1. On a reference made by one of us (Puttaswamy j.), this case has been posted before us for disposal.
2. One Y. D. Nanje Gowda of Belur down, Hassan District, who is the petitioner before us, is the karta of a Hindu Undivided Family ('HUF') consisting of himself, his wife and several other members and is an assessee under the W.T. Act of 1957 (Central Act No. 27 of 1957) ('the Act'), on the file of the First Wealth-tax Officer, Hassan ('WTO'). The wife of the petitioner had her own yet wealth exceeding Rs. 1,00,000 during the relevant assessment year.
3. For the assessment year 1977-78, the petitioner in the status of an HUF filed a return under the Act before the WTO, who by his order dated September 20, 1977, (exhibit-A) completed the assessment as on March 31, 1977, at Rs. 5,83,100 and levied tax at the rates chargeable thereto under the Act. On the determination of net wealth made by the WTO, the petitioner is not aggrieved. But, he is only aggrieved by the higher rate of tax levied on him which is also in conformity with the Act. Hence, the petitioner in this petitioner under art. 226 of the Constitution has challenged Item No. 2 of Part I of the First Schedule to the Act introduced by the Finance Act of 1974 (Central Act No. 20 of 1974), as amended by the Finance Act of 1976 (Central Act No. 66 of 1976) (Finance Acts), as violative of arts. 14 and 19(1)(f) of the Constitution.
4. Article 19(1)(f) of the Constitution has been deleted by the Constitution 44th Amendment Act that came into force on June 20, 1979. With this, the challenge based on that the article is no longer available. Even if art. 19(1)(f) of the Constitution should be deemed to be part of the Constitution for purposes of this case, then also that article did not guarantee immunity from taxation. Sri K. R. Prasad, learned counsel for the petitioner, in our opinion, very rightly did not pursue this challenge of the petitioner. We, therefore, reject this challenged of the petitioner.
5. The petitioner has urged that an HUF with one member whose wealth exceed Rs. 1,00,000 has been subjected to a hostile and discriminatory treatment in naked violation of art. 14 of the Constitution. Secondly, he has urged that the classification of such an HUF for higher rate of tax was not based on any intelligible differentia and the differentia, if any, had no rational nexus with the object of the amendment and the same, therefore, violates art. 14 of the Constitution.
6. The respondents have resisted this petition.
7. Sri Prasad has contended that the amendment made to the Act by the finance Acts subjecting an HUF with one member whose net wealth exceeds rupees one lakhs to higher rate of tax was discriminatory, irrational, arbitrary and was violative of art. 14 of the Constitution. Elaborating this contention, Sri Prasad has urged that the Amending Acts had the effect of inventing a new class of HUFs unknown to Hindu law a for purposes of subjecting them to higher rate of wealth-tax though the wealth of the individual was not denied from an HUF itself and such a classification was violative of art 14 of the Consistution. Sri Ashok Mallya, and advocate appearing in similar cases whom we permitted to intervene has supported Sri Prasad.
8. Sri G. Sarangan, learned counsel for the respondents, refuting the contention of Sri Prasad has urged that the amendment made by the Finance Acts was not violative of art. 14 of the Constitution.
9. Learned counsel for both sides in support of their respective submissions have relied on a large number of ruling and a report to which we will refer at appropriate stage.
10. The Act that came into force from April 1, 1957, has been enacted to provide for levy of wealth-tax on the net wealth on the corresponding valuation date of every individual, HUF and company. Section 3 of the Act which is the charging section provides for levy of tax on the net wealth for every assessment year in accordance with the rates specified in Sch. I to the Act.
11. Prior to April 1, 1974, Sch. I of the Act regulating the rates of tax read thus :
'Part - I Paragraph - A (1) In the case of every individual or Hindu undivided family :Rate of Tax(a) where the net wealth does 1 per cent. of the wealth;not exceed Rs. 5,00,000(b) where the net wealth exceeds Rs. 5,000 plus 2 per cent. of theRs. 5,00,000 but does not amount by which the net wealthexceed Rs. 10,00,000 exceed Rs. 5,00,000;(c) where the net wealth Rs. 15,000 plus 3 per cent. of theexceed Rs. 10,00,000 but does not amount by which the net wealthexceed Rs. 15,00,000 exceeds Rs. 10,00,000;(d) where the net wealth Rs. 30,000 plus 8 per cent. of theexceed Rs. 15,00,000 amount by which the net wealthwealth exceed Rs. 15,00,000 :Provided that for the purpose of this item, - (i) no wealth-tax shall be payable, where the net wealth does not exceed the following limit, namely :- (A) Rs. 1,00,000 in the case of an individual; (B) Rs. 2,00,000, in the case of a Hindu undivided family; (ii) the wealth-tax payable shall, in no case, exceed 10 per cent. of the amount by which the net wealth exceeds the limit specified in sub-clause (A) or, as the case may be, sub-clause (B) of clause (i) of this proviso.' But, s. 14 of the Finance Act of 1974, and s. 27 of the Finance Act of 1976, substituted the same as here under : 'Part-I (1) In the case of every individual or Hindu undivided family, not being a Hindu undivided family to which item (2) of this paragraph applies, - Rate of tax(a) where the net wealth does not 1/2 per cent. of the net wealth;exceed Rs. 5,00,000(b) where the net wealth exceeds Rs.2,500 plus 1 1/2 per cent.Rs. 5,00,000 but decided ones not of the amount by which the netexceed Rs. 10,00,000 exceed Rs.5,00 000;(c) where the net wealth Rs. 10,000 plus 2 per cent.exceed Rs. 10,00,000 but does of the amount by which the netnot exceeds Rs. 15,00,000 exceeds Rs. 10,00,000;(d) where the net wealth Rs. 20,000 plus 2-1/2 per centexceed Rs. 15,00,000 of the amount by which thenet wealth exceedsRs. 15,00,000 :Provided that the purpose of this item, - (i) no wealth-tax shall be payable where the net wealth does not exceed Rs. 1,00,000; (ii) the wealth-tax payable shall, in no case, exceed 5 per cent. of the amount by which the net wealth exceeds Rs. 1,00,000. (2) In the case of every Hindu undivided family which has at least one member whose net wealth assessable for the assessment year exceeds Rs. 1,00,000, - Rate of tax(a) where the net wealth does not 11/2 per cent. of the netexceed Rs. 5,00,000. wealth;(b) where the net wealth exceed Rs. Rs. 7,500 plus 2 per cent.5, 00,000 but does not exceed Rs. of the amount by which the10,00,000 net which exceed Rs. 5,00,000;(c) where the net wealth exceeds Rs. Rs. 17,500 plus 2 1/2 per10,00,000. cent. of the amount by whichthe net wealth exceeds Rs.10,00,000.Provided that for the purposes of this item, - (i) no wealth-tax payable where the net wealth does not exceed Rs. 1,00,000; (ii) the wealth-tax payable shall, in no case, exceed 5 per cent. of the amount by which the net wealth exceeds Rs. 1,00,000.'
12. It is the validity of this classification of Hums for purposes of levy of wealth-tax at different rates that is challenged by the assessee in this writ petition. The effect of the amendments made by the said Finance Acts and in particulars by the Finance Act of 1974 was to increase the rate of taxes on an HUF, when such an HUF had one member whose wealth exceed Rs. 1,00,000 for the relevant assessment year as stipulated therein. If the earlier Schedule had remained on the statue book, the petitioner was liable to pay a sum of Rs. 7,300 as taxes under the Act. But, on the basis of the present Schedule incorporated by the Finance Acts the petitioner is made to pay Rs. 10,850 thus resulting in an increase by 11/2 times. On this construction and effect of the amendment, both sides are agreed.
13. We may now trace the genesis of the above amendments and in particular those made by the Finance Act of 1974, that are substantive and material to the Act.
14. On March 2, 1970, the Government of India appointed a Committee of experts under the Chairman of Sri Justice K. N. Wanchoo, retired Chief Justice of Indian, to examine and suggest legal and administrative measures for countering evasion and avoidance of direct taxes in the country (vide Chapter I - 'Introduction') of Direct Taxes Enquiry Committee - Final Report (published by the Government of Indian n December, 1971). The Wanchoo Committee examined tax avoidance prevalent in the country in great detail in Chapter III - 'Tax avoidance' - and made various recommendations action thereto. On HUF, with which alone we are concerned in this case, the Committee at paras 3.22 to 3.31 on pages 73 to 75 of the report stated thus :
'Hindu undivided family.
3.22. The present system of taxation gives certain advantages to the Hindu undivided family and its members. Subjects to certain exception, the income and wealth of the Hindu undivided family are taxed separately from the income and wealth of the members. The Hindu undivided family also enjoys higher exemption limit and higher monetary limit for deductions from taxable income in respect of sums paid as life insurance prima, etc., Further salary to the Karta is allowed as deduction in computing the taxable income of a business conducted by the Hindu undivided family.
3.23. All too frequently, members of a Hindu undivided family have their separate income or wealth, and yet neither are the proportionate share of their wealth or income belonging to the family considered in their respective assessments even for the rate purposes, nor, alternatively, are their separate incomes or wealth taken into account for determining the tax or the tax rate applicable to the Hindu undivided family. Members of a Hindu undivided family are thus able to enjoy the economic benefits of both kinds of income and wealth without any additional tax liability.
No wonder, the institution of the Hindu undivided family is widely used for tax avoidance. The normal modes by which a Hindu undivided family has been utilised by taxpayers for purposes of tax avoidance may be stated as under :
(a) create as many smaller Hindu undivided families within the main family as possible so that each one of the sub-branches in the main family becomes a separate unit of assessment and there has its income and wealth subjected to lower rate of tax; (b) where the Hindu undivided family has enormous properties, have partial partition of family assets, as many times as possible so that neither the family nor the individual faces higher tax liability; (c) whether there is ancestral property or not, have the self-acquired property thrown into the family hotchpot, so that individual's income liable to higher tax rate is reduced and also liability arising due to clubbing of income under section 64 of the Income-tax Act, 1961, is avoided; and (d) retain the ancestral property as the property of joint family as otherwise the property as well as the income from such property will be assessed in the hands of the members along with their individual incomes and wealth at a much higher rate. 3.24. Preferential tax treatment of the Hindu undivided family has been commented upon by various Committees appointed by the government of India.
The Taxation Enquiry commissioner (1953-54) noted that there were certain anomalies in the tax treatment of the Hindu undivided family but came to the conclusion that it would be inexpedient to make any far reaching changes in this regard, particularly for the reason that the Hindu Code Bill was then pending before the Parliament.
In his final report on Rationalization and Simplification of the Tax Structure, S. Bhoothalingam has stated that there has always been some scope to use the institution of the Hindu undivided family as means of lowering the tax liability of individuals and that 'in economic terms it would be justifiable to restrict or diminish the tax benefits which can thus be acquired in a perfectly legal way.'
3.25. The questionnaire issued by this Committee contained a question whether the Hindu undivided family was being used for tax avoidance and if so, what changed in law were required for plugging the loophole. A number of persons who sent replies states that the Hindu undivided family is being used as a medium for tax avoidance and that, therefore, a change in the mode of its assessment is necessary. Others preferred the status quo being maintained. In their statement before us, however some of these persons conceded that benefits of lower taxation were being achieved through the medium of the Hindu undivided family. The preferential tax treatment was none the less sought to be justified mainly on the ground of deep rooted sentiment and social security which this institution provides to its members.
3.26. We notice that the Taxation Law (Amendment) Act, 1970, and the Finance (No.2) Act, 1971, have plunged the leakage of tax through the device of throwing self-acquired property into the common hotchpot by and the Income-tax Act, 1961, the Wealth-tax Act, 1957, and the Gift-tax Act, 1958. However, these amendments have only limited application and have not full met all the problem in this behalf.
3.27. To have some idea about the extent of tax avoidance by the Hindu undivided families and their members by splitting up their incomes in a number of hands, we arranged studies to be made in certain Commissioner' charges. For this purpose, five or six big families were selected in each charge. The student revealed that tax avoided by the members of these was quite substantial. The number of income-tax files in members in the family was found to be more than the total number of avoidance for particular assessment year was as high 60 per cent. and 50 per cent, respectively.
3.28. We feel convinced that the Hindu undivided family as a unit of assessment is retained in most cases only when it enable the persons promptly partitioned without consideration of sentiment coming in the way. Several suggestion were made before us in regard to the treatment of Hindu undivided family for tax purposes. One suggestion was that family should be treated like an unregistered firm or association of persons. The others was that it should be treated like e a company. The third suggestion was that the family should be treated like a registered firm without the registered firm tax and its income should be apportioned among those of its members who would be entitled to a share on partition on the last day of the accounting year. Yet another suggestion was that while no change need be made in the made of assessment of the Hindu undivided family, a stepped up slab rate should be made applicable to it, if any of its members has dependent income above the maximum not liable to tax.
3.29. Acceptance of the first suggestion would lead to double taxation inasmuch as proportionate shares of members in the income of the Hindu undivided family will have to be included in their individual assessment for rate purpose. Also it would increase the administrative burden because the workload in the matter of assessments reassessments, revision, rectifications, etc., of the Hindu undivided family and its members would considerably go up without any corresponding reduction in the number of files to be handled. It is also likely to lead to delays in completion of assessments of members of the family. the second suggestion would act very harshly on familiars in the lower income brackets and has to be rules out on that consideration alone. The third suggestion appeared to be quite attractive initially inasmuch as it casts a more equitable tax burden on the family and renders ineffective the various techniques of tax avoidance adopted by the Hindu undivided family and its members. It would also put an end to the widely prevalent practice of simultaneously claiming two status, viz, that of Hindu undivided family land individual. However, this suggestion also sugars from the same disadvantages of administrative burden and delay as have been referred to by us with regard to the first one. We, therefore, decided against it acceptance.
3.30. the last suggestion is considered by us to be reasonable and a good practical alternative. We find that in Ceylon, a separate rate schedule is prescribed with regard to the income of Hindu undivided families. We are of the opinion that the availability of Hindu undivided family as a unit of assessment for the purposes of tax avoidance should be largely neutralised. We, therefore, recommend that the a Hindu undivided family should be taxed at a special rate if any of its members has independent income above the maximum not liable to tax. We suggest that such Hindu undivided families should be taxed at the following rate :
---------------------------------------------------------------------Income RateRs. %----------------------------------------------------------------------5,001-10,000 1510,001-15,000 2515,001-20,000 3520,001-30,000 4530,000-50,000 55over 50,000 65---------------------------------------------------------------------- In addition, 15 per cent. surcharge should also be leviable where the income exceed Rs. 15,000.
Similarly, under the Wealth-tax Act, there should be a separate schedule with higher rates applicable to Hindu undivied families where any members of the family has independentQ wealth above the exemption limit.
3.31. We consider that the above recommendation made by the us does not suffer from any of the disadvantage of the other suggestions. Though the above rates are higher than the corresponding rates suggested for individuals, there is adequate justification as there rates would be applicable only to cases where the members of a Hindu undivided family have more than one 'pocket' of assessment While limiting the scope for using the Hindu undivided family for purpose any change in the mode of assessment of the Hindu undivided family. administration would also not be faced with any additional burden as a result of our proposal.'
15. Accepting these recommendations, s. 14 of the Finance Act of 1974 amended the Schedule to the Act. The finance Act of 1976 again amended the rates only retaining the clause in principle effected in the Finance Act of 1974. Section 2 of the Finance Act, 1974, also made corresponding amendments in the I.T. Act of 1961 (the 'I.T. Act').
16. The annual Finance Bill of 1973 (Bill No. 5 of 1973), which was later enacted as the finance Act of 1974 introduced by the Hon'ble finance Minister, contained the usual statement of object and reason to the effect that it was to give effect to the proposals of the Central Government for the financial year 1973-74. Notices on clause 20 of that Bill enacted s. 14 of the finance Act, 1974 which is material reads thus ( 88 ITR 35 :
'Clause 20 seek to make certain amendments in part I of the Schedule to the Wealth-tax Act relating to rates of wealth-tax. Under these amendments, the existing rate schedule of ordinary wealth-tax will apply only in the case of individual and Hindu undivided families not having that is, the maximum amount not chargeable to wealth-tax in the case of case of Hindu undivided families, having one or more members, with independent net wealth exceeding Rs. 1,00,000 that is, the maximum amount not chargeable to wealth-tax in the case of an individual will be as follows :
On the first Rs. 5,00,000 of net wealth ... 2 per cent.
On the next Rs. 5,00,000 of net wealth ... 3 per cent.
On the balance of the net wealth, i.e., of Rs. 10,00,000 ... 8 per cent.
However, no wealth-tax will be payable in a case where the net wealth does not exceed Rs. 2,00,000. It is also being provided, by way of marginal relief, that the wealth-tax payable shall not exceed 10 per cent. of the amount by which the net wealth exceed Rs 2,00,000.
These amendments will take effect from 1st April, 1974, and will, accordingly apply in relation to the assessment year 1974-75 and sub-sequent years.'
17. On this aspect, the speech delivered by the Hon'ble Finance Minister on February 28, 1973 introducing his budget proposals and the finance Bill before the House of the people (Lok Sabha) stated thus  88 ITR 40 :
'It is generally recognised that the present system of tax treatment of Hindu undivided families has encouraged tax avoidance. It is my view that the unintended tax benefits currently available to Hindu undivided families should, to the extent possible, be neutralised I, therefore, propose to provided separate rate schedules, in respect of both income-tax and wealth-tax, with higher rates applicable to Hindu undivided families having one or more members with independent income or wealth exceeding the exemption limit. This is one of the recommendation of the Direct Taxes Enquiry Committee. It is also proposed to being the minimum exemption limit in the case of all Hindu undivided families to the uniform level of Rs. 5,000 applicable in the case of individuals.'
18. From this it is clear that the Government had accepted the recommendations of Wanchoo Committee's Report on HUF and Parliament approvement the same by enacting s. 14 of the finance Act of 1974, reiterated in the Finance Act of 1976. This in brief is the backdrop of the legislation.
19. The true scope and ambit of art. 14 of the Constitution, with reference to taxation measure in particular, has been explained by the Supreme Court in a large number of cases and it is unnecessary to reference to all of them and set out the relevant extracts from all of them. We consider it useful to refer to Twyford Tea. Co. Ltd. v. State of Kerala : 3SCR383 , in which the Supreme Court upheld the kerala Plantation (Additional Tax) (Amendment) Act of 1960, as amended in 196n7. In this case the majority, specking through Hidayatuallh C. J., reviewed all the earlier cases of the court including Kunnathal Thathunni Moopil Nair v., State of Kerala, : 3SCR77 on which very strong reliance is placed by Sri Prasad before us, the American Supreme Court, several classic treatises on the subject and summarised the principles to be applied in examining a challenge to a taxation measure based on art. 14 of the Constitution, in these words (at p. 1137 of 1970 AIR) :
'We may now state the principle on which the present case must be decided. These principle have been stated earlier but are often ignored when the question of the application of article 14 arises. One principle on which out courts (as indeed the Supreme Court in the United Stated) have always acted, is nowhere better stated than by Wills in his 'Constitution Law' page 587. This is how he put it :
'A State not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects person, methods and even rates for taxation if it does so reasonably....... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation.'
This principle was approved by this court in East Indian Tobacco Co. v. State of A. P. : 1SCR404 . Applying it, the court observed.
'If a State can valid pick and choose one commodity for taxation and that is not open to attract under article 14, the same result must follow when the State picks out one category of goods and subject it to taxation.'
This indicates a wide ranged of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate or rates applicable. If production must always be taken into account here will have to be settlement for every years and the tax would become a kind of income-tax.
The next principle is that the burden of proving discrimination is always heavy and heavier still when at taxing statute is under attack. This was also observed in the same case of this court at page 411 (of SCR) (at p. 1735 of AIR) approving the dictum of the Supreme Court of the United States in Madden v. Kentycky  309 US 83; 84 L ED. 590.
'In taxation even more than in other fields, Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislate arrangement to negative every conceivable basis which might support it'.
As Rottschaefer said in his Constitutional Law at pa. 668.
'A statute providing for the assessment of one type of intangible at its actual value while other intangible are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax'. The decisions of the Supreme Court in this field have permitted a State Legislature to exercise 'an extremely wide discretion' in hostile classifying 'properly for the purpose' so loing as it refrained from clear and hostile discrimination against particular persons or classes.' The burden is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile is not proved to us how the different plantations can be said to be 'hostile or unequally' treated. A uniform wheel tax on cars does not take into account the value of the car, the mileage, it runs, or in the case of taxis, the profits it makes and the miles per gallon it delivers. An Ambassador taxi and a Fiat taxi give different out turns in terms of money and mileage. Cinemas pay the same show fee. We do not take a doctrinaire view of equality. The Legislature has obviously thought of equalising the tax through a method which is inherent in the tax in the tax Scheme. Nothing has been said to show that there is inequality much less 'hostile treatment'. All that is said is that the State must demonstrate equality. That is not the approach. At this rate nothing can ever be proved to be equal to another.
There is no basis even for counting one tree as equal to another, Even in a thirty years' settlement the picture may change the very next year for the some reason but the tax as laid continues. Siwai income is brought to laid revenue on the basis of number of trees but on the basis of the produce. This is worked out on an average income per tree and not on the basis of the field of any particular tree or trees.
What is meant by the power to classify without unreasonably discriminating between person similarly situated, has been stated in several other cases of this court. The same applies when the legislator reasonably applies a uniform rate after equalising matters between diversely situated persons. Simply stated the law is this : Difference in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differentially treated. when differential treatment is not reasonably explained and justified, the treatment is discriminatory. If different subjects are equally treated, there must be sole basis on which the difference have been equalised otherwise discrimination will be found. To be able to succeed in the charge of discrimination, person must establish conclusively that persons equally circumstance have been treated unequally and vice versa. However, in Khandiage Sham Bhat v. agrl ITO : 3SCR809 , it was observed :
'If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over other, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine : vide Purshottm Govindji Halai v. B. N. Desai : 1956CriLJ129 and Kunnathat Thathunni Moopil Nair v. State of Kerala : 3SCR77 . But, in the application of principles, the courts in view of the inherent complexity of fiscal adjustment of diverse elements, permit a large discretion to the Legislature in the matter classification, so long as it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify if of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways.'
20. In Murthy Match Works v. Assistant Collector of Central Excise, : 1978(2)ELT429(SC) ; G.K. Krishnan v. State of Tamil Nadu, : 2SCR715 and R. K. Garg v. Union of Indian, : 133ITR239(SC) , the Supreme Court noticing twyford Tea Co. Ltd.'s case : 3SCR383 , has only reiterated the above statement of laws. In Hira Lal Rattan Lal v. STO : 2SCR502 , the Supreme Court has ruled that administrative convenience was a valid ground for classification in a taxation measure. In Balaji v. ITO : 43ITR393(SC) and Pooran Mal v. Director of Inspection : 93ITR505(SC) , the Supreme Courts has rules that differentiation made in a taxation measure to check evasion or avoidance of tax was a valid ground. Bearing these principle in mind, we will now proceed to examine the challenge of the petitioner to the Act.
21. An HUF which is a creature of the Hindu religion and law with its own distinct, peculiar characteristics and legal incidents to which aspect, it is unnecessary to notice in any great detail, cannot be compared to other assessable entities or persons under the Act. If the Act or the amendments made thereto treats an HUF differently for purposes of assessment or levy of rate also, in the light of the principles enunciated in the cases noticed by us earlier, it is difficult to hold that the same violates art. 14 of the Constitution.
22. What is true of an HUF is more true of an HUF consisting of a member with a separate wealth or income of his own that exceeds a particular monetary limit. Without any doubt, such an HUF cannot be compared to another HUF that does not enjoy such a benefit and other assessable entities under the Act. When such an HUF which does not compare itself with another HUF that does not enjoy such benefits or other assessable entities is treated uniformly, we find it difficult to hold that the same contravenes art. 14 of the Constitution. On this short ground, the challenge of the petitioner based on art. 14 of the Constitution is liable to be rejected.
23. We have noticed earlier that the amendments to the W.T. Act and the I.T. Act were made to check avoidance or evasion of taxes by HUFs with due regard to the 'Administrative convenience' on the basis of very weighty recommendations made by a high power and expert committee on the subject. We cannot sit in judgment over them at all. We must accept them as correct and examine the case on that basis only. If that is so, and when we find that those that are similarly situated are treated similarly or uniformly, that too in the light of the principles applicable to a taxation measure, there is hardly any ground for us to hold that the amendments violate art. 14 of the Constitution. Even otherwise, the difference between the two classes of HUFs has rational nexus with the object of preventing avoidance of taxes by HUFs.
24. That an HUF with one member, with a particular wealth or income, had been subjected to a higher rate of tax can hardly be doubted. Sri Prasad was bitterly critical of this classification and base.
25. What we have said earlier equally meets this criticism of Sri Prasad. Even otherwise, the failure, if any, to make a further classification or a better classification can hardly be a ground to condemn the measure as violative of art. 14 of the Constitution. We see no merit in this ground also.
26. In Kunnathat Thathunni Moopil Nair's case : 3SCR77 and State of Kerala v. Haji K. Haji K. Kutty Naha, : 1SCR645 , cases on which very strong reliance was placed by Sri Prasad, to contend that the classification made or refusal to make a classification suffers from those very infirmities as found in those cases, we must reject the same for the very reasons the majority rejected in Twyford Tea Co. Ltd.'s case, : 3SCR383 . Even otherwise, those cases were rendered on the fact situations that were found in those cases and the discrimination being too apparent as was found in those cases. We are, therefore, of the view that those cases do not bear on the point and assist Sri Prasad.
27. Sri Prasad relying on the new doctrine evolved by the Supreme Court in E. P. Royappa v. State of Tamil Nadu, : (1974)ILLJ172SC , Maneka Gandhi v. Union of India, : 2SCR621 , Ramana Dayaram Shetty v. International Airport Authority of India, : (1979)IILLJ217SC and Ajay Hasia v. Khalid Mujib Sehervardi, : (1981)ILLJ103SC , that arbitrariness was the very antithesis of the rule of law enshrined in art. 14 of the Constitution, with considerable vehemence has urged that the basis chosen or splitting of HUFs into the two groups and really punishing a specified HUF, though the individual that possessed separate wealth does not augment or contribute to an HUF form his separate wealth, was opposed to the true concepts of the Hindu law, irrational, arbitrary and was violative of art. 14 of the Constition.
28. The Amending Act has not interfered with the rights and incidents of an HUF or its members. The Amending Act does not interfere with an HUF or its incidents. When that is so, there is hardly any justification for this court to examine the validity of the Act vis-a-vis the Hindu law or art. 14 of the Constitution also.
29. We are of the view of that every one of the reasons on which the majority in Garg's case : 133ITR239(SC) rejected the challenge to the Special Bearer Bonds (Immunities and Exemptions) Act of 1981, holds goods to reject this challenge of the petitioner to the Act before us. We do not find anything arbitrary or irrational or unreasonable in choosing an HUF with one member whose net wealth exceeds rupees one lakh for a higher rate of tax. We see no merit in this ground also and we reject the same.
30. In Ram Swarup Kaushal v. Union of India : 139ITR887(All) , a Division Bench of the Allahabad High Court dealing with the corresponding amendment by the Finance Act of 1974 to the I.T. Act has sustained the same rejecting a similar challenge and certain other challenges also. On the challenge based on art. 14 of the Constitution, the Division Bench has expressed thus (at p. 896) :
'It cannot be denied that, even though an HUF is essentially a creation of the Hindu law and it is not a voluntary organisation like a firm of any other association of persons, still, from the point of view of taxation, it, in some important aspects, partakes the nature of an association of persons where income is derived by pooling of resources and eventually the profits are utilized for the benefit of the members. The provisions contained in the I.T. Act have throughout been treating an HUF on a footing different from other association of persons. Whereas the amount received by an individual from other associations of persons including firms goes to augment his total income, similar amount received by a member from an HUF does not go to augment his total income. It will thus be seen that, throughout, members of the HUF were, for the purpose of taxation, being given a certain preferential treatment. Even though a HUF is a creature of the Hindu law, the I.T. Act countenances partial partition so that, while retaining the bigger HUF, a number of smaller HUFs can, within its fold, be created with a view to gain further advantage of the members of the HUF in the matter of taxation. Such advantage cannot be derived by the members of any other associations of persons. In the circumstances, HUF, as an assessable entity, cannot be equated and compared with any other assessable entity and if, keeping in view such advantage in the matter of taxation which was being derived by the HUF, the Legislature subjected it to taxation at a higher rate, it cannot be said that it did anything which contravened art. 14 of the Constitution.
Learned counsel for the petitioner then urged that in any case there was no basis for making a distinction between an HUF, no member of which had an income of over Rs. 5,000 and an HUF, of which at least one member had income of over Rs. 5,000. The reason for such classification is obvious. In a case where no member of the HUF is taxable income of over. In a case where no member of on an HUF is able to derive any income Rs. 5,000, no member of the HUF is able derive any special advantage in the case rate of taxation because of the special treatment meted only the I.T. Act of an HUF. In such a case, it would make little different whether the proportionate income derived by a member from the HUF is added to his to his total income or not as the incidence of taxation would work out more be less in a way similar (though not mathematically) to that in the cases of firms and other associations of persons. But, in a case where there is a member of the HUF deriving income over Rs. 5,000, the member, because of the treatment meted out by the I.T. Act to HUFs, certainly derives an advantage not available to members of other associations of persons. Thus, looking from the point of view of taxation, there exists goods reason for placing the two categories of HUFs, as have been placed in different categories and their being subjected to tax at different rates, specially with a view to neutralize the advantage, which, till then was being derived by members of such HUF cannot, on the basis of the decisions cited above, be said to contravene art. 14 of the Constitution.'
31. These principles equally apply on all fours to the amendments made to the Act by the very Finance Act. We are in respectful agreement with these view. For these reasons also, the challenge of the petitioners to the Act is liable to be rejected.
32. As the only contention urged for the petitioner fails, this writ petition is liable to be dismissed. We, therefore, dismiss this writ petition and discharge the rule issued in the case. But, in the circumstances of the case, we direct the parties to bear their own costs.