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