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TMI Blog1966 (10) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... d any amount recovered from them as property-tax be refunded to them. 3. Before stating the contentions of the petitioners attacking the validity of the Act and examining their tenability, it is necessary to refer to the relevant provisions of the Act and of the Madhya Pradesh Municipal Corporation Act, 1956. The Act has been described as "An Act to provide for the levy of tax on lands and buildings in urban areas in Madhya Pradesh." Section 2 gives definitions of the expressions "annual letting value", "assessee", "building". "law relating to local authority", "local authority" "owner", "tax" and "year" Section 3 deals with the appointment of a Property Tax Commissioner and certain officers to assist him. Section 4, which is the charging section in the Act. is in these terms- "4. (1) There shall be charged, levied and paid for each year, a tax on lands or buildings or both situate in an urban area at a rate of seven per centum of the annual letting value of the land or building. 2. The tax levied under Sub-section (1) shall fall due on such dates as may be prescribed and be payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Legislature; and that the imposition of the property-tax is a colourable exercise of power by the State Legislature. They also contend that even if it be assumed that the State Legislature has the power to impose tax on urban immovable property under Entry-49 of List-II of the Seventh Schedule, the State Legislature having delegated by the M.P. Municipal Corporation Act. 1956, and the M.P. Municipalities Act, 1961, the power to impose tax on lands and buildings in favour of the municipal corporations and municipalities, and further the local authorities have already imposed a tax on lands and buildings in exercise of these powers the State Legislature had no power to levy tax on lands and buildings; and that the State Legislature bad no authority or power to impose double tax under Entry-49 of List-II of the Seventh Schedule to the Constitution. The validity of Section 4(4) of the Act, which prohibits the owner of a building or land from passing on to the occupier the burden of tax. has also been challenged by contending that it interferes with the freedom of contract in violation of article 19 of the Constitution. The petitioners also say that the property-tax imposed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab Act fell within item 42 of List-II of Schedule-VII of the Government of India Act, 1935, and was not a tax on income falling within item-54 of the Federal List. The Federal Court summed up its conclusion thus . "The charging section in the present case in Section 3, which in clear terms levies not a tax on income but a tax on buildings and lands. It is true that we must took not to the mere form but to the substance of the levy, and the tax must be held to be invalid if in the guise of a properly tax it is really a tax on income. There is, however, nothing in the impugned Act to show that there was any intention on the part of the Legislature to get at or tax the income of the owner from the building. It is true that annual value was used as the basis, but it was very differenl from the annual value which may be used for getting a| the true profits or income. The annual value, as has been pointed out, is at best only notional or hypothetical income and not the actual income. It is only a standard used in the Income-tax Act for getting at income, but that is not enough to bar the use of the same standard for assessing a provincial tax. If a tax is to be levied on properly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue". The Federal Court quoted with approval the following passage occurring in the judgment delivered by Broomfield J. in the Bombay case - "Suppose a tax were imposed of X rupees on every house in Bombay, payable by the owner. That would be a crude and unequal Impost, but perfectly legal. It would be more equitable, but still I imagine perfectly legal, If the tax were graded according to the size of the building, the number of storeys or rooms, or according to the extent of frontage on important streets, or according to the cost of construction. Why should it not be permissible to go a little further in the direction of making the amount of the tax correspond to the importance and value of the properties, by employing the standard basis of assessment of municipal property taxes? If annual value had been equivalent to income that would not be possible, for income may pot be taxed by the Provincial Legislature. But when you speak of income being taxed within the meaning of item 54 what has to be considered in my opinion is actual income, and not the hypothetical income arbitrarily adopted for income-tax purposes." On the question whether the tax imposed by the Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Municipal Corporation framed a rule for rating open lands providing that the rate on the area of open lands shall be levied at 1 per centum on the valuation based upon capital. It also framed a rule, defining "valuation based upon capital". In the Supreme Court it was contended on behalf of Gordhandas that the two rules framed by the Corporation were ultra vires Sections 73 and 75 of the 1925-Act inasmuch ms they permitted the 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) (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. It was also urged that if the Act permitted the levy of a rate on a percentage of capital value of the lands and buildings rated thereunder, it was ultra vires the Provincial Legislature because of item 55. List I of the Seventh Schedule to the Government of India Act, 1935. The Supreme Court construed the meaning of the word "rate", and held that the Explanation to Section 75 did not empower the Municipal Corporation to fix the rate at a cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... piece of colourable legislation must, therefore, fail. 9. On the question whether the State Legislature having, under Section 132(1) and Section 135 of the M.P Municipal Corporation Act, 1956, empowered the Indore Municipal Corporation to impose a tax on land and buildings and the said Corporation having imposed that tax in exercise of that power, the State Legislature could enact the impugned legislation imposing a tax on lands and buildings, Shri Chitale submitted that the property tax is the mainstay of municipal finance; that Entry-49 of List II. which gives to the State Legislature the power to impose tax on lands and buildings, is designed for local bodies only; and that the State Legislature having delegated this power of taxation to the municipal corporations and councils by enacting the M.P. Municipal Corporation Act, 1966, and the M. P. Municipalities Act, 1961. cannot now itself levy a tax on lands and buildings, and thus invade a municipal source of revenue. Learned counsel proceeded to say that the effect of this delegation was that the Corporation alone could impose a tax on lands and buildings under Section 132(1) of 1956-Act subject to the limitation prescribed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as further been pointed oui in Achchelal's case 1963 MPLJ 92= (AIR 1963 Madh Pra. 74) (FB) (supra) that the word "delegation", as generally used, does not imply a parting with powers by a person who grants delegation, but points rather to the conferring of an authority to do things which otherwise ihat person would have to do himself It is, therefore, not correct to say that when municipal corporations have been empowered under the 1966 Act to impose a tax on lands and buildings for the purposes of that Act, the State Legislature has completely effaced itself in the matter of imposing a tax on lands under and by virtue of Entry 49 of List-II. Now, there are no words in Entry-49 to suggest that a tax on lands and buildings is to be levied only for the purposes of local government as explained In Entry-5 of List-II, and it would be wholly wrong to read into that entry words which do not occur there and thereby to limit the scope of the power of taxation under Entry-49 to purposes of local government only. Bv virtue of that Entry, the State Legislature can empower the local bodies to impose a tax on lands and buildings for the purposes of the Act creating the local bodie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in the returns that the imposition of the tax by the State is not unfair as under Sections 132 and 135 the Corporation can impose tax on lands and buildings at a rate between 4 1/4 per cent and 12 1/2 per cent. and that at present the Indore Municipal Corporation levied a tax on lands and buildings only at the rate of 7.03 per cent. It would obviously be a wrong inference to draw from the fact that the Corporation has not imposed the tax at the maximum rate permissible that the Corporation did not require more revenue . The untapped portion is a reserve which ensures the expansiveness of the revenue which is essential for a progressive municipality or municipal corporation . To appropriate any part of that reserve-strength for State purposes is to weaken the reserve and to impair the expansive-ness of the revenue and consequently to hinder progress. But these are all general considerations having a bearing on the economics of taxation and the propriety of both the State and the Corporation imposing the tax. They do not affect the legality of the imposition either by the Corporation or by the State. On the theory and principles of sound taxation, double taxation of propertv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building from passing on to the tenant the burden of the tax imposed by the Act. violates the freedom of contract guaranteed by Article 19 of the Constitution, it cannot be considered so long as the protection of Article 19 against any legislative provision stands suspended by the declaration of Emergency by the President under Article 352 of the Constitution --see Makhan Singh v. State of Punjab, AIR 1964 SC 381. As Entry 49 of List II is not so worded as to suggest that a tax imposed by virtue of that Entry is to be paid only by the occupier, or by the owner and occupier both, and not by the owner alone, and as the impugned Act received the assent of the President, it cannot be urged that Section 4(4) of the Act is ultra vires the powers of the State Legislature and. therefore, invalid. 14. There are no doubt limits to taxation. If those limits are crossed, then apart from the evils flowing in the field of economics and public finance, a tax may become invalid in law because of its confiscatory character and effect. If the magnitude of the tax is such as to eliminate the owner or to compel him to part with the taxed property for the payment of that tax assessed on him, or if it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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