India Trade Promotion Organization… v. Director General Of Income Tax (Exemptions) & Others…

* IN THE HIGH COURT OF DELHI AT NEW DELHI+ W.P. (C) 1872/2013 % Judgment delivered on: 22.01.2015 INDIA TRADE PROMOTION ORGANIZATION… versus Petitioner DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) & OTHERS… Respondents Advocates who appeared in this case:- For the Petitioner : Mr M.S. Syali, Senior Advocate with Mr Mayank Nagi, Ms Husnal Syali and Mr Harkunal Singh For the Respondents : Ms Suruchi Aggarwal, Sr Standing Counsel with Mr Joginder Sukhija and Mr Shobit Saxena. CORAM: HON'BLE MR JUSTICE BADAR DURREZ AHMEDHON'BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J. 1.By way of this writ petition (as amended), the petitioner seeks the quashing of the First Proviso to Section 2(15) of the Income-tax Act, 1961 (hereinafter referred to as ‗the said Act‘) as amended by the Finance Act, 2008, on the ground that it is arbitrary and unreasonable and has no rational nexus with the object sought to be achieved and is thus violative of Article 14 of the Constitution of India. The petitioner also seeks the quashing of the order dated 23.01.2013, which was passed by the respondent under Section 154 of the said Act in connection with the earlier order dated 23.02.2012, WP(C) 1872/13 Page 1 of 55 whereby exemption earlier granted under Section 10 (23C) (iv) of the said Act had been withdrawn. The petitioner also seeks a writ of mandamus or any other appropriate writ, order or direction in the nature of mandamusdirecting the respondent to grant exemption to the petitioner under Section 10(23C)(iv) of the said Act. 2.On 01.05.2008, by a notification No. DGIT(E)/10(23C)(iv)/2008/143, approval had been granted under Section 10(23C)(iv) of the said Act to the petitioner for the assessment year 2007-08 onwards. During the assessment proceedings for the assessment year 2009-10, a proposal for withdrawal of the exemption was received from the Assessing Officer through the Director of Income-tax (Exemptions), Delhi on 21.12.2011. The proposal was moved for considering the case for withdrawal of exemption on the ground that the main object of the petitioner being advancement of objects of general public utility, the proviso to Section 2(15), which had been introduced with effect from 01.04.2009 was applicable. This led to an order dated 23.02.2012 passed by the respondent withdrawing the exemption, which had earlier been granted under Section 10(23C)(iv) from the assessment year 2009-10 onwards. 3.It is not disputed that the petitioner was engaged in socially and economically desirable activities relating to the promotion of Indian trade and that the activities of the petitioner fell within the ambit of the expression ―the advancement of any other object of general public utility‖ as appearing in Section 2(15) of the said Act. But, because of the new proviso to Section 2(15), the petitioner‘s objects were not regarded as charitable purposes. It WP(C) 1872/13 Page 2 of 55 3.It is not disputed that the petitioner was engaged in socially and economically desirable activities relating to the promotion of Indian trade and that the activities of the petitioner fell within the ambit of the expression ―the advancement of any other object of general public utility‖ as appearing in Section 2(15) of the said Act. But, because of the new proviso to Section 2(15), the petitioner‘s objects were not regarded as charitable purposes. It WP(C) 1872/13 Page 2 of 55 was observed in the said order dated 23.02.2012 that the petitioner, inter alia, had huge surpluses in banks, it had given its space for rent during Trade Fairs and Exhibitions, it had received income by way of sale of tickets and income from food and beverage outlets in Pragati Maidan, etc. The respondent, by virtue of the said order dated 23.02.2012, held that even if the petitioner‘s contention that it by itself was not involved in trade, commerce and business was accepted, it was definitely rendering service to a large number of traders and industrialists in relation to trade, commerce and business and was, therefore, hit by the expanded list of activities contained in the proviso to Section 2(15) of the said Act. It was further observed that the petitioner provides the service of allotting space and other amenities like water, electricity and security, etc. to the traders to conduct their exhibitions. The respondent rejected the petitioner‘s plea that its activities did not fall within the ambit of trade, commerce and business as also the contention that they did not fall within the ambit of any activity of rendering any service in relation to trade, commerce or business. The respondent held that even the CBDT Circular No.11/2008 dated 19.12.2008 did not come to the rescue of the petitioner as it had been clearly noted in the circular itself that each case has to be judged by the facts peculiar to such case and no generalization should be made by the Assessing Officer. The respondent concluded by holding that the objects of the petitioner being advancement of general public utility, the proviso to Section 2(15) of the said Act was clearly applicable and as the petitioner was engaged in the activities of trade, commerce and business and was engaged in the activities of rendering services in relation to trade, commerce and business for WP(C) 1872/13 Page 3 of 55 consideration, it loses its status as a public charitable institution. Consequently, the respondent withdrew the exemption earlier granted under Section 10(23C)(iv) from the assessment year 2009-10 and onwards. 4.Being aggrieved by the said order of withdrawal of exemption dated 23.02.2012, the petitioner filed a writ petition being WP(C) No.3142/2012 before this court. That writ petition was dismissed as withdrawn on 23.05.2012 with the liberty that the petitioner may file an application under Section 154 of the said Act before the respondent seeking rectification of mistakes, which, according to the petitioner, had crept into the order dated 23.02.2012 on account of factual inaccuracies. The court, while dismissing the writ petition and granting the said liberty, also clarified that it had not expressed any opinion regarding the maintainability of the application under Section 154 of the said Act and that such an application, if filed, would be examined and considered in accordance with law. Thereafter, the petitioner filed the rectification application under Section 154 of the said Act before the respondent seeking rectification of the alleged mistakes which were apparent on the record, which resulted in the order dated 23.02.2012. 5.The petitioner gave a detailed explanation regarding the nature of its activities. With regard to space rent, it was pointed out that in order to enable the petitioner to fulfill its objectives, the Union Cabinet in its meeting held on 27.04.1976, deemed it fit to allot the Pragati Maidan Complex to the petitioner, which was spread over an area of 123.50 acres at a nominal ground rent of Re 1 per annum for the initial 5 years, which was WP(C) 1872/13 Page 4 of 55 subsequently revised to Rs 6 lakhs (approximately) per annum and the same ground rent continues till date. The Central Government did not change the market rate or commercial rate of the premium land. It was pointed out that this special nature of the government lease, as compared to the commercial rates that could have been charged by the government, had enabled the petitioner to provide space for exhibitions, seminars, conferences and other trade promotion activities to various participants at economically viable rates. It is because of this that the petitioner was generating surplus even after providing space to the trade and industry at much lower rates than the prevailing market rates. Furthermore, it was pointed out that, although the intent behind establishing the petitioner as a company under Section 25 of the Companies Act, 1956 was to apply its surplus in furtherance of its objectives, the surplus generated by the company over the years got accumulated as the petitioner could not undertake major infrastructural additions and improvements in Pragati Maidan Complex due to non-execution of the lease deed in its name. This was a condition precedent before which the various government authorities could approve renovation projects. It was further pointed out that the lease deed in respect of Pragati Maidan Complex came to be executed in favour of the petitioner only in March 2011. There was, however, yet another impediment in undertaking the renovation projects of Pragati Maidan Complex and that was the requirement of change in land use in the records of DDA to be formally notified. It was also pointed out that only recently, the government had issued directives to the petitioners to construct a state of the art convention-cum-exhibition centre in Pragati Maidan in place of the old infrastructure WP(C) 1872/13 Page 5 of 55 which was constructed about four (4) decades back. According to the petitioner, the corpus of funds available with the petitioner may not be sufficient to meet the cost of the new project. 6.As regards income from hoardings, the petitioner submitted that such income depicted in the income and expenditure statement had a different connotation than what was commonly understood where hoardings are put up on the roadsides for advertisement purposes. It was pointed out that, in the case of the petitioner, the large sized banners / boards are temporarily put up by the participants / organizers at the gates of Pragati Maidan Complex and / or within the Pragati Maidan Complex to attract the attention of the visitors about the events as well as to serve as directional guides for the events organized in Pragati Maidan. 7.As regards sale of publications, it was pointed out that the petitioner publishes a ‗fair guide‘ for each trade fair / exhibition and these guides contain the names, product profiles and stall numbers of the participating companies for guidance of the visitors and the receipts generated therefrom is treated under the head ―Sale of Publications‖. The income received on this account is only a few lakhs of rupees each year. It was contended that the receipt of this amount on account of sale of the guides is not in the nature of profit and is merely incidental to achieving the main object of the petitioner, which is promotion of trade through the medium of trade fairs and exhibitions. 7.As regards sale of publications, it was pointed out that the petitioner publishes a ‗fair guide‘ for each trade fair / exhibition and these guides contain the names, product profiles and stall numbers of the participating companies for guidance of the visitors and the receipts generated therefrom is treated under the head ―Sale of Publications‖. The income received on this account is only a few lakhs of rupees each year. It was contended that the receipt of this amount on account of sale of the guides is not in the nature of profit and is merely incidental to achieving the main object of the petitioner, which is promotion of trade through the medium of trade fairs and exhibitions. WP(C) 1872/13 Page 6 of 55 8.On the aspect of income derived from sale of tickets, the petitioner pointed out that the sale of tickets is not done to earn profit, but only for the purposes of controlling the number of people who visit the trade fair. It was also clarified that no entry fee is charged from visitors for majority of the fairs organized by the petitioner. The main component of the revenue from sale of entry tickets pertains to the annual event of the India International Trade Fair organized in Pragati Maidan in November. It was further pointed out by the petitioner that even for this event, the intention behind charging the entry fee was not to earn profit, but the same was charged only from a crowd management point of view and to restrict the number of visitors to Pragati Maidan. It was also pointed out by the petitioner that this fact was further corroborated from the directives received from the Commissioner of Police by his letters dated 03.09.2008 and 24.08.2009 requesting the petitioner to restrict the number of visitors to Pragati Maidan to one lakh visitors per day. 9.With regard to the income from alleged long term agreements with food and beverage outlets, the petitioner clarified that it is a worldwide practice to have food and beverage outlets within the exhibition complex so that the visitors do not have to leave the exhibition ground for this purpose. With this objective of providing quality food and beverage facilities to the trade fair visitors, the petitioner had to per force allot food and beverage outlets on long term basis to the operators as they invest substantial amounts in setting up, maintaining and carrying out the operations as and when WP(C) 1872/13 Page 7 of 55 required. The petitioner pointed out that it was not practicable to have ad hoc arrangements with the food and beverages outlet. It was, therefore, necessary to enter into long term agreements with the allottees of these outlets. The petitioner submitted that the objective of these food and beverage outlets must not be lost sight of and should be seen as incidental to carrying out the main activity of organizing trade fairs and exhibitions for achieving the object of trade promotions. It was contended that the respondent was, therefore, unjustified to construe the object of having food and beverage outlets as being driven by commercial and business objectives. WP(C) 1872/13 Page 7 of 55 required. The petitioner pointed out that it was not practicable to have ad hoc arrangements with the food and beverages outlet. It was, therefore, necessary to enter into long term agreements with the allottees of these outlets. The petitioner submitted that the objective of these food and beverage outlets must not be lost sight of and should be seen as incidental to carrying out the main activity of organizing trade fairs and exhibitions for achieving the object of trade promotions. It was contended that the respondent was, therefore, unjustified to construe the object of having food and beverage outlets as being driven by commercial and business objectives. 10.It was also pointed out that the respondent, in its order dated 23.02.2012, had not taken into account the fact that the petitioner was a Government of India undertaking incorporated under Section 25 of the Companies Act, 1956 in accordance with the decision of the Cabinet. The petitioner functions under the administrative control of the Department of Commerce under the Ministry of Commerce and Industries and all the fairs of the petitioner are held by the Government of India or its nominees. The affairs of the petitioner are managed by the Board of Directors headed by the Chairman and Managing Directors nominated by Government of India on rotation basis from the pool of senior officers from the Civil Services. This ensures that the functions of the petitioner are managed in accordance with the rules and regulations and in consonance with the object for which the petitioner was constituted. The accounts of the petitioner are also subject to –various audits internal audit, statutory audit and audit by the Comptroller and Auditor General of India to ensure compliance of all the statutory requirements. It was, therefore, submitted by the petitioner that there could be no denying that the petitioner was neither constituted nor was it permitted to indulge in any commercial activity with a profit motive. It was submitted that the contentions of the petitioner were rejected by the respondent in the order dated 23.02.2012 without ascribing any reasons and, therefore, the said order needed to be rectified. 11.However, all these submissions of the petitioner, which were made by it in its Section 154 Application, were rejected and the respondent passed the impugned order dated 23.01.2013 by holding that the exemption granted earlier under Section 10(23C)(iv) by notification dated 01.05.2008 had been correctly withdrawn by the order dated 23.02.2012 from the assessment year 2009-2010 and onwards. The respondent held that, if the objects of the petitioner were advancement of objects of general public utility, the proviso to Section 2(15) of the said Act was clearly applicable to the petitioner. Consequently, the respondent rejected the petitioner‘s application under Section 154 of the Income-tax Act, 1961, both on the point of rectification and also on merits. 12.In the impugned order dated 23.01.2013, the respondent observed as under:- ―If a private operator charges rent from letting out its land for trade exhibitions and collects money from sale of tickets, advertisement etc. its trading receipts are subjected to tax. Similar treatment has to be given to a Public Sector Undertaking because the Income-tax Act does not discriminate between the activities of a private and a public entity so far as WP(C) 1872/13 Page 9 of 55 12.In the impugned order dated 23.01.2013, the respondent observed as under:- ―If a private operator charges rent from letting out its land for trade exhibitions and collects money from sale of tickets, advertisement etc. its trading receipts are subjected to tax. Similar treatment has to be given to a Public Sector Undertaking because the Income-tax Act does not discriminate between the activities of a private and a public entity so far as WP(C) 1872/13 Page 9 of 55 commercial taxable activities are concerned. The claim of the applicant that its charges are much lesser than the market rate cannot benefit the applicant organization keeping in view of the facts that the applicant organization was earning huge surplus which clearly indicates conscious and full scale commercial exploitation of the property at Pragati Maidan which is in possession of the applicant organization. The huge surplus generated from year to year does not indicate that surplus has been earned casually or accidentally. There is a conscious planning and policy decision to earn such huge revenue. Therefore, there is no mistake apparent on records with regard to the applicability of proviso to Section 2(15) of the Income-tax Act. Accordingly, the application u/s 154 of the Income-tax Act, 1961 on the issue of proviso to Section 2(15) of the Income-tax Act 1961 is not maintainable, hence rejected.‖ 13.The respondent, in his order dated 23.01.2013 also held on merits as under:- ―In view of the fact that providing of space on rent to the traders by the applicant organization facilitates these traders to explore various opportunities of expanding their business, the proviso to the Section 2(15) of the Income Tax Act, 1961 comes into operation. Thus, the applicant‘s activity assists the traders / exhibitors to explore various opportunities of expanding their business and is ―in relation to any trade, commerce or business‖ and therefore its activity cannot be held to be a ‗charitable purpose‘.‖ The respondent also took support from the decision of the Kerala High Court in the case of Info Parks Kerala v. Deputy Commissioner of Income-tax: (2010) 329 ITR 404. Reliance was also placed by the respondent on a decision of the High Court of Andhra Pradesh in the case of Andhra Pradesh State Seed Certification Agency v. Chief Commissioner of Income-tax-III, Hyderabad: 256 CTR 380 (AP). 14.Being aggrieved by the said impugned order dated 23.01.2013, the petitioner is before us by way of the present writ petition. Mr Syali, the learned senior counsel, appearing for the petitioner, drew our attention to the note for the Cabinet prepared by the Secretary, Foreign Trade with regard to the creation of the petitioner as a company under Section 25 of the Companies Act, 1956. From the said note, it is, inter alia, evident that prior to the formation of the petitioner, the work of exhibitions and commercial business of the Government was distributed between the following three organizations:- a)India International Trade Fair Organisation (IITFO) a wing of the Ministry of Commerce; the Ministry of Commerce; b)Indian Council of Trade Fairs and Exhibitions a registered society (ICTFE); and society (ICTFE); and c)Directorate of Exhibitions and Commercial Publicity a wing of Commerce Ministry. of Commerce Ministry. All these three organizations were merged into the petitioner company. 15.Our attention was next drawn to the notes on clauses in respect of the Finance Bill 2008 and, in particular, with regard to clause (15) of Section 2 which was to the following effect:- WP(C) 1872/13 Page 11 of 55 ―Clause (15) of the said section defines ―charitable purpose‖ to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. b)Indian Council of Trade Fairs and Exhibitions a registered society (ICTFE); and society (ICTFE); and c)Directorate of Exhibitions and Commercial Publicity a wing of Commerce Ministry. of Commerce Ministry. All these three organizations were merged into the petitioner company. 15.Our attention was next drawn to the notes on clauses in respect of the Finance Bill 2008 and, in particular, with regard to clause (15) of Section 2 which was to the following effect:- WP(C) 1872/13 Page 11 of 55 ―Clause (15) of the said section defines ―charitable purpose‖ to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It is proposed to amend the said clause by inserting a proviso thereto so as to exclude from ―advancement of any other object of general public utility‖— (i)any activity in the nature of trade, commerce or business, or or (ii)any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from any such activity. trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from any such activity. This amendment will take effect from 1st April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years.‖ –Furthermore, in the Memorandum regarding Delegated Legislation Rationalisation and Simplification Measures, it has been noted as under:- ―Streamlining the definition of “charitable purpose”Section 2(15) of the Act defines ―charitable purpose‖ to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the ―advancement of an object of general public utility‖ as is included in the fourth limb of the current definition of ―charitable purpose‖. Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase ―advancement of any other object of general public utility‖, it is proposed to amend section 2(15) so as to provide that ―the advancement of any other object of general public utility‖ shall not be a –charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or business; or (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years.‖ 16.A reference was also made to the following extract from the Speech of the Minister of Finance on 29.02.2008:- (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years.‖ 16.A reference was also made to the following extract from the Speech of the Minister of Finance on 29.02.2008:- ―180.‗Charitable purpose‘ includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade commerce or business and earning income have sought to claim that their purpose would also fall under 'charitable purpose'. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.‖ 17.Our attention was also drawn to the following extract from the reply of the Finance Minister to the Debate in the Lok Sabha on the Finance Bill, 2008:- ―6. Clause 3 of the Finance Bill, 2008 seeks to amend the definition of ‗charitable purpose‘ so as to exclude any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature or use of application, or retention, of the income from such activity. The intention is to limit the benefit to entities which are engaged in activities such as relief of the poor, education, medical relief and any other genuine charitable purpose, and to deny it to purely commercial and business entities which wear themask of a charity. A number of Honourable Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income tax Act to provide exemption to any income of an APMC or SAMB constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce. I once again assure the House that genuine charitable organisations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organisations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as ―advancement of any other object of general public utility.‖ (underlining added) WP(C) 1872/13 Page 14 of 55 (underlining added) WP(C) 1872/13 Page 14 of 55 18.In the context of the above, it was submitted by Mr Syali that the object of the introduction of the proviso to clause (15) of Section 2 of the said Act was to deny the benefit of Income-tax Act exemption to ―purely‖commercial and business entities which wear the mask of a charity. Genuine charitable organizations were not to be affected in any way. Mr Syali submitted that while this was the object, which is clearly discernible from the Speech of the Finance Minister, the proviso to Section 2 (15) of the said Act hits even genuine charitable organizations, such as the petitioner. 19.He submitted that unequals have been treated in a like manner. The unequals being purely commercial entities on the one hand and charitable organizations on the other. Since both these entities have been treated in the like fashion, discrimination is writ large on the proviso to Section 2(15) of the said Act. Mr Syali made a reference to the Supreme Court decision in the case of Venkateshwara Theatre v. State of Andhra Pradesh and Others: 1993 (3) SCC 677. The relevant passages of the said decision are as under:- ―20. Article 14 enjoins the State not to deny to any person equality before the law or the equal protection of the laws. The phrase "equality before the law" contains the declaration of equality of the civil rights of all persons within the territories of India. It is a basic principle of republicanism. The phrase "equal protection of laws" is adopted from the Fourteenth Amendment to the U.S. Constitution. The right conferred by Article 14 postulates that all persons similarly circumstances shall be treated alike both in privileges conferred and liabilities imposed. Since the State, in exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions, namely, (i) it is founded on an intelligible differential which distinguishes those that are grouped together from others; and (ii) the differential must have a rational relation to the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect of logically complete. Classification would be justified if it is not palpably arbitrary. [See: See Special Courts Bill 1978: (1979) 2 SCR 476]. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. [See: Khandige Sham Bhat v. Agricultural Income-Tax Officer: (1963) 3 SCR 809]. 21. Since in the present case we are dealing with a taxation measure it is necessary to point out that in the field of taxation the decisions of this Court have permitted the legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. [See: East India Tobacco Co. v. State of A.P.: (1963) 1 SCR 404, P.M. Ashwathanarayana Shetty v. State of Karnataka: 1989 Supp (1) SCC 696, Federation of Hotel and Restaurant Association of India v. Union of India: (1989) 3 SCC 634, Kerala Hotel & Restaurant Association v. State of Kerala: (1990) 1 SCR 516, and: Gannon Dunkerley and Co. v. State of Rajasthan(1993) 1 SCC 364.) 22. xxxx xxxx xxxx xxxx WP(C) 1872/13 Page 16 of 55 22. xxxx xxxx xxxx xxxx WP(C) 1872/13 Page 16 of 55 23. Just as a difference in the treatment of persons similarly situate leads to discrimination, so also discrimination can arise if persons who are unequals, i.e., differently placed, are treated similarly. In such a case failure on the part of the legislature to classify the persons who are dissimilar in separate categories and applying the same law, irrespective of the differences, brings about the same consequence as in a case where the law makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law. 24. In K.T. Moopil Nair v. State of Kerala (supra), this Court was dealing with a law providing for imposition of uniform land tax at a flat rate without having regard to the quality of the land or its productive capacity. The law was held to be violative of Article 14 of the Constitution on the ground that lack of classification had created inequality. 25. The said decision in K.T. Moopil Nair's case (supra) has been explained by this Court in Jalan Trading Co. (Pvt.) Ltd. v. Mill Mazdoor Union: (1966) 2 LLJ 546, in the context of challenge to the validity of Section 10 of the Payment of Bonus Act, 1965 providing for payment of a minimum bonus of 4% by all industrial establishments irrespective of the fact whether they were making profit. This Court held that the judgment in Moopil Nair's case (supra) has not enunciated any broad proposition that when persons or objects which are unequals are treated in the same manner and are subjected to the same burden or liability discrimination inevitably results. It was observed: ―It was not said by the Court in that case that imposition of uniform liability upon persons, objects or transactions which are unequal must of necessity lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is WP(C) 1872/13 Page 17 of 55 incapable of being put to profitable agricultural use at any time. But that cannot be so predicated of an industrial establishment which has suffered loss in the accounting year, or even over several years successively. Such an establishment may suffer loss in one year and make profit in another.‖ 26. It was further observed:- ―Equal treatment of unequal objects, transactions or persons is not liable to be struck down as discriminatory unless there is simultaneously absence of a rational relation to the object intended to be achieved by the law.‖ 27. The limitations of the application of the principle that discrimination would result if unequals are treated as equal, in the field of taxation, have been pointed out by this Court in Twyford Tea Co. Ltd. v. The State of Kerala: (1970) 3 SCR 383, wherein tax at a uniform rate was imposed on plantations. Hidayatullah, CJ, speaking for the majority, while upholding the tax, has observed: ―…It may also be conceded that the uniform tax falls more heavily on some plantations than on others because the profits are widely discrepant. But does that involve a discrimination? If the answer be in the affirmative hardly any tax direct or indirect would escape the same censure for taxes touch purses of different lengths and the very uniformity of the tax and its equal treatment would become its undoing. The rich and the poor pay the same taxes irrespective of their incomes in many instances such as the sales-tax and the profession tax etc.‖ 28. It was further observed: ―The burden is on a person complaining of discrimination. The burden is proving not possible discrimination. The burden is proving not possible ―…It may also be conceded that the uniform tax falls more heavily on some plantations than on others because the profits are widely discrepant. But does that involve a discrimination? If the answer be in the affirmative hardly any tax direct or indirect would escape the same censure for taxes touch purses of different lengths and the very uniformity of the tax and its equal treatment would become its undoing. The rich and the poor pay the same taxes irrespective of their incomes in many instances such as the sales-tax and the profession tax etc.‖ 28. It was further observed: ―The burden is on a person complaining of discrimination. The burden is proving not possible discrimination. The burden is proving not possible WP(C) 1872/13 Page 18 of 55 ‗inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. It is not proved to us how the different plantations can be said to be hostilely or unequally' treated. A uniform wheel tax on cars does not take into account the value of the car, the mileage it runs, or in the case of taxis, the profits it makes and the miles per gallon it delivers. An Ámbassador taxi and a fiat taxi give different outturns in terms of money and mileage. Cinemas pay the same show fee. We do not take a doctrinaire view of equality.‖ 20.Mr Syali pointed out that, in the present case, not only is there discrimination because unequals have been treated in the same manner, but there is hostile discrimination insofar as the petitioner is concerned as it has resulted in the loss of charitable status of the petitioner for all times to come. Therefore, according to Mr Syali, the proviso to Section 2(15) of the said Act is hit by the principle of equality enshrined in Article 14 of the Constitution of India. 21.Mr Syali further emphasized that the reliance placed by the respondents in the impugned order dated 23.01.2013 on the decision of the Kerala High Court in Infoparks Kerala (supra) was misplaced. In that case, there was no challenge to the proviso to Section 2(15) of the said Act and, therefore, the decision of the Kerala High Court does not at all come in the way of the petitioner. Similarly in Andhra Pradesh State Seed Certification Agency (supra) also there was no challenge to the proviso to Section 2(15) of the said Act. As such, it was contended that this decision would also be of no help to the revenue. WP(C) 1872/13 Page 19 of 55 22.Mr Syali submitted that the decision of the Kerala High Court in Infoparks (supra) and of the Andhra Pradesh High Court in Andhra Pradesh State Seed Certification Agency (supra) followed the literal interpretation of the proviso to Section 2(15) of the said Act. He submitted that they did so because the Constitutional validity of the proviso was not questioned before them. He further submitted that, in any event, this court in several decisions did not adopt the literal interpretation. The decisions being:- (1)Institute of Chartered Accountants of India v. Director General of Income Tax (Exemptions): 347 ITR 99 (Del); of Income Tax (Exemptions): 347 ITR 99 (Del); (2)Bureau of Indian Standards v. Director General of Income-tax(Exemptions): (2013) 212 Taxman 210 (Delhi); (Exemptions): (2013) 212 Taxman 210 (Delhi); (3)Institute of Chartered Accountants of India v. DGIT(E): WP(C) 3147/2012, decided on 04.07.2013; 3147/2012, decided on 04.07.2013; (4)M/s G.S. 1 India v. Director General of Incometax (Exemption)and Another: WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman 205. and Another: WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman 205. (1)Institute of Chartered Accountants of India v. Director General of Income Tax (Exemptions): 347 ITR 99 (Del); of Income Tax (Exemptions): 347 ITR 99 (Del); (2)Bureau of Indian Standards v. Director General of Income-tax(Exemptions): (2013) 212 Taxman 210 (Delhi); (Exemptions): (2013) 212 Taxman 210 (Delhi); (3)Institute of Chartered Accountants of India v. DGIT(E): WP(C) 3147/2012, decided on 04.07.2013; 3147/2012, decided on 04.07.2013; (4)M/s G.S. 1 India v. Director General of Incometax (Exemption)and Another: WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman 205. and Another: WP(C) 7797/2009, decided on 26.09.2013 (2013) 219 Taxman 205. 23.He submitted that this court, while rendering the above decisions, was conscious of the wide net that the literal meaning of the proviso would cast and, therefore, held that this could not be in consonance with the object sought to be achieved. It was submitted that the petitioner, in any event, apart from the challenge to the Constitutional validity, deserves relief on the anvil of the said four decisions of this court by taking the ―dominant object / activity‖ as the relevant criteria. 24.It was further contended that taxation law was not immune to the principle enshrined in Article 14 of the Constitution which strikes at arbitrariness in any form. A reference was made to the decision of the Supreme Court in E.P. Royappa v. State of Tamil Nadu: 1974 (3) SCC 3, wherein the Supreme Court observed as under:- ―85. The last two grounds of challenge may be taken up together for consideration. Though we have formulated the third ground of challenge as a distinct and separate ground, it is really in substance and effect merely an aspect of the second ground based on violation of Articles 14 and 16. Article 16 embodies the fundamental guarantee that there shall be equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State. Though enacted as a distinct and independent fundamental right because of its great importance as a principle ensuring equality of opportunity in public employment which is so vital to the building up of the new classless egalitarian society envisaged in the Constitution, Article 16 is only an instance of the application of the concept of equality enshrined in Article 14. In other words, Article 14 is the genus while Article 16 is a species, Article 16 gives effect to the doctrine or equality in all matters relating to public employment. The basic principle which, therefore, informs both Articles 14 and 16 is equality and inhibition against discrimination. Now, what is the content and reach of this great equalising principle? It is a founding faith, to use the words of Bose, J., "a way of life", and it must not be subjected to a narrow pedantic or lexicographic approach. We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and WP(C) 1872/13 Page 21 of 55 WP(C) 1872/13 Page 21 of 55 dimensions and it cannot be "cribbed, cabined and confined" within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it that it is unequal both according to political logic and Constitutional law and is therefore violative of Article 14, and if it affects any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment. They require that State action must be based on equivalent relevant principles applicable alike to all similarly situate and it must not be guided by any extraneous or irrelevant considerations because that would be denial of equality. Where the operative reason for State action, as distinguished from motive inducing from the antechamber of the mind, is not legitimate and relevant but is extraneous and outside the area of permissible considerations, it would amount to mala fide exercise of power and that is hit by Articles 14 and 16. Mala fide exercise of power and arbitrariness are different lethal radiations emanating