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TMI Blog1968 (4) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ing section (Section 3) as violative of Article 14, and in consequence, held that the entire Act was void and unenforceable. Upon the present measure, arguments have been submitted before us, at considerable length, and covering a wide range of precedents and authorities. 2-3. I have had the advantage of perusing the judgment of my learned brother (Veeraswami, J.) in which every aspect of the matter in controversy has been dealt with, and analysed, exhaustively, and at length; also. I am in entire agreement with his conclusions. For these reasons, I have debated within myself whether I should deliver any separate judgment. But I have been impelled to do so, on one important ground. The arguments before us do not merely cover the present enactment; they have a wider significance, as attaching to the true interpretation of Entry 49 of List II of the Seventh Schedule of the Constitution, and have considerable potentialities for the future. Again, both the arguments on legislative competence and the assault on the measure upon the combined effect of Article 14 and Article 19, now that the Emergency has been lifted admit of several perspectives of approach. For these reasons, I am expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is concurrent jurisdiction. Article 39, clause (c), is a directive principle that "the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment". Article 366(9) contains a definition of 'estate duty', with reference to the principal value. Entry 82 of List I (Taxes on income), Entry 86 (Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies........) and Entry 88 (Duties in respect of succession to such property), from according to Mr. Chari, a constellation of Entries, of very considerable significance. Actually, these are not merely powers of taxation, in the restricted sense of an impost that could be levied by the Legislature, for the purpose of revenue they comprise an adumbrated scheme, by which the great principle of Article 39(c) is to be effected for the Nation. The Union reserves a power, to tap or take away accretions of wealth, where these are so vast as to threaten to disturb the economy to be achieved on a Socialistic pattern., Such increases are taken away, either as capital gains tax under Entry 82, or in the form of wealth tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscusses taxation as a 'power to destroy', that is, to sterilize the assets. 'Capital levy', according to Kaldor and other Experts, is a single and total impost on wealth, or a proportion of wealth. generally caused by some emergency. With great respect to Chagla C. J., who appears in Duggan's case, , to treat 'capital value of assets' as equivalent to 'capitalised value'. I think that they have to be clearly distinguished. Mr. Balasubramaniam has placed before us some valuable excerpts on the etymology of the word 'assets' and it is car that this expression in the plural, signifies the total wealth of the individual, in the sense of 'net wealth', measured in terms of exchange value. 'Capitalized value' on the contrary is a mode by which, whether modes fail or are not practicable, the exchange or market-value is ascertained by a capitalization of income, at so many years' purchase, with the multiplier generally depending on the rate of interest on gilt-edged securities, Actually, even Experts in Economic Theory find it very difficult to distinguish between the incidence of a tax, whether it falls on capital or on incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language is not express and plain, and a problem of construction arises. The dicta of Lord Herschell in Bank of England v. Vagliano Brothers, (1891) AC 107 to the effect that an appeal to earlier decisions "can only be justified on some special ground", were cited and followed. But in this matter of resort to prior legislative history, I do not think that too strict a view can be taken, for an important reason. The question whether the words are so plain and unambiguous, as they may seem at the first blush, or do conceal some difficulty in interpretation, may itself become controversial; in which case, the exclusion of all resort to legislative history, may involve the fallacy of a circular argument. As stated by Murphy, J., in Harridan v. Northern Trust Co., (1942) 317 US 476 = 87 law Ed 407 "words are inexact tools at best, and for that reason there is wisely no rule of the law forbidding resort to explanatory legislative history no matter how 'clear the words may appear on superficial examination'." My own view is that legislative history, particularly with regard to construction of an Entry which embodies a power, is always relevant, and frequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper interpretation, the Entry clothes the State Legislature with the power to tax the capital value of lands and buildings. Before proceedings to furnish my reasons for these conclusions, I shall refer to the case-law on this subject, somewhat briefly, in view of the extensive treatment of this by my learned brother (Veeraswami, J.) and to the documents of the Legislative history namely, the Devolution Rules, 1920, Schedule Taxes Rules, and White paper, 1931, placed before us by Mr. Balasubramaniam as well as the Government of India Act. 12. I might first refer to Byramjee Jeejeebhoy v. Province of Bombay, AIR 1940 Bom 65 (FB). This decision held that the Bombay Finance (Amendment) Act, 1939, was intra vires the State Legislature, and was valid. Beaumont, C. J., held that the impugned measure was not a tax on income, and, although it was a tax on lands and buildings, it was not a tax on the capital value of the lands and buildings. Broomfield, J., also distinguished the measure, as not within the mischief of item 55 in the Federal List Ralla Ram v. Province of East Punjab, 1948 FCR 207 = (AIR 1949 FC 81) upheld the validity of the Punjab Urban Immovable Property Tax Act, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only exhibits the feature that, so farm Entry 49 of List II has largely been utilized for taxation of lands and buildings for Local or Municipal purposes, on the lines of rate legislation in England and here as some portion or share of the annual yield or letting value. This does not show that the Entry or rather the width of its amplitude is confined to enactments of this mind alone. 13. The two decision that have been cited by learned counsel on this aspect of the arguments are, again, not decisive at all of the issue. In New Manek Chowk Spinning and Weaving Mills v. Municipal Corporation. their Lordships looked into the legislative practice with regard to the question whether the word land would include plants and machinery as part of the hereditament. The interpretation sought to be based on practice in the United Kingdom was repelled. In Diamond Sugar Mills Ltd. v. State of Uttar Pradesh, , the question arose with regard to the interpretation of the words local area in Entry 52 of List II of the Seventh Schedule. It was held that the premises of a factory could not constitute such a lock area within the meaning of the Entry. These decisions merrily emphasize that legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat ever between Entry 86 of List I and Entry 49 of List II as precise differentia can be set forth. I am unable to accept the suggestion put forward by Mr. Chari, that Entry 86 of List I might conceivably, include a power to tax the entire assets of an individual without making any deductions for liabilities, such as mortgages, encumbrances or debts. Such a view would render the expression capital value of assets devoid of true meaning, in the sense of the logic of economic theory. if the burden extinguished the corpus of wealth, as my learned brother(Veeraswami, J.) has pointed out, there are really no 'assets' lift. Per contra, Entry 49 has nothing whatever to do with the individual or his wealth the tax runs with the land, as in this case, and the encumbrance on the land is irrelevant Even if the Union Legislature segregates for taxation a portion assets, such as a land and its building under Entry 86 that would be a different base of fiscal power, and a wholly different tax, Again the tax under Entry 79 could eventful onto occupier of the land, and not merely on the owner. Next I would unhesitatingly interpret Entry 49 as including a legislative competence to tax the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . I would content myself with the observation, that it may no longer be practicable to draw any firm dividing line, between the concerns of Local Bodies and Municipalities and of the State Government. The State Government may take over several projects, such as Electricity or Water Supply undertakings, which were run by Local Bodies and may allocate finances to such Bodies out of its own revenues. 18. I now proceed to notice a very interesting argument. My. Vednatachari urged, with a background of considerable scholarship in this field, that the measure before us really falls under Entry 45 of List II namely. 'Land revenue' in which case, quite different consequences, would follow as restricting the powers of the State Legislature We have been referred to Gopalan v. State of Madras 1958-2 Mad LJ 117 = (AIR 1958 Mad 539), and to the discussion in that decision on the history of land revenue'. WE have been also referred to the genesis of Khirai-free or 'Lakhiraj lands, to the Permanent Revenue Settlement, and to passages from Mclean's Manual of the Administration. In order to show the source of Article 276 of the Constitution. Mr. Vedantachari has made available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areas in recent years. Strong opinions have been repeatedly expressed that, these are accretions of wealth due to general economic causes, and not to individual exertions, which do constitute, a fruitful source for equitable taxation. But in my view the argument conceals a fallacy to overlook which may be to perpetrate substantial injustice. It is true that building values and turban site values have sharply accelerated in recent years, owing to inflationary trends. It is true that persons possessing large areas of urban land, have found themselves richer by many multiples of wealth, owning to economic causes alone. But it is equally true. that may of the properties are merely properties with a few grounds of land and a building thereon, which have been acquired out of savings, by members of the middle class. They represent investments of hard-earned money, probably actuated by the belief that real estate' may further appreciate in value, while the purchasing power of money probably actuated by the belief that real estate' may further appreciate in value, while the purchasing power of money is continuously declining. In no sense can these investments be termed unearned incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dixit, C. J. observed, nevertheless, there are limits to taxation, and the Courts cannot accept any theory that taxation can be unlimited. The entire reasoning is somewhat academic, with regard to the present enactment, for Mr. Chari is not able to show that, granted legislative competence. the Act before us has to be struck down as 'confiscatory' in character. He has no doubt stressed its undesirable features which, in practice, would appear to lead to startling anomalies. But in respect of the charging provision itself, it is difficult to see how the combined impact of Article 19 and Article 14 necessarily destroys that provision. The mischief occurs elsewhere, as I shall presently show. 21. In view of the importance of the argument that Entry 49 of List II does no include the power to tax the capital value of lands and buildings, in any from, I would like to distinguish between the power itself, and the present enactment. In my view, the power is what I have held it to be and it cannot be confined either to rates legislation' or to taxation on annual letting value or yield, though legislative history or practice so far has been so confined, But, actually the Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it appears to me, is quite unsustainable, in the form in which it stands, I must first refer to State of Madras v. V. G. Row , particularly for the view that, "though the social philosophy and the scale of values of the Judges participating in the decision should play an important part" in evaluating what would be 'reasonable under Article 19(5) nevertheless since the majority of the elected representatives of the people have authorised the restrictions. the judiciary must necessarily keep this in mind, before striking down any part of the Act under Article 14. I may also refer here to Balaji v. Income-tax Officer, AIR 1962 SC 552, Chhotabhai v. Union of India, , Khyberbari Tea Co, v. State of Assam, and Jawaharmal v. State of Rajasthan, . 24. But, bearing all these principles in mind, it nevertheless seems to me to be indisputable, that Section 6 of this Act is an excessive delegation of a power which is bound to work, in the circumstances in a most arbitrary and capricious manner. It is no answer to this argument to point out, as has been done, that the owner of the land has to submit a return, including his opinion of market Value, under Section 7, that the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fair rent fed under Section 4 of that Act, the result is that any reasonable proportion of the annual letting value, may b e far less than the 0.4 percentage of the market-value determined with regard to the entire area, the tax could be more than the annual yield it self Mr. Chari has illustrated these startling anomalies by several instances as my learned brother (Veeraswami. J.) has pointed out. It may, perhaps, be stated that all this is the complication arising from the machinery and does not touch any part of the enactment itself. It could be argued that appropriate Rules can still be framed, and that though the authorities would appeal to have abandoned the method of capitalisation of annual letting value, as a means of estimating the market value, safeguards could still be provided. But the point is the Section 6 really appears to impose, on the concerned Assistant Commissioner, a task which is so impracticable, that the power becomes utterly arbitrary and capricious. The difficulty is illustrated form the following passage in "Public Finance" by U. K. Hisks (pages 174-176): "The difficulty about site valuation lies on the side of the actual valuation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutional limits. This part of the Act must necessarily be re-enacted, in my view, providing for differentia or criteria for any estimate, which could well be related to the annual letting value or yield, which is perfectly ascertainable. In fact, Mr. Chari has even argued that the Corporation figures of such assessments are binding on the Government, on the principle of res judicata. 28. Concerning the retroactive provision, I do not desire to differ from my leaned brother (Veeraswami J.) in his view on this question. But I would add that where, as in this enactment, the assessments so far made are found to be arbitrary, capricious and unsustainable, because they have been made under Section 6, which has to be struck down, it appears to me that a retroactive provision of this kind could hardly be justified. 29. In conclusion, I desire to record my own sense of indebtedness, and on behalf of my learned brothers also, to all the learned counsel and the learned Advocate-General, who have spared no pains to make a study of available material and precedents and place them before us. In course of the extended arguments. Veeraswami, J. 30. The validity of the Madras Urban Land T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of varying extents of urban lands with or without buildings on them in the City of Madras, Their market prices also vary in each case and so too their annual Municipal letting values. Some of the petitioners have filed returns and others have not, giving particulars as to ownership, extent of the land with its location and the amount which, in the opinion of the particular owner, is the market value of such land. The Urban Land Tax Officers have in these cases either assessed the market value of the urban land concerned and sent a notice of demand of tax or proceeded by notice to inform owners to show cause against the proposed fixation of the market value. In non of the cases of urban lands with buildings assessed to Corporation Property Tax, have the authorities under the Act determined the market values of the urban lands by means of capitalisation at so may times of the annual Municipal letting value thereof. In a few of such cases, the market values of the urban lands including built-up sites have been arrived at on the basis or comparative basis of the contractor's method but as applied sometimes to another property consisting of land and building sold together. As ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and require no reiteration. The outstanding difference between that Act and the present one is in the measure of the urban land tax. Whereas the earlier Act the present on is in the measure of the urban land tax. Whereas the earlier Act changed tax on urban land at the rate of 0.4 per cent on the average market value of such land in a sub-zone as determined by the procedure prescribed thereunder and the Act was struck down as violative of the principle of equality, the Act under consideration with a view apparently to avoid that defect charges the urban land at the same rate of 0.4 per cent of the market value thereof and has dropped the provisions relating to be classification of the entire urban area into distinct zones and sub-zones and the elaborate procedure prescribed for arriving at the average market value on that basis for the purpose of levy of tax. The Act, which received the assent of the President on September 9, 1966 and was published in the Fort St., George Gazette Extraordinary as on the next day, replaced the Madras Urban Land Tax Ordinance, 1966. It bears the same preamble as the earlier Act and contains eight Chapters of which Chapters I, II and VI to VIII are mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site on which any building has been constructed shall be deemed to be urban land." Section 3 and 4 relate to Urban Land Tax Authorities, conferment of powers on then and Constitution of Tribunals. Each Tribunal shall consists of one person only who shall be a Judicial Officer not below the rank of a Subordinate Judge. The charging Section 5 reads: "Subject to the other provisions contained in this Act, there shall be levied and collected for every fasli year commencing from the date of the commencement of this Act, a tax on each urban land (hereinafter referred to as the urban land tax) form the owner of such urban land at the rate of 0.4 per centum of the market value of such urban land." The next section providing for determination of the market value of each urban land states: "For the purposes of this Act, the market value of any urban land shall be estimated to be the price which the opinion of the Assistant commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold the open market on the date of the commencement of this Act." Then follow provisions for submission of return by every owner or urban land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedure therefore for notice to the particular land owner. The Act takes into account the existing tenures as regards urban land and provides that the urban land tax payable thereunder in respect of any urban land is in lieu of the ryotwari assessment, the assessment levied under certain Madras Acts relating to specific inams, the ground rent, the quit rent or any amount due under the Madras City land Revenue Act, 1851. Specific provision is made that the urban land tax is in addition to any tax on urban land payable under any other law for the time being in force. The Government is given the power to specify that urban land tax under the Act shall be in lieu of any other amount. The Government also has power to exempt or reduce urban land tax in respect of any class or urban lands or by any class of persons on ground of undue hardship and for this purpose, it may cancel or modify any order of assessment to urban land tax. Certain types of urban lands with reference to their corporate or public ownership or the nature or purpose of their uses have been exempted from the purview of the Act. There are two special provisions in the Act which are of a concessional character. One of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a measure with reference to which the rate of tax to be imposed is fixed. It does not charge the building on the urban land but leaves it out of its purview. Machinery provisions usual in any fiscal statute to effectuate the charge, namely, provision for returns, assessment and collection of tax, exceptions, exemptions, remedies and rule-making power are also found in the Act. That the subject-matter of the tax is the urban land itself is clear not only from charging section but also from certain other provisions of the Act. For instance Section 17 makes urban land tax to be a first charge on the urban land. Section 23 which makes urban land tax to be in lieu of certain taxes, Section 29 which exempts certain classes of lands from the purview of the Act and Section 22 which deals with survey of urban lands also confirm the position. In fact there has been no controversy before us that the tax imposed under the Act is on the urban land qua such land. The act judge from its charging and machinery provisions would, therefore, appear to fall squarely within the ambit of Entry 49 of the State List which is "Taxes on lands and buildings." 35. But it is argued that the Act is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relative and controlled by the scheme of distribution of legislative power contemplated by Art. 246 of the Constitution. The non obstante clauses in Art. 246(1) and (2)show that parliament's power to make laws with respect to any of the matters enumerated in the Union List is exclusive not withstanding anything contained in clauses (2)and (3) of the Article. With respect to any of the matters mentioned in the Concurrent List, both Parliament and the State legislatures have power to make laws, but the Parliament and the State legislatures have power to make law, but the parliament can exercise such power notwithstanding anything in clause (3) and the State Legislature can do so only subject to clause (1) of the Article. The exclusive power of a State Legislature to make laws with respect to matters in the State List is, however, subject to clause(1) and (2) of Art. 246. Though the legislative fields under each of the Lists are thus mutually exclusive, it is so in the related sense indicated in Art. 246. While the scheme of distribution is on a disjunctive basis and is complete in itself, in the nature of things it is possible there is interlacing or overlapping of the fields ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n what degree, and to what extent, authority to deal with matters falling within these classes of subjects(mentioned in the Central and Provincial Lists) exists in each Legislature and to define, in the particular case before them, the limits of their respective powers. It could not have been the intention that a conflict should exists; and, in order to prevent such a result, the two Section, us to be read together, and the language of one interpreted, and, where necessary modified by that of the other. In this way, it may, in most cases, be found possible to arrive at a reasonable and practical construction of the language of the section so as to reconcile the respective powers they contain and given effect to all of them. In performing this difficult duty, it will be a wise course for those on whom it is thrown to decide each case which arises as best as they can, without entering more largely upon an interpretation of the statue than is necessary for the decision of the particular question in hand." Attorney-General for Ontario v. Attorney-General for Canada. 1912 AC 571 is mentioned and this has also been noticed by the Federal Court: "In the interpretation of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate should be looked into on a comparative and contrast basis. In doing so, full scope and effect must be given to each Entry in the organic statute and that construction most beneficial to the widest possible amplitude of each of the enumerated powers should be applied. The cardinal rule of interpretation of the Entries, as of any statue, is that the grammatical and ordinary sense of the words is to be adhered to unless that course would lead to absurdity, repugnancy or inconsistency. In such a case, the grammatical and ordinary sense of the words must give way to a restricted or legalistic meaning to be decided by courts. Once the scope of legislative power under an enumerated head in the List is fixed, the question of competence of a legislation is approached with reference to the pith and substance doctrine. That is to say, in deciding whether a particular statute falls and does not fall within the ambit of a given head of power, we should find out the pith and substance or the purpose or the object of the legislation. The true intention and purpose of a legislation can also be determined from its legal effect." Bearing these principle of interpretation in mind, we have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in money commodities, etc., for something soldier exchanged; fair price; worth of a thing in money or goods at ascertain time; market price. the equivalent of something in money, as for instance, she lost jewel to the value of four thousand dollars. In Eric L. Kohler, a dictionary for accountants, "assets'' in singular is defined as'' any owned physical object or right having a money value, an item of its costs, depreciated cost or less frequently some other value.'' The Author differentiaties "property'' form "asset'' and days that the latter means any balance-sheet item and is usually associated with costar the portion thereof recognized having a more restricted application is more often applied to items transferable between person, any right to issue and benefit is being safeguarded and governed by abode of law. It is further pointed out by him that accounting conventionally recognizes certain sources of wealth as assets but not other, typical examples for the former being cash, investments, claims, materials, supplies, goods in process of manufacture or for sale, land, plant assets, prepaid and trade-marks; an item of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature of a State relating to the duty, of all property passing upon death or deemed, under the said laws, so to pass. The Entry read with this definition clearly contemplates a duty imposed (1)on the principal value ascertained in the prescribed manner and (2) of the entire property passing upon death. The definition also indicates the taxable event. What is important to not is that the principal value of all property in the aggregate is the subject-matter of taxation. Taxes on income other than agricultural income which is Entry 82 of the Union List have also their incidence on the agregate income, because the concept oft6ax on in ome is that it is a tax on the to totality of the income from all sources, such agregate income being the subject of taxation. 38. Entry 49in List II. "Taxes on lands and buildings'', notwithstanding the plural used contemplates on the other hand, a tax on lands and buildings as units in contrast to Entry 86. Tax under entry 49 is on lands and buildings qua lands and buildings. I6 is true that lands and buildings of an individual may be included as part of his total assets and go in to the computation of the capital value of his assets f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax, while it authorised such a measure in respect of agricultural lands. Further, if agricultural lands are to be excludes from, the purview of Entry 49, this will lead to a lacuna, because there will be no provision in the State List for taxation on agricultural lands corresponding to Entry 86. A perusal of the tax Entries in lists and shows that wherever agricultural lands or income is excluded form the purview of the Entries in List I, they are brought within the purview of List II. We are inclined to think, therefore, that this is another reason why we should hold that the State Legislature under entry 49 is not prohibited from levying tax on the market value of lands and buildings including agricultural lands. As a matter of fact, the tax Entries in the Lists refer to the subject-matter of taxation and sometimes point to the individual on whom the tax is to be imposed or the taxable even but not the measure or manner of taxation. See Mathuraj Pillai v. State of Madras, . As we said, we are not persuaded to read capital value or principal value as but a measure and not the subject-matter of taxation. it is try that assets for purposes of Entry 86 may include urban lands and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry bet inequitable standard which was not dependent either on the income of the assessed or on the capital value of the properties. The learned Judge pointed out that the power to impose tax on lands and buildings meant power to impose tads on persons, owners or occupiers as the case might be in respect of those properties, that no limit was prescribed as to the amount of tax which might be imposed and that as to the character of the tax or method of assessment the only restrictions, or the only ones which concerned the Court, at any rate, were that the Provincial Legislature could not tax income or capital value by reason of items 54 and 55 in the Center List. As to the scope of Entry 55, Broomfield. J. said: "It was rather faintly suggested that if the impugned tax is not a tax on income it must be a tax on capital and within the mischief of item 55. What is meant by the capital value of assets in that item is by no means clear, and the argument threw little light on the matter. It may be what is intended is a tax on the total value of assets in the nature of capital levy. In any case the measure of the capital value of assets would appear to be the market price. That woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and buildings without taking into consideration the capital value of lands and buildings." The learned Chief Justice refused to accept the contention that Entry 55 authorised imposition of a tax such as would affect the total assets of an individual or a company and expressed the view that if the Legislature could impose a tax on all the assets of an individual or a company and assess a tax on the full value of the assets, there was no reason why the Legislature could not do something much less than that, namely, impose a tax only on the some assets and not on the full value but on a value arrived at after certain deductions. The question which the learned Chief Justice was the considering was whether the provision imposing income-tax on capital gains made by the Income-tax and Excess Profits Tax (Amendment) Act of 1947 was ultra vires which he answered in the negative. Gajendragadkar, J., as he then was, was not prepared to accept in the view of Chagla, C. J., "With very great respect, I am unable to agree with this last observation. It is clear that the scope of Entry 42 in List II was not argued fully before the learned Chief Justice and, in fact, the Court was not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility under the charge is a matter independent of the charge itself and is but incidental or ancillary to it. The tax under Entry capital value of the assets of individuals and companies or on the capital of companies. This is not a tax on the asset itself but on its capital value of the assets for,. if the assets are encumbered pro tanto they cease to be assets. In ascertaining the capital value or the economic value of the assets. therefore deductions will necessarily have to be allowed of the value of encumbrance of such asset. Further the tax under entry 86 falls on the owner 'of the assets which is clear from the words used 'of individual and companies', and not occupiers. In some decided cases, the view has been expressed that the subject-matter of taxes under Entry 86 is the value of the totality if the assets. In our opinion, if we may say so with respect, that is the correct view to take. We are not persuaded by the contention that because under the General Clauses Act plural includes singular, even on of the assets of an individual can be taxed on its capital value under the Entry. The economic value of the assets of an individual is not and cannot be the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of their annual letting value was held to be not income-tax. It was on a parallel reasoning again income-tax. See C. Rajagopalachari v. Corporation of Madras, ." After hearing arguments at the Bar over again, far from being persuaded to take a different view, we are satisfied that the view expressed in 1966-2 Mad LJ 172 as to the scope and ambit of each of the entries 86 in the Union List and 49 in the State List is the correct view and should be confirmed. It may be mentioned that subsequent to 1966-2 Mad LJ 172 one of us sitting with Ramaprasada Rao. J. expressed a similar view in Rajah D. V. Apparao Bahadur v. First Wealth Tax Officer, W. P. Nos. 1252 to 1255 of1963, D/- 25-1-1969 (Mad) as to the scope of the two Entries. Reference judgment of Sarkar. J. in in which the learned Judge expressed his view thus: "In my view the Bombay Act imposes a tax on lands and is, therefore, within item 42 of List II. The fact that it has provided for the tax being quantified on the basis of the capital value of the land taxed does not take it out of item 42 of List II and place it under item 55 of List I. It is quite obvious that in providing the two items, namely, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Entries but proceeded on the special meaning of the word "rate'' in connection with the Municipal; Property Tax. the Majority judgment, referred to the amendment in 1930 by insertion of sub-section (3) to Section 81 of the Madras District Municipalities Act, 1920 which authorised levy of tax on lands not used exclusively for agricultural purpose and not occupied by or are adjacent and appurtenant to buildings such percentages of the capital value of such lands or at such rates with reference to the extent of such lands amendment after the Government of India Act, 1935 and the Constitution of India had come into force. 41. Mr. Tiruvenkatachari suggested four possibilities of construction of Entries 86 in List II: (1) Entry 49 may include a tax on capital value of lands and buildings and being a special Entry, it is excluded from the scope of Entry 86: (2) Under both the Entries there can be tax on capital value and such a taxation under Entry 49 does not infringe Entry 86: (3) There can be no tax at all on lands and buildings under Entry 49 in view of Entry 86 and (4) Entry 86 relates to taxes on capital value while Entry 49 to a tax on annual letting value. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not compelled to impose a tax only on the net wealth and not on its gross value. We have already dealt with this aspect of the matter. We have said that the tax under Entry 86 of List I is not on the asset itself but on the capital value economic value and that if the assets are encumbered, pro tanto they cease to be assets. As pointed out in 1966-2 Mad LJ 172, capital value in Entry 86 has been used in the sense of real economic value of the totality of the assets and that economic value of the assets of the individuals is not and cannot be the same as the economic value of the assets of an individual can possibly be determined only on a consideration of the rights and liabilities in relation to the total assets and the economic value of one of the assets cannot serve the purpose. As to the distinction that a tax under Entry 86 cannot be imposed on an occupier but only on the owner, Mr. Tiruvenkatachari, if we understood him aright, contends that the occupier of lands can be made liable to a tax under that Entry. We cannot accept this view. There is nothing to support it in Paragraph 936 in 23 Halsbury (Third Editor). It only says that an occupier of lands is liable to land tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets is not the principle of taxation and if the effect of the impost is confiscation, it is no tax but confiscation simpliciter. He adds that sequestration of a part of a capital is not within Entry 49. He recognised that Art, 39 applies to the State Legislature as well as to the Parliament and the State can make a law with a view to securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. But he would say that that Entry 49 of the State List is qualified by Entries 86 as well ass 87 of the Union List. Learned counsel goes so far as to suggest that in a sense Entries 86 and 87 may not have been regarded as taxation Entries because prima facie the tax will have the effect of killing the tax yielding subject or activity. From this standpoint, he would add that Entry 49 is not meant for social purposes. We are not impressed by these considerations and they do not necessarily lead us to the conclusion that learned counsel wants us to draw. Reference was made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1966-2 Mad LJ 172 at p.181 and we find no adequate reasons to depart from the conclusions arrived therein in this regard. We shall, however, briefly deal with the matter. But before we do so, it is necessary to make certain preliminary observations. The history and legislative practice as aids of interpretation are not to be resorted to as a matter of course, especially when the language of a statue or a legislative Entry is plain and obvious. Whatever the antiquity, it cannot control the express and clear words of the Legislature. This will be particularly so when that Courts are called upon to interpret grant of heads of power by the Constitution. But there may be situations or circumstances or context which may warrant a departure from this rule, and history and legislative practice, ass an aid to construction, may become relevant and may well be invoked. 1966-2 Mad LJ 172 at p.181 referred to certain decisions on this aspect and stated: "Where the language of an Entry is clear and unambiguous, it is not in our opinion, permissible to depart from its plain tenor and scope, and import into it extraneous consideration in order to cut down or restrict its ambit and meaning. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave only to ascertain the precise connotation which it possessed in law." In also it was considered that the word "rate" had come to this country from England and the Supreme Court, there, proceeded to find out what exactly the word "rate'' when used in connection with the local taxation, meant in England. After referring to the history of the use of the word "rate'', the Supreme Court stated that the word "rate'' was clearly used in England in respect of a tax which was levied on the net annual value or rateable value of lands and buildings and not on their capital value. The legislative history and practice in India was then traced with reference to Municipal enactments in the various Provinces from 1884 and it was observed: "It will thus be seen that these Acts which were passed between 1912 and 1925, which repeal the earlier Acts also provide for taxation on lands and buildings, and though the word "rate" is not used in any of these Acts, the tax is still on the annual value of lands and buildings. This shows that there was a uniform legislative history and practice in India also though sometimes the impost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity who should take into considered such reliable data as the owners and occupiers thereof might furnish of their own accord or on being called upon to do so. The contention of the assessee who was the appellant in the Supreme Court, was that reading the two rules together the rate was levied at a percentage of the capital value of open lands and this the Municipality could not do. A two-fold submission was made in support of the contention, one of then being that Rule 350-A read with Rule 243 was ultra vires Sections 73 and 75 inasmuch as it permitted fixation of rate at a percentage of capital value which was not permitted by the Act, for the word "rate'' used in Section 73(1) had acquired a special meaning by the time the Act came to be passed and meant a tax on the annual value of lands and buildings and not on their capital value. The other was that if the Act permitted the levy of a rate at a percentage of capital value of the lands and buildings rate d thereunder, it was ultra vireos the Provincial Legislature because of item 55 List I of the Government of India Act, 1935 which corresponds to Entry 86 of the Union List in the Constitution of India. The Bombay H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fixed at 1 per centum of the capital value, it would work out to be Re 1. The Majority judgment pointed out: "The same figure can be arrived at by the other method. Assume that 4 per cent is the annual yield and this the annual value of the piece of land, the capital value of which is ₹ 100 will be ₹ 4. A rate levied at 25 per cent will give the same figure, namely. Re. 1.......... In the example which we have given above, the incidence appears as if it is only I per cent but in actual fact the incidence is 25 per cent of the annual value. Further if it is open to the Municipality to fix the rate directly on the capital value at 1 per cent it will be equally open to it to fix it say at 10 per cent which would, taking again the same example mean, that the rate would be 250 per cent of the annual value, and this clearly brings out the camouflage. Now a rate at 10 per cent of the capita; value may not appear extortionate but a rate at 250 per cent of the annual value would be impossible to sustain and might even be considered as confiscatory taxation. This shows the vice in the camouflage that results from imposing the rate at a percentage of the annual value as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice relating to local property taxation based on annual letting value does not control or conclude the scope of Entry 49. The passages to which our attention was invited in Volume I of the Madras Manual of Administration, Volume I of the Report of the Indian Taxation Enquiry Committee 192-25, Volume I (Part 1) of the Report of the Joint Committee on Indian Constitutional Reforms (1933-34) and Volume III of the Report of the Taxation Enquiry Committee, 1953-54 do not advance the matter further. One of the learned Judges in Bhuvaneswariah v. State of Mysore. AIR 1965 Mys 170 thought that the legislative practice as to the Municipal property practice as to the Municipal property taxation in the country concluded the scope of Entry 49 of the State List. We do not accept this view. The legislative practice referred to has no bearing whatever on the scope of that Entry which clearly uses the language "Taxes on lands and building''. The definition of taxation in the Constitution makes it impossible to accept the contention that the word "taxes" in the Entry should be limited to the rate as understood in the Municipal property taxation. Further it should not be, los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that' during 1954-55 crushing season, a cess at a rate of three annas per maund should be levied on the entry of all sugarcane into the local areas comprised in the factories mentioned in the Schedule for the consumption, use or sale therein. The question was whether the premises of a factory could, for the purposes of the entry, be regarded as a local area. It was answered in the negative. In coming to that conclusion the Supreme Court relied on the legislative history as provided by items 7 and 8 of the Second Schedule to the Scheduled Taxes Rules made under the Government of India act, 1919 and Entry 49 of the Provincial List of the Government of India Act, 1935. Entry 49 of the Government of India Act, 1935 uses the same language as Entry 52 of the State List. But items 7 and 8 in the Second Schedule use the words "An Octroi" and "A terminal tax on goods imported into or exported 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." 'Octroi' means a tax on entry of goods into a town or a city or a similar area for consumption, sale or use therein. The Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings 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 may be seen that this decision also is of no assistance to Mr. Vedantachari to limit the scope of Entry 49 in the State List. There are a number of Entries in the State List in respect of which Municipalities have been authorised to impose taxes, as for instance taxes on professions, trades, callings and employment (Entry 60) taxes on animals and boats (Entry 58) and taxes on vehicles (Entry 57). So far as the profession tax is concerned. Art, 276(1) of the constitution makes if quite clear that such a tax could be raised not merely for the benefit of a Municipality District Board. Local Board or other Local Authority but also for the benefit of the State. It will be neither proper nor reasonable to read taxes in these Entries as applicable to only Local Bodies, notwithstanding that the word "taxes" includes, as is clear from Art. 366(28), imposition of any tax or impost, whether general or local or special. 46. On the other hand a close study of the evolution of Entry 49 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o certain limitation (item 8) The expression "taxes for the purposes of Schedule II" took in cess, rare, duty or fee. What is to be mainly noticed in the Scheduled Tax Rules is the dichotomy between items of taxes to be levied and collected for purposes of the Provincial Government and the taxes to be imposed for the purpose of Local Authority. Under this scheme, therefore, the Legislative Council of a Province could make a law imposing a tax on lands put to non-agricultural uses for raising general revenues but it could not impose a tax for that purpose on land or land values or on buildings which were earmarked for Local Authorities. This dichotomy of tax powers and of tax purposes has not been maintained in the distribution of powers between the Centre and the Provinces under the Government of India Act, 1935. In the "White Paper'' containing the proposals for the Indian Constitutional Reform, three Lists of power were suggested, (1) exclusively Federal, (2) exclusively Provincial and (3) concurrent. In the First List, imposition and administration of taxes on income other than agricultural income or the income of corporation but subject to the power of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheme were, however, to be found in the revised lists prepared by the Joint Select Committee of parliament In Volume I of the Report both in the reassignment of certain powers and grouping of tax Entries. Item 5 in List I was taxes on the capital and the income (other than the agricultural capital and income) of companies. Item 51 was taxes on other incomes (other than agricultural income) but subject to the power of the Provinces to impose surcharges. The other relevant items are. 52, duties in respect of succession to property other than land, 53, taxes on mineral rights and on personal capital other than land. The last item is apparently the predecessor of Entry 86 in List I of the Constitution and it may be noted that the power did not include to tax land which would otherwise form part of personal capital. The exclusion of land is to be found also in respect of duties on succession to property. In List II of the Revised List which pertained to Provinces, item 1 related to Local Self-Government etc., as found also in the original proposed item 1, item 22, Land Revenue including assessment and collection of revenue, maintenance of land records, survey for revenue purposes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Government of India Act. 1935 which word for word in material particulars corresponds to Art. 246 of the Constitution contained the final scheme of distribution of powers on that basis, that is to say, that within the spheres, subjects and heads of power exclusively allocated to the Federal Legislature or the Provincial Legislature, they were sovereign subject to the limitations contained in the section. The Power of the Provincial Legislatures was to make laws with respect to any of the matters enumerated in the Provincial List and likewise the power of the Federal Legislature was to make laws with respect to any of the matters enumerated in the Federal List. No limitation was placed on the Federal or Provincial Legislatures and they could enact laws in exercise of exclusive powers for raising general revenues for the Provincial Government and raising revenues for the purpose of local bodies. This scheme, as it should be observed, is entirely different from that adopted by Schedules I and II to the Scheduled Tax Rules under the Government of India Act, 1919. In allocation of powers, the Government of India Act, 1935 did not adopt the report of the Joint Select Committee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws. Entry 49 of the State List, like Entry 42 of the Provincial List, clubbed together item 1 in Schedule I and items 2 and 3 in Schedule II of the Scheduled Tax Rules, namely, tax on land out to uses other than agricultural, a tax on land or land values and tax on buildings and this is not merely in respect of the subject-matter but also included a fusion and merger of the purposes for which taxes could be raised, so than no longer can it be said that Entry 49 of the State List, is confined to raising revenues for Municipal purposes on any particular pattern either on the market or annual rating value and does not extend to raising the general revenue for the purpose of the State Government. So long as a law made by the State Legislature in its pith and substance imposes a tax on lands and buildings, irrespective of the machinery employed or the measure it adopts for quantifying the levy and collection of tax, it cannot be assailed on ground of want of legislative competency, It is in this context the definition of taxation and taxes by Art. 366(28) is important taxes on lands and buildings as a subject or head of power have themselves not acquired any special meaning and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sense of "or'' as well. Apart from that, we do not see why if the power is used to tax lands and buildings, it cannot, on principle, be used for taxing any if then independently. But it is suggested that a tax on lands without buildings will come under Entry 45 of the State list and, therefore, would be excluded from Entry 49. In this connection, our attention was invited to the view of Seervai in his treatise on "Constitutional Law of India" see p. 938: "Entry 49 refers to a tax on lands and buildings, and it is not clear whether a tax on vacant land is the subject of Entry 45, and a tax on lands and buildings is subject to the tax on lands and buildings. If a tax on lands and buildings is read as a tax on lands or buildings, then it would appear that land revenue on vacant land would be indistinguishable from a tax on vacant land." We have already referred to the view of the Supreme Court that Entry 49 of the State List included agricultural land, in fact all kinds of lands. Apart from that, land revenue has an ancient history. From time immemorial it has been recognised and considered to be a common law prerogative right of the native S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Entry 49 to making a law imposing taxes on lands and building only on the basis of the annual letting value and that too for Municipal purposes. 50. In view of the above considerations, we are clearly of opinion that the pith and substance of the Madras Urban Land Tax Act, 1966 in imposing a tax on urban lands at a percentage of their market value is entirely within the ambit of Entry 49 of the State List and within the competence of the State Legislature and Act does not in any way trench upon Entry 86 of the Union List. 51. There is also another aspect which may be considered as an alternative basis for upholding the validity of the Act in relation to its competency under Entry 49. Section 5 of the Madras urban Land Tax Act, 1966, as already noticed, imposes a tax on each urban land at the rate of 0.4 per centum of the market value of such land. It directs that it should be levied for every fasli year. Does the tax fall on the corpus or on the yield and this notional, from it? Normally speaking recurrence of incidence may be indicative of its being on the yield and this notion will be strengthened by the fact that the impost is at a flat rate and that it is of a small pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory of property or in any sense be unreasonable. Nevertheless as we have heard arguments on this ground of attack, we shall deal with then but on the assumption with which they have proceeded, namely,, the occupier's basis of the tax power under Entry 49. 53. Art 265 says that no tax shall be levied or collection expect by authority of law. It is well settled that tax laws, like any other law within the meaning of Art. 13, are subject to the test of fundamental rights for their validity. Prima facie a tax on property affects the right top acquire, hold and dispose of property in its broad aspects and its validity is sustained on the ground that it is a reasonable restriction on the exercise of fundamental right in the interests of the general public. There are numerous decide cases on the subject and it is unnecessary to refer to them. In Atiabari Tea Co. Ltd. v. State of Assam, the proposition was applied. struck down a taxation statute as violative of fundamental rights under Articles 14 and 19 of the Constitution. also recognised that fundamental rights applied to taxing statutes though in that case the contention that the statute there offended Art. 19(1) was not accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be in stages and that if it is yield, the rate should not be such as will take it excessively so as to make holding of property wholly unremunerative. The matter is put in a slightly different way and It is stated that if the Legislature does not address itself to the facts of the case and relevant considerations in fixing the rate on capital value or yield but proceeds on extraneous considerations, the law will be bad as unreasonable. All that we need say in the present context is that these considerations do not in the particular circumstances enable us to hold any of the provisions of the Act to the unreasonable and violative of Art. 19(1). It is a charge on the market value, which is a low, flat annual rate and a reasonable fraction of the market value. Even if it falls on the yields, we cannot even in that case hold it to be unreasonable so long as the yield is not related to the actual letting value which is not in the contemplation of the Act. Mr. Tiruvenkatachari in these cases in invoking Art. 19(1) of the Constitution not merely says that the incidence of the charging provision in the Madras urban Land Tax Act, 1966 is confiscatory in effect of the entire income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise in their values. This appears to be in keeping with the charging section in the Act which levies a tax at 0.4 percent of the market value of urban lands. 55. Mr. Tiruvenkatachari urges that the existing property tax under Section 100 of the City Municipal Corporation Act and the tax on urban lands under the Act under consideration, both enacted under Entry 49 of the State List, one of them imposing a tax on the capital value of urban lands and the other on the annual value of lands and buildings must necessarily result in haphazard incidence of the two put together. Further, as he adds, the result is that the Municipal property tax on lands and buildings and the urban land tax based on capital value of lands alone exhaust unreasonable a high proportion of the income. Learned counsel illustrates the haphazard incidence with reference to particular facts in some of the cases. In W. P. no. 2835 of 1967, we have already referred to the extent of the land and buildings owned by the petitioner therein and the rent it fetches per month. The annual income on the basis is ₹ 6000. The proposed market value for the lands alone comes to ₹ 10,40,000 at the rate of ₹ 13,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a larger area of urban land forming part of properties consisting of lands and buildings and mainly depends upon the plinth area of the building and a reasonable portion of the land appurtenant thereto, the extent of the market value of the land is proportionate to its extent. It is this factor which accounts for the comparatively heavier incidence of the urban land tax based on market value than the Municipal rate on property based on annual letting value. So long as the Legislature has the power to tax under Entry 49 urban lands and to authorize Municipal authorities to levy rates on lands and buildings on the basis of their annual letting value, the two taxes can validly co-exists as was held in and the urban land tax cannot be struck down as unreasonable on the basis of the cumulative tax effect of both the taxes levied n different bases on the income from the urban lands charged to tax. A tax on land values and a tax on letting value, though both are taxes under Entry 49 of the State List "Taxes on lands and buildings'', cannot be clubbed together in order to test the reasonableness of one or the other of the impost for purposes of Art. 19(1). It has not been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot; The Privy Council there was concerned with the Land Acquisition Act. But this method of valuation can be resorted to only in the absence of any better way of estimating the rent and this appears from the following extract from Feraday on Rating (5th Edition) which has been noticed by the Supreme Court in : "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." The Supreme Court also extracted the observation from 32 Halsbury 77 (Third Edition): "Where neither actual rents nor the profits of trade afford evidence of annual rental value, a percentage of the cost of construction of structural value of the hereditament, or of a suitable hereditament, is soetimes taken as evidence." This observation from Halsbury shows that if a contractor's methods is to be applied at all, it may sometimes be permissible to apply to a suitable hereditament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rban land tax which is determined at a percentage of the market value fixed on the basis of the market price and not on the basis of annual letting value. The purpose of Section 25 is but to enable the owner of urban land to have the rent enhanced by following the prescribed procedure and thus pass on a part of his burden to the tenant if there is one. It there is none and the land or building is owner-occupied, a concession of 25 per cent in the urban land tax is allowed by Section 26 of the Act. We do not think that either Section 25 or Section 26 provides a basis for an argument of unreasonableness in violation of Art. 19(1). It may be not that we decide it, that the valuation of urban lands under the Act may possibly affect the citizens in wealth tax, estate duty and probably court-fee levy and there is no provision in the Act enabling resort to Superior Courts in order to show that the assessment of market value is wrong or excessive or is for any reason illegal. But there is Art, 226 of the Constitution which an aggrieved assessee can resort to in proper cases. We also find that Section 4 provides that each Tribunal shall be a Judicial Officer not below the rant of Subordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been repeatedly held by Courts that a power to enact laws includes a power to make the law operate retrospectively, and, this proposition must apply equally to fiscal laws. We recognise that it is seldom that retrospective taxation is resorted to. But it is not unusual that where a taxing provision is held to be invalid by Courts for some reason, the amending law which seeks to rectify that offending defect is made retrospective in order to plug the lucuna in taxation. We cannot say that it is unreasonable, for, tax laws have a bearing upon the budgets of a State and are taken into account in assessing that net proceeds of revenue and where one of such laws is struck down as invalid by Court, it will have its repercussion on the budgetary position. Naturally, this result is sometimes avoided by making the amending law retrospective. Taxation by itself cannot be held to be unreasonable but at the same time if the retrospective taxation is excessive in the sense that it reaches and unreasonable back period which will seriously affect the finance of those concerned, it will be a question whether the retrospective effect is so excessive as to render it per se unreasonable. On this aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bar created By Art, 358. In fact that learned Advocate-General did not address any cogent arguments taking that ground for the State. 60. We come to the last but serious ground urged by the petitioners, which in our view has force and has to be upheld. This related to Section 6 of the Act and the attack on it is that it amount to excessive delegation which is both unreasonable and arbitrary, so that it violates Articles 19(1) and 14 Section 6 is as follows: "For the purposes of this Act, the market value of any urban lands shall be estimate to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch if sold in the open market on the date of the commencement of this Act." The Assistant Commissioner or the Tribunal is given the power under the section to determine the market value. In doing so, they can estimate the market prices. The estimation is left to their opinion, namely, what they opine to be the price for the urban land if sold in open market on July 1, 1963 would be the market value. What the criteria they should apply in estimating the prices and what method they s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket for the site alone without the building. We think, therefore, that for these reasons arbitrariness is writ large on the face of Section 6 and it is also unreasonable in so far as it makes such excessive delegation. 61. Under the earlier Act, there were provision which gave guidance for classification and determination of the market value of urban lands as for instance Section 6 and 7. In exercise of the rule-making powers, rules were framed under the Act of which Rule 4 related to determined of market value under Section 7(3). That rule stated that the market value of the land should be determined subject to the principle indicated therein. The principles included that in determining the market value the prices for which lands have been bought and sold in the zone or sub-zone making due allowances for the special features, if any, in any individual transaction, the rents fetched for the use and occupation of the lands in a zone or sub-zone, the principles generally adopted in valuing lands under the Land Acquisition, Act, 1894 and the compensation awarded in recent land acquisition proceedings after deducting the solatium, if any fir compulsory acquisition, should be kept in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd my learned brothers, Veeraswami and Netesan, JJ., about the competence of the State Legislature in enacting Section 5, as it stands, providing for the levy of urban Land Tax at a low percentage of the market value. While agreeing also with their view about the invalidity of Section 6, I will append the following observations: 65. Section 6 provided for the calculation of the market value of urban land for the purpose of the levy under Section 5, as the price which in the opinion of the Assistant Commissioner of Urban Land Tax or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act, namely, 1st July 1963, in the case of assessees in the City of Madras. Bearing in mind the definition of "urban land'' in Section 2(13) which will include, in the case of a built up site, the site alone dissociated form the building, it was impressed upon is that the Madras Act 12 of 1966 has approached the problem of the levy of urban land tax from an entirely new angle not attempted hitherto by other State in India for the levy. The Taxation Enquiry Committee long ago, made suggestions for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendations of the Taxation Enquiry Committee for levying a tax on urban land as a source of State revenue, in practically every enactment passed in the different States in India, it appears that the uniform practice followed was to treat such a levy as a "rate" for municipal or corporation purposes to be levied on owners or occupiers of urban property. The formula adopted was to levy a tax described as Property Tax on all buildings and lands. The tax was levied at a percentage of the annual value of the buildings and lands calculated on the actual or expected rental value. The Madras City Municipal Corporation Act provides that the aggregate property tax shall not be less than 15 1/2 per cent or greater than 25 per cent of the annual value. The building and the site have to be assessed together. The annual value is to be calculated at the gross annual rent which the building and the site can be reasonably expected to let from month to month or from year to year less a deduction, in the case of building, of 10 per cent of the portion of the annual rent attributable to the building alone apart from the site and the adjacent land occupied as an appurtenant to the building, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as (1) the land is or is not built on; (2) the period since the last sale; and (3) the amount of increment that has accrued. Where the land has been built on and has been in the possession of the same owner for a minimum period of twenty years the increment tax is levied on the selling price of lands and buildings together at the time of the last sale. The tax rises with the length of the period since the last sale. In New York, Boston, and some other State in the United States site and building are separately valued, but the tax is levied on the capital value of the whole and not on the site value alone. Unbuilt land in Frankfurt which has not changed hands for twenty years pays a similar tax as in the case of land built on, but the rate is higher. No tax is levied if the owner can show that the present price is not higher than the previous price, when account is taken of the cost of any building made in the interval or where the tax would equal the amount of the increment. If the increase is less than 15 per cent no tax is levied; but in other instances from 2 to 25 per cent of the increment is taxed by the municipality, the greater the increment the higher the tax. The exampl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute or in the rules to tackle the problem in the true perspective of its formidable difficulties and after taking into account its impact upon the assessees. 69. No doubt, the method of providing for an estimate of the market price of a property to be arrived at on the basis of the opinion of the assessing officer, which is the sole test provided in Section 6 of the Act is found in certain other taxation laws in this country. Thus, in Section 7 of the Wealth Tax Act of 1957 there is a provision for making an estimate of the value of any asset as the value which in the opinion of the Wealth Tax Officers it would fetch if sold in the open market on the valuation date. But this section at the same time provides for rules to be made in that behalf. That clearly implies that though this section gives power to the assessing officer to make an estimate of the market value of asset it is not to be an arbitrary or unguided opinion: there is provision for statutory rules either framed or to be framed for his guidance for the purpose. In regard to the Wealth Tax Act, our attention was drawn to a circular issued by the Central Board of Revenue, CBI, No. 3-WT. of 1967 dated 28-9-1967:-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The decision of the Court on the market value is thus arrived at after a judicial consideration of all the relevant circumstances, Therefore, the provisions in Section 11 of the Land Acquisition Act for fixing the amount of compensation in an award according to the opinion of the acquiring officers and a similar provision in the Wealth Tax Act cannot serve as precedent for sustaining the provision in Section 6 of the impugned Act for fixing the market value of a building site dissociated from the building on the subjective opinion of the Assistant Commissioners, without the safeguard to the assessee of a further judicial decision by a Court of law as in the land Acquisition Act. No doubt there is a provision in the impugned Act for an appeal to a Tribunal and the Tribunal has to be manned by a judicial officer not below the rank of a Subordinate Judge. But the Tribunal so constituted is not the same as a Court of law. The Tribunal is a creation of the Act and has to function within the four corners of the Act. When there are no guiding lines in the Act or in the Rules under the Act for the purpose of fixing the market value of a built up urban land, whatever handicaps attach to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arrived at by capitalising the average annual letting value. From the gross rent obtainable for the building the following deductions should be made: (I) Taxes and land revenue charges which the owner has to pay and (ii) the annual cost of ordinary repairs, which the Madras High Court fixed in one case at a month's rate. In the case of buildings which are in reasonable good condition, the resulting net annual rent should be capitalised at a certain number of years' purchase which must depend on the rate of interest which gilt edged securities will yield in the money market. For this purpose, the rate should be taken as the average yield on long-term securities at the time having a currency of, say 30-35 years are not available for the purpose of calculation, the average yield of medium tern securities having a currency at hat time of say 15-20 years should be taken as the basis with an addition of one per cent to such yield to work out the rate for a long-term security." From the above it would appear that when a building-cum-site, is acquired under the Land Acquisition Act, the acquiring officer is permitted to adopt as a proper method the capitalised value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e resorted to only if in building alone has to be determined apart form the site; but when from the value of land-cum-building, the building value under the contractor's method is deducted for arriving at the value of the site, the method will suffer from the fallacy of valuing the land and building separately in the case of valuing built up land, where the normal rule is to value it as a whole. 72. Again, in Madras Act 18 of 1960. Madras Buildings (Lease and Rent Control) Act, there is a provision in Section 4 for fixation of fair rent of a building plus its appurtenant site. Section 4 outlines a method for determining the fair rent on the basis of 6 per cent annum of the total cost. The statute itself has laid down precise directions for determining the market value of the site and then adding thereto the cost of construction of the building according to the prescribed rates, less depreciation. For the purpose of valuing the building, the statue has provided for different classification. No doubt the market value of the site enters into such determination, and no clue is given as to how the market value has to be ascertained after the site has been built upon. But in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractive, it was difficult to work out a table for the lands in each zone, that there were a certain number of unprecdictable factors in the matter of the market value of the sites,, and that they did not lend themselves to be reduced to a formula. Then he gave directions for investigation and the drawing up of a schedule of market values of sites, according to zones and sub-zones. He also added the comment that no hard and fast rule could be laid down and that the land values would have to be determined to some extent in an ad hoc manner. The problem therefore clearly bristled with difficulties. The Zonal scheme suggested by the Special Officer was embodied in the main portion of the Urban Land Tax Act of 1963, and in the rules framed thereunder. One of the rules thus framed included originally a direction for taking into account the value determined for the site by the authorities in land acquisition proceedings, but this was altered subsequently to the value awarded by Courts, giving rise to the comment by Thiru. Chari that while the usually higher estimates by Courts for the value of the land would work in favour of the owners receiving compensation, it would work adversely from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding will continue to pay urban land tax even though the corpus of the tax namely, the land has been exhausted by the levy. It was the likelihood of such oppressive increase of the burden ensuing to the assessee that during arguments we repeatedly asked the learned Advocate-General to state in precise terms as to whether there was any upper limit or ceiling in contemplation for the levy such as a percentage of the annual yield or rental value. But we were told that no such upper limit or ceiling would be conceded on the part of the State. (3) An argument was put forward that the assessee himself could submit a return under Section 7 giving the amount, which in his opinion will be the proper market value of the urban land, and at the enquiry under Section 10 of the Act, the assessee has the right to adduce evidence regarding the market value of the urban land. It was urged that these provisions of the Act would give the assessee a very fair opportunity of putting forward his case and adducing adequate evidence in support of his valuation of the site. While the above argument at first blush seems plausible, a little further reflection will show that in the case of entirely built ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidence that it is difficult to resist the impression that the burden of this tax as levied under Section 6, falls unevenly on assessees. It may be called to mind also at this stage that the uneven impact of the levy was on of the main grounds on which this Court struck down the procedural sections in the 1963 Act which prescribed the zonal method for estimating the land value when the matter came before a Bench on an earlier occasion in (1966) 2 Mad LJ 172. The Bench held that by reason of the unequal burden, Article 14 of the Constitution was violated. The same vice continues in the present scheme of valuation under Section 6 of the impugned Act. 76. WE were supplied with extracts of the computation of assessment, made in some of the writ petitions out of those that came before us for consideration. The significant point to note from these extract is that in several cases where the existing Property Tax and the proposed Urban Land Tax are taken together the burden thrown on the assessees is found to be oppressive; it also shows such a wide range of variation in the incidence that it is difficult to resist as levied under Section 6, falls unevenly on assessees. It may be calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts him from enhancing the rent or evicting the tenant from the surplus area of the land. Therefore, though the owner is in possession of a large area of land whose values have increased, he is not in a position to realise the benefit of these large values, and continues to get rent limited by the provisions of the Madras Buildings (Lease and Rent control) Act and is also subject to other restrictions about eviction and so on. He will not also be able to get the full benefit of the increased value of the land even by a sale, unless he is able to secure vacant possession to the vendee, which will constitute a separate problem involving often protracted litigation if the tenant is unwilling to vacate. 78. What I have outlined above is intended for bringing into focus the peculiar difficulties inherent in the problem of estimating urban land value, where, as in most parts of the Madras City, land has been built up several years ago, under the present method outlined in Section 6 of the Act to dissociate the land from the building, and leave the question of determination of the market value of the land to the unfettered discretion of the authorities appointed under the Act, without th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guiding lines. Such a provision offends Article 19 of the Constitution. It is also discriminatory because of the variable incidence of the burden of the assessment from assessee to assessee, attracting the bar of Article 14 of the Constitution. Kailasam, J. 81. These batch of writ petitions challenge the validity of the Madras Urban Land Tax Act, 1966 (Act No. 12 of 1966). The petitioner in W. P.. No. 2835/67 is the owner of the land and building bearing R. S. No. 3147 known as 'Claybrooke'', municipal door No. 30, Kilpauk Garden Road Madras-10, consisting of an acre of eighty grounds with two buildings, garages and two out-houses in a portion of the said land. The land along with the buildings has been let out from 1946 on a monthly rent of ₹ 500/-. The annual letting value as determined by the Corporation of Madras for the property is ₹ 5460/-, and the property tax fixed by the corporation is ₹ 1,400/- per annum. The Assistant Commissioner of urban Land Tax issued a notice to the petitioner on 15-9-67 proposing to fix the market value of the suit urban land at ₹ 13,000/- per ground, and levying a tax of ₹ 4,160/- per annum, called upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been bought and sold in the zone or sub-zone making due allowances for the special features, if any in any individual transition: (b) the rent fetched for the use and occupation of the lands in the zone or sub-zone; (c) the principles generally adopted in valuing lands under the Land Acquisition Act, 1894 (Central Act I of 1894); and (d) the compensation awarded in recent land acquisition proceedings after deducting the solatium, if any for compulsory acquisition. The validity of the Act (Act 34 of 1963) was questioned and a Bench of this Court in (1966) 2 Mad LJ 172 held (1) that the Act fell under Schedule VII, List, II, Entry 49, and was within the legislative competence of this State; and (2) that it was permissible for the State to levy a tax for the State purposes (contrasted with a power to tax for municipal purposes). But the Act was struck down as violating Article 14 of the Constitution of India because the tax under the charging section (Section 3) of the Act is levied on an urban land not on the actual market value of such urban land,, but on the average value of lands in a locality known as sub-zone. The impugned Act (Act 12 of 1966) was passed by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for assessing the tax when the owner fails to furnish a return. Section 20 provides an appeal to the Tribunal against the orders of the Assistant Commissioner. The amount of urban land tax thus determined is to be in force for a period of ten years from the 1st July of the fasli year in which the urban land tax is so determined, and for a further period not exceeding ten years as the Government may direct. The tax is leviable with retrospective effect from 1st day of July 1963. 83. The validity of the new Act (Madras Act 12 of 1966) is challenged on various grounds, which may be summarised as follows:-- (1) The tax falls under Schedule VII. Item I, Entry 86, as it is based on capital value; and not under Item II, Entry 49, and therefore it is not within the competence of the State Government. (2) The right to tax on capital value is open only under Entry 86 and Entry 87 of Item I, and that method of valuation is open regarding any other entry in List I, or List II, except Entry 48 which specifically mentions a duty on a capital value. (3) As the present tax is only on land and not land and building, the tax would not fall under List II, Item 49. (4) The power of the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidiary matters which can fairly and reasonably be held to be included in it." But the rule of interpretation as to liberal construction is subject to certain exceptions. the Courts have given a restricted meaning to words when it was found to be necessary top avoid conflict between two entries. In 1939 FCR 18 = (AIR 1939 FC 1), The Federal Court held that the expression "duty of excise" was wide enough to include a tax on the sale of goods, but as power was expressly given to the Provincial Legislatures to impose such a tax, the expression "duty of excise" hould be given a restricted meaning as a duty on the manufacture or production of goods. In it was held that the expression "sale of goods'' was a term of well recognised legal import in the general law relating to the sale of goods and in the legislative practice relating to that topic and must be interpreted as having the same meaning as in the Sale of goods Act, 1930. The principle that a liberal construction must be put on the legislative power is understood to carry with it all ancillary and subsidiary powers in aid of the main topic of legislation, and of the purpose of preventing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution to indicate that the power to tax is confined only to income and not to capital, except under Entries 86 and 87 of List I. It is no doubt true that only Entry 86 in List I mentions taxes on the capital, value of the assets and Entry 87 mentions estate duty in respect of property other than agricultural land. Estate duty is defined in Article 366 of the Constitution as meaning a duty to be assessed on or by reference to the principle value, ascertained in accordance with such rules as may be prescribed by or under laws made by Parliament or the Legislature of a State relating to the duty, of all property passing upon death. The contention that the power to tax capital is confined only to Parliament cannot also be accepted, for under Entry 48, List II, the State is empowered to levy estate duty in respect of agricultural land which duty is based on the principal value of property passing upon death. Thus, the plea that a tax on capital is beyond the competence of the State Government cannot be accepted. In this connection Article 31(5)(b)(i) of the Constitution may be noted. It provides that the provisions as to payment of compensation under Article 31(2) will not affect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was within item 42 of the Provincial List corresponding to Entry 49 of List II. The learned Judge observed that the levy of a tax at ten per cent on the rateable value upon the owner of particular lands and buildings is not a tax on income. The basis well for ascertaining capital value, as for ascertaining income, and the fact that some concession is allowed to the small owner, cannot alter the nature of the tax. The tax is found to have been realised without any relation to the capital value except so far as such value can be ascertained by reference to rateable value. In (1949) 1 Mad LJ 213 = (AIR 1949 FC 81) the Punjab Urban Immovable property Tax Act was questioned which levied an annual tax on lands and buildings. It was held that the tax was in pith and substance a tax on land and buildings covered by Item 42 of the Provincial List. In the Government of India Act, 1935, corresponding to List II, Entry 49. In that case, though the annual value was used as the basis, the annual value was only notional and hypothetical income, and not the actual income. It was held that when a tax is levied on property, it will not be irrational to correlate it to the value of the property and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uildings, would not include tax on capital. The Court held that the rule permitting the fixation of the rate at a percentage of the capital value of the lands and notion their annual value was ultra vires as the Act empowered the Municipality only to impose on lands and buildings, and the use of the word 'rate must be given its due significance, Wanchoo, J. (as he them was) who delivered the judgment on behalf of the majority dealing with the amendment made in the Madras District Municipalities Act by the insertion of sub-section (3) in Section 81 of that Act which provided that "in case of lands which are not used exclusively for agricultural purposes and/or not occupied by or adjacent and appurtenant to buildings" the property tax may levied at such lands or at such rates will reference to the extent of such lands as any be fixed, observed that this amendment was an exception to Section 81(2) of the Act which provided generally for levying these taxes at such percentages of the annual value of lands and buildings as any be fixed by the Municipal Council. It was held that the explanation cannot be read as meaning a percentage of the capital value itself. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot; and the Court was of the view that if the word "a tax on buildings and lands" were used, the meaning would have been different. 89. List II, Entry 49 uses the words "taxes on lands and buildings". It was submitted that these words had a legislative history and practice which would indicate that the words were used as meaning a tax on income from lands and buildings. Under the Scheduled Taxes Rules framed under Section 80-A (3)(a) of the Government of India Act, 1919, the Legislative Council of a Province may, without the previous sanction of the Governor-General, make and take into consideration any law imposing, or authorising any, local authority to impose, for the purpose of such locals authority, any tax included in Schedule II to the Rules. In Schedule II, Item 2 is a tax on land or land values, and Item 3 is a tax on land or land values, and Item 3 is a tax on buildings. Item 11 related to a tax imposed in return for services rendered, such as (a) water rate (b) lighting rate, (c) scavenging, sanitary or sewage rate. (d) drainage tax and (e) fees for the use of, markets and other public conveniences. Under the same Rules, the Legislative Council of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as indicated in terms (1) and (2) of the annexure which relates to revenue from the public domain including lands, buildings, mines, etc, and revenue from public enterprises such as irrigation, electric power, etc. In the revised lists prepared by the Joint Select Committee of Parliament Item (37) in List I, relates to taxes on the capital and the income (other than the agricultural capital and income) of companies, and Item (49) is taxes on other incomes (other than agricultural income), but subject to the power of the Provinces to impose surcharges. In List II (Provincial), Item (12) is land revenue, including (a) assessment and collection of revenue; (b) maintenance of land records, survey for revenue purposes and records of rights and (c) alienation of land revenue. Item (8) to the annexure is taxes on lands and buildings, animals, boats, hearths and windows; sumptuary taxes and taxes on luxuries. Considering the various entries in the white paper and in the revised lists prepared by the Joint Select Committee of parliament, there is nothing to indicate that the power of the provincial Government is confined only to tax income from lands and buildings and not on the capital va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese entries may be for the benefit of the State also. In , the Supreme Court held that the Uttar Pradesh Sugarcane Cess Act, 1956 is not valid as the impost of the cess on the entry of sugarcane into the premises of a factory did not fall within Entry 52 of the State List. The tax was levied for the purpose of revenue to the State considering the legislative competence to tax under Entry 52 of the State List, namely, taxes on the entry of goods into a local area for consumption, use or sale therein, the Supreme Court observed that if the premises of the factory was a local areas, the legislation was clearly within the competence of the State Legislature, and if it was not, the law was beyond the legislative competence of the State and must be struck down. The legislation was struck down on the ground that the premises of the factory would not be a local area coming within the entry. But the levy of a tax for entry of goods into a local area was held to be within the competence of the State government. It is clear therefore that the tax levied by the State under List II. Entry 49 cannot only be for the benefit of the municipalities and local boards, but also for the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uildings were taxed separately and all that was done in the Government if India Act 1935 and the Constitution was to combine the two entries relating to land and building into a single entry. This inference is supported by a reference to other entries also. In the Scheduled Taxes Rules, in Schedule II, Entry 4 is tax on vehicle or boats and Entry 5 is a tax on animals. In the Government of India Act, 1935, Entry 47 in List II is taxes on animals and boats. Thus in entry 47, List II of the Government of India Act, 1935, the two items viz. Entry 4 tax on vehicle or boats and Entry 5 tax on animals in List II, Scheduled Taxes Rules, were combined into one. The legislative history does not lend any support to the plea of the petitioners that Entry 49, List II, of the Constitution relating to taxes on lands and buildings cannot be separated. The decided cases also do not lend any support to the contention of the petitioner,. In Gopalan v. State of Madras. in construing the words "the circumstances under which, and the class or classes of cases in which'' occurring in Article 22(7)(a) of the Constitution of India, the Supreme Court negatived the contention that both the cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel was not able to cite any authority for the proposition that the State Government has no competence to levy two taxes on the same subject. When the State is competence to levy a tax, the question whether it is advisable to levy z second tax on the subject is for the legislature to decide, subject to the validity of the tax in relation to Articles 14 and 19 of the Constitution of India. Even if the consequences of the taxes lead to irregular and unsatisfactory nature of taxation, it is for the legislature to correct it, and not for the Courts to go into it. As long as the legislature has the competence, and the taxation foes not offend the fundamental rights, the validity of the enactment cannot be impugned. IN , while holding that a tax imposed by the Corporation on land and buildings and a tax imposed by the State Legislature can validity co-exists, the Court observed that in the matter of double taxation by the State and Municipal bodies, a policy of forbearance, adjustment and co-ordinated action is no doubt necessary. The plea that the effect of both the taxes was confiscatory in nature was not gone into because of the declaration of Emergency by the Preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the owners of an urban land has failed to furnish the return under Section 7. Thus it will be seen that the tax is based only on the market value, and there is no procedure for determining the income or annual value of the urban land in the enactment. The only reference to income is found in Section 25 of the Act which reads thus: "Notwithstanding anything contained in the Madras City Tenants' Protection Act. 1921 (Madras Act III of 1922), or in the Madras Buildings (Lease and Rent Control) Act, 1960 (Madras Act 18 of 1960), where in any case the amount of the urban land tax payable in respect of any land under this Act is in excess of one half of the amount of the annual rent payable in respect of such land or the buildings thereon under any of the said Acts, any on application form the owner, add to the annual rent aforesaid, an amount not exceeding the difference between the urban land tax payable under this Act and one half of the annual rent aforesaid." This section empowers the authorities, on the request of the owner, to enhance the rent, if the urban land tax levied on him exceeds six months rent from the land and buildings. Section 31 of the 1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Judge expressed his view that by fixing the rate otherwise at a percentage of the capital value directly the real incidence of the levy is camouflaged, and the electorate not knowing the true incidence of the tax may possibly be subjected to such a heavy incidence as in some cases may amount to confiscatory taxation. The learned Advocated-General was, therefore, right in his statement that the tax is on the market value, and that he would not support it on the basis that it is a tax on income or annual value. I am of the view that the tax cannot be supported ion the basis of income or annual value as it would run counter to the mode of levy prescribed under the enactment. In fact, there cannot be any income from the land on which the building appurtenant to the building. Further, the theory that the tax is on the basis of income cannot stand if the percentage of the tax is stepped up thereby exceeding the income from the land. The tax cannot be supported as a levy on the income. 96. The attack made against Act 12 of 1966 is that there is no guidance given and requisite machinery provided for determining the market value, as was given in the previous enactment relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value by a different procedure, that is by requiring the assessee to file a return and the officer determining the market value after giving due notice and hearing the persons concerned. If several, methods are available to the legislature for determining the tax, they are at liberty to adopt anyone of the methods, provided it is not capricious, fanciful, arbitrary or clearly unjust. In Khandige Sham Bhat v. Agricultural Income-tax Officers, AIR 1963 SC 591, the Supreme Court was considering the mode of ascertaining the average annual income for the purpose of finding the rate for imposing the tax. The Court on the facts found that primarily there was some force in the contention that the treatment meted out to the aggrieved party in the matter of the rate of tax was unjust. But the Ccourt ruled that it cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interest, and where there is more than one method of assessing tax and the legislature selects one out of them, the Court will not be justified to strike down the law on the ground that the legislature should have adopted another method which in the opinion of the Court, is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Thus the formation of the opinion of the officers regarding the market value is judicial in nature that is after giving notice to the person concerned and giving a hearing to him. Section 20 provides for an appeal by the assessee objecting to the determination of the market value made by the Assistant Commissioner to a Tribunal within thirty days from the date of the receipt of the copy of the order. The Act requires that the Tribunal shall consist of one person only who shall be a judicial officers not below the rant of a Subordinate Judge. Chapter V provides for survey of urban land. By Section 30, the Board of Revenues is empowered wither in its own motion or on application made by the assessee in this behalf, to call for and examine the records of any proceeding under the Act (not being a proceeding in respect of which an appeal lies to the Tribunal under Section 20) to satisfy itself as to the regularity of such proceeding or the correctness, legality or propriety of any decision or order passed therein, and if it such decision or order should be modified, annulled, reversed or remitted for reconsideration, it may pass orders accordingly. Section 32 enables the urban land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be imposed by the statue. It lays done detailed procedure as to notice to the proposed assessee to make a return in respect of property proposed to be taxed, prescribes the authority and the procedure for hearing any objections to the liability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceedings in a higher Civil Court..................Again, the Act does not impose an obligation on the Government to undertake survey proceedings within any prescribed or ascertainable period, with the result that a land-holder may be subjected to repeated annual provisional assessments on more roles conjectural basis and liable to pay the tax thus assessed." The Court further held: "The Act thus proposes to impose a liability on land-holders to pay a tax which is not to be levied on a judicial basis, because (1) the procedure to be adopted does not require a notice to be given to the proposed assessee; (2) there is no procedure for rectification of mistakes committed by the assessing authority; (3) the is no procedure a prescribed for obtaining the opinion of a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to make rules having regard to the draft rules submitted by the Board, and when the rules were sanctioned by the State Government, they were to be sent to the Board and thereupon the Board by Special resolution was empowered to direct the imposition of the tax with effect from a date specified in the resolution. The procedure thus prescribed for fixing the rate to be levied on the persons or class of persons liable to pay the same had reasonable relation to the subjects taxable under the Act, and the rate to be imposed and the persons or the class of persons liable to pay the same are ascertained by a quasi-judicial procedure after giving opportunity the parties affected, subject to revision by the State Government. It may be noted that there is no provision for reference to superior civil court or the High Court. 100. The procedure and the requisite machinery for fixing the market value is embodies in several other enactment. In the Wealth-tax Act, 1957, Section 7 provides that the value of any asset for the purposes of the Act shall estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market, on the valuation date; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion about the price, will have to be formed by the procedure prescribed under the Act. Section 53 enumerates the persons who shall be accountable for the whole of the estate duty on the property passing on the death of a deceased. After the receipt of the account as provided for, the Controller is empowered to make a provisional assessment. Under Section 58 of the Act, of the Controller is satisfied without requiring the presence of the person accountable than an account delivered under Section 53 or Section 56 is correct and complete, he shall assess the principal value of the estate of the deceased and shall determine the amount payable as estate duty. If he is not satisfied, he is required to serve a notice on the person accountable either to attend in person at his office an a date to be specified in the notice or to produce or cause to be produced on that date. any evidence on which the person accountable may rely in support of his account. After hearing such evidence, the Controller may asses the principal value of the estate of the deceased and determine the amount payable as estate duty. Section 58(4) provides that when no account is produced or the person accountable fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Estate Duty Act and procedure for assessment of the tax under the Madras Agricultural Income-tax Act, is the same as in the impugned Act. 103. In the Land Acquisition Act, 1894, a slightly different procedure is adopted. The Collector under Sec. 9(2) of the Act gives notices to persons interested in the land to appear and state the nature of their respective interests in the land and the amount and particulars of their claims to compensation for such interest, and under their objections, if any, to the measurements under Section 8. The Collector after enquiry and after hearing the objections of persons interested in the land is empowered to make an award determining the true area of the land the compensation which should be awarded for the land and the apportionment of the said compensation among all the persons interested in the land. The award of the Collector shall be final subject to a reference to a Court which the Collector is required to, make on the written application of the person interested objecting to the measurement of the land, the amount of compensation, the persons to whom it is payable, or the apportionment of the compensation among the persons interested. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt or the High court is provided for against levy of taxes in Madras Acts like the District Municipalities Act, the madras Panchayats Act, the Madras Motor Vehicles Taxation Act, the Madras Sales of Motor Spirits Taxation Act, makes it clear that absence of such provision would not invalidate the enactment. I am unable to subscribe to the view that the failure to provide a procedure for obtaining the opinion of a superior Civil Court on question of law or to make provision for making a reference to the High Court will invalidate the statute. In fact, the learned counsel appearing form the petitioners did not contend that absence of such procedure would invalidate the taxing statute. There is ample quasi-judicial procedure provided for in the impugned Act. The Act provides that a Subordinate Judge should be the Tribunal. Sufficient opportunity to the assessees to present their cases and judicial determination along with a right of appeal to a judicial authority and a revision to the Board of Revenue are provided for. I there is any error apparent on the face of the record, or failure to follow the procedure laid done in the enactment, or when extraneous and irrelevant materials ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide for the manner in which the market value of any asset may be determined in the Wealth Tax Rules made under Section 46 of the Act, no provision is made for determining the value of the asset from landed properties. The Rules relate to the valuation of interest in partnership or association of person, determination of the net value of assets of business as a whole adjustments in the value of an asset not disclosed in the balance sheet. etc. The Supreme Court has held that machinery is provided under Section 7 of the Wealth Tax Act for determination of the value of the property. The wording of Section 6 of the Madras Urban Land Tax Act. 1966 is more or less the same. Though provision is made for framing rules, no rules have been framed under the Wealth Tax Act for determination of the market value of the landed property. So also, no rules have been framed under the madras Urban Land Tax Act. The observation of the Supreme court in the Standard Mills case, is equally applicable to Section 6 of the Act, and its validity cannot be questioned on the ground that the opinion of the officer as to the value is subjective or that no adequate machinery is provided for the determination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or south-facing or whether their is open space or park adjoining the site which would secure and unobstructed flow of air and light, would alter the value of the site. If rules are framed for ascertaining the value of the site, it would be indefinite, leading to prolonged litigations and disputes. This is the reason why in the Land Acquisition Act the legislature purposely refrained from defining the word 'market value'. Further, the procedure for determining the market value has been time and again laid down by the Courts in the country affording guide lines for arriving at the market value. The authorities who are directed to form an opinion as to the market value are bound to take into consideration the guide lies afforded by judicial decisions. The valuation of land on which the building is constructed is more difficult, and its market value cannot be determined with accuracy. In this connection, a suggestion made by Sri V. K. Thiruvenkatachari, the learned counsel for the petitioners, is worth mentioning. He submitted that if the purpose of the Act was to raise revenue by taxation, the legislature might have levied a surcharges on the property tax levied by the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing purchaser, should be left for the decision primarily of the Collector and,, ultimately of the Court. The report of the Joint Select Committee stated further: "We have again considered the question of definition of the terms "market-value but we adhere to the opinion of our Preliminary report that it is preferable to leave the term undefined. No material difficulty has arisen in the interpretation of it; the decision of the several High Courts are at one in giving it a reasonable meaning of 'the price a willing buyer would give to a willing seller' but the introduction of a specific definition would sow that field for a fresh harvest of decision, and no definition could lay down for universal guidance in the widest divergent conditions of India any further rule by which that price should be ascertained." In considering the market value, it is well settle that there need not be evidence of the existence of specified purchasers. It may be that there is no market for the property and hat the only imaginary bidder will be the officer acquiring the property. Even then, the market value will have to be determined. The courts have evolved a method of valuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted would be materials. The value of the same superstructure standing on the same extent of land in the sub-urban area and in the centre of the city would greatly vary, as the demand for the building in the centre of the city is higher. The value of the land in the centre of the city will therefore, be higher. Though it cannot be said that there is market for the land on which building is constructed, the market value has been arrived at by following various principles laid down by Courts. It may be that the market value that is arrived at may not be accurate and be a ''scientific guess'', but such kind of valuation has been approved by courts. In Commr. of Income-tax v. Alps Theatre, the question arose whether the value of the land on which the building stands should be excluded in computing depreciation,. The Supreme Court held hat in computing the depreciation on the value of the building, the value of the site on which the building stands should be excluded. The Court held that if it is a first class substantial buildings, the rate is less, while it will be higher in the case of a third class building, and that it would be difficult to appreciate why the land un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty form the application of the Madras Buildings (Lease and Rent Control) Act by taking appropriate steps. But these circumstances cannot be relied on for contending that the enactment (Madras Act 12 of 1966) is in violation of Article 19 of the Constitution of India. it has been held that the constitutionality of a taxing law can be challenged as an unreasonable restriction upon the fundamental rights guaranteed by Article 19(1)(f) or 19(1)(g). In the Moopil Nair's case, stated supra, it was held that the impugned Act was in effect confiscatory in nature. In the Supreme Court held: (at page 128) "A combined and plain reading of the said provisions (of the Constitution) makes it abundantly clear that a law which is inconsistent with any of the provisions of Part III is void. It cannot be denied that a law providing for levy and collection of taxes is a law within the meaning of apart III of the Constitution, and therefore it must stand the test laid and therefore it must stand the test laid down by Article 13 of the Constitution. The 'law' in Article 265 of the Constitution must be value law. A law to be valid must not only be one passed by the Legislature in exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s urban Land Tax Act, 1963 came into force from 1st of July 1963 and it provided for the levy of urban land tax. The enactment was struck down as invalid as it provided for fixation of average market value for particular zones. The legislature by giving retrospective effect to the Madras Act 12 of 1966 intends that the urban land must be axed from the date on which the 1963 Act case into force. The Supreme Court in held that the legislature can pass a law and make its provision prospective or retrospective. But it would be open to a party to content that the retrospective operation of the Act so completely alters the character of the tax imposed by it as to take it outside the limits of the entry which gives the Legislature competence to enact the law; or it may be open to contend in the alternative that the restrictions imposed by the Act are so unreasonable that they should be struck down on the ground that they contravene the fundamental rights guaranteed under Article 19(1)(f) and (g). In this case, it cannot be said that the retrospective operation has the effect of changing the nature of the statute so as to effect the power of the legislature itself. 113. In the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy a tax only on an urban land. Section 7 requires only owners of urban tax to submit a return. If the land is not urban land, no return need be filed., Section 11 requires the Assistant Commissioner to serve a notice on the owner in respect of each urban land, where the owner of the urban Section 7, specifying the exert of the urban land and the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, directing him to attend at his office on a date to be specified in the notice or to produce on that date any evidence on which the owner may rely. At this stage, the owner will be entitled to plead that the land is not an urban land and that he is not liable to pay urban land tax. On hearing the objections, the Assistant Commissioner shall have to determine whether the land in question is a land which is liable to tax, that is, a land which comes under the definition "urban land''. If it is not urban the authority will have not right to levy any tax. Though the power to determine the question whether a particular land is urban land or not is not specifically provided for in the section, it is implied. In construing Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s while in agreement generally with the substantial reason given in the judgment, for upholding the competency of the State Legislature to levy a tax on the market value of urban land, with respect I find I have to differ on the alternative ground set our for supporting the State's competency. I propose to briefly touch also one or two other points arising in these case and endeavour to state as shortly as I can in my own words the reasons which impel me to allow these writ petitions. 118. Despite some fresh lines of approach now made in the attack on the Act as not falling under Entry 49 of List II and as a straight trespass into the Legislative field of the Union under Entry 86 of List I, since these problems were mooted and overruled by a Division Bench of two of us in (1996) 2 Mad LJ. 172, like my learned brethren, I feel unconvinced that the present Act cannot be brought within the purview of Entry 49 and that it trenched on Entry 86 of the Union List. The new angle from which Mr. V. K. Thiruvenkatachari, learned counsel for the petitioners presented the case for the petitioners in the later part of his arguments on the question of competency, is no doubt attractive and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 19, at least relatively. Tax on capital value has no reference to the yield; the yield or income is not under contemplation in such levies and the impugned Act which expressly has made a levy on the market value is an instrument for the confiscation of capital outside the ambit of the State Legislative power---so the argument ran. 119. It is difficult to accept these contentions. They proceed on the assumption that taxations should only be on income or yield or gains from property and that ex necessitate all taxation laws have to be based on income or profit. But taxation under the Constitution, as defined under Article 366(28), includes the imposition of any tax or import, whether general or local or special, and "tax" shall be construed accordingly. Tax on income is separately defined as including a tax in the nature of an excess profits tax. It is needless in this brief reference for me to discuss the distinctions between capital tax and capital levy and capital value of property and capital assets of an individual. According to David A. Wells, (see Cooly on Taxation, Vol. I, Paragraph 7, at pages 72-73); ("Scientifically considered taxation is the takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power to levy such a tax when framing the Constitution in 1935 has no great force. Section 104 has been enacted to meet that very difficulty. That section has also some bearing on the argument founded on S. 137: the Governor-General may by a notification under Section 104 confer the power even on a Provincial Legislature. If, however, the situation cannot be satisfactorily met in that way, the matter must, of course, go before Parliament." The Federal Court was of the view that the power to levy Estate Duty was a taxation power and could be granted to the Legislature under the residual powers of Legislation imposing tax provided for in the Constitution Act. This in a way meets the argument of learned counsel that Entries 86 and 87 in list I alone confer Legislative powers which may be confiscatory of capital and outside the entry even Parliament cannot levy any tax on capital and cannot rely for any tax levy on capital on Entry 97. 121. It may be a matter of policy and good government to relate the tax specifically to the yield, unless special circumstances warrant a departure. But it cannot affect the power of the State. The power of taxation has been considered as an ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature in that regard. The fact that because of the low percentage, 0.4 per cent of the market value, it would be paid out of the yield or income, cannot validate it. That aspect may, in this case, have a bearing on the non-confiscator character or reasonableness of the taxation under Article 19. The Act as it stands does not purport to tax lands and buildings on the basis of any yield actual or hypothetical therefrom or on the annual value, providing as a measure, of such tax a percentage on the capital value. True, even if the Legislature on the face of the Act avowed that it intended thereby to legislate with reference to a subject over which it had no jurisdiction, if on scrutiny the enacting clause of the Act brought the Legislation within its Legislation sphere, the court would not declare it ultra vires. It is for the court to examine the substance of the Act and determine whether in substance the Legislation is beyond the powers of the Legislature or within its powers. The expressions used may not be conclusive of the character of the Act for the purpose of determining whether it is to be condemned or saved from condemnation. The court could certainly examine the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a price which the urban land will fetch if sold in the open market. True, the provision dealing merely with the machinery of taxation ought not to be presumed to impose a charge. Here the charging section itself levies the tax on a percentage of the market that the market value shall be estimated at the open market price of the land. of course, the statute should be read as a whole and the language used in other parts may well be called in aid for interpretation of the charging section. There is nothing to show in the Act that the market value has been mentioned only as a convenient mode for assessment of the tax, but that the intention was to base the tax on the yield, actual or hypothetical. We have to read many words into the section to produce that result that the tax is related to the yield or annual value. The subject-matter of the tax is clearly identified by Sections 5 and 6 of the Act. Sections 25 and 26 providing certain concessions to the assessee cannot control or later the plain words of Sections 5 and 6 and relate the tax to the income from his property. Under Section 25 the owner of urban land where the land or the building thereon has been let out, is permitted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the annual income or yield. The supreme Court observed in the case cited above: "It is however urged that it really makes no difference whether the rate is levied at a percentage of the capital value or at a percentage of the annual value arrived at on the basis of capital value by fixing a certain percentage of the capital value as the yield for the year. It is true that mathematically it is possible to arrive at the same figure for the rate by either of these methods.................... But this identity would not in our opinion make any difference to the invalidity of the method of fixing the rate on the capital value directly. If the law enjoins that the rate should be fixed on the annual value of lands and buildings, the municipality cannot fix it on the capital value, and then justify it on the ground that the same result could be arrived at by fixing a higher percentage as the rate in case in case it was found in the right way on the annual value. further by fixing the rate as a percentage of the capital value directly, the real incidence of the levy is camouflaged...............................if it is open to the municipality to fix the rate directly on the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute is colourable would not and cannot normally be raised merely on the finding that the tax imposed by it is unreasonably high or heavy because the reasonableness of the extent of the levy is always a matter within the competence of the Legislature. Such a conclusion can be reached where in passing the Act, the Legislature has merely adopted a device and a cloak to confiscate the property of the citizen taxed." However, as stated by me at the outset, I am in entire agreement with the view that Entry 86 of List I does not preclude the State from levying a tax on the market value of lands and buildings. The lower percentage of the tax can, in this case, be related to the yield from the property actual, notional or hypothetical to show that the tax is not confiscatory in character. 126. I shall now take up for consideration Section 6 of the Act. I am strongly inclined to the view that while Section 5 is not constitutionally invalid under Articles 14 and 19(1)(f), Section 6 of the Act is clearly invalid under those Articles. I am not examining the attacks on the charging Section 5 under Article 19(1)(f) as it is considered in detail by my learned brother Veeraswami, J. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le." Section 2 (13) 0f the impugned Act defines "urban land'' as meaning any land which is used or is capable of being used as a building site and includes garden or grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops. The Explanation says: "For the purpose of this clause, any site on which any building has been constructed shall; be deemed to be urban land." Under the definition of urban land, the land is separated from the building and it is the site on which the building stands that is assessed. while Section 5 provides for levy of tax on watch urban land, each urban land being defined as land comprised in a survey number or sub-division number, Section 6 provides for the estimation of the market price of the land. Section 6 runs thus: "For the purpose of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on the owner in respect of each urban land specifying inter alia the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, and direct him to attend in person at his office or to produce or cause to be produced any evidence on which the owner may rely on prescribe date. At this enquiry after hearing such evidence as the owner may produce and such other evidence as the Assistant Commissioner may require on any specified points the Assistant Commissioner shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. If the owner does not respond to the notice issued, the Assistant Commissioner shall, on the basis of information obtained by him under Section 9, by order in writing, determine the market value of the urban land and the amount of the urban land. Under Section 20, an appeal is provided to the Tribunal under the Act from the determination of the Assistant Commissioner. Sub-clause (6) of Section 20 provides that any order passed by the Tribunal under Section 20 shall be final. The amount or urban land tax determined under Section 10 or 11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he zone or sub-zone, the principles generally adopted in valuing lands under the Land Acquisition Act, 1894, and the compensation awarded in recent land acquisition awards. The absence of adequate, reasonable and satisfactory provision for the ascertainment of the market value of urban land, particularly when the site has to be valued apart from the buildings, is attacked as wholly unreasonable and devoid of any guidance, where clear guidance is called for. It is strongly urged that no acceptable reason could be found for the State not adopting the value of land and buildings ascertained in the City for taxation purposes by the City Corporation, its won statutory authority. The City Corporation tax, it is pointed out, is levied under entry 49 of List II, Counsel points out that in ascertaining the value of the site, apart from the building what is known as "Contractor's method'', is generally adopted by the authorities. This is made out by reference to the orders and notices issued by the authorities under the Act filed in the several cases before us. In the absence of evidence of sale of vacant sites for the purpose of valuing one person's land, it is said, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Bom LR 701 at p. 710. "The fallacy of valuing land and building separately and taking the total as the value of both seems too obvious to require being exposed. It by no means follows that if a man spends Rs. X on land and Rs. Y on building he produces a property worth Rs. X plus Y. The property must be valued according to what it is worth in the market and not by what it costs." In Rathnamasari v. Secy. of State, AIR 1923 Mad 332 at p. 334 this Court observed: "The appellant's next contention is that the 8 1/2 acres of land on which the buildings stand should be valued separately and that the buildings should also be valued separately and the two added together to get the total market value of the plots with the buildings standing thereon. That is hardly the way in which property consisting of a house and garden is valued in the market. We think that a plot consisting of a house and a garden is much more satisfactorily valued in the manner in which the District Judge has done, by capitalising the rental in the absence of other evidence which would give a more satisfactory value." In that case the annual rental value was ascertained at ₹ 680/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idance is required as to how the market value of property has to be ascertained and reference is made to the Land Acquisition Act, the Wealth Tax Act and Gift Tax Act is concerned, the definition of land in the Act includes also buildings thereon and the acquisition generally is of land with buildings. Occasionally the building may be the subject of acquisition. Then generally the contractor's method is adopted for ascertaining the value of the buildings. So far as the Wealth Tax or for that matter Gift Tax is concerned here again the valuer is not called upon statutory to embark on the difficult task of disentangling the value of the site, apart from building. True, valuation of immoveable property is not a precise Science. Under the Land Acquisition Act the Collector only makes an offer and the final determination is left to the Civil Court. The matter is left to Judicial adjudication with right as of course for an appeal to the High Court. Both under the Wealth Tax Act and Gift Tax Act, though the value of the property is the price which it would fetch if sold in open market, there are provisions giving an hierarchy of Tribunals. The Appellate Tribunal may refer the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g statutes. 130. Whether or not the machinery providing for determination of market value is unequal to its task and so unreasonable, one thing is clear that in its actual incidence the method of determination of the market value would make the tax discriminatory harsh and unequal in its incidence, as will be seen presently. In Moopil Nair's case, just now referred, the Supreme Court observes: "The guarantee of equal protection of the law must extent even to taxing states. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not equality, even though the result of the taxation may be that the total burden on different persons may be unequal." When the validity of a tax is impugned as violative of Article 14, the Court cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was "an impost on land'', that is, a tax on the property itself. for the citizen it was argued inter alia that the citizen it was argued inter alia that the State had no power to impose tax on forests, the power under Entry 49 of List II being to tax only lands. In the dissenting judgment of Sarkar, J. (as he then was), the taxation power in that case was found to be under Entry 49. It cannot be otherwise as the other possible Entry 45 of List II Land Revenue would straight way make the yield of productivity a material factor. Anyway as both the entries are under the same List the nonmention of Entry 49 in the majority judgment, in my opinion, does not affect the position. In the majority judgment in that case which struck down the Act in question as violative of Articles 14 and 19(1)(f), it is observed: "Under the Act in question we shall take a hypothetical case of a number of persons owning and possessing the same area of land. One makes nothing out of the land, because it is arid desert. The second one does not make any income, but could raise some crop after a disproportionately large investment of labour and capital. A third one in due course of husbandry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take into consideration the sound principle of taxation that the citizens should be taxed in accordance with their ability to pay. That unequal incidence of taxation having regard to the related capacity of the assessee to pay is a matter to be watched with reference to tax legislation, will be apparent from the following observation of Mukherjee. J. (as he then was) in the Commissioner, H. R. & C. E. v. L. t. Swamiar, "Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay." The following passage from Cooly on Taxation, vol. I, pages 64-64, set out in AIR 1965 Mys 170 at p. 208 may be usefully quoted in this context: "........ they (taxes) 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 common burden shall be sustained by common contributions, regulated by some fixed general rule, and apportioned by the law according to some uniform ratio of equality. So the power is not ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew the yield actual or potential or the beneficial use to which the land is put is a relevant matter for consideration in examining the incidence of the tax, be it a tax on land. Even capital tax like tax on wealth levied on the principal has been considered a tax on accrual and not one on the principal itself. Nicholas Kaldor in his Report of Indian Tax Reforms says at page 19: "An annual tax on wealth, though it is levied on the value of the principal, is the principal itself--as for example, estate duties or a capital levy are. If all property yielded the same percentage of income, an income-tax and a wealth tax would amount to the same thing. the two differ precisely because some property yields a large money income, other property a small income (or no money in come at all) in relation to its current market value." As mentioned already, the number of vacant lands liable to be assessed as such is few. The number of buildings assessed in 1964-64 is 1,01,055 and the number of vacant lands 3,919. a few concrete cases from the petitions before us are illustrative of the glaring unequal incidence of the taxation. It will reveal that valuing the site or land apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the value of land with buildings thereon obtained on a capitalisation of the annual value statutorily determined under the Madras City Municipal Corporation Act and the value of land alone determined under the impugned Act. There must be something inherently wrong somewhere and clearly it must be in the ascertainment of the site value. the annual value fixed by the City Corporation under the City Municipal corporation Act is statutorily determined value. It is adopted and accepted by the income-tax authorities for tax purposes. Leaving even a wide margin for errors and vagaries in the assessment of annual value it is inconceivable how there can be such starting difference. Disparity there may be but not to the extent seen here. Probably a determination of site value as in AIR 1923 Mad 332 at p. 334 by first capitalising the annual value of land and building, and deducting therefrom the cost of construction applying the contractor's may not show such marked difference so as to lead to error. the following figures from some of the petitions before use graphically illustrate how unequal the tax incidence can be. W. Ps. Extent of land with buildings Corporation annual value. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing statue is thus enunciated: "A taxing statute can be held to contravene Article 14 if it purports to impose on the same class of property similarly situated an incidence of taxation which leads to obvious inequality. There is no doubt that it is for the Legislature to decide on what objects to levy what rate of tax and it is not for the court to should have been taxed or whether a difference rate should have been prescribed for the tax. It is also true that the Legislature is competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. But if in operation any taxing statute is found to contravene Article 14, it would be open to courts to strike it down as denying to the citizens the equality before the law guaranteed by Article 14." In State of Andhra Pradesh v. Raja Reddy, , Subba Rao, C. J., delivering the judgment of the Court, reiterated the principle enunciated in Moopil Nair's case, and AIR 1963 AC 591 observing thus: " ..... X X X X Extracts X X X X X X X X Extracts X X X X
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