TMI Blog1979 (9) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... tal value of the building. 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 to the argument that the provision is extortionate as it prevents the owner from passing on the liability to the tenant. If the provisions of sections 11 and 18 are read harmoniously it would appear that if an, assessee is entitled to pay the building tax in instalments under the prescription referred to in section 18, he will not be identified to file an appeal if he has paid those instalments 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. Appeal dismissed. - C.A. 1524 OF 1978 - - - Dated:- 21-9-1979 - Y.V. CHANDRACHUD, V.R. KRISHNA IYER, N.L. UNTWALIA, P.N. SHINGAL AND A.D. KOSHAL, JJ. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question which arises for consideration at the threshold is that relating to the competence of the State Legislature to enact the law, on which considerable stress has been laid by Mr. P. A. Francis. He has argued that the subject-matter of the Act being a tax on buildings, it is a tax on the capital value of the assets of an individual or company and falls within the scope of entry 86 of List I of the Seventh Schedule of the Constitution, and not under entry 49 of List II, so that it was beyond the legislative competence of State Legislature. The question is whether this is so. The word tax in its widest sense includes all money raised by taxation. It therefore includes taxes levied by the Central and the State Legislatures, and also these known as rates , or other charges, lavied by local authorities under statutory powers. Taxation has therefore been 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. Chapter I of Part XI of the Constitution deals with the distribution of legislative powers. Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. It may well be that one s building may imperceptibly be the subject matter of tax, say the wealth-tax, as a component of his assets. under entry 86 (List I); and it may also be subjected to tax, say a direct tax under entry 46 (List II), but as the two taxes are separate and distinct imposts, they cannot be said to overlap other and would be within the competence of the Legislatures concerned. Reference in this connection may be made to Sudhir Chandra Nawn v. Wealth-Tax officer, Calcutta and others.( 1 ) The petitioner there challenged the demand for the recovery of wealth tax on the ground, inter alia, that since the expression net wealth included the buildings of the assessee and tho power to levy tax on them was referred to the State Legislature under entry 49, List II, Parliament was not competent .4 to levy the tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the other argument that the Act is unconstitutional as it was passed on April 2, 1975 but has imposed a tax on buildings with retrospective effect from April 1, 1973. Craies on Statute Law, seventh edition, has stated the meaning of retrospective at page 387 as follows,- A statute is to be deemed to be retrospective, which takes away or impairs any vested right acquired under existing laws, or creates a new obligation,, or imposes a new duty, or attaches a new disability in respect of transactions or considerations already past. But a statute is not properly called a retrospective statute because a part of the requisites for its action is drawn from a time antecedent to it, passing . It has however not been shown how it could be said that the Act has taken away or impaired any vested right of the assessees before us which they had acquired under any existing law, or what that vested right was. It may be that there was no 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 effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speech of 1970-71. It will be recalled that the Bill was published in June 1973 and it was stated there that the Act would be brought into force from April 1, 1970. The Bill was introduced in the Assembly on July S, 1973. The Select Committee however recommended that it may be brought into force from April 1, 1973. Two ordinances were promulgated to give effect to the provisions of the Bill. The Bill was passed soon after and received the Governor s assent on April 2, 1975. It cannot therefore be said with any justification that in choosing April 1, 1973 as the date for the levy of the tax, the Legislature acted unreasonably, or that it was wide of the reasonable mark. The real controversy in this case is that relating to the nature of the tax, for it has been vehemently 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. 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 taxes either on lands as well as buildings, or on lands, or on buildings. If the Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (2) or sub-section (3), the assessing authority shall, among other factors, have regard to the location of the building , and the value of the land on which the building is constructed , but that is necessary for fixing the annual value of the building , and does not bear on the annual value of the ground of the building which, as we have shown, does not have an existence of its own-apart from the building. Thus a building which is located in an important business area of a city, will have a higher annual value than a building located in the outskirts of the city. But any such enhanced value is the value of the building and not of its ground, for what is located in an important business area is not the ground 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. Rule 4 of the Kerala Building Tax Rules, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ldings once for all or, as was stated in the statement of subjects and Reasons of one of the Bills, as a non-recurring tax on buildings, it had to go beyond the annual value, and work out the capital value. This could be done in one of the various modes open to it e.g. On the basis of the capital cost of construction of the building, or its market value, or on the basis of the rent arrived at by what has aptly been described by Channel J., The Assessment Committee of the Brad-Ford-on-Aven Union v. Write(1) as the higgling of the market , and multiplying it by a number which, in the opinion of the Legislature, would best serve the purpose of determining the value of the building, and then to specify the rate of the tax on it. 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 annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding. Where, however, the building has been let at what is plainly a rackrent, that rent is the best evidence of value if it has been fixed by the higgling of the market.. If therefore the Legislature selects that method to determine the annual value of a building, there is neither reason nor authority for holding that it is hypothetical or arbitrary. What the Legislature has done under the Act is to make it clear that the tax is on buildings, and not on the grounds on which they stand, or on lands. It has defined [in clause (e) of section 2] what a building means. It has also defined in clause (a) of section 2 what is meant by annual value of a building 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 S 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 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and a cross-reference to section 102 (2) of the Kerala Municipal Corporation Act, 1961, shows that while the annual value of lands and buildings shall be deemed to be the gross annual rent at which they may at the time of assessment reasonably be expected to let from month to month or from year to year, a deduction in the case of buildings of fifteen per cent of that portion of such annual rent which is attributable to the building, alone apart from their sites and adjacent lands occupied 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 their 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 Munici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fabric. This is also the position in the case of appurtenances. An appurtenance has been defined in the oxford English Dictionary as follows,- A thing that belongs to another, belonging ; a minor property, right, or privileges, belonging to another more important, and passing in possession with it; an appendage. An appurtenance thus belongs to the building concerned and has no existence of its own. This Court had occasion to examine the meaning of appurtenance in Maharaj Singh v. State of Uttar Pradesh and others and has observed as follows (at page 1085),- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble from the records of the local authorities and was quite a simple and reliable basis to work upon. The controversy really centres round the choice of the multiple, to work out the capital value. The Legislature has thought it proper to define capital value of a building to mean the value arrived at by multiplying the annual value of a building by sixteen. There was nothing to prevent it from doing so for, as has been pointed out, it had legislative competence to impose the building tax. And 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 others v. The State of Bihar.(1) 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 Thathuni Moopil Nair v. The State of Kerala and another and Assistant Commissioner of Urban Land Tax v. The Buckingham and Carnatic Co. Ltd. (supra) . 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A tax of such a nature cannot be said to be arbitrary or confiscatory or extortionate. But even if it were assumed that the income from a building is no, more than 61 per cent, and the whole of it is denied to the owner for a period of 16 years, to coincide with the multiple of 16, it cannot be gainsaid that after the expiry of that period, the owner would, at any rate, be able to retain the whole of the income and, in the meantime, benefit from the appreciation of its market value as years go by. Such a taxing statute cannot be said to be colourable . It has in fact been held by this Court in Raja Jagannath Baksh Singh v. The State of Uttar Pradesh(1) 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 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration, sub-section (1) of that section alone arises for consideration because it is not disputed that sub-section (2), which deals with a case where the annual value fixed in the assessment books of the local authority is held to be too low , and sub-section (3), which deals with a case where the capital has not been fixed at all, are on a different footing. For them, the factors 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. It therefore accepts the annual value fixed for a building in the books of the local autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property tax (which is oased on the annual value), including the procedure for moving the Commissioner by a revision petition to reduce the tax. Sub-rule (22) of rule 22 provides for the hearing of such applications by the Commissioner and for their determination by him under subrule (3). Rule 23 provides for the filing of appeal to the Standing Committee against the revisional 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the amenities and appurtenances etc. provided by them, the provision in the Act for ascertaining their capital value by multiplying the annual value by 16 suffers from the vice of treating unequals as equals. That, it has been urged, is discriminatory and violative of article 14 of the Constitution. But the argument loses sight of the basic fact that the capital value of a building has to be arrived at by multiplying the annual value by 16, and the Legislature has taken care 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, 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 highest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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