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TMI Blog1979 (9) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of 1979. Spl. Leave Petn. (Civil) Nos. 6298 of 1978; 1137-1138, 4861-4862, 6154-56 of 1979 and 6298 of 1978, D/- 21-9-1979. JUDGMENT These cases relate to the validity of certain provisions of the Kerala Building Tax Act, 1975, hereinafter referred to as the Act, and are directed against the judgment of the Kerala High Court dated June 12, 1978, by which the validity of those provisions has been upheld. We have heard these cases together and shall deal with them in this judgment. 2. In order to appreciate the controversy, it will be convenient to make a brief mention of the background of the Act. 3. The Legislature of the Kerala State wanted to impose a tax on buildings, and passed the Kerala Building Tax Act, 1961, which came into force on March 2, 1961. Its validity was challenged, and by his judgment dated November 20, 1964, a learned Single Judge of the High Court held it to be invalid and unconstitutional. The division) bench took the same view in its judgment dated July 7, 1966, and dismissed the appeal of the State. The matter came to this Court, and it also dismissed the appeal by its judgment dated August 13, 1968, reported in State of Kerala v. Haji K. Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en defined in Clause (28) of Article 366 of the Constitution to include the imposition of any tax or impost, whether general or local or special, and it has been directed that tax shall be construed accordingly. 6. Chapter I of Part XI of the Constitution deals with the distribution of legislative powers. Article 246 of that chapter states, inter alia, the exclusive powers of the Parliament and the State Legislatures according as the matter is enumerated in List I or List II of the Seventh Schedule. Entry 86 of List I, on which reliance has been placed by Mr. Francis, reads as, follows :- 86. Taxes on the capital value of assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies. 7. Now the word assets has been defined in the Century Dictionary (which is an encyclopedic lexicon of the English language) as follows.- Property in general; all that one owns, considered as applicable to the payment of his debts.... As a singular. Any portion of one's property or effects so considered. So if a tax is levied on all that one owns, or his total assets, it would fall within the purview of entry 86 of List I, and would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under entry 86 of List I. this Court rejected the challenge and laid down the law as follows,- The tax which is imposed by entry 86 List I of the Seventh Schedule is not directly a tax on lands and buildings. It is a tax imposed on the capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee : it is imposed on the total assets which the assesses owns, and in determining the net wealth not only the, encumbrances specifically charged against any item of asset, but the general liability of the assessee to pay his debts and to discharge his lawful obligations have to be taken into account. . . . Tax on lands and buildings is directly imposed, on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under entry 86 List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under entry 49 List II the State Legislature may adopt for determining the incidence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us which they had acquired under any existing law, or what that vested right was. It may be that there was not liability to building tax until the promulgation of the Act (earlier the Ordinances) but mere absence of an earlier taxing statue cannot be said to create a vested right, under any existing law, that it shall not be levied in future with effect from a date anterior to the passing of the Act. Nor can it be said that by imposing the building tax from an earlier date any new obligation or disability has been attached in respect of any earlier transaction or consideration. The Act is not therefore retrospective in the strictly technical sense, 14. What it does is to impose the building tax from April 1, 1973. But as was held in Bradford Union v. Wilts [1868] L.R. 3 Q.B. 406 if the language of the statute shows that the legislature thinks it expedient to authorise the making of retrospective rates, it can fix the period as to which the rate may be retrospectively made. 15. this Court had occasion to examine the validity of the retrospective levy of sales tax in, The Tata Iron and Steel Co., Ltd. v. The State of Bihar [1958]1SCR1355 and it was held that that was not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehemently argued before us that it is not merely a tax on buildings , but it is a tax on the buildings, as well as on the, lands of those buildings. 19. As has been mentioned, what entry 49 of List II of the Seventh Schedule of the Constitution permits is the! levy of taxes on lands and buildings. It is therefore permissible to levy a tax either on lands as well as buildings, or on lands, or on buildings. If the Legislature decides to impose a tax only on buildings , the tax will be imposed on all that goes to make, or constitute, a building. 20. The word building'' has been defined in the Oxford English Dictionary as follows,- That which is built; a structure, edifice : now a structure of the nature of a house built where it is to stand. Entry 49 therefore includes the site of the building as its component part. That, if we may say so, inheres in the concept or the ordinary meaning of the expression building . 21. A somewhat similar point arose for consideration in Corporation of the City of Victoria v. Bishop of Vancouver Island [1921] P. C.240 with reference to the meaning of the word building occurring in Section 197(1) of the Statutes of British C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of the building as such, but the building itself. It may be that the value of the ground on which the building stands may be known, or may be capable of being ascertained. That is why the other factor mentioned in Sub-section (4) of Section 6 is the value of that land. But here again, as the land has no separate existence of its own, the value of the ground inevitably goes to constitute the value of the building. 24. Rule 4 of the Kerala Building Tax Rules, 1974, provides that the return under Sub-section (1) or (3) of Section 7, or Section 8 of the Act shall be in Form II. Column 2 of that form makes a mention of the location of the building, but not the location of its ground or land, or the value thereof. It refers only to the annual value of the building in column (13) and its capital value in column 7, so that the location of the building, as distinct from the location of its ground, or the value of the ground as such, do not go in for the determination of the annual or capital value of the building. 24. It is therefore futile to contend that as factors (a) and (f) of Sub-section (4) of Section 6 of the Act refer to the location of the building and the value of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen to; specify the rate of the tax on it. 28. The value of a building is not merely the cost of its bricks and mortar or other building material. It is therefore difficult to ascertain that cost. It is also difficult to find out the market value of a building. , Doing so would, at any rate, take time and may be open to manipulation or avoidable criticism, and may not provide a ready or convenient basis of taxation. The Legislature cannot therefore be blamed if it decides to link the levy with the annual value of a building and prescribes a uniform formula for determining its capital value and calculating the tax. Annual value of a building has in fact played as important a role in rating that, in a converse case, resort has sometimes been taken to the capital value or cost of construction to work it out. 29. As has been stated by Faraday on Rating (fifth edition, page 24) there are four recognised methods of arriving at the annual value of a building,- 1. The competitive or comparative method i.e., by finding out rents actually paid for the building and/or others of a similar kind, adjusting them to bring them into line with statutory conditions, and thus arriving dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Clause (i) of the same section defines capital value . Section 6 prescribes the mode of determining the capital value of a building according to the formula of sixteen times the annual value prescribed in Clause (f) of Section 2. Having made these necessary provisions, Section 5 states that a tax, referred to as building tax in the Act, shall be charged at the rate specified in the Schedule etc. There are other ancillary provisions, but it will be sufficient for us to say that, taken together, they contain the entire scheme for the levy and collection of the building tax on the capital value of the buildings. The expression capital value used in the Act is not however the cost of construction of the building or its market value as a wealth. It is a convenient or a working expression which may roughly be said to be the taxable value of the building, and the State Legislature was quite competent to select that as the basis for assessing the building tax. 33. Reference in this connection may be made to this Court's decision in Khandise Sham Bhat and Ors. v. The Agricultural Income Tax Officer(1) where it has been held as follows at page 823,- Where there is more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appurtenances thereto shall be made and that deduction shall be in lieu of all allowances for repairs or on any other account whatever. As by virtue of Section 6 of the Act the same annual value forms the basis for determining the capital value of the building for purposes of the Act, what really is taken as the annual value under the definition in Clause (a) of Section 2 is not the gross annual rent but the net rent after allowing for the cost of its repairs etc. A similar deduction has been provided under Section 100(2) of the Kerala Municipalities Act, 1960 . It has not been disputed before us that a provision exists in the law relating to Panchayats also for actually basing the tax on buildings at the prescribed percentage of the net annual rental value of the buildings. 35. It is not therefore factually correct) to contend that the annual value of buildings in Kerala is determined on the basis of their gross annual rent, without any deduction on account of repairs etc., and there is no force in the argument that determination of the capital value is arbitrary as it is arrived at by multiplying the gross annual rent by sixteen.But there is, even otherwise, no inherent il ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appurtenance , in relation to a dwelling, or to a school, college.... includes all land occupied therewith and used for the purpose thereof (Words and Phrases Legally Defined--Butterworths, 2nd edn.). The word 'appurtenances' has a distinct and definite meaning.... Prima facie it imports nothing more than what is strictly appertaining to the subject-matter of the devise or grant, and which would, in truth, pass without being specially mentioned : Ordinarily, what is necessary for the enjoyment and has been used for the purpose of the building, such as easements, alone will be appurtenant. Therefore, what is necessary for the enjoyment of the building is alone cowered by the expression 'appurtenance'. If some other purpose was being fulfilled by the building and the lands, it is not possible to contend that those lands are covered by the expression 'appurtenances'. Indeed 'it is settled by the earliest authority, repeated without contradiction to the latest, that land cannot be appurtenant to land. The word 'appurtenances' includes all the incorporeal hereditaments attached to the land granted or demised, such as rights of way, of commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d it is by now well settled that the quantum of the tax levied by the, taxing statute and the conditions subject to which it is levied, are matters within the competence of the Legislature: Rai Ramkrishna and Ors. v. The State of Bihar. [1963]50ITR171(SC) It is also well settled that so long as the tax is • not confiscatory or extortionate, the reasonableness of the tax cannot be questioned in a court of law : Kunnathat Thathunni Moopil Nair v. The State of Kerala and Anr. [1961]3SCR77 and Assistant Commissioner of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. (supra). 43. It has to be appreciated that investment in buildings is a conservative mode of raising income and even if it were presumed that it does not yield the same quick results as some other forms of investment, it cannot be denied that it involves lesser risk. So even if it yields a return of not more than 6 1/4 per cent or so, it cannot be denied that, un like most of the other dependable investments, it has the considerable advantage of giving to the investor a far greater return in the form of a more or less continuous appreciation of the market value of the buildings. , 44. Our attention has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the appreciation of its market value as years go by. Such a taxing statute cannot be said to be colourable . 46. It has in fact been held by this Court in Raja Jagannath Baksh Singh v. The State of Uttar Pradesh [1962]46ITR169(SC) that,- ...the conclusion that a taxing 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. Reference may also be made to S. Kodar v. State of Kerala [1975]1SCR121 for the following observation,- Generally speaking, the amount or rate of a tax is a matter exclusively within the legislative judgment and as long as a tax retains its avowed character arid does not confiscate property to the State under the guise of a tax, its reasonableness is outside the judicial ken. 47. As has been stated by. A.A. Ring on the valuation of Real Estate', second edition, page 232, the mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for determining the annual value, and the assessing and the appellate and revisional authorities etc. have all been provided by the Act and there is no grievance on that account. The question is whether determining capital value on the basis of the annual value recorded in the assessment books of the local authority concerned is arbitrary because of the absence of the necessary machinery for its determination. Sub-section (1) of Section 6 reads as follows :- 6.(1). For determining the capital value for the purposes of this Act, the annual value of a building shall be the annual value fixed for that building in the assessment books of the local authority within whose area the building is situate. 51. It therefore accepts the annual value fixed for a building in the books of the local authority as correct. But that would not justify the argument that doing so is illegal or unreasonable as long as it can be shown that what is entered to the assessment books of the local authority has been arrived at in accordance with a-satisfactory procedure laid down for it in the statute concerned. Thus if it can be shown that the annual value, in the case of a local authority, has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Commissioner. Then there is provision in Rule 24 for the filing of appeal to the District Court and there is further provision in Rule 26 to the effect that the Court may. if it thinks fit, state a case on any appeal for the decision of the, High Court and shall do so whenever a question of law is involved if either the Commissioner or the appellant applies in writing in that behalf. Rule 27 provides for the disposal of the case by the District Court in conformity with the decision of the High Court. Moreover Rule 28 provides for the correction of the assessment books according to the decision of the Standing Committee, or the District Court. The Corporation Act thus provides all the necessary procedure and machinery for determining the annual value of buildings in a fair and reasonable manner. 54. We have gone through the provisions of the Municipalities Act also, in regard to the procedure and the machinery for determining the annual value of buildings. Chapter VI of Part III deals with Taxation and Finance . Section 150 states that the rules and tables embodied in Schedule II shall be read as part of that Chapter Rules 7 provides that the value of the building f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the capital value of a building has to be arrived at by multiplying the annual value by 16, and the Legislature has taken cafe to define annual value to mean, the annual rent at which the building may be expected to let. So if a building is situated in an important locality, or if its standard of construction is high, or if it has attractive appurtenances etc. to it would be expected to fetch a higher rent than a building which does not have those advantages. The (definition therefore takes .care of any possible criticism that the Act suffers from the vice of treating unequals as equals. It provides for the levy of a higher 7 building tax on buildings on which such levy would be justified, because the incidence of the levy is a matter to be decided on the basis of its capacity to fetch rent. The argument to the contrary is therefore quite untenable. 59. Section 29 of the Act declares, for the avoidance of doubt, that in fixing the fair rent of a building under Section 5 of the Kerala Buildings (Lease and Rent Control) Act, 1965, the rent control court shall not take into consideration the building, tax payable in respect of the building under the Act That has given rise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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