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

1. The two petitioners have been assessed to agricultural income-tax by the State of Kerala under the Agricultural Income-tax Act, 1950 (hereinafter called the Act) as amended by the Agricultural Income-tax (Amendment) Act, 1970. The assessment is made at the rate of 75 per cent of their total income. They challenge the assessment on the ground that Section 2 (hh) and (kk) and clauses (2) and (3) of Part 1 to the Schedule of the Kerala Agricultural Income-tax (Amendment) Act, 1970 are violative of Art. 14 of the Constitution.

Reasoning: 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.