Case: The Amalgamated Tea Estate Company Limited Etc Vs. The State of Kerala

give the domestic companies protection against the foreign companies. And there seems to be yet another good reason for this. The entire income earned by a domestic company from business inside as well as outside India will remain in India. But a good part of the income earned by the petitioners inside India would be drained out of India to the United Kingdom in the shape of dividends, etc. Under the Foreign Exchange Regulation Act, 1947, it is open to a foreign company to transmit money out of India with the permission of the Reserve Bank of India. It is thus evident that a greater part of the income and skill of the domestic companies is likely to be utilised in improving agricultural within the State. It will not be so in the case of foreign companies.12. On these considerations it cannot be said that the classification of companies into domestic and foreign companies has no rational relation to the purpose of the impugned provisions.13. Our view receives strong support from the Courts opinion in D. P. Joshi v. State of Madhya bharat, (1955) 1 SCR 1215 at p. 1228 = (AIR 1955 SC 334 ). That case related to the question of admission of students in a Medical College in the State of Madhya Bharat. According to a direction of the State of Madhya Bharat, all students admitted to the College were required to pay a prescribed fee. But students who were not bona fide residents of Madhya Bharat were also required to pay capitation fee of Rs.1,500/-. A student who was not a bona fide recident of Madhya Bharat were also required to pay capitation fee of Rs.1,500/-. A student who was not a bona fide resident of Madhya Bharat challenged the capitation fee as being violative of Art.14. The majority of the Court overrueld the contention. Speaking for the Court, Venkatarama Ayyar, J. said :"The object of the classification underlying the impugned rule was clearly to help to some extent students who are residents of Madhya Bharat in the prosecution of their studies, and it cannot be disputed that it is quite a legitimate and laudable objective for a State ot encourage education within its borders. Education is a State subject, and one of the directive principles declared in Part IV of the Constitution is that the State should make effective provision for education within the limits of its economy. The State has to contribute for the upkeep and the running of its educational institutions. We are in this petition concerned with a Medical College, and it is well-known that it requires considerable finance to maintain such an institution. If the State has to spend money on it, is it unreasonable that it should so order the educational system that the advantage of it would to some extent at least ensure for the benefit of the State? A concession given to the residents of the State in the matter of fee is obviously calculated to serve that end, as presumably some of them might, after passing out of the College, settle down as doctors and serve the needs of the locality. The classification is thus based on a ground which has a reasonable relation to the subject-matter of the legislation, and is in consequence not open to attack. It has been held in the State of Punjab v. Ajaib Singh 1953 SCR 254 = (AIR 1953 SC 10 = 1953 Cri LJ 180) that a classification might validly be made on a geographical basis. Such a classification would be eminently just and reasonable, where it relates to education which is the concern primarily of the State. The contention, therefore, that the rule imposing capitation fee is in contravention of Art.14 must be rejected."14. Wheeling Steel Corporation (1948) 93 Law Ed 1544 (supra) cannot, in our view assist the petitioners. Firstly, the foreign corporation there was a corporation incorporated and registered in a State within the U.S.A. Here the petitioner companies are incorporated not in any part of India but in the United Kingdom. Secondly, while there the taxing State has chosen "to adopt" the petitioning foreign corporation, here there is no evidence to show that the petitioners were permitted to carry on business in the State of Kerala by the choice of that State. In all probability they had set up their business in that State before India became a Sovereign Republic. Thirdly, there the taxing State was trying to tax the property of a foreign corporation admitted in the State. Here the State of Kerala is not taxing the property, but the income, of the petitioners from their agricultural property.15. In Hans Muller of Nurenburg v. Supdt. Presidency Jail, Calcutta, (1955) 1 SCR 1284 = (AIR 1955 SC 367 = 1955 Cri LJ 876) this Court upheld the classification of foreigners into those who are British subjects and those who are not British subjects for the purpose of preventive detention. The Court said there: "(I)t is eadily understandable that the reasons of State may make it desirable to classify foreigners into different groups".16. K. T. Moopil Nair v. State of Kerala, (1961) 3 SCR 77 = (AIR 1961 SC 552 ) and State of Kerala v. Haji K. Kutty Naha, AIR 1969 SC 378 deals with taxing statutes. In the first case, the State of Kerala had imposed a uniform tax levy on land. The taxing provisions were struck down as violative of Art. 14 because according to the Court there was no classification of persons for the purpose of taxation. In the other case, a uniform building tax was imposed on buildings according to their floor area. The taxing provisions were struck down as being discriminatory for total lack of any classification of persons or buildings. The impugned Act of 1970 does not suffer from this vice. So these cases also do not help the petitioners.17. We are of opinion that the impugned provisions of the Amending Act of 1970 are not violative of Art.14.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The classification test is, however, not inflexible and doctrinaire. It gives due regard to the complex necessities and intricate problems of Government. Thus as revenue is the first necessity of the State and as taxes are raised for various purposes and by an adjusmtnet of diverse elements, the Court grants to the State greater choice of classification in the field of taxation, that in other spheres.The reason why a statute is presumed to be constitutional is that the Legislature is the best Judge of the local conditions and circumstances and special needs of various classes of persons orthe tax relief given to them is not proved to be arbitrary or unreasonable. It may be that the domestic companies own land which is less fertile or produce inferior quality of plantation crops while the foreign companies own more fertile land and produce superior quality of plantation crops. In that case, the domestic companies would not be able to withstand the compensation of the foreign companies and would not survive. The State might have chosen to give the domestic companies protection against the foreign companies. And there seems to be yet another good reason for this. The entire income earned by a domestic company from business inside as well as outside India will remain in India. But a good part of the income earned by the petitioners inside India would be drained out of India to the United Kingdom in the shape of dividends, etc. Under the Foreign Exchange Regulation Act, 1947, it is open to a foreign company to transmit money out of India with the permission of the Reserve Bank of India. It is thus evident that a greater part of the income and skill of the domestic companies is likely to be utilised in improving agricultural within the State. It will not be so in the case of foreignthe State has to spend money on it, is it unreasonable that it should so order the educational system that the advantage of it would to some extent at least ensure for the benefit of the State? A concession given to the residents of the State in the matter of fee is obviously calculated to serve that end, as presumably some of them might, after passing out of the College, settle down as doctors and serve the needs of the locality. The classification is thus based on a ground which has a reasonable relation to the subject-matter of the legislation, and is in consequence not open to attack. It has been held in the State of Punjab v. Ajaib Singh 1953 SCR 254   = (AIR 1953 SC 10   = 1953 Cri LJ 180) that a classification might validly be made on a geographical basis. Such a classification would be eminently just and reasonable, where it relates to education which is the concern primarily of the State. The contention, therefore, that the rule imposing capitation fee is in contravention of Art.14 must bethe first case, the State of Kerala had imposed a uniform tax levy on land. The taxing provisions were struck down as violative of Art. 14 because according to the Court there was no classification of persons for the purpose of taxation. In the other case, a uniform building tax was imposed on buildings according to their floor area. The taxing provisions were struck down as being discriminatory for total lack of any classification of persons or buildings. The impugned Act of 1970 does not suffer from this vice. So these cases also do not help the petitioners.We are of opinion that the impugned provisions of the Amending Act of 1970 are not violative of Art.14.