LexSHASHIKANT LAXMAN KALE AND ANR. versus UNION OF INDIA AND ANR.
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SHASHIKANT LAXMAN KALE AND ANR. v. UNION OF INDIA AND ANR. JULY 20, 1990 [M.N. VENKATACHALIAH, N.D. OJHA AND J.S. VERMA, JJ.] Income Tax Act, 1961: Chapter Ill-Section 10.-Clause (10-C) -Scope and Constitutional validity of-Public Sector Companies- Employees-Voluntary Retirement-"Golden hand-shake'' to emplo- yees-Exemption from income-tax-Held clause ( 10-C) does not include employees of a private sector company. Constitution of India, 1950: Article 14 Public Sector Com- panies-Employees-Amount received at the time of voluntary retire- ment-Exemption from tax under clause ( 10-C) of Section JO of Income Tax Act, J96~Exclusion of non-public sector employees from clause ( 10-C) and consequent denial of benefit of tax exemption-Held public sector employees constitute a distinct class-Clause ( 10-C) is neither arbitrary nor violative of Article J~Object of cluase ( 10-C) explained. Taxing Statute-Constitutional validity of-Reasonableness of classification-Determination of-Scope for classification in a taxing statute is greater-Court should look beyond obstensible classification into purpose of law and apply the test of "palpable arbitrariness" Statutory interpretation-Statute-Determination of object and purpose-Permissible Aid-Statement of objects and reasons of the Bill-Whether can be looked into. ) Finance Bill-Explanatory Memorandum-Heading-Neither determinative a/object nor can camouflage the object of the Act. By Finance Act, 1987, clause (10-C) was inserted in section IO of A B c D E F the Income-Tax Act, 1961. The effect of Ibis clause was to grant tax G exemption to employees of the public sector in respect of the amount received under the voluntary retirement scheme approved by the Cent- ral Government. The petitioners-an employee of a private sector company and the trade-union of the said private company-filed a writ petition in this H 441 442 SUPREME COURT REPORTS [ 1990] 3 S.C.R. court challenging the validity of clause ( 10-C) contending; (i) the denial A of benefit of tax exemption to employees of private sector company being arbitrary and discriminatory, the impugned clause was uncon- stitutional as violative of Article 14: (ii) the heading 'Welfare-Measures' to the Memorandum explaining the provisions in the Finance Bill 1987 proposing insertion of clause (10-C) in section IO of the Income-Tax B Act, 1961 was decisive of the object of its enactment; the tax benefit being in the nature of welfare measure the Impugned clause must be so construed as to apply to all employees equally, whether of the public sector or private sector in order to uphold its validity. c Dismissing the petition, this Court, HELD: There is a distinction between the public and private sectors. The Government or the public sector undertakings are as a distinct class separate from those in the private sector and the fact that the profit earned in the former is for public benefit instead of private benefit, provides an intelligible differentia from the social point of view D which is of prime importance for the national economy. Thus, there exists an intelligible diffcrentia between the two categories which bas a rational nexus with the main object of promoting the national economic policy or the public policy. This element also appears in the impugned enactment itself wherein 'economic viability of such company' is specified as the most relevant circumstance for grant of approval of the E scheme by the Central Government. This instrinsic element in the pro- vision itself supports the view that the main object thereof is to promote and improve the health of the public sector companies even though its effect .is a benefit of its employees. The economic status of employees of a public sector company who get the benefit of the provision is also lower as compared to their counterpart in the private sector. Viewed in this F perspective, the very foundation of the challenge to the impugned provi- sion on the basis of economic equality of employees in both sectors is non-existent. Once the stage is reached where the differentiation is rightly made between a public sector company and a private sector company and that too essentially on the ground of economic viability of the public sector company and other relevant circumstances, the argu- G ment based on equality does not survive. This is independent of the disparity in the compensation package of employees in the priva
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