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TMI Blog1953 (5) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... not the giving of compensation but of negativing the right to compensation as the learned counsel seems to suggest. There is no substance in this contention and we have no hesitation in overruling it. The result is that all the points raised by the learned counsel for the appellants fail and the appeals are dismissed. - C.A. 71 OF 1953 - - - Dated:- 29-5-1953 - M. PATANJALI SASTRI, B.K. MUKHERJEA, SUDHI RANJAN DAS, GHULAM HASAN AND H. NATWARLAL BHAGWATI, JJ. JUDGMENT These six appeals arise out of as many applications, presented to the High Court of Orissa, under article 226 of the Constitution, by the proprietors of certain permanently settled estates within the State of Orissa, challenging the constitutional validity of the legislation known as the Orissa Estates Abolition Act of 1952 (hereinafter called the Act ) and praying for mandatory writs against the State Government restraining them from enforcing the provisions of the Act so far as the estates owned by the petitioners are concerned. The impugned Act was introduced in the Orissa State Legislature on the 17th of January, 1950, and was passed by it on the 28th September, 1951. It was reserved by the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the estate including communal lands, non-ryoti lands, waste lands, trees, orchards, pasture lands, forests, mines and minerals, quarries, rivers and streams, tanks, water channels, fisheries, ferries, hats and bazars, and buildings or structures together with the land on which they stand shall, subject to the other provisions of the Act, vest absolutely in the State Government free from all encumbrances and the intermediary shall cease to have any interest in them. Under section 6, the intermediary is allowed to keep for himself his homestead and buildings and structures used for residential or trading purposes such as golas, factories, mills, etc., but buildings used for office or estate purposes would vest in the Government. Section 7 provides that an intermediary will be entitled to retain all lands used for agricultural or horticultural purposes which are in his kha's possession at the date of vesting. Private lands of the intermediary, which were held by temporary tenants under him, would however vest in the Government and the temporary tenants would be deemed to be tenants under the Government, except where the intermediary himself holds less than 33 acres of land in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants before the High Court have been classified by the learned Chief Justice in his judgment under three separate heads. In the first place, there were contentions raised, attacking the validity of the Act as a whole. In the second place, the validity of the Act was challenged as far as it related to certain specified items of property included in an estate, e.g., private lands, buildings, waste lands, etc. Thirdly, the challenge was as to the validity of certain provisions in the Act relating to determination of compensation payable to the intermediary, with reference either to the calculation of the gross assets or the deductions to be made therefrom for the purpose of arriving at the net income. The learned Chief Justice in a most elaborate judgment discussed all the points raised by the appellants and negatived them all except that the objections with regard to some of the matters were kept open. Mr. Justice Narasimham, the other learned Judge in the Bench, while agreeing with the Chief Justice as to other points, expressed,, in a separate judgment of his own, his suspicion about the bona fides of the Orissa Agricultural Income-tax (Second Amendment) Act, 1950, and he w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be necessary to narrate a few relevant facts. Under section 27 (1)(b) of the Act, any sum payable in respect of an estate as agricultural income-tax, for the previous agricultural year, constitutes an item of deduction which has to be deducted from the gross asset of an estate for the purpose of arriving at its net income, on the basis of which the amount of compensation is to be determined. The Estates Abolition Bill was published in the local gazette on 3rd January 1950, As has been said already, it was introduced in the Orissa Legislative Assembly on the 17th of January following and it was passed on the 28th September, 1951. There was an Agricultural Income-tax Act in force in the State of Orissa from the year 1947 which provided a progressive scale of taxation on agricultural income, the highest rate of tax being 3 annas in the rupee on a slab of over Rs. 30,000 received as agricultural income. On 8th January, 1950, that is to say, five days after the publication of the Abolition Bill, an amended agricultural income-tax bill was published in the official gazette. At that time Mr. H. K. Mahtab was the Chief Minister of Orissa and this bill was sponsored by him. The changes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution and as such is invalid, either in its entirety, or at any rate to the extent that it affects the estate abolition scheme. We have been referred to a number of decisions on this point where the doctrine of colourable legislation came up for discussion before courts of law; and stress is laid primarily upon the pronouncement of the majority of this court in the case of The State of Bihar v. Maharaja Kameshwar Singh and Others ( [1952] S.C.R. 889) which held two provisions of the Bihar Land Reforms Act, namely, sections 4(b) and 23 (f) to be unconstitutional on the ground, among others, that these provisions constituted a fraud on the Constitution. The fact that the provisions in the amended Agricultural Income-tax Act were embodied in a separate statute and not expressly made a part of the Abolition Act itself should not, it is argued, make any difference in principle. As the question is of some importance and is likely to be debated in similar cases in future, it would be necessary to examine the precise scope and meaning of what is known ordinarily as the doctrine of colourable legislation . It may be made clear at the outset that the doctrine of colourable legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject-matter in substance is something which is beyond the powers of that legislature to legislate upon, the form in which the law is clothed would not save it from condemnation. The legislature cannot violate the constitutional prohibitions by employing an indirect method. In cases like these, the enquiry must always be as to the true nature and character of the challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority(1). For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or design(1). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the class of subjects of legislation to which it really belongs and not for finding out the motives which induced the legislature to exercise its powers. It is said by Lefroy in his well known work on Canadian Constitution that even if the legislature avow on the face of an Act that it intends thereby to legislate in reference to a subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Dominion Parliament, con- ferred by section 91, sub-section (25), of the Act. As the Judicial Committee themselves explained in a later case(2), the regulations in the British Columbian Act were not really aimed at the regulation of coal mines at all, but were in truth a device to deprive the Chinese, naturalised or not, of the ordinary rights of the inhabit- ants of British Columbia and in effect to prohibit their continued residence in that province since it prohibited their earning their living in that province. On the other hand, in ReInsurance Act of Canada()[1932] A.C. 41), the Privy Council had to deal with the constitutionality of sections 11 and 12 of the Insurance Act of Canada passed by the Dominion Parliament under which it was declared to be unlawful for any Canadian company or an alien, whether a natural person or a foreign company, to carry on insurance business except under a licence from the Minister, granted pursuant to the provisions of the Act. The question was whether a foreign or British insurer licensed under the Quebec Insurance Act was entitled to carry on business within that Province without taking out a licence under the Dominion Act? It was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Tasmania. The contention raised was that these Acts were a part of a scheme of taxation operating and intended to operate by way of discriminating between States or parts of States and as such were contrary to the provisions of section 51(ii) of the Commonwealth Australian Constitution Act. The matter came up for consideration before a full court of the High Court of Australia and the majority of the Judges came to the conclusion that such legislation was protected by Section 96 of the Constitution, which empowered the Parliament of the Commonwealth to grant financial assistance to any State on such terms and conditions as the Parliament thought fit. Evatt J. in a separate judgment dissented from the view and held that under the guise of executing the powers under section 96 of the Constitution, the legislature had really violated the constitutional prohibition laid down in section 51(ii) of the Constitution. There was an appeal taken to the Privy Council. The Privy Council affirmed the judgment of the majority but pointed out that cases may be imagined in which a purported exercise of the power to grant financial assistance under section 96 would be merely colourable. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples on which compensation for property acquired is to be -determined and the form and manner in which that compensation is to be given. It was held in the Bihar case([1952] S.C.R. 889) by the majority of this court that the item of deduction provided for in section 23(f) was a fictitious item wholly unrelated to facts. There was no definable pre-existing liability on the part of the landlord to execute works of any kind for the benefit of the raiyat. What was attempted to be done, therefore, was to bring within. the scope of the legislation something which not being existent at all could not have conceivable relation to any principle of compensation. This was, therefore, held to be a colourable piece of legislation which though purporting to have been made under entry 42 could not factually come within its scope. The same principle was held applicable in regard to acquisition of arrears of rent which had become due to the landlord prior to the date of vesting. The net result of this provision was that the State Government was given the power to appropriate to itself half of the arrears of rent due to the landlord without giving him any compensation whatsoever. Taking the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural income-tax, the highest rate being fixed at 12 annas 6 pies in the rupee. This may be unjust or inequitable, but that does not affect the competency of the legislature. It cannot be said, as was said in the Bihar case (1952) S.C.R. 889, that the legislation purported to be based on something which was unrelated to facts and did not exist at all. Both in form and in substance the Act was an agricultural income-tax legislation and agricultural income- tax is certainly a relevant item of deduction in the computation of the net income of an estate and is not unrelated to it as item No. 23(f) of the Bihar Act was held to be. If under the existing law the agricultural income- tax was payable at a certain-rate and without any amendment or change in the law, it was provided in the Estates Abolition Act that agricultural income-tax should be deducted from the gross asset at a higher rate than what was payable under law, it might have been possible to argue that there being no pre-existing liability of this character it was really a non-existing thing and could not be an ingredient in the assessment of compensation. But here the Agricultural Income-tax (Amendment) Act was passed in Aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udges of the High Court in our opinion pursued a wrong line of enquiry in trying to find out what actually the motives were which impelled the legislature to act in this manner. It may appear on scrutiny that the real purpose of a legislation is different from what appears on the face of it, but it would be a colourable legislation only if it is shown that the real object is not attainable to it by reason of any constitutional limitation or that it lies within the exclusive field of another legislature. The result is that in our opinion the Orissa Agricultural Income-tax (Amendment) Act of 1950 could not be held to be a piece of colourable legislation, and as such invalid. The first point raised on behalf of the appellants must therefore fail. The other point raised by the learned counsel for the appellants under the first head of his arguments relates to the validity of certain provisions of the Madras Estates Land (Orissa Amendment) Act of 1947. This argument is applicable only to those estates which are situated in what is known as ex-Madras area, that is to say, which formerly belonged to the State of Madras but became a part of Orissa from 1st April, 1936. The law regulatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerally or with reference to specified cases or class of cases. Sub-section (2) which has been added to section 177 stands thus:-- 2(a) Notwithstanding anything in sub-section (1) where rent is settled under the provisions of section 168-A, the Provincial Government may either retrospectively or prospectively prescribe the date on which such settlement shall take effect. In giving retrospective effect the Provincial Government may, at their discretion, direct that the rent so settled shall take effect from a date prior to the commencement of the Madras Estates Land (Orissa Amendment) Act, 1947. The appellants' contention is that by these amended provisions the Provincial Government was authorised to invest the Collector with power to settle and reduce rents, in any way he liked, unfettered by any of the rules and principles laid down in the Act and the Provincial Government was also at liberty to direct that the reduction of rents should take effect retrospectively, even with reference to a period for which rents had already been paid by the tenant. Under section 26 of the Orissa Estates Abolition Act, the gross asset of an estate is to be calculated on the basis of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, and it is not suggested that the provisions of the Estates Abolition Act relating to the computation of gross asset on the basis of rents payable by raiyats is in any way illegal. The grievance of the appellants in substance is that the machinery of the amended Act is being utilised by the Government for the purpose of deflating the gross asset of an estate. We agree with the learned Attorney-General that if the appellants are right in their contention, they can raise these objections if and when the gross assets are sought to be computed on the basis of the rents settled under the above provisions. If the provisions are void, the rents settled in pursuance thereof could not legitimately form the basis of the valuation of the estate under the Estates Abolition Act and it might be open to the appellants then to say that for purposes of section 26 of the Estates Abolition Act, the rents payable for the previous year would be the rents settled under the Madras Estates Land Act, as it stood unamended before 1947. The learned counsel for the appellants eventually agreed with the views of the Attorney-General on this point and with the consent of both sides we decided to leave these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed to or built on the soil becomes a part of it and is subject to the same rights of property as the soil itself, there is nothing in law which prevents the State legislature from providing as a part of the estates abolition scheme that buildings, lying within the ambit of an estate and used primarily for management or administration of the estate. would vest in the Government as appurtenances to the estate itself. This is merely ancillary to the acquisition of an estate and forms an integral part of the abolition scheme. Such acquisition would come within article 31(2) of the Constitution and if the conditions laid down in clause (4) of that article are complied with, it would certainly attract the protection afforded by that clause. Compensation has been pro. vided for these buildings in section 26(2) (iii) of the Act and the annual rent of these buildings determined in the prescribed manner constitutes one of the elements for computation of the gross asset of an estate. The contention of the appellants eventually narrows down to this that the effect of treating the annual valuation of the buildings as part of the gross asset of the estate in its entirety, leads to unjust result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vides for payment of compensation on the basis of the net income of the whole estate. One result of the adoption of this principle, undoubtedly is, that no compensation is allowed in respect of potential values of properties; and those parts of an estate which do not fetch any income have practically been ignorned. There is no doubt that the Act does not give anything like a fair or market price of the properties acquired and the appellants may be right in their contention that the compensation allowed is inadequate and improper; but that does not affect the constitutionality of the provisions. In the first place, no question of inadequacy of compensation can be raised in view of the provision of article 31(4) of the Constitution and it cannot also be suggested that the rule for payment of compensation on rental basis is outside the ambit of entry 42 of List Ill. This point is concluded by the earlier decision of this court in Raja Suriya Pal Singh v. The State of U.P.( [1952] S.C.R. 1056) and is not open to further discussion. Mr. Narasaraju is not right in saying that the compensation for the private lands in possession of temporary tenants has been given only for the landlord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. The fallacy in the reasoning of the learned counsel lies in the assumption that the Bill has got to be passed in its original shape without any change whatsoever, before the provision of clause (4) of article 31 could be attracted. There is no warrant for such assumption in the language of the clause. The expression passed by such Legislature must mean passed with or without amendments in accordance with the normal procedure contemplated by article 107 of the Constitution. There can be no doubt that all the requirements of article 31(4) have been complied with in the present case and consequently there is no room for any objection to the legislation on the ground that the compensation provided by it is inadequate. The last contention of the appellants is directed against the provision of the Act -laying down the manner of payment of the compensation money. The relevant section is section 37 and it provides for the payment of compensation together with interest in 30 annual equated instalments leaving it open to the State to make the payment in full at any time prior to the expiration of the period. The validity of this provision has been challenged on the ground that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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