D. C. Gouse and Co. Vs. State of
Kerala & ANR [1979] INSC 193 (21 September 1979)
SHINGAL, P.N.
SHINGAL, P.N.
CHANDRACHUD, Y.V. ((CJ) KRISHNAIYER, V.R.
UNTWALIA, N.L.
KOSHAL, A.D.
CITATION: 1980 AIR 271 1980 SCR (1) 804 1980
SCC (2) 410
CITATOR INFO:
RF 1983 SC 130 (57) C 1984 SC 420 (15) RF
1991 SC 686 (13)
ACT:
Kerala Building Tax Act, 1975-Constitutional
validity of-Act imposed a non-recurring tax based on capital value - State
Legislature if competent to impose.
HEADNOTE:
The Kerala Building Tax Act, 1975 passed by
the State Legislature under Entry 49 of List II (Taxes on lands and buildings)
is imposed as a non-recurring tax on buildings, constructed on or after April
1, 1973, the "capital value" of which exceeds Rs. 20,000/-. The term
"capital value" is defined to mean the value arrived at by
multiplying the 'annual value" of a building by sixteen. "Annual
value" means the gross annual rent on which the building may, at the time
of completion, be expected to let from month to month or from year to year.
Section 6 provides that the annual value of a building shall be the annual
value fixed for that building in the assessment books of the local authority
(which includes a Municipal Corporation or a municipality and so on) within
whose area the building is situate. Section 6(4) provides that in determining
the annual value of a building regard must be had to the location of the
building, the nature and quality of the structure of the building, the
capability of the building and so on. An assessee objecting to the assessment
of building tax assessed or denying the liability may appeal to the Appellate
Authority under s. 11. But no appeal lies unless the building tax due has been
paid. Although no appeal lies from the decision of the Appellate Authority,
provision is made for reference to the District Court on a question of law and
the District Collector is given power to revise the order of the Appellate
Authority and the Government has the power of revision against the order of the
District Collector. Jurisdiction of Civil Court is barred by, s. 27 of the Act.
The High Court, having upheld the validity of
the Act, the appellants in their appeals impugned the view of the High Court.
It was contended on behalf of the appellants
that (1) the tax levied on buildings being a tax on the capital value of the
assets falls within the scope of entry 86 of List I of the Seventh Schedule
and, therefore, is beyond the legislative competence of the State Legislature;
(2) the Act was unconstitutional in that it imposed a tax on buildings
retrospectively (over a period of 2 years of its enactment);
(3) it was not merely a tax on buildings but
a tax on the buildings, and lands of those buildings; (4) the method of
determining the capital value of a building on the basis of its annual value is
hypothetical and arbitrary and is, therefore, unconstitutional.
HELD: 1 There is no force in the argument
that the State Legislature was not competent to impose a tax on the buildings
under entry 49 of List II. [818 B] (a) Article 366(28) defines tax to include
imposition of any tax whether general, local or special. The word
"tax" in its widest sense includes all money 805 raised by taxation
and includes tax levied both by the Central and State Legislatures as well as
rates and charges levied by local authorities [815 D-E] (b) The term
"assets" referred to in entry 86 of List I means "Property in
general, all that one owns." If a tax is levied on "all that one
owns" or his total assets, it would fall within the purview of entry 86
and therefore would be outside the legislative competence of the State
Legislature.
On the other hand, if a tax is directly
imposed on "buildings" it will bear direct relation to the buildings
owned by the assessee. Though the building owned by an assessee is a component
of his total assets, the tax under entry 86 will not bear any direct or
definable relation to his building. A tax on "buildings" is,
therefore, a direct tax on buildings as such. It is not a personal tax without
reference to any particular property. [815 H, 816 A-B] (c) A tax has two
elements: the person, thing or activity on which it is imposed and the amount
of the tax.
The amount of tax may be measured in many
ways. There is a distinction between the subject matter of a tax and the
standard by which the amount of tax is measured. Thus a building may be the
subject matter of a tax like wealth tax (entry 86 List I) or it may also-be the
subject of a direct tax under entry 49 of List II. The two taxes being separate
and distinct, the do not over-lap each other. Therefore the tax imposed in the
instant case is well within the competence of the legislature. [816 E-Fl Sudhir
Chandra Nawn v. Wealth Tax officer Calcutta & Ors., [1969] 1 SCR 108;
Assistant Commissioner of Urban Land Tax and ors. v. The Buckingham and
Carnatic Co. Ltd., Etc., [1970] 1 SCR 268 referred to.
(d) It is settled law that the quantum of tax
levied by the taxing statute and the conditions subject to which it is levied
are matters within the competence of the legislature and so long as the tax is
not confiscatory or extortionate the reasonableness of the tax cannot be
questioned in a court of law. [828 D-E] Rai Ramkrishan & Ors. v. The State
of Bihar, [1964] 1 SCR 897; Kunnathat Thathunni Moopil Nair v. The State of Kerala
& Anr., [1961] 3 SCR 77 referred 2(a). The Act is not retrospective in the
strictly technical sense of the term. A statute is deemed to be retrospective,
when it takes away or impairs any vested right acquired under existing laws or
creates a new obligation in respect F' of the transactions or considerations
already past. The Act, though passed in April 1975, had imposed a tax on
buildings with retrospective effect from April 1973. By so doing it has not
taken away or impaired any vested right of the owner of the building acquired
under any existing law. Absence of an earlier taxing statute cannot be said to
create a "vested right" under any existing law. Nor has any new
obligation or disability been attached in respect of any earlier tax transaction.
If the language of the enactment shows that the legislature thought it
expedient to authorise the making of retrospective rates, it can fix the period
as to which the rate may be retrospectively made. [828 D-H] Bradford Union v.
Wilts, (1868) LR 3 Q.B. 616; The Tata Iron & Steel Co Ltd. v. The State of
Bihar, [1958] SCR 1355 referred to.
(b) The choice of the legislature to impose a
tax on buildings with effect from April 1, 1973 cannot be said to be
discriminatory. The choice of a date as a basis for classification cannot be
dubbed as arbitrary even if no particular reason is forthcoming unless it is
shown that it was capricious or whimsical 15-625SCI/79 806 Similarly unless it
is shown that the fixing of the date is very wide of the reasonable mark the decision
of the legislature must be accepted. [819 C-D] In the instant case, after the
1961 Act was struck down by this Court in 1968 the Government declared its
intention to introduce a fresh Bill so as to bring a new Act into force from
April 1970. After its introduction in the Assembly it was referred to a Select
Committee which recommended that the Act should be brought into force from
April 1, 1973. Two ordinances giving effect to the provisions of the draft Bill
were promulgated and eventually the Bill became an Act in April, 1975. These
facts would not show that the choice of the date of April 1, 1973 was
unreasonable or that it was wide of the reasonable mark.
[819 E-G] 3(a). What entry 49 of List II
permits is the levy of "taxes on lands and buildings." It is
permissible Under this entry to levy a tax either on lands as well as
buildings, or on lands, or on buildings, if the legislature decides to impose a
tax only on buildings, the tax would be imposed on all that goes to make or
constitute a building. [820 B-C] (b) The word "building" means
"that which is built; a structure. edifice;" The natural and ordinary
meaning of a "building" is, a "a fabric of which it is composed,
the ground upon which its walls stand and the ground embraced within those walls."
Entry 49 includes the side of the building as its component part. [820 C-D] (c)
The definition of the term "building" in the Act makes it clear that
a house, outhouse, garage or any other structure cannot be erected without the
ground on which it is to stand. The expression "building" includes
the fabric of which it is composed, the ground upon which its walls stand and
the ground within those walls because the ground would not have a separate
existence, apart from the building. The ground referred to in Entry 49 List II
would not be the subject matter of a separate tax, apart from the tax on the
building standing on it. That being so there is no occasion to tax the site
separately or to ascertain its value and add it to the value of the fabric.
[820 F-G] (d) This is also the position in the case of appurtenances. An
appurtenance belongs to the building concerned and has no existence of its own.
An appurtenance, it its true sense, is an integrated part of the building to
which it belongs. [826 F-G] (e) In the matter of fixing the annual value of the
building under s. 6 regard must be had to the "location of the
building" and the "value of the land on which the building
constructed", but it does not bear on the annual value of the ground of
the building which does not have an existence of its own apart from the
building. It is therefore futile to contend that as factors (a) and (f) of
sub-section 4 of s. 6 refer to the location of the building and the value of
the land, the law recognises the separate existence or entity of the ground on
which the buildings stands, so that the tax imposed under it is a tax both on
lands and buildings and both entities should be separately recognised and
determined, and taxed as such [821 C-E] 4(a) When the State Legislature had
decided to impose a tax, it was open to it to decide how best to levy it. One
of the usual modes of levying tax is to make provision for determining the
"rate", or annual value of the building.
Rateable value is the same as the net annual
value of the building. But 807 if the Legislature decides to levy a tax on
buildings once for all or, as a "non-recurring tax on buildings, it has to
go beyond the annual value, and work out the capital value which could be done
on the basis of capital cost of construction of the building or its market
value or on the basis of rent arrived at by what is known as "higgling of
the market" multiplying it by a number which would best serve the purpose
of determining the value of the building and then to specify the rate of tax on
it. [822 C-F] (b) If the Legislature chose to adopt the annual value as the
basis for working out the capital value it cannot be blamed for it because
besides other advantages it is readily available from the records of local
authorities and is a quite simple and reliable basis to work upon. [828 B-C]
(c) The various methods of properly valuation are the various facets to a
difficult problem and no one method is perfect or final or above criticism. The
multiple of sixteen adopted cannot be said to suffer from any constitutional or
legal infirmity. [830 G-H] (d) The capital value of a building is not merely
the cost of its bricks and mortar. It may be difficult to provide a ready or
convenient basis of taxation. There can be no objection if the Legislature
decides to levy the annual value of a building and prescribes a uniform formula
for determining its capital value. The four well-accepted methods for arriving
at the annual value of the building, are: (I) The "competitive or
comparative method''; (2) the 'profits basis"; (3) the "contractor's
method"; and (4) the "unit method". These four methods can be
applied either singly or in combination. [823 B-E] (e) The fundamental object
of each of these methods is to find out the rent which the tenant might reasonably
be expected to pay for a building. It is the expectation which is to be
reasonable and not necessarily the rent tor the reasonable expectation would
exclude any so-called black market rent. But there is no rule of law as to the
method of valuation to be adopted for determining the annual value of a
building. If the Legislature selects the method of determining the annual value
on the basis of rent, that is the best evidence of value. If it has been fixed
by the higgling of the market there is neither reason nor authority for holding
that it is hypothetical or arbitrary. [823 G-H, 824 A-B] (f) The provisions of
the Act, taken together, contain the entire scheme for the levy and collection
of the building tax on the capital value of building. The expression
"capital value" is not the cost of construction of the building or
its market value as wealth but is only a working expression which, roughly
stated, is the taxable value of the building. The State Legislature was quite
competent to select that as the basis for assessing the building tax. [824 D-E]
(g) There is no inherent illegality if the gross income of the property were to
be capitalised for the purpose of determining the value of the property.
firstly, because there is nothing to prevent the Legislature from making the
expected gross annual rent and thereby the annual value of a building from
being the unit for multiplication by sixteen for arriving at its capital value
for charging tax under s. 5. Secondly, by virtue of s. 6 the annual value forms
the basis for determining the capital value of the building for the purposes of
the Act. However what is really taken as the annual value under the determining
in s. 2(a) is not the gross annual rent but the net rent after allowing for the
808 cost of its repairs etc. It is not therefore factually correct to say that
the annual value of the buildings in the State is determined on the basis of
their gross annual rent without any deduction on account of repairs. Nor is it
correct to say that the determination of the capital value was arbitrary as it
was arrived at by multiplying the gross annual rent by sixteen. The gross value
of a building is often made the datum point by statute and there is nothing
unusual or illegal about it particularly when there are statutable deductions
from it. [825 C-H] (h) Section 6(1) accepts the annual value of a building in
the books of the local authorities as correct. But that would not justify the
argument that doing so is illegal or unreasonable as long as it can be shown
that what is entered in the assessment books of the local authorities has been
arrived at in accordance with a satisfactory procedure laid down for it in the
statutes concerned. If the procedure prescribed in that Act is unexceptionable,
there is nothing illegal or unconstitutional if another taxing statute provides
that the annual value fixed by it shall be accepted as correct and would From
the basis for the calculation of any other tax permissible under another
statute. such cases there is no necessity for providing another machinery in
the other Act and Rules. Moreover ss. 9 to 16 of the Act contain the procedure
and the machinery for the assessment of the building tax on the returns filed
under ss. 7 and 8. These provisions are adequate in all respects and are not
open to challenge. [831 F-H, 832 A-B]
5. (a) The argument that the capital value of
a building is bound to differ according to its location, amenities and
appurtenances etc. and that ascertainment of the capital value by multiplying
the annual value by sixteen is discriminatory and violative of Art. 14, loses
sight of the fact that the Legislature has defined the annual value to mean the
annual rent at which a building may be expected to let. [833 H, 834 A-B] (b) A
building in an important locality with attractive appurtenance is expected to
fetch a higher rent than a building without those advantages. The definition
capital value provides for the levy of a higher building tax on buildings on
which such levy would be justified, because the incidence of the levy would
depend on the capacity of the building to fetch the rent. [834 B-C]
6. There is no force in the argument that
when s. 29 says that in fixing the fair rent of a building under s. S of the
Rent Control Act, the rent control court would not take into consideration the
building tax payable under the Act and that this makes the provision
extortionate because it prevents the owner from passing on the liability to the
tenant. The tax being a non-recurring tax, the question of passing it on to the
tenant by splitting it up in proportion to the number of years of the tenancy
cannot arise. There is no provision in the Rent Control Act under which a
building tax could be taken into consideration in fixing the fair rent. [834
D-F]
7. Section 18 which provides that tax may be
paid in certain prescribed number of installments and the proviso to s. 11(1)
which deals with appeals should be read harmoniously. If an assessee is
entitled to pay the building tax in installments, he would not be disentitled
to file an appeal if he has paid those installments as and when they fell due.
[834 G-Hl 809
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1524 of 1978 A (From the Judgment and order dated 29-6-1978 of the Kerala
High Court in original Petition No. 4411/77) CIVIL APPEALS NOS. 2091-2092 OF
1978 (From the Judgment and Order dated 26-6-1978 and 20-6- 1978 of the Kerala
High Court in O.P.. Nos. 3909/74 and 3902/75) CIVIL APPEAL NOS. 2093-2103 OF
1979 (From the Judgments and Orders dated 27-6-78, 20-6-78, 30-6-78, 12-6-78,
26-6-78, 22-6-78, 21-6-78, 30-6-78, 20-6- 78, 27-6-78 of the Kerala, High Court
in O.P.. Nos. 4833/75, 1006/75, 635/78 and 4740/77, 4096/74, 1820/75, 2258/76,
203/76, 346/78, 3497/75,, and 5620/75 respectively) CIVIL APPEAL NOS. 2136 OF 1978
(From the Judgment and Order dated 12-6-78 of the Kerala High Court in O.P. No.
3933/75) CIVIL APPEAL NO. 6 OF 1979 (From the Judgment and Order dated 23-6-78
of the Kerala High Court in O.P. No. 4449/76-K) ClVlL APPEAL NOS. 27-31 OF 1978
(From the Judgments and Orders dated 28-6-78, 23-8-78, 28-6-78 5 16-6-78, of
the Kerala High Court in O.P. Nos. 3401/77, 4660/75, 1658/77, 3929/75 and
3925/75 respectively) CIVIL APPEAL NOS. 50-52 OF 1978 (From the Judgments and
orders dated 28-6-78, 21-6-78 c 30-6-78 of the Kerala High Court in O.P. Nos.
3130/77-E, 5470/75 and 799/78 respectively) CIVIL APPEAL NOS. 188, 266 AND 303
OF 1979 (From the Judgments and orders dated 29-6-78, 1-6-78 and of the Kerala
High Court in O.P. Nos. 4758/75, 150/76 and 5800/78 respectively) 810 CIVIL
APPEAL NOS. 309-311 OF 1979 (From the Judgments and Orders dated 23-6-78,
20-6-75 and 24-11-1978 of the Kerala High Court in O.P. Nos.
3601/76, 4991/75 and 4611/75 respectively)
CIVIL APPEAL Nos 472-473 OF 1979 (From the Judgment and Order dated 29-6-78 of
the Kerala High Court in O.P. Nos. 4283/75 and 4290/77) CIVIL APPEAL NOS.
1543-1546 OF 1978 (From the Judgment and Order dated 12-6-1978 of the Kerala
Court in O.P. Nos. 3909, 3970, 252 and 4256/74.) CIVIL APPEAL NOS. 1689-1693 OF
1978 From the Judgments and Orders dated 20-6-1978, 22-6- 1978, 23-6-78,
22-6-78, 296-78, 21-6-78 & 22-6-78 of the Kerala High Court in O.P. Nos.
850/75, 1000/75, 4964/75 and 25/76, 1747/76 and 2076/76 and 544/76 and 4804/75K
and 5928/75N, 1889/76G, and 1615/76H respectively) CIVIL APPEAL NOS. 1556 OF
1978 (From the Judgment and Order dated 12-6-1978 of the Kerala High Court in
O.P. No. 1147/75) CIVIL APPEAL NOS. 1981-2004 OF 1978 (From the Judgments and
Orders dated 28-6-78, 23-6-78, 27-6-78, 22-6-78, 30-6-75, 21-6-78, 20-6-78,
28-6-78, 23-6- 78, 28-6-75, 26-6-78, 12-6-78, 23-6-78, 28-6-78, 20-6-78, 2-
6-78, 27-6-78, 26-6-78, 23-6-78, 28-6-78 and 27-6-78 of the Kerala High Court
in O.P. No. 3507/77, 3622/77 and 1375/76 and 796/177 and 3005/76 - and 567/78
and 5669/75, 1124/76 and 5173 and 3509/77 and 4445/76 and 3508/77 and 5852/76
and 4230/74 and 3978/76 and 3616/77 and 5328/75 and 2415/76 and 1310/77E and
5810/76G, 940/76D and 3634/76N and 1380/77L and 2742/76 respectively.
ClVlL APPEAL NO. 2105 OF 1978 (From the
Judgment and Order dated 20-6-78 of the Kerala High Court in O.P. No. 5175/75
CIVIL APPEAL Nos 232, 2351, 2352, 2353 AND 2354 OF 197 (From the Judgments and
orders dated 30-6-1978, 23-6- 78, 811 26-6-78 and 20-6-78 of the Kerala High
Court in O.P. Nos.438/78B, 1535/76N and 1443/76E and 5134/75 respectively)
CIVIL APPEAL NOS. 2415-2419 OF 1978 (From the Judgments and Orders dated
21-6-1978, 12-6- 78, 30-6-78, 21-6-78 and 27-6-78 of the Kerala High Court in
O.P. Nos. 5581/75, 5240/75, 849/78, 2751/76 and 1552/77 respectively) CIVIL
APPEAL NO. 2497 OF 1978 (From the Judgment and Order dated 20-6-78 of the
Kerala High Court in O.P. No. 4028/75) CIVIL APPEAL, NOS. 2587/78 AND 67-71/79
(From the Judgments and Orders dated 30-6-1978, 7-6-78 and 21-6-1978 of the Kerala
High Court in O.P. Nos. 3351/76N, and 6127/75. 6159/75. 5972/75, 4628/77-A
& 5755/75 respectively) CIVIL APPEAL NOS: 129-131 AND 197/79 (From the
Judgments and Orders dated 21-6-78, 20-6-78 of the Kerala High Court in O.P.
Nos. 5677/75, 5723/75 and 5263/75 and 5877/75 respectively) CIVIL APPEAL NOS
265, 420 AND 544, 545 & 580 OF 1979 (From the Judgments) and Orders dated
20-6-79,21-6- 79,22-6-78, 20-6-78 and 22-6-78 of the Kerala High Court in O.P.
Nos. 5004/75, 5524/75, 248/76K, 5335/75 and 2962/76G respectively) CIVIL APPEAL
NOS : 1965-1967 AND 2203-2206 OF 1978 (From the Judgments and Orders dated
25-7-78, 28-6-78, 4-7-78, 3-7-78, 22-6-78, 27-6-78 and 29-6-78 of the Kerala
High Court in O.P. Nos. 254/78, 3132/77-F, 4640/75, 1459/78- F, 750/76-E, 704//7-A
and 5995/75 respectively) CIVIL APPEAL NOS: 2583/78, 1/79, 72/79 AND 168/79
(From the Judgments and Orders dated 23-6-78,27-678,23- 6-78 and 29-6-78 of the
Kerala High Court in O.P. Nos. 260/76-L 1863/ 77E, 1398/76N and 4494/77B
respectively) 812 CIVIL APPEAL NOS: 2104/78, 2401/78 AND 2350/78 (From the
Judgments and Orders dated 12-6-78, 26-6-78, 30-6-78 of the Kerala High Court
in O.P. Nos. 4509/74, 5770/76L and 1150/76) CIVIL APPEAL NOS: 1860-1865 OF 1978
(From the Judgments and Orders dated 12-4-78, 28-6-78, 29-6-78, 23-6-78,
26-6-78 of the Kerala High Court in O.P. Nos. 4184/74, 3665/74C, 3932/77(B),
4165/76K and 5815/76(H) respectively) CIVIL APPEAL NOS: 2256-2257/78, 333/79,
500/79 (From the Judgments and Orders dated 21-6-78, 29-6-78 and 27-6-78 of the
Kerala High Court in O.P. Nos. 5494/75, 4716!77, 1285/75 and 3023/76) ClVlL
APPEAL NO. 2207 OF 1978 (From the Judgment and Order dated 23-6-78 of the
Kerala High Court in O.P. No. 4140/76-H) CIVIL APPEAL NO. 169 OF 1979 (From the
Judgment and Order dated 28-6-77 of the Kerala High Court in O.P. No. 3117/77)
CIVIL APPEAL NOS: 148-150/79, 304-305/79 AND 409/79 (From the Judgments and
Orders dated 27-6-78 28-6-78, 20-6-78, 27-6-78. Of the Kerala High Court in
O.P. Nos. 1941/77, 1903/77, 5176/78, 1047/77(G) and 1306/77E) CIVIL APPEAL NOS.
2254, 2255/78 AND 267 OF 1979 (From the Judgments and Orders dated 27-6-78,
21-6-78 and 27-6-78 of the Kerala High Court in O.P. No. 93/77, 5396/75 and
2277/76-D respectively) (From the Judgments and Orders dated 21-6-78 and 30-6-
78 of the Kerala High Court in O.P. Nos. 5416/75 and 4782/77C) WRIT PETITION
NOS. 4375 OF 1978 & 143/79 Under Article 32 of the Constitution) ClVlL
APPEAL No. 39 OF 1979 (From the Judgment and Order dated ]2-6-1978 of the
Kerala High Court in O.P. No. 4042/74) 813 SPECIAL LEAVE PETITION (CIVIL) No.
6298 OF 1978 (From the Judgment and order dated 5-7-78 of the Kerala High Court
in O.P. No. 983/76) SPECIAL LEAVE; PETITION (CIVIL) NOS: 1137-1138/79 (From the
Judgments and orders dated 7-8-78 and 27-6-78 of the Kerala High Court in O.P.I
Nos. 3474/77 and 1950/77) SPECIAL LEAVE PETITION (CIVIL,) NOS: 4861-4862 &
6154-56/79 (From the Judgments and orders dated 26-6-78, 27-6-78 26-6-78,
28-6-78 and 30-6-78 of the Kerala High Court in O.P. Nos. 638/77,1530/77,
5485/78, 2950/77 and 884/78) P. Govindan Nair (C.As. 1524, 2092-2095/78, 27,
29, 303, 310 and 311/79 T. C. Raghavan (CA 266), T. L. Anantha Sivan and N.
Sudhakaran, for the Appellants in CAs. 1524, 2091-2092, 2093-2103, 2136/78, 6,
27-31, 50-52, 100, 266, 303, 310, 311, 309, 472 and 473/79.
Anil B. Divan (1543-46 and 1556),S. B.
Saharya, K. V. Kuriakose (in all except 1995, 1997, 1998, 29-31, 197, 500 and
V. B. Sallarya for the Appellants, in C.As. 1543-46, 1656, 1689-99, 1981-2004,
2105, 2324, 2351-2352, 2354, 2415- 2419, 2497, 2587/178, 67-71, 129-131, 197,
265, 420, 544-545 and 500/79.
P. A. Francis, (1966) K. Sudhakaran (1967),
P. Paramesuaran (1966-67) A. S. Nambiar for the Appellants in 1965, 1966, 1967,
2203, 2204, 2205, 2206, 2353 and 2503/78, 1, 72 and 168/179, 165/79, 2063/78
and for the Petitioner in W.P. 143/79.
P. Kesava Pillai and S. K. Das Gupta for the
Appellants in CAs. 2104, 2350 and 2401/78.
P. Govindan Nair and Mrs. Saroja
Gopalkrishnan for the Appellants in 1860-64/78.
S. K. Mehta, P. N. Puri and EMS Anam for the
Appellants in C.A. 2256, 2257/78, 333, and 500/79 and 2026/79.
S. Balakrishnan for the Appellants in CA
2207/78 and for Petitioner in W.P. 4375/79.
G. B. Pai (169), K. J. John and Manzal Kumar
for the Appellants in C.A. 39 and 169/79.
P. Govindan Nair, Mrs. Baby Krishnan and N.
Sudhakaran for the Appellants. C.A. 148-50,304-305 and 409/79 and for the
Petitioners in SLP Nos. 4062, 4061, 6298, 5141, 6154- 6156/78.
814 A. T. M. Sampath and P. N. Ramalingam for
the Appellants in CA 2254 and 2255/78 and 267/79.
K. P. P. Pillai for the Appellants in C.A.
542 and 571/79.
N. Sudhakaran for the petitioners in SLP
1137-1138/79.
M. M. Abdul Khader and K. M. K. Nair for the
Respondents in all matters.
The Judgment of the Court was delivered by
SHINGHAL, J. These cases relate to the validity of certain provisions of the
Kerala Building Tax Act, 1975, hereinafter referred to as the Act, and are
directed against the judgment of the Keral High Court dated June 12, 1978, by
which the validity of those provisions has been upheld. We have heard these
cases together and shall deal with them in this judgment.
In order to appreciate the controversy, it
will be convenient to make a brief mention of the background of the Act.
The Legislature of the Kerala State wanted to
impose a tax on buildings, and passed the Kerala Building Tax Act, 1961, which
came into force on March 2, 1961. Its validity was challenged, and by his
judgment dated November 20, 1964, a learned Single Judge of the High Court held
it to be invalid and unconstitutional. The division bench took the same view in
its judgment dated July 7, 1966, and dismissed the appeal of the State. The
matter came to this Court, and it also dismissed the appeal by its judgment dated
August 13,. 1968, reported in State of Kerala v. Haji K. Haji K. Kutty Naha and
others. This was so because the Legislature had adopted merely the floor area
of the building as the basis of the tax irrespective of all other
considerations.
The intention to introduce a fresh Bill and
to levy a non- recurring tax on building was stated in the Finance Minister's
budget speech of 1910-71. A Bill was published sometime in June, 1970, and it
was stated there that the Act would be brought into force with effect from
April 1, 1970. The Bill was introduced in the Legislative Assembly on July S,
1973, and was referred to a Select Committee. The Committee submitted its
report on March 28, 1974. It recommended that the Act may be brought into force
from April 1, 1973. As the Bill could not be taken up during the budget
session, the Government of the State promulgated the Kerala Building Tax
ordinance, 1974, on July 27, 1974 to give effect to the provisions of the Bill
as reported by the Select Committee. It was followed by another ordinance dated
November 18, 1974 on the lines of the 815 earlier ordinance. The Bill was
passed soon after, and the Governor gave his assent to it on April 2, 1975.
Several writ petitions were filed in the High Court to challenge its constitutional
validity. and we have made a mention of the High Court's impugned judgment
dated June 12, 1978, from which the present cases have arisen. While four
Hon'ble Judges of the High Court have upheld the validity of the Act. a
different views has been taken by Eradi, J.
The question which arises for consideration
at the threshold is that relating to the competence of the State Legislature to
enact the law, on which considerable stress has been laid by Mr. P. A. Francis.
He has argued that the subject-matter of the Act being a tax on buildings, it
is a tax on the capital value of the assets of an individual or company and
falls within the scope of entry 86 of List I of the Seventh Schedule of the
Constitution, and not under entry 49 of List II, so that it was beyond the
legislative competence of State Legislature. The question is whether this is
so.
The word "tax" in its widest sense
includes all money raised by taxation. It therefore includes taxes levied by
the Central and the State Legislatures, and also these known as "rates ',
or other charges, lavied by local authorities under statutory powers.
"Taxation" has therefore been defined in clause (28) of article 366
of the Constitution to include "the imposition of any tax or impost,
whether general or local or special," and it has been directed that
"tax.' shall be 'construed accordingly." Chapter I of Part XI of the
Constitution deals with the distribution of legislative powers. Article 246 of
that chapter states, inter alia, the exclusive powers of the Parliament and the
State Legislatures according as the matter is enumerated in List I or List II
of the Seventh Schedule. Entry 86 of List I, in which reliance has been placed
by Mr. Francis, reads as follows:- "86. Taxes on the capital value of assets,
exclusive of agricultural land, of individuals and companies; taxes on the
capital of companies." Now the word "assets" has been defined in
the Century Dictionary (which is an encyclopedic lexicon of the English
language) as follows- "Property in general; all that one owns, considered
as applicable to the payment of his debts .... As a singular. Any portion of
one's property or effects so considered." 816 So if a tax is levied on all
that one owns, or his total assets, it would fall within the purview of entry
86 of List I, and would be outside the legislative competence of a State
Legislature, e.g. a tax on one's entire wealth. That entry would not authorise
a tax imposed on any of the components of the assets of the assessee. A tax
directly on one's lands and buildings will not therefore be a tax under entry
86.
On the other hand, entry 49 of List Ir is as
follows,- "49. Taxes on lands and buildings." If therefore a tax is
directly imposed on "buildings", it will bear a direct relation to
the buildings owned by their assessee. It may be that the building owned by an
assessee may be a component of his total assets, but a tax under entry 86 will
not bear any direct or definable relation to his building. A tax on
"buildings" is therefore a direct tax on the assessee's buildings as
such, and is not a personal tax without reference to any particular property.
It has to be appreciated that in almost all
cases, a tax has two elements which have been precisely stated by Seervai in
his "Constitutional Law of India," second edition, volume 2, as
follows, at page 1258,- "Another principle for reconciling apparently
conflicting tax entries follows from the fact that a tax has two elements: the
person, thing or activity on which the tax is imposed, and the amount of the tax.
The amount may be measured in many ways; but
decided cases establish a clear distinction between the subject matter of a tax
and the standard by which the amount of tax is measured. These two elements are
described as the subject of a tax and the measure of a tax." It may well
be that one's building may imperceptibly be the subject matter of tax, say the
wealth-tax, as a component of his assets. under entry 86 (List I); and it may
also be subjected to tax, say a direct tax under entry 46 (List II), but as the
two taxes are separate and distinct imposts, they cannot be said to overlap
other and would be within the competence of the Legislatures concerned.
Reference in this connection may be made to
Sudhir Chandra Nawn v. Wealth-Tax officer, Calcutta and others.(1) The
petitioner there challenged the demand for the recovery of wealth tax on the
ground, inter alia, that since the expression "net wealth" included
the buildings of the assessee and tho power to levy tax on them was referred to
the 817 State Legislature under entry 49, List II, Parliament was not competent
.4 to levy the tax under entry 86 of List I.
This Court rejected the challenge and laid
down the law as follows,- "The tax which is imposed by entry 86 List I of
the Seventh Schedule is not directly a tax on lands and buildings. It is a tax
imposed on the Capital value of the assets of individuals and companies, on the
valuation date. The tax is not imposed on the components of the assets of the
assessee: 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.
.... ..... ...... .....
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 D. 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 II the State Legislature may adopt for deter mining 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, in our judgment, make the fields of legislation under
the two entries overlapping." The decision in Sudhir Chandra Nawn's case
was followed by this Court in Assistant Commissioner of Urban Land Tax and
others v. F. The Buckingham and Carnatic Co. Ltd., Etc.(1) where the vires of
the Madras Urban Land Tax Act, 1966, was challenged with reference to entry 86
of List I of the Seventh Schedule. The legal position on that aspect of the
controversy was reiterated as follows,- "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, 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 lands or buildings which are brought to tax. Tax on lands and
buildings, is directly imposed on lands and buildings, 818 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." There is therefore no force in the argument that the State
Legislature was not competent to impose the tax on buildings under entry 49 of
list II of the Seventh Schedule of the Constitution.
We may as well put aside the other argument
that the Act is unconstitutional as it was passed on April 2, 1975 but has
imposed a tax on buildings with retrospective effect from April 1, 1973.
Craies on Statute Law, seventh edition, has
stated the meaning of "retrospective" at page 387 as follows,-
"A statute is to be deemed to be retrospective, which takes away or
impairs any vested right acquired under existing laws, or creates a new
obligation,, or imposes a new duty, or attaches a new disability in respect of
transactions or considerations already past.
But a statute "is not properly called a
retrospective statute because a part of the requisites for its action is drawn
from a time antecedent to it, passing"." It has however not been
shown how it could be said that the Act has taken away or impaired any vested
right of the assessees before us which they had acquired under any existing
law, or what that vested right was. It may be that there was no liability to
building tax until the promulgation of the Act (earlier the ordinances) but
mere absence of an earlier taxing statue cannot be said to create a
"vested right," under any existing law, that it shall not be levied
in future with effect from a date anterior to the passing of the Act. Nor can
it be said that by imposing the building tax from an earlier date any new
obligation or disability has been attached in respect of any earlier
transaction consideration. The Act is not therefore retrospective in the
strictly technical sense.
What it does is to impose the building tax
from April 1, 1973. But as was held in Bradford Union v. Wilts,(1) if the
language of the statute shows that the legislature thinks it expedient to
authorise the making of retrospective rates, it can fix the period as to which
the rate may be retrospectively made.
819 This Court had occasion to examine the
validity of the retrospective levy of sales tax in The Tata Iron and Steel Co.,
Ltd. v. The State of Bihar(1) and it was held that that was not beyond the
legislative competence of the State Legislature.
Nor can the choice of April 1, 1973 as the
date of imposition of the building tax be assailed as discriminatory with
reference to article 14 of the Constitution. It will, be enough for us to refer
in this connection to the following passage from this Court's decision in Union
of India and another v. M/s. Parameshwaran Match Works Etc.
Which was a case under the Central Excise and
Salt Act, 1944.- "The choice of a date as a basis for classification
cannot always be dubbed as arbitrary even if no particular reason is
forthcoming for the choice unless it is shown to be capricious or whimsical in
the circumstances. When it is seen that a line or a point there must be and
there is no mathematical or logical way of finding it precisely, the decision of
the legislature or its delegate must be accepted unless we can say that it is
very wide of the reasonable mark.
See Louisville Gas Co. v. Alabama Power
Co.-240 U.S. 30 at 32 (1927) per Justice Holmes." It has not been shown in
this case how it could be said that the date (April 1, 1973) for the levy of
the tax was wide of the reasonable mark. On the other hand it would appear from
the brief narration of the historical background of the Act that the State
Legislature had imposed the building tax under the Kerala Building Tax Act,
1961, which came into force on March 2, 1961, and when that Act was finally
struck down as unconstitutional by this Court's decision dated Aug 1st 13,
1968, the intention to introduce a fresh Bill for the levy was made clear in
the budget speech of 1970-71. It will be recalled that the Bill was published
in June 1973 and it was stated there that the Act would be brought into force
from April 1, 1970. The Bill was introduced in the Assembly on July S, 1973.
The Select Committee however recommended that it may be brought into force from
April 1, 1973. Two ordinances were promulgated to give effect to the provisions
of the Bill. The Bill was passed soon after and received the Governor's assent
on April 2, 1975. It cannot therefore be said with any justification that in
choosing April 1, 1973 as the date for the levy of the tax, the Legislature
acted unreasonably, or that it was "wide of the reasonable mark." 820
The real controversy in this case is that relating to the nature of the tax,
for it has been vehemently argued before us that it is not merely a tax on
buildings, but it is a tax on the buildings, as well as on the lands of those,
buildings.
As has been mentioned, what entry 49 of List
II of the Seventh Schedule of the Constitution permits is the levy of
"taxes on lands and buildings." It is therefore permissible to levy a
taxes either on lands as well as buildings, or on lands, or on buildings. If
the Legislature decides to impose a tax only on "buildings", the tax
will be imposed on all that goes to make, or constitute, a building.
The word ' building" has been defined in
the oxford English Dictionary as follows,- "That which is built; a
structure, edifice: now a structure of the nature of a house built where it is
to stand." Entry 49 therefore includes the site of the building as its
component part. That, if we may say so, inheres in the concept or the ordinary
meaning of the expression "building".
A somewhat similar point arose for
consideration in Corporation of the City of Victoria v. Bishop of Vancouver
Island(1) with reference to the meaning of the word "building"
occurring in section 197(1) of the Statutes of British Columbia, 1914. It was
held that the word must receive its natural and ordinary meaning as "including
the fabric of which it is composed, the ground upon which its walls stand and
the ground embraced within those walls." That appears to us to be the
correct meaning of "building." The Act contains its own definition of
what is meant by "building", and clause (e) of section 2 is to the
following effect,- "(e) "building" means a house, out-house,
garage, or any other structure or part thereof, whether of masonry, bricks,
wood, metal or other material, but does not include any portable shelter or any
shed constructed principally of mud, bamboos, leaves, grass or thatch or a.
latrine which is not attached to the main structure." There are two
explanations to the clause, but they are not relevant for the controversy
before us. The definition therefore makes it quite clear that. as a house,
out-house, garage or any other structure cannot be erected without the ground
on which it is to stand, the expression "building" includes, the
fabric of which it is composed, the ground 821 upon which its walls stand and the
ground within those walls. It is A equally clear that the ground referred to
above would not have a separate existence, apart from the building, and would
not be "lands' jointly stated with "buildings" as the
subject-matter of the tax in entry 49 of List II. In other words, the
"ground" referred to above would not be the subject-matter of a
separate tax, apart from the tax on the building standing on it.
It is true that sub-section (4) of section 6
of the Act provides that in determining the annual value of a building under
sub-section (2) or sub-section (3), the assessing authority shall, among other
factors, have regard to the "location of the building", and the
"value of the land on which the building is constructed", but that is
necessary for fixing the annual value of the "building", and does not
bear on the annual value of the ground of the building which, as we have shown,
does not have an existence of its own-apart from the building. Thus a building
which is located in an important business area of a city, will have a higher
annual value than a building located in the outskirts of the city. But any such
enhanced value is the value of the building and not of its ground, for what is
located in an important business area is not the ground of the building as such,
but the building itself. It may be that the value of the ground on which the
building stands may be known, or may be capable of being ascertained. That is
why the other factor mentioned in sub-section (4) of section 6 is tho value of
that land. But here again, as the land has no separate existence of its own the
value of the ground inevitably goes to constitute the value of the building.
Rule 4 of the Kerala Building Tax Rules,
1974, provides that the return under sub-section (1) or (3) of section 7, or section
8 of the Act shall be in Form II. Column 2 of that form makes a mention of the
location of the building, but not the location of its ground or land, or the
value thereof. It refers only to the annual value of the building in column
(13) and its capital value in column 7, so that the location of the building,
as distinct from the location of its ground, or the value of the ground as
such, do not go in for the determination of the annual or capital value of the
building.
It is therefore futile to contend that as
factors (a) and (f) of sub-section (4) of section 6 of the Act refer to the
location of the building and the value of the land, the law recognises the
separate existence or entity of the ground on which the building stands, so
that tho tax imposed under it is a tax both on lands and buildings and both the
entities should be separately recognised and determined, and taxed as such. As
has been stated, the location or value of the land has 16-625 SCI/79 822
importance of its own, and contributes to the value of the building standing on
it, but that does not justify the argument that what the Act provides is a tax
on lands and buildings, and not merely on buildings. There is also the further
fact that while the Act provides the method of arriving at the capital value of
the building, on the basis of the annual value, it does not provide any method
of assessing the annual or capital value of the ground on which the building
stands.
We shall next examine the other argument that
the method of determining the capital value of a building on the basis of its
annual value is hypothetical and arbitrary and should be struck down as
unconstitutional.
We have given our reasons for holding that
the tax on buildings, under the provision of the Act, has been imposed by
virtue of entry 49 of List II of the Seventh Schedule of the Constitution. So
when the State Legislature had taken a decision to impose that tax, it was open
to it to decide how best to levy it. If the tax was to be annual, one of the
usual modes of levying it was to make-provision for determining what is known
as "rate", or annual value of the building. Rateable value is now, in
almost all cases, the same as the net annual value of the building.
But if the State Legislature decides, as in
the present case, to levy a tax on buildings once for all or, as was stated in
the statement of subjects and Reasons of one of the Bills, as a
"non-recurring" tax on buildings, it had to go beyond the annual
value, and work out the capital value.
This could be done in one of the various
modes open to it e.g. On the basis of the capital cost of construction of the
building, or its market value, or on the basis of the rent arrived at by what
has aptly been described by Channel J., The Assessment Committee of the Brad-Ford-on-Aven
Union v. Write(1) as the "higgling of the market", and multiplying it
by a number which, in the opinion of the Legislature, would best serve the
purpose of determining the value of the building, and then to specify the rate
of the tax on it.
The value of a building is not merely the
cost of its bricks and mortar or other building material. It is therefore
difficult to ascertain that cost. It is also difficult to find out the market
value of a building. Doing so would, at any rate, take time and may be open to
manipulation or avoidable criticism, and may not provide a ready or convenient
basis of taxation. The Legislature cannot therefore be blamed if it decides to
link the levy with the annual value of a building and prescribes a uniform formula
for determining its capital value and . calculating the tax. Annual value of a
building has in fact played as 823 important a role in "rating" that,
in a converse case, resort has some- A times been taken to the capital value or
cost of construction to work it out.
As has been stated by Faraday on Rating
(fifth edition, page 24) there are four recognised methods of arriving at the
annual value of a building,-
1. The "competitive or comparative
method" i.e., by finding out rents actually paid for the building and/or
others of a similar kind, adjusting them to bring them into line with statutory
conditions, and thus arriving directly at an estimate of the rent.
2. The "profits basis", or
calculation by reference to receipts and expenditure, usually applied to public
utility undertakings.
3. The "contractor's method", by
which it is assumed, in the absence of any other and better way of estimating
the rent, that the tenant would arrive at it by finding the figure for which a
contractor would provide him with premises neither more nor less suitable for
his purpose, and the rate of interest on that cost which the contractor would
charge him as rent.
4. The "unit method" by which
schools may be valued at so much a place, hospitals at so much a bed, or certain
industrial premises at so much-a furnace, or other unit of output.
There is nothing to prevent any of the four
methods from being applied either singly, or in combination, as overall checks
to the same building.
The fundamental object in each of these methods
is to find out the rent which a tenant might reasonably be expected to pay for
a building. It is the expectation which is to be reasonable and not necessarily
the rent, for the reasonable expectation would exclude any so-called black
market rent. Halsbury (Vol. 23 p. 119 third edition) has in fact defined
"rate" to mean "a rate the proceeds of which are applicable to
local purposes of a public nature and which is leviable on the basis of
assessment in respect of the yearly value of property." As has been stated
in "State and Local Taxation" by J. R. Hellerstein (page 684),
increasing weight is being given to earnings as a weighty factor in real estate
tax valuations.
824 There is however no rule of law as to the
method of valuation to be adopted for determining the annual value of a
building. Where, however, the building has been let at what is plainly a
rackrent, that rent is the best evidence of value if it has been fixed by the
higgling of the market.. If therefore the Legislature selects that method to
determine the annual value of a building, there is neither reason nor authority
for holding that it is hypothetical or arbitrary.
What the Legislature has done under the Act
is to make it clear that the tax is on buildings, and not on the grounds on
which they stand, or on lands. It has defined [in clause (e) of section 2] what
a "building" means. It has also defined in clause (a) of section 2
what is meant by "annual value" of a building and clause (i) of the
same section defines "capital value". Section 6 prescribes the mode
of determining the capital value of a building according to the formula of
sixteen times the annual value prescribed in clause (f) of section 2. Having
made these necessary provisions, section S states that a tax, referred to as
"building tax" in the Act, shall be charged at the rate specified in
the Schedule etc. There are other ancillary provisions, but it will be
sufficient for us to say that, taken together, they contain the entire scheme
for the levy and collection of the building tax on the capital value of the
buildings. The expression "capital value" used in the Act is not
however the cost of construction of the building or its market value as a
wealth. It is a convenient or a working expression which may roughly be said to
be the taxable value of the building, and the State Legislature was quite
competent to select that as the basis for assessing the building tax.
Reference in this connection may be made to
this Court's decision in Khandise Sham Bhat and others v. The Agricultural
Income Tax officer(1) where it has been held as follows at page 823,-
"Where there is more than one method of assessing tax and the Legislature
selects one out of them, the court will not be justified to strike down the law
on the ground that the Legislature should have adopted another method which, in
the opinion of the court. is more reasonable, unless it is convinced that the
method adopted is capricious, fanciful, arbitrary or clearly unjust." It
may be mentioned that this Court has held in Assistant Commissioner of Urban
Land Tax(supra) that "for the purpose of Ievying tax under entry 49, List
II, the State Legislature may adopt for determining the incidence of tax the
annual or the capital value of the lands and 825 buildings." There is therefore
no justification for the argument to the Contrary We may as well deal here with
the ancillary argument that the building tax could not, at any rate, have been
based on the "gross annual rent" of the building. Thus argument has
arisen because clause (a) of section 2 of the Act defines "annual
value" as follows,- 1 "annual value" of a building means the
gross annual rent at which the building may at the time of completion be
expected to let from month to month or from year to year." It is therefore
true that the expected gross annual rent has been made the annual value of a
building, but that, by itself, cannot be said to be open to objection for two
reasons. Firstly, there is nothing to prevent the Legislature from making the
expected gross annual rent, and thereby the annual value of a building, from
being the unit for multiplication by sixteen for arriving at its capital value
for charging the tax under section 5. Secondly, section 6 of the Act states
that for determining the capital value for the purposes of the Act, the annual
value of a building shall be the "annual value fixed for that building in
the assessment books of the local authority within whose area the building is
situate ' and a cross-reference to section 102 (2) of the Kerala Municipal Corporation
Rct, 1961, shows that while the annual value of lands and buildings shall be
deemed to be the gross annual rent at which they may at the time of assessment
reasonably be expected to let from month to month or from year to year, a
deduction in the case of buildings of fifteen per cent of that portion of such
annual rent which is attributable to the building, alone apart from their sites
and adjacent lands occupied as appurtenances thereto shall be made and that
deduction shall be in lieu of all allowances for repairs or on any other
account whatever. As by virtue of section 6 of the Act the same annual value
forms the basis for determining the capital value of the building for purposes
of the Act, what really is taken as the annual value under the definition in
clause (a) of section 2 is not their gross annual rent but the net rent after
allowing for the cost of its repairs etc. A similar deduction has been provided
under section 100(2) of the Kerala Municipalities Act, 1960. It has not been
disputed before us that a provision exists in the law relating to Panchayats
also for actually basing the tax on buildings at the prescribed percentage of
the net annual rental value of the buildings.
It is not therefore factually correct to
contend that the annual value of buildings in Kerala is determined on the basis
of their gross annual rent. without any deduction on account of repairs etc.,
and there is 826 no force in the argument that determination of the capital
value is arbitrary as it is arrived at by multiplying the gross annual rent by
sixteen. But there is, even otherwise, no inherent illegality or vice if the
gross income of the property were to be capitalised for the purpose of
determining the value of the property. It has thus been stated in American
Jurisprudence, second edition, in para 762, on which reliance has been placed
by Mr. Govindan Nair as follows.- "A valuation of real property for
taxation may be made by capitalizing gross income therefrom, if the percentage
used is sufficient to cover legitimate deductions and a fair net return to the
owner." Reference may also be made to Faraday on Rating which shows that
the gross value of a building is often made the datum point by statue and there
is nothing unusual or illegal about it-particularly when there are statutable
deductions from it as in the present case.
Then it has been argued that under the Kerala
Municipal Corporation Act, 1961, the annual value is largely determined on the
basis of the value of the land on which the building has been constructed and
the land appurtenant thereto, but it is not permissible to make it the basis of
levying the tax on buildings under the Act as it purports to be a tax only on
buildings and not on lands or on lands and buildings. Reference for this argument
has been made to that part of section 102(1) of the Kerala Municipal
Corporation Act which provides that a building shall be assessed "together
with its site and other adjacent premises occupied as appurtenances
thereto".
We have given our reasons for taking the view
that the site or ground on which the building stands is a part of the building.
It has therefore to be taxed along with the fabric, for the two of them
constitute the building. There is therefore no occasion to tax the site
separately, or to ascertain its value and add it to the value of the fabric.
This is also the position in the case of
appurtenances.
An appurtenance has been defined in the
oxford English Dictionary as follows,- "A thing that belongs to another,
`belonging'; a minor property, right, or privileges, belonging to another more
important, and passing in possession with it; an appendage." An
appurtenance thus belongs to the building concerned and has no existence of its
own. This Court had occasion to examine the meaning 827 of
"appurtenance" in Maharaj Singh v. State of Uttar Pradesh and others
and has observed as follows (at page 1085),- " "Appurtenance",
in relation to a dwelling, or to a school, college....includes all land
occupied therewith and used for the purpose thereof (Words and Phrases legally
Defined-Butterworths, 2nd edn.). "The word 'appurtenances' has a distinct
and definite meaning....Prima facie it imports nothing more than what is
strictly appertaining to the subject-matter of the devise or grant, and which
would, in truth, pass without being specially mentioned: ordinarily, what is
necessary for the enjoyment and has been used for the purpose of the building,
such as easements, alone will be appurtenant. Therefore, what is necessary for
the enjoyment of the building is alone covered by the expression
'appurtenance'. If some other purpose was being fulfilled by the building and
the lands, it is not possible to contend that those lands are covered by the
expression 'appurtenances'. Indeed 'it is settled by the earliest authority,
repeated with- out contradiction to the latest, that land cannot be appur-
tenant to land. The word 'appurtenances' includes all the incorporeal
hereditaments attached to the land granted or demised, such as rights of way.
Of common.... but it does not include lands in addition to that granted'.
(Words and Phrase, supra).
In short, the touchstone of 'appurtenance' is
dependence of the building on what appertains to it for its use as
building." So even if it is presumed, as has been argued before us, that
there is some land as an appurtenance to a building, then if the word
"appurtenance" has been used in its true sense, it is an integral
part of the building to which it belongs, while if the word has been used
loosely, it will have its separate existence-quite apart from the building.
In either case, its value will not come in
for addition to the annual value of the building. It would not matter,
therefore, if under the Corporation Act the annual value of a building includes
the value of the appurtenances. for that is really the true annual value of the
building concerned.
Another argument which has been advanced is
that the multiple of 16 for ascertaining the capital value of a building on the
basis of its annual value, is unrealistic and arbitrary and should be held to
be "confiscatory". It has been pointed out those competing returns
from 828 investments range from 12 to 18 per cent on long term bank deposits.
It has also been argued that mere multiplication of the annual value would give
an unrealistic value and is not a satisfactory method of arriving at the
capital value.
As has been pointed out earlier, the
Legislature has decided to impose a non-recurring tax on buildings in the
State. It had therefore necessarily to go beyond the ascertainment of the
annual value, and adopt one of the several ways of ascertaining the capital
value of buildings.
And if the Legislature chose to adopt the
annual value as the base for working out the capital value with reference to
it, it cannot be blamed for it as, besides other advantages, it was readily
available from the records of the local authorities and was quite a simple and
reliable basis to work upon.
The controversy really centres round the
choice of the multiple, to work out the capital value. The Legislature has
thought it proper to define "capital value" of a building to mean the
value arrived at by multiplying the annual value of a building by sixteen.
There was nothing to prevent it from doing so for, as has been pointed out, it
had legislative competence to impose the building tax. And it is by now well
settled that the quantum of the tax levied by the taxing statute and the
conditions subject to which it is levied, are matters within the competence of
the Legislature: Rai Ramkrishna and others v. The State of Bihar.(1) It is also
well settled that so long as the tax is not confiscatory or extortionate, the
reasonableness of the tax cannot be questioned in a court of law: Kunnathat
Thathuni Moopil Nair v. The State of Kerala and another and Assistant
Commissioner of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. (supra)
.
It has to be appreciated that investment in
buildings is a conservative mode of raising income and even if it were presumed
that it does not yield the same quick results as some other forms of
investment, it cannot be denied that it involves lesser risk. So even if it
yields a return of not more than 6.25 per cent or so, it cannot be denied that,
unlike most of the other dependable investments, it has the considerable
advantage of giving to the investor a far greater return in the form of a more
or less continuous appreciation of the market value of the buildings.
Our attention has been invited to certain
modes of investment by way of fixed deposits, or national savings certificates,
which, we are told, 829 yield income upto about 10 per cent per annum, and
would be higher than the conservative 6.25 per cent yield on real estate. But
it cannot be forgotten that in fixed deposits and certificates the money and
the interest of the investor remain locked up until the expiry of the term of
the deposit or the certificate. The term of deposit is often quite long if it
has to yield income at the rate of 10 per cent or so.
If however the deposit is for a short period
of say six months, the income from interest may not be far in excess of 6.25
per cent, which appears to be the basis for fixing the multiple at 16.
Mr. Dewan has invited our attention to a
statement prepared by him showing building tax on gross annual rent, and he has
argued that, in one of the cases before us, while the cost of construction of
the building was only Rs.
2,79,686.20 its annual rental income is Rs.
1,34,400,00, its capital value works to Rs. 21,50,400. On and the building tax
on it will amount to Rs. 3,04.,610.00. It has been urged that the building tax
will thus be far in excess of the cost of construction, and would be
extortionate. But the argument misses the point that only the cost of
construction of the structure cannot be the full capital value of the building.
It also overlooks the fact that the entire
cost of construction, on Mr. Dewan's own showing, would be recovered in about
two years because of the high rental income, and if the owner has to pay a
non-recurring tax of Rs. 3,04,610.00, that will be less than three years rental
income, so that, thereafter, his investment will be a source of a recurring
income of Rs. 1,34,400.00 for as long the building lasts.
There is nothing unreasonable in determining
the capital value of a building yielding so much annual rent without reference
to its cost of construction. A tax of such a nature cannot be said to be
arbitrary or confiscatory or extortionate. But even if it were assumed that the
income from a building is no, more than 61 per cent, and the whole of it is
denied to the owner for a period of 16 years, to coincide with the multiple of
16, it cannot be gainsaid that after the expiry of that period, the owner
would, at any rate, be able to retain the whole of the income and, in the
meantime, benefit from the appreciation of its market value as years go by.
Such a taxing statute cannot be said to be "colourable".
It has in fact been held by this Court in
Raja Jagannath Baksh Singh v. The State of Uttar Pradesh(1) that,- ". . .
the conclusion that a taxing statute is colourable would not and cannot
normally be raised merely on the finding that the tax imposed by it is
unreasonably high or 830 heavy, because the reasonableness of the extent of the
levy is always a matter within the competence of the Legislature. Such a
conclusion can be reached where in passing the Act the Legislature has merely
adopted a device and a cloak to confiscate the property of the citizen
taxed." Reference may also be made to S. Kodar v. State of Kerala(1) for
the following observation,- "Generally speaking, the amount or rate of a
tax is a matter exclusively within the legislative judgment and as long as a
tax retains its avowed character and does not confiscate property to the State
under the guise of a tax, its reasonableness is outside the judicial ken."
As has been stated by A.A. Ring on "the valuation of Real Estate",
second edition, page 232, "the most important, and perhaps the most
controversial, and yet the least known phase of property valuation revolves
about the procedure for the determination of a market rate of capitalisation
through which estimated future net income can be converted into a sum of
present value." The author has dealt with various methods of property
valuation and the mathematics thereof, but they are approaches to a difficult
problem and the fact remains that no one method is perfect, or final, or above
criticism. As it is, we are unable to think that the multiple of 16 suffer from
any constitutional or legal infirmity.
The legality of the building tax has however
been challenged on the further ground that the Act, does not provide any
procedural machinery for the assessment of the annual value of buildings and is
really a colourable exercise of legislative power. The argument has been advanced
with reference to sub-section (1) of section 5 and has been supported on the
basis of this Court's decisions in Kunnathat Thathuni Moopil Nair v. The State
of Kerala, Raja Jagannath Baksh Singh v. The State of Uttar Pradesh and Rai
Ramkrishna and others v. The States of Bihar ( supra) .
Sub-section (1) of section 5 of the Act,
which is the charging section, provides that the building tax shall be charged
at the rate specified in the Schedule where its capital value exceeds Rs.
20,000/-. Clause (f) of section 2 states that the "capital value' of a
building means the value arrived at by multiplying its annual value by 16. So
if the annual value of a building can be ascertained with finality, by any
satisfactory procedure prescribed by law, it would only require its 831
multiplication by 16 to determine its capital value, and then to assess the
building tax leviable on it would be a matter of simple arithmaticaI
calculation according to the table given in the Schedule.
Section 6 of the Act provides the mode of
determining the capital value of a building. For purposes of the argument under
consideration, sub-section (1) of that section alone arises for consideration
because it is not disputed that sub-section (2), which deals with a case where
the annual value fixed in the assessment books of the local authority is held
to be "too low", and sub-section (3), which deals with a case where
the capital has not been fixed at all, are on a different footing. For them,
the factors for determining the annual value, and the assessing and the
appellate and revisional authorities etc. have all been provided by the Act and
there is no grievance on that account. The question is whether determining
capital value on the basis of the annual value recorded in the assessment books
of the local authority concerned is arbitrary because of the absence of the
necessary machinery for its determination.
Sub-section (1) of section 6 reads as
follows:- "6.(1). For determining the capital value for the purposes of
this Act, the annual value of a building shall be the annual value fixed for
that building in the assessment books of the local authority within whose area
the building is situate." It therefore accepts the annual value fixed for
a building in the books of the local authority as correct. But that would not
justify the argument that doing so is illegal or unreasonable as long as it can
be shown that what is entered to the assessment books of the local authority
has been arrived at in accordance with a satisfactory procedure laid down for
it in the statute concerned. Thus if it can be shown that the ANNUAL value, in
the case of a local authority, has been determined according to the procedure
laid down for it in the Act governing the constitution of the local authority
and the assessment and fixation of the annual value of buildings situated
within its local area, and if that procedure is unexceptionable, then there is
nothing illegal or unconstitutional if another taxing statute provides that the
annual value so fixed and recorded in the assessment books of the local
authority shall be accepted as correct and form the basis for the calculation
of any other tax or impost that may be permissible under the other statute. In
such a case, where the necessary machinery for determining the annual value has
been provided in the Act and/or the rules of the 832 local authority, there is
no reason or necessity for providing another machinery in the other Act and
rules.
Doing so would really mean making avoidable
and unnecessary provision, and may nave the disadvantage of creating confusion
and inconsistency for no useful purpose. A case of the nature contemplated by
sub-section (2) of section 6 is on a different footing for there are reasons to
take the view that the annual value fixed for the building by the local
authority is too low.
Everything therefore turns on the question
whether the law governing the levy and fixation of annual value of buildings in
the areas of the local authorities concerned provide the necessary procedure
and the machinery for their assessment and final fixation. It is not disputed
before us that the three Acts which bear on the question are the Kerala
Municipal Corporation Act, 1961, the Kerala Municipalities Act, 1960, and the
Kerala Panchayats Act, 1960.
We had occasion to refer to section 102(2) of
the Corporations Act earlier, with specific reference to the annual value of
buildings. Section 138 of that Act provides, inter alia, that the rules
embodied in Schedule II of the Act shall be read as part of the chapter on
"Taxation".
Rules 4 to 16 provide the procedure and the
machinery for assessment of the property tax (which is oased on the annual
value), including the procedure for moving the Commissioner by a revision
petition to reduce the tax. Sub-rule (22) of rule 22 provides for the hearing
of such applications by the Commissioner and for their determination by him
under sub- rule (3). Rule 23 provides for the filing of appeal to the Standing
Committee against the revisional order of the Commissioner. Then there is
provision in rule 24 for the filing of appeal to the District Court and there
is further provision in rule 26 to the effect that the Court may, if it thinks
fit, state a case on any appeal for the decision of the High Court and shall do
so whenever a question of law is involved if either the Commissioner or the
appellant applies in writing in that behalf. Rule 27 provides for the disposal
of the case by the District Court in conformity with the decision of the High
Court. Moreover rule 28 provides for the correction of the assessment books
according to the decision of the Standing? Committee, or the District Court.
The Corporation Act thus provides all the
necessary procedure and machinery for determining the annual value of buildings
in a fair and reasonable manner.
We have gone through the provisions of the
Municipalities Act also, in regard to the procedure and the machinery for
determining the annual value of buildings.
Chapter VI of Part III deals with 833
"Taxation and Finance". Section 150 states that the rules and tables
embodied in Schedule II shall be read as part of that Chapter. Rules 7 provides
that the value of the building for purposes of the property tax (including the
annual value) shall be determined by the Commissioner. Rule 12 provides for the
filing of a revision petition and rule 13 provides for its disposal only after
hearing the revision petitioner. Rule 24 provides for the filing of appeal to
the Municipal Council against the Commissioner's assessment.
Rule 30 provides for the appointment of
Special officer to exercise the Councils appellate power. So the Municipal Act
also provides the necessary procedure and the machinery for the proper fixation
of the annual value of buildings.
In the Panchayat Act also, provision has been
made in section 68 for ascertaining the annual rental value of buildings.
Section 144 provides for appeals and revisions.
Under sub-section (1) of that section the
appeal lies to the Panchayat and then under sub-section (2) to the Deputy
Director. Sub-section (3) gives power to the State Government also to call for
and examine the record and pass an appropriate order. Then there are the Kerala
Panchayats (Taxation and Appeal) Rules, 1963. That Act also thus provides the
necessary procedure and machinery for determining the annual value of buildings
in a satisfactory manner.
It is therefore futile to contend that there
is no adequate procedure or machinery in the three Acts mentioned above for the
satisfactory and proper determination of the annual value, of buildings. That
value can therefore very well be made the basis for determining the capital
value of a building and thereby fixing the building tax under the charging
section. Moreover, sections 9 to 16 of the Act contain the procedure and the
machinery for the assessment of the building tax on the returns filed under
sections 7 and 8. These provisions are adequate in all respects and are not
open to challenge with reference to any of the cases cited by learned counsel
It has next been argued that as the capital value of buildings is bound to
differ according to their location, the standard of their construction and the
amenities and appurtenances etc. provided by them, the provision in the Act for
ascertaining their capital value by multiplying the annual value by 16 suffers
from the vice of treating unequals as equals. That, it has been urged, is
discriminatory and violative of article 14 of the Constitution.
But the argument loses sight of the basic
fact that the capital value of a building has to be arrived at by multiplying
the annual 834 value by 16, and the Legislature has taken care to define
"annual value" to mean the annual rent at which the building may be
expected to let. So if a building is situated in an important locality, or if
its standard of construction is high, or if it has attractive appurtenances
etc. to it, it would be expected to fetch a higher rent than a building which
does not have those advantages. The definition therefore takes care of any
possible criticism that the Act suffers from the vice of treating unequals as
equals. It provides for the levy of a highest building tax on buildings on
which such levy would be justified, because the incidence of the levy is a
matter to be decided on the basis of its capacity to fetch rent. The argument
to the contrary is therefore quite untenable.
Section 29 of the Act declares, for the
avoidance of doubt, that in fixing the fair rent of a building under section 5
of the Kerala Buildings (Lease and Rent Control) Act, 1965, the rent control
court shall not take into consideration the building tax payable in respect of
the building under the Act. That has given rise to the argument that the
provision is extortionate as it prevents the owner from passing on the
liability to the tenant.
This argument can be answered in three ways.
Firstly, learned counsel could not point to any of the cases before us in which
such a question could be said to have arisen. It cannot therefore he said to
have arisen for consideration.
Secondly, the building tax being a
non-recurring tax, payable by the owner once for all, without any recurring
liability, the question of passing it on to the tenant by splitting it up in
proportion to the number of years of the tenancy, cannot be said to arise.
Thirdly, learned counsel have not been able to refer to any provision of the
Kerala Buildings (Lease and Rent Control Act, 1965, under which the building
tax could be taken into consideration in fixing the fair rent of the building
and section 29 of the Act has prevented that being done.
Lastly, it has been argued that while section
18 of the Act provides that the tax may be paid in such installments as may be
prescribed, the proviso to sub-section (1) of section 11, which deals with
appeals, renders that provision negatory as it states that no such appeal shall
lie unless the building tax has been paid. The concern of the learned counsel
in advancing this argument is justified; but if the aforesaid provisions of
sections 11 and 18 are read harmoniously it would appear that if an, assessee
is entitled to pay the building tax in installments under the prescription
referred to in section 18, he will not be identified to file an appeal if he
has paid those installments 835 as and when they fall due. That is a fair and
reasonable view to take of the relevant provisions of the Act, and we hold
accordingly.
In the result, we find no merit in these
cases and they are all dismissed without any order as to the costs. We however
think it proper, in the circumstances in which all this controversy has arisen
and uncertainty about the true effect of the provisions of the Act has been
created, to direct that in cases where the building tax has not been assessed
so far, the assessing authority may give the assessees an opportunity to
produce evidence on which they may want to rely in support of their returns. In
cases where the assessments have been made, but the assessees could not or did
not file their appeals within the period specified therefore, we direct that
they may be permitted to do so within a period of 30 days from the date of this
judgment and the appellate authority may admit those appeals as the prosecution
of these cases was sufficient cause for not presenting them earlier. It is
clarified that if any matter is pending before the Government of Kerala under
section 3(2) of the Act, it will be permissible for that Government to dispose
it of according to the law. So also, in cases where the High Court has given an
option or opportunity to any assessee to file fresh objections before the authority
concerned, under the provisions of the Act, it will be permissible for him to
do so.
P.B.R. Appeals dismissed.
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