Full Judgment Text
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PETITIONER:
R. R. ENGINEERING CO.
Vs.
RESPONDENT:
ZILA PARISHAD, BAREILLY & ANR.
DATE OF JUDGMENT10/03/1980
BENCH:
CHANDRACHUD, Y.V. ((CJ)
BENCH:
CHANDRACHUD, Y.V. ((CJ)
KRISHNAIYER, V.R.
UNTWALIA, N.L.
SHINGAL, P.N.
KOSHAL, A.D.
CITATION:
1980 AIR 1088 1980 SCR (3) 1
1980 SCC (3) 330
CITATOR INFO :
R 1984 SC 420 (15)
R 1989 SC2015 (10)
C 1990 SC 781 (72)
RF 1991 SC1676 (30,35)
RF 1992 SC1383 (12,13)
RF 1992 SC2084 (8)
ACT:
U. P. Kshetra Samitis & Zila Parishads Act 1961-
Circumstances and Property Tax-Nature of tax-If a tax on
income or profession.
State Legislature, if competent to impose tax.
HEADNOTE:
Acting under the power conferred by section 108 of the
District Boards Act, 1922 the District Board, Bareilly
imposed "Circumstances and Property Tax" on persons
according to their circumstances and property. In 1958 the
powers and functions of the District Boards were vested in
or were transferred to the Antarim Zila Parishads and later
they were transferred to the Zila Parishads constituted
under the U.P. Kshetra Samitis and Zila Parishads Act 1961.
The 1961-Act empowered the Zila Parishads to impose the
"Circumstances and Property Tax." It also provided that
where before the appointed date there was in force
"Circumstances and Property Tax" under the 1922 Act such tax
may continue to be levied by the Zila Parishads at the same
rates and on the same conditions under which it was being
levied under the 1922 Act. The tax which till then was being
levied by the District Boards was henceforth levied by the
Zila Parishads.
Dismissing the appellants’ writ petition impugning the
constitutional validity of the Act the High Court held (1)
that the tax on circumstances and property was a single tax
possessing altogether a separate and distinct identity from
other taxes and could neither be equated with a tax on
professions, trades, callings or employments nor with a tax
on property and (2) that the tax fell under the residuary
entry of List I, namely, Entry 97 (any matter not enumerated
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in any other Entry in List I or in any of the Entries in
List II and III) and that it could be continued to be levied
by virtue of Article 277 of the Constitution.
In CA 564 of 1973 the appellants were assessed to the
tax by the Town Area Committee under the U.P. Town Areas
Committee Act, 1914 as amended in 1950. The appellants’ suit
challenging the validity of the tax was allowed by the
Munsiff on the ground that the tax on circumstances and
property was in truth and substance a tax on income and
since prior to the Constitution it was not lawful for the
Town Area Committee to levy it, it was not saved by Article
277. The Civil Judge dismissed the appeal of the Committee.
The High Court upheld the validity of the tax.
In appeal to this Court it was contended that the
limitation contained in Article 276(2) of the Constitution
cannot be transgressed by the State Legislature by adopting
the subterfuge of imposing a consolidated tax by clubbing up
two or more entries in List II, and that the State
Legislature could not
2
exercise the power to levy a tax on circumstances and
property by an artificial understanding on that expression
so as to acquire power to impose a tax on income.
Dismissing the appeal,
^
HELD : 1. (a) There is a basic distinction between a
tax on income and a tax on circumstances and property. While
income tax can only be levied on income, tax on
circumstances and property can be on the total turnover of
the assessee from his trade or calling or the fact of his
having an interest in property. For the levy of tax on
circumstances and property it is not necessary that there
should be income in the hands of the assessee, in the sense
of the Income Tax Act. A person can be subjected to tax on
circumstances and property in relation to the status which
he occupies by reason of the pursuit by him of a beneficial
calling or the possession by him of an interest in property.
While determining the status of an individual for the
purpose of the tax on circumstances, the total turnover of
his business or avocation may, therefore, be legitimately
taken into consideration. [8 G-H; 9 C-D]
(b) The fact that the tax on circumstances and property
is levied on the basis of income which an assessee receives
from his profession, trade, calling or property is not
conclusive of the nature of the tax. It is only as a matter
of convenience that income is adopted as a yardstick or
measure for assessing the tax. The measure of the tax is not
a true test of the nature of the tax and, therefore, while
determining the nature of a tax, though the standard on
which the tax is levied may be a relevant consideration, it
is not a conclusive consideration. [9 E]
District Board of Farrukhabad v. Prag Dutt, AIR 1948
All 382 (FB), Zila Parishad, Muzaffarnagar & Anr. v. Jugal
Kishore Ram Swarup and Anr. AIR 1969 All 40, approved.
Re. a Reference under Government of Ireland Act, [1936]
A. C. 352; Governor-General in Council v. Province of
Madras, 72 I.A. 91, 99, referred to.
2. (a) The tax is referable to Entry 49 (taxes on lands
buildings) Entry 60 (taxes on professions, trades, callings
and employments) and among other items to item 58 (taxes on
animals and boats) of List II. The impugned tax is a
composite tax, one of its components being the circumstances
of the assessee. By ’circumstances’ is meant his financial
position, his status as a whole, which depends inter-alia on
his income from his lands and buildings and from his trade
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or calling. The tax is wide enough to cover certain other
items in List II like Item 58 which relates to "tax on
animals and boats". [12 H; 11 G-H]
The Notified Area Committee & Anr. v. Sri Ram Singhasan
Prasad Kalwar. AIR 1970 Allahabad 561, approved.
(b) Yet the fact that one of the components of the tax,
namely, the component of ’circumstances’ is referable to
other Entries in addition to Entry 60 should not be
construed as conferring an unlimited charter on the local
authorities to impose disproportionately excessive levies on
the assessees who are subject to their jurisdiction. [13 A-
B]
3
3. The High Court was wrong in holding that by reason
of the fact that the circumstances and property tax is a
composite tax and since the element of ’property’
necessarily enters into that composition, the tax cannot be
identified as a tax on professions, trades, callings or
employments. It is also not correct to say that since the
tax on circumstances and property did not place as an entry
expressly enumerated in any of the three Lists of the
Seventh Schedule it falls under the residuary entry, namely,
Entry 97 of List I. It is erroneous to take resort to
Article 277 for the purpose of saving the tax. The mere name
of a tax does not bear on legislative competence and the
absence of express enumeration of a tax by a particular name
will not justify the tracing of legislative authority to the
residuary entry. [13 D-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1528 of
1970.
From the Judgment and Order dated 23-5-1969 of the
Allahabad High Court in Civil Misc. Writ No. 37/67
AND
Civil Appeal No. 564 of 1973.
Appeal by special leave from the Judgment and Order
dated 29-11-72 of the Allahabad High Court in Second Appeal
No. 2359 of 1966.
Yogeshwar Prasad, S. K. Bagga, Mrs. S. Bagga, Ashoke
Srivastava and Mrs. Rani Chhabra for the Appellant in C.A.
No. 1528/70.
E. C. Agarwala for the Appellant in C.A. 564/73.
K. C. Agarwala and M. M. L. Srivastava for the
Respondent in C.A. 1528/70.
J. P. Goyal and S. K. Jain for the Respondent in C.A.
564/73.
The Judgment of the Court was delivered by
CHANDRACHUD, C.J.-These are two appeals from Uttar
Pradesh involving the validity of a levy which bears the
somewhat unusual name of ’Circumstances and Property Tax’.
Civil Appeal 1528 of 1970 is by certificate granted by the
Allahabad High Court under Articles 132(1) and 133(1)(c) of
the Constitution while Civil Appeal 564 of 1973 is by
Special Leave granted by this Court.
The facts leading to Civil Appeal 1528 of 1970 are as
follows:-
The appellant M/s. R. R. Engineering Company is a
partnership firm engaged in the business of manufacture and
sale of machinery, machine tools and as structural
engineers. Its registered office is situated at
Clutterbuckganj which was at one time within the local
limits of the jurisdiction of the District Board of
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Bareilly. Acting under the power conferred by section 108 of
the District Boards Act, 1922,
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the District Board, Bareilly, by Resolution No. 3 dated
February 18, 1928 decided to impose the ’Circumstances and
Property Tax’ on persons according to their circumstances
and property. Rule 7 framed under section 172 of the Act for
assessment and collection of the said tax was published on
March 10, 1928, providing for the maximum assessment of Rs.
2,000/- on any single assessee. Later by a Notification
dated November 29, 1933 the State Government directed under
section 114(d) of the Act that the total amount of tax on
circumstances and property imposed by a District Board on
any single assessee shall not in any year exceed the sum of
Rs. 2,000/-.
On April 20, 1958 the U. P. Antarim Zila Parishad
Ordinance 1958 was enacted by the State Government,
providing for the establishment of Antarim Zila Parishads
for the internal administration of local self-Government in
rural areas, thereby facilitating the establishment of Zila
Parishads for the coordinated administration of affairs
concerning economic and social planning and of local self-
Government in the various Districts of Uttar Pradesh. The
Ordinance was repealed by the U.P. Antarim Zila Parishad Act
1958.
In 1961, the U. P. Kshetra Samitis and Zila Parishads
Act, 33 of 1961, was passed. By section 274 of that Act, the
U. P. District Boards Act, 1922, was repealed as from the
date Kshetra Samitis were established in a District, and the
U. P. Antarim Zila Parishads Act was repealed as from the
date on which the Zila Parishad was established in a
District. The powers and functions of District Boards were
vested in or were transferred to the Antarim Zila Parishads
and from them to the Zila Parishads on their establishment
in the District.
By section 119 of the U. P. Kshetra Samitis and Zila
Parishads Act 1961, the Zila Parishads were empowered to
impose the ’Circumstances and Property Tax’. Section 120 of
that Act provides that where, before the appointed date,
there was in force ’Circumstances and Property Tax’ under
the District Boards Act, 1922, such tax may continue to be
levied by the Zila Parishad at the same rates and on the
same conditions under which it was being levied under the
District Boards Act. Section 121 provides that the total
amount of the tax shall not exceed the amount as may be
prescribed by rules framed under the Act. Rule 7 framed
under section 172 of the District Boards Act, 1922, which
provides for a maximum levy of Rs. 2,000/- on a single
assessee, remains in force until the framing of rules under
the Act of 1961.
The appellant’s registered office which was situated
within the jurisdiction of the District Board of Bareilly is
now within the jurisdiction of the Zila Parishad, Bareilly.
The Circumstances and Property Tax
5
which was being levied by the District Board of Bareilly is
now being levied by the Zila Parishad of Bareilly.
The appellant having been assessed to a tax of Rs.
2,000/- for the year 1965-66, filed Writ Petition 37 of 1967
in the High Court of Allahabad to challenge the
constitutional validity of that tax. A learned single Judge
referred the Petition to a Division Bench which in turn
referred it to a Full Bench. The Full Bench consisting of
Mr. Justice R. S. Pathak, Mr. Justice M. H. Beg and Mr.
Justice H. C. P. Tripathi dismissed the Writ Petition but
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granted certificate to the appellant to appeal to this Court
under Articles 132(1) and 133(1)(c) of the Constitution.
In Civil Appeal 564 of 1973, appellants who are
residents of Kuraoli, District Mainpuri, were assessed to
Circumstances and Property Tax by the Town Area Committee of
Kuraoli, for the years 1961-64. The tax was levied by the
Committee under section 14(f) of the U.P. Town Area Act,
1914, as amended by the U.P. Town Area (Validation and
Amendment) Act, 1950, which empowers the Town Area
Committees to impose a tax on persons according to their
"circumstances and property", not exceeding such rate and
subject to such limitations and restrictions as may be
prescribed.
The appellants filed a suit, 62 of 1964, to challenge
the validity of the tax. That suit was decreed by the
learned Munsif, Munsir, on the ground that the tax on
circumstances and property was in truth and substance a tax
on income and since, prior to the Constitution, it was not
lawful for the Town Area Committee to levy it, it was not
saved by Article 277 of the Constitution. The appeal filed
by the Committee against that judgment was dismissed by the
learned Civil Judge, Mainpuri, but in Second Appeal 2859 of
1966, the High Court of Allahabad by its judgment dated
November 29, 1972, took a contrary view, allowed the
Committee’s appeal and directed the dismissal of the
appellant’s suit. The learned Single Judge who decided the
Second Appeal, followed the Full Bench decisions of the High
Court in (i) M/s R. R. Engineering Co. which has given rise
to the companion appeal herein, namely, Civil Appeal 1528 of
1970, and (ii) The Notified Area Committee & Anr. vs. Sri
Ram Singhasan Prasad Kalwar. Being aggrieved by the judgment
of the High Court, the appellants have filed this appeal by
Special Leave of this Court.
The three learned Judges who constituted the Full Bench
of the High Court in R. R. Engineering Co. (supra) delivered
separate judgments, coming ultimately to the same conclusion
though not by
6
the same process of reasoning. It was urged before the High
Court that the tax in on ’circumstances and property’ was a
tax on professions, trades, callings and employments and
therefore the total amount of tax in respect of any one
person could not, by reason of Article 276(2) of the
Constitution, exceed Rs. 250 per annum. It was further
contended that though the proviso to Article 276(2) enables
the levy of a tax on professions, trades, callings and
employments in excess of Rs. 250/- per annum if in the
financial year immediately preceding the commencement of the
Constitution the tax was being imposed, the authority which
is now seeking to impose the tax being different from the
one which was imposing the tax immediately before the
Constitution came into force, the proviso would have no
application. Mr. Justice R. S. Pathak and Mr. Justice M. H.
Beg rejected the contention that the tax on ’circumstances
and property’ was a tax on professions, trades, callings or
employments. Consequently, they held that the limitation
contained in Art. 276(2) of the Constitution to the effect
that the total amount payable in respect of any one person
to the State or to any one municipality, district board,
local board or other local authority in the State by way of
taxes on professions, trades, callings and employments shall
not exceed two hundred and fifty rupees per annum was not
applicable. Justice Pathak held that the tax on
circumstances and property is a composite tax and although a
person’s status and property are two intertwined strands
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which enter into the composition of the tax, the tax cannot
be considered as consisting of two distinct taxes under a
single denomination. According to the learned Judge, the tax
on circumstances and property is a single tax possessing
altogether a separate and distinct identity from other taxes
and could neither be equated with a tax on professions,
trades, callings or employments nor with a tax on property;
that is to say, the constituent elements which enter into
the composition of the tax could not be separated. On the
question whether the circumstances and property tax levied
by District Boards prior to the Constitution could be levied
thereafter, the learned Judge relied upon Art. 277 of the
Constitution as authorising the continued imposition of the
tax. When the Constitution came into force, said the learned
Judge, circumstances and property tax did not find a place
in any of the three Lists of the Seventh Schedule and
therefore it fell under the residuary entry, namely, entry
97 of List I which refers to any matter not enumerated in
any other entry in List I or in any of the entries in Lists
II and III.
Justice M.H. Beg largely shared the view of Justice
Pathak that the tax on circumstances and property was a
composite tax and not merely a tax on professions, trades,
callings or employments and therefore,
7
the limit imposed by Art. 276(2) was not applicable to the
tax. According to the learned Judge, the relevant enquiry in
regard to the tax was as to what was the legal basis of the
tax or the reason without which there could be no such tax.
He answered that question by saying that the best answer one
could give was that the tax on circumstances and property
was a tax on the status of a person. The learned Judge
shared the view of Pathak, J., that after the enactment of
the Constitution, Art. 277 authorised the continued
imposition of the tax.
Tripathi, J. followed an earlier Full Bench judgment of
the Allahabad High Court and held that the tax on
circumstances and property was in the nature of a tax on
professions, trades, callings or employments. The limitation
prescribed by Art. 276(2) would, therefore, be attracted,
but the proviso to that article saved the imposition of the
tax even if it was in excess of Rupees two hundred and fifty
per annum because the tax was in force in the financial year
immediately preceding the commencement of the Constitution
and the Parliament had not by law made any provision to the
contrary. The contention, that the Proviso would apply only
if the authority imposing the tax after the enactment of the
Constitution was the same which did so immediately prior to
the Constitution was rejected by the learned Judge on the
ground that what was important for the purposes of the
Proviso was the identity of the purpose for which the tax
was and is imposed, and the area of its operation, and not
the identity of the authority imposing the tax.
In the companion Appeal, 564 of 1973, a different
consideration arose in a significant respect, namely, that
the tax was not in force in the financial year immediately
preceding the commencement of the Constitution. The
assessment having been made by the Town Area Committee under
section 14(f) of the U.P. Town Areas Act, which was
introduced by a post-Constitution amendment of 1950, the
proviso to Art 276(2) had no application and therefore the
levy in excess of Rs. 250 per annum could not be saved by
the proviso, if the tax was in respect of professions,
trades etc. A learned Single Judge of the High Court,
however, upheld the validity of the tax following the Full
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Bench judgment in R. R. Engineering Co. (supra).
Before us also, the main controversy centred round the
application of Article 276, the contention being that the
imposition of the impugned tax in excess of Rs. 250 per
annum is invalid. It was urged by Mr. E. C. Agarwala, who
appears on behalf of the appellant in Civil Appeal No. 564
of 1973, that although Entry 60 in List II empowers
8
State Legislatures to levy tax on professions, trades,
callings and employments, the exercise of that power is
necessarily limited by Article 276(2) of the Constitution.
The constitutional limitation, according to the learned
counsel, contained in Article 276(2) must be given its full
effect and that limitation cannot be transgressed by the
State Legislature by adopting the subterfuge of imposing a
consolidated tax by clubbing-up two or more entries in List
II. Counsel further contended that the State Legislature
cannot over-reach its taxing power by making an artificial
definition of words and expressions used in the legislative
entries. Just as it cannot, by an artificial definition of
’sale of goods’, exercise a power to legislate in respect of
a subject matter outside its sphere, it cannot exercise the
power to levy a tax on ’circumstances’ by an artificial and
colourable understanding of that expression so as to acquire
the power to impose a tax on income. Lastly, it was
contended by Shri Agarwala, and by Shri Yogeshwar Prasad who
appears in the companion appeal, that the power to levy a
tax on ’circumstances not being incidental to the power to
tax professions, trades, etc. the doctrine of pith and
substance had no application and could not save the impugned
tax on circumstances and property.
The nature and validity of the tax on ’circumstances
and property’ have agitated the minds of the learned Judges
of the Allahabad High Court for a long time, as is evident
from various Full Bench judgments, which are not quite
consistent with one another, and some of which have even
taken conflicting positions. In some cases decided by single
Judges or Division Benches, the view was taken that the tax
on ’circumstances and property’ is a tax on ’income’. (Tata
Oil Mills Co. Ltd. v. District Board of Allahabad; Western
U. P. Electric Power and Supply Co. Ltd. Etawah v. Town Area
Jaswant Nagar and Raghubir Singh v. Town Area Committee. The
correct position is, however, the one which was pointed out
by Malik C.J., in his Full Bench judgment in District Board
of Farrukhabad v. Prag Dutt. The learned Chief Justice
elaborated the point by dwelling upon the basic distinction
between a tax on ’income’ and a tax on ’circumstances and
property’. It is trite that income-tax can only be levied on
income, that is to say, it can be levied provided the
assessee is in receipt of an income. If there is no income,
there can be no income-tax. In contrast, the relevant
consideration in the case
9
of a tax on ’circumstances and property" can be the total
turnover of the assessee from his trade or calling or the
fact of his having an interest in a property. This
consideration assumes relevance because the tax on
circumstances and property is a tax, so to say, on the
status of the assessee, in their endeavour to give to that
tax a local name and habitation, in order perhaps to soften
resistance to it, the learned Judges of the Allahabad High
Court have described it as a tax on ’Haisiat’ which, as far
and as best as translation can go, means ’status’. For the
levy of tax on circumstances and property, it is not
necessary that there should be income in the hands of the
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assessee, in the sense of the Income-tax Act. The outgoings,
the deductions, the carry-forward losses, the development
rebate and the like may leave no income in the hands of an
assessee which could be brought to tax under the Income-tax
Act. But a person can be subjected to tax on circumstances
and property in relation to his ’Haisiat’, that is to say,
the status which he occupies by reason of the fact of the
pursuit by him of a beneficial calling or the possession by
him of an interest in property. While determining the status
of an individual for the purposes of the tax on
circumstances, the total turnover of his business or
avocation may therefore be legitimately taken into
consideration.
It may be, and is often so, that the tax on
circumstances and property is levied on the basis of income
which the assessee receives from his profession, trade,
calling or property. That is, however, not conclusive on the
nature of the tax. It is only as a matter of convenience
that income is adopted as a yardstick or measure for
assessing the tax. As pointed out in Re a Reference under
Govt. of Ireland Act, the measure of the tax is not a true
test of the nature of the tax. Therefore, while determining
the nature of a tax, though the standard on which the tax is
levied may be a relevant consideration, it is not a
conclusive consideration. One must have regard in such
matters, as stated by the Privy Council in Governor General
in Council v. Province of Madras, not to the name of the tax
but to its real nature, its pith and substance, which must
determine into what category it falls. Applying these tests,
the tax on ’circumstances’ will fall in the category of a
tax on "a man’s financial position, his status taken as a
whole and includes what may not properly be comprised under
the term ’property’ and at the same time ought not to escape
assessment." This quotation finds place in the judgment of
Malik C.J. in the Full Bench decision in
10
District Board of Farrukhabad. (supra) The formulation,
which the learned Chief Justice would appear to have
extracted from another source, since he has put it within
quotes, is in similar terms as that of this Court in Pandit
Ram Narain v. The State of U.P. In that case an assessee
challenged his liability to pay the tax on circumstances and
property under section 14 (1) (f) of the U. P. Town Areas
Act, 1914 on the ground that he did not reside within the
jurisdiction of the Town Area Committee of Karhal and that
Rule 3 framed under section 39 (2) of the Act was invalid.
This Court, after referring approvingly to the decision in
District Board of Farrukhabad, (supra) particularly to the
statement therein that the name given to a tax did not
matter and that what had to be considered was the pith and
substance of it, observed:
A tax on ’circumstances and property’ is a composite
tax and the word ’circumstances’ means a man’s
financial position, his status as a whole depending,
among other things, on his income from trade or
business.
The Full Bench decision under appeal in the instant
case, R. R. Engineering Co. (supra) has taken the same view
of the nature of the tax on circumstances and property by
holding that it is not a tax on income but is a tax on a
man’s financial position, his status as a whole, depending
upon his income from trade or business. Earlier another Full
Bench of the Allahabad High Court had held in Zila Parishad
Muzaffrnagar v. Jugal Kishore that the tax on circumstances
and property is fundamentally distinct from and cannot be
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equated with income tax, that it is not covered by item 82,
List I, Schedule 7, of the Constitution and that it is
essentially a tax on status or financial position combined
with a tax on property. These decisions correctly describe
the nature of the tax on circumstances and property. We
affirm the view taken therein, especially that the aforesaid
tax is not a tax on income.
But even though the impugned tax is not a tax on
income, it is necessary to consider whether it is within the
legislative competence of the State legislature and, if so,
under which entry it would fall. The reason for such an
inquiry is mainly two-fold: firstly, even if the tax on
circumstances is within the legislative competence of the
State legislature, being referable to entry 60 of List II
which relates to taxes on professions, trades, callings and
employments, it cannot exceed the limit of two hundred and
fifty rupees per annum prescribed by Article 276(2) of the
Constitution, unless the proviso to that article
11
is attracted: secondly, if the tax is beyond the legislative
competence of the State legislature, being a composite tax
not liable to be split up into distinct component parts, it
will be necessary to examine whether the tax is saved by
article 277 of the Constitution.
Article 276(1) of the Constitution provides that
notwithstanding anything in article 246, no law of the
legislature of a State relating to taxes for the benefit of
the State or of a municipality, district board, local board
or other local authority therein in respect of professions,
trades, callings or employments shall be invalid on the
ground that it relates to a tax on income. By clause (2) of
that Article, the total amount payable in respect of any one
person to the State or to any one municipality, district
board, local board or other local authority in the State by
way of taxes on professions, trades, callings and
employments shall not exceed two hundred and fifty rupees
per annum. The proviso to this clause says that if in the
financial year immediately preceding the commencement of
this Constitution there was in force in the case of any
State or any such municipality, board or authority a tax on
professions, trades, callings or employments the rate, or
the maximum rate of which exceeded two hundred and fifty
rupees per annum, such tax may continue to be levied until
provision to the contrary is made by Parliament by law, and
any law so made by Parliament may be made either generally
or in relation to any specified States, municipalities,
boards or authorities.
Entry 49 of List II Seventh Schedule, relates to "taxes
on lands and buildings" while Entry 60 of the same list
relates to "taxes on professions, trades, callings and
employments". Having already considered the true nature of
the tax on circumstances and property, we are of the opinion
that it is, in any event and at the least, referable to
Entries 49 and 60 of List II. The profession, trade, calling
or employment which a person pursues and the lands and
buildings which he owns determine the status which he
occupies. The impugned tax is a composite tax one of its
components being the ’circumstances’ of the assessee. By
’circumstances’ is meant his financial position, his status
as a whole, which depends, inter alia, on his income from
his lands and buildings and from his trade or calling. That
is the view which was taken by a Full Bench of the Allahabad
High Court in Zila Parishad, Muzaffarnagar & Anr. v. Jugal
Kishore Ram Swarup and Anr. (supra). Broome, J. who spoke
for the court in that case observed that it was clear from
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the very nomenclature of the tax that it was of a composite
character and consisted of two components: a tax on property
and a tax on circumstances. The tax on property was confined
to immovable property and
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fell within the jurisdiction of the State Legislature by
virtue of Item 49 of the State List while the tax on
circumstances, that is to say, status or financial position,
meant the tax on man’s trade, business, profession or
employment which was covered by Item 60 of the State List.
This question was also considered by a Special Bench
consisting of Five Judges of the Allahabad High Court in The
Notified Area Committee and Anr. v. Sri Ram Singhasan Prasad
Kalwar. Mr. Justice S.N. Dwivedi who delivered the Judgment
of the Special Bench traced the entire history of the
impugned tax in reference to three periods: (1) the period
prior to the 1935 Constitution Act; (2) the period between
1935 and 1950; and (3) the post-Constitution period. After a
careful examination of the nature of the tax the learned
Judge summed up the position thus:
To sum up, the history of the tax on circumstances and
property after 1935 definitely shows that it was not a
distinct and separate impost. The Government of India
Act, 1935 and the Constitution treat it as a composite
tax as its name suggests. As its constituents are
already covered by one or the other entry in the
legislative Lists, it is not enumerated as a category
in the Lists as it was enumerated in the White Paper.
The conclusion to which the Special Bench came was that a
tax on circumstances and property is a composite tax, that
its components are varied, but that two of such components
are firstly a tax on trades, callings, professions and
employments and secondly, a tax on lands and buildings. In
coming to this conclusion, reliance was placed by the
learned Judge on the decision of the Supreme Court in Pandit
Ram Narain (supra) and that of the Full Bench in the
District Board of Farrukhabad (supra). But the amplification
of the legislative authority which the Special Bench made is
significant. It did not say as Broome, J. said in the Full
Bench decision in the Zila Parishad, Muzaffarnagar (supra)
that the tax on circumstances and property is referable only
to two entries in List II namely, Entries 49 and 60.
According to the Special Bench, the tax was wide enough to
cover certain other items in List II, like Item 58 which
relates to "taxes on animals and boats". We are of the
opinion that the Special Bench was right in coming to this
conclusion. Accordingly, we affirm its view that the tax on
circumstances and property is referable to items 49 and 60
of List II of the Seventh Schedule, and amongst other items,
to item 58 of that List. The validity of the tax has
therefore to be upheld.
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While doing so, we would like to utter a word of
caution. The fact that one of the components of the impugned
tax, namely, the component of ’circumstances’ is referable
to other entries in addition to Entry 60, should not be
construed as conferring an unlimited charter on the local
authorities to impose disproportionately excessive levies on
the assessees who are subject to their jurisdiction. An
excessive levy on circumstances will tend to blur the
distinction between a tax on income and a tax on
circumstances. Income will then cease to be a mere measure
or yardstick of the tax and will become the very subject
matter of the tax. Restraint in this behalf will be a
prudent prescription for the local authorities to follow.
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All that remains to be done is to express our inability
to accept as correct the view taken by Mr. Justice R.S.
Pathak and Mr. Justice M.H. Beg in R. R. Engineering Co.
(supra) that by reason of the fact that the circumstances
and property tax is a composite tax and since the element of
’property’ necessarily enters into that composition, the tax
cannot be identified as a tax on professions, trades,
callings or employments. Our conclusion that the tax is
referable, inter alia, to entries 49 and 60 of List II must
necessarily result in the rejection of that view. The
learned Judges were of the opinion, with which we are
respectfully unable to agree, that since the tax on
circumstances and property did not find place as an entry
expressly enumerated in any of the three Lists of the
Seventh Schedule, it falls under the residuary entry,
namely, Entry 97 of List I. On that basis they held that
Article 277 of the Constitution would save the tax since it
was within the competence of the Parliament to impose it. In
the view that we have taken, namely, that the impugned tax
falls within the competence of the State Legislature by
virtue of entries 49 and 60, inter alia, of List II, this
part of the reasoning of the learned Judges has to be
rejected. It is unnecessary and in fact erroneous to take
resort to Article 277 of the Constitution for the purpose of
saving the tax on circumstances and property. The mere name
of a tax does not bear on legislative competence and the
absence of express enumeration of a tax by a particular name
will not justify the tracing of legislative authority to the
residuary entry. What is true in other jurisdictions is true
in this branch of law also, namely, that one must have
regard to the substance of the matter and not to the form or
label. We may also mention that in so far as the Town Area
Committees are concerned, Article 277 will not save the
impugned tax since it was levied by the Town Area Committee
in pursuance of the power conferred by clause (f) of section
14 of the Town Areas Act, which was introduced by a post-
Constitution amendment. We accept the reasoning
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of Mr. Justice S. N. Dwivedi in The Notified Area Committee,
(supra) by which the Special Bench expressed its
disagreement with the view taken by the two learned Judges
in R. R. Engineering Co (supra) in regard to the application
of Article 277 on the basis that the residuary entry is
attracted.
For these reasons we uphold the validity of the tax on
circumstances and property in both the appeals and dismiss
the appeals with costs.
P.B.R. Appeals dismissed.
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