Manmohan Singh vs State of Punjab and Others

Adarsh Kumar Goel, J.—This petition seeks quashing of the provisions of section 3AA of the Punjab State Legislative Assembly (Salaries and Allowances of Members) Act, 1942 (in short "the Act"), providing for payment by the State of income tax payable by the Members of Legislative Assembly on salary and allowances payable to them.

The case of the petitioner is that he retired from service of the Railways and was doing social work. He came to know that an amendment has been made to the provisions of the Act by adding section 3AA to the effect that salaries and allowances to be paid to the Members of Legislative Assembly are made exclusive of income tax which will be paid by the State Government. The petitioner wrote a letter to the Chief Minister objecting to such a measure being adopted. Learned counsel submitted that there have been instances of multicrore scams by the elected representatives and in such a situation, the State exchequer could not be further burdened. On the other hand various farmers have committed suicide on account of financial hardships. There are various categories of people who need financial help as against the Members of Legislative Assembly.

In the reply filed by the Under Secretary, Government of Punjab which has also been adopted by the Secretary, Vidhan Sabha, the stand taken is that by enacting the law in question, there was no discrimination. The earlier writ petition on the same issue seeking direction to restrain the State from wasting of funds was dismissed being C. W. P. No. 17018 of 2006 decided on August 7, 2007, R. S. Bhalla v. State of Punjab. In the reply filed by the income tax Department, the stand taken is that the State Legislature has trespassed its jurisdiction on the domain of the Central Government. The legislation is discriminatory against other assessees whose burden is borne by them. In the affidavit filed on behalf of the State, it is stated that the State Legislature had the competency to pass the law in question under entries 38 and 40 of List II of the Seventh Schedule to the Constitution. There was no interference in the domain of Parliament. MLAs are a different class and, thus, there was no discrimination.

We have heard learned counsel for the parties.

Learned counsel for the petitioner submitted that the subject of income tax is covered by entry 82 of List I of Schedule VII to the Constitution and the impugned provision amounts to encroachment on the legislative power of the Union. It is submitted that taxpayers were a class and further categorization thereof has to be based on rational nexus with the object sought to be achieved. There was no justification for exempting MLAs from payment of income tax when all other citizens were required to pay such tax out of their own income.

Learned counsel for the State has submitted that the subject-matter of legislation falls under the State List being "salary and allowances to the Members, of Legislative Assembly" and, thus, there was no encroachment in the legislative powers under entry 82 of List I of Schedule VII to the Constitution. He further submitted that there was a valid classification in treating Members of Legislative Assembly as a class as against any other taxpayers and, thus, there was no violation of article 14 of the Constitution of India. The question of legislative wisdom in making such classification could not be raised.

The question that arises for consideration is whether there is any encroachment on the legislative power of the Union by the State legislation or violation of article 14 of the Constitution of India in treating Members of Legislative Assembly as a separate class as against other assessees ?

The impugned provision is as under :

3AA The salaries and allowance; payable to the members under this Act, shall be exclusive of the income tax, payable in respect thereof under any law relating to income tax for the time being in force, and such tax shall be paid by the State Government.

A perusal of the above shows that the subject-matter of the legislation is salary and allowances paid to the Members of Legislative Assembly. There is no provision in the Central legislation debarring payment of tax levied there under by persons other than the assessees. In fact section 195A of the income tax Act, 1961, specifically provides as to how the tax at source is to be deducted by the employer where tax is payable by the employer. Even if it is accepted that the State Government is not the employer of the Members-of Legislative Assembly, there is no bar to tax being paid by persons other than the assessees. The judgment of the Hon''ble Supreme Court relied upon by learned counsel for the petitioner in Justice Justice Deoki Nandan Agarwala vs. Union of India and Another, 237 ITR 872 does not help him. It was held therein that even if the relationship of employer and employee did not exist between the Government and the judges, the judges of the Supreme Court and the High Court could be taxed. The impugned provision does not exempt MLAs from tax. It only provides for payment of tax by the State Government instead of by the assessee.

Principles for determining whether or not there is any encroachment on the legislative power are well known. The scheme of distribution of legislative powers and the principles of interpretation of entries in Schedule VII to the Constitution were summed up by the Hon''ble Supreme Court in Hoechst Pharmaceuticals Ltd. and Others Vs. State of Bihar and Others, and reiterated in The State of West Bengal Vs. Kesoram Industries Ltd. and Others, as under (page 329 of 2 RC) :

(1) The various entries in the three Lists are not powers of legislation but fields of legislation. The Constitution effects a complete separation of the taxing power of the Union and of the States under article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States.

(2) In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law.

(3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power.

(4) The entries in the List being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest possible interpretation. This is because, to quote V. Ram swami J. the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeration of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters.

(5) Where the legislative competence of a Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliaments legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded.

(6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incidental encroaching in the field assigned to another Legislature is to be ignored, While reading the three Lists, List I has priority over lists III and II, and List III has priority over List II. However, still, the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I.

In the present case, the State legislation is not a legislation for levy of income tax. It merely provides for payment of income tax by the State Government as against the assessees. The State legislation cannot, thus, be held to be suffering from the vice of repugnancy.

Coming now to the plea of discrimination, it is well settled that while article 14 forbids discrimination it does not forbid classification subject to nexus thereof with the object. The principles laid down in famous cases of Budhan Choudhry and Others Vs. The State of Bihar, Ram Krishna Dalmia Vs. Shri Justice S.R. Tendolkar and Others, C.I. Emden Vs. State of Uttar Pradesh, , Kangshari Haldar and Another Vs. The State of West Bengal, , Jyoti Pershad Vs. The Administrator for The Union Territory of Delhi, and The State of Gujarat and Another Vs. Shri Ambica Mills Ltd., Ahmedabad and Another, were reformulated in Special Courts Bill, 1978, In Re: The Special Courts Bill, 1978,

The first part of article 14, which was adopted from the Irish Constitution, is a declaration of equality of the civil rights of all persons within the territories of India. It enshrines a basic principle of republicanism. The second part, which is a corollary of the first and is based on the last clause of the first section of the Fourteenth Amendment of the American Constitution, enjoins that equal protection shall be secured to all such persons in the enjoyment of their rights and liberties without discrimination or favoritism. It is a pledge of the protection of equal laws, that is, laws that operate alike on all persons under like circumstances.

The State, in the exercise of its governmental power, has of necessity to make laws operating differently on different groups or classes of persons within its territory to attain particular ends in giving effect to its policies, and it must possess for that purpose large powers of distinguishing and classifying persons or things to be subjected to such laws.

The constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classification in any given case. Classification is justified if it is not palpably arbitrary.

The principle underlying the guarantee of article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject matter of the legislation their position is substantially the same.

By the process of classification, the State has the power of determining who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject. This power, no doubt, in some degree is likely to produce some inequality; but if a law deals with the liberties of a number of well-defined classes, it is not open to the charge of denial of equal protection on the ground that it has no application to other persons. Classification thus means segregation in classes which have a systematic relation, usually found in common properties and characteristics. It postulates a rational basis and does not mean herding together of certain persons and classes arbitrarily.

The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive.

The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act.

The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense above mentioned.

If the legislative policy is clear and definite and as an effective method of carrying out that policy a discretion is vested by the statute upon a body of administrators or officers to make selective application of the law to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discrirninatory legislation. In such cases, the power given to the executive body would import a duty on it to classify the subject-matter of legislation in accordance with the objective inducted in the statute. If the administrative body proceeds to classify persons or things on a basis which has no rational relation to the objective of the legislature, its action can be annulled as offending against the equal protection clause. On the other hand, if the statute itself does not disclose a definite policy or objective and it confers authority on another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory, irrespective of the way in which it is applied.

Whether a law conferring discretionary powers on an administrative authority is constitutionally valid or not should not be determined on the assumption that such authority will act in an arbitrary manner in exercising the discretion committed to it. Abuse of power given by law does occur; but the validity of the law cannot be contested because of such an apprehension. Discretionary power is not necessarily a discriminatory power.

Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the essence of a classification that upon the class are cast duties and burdens different from those resting upon the general public, Indeed, the very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality in no manner determines the matter of constitutionality.

Whether an enactment providing for special procedure for the trial of certain offences is or is not discriminatory and violative of article 14 must be determined in each case as it arises, for, no general rule applicable to all cases can safely be laid down. A practical assessment of the operation of the law in the particular circumstances is necessary.

A rule of procedure laid down by law comes as much within the purview of article 14 as any rule of substantive law and it is necessary that all litigants, who are similarly situated, are able to avail themselves of the same procedural rights for relief and for defence with like protection and without discrimination.

Applying the above principles, it cannot be held that there is any violation of article 14. It is not necessary that if the benefit is given to one class, the same has to be extended to all. There is no doubt that there may be more needy people who may need exemption from payment of tax as against Members of Assembly who are more privileged. This is a matter of legislative wisdom. We are only concerned with legality of the statute.

For the above reasons, we do not find any ground to interfere. The writ petition is accordingly dismissed.