H.N Seth, J.:— For the assessment year 1974-75, petitioner, R.S Kaushal, was assessed to income-tax in the capacity of an HUF. As, apart from Ram Swarup Kaushal, other members of the said family also had independent sources of income, in respect of which they had been separately assessed to income-tax as individuals, the amount of tax payable by the petitioner was computed in accordance with the rates laid down in sub-para. II of Para. A of Pt. I of the First Schedule to the Finance Act of 1974. By this petition under art. 226 of the Constitution, the petitioner challenges the validity Of the rates, for computing the income-tax payable by an HUF which at any time during the previous year had at least one member whose total income of the previous year, relevant to the assessment year commencing on April 1, 1974, exceeded Rs. 5,000, prescribed by sub-para. II mentioned above.

2. The petitioner claims that till the year 1974 various Finance Acts passed by the Union of India used to lay down rates for computing income-tax and surcharge which were uniformly applicable to all assessees. However, the Finance Act, 1974, laid down two different sets of rates mentioned in sub-para. I and sub-para. II of Pt. A to the First Schedule. Whereas, the rates mentioned in sub-para. I were to be applied in the cases of every individual, HUF (other than that mentioned in sub-para. II) registered firm or other association of persons or body of individuals, whe-. ther incorporated or not and every artificial person referred to in s. 2(31)(viii) of the Income-tax Act, sub-para. II laid down the rates applicable to an HUF which at any time during the previous year had at least one member whose total income of the previous year relevant to the assessment year commencing on April 1, 1974, exceeded Rs. 5,000. The rates so prescribed is in sub-para. I. Learned counsel for the petitioner contends that the prescription of higher rates for the taxation of an HUF of which at least one member had an income above Rs. 5,000, is unconstitutional for the reason that it has the effect of contravening the provisions contained in articles 15(2), 14, 19(1)(g) of the Constitution and also because it has the effect, of making the provisions of the Hindu Gains of Learning Act, otiose.

3. Learned counsel for the petitioner contended that by making provision for higher rates in respect of an HUF of the nature specified in sub-para. II, the legislature has picked out Hindus for higher taxation on the ground of religion alone. These higher rates are not applicable to Muslims or Christians. This, according to him, contravenes art. 15(1) of the Constitution which lays down that the State shall not discriminate against any citizen, on grounds only of religion, race, caste, sex, place of birth or any of them. In our opinion, there is no merit in this submission. Under the I.T Act, an HUF which is a special feature of Hindu law, is a distinct assessable entity. There is no such corresponding entity amongst Muslims and Christians. It cannot be denied that an HUF has certain special features which distinguish it from individual members constituting the same. If the HUF has been selected for being subjected to a special rate of tax, it is because of its special feature, and not because its members profess the Hindu faith. Legislation which affects members of a particular community because of its own special features, cannot be said to discriminate against such member on ground only of religion, and no question of contravention of art. 15 arises.

4. Petitioner's submission with regard to a contravention of art. 19(1)(g) of the Constitution, which guarantees right to practise any profession and to carry on any occupation, trade or business also appears to be devoid of any substance. No facts and figures have been placed before us to show how the rates of tax, prescribed by sub-para. II of Para. A of Pt. I of the First Schedule of the Finance Act, 1974, have affected anybody's right to practise any profession or to carry on any occupation, trade or business. We are, accordingly, unable to strike down the rates prescribed by sub-para. II on the ground that they have the effect of contravening the provisions of art. 19(1) of the Constitution.

5. We are also unable to appreciate the submission of the learned counsel that the rates prescribed by sub-para. II of Para. A of Pt. I of the First Schedule to the Finance Act, 1974, has the effect of making the provisions of the Hindu Gains of Learning Act otiose. Before the Hindu Gains of Learning Act, 1930, was passed, the legal position was that income earned by a member of a joint family by the practise of a profession or occupation requiring special training was considered to be joint Hindu family income, if such training was imparted at the expense of the joint family. The Hindu Gains of Learning Act, 1930, however, provided that notwithstanding any custom or rule or interpretation of Hindu law, no gains of learning shall be held not to be the exclusive or separate property of the member of a joint Hindu family who acquires them, merely by reasons of his learning having been in whole or in part, imparted to him by any member, living or deceased, of his family or with the aid of joint funds of his family or with the aid of the funds of any member thereof, or for the reasons that he himself or his family having, while he was acquiring such learning, been maintained or supported wholly or in part, by joint funds of his family or by the funds of any member thereof. The position that gains of learning shall continue to be the gains of the person concerned, has not been affected in any manner by the provisions contained in sub-para. II of Para. A of Sch. I to the Finance Act, 1974, which paragraph, in our opinion, has no bearing on the subject-matter dealt with by the Hindu Gains of Learning Act, 1930.

6. This brings us to the consideration of the submission that the prescription of a higher rate of taxation for the HUF of which at least one member had total income in the previous year relevant to the assessment year commencing from April 1, 1974, exceeding Rs. 5,000 has resulted in a contravention of the provisions of art. 14 of the Constitution which lays down that the State shall not deny to any person equality before law or equal protection of law within the territory of India. Learned counsel for the petitioner claimed that in this case art. 14 of the Constitution stands violated for the following two reasons:

1. The State has treated it differently from other assessees.

2. There was absolutely no basis for treating an HUF which had at least one member having income more than Rs. 5,000 in the relevant year differently from an HUF which had no such member.

7. He urged that the classification so made had absolutely no nexus to the object sought to be achieved and as such it contravened the provisions of art. 14 of the Constitution.

8. In the case of East India Tobacco Co. v. State of Andhra Pradesh, [1962] 13 STC 529, the Supreme Court has observed thus (at p. 533):

“It is not in dispute that taxation laws must also pass the test of art. 14 that has been laid down recently by this court in Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 552. But in deciding whether a taxation law is discriminatory or not, it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that the statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification that it would be violative of article 14. The following statement of the law in Willis on ‘Constitutional Law’, page 587 would correctly represent the position with reference to taxing statutes under our Constitution:—

‘A State does not have to tax every thing in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably……. The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation’.”

9. In the case of Ram Krishna Dalmia v. Mr. Justice S.R Tendolkar*, AIR 1958 SC 538, it has been held that art. 14 does not forbid the State from making classification of and differentiation between persons and things, and that in order to have permissible classification the State is required to fulfil two prerequisites; firstly, the classification must be founded on reasonable differentia, and secondly, the differentia must have a reasonable nexus with the object sought to be achieved by the Act.

10. In the case of Venugopala Ravi Varma v. Union of India, [1969] 74 ITR 49, it was held that it is not essential for the validity of a tax that it must attain absolute equality and abstract justice, the reason being that it is unattainable in tax proceedings. Determination of the rate at which certain tax should be levied is incidental to the powers of imposition of tax. Field for the exercise of larger discretion has been admitted for this branch as well on the same principle that “absolute or perfect equality or uniformity in taxation is impossible” (p. 54) “If the classification is rational, the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject different classes of property to tax in different ways and adopt different modes of assessment” (p. 55) “A taxing statute is not, therefore, exposed to the attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects”. (p. 55).

11. Again in the case of Supdt. and Remembrancer of Legal Affairs, West Bengal v. Girish Kumar Nawalkha, [1975] 45 Comp Cas 400; (1975) 4 SCC 754 : AIR 1975 SC 1030, the Supreme Court observed thus (at p. 404):

“When the purpose of a challenged classification is in doubt, the courts attribute to the classifications, the purpose thought to be most probable. Instead of asking what purpose or purposes the statute and other materials reflect, the court may ask what constitutionally permissible objective this statute and other relevant materials could possibly be construed to reflect. The latter approach is the proper one in economic regulation cases. The decisions dealing with the economic regulation indicate that courts have used the concept of ‘purpose’ and ‘similar situations’ in a manner which gives considerable leeway to the legislature. This approach of judicial restraint and presumption of constitutionality requires that the legislature is given benefit of doubt, about its purpose.”

12. In the case of Rahim Bhai Karim Bhai v. B.B Patel, [1974] 97 ITR 660 the learned judges of the Gujarat High Court observed thus (headnote):

“It has been well settled by various judgments of the Supreme Court that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of reasonable classification, two conditions must be fulfilled, namely:

(i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and

(ii) that the differentia must have rational relation to the object sought to be achieved by the statute in question. The Supreme Court has permitted a very wide latitude in classification for taxation. The State has a wide discretion in selecting the persons or objects it would tax and a statute is not open to attack on the ground that it taxes some persons and objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. It is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification.”

13. We now proceed to consider the submission made by the learned counsel for the parties keeping in view the ratio of the afore-mentioned decisions.

14. The I.T Act treats the following as assessable entities:

1. An individual.

2. Hindu Undivided Family (HUF).

3. A company.

4. A Firm.

5. An association of persons or body of individuals whether incorporated or not.

6. Local authority, and

7. Every artificial juridical person not falling under any of the categories mentioned above.

15. Sub-paragraph I of Para. A of the First Schedule to the Finance Act, 1974, lays down the rates for the following categories of assessees:

1. Individual

2. HUF (other than an HUF of which at least one member had total income exceeding Rs. 5,000).

3. Unregistered firm or other associations of persons or body of individuals whether incorporated or not, and

4. Every artificial juridical person referred to in sub-cl. (1) of cl. 31 of s. 2, not being those to whom sub-para. II applies.

16. Sub-para. II lays down higher rates for calculating tax in respect of an HUF of which at least one member had, at any time during the previous year relevant to the assessment year commencing from April 1, 1974, total income exceeding Rs. 5,000. It thus appears that the rates mentioned at sub-para. I apply to all assessees excepting a registered firm and an HUF of which at least one member had, in the relevant year, total income at the relevant time exceeding Rs. 5,000. The question that arises for consideration is as to whether there is any basis for treating, with regard to rate of income-tax, an HUF at least one member of which had total income over Rs. 5,000, differently from other assessees, including an asseesee which is an HUF, of which no member had in the relevant year total income exceeding Rs. 5,000.

17. Sri S.K Bhatnagar, Under Secretary, Central Board of Direct Taxes, Delhi, who filed a counter-affidavit on behalf of the Union, stated that a Direct Tax Enquiry Committee (popularly known as Wanchoo Committee) was set up by Union of India to go into various tax laws and to recommend and make proposals for prevention of evasion of tax and to reduce economic inequalities by enacting tax rates in such a way that they will serve to reduce the accumulation of disproportionate wealth in some hands, etc. The Wanchoo Committee recommended that an HUF should be taxed at a special rate if any of its members had independent income above the maximum not liable to tax. He claimed that the classification of an HUF which has at least one member whose total income of the previous years exceeded Rs. 5,000, and an HUF, of which no member had such income, was founded on an intelligible differentia which distinguished the two kinds of HUFs and that the said differentia had a rational relation to the objects sought to be achieved. According to him, members of HUFs were adopting various modes of arrangements so as to avoid taxation and were reaping benefits out of the special treatment given to HUFs under the provisions of the I.T Act, prior to the enactment of the Finance Act, 1974. The classification of the two kinds of HUFs in the Finance Act, 1974, was meant to nullify such an advantage being obtained by members of HUFs.

18. It was further pointed out in the counter-affidavit that the HUF, as a unit of assessment, was being retained in most cases only when it enabled the persons concerned to reduce their tax liability and in other cases, the family property was partitioned without considerations of sentiments coming in the way. If a stepped up slab rate is made applicable to an HUF, which had at least one member with independent income above the maximum not liable to tax, it would serve, as pointed out by the Wanchoo Committee, to cast a more equitable tax burden on the family and would render “ineffective various techniques of the avoidance adopted by the Hindu undivided family and its members”. It would also, to quote the Wanchoo Committee, “put an end to the widely prevalent practice of simultaneously claiming two status, viz., that of a Hindu undivided family and individual”. Having regard to these objects, the classification involved in the proposal appears to be both well defined and properly connected with the objects.

19. Reliance was also placed on the following observations made by the Finance Minister, in the speech made by him on February 28, 1973, [1973] 88 ITR (St) 39, 40):

“It is generally recognised that in the present system of tax, treatment of Hindu undivided families has encouraged tax avoidance. It is my view that the unintended tax benefits currently available to Hindu undivided families should, to the extent possible, be neutralised. I, therefore, propose to provide separate rate schedules, in respect of both income-tax and wealth-tax, with higher rates applicable to Hindu undivided families having one or more members with independent income or wealth exceeding the exemption limit. This is one of the recommendations of the Direct Taxes Enquiry Committee. It is also proposed to bring the minimum exemption limit in the case of all Hindu undivided families, to the uniform level of Rs. 5,000 applicable in the case of individuals.”

20. Section 66 of the I.T Act lays down that in computing total income of an assessee there shall be included all income on which no income-tax is payable under Chap. VII. Section 86 which falls in Chap. VII lays down that income-tax is not payable by the assessee in respect of the following:

(I) & (II)….

(III) If the assessee is a partner of unregistered firm (not being an unregistered firm assessed as a registered firm under cl. (1) of s. 183) any portion of the assessee's share in the profits and gains of the firm computed in the norms laid down as in s. 67 of which income-tax is payable by the firm,

(V) If the assessee is a member of an association of persons, or a body of individuals other than a HUF, a company or a firm, any portion of the amount which he is entitled to receive from the association or body on which the income-tax has already been paid by the association or body.

21. It thus appears that although under s. 86 of the I.T Act, tax is not payable by the assessee on an amount received by him by way of profit from an unregistered firm or in consequence of his being a member of association or a body of individuals other than an HUF, a company or firm, the amount so received by him is liable to be included in computing his total income. Section 110 lays down that where there is included in the total income of an assessee, any income on which no income-tax is payable under the provisions of the Act, the assessee shall be entitled to a deduction from the amount of income-tax with which he is chargeable on his total income of an amount equal to income-tax calculated at the average rate of income-tax on the amount on which no income-tax is payable. It thus appears that although the profits, etc., received by an individual from a firm and other association of persons of which he is a member, other than an HUF, is exempt from tax in his hand, yet it is included in his income for rate purposes as provided in s. 110.

22. The position of the amount received by a member of a joint Hindu family as a result of sharing the profits of the joint family business, however, is different. Section 10(2) of the Act lays down:

“In computing the total income of previous year of any person, any income falling within any of the following clauses shall not be included…

1. …..

2. Subject to the provisions of sub-section (2) of section 64.—any sum received by an individual as a member of Hindu undivided family where such sum has been paid out of the income of the family, or, in the case of any impartible estate, where such sum has been paid out of the income of the estate belonging to the family.”

23. It thus appears that in respect of the income derived by an HUF, whether any tax is paid on it or not, any share therein is not includible in the total income of an individual member even for rate purposes, as it is exempt from being included in the total income of the individual member.

24. It cannot be denied that, even though an HUF is essentially a creation of the Hindu law and, it is not a voluntary organisation like a firm or any other association of persons, still, from the point of view of taxation, it, in some important aspects, partakes the nature of an association of persons where income is derived by pooling of resources and eventually the profits are utilized for the benefit of the members. The provisions, contained in the I.T Act have throughout been treating an HUF on a footing different from other associations of persons. Whereas the amount received by an individual from other associations of persons including firms, goes to augment his total income, similar amount received by a member from an HUF does not go to augment his total income. It will thus be seen that, throughout, members of an HUF were, for the purposes of taxation, being given a certain preferential treatment. Even though an HUF is a creature of the Hindu law, the I.T Act countenances partial partition, so that, while retaining the bigger HUF a number of smaller HUFs can, within its fold, be created with a view to gain further advantage of the members of the HUF in the matter of taxation. Such advantages cannot be derived by the members of any other associations of persons. In the circumstances, an HUF, as an assessable entity, cannot be equated and compared with any other assessable entity and if, keeping in view such advantage in the matter of taxation which was being derived by the HUF, the Legislature subjected it to taxation at higher, rate, it cannot be said that it did anything which contravened article 14 of the Constitution. Learned counsel for the petitioner then urged that, in any case there was no basis for making a distinction between an HUF, no member of which had an income of over Rs. 5,000 and an HUF, of which at least one member had income of over Rs. 5,000. The reason for such classification is obvious. In a case where no member of an HUF has taxable income of over Rs. 5,000, no member of the HUF is able to derive any special advantage in the rate of taxation because of the special treatment meted out by the I.T Act to an HUF. In such a case, it would make little difference whether the proportionate income derived by a member from the HUF is added to his total income or not as the incidence of taxation would work out more or less in a way similar (though not mathematically) to that in the cases of firms and other associations of persons. But, in a case, where there is a member of the HUF deriving income over Rs. 5,000, that member, because of the treatment meted out by the I.T Act to HUFs, certainly derives an advantage not available to members of other associations of persons. Thus looking from the point of view of taxation, there exists good reason for placing the two categories of HUF, as have been placed, in different categaries, and, their being subjected to tax at different rates, specially with a view to neutralize the advantage, which, till then was being derived by members of such HUF cannot, on the basis of the decisions cited above, be said to contravene art. 14 of the Constitution.

25. In the result, we find no merit in any of the submissions made by the petitioner. The petition, therefore, fails and is dismissed with costs.