1969 (4) TMI 30 - SC - Income Tax

Whether the legislature possesses competence to pass a law imposing a tax on lands and buildings on the basis of a percentage of their capital value? Held that - The legislature not only equated the tax collected to a tax on lands and buildings, which it had the power to levy, but also to a rate giving a new meaning to the expression rate and while doing so it put out of action the effect of the decisions of the courts to the contrary. The exercise of power by the legislature was valid because the legislature does possess the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the use of the word rate could be effectively removed and the tax on lands and buildings imposed instead. The tax, therefore, can no longer be questioned on the ground that section 73 spoke of a rate and the imposition was not a rate as properly understood but a tax on capital value. In this view of the matter it is hardly necessary to invoke the 14th clause of section 73 which contains a residuary power to impose any other tax not expressly mentioned. Thus these appeals possess no merit after the passing of the Validation Act and must be dismissed.

Summary

Issues:
- Validity of the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963
- Competence of the legislature to pass a law imposing a tax on lands and buildings based on capital value
- Interpretation of the term "rate" in legislative practice
- Effectiveness of validating statutes in removing grounds of illegality or invalidity

Analysis:
The judgment delivered by the Supreme Court pertains to appeals under Article 226 of the Constitution against the judgment and order of the High Court of Gujarat. The case involves a company with spinning and weaving mills challenging the imposition of tax by the Broach Borough Municipality on lands and buildings based on capital value. The municipality levied rates on the property, which were challenged through writ petitions. The Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963, was passed during the pendency of the writ petitions, leading to amendments and additional challenges. The Validation Act aimed to validate the tax imposition and prevent future misinterpretations based on previous court decisions.

The central issue in the case was the validity of Section 3 of the Validation Act, which validated the imposition and collection of taxes by municipalities based on the capital value of property. The court examined the competence of the legislature to pass such a law and the effectiveness of the Validation Act in removing grounds of illegality. The court emphasized that for validation to be effective, the legislature must have the power to impose the tax and must remove the reasons for illegality or ineffectiveness.

The court analyzed the legislative competence to impose a tax on lands and buildings based on capital value, citing relevant provisions from the Gujarat Municipalities Act. It was established that such a tax falls within the legislative powers, and the municipality can levy it based on different modes, including a percentage of the capital value. The court also discussed the interpretation of the term "rate" in legislative practice, highlighting the redefinition of the term by the legislature to equate it to a tax on capital value.

Ultimately, the court upheld the validity of the Validation Act, stating that the legislature had the power to levy the tax on lands and buildings based on capital value. By retrospectively imposing the tax and redefining the term "rate," the legislature effectively removed the grounds for illegality. Therefore, the court dismissed the appeals, affirming the validity of the tax imposition under the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963.