of an individual government servant does not justify their exclusion from a class-based exemption.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Validity of excluding government servants from tribal tax exemptions — Contentions regarding administrative convenience, historical legislative practice, and socio-economic status versus Article 14 equality. (Para 4 , 7 , 11 , 12 , 14 , 15 )
3. Lack of reasonable distinction between government servants and other salaried or professional tribal members — Administrative convenience and historical practice insufficient to justify discriminatory taxation. (Para 8 , 9 , 10 , 11 , 13 , 14 )
4. Taxation laws must satisfy Article 14; excluding a subset of a protected class without a substantial, reasonable distinction constitutes impermissible discrimination. (Para 7 , 10 , 14 )
5. Appeal dismissed — Exclusion of government servants from the specified income tax exemptions held void as violative of Article 14. (Para 16 )
6. Does the exclusion of government servants from tribal tax exemptions violate Article 14?
Yes. The court held that within the range of selection (members of certain scheduled tribes), the law operated unequally. There was no reasonable or substantial distinction between government servants and other tribal members earning similar incomes from other sources. (Para 7 , 9 , 10 , 14 )
7. Can administrative convenience justify a discriminatory tax classification under Article 14?
Only if the administrative convenience is real and substantial. The ease of collecting taxes from government servants was deemed insufficient to justify denying them an exemption granted to other members of their tribe. (Para 11 )
8. Can pre-constitutional legislative practice justify a law that violates current constitutional guarantees?
No. The validity of laws cannot be tested by what legislatures did before the Constitution. Past arbitrary practices or notifications cannot justify current laws that violate constitutional guarantees like Article 14. (Para 13 )
9. Is the exclusion of government servants from the tax exemption clause severable from the rest of the provision?
Yes. The court found the words excluding government servants to be easily severable, meaning the exemption could remain valid for the rest of the class while the discriminatory portion was struck down. (Para 15 )
Judgement
HEGDE, J. : -The only question that arises for decision in this appeal is whether the exclusion of government servants from the exemption given under Section 4 (3) (xxi) of the Indian Income-tax Act 1922 and later on under Section 10 (26) of the Income-tax Act 1961 is violative of Article 14 of the Constitution. For our present purpose it may be taken that the said two provisions are similar.
2. The respondent who is a government servant serving in the State of Assam has been assessed to income tax for the assessment years 1959-60, 1960-61, 1961-62 and 1962-63. He challenged the legality of his assessments in civil rule No. 127 of 1963 on the file of the High Court of Judicature of Assam. The Assam High Court accepted his petition and quashed the assessments in question holding that Section 4 (3) (xxi) of the Indian Income Tax Act 1922 as well as Section 10 (26) of the Income Tax Act 1961 to the extent they excluded government servants from the benefit of the exemption given thereunder are void. The income-tax authorities as well as the Union of India have come up to this Court in appeal by special leave.
3. The facts of this case lie within a narrow compass. The respondent belongs to Mikir Scheduled Tribe and is a permanent inhabitant of United Khasi-Jaintia Hills District, an autonomous District included in part A of the Table appended to Paragraph 20 of the Sixth Schedule of the Constitution of India. He is a government servant. All these are admitted facts.
4. The respondent in his petition before the High Court averred (in pare. 7 of the petition)) that "in all the autonomous districts under Table, Part A of paragraph 26 of the Sixth Schedule of the Constitution of India, there are a large number of persons belonging to Scheduled Tribe who derive considerable income from trade, commerce and business and other sources and employment and immovable properties .......". In the return filed by the appellants those allegations were not denied. Adverting to those allegations this is what was stated in the affidavit filed by Shri S. K. Dutta, Income-tax Officer (the first appellant in the appeal):
"With reference to the statements made in paragraph 7 of the petition I say that the petitioner being a government servant his case stands on a different footing other than the genera] public of the Scheduled Tribe."
5. It may be remembered till 15th August, 1947, Khasi and Jaintia Hills were not parts of British India. They were under native States. They merged with British India only after this country got independence. Till their merger, none of the Indian laws applied to those areas. The Finance Act of 1955 incorporated into the Indian Income-tax Act, 1922, S. 4 (3) (xxi) The relevant portion of Section 4 (3) reads thus:
4 (3). "Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them......"
(xxi). "Any income of a member of a Scheduled Tribe, as defined in clause (25) of Article 366 of the Constitution, residing in any area specified in Part A or Part B of the table appended to paragraph 20 of the Sixth Schedule to the Constitution, provided that such member is not in the service of Government."
Section 10 (26) of the Income-tax Act of 1961 which corresponds to Section 4 (3) (xxi) of the India Income-tax Act 1922, reads thus :-
"In the case of member of a Scheduled Tribe as defined in clause (25) of Art. 366 of the Constitution, residing in any area specified in Part A or Part B of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the Union Territories of Manipur and Tripura, who is not in the service of Government, any income which accrues or arises to him, (a) from any source in the area or Union Territories aforesaid, or (b) by way of dividend or interest on securities."
6. Part of the impugned assessments were made under the Indian Income Tax Act 1922 and the rest, under the Income-tax Act l961. If the aforementioned
