Full Judgment Text
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PETITIONER:
THE MUNICIPAL COUNCIL, MADURAI
Vs.
RESPONDENT:
R. NARAYANAN ETC.
DATE OF JUDGMENT18/08/1975
BENCH:
KRISHNAIYER, V.R.
BENCH:
KRISHNAIYER, V.R.
RAY, A.N. (CJ)
MATHEW, KUTTYIL KURIEN
FAZALALI, SYED MURTAZA
CITATION:
1975 AIR 2193 1976 SCR (1) 333
1975 SCC (2) 497
CITATOR INFO :
O 1980 SC1008 (21)
ACT:
Madras District Municipalities Act, 1920, 2. 321 (2)-
Licence fee on hoteliers-If can be treated as tax.
HEADNOTE:
The appellant increased the licence fee imposed on
hoteliers respondents under s.321 (2), Madras District
Municipalities Act, 1920, and they challenged the increase.
The appellant justified the increase on the basis that the
fee under the section is a tax and falls under "tax on land
and building’ in Entry 49, List II, VII Schedule of the
Constitution. The High Court held in favour of the
respondents.
^
Dismissing the appeal to this Court,
HELD: (l) The appellant would be competent to impose a
property tax at any Particular rate it chooses. the user of
the land and building as a restaurant or hotel furnishing
sufficient nexus for the legislature to impose a tax. [339H,
340A]
Ajoy Kumar v. Local Board [1965] 3 S.C.R. 47, referred
to.
(2) But the fec imposed under s. 321(2) in this ease
is not a tax. [336G]
(a) Section 321(2) authorises the collection of a
fee in contradiction to tax. 1335B]
(b) Section 321 is in a part of the Act different
from the part dealing with taxation. While
the nomenclature of the levy or the location
of a section in the Act is not conclusive.
they are relevant factors. for deciding
whether the fee imposed is a tax or not.
[335-CD]
Liberty Cinema Case [1965] 2 S.C.R. 477, referred to.
(c) Section 78(1A) authorises the levy of
property tax. Section 78(3) contains the
mandatory procedural prescriptions for
imposing taxes. When the legislature has
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carefully provided in the sub-section for
previous invitation and consideration of
objections to enhancement of tax levies,
resort to s. 321(2) to impose a tax as a fee
would frustrate the processual protection
written into the law in regard to fiscal
measures, [338 BCE]
(d) Schedule V with which s. 321 is directly
linked sets out a number of’ petty
occupations all of which, theoretically
cannot be carried on except on land or in
buildings. If the licence-fee in s. 321(2) is
read as land tax the fee in relation to every
item of activity set out in the Schedule
would be tax on the basis of the trivial
activity furnishing the legal nexus between
the tax and the land. But, it would be
straining the language to justify the
imposition of a tax on the land, on the basis
of such a flimsy or casual connection
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1656
to 1659 of 1973.
Appeal by special leave from the judgment and order
dated the 29th September, 1972 of the Madras High Court in
Writ Appeals Nos. 191, 23, 24 & 190 of 1968 respectively.
S. Challaswamy and K. Hillgorani, for the appellant.
8-L839SupCI/75
334
A. K. Sen, A. V. Rangam‘ and A. Subashini, for the
respondents.
The Judgment of the Court was delivered by
KRISHNA IYER, J.-The die-hard ’tax’-’fee’ dilemma
survives, as these appeals, by special leave, attest, long
after this Court has dispelled the fiscal-legal confusion on
the point in a series of rulings. The cases before us were
provoked by a sudden escalation of licence ’fee’ imposed on
all homelier by the common appellant, the Maduari Municipal
Council (now it is a Corporation, but that makes no
difference) (Council, for short). The scale of fees which,
perhaps, merely defrayed the cost of issuing the licence,
was moderate to begin with and paid periodically by the
respondents who run hotels within the municipal limits; but
their present grievance is that the resolution of December
28, 1965, whereby a sharp spurt in the rates of fee was Cr
brought about, has been tainted with ’unconstitutionality’.
The authority, to justify the levy qua fee, must render
some special services to the category from whom the amount
is exacted and the total sum so collected must have a
reasonable correlation to the cost of such services. Where
these dual basic features are absent, you cannot legally
claim from the licensee under the label ’fee’. D
This Court has, as late as the Salvation Army Case(l)
set out the tests beyond doubt. When the respondents (writ-
petitioners) challenged the fee raise, the plea in defence
first was that the impost was a fee strictly so called, that
it was requited by adequate benefits and that the larger
lay-out on the inspecting staff and allied items, both
necessitated and validated the new increase. However, on
later and better reflection, may be, the inspirational
source for which was stated to be this Court’s pronouncement
in the Liberty Cinema Case(2), the Council rightly abandoned
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the fee-cum-quid pro quo formula and anchored itself on the
right to exact the higher rate as a ’tax on land and
building’ under Entry 49 of List II, in the Seventh
Schedule, read with s. 321(2) of the Madras District
Municipalities Act, 1920 (for short, the Act). This volte
face as it were, was not objected to by the opposite party
and the writ petitions and writ appeals were disposed of on
that footing. The learned Single Judge upheld the levy but
the appellate Bench upset it. The appellant Council has
journeyed to this Court to repair the blow on its revenue
since there are 1,200 and odd hotel-keepers similarly
situated in the Madurai Municipal limits, although only four
have figured as respondents here. The financial dimension of
the decision is, indeed, considerable.
Shri Chellaswamy, counsel for the Council, has been
refreshingly fair in his submissions and consistently with
the case urged in the High Court to support the levy, has
grounded his defence of the ’feehike’ on the taxing power of
the municipal body under the Act. The core of the matter,
therefore, is whether the context and text of the statute
and other surrounding circumstances warrant the validation
of the levy as a tax in essence, be its name what it may.
(1) [1975] 1. S. C. C. 509. (2) [1965] 2 S. C. R.
477.
335
Let us formulate the problems for facility of logical
handling. Agreed, as both parties now are, that this licence
fee stands or falls as a tax, the principal question is
whether the ’fee’ provided for in s. 321(2) of the Act,
under which it is collected, is a tax at all, having regard
to the anatomy of the Act. If it can be so regarded, the
next point is whether Entry 49 of List II can bring within
its constitutional compass the licence fee for running a
hotel trade. Thirdly, if that is permissible, are there
other incurable infirmities ? These apart, some matters of
subsidiary moment do arise and may be considered in the
appropriate sequence.
The initial terminological hurdle in the way of the
appellant is that s. 321(2) of the Act authorizes the
collection of a licence fee in contra-distinction to
property tax in s. 78 of the Act. (cf. Ajoy Kumar v. Local
Board(l). Naturally, Shri A. K. Sen, counsel for the con
testants, insisted that the Act had made a deliberate
dichotomy between the two types of levy, placed them
subject-wise in different parts of the statute and
meaningfully referred to them as ’tax’ and ’fee’ in ss. 78
and 321(2), respectively. Counsel for the appellant, relying
on certain passages in Liberty Cinema, (supra) desired us to
slur over the verbal error. True, mere nomenclature cannot,
without more, lead to rejection of the plea of tax, though
it is a relevant factor, since, to some extent, Liberty
Cinema (supra) has whittled down the efficacy of this
circumstance. This Court there observed, at p. 483:
"Now, on the first question, that is, whether the
levy is in return for services, it is said that it is
so because s. 548 (of Calcutta Municipal Act 33 of
1951) uses the word ’fee’. But, surely, nothing turns
on the words used. The word ’fee’ cannot be said to
have acquired a rigid technical meaning in the English
language indicating only a levy in return for services.
No authority for such a meaning of the word was cited.
However that may be, it is conceded by the respondent
that the Act uses the word ’fee’ indiscriminately. It
is admitted that some of the levies authorised are
taxes though called fees. Thus, for example, as Mitter
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J (in the High Court, Division Bench) pointed out, the
levies authorised by ss. 218, 222 and 229 are really
taxes though called fees, for no services are required
to be rendered in respect of them. The Act, therefore,
did not intend to use the word fee as referring only to
a levy in return for services.
" (emphasis, ours)
We have therefore to have a view of the concerned parts
of the Act with a comparative eye on the Calcutta Municipal
Act which fell for decision in Liberty Cinema (supra). Every
local authority, under the relevant statute, has the power
to tax, so as to finance the various welfare activities it
is expected to fulfil. Similarly such local bodies also
exercise the police powers of the State to the extent they
are vested
(1) [1965] 3 S.C.R. 47.
336
in them by the State law for the purpose of
controlling, regulating and proscribing operations of
individuals which may need to be conditioned by licences and
permissions or prohibited in public interest because they
are noxious or dangerous. Towards these ends, licences and
fees for services, if any, rendered may be prescribed. The
Madras Act, like other similar statutes, embraces both types
of activities in a systematized way. Thus Taxation and
Finance are covered by Part 1 III while Public Health-Safety
and Convenience, comes under Part IV, Procedure and
Miscellaneous, which include general provisions regarding
licences and permissions, are clubbed together in Part Vl.
Section 78, empowering property tax levy, falls in Part III
(Taxation and Finance), while s. 321, relating to licence
fees, is located in Part VI. The scheme thus separates issue
of licences and levy of licence fees from taxes on property
and other items. Prima facie, in the absence of other
compelling factors, to lug in a taxing provision into Part
VI may, therefore, lead to obscurity and confusion.
The Calcutta Municipal Act, 1951, also has some scheme
of sorts and deals with Finance in Part III, Taxation in
Part IV and Public Health, Safety and Convenience in Part V.
In the same Part, Chapter XXVI deals with a miscellany of
matters like Inspection and Regulation of Premises, and of
Factories, Trades and Places of Public Resort. Section 443
deals with licensing and control of theatres, circuses and
places of public amusement. Strangely enough, s. 548(1)
which relates to ’licence and written permission’ also
empowers in addition to any other matter required to be
specified under any other Section of this Act-
(a)
(b)
(c)
(d)
(e) the tax or fee, if any, paid for the licence or
written permission." F
There is thus in s. 548 an extra power specifically
conferred to levy tax or fee, which is significantly absent
in the Madras Act (We are aware there is some obscurity here
because cinema licensing is provided for earlier in s. 443).
It is this provision of the Calcutta Act (s. 548) which
fell for construction before this Court in Liberty Cinema
(supra). While one may discern a broad scheme in that Act,
there is some wobbling in the sense that a power to tax is
oddly placed in a Chapter primarily concerned with licences
and permissions. The Madras Act, on the other hand, speaks
with more precision and relegates licences and licence fees
to a Part different from Taxation and Finance. The procedure
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for each is also delineated separately. For these reasons we
refuse to aceede to the contention that ’fee’ in s. 321 (2)
is a tax.
Shri A. K. Sen has cited a catena of Madras cases,
spread over several decades, where, under this very Act, fee
has been interpreted as fee with a tag of special services
in lieu of such payment. He has
337
further pressed the drafting indifference while using the
words ’fee’ and ’tax’ in s.548 of the Calcutta Act to repel
the application of the observations in Liberty Cinema
(earlier quoted) to the provisions of the Madras Act. In the
latter, the contrast is boldly projected not only in the
phraseology but in the chapter-wise dealing with the two
topics. We feel the force of this submission.
Shri Chellaswamy sought to counter the contention based
on the location of s.321 in a Part which has nothing to do
with taxation. In Liberty Cinema (supra) this Court had
occasion to warn against reaching any conclusion, when there
is a tax-fee conflict based on the col location of subjects
in a statute or the placement of a provision under a certain
rubric as clinching. What is telling is the totality, not
some isolated indicium. A short-cut is often a wrong-cut and
a fuller study of the statute to be construed cannot be
avoided. Sarkar, J. (as he then was), in Liberty cinema
(supra), observed at p. 488:
"It was also contended that the levy under s.548
(of the Calcutta Municipal Act) must be a fee and not a
tax, for all provisions as to taxation are contained in
Part IV of the Act, while this section occurred in
Chapter XXXVI headed ’Procedure’ in Part VIII which was
without a heading. It was pointed out that Part V dealt
with ’Public Health Safety and Convenience’ and s. 443
which was included in Chapter XXVI contained in this
Part was headed ’Inspection and Regulation of Premises,
and of Factories, Trades and Places of Public Resort’.
A cinema house, it is not disputed, is included in the
words ’Places of public resort’. It was, therefore,
contended that a levy outside Part IV could not be a
tax and hence must be a fee for services. This
contention was sought to be sup ported by the argument
that s.443 occurred in a Part concerning Public Health,
Safety and Convenience and therefore the intention was
that the levy authorised by the section would be in
return for work done for securing public health, safety
and Convenience and was hence a fee. We are wholly
unable to accept this contention. Whether a particular
levy is a fee or tax has to be decided only by
reference to the terms of the section as we have
earlier stated. Its position in the Act cannot
determine its nature; an imposition which is by its
terms a tax and not a fee, which in our opinion the
present imposition is, cannot become a fee by reason of
its having been placed in a certain part of the
statute. The reference to the heading of Part V can at
most indicate that the provisions in it were for
conferring benefit on the public at large. The cinema
house owners paying the levy would not as such owners
be getting that benefit. We are not concerned with the
benefit, if any, received by them as members of the
public for that is not special benefit meant for them.
We are clear in our mind that if looking at the terms
of the provision authorising the levy, it appears that
it is not for special services rendered to the person
on whom the levy is imposed, it cannot be a fee
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wherever it may be placed in the statute. A
consideration
338
of where ss.443 and 548 are placed in the Act is
irrelevant for determining whether the levy imposed by
them is a fee or a tax."
So we do not rest our conclusion solely on the location of
s. 321 in a different Part from Taxation, while we recognise
it as an indicator, among a variety of considerations of
course, when drafting precision is absent, judicial caution
has to be alerted.
To recapitulate, in the Madras Act, Chapter VI of Part
III is devoted to Taxation and Finance. Section 78(1)(a)
authorizes levy of property tax. The section sets out the
other taxes a Municipal Council may levy Section 78(3)
together with a proviso, contains the procedural
prescriptions for imposing taxes. Admittedly, there has been
no compliance with this procedure and, if such conformance
is mandatory, as it is, the case of tax set up by the
appellant collapses (Vide: Atlas Cycle Industries v.
Haryana(1). Whether some minor defect or deficiency will
defeat the validity of the tax is moot but since here there
is a total failure to adhere or advert to the procedure in
s.78, we need not consider hypothetical shortfalls and their
impacts.
Counsel for the appellant resourcefully urged that when
two constructions are possible, we should opt in favour of
validity since law leans towards life and must sustain, not
stifle it. The statute, other things being equal, must be
interpreted us res magis valeat gaum pareat("): see Broom’s
Legal Maxims ( 10 ed. ) p. 361, Craies on Statutes (6th ed.)
p. 95 and Maxwell on Statutes (11th ed.) p 221 In his
submission it is possible to uphold the ’levy’, miscalled
’fee’, on the basis that it is a tax. The argument is that
ignoring the placement of s. 321 (2) in Part VI and blurring
the precision of the word ’fee’ used, we can still look at
the pith and substance of the matter and regard it as a ’tax
on land and buildings’ provided for in Entry 49, List II of
the Seventh Schedule. He relied on Ajoy Kumar (supra) where
also a landholder who was holding a market on his land was
directed to take out a licence and pay Rs. 600/- per year as
licence fee, challenged the validity of the claim on the
score that the State had no power to tax markets. Repelling
this contention, this Court held that the use to which the
land was put furnished sufficient nexus for the Legislature
to impose a tax on land. In that connection, the following
observations lay down the guide-lines:
"It is well-settled that the entries in the three
legislative lists have to be interpreted in their
widest amplitude and there fore if a tax can reasonably
be held to be a tax on land it will come within entry
49. Further it is equally well-settled that tax on land
may be based on the annual value of the land and would
still be a tax on land and would not be beyond the com
petence of the State legislature on the ground that it
is a tax on income: (See Ralla Ram v. The province of
East Punjab: (1948 FCR 207). It follows therefore that
the use to which the land is put can be taken into
account in imposing a tax
(1) [1972] 1 S. C. R. 127. (2)Quoted in Liberty cinema: P.
484.
339
on it within the meaning of entry 49 of List II, for
the annual value of land which can certainly be taken
into account in imposing a tax for the purpose of this
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entry would necessarily depend upon the use to which
the land is put." (p. 49).
x x x x x x
"It will be seen from the provisions of these
three subsections (sub-ss. (1) to (3) of s. 62 of the
Assam Local self Government Act l953-Act 25 of l953)
that power of the board to impose the tax arises on its
passing a resolution that no land within its
jurisdiction shall be used as a market. Such resolution
clearly affects land within the jurisdiction of the
board and on the passing of such a resolution the board
gets the further power to issue licences for holding of
markets on lands within its jurisdiction by a
resolution and also the power to impose an annual tax
thereon." (p.49) x x ".
x x x x x
"..s. 62(2) which used the words ’impose an annual
tax thereon, clearly shows that the word ’thereon’
refers to any land for which a licence is issued for
used as a market and not to the word ’market’. Thus the
tax in the present case being on land would clearly be
within the competence of the state legislature." (p.5l)
Generously following the line of thinking presented by
Shri Chellaswamy, based on Ajoy Kumar (supra) we find
difficulty in applying its ratio to s. 321 (2). There the
tax was on land and the expression ’thereon’ underscores
this idea. Once the tax is on land, the link between the tax
and the land-user like running a market or hotel based on
the let ting value is good, but in the present case there is
nothing to indicate that it is a tax at all. Secondly, the
phraseology does not suggest that it is a tax on the land or
the building., on the other hand. it is on the licence-fee
for plying a particular trade. It is not possible to blink
at this vital distinction between Ajoy Kumar (supra) and the
persent case. Maybe that the Madurai Municipality is
perfectly within its competence in imposing a property tax
at any particular rate it chooses. The user of the land or
building as a restaurant or hotel being the link as
explained above, the fact that there is a tax on all
property within the municipality does not mean that this
local body cannot levy an additional tax or surcharge on the
land or building if put to a particular specialist use. We
see no impediment in the municipal authority taxing hotels
at a certain rate exercising its power to impose property
tax provided there are no other legal impediements in the
way. We are not pursuing the existence or otherwise of other
impediments because that does not fall for our consideration
in this case.
Shri A.. K. Sen is right is his submission that unlike
in the Assam Act considered in Ajoy Kumar (supra) in the
present case we do not even find the expression ’tax’ used.
The Municipal resolution might have been saved had we
been able to spell out a taxing power on property from s.321
(2) of the Act. For, there is no gainsaying the state’s
right to tax land and buildings
340
and the nexus between the tax and the power may be land use.
Since A running a restaurant or cinema house is clearly a
use of building, a tax thereon, based on such user, is
constitutionally impeccable. Such is not the case here.
Thus the plea that s. 321 (2) lends itself to being
regarded as a tax, indifferently described as fee, breaks
down for two reasons. When the Legislature has carefully
provided in s.78 (3) for previous invitation and
consideration of objections to enhancement of tax levies,
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resort to the device of tax disguised as fee, under s.321
(2), may not require any such procedural fairness and
discipline and thus will frustrate the processual protection
written into the law in regard to fiscal measures. Secondly,
Schedule V, with which s.321 is directly linked, sets out a
host of petty and lucrative ventures all of which,
theoretically, cannot be carried on except on land or
buildings. Can it be that some flimsy or casual connection
with terra firma will furnish the legal nexus between the
tax imposed and the land on which the work is done ? For
example, washing soiled clothes is an item in Schedule V. It
is straining judicial credulity to snapping point to say
that such trivial user justifies a tax on the land when
washing is done. Running a hotel or market or permanent
circus or theatre may stand on a different footing. The com-
monsense of the common man is the best legal consultant in
many cases and eschewal of hyper-technical and over-
sophisticated legal niceties helps the vision. We cannot
list out what, in law, will serve as a nexus between land
and tax thereon but, in a given case like in a hotel
business, land-use may easily be discerned. The snag is that
in the present appeals the levy is not on land but on the
licence for business and bearing in mind the identity of the
legal concept, we reject the contention that the impugned
resolution was an innocent tax on property. The case falls
between two stools. It is not a fee ex concessionis it is
not a tax ex facie. We further repel the request to read
licence-fee in s. 321 (2) as land tax into every item of
activity set out in Schedule V, from washing soiled clothes
on a broad stone to using a central place as a posh
restaurant.
The cumulative result of the multiple submissions we
have been addressed is that the impugned resolution is
invalid. We do not bar the door for the Municipality or the
State to pursue other ways to tax hotel-keepers, acting
according to law and under the power to tax in Entry 49,
List II, of the Seventh Schedule, while dismissing the
appeals
The legal controversy in this case is stricken with
more than marginal obscurity and indeed, has exercised our
minds on the diverse aspects of law considerably. Moreover,
the battle is between a local authority which is in need of
financial resources to fulfil its functions and a host of
hoteliers who flourish in private business. Bearing in mind
the conspectus of circumstances, we regard this case as one
where the proper order will be that parties do bear their
own costs throughout.
V.P.S Appeals dismissed.
341