SHASHIKANT LAXMAN KALE V. UNION OF INDIA
(1990) 4 SCC 366: AIR 1990 SC 2114
FACTS
The brief facts in the current scenario are as follows- Petitioner 1 is an employee of Respondent 2 (Peico Electronic and Electricals Limited, a private sector company) and Petitioner 2 is the registered trade union representing the employees of Respondent 2-company. The Petitioner accordingly challenged the Constitutional validity of clause (10-C) inserted in Section 10 of the Indian Income Tax Act, 1961 by the Finance Act, 1987. Counsel for the Respondent 2-company was supporting the Petitioners’ case. Counsel for Respondent 1 was supporting the validity of the provision which indicated that employees of the public sector constituted a distinct class for the purpose of taxation to prevent discrimination between employees of the same class if the real object of the provision is borne in mind.
ISSUE
The question dealt with in the present case is whether there is any hostile discrimination as alleged by the Petitioners and if any, is it possible to construe the provision in such a manner to apply it equally to the employees of the public and private sectors.
RULE
Section 10 of the Income Tax Act, 1961 deals with incomes not included in total income for the purpose of taxation under the Act.
Clause 10-C of the Section 10 of the Income Tax Act, 1961 states that “any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf.”
JUDGEMENT AND ANALYSIS
- This Hon'ble court observed that Chapter III of the Indian Income Tax Act, 1961 relates to “incomes which do not form part of the total income”. Section 10 in Chapter III deals with “incomes not included in total income”. It shows that in order to compute the total income of a previous year of any person, any income falling within any of the clauses therein shall not be included. The several clauses in Section 10 specify different incomes which would ordinarily be included in the total income of the assessee for the purpose of taxation but for such a provision. It also showed the effect of clause 10-C of Section 10 of the act. It stated that any payment received by an employee of a public sector company, at the time of his voluntary retirement in accordance with any scheme which the Central Government, may having regard to the economic viability of such company and other relevant circumstances, approve in this behalf, is not included in the total income of such employee resulting in grant of tax exemption to that extent to him.
- The court also discussed the principles of valid classification. They were long settled by a catena of decisions by this Hon'ble court, but their application to cases posed a question. The problem increased in cases swimming in the grey zone. It stated that the latitude for classification in a taxing statute was much greater and in order to tax something it was not necessary to tax everything. These basic postulates had to be borne in mind while determining the Constitutional validity of a taxing provision that was challenged on the ground of discrimination.
- The court determined that it was imperative to look beyond the ostensible classification and to the purpose of the law. It urged on the application of the test of ‘palpable arbitrariness’. It was clear that the role of the public sector in the sphere of promoting the national economy and the context of felt needs of times and social exigencies were of actual significance. There wasn’t any dispute that the impugned provision included all employees of the public sector and didn’t include any not in the public sector. The question imposed was whether those left out were similarly situated to render the classification palpably arbitrary. It was determined that only if the above test was applied in the manner above could the provision be considered as discriminatory and not otherwise.
- It further discussed the importance to discern the true importance of the purpose and object of the impugned enactment. It showed that in order to determine the purpose and object of an act, it was important to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law. It referred to a judgement State of West Bengal v. Union of India wherein it was observed that the Statement of Objects and Reasons accompanying a Bill, when introduced in Parliament, can be used for ‘the limited purpose of understanding the background and the antecedent state of affairs leading up to the legislation.’ It also discussed the distinction between the purpose and object of the enactment and its legislative intent. It referred to Francis Bennion’s Statutory Interpretation which summarised their distinction as follows “The distinction between the purpose or object of an enactment and the legislative intention governing it is that the former relates to the mischief to which the enactment is directed and its remedy, while the latter relates to the legal meaning of the enactment.” it showed that the courts would have a larger material for reliance while determining the purpose or object of the act as distinguished from its meaning. It also discussed that to sustain the presumption of Constitutionality, the consideration may be had, even to the matters of common knowledge, the history of times and every conceivable fact existing at the time of legislation, that can be assumed. Even though it is not permissible to use these aids, it is possible to look into the historical facts and circumstances to ascertain the evil sought out to be remedied.
- The public sector’s role is that of an ‘instrument of development and national strength’, a ‘key to our self-reliance’, ‘catalyst of social change’ and for attaining ‘commanding heights of the economy’ in keeping with our national aim of Welfare State and a socialist economy. The court made it clear that the government or the public sector undertakings have been treated as a distinct class separate from those in the private sector. The profit earned was for the public benefit rather than private and it provided an intelligible differentia from the social point of view which is of prime importance for the national economy. As already indicated, clause (10-C) of Section 10 of the Act mentioned economic viability of a public sector company as the most relevant circumstance to attract the provision. The economic status of employees of a public sector company who normally receives the benefit of the provision was also lower as compared to their counterpart in the private sector. If this be the correct perspective as we think it is in the present case, the very foundation of the challenge to the impugned provision on the basis of economic equality of employees in both sectors is non- existent.
- It was further observed that as per clause 10-C of Section 10 of the Income Tax Act, 1961, the object of the provision wasn’t discriminatory or arbitrary. There was a definite purpose of the enactment. It was hence observed that according to the true object of the impugned enactment, that the employees of the private sector were rightly left out of the ambit of the impugned provision and they don't fall within the same categories as the employees of the public sector. The benefit or the fall out of the being available only to the public sector employees cannot render the classification invalid or arbitrary.
- Therefore, In view of the simultaneous definition of ‘public sector company’ in the Act, there can be no occasion to construe this expression differently without which a private sector company cannot be included in it. It is, therefore, not possible to construe the impugned provision while upholding its validity in such a manner as to include a private sector company also within its ambit.