1979 (9) TMI 210 - SC - Indian Laws

Summary

Issues Involved:
1. Competence of the State Legislature to enact the Kerala Building Tax Act, 1975.
2. Retrospective effect of the Act.
3. Nature of the tax imposed by the Act.
4. Method of determining the capital value of buildings.
5. Procedural machinery for the assessment of annual value.
6. Discrimination and violation of Article 14 of the Constitution.
7. Passing on the liability of building tax to tenants.
8. Harmonization of Sections 11 and 18 of the Act regarding appeals and payment of tax in installments.

Detailed Analysis:

1. Competence of the State Legislature to Enact the Kerala Building Tax Act, 1975:
The primary issue was whether the Kerala State Legislature had the competence to enact the Kerala Building Tax Act, 1975. The argument was that the tax on buildings fell under entry 86 of List I (taxes on the capital value of assets) of the Seventh Schedule of the Constitution, which is within the exclusive domain of the Parliament. However, the judgment clarified that entry 86 pertains to taxes on the total assets of an individual or company, not on specific components like buildings. Entry 49 of List II (taxes on lands and buildings) was deemed applicable, making the State Legislature competent to levy the tax. The judgment referenced previous cases, including Sudhir Chandra Nawn v. Wealth-Tax Officer and Assistant Commissioner of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd., to support this interpretation.

2. Retrospective Effect of the Act:
The Act was challenged for being retrospective, as it imposed a tax from April 1, 1973, even though it was passed on April 2, 1975. The judgment held that the Act was not retrospective in the technical sense, as it did not impair any vested rights or create new obligations for past transactions. The court cited Craies on Statute Law and previous judgments, including The Tata Iron and Steel Co., Ltd. v. The State of Bihar, to affirm the validity of retrospective taxation.

3. Nature of the Tax Imposed by the Act:
The controversy centered on whether the tax was on buildings alone or on both buildings and the lands on which they stood. The judgment clarified that the tax was on buildings as defined in the Act, which included the ground on which the building stood but did not treat the ground as a separate taxable entity. The court referenced the definition of "building" in the Oxford English Dictionary and previous cases, such as Corporation of the City of Victoria v. Bishop of Vancouver Island, to support this interpretation.

4. Method of Determining the Capital Value of Buildings:
The method of determining the capital value of buildings by multiplying the annual value by sixteen was challenged as hypothetical and arbitrary. The judgment upheld the method, stating that the Legislature had the competence to decide the basis for taxation. The court referenced various methods of property valuation, including those mentioned in Faraday on Rating, and concluded that the chosen method was neither arbitrary nor unconstitutional.

5. Procedural Machinery for the Assessment of Annual Value:
The absence of a specific procedural machinery for assessing the annual value of buildings in the Act was challenged. The judgment clarified that the annual value fixed in the assessment books of local authorities, determined according to the procedures laid down in relevant statutes like the Kerala Municipal Corporation Act, 1961, the Kerala Municipalities Act, 1960, and the Kerala Panchayats Act, 1960, was adequate. The court detailed the provisions in these statutes to demonstrate the existence of a fair and reasonable procedure for determining the annual value.

6. Discrimination and Violation of Article 14 of the Constitution:
The argument that the Act treated unequals as equals by using a uniform multiple to determine the capital value of buildings was rejected. The judgment clarified that the annual value, which reflects the building's capacity to fetch rent, inherently accounts for differences in location, construction standards, and amenities. Thus, the method did not violate Article 14 of the Constitution.

7. Passing on the Liability of Building Tax to Tenants:
Section 29 of the Act, which prevents the building tax from being considered in fixing the fair rent of a building, was challenged as extortionate. The judgment dismissed this argument on three grounds: the issue did not arise in any of the cases before the court, the tax was non-recurring, and there was no provision in the Kerala Buildings (Lease and Rent Control) Act, 1965, allowing for the tax to be passed on to tenants.

8. Harmonization of Sections 11 and 18 of the Act Regarding Appeals and Payment of Tax in Installments:
The concern that the proviso to Sub-section (1) of Section 11, which requires payment of the building tax before an appeal can be filed, negated the provision in Section 18 allowing for payment in installments was addressed. The judgment held that if an assessee is entitled to pay the tax in installments, they would not be barred from filing an appeal if they have paid the installments as and when due. This interpretation harmonized the provisions of Sections 11 and 18.

Conclusion:
The Supreme Court upheld the validity of the Kerala Building Tax Act, 1975, dismissing all the challenges raised. The judgment provided detailed reasoning for each issue, affirming the legislative competence of the State, the validity of retrospective taxation, the nature of the tax, the method of determining the capital value, the adequacy of procedural machinery, and the non-violation of constitutional provisions. The court also provided directions for cases where assessments had not been made or appeals had not been filed within the specified period.