Patel Gordhandas Hargovindas Vs.
Municipal Commissioner, Ahmadabad [1963] INSC 76 (28 March 1963)
28/03/1963 WANCHOO, K.N. WANCHOO, K.N. SINHA,
BHUVNESHWAR P.(CJ) DAS, S.K.
SARKAR, A.K.
GUPTA, K.C. DAS
CITATION: 1963 AIR 1742 1964 SCR (2) 608
CITATOR INFO:
R 1968 SC 859 (6) RF 1968 SC1504 (7,8,9) E
1970 SC 192 (3) RF 1970 SC1584 (6) D 1971 SC 211 (12) R 1972 SC1061 (161,174)
RF 1972 SC2205 (21) D 1974 SC1779 (15) RF 1977 SC 302 (6,7) R 1978 SC 803 (26)
R 1979 SC1550 (14) E 1984 SC1291 (12)
ACT:
Municipality-Imposition of rate on vacant
land-Whether rate to be based on annual value or capital value of landWhether
rules ultra vires-History of rates in England and India-Government of India
Act, 1935 (26 Geo. 5 ch. 2), Seventh Schedule, List I,item 55, List II, item
42-Bombay Municipal Boroughs Act, 1925 (Bom. 18 of 1925), ss. 73, 75, Rules
243, 350-A.
HEADNOTE:
A suit was filed by the appellants to
challenge the imposition of a rate by the Municipal Corporation of Ahmedabad on
vacant lands situate within the municipal limits. The rate was levied under
section 73 of the Bombay Municipal Boroughs Act, 1925, read with Explanation to
s. 75 of the Act. The Municipality framed rule 350-A for rating open lands
which provides that the rate on the area of open lands shall be levied at 1 per
centum on the valuation based upon capital. The contention of the appellants
was that reading ;the two rules together, the rate was levied at a percentage
of the capital value of open lands and that the municipality could not do. Rule
350-A read with rule 243 was ultra vires .is. 73 and 75 inasmuch as it
permitted the fixation of rate at a percentage of capital value and that was
not permitted by the Act. The word "rate" Used in s.73 had acquired a
special meaning by the time the Act came to be passed and meant a tax on the
annual value of lands and buildings and not on their capital value. It was also
contended that if the Act permitted the levy of a rate on a percentage of
capital value of the lands and buildings, that was ultra vires the Provincial
Legislature. It was further contended that the assessment based on rule 350-A
read with rule 243 was ultra vires and the assessment list prepared pursuant to
the said rule was illegal and void The trial court held that rule 350-A read
with rule 243 was illegal and void and beyond the authority given to
municipality under s. 73 of the Act. The trial Court granted the relief claimed
by the appellants. The High Court reversed the order 609 of the trial court and
the appellants came to this court after getting a certificate.
Held (Sarkarj., dissenting), that rule 350-A
read with rule 243 is ultra vires. 73 of the Bombay Municipal Boroughs Act,
1925, read with Explanation to s. 75. The assessment list for the year 1947-48
published by the municipality for levying the said tax in so for as it was
prepared under rule 350-A is illegal, ultra vires and void. The municipality
was restrained from recovering the said tax on the open lands from the
appellants.
The word "rate" had acquired a special
meaning in English legislative history and practice and also in Indian
legislation where that word was used and it meant a tax for local purposes
imposed by local authorities. The basis of the tax was the annual value of the
lands or buildings on or in connection with which it was imposed, arrived at in
one of the three ways, namely, (1) actual rent fetched by land or building
where it is actually let, (2) where it is not let, rent based on hypothetical
tenancy, particularly in the case of buildings, and (3) where either of these
two modes is not available, by valuation based on capital value from which
annual value has to be found by applying a suitable percentage which may not be
the same for lands and buildings. When in 1925, s. 73 (1) of the Act while
specifying taxes which could be imposed by a municipal borough, used the word
,rate' on buildings or lands situate within the municipal borough, the word
'rate' must have been used in that particular meaning which it had acquired in
the legislative history and practice both in England and India before that
date. The use of the word 'rate' in cl. (i) definitely means that it was that
particular kind of tax which in legislative history and practice was known as a
rate' which the municipality could impose and not any other kind of tax.
That though mathematically it may be possible
to arrive at the same figure of the actual tax to be paid as a rate whether
based on a capital value or based on annual value, the levying of the rate as a
percentage of the capital value would still be illegal for the reason that the
law provides that it should be levied on the annual value and not otherwise. By
levying it otherwise directly as a percentage of the capital value, the real
incidence of the tax is camouflaged and the electorate not knowing the true
incidence of the tax may possibly be subjected to such heavy incidence as in
some cases may amount to confiscatory taxation.
Per Sarkarj.-Rate is the name given to an
impost levied by a local authority to raise funds for its expenses irrespective
610 of the basis on which it is levied. There is no authority for the
proposition that the word rate' has acquired a technical meaning indicating a
levy on the basis only of yearly value of property. Such authority is not furnished
by the fact that in England in all rating statutes the yearly value has always
been adopted as the basis of valuation for calculating rates. The English text
books on rating only stated that in England in fact the rating statutes always
based on rates on yearly value. In our country, legislatures have used both the
words tax' and ,rates' to indicate the impost by a local authority and in some
cases have permitted a local authority to levy a "property tax" at a
percentage of its capital value.
The word rate' in s. 73 of the Bombay
Municipal Boroughs Act, 1925 which authorises a Municipality to impose a rate
on lands cannot be understood in any technical sense. This view is supported by
the explanation in cl. (a) of s. 75 of the Act which provides that rules may be
made specifying that the rate authorised by s. 73 may be levied on the basis of
the capital value of land. There is nothing to indicate that in the explanation
the words "capital value" had been used only for the purpose of
finding out the annual value from it and not to form by itself the basis of the
valuation on which the rate is to be imposed.
Rule 350-A framed under s. 75 of the Act read
with r. 253 specifying that the rate on the land shall be levied at one per
cent of the capital value of land is not ultra vires the Act.
The Act imposes a tax on lands and is within
item 42 of List 11 of the Government of India Act, 1935. The fact that it
authorised that tax being quantified on the basis of the capital value of the
land subjected to it does not take it out of that item and place it under item
55 of List I dealing with "taxes on capital value of the assets"
which only the Central legislature can levy. The identification of the
subject-matter of the tax is to be found in the charging section only and the
charging section in the present case is s. 73 and the subject-matter which it
taxes is land and not the capital value of it. The subject-matter of taxation
is something different from the measure provided for quantification of the tax
and one has no effect on the other. Nothwithstanding the measure of the tax
being based on the capital value, the tax in the present case is nonetheless a
tax on land.
State of Madras v. Gannon, -Dunkerley &
Co., [1959] S. C. R. 379; Provincial Preasurer of Alberta v. Kerr, [1933] 611
A. C. 710, B. C. Jall v. Union of India, [1962] Supp. 3 S. C. R. 436 and Ralla
Ram v. Province,' of East Punjab, [1948] F. C. R. 207, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 253 of 1956.
Appeal from the judgment and decree dated
April 6, 1953 of the Bombay High Court in First Appeal No. 223 of 1950.
P. B. Patwari, S. M. Tailor, Atiqur Rehman
and K. L.
Hathi, for appellants Nos. 2, 4, 6, 8-10,
12-14 and 22.
Purshottam Tricumdas, R. M. Shah, J. B.
Dadachanji, O.
C. Mathur and Ravinder Narain, for respondent
No. 1.
R. Ganapathy Iyer and R. H. Dhebar, for
respondent No. 2.
1963. March 28. The Judgments of the Court
were delivered by WANCHOO J.-This appeal on a certificate granted by the Bombay
High Court arises out of a suit brought by the appellants to challenge the
imposition of a rate by the respondent Municipal Corporation of Ahmedabad on
vacant lands situate within the municipal limits, The rate was levied under s,
73 of the Bombay Municipal Boroughs Act, No.
XVIII of 1925, (hereinafter referred to as
the Act) read with the explanation to s, 75 of the Act. The Municipality framed
r. 350-A for rating open lands which provides that the rate on the area of'
open lands shall be levied at 1 per centum on the valuation based upon capital.
"Valuation based upon capital" was defined in r. 243 as the capital
value of lands and buildings as may be determined from time to time by the
valuers of the municipality, who shall take into consideration such reliable
data 612 as the owners or the occupiers thereof may furnish either of their own
accord or on being called upon to do so. The contention of the appellants was
that reading the two rules together, the rate was levied at a percentage of the
capital value of open lands and this the municipality could not do.
Two submissions were made in support of this
contention. In the first place it was urged that r. 350-A read with r. 243 was
ultra vires ss. 73 and 75 inasmuch as it permitted the fixation of rate at a
percentage of capital value and this was not permitted by the Act, for the word
"rate" used in s. 73 (1) (i) had acquired a special meaning by the
time the Act came to be passed and meant a tax on the annual value of lands and
buildings and not on their capital value. In the second place, it was urged
that if the Act permitted the levy of a rate on a percentage of capital value
of the lands and buildings rated thereunder, it was ultra vires the Provincial
Legislature because of item 55, List 1, of the Seventh Schedule to the
Government of India Act, 1935. The appellants finally contended that the
assessment based on r. 350-A read with r. 243 was ultra vires and the
assessment list prepared pursuant to the said rule was illegal and void. They
therefore prayed that r. 350-A read with r. 243 for assessment of vacant lands
as well as the assessment charged on vacant lands under the said rule since
April 1, 1947, and the assessment lists for the year 1947-48 which were
prepared for that purpose be declared illegal and ultra vires and further
prayed that an order of permanent injunction might be made against the
respondent Municipality restraining it from collecting or causing to be
collected from the appellants any sum of money as assessment for vacant lands
for the year 1947-48 or for any year thereafter, based on capital valuation on
the strength of the said rule.
The suit was resisted by the municipality.
Its defence in substance was that the rule was intra vires 613 and the
assessment lists had been properly prepared in accordance with the provisions'
of the Act and were not open to any objection. The trial court held that r.
350-A read with r 243 was illegal and void and beyond the authority given to
the municipality under s, 73 of the Act, inasmuch as it would amount to taxing
the open lands as assets of individuals, within the meaning of item 55 of List
I of the Seventh Schedule to the Government of India Act. The trial Court
therefore decreed the suit and granted the relief as claimed by the appellants.
Then followed an appeal to the High Court
which was allowed.
The High Court held that the manner in which
open lands were rated did not bring the rate within item 55 of' List I of the
Seventh Schedule to the Government of India Act, as the method employed was
only a mode of levying the rate. The High Court therefore held that r. 350-A
read with r. 243 was not ultra vires, As to the other contention that the rule
was ultra vires ss. 73 and 75 of the Act, the High Court held that even if it
be assumed that by adopting the basis of capital value the municipality must
determine the annual value of the property and levy rate on such value, it made
no difference to the result, as the municipality might levy much higher rate of
tax on the annual value of the property determined on the basis of its capital
value. The High Court pointed out that the municipality, by adopting this
method, had done in one step what could be done in two steps, and that would
have merely involved first determining the capital value and then the annual
value, and then fixing the rate on the annual value at a much higher
percentage.
It was of the view that it was all a matter
of fixing a reasonable rate on open land, and if the rate was otherwise
reasonable it would be difficult to hold that the rule levying the rate was
ultra vires ss. 73 and 75. Thereupon the appellants applied for a certificate
of fitness to enable 614 them to appeal to this Court, which was granted; and
that is how the matter has come up before us.
The same two points which were raised in the
High court have been urged before us. We shall first consider the point,
whether r.350-A read with r.243 is ultra vires ss.73 and 75 of the Act. The
relevant part of s. 73 is as follows:-"(1) Subject to any general or
special orders which the State Government may make in this behalf and to the
provisions of sections 75 and 76, a municipality may impose for the purposes of
this Act any of the following taxes, namely:(i) a rate on buildings or lands or
both situate within the municipal borough;
... ..." Section 75 provides the
procedure preliminary to imposing any tax provided under s. 73. The relevant
part thereof is as follows:"A Municipality before imposing a tax shall
observe the following preliminary procedure:-(a) it shall, by resolution passed
at a general meeting, select for the purpose one or other of the taxes
specified in section 73 and approve rules prepared for the purposes of clause
(j) of section 58 prescribing the tax selected, and in such resolution and in
such rules specify. --(i) ..... ... .. ... ... .... .....
(ii) .... .... ..... .... ....
(iii) in the case of a rate on buildings or
lands or both ; the basis, for each class 615 of the valuation on which such
rate is to be imposed ;
... ... .... ...... ..... .....
Explanation-In the case of lands the basis of
valuation may be either capital or annual letting value." It will be seen
that though s.73 opens with the words "the municipality may impose for the
purposes of this Act any of the following taxes", the particular tax
specified on lands or buildings is designated as a rate on buildings or lands
or both. The use of the word "rate" in cl.(i) of s.73 (1) must be
given its due significance and the kind of tax which s.73 (1) (i) empowers the
municipality to impose on lands and buildings is a rate on lands and buildings.
The contention on behalf of the appellants is
that the words "rate on buildings or lands" had come to acquire by
the time the Act was passed a special meaning and the tax which s. 73 (1)
permitted the municipality to impose on lands and buildings was that kind of
tax which had come by then to be known as "'rate on buildings and
lands". It is urged that by the time the Act was passed, the words
"rate on lands or buildings" signified a tax not on their capital
value but on their annual value and therefore when s. 73 (1) permitted the
municipality to impose a rate on buildings or lands or both it only gave it
jurisdiction to impose a tax by way of certain percentage on the annual value
of lands or buildings and not by way of a percentage on their capital value.
Reliance in this connection is placed on the
decision of this court in The State of Madras v. Gannon Dunkerly and Co. (1),
where this Court held that "the expression 'sale of goods' was, at the time
when the Government of India Act, 1935, was enacted, a term of well-recognized
legal import in the general law relating to sale of goods and in the (1) [1959]
S. C. R. 379, 616 legislative practice relating to that topic and must be
interpreted in Entry 48 in List II in Sch. VII of the Act as having the same
meaning as in the Sale of Goods Act, 1930". It is urged that the
legislative practice prevalent in England as well as in India up to 1925 showed
that wherever the term "rate" was used in connection with local
taxation it meant a tax on the annual value of lands and buildings and not on
their capital value. It is therefore necessary to look at the legislative
history and practice to find out what the word "rate" meant when the
Act was passed in 1925.
The word "rate" has come to our
country for the purpose of local taxation from England. It will therefore be
useful to find out what exactly the word "rate" when used in
connection with local taxation meant in England. The English Rating Law is
largely derived from the Poor Relief Act, 1601 (43 Eliz. Cap. 2) which provided
for raising "weekly or otherwise, by taxation of every inhabitant, parson,
vicar and other and of every occupier of lands, houses, tithes impropriate or
propriations of tithes, coal mines or saleable under woods, in the said parish
in such competent sum and sums of money as they shall think fit, a convenient
stock of flax, hemp, wool thread, iron and other necessary ware and stuff to
set the poor on work". The chief provision of this Act was to levy a tax
on the occupier of lands and houses and this tax in course of time came to be
known as a rate. In "Rating Valuation Practice" by Benn and Lockwood,
the authors observe as follows at p.
1:"The purpose of rating Valuations is
to arrive at a figure termed rateable value on which rates arc levied upon the
ratepayer at so much in the pound in order to defray the expenses of local
government. The present rating law is largely derived from the Poor Relief Act,
1601, 617 which provided for the levying of taxation on "every occupier of
land, house.........
towards the relief of the poor'. Under this
enactment occupiers were to contribute to a poor rate according to their means
but no specific method of assessment was laid down.
The annual value of a person's property
within the parish gradually became recognised as the most satisfactory basis
and this was first given statutory approval in 1836".
This passage shows that gradually by judicial
decisions what was levied on the occupier's lands and buildings under the Poor
Relief Act came to be known as a rate on the annual value of the property in
beneficial occupation within the parish and this practice was given statutory
approval in 1836. The word "rate" thus gradually came to be applied
to such local taxation till we find that the Poor Rate Act, 1801 was passed
providing for certain appeals and other remedies to persons on whom rates were
levied. Then came the Poor Rate Assessment and Collection Act, 1869, which by
its first section provided that the occupier of any rateable hered it ament
shall be entitled to deduct the amount paid by him in respect of any poor rate
assessed upon such hered it ament from the rent due or accruing due to the
owner, and every such payment shall be valid discharge of the rent to the
extent of the rate so paid, thus affording relief to the occupier. This history
will show that the rate was assessed generally on the occupier of lands and
buildings on account of his beneficial occupation of such lands and buildings.
The very fact that the rate was assessed on the occupier of lands and buildings
leads clearly to the inference that the rate was to be levied on the annual
value of the land or building to the occupier and had nothing to do with the
capital value of the land and building to the owner. In other words, the rate
was to be levied on the annual value of the 618 land or building depending upon
its letting value and not on the capital value.
In 1869, another Act was passed known as the
Valuation (Metropolis) Act, 1869, which applied to the city of London.
That Act defined a "'ratepayer" as
meaning "every person who is liable to any rate or tax in respect of
property entered in any valuation list". It also defined "gross
value" as meaning "the annual rent which a tenant might reasonably be
expected, taking one year with another. to pay for an hered it ament".
Lastly, it defined the words "rateable value" as meaning "the
gross value after deducting there from the probable annual average cost of
repairs, insurance, and other expenses as aforesaid". Clearly therefore
the rate under this Act was a tax leviable on the rateable value, which meant
the gross value subject to certain deductions and the gross value was the
annual rent which a tenant might reasonably be expected to pay.
Finally, in 1925, came the Rating and
Valuation Act, 1925, which was meant to simplify and amend the law with respect
to the making and collection of rates by consolidation of rates and otherwise
and to promote uniformity in the valuation of property for the purpose of
rates. This Act was passed about the same time as the Act with which we are
concerned; and it provided for the levy of a general rate and the rateable
value of a hered it ament was to be the net annual value thereof. In s. 68. the
"rate" was defined as a rate the proceeds of which were applicable to
local purposes of a public nature and which was leviable on the basis of an
assessment in respect of the yearly value of the property.
"Ratepayer" was defined to mean every person who was liable to any
rate in respect of property entered in any valuation list. "Gross
value" was defined to mean the rent at which a hered it ament might
reasonably be expected to let from year to year, and 619 "hered it ament"
meant any lands, tenements, hered it aments or property which were or might
become liable to any rate in respect of which the valuation list was made under
the Act.
Section 22 provided how the rateable value
which was the net annual value was to be arrived at from the gross value.
This history of the use of the word
"rate" for purposes of local taxation in English Law clearly shows
that the word "rate" was used with respect to a tax which was levied
on the net annual value or rateable value of lands and buildings and not on
their capital value. It would therefore not be wrong to say that in the
legislative history and practice in England upto 1925, "rate" for the
purpose of local taxation meant a tax on the annual value of lands and
buildings liable to such taxation.
In Wharton's Law Lexicon, the word
"rate" is defined as a "contribution levied by some public body
for a publicpurpose, as a poor rate, a highway rate, a sewers rate, upon, as a
general rule, the occupiers of property within a parish or other area".
This again emphasises the fact that rate was levied not on owners of property
but on occupiers, from which it follows that it could only be levied for beneficial
occupation, which, in its turn would bring in the annual rental value so far as
the occupier was concerned.
The Rating and Valuation Act of 1925 to which
we have already referred only gave final recognition to this meaning of the
word "rate" and consolidated various rates prevailing for various
purposes by providing for a general rate for all purposes. This general rate
was raised on so much of the pound of the rateable value of each hered it ament
according to the valuation list.
The methods in use for the purpose of
arriving at rateable value were generally three. Where the land or building was
actually let, the valuation was 620 based on the rent at which it was let.
Where, however, the land or building was not let, two methods were evolved for
the purpose of finding out the rateable value. The first was to assume a
hypothetical tenancy (such as where the same person is the owner and occupier)
and find out the rent at which the premises would be let. The second was based
on the capital value of the premises. But the tax was not levied on the capital
value itself; the capital value was determined on the structural value of the
building to be assessed by what was known to be contractor's method or
contractor's test in addition to the market value of the land. Sometimes the
words "effective capital value" were also used since in some cases
the actual capital cost of the building plus the market value of land might for
some reason or the other be ineffective i.e., it might not be rent producing.
Having arrived at the effective capital value it was necessary to apply
percentages thereto in order to arrive at the annual value. In England, the
usual percentage in the case where the property was used for commercial
purposes, was 5 per centum for the building and 4 per centum for the land. It
was after this annual value was arrived at that the rate was imposed on this
annual value :
(see Complete Valuation Practice by Mustok
Eve and Anstey, 5th Edn. pp. 253-258).
Faraday "On Rating" also mentions
that "it is the occupier who is rateable in respect of his occupation of
rateable property" (p. 1). After referring to the Poor Relief Act, 1601,
Faraday says that later legislation had left the occupier as the main bearer of
the burden of rate, and the basis of the rate is the beneficial occupation,
meaning thereby the occupation of a hered it ament for which somebody would be
prepared to pay somebody net rent.
Faraday also mentions the same three ways of
valuing this beneficial occupation for the purpose of arriving at the rateable
value or 621 annual value of lands and buildings, in order to levy the rate:
(see Chap. 11 of Faraday ",On Rating".) The same scheme is to be
found in Ryde "On Rating". At p. 7 it is mentioned that the rateable
person under the Poor Relief Act 1601 is the occupier and not the owner of the
land, though the liability is put in some cases by later Acts on the owner.
Ryde further points out that the Poor Relief Act of 1601 did not attempt
accurately to define how the value of land was to be measured, and it was for
the first time in 1836 that the first statutory definition of "net annual
value" was given in the Parochial Assessments Act, 1836, thus giving
statutory recognition to the pratice which was being followed till then and
this definition was "the rent at which the hered it ament might reasonably
be expected to let from year to year, free of all usual tenant's rates and
taxes, and tithe, commutation rent charge, if any, and deducting there from the
probable average annual cost of the repairs, insurance and other expenses, if
any, necessary to maintain it in a state to command such rent" : (see pp.
242-243). The methods for arriving at the net annual value are given as the
same three, namely, (i) the actual rent if the premises were let, (ii) hypothetical
tenancy, and (iii) capital cost from which the annual value was determined at a
certain percentage : (see Chapters XII and XIV).
That it is the annual value and not the
capital value which has always been the basis of the rate upto 1925 is well brought
out in the following passage at p. 329 of Ryde "On Rating" :"Where
property is of a kind that is rarely let from year to year, recourse, is
sometimes bad to interest on capital value or on the actual cost, of land and
buildings, as a guide to the ascertainment of annual value. There was some 622
apparent, if not real, conflict of decisions upon the question whether interest
on capital value, or on cost, might be considered at all;
but the difficulty disappears if the rule be
thus stated : the measure of net annual value is defined by statute as the rent
which might reasonably be expected; interest on cost, or on capital value,
cannot be substituted for the statutory measure. but in the absence of the best
evidence, that is, actual rents, it can be looked at as prima facie evidence in
order to answer the question of fact what rent a tenant may reasonably be
expected to pay" It will thus be clear from the various statutes to which
we have referred and the various books on rating in England that the rate
always had the meaning of a tax on the annual value or rateable value of lands
or buildings and this annual value or rateable value is arrived at by one of
three modes, namely, (i) actual rent fetched by land or building where it is
actually let, (ii) where it is not let, rent based on hypothetical tenancy,
particularly in the case of buildings, and (iii) where either of these two
modes is not available, by valuation based on capital value from which annual
value has to be found by applying a suitable percentage which may not be the
same for lands and buildings, and it was this position which was finally
brought out in bold relief by the Rating and Valuation Act, 1925. It is clear
further that it is not the Rating and Valuation Act of 1925 which for the first
time applied the concept of net annual value and rateable value as the basis
for levying a rate for purposes of local taxation; that basis was always there
for centuries before the Act of 1925 was passed.
The present position is summed up in Halsbury's
Laws of England, Third Edition (Vol, 32), 623 paras 9 and 10. Paragraph 9 deals
with the liability to the rate in general and is in these terms :"The
general rate is leviable by taxation of every parson and vicar, and of every
occupier of lands, houses, tithes, impropriate, appropriations of tithes, coal
mines, mines of every other kind, woodlands, sporting rights, and advertising
rights. In certain cases the owner of property is rated in place of the
occupier; and in a few instances, owners as such are rateable ...........
....... .....
............................................
Paragraph 10 deals with the meaning and
nature of rate in these terms :"The expression 'rate' means a rate the
proceeds of which are applicable to local purposes of a public nature and which
is leviable on the basis of an assessment in respect of the yearly value of the
property".
This meaning of the word "rate" in
England is, as we have shown above, not merely based on the Rating and
Valuation Act, 1925; it is borne out to be so by English legislative history
and practice even before the Rating and Valuation Act of 1.925, was passed.
Therefore, it cannot be doubted that in England from where in this country we
have borrowed the word "rate", that word had acquired a special
meaning namely that it was a tax on the annual value of lands and buildings
found in one of the three modes we have already indicated.
It is also pertinent to note that Land Tax as
such was a different tax altogether in England and was levied for the first
time by the Land Tax Act of 1797. Land tax is a charge on land, and not on the
income likely to arise from occupation of land and the intention was that it
should be borne by the owner of the land. The existence of this tax as 624
distinct from the rate on lands and buildings brings out what the word
"rate" has always meant in local taxation in England as indicated
above : (see p. 332 of Benn and Lockwood on Rating Valuation Practice, Fifth
Edition).
Let us now look at the legislative history
and practice in India upto 1925. The Bombay City Municipal Act (No. III of
1888), by s. 139 provided for property tax. Section 154 (1) thereof provided
for valuation of property assessable to property taxes in these terms : "In
order to fix the rateable value of any building or land assessable to a
property tax, there shall be deducted from the amount of the annual rent for
which such land or building might reasonably be expected to let from year to
year, a sum equal to ten per centum of the said annual rent, and the said
deduction shall be in lieu of all allowances for repairs or on' any other
account whatever".
It may however be noted that this Act did not
use the word "rate", though it has used the words "rateable
value" in s. 154.
The Bengal District Municipalities Act(No.
III of 1884) provides by s. 85 for a rate on the annual value of holdings
situate within the municipalities, and the word "holding" is defined
in this Act as "land held under one title or agreement". By its very
definition the rate is on the annual value in this Act.
The Madras District Municipalities Act (No.
IV of 1884) provides for a tax on lands and buildings, and further provides
that the tax shall be on the annual value of the buildings or lands or both.
This Act does not use the word rate" but what in 625 actual fact it
provides for is a rate based on the annual value of lands and buildings.
The Calcutta Municipal Act, (NO.III of 1899)
Specifically uses the word "'rate" and provides for imposition of
rates on all buildings and lands by S. 147.
Section 151 provides for valuation of
buildings and lands for the purposes of rate, and it is the annual value of
lands and buildings which is the basis of the rate, and that annual value is
deemed to be the gross annual rent at which the land might reasonably be
expected to let from year to year (subject to certain deductions).
In North-Western Provinces and Oudh
Municipalities Act (No. 1 of 1900), s. 59 provides for a tax on houses,
buildings and lands situate within the municipality, and the tax is based on
their annual value. Here the word "rate" is not used but the tax is
nothing other than a rate, for it is on the annual value of lands and
buildings.
Section 59 of the Bombay District
Municipalities Act (No. III of 1901), provides for the imposition of a rate on
buildings or lands or both situate within the municipal district. The words in
this Act are exactly the same as in the Act under our consideration. Section 63
provides for the preparation of assessment lists and cl. (d) thereof lays down
the annual letting value or other valuation on which the property is assessed.
In the Central Provinces Municipalities Act
(No. XVI of 1903), s. 35 provides for a tax on houses, buildings and lands, and
the tax is not to exceed 7 per centum of the gross annual letting value of the
house, building or land.
Here again the word "rate" is not
used, although the tax is no more than a rate.
626 The Madras Municipal Act (No. III of
1904) by s. 129 provides for the levy of tax on buildings and lands. It has not
used the word "rate" but the levy is on the annual value of buildings
and lands and the annual value by s. 130 is deemed to be the gross annual rent
at which the lands might reasonably be expected to let from year to year or
from month to month (subject to certain deductions). It is remarkable how the
words used in the various Indian Acts arc almost the same as in English
statutes and how they follow the English definitions of gross value or annual
value almost word for words. Though, .therefore, the word "rate" was
not used in this Act, the levy was on the annual value of the land.
Lastly. the Punjab Municipalities Act, (No.
III of 1911) provides for a tax On buildings and lands and it further provides
various modes for assessment one of which is based on the annual letting value.
Two other ways are provided in this Act, namely, so much per square yard of the
ground area and so much per foot of frontage on streets and bazars. But that
also does not change the nature of the tax which is not based on capital value.
It will thus be seen that all Indian statutes
till 1911 dealing with municipal taxation impose a tax on the annual value of
lands or buildings without always using the word "rate." In some of
the statutes the word "rate" is used but the tax is again on the
annual value. The legislation on this subject has been summed up by Aiyangar in
"'Municipal Corporations in British India," (Vol. 111, 1914 Edn.) at
p. 153 in these words :-"All municipal corporations in British India are
empowered to levy taxes on all buildings and lands within their local limits
subject to certain specific exemptions. The owners arc made primarily liable in
some municipalities, 627 while in others both the owners and occupiers are made
liable. Taxes which they can levy .form a fixed percentage on the rateable or
annual values of all the said buildings and lands. The percentage varies in the
different municipalities and the mode of ascertaining the rateable or annual
value also varies." Turning now to the Acts passed in India between 1912
and 1925, we find the same state of affairs. The U. P.
Municipalities Act, (No. II of 1916) provides
for a tax on the annual value of buildings or lands or of both by s. 128 (1)
(i).
The Madras City Municipal Act, (No. IV of
1919) imposes a property tax by s. 98. This tax is to be levied, under s. 99 on
all lands and buildings within the city at such percentages of the annual value
of buildings and lands as may be fixed by the council, subject to a maximum and
minimum, the maximum being 20%.
The Madras District Municipalities Act, (No.
V of 1920) imposes a property tax by s. 81 (1); it is to be levied, by its
sub-s. (2), at such percentages of the annual value of buildings or lands as
may be fixed by the municipal council.
The C. P. and Berar Municipalities Act, (No.
II of 1922) provides for a tax payable by the owners of lands and buildings
situate within the limits of the municipality, with reference to the gross
annual letting value of the buildings or lands.
The Bihar and Orissa Municipal Act, (No. VII
of 1922) provides by s. 82 (1) (a) for a tax upon persons in sole or joint
occupation of holdings within the municipality.
Further by cl. (b), (c), (d) and (e) of this
section, provision is made for a tax on all holdings, a water tax, a lighting
tax, and a latrine 628 tax on the annual value of holdings. The other sections
prescribe the maximum beyond which the taxes will not be levied. As the tax
under s. 82 (1) (a) is on occupation it necessarily follows that it could only
be levied on the annual value.
It will thus be seen that these Acts which
were passed between 1912 and 1925, which repeal the earlier Acts also provide
for taxation on lands and buildings, and though the word "rate" is
not used in any of these Acts, the tax is still on the annual value of lands
and buildings. This shows that there was a uniform legislative history and
practice in India also though sometimes the impost was called a tax on lands
and buildings and at others a rate.
But it was always a tax on the annual value
of lands and buildings. In any case wherever it was called a rate it was always
on the annual value. It would therefore be not improper to infer that whenever
the word "rate" is used with respect to local taxation it means a tax
on the annual value of lands and buildings.
It will be clear further that in India up to
the time the Act with which we are concerned was passed the word
"rate" had acquired the same meaning which it undoubtedly had in
English legislative history and practice up to the year 1925, when the Rating
and Valuation Act came to be passed consolidating the various rates prevalent
in England. It would therefore be right to say that the word "rate"
had acquired a special meaning in English legislative history 'and practice and
also in Indian legislation where that word was used and it meant a tax for
local purposes imposed by local authorities, and the basis of the tax was the
annual value of the lands or buildings on or in connection with which it was
imposed, arrived at in one of the three ways which we have already indicated.
It seems to us therefore that when in 1925 s. 73 (1) of the Act while
specifying taxes which 629 could be imposed by a municipal borough used the
word "rate" on buildings or lands situate within the municipal borough,
the word "rate" must have been used in that particular meaning which
it had acquired in the legislative history and practice both in England and
India before that date. The matter might have been different if the words in
cl.(i) of that section were "'a tax on buildings or lands or both situate
within the municipal borough", for then the word "tax" would
have a wide meaning and would not be confined to any special meaning. But the
use of the word "rate" in cl.
(i) definitely means that it was that particular
kind of tax which in legislative history and practice was known as a
"rate" which the municipality could impose and not any other kind of
tax. It is true that in the opening words of s. 73 (1) it is said that the
municipality may impose any of the following taxes, which are thereafter
specified in cls. (i) to (xiv). But when cl. (i) specifies the nature of the
tax as a rate on buildings or lands or both we must find out what the word
" rate" used therein means, for it could not be an accident that the
word "rate" was used in that clause when dealing with a tax on lands
or buildings. Further if we find that the word "rate" had acquired a
special meaning in legislative history and practice in England and India before
1925 with reference to local taxation, it must follow that when the word
"'rate') was used in cl. (i) instead of the general word "tax"
it was that particular kind of tax which was known in legislative history and
practice as a rate which the municipalities were being empowered to impose. It
may be added herewith some advantage that the word "tax" in the
opening words of s. 73(1) has been used in a general and all-pervasive sense as
defined in s. 3(20) of the Act and not in any restricted sense; and therefore
when the word "rate" is used in cl.(i) it was clearly used not only
in the specific and limited sense, but also with the intention, to convey the
meaning that it had acquired by the time the 630 Act was passed. It is
remarkable that in some other clauses of s. 73(1) also the general word
"tax" has not been used, though of course all the imposts in cls. (i)
to (xiv) are called taxes in the opening words of s. 73(1) for obvious reason.
In cl. (iii) the words used are "a toll on vehicles" which obviously
mean that only that kind of tax which was known as toll which could be imposed
on vehicles.
In cl. (iv) the word used is
"octroi" on animals or goods, implying thereby that kind of tax which
was known as octroi could be imposed and not any kind of tax within the meaning
of the general word "tax". Similarly in cl. (v) the words used are
"a terminal tax on goods" meaning thereby that kind of tax which was
known as terminal tax could be imposed.
Therefore when the first clause of s. 73 (1)
gives power to the municipality to impose a rate on buildings or lands it meant
that kind of tax which had acquired a special meaning and was known as rate in
the legislative history and practice of England as well as of India upto then.
That legislative history and practice we have considered and it shows that the
word "rate" whenever used upto 1925 with reference to local taxation
meant a tax on the annual value of lands and buildings and not a tax on the
capital value.
It has however been urged that by virtue of
the explanation to s. 75, it is open to the municipality in the case of lands
to use two bases of valuation, namely either capital or annual letting value.
That is undoubtedly so.
But it does not mean that because the
municipality is empowered to use capital as one basis of valuation it has been
empowered when fixing a rate to fix it as so much percentage of the capital
value. That explanation carries in our opinion only the meaning which is in
accordance with the practice in England and also in this country and it seems
to us that it is that meaning which should be given when the basis of valuation
is capital.
631 We have already pointed out that in
England also one basis of valuation for the purpose of a rate was to find out
first the capital value or the effective capital value.
Then a certain percentage of the effective
capital value was taken as the annual value and the tax was levied on the
annual value so arrived at. In such a case though the tax was levied on the
annual value the basis of valuation would still be capital. Therefore the fact
that the explanation used the words "the basis of valuation may be
capital" it does not mean that the tax would be at such and such
percentage of the capital; it only means that in order to arrive at the annual
value for purposes of levying a rate which is a tax on the annual value, the
municipality may use the capital value and then a percentage thereon to arrive
at the annual value. This would be in accordance with the third way of arriving
at annual value to which we have referred earlier. Therefore we are of opinion
taking into account the fact that the word "rate" has been used in
the first clause to s. 73(1 ), the explanation when it says that in the case of
lands basis of valuation may be capital, only means that method of valuation
which was in vogue in England and which we have described as the third method
of valuation may be used to arrive at the annual value from the capital value
and the rate may then be determined as a tax on the annual value. In this view
of the matter r. 350-A read with r. 243 by which the municipality has fixed the
tax on the basis of capital value directly is against the provisions of s. 73
(1) (i) and the explanation to s. 75. 'I he whole difficulty in this case has
arisen because unfortunately the words "rate" or "rateable value"
have not been defined anywhere in the Act, though they have been defined in
some other contemporaneous statutes in force at the time the Act was passed and
to which we have already referred.
Our attention was drawn in this connection to
an amendment made in the Madras District 632 Municipalities Act, (No. V of
1920), by the insertion of sub-s. (3) in s. 81 of that Act. This was done in
1930 and provided that "in case of lands which are not used exclusively
for agricultural purposes and are not occupied by, or adjacent and appurtenant
to, buildings" the property tax may be levied at such percentages of the
capital value of such lands or at such rates with reference to the extent of
such lands as may be fixed. This amendment was a sort of exception to s. 81
(2), which provided generally for levying these taxes at such percentages of
the annual value of lands and buildings as may be fixed by the municipal
council. In the first place this amendment made in 1930 cannot affect the
legislative history and practice, as it was upto 1925 when the Act with which
we are concerned was passed. Besides this was an express provision providing in
so many words for levying property tax at a percentage of the capital value in
the case of certain exceptional lands. The amendment was made in 1930 before
the Government of India Act, 1935, had come into force with its separate
legislative lists and there could be no question then of the competence of the
provincial legislature to make such an amendment. In any case this exceptional
provision made after 1925 in express words cannot detract from the meaning of
the word "rate" particularly when the Act has not used the word
"rate" anywhere. Further the provision in the Act with which we are
concerned is not in express terms, All that the explanation provides is that in
case of open lands, the basis of valuation may either be capital or annual
letting value. Valuation based on capital was well-known in England with
respect to the levy of rates as it was the third method to which we have
referred. Therefore when the explanation uses these words it must in our
opinion be held to refer to that well known method of valuation prevailing in
England with respect to levy of rates and cannot be read to mean a percentage
of the capital value 633 itself. At any rate there are no express words in the
explanation to that effect and therefore it should be read to mean the third
method of valuation in force in England to which we have already referred. The
amendment therefore made in 1930 in the Madras Act does not in any way affect
the legislative history and practice relating to the word "rate"
which, as we have pointed out, was not even used in that Act. We may add that
we express no opinion as to the validity of this amendment after the Government
of India Act, 1935 and the Constitution of India have come into force.
It is however urged that it really makes no
difference whether the rate is levied at a percentage of the capital value or
is a percentage of the annual value arrived at on the basis of capital value by
fixing a certain percentage of the capital value as the yield for the year. It
is true that mathematically it is possible to arrive at the same figure for the
rate by either of these methods. Suppose that the capital value is Rs. 100/and,
as in this case, the rate is fixed at 1 per centum of the capital value, it
would work out to Re. I/-. The same figure can be arrived at by the other
method. Assume that 4 per cent is the annual yield and thus the annual value of
the piece of land, the capital value of which is Rs. 100/-, will be Rs. 4/-. A
rate levied at 25 percent will give the same figure, namely, Re. I/-.
Mathematically, therefore. it may be possible to arrive at the same amount of
rate payable by an occupant of land, whether the rate is fixed at a particular
percentage of the capital value or a particular percentage of the annual value.
But this identity would not in our opinion make any difference to the
invalidity of the method of fixing the rate on the capital value directly. If
the law enjoins that the rate should be fixed on the annual value of lands and
buildings, the municipality cannot fix it on the capital value, and then
justify it 634 on the ground that the same result could be arrived at by fixing
a higher percentage as the rate in case it was fixed in the right way on the
annual value. Further by fixing the rate as a percentage of the capital value
directly, the real incidence of the levy is camouflaged. In the example which
we have given above, the incidence appears as if it is only 1 percent but in
actual fact the incidence is 25 percent of the annual value. Further if it is
open to the municipality to fix the rate directly on the capital value at 1
percent it will be equally open to it to fix it, say at 10 percent, which
would, taking again the same example, mean that the rate would be 250 percent
of the annual value and this clearly brings out the camouflage. Now a rate as
10 percent of the capital value, may not appear extortionate but a rate at 250
percent of the annual value would be impossible to sustain and might even be
considered as confiscatory taxation. This shows the vice in the camouflage that
results from imposing the rate at a percentage of the capital value and not at
a percentage of the annual value as it should be. Lastly, municipal
corporations are elected bodies and their members are answerable to their
electorates. In such a case it is necessary that the incidence of the tax
should be truly known. Taking the example which we have given above, the municipal
councilors may not feel hesitant in imposing a rate at 1 percent of the capital
value, but if they were to impose it at 25 % of the annual value they may
hesitate to do so, because they have to face the electorates also. We are
therefore of opinion that though mathematically it may be possible to arrive at
the same figure of the actual tax to be paid as a rate whether based on capital
value or based on annual value, the levying of the rate as a percentage of
capital value would still be illegal for the reason that the law provides that
it should be levied on the annual value and not otherwise.
By levying it otherwise directly at a
percentage of the capital 635 value, the real incidence -of the rate is
camouflaged, and the electorate not knowing the true incidence of the tax may
possibly be subjected to such a heavy incidence as in some cases may amount to
confiscatory taxation. We are therefore of opinion that fixing of the rate at a
percentage of the capital value is not permitted by the Act and therefore r.
350-A read with r. 243 which permits this
must be struck down, even though mathematically it may be possible to arrive at
the same actual tax by varying percentages in the case of capital value and in
the case of annual value. It follows therefore that as the tax in the present
case is levied directly as a percentage of the capital value it is ultra vires
the Act and the assessment based in this manner must be struck down as ultra
vires the Act.
In the view that we have taken of the meaning
of the word "'rate" with the result that r. 350-A read with r.243 has
to be struck down as ultra vires the Act, it is not necessary to consider the
second question raised before us, namely, whether the explanation would be
ultra vires the Provincial Legislature because of item 55, List I, of the
Seventh Schedule to the Government of India Act, 1935, if it authorises the
municipality to levy the rate at a percentage of the capital value. We have
already said that is not the meaning of the words used in the explanation and
the second point therefore does not fall to be considered.
We therefore allow the appeal and set aside
the order of the High Court and declare that r. 350-A read with r. 243 is ultra
vires s. 73 of the Act read with the explanation to s. 75. It is further
declared that the assessment list for the year 1947-48, published on January
25, 1948, by the municipality for levying the said tax in so far as it is
prepared under r. 350A is illegal, ultra vires and void.
The respondent municipality is therefore
restrained from 636 recovering from the plaintiffs, appellants the said tax on
the open lands assessed in the said assessment list for that year and later
years. The appeal is hereby allowed with costs throughout in favour of the
plaintiffs-appellants.
SARKAR J.--The appellants are holders of
vacant lands within the limits of the respondent Corporation. The Corporation
framed a rule providing that the rate payable on open lands would be on the
basis of their capital value. The question at issue is whether this rule is
void.
The Corporation was formed under the Bombay
Municipal Boroughs Act, 1925, to two of the provisions of which only it is
necessary to refer for the purpose of this appeal.
The first is s. 73 which provides that,
"a municipality may impose for the purposes of this Act any of the
following taxes, namely :-'(i) a rate on buildings or lands or both situate
within the municipal borough.' The other is s. 75 which states: "A
municipality before imposing a tax shall observe the following preliminary
procedure :-(a) it shall, by resolution .....Select one or other of the taxes
specified in s. 73 and approve rules prescribing the tax selected and in such
resolution and in such rules specify :
(iii) in the case of a rate on buildings or
lands or both, the basis, for each class of the valuation oil which such rate
is to be imposed ; ...... ....... ..... ...........
Explanation--In the case of lands the basis
of valuation may be either capital or annual letting value." It is under
this section that the rule in question was framed. That rule so far as material
is in these terms :
Rule 350 A.-"..... the rate on open land
shall be levied as under :(I) ...........................
637 (II) Rate on...... open land ... shall be
levied at 1 % of the valuation based on capital............
Rule 253 provides that "Valuation based
upon capital shall be the Capital value of buildings and lands as may be
determined from time to time by the valuers of the Municipality." There is
no doubt that as a result of these sections and rules, the appellants were
being made to pay I% of the capital value of their lands as assessed by
Corporation's valuers. The appellant's had some objection to the valuation on
its merits but it is conceded that these cannot be raised in the present
proceedings. Learned counsel for the appellants has, therefore, confined
himself entirely to challenging the Corporation's power to impose the levy on
the basis of the capital value of the lands.
The challenge has been based on two grounds,
none of which, to my mind, is sustainable. It is first said that the
Corporation's power to levy a tax on lands is confined by s. 73 to that variety
of tax which is called a "rate" and a "rate" is an impost
which is leviable on the basis of an assessment in respect of the yearly value
of property.
Hence, it is contended, the Corporation had
no power to levy any tax based on the capital value of the lands and its rules
giving authority to do so are, therefore, void.
The foundation on which this contention rests
is that the expression "rate" has a technical meaning namely, a levy
on the basis of yearly value of property. Support for this contention is sought
from various well known English text books on "Rating." I doubt very
much if these authorities meant to say that a "'rate" must be based
on yearly value; I think they stated, "'rates" are in fact based on
yearly values. The two are not, in my view, the same.
Furthermore, 638 in England the law of rating
has always been statutory : see Hulsbury's Laws of England (3rd ed.) vol. 32 p.
3. It would follows that all that these text books could say was that in all
the successive rating statutes the basis of yearly values has always been
adopted. I am unable to agree that it follow from this that the expression rate
can be said to have acquired a technical meaning as referring only to an impost
based on annual value.
Reference was made at the Bar to the State of
Madras V. Gannon Dunkerley and Co. Ltd. (1). In that case it was held that in
deciding the scope of an entry in a legislative list in the Government of India
Act, 1935 reference might legitimately be made' to legislative practice and to
the well-recognised legal imports of terms used in that entry.
It seems to me that the problem here is
different. We have to decide what the plain English meaning of the word rate'
is and not the scope of legislative power.
Now, as to the plain meaning, the Shorter
Oxford Dictionary defines 'rate' as 'amount of assessment on property for local
purposes.' So in Halsbury's Laws of England (3rd ca.) vol. 32 p. 3 it has been
said that "Rates are principal means by which money to defray local
government expenses is raised by direct levy on occupiers, or in certain cases
owners, of property within the area of the authority making the rate."
Rate, therefore, is an expression used to indicate an impost levied by a local
authority to raise funds for its expenses. Such an impost would be rate
irrespective of the basis on which it is levied. Ofcourse, the authority cannot
levy a rate, or indeed any impost, unless a statute gives it the power to do so
and the manner in which it can levy that impost must also be decided by
statute. Rate is only the name given to an impost and there is nothing inherent
in its nature to indicate that the impost must be assessed in a certain way. I
find nothing in the (1) [1959] S.C.R. 379.
639 authorities to support the view that in
England rate must always be levied on the basis of annual value and an impost
not so levied, would not be rate at all.
So far as our country is concerned, the
foundation for the argument is much weaker. We have a large number of statutes
in which an impost by a local authority though based on annual value has been
called "tax"; see for examples -The Bombay City Municipal Act (Act
No. III of 1888), The Madras District Municipalities Act (Act No. IV of 1884).
The North-Western Provinces and Oudh Municipalities Act, (Act No. 1 of 1900)
and The Central Provinces Municipalities Act (Act XVI of 1903). Our practice
has, therefore, departed from the English practice at least to this extent that
we do not always call imposts levied for local government or municipal
expenses, "rates". Also according to our legislative practice, even a
"tax" may be based on annual value ; an assessment on the basis of an
annual value need not necessarily be called a "rate". It cannot,
therefore, be said that in our country the world "rate" has acquired
any technical meaning as indicating only an impost by a local authority
assessed on the basis of annual value of property. Our legislatures have
described the impost indifferently both as "'tax" and as
"'rate" as it suited them and have in each case provided for the
method of its assessment. In fact s. 81 (3) of the Madras District Municipalities
Act, 1920 permits a municipality to levy "property tax" on certain
lands "at such percentages of the capital value of such lands......... as
it may fix".
I also do not think that the argument had
been presented to the High Court in this form. We have, therefore, not the
advantage of the views of the High Court as to whether the expression
"rate" has acquired a technical meaning. Neither do I think that much
material had been placed before us by counsel for the appellants in this
connection. All this makes 640 it necessary for us to be fully satisfied about
the suggested technical meaning of the term ((rate" be. for we pronounce
in its favour, and speaking for myself, I confess I am very far from being so
satisfied .
There is yet another difficulty in the
appellant's way. No doubt s. 73 uses the word "rate", but it is clear
that the rate is a kind of tax for the section says so. Section 75 gives the
municipality the power to frame rules specifying the basis of the valuation on
which a rate on lands is to be imposed. The ex. planation to this section puts
it beyond doubt that the municipality may in the case of lands specify at its
pleasure as the basis either the capital value or the annual letting-value. The
Act, therefore, contemplates a rate which can be based on capital value. Quite
Plainly, therefore, the word "rate" has not been used in the Act in a
technical sense even if it has one. It would follow that the rule under
challenge was properly framed under s. 75 read with the explanation.
It is however said that the explanation to s.
75 must be ignored as it is in conflict with main provision authorising the
levy, namely, s. 73. The contention is that since s. 73 authorises only the
imposition of a rate, that is, an impost based on annual value, the explanation
to s. 75 which permits the impost to be based on capital value is outside the
scope of the main provision and hence must be left out.
I am entirely unable to accept this
contention. The different parts of a statute are not intended to be in conflict
With each other and, therefore, if not impossible they should be read as
consistent parts of a whole. In the present case I find no difficulty in so
reading them.
Section 73 empowers the imposition of a tax
which it calls a rate. Section 75 authorises the tax to be assessed either on
capital or on annual value. Obviously the intention is that the tax is not a
rate in the technical sense, if there is such a sense in which 641 it must be
based on the annual value. The word "rate" must be understood, whatever
it might in its technical sense mean, to have been used in the statute to
describe a tax the basis of which can be capital value.
Then it was said that the explanation does
not show that the basis of the tax was not intended to be annual value for one
of the well known methods of finding out the annual value is first to find out
the capital value and then from it the annual value by finding out what yearly
income the capital would produce if invested at a rate of interest which would
be considered reasonable at the current market conditions, and it is only for
the purpose of finding out the annual value by this method that the explanation
provides that the basis of the valuation for the imposition of the rate might
be the capital value.
This seems to me to be quite an impossible
contention. It is based on the assumption that what is imposed being a rate
which must be based on annual value, the explanation must be read so as to
harmonise with it, If this were not so, there would of course be no reason to
contend that capital value had been mentioned only as the first step for
ascertaining the annual value. But, there is nothing in the explanation to show
that capital value has been mentioned only for the purpose of finding out the
annual value from it. We have to read many words into it to produce that
result. Such a thing is not permissible and there is no warrant for doing it
either. Again, this reading does much more than bring about harmony ; it makes
the explanation quite superfluous, quite unnecessarily enacted. For, if the
impost was a rate in the sense the appellants stated, it had necessarily to be
based on annual value and there was, therefore, no need to enact by the
explanation how it was to he based or to expressly provide that the annual
value might be ascertained first by 642 finding out the capital value or by any
of the other recognised methods of doing so for all such methods would
necessarily be available. Since, however, statutes are not enacted
unnecessarily, the explanation must have been put there to serve a purpose .
That purpose can only have been to provide that the rate, a tax, authorised by
s. 73 could be lawfully imposed on either of the basis mentioned in the
explanation. The contention of the appellants, therefore hat under s. 73 only
an impost based on the annual value of the lands could be levied and r. 350-A
read with r. 243 must be held to be beyond the powers given by the Act, cannot
be sustained.
I turn now to the other ground on which the
power to impose the tax on the basis of capital value was challenged. It was
said that if the rule permitting the imposition on the basis of capital value
had been authorised by the explanation to s. 75 or by any other provision in
the Act, these provisions would be void and illegal as they could be beyond the
legislative competence of the Bombay Legislature by whom the Act was enacted.
This argument was founded on the Government of India Act, 1935.
The Bombay Act was passed in 1955, that is,
before the Government of India Act, 1935 was passed. The rule under which power
was taken to impose the rate on the basis of capital value was however framed
in February 1947, that is, long after the Government of India Act 1935. After
the Government of India Act had come into force, a new subsection numbered sub
section (2) was inserted in s. 73 of the Bombay Act which provided that
"Nothing in this section shall authorise the imposition of any tax which
the Provincial Legislature has no power to impose in the Province under the
Government of India Act 1935." It was, therefore., contended that the
power to impose the rate based on the capital value of lands even if conferred
by 643 s. 73 or s. 75 of the Bombay Act would be void unless it was a tax which
the Bombay legislature could lawfully impose under the Government of India Act.
This contention is perfectly legitimate. I think 1 should point out now that as
this case is concerned with assessment for the years 1947-48 and 1948-49, it is
unnecessary to consider the question of legislative competence of the legislature
of the State of Bombay under the Constitution.
The question then is: Is the tax imposed in
the present case outside the powers of the Provincial legislature under the
Government of India Act, 1935? The respective powers of the Provincial and
Central legislatures as defined by that Act are contained in Lists II and I in
the Seventh Schedule to it. Under item 42 of List II, the Provincial
Legislatures had power to pass an Act imposing "'taxes on lands and
buildings. " The Corporation contends that the Bombay Act comes fully
within item 42 of List II. The Appellants, on the contrary contend that it is
really a legislation under item 55 of List I under which the Central
legislature has the power to legislate, to impose "taxes on the capital
value of the assets, exclusive of agricultural land, of individuals and
companies." They say that this is so because the Bombay Act permits the
tax to be imposed on the basis of capital value of the lands. if this
contention is correct, no doubt the imposition of the tax in this case would be
illegal and void.
As I have earlier said, in my opinion., the
appellants' contention is unsound. In my view, the Bombay Act imposes a tax on
lands and is, therefore, within item 42 of List If.
The fact that it has provided for that tax
being quantified on the basis of the capital value of the land taxed does not
take it out of item 42 of List II And place it under item 55 of List I. It is
quite obvious that in providing the two items, namely, item 55 of List I and
item 42 of 644 List II, the makers of the Government of India Act contemplated
two different varieties of taxes. The Provincial Legislature had been given the
power to tax units of lands and buildings irrespective of their value and the
Central Legislature the power to tax the value of assets.
As was said in the Provincial Treasurer of
Alberta v. Kerr (1). "The identification of the 'subject matter of the tax
is naturally to be found in the' charging section of the statute, and it will
only be in the case of some ambiguity in the terms of the charging section that
recourse to other sections is proper or necessary." Now the charging
section in this case is in a manner of speaking S. 73. That permits only a tax
on lands and buildings. We have not got in the records the resolution under s.
75 selecting the tax, on land and buildings as a tax which the municipality
chose to impose. There is no question, however, that such a resolution was
passed and it must have been in terms of S. 73. The charging provision that we
have in this case does not, therefore travel outside the power conferred by
item 42 in List 11. Nor has it been suggested that it is ambiguous.
The only question, therefore, is whether by
providing that the tax might be levied at 1 % of the capital value of the, land
taxed, the entire scope of the charging section is being altered and in reality
the tax levied becomes a tax on capital asset? I feel no doubt that the
question must be answered in the negative. The importance of the distinction
between the levy of a tax and the machinery of its collection has often been
pointed out by judicial pronouncements of the highest auhority. One of the more
recent of these is R. C. Jall V. Union of India ( 2 ) . I suppose the machinery
of collection would include the measure of the tax; in any case, I think, they
are on a par. The subject matter of taxation is obviously something other than
the measure provided for the quantification of the tax.
(1) [1933] A.C. 710, 720.
(2) A.I.R. (1962) S.C. 1281.
645 In Ralla Rom v. Prorince of East Punjab
(1), the Federal Court upheld a Provincial statute which imposed a property tax
assessed on the annual value of tile property and rejected the contention that
such a tax was really a tax on income which only the Centre could impose under
item 54 of List I. I think it may be legitimately said that if a tax expressly
levied on land and made assessable on its annual value, that is, its income, is
not by reason of such method of assessment a tax on income, a tax on land
cannot become a tax on capital value of assets because it is made assessable on
the basis of the capital value of the land.
There are however other reasons why the tax
in the present case cannot be said to be a tax on the capital value of assets.
This tax is leviable on land on the basis of its capital value even though the
land may be subject to a charge and even though that charge may exceed the
capital value of the land. In such a case for the purpose of assessment the
charge can be completely ignored and the tax levied notwithstanding that to the
owner the property is of no value in view of the charge. If the tax was in
reality a tax on capital value of assets it could not in the circumstances that
I have imagined, be levied at all. That very clearly marks out the essential
difference between this Act and an Act imposing a tax on capital value of
assets.
Another distinction is that in the case of a
tax on capital value of assets the tax can be levied only on individuals owning
the assets. That I think follows from the words of item 55 of List 1. Under s.
85 of the Bombay Act, however, the present tax can be levied on a person in
occupation of the land who holds it on a building lease taken from another. He
is not the owner of it but nonetheless is liable to be taxed under the Act on
the basis of the full capital value of the land and not on the value of his
leasehold only. If the tax was on the capital value of (1) [1948] F. C. R. 207.
646 assets, such a person could not have been
so taxed. Again, under the same section a proportionate part of the tax which
is primarily payable by the owner under the Act, may be recovered from a tenant
in -possession of the land and this would of course not be possible if the
Bombay Act, was an Act imposing a tax on the capital value of assets of
individuals for the assets, that is, land did not belong to the tenant at all.
I think, therefore, that the contention of the appellants that the Act really
authorises the imposition of a tax on the capital value of assets of
individuals and is thus an Act which the Central legislature could pass under
the Government of India Act and the Provincial legislature could not, must be
rejected.
I would for these reasons dismiss the appeal
with costs.
By COURT : In accordance with the majority
opinion the appeal is allowed with costs throughout.
Appeal allowed.
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