1979 (9) TMI 210 - SC - Indian Laws

Validity of provisions of the Kerala Building Tax Act 1975 - Imposition of tax on buildings - Legislature adopted merely the floor area of the building as the basis of the tax irrespective of all other considerations - competence of the State Legislature to enact the law - method of determining the capital value of a building - Discrimination and violation of Article 14 of the Constitution - meaning of retrospective - Word appurtenances . HELD THAT - 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 for purposes of the property tax (including the annual value) shall be determined by the Commissioner. Rule 12 provides for the filing of a revision petition and Rule 13 provides for its disposal only after hearing the revision petitioner. Rule 24 provides for the filing of appeal to the Municipal Council against the Commissioner s assessment. Rule 30 provides for the appointment of Special Officer to exercise the Council s appellate power. So the Municipal Act also provides the necessary procedure and the machinery for the proper fixation of the annual value of buildings. It has been argued that while Section 18 of the Act provides that the tax may be paid in such installments as may be prescribed the proviso to Sub-section (1) of Section 11 which deals with appeals renders that provision negatory as it states that no such appeal shall lie unless the building tax has been paid. The concern of the learned Counsel in advancing this argument is justified; but if the aforesaid provisions of Sections 11 and 18 are read harmoniously it would appear that if an assessee is entitled to pay the building tax in installments under the prescription referred to in Section 18 he will not be disentitled to file an appeal if he has paid those installments as and when they fall due. That is a fair and reasonable view to take of the relevant provisions of the Act and we hold accordingly. In the result we find no merit in these cases and they are all dismissed without any order as to the costs. We however think it proper in the circumstances in which all this controversy has arisen and uncertainty about the true effect of the provisions of the Act has been created to direct that in cases where the building tax has not been assessed so far the assessing authority may give the assessees an opportunity to produce evidence on which they may want to rely in support of their returns. In cases where the assessments have been made but the assessees could not or did not file their appeals within the period specified therefor we direct that they may be permitted to do so within a period of 30 days from the date of this judgment and the appellate authority may admit those appeals as the prosecution of these cases was sufficient cause for not presenting them earlier. It is clarified that if any matter is pending before the Government of Kerala under Section 3(2) of the Act it will be permissible for that Government to dispose it of according to the law. So also in cases where the High Court has given an option or opportunity to any assessee to file fresh objections before the authority concerned under the provisions of the Act it will be permissible for him to do so.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

The competence of the State Legislature to enact the Kerala Building Tax Act, 1975, under entry 49 of List II of the Seventh Schedule of the Constitution, as opposed to entry 86 of List I.
The constitutionality of the retrospective imposition of the building tax from April 1, 1973.
The nature of the tax imposed by the Act-whether it is a tax on buildings alone or on both lands and buildings.
The validity of the method used to determine the capital value of buildings based on their annual value.
The adequacy of procedural mechanisms for the assessment of the annual value of buildings under the Act.
The alleged discriminatory nature of the Act in treating unequals as equals.
The impact of Section 29 of the Act on the ability to pass the tax liability to tenants.
The implications of the proviso to Sub-section (1) of Section 11 concerning the payment of tax as a precondition for appeals.

2. ISSUE-WISE DETAILED ANALYSIS

Competence of the State Legislature

Relevant legal framework and precedents: The Court examined entries 86 of List I and 49 of List II of the Seventh Schedule of the Constitution. Entry 86 pertains to taxes on the capital value of assets, while entry 49 pertains to taxes on lands and buildings.
Court's interpretation and reasoning: The Court held that a tax on buildings falls under entry 49 of List II, as it is a direct tax on buildings and not on the capital value of assets.
Conclusions: The State Legislature was competent to impose the tax under entry 49 of List II.

Retrospective Imposition of the Tax

Relevant legal framework: The Court referred to principles of statutory interpretation regarding retrospective legislation.
Court's interpretation and reasoning: The Court found that the Act did not impair any vested rights or create new obligations retrospectively in a manner that would render it unconstitutional.
Conclusions: The retrospective imposition of the tax was upheld as constitutional.

Nature of the Tax

Relevant legal framework: Entry 49 of List II allows for taxes on lands and buildings.
Court's interpretation and reasoning: The Court clarified that the tax was on buildings, including the ground on which they stand, but not on lands as separate entities.
Conclusions: The tax was determined to be on buildings alone, not on lands and buildings.

Method for Determining Capital Value

Relevant legal framework: The Act prescribes a method of determining capital value by multiplying the annual value by sixteen.
Court's interpretation and reasoning: The Court found this method to be within the legislative competence and not arbitrary or confiscatory.
Conclusions: The method of determining capital value was upheld as valid.

Procedural Mechanisms for Assessment

Relevant legal framework: The Act relies on the annual value fixed by local authorities.
Court's interpretation and reasoning: The Court found that the procedural mechanisms provided by local authorities were adequate for determining annual value.
Conclusions: The procedural mechanisms for assessment were deemed adequate.

Alleged Discriminatory Nature of the Act

Relevant legal framework: Article 14 of the Constitution prohibits discrimination.
Court's interpretation and reasoning: The Court found that the Act's provisions accounted for differences in buildings' location and quality through their impact on rental value.
Conclusions: The Act was not discriminatory.

Impact of Section 29 on Passing Tax Liability to Tenants

Relevant legal framework: Section 29 of the Act.
Court's interpretation and reasoning: The Court noted that the building tax was non-recurring and not intended to be passed to tenants.
Conclusions: Section 29 did not render the Act extortionate.

Proviso to Sub-section (1) of Section 11

Relevant legal framework: The requirement to pay tax before appealing.
Court's interpretation and reasoning: The Court interpreted the provisions harmoniously, allowing appeals if installments were paid.
Conclusions: The proviso did not negate the right to appeal.

3. SIGNIFICANT HOLDINGS

"A tax on 'buildings' is therefore a direct tax on the assessee's buildings as such, and is not a personal tax without reference to any particular property."

"The choice of a date as a basis for classification cannot always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances."

"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 reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust."

The Court upheld the validity of the Kerala Building Tax Act, 1975, affirming the legislative competence of the State Legislature, the constitutionality of retrospective tax imposition, and the adequacy of procedural mechanisms for tax assessment. The method for determining the capital value of buildings and the provisions related to tax appeals were also upheld. The Act was found not to be discriminatory or extortionate.

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