Civil Appeals Nos 1656 to 1659 of 1973
Appeal by special leave from the judgment and order dated the 29th September 1972 of the Madras High Court in Writ Appeals Nos 191 23 24  190 of 1968 respectively
section Challaswamy and K Hillgorani for the appellant
8 L839SupCI75 334 A K Sen A V Rangam and A Subashini for the respondents
The Judgment of the Court was delivered by KRISHNA IYER J
The die hard tax  fee  dilemma survives as these appeals by special leave attest long after this Court has dispelled the fiscal legal confusion on the point in a series of rulings
The cases before us were provoked by a sudden escalation of licence fee  imposed on all homelier by the common appellant the Maduari Municipal Council now it is a Corporation but that makes no difference Council for short
The scale of fees which perhaps merely defrayed the cost of issuing the licence was moderate to begin with and paid periodically by the respondents who run hotels within the municipal limits but their present grievance is that the resolution of December 28 1965 whereby a sharp spurt in the rates of fee was Cr brought about has been tainted with unconstitutionality 
The authority to justify the levy qua fee must render some special services to the category from whom the amount is exacted and the total sum so collected must have a reasonable correlation to the cost of such services
Where these dual basic features are absent you cannot legally claim from the licensee under the label fee 
D This Court has as late as the Salvation Army Casel set out the tests beyond doubt
When the respondents writ petitioners challenged the fee raise the plea in defence first was that the impost was a fee strictly so called that it was requited by adequate benefits and that the larger lay out on the inspecting staff and allied items both necessitated and validated the new increase
However on later and better reflection may be the inspirational source for which was stated to be this Court s pronouncement in the Liberty Cinema Case2 the Council rightly abandoned the fee cum quid pro quo formula and anchored itself on the right to exact the higher rate as a tax on land and building  under Entry 49 of List II in the Seventh Schedule read with section 3212 of the Madras District Municipalities Act 1920 for short the Act
This volte face as it were was not objected to by the opposite party and the writ petitions and writ appeals were disposed of on that footing
The learned Single Judge upheld the levy but the appellate Bench upset it
The appellant Council has journeyed to this Court to repair the blow on its revenue since there are 1200 and odd hotel keepers similarly situated in the Madurai Municipal limits although only four have figured as respondents here
The financial dimension of the decision is indeed considerable
Shri Chellaswamy counsel for the Council has been refreshingly fair in his submissions and consistently with the case urged in the High Court to support the levy has grounded his defence of the feehike  on the taxing power of the municipal body under the Act
The core of the matter therefore is whether the context and text of the statute and other surrounding circumstances warrant the validation of the levy as a tax in essence be its name what it may
1  2 1965 2 section C R 477
335 Let us formulate the problems for facility of logical handling
Agreed as both parties now are that this licence fee stands or falls as a tax the principal question is whether the fee  provided for in section 3212 of the Act under which it is collected is a tax at all having regard to the anatomy of the Act
If it can be so regarded the next point is whether Entry 49 of List II can bring within its constitutional compass the licence fee for running a hotel trade
Thirdly if that is permissible are there other incurable infirmities  These apart some matters of subsidiary moment do arise and may be considered in the appropriate sequence
The initial terminological hurdle in the way of the appellant is that section 3212 of the Act authorizes the collection of a licence fee in contra distinction to property tax in section 78 of the Act
Ajoy Kumar vs Local Boardl
Naturally Shri A K Sen counsel for the con testants insisted that the Act had made a deliberate dichotomy between the two types of levy placed them subject wise in different parts of the statute and meaningfully referred to them as tax  and fee  in sections 78 and 3212 respectively
Counsel for the appellant relying on certain passages in Liberty Cinema supra desired us to slur over the verbal error
True mere nomenclature cannot without more lead to rejection of the plea of tax though it is a relevant factor since to some extent Liberty Cinema supra has whittled down the efficacy of this circumstance
This Court there observed at p 483 Now on the first question that is whether the levy is in return for services it is said that it is so because section 548 of Calcutta Municipal Act 33 of 1951 uses the word fee 
But surely nothing turns on the words used
The word fee  cannot be said to have acquired a rigid technical meaning in the English language indicating only a levy in return for services
No authority for such a meaning of the word was cited
However that may be it is conceded by the respondent that the Act uses the word fee  indiscriminately
It is admitted that some of the levies authorised are taxes though called fees
Thus for example as Mitter J in the High Court Division Bench pointed out the levies authorised by sections 218 222 and 229 are really taxes though called fees for no services are required to be rendered in respect of them
The Act therefore did not intend to use the word fee as referring only to a levy in return for services  emphasis ours We have therefore to have a view of the concerned parts of the Act with a comparative eye on the Calcutta Municipal Act which fell for decision in Liberty Cinema supra
Every local authority under the relevant statute has the power to tax so as to finance the various welfare activities it is expected to fulfil
Similarly such local bodies also exercise the police powers of the State to the extent they are vested 1  336 in them by the State law for the purpose of controlling regulating and proscribing operations of individuals which may need to be conditioned by licences and permissions or prohibited in public interest because they are noxious or dangerous
Towards these ends licences and fees for services if any rendered may be prescribed
The Madras Act like other similar statutes embraces both types of activities in a systematized way
Thus Taxation and Finance are covered by Part 1 III while Public Health Safety and Convenience comes under Part IV Procedure and Miscellaneous which include general provisions regarding licences and permissions are clubbed together in Part Vl
Section 78 empowering property tax levy falls in Part III Taxation and Finance while section 321 relating to licence fees is located in Part VI
The scheme thus separates issue of licences and levy of licence fees from taxes on property and other items
Prima facie in the absence of other compelling factors to lug in a taxing provision into Part VI may therefore lead to obscurity and confusion
The Calcutta Municipal Act 1951 also has some scheme of sorts and deals with Finance in Part III Taxation in Part IV and Public Health Safety and Convenience in Part V
In the same Part Chapter XXVI deals with a miscellany of matters like Inspection and Regulation of Premises and of Factories Trades and Places of Public Resort
Section 443 deals with licensing and control of theatres circuses and places of public amusement
Strangely enough section 5481 which relates to licence and written permission  also empowers in addition to any other matter required to be specified under any other Section of this Act a     b     c     d     e the tax or fee if any paid for the licence or written permission
 F There is thus in section 548 an extra power specifically conferred to levy tax or fee which is significantly absent in the Madras Act We are aware there is some obscurity here because cinema licensing is provided for earlier in section 443
It is this provision of the Calcutta Act section 548 which fell for construction before this Court in Liberty Cinema supra
While one may discern a broad scheme in that Act there is some wobbling in the sense that a power to tax is oddly placed in a Chapter primarily concerned with licences and permissions
The Madras Act on the other hand speaks with more precision and relegates licences and licence fees to a Part different from Taxation and Finance
The procedure for each is also delineated separately
For these reasons we refuse to aceede to the contention that fee  in section 321 2 is a tax
Shri A K Sen has cited a catena of Madras cases spread over several decades where under this very Act fee has been interpreted as fee with a tag of special services in lieu of such payment
He has 337 further pressed the drafting indifference while using the words fee  and tax  in s548 of the Calcutta Act to repel the application of the observations in Liberty Cinema earlier quoted to the provisions of the Madras Act
In the latter the contrast is boldly projected not only in the phraseology but in the chapter wise dealing with the two topics
We feel the force of this submission
Shri Chellaswamy sought to counter the contention based on the location of s321 in a Part which has nothing to do with taxation
In Liberty Cinema supra this Court had occasion to warn against reaching any conclusion when there is a tax fee conflict based on the col location of subjects in a statute or the placement of a provision under a certain rubric as clinching
What is telling is the totality not some isolated indicium
A short cut is often a wrong cut and a fuller study of the statute to be construed cannot be avoided
Sarkar J as he then was in Liberty cinema supra observed at p 488 It was also contended that the levy under s548 of the Calcutta Municipal Act must be a fee and not a tax for all provisions as to taxation are contained in Part IV of the Act while this section occurred in Chapter XXXVI headed Procedure  in Part VIII which was without a heading
It was pointed out that Part V dealt with Public Health Safety and Convenience  and section 443 which was included in Chapter XXVI contained in this Part was headed Inspection and Regulation of Premises and of Factories Trades and Places of Public Resort 
A cinema house it is not disputed is included in the words Places of public resort 
It was therefore contended that a levy outside Part IV could not be a tax and hence must be a fee for services
This contention was sought to be sup ported by the argument that s443 occurred in a Part concerning Public Health Safety and Convenience and therefore the intention was that the levy authorised by the section would be in return for work done for securing public health safety and Convenience and was hence a fee
We are wholly unable to accept this contention
Whether a particular levy is a fee or tax has to be decided only by reference to the terms of the section as we have earlier stated
Its position in the Act cannot determine its nature an imposition which is by its terms a tax and not a fee which in our opinion the present imposition is cannot become a fee by reason of its having been placed in a certain part of the statute
The reference to the heading of Part V can at most indicate that the provisions in it were for conferring benefit on the public at large
The cinema house owners paying the levy would not as such owners be getting that benefit
We are not concerned with the benefit if any received by them as members of the public for that is not special benefit meant for them
We are clear in our mind that if looking at the terms of the provision authorising the levy it appears that it is not for special services rendered to the person on whom the levy is imposed it cannot be a fee wherever it may be placed in the statute
A consideration 338 of where ss443 and 548 are placed in the Act is irrelevant for determining whether the levy imposed by them is a fee or a tax
 So we do not rest our conclusion solely on the location of section 321 in a different Part from Taxation while we recognise it as an indicator among a variety of considerations of course when drafting precision is absent judicial caution has to be alerted
To recapitulate in the Madras Act Chapter VI of Part III is devoted to Taxation and Finance
Section 781a authorizes levy of property tax
The section sets out the other taxes a Municipal Council may levy Section 783 together with a proviso contains the procedural prescriptions for imposing taxes
Admittedly there has been no compliance with this procedure and if such conformance is mandatory as it is the case of tax set up by the appellant collapses Vide Atlas Cycle Industries vs Haryana1
Whether some minor defect or deficiency will defeat the validity of the tax is moot but since here there is a total failure to adhere or advert to the procedure in s78 we need not consider hypothetical shortfalls and their impacts
Counsel for the appellant resourcefully urged that when two constructions are possible we should opt in favour of validity since law leans towards life and must sustain not stifle it
The statute other things being equal must be interpreted us res magis valeat gaum pareat see Broom s Legal Maxims  10 ed  p 361 Craies on Statutes 6th ed p 95 and Maxwell on Statutes 11th ed p 221 In his submission it is possible to uphold the levy  miscalled fee  on the basis that it is a tax
The argument is that ignoring the placement of section 321 2 in Part VI and blurring the precision of the word fee  used we can still look at the pith and substance of the matter and regard it as a tax on land and buildings  provided for in Entry 49 List II of the Seventh Schedule
He relied on Ajoy Kumar supra where also a landholder who was holding a market on his land was directed to take out a licence and pay Rs 600 per year as licence fee challenged the validity of the claim on the score that the State had no power to tax markets
Repelling this contention this Court held that the use to which the land was put furnished sufficient nexus for the Legislature to impose a tax on land
In that connection the following observations lay down the guide lines It is well settled that the entries in the three legislative lists have to be interpreted in their widest amplitude and there fore if a tax can reasonably be held to be a tax on land it will come within entry 49
Further it is equally well settled that tax on land may be based on the annual value of the land and would still be a tax on land and would not be beyond the com petence of the State legislature on the ground that it is a tax on income See Ralla Ram vs The province of East Punjab It follows therefore that the use to which the land is put can be taken into account in imposing a tax 1  2Quoted in Liberty cinema P 484 339 on it within the meaning of entry 49 of List II for the annual value of land which can certainly be taken into account in imposing a tax for the purpose of this entry would necessarily depend upon the use to which the land is put p 49
x x x x x x It will be seen from the provisions of these three subsections sub sections
1 to 3 of section 62 of the Assam Local self Government Act l953 Act 25 of l953 that power of the board to impose the tax arises on its passing a resolution that no land within its jurisdiction shall be used as a market
Such resolution clearly affects land within the jurisdiction of the board and on the passing of such a resolution the board gets the further power to issue licences for holding of markets on lands within its jurisdiction by a resolution and also the power to impose an annual tax thereon p49 x x 
x x x x x 
section
622 which used the words impose an annual tax thereon clearly shows that the word thereon  refers to any land for which a licence is issued for used as a market and not to the word market 
Thus the tax in the present case being on land would clearly be within the competence of the state legislature p5l Generously following the line of thinking presented by Shri Chellaswamy based on Ajoy Kumar supra we find difficulty in applying its ratio to section 321 2
There the tax was on land and the expression thereon  underscores this idea
Once the tax is on land the link between the tax and the land user like running a market or hotel based on the let ting value is good but in the present case there is nothing to indicate that it is a tax at all
Secondly the phraseology does not suggest that it is a tax on the land or the building
 on the other hand
it is on the licence fee for plying a particular trade
It is not possible to blink at this vital distinction between Ajoy Kumar supra and the persent case
Maybe that the Madurai Municipality is perfectly within its competence in imposing a property tax at any particular rate it chooses
The user of the land or building as a restaurant or hotel being the link as explained above the fact that there is a tax on all property within the municipality does not mean that this local body cannot levy an additional tax or surcharge on the land or building if put to a particular specialist use
We see no impediment in the municipal authority taxing hotels at a certain rate exercising its power to impose property tax provided there are no other legal impediements in the way
We are not pursuing the existence or otherwise of other impediments because that does not fall for our consideration in this case
Shri A K Sen is right is his submission that unlike in the Assam Act considered in Ajoy Kumar supra in the present case we do not even find the expression tax  used
The Municipal resolution might have been saved had we been able to spell out a taxing power on property from s321 2 of the Act
For there is no gainsaying the state s right to tax land and buildings 340 and the nexus between the tax and the power may be land use
Since A running a restaurant or cinema house is clearly a use of building a tax thereon based on such user is constitutionally impeccable
Such is not the case here
Thus the plea that section 321 2 lends itself to being regarded as a tax indifferently described as fee breaks down for two reasons
When the Legislature has carefully provided in s78 3 for previous invitation and consideration of objections to enhancement of tax levies resort to the device of tax disguised as fee under s321 2 may not require any such procedural fairness and discipline and thus will frustrate the processual protection written into the law in regard to fiscal measures
Secondly Schedule V with which s321 is directly linked sets out a host of petty and lucrative ventures all of which theoretically cannot be carried on except on land or buildings
Can it be that some flimsy or casual connection with terra firma will furnish the legal nexus between the tax imposed and the land on which the work is done  For example washing soiled clothes is an item in Schedule V
It is straining judicial credulity to snapping point to say that such trivial user justifies a tax on the land when washing is done
Running a hotel or market or permanent circus or theatre may stand on a different footing
The com monsense of the common man is the best legal consultant in many cases and eschewal of hyper technical and over sophisticated legal niceties helps the vision
We cannot list out what in law will serve as a nexus between land and tax thereon but in a given case like in a hotel business land use may easily be discerned
The snag is that in the present appeals the levy is not on land but on the licence for business and bearing in mind the identity of the legal concept we reject the contention that the impugned resolution was an innocent tax on property
The case falls between two stools
It is not a fee ex concessionis it is not a tax ex facie
We further repel the request to read licence fee in section 321 2 as land tax into every item of activity set out in Schedule V from washing soiled clothes on a broad stone to using a central place as a posh restaurant
The cumulative result of the multiple submissions we have been addressed is that the impugned resolution is invalid
We do not bar the door for the Municipality or the State to pursue other ways to tax hotel keepers acting according to law and under the power to tax in Entry 49 List II of the Seventh Schedule while dismissing the appeals The legal controversy in this case is stricken with more than marginal obscurity and indeed has exercised our minds on the diverse aspects of law considerably
Moreover the battle is between a local authority which is in need of financial resources to fulfil its functions and a host of hoteliers who flourish in private business
Bearing in mind the conspectus of circumstances we regard this case as one where the proper order will be that parties do bear their own costs throughout
VPS Appeals dismissed


Summary:
The appellant increased the licence fee imposed on hoteliers respondents under s321 2 Madras District Municipalities Act 1920 and they challenged the increase
The appellant justified the increase on the basis that the fee under the section is a tax and falls under tax on land and building  in Entry 49 List II VII Schedule of the Constitution
The High Court held in favour of the respondents
 Dismissing the appeal to this Court HELD l The appellant would be competent to impose a property tax at any Particular rate it chooses
the user of the land and building as a restaurant or hotel furnishing sufficient nexus for the legislature to impose a tax
339H 340A Ajoy Kumar vs Local Board   referred to
2 But the fec imposed under section 3212 in this ease is not a tax
336G a Section 3212 authorises the collection of a fee in contradiction to tax
1335B b Section 321 is in a part of the Act different from the part dealing with taxation
While the nomenclature of the levy or the location of a section in the Act is not conclusive
they are relevant factors
for deciding whether the fee imposed is a tax or not
335 CD Liberty Cinema Case   referred to
c Section 781A authorises the levy of property tax
Section 783 contains the mandatory procedural prescriptions for imposing taxes
When the legislature has carefully provided in the sub section for previous invitation and consideration of objections to enhancement of tax levies resort to section 3212 to impose a tax as a fee would frustrate the processual protection written into the law in regard to fiscal measures 338 BCE d Schedule V with which section 321 is directly linked sets out a number of  petty occupations all of which theoretically cannot be carried on except on land or in buildings
If the licence fee in section 3212 is read as land tax the fee in relation to every item of activity set out in the Schedule would be tax on the basis of the trivial activity furnishing the legal nexus between the tax and the land
But it would be straining the language to justify the imposition of a tax on the land on the basis of such a flimsy or casual connection