S.K. Dutta, Income-Tax Officer &
Ors Vs. Lawrence Singh Ingty  INSC 250 (7 November 1967)
07/11/1967 HEGDE, K.S.
WANCHOO, K.N. (CJ) BACHAWAT, R.S.
CITATION: 1968 AIR 658 1968 SCR (2) 165
E 1976 SC 670 (6,12,18,19,20,23) RF 1992 SC
Income-tax Act (11 of 1922), s. 4(3)(xxi) and
Income- tax Act (43 of 1961), s. 10(26)--Exemption from tax--Denied to
government servants--If violative of Art. 14 of Constitution.
Both under s. 4(3)(xxi) of the Income-tax
Act, 1922 and s. 10(26) of the Income-tax Act, 1961, income of the members of a
scheduled tribe included in Art. 366(25) of the Constitution and residing in
any area specified in Part A or Part B of the Table appended to Paragraph 20 of
the Sixth Schedule of the Constitution, excepting that of government servants,'
is exempt from income-tax. The respondent was a member of such a scheduled
tribe residing in such an area, but, as he was a government servant, he was
assessed to income-tax. He challenged the validity of the assessments and the
High Court quashed the assessments holding that the two sections. to the extent
they excluded government servants from the benefit of the exemption given there
under, were discriminatory and therefore void.
In appeal to this Court.
HELD: The State has a wide discretion in
selecting persons or objects it will tax, but within the range of selection
made by it for the purpose of exemption, namely, among members of certain
scheduled tribes residing in specified areas, the law as stated in the two
operates unequally and the inequality cannot
be justified on the basis of any valid classification. [168H; 169B-C] (1) The
classification of trials into government servants and others cannot be
justified on the basis of administrative convenience viz.. that it was easy to
collect taxes from government servants, because. their case does not stand on a
different footing from that of the employees in statutory corporations or
well-established firms. [169F- G] (2) There is no legislative practice or
history treating government servants as a separate class for purposes of income
tax. The reason for making, in the past, persons in the service of the
government of British India serving outside British India subject to Indian
income-tax. is not t, hat their income was treated in a manner different from
that of other salaried officers in those areas, but that the Indian Legislature
had no legislative competence to tax residents of those areas but had competence
to tax the income of persons in British Indian government service, serving in
those areas. Further, the notification of 6th June 1890 under which the income
earned by members of certain scheduled tribes, other than those in government
service, was exempt from income tax, and the notification of 21st March 1922.
under which income of certain indigenous hill men, other than those in
government service. was exempt from tax, are not sufficient to prove a
well-established legislative practice. Those notifications were issued at a
time when the power of the legislature to grant or withhold any exemption from
tax was not subject to any constitutional limitation. Classification based on
past legislative 166 practice and history does not mean that because in the
past the legislature was enacting arbitrary laws it could do so now. [170A;
171D-F] (3) The social status and economic resources of a government servant
are not different from that of another holding a similar position in a
corporation or that of a successful medical practitioner, lawyer, architect
etc. Therefore, merely because a tribal becomes a government servant he is not
lifted out of his social environment and assimilated into the forward sections
of society. [172A-B] (4) The portions of the two sections struck down are
severable from the rest of the provisions in which they appear. [172E-F]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 809 of 1966.
Appeal by special leave from the judgment and
order dated February 13, 1965 of the Assam and Nagaland High Court in Civil
Rule No. 127 of 1963.
Niren De, Solicitor-General, A.N. Kirpal,
S.P. Netyar for R.N. Sachthey for the appellants.
M.C. Setalvad and D.N. Mukherjee, for the
D.M. Sen, Advocate-General for the State of
Nagaland, A.R. Barthakur and R. Gopalakrishnan, for the intervener.
The Judgment of the Court was delivered by
Hegde, J. The only question that arises for decision in this appeal is whether
the exclusion of the government servants from the exemption given under s. 4(3)(xxi)
of the Indian Income Tax Act, 1922 and later on under s. 10(26) of the Income
Tax Act, 1961 is violative of Art. 14 of the Constitution. For our present
purpose it may be taken that the said two provisions are similar.
The respondent who is a government servant
serving in the State of Assam has been assessed to income tax for the
assessment years 1959-60, 1960-61, 1961-62 and 1962-63. He challenged the
legality of his assessments in civil rule No. 127 of 1963 on the file of the
High Court of Judicature of Assam. The Assam High Court accepted his petition
and quashed the assessments in question holding that s. 4(3)(xxi) of the Indian
Income tax Act. 1922 as well as s. 10(26) of the Income Tax Act, 1961 to the
extent they excluded government servants from the benefit of the exemption
given thereunder are void. The income-tax authorities as well as the Union of
India have come up to this Court in appeal by special leave.
The facts of this case lie within a narrow
compass. The respondent belongs to Mikir Scheduled Tribe and is a permanent
inhabitant of United Khasi-Jaintia Hills District, an autonomous, District
included in Part 'A' of the Table appended to Paragraph 167 20 of the Sixth
Schedule of the Constitution of India. He is a government servant. All these
are admitted facts.
The respondent in his petition before the
High Court averred (in para. 7 of the petition) that "in all the
autonomous districts under Table, Part A of paragraph 26 of the Sixth Schedule
of the Constitution of India, there are a large number of persons belonging to
Scheduled Tribe who derive considerable income from trade, commerce and
business and other sources and employments and immovable properties".
In the return filed by the appellants those
allegations were not denied. Adverting to those allegations this is what was
stated in the affidavit filed by Shri S.K. Dutta, Income-tax Officer (the first
appellant in the appeal):
"With reference to the statements made
in paragraph 7 of the petition I say that the petitioner being a government
servant his case stands on a different footing other than the general public of
the Scheduled Tribe." It may be remembered till 15-8-47, Khasi and Jaintia
Hills were not parts of British India. They were under native States. They
merged with British India only after this country got independence. Till their
merger, none of the Indian laws applied to those areas. The Finance Act of 1955
incorporated into the Indian Income Tax Act,1922, s.4(3) (xxi). The relevant
portion of s. 4(3) reads thus:
4(3). "Any income profits, or gains
falling within the following classes shall not be included in the total income
of the person receiving them." (xxi). "Any income of a member of a
Scheduled Tribe, as defined in clause (25) of Article 366 of the Constitution,
residing in any area specified in Part`A or Part B of the table appended to
paragraph 20 of the Sixth Schedule to the Constitution, provided that such
member is not in the service of Government." Sec. 10(26) of the income tax
Act of 1961 which corresponds to S. 4(3)(xxi) of the Indian Income Tax Act,
1922, reads thus :- "In the case of a member of a Scheduled Tribe as
defined in clause (25) of Article 366 of the Constitution, residing in any area
'specified in Part A or Part B of the Table appended to paragraph 20 of the
Sixth Schedule to the Constitution or in the Union Territories of Manipur and
Tripura, who is not in the service of Government. any income which accrues or
arises to him, (a) from any source in the area or Union Territories aforesaid,
or (b) by way of dividend or interest on securities." 168 Part of the
impugned assessments were made under the Indian Income Tax Act, 1922 and the
rest, under the Income Tax Act, 1961. If the aforementioned provisions are
valid, then the assessments in question are beyond challenge. Therefore the
only question for decision is whether the legislature had no power to exclude
the government servants from the benefit of the exemptions given under the
aforementioned ss.4(3) (xxi) and 10(26).
It is seen that the income of the members of
a scheduled tribe included in cl. 25 of Art. 366 of the Constitution and
residing in my area specified in Part A or Part B of the Table appended to
paragraph 20 of the Sixth Schedule of the Constitution, excepting 1hat of
government servants is exempt from income tax. in other words, the government
servant alone is excluded from the, benefit of the exemption given under the
provisions quoted above. It is agreed that the respondent is a member of the
scheduled tribe included in cl. 25 of Art. 366 of the Constitution, residing in
an area specified in Part A of the Table appended to para. 20 of the Sixth
Schedule to the Constitution, but yet he had been denied the benefit of the
exemption in question on the sole ground that he is in the service of the
government. It may be noted that exemption both under s. 4(3)(xxi) of the
Indian Income Tax Act, 1922 and under s.10(26) of the Income Tax Act, 1961 was
given to the members of certain scheduled tribes. For the purpose of the
exemption in question the classification was made on the basis of persons being
members of a particular tribe. That being so, some of the members of that tribe
cannot be excluded from the benefit of those provisions unless they can be
considered as belonging to a well defined class for the purpose of income tax.
The respondent's contention which has been accepted by the High Court is that
the government servants cannot be considered as a separate class for the
purpose of income tax. On the other hand it is contended on behalf of the
Department that the classification made is a reasonable one, taking into
consideration administrative convenience as well as the past legislative
practice and history.
It is not in dispute that taxation laws must
also pass the test of Art. 14. That has been laid down by this Court in Moopil
Nair v. State of Kerala(1). But as observed by this Court in East India Tobacco
Co. v. State of Andhra Pradesh(2), in deciding whether a taxation law is
discriminatory or not it is necessary to bear in mind that the State has a wide
discretion in selecting persons or objects it will tax, and that a statute is
not open to attack on the ground that it taxes some persons or objects and not
others; it is only when within the range of its selection, the law operates un-
(1)  3 S.C.R. 77. (2)  1 S.C.R. 404, 409.
169 equally, and that cannot be justified on
the basis of any valid classification, that it would be violative of Art. 14.
It is well settled that 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
The complaint in this case is that within the
range of the selection made by the State for the purpose of exemption, namely,
members of certain scheduled tribes residing in specified areas, the law
operates unequally and the inequality in question cannot be justified on the.
basis of any valid classification.
There can be no distinction between the
income earned by government servant and that earned by a person serving in a
company or under a private individual. More or less similar is the case in
respect of the income earned by persons practising one or more of the
professions. Admittedly the income earned by the members of the scheduled
tribes residing in Khasi-Jaintia Hills. excepting in the case of government
servants is exempt from income tax be it as salaried officers, lawyers, doctors
or persons other walks of life. Is there any legal basis for this differentiation
? Prima facie it appears that the government servants have been discriminated
against and the discrimination in question is writ large on the face of the
provisions in question.
The learned Solicitor-General contended that
the classification in question can be justified on administrative grounds. He
urged that a classification based on administrative convenience is a just
classification in the matter of levying taxes. According to him it is easy to
collect taxes from government servants. Therefore, it was permissible for the
legislature to deny them the exemption extended to the other members of their
This contention appears to be without merit.
It may be that for the purpose of taxation a classification can be made on the
basis of administrative convenience. But we fail to see how the case of the
government servants stands on a footing different from that of the employees in
statutory corporations or even well recognised firms. That apart,
administrative convenience which can afford just basis for classification must
be a real and substantial one. We see no such administrative convenience. The
learned Solicitor-General, next contended that 'the classification can be
justified on the basis of past legislative practice and history. In this connection
he invited our attention to the fact that before this country got independence,
the income of the persons in the service of the government 'but serving outside
British India such as in Baluchistan, or native States was subject to tax under
the Indian Income Tax laws though other persons residing in those places were
not subject to the income tax laws in force in British India.
The L10 Sup C1/67-12 170 reason for the same
is that the Indian legislature had no.
legislative competence to tax the residents
of those areas, but it had competence to tax the income of the persons in
government service though they might be serving outside British India.
The learned Solicitor-General next invited
our attention to a notification issued by the Government of India as long back
as 6-6-1890, under which the income earned by members of certain scheduled
tribes other than those serving under the government was exempted from income
tax. He also invited our attention to Finance department Notification No. 788F
dated 21-3-1922 under which the income of indigenous hill men other than
persons in the service of government, residing in certain areas were exempt
from tax. On the basis of those notifications, he wanted us to spell out a well
recognised legislative practice and history under which the government servants
as a class were excluded from the benefit of income tax exemption extended to
other persons similarly situated. In this connection, he placed reliance on the
decision of this Court in Narottam Kishore Dev Varma and Ors. v. Union of India
and another(1). Therein this Court was called upon to consider the validity of
s. 87B of the Code of Civil Procedure which prescribed that a Ruler of a former
Indian State cannot be sued in any court otherwise competent to try the suit
except with the consent of the Central Government certified in writing by a
Secretary to the Government. The validity of that provision was challenged on
the basis of Art. 14. This Court upheld the. validity of that provision having
regard to the legislative and historical background of that provision, but at
the same time observed that considered in the light of basic principles of
equality before law, it would be odd to allow the section to continue
prospectively for all time to come. After setting out the legislative
background of that provision, this Court observed:
"The legislative background to which we
have referred cannot be divorced from the historical background which is to be
found for instance, in Art. 362. This Article provides that in the exercise of
the power of Parliament or of any legislature of any State to make laws or in
the exercise of the executive power of the Union or of a State, due regard
shall be had to the guarantee or assurance given under any such covenant or
agreement as is referred to in clause (1) of Art. 291 with respect to the
personal rights, privileges and dignities of a Ruler of an Indian State. This
has reference to the covenants and agreements which had been entered into
between the Central Government and the Indian Princes before all the Indian
States were politically - (1)  7 S.C.R. 55.
171 completely assimilated with the rest of
India. The privilege conferred on the Rulers of former Indian States has its
origin in these agreements and covenants. One of the privileges is that of
extra territoriality and exemption from civil jurisdiction except with the
sanction of the Central Government. It was thought that the privilege which was
claimed by foreign Rulers and Rulers of Indian States prior to the independence
of the country should be continued even after independence was attained and the
States had become part of India, and that is how in 1951, the Civil Procedure
Code was amended and present sections 86, 87, 87A and 87B came to be enacted in
the present form." In the background set out above this Court upheld the
validity of s. 87B of the Code of Civil Procedure.
We know of no legislative practice. or
history treating the government servants as a separate class for the purpose of
income tax. The government servants' income has all along been treated in the
same manner as the income of other salaried officers. We not know under what
circumstances the notifications dated 5-6-1890 and 21-3-1922, referred to.
earlier, came to be issue& But they are
insufficient to prove a well established legislative practice. At the time
those notifications were issued the power of the legislature to grant or
withhold any exemption from tax was not subject to any constitutional
limitation. Hence the validity of the impugned provisions cannot be tested from
what our legislatures or governments did or omitted to do before the
Constitution came into force. If that should be considered as a true test then
Art. 13(1) would become otiose and most, if not all, of our constitutional
guarantees would lose their content. Sri Setalvad learned counsel for the
respondent is justified in his comment that classification based on past
legislative practice and history does not mean that because in the past the
legislature was enacting arbitrary laws it could do so now.
It was the contention of the learned
Solicitor-General that exemption from income tax was given to members of
certain scheduled tribes due to their economic and social backwardness; it is
not possible to consider a government servant as socially and economically
backward and hence the exemption was justly denied to him. According to the
Solicitor-General, once a tribal becomes a government servant he is lifted out
of his social environment and assimilated into the forward sections of the
society and therefore he needs no. more any crutch to lean on. This argument
appears to us to be wholly irrelevant. The exemption in question was not given
to individuals either on the basis of their social status or economic
resources. It was given to a class. Hence 172 individuals as individuals do not
come into. the picture.- We fail to see in what manner the social status and
economic resources of a government servant can be different from that of
another holding a similar position in a corporation or that of a successful
medical practitioner. lawyer, architect, etc. To over-paint the picture of a
government servant as the embodiment of all power and prestige would sound
ironical Today his position in the society to. put it at the highest is no
higher than, that of others who in other walks of life have the same income.
For the. purpose of valid classification what is required is not some imaginary
difference but a reasonable and substantial distinction, having regard to the
purpose of the law.
It was lastly contended by the learned
Solicitor-General a contention which was not taken either in the return or
before the High Court or in the appeal memo.- that it is not possible to strike
down only a portion of s. 4(3)(xxi) of the Indian Income Tax Act. 1922 and s.
10(26) of the Income Tax Act, 1961, namely, the words "provided that such
member is not in the service of government" found in s. 4(3)(xxi) of the
Indian Income Tax Act, 1922 and the words "who. is not in, the1 service of
government" in s. 10(26) of the Income Tax Act, 1961, as those words are
not severable from the rest of the provisions in which they appear. Further;
according to him it cannot be definitely predicated that the legislature would
have granted the exemption incorporated in those provisions without the
exception made in the' case of government. servants.
Therefore if we hold that those provisions as
they stand are violative of' Art. 14 then we must strike down the
aforementioned ss. 4(3)(xxi) and 10(26) in their entirety.
We are unable to accept the contention that
the words mentioned above are not severable, from the rest of the provision in
which they appear. They are easily severable.
Taking into consideration the reasons which
persuaded the legislature to grant the exemption in question we have no doubt
that it would have granted that exemption even if it was aware of the fact that
it was beyond its competence to exclude the government servants from the
exemption in question.
For the reasons mentioned above this appeal
is dismissed with costs.