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Report No. 236


3.1 Now, we shall address the question whether it is constitutionally permissible to prescribe a different and higher court-fee for the corporations. The fundamental right to equality guaranteed by Article 14 of the Constitution does not rule out reasonable classification. There need not be and ought not to be uniform rates of taxation (or fee) applicable to all classes of persons and to all the objects of taxation. In fact, it is a well - settled principle reiterated in a series of decisions of the Supreme Court of India as well as the Constitutional Courts of other countries that in matters of taxation, the Legislature enjoys greater freedom of classification and its range of choice is much wider. We may in this context refer to the decision of the Supreme Court in P.M. Ashwathanarayana Setty and Ors. Vs. State of Karnataka and Ors. (AIR 1989 SC 100) in which the constitutional validity of the court-fees enactments of three States came up for consideration. The Supreme Court observed thus:

"....Though other legislative measures dealing with economic regulation are not outside Art. 14, it is well recognized that the State enjoys the widest latitude where measures of economic regulation are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria and adjustment and balancing of various conflicting social and economic values and interests. It is for the State to decide what economic and social policy it should pursue and what discriminations advance those special and economic policies. In view of the inherent complexity of these fiscal adjustments, Courts give a larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways.

If two or more methods of adjustments of an economic measure are available, the Legislative preference in favour of one of them cannot be questioned on the ground of lack of legislative wisdom or that the method adopted is not the best or that there were better ways of adjusting the competing interests and claims. The legislature possesses the greatest freedom in such areas. The analogy of principles of the burden of tax may not also be inapposite in dealing with the validity of the distribution of the burden of a 'fee' as well." (para 30) After quoting the principles laid down in earlier cases, it was observed:

"....The complexity of economic matters and the pragmatic solutions to be found for them defy and go beyond conceptual mental models. Social and economic problems of a policy do not accord with preconceived stereotypes so as to be amenable to pre-determined solutions." (para 31) Then, at para 32, it was pointed out that "the question whether the measure of a tax or a fee should be ad valorem or ad quantum is again a matter of fiscal policy."

3.2 In the case of Income-tax Officer, Shillong vs. N. Takin Roy Rymbai (AIR 1976 SC 670) it was observed: "....Nor the mere fact that a tax falls more heavily on some in the same category, is by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification, that there would be a violation of Article 14." (para 24)

3.3 In Ashwathanarayana Setty's case, the Supreme Court upheld the constitutional validity of the Rajasthan and Karnataka Court-fees and Suits Valuation Acts. However, a particular provision in Bombay Court-fees Act was struck down as unconstitutional. The reason was that the Court-fees on proceedings for grant of probate and letters of administration ad valorem without the upper limit prescribed as in the case of other proceedings was discriminatory. The Supreme Court agreed with the view of the High court that there was no intelligible or rational differentia between the two classes of litigations having rational nexus to the objective. The Supreme Court noticed that the party who was plaintiff in a probate proceeding was called upon to pay a court-fees of Rs.6.14 lacs whereas if it were a civil suit much less would have been payable in view of the ceiling prescribed for the court-fees in the suits. The Supreme Court approved of the following observations of the High Court:

"There is no answer to this contention, except that the legislature has not thought it fit to grant relief to the seekers of probates, whereas plaintiffs in civil suits were thought deserving of such an upper limit. The discrimination is a piece of class legislation prohibited by the guarantee of equal protection of laws embodied in Art. 14 of the Constitution. On this ground also, item 10 cannot be sustained." (para 36)

3.4 The Supreme Court also made an observation that the prescription of high rates of court-fees even in small claims as also without an upper limit in larger claims is "perilously close to arbitrariness, an unconstitutionality".

3.5 Classification for the purpose of taxation based on the financial capacity has been held to be permissible classification by the Supreme Court in certain other cases arising under the Sales Tax and other tax laws.

3.6 The Commission is, therefore, of the view that the prescription of higher court-fees for corporate sector or any other category of litigants will not per se offend any constitutional principle, provided that there is reasonable justification to treat them on a different footing. There must be intelligible differentia to support the classification. The Commission is clarifying this point because in an earlier report (220th Report),6 there was a passing observation that there should be some measure of uniformity of court-fees and there is no justification for differential treatment of different suitors. The issue in the present form has not been considered by the Law Commission.

3.7 However, the question would then arise as to why the corporations should alone be subjected to higher rates of court- fees leaving out affluent individuals and associations of individuals. If capacity to pay more is the criterion, why should there be a distinction between the corporations and equally if not more prosperous other litigants? In fact, this is one of the considerations which weighed with the Law Ministers as far back as 1984. The issue of rationalization of court-fee was examined by the Committee of Law Ministers in Oct. 1984 and the suggestion of differential court-fees for corporate sector was turned down by the Committee with the following note:

"The Advocates General of Kerala and West Bengal were of the view that there was no justification for extending concessions proposed in the matter of court-fees to the companies. They further said that differential rates of court-fees could be prescribed for payment by individuals and corporate bodies/companies. They felt that there might not be any constitutional bar in doing so.( para 8.15) Whether the suit is filed by an individual or a company, the service rendered by the court is the same. It may be argued that companies/corporate bodies are in a position to pay. But so may be the case with several individuals. How could then a differential rate of court-fee be justified? Also, among companies, there may be strong and weak ones. There may be differences in size, financial viability, etc. Again, if a differential rate is accepted, Government undertakings will also be covered." (para 8.16)

6 Supra Note 5

3.8 Another aspect that should be taken into account if the companies as a class are to be chosen for special treatment is the need to provide lesser court-fee for companies which have no substantial assets or do not make profits. It would be unjust if all the companies which litigate in the courts are treated at par irrespective of their financial position. If so, there must be sub-classification of companies and two sets of fee made applicable to them. This would make the court-fee structure complex.

Court-fees in Supreme Court vis--vis Corporate Litigation Back

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