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PETITIONER: HARI KRISHNA BHARGAV

       Vs.

RESPONDENT: UNION OF INDIA AND ANOTHER

DATE OF JUDGMENT: 06/10/1965

BENCH: SHAH, J.C. BENCH: SHAH, J.C. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. HIDAYATULLAH, M. SIKRI, S.M.

CITATION:  1966 AIR  619            1966 SCR  (2)  22  CITATOR INFO :  F          1975 SC2016  (14)  RF         1989 SC 576  (25)  R          1990 SC1637  (38)

ACT: Indian Income-tax Act, (Act 43 of 1961) Ch.   XXII-A-Annuity Deposits-Competence  of  Parliament-Constitution  of  India, Art. 14.

HEADNOTE: By  incorporating Ch.  XXII-A in the Indian Income-tax  Act, 1961  an  annuity deposit scheme  was  introduced  requiring certain  classes  of taxpayers in the high income  group  to make  deposits  at  specified rates on  the  adjusted  total income with the Central Government.  The amount deposited is made  retumable with interest in annual instalments and  the instalment is taxable in the year of refund.  The  tax-payer has the option not to make the deposit, but in that case  he has to pay tax on his total income and fifty per cent of the amount saved by not making the deposit.  A tax payer who  is more  than seventy years of age, is exempt from  payment  of this additional tax.  The petitioner challenged the validity of  the annuity deposit scheme on the grounds that, (i)  the Parliament  was not competent to incorporate in the  Income- tax Act, a provision which was substantially one related  to borrowings  by  the Central Government from a class  of  tax payers  (ii)  enactment  of Ch.   XXII-A  was  a  colourable exercise  of legislative power, and the  provisions  thereof were   so   harsh   and  unconscionable   that   they   wore expropriatory   and   hence  not  within   the   legislative competence  of the Parliament; and (iii) s. 280 and Sch.  11 were   discriminatory   and  infringed  Art.   14   of   the Constitution. HELD: (Per Full Court).  The petition must be dismissed. (Per Gajendragadkar, C. J., Wanchoo, Shah and Sikri, JJ.)  : (i)  The  Parliament has by Art. 246 read with entry  82  in List  I  of the Seventh Schedule power to  levy  "tax-es  on income other than agricultural income".  The Indian  Income- tax Act, 1961 and the provisions of the annual Finance  Acts

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of  Parliament  which authorise levy of  income-tax  at  the rates prescribed thereby are undoubtedly enacted in exercise of the powers conferred by entry 82 in List I. Granting that the  scheme  of Ch.  XXII-A is for borrowing  money  by  the Central Government from the tax payers in the higher  income group which is repayable in instalments, power to  legislate in that behalf is still within the competence of  Parliament by virtue of Entry 97 of List I of the Seventh Schedule.  If Parliament has the power to legislate for collecting annuity deposits   from  tax  payers,  there  is  nothing   in   the Constitution  which disentitles Parliament,- as a matter  of legislative  arrangement,  to  incorporate  the   provisions relating to borrowing from tax-payers in the Income-tax  Act or  any  other statute.  There is  no  probibition  -against Parliament enacting in a single statute, matters which  call for the exercise of power under two or more entries in  List I of the Seventh Schedule. [27 B-F] (ii)In exercising power to legislate for collecting  annuity deposits,,  Parliament  has  not sought  to  resort  to  any pretence,   disguise  or  subterfuge  with  the  object   of trespassing upon power not vested in it by the Constitution. The doctrine of colourable legislation therefore can have no                              23 application where Parliament is invested with the  authority to legislate in respect of annuity deposit and it  exercises that power. [29 C-D] A taxing statute is subject to Art. 13 of the  Constitution; it  is therefore open to challenge on the ground that it  is expropriatory or that the statute prescribed no procedure or machinery for assessing tax, but it is not open to challenge merely on the ground that the tax is harsh or excessive. [29 G] Kunnathat  Thathunni Moopil Nair v. State of Kerala &  Anr., [1961] 3 S.C.R. 77, followed. K.   C.  Gajapati  Narayan Deo & Ors. v.  State  of  Orissa, [1954] S.C.R. 1, referred to. (iii)The  exemption of persons who have attained the age  of seventy years from liability to pay additional tax cannot be said  to be discriminatory against tax-payers below the  age of  seventy  years  who  have  exercised  the  option.   The classification  is  prima  facie reasonable,  and  there  is nothing to show that it had no rational nexus to the  object sought to be achieved by Parliament. [31 D] Per Hidayatullah, J.-(i) The provisions relating to  annuity deposit come under Entry 82 of List I dealing with taxes  on income.   The  annuity deposit is an alternative  to  paying income-tax  and  is a means of reduction in  the  amount  of income-tax.  The money collected is returnable with interest in equal instalments spread over ten years and the amount is taxable  in the year of refund.  It is not borrowing  within the  meaning  of Art 292 of the Constitution  for  borrowing under   this  Article  is  an  executive  action   and   not legislative  power except in so far as to fix the limits  of borrowing  and  of  giving guarantees  within  such  limits. Entry  97  conferring residuary powers can only  be  invoked when there is no other entry in any of the three Lists under which the impugned legislation could come [33 B-E]. (ii)The    provisions    are    neither    colourable    nor discriminatory.   They are not colourable,  because,  though called annuity deposits, they only defer payment of tax on a part of assessable income. [33 E-F]

JUDGMENT:

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ORIGINAL   JURISDICTION : Writ Petition No. 17 of 1965. Petition under Art. 32 of the Constitution of India for  the enforcement of Fundamental Rights. N.   D.  Karkhanis, E. C. Agarwala and P. C.  Agarwala,  for the petitioner. C.   K. Daphtary, Attorney-General, S. V. Gupte,  Solicitor- General, R. Ganapathy Iyer and R. H. Dhebar, for the respon- dent. The  Judgment  of  GAJENDRAGADKAR C.J.,  WANCHOO,  SHAH  and SIKRI, JJ. was delivered by SHAH J. HIDAYATULLAH J. delivered a Separate Opinion. Shah,  J.  The  petitioner. who is a trader  at  Meerut  was ordered  by the Income-tax Officer, D-Ward, Meerut,  to  pay Rs.  1,800/-  as annuity deposit under Ch.   XXII-A  of  the Income-tax  Act,  1961.   The  petitioner  has  filed   this petition challenging the validity of the demand on the  plea that Ch.  XXII-A of the 24 Income-tax   Act  is  unconstitutional  and   is   otherwise violative of the fundamental right guaranteed by Art. 14  of the Constitution. The  Indian  Income-tax Act 43 of 1961 was  enacted  by  the Parliament  to  consolidate and amend the  law  relating  to income-tax and super-tax.  The Act came into force on  April 1,  1962.  The Parliament enacted Finance Act 5 of  1964  to give  effect  to  the financial  proposals  of  the  Central Government for the financial year 1964-65, and by S. 3 ( 1 ) of that Act it was provided :               "Save as otherwise provided in Chapter  XXII-A               of the Income-tax Act, annuity deposit for the               assessment  year commencing on the 1st day  of               April,  1964 shall be made by every person  to               whom  the provisions of that Chapter apply  at               the rates specified in the Second Schedule." By s. 44 of the Finance Act, Ch.  XXII-A relating to annuity deposits  containing ss.280-A to 280-X was  introduced  into the  Income-tax Act.  By that chapter taxpayers  of  certain categories  are required to make annuity deposits for  every assessment year commencing from the assessment year 1964-65. By the Second Schedule to the Finance Act, rates of  annuity deposits are prescribed.  The deposit has to be made by  the specified  categories  of taxpayers, having a  total  income exceeding  Rs. 15,000 at the prescribed  percentages  rising from  5  to  12 1/2 on the adjusted total  income.   By  the Explanation  to the Second Schedule, the  expression  "total income"  under the Schedule means the total income  computed in the manner laid down in the Income-tax Act without making any allowance under s. 280-0 of that Act.  A taxpayer who is a resident and falls within any of the following  categories is liable to make the annuity deposit (i)  an individual, who is a citizen of India, (ii) a Hindu undivided family, (iii)     an unregistered firm, (iv) an  association  of persons or a body  of  individuals, whether  incorporated  or  not (other than a  company  or  a cooperative society), and (v)  an  artificial  juridical person referred  to  in  sub- clause  (vii)  of  cl. (31) of S. 2 of  the  Income-tax  Act (other than a corporation established by a Central, State or Provincial Act).                              25 All non-residents and all companies and corporations and co- operative  societies  established  by  Central;  State’   or Provincial, Acts are accordingly exempted from the operation of  the  annuity  deposits scheme.  But a  taxpayer  who  is

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required  by  s.  280-A,  to make  an  annuity  deposit  may exercise  his option not to make it, by a notice in  writing to  the  Income-tax Officer before the 30th of June  of  the assessment year.  The option once exercised’ is irrevocable, and  operates  in  respect of the assessment  year  and  all subsequent years.  The taxpayer who exercises the option has to  pay beside the income-tax payable on his  total  income, additional  income-tax which is equal to half of the  amount which he saves by not making the deposit.  But an individual who  on the last day of the relevant previous year  is  more than  seventy  years of age is exempt from payment  of  this additional Income-tax.  Section 280B defines, amongst  other expressions, "adjusted total income," a percentage of  which is by the Second Schedule liable to be deposited as  annuity deposit.   Annuity deposit has to be made in advance on  the adjusted  total income of the previous year, at the rate  or rates prescribed by any Central Act.  Authors,  playwrights, artists, musicians and actors are permitted to make at their option, deposit up to 25%  of the amount derived from  their profession,  in  addition  to  the  amount  which  they  are required  to  make.  A person receiving  gratuity  from  his employer in excess of the amount exempt from income-tax  has the option of making an annuity deposit not exceeding 50% of the amount of gratuity chargeable to income-tax, in addition to  the amount he is-required to make.  The annuity  deposit is repayable in ten annual equated instalments of  principal and interest at such rates as may be prescribed.  The amount of  annuity  deposit payable by a taxpayer in  any  year  is admissible  as  a deduction in computing  his  total  income charged to tax for that year.  If the adjusted total  income of  an  assessee includes income  chargeable  to  income-tax under  the  head  "salaries", allowance has to  be  made  in computing  the  income under that head, and if there  be  no income under that head or the annuity deposit required to be made exceeds the salary income, the whole of the balance  of the annuity deposit is allowable as a deduction in computing the  total earned income.  The instalment of annuity due  on any  annuity deposit is chargeable to income-tax  as  earned income of the taxpayer in the year in which it becomes  due. The  Income-tax Officer on or after the 1st day of April  in the  financial  year, may by order in writing,  require  the depositor  who  has  been previously  assessed  to  make  an advance deposit computed in accordance with 26 S.   280-E.   The Income-tax Officer is also  authorised  to issue a demand notice and also to modify, if necessary,  the notice of demand after regular assessment has been made.   A depositor  may make his own estimate of his  adjusted  total income before the last instalment is due, that his  adjusted total  income for the previous year is less than the  income in respect of which. he is required to make the deposit.   A taxpayer  who  fails to pay the annuity deposit by  the  due date is exposed to a penalty which may amount to as much  as 50%  of the deposit required to be made by him.  A  taxpayer who  receives  income of. the nature  of  commission,  which forms  part of his adjusted total income, may  defer  making advance deposit, when commission is receivable  periodically and  is  not  received  or adjusted  by  the  payer  in  the depositor’s  account.  A person who has not been  previously assessed to income-tax is liable to pay penalty if he  fails to make an advance deposit on his own estimate.  The Income- tax Officer is entitled to determine annuity deposit on  the basis of provisional assessment or regular assessment and he is entitled to recompute the annuity deposit, when the total income of the assessee is enhanced or reduced, or the status

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under  which  he  is  assessed  is  altered,  or  when   the registration  of  a firm is cancelled.  Arrears  of  annuity deposit  and penalty are recoverable in the manner  provided in  Ch.   XXII-D of the Income-tax Act for the  recovery  of income-tax. Broadly  stated, the scheme of Ch.  XXII-A is  that  certain classes  of  taxpayers in the  comparatively  higher  income groups  are  required  to make out  of  their  total  income deposits  at  the  specified rates  on  the  adjusted  total income,   with  the  Central  Government.   The  amount   so deposited  is  made returnable with interest in  ten  annual instalments.   In computing the total income of the year  in which  it  is made the deposit is an  admissible  deduction. But the instalment due in any year is liable to be  adjusted in  the  total income of the year in which it is  due.   The taxpayer however has the option not to pay the deposit,  and pay tax on his total income and fifty per cent of the amount saved by not making the deposit. The  petitioner submits that the scheme of  annuity  deposit incorporated  in  Ch.   XXII-A is invalid  because  (a)  the Parliament  had no competence to incorporate in  the  Indian Income-tax  Act,  a provision which  was  substantially  one relating  to  borrowings by the Central  Government  from  a class  of  taxpayers; (b) the provisions  contained  in  Ch. XXII-A  are  enacted in colourable exercise  of  legislative power, and that in any event                              27 they  are  so  harsh and unconscionable  that  they  may  be regarded as expropriatory and on that account not within the legislative  competence  of  the  Parliament  and  (c)   the provisions  of  s. 280 and Sch.  II are  discriminatory  and infringe  the fundamental freedom under Art. 14 of  equality before the law. In our view there is no substance in any of the contentions. The Parliament has by Art. 246 read with Entry 82 in List  I of the Seventh Schedule power to levy "taxes on income other than agricultural income".  The Indian Income-tax Act,  1961 and  the  provisions  of  the annual  Finance  Acts  of  the Parliament  which authorise levy of income-tax at the  rates prescribed  thereby are undoubtedly enacted in  exercise  of the  powers conferred by Entry 82 in List I.  Granting  that the  scheme  of Ch.  XXII-A is for borrowing  money  by  the Central  Government from the taxpayers in the higher  income group  at  the  rates  prescribed,  which  is  repayable  in instalments,  power  to legislate in that  behalf  is  still within  the competence of the Parliament by virtue of  Entry 97  of  List  I of the Seventh Schedule.   Counsel  for  the petitioner  does not contend that power to  collect  annuity deposit  is outside the Parliament’s competence : he  merely urges   that  the  Parliament  could  not  incorporate   the provisions  relatable  to  the  exercise  of  the  power  of borrowing exercisable under Entry 97 in a legislation  which was  exclusively  enacted in exercise of  the  powers  under Entry 82.  But if the Parliament has the power to  legislate for  collecting  annuity deposits from taxpayers,  there  is nothing in the Constitution which disentitles the Parliament as  a matter of legislative arrangement to  incorporate  the provisions  relating  to  borrowing from  taxpayers  in  the Income-tax   Act  or  any  other  statute.   There   is   no prohibition against the Parliament enacting in a single sta- tute, matters which call for the exercise of power under two or  more  entries  in  List  I  of  the  Seventh   Schedule. Illustrations  of  such legislation are not wanting  in  our statute  book, and the fact that one of such entries is  the residuary  entry does not Also attract any disability.   The

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question is one of convenience and not of power.  It appears that the Parliament thought, that the provisions relating to annuity deposits could appropriately be incorporated in  the Indian  Income-tax Act, 1961.  The Parliament did enact  the Compulsory Deposit Scheme Act, 1963, as a separate  statute, but  that does not mean that it had no power to  incorporate it within the Income-tax Act, if the Parliament so  desired. The   Income-tax  Act,  1961,  is  a  longish  statute   and incorporation  of  other  provisions  therein  may  make  it somewhat  unwieldy.   But it must be said that  the  Chapter relating to the annuity deposit scheme is closely related to the scheme of levy of income-tax.  LI Sup.  C.I./66-3 28 The  power of assessment, and collection of annuity  deposit is  entrusted to Income-tax Officers, and the  machinery  of the  Income-tax  Act  is utilised  for  that  purpose.   The annuity deposit is based on the total income of the taxpayer :  if  the  taxpayer  pays the deposit  he  is  entitled  to deduction  of the amount in the computation of  income  tax, and if he exercises the option not to pay the deposit, he is rendered  liable to Day additional income-tax.  The  annuity deposit  and  the penalty payable for failure  to  make  the deposit  without exercising the option are made  recoverable in  the manner provided by Ch.  XVII-D for the  recovery  of arrears  of  income-tax.  If the Annuity  Deposit  Act  were enacted  as  a separate Act,  several  provisions  requiring references  to  the Income-tax Act and conferment  of  power upon  the authorities constituted under the  Income-tax  Act would  have had to be duplicated.  To avoid  repetition  and cross  references the Legislature has thought it  proper  to enact  within  the Indian Income-tax  Act  those  provisions relating  to  annuity deposits and has  conferred  upon  the Income-tax  Officer  power  to assess  and  collect  annuity deposits,  and exercise of that power may not be caviled  at even by a purist in draftsmanship. The argument that Ch.  XXII-A is - a colourable exercise  of legislative power has no substance.  As pointed out by  this Court in K. C. Gajapati Narayan Deo and others v. The  State of Orissa               " .. ..the doctrine of colourable  legislation               does  not involve any question of  bona  fides               and mala fides on the part of the legislature.               " statute is constitutional or not is question               of power...... if the Constitution of a  State               distributes  the  legislative  powers  amongst               different  bodies,  which have to  act  within               their   respective  spheres  marked   out   by               specific legislative entries, or if there  are               limitations  on the legislative  authority  in               the shape of fundamental rights, questions  do               arise  as  to  whether the  legislature  in  a               particular case has or has not, in respect  of               the  subject-matter of the statute or  in  the               method of enacting it, transgressed the limits               of    its   constitutional    powers.     Such               transgression  may  be  patent,  manifest   or               direct,  but it may also be disguised,  covert               and  indirect, and it is to this latter  class               of  cases  that  the  expression   "colourable               legislation"  has  been  applied  in   certain               judicial pronouncements.  The idea conveyed               (1)   [1954] S.C.R. 1.               29               by the expression is that although  apparently

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             a  legislature in passing a statute  purported               to act within the limits of its powers, yet in               substance and in reality it transgressed these               powers, the transgression being veiled by what               appears,  on  proper examination, to  be  mere               presence or disguise." It  is  not  suggested  that  the  power  to  legislate  for collection  and repayment of annuity deposits is within  the power  of the States under List II of the Seventh  Schedule. If  the  Parliament has the power to enact  legislation  for levying,  assessing and collecting annuity deposits and  for repayment   in   annual  instalments,   by   enacting   that legislation  the  Parliament does not trespass  upon  powers outside  its domain.  In exercising power to  legislate  for collecting  annuity deposits, the Parliament has not  sought to  resort to any presence, disguise or subterfuge with  the object  of  trespassing upon power not vested in it  by  the Constitution.    The  doctrine  of  colourable   legislation therefore  can have no application where the  Parliament  is invested  with  the  authority to legislate  in  respect  of annuity deposit and it exercises that power. It  was  urged that even if the exercise of  the  powers  to compel  deposits  be regarded as not  unconstitutional,  its exercise  is  harsh and the demands made by  the  State  are excessive.   Exercise of the taxing power of the  State  has undoubtedly  to  be tested in the light of  the  fundamental freedoms guaranteed by Ch.  III of the Constitution.  It  is not  a  power which transcends fundamental  rights,  as  was assumed  in certain earlier decisions : Ramjilal v.  Income- tax   Officer(1);  Laxmanappa  Hanumantappa  v.   Union   of India(2);  and the view expressed by Venkatarama Ayyar,  J., in S. Anantha Krishnan v. State of Madras(3).  But it is now settled  by  decisions  of  this  Court  (e.g.)  Kunna  that Thathunni  Moopil Nair, v. The State of Kerala  and  Another (4) that a taxing statute is subject to the "conditions laid down in Art. 13 of the Constitution".  A taxing statute may. accordingly  be open to challenge on the ground that  it  is expropratary; or that the statute prescribes no procedure or machinery for assessing tax, but it is not open to challenge merely on the ground that the tax is harsh or excessive. The  argument  that the scheme of annuity deposit  makes  an unlawful discrimination between taxpayers is also devoid  of force.   Article 14 of the Constitution guarantees  equality before  the  law,  and equal protection of  the  laws.   But thereby  the power of the Legislature to make  a  reasonable classification of persons, objects (1)  [1951] S.C.R. 127. (2)  [1955] 1 S.C.R. 769. (3)  I.L.R. [1952] Mad. 933. (4)  [1961] 3 S.C.R. 77. 30 or  transactions  for attaining certain  objectives  is  not excluded.   If  a classification is based on some  real  and substantial  distinction,  bearing  a  just  and  reasonable relation to the objects sought to be achieved, it is  valid. It  is  true that an assessee whose total  income  does  not exceed  Rs.  15,000/-  is  not liable  to  pay  any  annuity deposit, and the demand for annuity deposit, unlike  income- tax is based on a progressively increasing percentage of the adjusted  total  income,  and for a person  having  a  total income exceeding Rs. 70,000/- the rate of deposit is as high as 12 1/2 per cent.  But neither the exemption of  taxpayers having  an income below Rs. 15,000/- nor  the  progressively steeper  rates  of demand can be regarded  as  unreasonable. What  is  sought  to  be achieved by the  Act  is  the  twin

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objective  of  mobilisation of private  savings  for  public purposes  and imposing curbs on the inflationary  trends  in the  economy  of  our  country.   To  secure  this  purpose, provision  has been made to collect what may  reasonably  be assumed  to  be surplus income or private savings so  as  to make them available for national development. The  Legislature has been of the view that persons who  have an  income exceeding Rs. 15,000/- per annum at  the  present level  of  taxation, and the ruling prices, may be  able  to make savings which may usefully augment the public finances. Nothing  has been placed before us to show that the view  is not  reasonable.   The view of the Legislature that  in  the higher  income groups there would be larger  savings  cannot also  be  said to be unreasonable.  It is true that  a  slab system in vogue for the computation of non-corporate income- tax has not been adopted, and the demand of deposit is  made at a steeply rising percentage on the adjusted total income. But that by itself is not a ground for regarding the levy as unreasonable.   In  order  to  do  away  the  anomalies  the Schedule of rates has provided marginal adjustments.  It may also be noticed that simultaneously with the introduction of the  annuity deposits scheme, the personal rates of  income- tax  have  been reduced.  Again it may be noticed  that  the scheme   for  the  annuity  deposits  is  in  a  sense   not compulsory.   By  making  a declaration it  is  open  to  an assessee  not  to make the contribution as required  by  the Act.  He may elect not to make the deposit, and pay  income- tax on his total income.  If he has not attained the age  of seventy  years on the last day of the previous year he  will also have to pay additional income-tax as prescribed by sub- s. (2) of S. 280-X.  There is undoubtedly a distinction made between  persons who are below the age of seventy  years  on the  last  day  of the previous year,  and  those  who  have attained that age:  the former on exercising the option  not to pay annuity                              31 deposits  will  have  to pay tax on  the  total  income  and additional income-tax, the latter will only pay tax on total income  but not additional income-tax.  The  Legislature  is apparently  of the view, having regard to the life  span  in our  country, capacity to engage in gainful  employment  and other  relevant  circumstances, that the  latter  should  be exempted from payment of additional tax.  Every taxpayer who is  otherwise  required to make a deposit  is  permitted  to declare his option under s. 280-X(1) and once he does so, he is not liable to make the annuity deposit.  Such a  taxpayer will be obliged to pay income-tax on his total income.  Only a  section out of this class of taxpayers are exempted  from liability to pay additional income-tax.  It is difficult  to regard  the provision exempting this class of  persons  from liability to pay additional tax as depriving other taxpayers below the age of seventy who have exercised the option under s.  280-X(1)  of the guarantee of equal  protection  of  the laws.  The classification is prima facie reasonable, and the petitioner has placed no materials before us to prove’  that it  is  not genuine or has no rational nexus to  the  object sought to be achieved by the Parliament. The petition fails and is dismissed with costs. Hidayatullah,  J.  I  agree that  this  petition  should  be dismissed  with costs.  I agree generally with  the  reasons given  by my brother Shah, but I wish to say that I  do  not rest  my decision on entry No. 97 of List I of  the  Seventh Schedule.  It was argued that entry No. 97 of List I must in any  event  cover  this tax even if the  entry  relative  to Income-tax  was  inadequate to cover it. The  very  frequent

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reliance on entry No. 97 makes me say these few words.  That entry, no doubt, confers residuary powers of legislation  or taxation but it is not an entry to avoid a discussion as  to the  nature of a law or of a tax with a view to  determining the precise entry under which it can come.  Before  recourse can  be had to entry No. 97 it must be found as a fact  that there is no entry in any of the three Lists under which  the impugned   legislation  can  come.   For  if  the   impugned legislation is found to come under any entry in List 11, the residuary entry will not apply.  Similarly, if the  impugned legislation  falls Within any entry in one of the other  two Lists  recourse  to  the  residuary  entry  will  hardly  be necessary.  The entry is not a first step in the  discussion of such problems but the last resort.  One cannot avoid  the issue by taking its aid unless such a course is open.  It is always  necessary to examine the pith and substance  of  any law impugned on the ground of want of legislative competence with  a view to ascertaining the precise entry in  which  it can come. 32 The  entries  in  the  three  Lists  were  intended  to   be exhaustive  and it would be a very remote chance  that  some entry  would not suit the legislation which is impugned.   I shall,  therefore,  examine  the law  relating  to  annuity- deposits from this angle first. The  relevant provisions have been summarized by my  brother in  great  detail.  The essence of these  provisions,  apart from  the machinery sections which are either  supplementary to  or fitted into, the scheme of the Indian Income-tax  Act 1961, is that a person, with an income above a certain  sum, may,  if he so chooses and as an alternative to  paying  the full tax due on his income, make an annuity deposit and earn some  present  partial  relief from  taxation.   It  is  not necessary to state the extent of the relief or the extent of the deposit.  This is the scheme in a nut-shell.  Now it  is undoubtedly open to Parliament to give relief from a part of the  income-tax  the assesses have to pay on  the  condition that  a  particular amount is put into an  annuity  deposit. The deposit is not obligatory.  Any person can elect to  pay the full tax and not take advantage of the scheme.  The pith and substance of the impugned provisions, therefore, rightly belong to the topic of taxes on income.  The annuity deposit is in lieu of some tax and the machinery sections also  take the  aid of the machinery of the Indian Income-tax Act.   As the  enforcement of the provisions is by the agency  of  the Income-tax Department-and they are intimately connected with Income-tax-the provisions are very appropriately included in the  Income-tax  Act.  -No  doubt  the  provisions  for  the management  of  the  annuity  deposits  deal  with   matters slightly  out  of  place in a pure taxing  measure  but  our Constitution has not created a water-tight compartment as is to  be  found  in the Commonwealth of  Australia  Act.   Our Income-tax   Act  can  reasonably  contain   provisions   on incidental  matters  and the management of  annuity  deposit under the scheme is such a matter. It  is  argued that this is a case of "borrowing"  which  is defined  in Art. 366(4) to include the raising of  money  by the  grant of annuities, and "loan" is also required  to  be construed accordingly.  It is submitted that if money was to be  raised by the grant of annuities the action should  have been by an Act giving effect to Art. 292.  Article 292 reads : "292.  Borrowing by the Government of India.               The  executive power of the  Union extends  to               borrowing    upon   the   security   of    the

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             Consolidated Fund                                     33               of  India within such limits, if any,  as  may               from  time to time be fixed by  Parliament  by               law  and  to the giving of  guarantees  within               such limits, if any, as may be so fixed." Borrowing  under that Article is by executive action and  it is  on  the security of the Consolidated Fund of  India.   A similar  power is granted to the Executive of the  State  by Art. 293.  This is not a legislative power except in so  far as law may be made to fix the limits of borrowing and to the giving of guarantees within such limits.  Otherwise it is  a power for the exercise of the Executive. Here the Annuity deposit is an alternative to paying income- tax and is a means of reduction in the amount of income-tax. The  provisions relating to it rightly came under entry  No. 82  of  List I dealing with taxes on income.  The  money  so collected  is  returned with interest in  equal  instalments spread over ten years and the amount is taxable in the  year of refund.  The entry thus covers it. There  is no entry in List 11 which can be said to  take  in the law relating to Annuity Deposits.  Entry No. 30  (money- lending,  and  money  lenders)  has  to  be  mentioned   and rejected.  As the subject of the annuity deposit  provisions is  capable of being comprehended in the entry  relating  to taxes  on income  do not feel called upon to invoke the  aid of  entry  No.  97 by assuming that  no  entry  covers  such provisions.  This will be a fundamental error in approach to such  problems.  The provisions are neither  colourable  nor discriminatory.  They apply to upper income groups and  this does  not lead to discrimination.  They are  not  colourable because,  though  called annuity deposits, they  only  defer payment  of tax on a part of the assessable income  and  the name does not matter at all.  Instead of charging income-tax on the amount forthwith the amount is ordered to be kept  in deposit with Government, one-tenth being returned with inte- rest  every year.  The returned amount then bears  the  tax. An election once made is final. I  agree,  therefore, that the petition  be  dismissed  with costs. Petition dismissed. 34