Article 14 of the Indian Constitution states that “the State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.” It is quite evident from that this provision keeps every person on equal footing. The provision can be broken into parts –
1. Equality before Law.
2. Equal Protection of Laws.
Equality before law has in itself remained a debatable topic for a long period of time. But, it would be very interesting and obvious to notice that this rule or the provision mentioned under the Indian Constitution is not absolute, and is subjected to certain conditions. It allows state to treat certain section of the society differently than rest of the society. There can be various reasons behind differentiating these sections of the society, but this has become a well settled and accepted principle. Coming to the main topic which we are concerned with under this article, which is to discuss the classification of various kinds of taxes in accordance with the Indian Constitution. Article 14 of the Constitution applies not only to human being, but to other objects also which are taxable.
According to Black’s Law Dictionary, term “Equality” can be defined as the condition of possessing the same rights, privileges, and immunities and being liable for the same duties.
Under the same dictionary, ‘Tax’ can be defined as a ratable portion of the produce of the property and labour of the individual citizens, taken by the nation, in the exercise of its sovereign rights, for the support of government, for the administration of laws, and as the means for continuing in operation the various legitimate functions of the state.
Article 14 permits the legislature to enact such laws which are based on classification of objects, persons, things etc. But, there should be a nexus between the object to be achieved and the said classification i.e. a reasonable classification. It would not be wrong to say that everyone is not placed, or living under the same situations and conditions. And, it would also not be wrong to say that income of everyone would not be the same, and also that services provided by various commercial organizations would not be the same, which ultimately creates the difference among their economic structure. And, same rate of tax for everyone, or for all kinds of services would be unjust. Courts are very careful while deciding issues pertaining to tax structure, and usually courts do not interfere with the laws enacted by Parliament related to tax structure. But, it is also the duty of the court to keep check on the laws enacted by the parliament so as to make sure that these laws have been enacted properly and have taken into consideration the provision mentioned under the Indian Constitution.
In Western U.P. Electric Power and Supply Co. Ltd. v State of Uttar Pradesh AIR 1970 SC 21, it was held by the Supreme Court that article 14 of the Indian Constitution doesn’t bar legislature to enact any law on a reasonable, and it is the duty of the person denying such reasonable classification must prove that there was no such nexus between the classification and the object to be achieved.
In Laxmi Khandsari v State of Uttar Pradesh AIR 1981 SC 873, it was again held by this court that legislature is competent to enact a law based on reasonable classification in order to achieve specific ends. It laid down two tests –
1. It should not be arbitrary, artificial or evasive. It should be based on an intelligible differentia, some real and substantial distinction, which distinguishes persons or things grouped together in the class from others left out of it.
2. The differentia adopted as the basis of classification must have a rational or reasonable nexus with the object sought to be achieved by the statue in question.
It can be clearly understood from the above case laws that a reasonable classification would be justifiable and any law enacted on the basis of such classification would not be unreasonable. And, classification of the objects and persons who are to be taxed can also be classified on such basis. Imposing the same rate of tax on a rickshaw puller and an industrialist would not be reasonable, and law makers have to take care of this. Tax is the major income source of the government, through which it perform all its functions. Moreover, it is a well settled principle that equals should be treated alike and treating unequal alike would be a clear violation of Article 14 of the Indian Constitution.
In Khandige Sham Bhai v Agri. Income-tax Office AIR 1963 SC 591, it was held by the Supreme Court that “in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the Legislature in the matter of classification; so long it adheres to the fundamental principles underlying the said doctrine. The power of legislature is of “wide rage and flexibility” so that it can adjust its system of taxation in all power and reasonable ways.”
The basic and most fundamental question which lies in the heart of this discussion is the reasons as to why legislature inherent such a wide power in enacting laws relating to tax classification. First of all, there is no specific provision in India which can classify or can provide a list of the objects, persons etc. , who are to taxed. Moreover, it is considered by the courts that legislature in competent enough to classify or make such classification which are reasonable. Moreover, financial and economic condition of India is of great importance in order to have a prosperous and sound society. In pursuance of which, it becomes very necessary to amend the laws governing the tax structure from time to time and to introduce new laws if needed. And, it would be very hard for courts to decide various matters on a regular interval of time which are related to the issue of tax classification.
In case of State of Tamil Nadu v M. Krishnappan AIR 2005 SC 2168, there was an issue relating to the tax levied on vehicles registered before 1-7-1998 by the insertion of S. 4(1-A) to T.N. Motor Vehicles Taxation Act, 1974 and it was held by the Supreme Court that there was a reasonable classification founded on intelligible differentia having relation to object of levy because respondent had an option to pay the tax annually or for the life time in one go. Thus, there was no violation of article 14 of the Indian Constitution.
There was an issue relating to the refund of purchase tax in the case of Satnam Overseas v State of Haryana AIR 2003 SC 66, and it was held by the Supreme Court that “not granting refund of purchase tax only in regard to three goods paddy, cotton and oil seeds is not violative of Article 14 of the Indian Constitution. It is a settled proposition of law that in the matter of taxation, the legislature has greater latitude to give effect to its policy of raising revenue and for that purpose selecting the goods for taxing. The classification of goods based on the policy of taxing some goods and leaving others the net of taxation cannot be assailed as violative of Article 14 of the Constitution.”
Another issue which came before the Supreme Court was in the case of State of U.P. v Kamla Palace, where it was alleged by the cinema owners receiving aid from government that not allowing them to realize extra charges from cinemagoers is violated of Article 14 of the Indian Constitution. But, this contention was rejected by the Supreme Court stating that the provision include by the state government had a nexus between the classification and the intelligible differentia to achieve a specific purpose. Classifying cinemas on the basis of grant they are receiving from the government is reasonable.
In State of Kerela v Aravind Ramakant Modawdakar AIR 1999 SC 2970, separate tax rates were levied on the good carriages having permit of intra-state and inter-state, it was held by the Supreme Court that classification was reasonable stating that “the two permits are different from very nature of their operation, while one allows operation within the state only the other allows operation beyond the boundaries of the state. Even though in generic terms both are contract carriages, there are individual restrictions and advantages attached to each of these permits which could be exclusive of themselves.” This means that until the classification is reasonable, anyone would not get the benefit mentioned under the Article 14 of the Indian Constitution.
In case of Moulin Rouge Pvt Ltd v Commercial Tax Officer AIR 1988 SC 219, different tax rates were applied on the food provided in restaurants/eating houses and hotels, and it was held by the Supreme Court that the classification is made on reasonable grounds. Another issue relating to the issue of tax imposed on the income of a person was raised in the case of I.T.O. Shillong v N.T.R. Rymbai AIR 1976 SC 670, it was held by the Supreme Court that classification on the basis of income is just and reasonable.
These were some of the case laws which discussed how and where tax exemption can be made in relation to article 14 of the Indian Constitution. It would be very unreasonable to impose the same rate of tax in the person staying in a 5-star hotel and a person staying in a lower class hotel. It would be very obvious that the person who is staying in a 5-star hotel would be in a condition to pay higher rate of tax. The same can be seen in case of Income Tax, where tax can be said to be progressive. As the income of a person increases, the amount of tax which he has to pay would also increase. A person who is going to a decent restaurant would be in a position to spend good money for food, unlike a person who goes to a small restaurant which doesn’t impose tax at all. Same can be seen in our real life example, when a person goes to purchase an article in a Shopping mall, he would have to pay extra taxes for the purchase which he makes. But, if he purchases the same article from an open market shop, he would not able to pay tax and even if open market shops provide bill, usually they do not impose tax. When you eat a burger at a small shop, you don’t have to pay the tax imposed on that burger. But, if you eat the same burger at MacDonalds, then you have to pay the tax for it. Courts presume that people who are going to good places, would be in a situation to pay the tax without any burden
Also, there is a principle which can be derived from Article 14 of the Indian Constitution that unequal person cannot be treated in alike. Law takes care of every person residing in the country which it has been made for.
"Equality is not in regarding different things similarly, equality is in regarding different things differently." – Tom Robbins
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