DELHI CLOTH AND GENERAL MILLS LTD.versusS. PARAMJIT SINGH AND ANOTHER

             DELHI CLOTH AND GENERAL MILLS LTD.
A
                              v.
               S. PARAMJIT SINGH AND ANOTHER

                              OCTOBER 9, 1990

B             [S. RANGANATHAN, T.K. THOMMEN AND
                        P.B. SAWANT, JJ.]

         Constitution of India, 1950: Article J4.-Classification of tenants
    on basis of annual income-Validity of-Section J(J)(iii), Jammu and
    Kashmir Houses and Shops Rent Control Act, 1966-Validity of
c         Jammu and Kashmir Houses and Shops Rent Control Act,
    1966: Section J(J)(iii)-Protection to tenants on the basis of annual net
    income of tenant-Whether permissible-Classification-Whether vio-
    lative of Article 14 of Constitution-Income-Concept of-Net income
    -Meaning of.
D
          Words & Phrases-Words 'income' and 'net income' meaning of.

          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 grouud that clause (iii) of sub-section (3) of
E   Section 1, read with the Explanation 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
F   Article 14 of the Constitution. 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 validity of the clause.

           In the appeal before this Court, the appellant-tenant contended (i)
    that the clause was discriminatory and arbitrary, because it drew an
G   artificial distinction between tenants on the basis of their income, in
    that while those tenants earning net income below Rs.40,000 per annmn
    were protected by the beneficial provisions of the Act, those with annual
    net income in excess of the st~iutory limit of Rs.40,000 were unreason-
    ably and unfairly denied tli< l'rotection and this statutory discrimina-
    tion placed them at the mercy of the landlords, who could easily evict
H   them by recourse to the far less restrictive provisions of the Transfer of

                                        218
                                                                                  I
                      D.C.M. v. S. PARAMJIT SINGH                    219

Property Act, 1882 and on the strength of their agreements of lease, (ii)
that the clause did not take into account the nature of the building, or A
the need and income of the landlord or any other factor and withheld or
extended protection solely on the fmancial 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 busi-
ness was prosperous, but protecting him when the business declined B
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, violative of Article 14; and in any view, the classification
sought to be made between persons falling on either side of the specified C
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. 1370of1987), this Court,                                        o
       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 E
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 protec-
tion is withheld when the same building is occupied by a richer tenant
whose annual net income is higher than the specified amount. Where a F
building is occupied by more than one tenant, the applicability of tbe
Act to each of them wonld depend upon his net income. It is the tenant
that the legislature intends to protect and not the landlord or his bnild-
iug. The test adopted by the legislature for this purpose is with refe-
rence to the tenant's net income, whether accruing inside or, outside the
State, as on the date of the landlord's application for eviction as well as G
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 compariso;. t9 those affiuent 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 H
    220         SUPREME COURT REPORTS                [1990] Supp. 2 S.C.R.

A   accommodation, employment opportunity and economic prosperity.
    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 bas. a reasonable relation to the twin legislative object of
B   protecting economically weaker tenants and encouraging new construc-
    tions. There is nothing unreasonable or irrational or unworkable or
    vague or unfair or unjusi in the classification adopted by Section
    1(3)(iii) of the Act. [224F; 225D]

           1.4 The legislature in its Wisdom is presumed to 11Dderstand and
    appreciate correctly the problems of the State and the needs of the
c   people made manifest by experience. Absent blatant disregard of con-
    stitutional provisions, legislative innovation by social and economic
    experimentation must be permitted to continue without judicial inter-
    ference. [2258]
                                                                                  I
D         The J & K Bank Ltd. v. State of J & K & Another, AIR 1987 J &
    K 18, approved.




E
         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] 1SCC222, distinguished.

        Kera/a Hotel & Restaurant Association & Ors. v. State of Kera/a
                                                                                  I
    & Ors., [1990] 1 JT SC 324, relied on.

        Krishna Dalmia v. Shri Justice S.R. Tendo!kar & Others, [19S9]
    SCR 279, referred to.
F
           2. There is no lack of clarity in the concept of "income" or net
     income. Income is money or other benefit periodically received. It is
     profit or revenue and not capital. It is " gain derived from capital or
     IBbour or both. Net income is income obtained after deducting all
     expenses incurred for the purpose of earning the income. It is iilcome
O    minus operailng expenses. The concept of net income is what it is ordi-
     natily understood to be In common parlance, and not necessarily
    .limited by the technicalities of any fiscal enactment. [224G-H]         .

          Banarsi Das v.Jagdish Raj Kohli, AIR i960J & K 5, referred to.
H         CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4043
    'and 1370of 1987.

                                                                                  I
             D.C.M. v. S. PARAMJJT SINGH [THOMMEN, J.]               221

      From the Judgment and Order dated 20.11.1987 and 4.3. 1987 of
                                                                            A
the Jammu & Kashmir High Court in LP.A. No. 20/1987 and in Suit
No. 235/86.

       K. Parasaran, Ms. S. Janani and Ms. Unnila Kapur for the Appel-
lant in C.A. No. 4043/87.
                                                                            B
     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.              C
No. 1370/87.

   Ashok Mathur for the State of Jammu and Kashmir and Advocate
General.
                                                                            D
      The Judgment of the Court was delivered by

      THOMMEN, J. Civil Appeal No. 4043 of 1987.

      The question which arises in this appeaJ is as regards the validity
of clause (iii) of sub-section (3) of Section 1 of the Jammu & Kashmir      E
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.                       F

      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-
                                                                            G
            (i) ........................................... .

            (ii) Omitted

            (iii) any tenancy in respect of any house, or shop where the
            income of the tenant, whether accruing within or outside        I:I
    222         SUPREME COURT REPORTS                [1990] Supp. 2 S.C.R.

A               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
B
    Act was disallowed by the courts below on 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 discrimina-
    tory and arbitrary because it draws an artificial distinction between
C   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
D   of the Act. This statutory discrimination, 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
E   not take into account the nature of the building, but only the income of
    the tenant. .The income of the landlord himself is irrelevant. The pro-
    tection 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 reference to their annual
F   income is not an intelligible classification, 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. Further-·
    more, counsel says. "income" is not a clear and precise concept.
0   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 classifica-
     tion 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 persons falling on either side of the
H
              D.C.M. v. S. PARAMJIT SINGH [THOMMEN, J.].                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       A
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          B
32(b) of the A.P. Buildings (Lease, Rent and Eviction) Control Act,
1960 as unconstitutional.

      These decisions, in our view, are easily distinguishable. In Rattan
Arya (supra) this Court stated that a distinction between residential
buildings leased on rent not exceeding Rs.400 per month an_d all other
buildings-whether residential or non-residential-was an unreason-              c
able classification. There was no reason why non-residential buildings
leased on rent of Rs.400 per month or less should be treated diffe-
rently 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 protection of the Act was an unreasonable            D
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 age of the
building or to ihe 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.                                E

       On the other hand, a classification with reference to economic
realities was upheld by this Court in Kera/a Hotel & Restaurant Associ-
ation & Ors. v. State of Kera/a & 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         F
on principle and is, indeed, laudable''. Though that principle was
stated in a different context, significantly this Court accepted a classifi-
cation based on financial capacity.

      The classic and oft-repeated test to be applied when the constitu-
tionality of legislation is questioned with reference to Article 14 of the     G·
Constitution is what is. stated by this Court in Shri. Ram Krishna
Dalmla v. ShriJustice S.R. Tendolkar & Others, [1979] SCR 279. S.R.
Das, CJ. stated:

            "In order, however, to pass the test of permissible classifi-
            cation two conditions must be fulfilled, namley, (i) that the      H
    224         SUPREME COURT REPORTS                [ 1990] Supp. 2 S.C.R.

                classification must be founded on an intelligible differentia
A
                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."

B         The object of the enactment in question is undoubtedly to pro-
    tect the weaker section of tenants from. unreasonable eviction and
    unfair rent. The legislature, at the same time, did not desire to dis-
    courage persons from constructing buildings. The twin legislative object
    is the protection of economically weaker tenants and ·encouragement
    of construction of buildings. While protection is thus afforded ·to
    deserving. tenants, construction of new buildings is encouraged by
c   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
D   amount. Where a building is occupied by more than one tenant, the
    applicability 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 reference to the tenant's net income, whether accruing
    inside or outside the State, as on the date of the landlord's application
E   for eviction as well as on the date of the decree for eviction. The
    legislative object is, therefore, to protect tenants who are economi-
    cally weaker in comparison to those affluent tenants falling outside the
    specified limit of incpme, and at the same time to encourage construc-
    tion of new buildings which will result in better availability of accom-
    modation, employment opportunity and economic prosperity. This is a
F   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 unreasonable or irrational or
    unworkable or vague or unfair or unjust in the classification adopted
    by the impugned provision.
G
          Nor is there lack of clarity in the concept of "income" or "net
    income". Income is money or other benefit periodically 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
H   minus operating expenses. The concept of net income is what it is
             D.C.M. v. S. PARAMJIT SINGH [THOMMEN, J.]                22)

ordinarily understood to be in common parlance, and not necessarily
                                                                             A
limited by the technicalities of any fiscal enactment. See in this connec-
tion the observation of the J ammu & Kashmir High Court in Banarsi
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          B
people made manifest by experience. Absent blatant· disregard of con-
stitutional provisions, legislative innovation by social and economic
experimentation must be permitted to continue wit~out judicial inter-
ference.

      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 &       c
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       D
           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 tenants whose
           annual 'income exceeds Rs.40,000. Social legislation of this
           type is designed to protect the interest of a class of society
           who, because of their economic conditions, deserves such          E
           protection against their arbitrary eviction. The legislation
           is intended to protect weaker and poorer classes of the
           tenants and there is, therefore, an intelligible differentia
           between the tenants whose annual income is Rs.4-0,000 and
           those whose annual income is more than Rs.40,000. In con-
           struing Art. 14, the aid whereof has been pressed into            F
           service by the learned counsel, the Court is not required to
           adopt a doctrinaire approach which would choke the bene-
           ficial legislation. It is open to the legislature to recognise
           the degree of harm and while doing so it can always make
           reasonable classification. Article 14 forbids class legislation
           but no reasonable classification. With a view to pass the         G
           test of reasonable classification, there must exist intelligi-
           ble 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-     H
    226         SUPREME COURT REPORTS               [ 1990) Supp, 2 S.C.R.

A              .. 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 diffe·
                  rentia between the tenants who are sought to be protected
                  by the Act from those who are denied the protection of the
                  Act."
B
    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.
c
    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 dismiss this appeal with
    costs here and in the High Court.
D   "      '    r..

    N.P.V.                                               Appeals dismissed.




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