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TMI Blog1939 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... e suit by reason of Section 226 of the Government of India Act, 1935, which provides that no High Court shall have any original jurisdiction in any matter concerning the revenue. Why a High Court should be debarred from exercising jurisdiction which a Subordinate Judge could exercise, I do not know ; but we have to take the Act as we find it. Before the Section can apply, however, we must determine that the tax which is challenged is legal ; if it is not, its imposition does not concern revenue, but is a nullity. To refuse jurisdiction to try this question would involve dismissing the case against the plaintiff without hearing him. This point was not seriously contested by the Advocate General. 3. The material provisions of Part VI of the Bombay Finance Act, 1932, which were added by the Bombay Finance Act, 1939, are as follows :- Section 20 directs that Part VI of the Act extends to the City of Bombay, and the other places therein mentioned. Section 21 defines annual letting value in the City of Bombay as meaning the rateable value of buildings or lands as determined in accordance with the provisions of the City of Bombay Municipal Act, 1888. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e urban Immovable property tax was made a first charge upon the building or land affected thereby and upon the moveable-property, if any, found within or upon such building or land belonging to the person liable to pay such tax. 5. By the City of Bombay Municipal Act, 1888, it is provided in Section 139 that property taxes may be imposed for the purposes of the Act. Section 140 provides that the property taxes shall consist of a water-tax, a halalkhor-tax and a general tax which latter tax is to be of not less than eight and not more than seventeen per cent, of the rateable value of buildings and lands in the city. Section 154 provides- In order to fix the rateable value of any building or land assessable to a property-tax, there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten per centum of the said annual rent, and the said deduction shall be in lieu of all allowance for repairs or on any other account whatever. 6. Section 212 provides that the property tax shall be a first charge upon the building or land subject thereto. 7 . The questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds and buildings, hearths and windows. 13. The impugned tax may fall either (1) within item 42 of the Provincial List and not within the Federal List, or (2) within item 54 or item 55 of the Federal List and not within the Provincial List, or (3) it may fall within both the Lists. 14. In my opinion there can be no doubt that the impugned tax is a tax on lands and buildings, and falls within item 42 of the Provincial List, unless it is excluded by reason of its falling within the Federal List. 15. I also feel no doubt whatever that if the impugned tax falls within either item 54 or 55 of the Federal List, and also within item 42 of the Provincial List, the powers of the Indian Legislature must prevail to the exclusion of the powers of the Provincial Government. Item 54 of the Federal List embraces Taxes on income, and in my opinion all the items in the Provincial List must be so construed as to exclude taxes on income. Some reliance was placed by the Advocate General on behalf of the Provincial Government on the recent decision of the Federal Court in the Excise caseIn re C.P. Motor Spirit Act. The Court there had to decide whether a tax on the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the basis of the tax is the same as the basis on which Income Tax from property is imposed by Sections 6 and 9 of the Indian Income Tax Act. By Section 9 Income Tax is payable by an assessee in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of his business, subject to allowances in respect of repairs, insurance premia, interest on mortgages, payments on account of land revenue, collection charges and vacancies. Emphasis is laid on the fact that the tax is based on annual value and not on actual income, although the Advocate General contends that having regard to the allowances authorised the intention of the Legislature is really to get at the actual income. Reliance is also placed by the plaintiff on authorities relating to Income Tax charged on lands and buildings under Schedule A of the English Income Tax Act. In the case of London County Council v. Attorney-General [1901] A.C. 26, the question arose whether tax paid on the rents and profits of land under Schedule A was properly speaking Income Tax. The trial Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue may bear very little relation to the actual income of the property. An allowance of ten per cent, for repairs may be an inadequate allowance in the case of an old building ; the property may be subject to mortgages the interest on which absorbs the whole of the income; or it may be subject to an onerous lease which produces less rent than the property could be let for at the time. It is argued that in imposing the impugned tax the Legislature were not purporting or desiring to tax income. They were imposing a tax of ten per cent, on the rateable value upon the owner of particular lands and buildings. 22. In construing the Government of India Act, 1935, the Court is entitled to look to the legislative practice prevailing in England and in India at the time when it was passed. On this principle the Court can clearly look at the provisions of the English and Indian Income Tax Acts, and the Court may also have regard to the fact, to which the Advocate General has called our attention, that taxes on lands and buildings imposed primarily upon the owner and made a charge upon the lands and buildings concerned have been for many years a well recognised form of taxation in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings, is a tax on the capital value of the lands and buildings. It is imposed without any relation to the capital value except so far as such value can be ascertained by reference to rateable value. 25. For the foregoing reasons I am of opinion that Part VI of the Bombay Finance Act, 1932, is not ultra vires the Provincial Government, and that the urban Immovable property tax is a valid tax. If that be so, it seems to me that the question whether the tax can be raised by the municipal authorities in manner provided is a matter concerning the revenue, and that the jurisdiction of this Court to determine the question is barred by Section 226 of the Government of India Act, 1935. I therefore express no opinion upon that question. R.S. Broomfield, J. 1. I have had the advantage of reading the judgment of the learned Chief Justice, with which with respect I agree, and I shall content myself with a few observations on the most important issue in the case, namely whether the urban Immovable property tax is a tax on income. 2 . Relying on a dictum of Lord Macmillan in Croft v. Dunphy [1933] A.C. 156, ( When a power is conferred to legislate on a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislatures were empowered to impose taxes on income; that they all received the assent of the Governor-General; and that, under the present constitution, their operation is saved by Section 143 (2) of the Government of India Act. 4. The main ground on which it is sought to be shown that the impugned tax is a tax on income is that it is assessed on the same basis as Income Tax, that is on annual value or the amount at which the property may reasonably be expected to let. But the mode of assessment does not determine the character of a tax. Annual value may be the basis of assessment of Income Tax. It may also be the basis of assessment of a tax on capital, e.g., in the case of succession to land under the Succession Duties Act in England; In re Elwes (1858) 28 L.J. Exch. 46; or again it may be the basis of assessment of rates such as the ordinary municipal rates in England, which are neither taxes on income nor taxes on property, but a personal charge on the occupier. Clearly it is impossible to say that the employment of annual value as the measure of the impugned tax is any indication that it is a tax on income. 5. We have to discover what is the essential char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition of the words hearths and windows in item 42 has any bearing on the scope of the power conferred). Power to impose taxes on lands and buildings means, of course, power to impose taxes on persons, owners or occupiers as the case may be, in respect of these properties. No limit is prescribed as to the amount of the tax which may be imposed, and as to the character of the tax or method of assessment the only restrictions, or the only ones which concern us at any rate, are that the Provincial Legislature cannot tax income or capital value, by reason of items 54 and 55 in the Central List. 7. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay is ultra vires, the Section cannot be a bar to this suit. This position is not seriously disputed by the learned Advocate General. 3. If the levying of the tax is not ultra vires, the rest of the provisions relating to the collection can be viewed in two ways : (1) Those provisions themselves are ultra vires the Provincial Legislature. In my opinion, Section 226 of the Constitution Act does not bar a suit to question that. It stands on the same footing as the first contention. (2) Though the legislation is not ultra vires necessary steps, which are conditions precedent, have not been taken to collect the tax. In my opinion Section 226 comes in the way of this contention. This discussion is in respect of the plaintiff's case against defendants Nos. 2 and 3 only, and I shall deal with it later on. 4 . The principal question is whether the Finance Act is ultra vires the Provincial Legislature. The relevant Sections of the material Acts are set out in the judgment of the learned Chief Justice. It will be useful first to summarise the recognised rules of construction of statutes when the powers of the two legislatures are different. It should also be noticed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the Constitution Act. Obviously in construing the same Act the legislative practice and the meaning of expressions used in Acts prevailing in India should also be taken into account. 7 . In In re C.P. Motor Spirit Act (generally described as the Excise Case) decided by the Federal Court in India it was observed that the provisions of an Act like the Government of India Act, 1935, should not be cut down by a narrow and technical construction, but considering the magnitude of the subjects with which it purports to deal in a very few words, it should be given a large and liberal interpretation so that the Central Government, to a great extent but within certain fixed limits, may be mistress in her own house, as the Provinces, to a great extent but again within certain fixed limits, are mistresses within theirs. In an enquiry whether an enactment is ultra vires the Court must ascertain the true nature and character of the challenged enactment, its pith and substance; and not the form alone which it may have assumed under the hand of the draftsman. When there is an absolute jurisdiction vested in a legislature, the laws promulgated by it must take effect according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is well established that you are to look at the 'true nature and character of the legislation'... 'the pith and substance of the legislation. If, on the view of the statute as a whole, you find that the substance of the legislation is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorized field. The legislation must not under the guise of dealing with one matter in fact encroach upon the forbidden field. Nor are you to look only at the object of the legislator. An Act may have a perfectly lawful object, e.g., to promote the health of the inhabitants, but may seek to achieve that object by invalid methods, e.g., a direct prohibition of any trade with a foreign country. In other words, you may certainly consider the clauses of an Act to see whether they are passed 'in respect of the forbidden subject. 10. Again in Attorney-General for Alberta v. Attorney-General for Canada [1939] A.C. 117 the following rule of construction was emphasized (p. 130) : A closely similar matter may also call for consideration, namely, the object or purpose of the Act in question... It is not competent eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be conceded that every tax because it is a direct tax does not necessarily become Income Tax . Also because there is a graduated tax it is not necessarily Income Tax. Graduation is found in the succession duties also. Most of the suggested points of distinction are also not useful to determine the point. Property used for business though excluded for Income Tax purposes under the heading property is charged to tax under the heading of business. The allowance for repairs and the other allowances, whether made or not, or the extent thereof cannot determine the nature of the tax. It was pointed out that under the Income Tax Act of 1886 no allowances were permitted ; still the tax was Income Tax. Moreover the allowances permitted under the Indian Income Tax Act may be withdrawn. That would not alter the nature or character of the tax. The fact that under the Indian Income Tax Act properties wherever situate have to be taken into account is because it is an Act of the Imperial legislature while the jurisdiction of the Province is limited to the provincial boundaries. The amending (Bombay) Act XVII of 1939 which made the tax a charge on the property is an important point of dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, What do the words ' income tax' mean in the language of the Legislature, and in this Act?...The truth is that the income tax is intended to be a tax upon a person's income or annual profits, and although (for conceivable and no doubt good reasons) it is imposed in respect of the annual value of land, that arrangement is but the means or machinery devised by the Legislature for getting at the profits. 18. In A Reference under the Government of Ireland Act, 1920, and Sect. 3 of the Finance Act (Northern Ireland), 1934, In re [1936] A.C. 352 Lord Thankerton observed as follows (p. 358) : - It therefore remains to consider the second contention of the Corporation namely, that the tax so imposed by the central authority on the ratepayer is ' substantially the same in character' as income tax. Counsel for the Corporation sought to establish this substantial similarity in character by a detailed comparison of the provisions of the Income Tax Act, 1918, under Sch. A and, in particular, Sch. B, with the provisions of the Poor Relief (Ireland) Act, 1838, along with the fact that under Section 187, sub-Section 1, of the Income Tax Act, 1918, the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. The exemptions and the lower rate of tax to be charged on the footing of annual letting value are all factors for assessing the annual letting value under Section 22 of the impugned Act. Under the proviso to Section 21 a percentage of the capital value, as may be determined by the Provincial Government, is to be deemed the annual letting value. That also prescribes a method to determine the standard, viz. the annual letting value. It does not affect the nature of the tax. The exemptions provided by Section 27 also show that in the event of the return from property being less the annual letting value will be reduced in proportion to be fixed by the rules. All these provisions indicate that the standard on which the property is taxed will be fluctuating. If the present position under the two Acts is compared it is obvious that the annual letting value under the impugned Act has little relation with the actual income. The crucial question is this : Is the tax on the lands and buildings or on income of the lands and buildings ? 21. Having heard elaborate arguments on both sides it appears that this is the narrow question by which the true character and nature of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d buildings it was clearly indicated that the tax that can be imposed under that item should be equally capable of being imposed on all the things mentioned in the same item. 23. In my opinion this whole line of reasoning is irrelevant. There is no reason to believe that the legislature by grouping several things under one item intended that the tax on each should be by the same measure. The contention that taxes on all income are divided between item No. 54 of List I and item No. 41 of List II is correct. From that, however, it does not follow that the tax in question must be considered a tax on income. The definition of agricultural income also does not help the plaintiff in the present controversy. 24. The attempt to classify taxes on property under heads like capital, income and occupation is not profitable, as the list is not exhaustive. On the other hand as pointed out by the learned Advocate General taxes on lands and buildings have been known to Indian Legislatures for over fifty years, and find place as such in the Municipal Acts passed by the different provinces. Under the Government of India Act of 1915 (as amended by the Act of 1919) and the Devolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipal authorities, which taken together will mean the whole municipality, are clearly mentioned. The City of Bombay Municipal Act defines the powers, rights and obligations of each authority. This may be criticised as defective drafting but does not make it bad law. Under Section 24, when applied to Bombay itself, municipality in my opinion must mean and is intended to mean the appropriate municipal authorities. 27. The second point urged is that it is ultra vires the Provincial legislature, to order the Municipal Commissioner to collect the tax. No authority is cited to support the contention. Item No. 13 of List II is relied upon but that does not help the plaintiff. If a power to impose the tax is conceded, power to collect the same is necessarily implied. The Provincial Legislature within the province being supreme there appears no reason why it should not appoint or name any person or corporation to collect the tax. There is nothing to support the contention that this cannot be done without amending the Municipal Act. The second part of this contention also fails. 28. An inquiry into the third part of the question appears to be barred by Section 226(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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