Case: Shashikant Laxman Kale and Another Vs. Union of India and Others (And Others Petitions)

the benefit only to a few in the same class denying the same to those left out does not arise. 19. We shall now refer to some other clauses of section 10 of the Act to which reference was made at the hearing in support of the rival contentions. Sub-clause (i) of clause (10) of section 10 confines the benefit thereunder only to the Government servants, defence personnel and employees of a local authority. Sub-clause (i) of clause (10A) similarly confines the benefit to Government servants, defence personnel and employees of local authority or a corporation established by a statute. Clause (10A) also makes a distinction between the Government employees and other employees. Clause (10B) also removes the limit in respect of any payment as retrenchment compensation under a scheme approved by the Central Government. Some other clauses in section 10 of the Act further show that the scheme of section 10 contemplates a distinction between the employees based on the category of their employer. Accordingly, clause (10C) therein is not a departure from the existing scheme but in conformity with some clauses earlier enacted thereinOnce the impugned provision contained in the newly inserted clause (10C) of section 10 of the Income-tax Act, 1961, is viewed in the above perspective, keeping in mind the true object of the provision, there is no foundation for the argument that it is either discriminatory or arbitrary. There is a definite purpose for its enactment. One of the purposes is streamlining the public sector to cure it of one of its ailments of overstaffing which is realised from experience of almost four decades of its functioning. In view of the role attributed to the public sector in the sphere of national economy, improvement in the functioning thereof must be achieved in all possible ways. A measure adopted to cure it of one of its ailments is undoubtedly a forward step towards promoting the national economy. The provision is an incentive to the unwanted personnel to seek voluntary retirement thereby enabling the public sector to achieve the true object indicated. The personnel seeking voluntary retirement no doubt get a tax benefit but then that is an incentive for seeking voluntary retirement and at any rate that is an effect of the provision or its fall-out and not its true object. It is similar to the incentive given to the taxpayers to invest in the public sector bonds by non-inclusion of the interest earned thereon in the taxpayers total income which promotes the true object of raising the resources of the public sector for its growth and modernisation. The real distinction between the true object of an enactment and the effect thereof, even though appearing to be blurred at times, has to be borne in mind, particularly in a situation like this. With this perspective, keeping in view the true object of the impugned enactment, there is no doubt that employees of the private sector who are left out of the ambit of the impugned provision do not fall in the same class as employees of the public sector and the benefit of the fall-out of the provision being available only to the public sector employees cannot render the classification invalid or arbitrary. This classification cannot, therefore, be faultedSome of the cases cited by the petitioners in support of the contention of equality of employees in the public and private sectors in the present context also are inapplicable. The decision in Hindustan Antibiotics Ltd. v. Workmen [1966-67] 30 FJR 461 ; 1967 (1) SCR 652 , related to wage fixation and is distinguishable. S. K. Dutta, ITO v. Lawrence Singh Ingty was distinguished and explained in ITO v. N. Takin Roy Rymbai relied on by us. Moreover, ITO v. N. Takin Roy Rymbai which also related to a provision in section 10 of the Income-tax Act, 1961, itself says as under (at pp. 89, 90) "Classification or purposes of taxation or for exempting from tax with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire warp and woof of the 1961 Act has been woven on this pattern." "... Suffice it to say that classification of sources of income is integral to the basic scheme of the 1961 Act. It is nobodys case that the entire scheme of the Act is irrational and violative of article 14 of the Constitution. Such an extravagant contention has not been canvassed before us. Thus, the classification made by the aforesaid sub-clause (a) for purposes of exemption is not unreal or unknown. It conforms to a well-recognised pattern. It is based on intelligible differentia. The object of this differentiation between income accruing or received from a source in the specified areas and the income accruing or received from a source outside such areas, is to benefit not only the members of the Scheduled Tribes residing in the specified areas but also to benefit economically such areas..." * 20. The other submission of the petitioners is to read the provision in manner which would cover all employees including employees of the private sector within the ambit of the impugned provision. This further question does not arise in view of our conclusion that there is no discrimination made out. We may, however, mention that the Finance Bill, 1987, while inserting a new clause (10C) in section 10 of the Income-tax Act simultaneously inserted a new clause (36A) in section 2 of the Act with effect from April 1, 1987, defining "public sector company", which expression has been used in the newly inserted clause (10C) of section 10. 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. Consequently,

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

Explanation:
0[ds]For determining the purpose or object of the legislation, it is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law. For the limited purpose of appreciating the background and the antecedent factual matrix leading to the legislation, it is permissible to look into the Statement of Objects and Reasons of the Bill which actuated the step to provide remedy for the then existing malady. In A. Thangal Kunju Musaliar v. M. Venkatachalam Potti the Statement of Objects and Reasons was used for judging the reasonableness of a classification made in an enactment to see if it infringed or was contrary to the Constitution. In that decision for determining the question, even an affidavit on behalf of the State of "the circumstances which prevailed at the time when the law there under consideration had been passed and which necessitated the passing of that law" was relied on. It was reiterated in State of West Bengal v. Union of India 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." Similarly, in Pannalal Binjraj v. Union of India a challenge to the validity of classification was repelled placing reliance on an affidavit filed on behalf of the Central Board of Revenue disclosing the true object of enacting the impugned provision in the Income-tax ActNot only this, to sustain the presumption of constitutionality, consideration may be had even to matters of common knowledge, the history of the times and every conceivable state of facts existing at the time of legislation which can be assumed. Even though, for the purpose of construing the meaning of the enacted provision, it is not permissible to use these aids, yet it is permissible to look into the historical facts and surrounding circumstances for ascertaining the evil sought to be remedied. The distinction between the purpose or object of the legislation and the legislative intention, indicated earlier, is significant in this exercise to emphasise the availability of larger material to the court for reliance when determining the purpose or object of the legislation as distinguished from the meaning of the enactedis useful to remember that the country having opted for mixed economy, the healthy and vigorous functioning of the public sector undertakings is conducive to the benefit of the private sector as well, in addition, to promoting the well-being of the national economy. A point of view emerging currently is that just as public sector undertakings are outside the purview of the Monopolies and Restrictive Trade Practices Act by virtue of the exemption conferred on them, the Income-tax Act should confer similar exemption to it from tax liability by suitable amendment in section 10 of the Act as is given to local authorities, housing boards, etc. This view is supported on the ground that the exemption from tax liability of public sector undertakings would ultimately benefit the consumers of the products of the public sector undertakings. This is not an irrelevant circumstance to indicate that, according to the general perception, there is a distinction between the public and private sectors. In some earlier decisions of this court, the public sector has been treated as a distinct class for the purpose of exemption under statutesIn Hindustan Paper Corporation Ltd. v. Government of Kerala a provision granting exemption to Government companies and co-operative societies alone for selling forest produce at less than the selling price fixed under the Kerala Forest Produce (Fixation of Selling Price) Act, 1978, was held to be constitutionally valid and not violative of articles 14 and 19(1)(g) of the Constitution of India. It was held that the Government or public sector undertakings formed a distinctis clear that Government or public sector undertakings have been treated as a distinct class separate from those in the private sector and the fact that the profit earned in the former is for public benefit instead of private benefit, provides an intelligible differentia, from the social point of view which is of prime importance for the national economy. Thus, there exists an intelligible differentia between the two categories which has a rational nexus with the main object of promoting the national economic policy or the public policy. This element also appears in the impugned enactment itself wherein "economic viability of such company" is specified as the most relevant circumstance for grant of approval of the scheme by the Central Government. This intrinsic element in the provision itself supports the view that the main object thereof is to promote and improve the health of the public sector companies even though its effect is a benefit to its employeesAs already indicated, clause (10C) of section 10 of the Act itself mentions 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 get the benefit of the provision is also lower as compared to their counterparts 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. Once the stage is reached where the differentiation is rightly made between a public sector company and a private sector company and that too essentially on the ground of economic viability of the public sector company and other relevant circumstances, the argument based on equality does not survive. This is independent of the disparity in the compensation package of employees in the private sector and the public sector. The argument of discrimination is based on initial equality between the two classes alleging bifurcation thereafter between those who stood integrated earlier as one class. This basic assumption being fallacious, the question of any hostile discrimination by granting the benefit only to a few in the same class denying the same to those left out does notother submission of the petitioners is to read the provision in manner which would cover all employees including employees of the private sector within the ambit of the impugned provision. This further question does not arise in view of our conclusion that there is no discrimination made out. We may, however, mention that the Finance Bill, 1987, while inserting a new clause (10C) in section 10 of the Income-tax Act simultaneously inserted a new clause (36A) in section 2 of the Act with effect from April 1, 1987, defining "public sector company", which expression has been used in the newly inserted clause (10C) of section 10. 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