TMI Blog1948 (11) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. While dismissing the application, however, the High Court granted a certificate under Section 205(1) of the Government of India Act, 1935, and he has accordingly preferred an appeal in this Court. 3. At the hearing of the appeal, the Government of East Punjab (the present respondent in the appeal) was represented by the Advocate-General of East Punjab, and the Advocate-General of Bombay was also heard, on the ground that the Government of Bombay was interested in the constitutional point involved in the appeal. 4. In order to appreciate the grounds on which the Punjab Act is called in question, a brief reference to some of the provisions of the Government of India Act, 1935, seems necessary. 5. Under Section 316 of the Government of India Act, 1935, the powers conferred on the Federal Legislature are exercisable by the Indian Legislature. Section 99(1) of the Government of India Act gives the power to the Federal Legislature to make laws for the whole or any part of British India or any federated State, and to the Provincial Legislature to make laws for the Province or for any part thereof. This section is followed by Section 100, which runs as follows: (1) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power of the Provincial Legislature. As the impugned tax purports to be a tax on buildings, it falls prima facie under item 42 of List II, and, if on a proper examination of the matter it is found that in fact and in law it does so fall and does not fall under item 54 of List I, there can be no doubt that it was within the legislative competence of the Punjab Legislature to levy such a tax. The appellant however contends that the tax does not properly fall within item 42 of List II, and he assails the Act imposing the tax on two grounds. First, it is contended that if the expression taxes on buildings is construed in the light of British legislative practice as also with reference to the context in which it occurs, it must be held to refer to some kind of occupation tax payable by the occupier of the building and not by the owner. On this line of reasoning, it is urged that the Punjab Legislature was not competent to levy the present tax which is a tax on the owner. 8. Secondly, it is urged that the impugned tax is in substance a tax on income and as such falls under item 54 of List I, and not under item 42 of List II. To levy such a tax, it is contended, was beyond the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing in the nature of a duty of excise within the meaning of entry 41 in List I of the Seventh Schedule to the Government of India Act, Sir Maurice Gwyer C.J. observed (p. 53): Lastly, I am entitled to look at the manner in which Indian legislation preceding the Constitution Act had been accustomed to provide for the collection of excise duties;: for Parliament must surely be presumed to have had Indian legislative practice in mind and, unless the context otherwise requires, not to have conferred a legislative power intended to be interpreted in a sense not understood by those to whom the Act was to apply. 12. If therefore the legislative practice in India is to be taken into consideration, the appellant's argument could be met, by saying that the British Parliament might well have intended to enable the Provincial Governments to continue to impose taxes of the nature imposed in different parts of the country for many years past. It seems however unnecessary to pursue the matter further, because the point can, in our opinion, be disposed of on a surer ground. It appears to us that when the words used in the Act are clear and unambiguous, and they are not unfamiliar or unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to the plain grammatical meaning of the words. By no stretch of imagination can it be said that item 42 is ambiguous. The words are clear and they entitle a Provincial Legislature to impose taxes on lands and buildings, hearths and windows without reference to who has to pay such taxes. If the tax can legitimately be paid by the owner, then it appears to me that item 42 would cover such tax, as it would cover a tax legitimately payable by the occupier. It seems to me, therefore, that no assistance can be obtained from what had been the policy of the English Legislature in construing this particular item. 13. The second contention put forward on behalf of the appellant is a more serious one, and needs very careful examination. Section 3 of the Punjab Act, which, is the charging section in the Act, is in these terms: 3. (1) There shall be charged, levied and paid an annual tax on buildings and lands situated in the rating areas shown in the schedule to this Act at such rate, not exceeding twenty per centum of the annual value of such buildings and lands, as the Provincial Government may by notification in the Official Gazette direct in respect of each such rating area. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it provides is that there shall be an annual tax on buildings at such rate not exceeding twenty per cent, of the annual value of such buildings, as the Provincial Government may direct in respect of each rating area. It is possible as a matter of first impression, to read this provision as meaning that while 20 per cent, of the annual value is fixed merely as the ceiling, the rate of tax on a building may have no reference to and be quite independent of the annual value of the building. On this interpretation, the tax will not be open to attack on the grounds urged. But the Act is to be read as a whole, and, having regard to the elaborate provisions made in it for determining the annual value of buildings and to the fact that the rate actually fixed in the Official Gazette has a direct reference to the annual value, there can be no doubt that the basis of the tax is annual value. The appellant's contention therefore has to be examined on the footing that the basis of the tax under the Punjab Act is the annual value of the property to be taxed. 16. The proper approach to a question such as the one we have before us has been aptly defined by Lord Atkin in Gallagher v. Lynn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossible to conceive of cases in which the property to be taxed does not actually yield any income whatsoever, though every property must have some notional annual value. As has been pointed out in treatises on income-tax, many of the rules framed under the Income-tax Act are highly artificial, so that income calculated for purposes of income-tax does not by any means necessarily correspond with the income actually received in the year which can be spent or saved. One of these artificial rules is the rule of estimating income from property. This was conceded in A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934 In re [1936] A.C. 352, where it was Stated that the method of assessing income derived by ownership or occupation of property is somewhat arbitrarily based on the annual value and not the actual income. Similarly, Kennedy L.J. observed in Rex v. Special Commissioners of Income-tax: Essex Hall, Ex Parte [1911] 2 K.B. 434, cited in Sir Byramjee Jeejeebhoy v. Province, of Bombay [1940] Bom. 58, 80, s.c. 42 Bom. L.R. 10, f.b.: An assessment upon 'annual value' may, for certain purposes, be treated, in app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, not a source of profit, for the occupier who pays rent for it. He is rated on the value of the burden, while he remains unrated in respect of his whole profits, be they from business or from investments. In their Lordships' opinion this marks the essential difference in character between income-tax and rates, and it is unnecessary to consider other and less important differences between them. 19. This case demolishes the broad contention that wherever the annual value is the basis of a tax, that tax becomes a tax on income. It shows that there are other factors to be taken into consideration and that it is the essential nature of the tax charged and not the nature of the machinery which is to be looked at. 20. Now, when looking at the machinery by which the tax is to be assessed, one cannot overlook the difference in the modes of estimating the annual value adopted under the Punjab Act and the Income-tax Act respectively. Section 5 of the Punjab Act, which lays down the mode of estimating the annual value, has been quoted before, and a reference to it would show that besides making an, allowance for the rent of furniture which, under the section, is to be taken into co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual value, is something not necessarily synonymous with income and is something very different from the annual value as estimated in the Income-tax Act, we have to seriously ask ourselves whether the tax which the Punjab Act purports to impose can legitimately be said to be in substance a tax on income. Annual value is after all a mere expression, and what we are concerned with is not the mere expression but its meaning and scope in relation to actual income. It was easy enough for the Punjab Legislature to adopt the standard and the machinery employed in the Income-tax Act for getting at the profits from property, if it was their intention to do so, but it has not been done. The real distinction between these two Acts seems to be that whereas the Income-tax Act purports to get at the true income, there is no such presence in the impugned Act which uses the annual value merely for the purpose of determining the importance or the value of the property to be taxed. 22. Reference may be made here to the decision of a special bench of the Bombay High Court in Sir Byramjee Jeejeebhoy v. Province of Bombay [1940] Bom. 58, s.c. 42 Bom. L.R. 10, f.b. The point which arose in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout intending to tax income. This is precisely what was emphasized by Broomfield J. in the following passage in his judgment in Sir Byramjee Jeejeebhoy v. Province of Bombay [1940] Bom. 58, s.c. 42 Bom. L.R. 10, f.b (p. 82) : 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 not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last resource, a witness to the imperfections of human expression and the fallibility of legal draftsmanship. 27. The principles deducible from these pronouncements are (1) that where there is an apparent conflict between an Act of the Federal Legislature and an Act of the Provincial Legislature, we must try to ascertain the pith and substance or the true nature and character of the conflicting provisions, and (2) that, before an Act is declared ultra vires, there should be an attempt to reconcile the two conflicting jurisdictions, and, only if such a reconciliation should prove impossible, the impugned Act should be declared invalid. 28. There is also another mode of approaching the subject, which was indicated by the Judicial Committee in Prafulla Kumar Mukherjee v. Bank of Commerce Ld., Khulna (1947) L.R. 74 I.A. 23, s.c. 49 Bom. L.R. 568, where the question was whether the substance of the Bengal Money Lenders Act was money-lending (a Provincial subject) or promissory notes or banking (a Federal subject). Their Lordships made the following observations (p. 43): Thirdly, the extent of the invasion by the provinces into subjects enumerated in the Federal List has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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