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TMI Blog1964 (9) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... isions for appeal, second appeal and revision. The "Act' confers on the Government power to make rules to carry out the purposes of the "Act". Accordingly rules have been made and published. (3) The validity of the "Act" was assailed on various grounds. It was contended that in pith and substance, though not in form, the "Act" imposed tax on the assessee's income or in the alternative on the capital value of his assets in the form of buildings, and, therefore, the "Act" is beyond the legislative competence of the State Legislature. It was next contended that the "Act" is a colorable piece of legislation as the motive in enacting the same was not to tax buildings but to take away a portion of the fabulous unearned income made by speculators and tax dodgers. It was said that S. 4 of the "Act", the charging section, is vague and unenforceable and consequently it is inoperative and if that section is struck down as being vague and unenforceable, as it should be, the other provisions in the "Act' being machinery provisions will have no independent existence and, therefore, the entire "Act" has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and unenforceable and consequently the "Act" inoperative? IV. Is the power of exemption conferred on the State by S. 32 amounts to delegation of essential legislative function? V. Is the impost under the "Act" amounts to double taxation and if so, is the same opposed to law? VI. Is S. 3(2) hit by Art. 14 of the Constitution and if that provision is void is the "Act" liable to the struck down? VII. Whether the provisions contained in S. 4 are violative of Art. 14 of the Constitution; and, therefore, the "Act" is liable to be struck down? and VIII. Whether the provisions contained in the "Act" to the extent they place restrictions on freedom of trade, commerce or intercourse with or within the State are invalid as no previous sanction of the President had been obtained for the introduction of the Bill which culminated in the "Act". (6) When the validity of an enactment is challenged on the ground that the Legislature has no competence to enact the same or that one or more of the provisions contained therein are opposed to one or the other of the fundamental rights guaranteed by the Constitution, it is the duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition has brought within its fold things other than buildings. The fact that "any portable shelter or any shed constructed principally of mud, bamboos, leaves, grass or thatch or a latrine which is not attached to the main structure" are excluded from the definition of "building" does not make the definition in any manner an artificial definition. To tax one thing the State need not tax everything. The State has extensive power of classification in the exercise of its taxation power. Hence no arguments can be properly advanced on the basis of the definition in question to support the plea that the impugned tax is a tax on income or a tax on capital assets. (10) It was next said that in view of the definition of the word "owner" and the provisions contained in Ss. 3, 4, 6 and 8 read with the schedules it would be seen that the levy in question is a levy on income or in the alternative it is a levy on the capital value of the assets of the assessees. The expression "owner" as defined in S. 2(7) includes "a person who for the time being is receiving or is entitled to receive, the rent of any building whether on his own account or on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cease to be "building tax". Section 4(1) without the provisos, but read with the Schedules provides for a graduate tax on each building. It also provides for some exemption. It was said that because of clause (c) to S. 3(1) and the first proviso to S. 4(1) the several buildings owned by a single person have to be considered as one unit of taxation, the resulting position being, the assessee will not only loose the benefit of the exemption provided, but he will also have to pay tax at a higher rate on a larger area of floorage. Is this contention correct? (12) Clause (c) to sub-section (1) of S. 3 provides: "save in respect of buildings to which proviso (1) to sub-section (1) of S. 4 is applicable, residential buildings having a floorage of not more than one thousand square feet an non-residential buildings having a floorage of not more than two hundred and fifty square feet" are exempt from tax. This provision undoubtedly indicated that the Legislature did not intend to give the benefit of that provision to cases falling under the first proviso to sub-section (1) of S. 4. But has it effectuated that intention? For our purpose what is important is the chargin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the learned Advocate-General that though in the main S. 4(1) every building stands charged separately to "buildings tax", in view of the first proviso thereto the charge in question gets itself enlarged into a consolidated charge on all the buildings owned by the same person in the same "rating area" The proper function of a proviso was considered by the Supreme Court in Commissioner of Income Tax, Mysore v. Indo Mercantile Bank Ltd., [1959]36ITR1(SC) . It was observed therein that a proviso qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso, would fall within the main enactment; ordinarily, it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment; "It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso"; therefore, it is to be construed harmoniously with the main enactment; it has to operate in the same field and if the language of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be." "The Supreme Court in Empress Mills, Nagpur v. Municipal Committee, Wardha, [1958]1SCR1102 , held that if in construing a taxing statute, there are two interpretations possible, then effect is to be given to the one that favours the citizen and not that imposes a burden on him." (13) In the instant case, if the effect of the proviso is as contended by the learned Advocate-General surely the tax liability of several of the assessees becomes heavier and no assessee will be benefited. Hence the construction placed by the learned Advocate-General is not benefited to the assessees. Therefore, we must adopt the rule of strict construction. (14) Bearing in mind the rules of construction set out above let us now examine the true scope of the proviso in question. While the main S. 4(1) says: "There shall be charged, levied and paid tax, " the proviso merely refers to a "levy" of tax. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to effectuate the intention. That anomaly must be due to tinkering with the original text. (16) Even if we consider that the word "levied" found in the first proviso to S. 4(1) means imposition of tax, the imposition in question can only be as provided in Schedule II, which means that each building should be treated as a unit and each unit assessed to tax in accordance with the rules contained therein. The proviso in question does not prescribe any rate of its own nor any basis of taxation. Hence when it says that the "building tax shall be levied on the aggregate floorage of all such buildings", it must be held to mean that the levy in question is in accordance with the rules contained in Schedule II. (17) Much thought does not appear to have been bestowed in drafting the provisos to S. 4(1). There is no doubt that the Legislature wanted to levy more tax on non-residential buildings than on residential buildings. But the intention is not fully carried out as will be clear from the illustration given hereinbelow. (18) Let us take the case of a building having a floorage of 10,000 sq. ft.; if that building is a residential building, the tax payable is &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that prima facie, a tax on the annual value of the land is not a tax on income, and recognition of that fact seems implicit in the decision of the House of Lords in London County Council v. Attorney General 1901 AC 26. His Lordship then referred to the legislative practices that prevailed in England and in India to find out the true import of the Act. He observed: "The question to be determined comes back to the short one, whether the impugned tax is a tax on income. I am of opinion that it is not. The charging S. 22 impose tax on lands and buildings, and not on income, and the basis of the tax is annual value. This is an arbitrary basis which might be applied as well for ascertaining capital value, as for ascertaining income. The fact some concession is allowed to the small owner, a concession which may be based as much on political, as on economic considerations and that an allowance maybe made where the property is shown to produce no income, a fact which may be taken to show that the estimated value was found to be erroneous, cannot alter the nature of the tax." Dealing with the contention that the tax in question is a tax on the capital value of the assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute which imposed a property tax assessed on the annual value of the property and rejected the contention that such a tax was really a tax on income which only the Centre could impose under item 54 of List I (Govt. of India Act, 1935). I think it may be legitimately said that if a tax expressly levied on land and made assessable on its annual value, that is, its income, is not by reason of such method of assessment a tax on income, a tax on land cannot become a tax on capital value of assets because it is made assessable on the basis of the capital value of the land." A Full Bench of the Allahabad High Court in Oudh Sugar Mills Ltd., Hargaon v. State of U.P., AIR1960All136 (FB) construing U.P. Large Land Holdings Tax Act (31 of 1957) observed that looking to the whole of the Act the tax under the Act is clearly a tax on the holding and not on the annual value or the capitalised value of the land but the annual value is only the measure of the tax. It went further and held that even if it be assumed that the income is the capitalised value of the land, the capitalised value is only the basis and not the object of taxation. Therefore the State Legislature was fully competen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is whether the Statement of Objects and Reasons can be looked into for finding out whether a statute is a colorable piece of legislation. Relying on the decision of the Supreme Court in Hamdard Dawakhana v. Union of India, 1960CriLJ671 , it was urged that when the constitutionality of an enactment is challenged on the ground of violation of any articles in Part III of the Constitution, the ascertainment of its true nature and character becomes necessary and in that event the Court ought to take into consideration the subject-matter of the Act, the area in which it is intended to operate and its purport and intent. In order to do so, it is legitimate to take into consideration all factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy of the disease which the legislature resolved to cure and the true reason for the remedy. I fail to see how this decision bears on the question whether the "Act" is a colorable piece of legislation or not. Next reliance was placed on the decision of the Supreme Court in S.C. Prashar v. Vasantsen Dwarakadas, [1963]49ITR1(SC) wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture which enjoys only a limited or a qualified jurisdiction. If the constitution of a State distributes the legislative power as amongst different bodies, which have to act within their respective spheres legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the legislature in a particular case has or has not, in respect to the subject-matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers. Such transgression may be patent, manifest or indirect, but it may also be disguised, covert and indirect and it is to this latter class of cases that the expression "colorable legislation" has been applied in certain judicial pronouncements. The idea conveyed by the expression is that although apparently a legislature in passing a statute purported to act within the limits of its powers, yet in substance and in reality it transgressed these powers, the transgression being veiled by what appears, on proper examination, to be a mere pretence or disguise. As was said by Duff, J. in Attorney General for Ontario v. Reciprocal Insurers 1924 AC 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, though in form appears to be within its sphere, in effect and substance, reaches beyond it. If, in fact, it has power to make the law, its motives in making the law are irrelevant." From these decisions it follows that as long as a Legislature has competence to enact a law, it is immaterial with what motive it enacted the same. The true question for decision always is, whether the Statute enacted, taking its pith and substance into consideration, is one within the legislative competence of the Legislature. If it is, it is a valid statute. If it is not, it is ultra vires of the Legislature. Hence no question of bona fides or mala fides on the part of the Legislature arises for consideration. I have earlier come to the conclusion to enact the "Act". Hence it cannot be considered as a colorable piece of legislation. (23) Now coming to the contention that the charging section is vague and therefore we should hold the "Act" to be inoperative, that question really does not arise for decision in view of the findings reached by me earlier. It is true, as seen earlier, that the charging section (section 4) is not happily worded. But then, it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of mine finds support from the decision of the Supreme Court in Banarasi Das v. State of Madhya Pradesh, [1959]1SCR427 . (25) It was strenuously contended that the tax levied under the "Act" amounts to double taxation on buildings as the Legislature has already empowered the local bodies in the State to levy house tax and in exercise of that power those bodies have in fact levied house tax in most of the towns in the State and therefore, the levy should be struck down. I know no principle of law which interdicts double taxation. The power of the State to tax persons and things is one of the most extensive power known to law. That power "is one so unlimited in force and so searching in extent, that the Courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it., " The only limitation on that power is the wisdom of the legislature or the fear of popular resentment. Taxes as defined by Cooley in his Constitutional Limitations "are burdens or charges imposed by the legislative power upon persons or property to raise money for public purposes". The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich similar things can be differently treated is itself opposed to the equality clause. The provisions in the "Act" do not lay down the principles which should govern the exercise of that power. Therefore, Section 3(2) should be held to be void not only because the power conferred under it amounts to a delegation of essential legislative function but also because the very existence of such a power is a threat to the equality clause. My view in this regard finds support from the decision of the Supreme Court Kunnathat Thathunni Moopil Nair v. State of Kerala, [1961]3SCR77 . The rule laid down in P.J. Irani v. State of Madras, [1962]2SCR169 relied on by the learned Advocate-General is inapplicable to the point in controversy before us. After examining the provisions of the Statute impugned therein the Supreme Court came to the conclusion that enough guidance is afforded by the preamble and operative provisions in that Act for the exercise of the power of exemption given to the Government. That is not the case here. The learned Advocate-General did not point out to us any provision in the "Act" from which the policy underlying the exercise of the power conferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be some reasonable system of apportionment. When taxes are levied on property there must be an apportionment with reference to a uniform standard, or they degenerate into mere arbitrary exactions. Absolute equality of taxation can never be attained. That system is the best which comes the nearest to it. The same rules cannot be applied to the listing and valuation of all kinds of property. The object should be to place the burden so that it will bear as nearly as possible equally upon all. For this purpose different systems adjusted with reference to valuation of different kinds of property may be adopted, the essence if the matter being that there should be equality of taxation or something very near to it. Classification is an unavoidable concomitant of an exercise of its taxing powers by the State. The general limitation imposed by the constitutional provisions is that classification for tax purposes must be reasonable if it is to held valid. A prohibited degree of inequality may result from ignoring differences relevant to taxation. Similar treatment of dissimilar tax subjects may be invalid as the dissimilar treatment of similar tax subjects. (29) In adjudging reasonablenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not meant to be a mechanical formality devised in a haphazard manner as cover for raising money but must disclose differentiation pertinent to the burden being heavy in some cases and light in others. The principle of equality may be offended on account of dissimilarity of treatment in like instances or same treatment in cases between which resemblance is lacking. In [1961]3SCR77 , the Supreme Court laid down that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Art. 14, though the courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think more just and equitable; if the legislature has classified persons or properties into different categories which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal; similarly, different kinds of property may be subjected to different kinds of taxation, but so long as there is a rational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s obvious and we can take judicial notice of it, that ground value in the City of Bangalore varies sharply from place to place. While building sites are available for a few rupees per sq. yard in Kethamaranahalli, Jodikempapura and Yelahanka, every yard of building site will cost somewhere between ₹ 150/- to 200/- in important business localities like Gandhinagar. B.G. Madiman Manager of Sri Shivayogeshwar Ginning and Pressing Factory, Hubli, petitioner in W.P. No. 688/1964 has sworn to the fact that ground value in places like Rajajinagar, Jayanagar and Jayamahal is about ₹ 40/- per sq. yard, while house sites in Gandhinagar, Kempegowda Road and Narasimharaja Road cost more than ₹ 150/- per sq. yard. He has mentioned two instances of purchase of lands in Gandhinagar at the rate of ₹ 283/- per sq. yard respectively. In support of that averment, he has produced copies of sale deeds executed on the 28th day of December 1962. He has also mentioned in his affidavit that one Sundatta Fabrics has rented on hire two shops in the Canara Bank Buildings near the Town Hall at Bangalore, about 40 ft x 21 ft each, that is measuring in all about 1, 683 sq. ft. at a month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause. In such matters there should be not only a classification but the same should be based upon reasonable ground of some difference which bears a just and proper relation to the attempted classification and it not a mere arbitrary selection. As mentioned earlier, the object of the "Act" is not to limit the floorage of the buildings in towns but to raise public revenue. Therefore, the classification on the basis of floorage has no just relationship with the object of the "Act". Hence the "Act" suffers from lack of rational classification. (33) The basis of taxation adopted in the "Act" has a close resemblance to the basis adopted in the Travancore-Cochin Land Tax Act (15 of 1955, are amended by Act 10 of 1957). Under that Act a tax called land tax, at a flat rate of ₹ 2/- per acre, was levied on all lands irrespective of their productivity or to the use to which they can be put to. The validity of that levy came up for consideration before the Supreme Court in Moopil Nair's Case,:[1961]3SCR77 . The ground that it was violative of Art. 14 of the Constitution. The learned Chief Justice speaking for the Court observed thus (parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before the Kerala High Court in Padamnabha Ravi Varma Raja v. Deputy Tahsildar, Chittur, AIR1963Ker155 . The High Court struck down the Act as being violative of Article 14 of the Constitution. The same view was again taken by the Kerala High Court in Padmanabha Ravi Varma Rajah v. State of Kerala AIR 1962 Ker 31. (35) Similar is the view taken by the Supreme Court of America in Cumberland Coal Co. v. Board of Revision (1931) 76 L Ed 146, wherein assessment on all coal fields in a township at the same sum per acre, notwithstanding differences in actual or market value due to distances from transportation facilities and other factors, was struck down as violating the equal protection clause of the 14th Amendment. (36) For the reasons already mentioned, I hold that the "Act" is void as it does not conform to the constitutional requirements embodied in Article 14. (37) The only contention remaining to be examined is that raised by Sri. N.T. Raghunathan, the learned Counsel for the petitioner in W.P. No. 1095/64, namely that the "Act" to the extent it taxes garages, workshop and offices of the petitioner who carries on inter-State transport busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings used for the purpose of carrying on trade or commerce, no doubt in an indirect and remote manner but even an indirect or remote restraint is within the mischief of Article 301. But, according to the learned Advocate-General, such indirect restraints are not within the scope of Article 301. In support of his contention that even indirect restraints come within the prohibition of Article 301, Sri Raghunathan, relied on the decisions of the Australian High Court, interpreting Section 92 of the Australian Constitution Act, 1900, which according to him is in pari materia with Article 301. I do not think that it is necessary to refer to any of the decisions rendered by the Australian High Court interpreting Section 92 of the Australian Constitution Act, 1900, in view of the decision of the Privy Council in Commonwealth of Australia v. Bank of New South Wales. (1949) 2 All ER 755. Delivering the Judgment of the Board, in that case, Lord Porter observed thus (at page 771) : "Through all the subsequent cases in which Section 92 has been discussed, the problem has been to define the qualification of that which in the Constitution is left unqualified. In this labyrinth there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity judgment in that case. On the other hand, the learned Advocate-General arguing contra referred us to other passages in that judgment. I do not think, the question that we are considering now pointedly came up for decision in that case. In that case, the Supreme Court proceeded on the basis that the impact of the tax levied under Rajasthan Motor Vehicles Taxation Act (II of 1951) was direct and immediate, but the majority of the learned Judges justified that levy on the ground that it is compensatory and consequently not hindering the freedom of trade, commerce and intercourse. In view of the decision of the Supreme Court in Firm A.T.B. Mehtab Majid and co. v. State of Madras, AIR1963SC928 , there is no need to pronounce as to the scope of the decision in Rajasthan Transport case, [1963]1SCR491 as regards the point in controversy before us. In Firm Mehtab Majid and Co.'s case, AIR1963SC928 , the Supreme Court after examining its decisions in Atiabari Tea Co.'s case, AIR 1963 SC 232 and Rajasthan Transport case, [1963]1SCR491 observed : In paragraphs 8 and 9 of the judgment (at page 930): "Article 301 of the Constitution which provides for trade, commerce and int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the Old Mysore, Bombay, Madras and Hyderabad areas of the New Mysore State formed on the Reorganisation of States; they own buildings as defined in Section 2(4) of the Act; their buildings are either residential, non-residential, factories or workshops. The buildings of the petitioners are situated in one or other of the "Rating Areas" specified in Schedule I of the Act. (45) The petitioners have challenged the Act on a number of grounds as ultra vires of the Constitution on the ground of want of Legislative competence and infringement of the Fundamental Rights guaranteed in Arts. 14 and 19(1)(f) of the Constitution. My learned brother, whose judgment has been just delivered, has very fully discussed the grounds formulated as questions III to VI and VIII. (46) The challenge to the constitutionality of the Act, has been mainly on the following two grounds: I. The Act is a piece of colorable legislation; it is not within the competence of the State Legislature; and in pith and substance, the impugned tax is a capital levy which is within the exclusive jurisdiction of the Union Parliament. II. That the basis of levy of the impugned tax being the total floorage a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure, or part thereof, whether of masonry, bricks, wood, metal or other material, but does not conclude any portable shelter or any shed constructed principally or mud, bamboos, leaves, grass or thatch or a latrine which is not attached to the main structure; (b) "floorage" means the area included in the floor of a building, and, where a building has more than one floor, the aggregate area included in all the floors together; (c) "rating area" means any area which is included or which may hereinafter be included in any part of Schedule I to this Act; (d) "residential building" includes a cattle shed, garage or store-room attached to a residential building and used by the person occupying the building for the more convenient enjoyment of the building as a residential building; Sub-section (1) of Section 3 exempts buildings owned by the State and Central Governments or any local authority, and also buildings used principally for religious, charitable or educational purposes. Sub-section (2) empowers the State Government to exempt from payment of tax any class of buildings, if in its opinion, it is necessary in the public interest so to do. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2--Where the floorage of the building which has already been taxed is subsequently increased by new extensions or additions or combinations, tax shall be computed on the total floorage of the building including that of the extensions or additions or combinations and credit shall be given to the tax already levied and collected in respect of the buildings before such extensions or additions or combinations. (2) The building tax shall be payable by the owner of the building.. "(3) Subject to the provisions of sub-section (1), the building tax in respect of the floorage of any building shall not be payable more than once under this Act." Section 5 provides for the mode of computation of floorage of buildings for the purpose of assessment under the Act. Section 6 provides for 'Returns' to be furnished by the owners of buildings. According to the said section such 'Returns' shall be furnished- (i) in the case of buildings in existence on the date of commencement of the Act, within thirty days from the date of such commencement; and (ii) in the case of buildings the construction of which is completed after the commencement of the Act, withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l buildings, on the first one thousand square feet of the total floorage, the tax is Nil, while in respect of non-residential buildings, there is no such exemption limit provided the total floorage of the non-residential buildings exceeds two hundred and fifty square feet, This, in brief, is the scheme of the Act. (53) On an examination of the entire scheme of the Act, my learned brother has expressed his opinion that the unit of taxation under Section 4 is 'a building' and that the intention of the Legislature to levy tax on the basis of aggregate floorage of all buildings owned by an assessee in the same Rating Area as one unit, as contended by the learned Advocate-General on behalf of the State, has not been effectuated in clear language. I have utmost respect for the opinions of my learned brother, whose experience on the Bench is more than mine, but on careful deliberations and due consideration, I am unable to persuade myself to concur in his opinion that on a true and correct interpretation of the Act, the Legislative intent has not been effectuated in unambiguous language, or in other words, that there is any room for doubt as to the clear intention of the Legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) The Law of Taxation by Dr. Cooley Vol. II, Paras 501 and 502. To the same effect is the view of the law laid down by the Supreme Court of India in Abraham v. The Income Tax Officer, Kottayam, [1961]41ITR425(SC) , wherein the Supreme Court stated the rule thus : "In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any; the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax-payer." We have to suppose that the Legislature had in view in framing the provisions of any tax law, the existence of the following objects : (a) Providing a public revenue; and (b) the securing of individuals against extortion and plunder under cover of the proceedings to collect the revenue. The provisions for the achievements of the twin objects are important provisions of the law; other provisions may be made for subordinate purposes. "It is a well-settled rule of law that every charge upon the subject must be imposed by clear and unambiguous language. Acts of Parliament which impose a duty upon the public will be critically construed with reference to the particular language in which they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be reasonably brought to bear in determining the intention of the law-making power." (55) If we apply the above rules of interpretation, the correctness as to which there can be no doubt, it is clear to my mind that the charge to tax under Section 4 is on all the buildings owned by an assessee in the same Rating Area on the basis of the aggregate floorage of all such buildings. In none of the pleadings filed on behalf of the petitioners, a contention has been raised that on a true interpretation of the Act, the unit of taxation is 'a building' and not all taxable buildings owned by an assessee on the basis of the aggregate floorage at the rates specified in Schedule II. It is only in W.P. 318/63, that the petitioner, represented by his learned counsel Sri. K. Srinivasan, had urged that on a true interpretation of the Act, that the tax is not to be computed on the basis of the total floorage of all taxable buildings owned by an assessee; but the pleadings in his case, which I shall presently set out, do not raise any contention. One of the relief prayed for by the said petitioner in paragraph 3(b) of the petition reads thus: "This Hon'ble High Court may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove pleadings that an argument was advanced by the learned counsel that the intention of the legislature has not been effectuated clearly and as such, there is a doubt, and the benefit of doubt has to be given to the taxpayer. (56) In order to appreciate the contention of the learned counsel on this question, it is necessary to set out clause 4 of the Bill and Section 4 of the Act side by side. Clause 4 of the Bill, Charge of buildings tax.-- Section 4 of the Act. Levy of buildings tax.-- (1) Subject to the other provisions of this Act, there shall be charged a tax (hereinafter referred to as "buildings tax"), at the rate or rates specified in Schedule II, in respect of the total floorage of every building the construction of which is completed on or after the first day of November 1956, and which has a floorage of one thousand square feet or more. (2) The buildings tax shall be payable by the owner of the building. Explanation 1.--For the purposes of this section, the construction of a building shall be deemed to have been completed when it has been actually occupied. Explanation 2.--A building, which is not liable to be taxed under the provisions of this Act on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential building by being put to non residential use or otherwise, buildings tax shall be payable at the rates applicable to non-residential buildings, and credit shall be given to the tax already levied and collected in respect of the building as a residential building. Explanation 1.--A building which is not liable to be taxed under this Act on account of its having a floorage of not more than one thousand square feet, as the case may be, shall become liable to be so taxed if the floorage of the building is subsequently increased by new constructions or additions or combinations. Explanation 2.--Where the floorage of the building which has already been taxed is subsequently increased by new extensions or additions or combinations, tax shall be computed on the total floorage of the building including that of the new extensions or additions or combinations and credit shall be given to the tax already levied and collected in respect of the building before such extensions or additions or combinations. (2) The buildings tax shall be payable by the owner of the building. (3) Subject to the provisions of sub-section (1), the buildings tax in respect of the floorage of any building shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he word 'levy' as applied to taxation has no doubt been given a variety of meanings; it is sometimes used in an administrative sense as referring to the mere ministerial or executive acts of ascertaining and entering the taxes on the tax-book and collecting them, but in its proper sense as applied to the determination of the amount or rate to be charged, it is the formal and official action of the Legislative body invested with the power of taxation, whereby, it determines and declares that a tax of a certain amount, or of a certain percentage on value, shall be imposed on persons and property subject thereto." (3)84 Corpus Juris Secundum--p. 679. When the word 'levy' or 'levied' is used in the charging section, whether in the main section or in its proviso, the only possible meaning to be given is that it is the determination of the amount of rate charged by the legislature invested with the power of taxation. If the word 'levy' or 'levied' had been found in a section or rule dealing with administrative or ministerial acts, it might be possible to hold that it was used in the sense of computation of tax. The drafting of Section 4 as my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of taxation of the Union or State Government does not include things beyond their respective Sovereign power. Taxation is an act of sovereignty to be performed, so far as it conveniently can be, with justice and equality to all. Dr. Cooley in his classical Treatise on the 'Law of Taxation' states: "The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent Government. It is possessed by the Government without being expressly conferred by the people. The power is inherent in the people because the sustenance of the government requires contributions from them. In fact the power of taxation may be defined as " the power inherent in the sovereign state to recover a contribution of money or other property, in accordance with some reasonable rule or apportionment, from the property or occupation within its jurisdiction for the purpose of defraying the public expenses". Constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government but instead merely constitute limitation upon a power which would otherwise be practically without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he validity of tax laws can be questioned in the light of the provisions of Arts. 14, 19 and Art. 301 if the said tax directly and immediately imposes a restriction on the freedom of trade; but the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Art. 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. In what cases a taxing statute can be struck down as being unconstitutional is illustrated by the decision of this Court in [1961]3SCR77 . In that case a careful examination of the scheme of the relevant provisions of the Travencore-Cochin Land Tax Act (No. 15 of 1955) satisfied this Court that the said Act imposed unreasonable restrictions on the fundamental rights of the citizens, conferred unbridled power on the appropriate authorities, introduced unconstitutional discrimination and in consequence, amounted to a colorable exercise of legislative power. It is in regard to such a taxing statute which can pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral scheme of Government was introduced for the first time in India by the Government of India Act, 1935; until then, the pattern of Government was unitary. Before the coming into force of the Government of India Act, 1935, the Government of India Act, 1919, (9 and 10 Geo. 5) was in operation. Under the Government of India Act, 1919, the Governor-General was empowered to allocate revenues between the Central and Provincial Governments and also the Local Authorities. Under the Scheduled Taxes Rules, framed under the Government of India Act, 1919, the following were the taxes which were to be utilised by or for local authorities: "(1) a toll; (2) a tax on land or land values; (3) a tax on buildings; (4) a tax on vehicles or boats; (5) a tax on animals; (6)a tax on menials and domestic servants; (7) on octroi; (8) a terminal tax on goods imported from a local area, save where such tax is first imposed in a local area in which an octroi was not levied on or before the 6th July 1917; (9) a tax on trades, professions and callings; (10) a tax on private markets; (11) a tax imposed in return for services rendered, such as: (a)a water rate; (b)a lighting rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Madras District Municipalities Act, 1920, empowers every Municipal Council to levy, among others, a property tax which expression includes a tax on buildings. Sub-section (2) of Section 81 of the said Act, provides the basis of the levy of the property tax shall be such percentage of the annual value of lands and buildings of both as may be fixed by the Municipal Council, subject to the provisions of Section 78. Section 35(a)(1) of the Coorg Municipal Regulation, 1907 empowers the Municipalities in Coorg to levy a tax on houses, buildings of lands situate within the limits of the Municipality, not exceeding seven and half per cent of the gross annual letting value of the houses, buildings or lands. Section 64(b)(1) read with Section 65(a)(iii) of the Mysore City Municipalities Act, 1933, which is in force in all the Municipalities except the Corporation area of Bangalore in the old Mysore area, empowers the Municipalities to levy a tax styled as "rate on buildings or lands or both" situated within the Municipality; though the basis of the levy is not specified in the Act, the actual levy is one the basis of the annual rental value of the buildings. The City of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is normally the actual rent. In some States, the annual value may not exceed the controlled rent. When the reasonable rental value cannot be ascertained, the annual value may be computed as a "percentage of the estimated replacement cost of buildings, less depreciation, plus the fair market value of the land. This method of assessment is sometimes used for theatres, hospitals, and railroad properties. The annual value of places of entertainment is sometimes estimated as a percentage of gross receipts. In all States, the value of property is determined without regard to encumbrances. Annual value is usually fixed for periods of from three to five years, although under the Bombay Municipal Corporation Act, assessments may be revised annually. Rates of Tax: The rates at which tax is imposed by Village Panchyats are relatively small and are generally subject to upper and lower limits fixed by the States. The rates of tax imposed by municipalities and municipal corporations are substantially higher; most of the rates fall between 10% and 30% of annual value. In those few instances in which the tax rate is applied to "capital value", the rate is normally a fraction of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 72 of the Report, the Committee have made the following reference to the development of institutions of local self-government in the Provinces; "We have alluded above to the development of institutions of local self-government in the Provinces. This allusion may furnish an opportunity of saying that though this subject did not come directly within the scope of our enquiry we are fully conscious of its great importance. Indeed, the progress of self-government in the Provinces of India will depend on the growth not only of responsible Governments at the top, but also of local self-governing institutions from the bottom from the village community or panchayat upwards. It is thus that the great mass of the Indian peasantry, constituting a vast majority of the people, whose welfare has been constantly in our minds during the whole course of our discussions, can be trained in those qualities of responsible citizenship which may hereafter entitle them to the full provincial franchise. These are matters upon which Indians must form their own conclusions; but we venture to express the hope that they will, from the first, give full attention to them." (64) For what reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc., enacted before the coming into force of Government of India Act, 1935, were continued and they are still in force. (66) Taking advantage of the legislative power to levy 'tax on lands and buildings' conferred by Entry 42 of the Provincial List of the Government of India Act, 1935, the Province of Bombay, by the Bombay Finance (Amendment) Act, 1939, levied for the first time in the history of India, a parallel tax on buildings and lands called 'the Urban Immovable Property Tax' at ten per cent of the annual rental value of such buildings or lands--Vide Section 22 of Bombay Act No. IV of 1939. Certain classes of buildings like those exempted in sub-section (1) of Section 3 of the Act, were exempted from the operation of the Bombay Urban Immovable Property Tax Act. The example of Bombay was followed by the Punjab Province, by enacting the Punjab Urban Immovable Property Tax Act, 1940 (Punjab Act XVII of 1940). Section 3 of the said Act levied an annual tax on buildings and lands situated in the Rating Area shown in the Schedule to the said Act at such rate not exceeding twenty per cent of the annual value of such buildings and lands, as the State Government may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, Ministry of Finance, New Delhi. Shri B. Venkatappiah, I.C.S., Executive Director, Reserve Bank of India, Bombay and Dr. B.K. Madan, Economic Adviser, Reserve Bank of India, Bombay. Sardar Indarjit Singh, lately Commissioner of Income Tax, Delhi, as Secretary to the Commission. (6) Report of the Taxation Enquiry Commission, 1953-54, Vol. I, P. 1-2--The terms of reference to the Commission which were settled in consultation with the State Governments were as follows: (1) To examine the incidence of Central, State and Local taxation on the various classes of people and in different States; (2) To examine the suitability of the present system of taxation--Central, State and Local--with reference to (a) the development programme of the country and the resources, required for it, and (b) the objective of reducing inequalities of income and wealth; (3) To examine the effects of the structure and level of taxation of income on capital formation and maintenance and development of productive enterprise; (4)To examine the use of taxation as a fiscal instrument in dealing with inflationary or deflationary situations. (5) To consider other relevant matters; and (6) To ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tendency to encroach has not, in point of fact, been widespread and as detrimental as has often been assumed. "11. Taxes reserved for utilisation by or for Local Bodies.--Under the Scheduled Taxes Rules, framed under the Govt. of India Act, 1919, the following were the taxes which were to be utilised by or for local authorities: (1) a toll; (2) a tax on land or land values; (3) a tax on buildings; (4) a tax on vehicles or boats; (5) a tax on animals; (6)a tax on menials and domestic servants; (7) on octroi; (8) a terminal tax on goods imported from a local area, save where such tax is first imposed in a local area in which an octroi was not levied on or before the 6th July 1917; (9) a tax on trades, professions and callings; (10) a tax on private markets; (11) a tax imposed in return for services rendered, such as: (a)a water rate; (b)a lighting rate; (c) a scavenging, sanitary or sewage rate; (d) a drainage tax; and (e) fees for the use of markets and other public conveniences." Examining these taxes, it is found that only in one State and in respect of one tax alone has there definitely been an encroachment to the direct detriment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional amendment is called for, we very strongly recommend to the State Governments that the taxes which we indicate below should be allowed to be developed only by the local bodies or for them, and that, where the State Governments are at present exploiting any of these taxes for appropriation to State revenues, they should gradually withdraw from the field, and meanwhile allot the proceeds from the taxes to the local bodies concerned. The State Governments must inevitably play an all important role in the development of local self-governing bodies. We are convinced that the recommendation we have made will secure, where it is now absent, an essential "prerequisite of that development, and express the hope that the recommendation itself will suffice, in the sense of commending itself to State Governments, and that, consequently, no amendment of the Constitution will even eventually be needed." xx xx xx xx 15. The taxes to be reserved for exclusive utilisation should be such as may, in fact, be devolved Recommendation regarding the on local bodies. In the result we recommend taxes to be Reserved that the following taxes should be reserved for in the sense we have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the recommendation of the Commission laid before the Houses of Parliament was that property tax on lands and buildings should be reserved exclusively for the utilization of local authorities, and that no parallel property tax should be levied on lands or buildings by the State and that, the States of Bombay and Punjab, which had already levied such parallel tax for State purposes, were recommended to withdraw those taxes gradually. (73) Despite the specific recommendations of the Finance Commission on the terms of reference made by the President and laid before the Houses of Parliament as provided under Art. 281 of the Constitution, the Government of the State of Kerala, when that State was ruled by the Communist Ministry, enacted the Kerala Buildings Tax Act, 1961, which was copied by the State of Mysore in the Bill as introduced in the State Assembly; but the Select Committee made the matter worse by making substantial alterations, to which I have already referred to. (74) What is the legal effect of the recommendations of the Commission laid before the Houses of Parliament, as provided under Art. 281 of the Constitution? Articles 280 and 281 are found in Chapter 1 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration had been exclusively reserved for the utilisation of local self-government. The Commission did not recommend for the amendment of the Constitution and considered that a 'convention' reserving the sources of revenue recommended in Paragraph 15 of the recommendations already referred to, would be sufficient. The Commission strongly recommended that though an amendment of the Constitution was not called for at that stage, that the taxes indicated in paragraph 15 which includes "taxes on lands and buildings, should be allowed to be developed only by the local bodies or for them, and that where the State Governments were then exploiting any of those taxes for appropriation to State revenue, they should gradually withdraw from the field, and meanwhile allot the proceeds from the taxes to the local bodies concerned. (75) The hope entertained by the Commission by the setting up of a 'convention' however, was defeated by States, like Mysore and Kerala. It is a matter of deep regret that under the pattern of our Government under the Constitution, if the Commission's recommendations laid before both the Houses of Parliament under Art. 281, when no objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission 1953-54, or they had no respect for the Constitution. (76) Whatever a non-statutory Committee, which had no legal status, might have said could have been ignored by the Court as unworthy of notice. But my greatest regret is that the same observations were incorporated in the Statement of Objects and Reasons in the bill introduced in the Mysore Legislative Assembly, by a Government which represents the people of the State. (77) Articles 280 and 281 of the Constitution, in my opinion, are intended for the purpose of achieving co-ordination in tax matters between the Union and the State Governments on the one hand, and between the States and the local self-governments on the other; recommendations of the Commission which are made periodically are intended to serve the said purpose. The Commission in Volume I of their Report at page 167, paragraph 70, have observed "that with the growing importance of public finance in our national economy, and the extent to which the Central, State and local constituents of the fiscal system are getting inter-linked, it is important to develop an integrated and national approach to problems of taxation and of expenditure, whether in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are modified, if could be violated by one or other of the States in the Indian Union, it will be subversive as a nation, we must have a strong national economy, for the promotion of which, co-ordination in tax matters between the Union and the State Governments on the one hand and between the States and local self-governments on the other, seems to me essential. (81) It should not be forgotten that we are expounding a Constitution. If each State looks to its own interest in disregard of the interests of the nation as a whole, what would be the result? Supposing the Union Government which has the exclusive jurisdiction to levy tax on income other than agricultural income, were to deny the States their share of the revenues in accordance with the recommendations of the Commission, what would be the reaction of the States? (82) Our Constitution makers advisedly did not provide an exclusive list of sources of revenue for local self-governments, for the obvious reason, that under the Federal scheme of Government, the sovereign power is distributed between the Central and the States; the State Governments are sovereign in their allotted field. One of the subjects over which the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether a statute is constitutional or not is thus always a question of power. A distinction, however, exists between a legislature which is legally omnipotent like the British Parliament and the laws promulgated by which could not be challenged on the ground of competency, and a legislature which enjoys only a limited or a qualified jurisdiction. If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked out by specific legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the legislature in a particular case has or has not, in respect to the subject matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers. Such transgression may be patent, manifest or direct, but it may also be disguided, covert and indirect and it is to this latter class of cases that the expression "colorable legislation" has been applied in certain judicial pronouncements. The idea conveyed by the expression is that although apparently a legislature in passing a statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out what was the mischief which the legislation aimed at." In 1960CriLJ671 the Supreme Court observed: "When the constitutionality of an enactment is challenged on the ground of violation of any of the articles in Part III of the Constitution, the ascertainment of its true nature and character becomes necessary, i.e. its subject matter, the area in which it is intended to operate, its purport and intent have to be determined. In order to do so it is legitimate to take into consideration all the factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy for the disease which the legislature resolved to cure and the true reason for the remedy; Bengal Immunity Co. Ltd. V. State of Bihar (S) [1955]2SCR603 ; R.M.D. Chamarbaughwala v. Union of India (S) [1957]1SCR930 ; Moti Das v. S.P. Sahi AIR1959SC942 . Another principle which has to be borne in mind in examining the constitutionality of ascertainment statute is that it must be assumed that the legislature understands and appreciates the need of the people and the laws it enacts are directed to problems which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Income Tax; (d) Capitation tax; (2) What is the subject of the tax. (3) What is the measure of the tax. Jerome R. Hellerstein in his treatise on 'State and Local Taxation' at page 18, has classified taxes into above four categories. (89) That the nature of the tax, as comprehended in Entry 49, List II is a property tax, is not open to dispute. The subject of the impugned tax is 'buildings' as defined in the Act. The measure of the tax is the total floorage area of all buildings owned by the assessee. (90) As observed by Sir Maurice Gwyer Chief Justice of India in Re Central Province and Berar States of Motor Spirit and Lubricants Taxation Act, 1938. "The grant of power may be qualified by either express provisions in the same enactment, by implication of the contract and even by consideration arising out of the scheme of the Act." (91) Property taxes on lands and buildings have an ancient origin. In Athens, the land tax was originally levied on gross produce, but it gradually developed into a property tax imposed not only on land and houses but also on slaves, cattle, furniture and money. Rome taxed many forms of personality as well as real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. The characteristic tax of the state and local tax systems of the United States is the general property tax. Property taxes began in colonial days as levies on specific forms of property, especially land and houses. The taxes were levied on capital value rather than rental value, but values were often determined by arbitrary measures. Land was often classified, for example, as woodland, pasture or arable lands, and the value per acres was the sale for all land of a given class. Houses were valued according to the number of doors, windows or chimneys. In the course of time, various classes of personal property were subject to taxation. The items selected--e.g. slaves, carriages, watches and clocks and money--were those that indicated unusual tax-paying ability. When these levies became numerous, they were combined in a single general property tax. The general property tax is a levy on all property; real and personal, tangible and intangible. Valuation of tax purposes is made by local assessors. The rate of the tax is determined annually by different taxing authorities, usually by the process of dividing estimated expenditures that are not provided for through other revenue sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t high levels. Property owners have sought protection from excessive taxes, through state legislation fixing the maximum rate than can be levied by the local authorities. These tax limits have been widely used but they have often proved arbitrary and have led to unbalanced local budgets or undesirable curtailment of local government services as well as to low tax rates. Much of the hardship suffered by property tax payers arises from inequalities in the tax. If real estate were assessed equitably, the tax would not be unduly burdensome in most areas. Equitable assessment would not, of course, make the tax a satisfactory measure of ability. However, approximately half of local expenditures are for street improvements, police and fire protection and other owners. Welfare activities, education and other functions which would not benefit property owners as such are supported in increasing measure by federal and state governments............." Local Taxation in England and Wales has been dealt with at pages 845-846. The relevant portions are: "LOCAL TAXATION IN ENGLAND AND WALES--- The sphere of local government in England and Wales, measured in terms of revenues and ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the jurisdiction of the local rating authority" Vacant property is exempt from the rates in England and Wales. In Scotland, half of the tax is levied on the owner and half on the occupier. The owner's share is levied on his property whether it is occupied or not. The occupier is assessed on rental value, which is usually determined by the actual rent paid for the specific property or similar properties. According to the Rating and Valuation Act of 1925, (Sec.68). "gross value means the rent of which hereditament might reasonably be expected to let from year to year if the tenant undertook to pay all usual tenant's rates and taxes, if any necessary to maintain the hereditament in a state to command that rent." Specialized owner-occupied properties must receive special treatment. These are mostly business properties and the valuation is related to profits. Machinery is exempted. Provision was made for valuations every five years under the Rating and Valuation Act 1925 but actual changes in value became comparatively infrequent. This Act did not change methods of valuation materially, but it attempted to secure uniform valuations throughout the countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries"--Description of Taxes on Capital". It states: "The taxes summarized in this chapter are the "land tax", local taxes on real property ("rates"), mineral rights duty", and "estate duty". Purchase tax, stamp tax, excise taxes and customs duty are summarized in Chapter 4...... It is characteristic of the taxes discussed here with the exception of estate duty, 'that they are measured by the rental value of property rather than by its capital value, for it is a general principle of taxation in Great Britain that a direct tax should fall upon the income of an asset rather than the asset itself. Thus "rates", which are levied for the purpose of defraying expenses of local government, are applied to the annual rental value of occupied real property'." (95) At page 67, under the head "Local Taxes on Real Property"--"Rates", after stating the historical background, it is observed thus: " "Rates" are local taxes levied for the purpose of defraying the expenses of the local government. The rental value of property provides the tax base', but rates are recoverable only aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as follows: "BASIS OF THE TAX. In many countries, the tax on buildings is combined with the tax on land. In such cases, the building is usually regarded as an adjunct of the land, or, more precisely, as an improvement of the land on which it is built. This theoretical construction has, however, been made obsolete by the fact that the increase in urban construction and the consequent development of the industry of building houses for rental purposes have made it impossible to regard the value of the building as an adjunct of the soil. Hence, in some countries--as in Italy--the tax on building is no longer discussed from the standpoint of its analogies with the tax on land, but is discussed rather from the standpoint of the differences that distinguish the two types of tax; and thus it is possible to examine separately the tax problems involved, in accordance with the true facts of the situation. According to Italian law, which may be taken as typical of law which regards buildings as a separate object of taxation, the subject of the tax is the owner of the building, or the occupant, or the one having the use of it; the objects of the tax are buildings and all other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the principles of public finance, of the taxation on buildings has been dealt with by the learned author. Therein, he has stated that a residence is a consumer's goods; it is not a capital goods; it is therefore product or an income, and the tax may fall on the value of the house, but not on the income from the house--that is, on the income from an income. He further states that a residence is treated as capital and its rental is treated as income. He makes a distinction between residential buildings and shops on the one hand and factories, workshops, and farm-buildings on the other as constituting a distinct class. In the case of factories, farm-buildings and workshops etc., they are not consumer's goods in the economic sense, but capital, which produce income by the production of goods or agricultural products. Therefore, in several countries like Italy, factories, workshops and farm-buildings are exempt from building tax. (98) In the Kerala Buildings Tax Act, 1961, factories and workshops are exempted. In the original Bill introduced in the Mysore Legislative Assembly, factories and workshops were intended to be exempted, but, the Select Committee deleted that exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port, referred to the three modes or basis of levy of property tax on buildings, viz., (a) annual value of lands or buildings, (b) capital value and (c)plinth area taken with the type of construction, as under the Madras Rules referred to above. The Report of the Commission, after discussing the merits of the three bases recommended: "that the annual value, based on the rent as which properties may reasonably be expected to be let, as at present interpreted in practice should be the normal basis of the levy of property-tax subject to the basis of capital value being adopted in special cases of the type already noticed. With regard to properties of a class not ordinarily let or where the annual rent cannot be estimated, a percentage, not less than five per cent of (a) the estimated cost of construction of the building at the time of assessment (less a reasonable deduction on account of depreciation) plus (b) the estimated value of the site, may be taken as the annual rental value." I have already referred to the value to be given to the recommendations of the Commission laid before the Houses of Parliament under Art. 282 and not objected to by the States. (100) From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument also appears to us to be based on unwarranted assumptions. The mere fact that the word 'hearths and windows' occur along with the words 'lands and buildings' in Item 42, does not indicate that they must all unnecessarily read together, and that the tax on lands and buildings must be of the same nature and incidence as the tax on hearths and windows. It is quite conceivable that the tax on buildings may be levied on the owner, whereas the tax on hearths and windows may be levied on occupier and vice versa. The correct position has, in our opinion been summed up very lucidly by the learned Chief Justice of the Lahore High Court in the following passage in his judgment : 'It may well have been the policy of the British Parliament to tax occupiers of lands and buildings, etc., and not the owners. In each of the Acts referred to by Mr. Narotam Singh the tax was in terms imposed upon the occupier. The fact that it was the policy of the British Parliament to tax occupiers cannot be used to construe the words appearing in Item 42. It appears to me that if Parliament when enacting the Government of India Act intended Provincial Legislatures to tax occupiers only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy noticed. Article 306(28) defines taxation thus : " 'Taxation' includes the imposition of any tax or impost, whether general or local or special, and 'tax' shall be construed accordingly." Thus, it would be seen, that 'Rate' as mentioned in the Bombay Municipal Boroughs Act, 1925, and similar Acts, means tax coming within the ambit of Entry 49 of List II. It may be relevant to note that even under the Governor-General's Devolution Rules, the word used is 'tax' on lands and buildings which impost was reserved for the exclusive utilisation of Local Boards. In my judgment, the word 'taxes' in Entry 49 of the State List, having regard to the historical origin of the taxes on lands and buildings means nothing more or nothing less than 'rate' as construed by the Supreme Court in [1964]2SCR608 . I am not unaware of the observation, in the majority decision in that case, that, if the word 'taxes' had been used in Section 73 of the Bombay Municipal Boroughs Act, 1925, Rule 350-A read with Rule 243, the legality of which had been questioned in that case, may be intra vires. Any observation of the Supreme Court is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o impose taxes on lands and buildings, hearths and windows, 'without reference to who has to pay such taxes.' " (Underlining (here into ' ') is mine) (106) The power is to levy a charge to tax on a building without reference to who has to pay such taxes. If the quantum of the tax is made to depend on the number of buildings owned by the assessee in the same Rating Area, the charge created by the impugned Act is open to the same objection as the mode of computation of compensation in the Kerala Agrarian Relations Act, 1961, struck down by the Supreme Court, where the amount of compensation did not depend upon the value of the land acquired, but on the quantum of the property which the owner was deprived of. The Supreme Court held that such mode of payment of compensation violated Article 14 of the Constitution--Vide Karimbil Kunhikoman v. State of Kerala, AIR1962SC723 . (107) In my view, there is no difference in principle between the amount of compensation varying with the quantum of the property owned by the assessee, and a property tax on buildings levied on a progressive scale according to the number of buildings owned by the assessee in the same Rating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the State are property taxes coming within the scope of Entry 49 of the State List. If the State intended to levy property tax in exertion of its power under Entry 49, where was the need for the impugned enactment without repealing the provisions of the Municipalities Act? If the intention of the Legislature were to levy a charge to tax on lands and buildings, all that was necessary was to enact a uniform Municipalities Act for the New State of Mysore and prescribe any rate within the Legislature thinks reasonable on the basis of the annual rental value. The very fact that a separate Act, as the impugned Act, was enacted to levy tax for state purposes, in my opinion, shows that the intention of the legislature really was to take a part of the wealth of the Urban property owners in the State. Therefore, it is a colorable piece of legislation. The name given to the tax and the apparent cloak or veil put on the statute cannot deceive the Court. The real pith and substance of the Act is a 'capital levy', and therefore, the impugned Act, in my judgment, is unconstitutional and hence void. (112) Re. Articles 14 and 19: The learned Advocate General has strenuously urged that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, and that history teaches us that democracy and an independent judiciary are one and inseparable..... Show me a country where Judges are faithful to the popular will rather than to the Constitution. It will not be a democratic country worthy of the name.' (114) In Gray v. Sanders (1963) 372 US 368, the Supreme Court of U.S.A. rendered a decision requiring the State Legislatures to be reasonably representative of the people they are supposed to represent but do not. This decision was intended to repair a flaw in the structure of the Government which had been getting worse almost since the founding of the Republic. The flaw derived from the powers of legislature to fix the boundaries of Districts from which their own members are elected. As population shifted from country to City, these boundaries tended to remain unchanged or very little changed. The result was that the few voters in country districts could send too many representatives to State Houses and the many Voters in the city districts too few. This gave country legislators disproportionate power, which they used to resist changes in apportionment of voting districts and thus to preserve their own dominance. (115) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes are often not taxes within the legal definition of the term. Taxes are the enforced proportional contributions from persons and property, levied by the state by virtue of it sovereignty for the support of government and all public needs. This definition of taxes, often referred to as "Cooley's definition", has been quoted and indorsed, or approved, expressly or otherwise, by many different courts." P. 64-65. "Taxes are supposed to be regular and orderly, and they are commonly required to be paid at regular periods. They differ from the forced contributions, loans and benevolence of arbitrary and tyrannical periods. In that they are levied by authority of law, and by some rule of proportion which is intended to insure uniformity of contribution and a just apportionment of the burdens of government. In an exercise of the power to tax, the purpose always is that a common burden shall be sustained by common contributions, regulated by some fixed general rule, and apportioned by law according to some uniform ratio of equality. So the power is not arbitrary, but rest upon fixed principles of justice, which have for their object the protection of the taxpaye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute mal-apportionment and result in arbitrariness and inequality. (121) The only factor taken into consideration by the impugned Act for the purpose of apportionment is the size of the building, in disregard as to its age, location, rental value or capital value. What is material to the assessee, who is the owner of the property, is the present value of the property at the time of the assessment. That is a cardinal principle in the matter of valuation of premises for ratable purposes and that is stated in the Latin maxim rebus sicstantibus i.e. as they exist at the date of the valuation. Abdullabhai Lalji v. Executive Committee, Aden ILR 42 Bom 692 at p. 706: at p. 202). That is also the principle stated as early as 1886 by the High Court of Madras in Secy. of State v. Madras Municipality ILR 10 Mad 38 at p. 42, by a Bench which consisted of Mr. Justice Muttusami Ayyar, one of the greatest Jurists our country has produced. The value or the reasonable rent which a building would fetch depends upon a number of factors viz., the nature of the property, its local situation the demand for the building etc. The Queen v. London and North Western Rly. Co. (1874) 9 QB 134: (122) The im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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