# THE AMALGAMA'MlD TEA ESTATE CO. LTD. ETC v. STATE OF KERALA

- **Citation:** [1974] 3 S.C.R. 820
- **Court:** Supreme Court of India
- **Decided:** 1974-04-02
- **Case number:** Writ Petitions Nos. 2 and 9 of 1971
- **Bench:** A. N. Raiy, P. JAGANMOllAN REDDY, s. N. DWJVEDI, P. K. Goswami, R. S. Saricaria
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-amalgama-mld-tea-estate-co-ltd-etc-v-state-of-kerala-6088
- **Pages:** 7

## Headnote

Constit11tion of India. A.rt. 14-Classificati"n test if inflexible and doctrlnairi.
Kera/a Agric11/t11ral Income Tax Act, 1950-lf imposition of graduated .ta.T
betwttll don1t.stic and foreign companies violates Art. 14.
The petitioners, two foreign companies, had been assessed
to agricultural
income tax under the Kerala Agricultural Income-tax Act, 1950 ,M amended by
the Amendment Act of 1970. ·n1e Act has fixed a graJ\1ated scaJe on 3Ji:ri:ulhtral income tax to a minimum of 65% on domestic companies anJ a flat rate:
of 75% of. the total incorne on foreign companies. The petitioner.1 contended
that this discrimination between a domestic company and a foreign company was
violative of Art. 14 of the Constitution because the classification was not b~sed
on any intelligible differentia and the differentia. if any, had no rational relation
to the purpose sought to be achieved by the taxing statute .and that it treats as
unequal, companies which are equally circumstanced.
Dismissing the petitions,
HELD : (I) The impugned provisions of the Amending Act, 1970 were not
violative of Art. 14.
The impuJ!;ned legislation, in order to get tht: green light
from Art 141 should satisfy the classification test evolved by this Court namely
(I) the classification should be passed on an intelligible differenlia and (2) the
differentia should bear a rational relation to the purpOse of the
legislation.
[822 F]
(2) The classification test is, however. not inflexible and doctFinuire.
Jt
gives do.1e regard to the complex necessities and intricate -problems of government.
As revenue is the first necessity of the State and as· taxes arc l'aised for various
purposes and bv an adiustment of diverse elements, the Court grants the State
greater choice of classification in the field of taxation than in other spheres.
[822 G]
Kl1andi1:e Sham Bhat \'. Auricu/tura/ /11conie-tax Officer, 1\.l.R. 1963 S.C.
591 and Kasargod Ravi Ver1na Rajall v. Union of /11dia [19691 3 S.C.R. 827,
referred to.
(3) On a challenge to a statute on the ground of Art. 14 the court would
raise a presumtion in_ favour of its constitutionality. Consequently one
who
challenged the salute h!ars th: burden of eitab'.ishing that the statu~. is clearly'
violative of Art. 14. [823 BJ
Cl1ara11jl1 Lal v. Union of India, [1950] S.C.R. 869 at p. 879 per Fazal Ali
J. and State of West Bengal v. Anwar Ali Sarkar, [1952] S.C.R. 284 at p. 303.
referred to.
( 4) It is not possible to hold on the meagre facts pre!iented before the court
that domestic companies and foreign companies carrying on agriclllture in the
S'tate of Kerala are equaly circumstanced. [823 0]
D. P. Jo.~lii v. State of 1'1Cldlir11 l}lwrat, [1955], 1 S.C.R .. 1215, at p. 1228,
Hu11x. Muller of Nurenburg v. Super1111e11dent Pre.ndencJ. Jail, Calcutla, [1955]
1 S.C.R. 1284, K. T. Moopil Nair v. State of Kerala t1961] 3 S.C,R. 77 and
~late of Kerala, v. Haji K. K11tty Nalw, A.l.R. 1959 S.C. 378, referred to.
ORIGINAL JURISDICTION: Writ Petitions Nos. 2 and 9 of 1971.
Under Article 32 of the Constitution for the enforcement of fundamental rights.
B
c
F
G
H
AMAL. TEA ESTATE\', KER.ALA (Dwivtdi, /.)
821
A
G. B. Pai, 0. C. Mathur, D. N. Misra, J. B. DaJaclw11ji and
Rm·irider Narain, for the petitioners
L. N. Misra, Solicitor General of India and A. G. P11dissary, for
the respondent.

## Text

820
THE AMALGAMA'MlD TEA ESTATE CO. LTD. ETC.
A
v.
STATE OF KERALA
April 2, 1974
[A. N. RAIY, C.J., P. JAGANMOllAN REDDY, s. N. DWJVEDI,
P. K. GOSWAMI AND R. S. SARICARIA, 1J,J
Constit11tion of India. A.rt. 14-Classificati"n test if inflexible and doctrlnairi.
Kera/a Agric11/t11ral Income Tax Act, 1950-lf imposition of graduated .ta.T
betwttll don1t.stic and foreign companies violates Art. 14.
The petitioners, two foreign companies, had been assessed
to agricultural
income tax under the Kerala Agricultural Income-tax Act, 1950 ,M amended by
the Amendment Act of 1970. ·n1e Act has fixed a graJ\1ated scaJe on 3Ji:ri:ulhtral income tax to a minimum of 65% on domestic companies anJ a flat rate:
of 75% of. the total incorne on foreign companies. The petitioner.1 contended
that this discrimination between a domestic company and a foreign company was
violative of Art. 14 of the Constitution because the classification was not b~sed
on any intelligible differentia and the differentia. if any, had no rational relation
to the purpose sought to be achieved by the taxing statute .and that it treats as
unequal, companies which are equally circumstanced.
Dismissing the petitions,
HELD : (I) The impugned provisions of the Amending Act, 1970 were not
violative of Art. 14.
The impuJ!;ned legislation, in order to get tht: green light
from Art 141 should satisfy the classification test evolved by this Court namely
(I) the classification should be passed on an intelligible differenlia and (2) the
differentia should bear a rational relation to the purpOse of the
legislation.
[822 F]
(2) The classification test is, however. not inflexible and doctFinuire.
Jt
gives do.1e regard to the complex necessities and intricate -problems of government.
As revenue is the first necessity of the State and as· taxes arc l'aised for various
purposes and bv an adiustment of diverse elements, the Court grants the State
greater choice of classification in the field of taxation than in other spheres.
[822 G]
Kl1andi1:e Sham Bhat \'. Auricu/tura/ /11conie-tax Officer, 1\.l.R. 1963 S.C.
591 and Kasargod Ravi Ver1na Rajall v. Union of /11dia [19691 3 S.C.R. 827,
referred to.
(3) On a challenge to a statute on the ground of Art. 14 the court would
raise a presumtion in_ favour of its constitutionality. Consequently one
who
challenged the salute h!ars th: burden of eitab'.ishing that the statu~. is clearly'
violative of Art. 14. [823 BJ
Cl1ara11jl1 Lal v. Union of India, [1950] S.C.R. 869 at p. 879 per Fazal Ali
J. and State of West Bengal v. Anwar Ali Sarkar, [1952] S.C.R. 284 at p. 303.
referred to.
( 4) It is not possible to hold on the meagre facts pre!iented before the court
that domestic companies and foreign companies carrying on agriclllture in the
S'tate of Kerala are equaly circumstanced. [823 0]
D. P. Jo.~lii v. State of 1'1Cldlir11 l}lwrat, [1955], 1 S.C.R .. 1215, at p. 1228,
Hu11x. Muller of Nurenburg v. Super1111e11dent Pre.ndencJ. Jail, Calcutla, [1955]
1 S.C.R. 1284, K. T. Moopil Nair v. State of Kerala t1961] 3 S.C,R. 77 and
~late of Kerala, v. Haji K. K11tty Nalw, A.l.R. 1959 S.C. 378, referred to.
ORIGINAL JURISDICTION: Writ Petitions Nos. 2 and 9 of 1971.
Under Article 32 of the Constitution for the enforcement of fundamental rights.
B
c
F
G
H
AMAL. TEA ESTATE\', KER.ALA (Dwivtdi, /.)
821
A
G. B. Pai, 0. C. Mathur, D. N. Misra, J. B. DaJaclw11ji and
Rm·irider Narain, for the petitioners
L. N. Misra, Solicitor General of India and A. G. P11dissary, for
the respondent.
The Judgment of the Court was delivered by
B
Dw1vE01, J.-Thc two petitioners have been assessed to Agricultural Income-tax by the State of Kerala under the Agricultural Incometa• Act, 1950 (hereinafter called the Act) as amended by the Agricultural Income-tax (Amendment) Act, 1970. The assessment
is
made at the rate of 75 per cent of their total income. They challenge
the assessment on the ground that s. 2(hh) and (kk) and clauses (2) .
and \3) of Pan I to the Schedule of the Kcrala Agricultural JncomeC
tax (Amendment) Act,
1970 are violative
of Art.
14
o{
the
Constitution.
D
E
f
G
H
it will facilitate appreciation of the facts and the constitutional
qu .... ·stlon in this case if the taxing provisions are noticed at this stage.
The Agricultural Income-tax Act was passed in 1950. In the
beginning, the Act was known as the Travancorc-Cochin Agricultural
Income-tax Act.
Later as a result of the State'-; reorganisation, the
Act was renamed simply as Agricultural Income-tax Act,
1950.
According to the preamble, the Act was made to provide for levy of
tax on agricultural income in the State o[ Kerala. Tilt the Amending
Act of l 970, all companies were liable to pay tax according to their
total income.
The tax is chargeable under s.
3.
Sub-section. (l)
thereof provided that the agricultural incon1c at the
rate
or rates
specified in the schedule to the Act shall be charged oa the total agricultural income of- the
previous year of every person. It was
a
grnduated rate.
Section 2(h) of the
Amending Act of
1970 has
redefined a 'Company' as "a domestic company or a foreign company."
Section 2(hh) defines a 'domestic company' as "'a company fonncd
and registered under the Companies Act, 1956 ... and
includes
a
company 'formed and registered under any law relating to companies
formerly in force in any part of India." lt is
necessary that the
registered office of the Company should be in India.
Section 2(kk)
defines a 'foreign company' as 'a foreign company within the meaning
of s.591 of the CC\mpanics Act, 1956 .... and includes any foreign
association whether incorporated o_r not which the Government, may.
by general or special order, declare to be a foreign company for the
purposes of this Act."
Clause (2) of Part I of the Schedule to the Amending Act, 1970,
provides for the rate of taxation chargeable fron1 a 'do1nestic co1npany.'
It is this :
A. Where the total agricultural_ incon1c docs not exceed
Rs. 25,000-45 per cent of the total agricultural income
B. Where the total agricultural income exceeds. Rs. 25,000
but docs nol exceed Rs. 1 lakh-50 per cent of the total
~g:ricultural inco1nc
822
SUPREME COURT REPORTS
[1974] 3 S.C.R.
C. Where the total agricultural income exceeds Rs. l lakh
but does not exceed Rs. 3 lakhs-55 per cent of the
total agricultural income
D. Where the total agricultural income
exceeds Rs. 3
lakhs but does not exceed Rs. 10 lakhs.-60 per cent
of the total agricultural income
E. Where the total agricultural income exceeds Rs. 10
lakhs.-65 per cent of the total agricultural income.
The provisos to vai-ious alphabetical clauses have been omitted here
from as they are not material. Clause ( 3) of Part I of the Schedule
provides for the rate of tax chargeable from a foreign company. The
rate fixed is 75 per cent of the total agricultriral income.
A
B
It is obvious from the review of the aforesaid provisions that while
C
in the case of domestic companies a graduated scale is fixed, in the ca..e
of foreign companies a flat rate is fixed. Secondly, while the maximum
rate of tax in the case of a domestic company is 65 per cent of the
total income, it is 75 per cent in case of all foreign companies.
The petitioners' contention is that this discrimination between a
domestic company and a foreign company is violative of Art. 14 of
D
the Constitution.
The classification for the purposes of taxation is
not based on any intelligible differentia; and the differentia, if any, has
no rational relation to the pwpose ~ought to be achieved by the taXing
statute. Reliance is placed on Wheeling Steel Corporation v. C. Emory
G/ander,P) where the U.S.A. Supreme Court has said: "After a
State has chosen to domesticate foreign corporations, they arc entitled
to equal protection with the State's own corporate progeny, at least to
E
the extent that their property is entitled to an equally favourable ad
valorem tax basis."
It may be pointed out that the Indian Income-tax Act also makes
a distinction between a domestic company and a foreign company.
But that circumstance per se would not help the State of Kera!a. The
impugned legislation, in order to get the green light from Art. 14,
F
should satisfy the classification test evolved by this Court in a catena
of cases. According to that test ( 1) the class.ification should be based
on an inte!iligible differentia and (2) the differentia should bear a
rational relation to the purpose of the legislation.
The classification test is, however, not inflexible and doctrinaire.
It gives due regard to the complex necessities and intericatc problem•
G
of government. Thus, as revenue is the first necessity of the State and
as taxes are raised for various purposes and by an adjustment of diverse
elements, the Court grants the State greater choice of classification in
the field of taxation, than in other spheres. Accorging to Subba Rao
J.,, "(T) he courts 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 as it adheres to the fundamental
H
principles underlying the said doctrine.
The power of the Legislature
(I) 93 Law. Edn. 1544.
A
B
c
D
E
F
G
AMAL. TEA ESTATE v. KERALA Wwivedi, !.)
823
to classify is of wide range and flexibility so that it can adjust its system
of taxation in all proper and reasonable ways." · [Khandige Sham Bhat
v.Agricu/t11ral /iicome-tax Officer, Kasargod('); Ravi Verma Rajah v.
Union of India(').]
Again, on a challenge to a statute on the ground of Art. 14, the
Court would generally raise a presumption in favour of its constitutionality.
Consequently, one who challenges the statute.bears the burden
of establishing that the statute is clearly. violative of Art. 14. "(T)l1e
presumption is always i11 favour of the constitutionality of an enact,-
ment and the burden is upon him who attacks it to show that there is a
clear transgression of the constitutional principle." [See Charanjit Lal
v.Union of India(').]
.
The reason why a statute is presumed to be constitutional is that the
Legislature is the· best judge of the local condition
and circumstances and special needs of various classes of persons. "(T) he Legislature is the best judge of the needs of particular classe.s and to estimate
the degree of evil so as to adjust its legislation according to the exigency
found to exist."
(Charanjit Lal (supra) at page 933 per Das J.)
Speaking in the same vein, Patanjali Sastri, C.J. observed: "(The
Legislatures) alone know the local conditions and circumstances which
demanded the enactment of such a law, and it must be remembered that
"legislatures are ultimate guardians of the liberties and welfare of the
people in quite as great a degree as the courts." [See State of West Btngql v. Anwar Ali Sarkar(').]
The contention of the petitioners would have to be examined in the
light of the foregoing considerations.
The only relevant statement of fact in the petitions is that the petitioners are Joint Stock Companies with limited liability and have been
incorporated in the United Kingdom.
One of them has its registered
office in Scotland, and the other in England.
Both of them carry onbusiness also in this coun(fy, and particularly in the State ¢
Kerala.
In Kerala their main business is one- of cultivation and marketing of
plantation crops such as tea. It is also alleged that the impugned statute
seeks to treat as unequal companies which are equally circumstanced.
No other facts are disclosed in the petitions. No comparison is made
between the domestic companies and
foreign
companies carrying
on agriculture in Kerala in regard to their financial standing. Magni·
tude of their business inside a.nd outside the country, the fertility of the
land owned by them and the quality of the plantation crops raised by
them. It is not possible to hold on the meagre facts presented before
us that domestic companies and foreign companies carrying on agriculture in the State of Kerala are equally circumstanced.
H
(1) A.T.R. 1963 S.C. 591.
(2) (1969! S. C. R 827
()) (1950] S. C'. R. 869 at p, 879 per Fazal AH .T.
(4) [19521 S. C.R. 284 at p, 303
SUPREME COURT REPORTS
[1974) 3 s.c.R.
There is no denying the fact that for various reasons a domestic
A
company may be 1rr.ated differently from a foreign company in the field
of taxation.
According to Art. 48 of the Constitution, it is a fundamental obligation of the State to make "'endeavour to organise agriculture and animal husbandry on modem and scientific lines and to take
.steps for preservation and improving the breeds ... of cows and calves
and other milch and draught cattle."
So it may b~ safely presumed
that the State of Kerala shOuld be striving to improve agriculture and
B
anim~I husbandry within 11s boundaries. It may also be presumed
that in so doing it mu!)t be 1nvesttng considerable money and skill. The
State is, therefore, entitled to raise revenue by taxation for investment
in agriculture and animal husbandry.
So it could reasonably demand
75 per cent of total income as tax from a foreign company.
It could
demand the same amount of tax from a domestic company also.
But
the rate of tax on them is lesser.
But the tax relief given to them is
c
11ot proved to be arbitrary or unreasonable.
It may be that the domestic companies own land which is less fertile or produce inferior quality
of plantation crops while the foreign companies own 1no.re fertile land
and produce superior quality of plantation crops.
In that case. the
domest'c companies would not be able to withstand the compctitic!l1 or
the foreign con1punics rind would not survive.
1hc State ·might have
chosen to give the dom~stic con1panies protection against the foreign
D
companies.
And there seems to be yet another good reason for this.
The entire income earned by a domestic company fron1 business insid~
as well as outsido India will remain in India.
But a good part of the
income earned by the petitioners inside India would be drained out of
India to the United Kingdom in the shape of dividends, etc.
Under
the Foreign Exchange Regulation Act, l 94 7. it is open to a forcig;1
company to transmit money out of India with the permission of the
E.
Reserve Bank of India.
It is thus evident that a greater part of the
income and skill of the domestic companies is likely to be utilised in
improving agriculture within the State.
It will not be so in the case
of forcig11 co1npanics.
On these considerations it cannot be said that the cla>Sification ot
c.ompanics into domestic and foreign con1panies has no rational
rcJation to the purpose of the impugned provisions.
Our view receives strong support from the Court's opinion in D. P.
Joshi v. State of Madhya Bilarat(I). That case related to the question
of admission of students in a Medical College in the Sta!e of Madhya
Bharat.
According to a direction of the State of Madhya Bharat, all
students admitted to the College were required to pay a prescribed fee.
But students who were not btJna fide residence of Madhya Bharat were
also requ;rcd to pay capitation fe.o of Rs. 1500/-.
A student who was
not a hona fide resident of Madhya Bharat challenged the capitation
fee as being violative of Art. J4_
The majority of the Court overruled
the contention.
Speaking for the Court, Vcnkatarama Ayyar J. said :
'The object of the classification underlying the impugned
rule was cleerly to help to some extent students who residents of Madhya Bharat in the prosecution of their studies,
(t) lt955] t S. C.R. 1215 ot P. t228.
F
G
H
' '
A
B
c
D
E
F
G
H
AMAL. TEA ESTATE v. KERALA <Dwivedi, J,)
825
and it cannot be disputed that it is quite a legitimate and
laudable objective for a State to encourage education within
Us borders.
Education is a· State subject, and one of the
directive principles declared in Pan IV of the Constitution
1s that the State should make effective provision for education within the limits of its economy ..•• The State has to
contribute for the unkeep and the running of its educational
institutions.
We are in this petition concerned with a Medioal College, and it is well-known that it requires considerable finance to maintain such as institution. If the State has
to spend money on it, is it ·unreasonable that it should SO>
order the educational system that the advantage of it would
to some extent at least enure for the benefit of the State? A
concession given to the "residents of the State in the matter
of fee is obviously calculated to serve that end, as presuma2bly some of them might, after passing out of the College,
settle down as doctors and serve, the needs of the locality.
The classification is thus based on a ground which has a rea·
sonable relation to the subject matter of the legislation, and
is in consequence not open to attack. It has been held in the
State of Punjab v. Ajaib Singh and others(') that a classification might validly be made on a geographical basis. Such
a classification would be eminently just and reasonable,
where it relates to education which is the concern primarily
of the State.
The contention, therefore, that the rule imposing capitation tee 1s in contravention of article 14 must be
rejected."
Wheeling Steel Corporation (supra) cannot, in our view, assist the
petitioners.
Firstly, the foreign corporation there was a corporation
incorporated and registered in a State within the U.S.A.
Here the petitioner companies are incorporated not in any part of India but in the
United Kingdom.
Secondly, while there the taxing State has chosen
''to adopt" the petitioning foreign corporation. here there is. no evidence
to show that the petitioners were permitted to carry on business in the
State of Kerala by the choice of that State.
In all probability they
had set up their business in that State before India became a Sovereign
Republic.
Thirdly, there the taxing State was trying to tax the property of a foreign corporation admitted in the State.
Here the State
of Kcrala is not taxing the property, but the income, of the petitioners
from their agricultural property.
In Haus Mu!/er of Nurenbug v. Su,perintendent, Presidency Jail,
Calcutta('). this Court upheld the classification of foreigners into those
who are British subjects and those who arc not British subjects for the
purpose of preventive detention.
The Court said there : "(I )t is casih
understandable that the reasons of State may make it desirable
tO.
classify foreigners into different groups."
K. T. llfoopi/ Nair v. State of Kera/a(') and State .of Kera/a v.
l/aji K. Kully Naha(') deal with taxing statutes. In the first
cos~.
{l J [1953] S.C.R. 254.
(JI [1961] J S.C.R. 77.
(2)
[1955! I S.C.R. 11~4.
(4) A.l.R. 1969 S.C. JW.
826
SUPREME COURT REPORTS
[1974] 3 S.C.R.
the State oj Kerala had imposed a uniform tax levy on land.
The
A
taxing pr,ovisions were struck down as violative of Art. 14 because
according to the Court there was no classification of persons .for the
purpose of taxation. In the other case, a uniform building tax was
imposed on buildings according to their floor area. The taxing provisions were struck down as being discriminatory for total lack of
any classification of persons or buildings. The impugned Act of 1970
does not suffer from this vice.
So these cases also do not help the
B
pctitiOncrs.
We are of opinion that the impugned provisions of the Amending
Act of 1970 are not violative of Art. 14.
The petitions arc accordingly
disn1isscd with costs. One set.
P.B.R.
Petitions disn1issed.
1