K.G. Prakasan and Others vs State of Kerala and Others

Gopalan Nambiyar, C.J.—The validity of Kerala Tax on Employment Act, 1976 (Act 14 of 1976) has been challenged in these writ petitions. The grounds of challenge raised in the various writ petitions may usefully be preceded by a brief survey of the provisions of the Act.

Section 4 is the charging section. Clause (1) thereof, which is the main provision, reads:

Charge of tax. -- (1) Subject to the other provisions contained in this Act, there shall be charged on every person who exercises a profession, art or calling or transacts business or holds any appointment, public or private, within the State, a half yearly tax (hereinafter referred to as tax on employment) at the rate specified, in the Schedule.

Explanation -- A person shall be deemed to have exercised a profession, art or calling or held an appointment within the State, if that person has an office or place of employment within the State.

Section 5 provides for deduction of the tax on employment by the employer from the salary or wage payable to a person. Section 6 provides for every employer liable to pay tax u/s 5 obtaining a certificate of registration from the assessing authority. We skip over the provisions which provide for submission of return, assessment, recovery, penalty, appeals, etc. Section 26 bars the jurisdiction of a civil court to set aside or modify any assessment made under the Act and grants immunity to the Government or any authority or officer for anything done in good faith under this Act. The provision follows the familiar pattern known to many tax legislations. Section 29 is the rule making section. Section 30 provides for the establishment of a housing fund and its utilisation. The Kerala State Poor Housing Fund is to be established on the commencement of the Act. Clauses 2 to 6 of Section 30 are as follows:

Establishment of Housing Fund and its utilisation....

(2) The proceeds of the tax on employment levied and collected under this Act, together with the fines, interest and fees recovered thereunder, shall first be credited to the Consolidated Fund of the State, and, after deducting the expenses of collection and recovery as determined by the Government, the remaining amount shall, under appropriation duly made by law in this behalf, be entered into, and transferred to, the Housing Fund.

(3) Any amount transferred to the Housing Fund shall be charged on the Consolidated Fund of the State.

(4) No sum shall be paid or applied from and out of the Housing Fund except in the manner and for purpose provided in Sub-sections (5) and (6).

(5) The amount standing to the credit of the Housing Fund shall be expended in such manner and subject to such conditions as may be prescribed for the purpose of providing house sites for landless poor persons.

Explanation. -- For the purposes of this sub-section, "landless poor person" means a person who does not hold any land which is fit for construction of a dwelling house, either as owner or as tenant having fixity of tenure, and whose annual income is not more than six hundred rupees.

(6) The Housing Fund shall be held and administered on behalf of the Government by an officer not below the rank of Secretary to the Government, subject to such general or specified directions as may be given by the Government from time to time.

Turning to the schedule, it is enough to notice that the tax is on a graded scale depending on the half yearly income of the person liable to pay. Those having half yearly income of Rs. 1,800 and less, are completely exempt; those with income ranging from Rs. 1,800 to Rs. 3,000 are liable to pay Rs. 6 per half year; those between Rs. 3,000 and Rs. 4,800 are liable to pay Rs. 18, and so on.

We next notice the grounds of challenge to the Act. The legislative competence to enact the measure was attacked by some of the writ Petitioners. The grounds on which the challenge was rested themselves vary. Some of the writ Petitioners (for instance the writ Petitioner in O.P. 969 of 1978) contended that it was a tax on housing, not covered by a specific entry relating to tax under the Constitution, the writ Petitioner in O.P. 867 of 1978, O.P. 938 of 1978 and 3427 of 1978 contended that it was a tax on income; and that in any event its provisions are repugnant the provisions of the Income Tax Act. The writ Petitioner in O.P. No. 1089 of 1978 contended that the impost was really a fee and not a tax; and being a fee there was no quid pro quo for the same. It was also argued that the tax can only be for a public purpose and the tax "for the benefit of the state", or for the purpose indicated under the provisions of the Act, cannot be regarded as a public purpose. The provision in Section 30 Clause (2) of the Act was objected to, on the ground that although there was, in the first instance, a crediting of the tax to the Consolidated Fund, there was immediately an appropriation for purposes of the Housing Fund. This was said to militate against the concept of a tax. The writ Petitioner in O.P. 1089 of 1978 contended that the provision of Section 5 of the Act make an inroad into the sanctity of contract; but beyond mentioning the argument and pointing out that the act conflicted with the provisions of the Indian Contract Act -- vide item 7 of List I of the Seventh Schedule -- very little was said to develop or substantiate the contention. It was also contended (for the writ Petitioner in O.P. No. 1089 of 1978) that the tax was violative of Article 19 of the Constitution. Some of the writ Petitioners attacked the provisions of the Act as amounting to colourable legislation. The ground of challenge was that the tax was, really, either a tax on income, or a tax on housing, and so on. A ground of challenge was raised that the provisions impliedly repeal the provisions of the Kerala Municipalities Act, the Panchayats Act and the Municipal Corporations Act, all of which provide for the levy of a profession tax. Section 69 of the Panchayats Act, Section 110 of the Kerala Municipalities Act and Section 113 of the Municipal Corporations Act were the sections said to have been impliedly repealed. These are the different grounds of challenge raised.

The Act has been passed in exercise of the power conferred by entry 60 of List II of the 7th Schedule of the Constitution namely, "Taxes on professions, trades, callings and employments." There can be little doubt that the legislation is justified by the entry and falls directly within the periphery of the said entry. Attention was called to Article 276 of the Constitution, which provides a limitation on the amount of profession tax that can be imposed. The provision is in the following terms:

Taxes on profession, trades, callings and employments:

(1) Not withstanding anything in Article 246, a law of the Legislature of a State relating to taxes for the benefit of the State or of a. municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.

(2) The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two hundred and fifty rupees per annum;

Provided that if in the financial year immediately preceding the commencement of this Constitution there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate, of which exceeds two hundred and fifty rupees per annum, such tax may continue to be levied until provision to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities.

(3) The power of the Legislature of a State to make laws as aforesaid with respect to taxes on professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments.

Clause (1) of the above Article saves the tax from being regarded as invalid on the ground that it relates to a tax on income. That should be a sufficient effective answer to those who attacked the legislative measure as amounting to a tax on income. That is apart from the wider and more comprehensive answer that the tax is, as we shall show, not really a tax on income. It is, as will be clear, from the legislative entry and from Section 4 of the Act, a tax on a person, who exercises a profession, art or calling or transacts a business or holds an appointment. The nature and incidence of the tax are quite different from those of income tax.

The decision in MR. KAMTA PRASAD AGGARWAL ETC. Vs. EXECUTIVE OFFICER, BALLABGARH and Another, was cited in answer. That decision clearly, stated thus:

The contention of the Appellants that the imposition of tax by the Panchayat Samiti amounts to double taxation and is, therefore, illegal is unsound. A tax on profession is not necessarily connected with income. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income.

Article 276(2) as well as the proviso has the combined effect. which precludes a challenge on the ground that the tax on profession is a tax on income or that it exceeds Rs. 250 per annum. The proviso saves existing taxes. The proviso states that notwithstanding that a profession tax exceeds Rs. 250 per annum it can continue to be levied until provision to the contrary is made by Parliament by law.

The provision in Article 276(2) were contended by counsel for the Appellants to indicate that the total of taxes imposed on professions, trades, callings and employments by the State, Municipality or any other authority should not exceed Rs. 250 per annum. It was said that the words ''total amount by way of taxes'' shall not exceed Rs. 250. That is totally misreading the article. It cannot be denied that the State Legislature has power to impose taxes. The words in Article 276 that the total amount payable to the State or to any one Municipality, District Board, Local Board or other local authority cannot mean that the word ''or'' is used in a conjunctive sense as a substitute for the word ''and''. The word ''or'' is used in a disjunctive sense. The proviso to Article 276(2) not only supports that construction but also makes the provision clear. In the proviso to Article 276(2) it is mentioned that if before the commencement of the Constitution any State or any municipal board or authority had imposed a tax exceeding the limit of Rs. 250 such tax may continue. Therefore, when the proviso speaks of any State or any such municipality it indicates that both can tax separately to the limit imposed by the Article.

(underlining ours)

Article 276 was pressed into service in a different way for invalidating legislative measure. It was said that the saving on taxes "for the benefit of the State" or of a Municipality, or Panchayat, would be unwarranted and unjustified, as a tax can be levied only for a public purpose, and a measure for the benefit of the State or local authority cannot be equated with a public purpose. So ran the argument of the counsel for the Petitioner in O.P. No. 1089 of 1978. It is difficult to appreciate this argument. Whatever be the underlying purpose of the measure of taxation, Article 276 of the Constitution itself saves taxes of the nature and character specified therein from attack on the ground that it constitutes a tax on income. Every measure of taxation by the State is presumed to be for purposes of the State, namely, to enable it to carry on the State administration. The proceeds of every tax, under Article 266 of the Constitution, are to go to the Consolidated Fund of India and the Consolidated Fund of the State, and be dealt with accordingly. It is impossible in the circumstances to regard the levy as not satisfying a public purpose. In paragraph 43 of the well-known decision of the Supreme Court in The Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt., the Court stated:

(43) A neat definition of what "tax" been given by Latham, C.J. of the High Court of Australia in -- Mathews v. Chicory Marketing Board'' 60 C.L.R. 26 276 (M)

''A tax'' according to the learned Chief Justice, ''is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment'' for services rendered.

This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the tax-payer''s consent and the payment is enforced by law vide "Lower Mainland Dairy v. Crystal Dairy Ltd. 1933 AC. 168 (N)

The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy is for the purposes of general revenue which when collected forms part of public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of ''quid proquo'' between the taxpayer and the public authority. See Findlay Shirras on ''Science of Public Finance'', Vo. I, P. 203. Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the tax-payer depends generally upon his capacity to pay.

(underlining supplied)

In Ratilal Panachand Gandhi Vs. The State of Bombay and Others, at page 395 the nature of a tax was explained thus:

A tax is undoubtedly in the nature of a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. But the other and equally important characteristic, of a tax is, that the imposition is made for public purpose to meet the general expenses of the State without reference to any special advantage to be conferred upon the payers of the tax.

It follows, therefore, that although a tax may be levied upon particular classes of persons or particular kinds of property, it is imposed not to confer any special benefit upon individual persons and the collections are all merged in the general revenue of the State to be applied for general public purposes. Tax is a common burden and the only return which the tax-payer gets is participation in the common benefits of the State.

(underlining supplied).

We have noticed already that under Article 266 the proceeds of taxes go to the Consolidated Fund of the State. It was ruled in Ahmedabad Manufacturing and Calico Printing Co. Ltd., Ahmedabad and Others Vs. State of Gujarat and Others, that Gujarat Education Cess, an impost for a specific purpose, was quite valid as a tax.

Counsel for the writ Petitioner in O.P. 1089 of 1978, placed reliance on the judgment of a Full Bench of the Allahabad High Court in Sushil Chander Anand Vs. State of U.P. and Others, . That decision has answered most of the grounds of challenge raised in these writ petitions. It was concerned with the validity of the U.P. Vritti, Ajivika Aur Sevayojan Kar Adhiniyam. It was held that that Adhiniyam does not impose a tax on income, but is a tax on trades, callings, employment etc., and thus covered by Entry 60 of List II. The expression ''benefit of the State'' in Article 276 was construed to mean benefit of the revenues of the State. It was stated that it was not used in the sense of ''public purpose'' as in Article 31 of the Constitution. Reference was made to Article 266 of the Constitution and also to Article 283(2) under which the custody and control of the Consolidated Fund of a State and the Contingency Fund are regulated by laws made by the State Legislature.

An argument was raised that each of the authorities, namely, the State, the Municipality, the Panchayat, the Local Board, etc., has been given a power of taxation on profession or employment upto a maximum limit of Rs. 250. The taxing authorities are different and the purposes of taxation are also different. We are unable to see how this would attract Article 19 of the Constitution. We repel that contention.

Nor are we impressed by the contention advanced by the counsel for the writ Petitioner in O.P. No. 867 of 1978 that the provisions of the impugned Statute amount to an implied repeal of the Kerala Municipalities Act, the Panchayats Act and the Municipal Corporations Act. The purposes of the tax under these statutes are quite distinct and different. They operate in different spheres, and are not interfered with by the provisions of the impugned Act. No question of implied repeal can arise in these circumstances.

We can see again no force in the challenge to the Act on the ground that it violates Articles 14, 19 and 301 of the Constitution or that it is a colourable legislation -- really a tax on housing, or a tax on income, etc. The tax is plainly and clearly a tax on persons exercising any profession, art or calling. u/s 30, the proceeds are credited to the Consolidated Fund and thereafter transferred under appropriate statutes of the legislature, to the State Housing Fund to be utilised for providing house sites to the landless poor persons in the State. In the face of these provisions we do not think any attack can be levelled on the Act as a measure of taxation. In the light of this conclusion there is no merit in the argument raised by counsel for the Petitioner in O.P. No. 1969 of 1978 that the legislative power is not traceable to any specific entry relating to taxation. This was on the basis that the measure relates to taxation on housing, not specifically provided for in the State entries relating to taxation.

Counsel for the Petitioner in O.P. Nos. 867 of 1978 938 of 1978 and 3427 of 1978, besides raising the contention that the impugned measure is a tax on income, also contended that its provisions are repugnant to those of the Income Tax Act, and, for that reason they should fail, having regard to Article 254 of the Constitution. We have not been able to see any repugnancy in the provisions of the impugned measure and the Indian Income Tax Act. The purposes of the two Acts are different; so are their incidence and their sphere of operation. No question of conflict or repugnancy arises.

In the face of the express provisions of the statute to which we have already adverted, we find no merit at all in the contentions urged by counsel for the writ Petitioner in O.P. No. 1089 of 1978 that the impost is not a tax but a fee and is not supported by quid pro quo.

We see no force of merit in any of the objections urged against the provisions of the statute. We dismiss these writ petitions with no order as to costs.