Case: Municipal Corporation Of Delhi Vs. Birla Cotton, Spinning And Weaving Mills, Delhiand Another

On February 9, 1959, the Corporation passed a resolution purporting to be under sub-s. (1) of Section 150 of the Delhi Municipal Corporation Act, No. 66 of 1957 (hereinafter referred to as the Act) for levy of three taxes, including a tax on the consumption or sale of electricity. Section 113 of the Act which confers powers on the Corporation to impose taxes has divided them into two kinds, namely, obligatory taxes, which the Corporation must impose [S. 113 (1)], and optional taxes which the Corporation may impose [Section 113 (2)]. Further S. 150 (1) of the Act provides that maximum rate of tax to be levied in the case of optional taxes will be specified by a resolution of the Corporation. After the maximum rate has thus been specified, the resolution has to be submitted to the Central Government for sanction under Section 150 (2) and if sanctioned by Government, the rate comes into force on and from such date as may be specified in the order of sanction. Under sub-section (3) of Section 150 the Corporation then passes another resolution determining the actual rates at which the tax is levied and the tax comes into force on the first day of the quarter of the year next following the date on which such second resolution is passed. The Corporation forwarded the resolution dated February 9, 1959 which was somewhat defective inasmuch as it did not specify the maximum rates, but merely the rates, which were to be enforced for the ensuing year, to Government for sanction. On June 20, 1959, the Central Government sanctioned the tax on consumption or sale of electricity with effect from July 1, 1959. In giving the sanction the Central Government modified the rates. On June 23, 1959, the Standing Committee took the Government sanction into consideration and recommended to the Corporation that rates of tax as sanctioned by Government be determined under sub-section (3) of Section 150 as the actual rates at which the tax would be leviable for the year 1959-60. On June 24, 1959, the Corporation resolved that the recommendations of the Standing Committee regarding tax on consumption or sale of electricity be approved. Then followed demands by the Corporation on the basis of the imposition of tax from July 1, 1959.2. When the tax was demanded from the respondent, it filed a writ petition in the High Court challenging the levy of the tax. This writ petition was dismissed by a learned Single Judge. The respondent then went in appeal and the appeal court allowed the appeal holding inter alia (i) that the Central Government could not modify the rates specified in the resolution under Section 150 (1) but could only either withhold sanction thereto or sanction them, and (ii) that the liability to pay tax could not commence earlier than April 1, 1960 in view of the provisions contained in Section 109 (2) read with Section 150 (4) of the Act.3. On December 3, 1966, Parliament passed the Delhi Municipal Corporation (Validation of Electricity Tax) Act, No. 35 of 1966 thereinafter referred to as the Validation Act). By this Act, it purported to validate the levy of electricity tax from July 1, 1959 to March 31, 1966 (both days inclusive). In view of the Validation Act, fresh demands were made by the Corporation on the respondent.4. On February 17, l965, the Corporation passed another resolution in pursuance of Section 150 (1) and this time provided maximum rates for the levy of tax on consumption or sale of electricity. These rates were higher than the rates fixed by the resolution of February 9, 1959. This resolution was submitted to Government and was sanctioned on December 8, l965. Thereafter the Corporation passed the second resolution under Section 150 (3) of the Act resolving that the maximum rates should be adopted as the actual rates for the levy of tax. This resolution was passed on December 27, 1965. Then followed two writ petitions by the respondent. By the first writ petition it challenged the levy of tax by resolutions of February 17, and December 27, 1965, and by the second writ petition the appellant challenged the vires of the Validation Act.The High Court held, so far as the Validation Act is concerned that though it validated the levy and collection of tax from July 1, 1959 to March 31, 1960, it failed to validate the levy and collection from April 1, 1960 to March 31, 1966 on the ground that there was no levy of tax for this latter period even though the rates were specified in the Validation Act. On the question of excessive delegation, the High Court held that Section 150 suffered from the vice of excessive delegation of legislative power and was therefore ultra vires. In consequence, the two writ petitions succeeded except as to the period from July 1, 1959 to March 31, 1960. The Corporation then applied for and obtained certificates and that is how the matter has come before us.The Delhi Municipal Corporation in exercise of powers under its constituent Act has levied a tax on the consumption, sale or supply of electricity. This power is expressly conferred by the Delhi Municipal Corporation Act, 1957 (66 of 1957). Section 113 (2) (d) and (3) readsIn addition to taxes specified in sub-section (1) the corporation may, for the purposes of this Act, levy any of the following taxes, Namely:* * * * * *(d) tax on the consumption, sale or supply of electricity.(3) The taxes specified in sub-section(2) shall be levied, assessed and collected in accordance with the provisions of this Act and the bye-laws made thereunder.The Act provides further in Section 150.Imposition of other taxes.(1) The Corporation may, at a meeting, pass a resolution for the levy of any of the taxes specified in sub-section (2) of S. 113, defining the maximum rate of the tax to be levied, the class or classes of persons or the description or descriptions of articles and properties to be taxed, the system of assessment to be adopted and the exemptions, if any, to be granted.(2) Any resolution passed under sub-section (1) shall be submitted to the Central Government for its sanction, and if sanctioned by that Government, shall come into force on and from such date as may be specified in the order of sanction.(3) After a resolution has come into force under sub-section (2), the Corporation may, subject to the maximum rate, pass a second resolution determining the actual rates at which the tax shall be leviable; and the tax shall come into force on the first day of the quarter of the year next following the date on which such second resolution is passed.(4) After a tax has been levied in accordance with the foregoing provisions of this section, the provisions of sub-section (2) of Section 109, shall apply in relation to such tax as they apply in relation to any tax imposed under sub-section (1) of Section 113.On February 9, 1959 the Municipal Corporation passed a resolution stating the rate at which the tax would be levied. The resolution was submitted to the Central Government for its approval. The Central Government modified the rate by enhancing it. On June 23, 1959 the Standing Committee of the Corporation recommended the rate sanctioned by the Government as the actual rate to be imposed. The Corporation then resolved on June 24, 1959 that the tax was imposed at that rate.47. The respondent challenged the imposition of the tax by a writ petition in the Punjab High Court. A learned single Judge dismissed the petition but on appeal in the High Court the decision was reversed. It was held that the Central Government lacked power to alter the rate. On December 3, 1966, Parliament passed the Delhi Municipal Corporation (Validation of Electricity Tax) Act, purporting to validate the rate of tax. On February 17, 1965, the Municipal Corporation passed another resolution under Section 150 (1) stating the maximum rate of tax. This resolution was approved by Government and a second resolution was then adopted under Section 150 (3) naming the maximum rate as the actual rate. This was on December 27, 1965. Two writ petitions were filed by the respondent in the High Court of Delhi. The first questioned the imposition of the tax by the resolutions of February 17 and December 27, 1965 and the second questioned the legality of the Validation Act. These petitions succeeded and the present appeals followed.

Reasoning:
With respect, it seems to us that if this observation means that it is open to the legislature to delegate the power to fix the rate of tax to another authority without any qualification, guidance, control or safeguard, it is too widely stated and does not appear to be supported by the authorities on which it is based, though those authorities do indicate that in certain cases it is open to the legislature to give power to another authority to fix rates under proper guidance, control and safeguard. Take the case of Powell v. Apollo Candle Co., Ltd., (1885) 10 AC 282. In that case Section 133 of the Customs Regulation Act of 1879 of New South Wales was under attack. That section ran thusany article of merchandise then unknown to the collector is imported, which in the opinion of the collector or the commissioners, is apparently a substitute for any known dutiable article, or is apparently designed to evade duty, but possesses properties in the whole or in part which can be used or were intended to be applied for a similar purpose as such dutiable article, it shall be lawful for the Governor to direct that a duty be levied on such article at a rate to be fixed in proportion to the degree in which such unknown article approximates in its qualities or uses to such dutiable article; and such rate thus fixed shall be published in a Treasury order in the Gazette, and one other newspaper published in Sydney, and exhibited in the long room or other public place in the Custom House and a copy of all such Treasury orders shall, without unnecessary delay, be laid before both Houses of Parliament.A bare perusal of the section shows that though the power was delegated to the Governor to levy the duties, it gave complete guidance to him in the manner of fixing the rate of duty and finally provided that the order passed by the Governor would be laid before both Houses of Parliament without unnecessary delay. The observations of the Privy Council in that cave have in our opinion to be read in the context of the words of Section 133 where full guidance was provided as to the fixation of the rate.A review of these authorities therefore leads to the conclusion that so far as this Court is concerned the principle is well established that essential legislative function consists of the determination of the legislative policy and its formulation as a binding rule of conduct and cannot be delegated by the legislature. Nor is there any unlimited right of delegation inherent in the legislative power itself. This is not warranted by the provisions of the Constitution. The legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act. Where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere. What guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a consideration of the provisions of the particular Act with which the Court has to dead including its preamble. Further it appears to us that the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation.Though delegation as to municipal taxation is held to be permissible under the U. S. Constitution, it is so because of historical reasons peculiar to that country. The American example may not be an apt analogy but the history of municipal Acts in our country indicates that for nearly century or more power of taxation has been delegated to municipal bodies. In some Acts all taxes delegated to the municipal bodies are compulsory; in other Acts a taxes so delegated are optional: (See U. P. Municipalities Act). In some cases some taxes are compulsory and some taxes are optional as is the case in the present Act. In some cases maximum limits are provided for some taxes and not for others; in some cases no maximum is provided, though there are restrictions and safeguards within which the municipal bodies must act. In all case however, there has been a large area a delegation of taxing power for local purposes to local bodies subject to control by Government or to such other procedural safeguards as the legislature considers necessary in the matter of imposition of taxes. According to our history also there is a wide area of delegation in the matter of imposition of taxes to local bodies subject to controls and safeguards of various kinds which partake of the nature of guidance in the matter of fixing rates for local taxation. It is in this historical background that we have to examine the provisions of the Act impugned before us.32. We have already set out S. 150 of the Act which delegates power to the Corporations to levy any of the optional taxes at such rates as it thinks fit and further gives power to it to specify persons, and articles and properties on which tax will be levied and the system of assessment to be adopted and exemptions if any to be granted.The argument which found favour with the High Court was that the words of Section 2 only validated the levy and collection of tax for the year ending March 31; 1960 and no further though the section in terms refers to the Period from July 1, 1959 to March 31, 1966 The contention which was accepted by the High Court, was that though fixation of rate of tax was validated upto March 31, 1966, the levy of the tax was not validated for the whole period by Section 2 of the Validation Act. The same argument was raised before us in support of the contention that the Validation Act failed in its purpose so far as the period from April 1, 1960 to March 31, l966 is concerned. We are of opinion that the High Court was in error in holding that the levy and collection was not validated for the period from April 1, 1960 to March 31, 1966 and that the Validation Act merely validated the fixation of rate of tax for that period. Section 2 (1) which is said to have failed in validating the levy and collection of tax for the period from April 1, 1960 to March 31, 1966 is in two parts. In the first place it validates the resolution of the Corporation dated June 24, 1959 by which rates were fixed under Section 150 (3) for the year ending March 31, 1960. As the High Court says-and rightly so this means that everything that went before the resolution of June 24, l959 was passed was validated. It was on this ground that the High Court held that the Validation Act validated the levy and collection of tax at the rates fixed for the period from July 1, 1959 to March 31, 1960 The High Court seems to have overlooked the second part of Section 2 (1) which lays down that the rates specified in the resolution of June 24, 1959 in respect of tax on the consumption or sale of electricity under the Act with effect on and from the Ist day of July 1959 and up to and inclusive of the 31st day of March, 1966 shall be deemed to be, and to have been, the actual rates of the tax. By this part of Section 2 (1), Parliament has clearly approved the rates deductible from the resolution of June 24, 1959 as the actual rates of tax for the entire period from July 1, 1959 to March 31, 1966. This could only be to validate the levy and collection of tax at that rate for that period, for otherwise we can see no sense in the Validation Act. It is however said that the words "at which tax shall be levied and collected do not appear after the words "the actual rates of the tax" in Section 2 (1) and therefore the section must be taken to have validated the rates only. It has neither provided for levy and collection of tax nor validated its levy and collection for the period mentioned therein. It seems to us that when S 2 (1) lays down that the rates deducible from the resolution of June 24, 1959 shall be the actual rates of tax for the entire period from July 1, 1959, to March 31, 1966. it must be understood to sanction the levy and collection of tax at the rates fixed. This to our mind is implicit in the word "actual" which governs the words "rates of the tax" We may add that even if there was some doubt in the matter from the words of Section 2 (1), that doubt is resolved by the words of Section 2 (2), which lays down that "all taxes on the consumption or sale of electricity levied or collected or purporting to have been levied or collected in pursuance of the resolution referred to in sub-section (1) shall, for all purposes, be deemed to be, and to have always been validly levied or collected."This clearly shows that the validation was not merely of the rate of tax but of levy and collection also for the entire period from July 1, 1959 to March 31, 1966. We cannot therefore agree with the High Court that only the rates of tax were validated and not levy and collection thereof for the period from April 1, 1980 to March 31, 1966. We may go further and say that as we read Section 2 (1) and Section 2 (2) together it seems to us that Parliament not only validated what was done but also itself imposed the rates deducible from the resolution of June 24, 1959 and authorised the levy and collection thereof for the entire period from July 1, 1959 to March 31, 1966 notwithstanding anything contained in any judgment, decree or order of any court to the contrary.