Judgment Case ID: 2812

Judgment:
Appeal No. 1641 of 1966. Appeal from the judgment and decree dated March 10	 11	 1965 of the Bombay High Court in Appeal No. 26 of 1958 from Original Decree. L10Sup Cl (NP)/70 14 922 L. M. Singhvi and B. D. Sharma	 for the appellant. H. R. Gokhale	 Y. section Chitale	 Janendra Lal and B. R. Agarwala	 for respondent No. 1. The Judgment of the Court was delivered by Bhargava	 J. The Union of India	 as the owner of the Central Railway	 instituted a suit for refund of Rs. 2	76	967/ collected as tax from the Railway Administration by the respondent Municipality during the period from 1931 till the institution of the suit in November	 1954. The facts leading up to the suit are that the G.I.P. Railway	 which was a Private Company	 had land situated within the limits of the respondent Municipality. On this land	 stood the railway station	 their Water Reservoir at Bhusi	 bungalows of Officers	 and certain other buildings. There were also vacant lands and some lands on which railway lines were laid out. In this area	 which belonged to the G.I.P. Railway	 the Railway Company itself built roads	 supplied water from its Bhusi Reservoir	 arranged for the lighting	 and provided other services. In fact	 up to the year 1916	 the Railway used to supply water even to the Municipality from its Bhusi Reservoir on payment. The Municipality was governed	 at that time	 by the Bombay District Municipal Act No. 3 of 1901 (hereinafter referred to as "the Act of 1901") under which a tax on lands and buildings situated within the municipal limits used to be charged @ 4 per cent of the annual rental value	 but no tax was levied on the buildings and lands of the G.I.P. Railway in view of section 135 of the Indian Railways Act No. 9 of 1890. In the year 1914	 the Government of India issued a notification under section 135 of the Railways Act declaring that the Administration of the G.I.P. Railway shall be liable to pay	 in aid of the funds of the local authorities set out in the Schedule	 the taxes specified against each of those authorities. Against the 'lame of Lonavla Municipality	 which is the respondent in this case	 the tax mentioned was house tax. Thus	 the exemption granted to the Railway Administration was taken away by this notification in respect of house tax and house tax became payable by the G.I.P. Railway to the respondent. In 1916	 the respondent constructed its own water reservoir and became independent of the Railway for water supply	 but no water rate was charged from the Railway even thereafter	 though water charges for actual quantities of water supplied in three of the bungalows was charged from the occupants of the bungalows. The rest of the Railway Colony continued to be supplied with water from the Railway Reservoir at Bhusi. On 4th May 1916	 the respondent promulgated new rules for taxation and	 instead of charging separate house tax and water rate it decided to charge a consolidated tax assessed as a rate on 923	 buildings and lands in accordance with clause (c) of the proviso to section 59(1) of the Act of 1901. Thereafter	 it appears that the respondent demanded this consolidated tax from the Railway in respect of the Railway lands and buildings. The Railway felt that	 since	 under the notification of 1914	 house tax only was payable by the Railway Administration	 there was no justification for the respondent to charge consolidated tax from it and	 consequently	 protested against this payment. Thereafter	 on 26th July	 1917	 the Government of India issued a fresh notification tinder section 135 of the Railways Act	 whereby the Railway Administration was rendered liable to pay what was described as "tax on lands and buildings". On the issue of this notification	 the respondent started charging the G.I.P. Railway this consolidated tax and this continued until some time in the year 1927 by which time the G.I.P. Railway was taken over by the Government and became a Government undertaking. In the Rules promulgated on 4th May	 1916	 the consolidated tax described as a general rate on buildings and lands was not chargeable on government property. Relying on this provision in the Rules	 an objection was raised that the charge of the tax was illegal when the Railway had become government property. Subsequently	 the respondent Municipality amended its Rules and promulgated fresh Rules on the 6th October	 1931. By this time	 the respondent Municipality had been constituted into a Borough under the Bombay Municipal Boroughs Act No. 18 of 1925 (hereinafter referred to as "the Act of 1925"). These new Rules were thus promulgated under this Act of 1925. Under these Rules	 the exemption in respect of government property to the charge of the general rate on buildings and lands	 which was contained in the Rules of 1916 was deleted and all lands and buildings within the Municipal Borough became chargeable irrespective of their being owned by the Government. A separate clause was incorporated giving certain exemptions	 but	 since they do not affect the case before us	 they need not be mentioned. In pursuance of these Rules of 1931	 the respondent started collecting the consolidated tax assessed as a rate on buildings and lands of the Railway from it. In the year 1940	 the Railway Administration preferred an appeal under section 110 of the Act of 1925 against one of the demand notices issued in respect of this tax on the 6th October	 1940. This appeal came up before the Sub Divisional Magistrate Western Division	 Poona	 who held that the levy of this consolidated tax was ultra vires and set aside the demand notice. On a revision by the respondent under section 111 of the Act of 1925	 the District and Sessions Judge set aside the order of the Sub Divisional Magistrate	 holding that the imposition of the tax was valid. Against this decision	 the Railway Administration filed a revision 924 before the High Court of Bombay under section 115 of the Code of Civil Procedure. The High Court	 on 12th February	 1945	 refused to exercise its special powers under section 115	 C.P.C.	 with the further remark that the proper remedy to be sought was by means of a suit. Under these circumstances	 the Union of India	 which had come to be the owner of this Railway under the name of the Central Railway	 filed the suit on 27th November	 1954 for refund of the entire amount which was collected by the respondent from the Railway in pursuance of the Rules of 193 1. The trial court held that the levy of this tax was void inasmuch as	 under the notification issued on the 26th July	 1917	 only the rate on lands and buildings was payable by the Railway Administration. The suit for the refund filed by the Union of India was	 on this ground	 decreed. On appeal	 the ' High Court disagreed with the trial court and held that even the consolidated tax was payable in view of the notification of 26th July	 1917	 so that the tax had been rightly collected. The High Court	 thereupon	 set aside the decree of the trial court and dismissed the suit. It is against this decree that the Union of India has come up in this appeal by certificate under Article 133 of the Constitution. In order to appreciate the submissions made by counsel for parties in this appeal	 it is necessary to set out the relevant provisions of section 59 of the Act of 1901 and of section 73 of the Act of 1925 which are as follows : "Section 59 of the Act of 1901. (1) Subject to any general or special orders which the State Government may make in this behalf	 any Municipality many impose	 for the purposes of this Act	 any of the following taxes	 that is to say	 (i)a rate on buildings or lands or both	 situate within the municipal district; (vii) a general sanitary cess for the construction or maintenance	 or both construction and maintenance	 of public latrines	 and for the removal and disposal of refuse; (viii) a general water rate or a special water rate or both for water supplied by the Municipality	 which may be imposed in the form of a rate assessed on buildings 925 and lands	 or in any other form	 including that of charges for such supply	 fixed in such mode or modes	 as shall be best adapted to the varying circumstances of any class of cases or of any individual case; (ix) a lighting tax; . . Provided further that . . (c) the Municipality in lieu of imposing separately any two or more of the taxes described in clauses (i)	 (vii)	 (viii) and (ix) may impose a consolidated tax assessed as a rate on buildings or lands	 or both situate within the municipal District. " "Section 73 of the Act of 1925 73. (1) Subject to any general or special orders which the State Government may make in this behalf and to the provisions of sections 75 and 76	 a municipality may impose for the purposes of this Act any of the following taxes	 namely: (i) a rate on buildings or lands or both situate within the municipal borough; . . (viii)a general sanitary cess for the construction and maintenance of public latrines	 and for the removal and disposal of refuse; . . (x) a general water rate or a special water rate or both for water supplied by the municipality	 which may be imposed in the form of a 'rate assessed on buildings and lands or in any other form	 including that of charges for such supply	 fixed in such mode or modes as shall be best adapted to the varying circumstances of any class of cases or of any individual case; (xi) a lighting tax; . . 926 Provided further that . . (c) the municipality in lieu of imposing separately any two or more of the taxes described in clauses (i)	 (viii)	 (x) and (xi) may impose a consolidated tax assessed as a rate on buildings or lands or both situated within the municipal borough. " In the year 1914	 the respondent Municipality had only levied a rate on buildings an& lands under clause (i) of section 5 9(1) of the Act of 1901. There was no question of imposing a general or special water rate as the respondent had no water works of its own and was taking water supply from the G.I.P. Railway. It was in these circumstances that the notification was issued by the Central Government dated the 13th May	 1914 making the Railway Administration liable to pay house tax to the Municipality of Lonavla. The notification was obviously intended to make the Railway liable to pay the tax which had been imposed as a rate on buildings and lands under section 59(1)(i) of the Act of 1901 by the respondent. Subsequently		 in the year 1916	 the respondent Municipality not only arranged for water supply and imposed a general water rate	 it proceeded to make rules for imposition of a consolidated tax assessed as a rate on buildings and lands under clause (c) of the second proviso to section 59(1) in lieu of the existing tax imposed as a rate on buildings and lands under clause (i) as well as the water rate	 imposed under clause (viii) of section 59(1). Thereafter	 the Central Government issued the notification dated 26th July	 1917 under section 135(1) of the Railways Act making the G.I.P. Railway liable to tax on buildings and lands imposed by the Lonavla Municipality. It is to be noted that	 in this notification	 the Government used the word "tax" and not the word " rate". The tax imposed under section 59(1) was described as "a rate on buildings and lands". If the intention of the Government had been that the G.I.P. Railway should be liable to that tax only	 it could have used the word "rate" instead of the word "tax ' in the notification. In fact	 if the	 notification had been left untouched	 the liability of the G.I.P. Railway would have continued to be in respect of the rate on buildings or lands because of the earlier notification of 1914	 under which the Railway had been made liable to House tax. The notification of 26th July	 1917 made the Railway liable to tax on buildings and lands obviously because the Government intended that the Railway should be liable to the consolidated tax under clause (c) of the second proviso to section 59(1). Clause (c) permits the imposition of a consolidated tax assessed as a rate on buildings or lands	 or both. The moment a tax is assessed as a rate on buildings or lands	 it naturally becomes a tax 9 2 7 on building and lands. The fact that it was a consolidated tax was immaterial. It was this consolidated tax which was intended to be made payable by the G.I.P. Railway when the Central Government used the expression "tax on buildings and lands" in place of the earlier words "House Tax" and chose not to refer to the liability being in respect of a rate on buildings and lands. It is true that all taxes are not rates but all rates are taxes. A rate on buildings and lands is 'a tax on buildings	 so also any other tax ' assessed as a rate on buildings and lands becomes a tax on buildings and lands. We are unable to accept the submission made by counsel for the appellant that the expression "tax on buildings and lands" used in the notification of 26th July	 1917 could only refer to a rate on buildings and lands under clause (i) of section 59(1) and would not cover the con solidated tax referred to in clause (c) of the second proviso. It is true	 as urged by him	 that the tax under clause (c) of the second proviso is not identical with	 and is different in nature from	 the rate on buildings and lands imposed under clause (i)	 but that circumstance does not imply that it is not a tax on buildings and lands. The mere use of the word "consolidated" cannot make any difference to this interpretation. It is also significant that clause (c) of the second proviso does not purport to lay down that the consolidated tax will be the sum total of the taxes described in clauses (i)	 (vii)	 (viii) and (ix). The consolidated tax envisaged by that clause is in lieu of separate imposition of any two or more of the taxes described in clauses (i)	 (vii)	 (viii) and (ix) which means that the power to impose. this consolidated tax has been given for the purpose of substituting it for the multiple taxes which could be imposed under those clauses. This consolidated tax cannot	 therefore	 be held to be of the same nature as the taxes in all those clauses. The intention appears to be that	 though the Municipality was empowered to impose four different kinds of taxes	 it was permitted under clause (c) of the second proviso to simplify matters by having a single tax on buildings and lands in lieu of those multiple taxes. Such a single tax had to be assessed as a rate on buildings and lands. This being the nature	 it obviously becomes a tax on buildings and lands	 so that the notification of 26th July	 1917 clearly makes the Railway liable to payment of this tax. The position under the Act of 1925 is exactly the same where also the language of clause (c) to the second proviso is identical with that contained in the Act of 1901	 so that the liability imposed on the Railway by the notification of the Government dated 26th July	 1917 under s.135(1) of the rail ways Act continued even under the Act of 1925. It is also significant to note that the Rules	 which we 're framed by the Municipality under the Act of 1901 and by the Municipal .Borough later under the Act of 1925 which were promulgated on 928 the 4th May	 1916 and the 6th October	 1931 respectively	 described the tax as a general rate on buildings and lands in rule 1. It is true that	 in the heading of the Rules	 the expression used was that "the Rules were for the levy of a consolidated rate on buildings and lands"	 but	 in the main provision	 the tax was described only as "a general rate on buildings And lands". A general rate on buildings and lands is obviously a tax on buildings and lands and would	 therefore	 be covered by the notification of the Central Government dated 26th July	 1917. Apart from this interpration which we have arrived at on the basis of the language used in the two Acts	 the Rules	 and the notification of the Central Government	 there are two circumstances which indicate that this must be the correct construction of the notification issued by the Central Government. The first circumstance is that	 when this notification was issued	 the only tax which was being imposed by the Lonavla Municipality which the Central Government could have intended should become payable by the	 G.I.P. Railway was the consolidated tax under clause (c) of the second proviso. There was no other tax which could have been covered by this notification. In fact	 the notification would be meaningless if we were to hold that this consolidated tax is not covered by the expression "tax on buildings and lands". This notification was issued while the earlier notification of 1914 was 	already in existence and	 if the intention was to cover only the rate mentioned in clause (i) of section 59(1)	 there was no need to issue this fresh notification as the liability of the Railway to pay that tax already existed under that notification of 1914. The second circumstance that we can take notice of is the historical background in which this notification of 26th July	 1917 was issued. It appears that	 after the Rules for imposition of this consolidated tax came into force in 1916	 the Municipality demanded payment of this consolidated tax from the G.I.P. Railway. Thereupon	 the Agent of the G.I.P. Railway Company wrote a letter to the Secretary	 Railway Board	 Simla	 on the 1st December	 1916	 stating that the Company did not agree that it should pay the new consolidated tax as it comprised a house tax and a water rate. The Company had its own arrangements for the supply of water and it was obviously unfair that it should be called upon tO pay any tax which includes a water rate	 when no municipal water was being consumed by the Railway at Lonavla. The Secretary	 Railway Board	 forwarded this letter to the Secretary to the Government of Bombay	 General Department	 with a letter dated 12th December	 1916	 enquiring whether the Agent 's information was correct and	 if so	 whether the Bombay Government had any remarks to offer on the	 Agent 's 92 9 contentions. On 11th May	 1917	 the Secretary to the Government of Bombay replied to the Secretary	 Railway Board	 pointing. out that	 originally	 the Municipality	 proposed to levy a general water rate on all houses	 in addition to the existing house tax	 but	 on representations from property owners of Lonavla and Khandalla	 it had decided to. impose a consolidated rate on buildings and lands in lieu of the house tax and the proposed general water rate. Consequently	 they were	 levying	 in lieu of house tax	 a consolidated rate	 which included a general water rate	 on a sliding scale	 on all properties situated within the municipal limits. The water rate imposed was not intended to cover expenses on any service rendered in the nature of a general tax as opposed to a service tax. In equity	 the Railway Company 's property in Lonavla had no better right to exemption than the properties of private individuals who	 although they did not take private pipe connections	 were paying the general water rate. In these circumstances	 a request was made to the Secretary	 Railway Board	 to move the Government of India to declare the Administration of the G.I.P. Railway liable to pay to the Lonavla Municipality the consolidated tax on buildings and lands in lieu of the	 housetax in respect of the railway properties situated within the municipal limits. It was suggested that the Schedule annexed to the notification dated 13th May	 1914 may be amended accordingly. It was in pursuance of this move by the Bombay Government that the notification of 26th July	 1917 was issued by the Central Government. That the notification of 26th July	 1917 was issued in pursuance of this correspondence is clarified by the Memorandum dated 17th August	 1917	 with which a copy of the new notification was forwarded by the Government of India	 Railway Department (Railway Board) to the Secretary to the Government of Bombay. These circumstances	 in which the notification of 16th July	 1917 was issued	 make it plain that the Government of India	 when they used the expression ' 'tax on buildings and lands" in the notification	 intended to make the G.I.P. Railway liable to the consolidated tax which had been imposed by the Municipality under the Rules of 1916. The decision of the Bombay High Court in Borough Munici . pality	 Ahmedabad vs Ahmedabad Manufacturing and Calico Printing Co. Ltd. (1) on interpretation of	 section 73 and 1 1 0 of the Act	 of 1925 also supports the view that we have taken above. The	 question that arose in that case was whether the right of an appeal ' envisaged by using the expression "in the case of a rate on buildings or lands or both" in section 110 could be availed of in respect of	 a general water rate imposed under clause (x) of section 73(1) which described that tax as a general water rate imposed in the form of a. (1) 	 930 rate assessed on buildings and lands. It was held that there was no distinction between a rate on buildings or lands and a tax in the form of a rate assessed on buildings or lands. In the case before us	 	on that analogy	 a consolidated tax assessed as a rate on buildings and lands cannot be distinguished from a tax on buildings and lands. Reference may also be made to a decision of the Allahabad High Court in Raza Buland Sugar Co.	 Ltd. Rampur vs Municipal Board	 Rampur(1) where it was held that a water rate is a tax on buildings and lands and is not	 in fact	 a service tax chargeable in respect of water supplied. Counsel for the appellant referred to a decision of the Madras High Court in Municipal Council	 Cuddappah vs M & section M. Ry. Co. Ltd.(1); but that case is of no assistance as it turned on the special language which had been used in the Act and the notification which came up for consideration in that case. In fact	 the expression that had to be interpreted was "property tax" and not "tax on buildings and lands". We agree with learned counsel for the appellant that much assistance cannot be derived from the decision of this Court in Patel Gordhandas Hargovindas vs Municipal Commissioner	 Ahmedabad ( 3 ) which was relied upon by the High Court. However	 as we have held 	above	 on the proper interpretation of the language used in the two Acts	 the Rules	 and the notification	 and taking into account the circumstances under which the notification of 1917 was issued	 the only conclusion that can be arrived at is that the Railway was made liable to this consolidated tax	 so that the decision of the High Court is perfectly correct. The appeal fails and is dismissed with costs. R.K.P.S. Appeal dismissed. (1) A.I.R. 1962 Alld. (2) A.I.R. 1929 Mad. 746.

Summary:
The respondent Municipality	 which at the time was governed by the Bombay District Municipal Act 3 of 1901 levied a tax on lands and buildings situated within its municipal limits at 4 per cent of the annual rental value. However	 no such tax was levied on the buildings and lands of the G.I.P. Railway situated within its limits in view of section 135 of the Indian Railways Act	 9 of 1890. In 1914	the Government of India issued a notification under section 135 persuant to which the G.I.P. Railway administration was required to pay house tax to the respondent. Upto 1916 the respondent municipality used to draw water from the Railway 's reservoir but constructed its own reservoir during that year. Both prior to and after this date	 no water rate was charged by the respondent municipality from the railway. On 4th May	 1916 the respondent promulgated new rules for taxation and instead of charging separate house tax under section 59(1)(i) or a general water rate under section 59(1) (viii) of the Act of 1901	 it decided to charge a consolidated tax assessed as a rate on buildings and lands in accordance with clause (c) of the proviso to section 59(i). Although the respondent demanded this consolidated tax from the railway in respect of its lands and buildings	 the railway resisted payment contending that under the notification of 1914	 house tax only was payable by it. On 26th July	 1917	 the Government of India issued a fresh notification under section 135 of the Railways Act whereby the railway administration was rendered liable to pay what was described as "tax on lands and buildings". Thereafter the respondent charged the railway the consolidated tax until some time in 1927 when the G.I.P. railway was taken over by the Government. In the rules promulgated on 4th May	 1916	 the consolidated tax was not chargeable on Government property. Relying on this provision	 an objection was raised that the charge of tax was illegal when the railway had become Government property. The respondent Municipality amended its rules and promulgated fresh rules on 6th October	 1931 under the provisions of the Bombay Municipal Boroughs Act 18 of 1925 under which enactment the respondent municipality had by that time been constituted into a Borough. Under these rules the exemption in respect of Government property was deleted. In pursuance of these amended rules the respondent started collecting from the railway the consolidated tax assessed as a rate on its buildings and lands which was by then being levied under the provisions of s.73 of the Act of 1925 that were similar to those of s.59 of the Act of 1901. In 1940 the railway administration preferred an appeal under section 110 of the Act of 1925 against one of the demand notices. Although the 921 First Court set aside the demand notice	 an appeal was eventually dismissed by the High Court with the remark that the proper remedy to be sought was by means of a suit. The Union of India which had become the owner of the railway	 field a suit in November 1954 for refund of the entire amount which was collected by the respondent from the railway in pursuance of the rules of 1931. The	 Trial Court granted a decree holding that the levy of this tax was void inasmuch as	 under the notification issued on the 26th July	 1917	 only the rate on lands and buildings was payable by the Railway Administration. On appeal	 the High Court disagreed with the trial court and set aside the decree. 	 Oil appeal to this Court by a certificate under article 133 of the Constitution. HELD : Dismissing the appeal	 On the proper interpretation of the language used in two Acts	 the Rules	 the notification	 and taking into account the circumstances under which the notification of 1917 was issued	 the only conclusion that could be arrived at was that the Railway was made liable to the consolidated tax. It is true that all taxes are not rates; but all rates are taxes. A rate on buildings and lands is a tax on buildings; so also any other tax assessed as a rate on buildings and lands becomes a tax on buildings and lands. It was not possible to accept the submission of the appellant that the expression "tax on buildings and lands" used in the notification of 26th July	 1917 could only refer to a rate on buildings and lands under clause (i) of section 59(1) and would not cover the consolidated tax referred to in clause (c) of the second proviso. Although the tax under clause (c) of the second proviso is not identical with and is different in nature from	the rate on buildings and lands imposed under clause (i)	 that circumstance does not imply that it is not a tax on buildings and lands. The mere use of the word "consolidated" cannot make any difference to this interpretation. The intention appears to be that	 though the Municipality was empowered to impose four different kinds of taxes	 it was permitted under clause (c) of the second proviso to simplify matters by having a single tax on buildings and lands in lieu of those multiple .axes. Such single tax had to be assessed as a rate on buildings and lands. This being the nature	 it obviously becomes a tax on buildings and lands	 so that the notification of 26th July	 1917 clearly makes the Railway liable to payment of this tax. The position under the Act of 1925 is exactly the same where also the language of clause (c) to the second proviso is identical with that contained in the Act of 1901	 so that the liability imposed on the Railway by the notification of the Government dated 26th July	 1917 under section 135(1) of the Railways Act continued even under the Act of 1925. [927 B H] Borough Municipality	 Ahmedabad vs Ahmedabad Manufacturing and Calico Printing Co. Ltd.	 ; Raza Buland Sugar Co. Ltd. Rampur vs Municipal Board	 Rampur	 A.I.R. 1962 Alld. 83	 Municipal Council	 Cuddappah vs M.	& S.M. Ry. Co. Ltd.	 A.IR and Patel Gordhandas Hargovindas vs Municipal Commissioner	 Ahmedabad	 ; ; referred to.