Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10
PETITIONER:
HARI KRISHNA BHARGAV
Vs.
RESPONDENT:
UNION OF INDIA AND ANOTHER
DATE OF JUDGMENT:
06/10/1965
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
GAJENDRAGADKAR, P.B. (CJ)
WANCHOO, K.N.
HIDAYATULLAH, M.
SIKRI, S.M.
CITATION:
1966 AIR 619 1966 SCR (2) 22
CITATOR INFO :
F 1975 SC2016 (14)
RF 1989 SC 576 (25)
R 1990 SC1637 (38)
ACT:
Indian Income-tax Act, (Act 43 of 1961) Ch. XXII-A-Annuity
Deposits-Competence of Parliament-Constitution of India,
Art. 14.
HEADNOTE:
By incorporating Ch. XXII-A in the Indian Income-tax Act,
1961 an annuity deposit scheme was introduced requiring
certain classes of taxpayers in the high income group to
make deposits at specified rates on the adjusted total
income with the Central Government. The amount deposited is
made retumable with interest in annual instalments and the
instalment is taxable in the year of refund. The tax-payer
has the option not to make the deposit, but in that case he
has to pay tax on his total income and fifty per cent of the
amount saved by not making the deposit. A tax payer who is
more than seventy years of age, is exempt from payment of
this additional tax. The petitioner challenged the validity
of the annuity deposit scheme on the grounds that, (i) the
Parliament was not competent to incorporate in the Income-
tax Act, a provision which was substantially one related to
borrowings by the Central Government from a class of tax
payers (ii) enactment of Ch. XXII-A was a colourable
exercise of legislative power, and the provisions thereof
were so harsh and unconscionable that they wore
expropriatory and hence not within the legislative
competence of the Parliament; and (iii) s. 280 and Sch. 11
were discriminatory and infringed Art. 14 of the
Constitution.
HELD: (Per Full Court). The petition must be dismissed.
(Per Gajendragadkar, C. J., Wanchoo, Shah and Sikri, JJ.) :
(i) The Parliament has by Art. 246 read with entry 82 in
List I of the Seventh Schedule power to levy "tax-es on
income other than agricultural income". The Indian Income-
tax Act, 1961 and the provisions of the annual Finance Acts
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10
of Parliament which authorise levy of income-tax at the
rates prescribed thereby are undoubtedly enacted in exercise
of the powers conferred by entry 82 in List I. Granting that
the scheme of Ch. XXII-A is for borrowing money by the
Central Government from the tax payers in the higher income
group which is repayable in instalments, power to legislate
in that behalf is still within the competence of Parliament
by virtue of Entry 97 of List I of the Seventh Schedule. If
Parliament has the power to legislate for collecting annuity
deposits from tax payers, there is nothing in the
Constitution which disentitles Parliament,- as a matter of
legislative arrangement, to incorporate the provisions
relating to borrowing from tax-payers in the Income-tax Act
or any other statute. There is no probibition -against
Parliament enacting in a single statute, matters which call
for the exercise of power under two or more entries in List
I of the Seventh Schedule. [27 B-F]
(ii)In exercising power to legislate for collecting annuity
deposits,, Parliament has not sought to resort to any
pretence, disguise or subterfuge with the object of
trespassing upon power not vested in it by the Constitution.
The doctrine of colourable legislation therefore can have no
23
application where Parliament is invested with the authority
to legislate in respect of annuity deposit and it exercises
that power. [29 C-D]
A taxing statute is subject to Art. 13 of the Constitution;
it is therefore open to challenge on the ground that it is
expropriatory or that the statute prescribed no procedure or
machinery for assessing tax, but it is not open to challenge
merely on the ground that the tax is harsh or excessive. [29
G]
Kunnathat Thathunni Moopil Nair v. State of Kerala & Anr.,
[1961] 3 S.C.R. 77, followed.
K. C. Gajapati Narayan Deo & Ors. v. State of Orissa,
[1954] S.C.R. 1, referred to.
(iii)The exemption of persons who have attained the age of
seventy years from liability to pay additional tax cannot be
said to be discriminatory against tax-payers below the age
of seventy years who have exercised the option. The
classification is prima facie reasonable, and there is
nothing to show that it had no rational nexus to the object
sought to be achieved by Parliament. [31 D]
Per Hidayatullah, J.-(i) The provisions relating to annuity
deposit come under Entry 82 of List I dealing with taxes on
income. The annuity deposit is an alternative to paying
income-tax and is a means of reduction in the amount of
income-tax. The money collected is returnable with interest
in equal instalments spread over ten years and the amount is
taxable in the year of refund. It is not borrowing within
the meaning of Art 292 of the Constitution for borrowing
under this Article is an executive action and not
legislative power except in so far as to fix the limits of
borrowing and of giving guarantees within such limits.
Entry 97 conferring residuary powers can only be invoked
when there is no other entry in any of the three Lists under
which the impugned legislation could come [33 B-E].
(ii)The provisions are neither colourable nor
discriminatory. They are not colourable, because, though
called annuity deposits, they only defer payment of tax on a
part of assessable income. [33 E-F]
JUDGMENT:
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10
ORIGINAL JURISDICTION : Writ Petition No. 17 of 1965.
Petition under Art. 32 of the Constitution of India for the
enforcement of Fundamental Rights.
N. D. Karkhanis, E. C. Agarwala and P. C. Agarwala, for
the petitioner.
C. K. Daphtary, Attorney-General, S. V. Gupte, Solicitor-
General, R. Ganapathy Iyer and R. H. Dhebar, for the respon-
dent.
The Judgment of GAJENDRAGADKAR C.J., WANCHOO, SHAH and
SIKRI, JJ. was delivered by SHAH J.
HIDAYATULLAH J. delivered a Separate Opinion.
Shah, J. The petitioner. who is a trader at Meerut was
ordered by the Income-tax Officer, D-Ward, Meerut, to pay
Rs. 1,800/- as annuity deposit under Ch. XXII-A of the
Income-tax Act, 1961. The petitioner has filed this
petition challenging the validity of the demand on the plea
that Ch. XXII-A of the
24
Income-tax Act is unconstitutional and is otherwise
violative of the fundamental right guaranteed by Art. 14 of
the Constitution.
The Indian Income-tax Act 43 of 1961 was enacted by the
Parliament to consolidate and amend the law relating to
income-tax and super-tax. The Act came into force on April
1, 1962. The Parliament enacted Finance Act 5 of 1964 to
give effect to the financial proposals of the Central
Government for the financial year 1964-65, and by S. 3 ( 1 )
of that Act it was provided :
"Save as otherwise provided in Chapter XXII-A
of the Income-tax Act, annuity deposit for the
assessment year commencing on the 1st day of
April, 1964 shall be made by every person to
whom the provisions of that Chapter apply at
the rates specified in the Second Schedule."
By s. 44 of the Finance Act, Ch. XXII-A relating to annuity
deposits containing ss.280-A to 280-X was introduced into
the Income-tax Act. By that chapter taxpayers of certain
categories are required to make annuity deposits for every
assessment year commencing from the assessment year 1964-65.
By the Second Schedule to the Finance Act, rates of annuity
deposits are prescribed. The deposit has to be made by the
specified categories of taxpayers, having a total income
exceeding Rs. 15,000 at the prescribed percentages rising
from 5 to 12 1/2 on the adjusted total income. By the
Explanation to the Second Schedule, the expression "total
income" under the Schedule means the total income computed
in the manner laid down in the Income-tax Act without making
any allowance under s. 280-0 of that Act. A taxpayer who is
a resident and falls within any of the following categories
is liable to make the annuity deposit
(i) an individual, who is a citizen of India,
(ii) a Hindu undivided family,
(iii) an unregistered firm,
(iv) an association of persons or a body of individuals,
whether incorporated or not (other than a company or a
cooperative society), and
(v) an artificial juridical person referred to in sub-
clause (vii) of cl. (31) of S. 2 of the Income-tax Act
(other than a corporation established by a Central, State or
Provincial Act).
25
All non-residents and all companies and corporations and co-
operative societies established by Central; State’ or
Provincial, Acts are accordingly exempted from the operation
of the annuity deposits scheme. But a taxpayer who is
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10
required by s. 280-A, to make an annuity deposit may
exercise his option not to make it, by a notice in writing
to the Income-tax Officer before the 30th of June of the
assessment year. The option once exercised’ is irrevocable,
and operates in respect of the assessment year and all
subsequent years. The taxpayer who exercises the option has
to pay beside the income-tax payable on his total income,
additional income-tax which is equal to half of the amount
which he saves by not making the deposit. But an individual
who on the last day of the relevant previous year is more
than seventy years of age is exempt from payment of this
additional Income-tax. Section 280B defines, amongst other
expressions, "adjusted total income," a percentage of which
is by the Second Schedule liable to be deposited as annuity
deposit. Annuity deposit has to be made in advance on the
adjusted total income of the previous year, at the rate or
rates prescribed by any Central Act. Authors, playwrights,
artists, musicians and actors are permitted to make at their
option, deposit up to 25% of the amount derived from their
profession, in addition to the amount which they are
required to make. A person receiving gratuity from his
employer in excess of the amount exempt from income-tax has
the option of making an annuity deposit not exceeding 50% of
the amount of gratuity chargeable to income-tax, in addition
to the amount he is-required to make. The annuity deposit
is repayable in ten annual equated instalments of principal
and interest at such rates as may be prescribed. The amount
of annuity deposit payable by a taxpayer in any year is
admissible as a deduction in computing his total income
charged to tax for that year. If the adjusted total income
of an assessee includes income chargeable to income-tax
under the head "salaries", allowance has to be made in
computing the income under that head, and if there be no
income under that head or the annuity deposit required to be
made exceeds the salary income, the whole of the balance of
the annuity deposit is allowable as a deduction in computing
the total earned income. The instalment of annuity due on
any annuity deposit is chargeable to income-tax as earned
income of the taxpayer in the year in which it becomes due.
The Income-tax Officer on or after the 1st day of April in
the financial year, may by order in writing, require the
depositor who has been previously assessed to make an
advance deposit computed in accordance with
26
S. 280-E. The Income-tax Officer is also authorised to
issue a demand notice and also to modify, if necessary, the
notice of demand after regular assessment has been made. A
depositor may make his own estimate of his adjusted total
income before the last instalment is due, that his adjusted
total income for the previous year is less than the income
in respect of which. he is required to make the deposit. A
taxpayer who fails to pay the annuity deposit by the due
date is exposed to a penalty which may amount to as much as
50% of the deposit required to be made by him. A taxpayer
who receives income of. the nature of commission, which
forms part of his adjusted total income, may defer making
advance deposit, when commission is receivable periodically
and is not received or adjusted by the payer in the
depositor’s account. A person who has not been previously
assessed to income-tax is liable to pay penalty if he fails
to make an advance deposit on his own estimate. The Income-
tax Officer is entitled to determine annuity deposit on the
basis of provisional assessment or regular assessment and he
is entitled to recompute the annuity deposit, when the total
income of the assessee is enhanced or reduced, or the status
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10
under which he is assessed is altered, or when the
registration of a firm is cancelled. Arrears of annuity
deposit and penalty are recoverable in the manner provided
in Ch. XXII-D of the Income-tax Act for the recovery of
income-tax.
Broadly stated, the scheme of Ch. XXII-A is that certain
classes of taxpayers in the comparatively higher income
groups are required to make out of their total income
deposits at the specified rates on the adjusted total
income, with the Central Government. The amount so
deposited is made returnable with interest in ten annual
instalments. In computing the total income of the year in
which it is made the deposit is an admissible deduction.
But the instalment due in any year is liable to be adjusted
in the total income of the year in which it is due. The
taxpayer however has the option not to pay the deposit, and
pay tax on his total income and fifty per cent of the amount
saved by not making the deposit.
The petitioner submits that the scheme of annuity deposit
incorporated in Ch. XXII-A is invalid because (a) the
Parliament had no competence to incorporate in the Indian
Income-tax Act, a provision which was substantially one
relating to borrowings by the Central Government from a
class of taxpayers; (b) the provisions contained in Ch.
XXII-A are enacted in colourable exercise of legislative
power, and that in any event
27
they are so harsh and unconscionable that they may be
regarded as expropriatory and on that account not within the
legislative competence of the Parliament and (c) the
provisions of s. 280 and Sch. II are discriminatory and
infringe the fundamental freedom under Art. 14 of equality
before the law.
In our view there is no substance in any of the contentions.
The Parliament has by Art. 246 read with Entry 82 in List I
of the Seventh Schedule power to levy "taxes on income other
than agricultural income". The Indian Income-tax Act, 1961
and the provisions of the annual Finance Acts of the
Parliament which authorise levy of income-tax at the rates
prescribed thereby are undoubtedly enacted in exercise of
the powers conferred by Entry 82 in List I. Granting that
the scheme of Ch. XXII-A is for borrowing money by the
Central Government from the taxpayers in the higher income
group at the rates prescribed, which is repayable in
instalments, power to legislate in that behalf is still
within the competence of the Parliament by virtue of Entry
97 of List I of the Seventh Schedule. Counsel for the
petitioner does not contend that power to collect annuity
deposit is outside the Parliament’s competence : he merely
urges that the Parliament could not incorporate the
provisions relatable to the exercise of the power of
borrowing exercisable under Entry 97 in a legislation which
was exclusively enacted in exercise of the powers under
Entry 82. But if the Parliament has the power to legislate
for collecting annuity deposits from taxpayers, there is
nothing in the Constitution which disentitles the Parliament
as a matter of legislative arrangement to incorporate the
provisions relating to borrowing from taxpayers in the
Income-tax Act or any other statute. There is no
prohibition against the Parliament enacting in a single sta-
tute, matters which call for the exercise of power under two
or more entries in List I of the Seventh Schedule.
Illustrations of such legislation are not wanting in our
statute book, and the fact that one of such entries is the
residuary entry does not Also attract any disability. The
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10
question is one of convenience and not of power. It appears
that the Parliament thought, that the provisions relating to
annuity deposits could appropriately be incorporated in the
Indian Income-tax Act, 1961. The Parliament did enact the
Compulsory Deposit Scheme Act, 1963, as a separate statute,
but that does not mean that it had no power to incorporate
it within the Income-tax Act, if the Parliament so desired.
The Income-tax Act, 1961, is a longish statute and
incorporation of other provisions therein may make it
somewhat unwieldy. But it must be said that the Chapter
relating to the annuity deposit scheme is closely related to
the scheme of levy of income-tax.
LI Sup. C.I./66-3
28
The power of assessment, and collection of annuity deposit
is entrusted to Income-tax Officers, and the machinery of
the Income-tax Act is utilised for that purpose. The
annuity deposit is based on the total income of the taxpayer
: if the taxpayer pays the deposit he is entitled to
deduction of the amount in the computation of income tax,
and if he exercises the option not to pay the deposit, he is
rendered liable to Day additional income-tax. The annuity
deposit and the penalty payable for failure to make the
deposit without exercising the option are made recoverable
in the manner provided by Ch. XVII-D for the recovery of
arrears of income-tax. If the Annuity Deposit Act were
enacted as a separate Act, several provisions requiring
references to the Income-tax Act and conferment of power
upon the authorities constituted under the Income-tax Act
would have had to be duplicated. To avoid repetition and
cross references the Legislature has thought it proper to
enact within the Indian Income-tax Act those provisions
relating to annuity deposits and has conferred upon the
Income-tax Officer power to assess and collect annuity
deposits, and exercise of that power may not be caviled at
even by a purist in draftsmanship.
The argument that Ch. XXII-A is - a colourable exercise of
legislative power has no substance. As pointed out by this
Court in K. C. Gajapati Narayan Deo and others v. The State
of Orissa
" .. ..the doctrine of colourable legislation
does not involve any question of bona fides
and mala fides on the part of the legislature.
" statute is constitutional or not is question
of power...... if the Constitution of a State
distributes the legislative powers amongst
different bodies, which have to act within
their respective spheres marked out by
specific legislative entries, or if there are
limitations on the legislative authority in
the shape of fundamental rights, questions do
arise as to whether the legislature in a
particular case has or has not, in respect of
the subject-matter of the statute or in the
method of enacting it, transgressed the limits
of its constitutional powers. Such
transgression may be patent, manifest or
direct, but it may also be disguised, covert
and indirect, and it is to this latter class
of cases that the expression "colourable
legislation" has been applied in certain
judicial pronouncements. The idea conveyed
(1) [1954] S.C.R. 1.
29
by the expression is that although apparently
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10
a legislature in passing a statute purported
to act within the limits of its powers, yet in
substance and in reality it transgressed these
powers, the transgression being veiled by what
appears, on proper examination, to be mere
presence or disguise."
It is not suggested that the power to legislate for
collection and repayment of annuity deposits is within the
power of the States under List II of the Seventh Schedule.
If the Parliament has the power to enact legislation for
levying, assessing and collecting annuity deposits and for
repayment in annual instalments, by enacting that
legislation the Parliament does not trespass upon powers
outside its domain. In exercising power to legislate for
collecting annuity deposits, the Parliament has not sought
to resort to any presence, disguise or subterfuge with the
object of trespassing upon power not vested in it by the
Constitution. The doctrine of colourable legislation
therefore can have no application where the Parliament is
invested with the authority to legislate in respect of
annuity deposit and it exercises that power.
It was urged that even if the exercise of the powers to
compel deposits be regarded as not unconstitutional, its
exercise is harsh and the demands made by the State are
excessive. Exercise of the taxing power of the State has
undoubtedly to be tested in the light of the fundamental
freedoms guaranteed by Ch. III of the Constitution. It is
not a power which transcends fundamental rights, as was
assumed in certain earlier decisions : Ramjilal v. Income-
tax Officer(1); Laxmanappa Hanumantappa v. Union of
India(2); and the view expressed by Venkatarama Ayyar, J.,
in S. Anantha Krishnan v. State of Madras(3). But it is now
settled by decisions of this Court (e.g.) Kunna that
Thathunni Moopil Nair, v. The State of Kerala and Another
(4) that a taxing statute is subject to the "conditions laid
down in Art. 13 of the Constitution". A taxing statute may.
accordingly be open to challenge on the ground that it is
expropratary; or that the statute prescribes no procedure or
machinery for assessing tax, but it is not open to challenge
merely on the ground that the tax is harsh or excessive.
The argument that the scheme of annuity deposit makes an
unlawful discrimination between taxpayers is also devoid of
force. Article 14 of the Constitution guarantees equality
before the law, and equal protection of the laws. But
thereby the power of the Legislature to make a reasonable
classification of persons, objects
(1) [1951] S.C.R. 127.
(2) [1955] 1 S.C.R. 769.
(3) I.L.R. [1952] Mad. 933.
(4) [1961] 3 S.C.R. 77.
30
or transactions for attaining certain objectives is not
excluded. If a classification is based on some real and
substantial distinction, bearing a just and reasonable
relation to the objects sought to be achieved, it is valid.
It is true that an assessee whose total income does not
exceed Rs. 15,000/- is not liable to pay any annuity
deposit, and the demand for annuity deposit, unlike income-
tax is based on a progressively increasing percentage of the
adjusted total income, and for a person having a total
income exceeding Rs. 70,000/- the rate of deposit is as high
as 12 1/2 per cent. But neither the exemption of taxpayers
having an income below Rs. 15,000/- nor the progressively
steeper rates of demand can be regarded as unreasonable.
What is sought to be achieved by the Act is the twin
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10
objective of mobilisation of private savings for public
purposes and imposing curbs on the inflationary trends in
the economy of our country. To secure this purpose,
provision has been made to collect what may reasonably be
assumed to be surplus income or private savings so as to
make them available for national development.
The Legislature has been of the view that persons who have
an income exceeding Rs. 15,000/- per annum at the present
level of taxation, and the ruling prices, may be able to
make savings which may usefully augment the public finances.
Nothing has been placed before us to show that the view is
not reasonable. The view of the Legislature that in the
higher income groups there would be larger savings cannot
also be said to be unreasonable. It is true that a slab
system in vogue for the computation of non-corporate income-
tax has not been adopted, and the demand of deposit is made
at a steeply rising percentage on the adjusted total income.
But that by itself is not a ground for regarding the levy as
unreasonable. In order to do away the anomalies the
Schedule of rates has provided marginal adjustments. It may
also be noticed that simultaneously with the introduction of
the annuity deposits scheme, the personal rates of income-
tax have been reduced. Again it may be noticed that the
scheme for the annuity deposits is in a sense not
compulsory. By making a declaration it is open to an
assessee not to make the contribution as required by the
Act. He may elect not to make the deposit, and pay income-
tax on his total income. If he has not attained the age of
seventy years on the last day of the previous year he will
also have to pay additional income-tax as prescribed by sub-
s. (2) of S. 280-X. There is undoubtedly a distinction made
between persons who are below the age of seventy years on
the last day of the previous year, and those who have
attained that age: the former on exercising the option not
to pay annuity
31
deposits will have to pay tax on the total income and
additional income-tax, the latter will only pay tax on total
income but not additional income-tax. The Legislature is
apparently of the view, having regard to the life span in
our country, capacity to engage in gainful employment and
other relevant circumstances, that the latter should be
exempted from payment of additional tax. Every taxpayer who
is otherwise required to make a deposit is permitted to
declare his option under s. 280-X(1) and once he does so, he
is not liable to make the annuity deposit. Such a taxpayer
will be obliged to pay income-tax on his total income. Only
a section out of this class of taxpayers are exempted from
liability to pay additional income-tax. It is difficult to
regard the provision exempting this class of persons from
liability to pay additional tax as depriving other taxpayers
below the age of seventy who have exercised the option under
s. 280-X(1) of the guarantee of equal protection of the
laws. The classification is prima facie reasonable, and the
petitioner has placed no materials before us to prove’ that
it is not genuine or has no rational nexus to the object
sought to be achieved by the Parliament.
The petition fails and is dismissed with costs.
Hidayatullah, J. I agree that this petition should be
dismissed with costs. I agree generally with the reasons
given by my brother Shah, but I wish to say that I do not
rest my decision on entry No. 97 of List I of the Seventh
Schedule. It was argued that entry No. 97 of List I must in
any event cover this tax even if the entry relative to
Income-tax was inadequate to cover it. The very frequent
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10
reliance on entry No. 97 makes me say these few words. That
entry, no doubt, confers residuary powers of legislation or
taxation but it is not an entry to avoid a discussion as to
the nature of a law or of a tax with a view to determining
the precise entry under which it can come. Before recourse
can be had to entry No. 97 it must be found as a fact that
there is no entry in any of the three Lists under which the
impugned legislation can come. For if the impugned
legislation is found to come under any entry in List 11, the
residuary entry will not apply. Similarly, if the impugned
legislation falls Within any entry in one of the other two
Lists recourse to the residuary entry will hardly be
necessary. The entry is not a first step in the discussion
of such problems but the last resort. One cannot avoid the
issue by taking its aid unless such a course is open. It is
always necessary to examine the pith and substance of any
law impugned on the ground of want of legislative competence
with a view to ascertaining the precise entry in which it
can come.
32
The entries in the three Lists were intended to be
exhaustive and it would be a very remote chance that some
entry would not suit the legislation which is impugned. I
shall, therefore, examine the law relating to annuity-
deposits from this angle first.
The relevant provisions have been summarized by my brother
in great detail. The essence of these provisions, apart
from the machinery sections which are either supplementary
to or fitted into, the scheme of the Indian Income-tax Act
1961, is that a person, with an income above a certain sum,
may, if he so chooses and as an alternative to paying the
full tax due on his income, make an annuity deposit and earn
some present partial relief from taxation. It is not
necessary to state the extent of the relief or the extent of
the deposit. This is the scheme in a nut-shell. Now it is
undoubtedly open to Parliament to give relief from a part of
the income-tax the assesses have to pay on the condition
that a particular amount is put into an annuity deposit.
The deposit is not obligatory. Any person can elect to pay
the full tax and not take advantage of the scheme. The pith
and substance of the impugned provisions, therefore, rightly
belong to the topic of taxes on income. The annuity deposit
is in lieu of some tax and the machinery sections also take
the aid of the machinery of the Indian Income-tax Act. As
the enforcement of the provisions is by the agency of the
Income-tax Department-and they are intimately connected with
Income-tax-the provisions are very appropriately included in
the Income-tax Act. -No doubt the provisions for the
management of the annuity deposits deal with matters
slightly out of place in a pure taxing measure but our
Constitution has not created a water-tight compartment as is
to be found in the Commonwealth of Australia Act. Our
Income-tax Act can reasonably contain provisions on
incidental matters and the management of annuity deposit
under the scheme is such a matter.
It is argued that this is a case of "borrowing" which is
defined in Art. 366(4) to include the raising of money by
the grant of annuities, and "loan" is also required to be
construed accordingly. It is submitted that if money was to
be raised by the grant of annuities the action should have
been by an Act giving effect to Art. 292. Article 292 reads
:
"292. Borrowing by the Government of India.
The executive power of the Union extends to
borrowing upon the security of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10
Consolidated Fund
33
of India within such limits, if any, as may
from time to time be fixed by Parliament by
law and to the giving of guarantees within
such limits, if any, as may be so fixed."
Borrowing under that Article is by executive action and it
is on the security of the Consolidated Fund of India. A
similar power is granted to the Executive of the State by
Art. 293. This is not a legislative power except in so far
as law may be made to fix the limits of borrowing and to the
giving of guarantees within such limits. Otherwise it is a
power for the exercise of the Executive.
Here the Annuity deposit is an alternative to paying income-
tax and is a means of reduction in the amount of income-tax.
The provisions relating to it rightly came under entry No.
82 of List I dealing with taxes on income. The money so
collected is returned with interest in equal instalments
spread over ten years and the amount is taxable in the year
of refund. The entry thus covers it.
There is no entry in List 11 which can be said to take in
the law relating to Annuity Deposits. Entry No. 30 (money-
lending, and money lenders) has to be mentioned and
rejected. As the subject of the annuity deposit provisions
is capable of being comprehended in the entry relating to
taxes on income do not feel called upon to invoke the aid
of entry No. 97 by assuming that no entry covers such
provisions. This will be a fundamental error in approach to
such problems. The provisions are neither colourable nor
discriminatory. They apply to upper income groups and this
does not lead to discrimination. They are not colourable
because, though called annuity deposits, they only defer
payment of tax on a part of the assessable income and the
name does not matter at all. Instead of charging income-tax
on the amount forthwith the amount is ordered to be kept in
deposit with Government, one-tenth being returned with inte-
rest every year. The returned amount then bears the tax.
An election once made is final.
I agree, therefore, that the petition be dismissed with
costs.
Petition dismissed.
34