Delhi Cloth and General Mills Ltd. Vs. S.
Paramjit Singh & Anr [1990] INSC 306 (9 October 1990)
Thommen,
T.K. (J) Thommen, T.K. (J) Rangnathan, S. Sawant, P.B.
CITATION:
1990 AIR 2286 1990 SCR Supl. (2) 218 1990 SCC (4) 723 JT 1990 (4) 110 1990
SCALE (2)774
ACT:
Constitution
of India, 1950: Article 14---Classification of tenants on basis of annual
income--Validity of--Section 1(3)(iii), Jammu and Kashmir Houses and Shops Rent
Control Act, 1966--Validity of.
Jammu and Kashmir Houses and Shops Rent
Control Act, 1966: Section 1(3)(iii)--Protection to tenants on the basis of
annual net income of tenant--Whether permissible--Classi- fication--Whether violative
of Article 14 of Constitution--Income--Concept of--Net income --Meaning of.
Words
& Phrases--Words 'income' and 'net income' meaning of.
HEAD NOTE:
The
appellant, a tenant, claimed protection of the Jammu and Kashmir Houses and Shops Rent Control Act, 1966. The courts
below disallowed the claim, on the ground that clause (iii) of sub-section (3)
of Section 1, read with the Expla- nation was attracted in respect of the
appellant.
The
appellant challenged the validity of clause (iii) of sub-section (3) of Section
1 of the Jammu and
Kashmir Houses and
Shops Rent Control Act, 1966 before the High Court on the ground that it
violated Article 14 of the Constitution.
The
High Court, following its earlier decision in the J & K Bank Lid. v. State
of J & K & Another, AIR1987 J & K 18 upheld validity of the clause.
In the
appeal before this Court, the appellant-tenant contended
(i)
that the clause was discriminatory and arbi- trary, because it drew an
artificial distinction between tenants on the basis of their income, in that
while those tenants earning net income below Rs.40,000 per annum were protected
by the beneficial provisions of the Act, those with annual net income in excess
of the statutory limit of Rs.40,000 were unreasonably and unfairly denied the protec-
tion and this statutory discrimination placed them at the mercy of the
landlords, who could easily evict them by recourse to the far less restrictive
provisions of the Transfer of 219 Property Act, 1882 and on the strength of
their agreements of lease,
(ii)
that the clause did not take into account the nature of the building, or the
need and income of the land- lord or any other factor and withheld or extended
protection solely on the financial capacity of the tenant, which could vary
from year to year, depending upon the nature of his business and other factors,
thus exposing the tenant to eviction when the business was prosperous, but
protecting him when the business declined and income fell,
(iii) that
"income" was not a clear and precise concept; limiting it to net
income did not make it clearer, and the Act did not indicate the permissible
deductions for arriving at the "net" and
(iv)
that the Section was invalid because it was too broad or vague and any
classification based on such vague differentia was unintelligible and,
therefore, viola- tive of Article 14; and in any view, the classification
sought to be made between persons falling on either side of the specified
income had no reasonable relation to the object sought to be achieved by the
statute.
Dismissing
the above appeal, and another similar appeal (Civil Appeal No. 1370 of 1987),
this Court,
HELD:
1.1 The object of the Jammu
and Kashmir Houses
and Shops Rent Control Act, 1966 is undoubtedly to protect the weaker section
of tenants from unreasonable eviction and unfair rent. At the same time, the
legislature did not desire to discourage persons from constructing buildings.
Thus,
while protection is afforded to deserving tenants, construction of new
buildings is encouraged by exempting buildings occupied by richer classes of
tenants from the provisions of the Act. While a building is covered by the Act
when occupied by a tenant whose annual net income is less than the specified
amount, the protection is withheld when the same building is occupied by a
richer tenant whose annual net income is higher than the specified amount.
Where a building is occupied by more than one tenant, the applica- bility of
the Act to each of them would depend upon his net income. It is the tenant that
the legislature intends to protect and not the landlord or his building. The
test adopted by the legislature for this purpose is with refer- ence to the
tenant's net income, whether accruing inside or outside the State, as on the
date of the landlord's applica- tion for eviction as well as on the date of the
decree for eviction. [224B-E]
1.2
The legislative object is, therefore, to protect tenants who are economically
weaker in comparison to those affluent tenants falling outside the specified
limit of income, and at the same time to encourage construction of new
buildings which will result in better availability of 220 accommodation,
employment opportunity and economic prosperi- ty. This is a reasonable
classification which does not suffer from the vice of being too vague or broad.
[224E-F] 1.3 Classification based on income is well-known to law.
Such
classification has a reasonable relation to the twin legislative object of
protecting economically weaker tenants and encouraging new constructions. There
is nothing unrea- sonable or irrational or unworkable or vague or unfair or
unjust in the classification adopted by Section 1(3)(iii) of the Act. [224F;
22SD]
1.4
The legislature in its wisdom is presumed to under- stand and appreciate
correctly the problems of the State and the needs of the people made manifest
by experience. Absent blatant disregard of constitutional provisions,
legislative innovation by social and economic experimentation must be permitted
to continue without judicial interference. [225B] The J & K Bank Ltd. v.
State of J & K & Another, AIR 1987 J & K 18, approved.
Rattan
Arya & Others v. State of Tamil Nadu & Another, [1986] 3 SCC 385 and
Motor General Traders & Another v. State of Andhra Pradesh & Others,
[1984] 1 SCC 222, distin- guished.
Kerala
Hotel & Restaurant Association & Ors. v. State of Kerala & Ors., [1990] 1 JT SC 324,
relied on.
Krishna
Dalmia v. Shri Justice S.R. Tendolkar & Others, [1959] SCR 279, referred
to.
2.
There is no lack of clarity in the concept of "in- come" or net
income. Income is money or other benefit peri- odically received. It is profit
or revenue and not capital.
It is
a gain derived from capital or labour or both. Net income is income obtained
after deducting all expenses incurred for the purpose of earning the income. It
is income minus operating expenses. The concept of net income is what it is
ordinarily understood to be in common parlance, and not necessarily limited by
the technicalities of any fiscal enactment. [224G-H] Banarasi Das v. Jagdish Raj
Kohli, AIR 1960 J & K 5. re- ferred to.
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 4043 and 1370 of 1987.
221
From the Judgment and Order dated 20.11.1987 and 4.3.1987 of the Jammu &
Kashmir High Court in L.P.A. No. 20/1987 and in Suit No. 235/86.
K. Parasaran,
Ms. S. Janani and Ms. Urmila Kapur for the Appellant in C.A. No. 4043/87. P. Chidambaram, P.H. Parekh and Ms. Gitanjali
Mathrani for the Appellants in C.A. No.
1370/87. M. Beg, E.C. Agarwala, Atul Sharma, Vijay Pandita and Ms. Purnima for
the Respondents in C.A. No. 4043/87. E.C. Agarwala and Atul
Sharma for the Respondents in C.A. No.
1370/87.
Ashok Mathur
for the State of Jammu
and Kashmir and
Advocate General.
The
Judgment of the Court was delivered by THOMMEN, J. Civil Appeal No. 4043 of
1987.
The
question which arises in this appeal is as regards the validity of clause (iii)
of sub-section (3) of Section 1 of the Jammu & Kashmir Houses and Shops
Rent Control Act, 1966 (hereinafter referred to as "the Act"). The
challenge against the clause on the ground of its alleged violation of Article
14 of the Constitution was rejected by the High Court of Jammu & Kashmir.
The High Court, following its earlier decision in The J & K Bank Ltd. v.
State of J & K & Another, AIR 1987 J & K 18, upheld the validity of
the clause.
The
impugned provision, as it stood at the relevant time, reads:
"1(3)
Notwithstanding anything contained in sub-section (2), nothing in this Act
shall apply to--- (ii) Omitted (iii) any tenancy in respect of any house. or
shop where the income of the tenant, whether accruing within or outside 222 the
State, exceeds rupees 40,000 per annum;
Explanation:
the word 'income' means 'net income.'" The appellant, the Delhi Cloth
& General Mills Limited is the tenant of the building in question. Its
claim for the protection of the Act was disallowed by the courts below on the
ground that clause (iii) of sub-section (3) of Section 1, read with the
Explanation, was attracted in respect of the appellant.
According
to the appellant, the impugned clause is discriminatory and arbitrary because
it draws an artificial distinction between tenants on the basis of their
income.
Those
tenants earning net income below Rs.40,000 per annum are fortunate enough to be
protected by the beneficial provisions of the Act, while a person like the
appellant whose annual net income is undoubtedly in excess of the statutory
limit of Rs.40,000, is unreasonably and unfairly denied the protection of the
Act. This statutory discrimina- tion, it is contended, places persons like the
appellant at the mercy of the landlords who can easily evict them by recourse
to the far less restrictive provisions of the Transfer of Property Act, 1882
and on the strength of their agreements of lease.
Counsel
for the appellant submits that the impugned clause does not take into account
the nature of the build- ing, but only the income of the tenant. The income of
the landlord himself is irrelevant. The protection of the Act is withheld or
extended, dependent solely on the financial capacity of the tenant and without
regard to the need of the landlord or the age or other conditions of the building
or any other factor. Treating tenants differently with refer- ence to their
annual income is not an intelligible classifi- cation, for the income of a
tenant may vary from year to year, depending upon the nature of his business
and other factors. This variation in income may expose him to eviction in a
particular year when the business is prosperous but protects him from eviction
when the business declines and income falls. Furthermore, counsel says. "income"
is not a clear and precise concept. Limiting it to net income does not make it
clearer. What are the permissible deductions to arrive at the "net",
the Act does not say. The Section is invalid because it is too broad or vague.
Any classification based on such vague differentia is unintelligible and,
therefore, violative of Article 14. In any view, counsel submits, the
classification sought to be made between per- sons falling on either side of
the 223 specified income has no reasonable relation to the object sought to be
achieved by the statute. Counsel relies on the observation of this Court in
Rattan Arya & Others v. State of Tamil Nadu & Another, [1986] 3 SCC 385
declaring Section 30(ii) of the Tamil Nadu Buildings (Lease and Rent Control)
Act, 1960 as unconstitutional. Counsel also relies upon the decision of this
Court in Motor General Traders & Another v. State of Andhra Pradesh &
Others, [1984] 1 SCC 222 declaring Section 32(b) of the A.P. Buildings (Lease,
Rent and Evic- tion) Control Act, 1960 as unconstitutional.
These
decisions, in our view, are easily distinguisha- ble. In Rattan Arya (supra)
this Court stated that a dis- tinction between residential buildings leased on
rent not exceeding Rs.400 per month and all other buildings--whether
residential or non-residential--was an unreasonable classi- fication. There was
no reason why non-residential buildings leased on rent of Rs.400 per month or
less should be treated differently from residential buildings of like rent or
why in the case of residential buildings the limit should have been limited to
Rs.400 per month. To so restrict the protec- tion of the Act was an
unreasonable classification. In the Motor General Traders (supra), this Court
stated that to arbitrarily prescribe a cut off date, i.e., August 26, 1957, for
denying the protection of the Act, without regard to the age of the building or
to the extent of realisation of the investment by the owner was an unreasonable
classification.
These
decisions do not, in our view, support the contentions of the appellant.
On the
other hand, a classification with reference to economic realities was upheld by
this Court in Kerala Hotel & Restaurant Association & Ors. v. State of Kerala
& Ors., [1990] 1 JT SC 324. This Court stated "those who can afford
the costlier cooked food, being more affluent, would find the burden lighter.
This object cannot be faulted on princi- ple and is, indeed, laudable".
Though that principle was stated in a different context, significantly this
Court accepted a classification based on financial capacity.
The
classic and oft-repeated test to be applied when the constitutionality of
legislation is questioned with refer- ence to Article 14 of the Constitution is
what is stated by this Court in Shri Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar
& Others, [1979] SCR 279. S.R. Das, CJ. stated:
"In
order, however, to pass the test of permissible classi- fication two conditions
must be fulfilled, namely, (i) that the 224 classification must be rounded on
an intelligible differen- tia which distinguishes persons or things that are
grouped together from others left out of the group and, (ii) that the
differentia must have a rational relation to the object sought to be achieved
by the statute in question." The object of the enactment in question is
undoubtedly to protect the weaker section of tenants from. unreasonable
eviction and unfair rent. The legislature, at the same time, did not desire to
discourage persons from constructing buildings. The twin legislative object is
the protection of economically weaker tenants and encouragement of construc- tion
of buildings. While protection is thus afforded to deserving tenants,
construction of new buildings is encour- aged by exempting buildings occupied
by richer classes of tenants from the provisions of the Act. While a building
is covered by the Act when occupied by a tenant whose annual net income is less
than the specified amount, the protection is withheld when the same building is
occupied by a richer tenant whose annual net income is higher than the
specified amount. Where a building is occupied by more than one ten- ant, the
applicability of the Act to each of them would depend upon his net income. It
is the tenant that the legis- lature intends to protect and not the landlord or
his build- ing. The test adopted by the legislature for this purpose is with
reference to the tenant's net income, whether accruing inside or outside the
State, as on the date of the land- lord's application for eviction as well as
on the date of the decree for eviction. The legislative object is, there- fore,
to protect tenants who are economically weaker in comparison to those affluent
tenants falling outside the specified limit of income, and at the same time to
encourage construction of new buildings which will result in better
availability of accommodation, employment opportunity and economic prosperity.
This is a reasonable classification which does not suffer from the vice of
being too vague or broad. Classification based on income is well-known to law.
Such
classification has a reasonable relation to the twin legislative object
mentioned above. We see nothing unreason- able or irrational or unworkable or
vague or unfair or unjust in the classification adopted by the impugned provi- sion.
Nor is
there lack of clarity in the concept of "income" or "net
income". Income is money or other benefit periodi- cally received. It is
profit or revenue and not capital. It is a gain derived from capital or labour
or both. Net income is income obtained after deducting all expenses incurred
for the purpose of earning the income. It is income minus oper- ating expenses.
The concept of net income is what it is 225 ordinarily understood to be in
common parlance, and not necessarily limited by the technicalities of any
fiscal enactment. See in this connection the observation of the Jammu &
Kashmir High Court in Banarasi Das v. Jagdish Raj Kohli, AIR 1960 J & K 5.
The
legislature in its wisdom is presumed to understand and appreciate correctly
the problems of the State and the needs of the people made manifest by experience.
Absent blatant, disregard of constitutional provisions, legislative innovation
by social and economic experimentation must be permitted to continue without
judicial interference.
The
High Court, as stated earlier, followed its earlier decision on the
construction of the Section in The J & K Bank Ltd. v. State of J & K
& Another, AIR 1987 J & K 18. In that case, speaking for the Division
Bench, Anand, CJ. stated as follows:
"In
our opinion, the challenge to vires of S. 1(3)(iii) of the Act is not well
founded. Undoubtedly, the Act is a piece of social and beneficial legislation.
The Legislature knows and correctly appreciates the needs of its people. In its
supreme wisdom it denied the protection of the Act to ten- ants whose annual
income exceeds Rs.40,000. Social legisla- tion of this type is designed to
protect the interest of a class of society who, because of their economic
conditions, deserves such protection against their arbitrary eviction.
The
legislation is intended to protect weaker and poorer classes of the tenants and
there is, therefore, an intelli- gible differentia between the tenants whose
annual income is Rs.40,000 and those whose annual income is more than
Rs.40,000. In construing Art. 14, the aid whereof has been pressed into service
by the learned counsel, the Court is not required to adopt a doctrinaire
approach which would choke the beneficial legislation. It is open to the legisla-
ture to recognise the degree of harm and while doing so it can always make
reasonable classification. Article 14 for- bids class legislation but no
reasonable classification.
With a
view to pass the test of reasonable classification, there must exist
intelligible differentia between persons or things grouped together from those
who have been left out and there must be a reasonable nexus with the object to
be achieved by the legislation. Keeping in view the object which the
legislation seeks to achieve, it can be safely said that there is reason- 226
able nexus between the classification made by the legisla- ture in the impugned
section and the object sought to be achieved. We also find that there is an
intelligible differ- entia between the tenants who are sought to be protected
by the Act from those who are denied the protection of the Act.
We are
in complete agreement with what has been stated by the learned Chief Justice.
Accordingly,
we see no merit in this appeal. It is dismissed with costs here and in the
courts below.
Civil
Appeal No. 1370 of 1987.
This
appeal is brought by a nationalised bank. In view of our judgment in Civil
Appeal No. 4043 of 1987,' we dis- miss this appeal with costs here and in the
High Court.
N.P.V.
Appeals dis- missed.
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