Case: Patel Gordhandas Hargovindas Vs. Municipal Commissioner, Ahmedabad

1. This appeal on a certificate granted by the Bombay High Court arises out of a suit brought by the appellants to challenge the imposition of a rate by the respondent Municipal Corporation of Ahmedabad on vacant lands situate within the municipal limits. The rate was levied under S. 3 of the Bombay Municipal Boroughs Act No. XVIII of 1925, (hereinafter referred to as the Act) read with the explanation to S. 75 of the Act. The Municipality framed R. 350-A for rating open lands which provides that the rate on the area of open lands shall be levied at 1 per centum on the valuation based upon capital. "Valuation based upon capital" was defined in R. 243 as the capital value of lands and buildings as may be determined from time to time by the valuers of the municipality, who shall take into consideration such reliable data as the owners or the occupiers thereof may furnish either of their own accord or on being called upon to do so. The contention of the appellants was that reading the two rules together, the rate was levied at a percentage of the capital value of open lands and this the municipality could not do. Two submissions were made in support of this contention. In the first place it was urged that R. 350-A read with R. 243 was ultra vires Ss. 73 and 75 inasmuch as it permitted the fixation of rate at a percentage of capital value and this was not permitted by the Act for the word "rate" used in S. 73 (1) (i) had acquired a special meaning by the time the Act came to be passed and meant a tax on the annual value of lands and buildings and not on their capital value. In the second place, it was urged that if the Act permitted the levy of a rate on a percentage of capital value of the lands and buildings rated thereunder, it was ultra vires the Provincial Legislature because of item 55, List I of the Seventh Schedule to the Government of India Act 1935. The appellant finally contended that the assessment based on R. 350-A read with R. 243 was ultra vires and the assessment list prepared pursuant to the said rule was illegal and void. They therefore prayed that R. 350-A read with R. 243 for assessment of vacant lands as well as the assessment charged on vacant lands under the said rule since April 1, 1947 and the assessment list for the year 1947-48 which were prepared for that purpose be declared illegal and ultra vires and further prayed that an order of permanent injunction might be made against the respondent-Municipality restraining it from collecting or causing to be collected from the appellants any sum of money as assessment for vacant lands for the year 1947-48 or for any year thereafter, based on capital valuation on the strength of the said rule.2. The suit was resisted by the municipality. Its defence in substance was that the rule was intra vires and the assessment lists had been properly prepared in accordance with the provisions of the Act and were not open to any objection. The trial Court held that R 350-A read with R. 243 was illegal and void and beyond the authority given to the municipality under S. 73 of the Act, inasmuch as it would amount to taxing the open lands as assets of individuals, within the meaning of item 55 of list I of the Seventh Schedule to the Government of India Act. The trial Court therefore decreed the suit and granted the relief as claimed by the appellants.3. Then followed an appeal to the High Court which was allowed. The High Court held that the manner in which open lands were rated did not bring the rate within item 55 of List I of the Seventh Schedule to the Government of India Act as the method employed was only a mode of levying the rate. The High Court therefore held that R. 350-A read with R. 243 was not ultra vires. As to the other contention that the rule was ultra vires Ss. 73 and 75 of the Act the High Court held that even if it be assumed that by adopting the basis of capital value the municipality must determine the annual value of the property and levy rate on such value it made no difference to the result as the municipality might levy a much higher rate of tax on the annual value of the properly determined on the basis of its capital value. The High Court pointed out that the municipality by adopting this method, had done in one step what could be done in two steps, and that would have merely involved first determining the capital value and then the annual value, and then fixing the rate on the annual value at a much higher percentage. It was of the view that it was all a matter of fixing a reasonable rate on open land, and if the rate was otherwise reasonable it would be difficult to hold that the rule levying the rate was ultra vires Ss. 73 and 75.Thereupon the appellants applied for a certificate of fitness to enable them to appeal to this Court, which was granted; and that is how the matter has come up before us.

Reasoning:
8. This history of the use of the word "rate" for purposes of local taxation in English Law clearly shows that the word "rate" was used with respect to a tax which was levied on the net annual value or rateable value of lands and buildings and not on their capital value. It would therefore not be wrong to say that in the legislative history and practice in England upto 1925, "rate" for the purpose of local taxation meant a tax on the annual value of lands and buildings liable to such taxation.It will thus be seen that all Indian statutes till 1911 dealing with municipal taxation impose a tax on the annual value of lands or buildings without always using the word "rate". In some of the statutes the word "rate" is used but the tax is again on the annual value.It will be clear further that in India upto the time the Act with which we are concerned was passed, the word "rate" had acquired the same meaning which it undoubtedly had in English legislative history and practice upto the year 1925, when the Rating and Valuation Act came to be passed consolidating the various rates prevalent in England. It would therefore be right to say that be word "rate" had acquired a special meaning in English legislative history and practice and also in Indian legislation where that word was used and it meant a tax for local purposes imposed by local authorities, and the basis of the tax was the annual value of the lands or buildings on or in connection with which it was imposed, arrived at in one of the three ways which we have already indicated. It seems to us therefore that when in 1925 S. 73 (1) of the Act while specifying taxes which could be imposed by a municipal borough used the word "rate" on buildings or lands situate within the municipal borough, the word "rate" must have been used in that particular meaning which it had acquired in the legislative history and practice both in England and India before that date. The matter might have been different if the words in cl. (i) of that section were "a tax on buildings or lands or both situate within the municipal borough", for then the words "tax" would have a wide meaning and would not be confined to any special meaning. But the use of the word "rate" in cl. (i) definitely means that it was that particular kind of tax which in legislative history and practice was known as a "rate" which the municipality could impose and not any other kind of tax. It is true that in the opening words of S. 73 (1) it is said that the municipality may impose any of the following taxes, which are thereafter specified in cls. (i) to (xiv). But when cl. (i) specifies the nature of the tax as a rate on buildings or lands or both we must find out what the word "rate" used therein means, for it could not be an accident that the word "rate" was used in that clause when dealing with a tax on lands or buildings. Further if we find that the word "rate" had acquired a special meaning in legislative history and practice in England and India before 1925 with reference to local taxation, it must follow that when the word "rate" was used in cl. (i) instead of the general word "tax" it was that particular kind of tax which was known in legislative history and practice as a rate which the municipalities were being empowered to impose. It may be added here with some advantage that the word "tax" in the opening words of S. 73 (1) has been used in a general and all pervasive sense as defined in S. 3 (20) of the Act and not in any restricted sense; and therefore when the word "rate" is used in cl. (i) it was clearly used not only in the specific and limited sense, but also with the intention, to convey the meaning that it had acquired by the time the Act was passed. It is remarkable that in some other clauses of S. 73 (1) also the General word "tax" has not been used, though of course all the imposts in cls. (i) to (xiv) are called taxes in the opening words of S. 73 (1) for obvious reason. In cl. (iii) the words used are "a toll on vehicles" which obviously mean that only that kind of tax which was known as toll which could be imposed on vehicles. In cl. (iv) the word used is "octroi" on animals or goods, implying thereby that kind of tax which was known as octroi could be imposed and not any kind of tax within the meaning of the general word "tax". Similarly in cl. (v) the words used are "a terminal tax on goods" meaning thereby that kind of tax which was known as terminal tax could be imposed. Therefore when the first clause of S. 73 (1) gives power to the municipality to impose a rate on buildings or lands it meant that kind of tax which had acquired a special meaning and was known as rate in the legislative history and practice of England as well as of India upto theb. That legislative history and practice we have considered and it shows that the word "rate" whenever used upto 1925 with reference to local taxation meant a tax on the annual value of lands and buildings and not a tax on the capitalhave already pointed out that in England also one basis of valuation for the purpose of rate was to find out first the capital value or the effective capital value. Then a certain percentage of the effective capital value was taken as the annual value and the tax was levied on the annual value so arrived at. In such a case though the tax was levied on the annual value the basis of valuation would still be capital. Therefore the fact that the explanation used the words "the basis of valuation may be capital" it does not mean that the tax would be at such and such percentage of the capital; it only means that in order to arrive at the annual value for purposes of levying rate which is a tax on the annual value, the municipality may use the capital value and then a percentage thereon to arrive at the annual value. This would be in accordance with the third way of arriving at annual value to which we have referred earlier. Therefore we are of opinion taking into account the fact that the word "rate" has been used in the first clause to S. 73 (1), the explanation when it says that in the case of lands basis of valuation may be capital, only means that method of valuation which was in vogue in England and which we have described as the third method of valuation may be used to arrive at the annual value from the capital value and the rate may then redetermined as a tax on the annual value. In this view of the matter R. 350-A read with R. 243 by which the municipality has fixed the tax on the basis of capital value directly is against the provisions of S. 73 (1) (i) and the explanation to S. 75.The whole difficulty in this case has arisen because unfortunately the words "rate" or "rateable value" havent been defined anywhere in the Act, though they have been defined in some other contemporaneous statutes in force at the time the Act was passed and to which we have alreadywhen the explanation uses these words it must in our opinion be held to refer to that well known method of valuation prevailing in England with respect to levy of rates and cannot be read to mean a percentage of the capital value itself. At any rate there are no express words in the explanation to that effect and therefore it should be read to mean the third method of valuation in force in England to which we have already referred. The amendment therefore made in 1930 in the Madras Act does not in any way affect the legislative history and practice relating to the word "rate" which, as we have pointed out was not even used in that Act. We may add that we express no opinion as to the validity of this amendment afterthe Government of India Act, 1935 and the Constitution of India have come intoare therefore of opinion that fixing of the rate at a percentage of the capital value is not permitted by the Act and therefore R. 350-A read with R. 143 which permits this must be struck down, even though mathematically it may be possible to arrive at the same actual tax by varying percentages in the case of capital value and in the case of annual value. It follows therefore that as the tax in the present cases is levied directly as a percentage of the capital value it is ultra vires the Act and the assessment based in this manner must be struck down as ultra vires the Act.35. In the view that we have taken of the meaning of the word "rate" with the result that R. 350-A read with R. 243 has to be struck down as ultra vires the Act it is not necessary to consider the second question raised before us namely whether the explanation would be ultra vires the provincial Legislature because of item 55, List I of the Seventh Schedule tothe Government of India Act, 1935 if it authorises the municipality to levy the rate at a percentage of the capital value. We have already said that is not the meaning of the words used in the explanation and the second point therefore does not fall to befeel no doubt that the question must be answered in the negative. The importance of the distinction between the levy of a tax and the machinery of its collection has often been pointed out by judicial pronouncements of the highest authority. One of the more recent of these is R. C. Jall v. Union of India, AIR 1962 SC 1281  . I suppose the machinery of collection would include the measure of the tax; in any case, I think they are on a par. The subject-matter of taxation is obviously something other than the measure provided for the quantification of the tax.