The Municipal Council, Madurai Vs. R.
Narayanan  INSC 166 (18 August 1975)
RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN
FAZALALI, SYED MURTAZA
CITATION: 1975 AIR 2193 1976 SCR (1) 333 1975
SCC (2) 497
CITATOR INFO :
O 1980 SC1008 (21)
Madras District Municipalities Act, 1920, 2.
321 (2)- Licence fee on hoteliers-If can be treated as tax.
The appellant increased the licence fee
imposed on hoteliers respondents under s.321 (2), Madras District Municipalities
Act, 1920, and they challenged the increase.
The appellant justified the increase on the
basis that the fee under the section is a tax and falls under "tax on land
and building' in Entry 49, List II, VII Schedule of the Constitution. The High
Court held in favour of the respondents.
^ Dismissing the appeal to this Court,
HELD: (l) The appellant would be competent to
impose a property tax at any Particular rate it chooses. the user of the land
and building as a restaurant or hotel furnishing sufficient nexus for the
legislature to impose a tax. [339H, 340A] Ajoy Kumar v. Local Board  3
S.C.R. 47, referred to.
(2) But the fec imposed under s. 321(2) in
this ease is not a tax. [336G] (a) Section 321(2) authorises the collection of
a fee in contradiction to tax. 1335B] (b) Section 321 is in a part of the Act
different from the part dealing with taxation. While the nomenclature of the
levy or the location of a section in the Act is not conclusive.
they are relevant factors. for deciding
whether the fee imposed is a tax or not.
[335-CD] Liberty Cinema Case  2 S.C.R.
477, referred to.
(c) Section 78(1A) authorises the levy of
property tax. Section 78(3) contains the mandatory procedural prescriptions for
imposing taxes. When the legislature has carefully provided in the sub-section
for previous invitation and consideration of objections to enhancement of tax
levies, resort to s. 321(2) to impose a tax as a fee would frustrate the
processual protection written into the law in regard to fiscal measures, [338
BCE] (d) Schedule V with which s. 321 is directly linked sets out a number of'
petty occupations all of which, theoretically cannot be carried on except on
land or in buildings. If the licence-fee in s. 321(2) is read as land tax the
fee in relation to every item of activity set out in the Schedule would be tax
on the basis of the trivial activity furnishing the legal nexus between the tax
and the land. But, it would be straining the language to justify the imposition
of a tax on the land, on the basis of such a flimsy or casual connection
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1656 to 1659 of 1973.
Appeal by special leave from the judgment and
order dated the 29th September, 1972 of the Madras High Court in Writ Appeals
Nos. 191, 23, 24 & 190 of 1968 respectively.
S. Challaswamy and K. Hillgorani, for the
8-L839SupCI/75 334 A. K. Sen, A. V. Rangam`
and A. Subashini, for the respondents.
The Judgment of the Court was delivered by
KRISHNA IYER, J.-The die-hard 'tax'-'fee' dilemma survives, as these appeals,
by special leave, attest, long after this Court has dispelled the fiscal-legal
confusion on the point in a series of rulings. The cases before us were
provoked by a sudden escalation of licence 'fee' imposed on all homelier by the
common appellant, the Maduari Municipal Council (now it is a Corporation, but
that makes no difference) (Council, for short). The scale of fees which,
perhaps, merely defrayed the cost of issuing the licence, was moderate to begin
with and paid periodically by the respondents who run hotels within the
municipal limits; but their present grievance is that the resolution of
December 28, 1965, whereby a sharp spurt in the rates of fee was Cr brought
about, has been tainted with 'unconstitutionality'.
The authority, to justify the levy qua fee,
must render some special services to the category from whom the amount is
exacted and the total sum so collected must have a reasonable correlation to
the cost of such services. Where these dual basic features are absent, you
cannot legally claim from the licensee under the label 'fee'. D This Court has,
as late as the Salvation Army Case(l) set out the tests beyond doubt. When the
respondents (writ- petitioners) challenged the fee raise, the plea in defence
first was that the impost was a fee strictly so called, that it was requited by
adequate benefits and that the larger lay-out on the inspecting staff and
allied items, both necessitated and validated the new increase. However, on
later and better reflection, may be, the inspirational source for which was
stated to be this Court's pronouncement in the Liberty Cinema Case(2), the
Council rightly abandoned the fee-cum-quid pro quo formula and anchored itself
on the right to exact the higher rate as a 'tax on land and building' under
Entry 49 of List II, in the Seventh Schedule, read with s. 321(2) of the Madras
District Municipalities Act, 1920 (for short, the Act). This volte face as it
were, was not objected to by the opposite party and the writ petitions and writ
appeals were disposed of on that footing. The learned Single Judge upheld the
levy but the appellate Bench upset it. The appellant Council has journeyed to
this Court to repair the blow on its revenue since there are 1,200 and odd
hotel-keepers similarly situated in the Madurai Municipal limits, although only
four have figured as respondents here. The financial dimension of the decision
is, indeed, considerable.
Shri Chellaswamy, counsel for the Council,
has been refreshingly fair in his submissions and consistently with the case
urged in the High Court to support the levy, has grounded his defence of the
'feehike' on the taxing power of the municipal body under the Act. The core of
the matter, therefore, is whether the context and text of the statute and other
surrounding circumstances warrant the validation of the levy as a tax in
essence, be its name what it may.
(1)  1. S. C. C. 509. (2)  2 S.
335 Let us formulate the problems for
facility of logical handling. Agreed, as both parties now are, that this
licence fee stands or falls as a tax, the principal question is whether the
'fee' provided for in s. 321(2) of the Act, under which it is collected, is a
tax at all, having regard to the anatomy of the Act. If it can be so regarded,
the next point is whether Entry 49 of List II can bring within its
constitutional compass the licence fee for running a hotel trade. Thirdly, if
that is permissible, are there other incurable infirmities ? These apart, some
matters of subsidiary moment do arise and may be considered in the appropriate
The initial terminological hurdle in the way
of the appellant is that s. 321(2) of the Act authorizes the collection of a
licence fee in contra-distinction to property tax in s. 78 of the Act. (cf.
Ajoy Kumar v. Local Board(l). Naturally, Shri A. K. Sen, counsel for the con
testants, insisted that the Act had made a deliberate dichotomy between the two
types of levy, placed them subject-wise in different parts of the statute and
meaningfully referred to them as 'tax' and 'fee' in ss. 78 and 321(2),
respectively. Counsel for the appellant, relying on certain passages in Liberty
Cinema, (supra) desired us to slur over the verbal error. True, mere
nomenclature cannot, without more, lead to rejection of the plea of tax, though
it is a relevant factor, since, to some extent, Liberty Cinema (supra) has
whittled down the efficacy of this circumstance. This Court there observed, at
"Now, on the first question, that is,
whether the levy is in return for services, it is said that it is so because s.
548 (of Calcutta Municipal Act 33 of 1951) uses the word 'fee'. But, surely,
nothing turns on the words used. The word 'fee' cannot be said to have acquired
a rigid technical meaning in the English language indicating only a levy in
return for services.
No authority for such a meaning of the word
However that may be, it is conceded by the
respondent that the Act uses the word 'fee' indiscriminately. It is admitted
that some of the levies authorised are taxes though called fees. Thus, for
example, as Mitter J (in the High Court, Division Bench) pointed out, the
levies authorised by ss. 218, 222 and 229 are really taxes though called fees,
for no services are required to be rendered in respect of them. The Act,
therefore, did not intend to use the word fee as referring only to a levy in
return for services.
" (emphasis, ours) We have therefore to
have a view of the concerned parts of the Act with a comparative eye on the
Calcutta Municipal Act which fell for decision in Liberty Cinema (supra). Every
local authority, under the relevant statute, has the power to tax, so as to
finance the various welfare activities it is expected to fulfill. Similarly
such local bodies also exercise the police powers of the State to the extent
they are vested (1)  3 S.C.R. 47.
336 in them by the State law for the purpose
of controlling, regulating and proscribing operations of individuals which may
need to be conditioned by licences and permissions or prohibited in public
interest because they are noxious or dangerous. Towards these ends, licences
and fees for services, if any, rendered may be prescribed. The Madras Act, like
other similar statutes, embraces both types of activities in a systematized
way. Thus Taxation and Finance are covered by Part 1 III while Public
Health-Safety and Convenience, comes under Part IV, Procedure and
Miscellaneous, which include general provisions regarding licences and
permissions, are clubbed together in Part Vl.
Section 78, empowering property tax levy,
falls in Part III (Taxation and Finance), while s. 321, relating to licence
fees, is located in Part VI. The scheme thus separates issue of licences and
levy of licence fees from taxes on property and other items. Prima facie, in
the absence of other compelling factors, to lug in a taxing provision into Part
VI may, therefore, lead to obscurity and confusion.
The Calcutta Municipal Act, 1951, also has
some scheme of sorts and deals with Finance in Part III, Taxation in Part IV
and Public Health, Safety and Convenience in Part V.
In the same Part, Chapter XXVI deals with a
miscellany of matters like Inspection and Regulation of Premises, and of
Factories, Trades and Places of Public Resort. Section 443 deals with licensing
and control of theatres, circuses and places of public amusement. Strangely
enough, s. 548(1) which relates to 'licence and written permission' also
empowers in addition to any other matter required to be specified under any
other Section of this Act- (a) * * * * (b) * * * * (c) * * * * (d) * * * * (e)
the tax or fee, if any, paid for the licence or written permission." F
There is thus in s. 548 an extra power specifically conferred to levy tax or
fee, which is significantly absent in the Madras Act (We are aware there is
some obscurity here because cinema licensing is provided for earlier in s.
It is this provision of the Calcutta Act (s.
548) which fell for construction before this Court in Liberty Cinema (supra).
While one may discern a broad scheme in that Act, there is some wobbling in the
sense that a power to tax is oddly placed in a Chapter primarily concerned with
licences and permissions. The Madras Act, on the other hand, speaks with more
precision and relegates licences and licence fees to a Part different from
Taxation and Finance. The procedure for each is also delineated separately. For
these reasons we refuse to aceede to the contention that 'fee' in s. 321 (2) is
Shri A. K. Sen has cited a catena of Madras
cases, spread over several decades, where, under this very Act, fee has been
interpreted as fee with a tag of special services in lieu of such payment. He
has 337 further pressed the drafting indifference while using the words 'fee'
and 'tax' in s.548 of the Calcutta Act to repel the application of the
observations in Liberty Cinema (earlier quoted) to the provisions of the Madras
Act. In the latter, the contrast is boldly projected not only in the
phraseology but in the chapter-wise dealing with the two topics. We feel the force
of this submission.
Shri Chellaswamy sought to counter the
contention based on the location of s.321 in a Part which has nothing to do
with taxation. In Liberty Cinema (supra) this Court had occasion to warn
against reaching any conclusion, when there is a tax-fee conflict based on the
col location of subjects in a statute or the placement of a provision under a
certain rubric as clinching. What is telling is the totality, not some isolated
indicium. A short-cut is often a wrong-cut and a fuller study of the statute to
be construed cannot be avoided. Sarkar, J. (as he then was), in Liberty cinema
(supra), observed at p. 488:
"It was also contended that the levy
under s.548 (of the Calcutta Municipal Act) must be a fee and not a tax, for
all provisions as to taxation are contained in Part IV of the Act, while this
section occurred in Chapter XXXVI headed 'Procedure' in Part VIII which was
without a heading. It was pointed out that Part V dealt with 'Public Health
Safety and Convenience' and s. 443 which was included in Chapter XXVI contained
in this Part was headed 'Inspection and Regulation of Premises, and of
Factories, Trades and Places of Public Resort'.
A cinema house, it is not disputed, is
included in the words 'Places of public resort'. It was, therefore, contended
that a levy outside Part IV could not be a tax and hence must be a fee for
services. This contention was sought to be supported by the argument that s.443
occurred in a Part concerning Public Health, Safety and Convenience and
therefore the intention was that the levy authorised by the section would be in
return for work done for securing public health, safety and Convenience and was
hence a fee. We are wholly unable to accept this contention. Whether a
particular levy is a fee or tax has to be decided only by reference to the
terms of the section as we have earlier stated. Its position in the Act cannot
determine its nature; an imposition which is by its terms a tax and not a fee,
which in our opinion the present imposition is, cannot become a fee by reason
of its having been placed in a certain part of the statute. The reference to
the heading of Part V can at most indicate that the provisions in it were for
conferring benefit on the public at large. The cinema house owners paying the levy
would not as such owners be getting that benefit. We are not concerned with the
benefit, if any, received by them as members of the public for that is not
special benefit meant for them.
We are clear in our mind that if looking at
the terms of the provision authorising the levy, it appears that it is not for
special services rendered to the person on whom the levy is imposed, it cannot
be a fee wherever it may be placed in the statute. A consideration 338 of where
ss.443 and 548 are placed in the Act is irrelevant for determining whether the
levy imposed by them is a fee or a tax." So we do not rest our conclusion
solely on the location of s. 321 in a different Part from Taxation, while we
recognise it as an indicator, among a variety of considerations of course, when
drafting precision is absent, judicial caution has to be alerted.
To recapitulate, in the Madras Act, Chapter
VI of Part III is devoted to Taxation and Finance. Section 78(1)(a) authorizes
levy of property tax. The section sets out the other taxes a Municipal Council
may levy Section 78(3) together with a proviso, contains the procedural
prescriptions for imposing taxes. Admittedly, there has been no compliance with
this procedure and, if such conformance is mandatory, as it is, the case of tax
set up by the appellant collapses (Vide: Atlas Cycle Industries v.
Haryana(1). Whether some minor defect or
deficiency will defeat the validity of the tax is moot but since here there is
a total failure to adhere or advert to the procedure in s.78, we need not
consider hypothetical shortfalls and their impacts.
Counsel for the appellant resourcefully urged
that when two constructions are possible, we should opt in favour of validity
since law leans towards life and must sustain, not stifle it. The statute,
other things being equal, must be interpreted us res magis valeat gaum
pareat("): see Broom's Legal Maxims ( 10 ed. ) p. 361, Craies on Statutes
(6th ed.) p. 95 and Maxwell on Statutes (11th ed.) p 221 In his submission it
is possible to uphold the 'levy', miscalled 'fee', on the basis that it is a
tax. The argument is that ignoring the placement of s. 321 (2) in Part VI and
blurring the precision of the word 'fee' used, we can still look at the pith
and substance of the matter and regard it as a 'tax on land and buildings'
provided for in Entry 49, List II of the Seventh Schedule. He relied on Ajoy
Kumar (supra) were also a landholder who was holding a market on his land was
directed to take out a licence and pay Rs. 600/- per year as licence fee, challenged
the validity of the claim on the score that the State had no power to tax
markets. Repelling this contention, this Court held that the use to which the
land was put furnished sufficient nexus for the Legislature to impose a tax on
land. In that connection, the following observations lay down the guide-lines:
"It is well-settled that the entries in
the three legislative lists have to be interpreted in their widest amplitude
and there fore if a tax can reasonably be held to be a tax on land it will come
49. Further it is equally well-settled that
tax on land may be based on the annual value of the land and would still be a
tax on land and would not be beyond the com petence of the State legislature on
the ground that it is a tax on income: (See Ralla Ram v. The province of East
Punjab: (1948 FCR 207). It follows therefore that the use to which the land is
put can be taken into account in imposing a tax (1)  1 S. C. R. 127.
(2)Quoted in Liberty cinema: P.
339 on it within the meaning of entry 49 of
List II, for the annual value of land which can certainly be taken into account
in imposing a tax for the purpose of this entry would necessarily depend upon
the use to which the land is put." (p. 49).
x x x x x x "It will be seen from the
provisions of these three subsections (sub-ss. (1) to (3) of s. 62 of the Assam
Local self Government Act l953-Act 25 of l953) that power of the board to
impose the tax arises on its passing a resolution that no land within its
jurisdiction shall be used as a market. Such resolution clearly affects land
within the jurisdiction of the board and on the passing of such a resolution
the board gets the further power to issue licences for holding of markets on
lands within its jurisdiction by a resolution and also the power to impose an
annual tax thereon." (p.49) x x ".
x x x x x "..s. 62(2) which used the
words 'impose an annual tax thereon, clearly shows that the word 'thereon'
refers to any land for which a licence is issued for used as a market and not
to the word 'market'. Thus the tax in the present case being on land would
clearly be within the competence of the state legislature." (p.5l)
Generously following the line of thinking presented by Shri Chellaswamy, based
on Ajoy Kumar (supra) we find difficulty in applying its ratio to s. 321 (2).
There the tax was on land and the expression 'thereon' underscores this idea.
Once the tax is on land, the link between the tax and the land-user like
running a market or hotel based on the let ting value is good, but in the
present case there is nothing to indicate that it is a tax at all. Secondly,
the phraseology does not suggest that it is a tax on the land or the building.,
on the other hand. it is on the licence-fee for plying a particular trade. It
is not possible to blink at this vital distinction between Ajoy Kumar (supra)
and the persent case. Maybe that the Madurai Municipality is perfectly within
its competence in imposing a property tax at any particular rate it chooses.
The user of the land or building as a restaurant or hotel being the link as
explained above, the fact that there is a tax on all property within the
municipality does not mean that this local body cannot levy an additional tax
or surcharge on the land or building if put to a particular specialist use. We
see no impediment in the municipal authority taxing hotels at a certain rate
exercising its power to impose property tax provided there are no other legal
impediements in the way. We are not pursuing the existence or otherwise of other
impediments because that does not fall for our consideration in this case.
Shri A.. K. Sen is right is his submission
that unlike in the Assam Act considered in Ajoy Kumar (supra) in the present
case we do not even find the expression 'tax' used.
The Municipal resolution might have been
saved had we been able to spell out a taxing power on property from s.321 (2)
of the Act. For, there is no gainsaying the state's right to tax land and
buildings 340 and the nexus between the tax and the power may be land use.
Since A running a restaurant or cinema house
is clearly a use of building, a tax thereon, based on such user, is
constitutionally impeccable. Such is not the case here.
Thus the plea that s. 321 (2) lends itself to
being regarded as a tax, indifferently described as fee, breaks down for two
reasons. When the Legislature has carefully provided in s.78 (3) for previous
invitation and consideration of objections to enhancement of tax levies, resort
to the device of tax disguised as fee, under s.321 (2), may not require any
such procedural fairness and discipline and thus will frustrate the processual
protection written into the law in regard to fiscal measures. Secondly,
Schedule V, with which s.321 is directly linked, sets out a host of petty and
lucrative ventures all of which, theoretically, cannot be carried on except on
land or buildings. Can it be that some flimsy or casual connection with terra
firma will furnish the legal nexus between the tax imposed and the land on
which the work is done ? For example, washing soiled clothes is an item in
Schedule V. It is straining judicial credulity to snapping point to say that
such trivial user justifies a tax on the land when washing is done. Running a
hotel or market or permanent circus or theatre may stand on a different
footing. The commonsense of the common man is the best legal consultant in many
cases and eschewal of hyper-technical and over- sophisticated legal niceties
helps the vision. We cannot list out what, in law, will serve as a nexus
between land and tax thereon but, in a given case like in a hotel business,
land-use may easily be discerned. The snag is that in the present appeals the
levy is not on land but on the licence for business and bearing in mind the
identity of the legal concept, we reject the contention that the impugned
resolution was an innocent tax on property. The case falls between two stools.
It is not a fee ex concessions it is not a tax ex facie. We further repel the
request to read licence-fee in s. 321 (2) as land tax into every item of
activity set out in Schedule V, from washing soiled clothes on a broad stone to
using a central place as a posh restaurant.
The cumulative result of the multiple
submissions we have been addressed is that the impugned resolution is invalid.
We do not bar the door for the Municipality or the State to pursue other ways
to tax hotel-keepers, acting according to law and under the power to tax in
Entry 49, List II, of the Seventh Schedule, while dismissing the appeals The
legal controversy in this case is stricken with more than marginal obscurity
and indeed, has exercised our minds on the diverse aspects of law considerably.
Moreover, the battle is between a local authority which is in need of financial
resources to fulfill its functions and a host of hoteliers who flourish in
private business. Bearing in mind the conspectus of circumstances, we regard
this case as one where the proper order will be that parties do bear their own
V.P.S Appeals dismissed.