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TMI Blog1980 (3) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... at one time within the local limits of the jurisdiction of the District Board of Bareilly. Acting under the power conferred by section 108 of the District Boards Act, 1922, the District Board, Bareilly, by Resolution No. 3 dated February 18, 1928 decided to impose the Circumstances and Property Tax on persons according to their circumstances and property. Rule 7 framed under section 172 of the Act for assessment and collection of the said tax was published on March 10, 1928, providing for the maximum assessment of ₹ 2,000/- on any single assessee. Later by a Notification dated November 29, 1933 the State Government directed under section 114(d) of the Act that the total amount of tax on circumstances and property imposed by a District Board on any single assessee shall not in any year exceed the sum of ₹ 2,000/-. On April 20, 1958 the U. P. Antarim Zila Parishad Ordinance 1958 was enacted by the State Government, providing for the establishment of Antarim Zila Parishads for the internal administration of local self-Government in rural areas, thereby facilitating the establishment of Zila Parishads for the coordinated administration of affairs concerning economic a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33(1)(c) of the Constitution. In Civil Appeal 564 of 1973, appellants who are residents of Kuraoli, District Mainpuri, were assessed to Circumstances and Property Tax by the Town Area Committee of Kuraoli, for the years 1961-64. The tax was levied by the Committee under section 14(f) of the U.P. Town Area Act, 1914, as amended by the U.P. Town Area (Validation and Amendment) Act, 1950, which empowers the Town Area Committees to impose a tax on persons according to their circumstances and property , not exceeding such rate and subject to such limitations and restrictions as may be prescribed. The appellants filed a suit, 62 of 1964, to challenge the validity of the tax. That suit was decreed by the learned Munsif, Munsir, on the ground that the tax on circumstances and property was in truth and substance a tax on income and since, prior to the Constitution, it was not lawful for the Town Area Committee to levy it, it was not saved by Article 277 of the Constitution. The appeal filed by the Committee against that judgment was dismissed by the learned Civil Judge, Mainpuri, but in Second Appeal 2859 of 1966, the High Court of Allahabad by its judgment dated November 29, 1972, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes under a single denomination. According to the learned Judge, the tax on circumstances and property is a single tax possessing altogether a separate and distinct identity from other taxes and could neither be equated with a tax on professions, trades, callings or employments nor with a tax on property; that is to say, the constituent elements which enter into the composition of the tax could not be separated. On the question whether the circumstances and property tax levied by District Boards prior to the Constitution could be levied thereafter, the learned Judge relied upon Art. 277 of the Constitution as authorising the continued imposition of the tax. When the Constitution came into force, said the learned Judge, circumstances and property tax did not find a place in any of the three Lists of the Seventh Schedule and therefore it fell under the residuary entry, namely, entry 97 of List I which refers to any matter not enumerated in any other entry in List I or in any of the entries in Lists II and III. Justice M.H. Beg largely shared the view of Justice Pathak that the tax on circumstances and property was a composite tax and not merely a tax on professions, trades, callin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tred round the application of Article 276, the contention being that the imposition of the impugned tax in excess of ₹ 250 per annum is invalid. It was urged by Mr. E. C. Agarwala, who appears on behalf of the appellant in Civil Appeal No. 564 of 1973, that although Entry 60 in List II empowers State Legislatures to levy tax on professions, trades, callings and employments, the exercise of that power is necessarily limited by Article 276(2) of the Constitution. The constitutional limitation, according to the learned counsel, contained in Article 276(2) must be given its full effect and that limitation cannot be transgressed by the State Legislature by adopting the subterfuge of imposing a consolidated tax by clubbing-up two or more entries in List II. Counsel further contended that the State Legislature cannot over-reach its taxing power by making an artificial definition of words and expressions used in the legislative entries. Just as it cannot, by an artificial definition of sale of goods , exercise a power to legislate in respect of a subject matter outside its sphere, it cannot exercise the power to levy a tax on circumstances by an artificial and colourable understan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the development rebate and the like may leave no income in the hands of an assessee which could be brought to tax under the Income-tax Act. But a person can be subjected to tax on circumstances and property in relation to his Haisiat , that is to say, the status which he occupies by reason of the fact of the pursuit by him of a beneficial calling or the possession by him of an interest in property. While determining the status of an individual for the purposes of the tax on circumstances, the total turnover of his business or avocation may therefore be legitimately taken into consideration. It may be, and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property. That is, however, not conclusive on the nature of the tax. It is only as a matter of convenience that income is adopted as a yardstick or measure for assessing the tax. As pointed out in Re a Reference under Govt. of Ireland Act, the measure of the tax is not a true test of the nature of the tax. Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion combined with a tax on property. These decisions correctly describe the nature of the tax on circumstances and property. We affirm the view taken therein, especially that the aforesaid tax is not a tax on income. But even though the impugned tax is not a tax on income, it is necessary to consider whether it is within the legislative competence of the State legislature and, if so, under which entry it would fall. The reason for such an inquiry is mainly two-fold: firstly, even if the tax on circumstances is within the legislative competence of the State legislature, being referable to entry 60 of List II which relates to taxes on professions, trades, callings and employments, it cannot exceed the limit of two hundred and fifty rupees per annum prescribed by Article 276(2) of the Constitution, unless the proviso to that article is attracted: secondly, if the tax is beyond the legislative competence of the State legislature, being a composite tax not liable to be split up into distinct component parts, it will be necessary to examine whether the tax is saved by article 277 of the Constitution. Article 276(1) of the Constitution provides that notwithstanding anything in artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The tax on property was confined to immovable property and fell within the jurisdiction of the State Legislature by virtue of Item 49 of the State List while the tax on circumstances, that is to say, status or financial position, meant the tax on man s trade, business, profession or employment which was covered by Item 60 of the State List. This question was also considered by a Special Bench consisting of Five Judges of the Allahabad High Court in The Notified Area Committee and Anr. v. Sri Ram Singhasan Prasad Kalwar. Mr. Justice S.N. Dwivedi who delivered the Judgment of the Special Bench traced the entire history of the impugned tax in reference to three periods: (1) the period prior to the 1935 Constitution Act; (2) the period between 1935 and 1950; and (3) the post-Constitution period. After a careful examination of the nature of the tax the learned Judge summed up the position thus: To sum up, the history of the tax on circumstances and property after 1935 definitely shows that it was not a distinct and separate impost. The Government of India Act, 1935 and the Constitution treat it as a composite tax as its name suggests. As its constituents are already covered by on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and property tax is a composite tax and since the element of property necessarily enters into that composition, the tax cannot be identified as a tax on professions, trades, callings or employments. Our conclusion that the tax is referable, inter alia, to entries 49 and 60 of List II must necessarily result in the rejection of that view. The learned Judges were of the opinion, with which we are respectfully unable to agree, that since the tax on circumstances and property did not find place as an entry expressly enumerated in any of the three Lists of the Seventh Schedule, it falls under the residuary entry, namely, Entry 97 of List I. On that basis they held that Article 277 of the Constitution would save the tax since it was within the competence of the Parliament to impose it. In the view that we have taken, namely, that the impugned tax falls within the competence of the State Legislature by virtue of entries 49 and 60, inter alia, of List II, this part of the reasoning of the learned Judges has to be rejected. It is unnecessary and in fact erroneous to take resort to Article 277 of the Constitution for the purpose of saving the tax on circumstances and property. The mere n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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