Appeal No 1641 of 1966
Appeal from the judgment and decree dated March 10 11 1965 of the Bombay High Court in Appeal No 26 of 1958 from Original Decree
L10Sup Cl NP70 14 922 L M Singhvi and B D Sharma for the appellant
H R Gokhale Y section Chitale Janendra Lal and B R Agarwala for respondent No 1
The Judgment of the Court was delivered by Bhargava J
The Union of India as the owner of the Central Railway instituted a suit for refund of Rs 276967 collected as tax from the Railway Administration by the respondent Municipality during the period from 1931 till the institution of the suit in November 1954
The facts leading up to the suit are that the GIP Railway which was a Private Company had land situated within the limits of the respondent Municipality
On this land stood the railway station their Water Reservoir at Bhusi bungalows of Officers and certain other buildings
There were also vacant lands and some lands on which railway lines were laid out
In this area which belonged to the GIP Railway the Railway Company itself built roads supplied water from its Bhusi Reservoir arranged for the lighting and provided other services
In fact up to the year 1916 the Railway used to supply water even to the Municipality from its Bhusi Reservoir on payment
The Municipality was governed at that time by the Bombay District Municipal Act No 3 of 1901 hereinafter referred to as the Act of 1901 under which a tax on lands and buildings situated within the municipal limits used to be charged  4 per cent of the annual rental value but no tax was levied on the buildings and lands of the GIP Railway in view of section 135 of the Indian Railways Act No 9 of 1890
In the year 1914 the Government of India issued a notification under section 135 of the Railways Act declaring that the Administration of the GIP Railway shall be liable to pay in aid of the funds of the local authorities set out in the Schedule the taxes specified against each of those authorities
Against the lame of Lonavla Municipality which is the respondent in this case the tax mentioned was house tax
Thus the exemption granted to the Railway Administration was taken away by this notification in respect of house tax and house tax became payable by the GIP Railway to the respondent
In 1916 the respondent constructed its own water reservoir and became independent of the Railway for water supply but no water rate was charged from the Railway even thereafter though water charges for actual quantities of water supplied in three of the bungalows was charged from the occupants of the bungalows
The rest of the Railway Colony continued to be supplied with water from the Railway Reservoir at Bhusi
On 4th May 1916 the respondent promulgated new rules for taxation and instead of charging separate house tax and water rate it decided to charge a consolidated tax assessed as a rate on 923 buildings and lands in accordance with clause c of the proviso to section 591 of the Act of 1901
Thereafter it appears that the respondent demanded this consolidated tax from the Railway in respect of the Railway lands and buildings
The Railway felt that since under the notification of 1914 house tax only was payable by the Railway Administration there was no justification for the respondent to charge consolidated tax from it and consequently protested against this payment
Thereafter on 26th July 1917 the Government of India issued a fresh notification tinder section 135 of the Railways Act whereby the Railway Administration was rendered liable to pay what was described as tax on lands and buildings
On the issue of this notification the respondent started charging the GIP Railway this consolidated tax and this continued until some time in the year 1927 by which time the GIP Railway was taken over by the Government and became a Government undertaking
In the Rules promulgated on 4th May 1916 the consolidated tax described as a general rate on buildings and lands was not chargeable on government property
Relying on this provision in the Rules an objection was raised that the charge of the tax was illegal when the Railway had become government property
Subsequently the respondent Municipality amended its Rules and promulgated fresh Rules on the 6th October 1931
By this time the respondent Municipality had been constituted into a Borough under the Bombay Municipal Boroughs Act No 18 of 1925 hereinafter referred to as the Act of 1925
These new Rules were thus promulgated under this Act of 1925
Under these Rules the exemption in respect of government property to the charge of the general rate on buildings and lands which was contained in the Rules of 1916 was deleted and all lands and buildings within the Municipal Borough became chargeable irrespective of their being owned by the Government
A separate clause was incorporated giving certain exemptions but since they do not affect the case before us they need not be mentioned
In pursuance of these Rules of 1931 the respondent started collecting the consolidated tax assessed as a rate on buildings and lands of the Railway from it
In the year 1940 the Railway Administration preferred an appeal under section 110 of the Act of 1925 against one of the demand notices issued in respect of this tax on the 6th October 1940
This appeal came up before the Sub Divisional Magistrate Western Division Poona who held that the levy of this consolidated tax was ultra vires and set aside the demand notice
On a revision by the respondent under section 111 of the Act of 1925 the District and Sessions Judge set aside the order of the Sub Divisional Magistrate holding that the imposition of the tax was valid
Against this decision the Railway Administration filed a revision 924 before the High Court of Bombay under section 115 of the Code of Civil Procedure
The High Court on 12th February 1945 refused to exercise its special powers under section 115 CPC with the further remark that the proper remedy to be sought was by means of a suit
Under these circumstances the Union of India which had come to be the owner of this Railway under the name of the Central Railway filed the suit on 27th November 1954 for refund of the entire amount which was collected by the respondent from the Railway in pursuance of the Rules of 193 1
The trial court held that the levy of this tax was void inasmuch as under the notification issued on the 26th July 1917 only the rate on lands and buildings was payable by the Railway Administration
The suit for the refund filed by the Union of India was on this ground decreed
On appeal the  High Court disagreed with the trial court and held that even the consolidated tax was payable in view of the notification of 26th July 1917 so that the tax had been rightly collected
The High Court thereupon set aside the decree of the trial court and dismissed the suit
It is against this decree that the Union of India has come up in this appeal by certificate under Article 133 of the Constitution
In order to appreciate the submissions made by counsel for parties in this appeal it is necessary to set out the relevant provisions of section 59 of the Act of 1901 and of section 73 of the Act of 1925 which are as follows  Section 59 of the Act of 1901
1 Subject to any general or special orders which the State Government may make in this behalf any Municipality many impose for the purposes of this Act any of the following taxes that is to say ia rate on buildings or lands or both situate within the municipal district vii a general sanitary cess for the construction or maintenance or both construction and maintenance of public latrines and for the removal and disposal of refuse viii a general water rate or a special water rate or both for water supplied by the Municipality which may be imposed in the form of a rate assessed on buildings 925 and lands or in any other form including that of charges for such supply fixed in such mode or modes as shall be best adapted to the varying circumstances of any class of cases or of any individual case ix a lighting tax  
Provided further that  
c the Municipality in lieu of imposing separately any two or more of the taxes described in clauses i vii viii and ix may impose a consolidated tax assessed as a rate on buildings or lands or both situate within the municipal District
 Section 73 of the Act of 1925 73 1 Subject to any general or special orders which the State Government may make in this behalf and to the provisions of sections 75 and 76 a municipality may impose for the purposes of this Act any of the following taxes namely i a rate on buildings or lands or both situate within the municipal borough  
viiia general sanitary cess for the construction and maintenance of public latrines and for the removal and disposal of refuse  
x a general water rate or a special water rate or both for water supplied by the municipality which may be imposed in the form of a rate assessed on buildings and lands or in any other form including that of charges for such supply fixed in such mode or modes as shall be best adapted to the varying circumstances of any class of cases or of any individual case xi a lighting tax  
926 Provided further that  
c the municipality in lieu of imposing separately any two or more of the taxes described in clauses i viii x and xi may impose a consolidated tax assessed as a rate on buildings or lands or both situated within the municipal borough
 In the year 1914 the respondent Municipality had only levied a rate on buildings an lands under clause i of section 5 91 of the Act of 1901
There was no question of imposing a general or special water rate as the respondent had no water works of its own and was taking water supply from the GIP Railway
It was in these circumstances that the notification was issued by the Central Government dated the 13th May 1914 making the Railway Administration liable to pay house tax to the Municipality of Lonavla
The notification was obviously intended to make the Railway liable to pay the tax which had been imposed as a rate on buildings and lands under section 591i of the Act of 1901 by the respondent
Subsequently in the year 1916 the respondent Municipality not only arranged for water supply and imposed a general water rate it proceeded to make rules for imposition of a consolidated tax assessed as a rate on buildings and lands under clause c of the second proviso to section 591 in lieu of the existing tax imposed as a rate on buildings and lands under clause i as well as the water rate imposed under clause viii of section 591
Thereafter the Central Government issued the notification dated 26th July 1917 under section 1351 of the Railways Act making the GIP Railway liable to tax on buildings and lands imposed by the Lonavla Municipality
It is to be noted that in this notification the Government used the word tax and not the word  rate
The tax imposed under section 591 was described as a rate on buildings and lands
If the intention of the Government had been that the GIP Railway should be liable to that tax only it could have used the word rate instead of the word tax  in the notification
In fact if the notification had been left untouched the liability of the GIP Railway would have continued to be in respect of the rate on buildings or lands because of the earlier notification of 1914 under which the Railway had been made liable to House tax
The notification of 26th July 1917 made the Railway liable to tax on buildings and lands obviously because the Government intended that the Railway should be liable to the consolidated tax under clause c of the second proviso to section 591
Clause c permits the imposition of a consolidated tax assessed as a rate on buildings or lands or both
The moment a tax is assessed as a rate on buildings or lands it naturally becomes a tax 9 2 7 on building and lands
The fact that it was a consolidated tax was immaterial
It was this consolidated tax which was intended to be made payable by the GIP Railway when the Central Government used the expression tax on buildings and lands in place of the earlier words House Tax and chose not to refer to the liability being in respect of a rate on buildings and lands
It is true that all taxes are not rates but all rates are taxes
A rate on buildings and lands is a tax on buildings so also any other tax  assessed as a rate on buildings and lands becomes a tax on buildings and lands
We are unable to accept the submission made by counsel for the appellant that the expression tax on buildings and lands used in the notification of 26th July 1917 could only refer to a rate on buildings and lands under clause i of section 591 and would not cover the con solidated tax referred to in clause c of the second proviso
It is true as urged by him that the tax under clause c of the second proviso is not identical with and is different in nature from the rate on buildings and lands imposed under clause i but that circumstance does not imply that it is not a tax on buildings and lands
The mere use of the word consolidated cannot make any difference to this interpretation
It is also significant that clause c of the second proviso does not purport to lay down that the consolidated tax will be the sum total of the taxes described in clauses i vii viii and ix
The consolidated tax envisaged by that clause is in lieu of separate imposition of any two or more of the taxes described in clauses i vii viii and ix which means that the power to impose
this consolidated tax has been given for the purpose of substituting it for the multiple taxes which could be imposed under those clauses
This consolidated tax cannot therefore be held to be of the same nature as the taxes in all those clauses
The intention appears to be that though the Municipality was empowered to impose four different kinds of taxes it was permitted under clause c of the second proviso to simplify matters by having a single tax on buildings and lands in lieu of those multiple taxes
Such a single tax had to be assessed as a rate on buildings and lands
This being the nature it obviously becomes a tax on buildings and lands so that the notification of 26th July 1917 clearly makes the Railway liable to payment of this tax
The position under the Act of 1925 is exactly the same where also the language of clause c to the second proviso is identical with that contained in the Act of 1901 so that the liability imposed on the Railway by the notification of the Government dated 26th July 1917 under s1351 of the rail ways Act continued even under the Act of 1925
It is also significant to note that the Rules which we re framed by the Municipality under the Act of 1901 and by the Municipal Borough later under the Act of 1925 which were promulgated on 928 the 4th May 1916 and the 6th October 1931 respectively described the tax as a general rate on buildings and lands in rule 1
It is true that in the heading of the Rules the expression used was that the Rules were for the levy of a consolidated rate on buildings and lands but in the main provision the tax was described only as a general rate on buildings And lands
A general rate on buildings and lands is obviously a tax on buildings and lands and would therefore be covered by the notification of the Central Government dated 26th July 1917
Apart from this interpration which we have arrived at on the basis of the language used in the two Acts the Rules and the notification of the Central Government there are two circumstances which indicate that this must be the correct construction of the notification issued by the Central Government
The first circumstance is that when this notification was issued the only tax which was being imposed by the Lonavla Municipality which the Central Government could have intended should become payable by the GIP Railway was the consolidated tax under clause c of the second proviso
There was no other tax which could have been covered by this notification
In fact the notification would be meaningless if we were to hold that this consolidated tax is not covered by the expression tax on buildings and lands
This notification was issued while the earlier notification of 1914 was already in existence and if the intention was to cover only the rate mentioned in clause i of section 591 there was no need to issue this fresh notification as the liability of the Railway to pay that tax already existed under that notification of 1914
The second circumstance that we can take notice of is the historical background in which this notification of 26th July 1917 was issued
It appears that after the Rules for imposition of this consolidated tax came into force in 1916 the Municipality demanded payment of this consolidated tax from the GIP Railway
Thereupon the Agent of the GIP Railway Company wrote a letter to the Secretary Railway Board Simla on the 1st December 1916 stating that the Company did not agree that it should pay the new consolidated tax as it comprised a house tax and a water rate
The Company had its own arrangements for the supply of water and it was obviously unfair that it should be called upon tO pay any tax which includes a water rate when no municipal water was being consumed by the Railway at Lonavla
The Secretary Railway Board forwarded this letter to the Secretary to the Government of Bombay General Department with a letter dated 12th December 1916 enquiring whether the Agent s information was correct and if so whether the Bombay Government had any remarks to offer on the Agent s 92 9 contentions
On 11th May 1917 the Secretary to the Government of Bombay replied to the Secretary Railway Board pointing
out that originally the Municipality proposed to levy a general water rate on all houses in addition to the existing house tax but on representations from property owners of Lonavla and Khandalla it had decided to
impose a consolidated rate on buildings and lands in lieu of the house tax and the proposed general water rate
Consequently they were levying in lieu of house tax a consolidated rate which included a general water rate on a sliding scale on all properties situated within the municipal limits
The water rate imposed was not intended to cover expenses on any service rendered in the nature of a general tax as opposed to a service tax
In equity the Railway Company s property in Lonavla had no better right to exemption than the properties of private individuals who although they did not take private pipe connections were paying the general water rate
In these circumstances a request was made to the Secretary Railway Board to move the Government of India to declare the Administration of the GIP Railway liable to pay to the Lonavla Municipality the consolidated tax on buildings and lands in lieu of the housetax in respect of the railway properties situated within the municipal limits
It was suggested that the Schedule annexed to the notification dated 13th May 1914 may be amended accordingly
It was in pursuance of this move by the Bombay Government that the notification of 26th July 1917 was issued by the Central Government
That the notification of 26th July 1917 was issued in pursuance of this correspondence is clarified by the Memorandum dated 17th August 1917 with which a copy of the new notification was forwarded by the Government of India Railway Department Railway Board to the Secretary to the Government of Bombay
These circumstances in which the notification of 16th July 1917 was issued make it plain that the Government of India when they used the expression  tax on buildings and lands in the notification intended to make the GIP Railway liable to the consolidated tax which had been imposed by the Municipality under the Rules of 1916
The decision of the Bombay High Court in Borough Munici 
pality Ahmedabad vs Ahmedabad Manufacturing and Calico Printing Co Ltd 1 on interpretation of section 73 and 1 1 0 of the Act of 1925 also supports the view that we have taken above
The question that arose in that case was whether the right of an appeal  envisaged by using the expression in the case of a rate on buildings or lands or both in section 110 could be availed of in respect of a general water rate imposed under clause x of section 731 which described that tax as a general water rate imposed in the form of a 1  930 rate assessed on buildings and lands
It was held that there was no distinction between a rate on buildings or lands and a tax in the form of a rate assessed on buildings or lands
In the case before us on that analogy a consolidated tax assessed as a rate on buildings and lands cannot be distinguished from a tax on buildings and lands
Reference may also be made to a decision of the Allahabad High Court in Raza Buland Sugar Co Ltd Rampur vs Municipal Board Rampur1 where it was held that a water rate is a tax on buildings and lands and is not in fact a service tax chargeable in respect of water supplied
Counsel for the appellant referred to a decision of the Madras High Court in Municipal Council Cuddappah vs M  section M Ry
Co Ltd1 but that case is of no assistance as it turned on the special language which had been used in the Act and the notification which came up for consideration in that case
In fact the expression that had to be interpreted was property tax and not tax on buildings and lands
We agree with learned counsel for the appellant that much assistance cannot be derived from the decision of this Court in Patel Gordhandas Hargovindas vs Municipal Commissioner Ahmedabad  3  which was relied upon by the High Court
However as we have held above on the proper interpretation of the language used in the two Acts the Rules and the notification and taking into account the circumstances under which the notification of 1917 was issued the only conclusion that can be arrived at is that the Railway was made liable to this consolidated tax so that the decision of the High Court is perfectly correct
The appeal fails and is dismissed with costs
RKPS Appeal dismissed
1 AIR 1962 Alld
2 AIR 1929 Mad 746


Summary:
The respondent Municipality which at the time was governed by the Bombay District Municipal Act 3 of 1901 levied a tax on lands and buildings situated within its municipal limits at 4 per cent of the annual rental value
However no such tax was levied on the buildings and lands of the GIP Railway situated within its limits in view of section 135 of the Indian Railways Act 9 of 1890
In 1914the Government of India issued a notification under section 135 persuant to which the GIP Railway administration was required to pay house tax to the respondent
Upto 1916 the respondent municipality used to draw water from the Railway s reservoir but constructed its own reservoir during that year
Both prior to and after this date no water rate was charged by the respondent municipality from the railway
On 4th May 1916 the respondent promulgated new rules for taxation and instead of charging separate house tax under section 591i or a general water rate under section 591 viii of the Act of 1901 it decided to charge a consolidated tax assessed as a rate on buildings and lands in accordance with clause c of the proviso to section 59i
Although the respondent demanded this consolidated tax from the railway in respect of its lands and buildings the railway resisted payment contending that under the notification of 1914 house tax only was payable by it
On 26th July 1917 the Government of India issued a fresh notification under section 135 of the Railways Act whereby the railway administration was rendered liable to pay what was described as tax on lands and buildings
Thereafter the respondent charged the railway the consolidated tax until some time in 1927 when the GIP railway was taken over by the Government
In the rules promulgated on 4th May 1916 the consolidated tax was not chargeable on Government property
Relying on this provision an objection was raised that the charge of tax was illegal when the railway had become Government property
The respondent Municipality amended its rules and promulgated fresh rules on 6th October 1931 under the provisions of the Bombay Municipal Boroughs Act 18 of 1925 under which enactment the respondent municipality had by that time been constituted into a Borough
Under these rules the exemption in respect of Government property was deleted
In pursuance of these amended rules the respondent started collecting from the railway the consolidated tax assessed as a rate on its buildings and lands which was by then being levied under the provisions of s73 of the Act of 1925 that were similar to those of s59 of the Act of 1901
In 1940 the railway administration preferred an appeal under section 110 of the Act of 1925 against one of the demand notices
Although the 921 First Court set aside the demand notice an appeal was eventually dismissed by the High Court with the remark that the proper remedy to be sought was by means of a suit
The Union of India which had become the owner of the railway field a suit in November 1954 for refund of the entire amount which was collected by the respondent from the railway in pursuance of the rules of 1931
The Trial Court granted a decree holding that the levy of this tax was void inasmuch as under the notification issued on the 26th July 1917 only the rate on lands and buildings was payable by the Railway Administration
On appeal the High Court disagreed with the trial court and set aside the decree
 Oil appeal to this Court by a certificate under article 133 of the Constitution
HELD  Dismissing the appeal On the proper interpretation of the language used in two Acts the Rules the notification and taking into account the circumstances under which the notification of 1917 was issued the only conclusion that could be arrived at was that the Railway was made liable to the consolidated tax
It is true that all taxes are not rates but all rates are taxes
A rate on buildings and lands is a tax on buildings so also any other tax assessed as a rate on buildings and lands becomes a tax on buildings and lands
It was not possible to accept the submission of the appellant that the expression tax on buildings and lands used in the notification of 26th July 1917 could only refer to a rate on buildings and lands under clause i of section 591 and would not cover the consolidated tax referred to in clause c of the second proviso
Although the tax under clause c of the second proviso is not identical with and is different in nature fromthe rate on buildings and lands imposed under clause i that circumstance does not imply that it is not a tax on buildings and lands
The mere use of the word consolidated cannot make any difference to this interpretation
The intention appears to be that though the Municipality was empowered to impose four different kinds of taxes it was permitted under clause c of the second proviso to simplify matters by having a single tax on buildings and lands in lieu of those multiple axes
Such single tax had to be assessed as a rate on buildings and lands
This being the nature it obviously becomes a tax on buildings and lands so that the notification of 26th July 1917 clearly makes the Railway liable to payment of this tax
The position under the Act of 1925 is exactly the same where also the language of clause c to the second proviso is identical with that contained in the Act of 1901 so that the liability imposed on the Railway by the notification of the Government dated 26th July 1917 under section 1351 of the Railways Act continued even under the Act of 1925
927 B H Borough Municipality Ahmedabad vs Ahmedabad Manufacturing and Calico Printing Co Ltd  Raza Buland Sugar Co Ltd Rampur vs Municipal Board Rampur AIR 1962 Alld
83 Municipal Council Cuddappah vs M SM Ry
Co Ltd AIR and Patel Gordhandas Hargovindas vs Municipal Commissioner Ahmedabad   referred to