Bal Raj Tuli, J.
1. This petition under Articles 226 and 227 of the Constitution of India came up for hearing before a Division Bench of this court on November 15, 1973, and was referred to a larger Bench of atleast five judges to decide the following points of law, which, the learned judges thought, raised very important and fundamental questions :
'(1) Whether the rate of wealth-tax imposed on urban immovable property is of a confiscatory nature and
(2) Whether the penalty provisions as embodied in Section 18 of Wealth-tax Act, are also confiscatory in nature ?'
2. Another contention that had been raised in the writ petition was that no wealth-tax could be imposed on agricultural land. That matter stands concluded by the decision of their Lordships of the Supreme Court in Union of India v. Harbhajan Singh Dhillon : 83ITR582(SC) and, therefore, was not referred to the larger Bench. The learned counsel for the petitioner has not pressed question No. 2 mentioned above before us and has confined his arguments only to the following question:
3. That the rate of additional wealth-tax imposed on urban assets is discriminatory and confiscatory and thus violative of Articles 14 and 19(1)(f) of the Constitution.
4. The petitioner, Colonel His Highness Raja Sir Harinder Singh Brar Bans Bahadur, Ruler of the former Faridkot State, owns various kinds of property mentioned in the petition. The year of assessment is 1970-71 and the valuation date is April 12, 1970--Chet 30, 2026 BK, For that year, the rate of wealth-tax in the case of every individual was as under :
' (a) Where the net wealth does not exceed Rs. 1,00,000.
(b) Where the net wealth exceeds Rs. 1,00,000 but does notexceed Rs. 5.00, 000
1 per cent, of the amount by which the net wealth exceeds Rs. 1,00,000 ;
(c) Where the net wealth exceeds Rs. 5,00,000 but does notexceed Rs. 10,00,000
Rs. 4,000 plus 2 per cent, of the amount by which the net wealth exceeds Rs. 5,00,000 ;
(d) Where the net wealth exceeds Rs. 10,00,000 but does notexceed Rs. 15,00,000
Rs. 14,000 plus 3 per cent. of the amountby which the net wealth exceeds Rs. 10,00,000 ;
(e) Where the net wealth exceeds Rs. 15,00,000 but does notexceed Rs. 20,00,000.
Rs. 29,000 plus 4 per cent. of the amountby which the net wealth exceeds Rs. 15,00,000;
(f) Where the net wealth exceeds Rs. 20,00,000
Rs. 49,000 plus 5 per cent. of the amountby which the net wealth exceeds Rs. 20,00,000.
5. In addition thereto, every individual holder of urban assets has to pay the following tax:
Where the total value of urban assets determined in accordancewith the rules in Paragraph B doesnot exceed Rs. 5,00,000
Where the total value oi urban assets determined in accordancewith the rules in paragraph B exceedsRs. 5,00,000 tut does not exceed Rs. 10,00,000
5 per cent. o the amountby which such total value exceeds Rs. 5,00,000 ;
Where the total value of urban assets determined in accordancewith the rules in Paragraph B exceedsRs 10,00,000.
Rs. 25,000 plus 7 per cent, of the amount by which such total value exceeds Rs. 10,00,000. '
6. It has been stated in the petition that the urban assets of the petitioner for the assessment year 1969-70 were as under:
Screw factory and the country club
Faridkot House, Lytton Road, New Delhi
Faridkot House, Diplomatic Enclave, New Delhi
and that no income was being derived therefrom. His assessable income shown by him in the return for the assessment year 1970-71 was Rs. 4,99,800. The value of the net wealth, according to the last completed wealth-tax assessment for the year 1966-67, was Rs. 79,55,776. If we take the net wealth for the purposes of the tax to be Rs. 80;00,000 in round figures, the ordinary tax will work out to Rs. 3,49,000. On urban assets of the value of Rs. 15,37,502, the additional tax will work out to Rs. 62,625. Thus, the total liability of wealth-tax on the net wealth of about Rs. 80,00,000, including urban assets, will be Rs. 4,11,625. The petitioner does not challenge the levy of wealth-tax at the ordinary rate amounting to Rs. 3,49,000 but challenges the constitutional validity of the additional tax of Rs. 62,625 on the urban assets of the value of Rs. 15,37,502. The argument is that this additional tax is discriminatory and confiscatory and, therefore, violative of Articles 14 and 19(1)(f) of the Constitution.
7. The learned counsel for the petitioner, in order to support his argument on the basis of Article 14 of the Constitution, has submitted that the object of taxation is wealth and whether it consists of urban assets or non-urban assets, the rate of tax must be the same and since urban assets have been subjected to a higher rate of tax, it has become discriminatory and, therefore, the provisions imposing additional tax on urban assets must be struck down as violative of Article 14 of the Constitution. We find no merit in this submission in view of the authoritative pronouncements by their Lordships in V. Venugopala Ravi Varma Raja. v. Union of India : 74ITR49(SC) that:
'Equal protection clause of the Constitution does not enjoin equal protection of the laws as abstract propositions. Laws being the expression of legislative will intended to solve specific problems or to achieve definite objectives by specific remedies, absolute equality or uniformity of treatment is impossible of achievement. Again, tax laws are aimed at dealing with complex problems of infinite variety necessitating adjustment of several disparate elements. The courts accordingly admit, subject to adherence to the fundamental principles of the doctrine of equality, a larger play to legislative discretion in the matter of classification. The power to classify may be exercised so as to adjust the system of taxation in all proper and reasonable ways; the legislature may select persons, properties, transactions and objects, and apply different methods and even rates for tax, if the legislature does so reasonably. Protection of the equality clause does not predicate a mathematically precise or logically complete or symmetrical classification : it is not a condition of the guarantee of equal protection that all transactions, properties, objects or persons of the same genus must be affected by it or none at all. If the classification is rational, the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject different classes of property to tax in different ways and adopt different modes of assessment. A taxing statute may contravene Article 14 of the Constitution if it seeks to impose on the same class of property, persons, transactions or occupations similarly situate, incidence of taxation, which leads to obvious inequality. A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects.
It is for the legislature to determine the objects on which tax shall be levied, and the rates thereof. The courts will not strike down an Act as denying the equal protection of laws merely because other objects could have been, but are not, taxed by the legislature : Raja Jagannath Baksh Singh v. State of Uttar Pradesh : 46ITR169(SC) . The same rule has been accepted by the courts in America.
Willis in his Constitutional Law of the United States has stated at page 587:
'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods, and even rates for taxation if it does, so reasonably.' As stated in Weaver's Constitutional Law, Article 275, at page 405 :
'The Fourteenth Amendment was not designed to prevent a State from establishing a system of taxation or from effecting a change in its system in all proper and reasonable ways, not to require the States toadopt an iron clad rule of equality to prevent the classification of property for purposes of taxation or the imposition of different rates upon different classes.' Weaver again says at page 397 :
' Class legislation is that which makes an improper discrimination by conferring particular privileges upon a class of persons, arbitrarily selected from a large number of persons, all of whom stand in the same relation to the privilege granted and between whom and the persons not so favoured no reasonable distinction or substantial difference can be found justifying the inclusion of one and the exclusion of the other from such privilege......A classification must not be arbitrary, artificial or evasive and there must be a reasonable, natural and substantial distinction in the nature of the class or classes upon which the law operates. In respect to such distinction, a legislative body has a wide discretion and an Act will not be held invalid unless the classification is clearly unreasonable and arbitrary.' It is unnecessary to multiply citations.'
8. Section 2(1) of the Tamil Nadu Additional Sales Tax Act, 1970, provides that the tax payable under the Tamil Nadu General Sales Tax Act, 1959, shall, in the case of a dealer whose total turnover for a year exceeds 10 lakhs of rupees, be increased by additional tax at the rate of 5 per cent. of the tax payable by that dealer for that year and the provisions of the Tamil Nadu General Sales Tax Act, 1959, shall apply in relation to the additional tax payable under the said Act. The validity of this section was challenged on the ground that it imposes different rates of tax upon different dealers depending upon their turnover which in effect meant that the rate of tax on the sale of goods would vary with the volume of the turnover of a dealer and was, therefore, violative of Article 14. This argument was repelled by their Lordships in S. Kodar v. State of Kerala : 1SCR121 and some other cases, with the following observations :
'Classification of dealers on the basis of their respective turnovers for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of his greater volume of business. And, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of the legislature. The only question for the court to consider is whether there is rationality in the belief of the legislature that capacity to pay the tax increases, by and large, with an increase of receipts.
'Certain it is that merchants have faith in such a correspondence and act upon that faith......If experience did not teach that economicadvantage goes along with larger sales, there would be an end to the hot pursuit for wide and wider markets......In brief, there is a relation ofcorrespondence between capacity to pay and the amount of business done. Exceptions, of course, there are. The law builds upon the probable, and shapes the measure of the tax accordingly......At the very least, anincrease of gross sales carries with it an increase of opportunity for profit, which supplies a rational basis for division into classes, at all events when coupled with evidence of a high degree of probability that the opportunity will be fruitful.' (See the dissenting judgment in Stewart Dry Goods Co. v. Lewis, 294 US 550 of Justice Cardozo, Justice Brandeis and Justice Stone). The reasoning of the minority in that case appeals to us as more in consonance with social justice in an egalitarian State than that of the majority.
As we said, a large dealer occupies a position of economic superiority by reason of his volume of business and to make the tax heavier on him both absolutely and relatively is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discriminatory, really misses the point, namely, that the former kind of dealers are in a position of economic superiority by reason of their volume of business and form a class by themselves. They cannot be treated as on par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in the levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate the economic life of the society.'
9. It is trite to say that the power given to Parliament to make laws with regard to the imposition of wealth-tax includes the power to fix the rates thereof. When Parliament is competent to make law on wealth-tax it can and should make the laws regarding the rate of tax and the manner in which such tax is to be computed.
10. In Amalgamated Tea Estate Co. Ltd. v. State of Kerala : 94ITR479(SC) it was said by the Supreme Court that:
'As revenue is the first necessity of the State and as taxes are raised for various purposes and by an adjustment of diverse elements, the court grants to the State greater choice of classification in the field of taxation than in other spheres'
'on a challenge to a statute on the ground of Article 14, the court would generally raise a presumption in favour of its constitutionality. Consequently, one who challenges the statute bears the burden of establishing that the statute is clearly violative of Article 14.'
11. In that case, the companies were classified into domestic and foreign companies under Section 2(hh) and (kk) and Clauses (2) and (3) of Part I of the Schedule to the Kerala Agricultural Income-tax Act, 1950, and a higher tax at a fixed rate of 75 per cent. was imposed on foreign companies while a lesser tax at graded rates with a maximum of 65 per cent. was imposed on domestic companies and it was held that the provisions of the Act were not violative of Article 14 of the Constitution of India.
12. It was held in Smt. Komanduri Seshamma, v. Appellate Controller of Estate Duty : 88ITR82(AP) that:
'Merely on the ground that in a class, one gets an advantage over another in special and uncommon circumstances, a taxing statute cannot be struck down as offending Article 14 of the Constitution, unless the law has singled out such person for a special treatment.'
13. In N. V. Somaraju v. Government of India : 97ITR97(AP) it was held that:
'......while considering the provisions of Article 14 of the Constitution,no precise or mathematical accuracy is contemplated and what is to be seen is overall equality given to the same class......' and
'In matters of taxation it must be borne in mind that the legislature has greater freedom not only to classify the different persons or objects in regard to whom or which tax is to be levied but different modes of taxation can also be adopted.'
14. In the light of these legal propositions, which should be held to be well established, it can be safely said that urban assets, as defined in the Wealth-tax Act, form a class by themselves and are clearly distinguish-able from the non-urban assets as they are capable of yielding better returns in the form of income and are the objects of larger amounts of investments because of their potentiality of more rapid appreciation in capital value resulting in a large amount of unearned wealth for their owners than the non-urban assets. Therefore, if Parliament has subjected these assets to a higher rate of wealth-tax, it cannot be struck down as discriminatory or violative of Article 14 of the Constitution. The challenge to the validity of additional wealth-tax was repelled by a Division Bench of the Kerala High Court in Smt. Kadija Bai v. Wealth-tax Officer : 71ITR114(Ker) wherein it was held that:
'The additional wealth-tax on the value of urban lands and buildings imposed by Clause (c) of Paragraph A and Paragraph B of Part I of the Schedule to the Wealth-tax Act is not discriminatory and does not contravene Article 14 of the Constitution, and the levy of such tax is not, therefore, invalid on the ground that it is discriminatory.'
15. We are in respectful agreement with the view expressed in this judgment.
16. The learned counsel for the petitioner has, however, vehemently emphasised that there is no intelligible differentia distinguishing urban assets from non-urban assets for the purposes of the levy of the wealth-tax and the classification is not reasonable. Both kinds of assets constitute wealth of the assessee and there is no reason to subject one kind of assets to a higher rate and another kind of assets to a lower rate. He seeks support for his submission from the observations of the Supreme Court in Ram Krishna Dalmia v. Justice S.R. Tendolkar : 1SCR279 to the effect that:
'In order, however, to pass the test of permissible classification, two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question.'
17. I have pointed out above that urban assets and non-urban assets constitute two different classes with distinguishing features and they are capable of yielding different returns. The object of the wealth tax is to avoid concentration of wealth in fewer hands and to provide revenue to the exchequer for carrying out its administration and socio-economic activities. The legislative trend is to impose a ceiling on all kinds of property, urban and rural, and if on urban assets a higher rate of wealth-tax is imposed, there is a reasonable nexus between the provision and the object of the Act. It should be remembered that in the same case their Lordships said that Article 14 forbids class legislation and does not forbid reasonable classification for the purposes of legislation. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. In Kunnathat Thathunni Moopil Nair v. State of Kerala : 3SCR77 their Lordships said in paragraph 7 of the report as under :
'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 persons 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 from 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.'
18. No facts have been stated to show that the tax imposed under the Act operates unevenly on persons owning the same kind of property. It cannot, therefore, be said that equals have been treated unequally or unequals have been treated equally by imposing a higher rate of wealth-tax on the urban assets than on the non-urban assets. Only such provisions of a taxing statute can be struck down on the ground of discrimination which operate differently on the members of the same class and in similar situation. If members of the same class are affected equally and uniformly, the provision cannot be said to suffer from the vice of discrimination and, therefore, cannot be struck down as violative of Article 14 of the Constitution. We, therefore, hold that the provision of the Wealth-tax Act imposing additional tax on urban assets is not violative of Article 14 of the Constitution and is perfectly valid and intra vires.
19. The submission of the learned counsel for the petitioner that wealth-tax is confiscatory in nature because it is levied as a percentage of the capital value of the net wealth and not as a percentage of the annual letting value thereof, has no merit. I have already said above that the learned counsel does not challenge the levy of wealth-tax which is also a percentage of the capital value of all assets constituting the net wealth of an assessee but only challenges the additional tax levied on urban assets. The mode of tax is thus the same and if it is not challenged in one case, it cannot be challenged in the other.
20. It is not a universal rule that every tax on property must be levied as a percentage of its annual letting value. The wealth-tax is on the net wealth possessed by an individual or a Hindu undivided family or any other assessee mentioned in the Act and, therefore, it has to be imposed as a percentage of the capital value of that net wealth. It was held by their Lordships in Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta : 69ITR897(SC) as under:
' In the case of a tax on lands and buildings, the value, capital or annual, would be determined by taking the land or building or both as a unit and subjecting the value to a percentage of tax. In the case of wealth-tax the charge is on the valuation of the total assets (inclusive of lands and buildings) less the value of debts and other obligations which the assessee has to discharge. Merely because in determining the taxable quantum under taxing statutes made in exercise of power under entries 86, List I, and 49, List II, the basis of valuation of assets is adopted, trespass on the field of one legislative power over another may not be assumed.'
21. At another place, it was said that the wealth-tax :
'is a tax imposed on the capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee ; it is imposed on the total assets which the assessee owns, and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional cases, where a person owes no debts and is under no enforceable obligation to discharge any liability out of his assets, it may be possible to break up the tax which is leviable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under entry 49, List II. But the legislative authority of Parliament is not determined by visualising the possibility of exceptional cases of taxes under two different heads operating similarly on taxpayers.'
22. These observations squarely answer the submission of the learned counsel for the petitioner that since the urban assets of the petitioner, which have been subjected to additional wealth-tax, do not yield any income, the petitioner will have to pay the tax in respect thereof out of his income from other sources or by selling out a part of his urban or other assets and, therefore, the additional tax is confiscatory in nature. According to the above decision, wealth-tax is levied on the total assets constituting the net wealth of the assessee and not on each component of such assets. The yield of income from each component asset cannot, therefore, be a criterion for imposing tax on that asset. I have already pointed out above that in the case of the petitioner, the wealth-tax under the Act is to be levied on his net wealth of about Rs, 80 lakhs as disclosed by him which will amount to Rs. 4,11,625 including the additional tax. The additional tax amounting to Rs. 62,625 on urban assets of the value of Rs. 15,37,502 forms only a small fraction of the total amount of wealth-tax payable by the petitioner. It should not be difficult to pay that tax out of the wealth that is possessed by the petitioner and even if a part of the assets has to be sold to meet that liability, the tax imposed under the Act does not become confiscatory or violative of Article 19(1)(f) of the Constitution on that ground. It cannot be universally said that urban assets are non-productive of income in the case of every assessee. Even in the case of the petitioner they are deemed to yield income to him as he utilises them for his residence and pleasure free of rent. But for such residential buildings, he will have to take on rent some suitable building for which he will have to spend a considerable amount out of his income. Moreover, if the tax, as submitted by the learned counsel, is to be levied only on those assets which yield income sufficient to pay the tax, then no tax can be levied on jewellery, precious stones and silverware or furniture or motor vehicles of value beyond the exempted limit or T.V. sets and the like, as they do not yield any income to the owner thereof but are used for day to day living. The very nature of the tax points out that it has to be levied on the capital value of the assets irrespective of their capability of producing income to facilitate the payment of tax by the assessee thereon. The submission of the learned counsel has thus no merit and is repelled.
23. The learned counsel for the petitioner has relied on the observations of their Lordships of the Supreme Court in para. 43 of Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt : 1SCR1005 which approve of the definition of 'tax' given by Latham C.J, of the High Court of Australia in Matthews v. Chicory Marketing Board, 60 CLR 263. According to the learned Chief Justice :
''A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered.'' This definition, according to the Supreme Court, brings out the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue which, when collected, forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority. Another feature of taxation is that, as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay. The learned counsel has laid stress on the words 'capacity to pay'. A person having wealth worth Rs. 80 lakhs certainly has the capacity to pay Rs. 4,11,625 on account of tax thereon. The entire wealth is not unproductive and the petitioner himself has shown that he has an income of about Rs. 5 lakhs.
24. To reinforce his argument, the learned counsel has relied on the Supreme Court decision in Kunnathat Thathunni Moopil Nair v. State of Kerala : 3SCR77 . In that case, the Travancore-Cochin Land Tax Act (15 of 1955 as amended by Act 10 of 1957), imposed a tax called 'land tax' at a flat rate of Rs. 2 per acre which was held to be discriminatory on the ground that 'inequality is writ large on the Act and is inherent in the very provisions of the taxing section'. It was said in para. 8 of the report that :
'The Act obliges every person who holds land to pay the tax at the fiat rate prescribed whether or not he makes any income out of the property, or whether or not the property is capable of yielding any income. Act, in terms, claims to be 'a general revenue settlement of the State' (section 3). Ordinarily, a tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made, with due diligence, and, therefore, is levied with due regard to the incidence of the taxation. Under the Act in question we shall take a hypothetical case of a number of persons owning and possessing the same area of land. One makes nothing out of the land, because it is arid desert. The second one does not make any income, but could raise some crop after a disproportionately large investment of labour and capital. A third one, in due course of husbandry, is making the land yield just enough to pay for the incidental expenses and labour charges besides land tax or revenue. The fourth is making large profits, because the land is very fertile and capable of yielding good crops. Under the Act, it is manifest that the fourth category, in our illustration, would easily be able to bear the burden of the tax. The third one may be able to bear the tax. The first and the second one will have to pay from their own pockets, if they could afford the tax. If they cannot afford the tax, the property is liable to be sold, in due process of law, for realisation of the public demand. It is clear, therefore, that inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is no attempt at classification in the provisions of the Act. Hence, no more need be said as to what could have been the basis for a valid classification. It is one of those cases where the lack of classification creates inequality. It is, therefore, clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution.'
25. In that case, it was stated by the petitioner that he owned twenty-five thousand acres of forest land on which he was liable to pay Rs. 50,000 a year as tax. The petitioner was making an income of Rs. 3,100 per year out of the forest. Besides the liability of Rs. 50,000, he had to pay a levy of Rs. 4,000 on the surveyed portions of the said forests. Hence his liability for taxation in respect of his forest land amounted to Rs. 54,000 whereas his annual income for the time being was Rs. 3,100 without deducting any expenses for management. Unless he was very enamoured of the property and of the right to hold it, it might be assumed that he would not be able to pay the demand of Rs. 54,000 per year in respect of the forests in his possession. On these facts, the tax was held to be confis-catory in character and effect. The facts are not in pari materia and the ratio of that decision does not apply to the facts of the present case wherein the value of the net wealth is about Rs. 80 lakhs on which the liability for tax is only Rs. 4,11,625. Moreover, in that case the tax was on land and not on all the assets of the owner thereof and, therefore, had to be paidout of the income of the land. The capacity to pay was thus the determining factor in that case. In our case the tax is payable on the total assets and not on each component thereof constituting the net wealth of the assessee.
26. The decision of the Supreme Court in Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad : 2SCR608 relied upon by the learned counsel for the petitioner, is clearly distinguishable. In that case, Section 73(1)(i) of the Bombay Municipal Boroughs Act (18 of 1925) empowered a municipality to impose a tax, namely, a rate on buildings or lands or both situate within the municipal borough. The Municipal Corporation of Ahmedabad framed Rule 243 whereunder the rate of tax was fixed at the percentage of capital value of the lands and not on their annual value. It was held that the word 'rate' in Clause (i) of Sub-section (1) of Section 73 of the Bombay Municipal Boroughs Act had acquired a special meaning which meant the annual letting value of the land or buildings. The rate of tax could not be fixed as a percentage of capital value and it had to be fixed as a percentage of the annual letting value. In paragraph 34 of the report, some instances were given of how the two rates operated differently and amounted to confiscatory taxation in one case while a permissible taxation in the other. This judgment cannot be said to lay down that in every case the tax on lands and buildings must be levied at a rate fixed as some percentage of the annual letting value and not the capital value of the land or building when they are to be included in the net wealth of the assessee on which the tax is levied.
27. Lastly, the learned counsel has relied on the decision of the Mysore High Court in P. Bhuvaneswariah v. State of Mysore, AIR 1965 Mys 170 in which it was said that:
'In those few instances in which the tax rate is applied to 'capital value' the rate is normally a fraction of 1%.'
28. That was a case which imposed a tax on buildings and has no relevance to the imposition of wealth-tax on the net wealth of an assessee and not on its components consisting of lands and buildings separately.
29. In reply, the learned counsel for the revenue has relied on the decision of the Supreme Court in Assistant Commissioner of Urban Land Tax, Madras v. Buckingham and Carnatic Co. Ltd. : 75ITR603(SC) wherein it was held that:
'The Madras Urban Land Tax Act, 1966, in imposing a tax on urban land at a percentage of the market value is entirely within the ambit of entry 49 of List II of Schedule VII to the Constitution of India and within the competence of the State Legislature and does not in any way trench upon the field of legislation of entry 86 of List I.........
It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay Ms debts and to discharge his lawful obligations have to be taken into account.'
30. It is evident from these observations that a tax can be imposed on the capital value of the assets as has been done in the case of wealth-tax.
31. In Raja Jagannath Baksh Singh v. State of Uttar Pradesh : 46ITR169(SC) it was argued that the U. P. Large Land Holdings Tax Act (31 of 1957) was confiscatory in character and must be struck down as being a colourable piece of legislation. In support of that argument, it was suggested that the rates prescribed by the Schedule were so heavy that the assessee would virtually have to part with his properties within a short time in order to bear the burden of the tax. Dealing with this argument, it was observed at page 181 :
'This plea raises the question as to whether a taxing statute can be challenged on the ground that the burden of tax imposed by it is unreasonably high or excessive. We have already seen that the provisions of Article 31(2) cannot be invoked in challenging the validity of a taxing statute on the ground that the tax levied is unreasonably high and we have also noticed that if the taxing statute does not contravene any other fundamental right guaranteed by Part III, it would normally be treated as a valid law by whose authority tax can be collected without infringing Article 31(1). Though the validity of a taxing statute cannot be challenged merely on the ground that it imposes an unreasonably high burden, it does not follow that a taxing statute cannot be challenged on the ground that it is a colourable piece of legislation and, as such, is a fraud on the legislative power conferred on the legislature in question. If, in fact, it is shown that the Act which purports to be a taxing Act is a colourable exercise of the legislative power of the legislature, then that would be an independent ground on which the Act can be struck down. Colourable exercise of legislative power is not a legitimate exercise of the said power and, as such, it may be open to challenge. But such a challenge can succeed not merely by showing that the tax levied is unreasonably high or excessive, but by proving other relevant circumstances which justify the conclusion that the statute is colourable and, as such, amounts to a fraud.'
32. In the succeeding paragraph it was said that (page 183) :
'The decision in the case of K.T. Moopil Nair is not an authority for the proposition that in testing the validity of a taxing statute, the court can embark upon an enquiry whether the tax imposed by the statute is unreasonably high and whether it should have been fixed at a lower level.'
33. In that case, it was said on the basis of the calculations made that against an income of Rs, 65,362, the tax amounting to Rs. 14,882.86 could not, by any stretch of imagination, be deemed to be confiscatory. In the case before us, the value of the net wealth of the petitioner disclosed by him is about Rs. 80 lakhs on which the tax payable is only Rs. 4,11,625 which cannot be said to be confiscatory. The urban assets are worth Rs. 15,37,502 on which the additional tax works out to Rs. 62,625 which also cannot be said to be confiscatory. A reasonable exemption from additional tax has been provided to urban assets of the value of Rs. 5 lakhs and it is only the assets above that value which have been taxed at a graded rate.
34. For the reasons given above, we are unable to hold that the levy of additional tax is ultra vires Articles 14 and 19(1)(f) of the Constitution on the ground that it is either discriminatory or confiscatory in nature. The petition has thus no merit and is dismissed, but the parties, are left to bear their own costs.
Prem Chand Jain, J.
35. I agree.
Man Mohan Singh Gujral, J.
36. I agree.
Bhupinder Singh Dhillon, J.
37. I agree.
Pritam Singh Pattar, J.
38. I agree.