1986 (8) TMI 58 - SC - Income Tax

Whether the royalty levied by the impugned notification No. JAD/FOR/68/26 Dated, Jowai, April 20, 1968 can be realised by the District Council in respect of trees in private forests? Held that - The notification in unambiguous terms says that the royalty shall be on the squared log pines. It has no reference to the land on which those trees have grown. The appellants have not been able to establish that the impugned royalty was leviable under any other provision. It was no doubt true that it was argued before the High Court that it was open to the District Council to levy fees as quid pro quo for the services rendered by it to the forest owners or contractors. The High Court erred in holding that even fees could not be levied under paragraph 3 of the Sixth Schedule to the Constitution. We have already held that even though there is no express provision to levy such fees, the District Council can levy fees under paragraph 3. But that would not save the notification since there is no material placed before the court to uphold the notification on that ground. No evidence is placed before the court showing the expenses incurred by the District Council towards the services rendered and the total amount of royalty realised by it. Appeals fail but, we, however, set aside the finding of the High Court that no fees can be levied by the District Council in respect of matters enumerated in paragraph 3 of the Sixth Schedule to the Constitution.

Issues Involved:
1. Competence of the District Council to levy royalty on timber from private forests.
2. Constitutional validity of the impugned notification.
3. Nature of the levy-whether it is a tax or a fee.
4. Classification of the forests in question as private forests.

Detailed Analysis:

Competence of the District Council to Levy Royalty on Timber from Private Forests:
The respondents, forest contractors, challenged the competence of the District Council to levy royalty on timber from private forests within its jurisdiction. The District Council argued that it had the authority to levy such royalty under the United Khasi and Jaintia Hills Autonomous District (Management and Control of Forests) Act, 1958, as adopted by the Jowai Autonomous District (Administration) Act, 1967. The High Court held that the District Council had no constitutional authority to impose royalty, tax, or fee on private forests, declaring the notification ultra vires.

Constitutional Validity of the Impugned Notification:
The notification dated April 20, 1968, issued by the Executive Committee of the District Council under section 8 of the Act, fixed rates of royalty on timber from private forests. The High Court found this notification unconstitutional, as it was not sanctioned by the Sixth Schedule to the Constitution. The Supreme Court examined the constitutional framework, including Article 244(2) and the Sixth Schedule, which governs the administration of tribal areas and the powers of District Councils.

Nature of the Levy-Whether it is a Tax or a Fee:
The Supreme Court analyzed whether the levy was a tax or a fee. The court noted that "royalty" typically means a payment reserved by the grantor of a patent, lease of mine, or similar right, and is payable proportionately to the use made of the right by the grantee. However, since the forests did not belong to the District Council, the amount claimed as royalty was essentially a compulsory exaction of money for public purposes, thus constituting a tax. The court found that the levy was not a fee, as there was no evidence of services rendered by the District Council justifying the fee.

Classification of the Forests in Question as Private Forests:
The High Court had determined that the forests in question were private forests. The District Council contended that there were no private forests in Jowai District, but this was contradicted by the notification itself, which levied royalty on timber from private forests. The Supreme Court upheld the High Court's finding that the forests were indeed private forests, as classified under section 3 of the Act.

Conclusion:
The Supreme Court dismissed the appeals, affirming the High Court's decision that the District Council had no authority to levy the impugned royalty, which was in the nature of a tax. However, the Supreme Court set aside the High Court's finding that no fees could be levied by the District Council under paragraph 3 of the Sixth Schedule, acknowledging that the District Council could levy fees for services rendered, provided they met the characteristics of a fee as established in prior judgments. There was no order as to costs.

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