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PETITIONER: DELHI CLOTH AND GENERAL MILLS LTD.

       Vs.

RESPONDENT: S. PARAMJIT SINGH AND ANOTHER

DATE OF JUDGMENT09/10/1990

BENCH: THOMMEN, T.K. (J) BENCH: THOMMEN, T.K. (J) RANGNATHAN, S. SAWANT, P.B.

CITATION:  1990 AIR 2286            1990 SCR  Supl. (2) 218  1990 SCC  (4) 723        JT 1990 (4)   110  1990 SCALE  (2)774

ACT:     Constitution of India, 1950: Article 14---Classification of  tenants on basis of annual income--Validity  of--Section 1(3)(iii),  Jammu and Kashmir Houses and Shops Rent  Control Act, 1966--Validity of.     Jammu  and  Kashmir Houses and Shops Rent  Control  Act, 1966: Section 1(3)(iii)--Protection to tenants on the  basis of annual net income of tenant--Whether permissible--Classi- fication--Whether    violative    of    Article    14     of Constitution--Income--Concept of--Net income --Meaning of. Words & Phrases--Words ’income’ and ’net income’ meaning of.

HEADNOTE:     The appellant, a tenant, claimed protection of the Jammu and  Kashmir  Houses and Shops Rent Control Act,  1966.  The courts below disallowed the claim, on the ground that clause (iii) of sub-section (3) of Section 1, read with the  Expla- nation was attracted in respect of the appellant.     The appellant challenged the validity of clause (iii) of sub-section (3) of Section 1 of the Jammu and Kashmir Houses and  Shops Rent Control Act, 1966 before the High  Court  on the ground that it violated Article 14 of the  Constitution. The High Court, following its earlier decision in the J & K Bank Lid. v. State of J & K & Another, AIR1987 J & K 18 upheld validity of the clause.     In  the appeal before this Court,  the  appellant-tenant contended  (i) that the clause was discriminatory and  arbi- trary,  because  it drew an artificial  distinction  between tenants  on the basis of their income, in that  while  those tenants  earning net income below Rs.40,000 per  annum  were protected  by  the beneficial provisions of the  Act,  those with  annual net income in excess of the statutory limit  of Rs.40,000 were unreasonably and unfairly denied the  protec- tion  and this statutory discrimination placed them  at  the mercy  of  the  landlords, who could easily  evict  them  by recourse  to  the  far less restrictive  provisions  of  the Transfer of 219 Property  Act, 1882 and on the strength of their  agreements of lease, (ii) that the clause did not take into account the

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nature of the building, or the need and income of the  land- lord or any other factor and withheld or extended protection solely on the financial capacity of the tenant, which  could vary  from  year to year, depending upon the nature  of  his business  and  other factors, thus exposing  the  tenant  to eviction  when the business was prosperous,  but  protecting him  when the business declined and income fell, (iii)  that "income" was not a clear and precise concept; limiting it to net  income  did not make it clearer, and the  Act  did  not indicate  the  permissible deductions for  arriving  at  the "net"  and (iv) that the Section was invalid because it  was too  broad  or vague and any classification  based  on  such vague differentia was unintelligible and, therefore,  viola- tive  of  Article 14; and in any  view,  the  classification sought to be made between persons falling on either side  of the  specified  income  had no reasonable  relation  to  the object sought to be achieved by the statute.     Dismissing the above appeal, and another similar  appeal (Civil Appeal No. 1370 of 1987), this Court,     HELD: 1.1 The object of the Jammu and Kashmir Houses and Shops  Rent Control Act, 1966 is undoubtedly to protect  the weaker  section  of tenants from unreasonable  eviction  and unfair  rent.  At  the same time, the  legislature  did  not desire  to discourage persons from  constructing  buildings. Thus,  while  protection is afforded to  deserving  tenants, construction  of  new buildings is encouraged  by  exempting buildings  occupied  by richer classes of tenants  from  the provisions  of the Act. While a building is covered  by  the Act  when  occupied by a tenant whose annual net  income  is less  than the specified amount, the protection is  withheld when the same building is occupied by a richer tenant  whose annual net income is higher than the specified amount. Where a building is occupied by more than one tenant, the applica- bility of the Act to each of them would depend upon his  net income.  It  is the tenant that the legislature  intends  to protect  and  not  the landlord or his  building.  The  test adopted  by the legislature for this purpose is with  refer- ence to the tenant’s net income, whether accruing inside  or outside the State, as on the date of the landlord’s applica- tion  for eviction as well as on the date of the decree  for eviction. [224B-E]     1.2  The  legislative object is, therefore,  to  protect tenants  who are economically weaker in comparison to  those affluent  tenants  falling outside the  specified  limit  of income,  and at the same time to encourage  construction  of new buildings which will result in better availability of 220 accommodation, employment opportunity and economic prosperi- ty.  This  is  a reasonable classification  which  does  not suffer from the vice of being too vague or broad. [224E-F]     1.3 Classification based on income is well-known to law. Such  classification has a reasonable relation to  the  twin legislative object of protecting economically weaker tenants and  encouraging new constructions. There is nothing  unrea- sonable  or irrational or unworkable or vague or  unfair  or unjust in the classification adopted by Section 1(3)(iii) of the Act. [224F; 22SD]     1.4 The legislature in its wisdom is presumed to  under- stand and appreciate correctly the problems of the State and the needs of the people made manifest by experience.  Absent blatant disregard of constitutional provisions,  legislative innovation  by social and economic experimentation  must  be permitted to continue without judicial interference. [225B]     The  J  & K Bank Ltd. v. State of J & K &  Another,  AIR 1987 J & K 18, approved.

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   Rattan  Arya & Others v. State of Tamil Nadu &  Another, [1986]  3  SCC 385 and Motor General Traders  &  Another  v. State of Andhra Pradesh & Others, [1984] 1 SCC 222,  distin- guished.     Kerala Hotel & Restaurant Association & Ors. v. State of Kerala & Ors., [1990] 1 JT SC 324, relied on.     Krishna Dalmia v. Shri Justice S.R. Tendolkar &  Others, [1959] SCR 279, referred to.     2.  There is no lack of clarity in the concept  of  "in- come" or net income. Income is money or other benefit  peri- odically received. It is profit or revenue and not  capital. It  is  a gain derived from capital or labour or  both.  Net income  is  income  obtained after  deducting  all  expenses incurred for the purpose of earning the income. It is income minus operating expenses. The concept of net income is  what it  is ordinarily understood to be in common  parlance,  and not necessarily limited by the technicalities of any  fiscal enactment. [224G-H] Banarasi  Das  v. Jagdish Raj Kohli, AIR 1960 J & K  5.  re- ferred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4043 and 1370 of 1987. 221     From  the  Judgment  and  Order  dated  20.11.1987   and 4.3.1987  of  the Jammu & Kashmir High Court in  L.P.A.  No. 20/1987 and in Suit No. 235/86.     K. Parasaran, Ms. S. Janani and Ms. Urmila Kapur for the Appellant in C.A. No. 4043/87.     P.  Chidambaram, P.H. Parekh and Ms. Gitanjali  Mathrani for the Appellants in C.A. No. 1370/87.     M.  Beg, E.C. Agarwala, Atul Sharma, Vijay  Pandita  and Ms. Purnima for the Respondents in C.A. No. 4043/87.     E.C.  Agarwala  and Atul Sharma for the  Respondents  in C.A. No. 1370/87.     Ashok  Mathur  for the State of Jammu  and  Kashmir  and Advocate General. The Judgment of the Court was delivered by THOMMEN, J. Civil Appeal No. 4043 of 1987.     The  question which arises in this appeal is as  regards the validity of clause (iii) of sub-section (3) of Section 1 of  the Jammu & Kashmir Houses and Shops Rent  Control  Act, 1966  (hereinafter referred to as "the Act"). The  challenge against the clause on the ground of its alleged violation of Article  14  of the Constitution was rejected  by  the  High Court  of  Jammu & Kashmir. The High  Court,  following  its earlier decision in The J & K Bank Ltd. v. State of J & K  & Another,  AIR  1987  J & K 18, upheld the  validity  of  the clause. The  impugned provision, as it stood at the  relevant  time, reads: "1(3) Notwithstanding anything contained in sub-section (2), nothing in this Act shall apply to--- (ii) Omitted (iii) any tenancy in respect of any house. or shop where the income of the tenant, whether accruing within or outside 222 the State, exceeds rupees 40,000 per annum; Explanation: the word ’income’ means ’net income.’"     The  appellant, the Delhi Cloth & General Mills  Limited is the tenant of the building in question. Its claim for the protection of the Act was disallowed by the courts below  on

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the  ground that clause (iii) of sub-section (3) of  Section 1,  read with the Explanation, was attracted in  respect  of the appellant.     According  to  the  appellant, the  impugned  clause  is discriminatory and arbitrary because it draws an  artificial distinction  between tenants on the basis of  their  income. Those  tenants earning net income below Rs.40,000 per  annum are  fortunate  enough  to be protected  by  the  beneficial provisions  of  the Act, while a person like  the  appellant whose  annual  net income is undoubtedly in  excess  of  the statutory  limit of Rs.40,000, is unreasonably and  unfairly denied the protection of the Act. This statutory discrimina- tion, it is contended, places persons like the appellant  at the  mercy  of the landlords who can easily  evict  them  by recourse  to  the  far less restrictive  provisions  of  the Transfer of Property Act, 1882 and on the strength of  their agreements of lease.     Counsel  for  the appellant submits  that  the  impugned clause  does not take into account the nature of the  build- ing,  but only the income of the tenant. The income  of  the landlord himself is irrelevant. The protection of the Act is withheld  or  extended, dependent solely  on  the  financial capacity of the tenant and without regard to the need of the landlord  or the age or other conditions of the building  or any  other factor. Treating tenants differently with  refer- ence to their annual income is not an intelligible classifi- cation,  for  the income of a tenant may vary from  year  to year,  depending upon the nature of his business  and  other factors. This variation in income may expose him to eviction in  a  particular year when the business is  prosperous  but protects  him from eviction when the business  declines  and income  falls. Furthermore, counsel says. "income" is not  a clear  and precise concept. Limiting it to net  income  does not make it clearer. What are the permissible deductions  to arrive  at the "net", the Act does not say. The  Section  is invalid because it is too broad or vague. Any classification based  on  such  vague differentia  is  unintelligible  and, therefore,  violative  of Article 14. In any  view,  counsel submits,  the classification sought to be made between  per- sons falling on either side of the 223 specified  income has no reasonable relation to  the  object sought to be achieved by the statute. Counsel relies on  the observation  of this Court in Rattan Arya & Others v.  State of Tamil Nadu & Another, [1986] 3 SCC 385 declaring  Section 30(ii) of the Tamil Nadu Buildings (Lease and Rent  Control) Act, 1960 as unconstitutional. Counsel also relies upon  the decision of this Court in Motor General Traders & Another v. State of Andhra Pradesh & Others, [1984] 1 SCC 222 declaring Section  32(b) of the A.P. Buildings (Lease, Rent and  Evic- tion) Control Act, 1960 as unconstitutional.     These  decisions, in our view, are easily  distinguisha- ble.  In Rattan Arya (supra) this Court stated that  a  dis- tinction  between residential buildings leased on  rent  not exceeding Rs.400 per month and all other  buildings--whether residential or non-residential--was an unreasonable  classi- fication. There was no reason why non-residential  buildings leased on rent of Rs.400 per month or less should be treated differently  from residential buildings of like rent or  why in  the case of residential buildings the limit should  have been limited to Rs.400 per month. To so restrict the protec- tion  of the Act was an unreasonable classification. In  the Motor  General  Traders (supra), this Court stated  that  to arbitrarily prescribe a cut off date, i.e., August 26, 1957, for denying the protection of the Act, without regard to the

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age  of the building or to the extent of realisation of  the investment by the owner was an unreasonable  classification. These decisions do not, in our view, support the contentions of the appellant.     On  the other hand, a classification with  reference  to economic realities was upheld by this Court in Kerala  Hotel &  Restaurant Association & Ors. v. State of Kerala &  Ors., [1990] 1 JT SC 324. This Court stated "those who can  afford the  costlier cooked food, being more affluent,  would  find the burden lighter. This object cannot be faulted on princi- ple  and  is, indeed, laudable". Though that  principle  was stated  in  a different context,  significantly  this  Court accepted a classification based on financial capacity.     The classic and oft-repeated test to be applied when the constitutionality  of legislation is questioned with  refer- ence to Article 14 of the Constitution is what is stated  by this  Court in Shri Ram Krishna Dalmia v. Shri Justice  S.R. Tendolkar & Others, [1979] SCR 279. S.R. Das, CJ. stated: "In order, however, to pass the test of permissible  classi- fication two conditions must be fulfilled, namely, (i)  that the 224 classification must be rounded on an intelligible  differen- tia  which distinguishes persons or things that are  grouped together  from others left out of the group and,  (ii)  that the differentia must have a rational relation to the  object sought to be achieved by the statute in question."     The  object of the enactment in question is  undoubtedly to protect the weaker section of tenants from.  unreasonable eviction and unfair rent. The legislature, at the same time, did  not  desire  to discourage  persons  from  constructing buildings. The twin legislative object is the protection  of economically  weaker tenants and encouragement of  construc- tion  of  buildings. While protection is  thus  afforded  to deserving tenants, construction of new buildings is  encour- aged  by exempting buildings occupied by richer  classes  of tenants from the provisions of the Act. While a building  is covered  by the Act when occupied by a tenant  whose  annual net income is less than the specified amount, the protection is  withheld when the same building is occupied by a  richer tenant whose annual net income is higher than the  specified amount.  Where a building is occupied by more than one  ten- ant,  the  applicability of the Act to each  of  them  would depend upon his net income. It is the tenant that the legis- lature intends to protect and not the landlord or his build- ing. The test adopted by the legislature for this purpose is with reference to the tenant’s net income, whether  accruing inside  or  outside the State, as on the date of  the  land- lord’s  application for eviction as well as on the  date  of the  decree for eviction. The legislative object is,  there- fore,  to  protect tenants who are  economically  weaker  in comparison  to  those affluent tenants falling  outside  the specified limit of income, and at the same time to encourage construction  of new buildings which will result  in  better availability  of accommodation, employment  opportunity  and economic  prosperity.  This is a  reasonable  classification which  does not suffer from the vice of being too  vague  or broad. Classification based on income is well-known to  law. Such  classification has a reasonable relation to  the  twin legislative object mentioned above. We see nothing unreason- able  or  irrational  or unworkable or vague  or  unfair  or unjust in the classification adopted by the impugned  provi- sion.     Nor is there lack of clarity in the concept of  "income" or  "net income". Income is money or other benefit  periodi-

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cally received. It is profit or revenue and not capital.  It is a gain derived from capital or labour or both. Net income is income obtained after deducting all expenses incurred for the purpose of earning the income. It is income minus  oper- ating expenses. The concept of net income is what it is 225 ordinarily  understood  to be in common  parlance,  and  not necessarily  limited  by the technicalities  of  any  fiscal enactment.  See  in this connection the observation  of  the Jammu  & Kashmir High Court in Banarasi Das v.  Jagdish  Raj Kohli, AIR 1960 J & K 5.     The legislature in its wisdom is presumed to  understand and  appreciate correctly the problems of the State and  the needs  of  the people made manifest  by  experience.  Absent blatant, disregard of constitutional provisions, legislative innovation  by social and economic experimentation  must  be permitted to continue without judicial interference.     The High Court, as stated earlier, followed its  earlier decision  on  the construction of the Section in The J  &  K Bank Ltd. v. State of J & K & Another, AIR 1987 J & K 18. In that  case,  speaking  for the Division  Bench,  Anand,  CJ. stated as follows: "In  our opinion, the challenge to vires of S. 1(3)(iii)  of the Act is not well founded. Undoubtedly, the Act is a piece of social and beneficial legislation. The Legislature  knows and  correctly appreciates the needs of its people.  In  its supreme  wisdom it denied the protection of the Act to  ten- ants whose annual income exceeds Rs.40,000. Social  legisla- tion  of this type is designed to protect the interest of  a class of society who, because of their economic  conditions, deserves  such protection against their arbitrary  eviction. The  legislation  is intended to protect weaker  and  poorer classes of the tenants and there is, therefore, an  intelli- gible differentia between the tenants whose annual income is Rs.40,000  and  those  whose  annual  income  is  more  than Rs.40,000.  In construing Art. 14, the aid whereof has  been pressed  into service by the learned counsel, the  Court  is not  required  to adopt a doctrinaire approach  which  would choke the beneficial legislation. It is open to the legisla- ture  to recognise the degree of harm and while doing so  it can  always make reasonable classification. Article 14  for- bids  class  legislation but no  reasonable  classification. With  a view to pass the test of reasonable  classification, there must exist intelligible differentia between persons or things  grouped together from those who have been  left  out and  there must be a reasonable nexus with the object to  be achieved  by  the legislation. Keeping in  view  the  object which  the  legislation seeks to achieve, it can  be  safely said that there is reason- 226 able  nexus between the classification made by the  legisla- ture  in  the impugned section and the object sought  to  be achieved. We also find that there is an intelligible differ- entia between the tenants who are sought to be protected  by the Act from those who are denied the protection of the Act. We  are in complete agreement with what has been  stated  by the learned Chief Justice.     Accordingly,  we  see  no merit in this  appeal.  It  is dismissed with costs here and in the courts below. Civil Appeal No. 1370 of 1987.     This  appeal is brought by a nationalised bank. In  view of  our judgment in Civil Appeal No. 4043 of 1987,’ we  dis- miss this appeal with costs here and in the High Court. N.P.V.                                        Appeals   dis-

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missed. 227