Case: Nagar Mahapalika Varanasi Vs. Durga Das Bhattacharya &amp; Ors

2. On March 26, 1956, the plaintiff respondents who are rickshaw owners and rickshaw drivers filed a representative suit in the court of Civil Judge, Varanasi praying for a decree against the appellant to restrain it by means of a permanent injunction from charging any licence fee or preventing the respondents from plying rickshaws for hire without paying license fee within the municipal limits of Varanasi. Purporting to act under S. 289 (2), List I - H of the U. P. Municipalities Act, 1916 (Act No. II of 1916), hereinafter referred to as the Act, the Municipal Board of Varanasi framed certain bye-laws relating to the plying of rickshaws. The bye-laws were first published by Government order No. 3471/XXIII-9994 dated March 10, 1941 and were subsequently amended by two notifications No. 4022/XXIII-445 dated February 2, 1950 and No. 5834-XXIII-745 dated September 6, 1951. Under these bye-laws, as they stood amended, the owner of each rickshaw had to pay an annual licence fee of Rs. 30/- and each driver of a rickshaw had to pay an annual fee of Rs. 5/-. The respondents challenged the validity of these bye-laws mainly on the ground that considering the amount that was being levied what should have been only a fee was really a tax which the Municipa1 Board had no authority to levy. It was contended on their behalf that a licence fee could be levied only for services rendered or advantages provided and the imposition must be commensurate with the services and advantages so rendered or provided, it was urged that so far as the rickshaws that were being plied within the municipal limits of Varanasi were concerned no advantages or services were provided which could justify the levy of a. fee at such a rate. The suit was contested by the appellant Municipal Board on the ground that services and advantages were, in fact, provided and their cost was much more than the total amount that was being realised from the rickshaw owners and drivers. By his judgment dated March 26, 1958 the 1st Additional Civil Judge, Varanasi dismissed the suit of the respondents, holding that the bye-laws in question were not invalid. The respondents took the matter in appeal to the Allahabad High Court, being First Appeal No. 315 of 1958. The appeal was first placed before Gurtu and Srivastava, JJ. who referred it for consideration by a larger Bench. The appeal was finally heard by the Chief Justice, Jagdish Sahai and Bishambhar Dayal, JJ. By a majority judgment dated November 23,,1961, the appeal of the respondents was allowed, the judgment of the trial court was set aside and the suit of the respondents decreed. It was held by Sahai and Dayal, JJ, who delivered the majority judgment that the imposition of the license fee at the rate of Rs. 30/- on each of the rickshaw owners and Rs. 5/- on each of the rickshaw drivers was ultra vires and a permanent injunction was accordingly granted restraining the appellant from realising the license fees at this rate for the period in question. It was, however, made clear that it was open to the Municipal Board to reduce the fee to a reasonable figure and co-relate it to the services rendered by the Municipal Board.

Court's reasoning:
It is true that between a tax and a fee there is no generic differences both are compulsory extractions of money by public authorities; but whereas a tax is imposed for public purposes and is not supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the Public authority which imposes9. In this context it is important to notice that the power to tax is not included in the police power in the American Municipal Law. (Dillon on Municipal Corporations, Vol. IV, 5th Edn., p. 2400). It has been held that the police and taxing powers of the legislature though co-existent, are distinct powers. Broadly speaking, the distinction is that the taxing power is exercised for the purpose of raising revenue and is subject to certain designated constitutional limitations, while the police power is exercised for the promotion of the public welfare by means of the regulation of dangerous or potentially dangerous businesses, occupations, or activities, and is not subject to the constitutional restrictions applicable to the taxing power."It may consequently be said that if the primary purpose of A statute or ordinance exacting an imposition of some kind is to raise revenue, it represents an exercise of the taxing power, while if the primary purpose of such an enactment is the regulation of some particular occupation, calling, or activity, it is an exercise of the police power, even if it incidentally produces revenue."The High Court was of the opinion that the amount of Rs. 68,000 spent for paving of bye-lanes and Rs. 20,000 for lighting of streets and lanes cannot be considered to have been spent in rendering services to the rickshaw owners and rickshaw drivers. The reason was that under Section 7 (a) of the Act it was the statutory duty of the Municipal Board to light public streets and places and under Clause (h) of the same section to construct and maintain public streets, culverts etc.The expenditure under these two items was incurred by the Municipal Board in the discharge of its statutory duty and it is manifest that the licence fee cannot be imposed for reimbursing the cost of ordinary municipal services which the Municipal Board was bound under the statute to provide to the general public.(See the decision of the Madras High Court in India Sugar and Refineries Ltd. v. Municipal Council Hospet, ILR (1943) Mad 521 = (AIR 1943 Mad 191  ). If these two items are excluded from consideration the balance of expenditure incurred by the Municipal Board for the benefit of the licensees is Rs. 55,741/7/0. In other words, the expenditure constituted about 44 per cent of the total income of the Municipal Board from the licensees. In our opinion there is no sufficient quid pro quo established in the circumstances of this case and the High Court was therefore right in holding that the imposition of the licence fees at the rate of Rs. 30 on each rickshaw owner and Rs. 5 on each rickshaw driver was ultra vires and illegal.