Case: C. Rajagopalachari Vs. Corporation Of Madras

2. The appellant held office as the last Governor-General of India. Under S. 3 of Central Act XXX of 1951 the appellant is entitled to a pension of Rs. 15,000/- per annum and has been drawing this sum residing in the city of Madras. The Corporation of Madras- the first respondent before us demanded profession tax from the appellant under S. 111(1) (b) of the City Municipal Act, 1919 hereinafter called the Act for the year 1958-1959 on the ground of the appellants residence within the city for the period therein specified and his drawing the pension to which he was entitled. The appellant addressed a communication to the Corporation asserting that this demand was illegal as the Corporation was empowered by the relevant constitutional provisions merely to levy a tax "on a profession, trade, calling or employment" and that as he as a pensioner did not fall under any of these classes the said demand was illegal. The authorities of the Corporation, however, insisted on compliance with the demand on the ground that under the express terms of the Act persons in receipt of pensions were also liable to the tax. The appellant thereupon filed a writ petition for the relief already set out, and as the validity of the State Act was impugned impleaded the State of Madras also as a respondent.

Court's reasoning:
Being a "pensioner" cannot be a "profession, trade, business or calling" nor could a tax on a person because he is in receipt of a pension be said to be a tax on "employments". The tax therefore under the last portion of S. 111 (1) (b) reading- Profession tax on persons in receipt of any pension or income from investments"-is nothing but a tax on income falling within Entry 82 of the Union list. If, therefore, the Corporation could not justify the tax as being within the State legislative power the only manner in which it could be done would be by reference to Art. 277 of the Constitution by which taxes, duties, etc. which "were being lawfully levied" prior to the commencement of the Constitution were permitted to be levied "notwithstanding that the tax was in the Union List" and "to be applied to the same purposes" as before. Unless therefore the Corporation could make out that the tax now impugned was being lawfully levied from before the Constitution the levy would be illegal and besides there was the complication introduced by the enhancement of the rates of tax which, as stated earlier, were effected in April 1950, April 1958 and in 1961. Leaving aside for the moment the question of the effect of the enhancement of the rate, we have to see whetherThe first point need not detain us long. Prima facie it would seem that there being no rigid distribution of legislative power between the Central and Local Governments under the Government of India Act, 1919 any infraction of the rules made under the Devolution Rules framed under S. 45-A would be validated by S. 80-A(3) and S. 84(2) of the Government of India Act, 1919. The learned Judge of the High Court before whom this contention was urged rejected it, and the learned counsel submitted that the decision on this point was not correct. But in the view that we took of other submissions made to us, we did not hear learned counsel fully on this point and therefore do not propose to express any final opinion on the tenability of the argument on thisconsider this submission well founded. If the statutory charge to profession tax imposed on pensioners by the Act of 1919, was lifted by the Act of 1936, and the tax again came into operation only on 1st April, 1937, it would follow that there was no "levy of the tax" "immediately before" the commencement of Part III ofthe Government of India Act, 1935, so as to bring it within the saving in S. 143(2) of that Act. Besides, the two circumstances viz.: that residence within the city for a specified period was made a condition of the liability to the tax, as well as the increase in the rates would both serve to emphasise that the levy was a new one, with a different texture and not a continuance of the tax which was levied just prior to April 1,are unable to agree. The mere fact that prior to 1-4-1937 the Corporation had under Act X of 1936 the power to bring the tax into force by a resolution does not on a proper construction of S. 143(2) bring it within the range of those taxes or duties which "were being lawfully levied" prior to the commencement of Part III of the Government of India Act which alone are permitted to be continued to be levied notwithstanding that these duties were in the Federal Legislative List. This question has been considered by us in great detail in The Town Municipal Committee v. Ramchandra Vasudeo Chimote, Civil Appeals Nos. 598 695 and 700 of 1962, D/- 3-3-1964: (AIR 1964 SC 1166 ) in which judgment has been pronounced today and it is unnecessary to reexamine the same. The mere existence of a power to bring a power tax into operation, cannot as pointed out, be equated with "a tax which was being lawfully levied" before Part III of Government of India Act 1935.13. The third submission of learned Counsel for the appellant is also well-founded. The conclusion we have reached as to the effect of the amendment to S. 111 by Act X of 1936 and of tax being imposed by resolution of the Council from 1-4-1937 not a tax which was being lawfully levied immediately prior to 1-4-1942, is reinforced by reference to the rules in Schedule IV remained unamended till 1942. Under S. 111 (1) as amended, the tax could be levied only in accordance with the rules in Schedule IV and as those rules did not make a provision for the levy of a tax on pensioners, it would follow that the tax "was not being lawfully levied" on them. As already pointed out the relevant rules in that Schedule were framed at a time when explanation 2 formed part of S. 111 and "pensioners" were deemed to "hold appointments." With the deletion of the Explanation, the fiction created by the original Madras Act IV of 1919 ceased and thereafter if the rules in Schedule IV had to be applied to them these had to be suitably modified. This, as we have pointed out earlier, was done only from April 1, 1942, so that in reality taxes on pensioners were "lawfully" levied up to 1936 and then after a break from April 1, 1942. We use the word "lawfully" on the assumption that this could have been legally done underthe Government of India Act, 1935, a point already discussed. The learned Judges of the High Court have rejected the argument addressed to them under this head by reference to S. 18 of the Madras General Clauses Act corresponding to S. 24 of the General Clauses Act (Central Act X of 1897).With great respect to the learned Judges we do not see how this provision affords any assistance in the matter. The Schedule and the rules continued without repeal or amendment when the new S. 111(1) was substituted in 1936, and when this section made a reference to the rules, in Schedule IV it could only be a reference to the rules in the Schedule IV which stood unaltered. If the phraseology employed in the Schedule was inappropriate to a class which fell within S. 111(1), the only effect would be that the tax could not be levied because of the defect in the law imposing the tax but such a situation is not remedied by reference to the provision in the General Clauses Act on which the learned Judges have relied.14. If, therefore, the tax was one not lawfully levied just prior to April 1, 1937 and was one brought afterthe Government of India Act, 1935 came into force and really only from April 1, 1942 assuming this to be lawful it is obvious that the validity of tax could not be sustained as a continuation of a lawful pre-existing levy under S.argument was admittedly not urged before the learned Judges of the High Court and is obviously untenable.The taxes specified in item 60 are taxes on the carrying on of a profession, trade etc. and would therefore apply only to a case of present employment. The mere fact that a person has previously been in a profession or carried on a trade etc., cannot justify a tax under this Entry. The tax on the receipt of pension or on the income from investments which is referred to in the last part of S. 111 (1) is in truth and substance a tax on income and in fact the argument before the High Court proceeded on this basis, so have the learned Judges. At the time the tax is levied the pensioner is in no employment but is only in receipt of income though it might be for past services, in anour opinion, they were in error. The question of the correlation between Art. 372 corresponding to S. 292 of the Government of India Act and Art. 277 corresponding to S. 143 (2) of the Government of India Act was considered by this Court in South India Corporation (P) Ltd. v. Secy., Board of Revenue Trivendrum, Civil Appeals Nos. 295 to 298 (Not yet reported) D/- 13-8-1963 : (Since reported in AIR 1964 SCprovision, again, was not adverted to before the learned Judges of the High Court and for a proper reason. S. 142-A(1) which corresponds to Art. 276(1) of the Constitutionanything in section one hundred of this Act no Provincial law relating to taxes for the benefit of Province 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 onsection would assist the respondent only if tax imposed were one on a profession, trade, calling, or employment and in that event the section provides that such a tax shall not be deemed to be a tax on income, but where the tax imposed is one not on a profession etc. at all, it does not mean that the State might levy a tax on income and call it profession tax. This is sufficient to dispose of a similar argument as regards the scope of the amended Entry 46 in the Provincial Legislative List (List II) to which we have adverted earlier.