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TMI Blog1963 (3) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Valuation based upon capital" was defined in r. 243 as the capital value of lands and buildings as may be determined from time to time by the valuers of the municipality, who shall take into consideration such reliable data as the owners or the occupiers thereof may furnish either of their own accord or on being called upon to do so. The contention of the appellants was that reading the two rules together, the rate was levied at a percentage of the capital value of open lands and this the municipality could not do. Two submissions were made in support of this contention. In the first place it was urged that r. 350-A read with r. 243 was ultra vires ss. 73 and 75 inasmuch as it permitted the fixation of rate at a percentage of capital value and this was not permitted by the Act, for the word "rate" used in s. 73 (1) (i) had acquired a special meaning by the time the Act came to be passed and meant a tax on the annual value of lands and buildings and not on their capital value. In the second place, it was urged that if the Act permitted the levy of a rate on a percentage of capital value of the lands and buildings rated thereunder, it was ultra vires the Provincial Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court pointed out that the municipality, by adopting this method, had done in one step what could be done in two steps, and that would have merely involved first determining the capital value and then the annual value, and then fixing the rate on the annual value at a much higher percentage. It was of the view that it was all a matter of fixing a reasonable rate on open land, and if the rate was otherwise reasonable it would be difficult to hold that the rule levying the rate was ultra vires ss. 73 and 75. Thereupon the appellants applied for a certificate of fitness to enable them to appeal to this Court, which was granted; and that is how the matter has come up before us. The same two points which were raised in the High court have been urged before us. We shall first consider the point, whether r.350-A read with r.243 is ultra vires ss.73 and 75 of the Act. The relevant part of s. 73 is as follows:-- "(1) Subject to any general or special orders which the State Government may make in this behalf and to the provisions of sections 75 and 76, a municipality may impose for the purposes of this Act any of the following taxes, namely:- (i) a rate on buildings or lands or bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of goods' was, at the time when the Government of India Act, 1935, was enacted, a term of well-recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic and must be interpreted in Entry 48 in List II in Sch. VII of the Act as having the same meaning as in the Sale of Goods Act, 1930". It is urged that the legislative practice prevalent in England as well as in India up to 1925 showed that wherever the term "rate" was used in connection with local taxation it meant a tax on the annual value of lands and buildings and not on their capital value. It is therefore necessary to look at the legislative history and practice to find out what the word "rate" meant when the Act was passed in 1925. The word "rate" has come to our country for the purpose of local taxation from England. It will therefore be useful to find out what exactly the word "rate" when used in connection with local taxation meant in England. The English Rating Law is largely derived from the Poor Relief Act, 1601 (43 Eliz. Cap. 2) which provided for raising "weekly or otherwise, by taxation of every in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his beneficial occupation of such lands and buildings. The very fact that the rate was assessed on the occupier of lands and buildings leads clearly to the inference that the rate was to be levied on the annual value of the land or building to the occupier and had nothing to do with the capital value of the land and building to the owner. In other words, the rate was to be levied on the annual value of the land or building depending upon its letting value and not on the capital value. In 1869, another Act was passed known as the Valuation (Metropolis) Act, 1869, which applied to the city of London. That Act defined a "'ratepayer" as meaning "every person who is liable to any rate or tax in respect of property entered in any valuation list". It also defined "gross value" as meaning "the annual rent which a tenant might reasonably be expected, taking one year with another. to pay for an hereditament". Lastly, it defined the words "rateable value" as meaning "the gross value after deducting therefrom the probable annual average cost of repairs, insurance, and other expenses as aforesaid". Clearly therefore the rate under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t follows that it could only be levied for beneficial occupation, which, in its turn would bring in the annual rental value so far as the occupier was concerned. The Rating and Valuation Act of 1925 to which we have already referred only gave final recognition to this meaning of the word "rate" and consolidated various rates prevailing for various purposes by providing for a general rate for all purposes. This general rate was raised on so much of the pound of the rateable value of each hereditament according to the valuation list. The methods in use for the purpose of arriving at rateable value were generally three. Where the land or building was actually let, the valuation was based on the rent at which it was let. Where, however, the land or building was not let, two methods were evolved for the purpose of finding out the rateable value. The first was to assume a hypothetical tenancy (such as where the same person is the owner and occupier) and find out the rent at which the premises would be let. The second was based on the capital value of the premises. But the tax was not levied on the capital value itself; the capital value was determined on the structural value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent charge, if any, and deducting therefrom the probable average annual cost of the repairs, insurance and other expenses, if any, necessary to maintain it in a state to command such rent" : (see pp. 242-243). The methods for arriving at the net annual value are given as the same three, namely, (i) the actual rent if the premises were let, (ii) hypothetical tenancy, and (iii) capital cost from which the annual value was determined at a certain percentage : (see Chapters XII and XIV). That it is the annual value and not the capital value which has always been the basis of the rate upto 1925 is well brought out in the following passage at p. 329 of Ryde "On Rating" :- "Where property is of a kind that is rarely let from year to year, recourse, is sometimes bad to interest on capital value or on the actual cost, of land and buildings, as a guide to the ascertainment of annual value. There was some apparent, if not real, conflict of decisions upon the question whether interest on capital value, or on cost, might be considered at all; but the difficulty disappears if the rule be thus stated : the measure of net annual value is defined by statute as the rent which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;rate" in England is, as we have shown above, not merely based on the Rating and Valuation Act, 1925; it is borne out to be so by English legislative history and practice even before the Rating and Valuation Act of 1.925, was passed. Therefore, it cannot be doubted that in England from where in this country we have borrowed the word "rate", that word had acquired a special meaning namely that it was a tax on the annual value of lands and buildings found in one of the three modes we have already indicated. It is also pertinent to note that Land Tax as such was a different tax altogether in England and was levied for the first time by the Land Tax Act of 1797. Land tax is a charge on land, and not on the income likely to arise from occupation of land and the intention was that it should be borne by the owner of the land. The existence of this tax as distinct from the rate on lands and buildings brings out what the word "rate" has always meant in local taxation in England as indicated above : (see p. 332 of Benn and Lockwood on Rating Valuation Practice, Fifth Edition). Let us now look at the legislative history and practice in India upto 1925. The Bombay C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the municipal district. The words in this Act are exactly the same as in the Act under our consideration. Section 63 provides for the preparation of assessment lists and cl. (d) thereof lays down the annual letting value or other valuation on which the property is assessed. In the Central Provinces Municipalities Act (No. XVI of 1903), s. 35 provides for a tax on houses, buildings and lands, and the tax is not to exceed 7 per centum of the gross annual letting value of the house, building or land. Here again the word "rate" is not used, although the tax is no more than a rate. The Madras Municipal Act (No. III of 1904) by s. 129 provides for the levy of tax on buildings and lands. It has not used the word "rate" but the levy is on the annual value of buildings and lands and the annual value by s. 130 is deemed to be the gross annual rent at which the lands might reasonably be expected to let from year to year or from month to month (subject to certain deductions). It is remarkable how the words used in the various Indian Acts arc almost the same as in English statutes and how they follow the English definitions of gross value or annual value almost word fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties Act, (No. II of 1922) provides for a tax payable by the owners of lands and buildings situate within the limits of the municipality, with reference to the gross annual letting value of the buildings or lands. The Bihar and Orissa Municipal Act, (No. VII of 1922) provides by s. 82 (1) (a) for a tax upon persons in sole or joint occupation of holdings within the municipality. Further by cl. (b), (c), (d) and (e) of this section, provision is made for a tax on all holdings, a water tax, a lighting tax, and a latrine tax on the annual value of holdings. The other sections prescribe the maximum beyond which the taxes will not be levied. As the tax under s. 82 (1) (a) is on occupation it necessarily follows that it could only be levied on the annual value. It will thus be seen that these Acts which were passed between 1912 and 1925, which repeal the earlier Acts also provide for taxation on lands and buildings, and though the word "rate" is not used in any of these Acts, the tax is still on the annual value of lands and buildings. This shows that there was a uniform legislative history and practice in India also though sometimes the impost was called a tax on lands and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te" used therein means, for it could not be an accident that the word "rate" was used in that clause when dealing with a tax on lands or buildings. Further if we find that the word "rate" had acquired a special meaning in legislative history and practice in England and India before 1925 with reference to local taxation, it must follow that when the word "'rate') was used in cl. (i) instead of the general word "tax" it was that particular kind of tax which was known in legislative history and practice as a rate which the municipalities were being empowered to impose. It may be added herewith some advantage that the word "tax" in the opening words of s. 73(1) has been used in a general and all-pervasive sense as defined in s. 3(20) of the Act and not in any restricted sense; and therefore when the word "rate" is used in cl.(i) it was clearly used not only in the specific and limited sense, but also with the intention, to convey the meaning that it had acquired by the time the Act was passed. It is remarkable that in some other clauses of s. 73(1) also the general word "tax" has not been used, though of course all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the tax would be at such and such percentage of the capital; it only means that in order to arrive at the annual value for purposes of levying a rate which is a tax on the annual value, the municipality may use the capital value and then a percentage thereon to arrive at the annual value. This would be in accordance with the third way of arriving at annual value to which we have referred earlier. Therefore we are of opinion taking into account the fact that the word "rate" has been used in the first clause to s. 73(1 ), the explanation when it says that in the case of lands basis of valuation may be capital, only means that method of valuation which was in vogue in England and which we have described as the third method of valuation may be used to arrive at the annual value from the capital value and the rate may then be determined as a tax on the annual value. In this view of the matter r. 350-A read with r. 243 by which the municipality has fixed the tax on the basis of capital value directly is against the provisions of s. 73 (1) (i) and the explanation to s. 75. 'I he whole difficulty in this case has arisen because unfortunately the words "rate" or &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e explanation to that effect and therefore it should be read to mean the third method of valuation in force in England to which we have already referred. The amendment therefore made in 1930 in the Madras Act does not in any way affect the legislative history and practice relating to the word "rate" which, as we have pointed out, was not even used in that Act. We may add that we express no opinion as to the validity of this amendment after the Government of India Act, 1935 and the Constitution of India have come into force. It is however urged that it really makes no difference whether the rate is levied at a percentage of the capital value or is a percentage of the annual value arrived at on the basis of capital value by fixing a certain percentage of the capital value as the yield for the year. It is true that mathematically it is possible to arrive at the same figure for the rate by either of these methods. Suppose that the capital value is ₹ 100/- and, as in this case, the rate is fixed at 1 per centum of the capital value, it would work out to Re. I/-. The same figure can be arrived at by the other method. Assume that 4 per cent is the annual yield and thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at the same figure of the actual tax to be paid as a rate whether based on capital value or based on annual value, the levying of the rate as a percentage of capital value would still be illegal for the reason that the law provides that it should be levied on the annual value and not otherwise. By levying it otherwise directly at a percentage of the Capital value, the real incidence -of the rate is camouflaged, and the electorate not knowing the true incidence of the tax may possibly be subjected to such a heavy incidence as in some cases may amount to confiscatory taxation. We are therefore of opinion that fixing of the rate at a percentage of the capital value is not permitted by the Act and therefore r. 350-A read with r. 243 which permits this must be struck down, even though mathematically it may be possible to arrive at the same actual tax by varying percentages in the case of capital value and in the case of annual value. It follows therefore that as the tax in the present case is levied directly as a percentage of the capital value it is ultra vires the Act and the assessment based in this manner must be struck down as ultra vires the Act. In the view that we have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h rate is to be imposed ; ...... ....... ..... ........... Explanation--In the case of lands the basis of valuation may be either capital or annual letting value." It is under this section that the rule in question was framed. That rule so far as material is in these terms : Rule 350 A.-"..... the rate on open land shall be levied as under :- (I) ........................... (II) Rate on...... open land ... shall be levied at 1 % of the valuation based on capital............ Rule 253 provides that "Valuation based upon capital shall be the Capital value of buildings and lands as may be determined from time to time by the valuers of the Municipality." There is no doubt that as a result of these sections and rules, the appellants were being made to pay I% of the capital value of their lands as assessed by Corporation's valuers. The appellant's had some objection to the valuation on its merits but it is conceded that these cannot be raised in the present proceedings. Learned counsel for the appellants has, therefore, confined himself entirely to challenging the Corporation's power to impose the levy on the basis of the capital value of the lands. The challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority making the rate." Rate, therefore, is an expression used to indicate an impost levied by a local authority to raise funds for its expenses. Such an impost would be rate irrespective of the basis on which it is levied. Ofcourse, the authority cannot levy a rate, or indeed any impost, unless a statute gives it the power to do so and the manner in which it can levy that impost must also be decided by statute. Rate is only the name given to an impost and there is nothing inherent in its nature to indicate that the impost must be assessed in a certain way. I find nothing in the authorities to support the view that in England rate must always be levied on the basis of annual value and an impost not so levied, would not be rate at all. So far as our country is concerned, the foundation for the argument is much weaker. We have a large number of statutes in which an impost by a local authority though based on annual value has been called "tax"; see for examples -The Bombay City Municipal Act (Act No. III of 1888), The Madras District Municipalities Act (Act No. IV of 1884). The North-Western Provinces and Oudh Municipalities Act, (Act No. 1 of 1900) and The Central Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge was properly framed under s. 75 read with the explanation. It is however said that the explanation to s. 75 must be ignored as it is in conflict with main provision authorising the levy, namely, s. 73. The contention is that since s. 73 authorises only the imposition of a rate, that is, an impost based on annual value, the explanation to s. 75 which permits the impost to be based on capital value is outside the scope of the main provision and hence must be left out. I am entirely unable to accept this contention. The different parts of a statute are not intended to be in conflict With each other and, therefore, if not impossible they should be read as consistent parts of a whole. In the present case I find no difficulty in so reading them. Section 73 empowers the imposition of a tax which it calls a rate. Section 75 authorises the tax to be assessed either on capital or on annual value. Obviously the intention is that the tax is not a rate in the technical sense, if there is such a sense in which it must be based on the annual value. The word "rate" must be understood, whatever it might in its technical sense mean, to have been used in the statute to describe a tax th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other ground on which the power to impose the tax on the basis of capital value was challenged. It was said that if the rule permitting the imposition on the basis of capital value had been authorised by the explanation to s. 75 or by any other provision in the Act, these provisions would be void and illegal as they could be beyond the legislative competence of the Bombay Legislature by whom the Act was enacted. This argument was founded on the Government of India Act, 1935. The Bombay Act was passed in 1955, that is, before the Government of India Act, 1935 was passed. The rule under which power was taken to impose the rate on the basis of capital value was however framed in February 1947, that is, long after the Government of India Act 1935. After the Government of India Act had come into force, a new subsection numbered sub section (2) was inserted in s. 73 of the Bombay Act which provided that "Nothing in this section shall authorise the imposition of any tax which the Provincial Legislature has no power to impose in the Province under the Government of India Act 1935." It was, therefore., contended that the power to impose the rate based on the capital value of lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging section of the statute, and it will only be in the case of some ambiguity in the terms of the charging section that recourse to other sections is proper or necessary." Now the charging section in this case is in a manner of speaking S. 73. That permits only a tax on lands and buildings. We have not got in the records the resolution under s. 75 selecting the tax, on land and buildings as a tax which the municipality chose to impose. There is no question, however, that such a resolution was passed and it must have been in terms of S. 73. The charging provision that we have in this case does not, therefore travel outside the power conferred by item 42 in List 11. Nor has it been suggested that it is ambiguous. The only question, therefore, is whether by providing that the tax might be levied at 1 % of the capital value of the, land taxed, the entire scope of the charging section is being altered and in reality the tax levied becomes a tax on capital asset ? I feel no doubt that the question must be answered in the negative. The importance of the distinction between the levy of a tax and the machinery of its collection has often been pointed out by judicial pronouncements o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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