1964 (3) TMI 12 - SC - Income Tax

Whether condition would be satisfied whenever a terminal tax (without reference, either to the article on which it was levied or the rate) was being lawfully, levied by the municipality prior to the commencement of the Constitution and as in this case admittedly a terminal tax was being levied on certain, articles, that condition was satisfied? Held that - The argument of Attorney-General has to be rejected as lacking any substance, for on no construction or narrow, of the expression levy in the pharse continue to be levied can such a case be comprehended. From the mere fact that a State enacrtnent has authorised a municipality to levy a tax it cannot said that a tax which had never been imposed was being lawfully levied by the municipality, not to speak of the tax, etc., collected being applied to the same purposes before the commencement of the Constitutions as contemplated by the concluding portion of the article. The last portion of article 277 uses the words continue to be levied and to be applied to the same purposes . By reason of this collocation between the concept of the levy and of application of the proceeds of the tax, the Constitution makers obviously intended the word levy to be understood as including the collection of the tax, for it is only when a tax is collected that any question of its application to a particular purpose would arise. It is apparent that if the word levied were understood in the sense which Mr. Setalvad contends, there could be no application of the proceeds of the tax to the same purposes as at the commencement of the Constitution. For ex concessis at that date there were no proceeds to be applied. The decision of the High Court is, therefore, correct and the appeal fails.

Summary

Issues Involved:
1. Construction of Article 277 of the Constitution.
2. Validity of terminal taxes imposed by municipal authorities under notifications issued after the Constitution came into force.
3. Legislative competence of the State to impose terminal taxes on new items or increase the rates of existing taxes.
4. Interpretation of the term "levied" in Article 277.

Issue-wise Detailed Analysis:

1. Construction of Article 277 of the Constitution:
The primary issue revolves around the interpretation of Article 277 of the Constitution, which allows certain taxes to continue to be levied by municipalities or other local authorities even after the Constitution came into force, provided they were lawfully levied immediately before the Constitution's commencement. The court examined whether the terminal taxes imposed by the municipal authorities under post-Constitution notifications were saved by Article 277.

2. Validity of Terminal Taxes Imposed by Municipal Authorities:
The appeals challenged the validity of terminal taxes imposed by municipal authorities under notifications issued after the Constitution came into force. The court noted that terminal taxes on goods carried by rail were assigned exclusively to the Union under the Constitution. Therefore, any imposition of such taxes by the State or municipal authorities after the Constitution would be invalid unless saved by Article 277.

3. Legislative Competence of the State:
The court addressed whether the State had the legislative competence to impose terminal taxes on new items or increase the rates of existing taxes. It was argued that the State's power to levy terminal taxes was limited to those taxes that were being lawfully levied before the Constitution. The court rejected the argument that the State could impose new taxes or increase rates under Article 277, emphasizing that the provision was meant to avoid dislocation of finances by allowing the continuance of existing taxes, not the imposition of new ones.

4. Interpretation of the Term "Levied":
The court examined the meaning of the term "levied" in Article 277, focusing on whether it included the imposition of new taxes or merely the continuation of existing ones. The court concluded that "levied" referred to taxes that were actually being collected before the Constitution, not merely those that could have been imposed. The court emphasized that the term included both the imposition and collection of the tax, and any new imposition or increase in rates would not be covered by Article 277.

Separate Judgments:
The court delivered a unified judgment for all three appeals, finding that the imposition of terminal taxes on new items or the increase in rates by the municipal authorities after the Constitution was not saved by Article 277 and was therefore invalid. The appeals were dismissed with costs to the contesting respondents.

Conclusion:
In summary, the court held that Article 277 does not confer unlimited legislative power to impose new taxes or increase rates but allows the continuance of taxes that were lawfully levied and collected before the Constitution. The imposition of terminal taxes on new items or increased rates by the municipal authorities was found to be invalid, leading to the dismissal of all three appeals.