Case: R. R. Engineering Co Vs. Zila Parishad, Bareilly &amp; Anr

the tax on circumstances, that is to say, status or financial position, meant the tax on mans trade, business, profession or employment which was covered by Item 60 of the State List.This question was also considered by a Special Bench consisting of Five Judges of the Allahabad High Court in The Notified Area Committee and Anr. v. Sri Ram Singhasan Prasad Kalwar. Mr. Justice S.N. Dwivedi who delivered the Judgment of the Special Bench traced the entire history of the impugned tax in reference to three periods: (1) the period prior to the 1 935 Constitution Act; (2) the period between 1935 and 1950; and (3) the post-Constitution period. After a careful examination of the nature of the tax the learned Judge summed up the position thus:"To sum up, the history of the tax on circumstances and property after 1935 definitely shows that it was not a distinct and separate impost. The Government of India Act, 1935 and the Constitution treat it as a composite tax as its name suggests. As its constituents are already covered by one or the other entry in the legislative Lists, it is not enumerated as a category in the Lists as it was enumerated in the White Paper."17. The conclusion to which the Special Bench came was that a tax on circumstances and property is a composite tax, that its components are varied, but that two of such components are firstly a tax on trades, callings, professions and employments and secondly, a tax on lands and buildings. In coming to this conclusion, reliance was placed by the learned Judge on the decision of the Supreme Court in Pandit Ram Narain (supra) and that of the Full Bench in the District Board of Farrukhabad (supra). But the amplification of the legislative authority which the Special Bench made is significant. It did not say as Broome, J. said in the Full Bench decision in the Zila Parishad, Muzaffarnagar (supra) that the tax on circumstances and property is referable only to two entries in List II namely, Entries 49 an d 60. According to the Special Bench, the tax was wide enough to cover certain other items in List II, like Item 58 which relates to "taxes on animals and boats". We are of the opinion that the Special Bench was right in coming to this conclusion. Accordingly, we affirm its view that the tax on circumstances and property is referable to items 49 and 60 of List II of the Seventh Schedule, and amongst other items, to item 58 of that List. The validity of the tax has therefore to be upheld.While doing so, we would like to utter a word of caution. The fact that one of the components of the impugned tax, namely, the component of circumstances is referable to other entries in addition to Entry 60, should not be construed as conferring an unlimited charter on the local authorities to impose disproportionately excessive levies on the assessees who are subject to their jurisdiction. An excessive levy on circumstances will tend to blur the distinction between a tax on income and a tax on circumstances. Income will then cease to be a mere measure or yardstick of the tax and will become the very subject matter of the tax. Restraint in this behalf will be a prudent prescription for t he local authorities to follow.18. All that remains to be done is to express our inability to accept as correct the view taken by Mr. Justice R.S. Pathak and Mr. Justice M.H. Beg in R. R. Engineering Co. (supra) that by reason of the fact tha t the circumstances and property tax is a composite tax and since the element of property necessarily enters into that composition, the tax cannot be identified as a tax on professions, trades, callings or employments. Our conclusion that the tax is referable, inter alia, to entries 49 and 60 of List II must necessarily result in the rejection of that view. The learned Judges were of the opinion, with which we are respectfully unable to agree, that since the tax on circumstances and property did not find place as an entry expressly enumerated in any of the three Lists of the Seventh Schedule, it falls under the residuary entry, namely, Entry 97 of List I. On that basis they held that Article 277 of the Constitution would save the tax since it was within the competence of the Parliament to impose it. In the view that we have taken, namely, that the impugned tax falls within the competence of the State Legislature by virtue of entries 49 and 6 0, inter alia, of List II, this part of the reasoning of the learned Judges has to be rejected. It is unnecessary and in fact erroneous to take resort to Article 277 of the Constitution for the purpose of saving the tax on circumstances and property. The mere name of a tax does not bear on legislative competence and the absence of express enumeration of a tax by a particular name will not justify the tracing of legislative authority to the residuary entry. What is true in other jurisdictions is true in this branch of law also, namely, that one must have regard to the substance of the matter and not to the form or label. We may also mention that in so far as the Town Area Committees are concerned, Article 277 will not save the impugned tax since it was levied by the Town Area Committee in pursuance of the power conferred by clause (f) of section 14 of the Town Areas Act, which was introduced by a post- Constitution amendment. We accept the reasoning of Mr. Justice S. N. Dwivedi in The Notified Area Committee, (supra) by which the Special Bench expressed its disagreement with the view taken by the two learned Judges in R. R. Engineering Co (supra) in regard to the application of Article 277 on the basis that the residuary entry is attracted.19.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It is trite thatcan only be levied on income, that is to say, it can be levied provided the assessee is in receipt of an income. If there is no income, there can be noIn contrast, the relevant consideration in the case of a tax on circumstances and property" can be the total turnover of the assessee from his trade or calling or the fact of his having an interest in a property. This consideration assumes relevance because the tax on circumstances and property is a tax, so to say, on the status of the assessee, in their endeavour to give to that tax a local name and habitation, in order perhaps to soften resistance to it, the learned Judges of the Allahabad High Court have described it as a tax on Haisiat which, as far and as best as translation can go, means status. For the levy of tax on circumstances and property, it is not necessary that there should be income in the hands of the asses see, in the sense of theAct. The outgoings, the deductions, thelosses, the development rebate and the like may leave no income in the hands of an assessee which could be brought to tax under theAct. But a person can be subjected to tax on circumstances and property in relation to his Haisiat, that is to say, the status which he occupies by reason of the fact of the pursuit by him of a beneficial calling or the possession by him of an interest in property. While determining the status of an individual for the purposes of the tax on circumstances, the total turnover of his business or avocation may therefore be legitimately taken intomay be, and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property. That is, however, not conclusive on the nature of the tax. It is only as a matter of convenience that income is adopted as a yardstick or measure for assessing the tax. As pointed out in Re a Reference under Govt. of Ireland Act, the measure of the tax is not a true test of the nature of the tax. Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration. One must have regard in such matters, as stated by the Privy Council in Governor General i n Council v. Province of Madras, not to the name of the tax but to its real nature, its pith and substance, which must determine into what category it falls. Applying these tests, the tax on circumstances will fall in the category of a tax on "a ma ns financial position, his status taken as a whole and includes what may not properly be comprised under the term property and at the same time ought not to escape assessment." This quotation finds place in the judgment of Malik C.J. in the Full Bench decision in District Board of Farrukhabad. (supra) The formulation, which the learned Chief Justice would appear to have extracted from another source, since he has put it within quotes, is in similar terms as that of this Court in Pandit Ram Narain v. The State of U.P. In that case an assessee challenged his liability to pay the tax on circumstances and property under section 14 (1) (f) of the U. P. Town Areas Act, 1914 on the ground that he did not reside within the jurisdiction of the Town Area Committee of Karhal and that Rule 3 framed under section 39 (2) of the Act was invalid. This Court, after referring approvingly to the decision in District Board of Farrukhabad, (supra) particularly to the statement therein that the name given to a tax did not matter and that what had to be considered was the pith and substance of it,tax on circumstances and property is a composite tax and the word circumstances means a mans financial position, his status as a whole depending, among other things, on his income from trade orFull Bench decision under appeal in the instant case, R. R. Engineering Co. (supra) has taken the same view of the nature of the tax on circumstances and property by holding that it is not a tax on income but is a tax on a mans financial position, his status as a whole, depending upon his income from trade or business. Earlier another Full Bench of t he Allahabad High Court had held in Zila Parishad Muzaffrnagar v. Jugal Kishore that the tax on circumstances and property is fundamentally distinct from and cannot be equated with income tax, that it is not covered by item 82, List I, Schedule 7, o f the Constitution and that it is essentially a tax on status or financial position combined with a tax on property. These decisions correctly describe the nature of the tax on circumstances and property. We affirm the view taken therein, especially that the aforesaid tax is not a tax oneven though the impugned tax is not a tax on income, it is necessary to consider whether it is within the legislative competence of the State legislature and, if so, under which entry it would fall. The reason for such an inquiry is mainlyfirstly, even if the tax on circumstances is within the legislative competence of the State legislature, being referable to entry 60 of List II which relates to taxes on professions, trades, callings and employments, it cannot exceed the limit of two hundred and fifty rupees per annum prescribed by Article 276(2) of the Constitution, unless the proviso to that article is attracted: secondly, if the tax is beyond the legislative competence of the State legislature, being a composite tax not liable to be split up into distinct component parts, it will be necessary to examine whether the tax is saved by article 277 of the Constitution.Article 276(1) of the Constitution provides that notwithstanding anything in article 246, no law of the legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income. By clause (2) of that Article, the total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two hundred and fifty rupees per annum. The proviso to this clause says that if in the financial year immediately preceding the commencement of this Constitution there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate of which exceeded two hundred and fifty rupees per annum, such tax may continue to be levied until provision to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards orsum up, the history of the tax on circumstances and property after 1935 definitely shows that it was not a distinct and separate impost. The Government of India Act, 1935 and the Constitution treat it as a composite tax as its name suggests. As its constituents are already covered by one or the other entry in the legislative Lists, it is not enumerated as a category in the Lists as it was enumerated in the Whiteconclusion to which the Special Bench came was that a tax on circumstances and property is a composite tax, that its components are varied, but that two of such components are firstly a tax on trades, callings, professions and employments and secondly, a tax on lands and buildings. In coming to this conclusion, reliance was placed by the learned Judge on the decision of the Supreme Court in Pandit Ram Narain (supra) and that of the Full Bench in the District Board of Farrukhabad (supra). But the amplification of the legislative authority which the Special Bench made is significant. It did not say as Broome, J. said in the Full Bench decision in the Zila Parishad, Muzaffarnagar (supra) that the tax on circumstances and property is referable only to two entries in List II namely, Entries 49 an d 60. According to the Special Bench, the tax was wide enough to cover certain other items in List II, like Item 58 which relates to "taxes on animals and boats". We are of the opinion that the Special Bench was right in coming to this conclusion. Accordingly, we affirm its view that the tax on circumstances and property is referable to items 49 and 60 of List II of the Seventh Schedule, and amongst other items, to item 58 of that List. The validity of the tax has therefore to be upheld.While doing so, we would like to utter a word of caution. The fact that one of the components of the impugned tax, namely, the component of circumstances is referable to other entries in addition to Entry 60, should not be construed as conferring an unlimited charter on the local authorities to impose disproportionately excessive levies on the assessees who are subject to their jurisdiction. An excessive levy on circumstances will tend to blur the distinction between a tax on income and a tax on circumstances. Income will then cease to be a mere measure or yardstick of the tax and will become the very subject matter of the tax. Restraint in this behalf will be a prudent prescription for t he local authorities tothat remains to be done is to express our inability to accept as correct the view taken by Mr. Justice R.S. Pathak and Mr. Justice M.H. Beg in R. R. Engineering Co. (supra) that by reason of the fact tha t the circumstances and property tax is a composite tax and since the element of property necessarily enters into that composition, the tax cannot be identified as a tax on professions, trades, callings or employments. Our conclusion that the tax is referable, inter alia, to entries 49 and 60 of List II must necessarily result in the rejection of that view. The learned Judges were of the opinion, with which we are respectfully unable to agree, that since the tax on circumstances and property did not find place as an entry expressly enumerated in any of the three Lists of the Seventh Schedule, it falls under the residuary entry, namely, Entry 97 of List I. On that basis they held that Article 277 of the Constitution would save the tax since it was within the competence of the Parliament to impose it. In the view that we have taken, namely, that the impugned tax falls within the competence of the State Legislature by virtue of entries 49 and 6 0, inter alia, of List II, this part of the reasoning of the learned Judges has to be rejected. It is unnecessary and in fact erroneous to take resort to Article 277 of the Constitution for the purpose of saving the tax on circumstances and property. The mere name of a tax does not bear on legislative competence and the absence of express enumeration of a tax by a particular name will not justify the tracing of legislative authority to the residuary entry. What is true in other jurisdictions is true in this branch of law also, namely, that one must have regard to the substance of the matter and not to the form or label. We may also mention that in so far as the Town Area Committees are concerned, Article 277 will not save the impugned tax since it was levied by the Town Area Committee in pursuance of the power conferred by clause (f) of section 14 of the Town Areas Act, which was introduced by a postConstitution amendment. We accept the reasoning of Mr. Justice S. N. Dwivedi in The Notified Area Committee, (supra) by which the Special Bench expressed its disagreement with the view taken by the two learned Judges in R. R. Engineering Co (supra) in regard to the application of Article 277 on the basis that the residuary entry is attracted.