These three with petitions involve the interpretation of section 4(ii) of the Expenditure-tax Act, 1957 (29 of 1957), as amended by the Finance Act of 1959, hereinafter called the Act, and its validity, namely, whether it offends articles 14, 19 and 31 of the Constitution. Apart from this, the jurisdiction of the Expenditure-tax Officer to reopen the assessments already made has been questioned.
In order to understand the points urged before me, it is necessary to state briefly a few facts :
The petitioner, Highness Prince Azam Jah, the eldest son of Nizam, filed expenditure-tax returns under the Act for the assessment years 1959-60, 1960-60 and 1961-62 and on the basis of the returns, the respondent - Expenditure-tax Officer, Circle No. II - completed the tax assessments on March 27, 1961, December 22, 1961 and January 25, 1962, assessing him to a taxable expenditure of Rs. 2,34,864, Rs. 1,66,687, and Rs. 2,30,384 respectively for these three years. The tax demands were also paid in full. Thereafter, the respondent issued notice dated, May 5, 1962, under section 16 of the Act, calling upon the petitioner to file supplemental returns of expenditure for the three years in question on the alleged ground that the respondent had reason to believe that the petitioners expenditure had escaped assessment or had been under assessed. But, since the petitioner was not aware of the reasons which actuated the respondent to reopen the assessments, he filed supplemental returns of expenditure on July 16, 1962, declaring the same expenditure as shown in the original returns and subsequently a date of hearing was fixed on July 20, 1962, at which hearing the petitioners representative was informed by the respondent that the three assessments had been reopened for the purpose of including in the petitioners assessment, the expenditure incurred by his wife, Princess Durre Shehvar, as required by section 4(ii) of the Act, as amended by section 24 of the Finance Act, 1959. A letter was also written by the respondent to the petitioner on July 20, 1962, calling upon him to state his objections by July 25, 1962, for the inclusion in his assessments of his wifes expenditure in the previous year relevant for the three years mentioned above and stating that exemptions and deductions if permissible under section 5 and 6 of the Act, will however be allowed. It is these proceedings that the petitioner challenges and, inter alia, contends :
(1) that the reopening of the assessment section 16(1) (a) of the Act is wholly arbitray and illegal inasmuch as the fact that Princess Durre Shehvar is the wife of the petitioner and that she has to be considered as his dependent within the meaning of section 2(g) of the Act as amended by section 22 of the Finance Act, 1959, were well within the knowledge of the respondent and were duly mentioned to him; as such there was no omission or failure on the part of the petitioner to make a return of his expenditure or to disclose fully and truly all material facts; nor had the respondent come into possession of any information warranting a reasonable belief that any expenditure had escaped taxation. Since all the material facts have been disclosed and all the necessary information was available, the Expenditure-tax Officer has no jurisdiction to reopen the assessment merely because he has changed his opinion.
(2) On a reasonable interpretation of section 4(ii) of the Act, only that expenditure of the dependent is included in the taxable expenditure of the individual, which expenditure is incurred from or out of the income or property transferred directly or indirectly to the dependant by the assessee and consequently since the petitioners wife has her own source of income and property and incurred her expenditure from out of the monies exclusively belonging to her, the expenditure incurred by her during the relevant three assessment years is not includible in the petitioners expenditure.
(3) That the expenditure-tax authorities are simultaneously proceeding against the petitioner and his wife, which is a case of a double taxation and they are not entitled to do so.
(4) Section 4(ii) of the Act, as amended by section 24 of the Finance Act, is ultra vires the Constitution, as it violates article 14 and is discriminatory character, inasmuch as section 4(ii) of the Act, as it stood in 1957, before the amendment, did not make any distinction as regards the inclusion of dependants expenditure in so far as the individuals and Hindu undivided families are concerned, but the amendment brought about an unreasonable discrimination as between the two units of assessees mentioned above. This discrimination, it is stated, is that whereas in the case of an 'individual', the expenditure incurred by any dependant of such individual has to be included in the assessment of the individual, without having regard to any other consideration, in the case of a Hindu undivided family the expenditure by any dependant from or out of any income or property transferred directly or indirectly to the dependant by such family alone has to be included. Thus, the individual assessee are discriminated against the Hindu undivided families, which treatment offends article 14 of the Constitution.
(5) That the provisions of the Act constitute an unreasonable restriction on a persons right to hold and enjoy property and consequently violate articles 19 and 31 of the Constitution.
The respondent in his counter has averred that the petitioner, in pursuance of section 13 of the Act, was required to file a return in the prescribed form and verified in the prescribed manner, setting forth his expenditure for the previous year. The form and the verification which are prescribed clearly indicate the inclusion of the dependants expenditure and have also carefully set out for the information of the assessee, who the dependant is, as per the terms of the definition in the Act. That by virtue of the amendment to section 2(g) by the Finance Act, 1959, the petitioners wife is admittedly a dependant of the petitioner, whose expenditure has to be included in the original returns of the assessee and these should have been included in the assessment; and that as they have not been so included, the respondent had reason to believe that the assessee has not disclosed truly and fully all the material facts for the aforesaid assessment years and was consequently entitled to reopen the assessments under section 16 of the Act. He has contested the validity by the contention of the petitioner impugning the vires of the Act on the ground that it is discriminatory and offends article 14 of the Constitution and also the interpretation sough to be put by him on section 4(ii) of the Act. It is submitted that there is no discrimination between one individual assessee and another individual assessee but the distinction has been made by the legislature for proper and valid grounds between the individual assessee and the assessee who is a Hindu undivided family; that equality before law means among equals law should be equal and should be equally administered and there should be no discrimination within the same class. It was also pointed out that the legislature was empowered to fix a minimum taxable limit of an individual assessee under the Income-tax Act at Rs. 3,000, whereas in the case of an Hindu undivided family, it is Rs. 6,000. For this reason, the aforesaid provisions cannot be considered as discriminatory in character, as a separate treatment is contemplated by the legislature to be given to Hindu undivided families in view of its peculiar constitution as compared to that of an individual. The class of persons being different, the distinction cannot be claimed to be discrimination which is hit by article 14 of the Constitution of India. In any event, Parliament is entitled to have a reasonable classification and the distinction made in this regard is valid, intra vires and is in accordance with law. The contention of the petitioner based on articles 19 and 31 of the Constitution was also said to be without merit. Further, the contentions of the petitioner that the assessees wife had already filed the returns and that she may be assessed separately and that it would cause hardship to him if the expenditure of his wife is assessed in his hands as he is entitled for such of the reliefs she would have been entitled if she is assessed separately, are devoid of any merit. No separate assessments on her have so far been made, nor any demands for tax have been raised against her and that after the completion of the reassessment proceedings of the assessee including her expenditure the assessment proceedings against her will be dropped. The allegations of the petitioner that the assessees wife has her own monies and she has spent the monies belonging to her and as such her expenditure should not be included in his assessments, have been described as equally untrue and untenable. Lastly, it was contended that in any event the petitioner cannot take advantage of the provisions of articles 14 and 19 of the Constitution, in view of the fact that the Government of India passed an Ordinance suspending the operation of these provisions in view of the emergency.
Take the last point raised by the respondent, namely, that articles 14 and 19 of the Constitution cannot be invoked, having regard to the declaration of emergency and the passing of the Ordinance suspending the operation of these provisions during the emergency, it is rightly conceded by the learned advocate for the respondent that this contention cannot be sustained. A notification of the Government of India, G. S. R. 1464, was issued in exercise of the powers conferred by clause (1) of article 359 of the Constitution under with the President declared that the right of any person to move any court for the enforcement to article 14, article 21, or article 22 of the Constitution, shall remain suspended for the period during which the Proclamation of Emergency issued under article 352 thereof on the 26th October, 1962, is in force, if such persons has been deprived of any such rights under the Defence of India Ordinance, 1962 (4 of 1962) or any rule or order made thereunder. The suspension, therefore, is only in relation to the protection of life and personal liberty and protection against arrest and detention and has nothing to do with article 19 and article 31 of the Constitution, nor with 19 in so far as it does not relate to personal freedom.
The first contention urged by the learned counsel for the petitioner concerns the jurisdiction of the Expenditure-tax Officer to reopen the assessments under section 16 of the Act, which is more or less in similar terms with section 34 of the now repealed Income-tax Act, 1922, and is in the following terms :
'Expenditure escaping assessment. - If the Expenditure-tax Officer -
(a) has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his expenditure under section 13 for any assessment year, or to disclose fully and truly all material facts necessary for his assessment for that year, whether by reason of underassessment or assessment at too low a rate or otherwise; or
(b) has in consequence of any information in his possession reason to believe, notwithstanding that there has been no such omission or failure as is referred to in clause (a), that the expenditure chargeable to tax has escaped assessment for any assessment year, whether by reason of underassessment or assessment at too low a rate or otherwise;
he may, in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within years of the end of that assessment year serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 13, and may proceed to assess or reassess such expenditure, and the provisions of this Act shall, so far as may be, apply as if the notice has issued under that sub-section.'
The apparent reason why the legislature has classified the escapement of tax into two categories is that in case of (a) default is that of the assessee and in the case of (b) default may or may not be of the assessee, but due even to inadvertence or mistake on the part of the officer, tax had in fact escaped assessment. In the first case, jurisdiction to reopen the assessments has been fixed 'at any time within eight years' and in cases falling under clause (b) at any time within four years of the end of that assessment year. In other words, it is for the purpose of limitation that the classification has been made in the above manner. The learned advocate for the petitioner contends that the facts of the case do not warrant the assumption of jurisdiction under section 16(a) of the Act, though, even if it was under section 16(b), the notice is well within the time prescribed there under for the reopening of the assessment under that provision. There is some misapprehension in the mind of the learned advocate that notice has been issued under section 16(a). It is not so. The notice merely states that it is under section 16 of the Act. In a subsequent letter, however, the Expenditure-tax Officer did refer in the subject portion of his letter to 'returns of expenditure filed in response to the notices issued under section 16(a) of the Expenditure-tax Act, 1957' and also mentioned in the letter itself that in annexure V of the returns of expenditure furnished by the assessee under section 16(a) of the Act for the assessment years 1959-60 to 1961-62, he stated that his wife 'Princess Durre Shehvar has her own sources of income and lived in London for the most part. She met her expenditure out of money exclusively belonging to her. She is no means a dependant on me.' Evidently it is not the notice issued by the Expenditure-tax Officer which was under section 16(a) of the Act, but the returns filed by the assessee specified that they were filed under the provisions of clause (a). Be that as it may, in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax their Lordships of the Supreme Court were dealing with a case where, following the decision of the Patna high court in Kamakshya Narain Singhs the Income-tax Officer omitted to bring to assessment for the year 1945-46, the sum of Rs. 93,604 representing interest on arrears of rent due to the assessee in respect of agricultural land on the ground that the amount was agricultural income. Subsequently the Privy Council had on appeal from that decision held that interest on arrears of rent payable in respect of agricultural land was not agricultural income, and, as a result of this decision, the Income-tax Officer initiated reassessment proceedings and brought the amount of Rs. 93,604 again to tax under section 34(1) (b) of the Income-tax Act. On these facts, the Supreme Court held, firstly, that the word 'information' in section 34(1) (b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions; secondly, that 'escape' in section 34(1) (b) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities, but even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment; and, thirdly, that the decision of the Privy Council was 'information' within the meaning of section 34(1) (b) and that their decision justified the belief of the Income-tax Officer that part of the appellants income had escaped assessment, for the relevant year. The two conditions which must be satisfied before the Income-tax Officer could act under section 34(1) (b) as observed by their Lordship, were : (i) that he must have information which comes into his possession subsequent to the making of the original assessment order, and (ii) that information must lead to his belief that income chargeable to tax has escaped assessment, has been under assessed or assessed at too low a rate, or has been made the subject of excessive relief.
The learned advocate for the petitioner, however, sought to contend that it is a case of change of opinion, which cannot be said to be in consequence of any information in his possession within the meaning of section 16(b) of the Act. On the facts and circumstances of the case, in my view, there is no question of any change of opinion. The returns have to be filed in the prescribed from in clause 4 of Part I of which there is a definite heading, 'Where the assessee is an individual, any expenditure incurred by any dependant (mentioned in annexure 'V') of the assessee or where the assessee is a Hindu undivided family, any expenditure incurred by any dependant (mentioned in annexure 'V') from or out of any income or property transferred directly or indirectly to the dependant (see section 4(ii))'. In annexure 'V' the names of the individual dependants have to stated, their relationship and age has to be mentioned. While filing returns, the petitioner did not mention the particulars required under the aforesaid items. The verification also shows that the assessee has declared the information given in Parts I to II including annexure 'V' specified therein. This information has not been furnished, any to say that the Expenditure-tax Officer was aware that the petitioner had a wife and that she had filed her returns does not absolve him from his liability to give the information required in the prescribed form. In Akula Venkata Subbian v. Commissioner of Income-tax a Bench consisting of the honourable the Chief Justice and myself, held that the failure of an assessee, wholes minor child had been admitted to the benefits to partnership in the firm of which the assessee is a partner to furnish the particulars of that firm in Part III of his return would amount to non-disclosure of material facts within the meaning of section 34(1) (a) of the Indian Income-tax Act, 1922. The extreme contention set up by the department in that case was that since Form No. III was not filled up there was no valid return within the purview of section 34, was negatived and it is only with respect to the second part of section 34(1) (a) it was held to be applicable. In this regard it was contended there, as it is now contended before me, that there is no obligation on the part of the assessee to give any particulars regarding the partnership or to describe the minors as having been admitted to the benefits of the partnership, since all the material necessary to enable the department to include the income of the minors in the total income of the assessee was available to them. In that position, the omission on his part to mention those facts could not bring the case within the second part of section 34(1) (a). The contention also was negatived by the Bench. We held that the particulars described in Form III must be furnished as they are all that failure to conform to section 22(5) will amount to non-disclosure of all material facts necessary for the assessment of that year and that so far as the assessment year 1949-50 is concerned the department acted correctly in having recourse to section 34(1) (a). In so far as the assessment year 1952-53 was concerned, the names of four minor sons admitted to the benefits of the partnership were in fact disclosed and their shares mentioned. In the circumstances, it was held that there was no obligation on the part of the assessee to include the income of the minors within his total income for computation under section 16(3). His Lordship the Chief Justice observed at page 464 :
'We are unable to find anything in the language of either section 34 or of section 16 which warrants the conclusion that it is incumbent on the assessee to include the income of the minor partners in his total income. Section 16 authorises and even casts a duty on the officer concerned to include all the artificial incomes in the total income of the assessee. If the return contains all the material facts, which would put the officer in a position to compute the total income, it is his duty to include the income contemplated by section 16. There is no further obligation laid on the assessee.'
In Calcutta Discount Co. Ltd. v. Income-tax Officer Das Gupta J. observed at page 376 :
What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and, taking all these together, to decide what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - I have produced the account books and the documents : You, the assessing officer, examine them, and find out the facts necessary for your purpose : My duty is done with disclosing these account books and the documents.'
The learned advocate for the petitioner states that there is no such Explanation to section 16 of the Act as in section 34 of the Indian Income-tax Act, 1922, but the duty to disclose the primary facts which are considered material for the determination of the liability is none the less there. The prescribed form pointedly draws attention to the material facts which are to be disclosed. In this case, merely because the petitioners wife submitted some returns, it cannot be said that all material facts have been disclosed by the petitioner. I have little doubt that the notice under section 16 of the Act validly confers jurisdiction upon the Expenditure-tax Officer to take proceedings for the assessment or reassessment of expenditure.
The second contention relates to the interpretation of section 4(ii) of the Act. But, before section 4(ii) is noticed, it will be necessary to also read section 2(g), (h) and (o), section 3 and section 6(1) (h), in so far as they are amended in juxtaposition with the previous provisions :
It may be stated that the expenditure-tax is a new tax and, as claimed by the Finance Minister, not tried anywhere else in the world. Though a good many allowances are given under various heads in section 5 and 6, the rate of tax proposed is high - it begins with 10% and goes up to 100% if the expenditure exceeds Rs. 50,000 of the taxable expenditure. The object of the Bill as stated in the statement of objects and reasons is to impose an annual tax on personal expenditure above a prescribed level of an individual and a Hindu undivided family. Such tax in addition to being a daterrent to personal expenditure and incentive for savings is said to form a significant part of an integrated tax structure. Under the Scheme of the Expenditure-tax Act, the expenditure incurred by any individual or Hindu undivided family was to be taxed from the financial year commencing on 1st April, 1958, at the rate or rates specified in the Schedule. However, the proviso to taxing section 3 states that no tax is payable by an assessee for any assessment year if his income from all sources during the relevant previous years is reduced by the amount of tax and such income made liable under any other law for the time being in force does not exceed Rs. 36,000. In other words, there should be a sum over Rs. 36,000 after the amount of tax which may be liable under any other law has been deducted from the income. But the expenditure itself has been defined rather broadly to include all disbursements and spendings whether in cash or kind and, having thus broadly defined it, the legislature proceeded to exempt expenditure in the substantive provisions of the Act. The Act has also used the word 'taxable expenditure' which has been defined as the total expenditure of an assessee liable to tax under the Act and it is this taxable expenditure that is liable to be taxed at the rate or rates specified in the Act. What is to be included has been set out in section 4, and the exemptions from expenditure in certain cases and deductions to be made in computing the taxable expenditure have been set out in sections 5 and 6 respectively.
Under the scheme of the Act, the words 'in respect of expenditure' are somewhat misleading because as I have already stated it is not all expenditure which is taxable nor is it apparent from the taxing section, unless one reads it together with section 4 as to what is included in the taxable expenditure, nor is there anything in the section to indicate that expenditure has to be computed after taking in certain inclusions and exclusions and certain allowances and deductions. Yet the Schedule to which the section refers makes the rate or rates applicable not to expenditure purely as defined under section 2(h) but to the taxable expenditure in the context of exclusion from expenditure of the nature mentioned in sub-section (2) of section 3 and in the context of various classes of expenditure from taxable expenditure under section 5 and the deductions and allowances in computation of taxable expenditure under section 6, what is intended to be taxed is the total expenditure liable to tax which is termed the taxable expenditure as defined in section 2(o). The methods of computation for arriving at the taxable expenditure is firstly there should be included in the assessees expenditure, expenditure incurred by third parties under section 4 and, secondly to exclude and deduct, from the assessees expenditure so computed, the various items mentioned in section 3(2), section 5 and section 6. From what is stated, it is apparent that the taxing section has not been happily drafted to bring out the intention of the legislature. This being the scheme of the Act, sections 3, 4, 5 and 6 have to be read together in order to compute the total expenditure liable to tax. It may now be seen what under section 4 was the position before amendment and after the amendment in respect of inclusion of expenditure of third parties in the expenditure of assessees. In order to determine this, the definition of dependant has to be borne in mind. In the case of individuals, dependant is his or her spouse or child who are wholly or mainly dependent on the assessee for support or maintenace. The dependence, therefore, is qualified by their being in the main or for the most part depending on the assessee. In the case of a Hindu undivided family, dependant is every coparcener other than a karta and other member of the family who under any law or order or decree of a court is entitled to maintenance from the joint family property. After the amendment the qualification of dependence has been omitted in so far as the husband or wife or child is concerned and is only is only applicable to any other person wholly or mainly dependent on the assessee for support or maintenance. As far as the Hindu undivided family is concerned, there is no change. My attention has been drawn to the Budget Speech of the Finance Minister for 1959-60, reported in 35 I.T.R. page 57, in paragraph 66 of which he states :
'I propose therefore to withdraw some of the exemptions no available, and in particular, to provide that the husband, wife and minor children should be regarded as one unit for the exemption limit of Rs. 30,000 in the matter of non-taxable expenditure and not separate assessees if they have incomes in their individual rights.'
In the memo, explaining the provisions of the Finance bill, in so far as is relates to the definition of dependant, it is stated thus : 'At present the wife and children are dependants, if they are wholly or mainly dependent on him for support and maintenance. It is now proposed to dispense with this requirement. Any other person who is actually dependent on the assessee for support an maintenance will also be regarded as dependant.' Reading this definition in section 4(ii) before its amendment, what was sought to be included in the assessees expenditure was the expenditure incurred by any dependant, viz., his or her spouse or child who were mainly or wholly dependent upon him for support and maintenance for the benefit of the assessee or for any of his dependants, out of any gift, donation, settlement or trust or out of any other source made or created by the assessee whether directly or indirectly. There was therefore a relationship between the expenditure incurred and the income which the dependant derived from out of the property transferred directly or indirectly by the assessee by way of gift, donation, settlement or trust or out of any other source made or created by the assessee. It did not intend to include in the assessees expenditure, any expenditure incurred by a dependant from out of the income which is derived from his own personal property. Though the unamended section did not contain any provision relating to the undivided Hindu family, none the less, since the definition of dependant took in coparceners and other persons entitled to maintenance, the position was the same as that of the individual, in that the expenditure of dependants was includible in the expenditure of the assessee if it was incurred from out of the income derived from property transferred directly or indirectly by the assessee, by way of gift, donation, settlement or trust or out of any other source made or created by the assessee. But the amendment of section 4(ii) in respect of the individual not only cut off the relationship of the expenditure with the income of the property transferred by the assessee to the dependant, but sought to include the expenditure of the dependant in so far as husband or wife or minor child was concerned irrespective of whether or not they had independent sources of income. It has further included the expenditure of any other person who is wholly or mainly dependent on the assessee for support or maintenance. In so far as a Hindu undivided family was concerned, there was, as pointed out above, practically no change except for the change in terminology necessitated by the adoption of two different basis, one for the individual and the other for the Hindu undivided family, which is now sought to be included with the limitation that the expenditure incurred by any dependant from or our of any income derived from property transferred directly or indirectly to the dependant by the assessee, which in the context would mean Hindu undivided family. The learned advocate for the petitioner has strenuously contended that the words 'from or out of any income or property transferred directly or indirectly to the dependant by the assessee' would not only govern the expenditure incurred by the dependant of the Hindu undivided family but also the expenditure incurred by any dependant of the individual assessee. If this interpretation is to be accepted, then the inclusion of the expenditure of a dependant of an individual assessee and the inclusion of the expenditure incurred by the dependant of a Hindu undivided family would depend on whether the expenditure was incurred from or out of any income or property transferred directly or indirectly to the dependant by the assessee. Whether such a construction is permissible on the language of this section is what is now to be determined. On a careful consideration of this contention, I have no hesitation in rejecting it on the ground, firstly, that the provision relating to the inclusion of the expenditure incurred by any dependant of an assessee who is an individual in the assessees expenditure is complete and requires no further qualifications; secondly, the interposition of the conjunction 'and' makes the next provision relating to the case of an assessee who is a Hindu undivided family complete only if the words 'from or out of any income or property', etc., are read with it. Without these words that provision would be incomplete and meaningless. If it was the intention of the legislature to make the expenditure of the dependant of an individual assessee as well as a dependant of a Hindu undivided family (assessee) dependent upon the expenditure being incurred from or out of any income or property transferred directly or indirectly to such dependant by the assessee, the simplest way to achieve this would have been to delete the words 'where the assessee is an individual' and the words 'and where the assessee is a Hindu undivided family, the expenditure incurred by any dependant', inasmuch as the term 'dependant' would included both a dependant of the individual as well as of a Hindu joint family. With these deletions, section 4(ii) would have read as follows :
'4. (ii) Any expenditure incurred by any dependant of the assessee from or out of any income or property transferred directly or indirectly to the dependant by the assessee'.
That this was not intended is also made clear in the notes on the Finance Bill relating to these provisions. In clause 24, proposing to amend section 4 of the Act, this is what is stated :
'Sub-clause (i) Omits certain words from clause (i) of section 4 which appear to be unnecessary; sub-clause (ii) makes it clear that expenditure incurred by any dependant of the assessee (including, in the case of a Hindu undivided family, expenditure incurred by any member of the family from and out of the property or income of the family) is included in the taxable expenditure of the assessee.'
Ignoring the clause in the parenthesis, which entirely relates to the Hindu undivided family, sub-clause (ii) is intended to included in the taxable expenditure of the assessee, the expenditure incurred by any dependant of the assessee without any dependence upon the income from the property transferred to the dependant by the assessee. In the memorandum explaining the provisions of the Finance Bill also, which was produced by Sri C. Kondaiah, the learned advocate for the respondent, the note to clause 24 says 'even at present expenditure incurred by a dependant is included in the assessees expenditure if it has been met out of any gift, donation or settlement or trust made or created by the assessee whether directly or indirectly. Since the basic allowance of Rs. 30,000 is meant for the assessees family as a whole consisting of himself and his wife and minor children, it is only proper to take into account their aggregate expenditure without looking into the sources from where is has been met. In the case of a Hindu undivided family the expenditure incurred by a member will be a treated as the familys expenditure only if it has been met from the resources of the family.' While I am aware that the pre-legislation memoranda or notes cannot be called in aid to interpret a provision of a law as enacted by the legislature, it may not be impermissible to refer to it as reinforcing the view arrived at on the construction placed upon the provision. It appears to me, therefore that on a proper interpretation of section 4(ii), the expenditure of a dependant, irrespective of any source of income or property is sought to be included in the expenditure of the assessee.
On the third point raised by the learned advocate for the petitioner that the expenditure-tax authorities are simultaneously proceeding against the petitioner and his wife and it would be a case of double taxation, the respondents affidavit shows that they do not so proceed when once they have assessed the petitioner in the proceedings now reopened under section 16. Mr. Kondaiah further points out that sub-section (2) of section 3 bars any question of double taxation. That provision states that 'for the removal of doubts, it is hereby declared that nothing contained in this Act shall require the inclusion in the taxable expenditure of an assessee for any year of expenditure for the spending or disbursing of which a liability has already been incurred and which has been included in the taxable expenditure for any earlier year.' The sub-section is designed for avoiding double taxation, for instance, under the definition of expenditure in section 2(h), where a liability to pay has been incurred and is subsequently followed by payment, both the liability to pay and the subsequent payment are deemed to be expenditure within the meaning of that definition. But whether that provision will apply to a case where the expenditure of an assessee included in the expenditure of another assessee and has been subjected to tax can once again be included as the taxable expenditure of that assessee is a matter which does not fall for consideration in this case.
In respect of question Nos. (4) and (5), it was sought to be contended that the fundamental rights to not apply to a taxation statute having regard to article 265 of the Constitution. There is high authority negativing this contention. In K. T. Moopil Nair v. State of Kerala the Supreme Court was considering the validity of the Travancore-Cochine Land Tax Act (15 of 1955, as amended by Act 10 of 1957) and had to consider the question whether article 256 affords immunity to taxation statutes from the vice of article 14 of the Constitution. Sinha C.J., delivering the majority judgment of their Lordship (Sarkar J. dissenting), observed at page 557 :
'The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all person holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting form such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in article 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on article 14 of the Constitution.'
In Chhotabhai v. Union of India Rajagopala Ayyangar J., after reviewing the previous case law including that in Mohammad Yasin v. Town Area Committee, Jalalabad, speaking for himself and on behalf of Das Gupta and Raghudar Dayal JJ. held :
'The broad proposition that no law imposing a tax can be impugned on the ground of violation of Part III of the Constitution in general and in particular of article 19 or article 31 and that the validity of such law is governed solely by article 265 cannot be accepted as correct. Article 265 merely enacts that all taxation, the imposition, levy and collection shall be by law; the article beyond excluding purely executive action does not by itself lay down any criterion for determining the validity of such a law to justify any contention that the criteria laid down exclude others to be found elsewhere in the Constitution for laws in general. If by reason of article 265 every tax has to be imposed by law it would appear to follow that it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant articles of the Constitution. These are that the law should be : (1) within the legislative competence of the legislature being covered by the legislative entries in Schedule VII of the Constitution; (2) the law should not be prohibited by any particular provision of the Constitution such as, for example, articles 27(2), 286, etc.; and (3) the law or the relevant portion thereof should not be invalid under article 13 for repugnancy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject-matter of the law. It is true that a tax law need not satisfy the tests of article 31 but it does not follow that every other article of Part III is inapplicable.' Also see Raja Jagannath Baksh Singh v. State of U. P. It is, therefore, clear that in so far as articles 14 and 19 are concerned, the tax law should not be repugnant to the freedoms guaranteed in the said articles.
Now coming to the question whether section 4(ii) offends article 14 of the Indian Constitution in that it seeks to discriminate between the case of an individual and that of a Hindu undivided family, the learned advocate for the petitioner contends that in so far as the classification is concerned, it is reasonable, but that there is no nexus between the differentia and the object sought by the legislation inasmuch as a favorable treatment is meted out to the Hindu undivided family. The learned advocate submits that the object to be achieved being the prevention of tax evasion, the expenditure of the dependants of the Hindu undivided family irrespective of whether that expenditure is incurred from or out of the income or property transferred directly or indirectly to the dependant by the assessee is made liable to tax on the expenditure of a third party whose expenditure he or she cannot legally control or regulate.
The learned advocate for the department, on the other hand, contends that under the unamended section 4(ii) there was no mention of individual or Hindu undivided family but the expenditure of the dependants of both were includible provided the expenditure was incurred out of the income or property of the assessee given by gift, etc., to the dependant. The amendment, however, for the first time specified these two classes separately. Though there was an amendment in the definition of the dependant of an undivided family. It is the contention of Mr. Kondaiah, the learned advocate for the department, firstly, that wherever there is a partial partition, the assessee who obtained on allotment an asset on such partition comes in as an individual and is caught by the first part of the amended section 4(ii) and, secondly, since the definition of dependant of a Hindu undivided family also takes in other persons who are entitled to maintenance under any law, order or decree of a court, any expenditure incurred from and out of the assets transferred directly or indirectly to such persons is includible in the expenditure of the Hindu undivided family as an assessee which was also more or less the position before the amendment of section 4(ii). Accordingly, he submits that there is no discrimination as to attract article 14 of the Indian Constitution. There is no doubt that the classification of an individual and a Hindu undivided family is based on an intelligent differentia and that there is a rational relation between this differentia and the object sought to be achieved by the enactment which amongst others is also to augment the income by spreading the net of taxation.
Article 14 inhibits only classification not based upon an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and this differentia must have a rational relation to the object sought to be achieved by the enactment is not necessarily to prevent tax evasion but may be to bring within the net, a larger yield to augment the revenues. If section 4(ii), as it was before the amendment did not bring in sufficient yield, the basis was sought to be changed by the amendment making the expenditure of the dependant in the case of individuals includible in the assessees expenditure irrespective of whether it was met out of the property transferred by the assessee or not. The two conditions necessary to satisfy the test of reasonable classification for the purposes of saving from the vice of article 14 of the constitution have been now well established, (1) that there should be an intelligible differentia distinguishing persons or things that are grouped together, and (2) that differentia should have a rational relation to the object sought to the attained by the statute of the rule in question. The essential requirement is that there should be a nexus between the classification and the purpose of the enactment. What is rational relation to the object sought to be achieved and is there a nexus between the classification and the purpose of the enactment This is the question which requires to be determined, that is, is there a relational relation to the object sought to be achieved The object sought to be achieved is no doubt the augmentation of revenues, to encourage thrift, to avoid wasteful expenditure. The husband and wife and a minor child being treated as one unit for the purpose of expenditure from their respective source of income is an object which can bear a rational relation to the object sought to be achieved, inasmuch as the legislature postulates that this unit will live together. Their expenditure from the respective sources of the income will comprehend all their earnings. In a way the interdependence of the husband and wife and minor child on one another in the unit is postulated. Similarly, the dependence of any other person on the assessee on whom expenditure is incurred has been specifically taken into account. But an adult issue, whether son or daughter, is taken out of the category of dependants, because the legislature envisages an independent existence of that person as an individual. As long as the family unit is there, the basic allowance of Rs. 30,000 is given to that unit, irrespective of the incomes of any one of them. The Hindu joint family, on the other hand, constituted as it is with its notion that a coparcener acquires a right by birth to property and partition has been rated as a class by itself and as the learned advocate for the department says her again the breading away of the coparcener and his living as an independent unit has been indepth in view just as in the case of an individual assessee and it is only the expenditure incurred by those dependants to whom joint family property has been transferred directly or indirectly that is sought to be brought into the net of taxation. Mr. Kondaiah contends that in so far as the coparcener who has been allotted property on partial partition is concerned, he would be treated as an individual, as such the expenditure of the wife and minor child, and where the wife is an assessee the expenditure of her husband and their minor child would be clubbed together. Consequently, he submits there is no discrimination at all. Each class is treated separately. It is true that the position under the Hindu law is that the share which a coparcener obtains on partition of ancestral property is ancestral property only as regards his male issue, but as regards the other relations it is separate property and if the coparcener dies without leaving male issue, it passes to his heirs by succession. In other words, property so allotted is no longer ancestral joint family property and is not available to the joint family, unless it is allotted for the limited purpose of the maintenance of the coparcener or other members when it still forms part of the joint family corpus (vide Mulla 12th edition, page 327; Bejai Bahadur Singh v. Bhupinadar Bahadur Singh and Ramayya Goundan v. Kolanda Goundan) As such, a coparcener who receives a share on allotment will either be treated as an individual or joint family according as he has a male issue or not, and will be assessed under either of these heads.
In Writ Petition No. 189 of 1962, delivered on September 17, 1963, before a Bench of this court consisting of the honble the Chief Justice and Narasimham J., it was sought to be contended that the proviso to sub-clause (ii) to clause (vib) of section 10 (2) of the Indian Income-tax Act has discriminated against the assessee who sells the plant to persons other than other Government and that this discrimination is not based on an intelligible differentia, that there is no nexus between the differentiation and the object sought to be achieved by the legislature and that a favourable treatment is meted to the Government and that thus persons similarly situated are treated differently by this proviso. The honble the Chief Justice rejected this argument as based on a misconception. What has to be seen is whether the two conditions referred to have been satisfied by the impugned proviso. In the course of the judgment it was observed :
'We cannot forget that it is open to Parliament to give certain concessions to an assessee subject to certain conditions. The effect of the impugned provisions only to grant a concession subject to the conditions contemplated by the proviso. This provision does not discriminate between one set of assessees and another. All the assessees claiming development rebate are placed on an equal footing. No one is prevented from making a sale of the plant or machinery to the Government. The assessees similarly situated are similarly treated by this clause. Moreover, it is open to the legislature to put the Government and the ordinary assessees in two different groups and that would be a reasonable classification. The nexus between the two is the desire of Parliament to prevent the abuse of this concession.'
In Ramjilal v. Income-tax Officer, Mohindargarh in one of the covenanting States soon after the formation of Patiala and the East Punjab States Union there was a law of income-tax in force on the date when an Ordinance called the Patiala and East Punjab States Union General Provisions (Administration) Ordinance, 1949, was passed to introduce a uniform law for all the States forming the Union. Section 3 of this Ordinance provided that as from August 20, 1948, all laws in force in the Patiala State shall apply mutatis mutandis to the territories of the said Union with a proviso that all proceedings pending before courts and other authorities of any of the covenanting States shall be disposed of in accordance with the laws governing such proceedings in force in such covenanting States immediately before August 20, 1948. In one of the Covenanting States, viz., Kapurthala, there was a law of income-tax in force on the said date, the rates of tax payable under which were lower than those payable under the Patiala Income-tax at all. For the accounting year ending April 12, 1948, the assessees of Kapurthala state were assessed at the lower rates foxed by the Kapurthala Income-tax Act in accordance with the proviso in section 3 of the Ordinance relating to pending proceedings, and the assessees of Nabha were assessed at the higher rates fixed by the Patiala Act as there was no income-tax in Nabha on August 20, 1948, and no income-tax proceedings were therefor pending in that state. An assessee residing in the Nabha territory and who was assessed under the Patiala Act at a rate higher than that at which Kapurthala assessees were assessed applied under article 32 of the Constitution for a writ in the nature of a writ of certiorari for quashing the assessment on the ground that he had been denied the fundamental right of equality before the law and equal protection of the law guaranteed by articles 14 of the Constitution inasmuch as he was assessed at a higher rate than that at which assessees of Kapurthala were assessed, and that, as the Ordinance bringing the Patiala Income-tax Act came into force in Nabha was enacted only on August 20, 1948, it cannot operate retrospectively and authorise the levy of tax on income which had accrued in the year ending April 12, 1948, and, therefore, he was sought to be deprived of the fundamental rights guaranteed by article 31 of the Constitution that no one shall be deprived of his property save under authority of law. It was held that the discrimination, if any, between the assessees of Kapurthala and Nabha was not brought about by the Ordinance but by the circumstance that there was no income-tax law in Nabha assessee; and, in any case, the provision that pending proceedings should be concluded according to the law applicable at the time when the rights or liabilities accrued and the proceedings commenced, was a reasonable law founded upon a reasonable classification of the assessee which is permissible under the equal protection clause, and there was no infringement of the fundamental right. In this connection, Gajendragadkar J. in the case of Raja Jagannath Baksh Singh v. State of U. P. observed at page 1570 :
'A taxing statute can be held to contravene article 14 if purports to impose on the same class of property similarly situated an incidence of taxation which leads to obvious inequality. There is no doubt that it is for the legislature to decide on what objects to levy what rate of tax and it is not for the courts to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax. It is also true that the legislature is competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. But, if in its operation, any taxing statute is found to contravene article 14 it would be open to courts to strike it down as denying to the citizens the equality before the law guaranteed by article 14.'
In a tax legislation the incidence of the tax falls differently upon different classes of assessees and for that reason it cannot be said that it is a class legislation without any classification or as having no rational relation to the object sought to be achieved by the enactment. The object of the enactment as already stated is to raised taxes and to augment it from time to time as and when exigencies require it and because some classes are taxed higher than the others or some are given concessions while others are not, it cannot be said that there has been discrimination within the meaning of article 14.
I therefore reject the contention as based on a misconception.
With reference to the last point, viz., the provisions of the Act place unreasonable restrictions on the persons holding and enjoying property and consequently violate articles 19 and 31 of the Constitution of India, their lordship of the Supreme Court in Laxmanappa Hanumanthappa Jhamkhandi v. Union of India, while dealing with an application under article 32 for the issuance of a writ in the nature of mandamus or certiorari to quash the assessment orders and to restrain the respondents from attaching and selling the properties of the petitioner negatived the contention in so far as article 31 is concerned. It was according held that as there is special provision in article 265 of the Constitution that no tax shall be levied or collected except by authority of law, clause (1) of article 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax and that inasmuch as the right conferred by article 265 is not a right conferred by Part III of the Constitution, it could not be enforced under article 32. The same is the view expressed in the case of Raja Jagannath Baksh Singh v. State of U. P.
Article 19 guarantees the right to acquire, hold and dispose of property and is not directly applicable to this case, because there is no restriction on either acquisition or holding or disposal of property. Unless there is transfer from one person to another or divesting, there cannot be said an acquisition of property and the word 'hold' has the sense of the exercise of rights of possession over property, as observed by Patanjali Sastry J. (as he then was) in Gopalans case. In my view, the right to hold property is not affected merely because a tax is imposed.
As there is no validity in any of the contentions raised on behalf of the petitioner, these petitions are dismissed with costs - one set in W. P. No. 712/1962. Advocates fee Rs. 250.