K.C. Das Gupta, C.J.
1. The main point raised in this appeal, which is from an order dismissing an application under Article 226 of the Constitution by which the appellants wanted relief against the assessment order made against them for Income-tax and Super Tax, is whether the Finance Act of 1951 was ultra vires the Constitution of India by reason of contravention of Article 14 of the Constitution in so far as it provides for a graduated scale of Income-tax, the rate of tax rising with the rise in income. As far as we are aware, such an objection against this graduation in the rate of Income-tax has not been taken before any of the Courts in this country. It appears that in Cantonment Board, Poona v. Western India Theatres Ltd., : AIR1954Bom261 , an objection was taken before the Bombay High Court that the entertainment tax, the validity of which was under consideration in that case, was ultra vires the Constitution on the ground of discrimination. That objection was overruled on the ground that there was good ground to believe that there was such difference in the circumstances of the West-End and Capitol cinemas which would justify the levying of a higher rate in the case of performances given at those cinema theatres, and so there was no unreasonable classification. An objection as regards the validity of trade tax levied under the Bengal Municipal Act was also raised in this Court before Sinha, J., in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Licensing Officer of Tamluk Municipality, : AIR1956Cal397 , on the ground that as the tax was on a graduated scale, it offended against the rule against discrimination. Sinha, J. pointed out that one of the ingredients of taxing power was that the tax is levied according to the paying capacity of the taxpayer, and so the imposition of a higher tax from a company which has greater paid-up capital, and therefore presumed to have the capacity of paying more taxes, than a company which has a less paid-up capital and might be expected to have a lesser capacity for paying taxes, did not amount to discrimination. Neither of these cases is, however, in respect of graduated scales of Income-tax, so that it is necessary for us to consider the objection now raised against the validity of graduated scales of Income-tax the rate of tax rising with the rise in income on recognised principles of law.
2. It is helpful to bear in mind the proposition laid down by file Supreme Court as regards the scope of the rule against discrimination embodied in Article 14 of the Constitution. In one of the latest pronouncements of the Supreme Court in Bidi Supply Co. v. The Union of India, : 29ITR717(SC) , Das, C.J., stating the law on the subject quoted the decision of a Full Bench of that Court in Budhan Chowdhry v. State of Bihar, : 1955CriLJ374 thus:
'It is now well-established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (1) 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 (2) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases; namely, geographical, or according to objects or occupation 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.'
3. In applying the principle thus laid down to our present case it may first be stated that Dr. Pal, who appeared for the appellants, concedes that in this case the statute in question has passed the first test and that the classification on the basis of differences in income must be held to the founded on intelligible differentia distinguishing persons or things that are grouped together from others left out of the group. He contends, however, that as regards the second test, namely, that the differentia must have a rational relation to the object sought to be achieved by the statute in question, the impugned statute is found wanting.
4. The question that has first to be answered, therefore, is what is the object sought to the achieved by the Finance Act of 1951 as read with the Income-tax Act? According to Dr. Pal the object is the taking of property without payment of compensation: and he argues that differences in income between different groups have no rational connection with this object. Even if one accepts as correct the rather bald statement of the object of the legislation as the taking of property without payment of compensation, I find it difficult to agree that the differences in income have no rational connection with that object. Obviously, the compulsory taking by taxation has relation to the extent of what is being taken out of. It is unreasonable to say that the decision as regards how much is taken has nothing to do with the extent of what the taking is from. High authority has laid it down that one of the attributes of a tax imposed by the Sovereign is that it is correlated to the capacity to pay: vide the observations of Mukherjee, J., in Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra, : 1SCR1005 . Once the position is reached that the capacity to pay has reasonable relation to the object sought to be achieved by a taxing statute, it necessarily follows that differences in income have a rational connection with that object. The very fact that A has a larger income than B shows, prima facie, that he has greater capacity to pay. If a more searching analysis is attempted and it is thought that capacity to pay depends not merely on the total income but on the available surplus, the position is still indisputable that, by and large, a person with a larger income has greater available surplus and so a greater capacity to pay. Thus a person having an income of Rs. 10,000/- will have ordinarily a larger available surplus than a person having an income of a lesser amount, as ordinarily the needs whether for physiological necessaries or for conventional necessaries are approximately the same for every person, rich or poor. It may occasionally happen that the person having the larger income will have exceptional needs because of say, personal ill health, the existence of a larger, number of dependents or other circumstances. But, by and large, the position undoubtedly is that a man with larger income has more to spare. Even, therefore, if capacity to pay is thought to be correlated to the available surplus, it is reasonably clear, in my opinion, that the man in the higher income group has greater capacity to pay than a person in the lower income group.
5. But, argues Dr. Pal, to show that the differentia in this case, namely, the differences in income between different groups, has a rational connection with the object to be achieved, it is not sufficient to show that the man in the higher income group has greater capacity to pay, but it is also necessary to establish that there is more than proportional rise in the capacity to pay with the rise in income. In other words, the argument is that if, say, the tax is 1 per cent of the income if the income is Rs. 5000 and a higher percentage if the income is Rs. 10,000, it must appear, in order that the connection may be said to be rational, that the capacity to pay has increased by more than double. It is not necessary to be an expert economist to know that the physiological and even conventional necessaries of human beings are more or less the same, so that when the income rises the surplus available after meeting such needs rises more than in proportion. Thus if a sum of Rs. 2000 is needed for such necessaries, the available surplus, and therefore the capacity to pay of the person in the lower income group of Rs. 5000, will be measured by a sum of Rs. 3000. On the same basis, the capacity to pay of a person in the higher income group of Rs. 10,000 will be correctly measured by a sum of Rs. 8000. The position, therefore, is that whereas the person with the income of Rs. 5000 has a capacity to pay Rs. 3000 in taxes, the person in the higher income group on the same basis has a capacity to nay Rs. 8000. Thus while the income has risen by 100 per cent from Rs. 5000 to Rs. 10,000, the available surplus and so the capacity to pay has increased from Rs. 3000 to Rs. 8000, that is, much more than 100 per cent. Even if, therefore, it was necessary to show rational connection between the differentia of the classification by the statute and the object, that the capacity to pay has increased more than in proportion with the rise in income; that requisite is also satisfied here.
6. This itself, in my opinion, is sufficient answer to the objection that the differentia which forms the basis of the classification has no rational connection with the object to be achieved by the impugned legislation. When one takes into consideration, however, the fact that in the present case we are dealing not with just any tax, but with Income-tax statute, other considerations arise which show even more clearly that the classification in the present case is reasonable and the differentia, which forms the basis of the classification, has rational connection with the object to be achieved. We have to remember, that the Act itself does not set out the object to be achieved. What the object is has to be gathered as far as possible from the nature of the legislation. It is interesting to remember in this connection that at the very time a tax on income was first introduced legislators as well as writers on Public Finance stressed the fact that the result of a tax on incomes would be to remove to a great extent the inequality of the burdens laid as between the poorer classes and the richer classes by indirect taxation. J. see no reason to think that in putting on the statute book graduated rates of taxation, the rate rising with the rise in income, the Parliament had not this object of removing the inequalities of the tax burden between the richer and the poorer classes in mind. On the contrary, knowing of the anxiety of legislators to allay the discontent of the poorer classes, it is reasonable to think that removal of such inequality was also in the mint! of the Legislature and that also was one of the objects sought to be achieved by the Act. Once this conclusion is reached, we get an additional reason for holding that the differences in income between different groups which form the basis of the] classification have rational connection with the object to be achieved.
7. It is proper also to take notice of some of the directive principles laid down in Article 39 of the Constitution. This article provides, inter alia, that the State shall, in particular, direct its policy towards securing--'(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good' and '(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.' It is proper, in my opinion, to think that the fulfilment of these policies as laid down in Article 39 of the Constitution was among the objects sought to be achieved by the impugned legislation. The differences in income on which the classification is based and a graduated scale, rising with the rise in income, is enforced, have an obvious rational connection with this object.
8. From whatever point of view, the statute is examined, it appears clear, therefore, that there is a rational connection between the differentia on the basis of which the classification has been attempted in the Act and the objects sought to be achieved in the Act. This is, therefore, not class legislation but reasonable classification as permitted by the Constitution.
9. It is hardly necessary in view of the above discussion to seek any light from the American decisions to which Dr. Pal has drawn our attention. It is worth mentioning, however, that none of these several cases which have been placed before us has held that a graduated scale of Income-tax violates the equal protection of laws guaranteed by the Fourteenth Amendment or the uniformity of legislation which is also guaranteed by the American Constitution. In Magoun v. Illinois Trust and Savings Rank, (1898) 170 U. S. 283, one of the questions which the Supreme Court of the United States had to consider was whether as a result of the different rates of the tax depending upon the amount of the estate received on succession, the rule of equality was violated. The majority held that the classification was reasonable and the differences 'bear a fust and proper relation to the attempted classification.' It is true that one of the learned Judges, Brewer, J., took a different view and thought that even though classifying inheritors and legatees into the three classes of near relatives, remote relatives, and strangers, and imposing a different rate of taxation as to each of these classes might not be objectionable, the provision that the rate of taxation shall vary with the amount of the estate as regards the third class, namely stranger was an injustifiable classification. I am unable to-agree that this minority judgment is more; persuasive than the majority decision in this case.
10. Two other cases--Knowlton v. Moore, (1900) 178 U. S. 41 and Frank R. Brushaber v. Union Pacific Railroad Company, 240 U.S. Supreme Court Reports 1: 60 Law. Ed. 493, were cited before us by Dr. Pal. In Knowlton v. Moore, (1900) 178 U. S. 41, where the Court had to deal with a statute providing for progressive rates of tax, the Court said: 'Lastly, it is urged that the progressive rate feature of the statute is so repugnant to fundamental principles of equality and justice that the law should be held to be void, even although it transgresses no express limitation in the Constitution. Without intimating any opinion as to the existence of a right in the courts to exercise the power which is thus evoked, it is apparent that the argument as to the enormity of the tax is without merit. It was disposed of in Magoun v. Illinois Trust and Sav. Bank, (1898) 170 U.S. 283 at p. 293.' In rejecting the argument, the learned Judges further observed. 'So, also, some authoritative thinkers, and a number of economic writers, contend that a progressive taxis more just and equal than a proportional one.' The statute which the Court had to consider in Frank R. Brushaber v. Union Pacific Railroad Company (1916) 240 U.S. 1 levied 'one tax called a normal tax on all incomes of the individuals up to $ 20,000, and from that amount up, by gradations, a progressively increasing tax, called an additional tax.' It was urged that the statute violated the due process clause, or was ''so wanting in basis for classification as to produce such a gross and patent inequality as to inevitably lead to the same conclusion.' The Court held that 'adequate bases for classification' were 'apparent on the face of the assailed provisions,' and rejected the argument.
11. I have no hesitation, therefore, in saying that if the views of the Supreme Court of the United States provide any guidance, that guidance is that a graduated scale of Income-tax does not contravene the rule of equal protection of laws.
12. I have come to the conclusion that there is no substance in the point raised on behalf of the appellants.
13. No other point was raised before us.
I would accordingly, dismiss the appeal with costs. Certified for two Counsel.
R.S. Bachawat, J.
14. I agree.