TMI Blog1969 (4) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of 1966), must be upheld as constitutionally valid. Appeal dismissed. - C.A. 21 OF 1969 - - - Dated:- 11-4-1969 - Judge(s) : G. K. MITTER., M. HIDAYATULLAH., J. C. SHAH., RAMASWAMY., A. N. GROVER JUDGMENT The judgment of the court was delivered by RAMASWAMI J.-In these appeals which have been heard together a common question of law arises for determination, namely, whether the Madras Urban Land Tax Act, 1966 (12 of 1966), is constitutionally valid. In 1963 the Madras Legislature enacted the Madras Urban Land Tax Act, 1963, which came into force in the City of Madras on the 1st of July, 1963. In the Statement of Objects and Reasons of the 1963 Act it was stated that the Taxation Enquiry Commission and the Planning Commission were suggesting the need for imposing a suitable levy on lands put to non-agricultural use in urban areas. The State Government, after examining the report of the Special Officer, decided to levy a tax on urban land on the basis of market value of the land at the rate of 0.4 per cent. on such market value. Section 3 of the Act of 1963 (which will be referred to as the old Act) provided that there shall be levied and collected for every Fasli ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n land or of the building constructed on the urban land in respect of which the word is used; (ii) any person who is entitled to the kudiwaram in respect of any inam land; but does not include- (a) a shrotriemdar; or (b) any person who is entitled to the melwaram in respect of any inam land but in respect of which land any other person is entitled to the kudiwaram. Explanation.-For the purposes of clause (9) and clause (10), inam land includes lakhiraj tenures of land and shrotriem land." "Section 2(13) defines "land" to mean any land which is used or is capable of being used as a building site and includes garden or grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops." Section 6 states: "For the purposes of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of this Act." Section 7 provides for the submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urban land." Section 11 enacts: " (1) Where the owner of urban land has failed to furnish the return under section 7 and the Assistant Commissioner has obtained the necessary information under section 9 he shall serve a notice on the owner in respect of each urban land specifying therein- (a) the extent of the urban land, (b) the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, and direct him either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the owner may rely. (2) After hearing such evidence, as the owner may produce and such other evidence as the Assistant Commissioner may require on any specified points, the Assistant Commissioner shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. (3) Where the owner has failed to attend or to produce evidence in pursuance of the notice under sub-section (1), the Assistant Commissioner shall, on the basis of the information obtained by him under section 9, by order in writing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such decision or order should be modified, annulled, reversed or remitted for reconsideration, it may pass orders accordingly: Provided that the Board of Revenue shall not pass any order under this sub-section in any case, where the decision or order is sought to be revised by the Board of Revenue on its own motion, if such decision or order had been made more than three years previously: Provided further that the Board of Revenue shall not pass any order under this section prejudicial to any party unless he has had a reasonable opportunity of making his representations." Section 33 states: " (1) The Tribunal, the Board of Revenue, the Commissioner, the Assistant Commissioner, or the Urban Land Tax Officer or any other officer empowered under this Act shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure 1908 (Central Act V of 1908), when trying a suit in respect of the following matters, namely:- (a) enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavit; (d) issuing commissions for the examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets was permissible to Parliament under List I, entries 86 and 87, and to the State under entry 48 of List II. Taxation of capital was the appropriate method provided for effecting the directive principle under article 39 of the Constitution, namely, to prevent concentration of wealth. Article 366(9) contains a definition of "estate duty" with reference to the principal value. Entry 86 of List I (Taxes on the capital value of assets exclusive of agricultural land) and entry 88 (Duties in respect of succession to such property) form a ground of entries, the scheme of which is to carry out the directive principle of article 39(c). The Constitution indicated that capital value or principal value shall be the basis of taxation under these entries and, therefore, the method of taxation of capital or principal value was prohibited even to Parliament in respect of other taxes and to the States except in respect of estate duty on agricultural land. Such in effect is the argument of Mr. V.K.T. Chari. But in our opinion there is no warrant for the assumption that entries 86, 88 of List I and entry 48 of List II form a special group embodying any particular scheme. The directive princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or buildings which are brought to tax. 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 tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two entries over-lapping. The two taxes are entirely different in their basic concept and fall on different subject matters. In Rolla Ram v. Province of East Punjab the Federal Court held that the tax levied by section 3 of the Punjab Urban Immovable Property Tax Act, 1940 (17 of 1940), on buildings and lands situated in a specified area at such rate not exceeding twenty per cent. of the annual value of such buildings and lands, as the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the legislation is within the express powers, then it is not invalidated if, incidentally, it affects matters which are outside the authorised 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., by a direct prohibition of any trade with a foreign country. In other words, you may certainly consider the clauses of an Act to whether they are passed 'in respect of' the forbidden subject." In the case of Subrahmanyan Chettiar v. Muttuswami Goundan, Sir Maurice Gwyer, C.J. said: "It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining the previous sanction of the Governor-General make and take into consideration any law imposing for the purposes of the local Government any tax included in Schedule I. Schedule II, contained eleven items of tax. In making a law imposing or authorising any local authority to impose for the purposes of such local authority any tax in Schedule II, the Legislative Council required no previous sanction of the Governor-General. In Schedule II, item No. 2 was tax on land or land values and item No. 3 was a tax on buildings. In the Government of India Act, 1935, the two entries were combined and List II, entry 42, is "taxes on lands and buildings and hats and windows". The legislative history of entry 49, List II, does not, therefore, lend any support to the argument that entry 49 of List II relating to tax on land and buildings cannot be separated. On the other hand, we are of opinion that entry 49, "Taxes on lands and buildings", should be construed as taxes on land and taxes on buildings and there is on reason for restricting the amplitude of the language used in the entry. This view is also borne out by authorities. In Raja Jagannath Baksh Singh v. State of U.P. the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining the market value in a zone, the present Act requires a return to be submitted by the owner mentioning the amount which, in the opinion of the owner, is the market value of the urban land. On receipt of the return, if the Assistant Commissioner is satisfied that the particulars mentioned are correct and complete, he may determine the market value as given by the owner of the land. If he is not satisfied with the return, he shall serve a notice to the owner asking him to attend his office with the relevant evidence in support of his return. After hearing the owner and considering the evidence produced, the Assistant Commissioner may determine the market value. In case the owner fails to attend or fails to produce the evidence, the Assistant Commissioner is empowered to assess the market value on the basis of an enquiry made by him. Section 11 prescribes the procedure for determine the market value when the owner fails to furnish a return as required under section 7. The section requires the Assistant Commissioner to serve a notice on the owner specifying amongst other things the amount, which in the opinion of the Assistant Commissioner, is the correct market value and direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 6 of the Act constituted excessive delegation of authority and so violative of article 19(1) and article 14 of the Constitution. (See the judgment of Veeraswami J. who pronounced the main judgment in the High Court). But Mr. V. K. T. Chari did not support this line of reasoning in his arguments before this court. On the other hand, learned counsel conceded that the power of determining the value of the urban land being judicial or quasi-judicial in character, the doctrine of excessive delegation of authority had no application. We pass on to consider the next contention raised on behalf of the petitioners, namely, that the Act should be struck down as an unreasonable restriction on the right to acquire, hold and dispose of property and as such violative of article 19(1)(f) of the Constitution. It was argued that the test of reasonableness would be that the tax should not be so high as to make the holding of the property or the carrying on of the activity (business or profession) which is subject to taxation, uneconomic according to accepted rates of yield. In this connection it was said that the new Act by imposing a tax on the capital value at a certain rate was not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing its confiscatory purposes. This is illustrated by the decision of this court in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala where a taxing statute was struck down because it suffered from several fatal infirmities. On the other hand, we may refer to the case of Raja Jagannath Baksh Singh v. State of Uttar Pradesh where a challenge to the taxing statute on the ground that its provisions were unreasonable was rejected and it was observed that unless the infirmities in the impugned statute were of such a serious nature as to justify its description as a colourable exercise of legislative power, the court would uphold a taxing statute." As a general rule it may be said that so long as a tax retains its character as a tax and is not confiscatory or extortionate, the reasonableness of the tax cannot be questioned. Mr. Chari submitted that the existing property tax under section 100 of the City Municipal Corporation Act and the tax on urban lands under the new Act, both enacted under Entry 49 of the State List, one of them imposing a tax on the capital value of urban lands and the other on the annual value of lands and buildings exhaust an unreasonably high propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trespassed upon. It was said that the contractor's method was the last resort in valuation when a building has to be valued apart from the land and that it was a wrong application of the formula to use it to value the land without the building particularly when valuation of land can be made by applying the principles of the Land Acquisition Act. But this argument has no bearing on the constitutional validity of the charging section or the machinery provisions of the Act. It is, however, open to the writ petitioners to challenge the validity of the particular valuation in any particular case by way of an appeal under the statute or to move the High Court for grant of writ under article 226 of the Constitution. The impugned Act provides for the retrospective operation of the Act. Section 2 states that except sections 19, 47 and 48, other sections shall be deemed to have come into force in the City of Madras on the 1st day of July, 1963, and sections 19 and 47 shall be deemed to have come into force in the City of Madras on the 21st May, 1966. It also provides that section 48 shall come into force on the date of the publication of the Act in the Fort St. George Gazette. Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bihar. By this ordinance, the material provisions of the earlier Act of 1950 which had been struck down by this court were validated and brought into force retrospectively from the date when the earlier Act had purported to come into force. Subsequently, the provisions of the said ordinance were incorporated in the Act, namely, the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961, which was duly passed by the Bihar Legislature and received the assent of the President on 23rd September, 1961. As a result of the retrospective operation of this Act, its material provisions were deemed to have come into force on April 1, 1950, that is to say, the date on which the earlier Act of 1950 had come into force. The appellants challenged the validity of this Act of 1961. Having failed in their writ petition before the High Court, the appellants came to this court and the argument was that the retrospective operation prescribed by section 1(3) and by a part of section 23(b) of the Act so completely altered the character of the tax proposed to be retrospectively recovered that it introduced a serious infirmity in the legislative competence of the Biha ..... 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