Raman Nayar, J.
1. The petitioner, an owner of non-agricultural land and buildings in Mattancherry, Cochin, protests against the levy of what has been called additional wealth-tax, to the extent of Rs. 1800/- and odd, made on her under Clause (c) of paragraph A read with Rules 1 and 2 of Paragraph B of Part I of the Schedule to the Wealth Tax Act, 1957 -- for short, the Act. She attacks the levy as discriminatory and therefore violative of Article 14 of the Constitution, and she seeks to have it quashed by this application brought under Article 226 of the Constitution.
2. The legislative entry authorising the imposition of the tax is Entry 86 of the Union List, 'Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.' And the law that actually imposes the tax is the charging section of the Act, namely, Section 3 which says that a tax called wealth-tax shall be charged in accordance with the provisions of the Act in respect of the net wealth of every individual. Hindu undivided family, and company at the rates specified in the Schedule to the Act. Net wealth, according to Section 2(m) of the Act, is the amount by which the aggregate value of the assets of a person exceeds the aggregate value of his debts, and, by Section 2(e) agricultural land and certain other assets are excluded from the scope of the word, 'assets'. Section 7 says that, subject to any rules made in that behalf, the value of any asset, other than cash, shall for the purposes of the Act, be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date.
Clauses (a) and (b) of paragraph A of Part I of the Schedule provide for the rates of assessment (with progressively higher rates for the higher slabs) in respect of the net wealth of individuals and Hindu undivided families respectively while Clause (c), which is the provision with which we are here directly concerned, provides for the levy of an additional tax on the value of land (excluding, of course, agricultural land) and buildings (other than business premises) situate in what might be called urban areas. Rule 2 of paragraph B divides urban areas into four categories. A, B, C, and D, in accordance with their population. All cities and towns the population of which, including the population of the contiguous municipalities and cantonments, according to the census held in the year 1961 exceeds sixteen lakhs fall in Category A; those in which the population exceeds eight lakhs but does not exceed sixteen lakhs fall in Category B; those in which the population exceeds four lakhs but does not exceed eight lakhs fall in Category C; and those in which the population exceeds one lakh but does not exceed four lakhs fall in Category D. Clause (c) of Paragraph A prescribes the rates at which the additional Wealth-tax is to be assessed on the value of lands and buildings situate in urban areas, the taxable value of the assets being determined in accordance with Rule 1 of paragraph B.
Put briefly, the taxable value of assets in an area in Category A is the value in excess of Rs. 5 lakhs; in Category B in excess of Rs. 4 lakhs; in Category C in excess of Rs. 3 lakhs; and in Category D in excess of Rs. 2 lakhs. Provision is made in respect of persons owning properties in more than one category. In all, the exemption allowed will not be higher than the exemption allowable in respect of the highest category in which such person owns property; and if the property in that category escapes taxation because its value is within the exemption, then the value of that property will be added on to the value of the property held in the next lower category and so on until the taxable limit is reached. The result is that, while there is no additional wealth-tax at all in respect of properties in what we might, for the present purposes, call rural areas (which might include towns with a population of one lakh and below) the tax on property of the same value is progressively lower as we go from a smaller to a bigger urban area, smaller and bigger in point of population, not of extent.
Thus, as the petitioner has shown by way of illustration, while properties of the value of say Rs. 10 lakhs would suffer no additional wealth-tax if situate in a rural area, they would suffer a tax of Rs. 7,000/-if situate in an area in Category D, but only Rs. 5,000/- if situate in an area in Category C, Rs. 4000/- if situate in an area in Category B and Rs. 3,000/- if situate in an area in Category A. According to the petitioner, this difference is clearly discriminatory and can have no rational bearing on the object of the statute. Even if there were any acceptable reason, which there is none to justify a difference merely on the basis of population, then if that reason justifies the total exemption of rural areas. It should operate to enhancenot to diminish the tax as one proceeds from a less populated to a more populated urban area. Among urban areas the tax should be lightest, not the heaviest, in an area like Cochin falling in Category D, and it should be the heaviest, not the lightest, in an area like, say, Bombay or Calcutta, falling in Category A. So runs the petitioner's argument.
3. The Revenue seeks to justify the seeming differences on the ground that, owing to pressure of population and shortage of accommodation, the value of immovable property and the return therefrom are artificially high in urban areas that unaccounted money therefore seek Investment in urban areas, in turn artificially pushing up the price of properties. In such areas, and that it is necessary to curb investment in immovable property in urban areas diverting it as far as possible into the industrial field so as to encourage the growth of industrial enterprises in the country. Reference has been made to the speech made by the Finance Minister when introducing the bill in Parliament. He then explained the object of the legislation in these words:
'Honourable Members would recall that earlier in my speech I had referred to the need for curbing excessive investment in urban property which has been rising rapidly in value due to a variety of reasons. Without such a curb, investment in more productive directions cannot be encouraged. There has also been a demand that there should be some ceiling on vast accumulations of urban property. I have considered this problem from various angles and have come to the conclusion that the best way of dealing with it through a fiscal measure is by way of an additional wealth-tax on such properties. The tax will apply to urban property in towns with a population of one lakh or more. In view of differences in urban property values in towns of different sizes, I have decided to provide for different exemption limits according as the population of the town is between 1 lakh and 4 lakhs, 4 lakhs and 8 lakhs, 8 lakhs and 16 lakhs and over 16 lakhs. The exemption would vary from Rs. 2 lakhs in the smallest of these ranges to Rs. 5 lakhs in the highest of these ranges. Honourable Members will see that the classification of towns that I have adopted for this purpose is the same as is already available for purposes of granting compensatory and other allowances to Central Government employees. Urban properties in excess of these exemption limit will, under my proposal, bear an additional wealth-tax at progressive rates rising from one per cent to four per cent on successive slabs of the total market value of such property. It is not possible for me now toestimate precisely the revenue from this source, but as at present 1 would put down the additional revenue expected Rs. 1.5 crores in 1965-66. I would like to emphasise, however, that the purpose of this levy is as much to raise revenue as also to achieve wider social purposes. It may be that as a result of this measure, property owners may transfer properties to corporate bodies which are not now liable to the wealth-tax or property owning companies may come up. If this tendency develops, Government will deal with it at the appropriate time.'
4. All this might explain why property in what we have called rural areas should be exempt from the additional tax. But it can scarcely explain the seemingly contrary trend of a higher tax in respect of property in a smaller urban area than in respect of property of the same market value in a bigger urban area. The evil sought to be mitigated, one should have thought, would progressively increase with an increase of population.
5. The real explanation for the seeming discrimination is, we think, to be found elsewhere. Perhaps there is a hint of it in this rather cryptic passage in the Finance Minister's speech.
'In view of differences in urban property values in towns of different sizes. I have decided to provide for different exemption limits according as the population of the town is between 1 lakh and 4 lakhs, 4 lakhs and 8 lakhs, 8 lakhs and 16 lakhs and over 16 lakhs. The exemption would vary from Rs. 2 lakhs in the smallest of these ranges to Rs. 5 lakhs in the highest of these ranges. Honourable Members will see that the classification of towns that I have adopted for this purpose is the same as is already available for purposes of granting compensatory and other allowances to Central Government employees.'
6. As we have seen, the legislative entry speaks of taxes on the capital value, not the market value, of the assets of individuals and companies. And we think that the fallacy behind the petitioner's contention lies in the assumption that capital value and market value are one and the same thing. The two are no doubt closely related, so closely related as to be twins so that it is often difficult to tell the one from the other. But they are by no means the same. They are so nearly alike that one of the modes commonly employed for assessing the capital value of an asset is to assess its market value if that is determinable. That is the mode adopted by the Act and that is accurate enough for most purposes. Another mode frequently employed for assessing both capital value and market value is to capitalise the income the asset is capable of earning at a number of years' purchase.
To a large extent, both the capital value and the market value of an asset depend on what we might call its productivity. But capital value is more closely dependent on productivity than market value which is more largely influenced by other factors; and therein lies the difference which is relevant for our purposes. The very dictionary meaning of the word, 'capital', namely, 'accumulated wealth used in producing more' indicates the extent of the dependency of the capital value of an asset on its productivity. But, so far as market value is concerned, other factors such as capital cost, supply and demand, in other words, property hunger, or unsatisfied demand, enter in a larger degree. And, generally speaking, while these factors work in one direction when we proceed from a rural to an urban area they work in the opposite direction when we proceed from a smaller to a bigger urban area. There might, of course, be individual cases which are exceptions, -- the petitioner would have it that Cochin is one of the exceptions, but, even if that were material, she has adduced no evidence in support of her assertion -- but we cannot take note of that.
7. The Act imposes a wealth-tax at the same rates on all assets irrespective of where the assets are held. It is only in respect of the additional wealth-tax, imposed only in respect of lands and buildings, that it makes a difference between one area and another. Now, it is notorious that immovable property of the same market value fetches a higher income in an urban than in a rural area. Therefore, in relation to its market value, the capital value of an asset situate in an urban area is higher than the capital value of an asset situate in a rural area. And, since the tax is really on the capital value, although it is the market value that the Act adopts for arriving at the capital value, this provides ample justification for the total exemption in respect of immovable property in a rural area. But as we progress from a smaller to a bigger urban area, owing to several factors, property hunger and sentiment not the least, generally speaking, the market value of an asset increases out of proportion to its productivity, in other words, out of proportion to its capital value.
Thus, generally speaking, it would be correct to say that if a man buys immovable property for Rs. 10 lakhs in a rural area he would get a smaller return for his investment than if he had bought property for the like sum in an urban area. At the same time he would get a larger return on such an investment ina smaller urban area than in a bigger urban area. This, we think, justifies the higher limit of exemption for a bigger urban area. Put briefly, the exemptions, including the total exemption in respect of properties situate in rural areas, are calculated to make the taxable value approximate more nearly to the capital Value. They apply a correction in order to bridge the disparity between capital value and market value. It is not as if properties in rural areas escape taxation altogether as if they had no capital value at all. Their market value is taken into account in assessing wealth-tax, and the correction is applied at the stage of levying additional wealth-tax.
8. The factors of which we have taken note depend largely on the degree of urbanisation of an area and this, in turn, depends largely on the population of the area. As we have said, there might be exceptions, and it is obvious that there is a certain degree of arbitrariness in the fixation of all limits. But, by and large, the differentiation made by the statute in respect of the levy of additional wealth-tax on the basis of the population of the area concerned seems to us to be based on a rational classification having regard to the objects of the Act.
9. Another way of looking at the higher limits of exemption for the bigger cities would be this. The scheme of the Act, a scheme justified not merely by the legislative entry but also by Clauses (b) and (c) of Article 39 of the Constitution, is to tax excessive wealth on a progressive scale. Having regard to such factors as the cost and standard of living, and the much higher price that has to be paid for a property of the same physical character in a bigger city than in a smaller one, can it not reasonably be said that, while Es. 5 lakhs worth of immovable property in Calcutta or Bombay cannot be regarded as excessive wealth, Rs. 5 lakhs worth of property in Tiruchnapalli or Cochin can well be regarded as excessive wealth
10. It is needless to say that the burden lies on the petitioner to demonstrate a hostile discrimination; and the burden is heavier in the case of a taxing statute. That burden the petitioner has failed to discharge.
11. We dismiss the petition but make no order as to costs.