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Issues Involved:
1. Legislative Competence of the Punjab Legislature under the Government of India Act, 1935. 2. Interpretation of "Taxes on buildings" under Item 42 of List II. 3. Determination if the impugned tax is a tax on income under Item 54 of List I. Issue-wise Detailed Analysis: 1. Legislative Competence of the Punjab Legislature under the Government of India Act, 1935: The primary issue was whether the Punjab Urban Immovable Property Tax Act, 1940 (Punjab Act No. XVII of 1940), was beyond the powers of the Provincial Legislature. The appellant contended that the Act was ultra vires, arguing that it encroached upon the subjects reserved for the Central Legislature under the Government of India Act, 1935. Sections 99(1) and 100 of the Government of India Act delineate the legislative powers between the Federal and Provincial Legislatures, with the Provincial Legislature having the power to legislate on matters enumerated in List II, including "Taxes on lands and buildings" under Item 42. The Court held that if the subject matter of the tax falls within Item 42 of List II and does not encroach upon subjects in List I, it is within the legislative competence of the Punjab Legislature. 2. Interpretation of "Taxes on buildings" under Item 42 of List II: The appellant argued that "taxes on buildings" should be construed as an occupation tax payable by the occupier and not by the owner, referencing British legislative practice. The Court, however, found this interpretation flawed. It noted that in India, taxes on lands and buildings imposed on owners had been a recognized form of taxation for many years. The Court emphasized that the words in Item 42 are clear and unambiguous, allowing the Provincial Legislature to impose taxes on lands and buildings without specifying who must pay the tax. The Court rejected the argument that the tax should be limited to occupiers, stating that if Parliament intended such a limitation, it would have explicitly stated so. 3. Determination if the impugned tax is a tax on income under Item 54 of List I: The appellant contended that the tax was essentially a tax on income, as it was based on the annual value of the property, a basis also used in the Indian Income-tax Act. The Court examined Sections 3 and 5 of the Punjab Act, noting that while the tax was based on the annual value, this did not necessarily equate to income. The Court distinguished between actual income and notional annual value, pointing out that the latter is a standard for measuring income but not synonymous with it. The Court cited precedents, including Gallagher v. Lynn and A Reference under the Government of Ireland Act, 1920, to support the view that the essential character of the tax, not the basis of assessment, determines its nature. The Court concluded that the tax under the Punjab Act was not a tax on income but a property tax, as it did not aim to get at the true income of the owner. Conclusion: The Court dismissed the appeal, holding that the Punjab Urban Immovable Property Tax Act, 1940, was within the legislative competence of the Punjab Legislature. The tax imposed by the Act was found to be a legitimate property tax under Item 42 of List II and not a tax on income under Item 54 of List I. The appeal was dismissed with costs to the East Punjab Government.
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