Khandige Sham Bhat And Others vs The Agricultural Income Tax Officer

commences from November 1, 1966 and ends on March 31, 1958, i.e., a period of 17 months ; but the assessee can elect a lesser period as "previous year" if his accounts are made up to a date within the financial year ending on March 31, 1958, that is to say he can elect any date commencing from April 1, 1957, to March 31, 1958, if his accounts are made up to that date in which case the "previous year" so for as he is concerned will commence from November 1, 1956, and end on the said date so chosen by him. The proviso to the section prescribes a mode of ascertaining the rate of tax in regard to the said income : it lays down that in respect of the said income the rates are those applicable to the ",average annual income" according to the Schedule. The "average annual income", as defined in the proviso, will be twelve-seventeenths of the total income of the previous year as defined in the sections Under the section, therefore, the assessee in the Madras area will be liable to pay agricultural income-tax on the income accrued to him during the 17 months commencing from November 1, 1956, and ending on March 31, 1958, but the rate of tax payable by him is that applicable to the "average annual income " so defined. The question is whether this section infringes Art. 14 of the constitution or whether it can be justified on the basis of the 820 doctrine of classification. In the narration of facts we have stated why it became necessary for the Legislature to insert s.2A in Act 22 of 1950. By reason of the States Reorganization Act, the said Madras area became part of the Kerala State on November 1, 1956. By reason of the decision of the Kerala High Court, agricultural income-tax could not be imposed in respect of income accrued to assessees in the Madras area between April 1, 1956, and March 31, 1957, and it was also not possible to tax them for their income even for that part of the year after it became part of the Kerala State: with the result, the legislature was confronted with two geographical divisions in respect of one of which the said law of agricultural income-tax could not be enforced while the a ssessees in the T-C area were liable to agricultural income-tax in regard to their income from their lands for the year commencing from April 1, 1956, and ending on March 31, 1957, the income of the agriculturists in the Madras area could not be reached by that law in respect of the whole or part of that year. These differences between the two parts of the State which originated from historical reasons were the basis of classification for the purpose of taxation. The object of' making the classification was not to discriminate against the agriculturists of the Madras area but to bring them into line with the agriculturists from the rest of the Kerala State in so far as the liability to pay agricultural income-tax was concerned. The existing law bad therefore to be appropriately adapted for securing this end. In these circumstances, can it be said that there was no reasonable nexus between the classification and the object of the legislation? The object of the legislation thus was to impose agricultural income-tax on assessees in the Madras area and also in respect of the period between November 1, 1956, and March 31, 1957, which could not be done under preexisting law. The 821 differences between the two parts of the State have reasonable nexus to the said object. Because of the said differences the legislature thought that the definition of "Previous year" should be so amended in respect of the Madras area that the assessees in that area may not escape payment of agricultural income-tax in respect of the period after the said area formed part of the Kerala State. It is argued that this Court sustained the constitutional validity of a law on geographical and territorial bases only in a case where the said law was a preexisting law in an erstwhile State which continued to be law in the area of that State after it merged in the larger unit, and that it cannot be invoked where the law is for the first time enacted after the merger, for, it is said, in that event the law governs the new State as an indivisible unit. Reliance is placed upon the decision of this Court in Shri Kishan Singh v, The State of Rajasthan(1) and Purshottam Govindji Halai v. Shree B.M. Desai, Additional Collector of Bombay (2). But a perusal of the Judgments does not bear out the contention. The validity of classification does not wholly depend upon the source of law; the law may be a preexisting law or one that was enacted after merger. What is important is to ascertain the existing circumstances in the two parts merged into one by historical events in order to determine whether the differences between the two have a reasonable nexus to the object of the said law. For the reasons already stated, we hold that the classification in the present case is founded on an intelligible differentia between the assessees of the two parts of the State, and that the said differences have rational relationship to the object of the Amending Act.

But it is said that the mode of ascertaining the average annual income for the purpose of finding the (1) [1955] 2 S.C.R. 531.

(2) [1955] 2 S.C.R. 887.

822 rate is arbitrary and unreasonable and that discrimination is inherent in such a law adopting such arbitrary process. This argument is elaborated thus: The major income of the petitioner's family is from arecanut, pepper and cocoanut; the said crops are gathered between the months of November and March; the season for harvesting arecanut in Kasaragod Taluk is from November to March; the whole year's pepper and cocoanut are gathered between the months of January and March; therefore, the income from arecanut, pepper and cocoanut accrued to the petitioner between November 1, 1956 and March 31, 1957, is the income for the entire year; but under the proviso to s. 2A of the Act, the said income is treated as the income for 5 months only, with the result that 24 months' income is treated as 17 months' income; this is an arbitrary assumption underlying the provision; instead it should have taken 12/24th of the total income as the average annual income. This arbitrary method of fixing the average annual income involved the payment of higher rate of tax by the assessees in Kasaragod Taluk as compared to the assessees in other parts of the State. It is suggested that a more reasonable course would have been to tax the assessees in the Madras area for the income that accrued to them during the 5 months by treating the said income as the income for the entire year commencing from April 1, 1956, and ending on March 31, 1957, and that in that event not only their income for the said period could not have escaped taxation but it would have also avoided the unjust treatment meted out to them in the rate of tax. Prima facie there appears to be some plausibility in this argument; but a closer examination discloses that though the method sugges- ted may have been better than the method actually adopted, the hardship in individual cases cannot in any event be avoided. It is true taxation law cannot 823 claim immunity from the equality clause of the Constitution. The taxation statute shall not also be arbitrary and oppressive, but at the same time the court cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the Legislature selects one out of them, the court will not be justified to strike down the law on the ground that the Legislature should have adopted another method which, in the Opinion of the court, is more reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust. From the standpoint of the test, let us look at the impugned legislation. The taxability of the income accrued during the 5 months is not in question. But the attack is on the manner in which the rate is ascertained. The statute does not fix different rates for the two areas. The rate is the same though it varies uniformly depending upon the different slabs of the annual income of theprevious year. The vice of the provision,if at all, lies in the mode of ascertaining the average annual income of the previous year and it is true that if the said mode is arbitrary, the same arbitrariness would attach to the rate. But the rate must necessarily relate to the annual income of ,he previous year. Diverse methods may be adopted by the Legislature to ascertain the annual income for fixing the rate, namely : (1) 12/17 of total income of the 17 months ; (2) the 5 months' income being treated as 12 months' income and the annual average income ascertained as 12/24th or half of the total income accrued during the 17 months; (3) it may adopt the first 12 months' or the last 12 months or the middle 12 months' income as the annual income ; and (4) treating the 5 months' income as 12 months' income and separately taxing it without clubbing it with the income of the subsequent year. Whatever 824 method is adopted, there is bound to be hardship in some cases and advantage in others. For instance, under the Agricultural Income-tax Act assessees getting an income below Rs. 3,000/- are exempted from taxation. Under the impugned section the limit for exemption from taxation shall be determined with reference to the average annual income. Suppose the annual income for the 12 months commencing from April 1, 1957, and ending on March 31, 1958, is above Rs. 3,000/- ; the assessees in the T-C area would be liable to pay income-tax, but a particular assessee in the Madras area may have earned comparatively smaller income during the 5 months bringing down the average annual income below Rs. 3,000/- and he escapes assessment altogether. Assume again that the assessee gets more than Rs, 3,000/- daring the 5 months ; but he may have got very low income in the succeeding 12 months with the result that his annual average income may fall below the range of taxable income, while the assessee in the T-C area, who has got a similar income for 1956-57, would be liable to tax. It is also true that if the assessee in the Madras area gets very high income during those 5 months and little less than the taxable income during the succeeding 12 months, his income, which would have escaped taxation, would be liable to tax. These illustrations prove that the section does not always work to the disadvantage of assessees similarly situated like the petitioner, but its effect would depend upon fortuitous circumstances, such as the quantum of income accrued during the 5 months and during the succeeding 12 months. That apart under the section an option is given to the assessee to select his accounting year commencing from November 1, 1956, and ending on a date within March 31, 1958, upto which his accounts have been made. If an agriculturist in the Malabar area had made up his accounts on a date which 825 does not exceed a period of 12 months from November 1, 1956, he cannot have any complaint on the score that the rate fixed is arbitrary. But it is said that agriculturists in the Madras area do not keep accounts or at any rate would not have kept accounts before the Amending Act and therefore this argument is not realistic. But the record does not disclose that agriculturists of Malabar area dealing in cash crops, like arecanut, do not keep accounts or make up their accounts on a particular date. Anyhow, the law gives an option to agriculturists to adopt an alternative method in case the rate fixed on the basis of average annual income would be disadvantageous to them. The fact that they do not keep such an account could not be an argument to support the arbitrariness of the legislation. But these advantages or disadvantages to individual assessees are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line. That apart, the tabular statements showing the area order the principal crops and their harvesting and marketing seasons in the Kerala State does not establish that in Kasaragod Taluk the entire crop of the year was harvested after November and in the rest of Kerala before November. The following is the said state- ment:

826 T. C. area Crop 6 -Districts (in acres) Paddy 9,07,108 Tapioca 4,89,884 Cocoanut 7,74,667 Arecanut 50,534 Cardaraon 65,879 Pepper 87,216 Tea 78,043 Coffee 5,198 Rubber 2,10,703 Lemongrass 35,000 MADRAS AREA Total area

- - - - - - - - - - - - - - for Palghat Calicut Cannanore Kerala State (in acres) (in acres) 4,67,5442,77,9232,46,22918,98,804 8,45540,13414,8245,53,207 45,4492,36,2951,19,01411,75,425 17,29235,23620,7711,23,833 4,2842,60099373,756 8,44931,58596,6662,23,916 1,4599,8013,68592,988 4,90926,7873,16640,060 10,10435,60014,2192,70,626 4,50050040,000 827 Crop Harvestiag Marketing Season Season Paddy Autumn, August September to to October. October.

Winter: December January to to February: February. Summer : - March to April. February to March. Tapioca November to Dec. to Feb. & June & July July to Aug. to Aug. Cocoanut Arecanut 1. Travancore- June to Nov. Cochin Nov. to March 2. S. Malabar June to November 3. N. Malabar Nov. to March Cardamon August to October to December January Pepper November to December to January February Tea Coffee November to September to March April Rubber Lemongrass Juno to September September 828

It shows that in Cannanore, which includes Kasaragod Taluk, only arecanut, popper, tea, coffee and rubber are harvested after November, but in the case of paddy, tapioca coconut and lemongrass the harvesting season is before November ; cardamon is gathered partly before November and partly after November. The same is the position in regard to the entire State except in respect of arecanut ; even in respect of arecanut, it is harvested in the Madras area other than Cannanore before November. The net result of this analysis is that in regard to a large extent of land cultivated in Kerala the harvesting season is the same in respect of all the crops except arecanut and even in the case of arecanut out of 1,23,833 acres cultivated with that crop the harvesting season in regard to 20,771 acres alone commences after November. In such a situation it cannot be said that the Legislature has arbitrarily, with an evil eye, selected the most advantageous period for the purpose of fixing the rate of taxation. The said discussion leads to the only conclusion that the Legislature in its sincere attempt to meet a difficult situation made a law adopting one of the diverse methods open to it and even the method adopted cannot be said to be either unreasonable or arbitrary, as the overall picture indicates that it works fairly well on all similarly situated, though some hardship may be caused to some in the implementation of the law which is almost inevitable in every taxation law. We cannot, therefore, say that in the present case the one method adopted instead of another is either arbitrary or capricious. The next argument is that there is discrimination between assessees in Kasaragod area and those in the rest of the Madras area in that in the case of arecanut the assessees of Madras area, other than Kasaragod Taluk, would be in a better position as they gather their crops before November. The 829 assessees of the Madras area under the Act formed one class and s. 2A applies to all of them : s. 2A applies to both parts of the Madras Area, i. e., the Malabar area and the South Kanara area. In both the cases the income of the assessees that accrued before November 1, 1956 was not taxable; in both the cases the income that accrued thereafter is liable to tax. The rate also is the same. The statement only shows that all the crops, except arecanut, are gathered by the assessees of the entire area during the same period. The fact that in the case of one of the crops the assessees in the Malabar area harvested earlier cannot be a ground for holding that the law has made an unjust discrimination between persons belonging to the same class, but that is due only to the fortuitous circumstance of some assessees gathering the crops earlier than others. As we have pointed out, the arecanut crop is only one of the many crops in that area and the extent of its cultivation in Kasaragod Taluk is comparatively lesser than that in the entire area of the State or even the Madras area. We cannot, therefore, say that the law made an unjust discrimination between persons belonging to the same class. There is another aspect which may have a bearing on the question raised. The impugned section is a temporary provision intended to apply only for one year to tide over a difficult situation brought about by the reorganization of States. It is true that every law, whether it is temporary or permanent, cannot infringe Art. 14 of the Constitution; but in considering the question of reasonableness of the legislation this circumstance will have some bearing, particularly when the legislature Selected one of the many methods open to it. Though the method selected may not be as good as others, we cannot hold that it is unreasonable and, therefore, liable to be struck down.

830 In the result the petition is dismissed with costs. It is common case that this decision will govern the other petition also, namely, Writ Petition No. 104 of 1961. The said petition also is dismissed with costs. There will be one set of hearing fee. This order is without prejudice to the order for costs made on 16-3-1962.

Petitions dismissed.