Case: Shri Prithvi Cotton Mills Ltd. &amp; Anr Vs. Broach Borough Municipality &amp; Ors

of the legislature and legal and adequate to attain the object of validation. If the legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a Validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the Courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax.5. The inquiry in this case may begin by asking whether the legislature possesses competence to pass a law imposing a tax on lands and buildings on the basis of a percentage of their capital value. If the legislature possesses that power then it can authorise the Municipality to levy that tax. To test the proposition we may consider Section 99 which has now been enacted in the Gujarat Municipalities Act. It reads:"99. Taxes which may be imposed.(1) Subject to any general or special orders which the State Government may make in this behalf and to the provisions of Section 101 and 102, a municipality may impose for the purposes of this Act any of the following taxes, namely:-(i) a tax on buildings or lands situate within the municipal borough to be based on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both;* * * * ** * * * *"6. Learned counsel for the appellants did not contend that this section was outside the powers of the legislature. In fact, he could not, in view of Entry 49 of List II of the Seventh Schedule to the Constitution. That entry reads: "Taxes on lands and buildings" and a tax on lands and buildings based upon capital value falls squarely within the entry. The doubt which is created by Entry 86 of List I "Taxes on the capital value of assets", no longer exists after the decision of this Court in Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta, AIR 1969 SC 59 . In that case the respective ambits of the two entries are explained. It is pointed out that unlike the tax contemplated by entry 49 (List II) the tax under entry 86 (List I) is not a direct tax on lands and buildings but on net assets, the components of which may be lands and buildings and other items of assets excluding such liabilities as may exist. The incidence of the tax is not on lands and buildings as units of taxation but on the net assets of which lands and buildings are only some of the components.This is not the case under entry 49 (List II) where the tax can be laid directly on lands and buildings as units of taxation. Therefore, a tax on lands and buildings is fully within the competence of the legislature and it is open to it to authorise the municipality to levy the same tax indicating the mode of levy. This the legislature has done by indiating the different modes which may be adopted in making the levy, one such mode being a percentage of the capital value.7. The legislature in Section 73 had not authorised the levy of a tax in this manner but had authorised the levy of a rate. That led to the discussion whether a rule putting the tax on capital value of buildings answered the description of the impost in the Act, namely, a rate on buildings or lands or both situate within the Municipal Borough. It was held that by this Court that it did not, because the word rate had acquired a special meaning in legislative practice. Faced with this situation the legislature exercised its undoubted powers of redefining rate so as to equate it to a tax on capital value and convert the tax purported to be collected as a rate into a tax on lands and buildings.8. The legislature in the Validation Act, therefore, provided for the following matters. First, it stated that no tax or rate by whichever name called and laid on the capital value of lands and buildings must be deemed to be invalidly assessed, imposed, collected or recovered simply on the ground that a rate is based on the annual letting value. Next it provided that the tax must be deemed to be validly assessed, imposed, collected or recovered and the imposition must be deemed to be always so authorised. The legislature by this enactment retrospectively imposed the tax on lands and buildings based on their capital value and as the tax was already imposed, levied and collected on that basis, made the imposition, levy, collection and recovery of the tax valid, notwithstanding the declaration by the Court that as rate, the levy was incompetent. The legislature not only equate the tax collected to a tax on lands and buildings, which it had the power to levy, but also to a rate giving a new meaning to the expression rate, and while doing so it put out of action the effect of the decisions of the Courts to the contrary. The exercise of power by the legislature was valid because the legislature does possess the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the use of the word rate could be effectively removed and the tax on lands and buildings imposed instead. The tax, therefore, can no longer be questioned on the ground that Section 73 spoke of a rate and the imposition was not a rate as properly understood but a tax on capital value.In this view of the matter it is hardly necessary to invoke the 14th Clause of S.73 which contains a residuary power to impose any other tax not expressly mentioned.9.

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

Explanation:
0[ds]The legislature in Section 73 had not authorised the levy of a tax in this manner but had authorised the levy of a rate. That led to the discussion whether a rule putting the tax on capital value of buildings answered the description of the impost in the Act, namely, a rate on buildings or lands or both situate within the Municipal Borough. It was held that by this Court that it did not, because the word rate had acquired a special meaning in legislative practice. Faced with this situation the legislature exercised its undoubted powers of redefining rate so as to equate it to a tax on capital value and convert the tax purported to be collected as a rate into a tax on lands and buildings.The legislature in the Validation Act, therefore, provided for the following matters. First, it stated that no tax or rate by whichever name called and laid on the capital value of lands and buildings must be deemed to be invalidly assessed, imposed, collected or recovered simply on the ground that a rate is based on the annual letting value. Next it provided that the tax must be deemed to be validly assessed, imposed, collected or recovered and the imposition must be deemed to be always so authorised. The legislature by this enactment retrospectively imposed the tax on lands and buildings based on their capital value and as the tax was already imposed, levied and collected on that basis, made the imposition, levy, collection and recovery of the tax valid, notwithstanding the declaration by the Court that as rate, the levy was incompetent. The legislature not only equate the tax collected to a tax on lands and buildings, which it had the power to levy, but also to a rate giving a new meaning to the expression rate, and while doing so it put out of action the effect of the decisions of the Courts to the contrary. The exercise of power by the legislature was valid because the legislature does possess the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the use of the word rate could be effectively removed and the tax on lands and buildings imposed instead. The tax, therefore, can no longer be questioned on the ground that Section 73 spoke of a rate and the imposition was not a rate as properly understood but a tax on capital value.In this view of the matter it is hardly necessary to invoke the 14th Clause of S.73 which contains a residuary power to impose any other tax not expresslycounsel for the appellants did not contend that this section was outside the powers of the legislature. In fact, he could not, in view of Entry 49 of List II of the Seventh Schedule to the Constitution. That entry reads: "Taxes on lands and buildings" and a tax on lands and buildings based upon capital value falls squarely within the entry. The doubt which is created by Entry 86 of List I "Taxes on the capital value of assets", no longer exists after the decision of this Court in Sudhir Chandra Nawn v.Officer, Calcutta, AIR 1969 SC 59 . In that case the respective ambits of the two entries are explained. It is pointed out that unlike the tax contemplated by entry 49 (List II) the tax under entry 86 (List I) is not a direct tax on lands and buildings but on net assets, the components of which may be lands and buildings and other items of assets excluding such liabilities as may exist. The incidence of the tax is not on lands and buildings as units of taxation but on the net assets of which lands and buildings are only some of the components.This is not the case under entry 49 (List II) where the tax can be laid directly on lands and buildings as units of taxation. Therefore, a tax on lands and buildings is fully within the competence of the legislature and it is open to it to authorise the municipality to levy the same tax indicating the mode of levy. This the legislature has done by indiating the different modes which may be adopted in making the levy, one such mode being a percentage of the capital value.