Document Fragment View

Matching Fragments

Here we may refer to certain illustrative cases of well settled authority - the authority which has not been shaken so far and has rather withstood the test of times.

Taxation - measure of levy not suggestive of nature of tax

- illustrative cases In Ralla Ram (supra) the Federal Court held that a tax on buildings under Section 3 of the Punjab Urban Immovable Property Tax Act, 1940, measured by a percentage of the annual value of such building, remained a tax on buildings even though the measure of annual value of a building was also adopted as a standard for determining income from property under the Income Tax Act. The same standard was adopted as a measure for the two levies, yet the levies remained separate imposts by virtue of their distinctive nature. The measure adopted, it was held, could not be identified with the nature of the tax levied.

In Vivian Joseph Ferreira & Anr. Vs. The Municipal Corporation of Greater Bombay & Ors., (1972) 1 SCC 70, the tax was confined to the residential tenanted buildings. The classification was held to be valid. In The Government of Andhra Pradesh & Anr. Vs. Hindustan Machine Tools Ltd., (1975) 2 SCC 274, house tax was levied on the buildings. The new definition of 'house' included 'a factory'. However, the house tax was levied only on the building occupied by the factory and not on the machinery and furniture. The State Legislature claimed competence to do so under Entry 49, List II. The power to tax a building, exercisable without reference to the use to which the building is put, was held to be valid. In the opinion of the Court, it was irrelevant that the building was occupied by a factory which could not conduct its activities without the machinery and furniture.

In Assistant Commissioner of Urban Land Tax Madras and Ors. etc. Vs. Buckingham and Carnatic Co. Ltd. etc. - (1969) 2 SCC 55, for the purpose of attracting the applicability of Entry 49 in List II, so as to cover the impugned levy of tax on lands and buildings, the Constitution Bench laid down twin tests, namely, (i) that such tax is directly imposed on lands and buildings, and (ii) that it bears a definite relation to it. Once these tests were satisfied, it was open for the State Legislature, for the purpose of levying tax, to adopt the annual value or the capital value of the lands and buildings for determining the incidence of tax. Merely, on account of such methodology having been adopted, the State Legislature cannot be accused of having encroached upon Entries 86, 87 or 88 of List I. Entry 86 in List I proceeds on the Principle of Aggregation and tax is imposed on the totality of the value of all the assets. It is quite permissible to separate lands and buildings for the purpose of taxation under Entry 49 in List II. There is no reason for restricting the amplitude of the language used in the Entry 49 in List II. The levy of tax, calculated at the rate of a certain per centum of the market value of the urban land was held to be intra vires the powers of the State Legislature and not trenching upon Entry 86 in List I. So is the view taken by another Constitution Bench in Shri Prithvi Cotton Mills Ltd., etc. Vs. Broach Borough Municipality and Ors., (1969) 2 SCC 283, where the submission that the levy was not a rate on lands and buildings as appropriately understood, but rather a tax on capital value was discarded.

We are inclined to make a reference to a few selected Full Bench decisions of different High Courts which have been cited with approval before this Court in many of the decisions to which we are making reference during the course of this judgment.

In Sir Byramjee Jeejeebhoy Vs. Province of Bombay and Ors. - A.I.R. 1940 Bombay 65 (F.B.) the Provincial Government levied a tax at the rate of 5% of the annual letting value in the City of Bombay on the buildings and lands. The buildings were classified by reference to their annual letting value, and exception from payment of tax was also carved out in favour of such buildings as remained vacant and unproductive of rent for the specified period. It was urged that the impugned tax purported or desired to tax the value. Placing reliance on the Federal Court's decision in 'In Re: C. P. Motor Spirit Act , 1939' (1939 FCR 18) Chief Justice Beaumont held that the impugned tax was a tax on lands and buildings. Three submissions were made in support of the challenge: (i) that the tax is graded by reference to the annual value of the property charged, (ii) that an allowance was available to be made in respect of vacant properties, and (iii) that the basis of the tax was the same as the basis on which tax on income from property was imposed by Sections 6 and 9 of Income Tax Act and, therefore in reality the rate was a tax on income. Beaumont, C.J. held that regard must be had to the pith and substance of the impugned tax and not merely to the form. All the items in the Provincial List must be so construed as to exclude taxes on income. The tax is charged on lands and buildings and it is based on the estimated rent which the property would fetch. Such a value may bear very little relation to the actual income of the property. It is imposed without any relation to the capital value except insofar as such value can be ascertained by reference to the rateable value. It did not make any difference if the arbitrary basis which was adopted for the purpose of the rate might as well be applied for ascertaining the capital value as for ascertaining income. The fact that some concession is allowed to the small owner, a concession which may be based as much on political as on economic considerations and that an allowance may be made where the property is shown to produce no income, a fact which may be taken to show that the estimated value was found to be erroneous, cannot alter the nature of the tax. The concept that in case of conflict between the Federal List and Provincial List, an entry in the Federal List may be given a more restricted meaning, was endorsed. The legality of the levy was upheld.