Assistant Commissioner of Urban Land
Tax& Ors Vs. The Buckingham & Carnatic Co. Ltd. [1969] INSC 108 (11
April 1969)
11/04/1969 RAMASWAMI, V.
RAMASWAMI, V.
HIDAYATULLAH, M. (CJ) SHAH, J.C.
MITTER, G.K.
GROVER, A.N.
CITATION: 1970 AIR 169 1970 SCR (1) 268 1969
SCC (2) 55
CITATOR INFO :
R 1971 SC1321 (4) RF 1972 SC1061
(63,89,100,102,161,173) RF 1972 SC2455 (8) F 1980 SC 271 (11,34,43) MV 1985 SC
421 (76) R 1990 SC 85 (23)
ACT:
Madras Urban Land Tax Act 1966-If violative
of Arts. 14 and 19(1)(f) of the Constitution-Constitution of India Schedule
VII, Entry 49 List 2 and Entry 86 List 1-Scope of.
Constitution of India Art.
19(1)(f)-Unreasonable restriction-Act, levying tax with retrospective effect if
unreasonable restriction.
HEADNOTE:
By s. 3 of the Madras Urban Land Tax Act,
1963, a tax was levied on every owner of urban land at the rate of 0.4 % of the
average market value of the urban land as determined under s. 6(2) of the Act.
The vires of the Act was challenged by a writ petition and the impugned Act.
was struck down on the ground that it violated Art. 14 of the Constitution
because the charging section levied the tax on urban land not on the market
value of such land but on the average value of the land in a sub-zone-.
Thereafter the State Legislature passed the Madras Urban Land Tax Act 12 of
1966 which omitted the provisions relating to fixation of average market value
in the sub-zone, and instead provided in s. 5 for the levy of a tax on urban
land from the owner at the rate of 0.4% of the market value of 'such urban
land.
The validity of the new Act was again
challenged in a group of writ petitions before the High Court which held that
the Madras Legislature was competent to enact the new Act but that it was
violative of Arts. 14 and 19(1)(f) of the Constitution.
In appeals to this Court it was contended,
inter alia, on behalf of the petitioners (1) that the impugned Act fell under
Entry 86, List I and not under Entry 49 of List 2, so that the State
Legislature was incompetent to pass the Act;
furthermore as Entry 49, List 2 provides for
taxes on land and buildings, the impugned Act which imposed tax on land alone
could not be held to fall under the Entry; (ii) that the machinery was provided
for determining the market value and the matter having been left to the
arbitrary determination of the Assistant Commissioner, the provisions of the
new Act were violative of Art. 14 of the Constitution (iii) that the Act was an
unreasonable restriction on the right to acquire, hold and dispose of property
and as 'such was violative of Art. 19 (1) (f) of the Constitution;
furthermore together with the existing
property tax under s. 100 of the City Municipality Corporation Act the tax
under the impugned Act exhausted an unreasonably high proportion of income and
on this account also it was an unreasonable restriction; it was also contended
that the giving of retrospective operation to the Act from July, 1963 made it
unreasonable.
HELD: The Madras Urban Land Tax Act 12 of
1966 was constitutionally valid.
(i) In pith and substance the new Act in
imposing a tax on urban land at a percentage of the market value is entirely
within the ambit of 269 Entry 49 of List II and within the competence of the
State Legislature, it does not in any way trench upon the field of legislation
of Entry 86 of List 1. [280 G-H] There was no conflict between Entry 86 of List
I and Entry 49 of List II. The tax under Entry 86 proceeds on the principle of
aggregation and is imposed on the totality of the net value of an assets. Entry
49 of List II, contemplates a levy of tax on lands and buildings or both as
units; it is not concerned with the division of interest or ownership in the
units of land or buildings which are brought to tax. [278 E-F] The legislative
entries must be given a large and liberal interpretation, the reason being that
the allocation of the subjects to the Lists is not by way of scientific or
logical definition but by way of a mere sixplex enumeratio of broad categories.
[277 G-H] Ralla Ram v. Province of East Punjab, [1948] F.C.R. 207, Sudhir
Chandra Nawn v. Wealth Tax Officer, A.I.R. 1969 S.C.
59; Gallahagher v. Lynn, [1937] A.C. 863 at
p. 870; and Subrahmanyan Chettiar v. Mittuswami Goundan, [1940] F.C.R.
188 at 201; referred to.
The legislative history of Entry 49, List II,
does not lend any support to the argument that Entry 49 of List if relating to
tax on land and, buildings cannot be separated.
On the other hand Entry 49 "Taxes on
lands and buildings" should be construed as taxes on land and taxes on buildings
and there is no reason for restricting the amplitude of the language used in
the Entry. [281 G] Raja Jagannath Baksh Singh v. The State of U.P., [1963] 1
S.C.R. 220; and H. R. S. Murthy v. Collector of Chittoor and Anr., [1964] 6.
S.C.R. 666; referred to.
(ii) The provisions of s. 6 of the new Act
were not violative of Art. 14 of the Constitution.
Having regard to the language and context of
s. 6 of the new Act, the opinion which the Assistant Commissioner has to form
under that section is not subjective but should foe reached objectively upon
the relevant evidence after following the requisite formalities laid down in
ss. 7 to 1 1 of the new Act. The proceeding before the Assistant Com- missioner
is judicial in character and his opinion regarding the market value is reached
objectively on all the materials produced before him. [282 F] (iii) The new Act
was also not violative of Art. 19(1) (f) of the Constitution.
It is not possible to put the test of
reasonableness into the straight jacket of a narrow formula. The, objects to be
taxed, the quantum of tax to be levied; the conditions subject to which it is
levied and the social and economic policies which a tax is designed to subserve
are all matters of political character and these matters have been entrusted to
the Legislature and not to the Courts. In applying the test of reasonableness
it is also essential to notice that the power of taxation is generally regarded
as an essential attribute of sovereignty and constitutional provisions relating
to the power of taxation are regarded not as grant of power but as limitation
upon the power which would otherwise be practically without limit. [284 E] Rai
Ramakrishna v. State of Bihar, A.I.R. 1963 S.C. 1667 at 1673; referred to.
270 The charge under the City Municipality
Corporation Act was a tax .,on the annual letting value whereas the charge
under the Act of 1966 was .on the market value of the urban land.
The basis of the two taxes being different,
it was not permissible to club the two together and complain of the cumulative
burden.
As a general rule, so long as a tax retains
its character as a tax and is -not confiscatory or extortionate, the
reasonableness of the tax cannot be questioned. In so far as the new Act of
1966 was concerned, it could not be said that the levy at 0.4% of the market
value of the urban land was confiscatory in effect [285 F] (iv) In view of the
legislative background of the new Act of 1966, which replaced the earlier Act
of 1963, it could not be said that the imposition of the tax retrospectively
'from July, 1963, was an unreasonable restriction. [289 B]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 21 to 23, 46, 47, 125 and 274 of 1969.
Appeals from the judgment and orders dated
April 10, 1968 of the Madras High Court in Writ Petitions Nos. 387 of 1968 etc.
S. V. Gupte, G. Ramanujam and A. V. Rangam,
for the appel- lants (in C.As. Nos. 21 to 23 of 1969) and the respondent (in
C.As. Nos. 46, 47, 125 and 274 of 1969).
V. K. T. Chari, T. N. C. Rangarajan and D. N.
Gupta, for the appellants (in C.As. Nos. 46 and 47 of 1969) and the respondents
(in C.As. Nos. 21 and 23 of 1969).
V. K. T. Chari, A. R. Ramanathan, T. N. C.
Rangarajan -and R. Gopalakrishnan, for the appellant (in C.A. No. 125 of 1969).
K. C. Rajappa, S. Balakrishnan and S.
Laxminarasu, for the appellant (in C.A. No. 274 of 1969).
K. C. Rajappa, S. Balakrishnan, S.
Laxminarasu and N. M. Ghatate, for the respondents (in C.A. No. 22 of 1969).
The Judgment of the court was delivered by
Ramaswami, J. In these appeals which have been heard together a common question
of law arises for determination, namely, whether the Madras Urban Land Tax Act,
1966 (12 of 1966) is constitutionally valid.
In 1963 the Madras Legislature enacted the
Madras Urban Land Tax Act, 1963 which came into force in the city of Madras on
the 1st of July, 1963. In the Statement of Object and Reasons of the 1963 Act
it was stated that the Taxation Enquiry 271 Commission and the Planning
Commission were suggesting the need for imposing a suitable levy on lands put
to non- agricultural use in urban areas. The State Government, after examining
the report of the Special Officer, decided to levy a tax on urban land on the
basis of market value of the land at the rate of 0.4% on such market value. Section
3 of the Act of 1963 (which win be referred to as the old Act) provided that
there shall be levied and collected for every fasli year commencing from the
date of the commencement of the Act, a tax on urban land from every owner of
urban land at the rate of 0.4% of the average market value of the urban land in
a sub-zone as determined under subsection (2) of s. 6. Section 7 provided for
the determination of the highest and lowest market value in a zone. For
determining the average market value, the Assistant Commissioner shall have
regard to any matters specified in clauses (a) to (e) of sub-s. 2 of s. 6;
namely:
(a) the locality in which the urban land is
situated;
(b) the predominant use to which the urban
land is put, that is to say, industrial, commercial or residential;
(c) accessibility or proximity to market,
dispensary, hospital, railway station, educational institution, or Government
offices;
(d) availability of civil amenities like
water supply, drainage and lighting; and (e) such other matters as may be
prescribed.
The constitutional validity of Act 34 of 1963
was challenged and in Buckingham & Carnatic Co., Ltd. v. State of Madras(1)
a Division Bench of the Madras High Court held that the im- pugned Act fell
under Entry 49, List 11 of Schedule VII to the Constitution and was within the
legislative competence of the State Legislature. But the, Act was struck down
on the ground that Art. 14 of the Constitution was violated, because the
charging section of the Act levied the tax on urban land not on the market
value of such urban land but on the average value of the lands in the locality
known as a sub-zone. The new Act (Act 12 of 1966) was passed by the State
Legislature after the decision of the Madras High Court. In the new Act
provisions relating to fixation of average market value in the sub-zone were
omitted. Instead, section 5 of the new Act provides that there shall be levied
and collected from every year commencing from the date of the commencement of
the Act a tax on each urban land from the owner of such urban land at the rate
of 0.4% of the market (1),(1966) II M.L.J. 172.
272 value of such urban land. Section 2(10)
defines "owner" as follows "Owner includes- (i) any person
(including a mortgagee in possession) for the time being receiving or entitled
to receive, whether on his own account or as agent, trustee, guardian, manager
or receiver for another person or for any religious or charitable purposes, the
rent or profits of the urban land or of the building constructed on the urban land
in respect of which the word is used;
(ii) any person who is entitled to the
kudiwaram in respect of any inam land; but does not include- (a) a
shrotriemdar; or (b) any person who is entitled to the melwaram in respect of
any inam land but in respect of which land any other person is entitled to the
kudiwaram.
Explanation.-For the purposes of clause (9)
and clause (10) inam land includes lakhiraj tenures of land and shrotriam land.
Section 2(13) defines 'land' to mean any land
which is used or is capable of being used, as a building site and includes
garden or grounds, if any, appurtenant to a building but does not include any
land which is registered as wet in the revenue accounts of the Government and
used for the cultivation of wet crops." Section 6 states "For the
purposes of this Act, the market value of any urban land shall be estimated to
be the price which in the opinion of the Assistant Commissioner, or the
Tribunal, as the case may be, such urban land would have fetched or fetch, if sold
in the open market on the date of the commencement of this Act".
Section 7 provides for the submission of
returns by the owner of urban land and reads "Every owner of urban land
liable to pay urban land tax under this Act shall, within a period of one month
from the date of the publication of the Madras Urban Land Tax Ordinance, 1966
(Madras Ordinance 273 III of 1966) in the Fort St. George Gazette, furnish to
the Assistant Commissioner having jurisdiction a return in respect of each
urban land containing the following particulars, namely :- (a) name of the
owner of the urban land, (b) the extent of the urban land, (c) the name of the
division or ward and the street, survey number and subdivision number of the
land and other particulars of such urban land, (d) the amount which in the
opinion of the owner is the market value of the urban land." Section 1 0
deals with the procedure for the determination of the market value by the
Assistant Commissioner and states:
(1) Where a return is furnished under section
7 the Assistant Commissioner shall examine the return and made such enquiry as
he deems fit. If the Assistant Commissioner is satisfied that the particulars
mentioned therein are correct and complete he shall, by order in writing
determine the market value of the urban land and the amount of urban land tax
payable in respect of such urban land.
(2) (a) Where no examination of the return
and after the enquiry the Assistant Commissioner is not satisfied that the
particulars mentioned therein are correct and complete he shall serve a notice
on the owner either to attend in person or at his office on a date to be
specified in the notice or to produce or cause to be produced on that date any
evidence on which the owner may rely in support of his return.
(b) The Assistant Commissioner after hearing
such evidence as the owner may produce in pursuance of the notice under clause
(a) and such other evidence as the Assistant Commissioner may require on any
specified points shall, by order in writing, determine the market value of the
urban land and the amount of urban land tax payable in respect of such urban
land.
(c) Where the owner has failed to attend or
produce evidence in pursuance of the notice under clause (a) the Assistant
Commissioner shall, on the basis of the enquiry made under clause (a), by order
in writing determin e the market value of the urban land and the amount of
urban land tax payable in respect of such urban land." 274 Section 11
enacts :
(1) Where the owner of urban land has failed
to furnish the return under section 7 and the Assistant Commissioner has
obtained the necessary information under section 9 he shall serve a notice on
the owner in respect of each urban land specifying therein- (a) the extent of
the urban land, (b) the amount which, in the opinion of the Assistant
Commissioner, is the correct market value of the urban land, and direct him
either to attend in person at his office on a date to be specified in the
notice or to produce or cause to be produced on that date any evidence on which
the owner may rely.
(2) After hearing such evidence, as the owner
may produce and such other evidence as the Assistant Com- missioner may require
on any specified points, the Assistant Commissioner shall, by order in writing,
determine the market value of the urban land and the amount of urban land tax
payable in respect of such urban land.
(3) Where the owner has failed to attend or
to produce evidence in pursuance of the notice under subsection (1) the
Assistant Commissioner shall, on the basis of the information obtained by him
under section 9, by order in writing, determine the market value of the urban
land and the amount of the urban land tax payable in respect of such urban
land." Section 20 provides for an appeal to the Tribunal from the orders
of the Assistant Commissioner:
"(1) (a) Any assessee objecting to any
order passed by the Assistant Commissioner under section 10 or 11 may appeal to
the Tribunal within thirty days from the date of the receipt of the copy of the
order.
(b) Any person denying his liability to be
assessed under this Act may appeal to the Tribunal within thirty days from the
date of the receipt of the notice 1 of demand relating to the assessment :.
Provided that no appeal shall lie under
clause (a) or clause (b) of this sub-section unless the urban land tax has been
paid before the appeal is filed.
275 (2) The Commissioner may, if he objects
to any order passed by the Assistant Commissioner under section 10 or 11,
direct the Urban Land Tax Officer concerned to appeal to the Tribunal against
such order, and such appeal may be filed within sixty days from the date of the
receipt of the copy of the order by the Commissioner.
(3) The Tribunal may admit an appeal after
the expiry of the period referred to in clause (a) or clause (b) of sub-section
(1) or in sub-section (2), as the case may be, if it is satisfied that there
was sufficient cause for not presenting it within that period.
(4) An appeal to the Tribunal under this
section shall be in the prescribed form and shall be verified in the prescribed
manner and shall be accompanied by such fee as may be prescribed.
(5) The Tribunal may after giving both
parties to the appeal an opportunity of being heard, pass such orders thereon,
as it thinks fit and shall communicate any such orders to the assessee and to
the Commissioner in such manner as may be prescribed." Section 30 confers
power of revision in the Board of Revenue: and is to the following effect :
(1) The Board of Revenue may, either on its
own motion or on application made by the assessee in this behalf, call for and
examine the records of any proceeding under this Act (not being a proceeding in
respect of which an appeal lies to the Tribunal under section 20) to satisfy,
itself as to the regularity of such proceeding or the correctness, legality or
propriety of any decision or order passed therein and if, in any case, it
appears to the Board of Revenue that any such decision or order should be
modified, annulled, reversed or remitted for reconsideration, it may pass
orders accordingly :
Provided that the Board of Revenue shall not
pass any order under this subsection in any case, where the decision or order
is sought to be revised by the Board of Revenue on its own motion, if such
decision or order had been made more than three years previously :
Provided further that the Board of Revenue
shall not pass any order under this section prejudicial to any 276 party unless
he has had a reasonable opportunity of making his representations."
-Section 33 states :
"(1) The Tribunal, the Board of Revenue,
the Commissioner, the Assistant Commissioner, or the Urban Land Tax Officer or
any other officer empowered under this Act shall, for the purposes of this Act,
have the same powers as are vested in a Court under the Code of Civil
Procedure, 1908 (Central Act V of 1908), when trying a suit in respect of the
following matters, namely :- (a) enforcing the attendance of any person and
examining him on oath;
(b) requiring the discovery and production of
documents;
(c) receiving evidence on affidavit;
(d) issuing commissions for the examination
of witnesses;
and any proceeding before the Tribunal, the
Board of Revenue, the Commissioner, the Assistant Commissioner the Urban Land
Tax Officer or any other officer empowered under this Act shall be deemed to be
a judicial proceeding within the meaning of sections 193 and 228 and for the
purposes of section 196, of the Indian Penal Code (Central Act XLV of 1860).
(2) In any case in which an order of
assessment is passed ex parte under this Act, the provisions of the Code of
Civil Procedure, 1908 (Central Act V of 1908), shall apply in relation to such
order as it applies in relation to a decree passed ex parte by a Court."
The validity of the new Act was challenged in a group of writ petitions before
the Madras High Court on various constitutional grounds. By a common judgment
dated the 10th April, 1968 a Full Bench of five Judges overruled all the
contentions of the petitioners with regard to the legislative competence of the
Madras Legislature to enact the new Act. However, the Full Bench by a majority
of 4 to 1 struck down s. 6 of the new Act as being violative of Arts. 14,
19(1)(f) of the Constitution. The State of Madras and other respondents to the
writ petitions (hereinafter ,called the respondents for the sake of
convenience) filed appeals 277 Nos. 21 to 23 of 1969 under a certificate
granted by the High Court under Arts. 1,32 and 1 3 3 (I) (a), (b) and (c) of
the Constitution. The writ petitioners (hereinafter called the petitioners)
have filed C.As Nos. 46, 47, 125 and 274 of 1969 against the same judgment on a
certificate, granted by the High Court under Art. 132 of the Constitution.
The first question to be considered in these
appeals is whether the Madras Legislature was competent to enact the
legislation under Entry 49 of List 11 of Schedule VII of the Constitution which
reads : "Taxes on lands and buildings".
It was argued on behalf of the petitioners
that the impugned Act fell under Schedule VII, List 1, Entry 86, that is "Taxes
on the capital value of the assets, exclusive of agricultural land, of
individuals and companies; taxes on the capital of companies." The
argument of Mr. V. K. T.
Chari may be summarised as follows : The
impugned Act was, both in form and substance, taxation of capital and was hence
beyond the competence of the State Legislature. To tax on the basis of capital
or principal value of assets was permissible to Parliament under List 1,
Entries 86 and 87 and to State under Entry 48 of List II. Taxation of capital
was the appropriate method provided for effecting the directive principle under
Art. 39 of the Constitution, namely, to prevent concentration of wealth.
Article 366(9) contains a definition of 'estate duty' with reference to the
principal value. Entry 86 of List I (Taxes on capital value of assets exclusive
of agricultural land) and Entry 88 (Duties in respect of succession to such
property) form a group of entries the scheme of which is to carry out the
directive principle of Art. 39(c). The Constitution indicated that capital
value or principal value shall be the basis of taxation under these entries
and, therefore, the method of taxation of capital or principal value was
prohibited even to Parliament in respect of other taxes and to the States except
in respect of Estate Duty on agricultural land. Such in effect is the. argument
of Mr.
V. K. T. Chari. But in our opinion there is
no warrant for the assumption that entries 86, 88 of List I and Entry 48 of
List II form a special group embodying any particular 'scheme. The directive
principle embodied in Art. 39(c) applies both to Parliament and to the State
Legislature and it is difficult to conceive how entries 86 to 88 of List I
would exclude any power of the State Legislature to implement the same
principle. The legislative entries must be given a large and liberal
interpretation, the reason being that the allocation of the subjects to the
lists is not by way of scientific or logical definition but by way of a mere
sixplex enumeratio of broad categories. We see no reason, therefore, for
holding that the entries 86 and 87 of List I preclude the State Legislature
from taxing capital value of lands and buildings under 13SupCI69-4 278 Entry 49
of List II. In our opinion there is no conflict between Entry 86 of List I and
Entry 49 of List 11. The basis of taxation under the two entries is quite
-distinct.
As regards Entry 86 of List I the basis of
the taxation is the capital value of the asset. It is not a tax directly on the
capital value of assets of individuals and companies on the valuation date. The
tax is not imposed on the components of the assets of the assessee. The tax
under Entry 86 proceeds on the, principle of aggregation and is imposed on the
totality of the value of all the assets. It is imposed on the total assets
which the assessee owns and in determining the net wealth not only the
encumbrances specifically charged against any item of asset, but the general
liability of the assessee to pay his debts and to discharge his lawful obligations
have to be taken into account. In certain exceptional cases, where a person
owes no debts and is under no enforceable obligation to discharge any liability
out of his assets it may be possible to break up the tax which is leviable on
the total assets into components and attribute a component to lands and
buildings owned by an assessee. In such a case, the component out of the total
fax attributable 'Lo lands and buildings may in the matter of computation bear
similarity to a tax on lands and buildings levied on the capital or annual
value under Entry 49, List II. But in a normal case a tax on capital value of
assets bears no definable relation to lands and buildings which may or may not
form a component of the total assets of the assessee. But Entry 49 of List II,
contem- plates a levy of tax on lands and buildings or both as units. It is not
concerned with the division cf interest or ownership in the units of lands or
buildings which are brought to tax. Tax on lands and buildings, is directly
imposed on lands and buildings, and bears a definite relation to it. Tax on the
capital value of assets bears no definable relation to lands and buildings
which may form a component of the total assets of the assessee. By legislation
in exercise of power under Entry 86, List I tax is contemplated to be levied on
the value of the assets.
For the purpose of levying tax under Entry
49, List 11 the State Legislature may adopt for determining the incidence of
tax the annual or the capital value of the lands and buildings. But the
adoption of the annual or capital value of lands and buildings for determining
tax liability will not make the fields of legislation under the two entries
overlapping. The two taxes are entirely different in their basic concept and
fall on different subject' matters.
In Ralla Ram v. Province of East Punjab(1)
the Federal Court held that the tax levied by section 3 of the Punjab Urban (1)
[1948] F.C.R. 207.
279 Immoveable Property Tax Act, 17 of 1940
on buildings and lands situated in a specified area at such rate not exceeding
twenty per cent. of the annual value of such buildings and lands, as the
Provincial Government may by notification in the official Gazette direct in
respect of each such rating area was not a tax on income, but was a tax on lands
and buildings within the meaning of Item No. 42 of List 11 of the Seventh
Schedule of the Government of India Act, 1935. In that case it was contended
that under the provisions of the Punjab Act the basis of the tax was the annual
value of the buildings and since the same basis was used in the Income-tax Act
for determining the income from property and generally speaking the annual
value is the fairest standard for measuring income and, in many cases, is
indistinguishable from it, the tax levied by the impugned Act was in substance
a tax on income. The Court pointed out that the -annual value is not
necessarily actual income, but is only a standard by which income may be
measured and merely because the Income-tax Act had adopted the annual value as
the standard for determining the income, it did not follow that, if the same
standard is employed as a measure for any other tax, that latter tax becomes
also a tax on income. It was held by the Court that in substance the property
tax levied by s. 3, Punjab Urban Immoveable Property Tax Act, 1940 fell within
item 42 of the Provincial List and was not a tax on income falling within item
54 of the Federal List although the basis of the tax was the annual value of
the building. The same view has been expressed by this Court in Sudhir Chandra
Nawn v. Wealth Tax Officer(1) wherein it was held that the power to levy tax on
lands and buildings under Entry 49 of List II did not trench upon the power
conferred on Parliament by Entry 88 of List I and, therefore, the enactment of
the Wealth Tax Act by Parliament was riot ultra vires.
The problem in this case is the problem of
characterisation of the law or classification of the law. In other words the
question must be asked : what is the subject matter of the legislation in its
"pith and substance" or in its true nature and character for the
purpose of determining whether it is legislation with respect to Entry 47 of
List 11 or Entry 86 of List 1. In Gallahagher v. Lynn 2 ) the principle is
stated as follows :
"It is well established that you are to
look at the true nature and character of the legislation the, pith and
substance of the legislation. If on the view of the statute as a whole, you
find that the substance of the legislation (1) A.I.R. 1969 S.C. 59. (2) [1937] C.
853 870 280 is within the express powers, then it is not invalidated if
incidentally it affects matters which are outside the authorized field. The
legislation must not under the guise of dealing with one matter in fact
encroach upon the forbidden field. Nor are you to look only at the object of
the legislator. An Act may have a perfectly lawful object e.g. to promote the
health of the inhabitants, but may seek to achieve that object by invalid
methods, e.g., direct prohibition of any trade with a foreign country. In other
words, you may' certainly consider the clauses of an Act to see whether they
are passed 'in respect of' the forbidden subject." In the case of
Subrahmanyan Chettiar v. Muttuswami Goundan(1) Sir Maurice Gwyer, C.J. said :
"It must inevitably happen from time to
time that legislation, though purporting to deal with a subject in one list,
touches also on a subject in another list, and the different provisions of the
enactment may be so closely intertwined that blind adherence to a strictly verbal
interpretation would result in a large number of statutes being declared
invalid because the Legislature enacting them may appear to have legislated in
a forbidden sphere. Hence the rule which has been evolved by the Judicial
Committee whereby the impugned statute is examined to ascertain its 'pith and
substance', or its 'true nature and character', for the purpose of determining
whether it is legislation with respect to matters in this list or in that :
Citizens Insurance Company of Canada v. Parsons();
Russell v. The Queen(3); Union Colliery Co.
of British Columbia v. Bryden(4); Att. Gen. for Canada v. Att. Gen. for British
Columbia(5);
Board of Trustees of Lethbridge Irrigation
District v. Independent Order of Foresters(6).
In my opinion this rule of interpretation is
equally applicable to the Indian Constitution Act." For the reasons
already expressed we hold that in pith and substance the new Act in imposing a
tax on urban land at a percentage of the market value is entirely within the ambit
of Entry 49 of List II and within the competence of the State Legislature and
does not in any way trench upon the field of legislation of Entry 86 of List I.
(1) [194O] F.C.R. 188 at 201. (2) [1881] 7
A.C. 96.
(3) [1882] 7 5) 301 A.C. III. (6) [1940] A.C.
513.
281 It was then said that as Entry 49 of List
11 provides for taxes on lands and buildings, the impugned Act which imposes
tax on lands alone cannot be held -to fall under that entry.
It was submitted that when the Legislature
taxed land deliberately the legislation fell under List 11 of Entry 45, i.e.,
"land revenue, including the assessment and collection of revenue, the
maintenance of land records, survey for revenue purposes and records of rights
and alienation of revenues'-' and not under Entry 49 of that List. The
legislative history of Entry 49 of List 11 does not however lend any support to
this argument. Before the Government of India Act, 1935 lands and buildings
were taxed separately and all that was done under the Government of India Act,
1935 and' the Constitution was to combine the two entries relating to land and
buildings into a single entry. Section 45-A of the Government of India Act,
1919 provided for making rules under the Act for the devolution of authority in
respect of provincial subjects to local Governments, and for the allocation of
revenues or other moneys to those Governments.' The Government of India by a
notification dated December 16, 1920 made rules under that provision called-the
"Scheduled Tax Rules". These Rules contained two schedules. The first
Schedule contained eight items of tax or, fee. The Legislative Council of a
Province may without obtaining the previous sanction of the Governor General
make and take into consideration any law imposing for the purposes of the local
Government any tax included in Schedule I. Schedule II contained eleven items
of tax. In making a law imposing or authorising any local authority to impose
for the purposes of such local authority any tax in Schedule 11, the
Legislative Council required to previous sanction of the Governor General. In
Schedule II, item No.
2 was tax on land or land values and item 3
was a tax on buildings. In the Government of India Act, 1935 the two entries
were combined and List 11, Entry 42 is "Taxes on lands and buildings and
hats and Windows". The legislative history of Entry 49, List 11 does not,
therefore, lend any support to the argument that Entry 49 of List 11 relating
to tax on land and buildings cannot be separated. On the other hand we are of
opinion that Entry 49 "Taxes on lands and buildings" should be
construed as taxes on land and taxes on buildings and there is no reason for
restricting the ampli- tude of the language used in the Entry. This view is
also borne out by authorities. In Raja Jagannath Baksh Singh v. The State of
U.P.(1) the question at issue was whether the tax imposed by the U.P.
Government on land holdings under the U.P. Large Land Holdings Tax Act, 1957
(U.P. Act 31 of 1957) 'was constitutionally valid. It was held that the
legislation fell under Entry (1) [1953] 1 S.C.R. 220.
282 49 of List 11 and the tax on land would
include agricultural land also. Similarly in H. R. S. Murthy v. Collector of
Chittoor & Anr.(1) it was held that the land cess imposed under ss. 78 and
79 of the Madras District Boards Act (Mad.
Act No. XIV of 1920) and Mines and Minerals
(Regulation and Development) Act, (Act 67 of 1957) was a tax on land falling
under Entry 49 of the State List. We are of opinion that the argument of Mr. V.
K. T. Chari on this aspect of the case must be rejected.
We proceed to consider the argument that no
machinery is provided for determining the market value and the provisions of
the new Act, therefore, violate Art. 14 of the Constitution. The argument was
stressed by Mr. V. K. T.
Chari that the guidance given under the 1963
Act has been dispensed with and the Assistant Commissioner is not bound to take
into account, among other matters, the sale price of similar sites, the rent
fetched for use and occupation of the land, the principles generally adopted in
valuing land under the Land Acquisition Act and the compensation awarded in
recent land acquisition proceedings. We see no justification for this argument.
The procedure for determining- the market value and assessment of urban land is
described in Chapter III of the new Act. Section 6 provides that the market
value of the urban land "shall be estimated to be the price which in the
opinion of the Assistant Commissioner, or the Tribunal, as the case may be,
such urban land would have fetched or fetch, if sold in the open market on the
date of the commencement of this Act." It was said on behalf of the
petitioners that the opinion which the Assistant Commissioner has to form is
purely subjective and may be arbitrary. We do not think that this contention is
correct. Having regard to the language and context of s. 6 of the new Act we
consider that the opinion which the Assistant Commissioner has to form under
that section is not subjective but should be reached objectively upon the relevant
evidence after following the requisite formalities laid down in ss. 7 to 11 of
the new Act. Instead of the Assistant Commissioner classifying the urban land
and determining the market value in a zone, the present Act requires a return
to be submitted by the owner mentioning the amount which, in the opinion of the
owner, is the market value of the urban land. On receipt of the return, if the
Assistant Commissioner is satisfied that the particulars mentioned are correct
and complete, he may determine the market value as given by the owner of the
land. If he is not satisfied with the return, he shall serve a notice to the
owner asking him to attend his office with the relevant -evidence in support of
his return. After bearing the owner and considering the evidence produced, -the
Assistant Commissioner may determine the (1) [1964] 6 S.C.R. 665.
28 3 market value. In case the owner fails to
attend or fails to produce the evidence, the Assistant Commissioner is
empowered to assess the market value on the basis of an enquiry made by him.
Section 11 prescribes the procedure for determining the market value when the
owner fails to furnish a return as required under section 7. The section
requires the Assistant Commissioner to serve a notice on the owner specifying
amongst other things the amount, which in the opinion of 'the Assistant
Commissioner, is the correct market value and directing the owner to attend in
person at his office on a date specified in the notice or to produce any
evidence on which the owner may rely. After hearing such evidence as the owner
may produce and considering such other evidence as may be required, the
Assistant Commissioner may fix the market value. The proceeding before the
Assistant Commissioner is judicial in character and his opinion regarding the
market value is reached objectively on all the materials produced before him.
Section 20 provides for an appeal by the
assessee objecting to the determination of the market value made by the
Assistant Commissioner to a Tribunal within thirty days from the date of the
receipt of the copy of the order. The Act requires that the Tribunal shall
consist of one person only who shall be a judicial officer not below the rank
of a Subordinate Judge. By section 30, the Board of Revenue is empowered either
on its own motion or on application made by the assessee in this behalf, to
call for and examine the records of any proceedings under the Act (not being a
proceeding in respect of which an appeal lies to the Tribunal under s. 20) , to
satisfy itself as to the regularity of such proceeding or the correctness,
legality or propriety of any decision or order passed therein, and if it
appears to the Board of Revenue that any such decision or order should be
modified, annulled , reversed or remitted for reconsideration, it may pass
orders accordingly.
Section 32 enables the urban land tax
officer, or the Assistant Commissioner, or the Board of Revenue or the Tribunal
to rectify any error apparent on the face of the record at any time within
three years from the date of any order passed by him or it. Section 33 confers
power on the Assistant Commissioner to take evidence, to require discovery and
production of documents and to receive evidence on affidavit etc. Thus the Act
envisages a detailed procedure regarding submission of returns, the making of
an assessment after hearing objections and a right to appeal to higher
authorities. We are hence unable to accept the contention of the petitioners
that the provisions of s. 6 of the new Act are violative of Art. 14 of the
Constitution.
It is necessary to state that the High Court
decided the case in favour of the respondents mainly on the ground that
investment 284 of the power to determine value of the urban land under s. 6 of
the Act constituted excessive delegation of authority and so violative of Arts.
19(1) and 14 of the Constitution. (see the judgment of Veeraswami, J., who
pronounced the main judgment in the High Court. But Mr. V. K. T. Chari did not
support this line of reasoning, in his arguments before this Court. On the
other hand learned counsel conceded that the power of determining the value of
the urban land being judicial or quasi-judicial in character the doctrine of
excessive delegation of authority had no application.
We pass on to consider the next contention
raised on behalf of the petitioners namely that the Act should be struck down
as an unreasonable restriction on the right to acquire, hold and dispose of
property and as such violative of Art. 1 9 (1) (f) of the Constitution. It was
argued that the test of reasonableness would be that the tax should not be so
high as to make the holding of 'the property or the carrying on of the activity
(business or profession) which is subject to taxation, uneconomic according to
accepted rates of yield.
In this connection it was said that the new
Act by imposing a tax on the capital value at a certain rate was not correlated
to the income or rateable value and, therefore, violates the requirement of
reasonableness. We are unable to accept the proposition put forward by Mr.
Chari. It is not possible to put the test of reasonableness into the straight
jacket of a narrow formula, The objects to be taxed,, the quantum of tax to be
levied, the conditions subject to which it is levied and the social and economic
policies which a tax is designed to sub serve are all matters of political
character and these matters have been entrusted to the Legislature and not to
the Courts. In applying the test of reasonableness it is also essential to
notice that the power of taxation is generally regarded as an essential
attribute of sovereignty and constitutional provisions relating to the power of
taxation are regarded not as grant of power but, as limitation upon the power
which would otherwise be practically without limit. It was observed by this
Court in Rai Ramakrishna v. State of Bihar(1) :
"It is of course true that the power of
taxing the people and their property is an essential attribute of the
Government and Government may legitimately exercise the said power by reference
to the- objects to which it is applicable to the utmost extent to which
Government thinks it expedient to do so. The objects to be taxed so long as
they happen to be within the legislative competence of the Legislature can be
taxed by the legislature according to the exigencies of its needs, because (1)
A.T.R. 1963 S.C. 1667 at 1673.
28 5 there can be no doubt that the State is
entitled to raise revenue by taxation. The quantum of tax levied by the taxing
statute, the conditions subject to which it is levied, the manner in which it
is sought to be recovered, are all matters within the competence of the
Legislature, and in dealing with the contention raised by a citizen that the
taxing statute contravenes Art. 19 Courts would naturally be circumspect and
cautious.
Where for instance it appears that the taxing
statute is plainly discriminatory, or provides no procedural machinery for
assessment and levy of the tax, or that it is confiscatory, Courts, would be
justified in striking down the impugned statute as unconstitutional. In such
cases, the character of the material provisions of the impugned statute is such
that the Court would feel justified in taking the view that, in substance, the
taxing statute is a cloak adopted by the Legislature for achieving its
confiscatory purposes. This is illustrated by the decision of this Court in the
case of Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 S.C. 552
where a taxing statute was struck down because it suffered from several fatal
infirmities. On the other hand, we may refer to the case of Jagannath Baksh
Singh v. State of Uttar Pradesh AIR 1962 SC 1563 where a challenge to the
taxing statute on the ground that its provisions were unreasonable was rejected
and it was observed that unless the infirmities in the impugned statute were of
such, a serious nature as to justify its description as a colourable exercise
of legislative power, the Court would uphold a taxing statute." As a
general rule it may be said that so long as a tax retains it&. character as
a tax and is not confiscatory or extortionate, the reasonableness of the tax
cannot be questioned. Mr. Chari submitted that the existing property tax under
s. 100 of the City Municipal Corporation Act and the tax on urban lands under
the new Act both enacted under Entry 49 of the State List, one of them imposing
a tax on the capital value of urban lands and the other on the annual value of
lands and buildings exhaust an unreasonably high proportion of income. I-Or
instance, it is pointed out that in W.P. No. 2835 of 1967 the annual income on
property was Rs. 6,000 and the proposed market value for the lands alone comes
to Rs. 10,40,000. The urban land tax at 0.4% of the market value is Rs. 4,160
and the income-tax at the rate applicable to the petitioner was Rs. 1.234. The
total tax burden in the aggregate under the three beads was Rs. 6,794, which
286 exceeds the rental income. In W.P. No. 3686 of 1967 the municipal annual
value was Rs. 4,095, the property tax was Rs. 1,098 and the urban land tax at 0.4%
was Rs. 1,523. The proportion of the two taxes together to yearly or annual
municipal value worked out to Rs. 62.5%. It was, therefore, said that the taxes
put together would practically exhaust the total income and the charging
section in the new Act was unreasonable. The answer to the contention is that
the charge is on the market value of the urban land and not on the annual
letting value on which the municipal property tax is based. The basis of the
two taxes being .different it is not permissible to club together the two taxes
and complain of the cumulative burden. If the tax is on the market value of the
urban land as it is in this case it does not admit of a complaint that it takes
away an unreasonably high proportion of the income. A tax on land values and a
tax on letting value, though both are taxes under Entry 49 of List II cannot be
clubbed together in order to test the reasonableness of one or the other for
the purposes of Art.
19 (I). But so far as the new Act is
concerned we consider that the levy at 0.4% of the market value of the urban
land is by no means confiscatory in effect. It was also pointed out by Mr. V.
K. T. Chari that in certain cases the market value of the urban land was
arrived at by applying what is known as the contractor's method not to the
building which stands on the land whose value is, ascertained by that means but
to some other building on a different land taken for comparison. It was said
that it was difficult enough for a to apply the contractor's method of valuation
to his own building which could be done by a competent architect after taking
into account all measurements. But it is absolutely an impossible task to check
up or make objections to the contractor's method applied to another man's
property which cannot be trespassed upon. It was said that the contractor's
method was the last resort in valuation when a building has to be valued apart
from the land and that it was a wrong application of the formula to use it to
value the land without the building particularly when valuation of land can be
made by applying the principles of the Land Acquisition Act. But this argument
has no bearing on the constitutional validity of the charging section or the
machinery provisions of the Act. It is, however, open 'to the writ petitioners
to challenge the validity of the particular valuation in any particular case by
way of an appeal under a statute or to move the High Court for grant of writ
under Art. 226 of the Constitution.
The impugned Act provides for the
retrospective operation of the Act. Section 2 states that except ss. 19, 47 and
48, other -sections shall be deemed to, have come into force in the City of 287
Madras on the 1st day of July, 1963 and sections 19 and 47 shall be deemed to
have come into force in the City of Madras on the 21st May, 1966. It also
provides that s. 48 shall come into force on the date of the publication of the
Act in the Fort St. George Gazette. Section 6 enacts that the market values of
the urban lands shall be estimated to be the price which in the opinion of the
Assistant Commissioner or the Tribunal such urban land would have fetched or
fetch if sold in the open market on the date of the commencement of the Act,,
that is, from 1st July, 1967.
The urban land tax is, therefore payable from
1st July, 1963. It is contended on behalf of the petitioners that the
retrospective operation of the law from 1st July, 1963 would make it
unreasonable. We are unable to accept the argument of the petitioners as
correct. It is not right to. say as a general proposition that the imposition
of tax with retrospective effect per se renders the law unconstitutional. In
applying the test of reasonableness to a taxing statute it is of course a
relevant consideration that the tax is being enforced with retrospective effect
but that is not conclusive in itself. Taking into account the legislative
history of the present Act we are of opinion that there is no unreasonableness
in respect of the retrospective operation of the new Act. It should be noticed
that the Madras Act of 1963 came into force on 1st July, 1963 and provided for
the levy of urban land tax at the same rate as that provided under the new Act.
The enactment was struck down as invalid by the judgment of the Madras High
Court which was pronounced on the 25th March, 1966. The legislature by giving
retrospective effect to Madras Act 12 of 1966 that the urban land must be taxed
on the date on which the 1963 Act came into force the new Act cured the defect
from which the earlier Act was suffering.
In Rai Ramkrishna's case(1) the question at
issue was whether the Bihar Taxation on Passengers and Goods (Carried by Public
Service Motor Vehicles) Act, 1961 (17 of 1961) was violative of Art. 1,9(5) and
(6) of the Constitution for the reason that it was made retrospective with
effect from 1st April, 1950. It appears-that the Bihar Finance ,Act, 1950
levied a tax on passengers and goods carried by public service motor vehicles
in Bihar. In an appeal arising out of a suit filed by the passengers and owners
of goods in a representative capacity, the Supreme Court pronounced on the 12th
December, 1960 a judgment declaring Part III of the said Act unconstitutional.
Thereafter an Ordinance, namely, Bihar Ordinance No. 2 of 1961 was issued on
the 1st of August, 1961 by the State of Bihar. By this Ordinance, the material
provisions of the earlier Act of 1950 which had been struck down by this Court
were validated and brought into force retrospectively from the (1) A.I.R. 1963
S.C 1667 288 date when the earlier Act had purported to come into force.
Subsequently, the provisions of the said
Ordinance were incorporated in the Act, namely, the Bihar Taxation on
Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961 which
was duly passed by the Bihar Legislature and received the assent of the
President on 23rd September, 1961. As a result of the retrospective operation
of this Act, its material provisions were deemed to have come into force on
April 1, 1950, that is to say, the date on which the earlier Act of 1950 had
come into, force'. The appellants challenged the validity of this Act of 1961.
Having failed in their writ petition before
the High Court, the appellants came to this Court and the argument was that the
retrospective operation prescribed by s. 1 (3) and by a part of s. 23 (b) of
the Act so completely altered the character of the tax proposed to be
retrospectively recovered that it introduced a serious infirmity in the
legislative competence of the Bihar Legislature itself. The argument was
rejected by this Court and it was held that having regard to the relevant facts
of the case the restrictions imposed by the said retrospective operation was
reasonable in the public interest under Art. 19(5) and (6) and also reasonable
under Art. 304(b) of the Constitution.
In our opinion the ratio of this decision
applies to the present case where the material facts are of a similar
character.
In this context a reference may be made to a
recent review of retroactive legislation in the United States of America :
"It is necessary that the legislature
should be able to cure inadvertent defects in statutes or their administration
by making what has been aptly called 'small repairs'.
Moreover, the individual who claims that a
vested right has arisen from the defect is seeking a windfall since had the
legislature's or administrator's action had the effect it was intended to and
could have had, no such right would have arisen. Thus, the interest in the
retroactive during 'of such a defect in the administration of government
outweighs the individual's interest in benefiting from the defect..... The
Court has been extremely reluctant to override the legislative judgment as to
the necessity for retrospective taxation, not only because of the paramount
governmental interest in obtaining adequate revenues, but also because taxes
are not in the nature of a penalty or a contractual obligation but rather a
means of apportioning the costs of government among those who benefit from it.
Indeed, as early as 1935 one commentator observed that "arbitrary
retroactivity" may continue .... to rear its head 289 in tax briefs, but
for practical purposes, in this field, it is as dead as wager of law."
(Charles B. Hochman in 73 Harvard Law Review 692 at p. 705).
In view of the legislative background of the
present case we are of opinion that the imposition of the tax retrospectively
from 1st July, 1963 cannot be said to be an unreasonable restriction. We,
therefore, reject the argument of the petitioners on this aspect of the case,
For these reasons we hold that the Madras Urban Land Tax Act, 1966 (Act 12 of
1966) must be upheld as constitutionally valid. We accordingly set aside the
judgment of the Madras High Court dated the 10th April, 1968 and order that
writ petitions filed by the petitioners should be dismissed. In other words
C.As 21 to 23 are allowed and C.As 46, 47, 125 and 274 are dismissed. There
will be no order with regard to costs of these appeals.
CAs. 21 to 23 of '69 allowed.
R.K.P.S.
C.As. 46, 47, 125 and 274 of '69 dismissed.
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