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TMI Blog1967 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... and 234 of 1966, the challenge relates to the validity of the assessment book relating to the year 1966-67; in Writ Petitions No. 206 and 210 of 1966 the challenge relates to the years 1964-65 and 1965-66 while in W.P. Nos. 207, 208 and 209 of 1966 the challenge relates only to the year 1965- 66. The difference lies in this So, far as the assessments for the year 1966-67 are concerned, there has been no authentication of the assessment book after the disposal of all complaints relating to the entries made in the book, while the challenge relating to the years 1964-65 and 1965- 66 is made at a stage after such authentication and in respect of which attachments of property belonging to the assessees have already been levied. In W. P. No. 234 of 1966 filed in October 1966, the issue of a distress warrant and the levy of attachment are also challenged. Several textile mills in the city of Ahmedabad are before this Court in these petitions and they have a common complaint against the assessments. To appreciate the points raised in these petitions, it is necessary to take a bird s eye view of the relevant provisions of the Bombay Provincial Municipal Corporations Act (LIX of 1949) und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant taxation rules are to be found in Chapter VIII of the rules. Rule 7(1) provides that In order to fix the rateable value of any building or land assessable to a property tax there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten per cent of the said annual rent, and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever. Under r. 7(2) all plant and machinery contained or situate in or upon any building or land and belonging to any of the classes specified from time to time by public notice by the Commissioner, with the approval of the Corporation, shall be deemed to form part of such building or land for the purpose of fixing the rateable value thereof under sub-r. (1) but, save as aforesaid, no account shall be taken of the value of any plant or machinery contained or situated in or upon any such building or land. Rule 7(3) runs: A statement setting out clearly the classes of plant and machinery specified from time to time by the Commissioner under sub-rule (2) and describing in detail what plant and machinery fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts against the amount of any rateable value entered in the ward assessment book will be received in hit office. Rule 16 provides for the time and manner of filing complaints against valuation. Rule 17 lays down that the Commissioner must give notice to each complainant of the time and place when his complaint will be investigated. Rule 18 prescribes for the investigation and disposal of the complaint in the presence of the complainant by the Commissioner. Under r. 19(1) when all such complaints, if any, have been disposed of and the entries required by cl. (e) of r. 9 have been completed in the ward assessment book the said book shall be authenticated by the Commissioner who shall certify under his signature that except in the cases, if any, in which amendments have been made as shown therein, no valid objection had been made to the rateable value entered in the said book. Under sub-r. (2) of the said rule, the ward assessment book shall thereupon, subject to such alterations as may be made under the provisions of r. 20, be accepted as conclusive evidence of the amount of each property tax leviable on each building and land in the ward in the official year to which the book relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nably be expected to let from year to year, the municipal corporation of Ahmedabad had adopted the method of determining the annual rent on a flat rate method according to the floor area, irrespective of the locality, quality, age and nature of the property which was not a recognised method and was not permissible in law. According to the petition, a formula on the flat rate method of a fixed amount per 100 sq. ft. for arriving at the rental was not only against the express provisions of the Act but was also against the recognised concepts of valuation in the Law of Rating. The method adopted by respondent No. 1 in this case was arbitrary and repugnant to the petitioner s right guaranteed under Art. 14 of the Constitution. It was said that the buildings of the textile mills. were situate in different localities some of which were in the heart of the city and some on its outskirts. There was no uniformity in the floor area of the mills concerned nor was the age of the buildings in all cases the same. It was further complained that buildings in respect of the properties covered by the special property section included textile mills taxed on the fixed rate method whereas. buildings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violative of the fundamental rights of the petitioner guaranteed under Arts. 14, 31(i) and 19 of the Constitution and the procedure adopted in preparing the assessment book was ultra wires the procedure laid down by the Act and the rules. The grounds of challenge are formulated in paragraph 35 of the petition. Among the prayers are a writ of mandamus or any similar writ directing respondent No. 1 to forbear from taking any steps for the imposition and realisation of the property tax pursuant to the preparation of the assessment book for the year 1966-67 relating to the Special Property section; a writ of certiorari or other similar writ to quash the assessment book for the said year; a writ of prohibition or other order restraining respondent No. 2, the Deputy Municipal Commissioner from acting under deputation under s. 49 (1) and. other reliefs. The points raised in the counter affidavit are as follows:- (1) The tax being based on the amount of rent for which the property is or may be let from year to year, such rent has got to be ascertained from either the actual or the hypothetical rent for which the property along with all the equipment like plant and machinery and amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment books, and (7) under s. 49(1) the power to dispose of complaints against the fixing of rateable value was duty deputed to the Deputy Commissioner and there was nothing illegal about it. The points formulated by Mr. S. T. Desai are as follows:-(1) The method of adopting a flat rate for a floor area for determining the annual value adopted by the Municipal Corporation of Ahmedabad was against the express provisions of the Act. (2) The method was also in violation of all recognised concepts and principles of valuation for the purpose of rating. (3) The imposition of tax on a flat rate method was violative of Art. 14 of the Constitution. (4) Rule 7(2) and r. 7(3) were ultra vires the Constitution as beyond the legislative competence and entry 49 of List 11. (5) The delegation of powers of the Commissioner to the Deputy Commissioner was. bad as it involved the delegation of quasi-judicial power, and (6) Rule 7(3) suffered from excessive delegation and was violative of Art. 14 of the Constitution. The first, second and third points may be taken together. In the forefront of his argument Mr. Desai relied on a decision of this Court in The Lokmanya Mills v. The Barsi Borou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estricted to the area and not to the valuation. It was further observed that if the Municipality had adopted any of the recognised methods of valuation for assessing the annual letting value, the tax would not be open to challenge. The Court further noted: In any event, there is no evidence on the record of this case that the factories and buildings relating thereto such as warehouses, godowns and shops of the Mills situate in the compound of the mills, may be separately let at the uniform rate prescribed by the Municipality. The vice of the rule lies in an assumed uniformity of return per square foot which structures of different classes which are in their nature not similar, may reasonably fetch if let out to tenants and in the virtual deprivation to the rate-payer of his statutory right to object to the valuation. It may be interesting to note that an Act was passed to validate the said imposition. On a Writ Petition No. 1476 of 1966 the Bombay High Court held the Validating Act to be ultra vires. The contention put forward before the Bombay High Court was inter alia that the levy of a tax on buildings and lands on the basis of floor area was necessarily arbitrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible to suggest that a hypothetical tenant would be agreeable to take on rent the building of a mill which was well-built and of recent origin as another which was fairly old and not constructed with the same kind of material. Mr. Desai further argued that the situation of the mill was another factor which any tenant would take into consideration and even if the buildings of the two mills were otherwise similar, a tenant would not agree to pay for one situated on the outskirts of the city the same rent as he would be willing to pay for the one in the heart of it. In these circumstances, he argued it was wholly unreasonable to think that a tenant would be willing to pay ₹ 6-10-0 per 100 sq. R. of the floor area whether it was in the heart of the city or in the outskirts of it, whether the building was old or whether it was new and whether it was well constructed or ill-constructed. Mr. Setalvad tried to argue that such a method of valuation was not unknown and in any event a person who wanted to take on rent a textile factory would only be concerned with what profits he could make out of it and that it did not matter to him as to where it was situate, in the city, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thor gives four recognised methods of arriving at the annual value of a hereditament at page 24 of the book, these being- 1. The competitive or comparative method i.e. by finding out rents actually paid for the hereditament in question and/or others of a similar kind, adjusting them to bring into line with the statutory conditions, and thus arriving directly at an estimate of the rent.......... 2. The profits basis, or calculation by reference to receipts and expenditure, which is now required to be applied to certain public utility undertakings, and may properly be applied to any other hereditament on which a business is carried on which enjoys privileges in the nature of a monopoly............ 3. The contractor s method, by which it is assumed, in the absence of any other better way of estimating the rent, that the tenant would arrive at it by finding-the figure for which a contractor would provide him with premises neither more nor less suitable for his purpose, and the rate of interest on that cost which the contractor would charge him as rent. 4. The unit method by which schools may be valued at so much a place, hospitals at so much a bed, or certain indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined at per foot super of floor area applying the contractor s There is nothing, to show that any textile factory was, valued on the contractor s basis and that from the figures of valuation go worked out, the rental value per foot super of floor area wag determined On, the other hand, the affidavit suggests that because in various cities it was common to let out premises on the basis ,of floor area, the municipal authorities of Ahmedabad had resorted to this method for fixing the rateable value. We can take-judicial notice of the-fact that sometimes godowns or buildings constructed for office purposes are let out on the basis of floor area buteven then, the rate would vary according to the nature of the building and according to the site of the building in the city. It would also depend upon the age of the building and the amenities provided therein. It would be impossible to say that in the City of Ahmedabad a tenant would be willing to pay at the same rate of rent for factory accommodation, no matter where the building was situate or when it was put up or how it was constructed. Our attention was also drawn to other well known books on Rating like Ryde on Rating, Bean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal Corporations Act, 1949 so tar as the assessment book for the year 1966-67 is concerned. Mr. Setalvad argued that at that stage there is only a proposal and even if the municipality had acted arbitrarily it was open to the assessees to take objection thereto and have proper valuations made and the assessment book prepared properly. We cannot accept this argument. If the municipality fails in its initial duty to act in terms of r. 9(b) it does not lie in its mouth to say that any irregularity, however patent on the face of it, is open to correction. Moreover, the methods of correction in this regard are really illusory. The Small Causes Court cannot decide the applicability of Art. 14 of the Constitution and according to the judgment of the Bombay High Court in Balkrishna v. Poona Municipal Corporation(65 D. L. R. 119.) (by which the District Judge would be bound). ...... the words used in s. 406(1) of the Act,. do not cover the vires of the tax or the legality of the tax which is sought to be levied. Earlier, the learned Judges had pointed out after noting ss, 406 to 413 that : the decision of Judge aforesaid upon any appeal against any such value or tax if no ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment book under r. 19 and can under r. 39 cause to be presented to the assessee a bill for the amount of the tax due. Under r. 41 he can serve upon the person liable for the payment of the tax a notice of demand in form if the amount of-the tax has not been paid into the municipal office or deposited with him as required by sub-s. (2) of s. 406 within 15 days from the service of the bill. Rule 42(1) lAys down that if the person to whom the notice of demand has been served under r. 41 does not within 15 days from the said service pay the sum demanded or show sufficient cause for nonpayment of the same to the satisfaction of the Commissioner and if no appeal is preferred against the said tax, such sum with costs of recovery may be levied under a warrant in form to be issued by the Commissioner by distress and sale of movable property of the defaulter or the attachment and sale of immovable property of the defaulter etc. Section 406(1) provides for appeals against any rateable value or tax fixed or charged under the Act. Section 406(2) provides inter alia as follows:- No such appeal shall be heard unless- (a) it is brought within fifteen days after the accrual of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the Writ Petition on May 5, 1966 and such certificate was granted on June 20, 1966. Mr. Desai s next challenge was directed against sub-rr. (2) and (3) of r. 7. According to him, it was beyond the legislative competence of the State to levy a property tax on plant and machinery The relevant entry in List II of the 7th Schedule is item 49, namely, Taxes on land and buildings . The corresponding entry in List 11 under the Government of India Act, 1935 was taxes on lands, buildings, hearths and windows. Mr. Desai contended that the legislature was not competent by the definition of land in s. 2(3) of the Act to include plant and machinery even if they were attached to the earth or permanently fastened to anything attached to the earth. Mr. Desai argued that it may be that the definition of land in certain Acts embraces plant and machinery but when the legislature rates to impose a tax on plant and machinery in the garb of land it travels beyond its powers. He argued that apart from the definition in certain Acts and deeming provisions contained therein, plant and machinery can never be said to form part of the land or included in land or building. Counsel conceded that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature being a duty of excise within the meaning of entry No. 45 in List 1 of the 7th Schedule to the Government of India Act, 1935 and not within entry No 48 of List 11 of that Schedule. There Gwyer, C. J. referred to the legislative practice preceding the Constitution Act and said at.p. 53 Lastly, I am entitled to look at the manner in which Indian Legislation preceding the Constitution Act had (1) [1939] F. C. R. 18 at 37. (2) [1961] 3 S. C.R.- 242.@ 248. (3) [1939] F. C. R. 18. been accustomed to provide for the collection of excise duties;............ In all the Acts by which these duties were imposed it is provided (and substantially by the same words) that the duty is to be paid by the manufacturer or producer, and on the issue of the excisable article from the place of manufacture or production. In the same case, Sulaiman, J. observed: Our attention has not been drawn to any provincial enactment, which might have imposed any excise duty on the retail sale of motor spirit and lubricants, or for that matter on the retail sale of any other goods. That courts can look into the legislative practice was again adverted to in Ralla Ram v. The Provinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f plant and machinery in England. We have already noted the provisions of the Rating and Valuation Act, 1925. It is pointed out in Ryde on Rating (Eleventh Edition) at p. 399 : From towards the end of the eighteenth century to the passing of the Rating and Valuation Act, 1925, there has been controversy as to the inclusion in valuation of machinery and plant, and as to the extent to which (if machinery and plant were included) the valuation was to be affected. The series of judicial authorities on this subject extends from R. v. St. Nicholas, Gloucester, decided in 1783([1783] I.T.R. 723.) to Kirby v. Hunslet Union ([1906] A.C. 43.) and Smith v. Willesden Union( [1919] 89 L.J.K.B. 137.), decided in 1906 and 1919. The effect of the decision of the House of Lords in Kirby v. Hunslet Union(2) was to sweep away the principles- on which a discrimination had previously been made between machinery and plant which was to be taken into account in valuation, and that which was not-such as physical annexation to the hereditament, or legal annexation in the sense that the thing in question would pass to the tenant at landlord s fixtures on a demise....... ; and practically to direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looks at the premises, he looks at the furniture which is necessary for carrying on the business as a brewery or foundry; he does not in his own mind analyze, and to my mind he ought not to analyze, what would be likely to be the initial arrangements between the intended brewer and the owner of the freehold, to see who should provide this or that engine, or what not, but he looks at the premises as they are, as they are being occupied, and as they are being used, and he says to himself, Well, looking at the whole of the place, such and such is the rent which would probably be paid by a tenant from year to year for such an establishment as this. The problem in our case is not quite. the same. The hypothetical tenant would certainly take, into Consideration the machinery in the building if he was going to rent it for the purpose of running a textile factory. But if the State Legislature had power to levy a tax only on land and buildings, we do not see how the same could be levied on machinery contained in or situate on the building even though the machinery was there for the use of the building for a particular purpose. It therefore appears to us that r. 7(2) of the rules f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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