Case: Khandige Sham Bhat &amp; Another Vs. Agricultural Income-tax Officer, Kasaragod &amp; Another

3. Kasaragod Taluk wherein the agricultural lands of the petitioners family are situate, formed part of the district of South Kanara in the Madras State. Under the State Reorganization Act, 1956 (Central Act 37 of 1956) the Kerala State comprising the following territories as formed: (a) the territories of the existing State of Travancore Cochin, excluding the territories transferred to the State of Madras by S. 4; and (b)the territories comprised in (i)Malabar District, excluding the islands of Laccadive and Minicoy, and (ii) Kasaragod Taluk of South Kanara District. Under the Act the territories comprised in Kasaragod Taluk of south kanara District and the District of Malabar in the Madras State were constituted into a separate district known as the Malabar District in the State of Kerala. For convenience of reference we shall hereinafter describe the territories carved out of the Madras State as Madras area and the rest as T-C area. After the formation of the State of Kerala on November 1, 1956, the laws in force in the State of Madras were continued in the Madras area and those in force in the Travancore-Cochin State were continued in the T-C area. In the T-C area agricultural income was liable to tax under the Travancore Cochin Agricultural Income-tax Act (22 of 1950) which came into force on April 1, 1951. After the formation of the Kerala State, the Legislature of that State enacted the Travancore-Cochin Agricultural Income-Tax (Amendment) Act, 1957, whereunder the earlier Act of 1950 was extended to the Madras area with appropriate amendments. Under the said Act agricultural income derived from lends situated throughout the State of Kerala became assessable with effect from assessment year 1957-58. Pursuant to the provisions of that Act the Income-tax authorities started proceedings to asses the income derived from lands situated in the Madras area for the year 1957-58. On a petition filed by some of the assesses, the Kerala High Court held that the State of Kerala had no authority to levy tax on agricultural income which accrued before November 1,1956, from lands situated in the Madras area and that the assessments for 1957-58 were not sustainable under the Act even in respect of income which arose after November 1, 1956, on the ground that the previous year, as defined under the Act, was a period of twelve months ending on March 31, preceding the year for which assessment was to be made. The result of the decision was that agricultural income derived from lands in the Madras area was not liable to tax for the assessment year 1957-58, whereas similar income from agricultural lands situated in the T-C area was liable to tax indeed, the income accrued between November 1, 1956 and March 31,1957, i.e., the income accrued after the Madras area became part of the Kerala State, also could not be taxed. To remedy the situation brought about by historical reasons in the two geographical parts of the Kerala State, the Government of Kerala promulgated on January 12, 1959 the Agricultural Income-Tax (Amendment) ordinance II of 1959. Subsequently the Kerala Legislature passed the Agricultural Income-tax (Amendment) Act 11 of 1959 replacing the earlier ordinance, hereinafter called the Amending Act.4. Before the Amending Act was passed the petitioner, who has lands in different villages in Kasaragod Taluk, submitted a return of the income of his family for the assessment year 1957-58, and on June 30, 1958 the concerned Income-tax officer determined the petitioners net income for the accounting period April 1, 1950 to March 31, 1957 and the tax payable thereon. The petitioner preferred an appeal to the Assistant Commissioner of Agricultural Income-tax, Kozhikode, against the order of the Income-tax Officer questioning the said assessment on the ground, inter alia, that the assessment was made arbitrarily. When that appeal was pending, the judgment of the Kerala High Court was delivered and subsequently ordinance II of 1959 was promulgated. The Assistant Commissioner, therefore, set aside the order of the Income-tax Officer on the basis of the decision of the Kerala High Court and remanded the matter to the agricultural Income-tax Officer for disposal in accordance with law. After remand, on March 23, 1959, the Income-tax Officer issued a notice to the petitioner to submit his return of agricultural income for the assessment year 1957-58 in accordance with the provisions of the Ordinance and the subsequent Amending Act replacing the said ordinance. On November 10, 1960 the Income-tax officer determined the net income of the petitioner for the assessment year 1958-59 at Rs. 87,745.36 and assessed the tax at Rs. 21,920.41; the tax was calculated on the average net annual income of the petitioner of 12 months under the proviso to s. 2A of the Act. The petitioner seeks to set aside that assessment on the ground that the said section offends Art. 14 of the Constitution and therefore the assessment was bad.

Court's reasoning:
The object of making the classification was not to discriminate against the agriculturists of the Madras area but to bring them into line with the agriculturists from the rest of the Kerala State in so far as the liability to pay agricultural income-tax was concerned.The existing law had therefore to be appropriately adapted for securing this end. In these circumstances can it be said that there was no reasonable nexus between the classification and object of the legislation. The object of the legislation thus was to impose agricultural income-tax on assessees in the Madras area and also in respect of the period between November 1, 1956 and March 31,1957 which could not be done under the pre-existing law. The differences between the two parts of that State have reasonable nexus to the said object. Because of the said differences the Legislature thought that the definition of "previous year" should be so amended in respect of the Madras area that the assessees in that area may not escape payment of agricultural income-tax in respect of the period after the said area formed part of the Kerala State. It is argued that this Court sustained the constitutional validity of a law on geographical and territorial bases only in a case where the said law was a pre-existing law in an erstwhile State which continued to be law in the area of that State after it merged in the larger unit, and that it cannot be State invoked (sic) where the law is for the first time enacted after the merger, for, it is said, in that event the law governs the new State as an indivisible unit. Reliance is placed upon the decision of this court in Krishan Singh v. State of Rajasthan. 1955-2 SCR 531 : ((S) AIR 1955 SC 795 ) and 1955-2 SCR 887 : ((S) AIR 1956 SC 20 ). But a perusal of the judgments does not bear out the contention. The validity of a classification does not wholly depend upon the source of law; the law may be a pre-existing law or one that was enacted after merger. What is important is to ascertain the existing circumstances in the two parts merged into one by historical events in order to determine whether the differences between the two have a reasonable nexus to the object of the said law. For the reasons already stated, we hold that the classification in the present case is founded on an intelligible differentia between the assessees of the two parts of the State, and that the said differences have rational relation ship to the object of the Amendingsaid discussion leads to the only conclusion that the Legislature in its sincere attempt to meet a difficult situation made a law adopting one of the diverse methods open to it and even the method adopted cannot be said to be either unreasonable or arbitrary as the overall picture indicates that it works fairly will on all similarly situated, though some hardship may be caused to some in the implementation of the law which is almost inevitable in every taxation law. We cannot, therefore, say that in the present case the one method adopted instead of another is either arbitrary orassessees of the Madras area under the Act formed one class and S. 2A applies to all of them: S. 2A applies to both parts of the Madras area, i.e., the Malabar area and the South Kanara area. In both the cases the income of the assessees that accrued before November, 1,1956 was not taxable; in both the cases the income that accrued thereafter is liable to tax. The rate also is the same. The statement only shows that all the crops, except arecanut, are gathered by the assessees of the entire area during the same period. The fact that in the case of one of the crops the assesses in the Malabar area harvested earlier cannot be a ground for holding that the law has made an unjust discrimination between persons belonging to the same class, but that is due only to the fortuitous circumstance of some assessee gathering the crops earlier than others. As we have pointed out, the arecanut crop is only one of the many crops in that area and the extent of its cultivation in Kasaragod Taluk is comparatively lesser than that in the entire area of the State or even the Madras area. We cannot, therefore, say that the law made an unjust discrimination between persons belonging to the same class.There is another aspect which may have a bearing on the question raised. The impugned section is a temporary provision intended to apply only for one year to tide over a difficult situation brought about by the reorganization of States, it is true that every law, whether it is temporary or permanent, cannot infringe Art. 14 of the Constitution; but in considering the question of reasonableness of the legislation this circumstance will have some bearing, particularly when the Legislature selected one of the many methods open to it. Though the method selected may not be as good as others, we cannot hold that it is unreasonable and, therefore, liable to be struck down.