JUDGMENT
Sukumaran, J.
1. Taxation of income in the hands of spouses has generated interesting legal questions. Even when the income was earned exclusively by, or by the profit-generating means owned by and at the command of, a person, he might endeavour to make it appear that the income or the income resources, belong to a different person. That would serve the purpose of escaping the tax burden. Human nature being what it is, there will be total loss if the person trusted in that behalf, abuses it. Such a tragic turn would not ordinarily happen, if the arrangement is with one near and dear. Perhaps, the nearest and dearest relationship is that which exists between spouses.
2. Transfers of property, with a view to avoid tax, had been made, virtually on the eve of marriage so as to overreach statutory provision nullifying, for tax purposes, such transfers between spouses. Other subterfuges too have been employed for dividing the income and to reduce the impact of the tax. Governments, when alert and dynamic, used to intervene, to protect the interests of the Revenue, even by the amendatory process in relation to the existing statutes found deficient in some way or the other. The result is a race between the assessee and the Revenue, where each one plays the part carefully and calculatedly, swiftly and intelligently.
3. A tax question, where the husband and wife were in receipt of income as partners of the same firm, arises in these writ petitions, in the setting of an assessment under the Kerala Agricultural Income-tax Act, 1950.
4. The facts are few and simple enough. Pambra Coffee Plantations is run under the auspices of a firm. There are many partners therein. Mr. Joseph George is one among the partners. His wife, Achamma George, is also a partner.
5. The firm had been assessed to tax for the assessment year 1978-79. The accounting period was July 1, 1976, to June 30, 1977. The share of income allocable to Joseph George and his wife were clubbed together on the basis of the statutory provision under Section 9(2)(1) of the Act. Joseph George was assessed in respect of the aggregate of the income–the individual share income, the share income of the wife, and other income unconnected with the firm.
6. The Department felt that notwithstanding the subjection of Achamma George’s share of income to tax in the hands of her husband, she could be individually taxed over again in relation to that very share of income. The proposal was intimated to her. She protested. The protest was overruled. Exhibit P-l is the assessment.
7. A revision filed before the Deputy Commissioner, exhibit P-2 was dismissed under exhibit P-3 dated October 10, 1986. The writ petition challenges the assessment made against the petitioner, Achamma George.
8. An impression of unfairness adopted as against the assessee may not come to her rescue. If tax is exigible, the hardship to the individual will be irrelevant.
9. Ordinarily, the assessee would be relegated to the remedy open under the statute. I am not inclined to adopt that practice in this case. The question raised is an important jurisdictional one. It is not advantageous either for the State or for the assessee to shirk the decision on the point for an unreasonably long time. It is better that a final view is rendered by an authoritative decision of this court.
10. The first stage of it, at least, can be attempted herein.
11. The question is whether the provisions of the Agricultural Income-tax Act permit an assessment on a wife over again after the self-same income had suffered tax in the hands of her husband, when subjecting the husband to tax for the wife’s income was fully in tune with the statutory provisions.
12. No counter-affidavit has been filed by the State Government, even though the writ petitions had been filed as far back as February 9, 1987. The stand is inferred from the orders passed by the taxing authorities. The State’s stand is essentially, if not exclusively, based on Section 10(1)(d).
13. It is unfortunate that the tax affairs of the State are so wantonly neglected even in cases where difficult and complicated questions arise. Those who are totally innocent about the background and complexities of taxing statutes can give the court only poor assistance. The immediate sufferer is the State (The ultimate damage is to public interest).
14. Before attempting an analysis of the statutory provisions, it is better, even at the very threshold, for the court to address itself to the constitutional background of the taxing system. The scheme of our Constitution envisions the basic requirements of the rule of law, namely, fairness, rationality and reasonableness. An interpretation which would create an unfair, irrational or unreasonable result, should, if possible, be avoided, and the statutory provision salvaged by giving the enacted section a subdued, and subordinate content, but one which is fully constitutional. This basic approach should influence the court in the interpretational exercise to be adopted in relation to a fiscal statute too.
15. It is not as though a receipt of money, or the possession of an asset, cannot, in theory, be subjected to a multiplicity of taxes. Depending upon the taxable event, the man who earned income, or amassed the wealth can be squeezed to the very marrow, by the forceful fist of the State. That theoretical possibility had been demonstrated by the Supreme Court in the Buckingham and Carnatic Mills’ case.
16. For obvious reasons, including promotion of self-interest in the facile collection of share of Revenue due to the State, taxing statutes have not raged with revenge on an enterprising assessee. The vedic concept of tax collection–of a butterfly perching on the petals of a blooming flower softly penetrating its proboscis, and sucking the honey, causing in that process the least hurt to the flower–in no longer there. Yet, the buoyancy of the economy, the promotion of interest as a profitable and indefatigable industry, all have resulted in appeasing approaches to the generation of income and wealth. Double taxation agreements and treaties between countries and legislations giving effect to such understanding between nations (so as to obviate or reduce the hard effect of double taxation), are not unknown exercises in the modern world. At the same time, the Legislatures generally discourage make-believe fiscal arrangements, aimed at escaping or reducing the tax liability, and for that purpose cast the net very wide.
17. Bearing these aspects in mind, the statutory provision which calls for interpretation in the case may be usefully extracted. They are Sections 9(2)(a)(i), 10(1)(d) and 18(5)(a) of the Agricultural Income-tax Act, 1950. They read :
“9. Income from settlement, disposition, etc.–…
(2) In computing the total agricultural income of any individual for the purpose of assessment, there shall be included (a) so much of the agricultural income of a wife or minor child of such individual as arises directly or indirectly-
(i) from the membership of the wife in a firm of which her husband is a partner ;
10. Exemption from assessment of income-tax.–(1) Agricultural income-tax shall not be payable on that part of the total agricultural income of a person which is–…
(d) any sum which he receives out of the agricultural income in respect of which tax under this Act has already been levied under Section 9 ;
Provided that the aggregate of any sums exempted under this section shall not exceed one sixth of the total agricultural income of the assessee or six thousand rupees, whichever is less :
Provided further that nothing contained in this section shall be deemed to entitle a person who is assessed to income-tax under the Indian Income-tax Act, 1922, to claim any deduction in respect of any sum referred to in this section if it was exempted under Section 15 of the said Act.
18. Assessment of income.–…
(5) Notwithstanding anything contained in the foregoing sub-sections, when the assessee is a firm and the total income of the firm has been assessed under Sub-section (1), Sub-section (3) or Sub-section (4), as the case may be-
(a) in the case of a registered firm, the sum payable by the firm itself shall not be determined but the total income of each partner of the firm, including therein his share of its income, profits and gains of the previous year, shall be assessed, and the sum payable by him on the basis of such assessment shall be determined :
Provided that, if such share of any partner is a loss, it shall be set off against his other income or carried forward and set off in accordance with the provisions of Section 12 :
Provided further that, when any of such partners is a person not resident in the State, his share of the income, profits and gains of the firm shall be assessed on the firm at the rates which would be applicable if it were assessed on him personally, and the sum so determined as payable shall be paid by the firm ; and …”
18. The contention of the State is that the proviso occurring after Sub-clause (f) applies not merely to Sub-clause (f), but also to other clauses, and consequently the ceiling provided for such exemption operates in relation to the exemption covered by Section 10(1)(d) as well. In other words; what is argued is that the income received by the wife who is a partner in a firm along with her husband, can be treated as her income and assessed as such, nothwithstanding the fact that that income had already been treated as the income of the husband. A relief to the wife from the hardship arising out of the taxation is given, but subject to the limitation of one-sixth of the total income or six thousand rupees, whichever is less.
19. The essential features of the taxation scheme may now be alluded to. As is well-known, the key to a taxing enactment is its charging section. As regards the Act in question, the charging section is Section 3. The headnote of the section loudly proclaims : Charge of agricultural income-tax. Agricultural income-tax is charged for each financial year, on the total agricultural income of the previous year. The computation of the total agricultural income is provided for in elaborate detail in Section 4. All agricultural income derived from the land situate in the State comes within the computation. It does not matter whether such agricultural income is received by the assessee within the State or outside. A person residing in Madras but having his cardamom plantations in Devikolam would thus be an assessee under the Act. His total income would take in the entire agricultural income derived from the plantation situate in the State of Kerala. The fact that he carries his produce to a place outside the State and receives the price, therefor outside the State, would not exonerate him from the tax liability, for, the agricultural income has been derived from the land situate within the State of Kerala.
20. Under Section 4(1)(a), (b) and (c), certain exclusions have been made : agricultural income derived from the land situate outside the State, agricultural income derived by cultivation of the crops, specified therein such as paddy, tapioca, plantain, vegetables, etc., agricultural income derived from the property held under trust of the nature indicated in Clauses (b) and (c), subject to the conditions contained therein. In an attempt to discourage the creation of nominal or non-functionary trusts, additional provisions have now been incorporated by Sub-sections (1)(aa) and (1B).
21. Section 5 deals with the computation of income. In accordance with the scheme of a taxation statute, various deductions found necessary for encouraging the income-earning activity are provided Payment of revenue relatable to the land from which income is received, interest payments, repairs, depreciation, and the like come within this category. Section 6 deals with special situations where agricultural income is derived from the properties partly within the State and partly without. Section 7 pertains to the procedural area and deals with method of accounting. The position in relation to the Court of Wards, Receiver, Administrator, etc., is dealt with in Section 8. Section 9(2) is aimed at spouses conniving together to escape altogether or reduce the incidence of tax due in respect of the agricultural income derived by both of them. It creates a statutory fiction as it were, by including the income of a wife or a minor child as the income of the husband.
22. We are not concerned with the case of the minor child and the provisions in that regard need not be referred to. Two types of income received
by the wife and reckoned by ordinary law as the income of the wife, are
deemed by the statute to be part of the total income of the husband :
(1) The income of the wife arising directly or indirectly from the member
ship of the wife in a firm of which her husband is a partner, and (2) income
of the wife from assets transferred directly or indirectly to the wife by the
husband (the further details contained in that section are not relevant in
this context). In other words, the income of a wife as partner received from
a firm in which her husband is also a partner, is treated as coming within
the total income of the husband. If a fiction is so created, it should be
extended in its effect and impact to all the permissible areas. The close
enunciation dealing with the operation of a fiction, cannot be overlooked in
that context When the statute commands a deeming of the putative state
of affairs as the real state of affairs, imagination should not boggle half
way through.
23. What will be the result, if that principle is applied to the facts of the present case ? The wife is as live a legal entity as the husband. Her income can be utilised by her in any manner she likes. She has got absolute power of disposal over her income. Yet, for well-known, sociological and fiscal reasons, her income is deemed not to be her income for certain purposes of a taxation enactment. It is treated as part of the total income of her husband. It is taxed on the basis that it is part of the total income of the husband. The entirety of the income in her hands is thus treated as part of the total income of the husband, for the purposes of the Act. Whatever may be the actuality or factuality for the purpose of the law, her income is no longer hers : it is merged with or pulled into the total income of her husband. What has been in the hollow of her hands has been passed on to the palm of her husband. The law gives her only a hollow purse. When the law says so, one has to abide by that command. She cannot be heard to say otherwise. The constitutionality of the statutory provisions creating that provision has been upheld.
24. Then comes the rub. The question is whether having gone thus far, the law can turn round and again say that the income is hers, and that she should account for it for assessment purposes under the Act ? What the law has ordained for the purposes of assessment as regards a husband-wife combine, shall not be permitted to be deviated or departed from, when it comes to the assessment of the very same income and under the very same enactment, as regards the wife. Looked at that way, there is nothing with the wife, which would attract agricultural income-tax as regards her share of income from the firm. If that is the net result, it would be impermissible for the assessing authorities to tax that income, taking the stand that the wife continues to have such an income. What has been evaporated by a statutory sunshine, would be unavailable for the State which has stood by and had benefited from the evaporation process.
25. Additionally, it has to be noted that Section 10(1) is not the charging section. It is a section granting an exemption as the very title “exemption from assessment of income-tax” indicates.
26. The historical background of the legislation and the statutory provision (which had been unearthed after somewhat strenuous effort in that behalf), has led to a comfortable conviction about the conclusion. The progress of taxation statutes in this field could be traced cautiously so as to watch the junction at which the conclusion is set in.
27. The Agricultural Income-tax Act, 1950, was initially intended to have territorial application over the former Travancore-Cochin portion of the State. The Travancore-Cochin Agricultural Income-tax (Amendment) Act, as the Act was originally named soon after it had been framed, was itself an attempt at effecting uniformity in relation to the agricultural assessments over the component parts of the State of Travancore-Cochin. It would appear that that Act had been modelled on the Travancore Income-tax Act of 1119. The Travancore Act had undergone an amendment in the year 1121 M. E. Section 13 of the Travancore Act had provided for various exemptions in the computation of agricultural income. That was done under Section 18. Exemptions under Section 18 were of a general nature. Specified types of deductions were permitted under Section 19. They were deductions having a closer nexus with the personal details of the assessee.
28. If he had assured his life by means of a life insurance policy, if he has joined a provident fund scheme, or had been involved in other transactions referred to in that section, he could claim deductions of such sums in the computation under that Act. Sub-section (3) has set a ceiling on such deductions. There was a further provision dealing with the aggregate of the deductions that could be allowed. That was one-sixth of the income or Rs. 6,000, whichever is less. However, when the 1950 Act was enacted, the provisions of Sections 13 and 14 of the Travancore Act were rolled up into one. Sub-section (4) of Section 19 providing for the aggregate was, however, retained. There was, no doubt, a careless and clumsy re-drafting. Soon, after the formation of the State of Kerala on November 1, 1956, that Act was amended by the Agricultural Income-tax (Amendment) Act, (Act No. 8 of 1957), effective from April 1, 1957. With numerous amendments, the Act continues, basically as Act No. 22 of 1950. No intention on the part of the Legislature to resort to a double taxation of the identical income is discernible in this amendatory process. Deductions of a general nature as provided and the ceiling specifically incorporated in relation to such specific deductions had been overlooked by the Legislature when the Section was recast.
29. It is well-settled that the Constitution does not prohibit double taxation, provided there are enabling words in that behalf. (Vide Jain Bros. v. Union of India [1970] 77 ITR 107 (SC)). This dictum about enabling words providing for double taxation has to be understood in the backdrop of principles settled in taxation jurisprudence a long time ago. Speaking generally, income is taxable, but taxable only once. Such was the observation in Attorney-General v. London County Council [1907] 5 TC 242 (HL) at page 260. A later case in the same volume of the Law Reports, Stevens (Surveyor of Taxes) v. Durban-Roodepoort Gold Mining Co. Ltd. [1909] 5 TC 402 (KB), indicated a complementary proposition, that double taxation is permissible, if the Legislature distinctly taxes it. These ideas have been reflected in Indian decisions too : of the High Court of Allahabad in Joti Prasad Agarwal v. ITO [ 1959] 37 ITR 107, and later, of the Supreme Court itself in CIT v. Murlidhar Jhawar and Purna Ginning and Pressing Factory [1966] 60 ITR 95, Some of the other decisions which have discussed legal principles of allied concepts are CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (SC), K. P. Varghese v. ITO [1981] 131 ITR 597 (SC), CIT v. J.H. Gotla [1985] 156 ITR 323 (SC) and Bhag Mal v. Parbhu Ram, AIR 1985 SC 150.
30. Wading through the various provisions of the Act, it is difficult to locate a conscious intention on the part of the Legislature to bring in the agricultural income of an assessee to subject it to double taxation.
31. Thus, on a consideration of all the relevant provisions of the Act, a survey of the historical background of those provisions and evaluation of the broad and general practice in relation to taxation and taxation of agricultural income, I am clearly of the view that the income received by a wife in her capacity as a partner of a firm (in which her husband also happened to be a partner) could not be taxed over again in her hands, when such share of income from the firm had been already added on to the income of her husband. That being so, the assessing authorities did not have jurisdiction to have a repeat performance of assessment when the income of the wife had already been treated as part of the income of the husband and taxed as such. In that view of the matter, the petitioners are entitled to relief from this court. Exhibit P-3 in Original Petition No. 1487 of 1987 and exhibit P-5 in Original Petition No. 1450 of 1987 are quashed. It is declared that the petitioners are not liable to be assessed on their share income from the firm, when such share income has already been taxed in the hands of their husbands by assessments made on the husbands under the very same enactment The writ petitions are allowed as above, but without any order as to costs.