Suri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality & Ors.

Judgment

Hidayatollah, C.J. These matters arise under Art. 226 of the Constitution and are appeals by urtificate gra:;ted by the ffigh Court of Gujarat against its judgment and order, SCptember 10, 1966. The appellant No. 1 Is a Company which has spinning and weaving mills at Broach and manufactures and sells cotton yarn and cloth. Respondent No. I is the Broach Borough Muni cipality constituted under s. 8 of the Bombay Municipal Borougha Act, 1925. Ln the assessments years 1961-62, 1962-63 and 1963-64 the Municipality purporting to act under s. 73 of the ' Bombay Municipal Boroughs Act, 1925 and the Rules made thereunder imposed a purported rate on lands and buildings be longing to the respondent at a certain percenta!I" of the capital value. Section 73 of the Act allows the Munictpality to levy "a rate on buildings or lands or both situate within the municipal borough". The Rules under the Act applied the rates on the basis of the percentage on the capital value of lands and buildings. The assCS&mcnts lists were published and tax was imposed accordin& to the rates calculated on the basis of the capital value of tho property of the appellant and bills in respect of the tax were served. The writ petitions were filed to question the assessment and to get the assessment cancelled.

During the pcndency of the writ petitions the legialature of Gujarat passed the Gujarat Impolition of-Tue. ~ Municipalitiel (Validation) Act, 1963. AJ a result the writ pecitiOllS were amen- Validation Act under Arts. 19(l)(f), (g) and 265 of the Consti tution. By the order under appeal here both the writ petitions were dismissed although a certificate of fitness was granted.

The V alidatlon Act was presumably passed because of the decision of this Court reported in Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad('). In that case the validity of the Rules framed by the Municipal Corporation under ~. 73 were called in question, particularly Rule 350A for rating open lands which provides that the. rate on the. area of open lands shall be levied at 1 ~ centum on the valuation based upon capital value; Dealing with the word 'rate' as used in these sta tutes, it was held by :his Court that the word 'rate' had acqui.red a special meaning in Bnglish legislative history and pract!c!l and also in Indian legislation and it meant a tax for local purposes imposed by local authorities. The basis of such tax was the an nual value of the lands or buildings. It was discussed in the

·D case. that there were three methods by which the rates could be imposed : the first was to take into account the. actual rent fetched by the land or building where it was acthally let the second was, wt.ere it was not let, to take rent based on hypothetical tenancy, particularly in the case of buildings; and the third was wherec neither of thecse two modes was available, by valuation based on capital value from which annual value had to be fouad by apply ing suitable percentage which might not be the same for lands and' buildings. It was held that in s. 73 the word 'rate' as used must have been used in the special sense in which tiie word was under stood in the legislative practice of India before that date. Rulec 350A which laid the rate on land at a percentage of the valuation basecd upon capital was therefore declared ultra vires the Act itself. In short, the word 'rate' was given a specialised meaning and was held to mecan a kind of imposition the annual letting value of property, if actually let out, and on a notional letting value if the property was not let out. The legislature of Gujarat then passed the Validation Act seeking to validate the imposition or the tax as well as to avoid any future interpretation of the Act on

\he li.ncs on which Rule 350A was construed. The Act came into force on January 29, 1964. After defining the expressions used in the Act and providing for its application, the Act enacted. s. 3 which concerned validation of impositions and collections of taxes or rates by Municipalities in certain cases. That section reads as follows:

"3. Validation of imposition and collection of taxes or rates by municipalities in certain cases.

other authority, no tax or rate Ulcued or purporting to have been assessed by a municipa lity under the relevant municipal law or any rules made thereunder on the basis of the capital value ol a build ing or land, as the case may be, or on the basis of a percentage of such capital value, and imposed, collected or recovered by the municipality at any time before the commencement of this Act shall be deemed to have been invalidily assessed, imposed, collected or recovered by reason of the assessment being based on the capital value or the percentage of the capital value, and not being based on the annual letting value, of the building or land, as the case may be, and the imposition, col lection and recovery of the tax or rate so assessed and the provisions of the rules made under the relevant municipal law under which the tax or rate was so asses sed shall be valid and shall be deemed always to have been valid and shall not be called in question merely on the ground that the assessment of the tax or rate on the basis of the capital value of the building or land, as the case may be, or on the basis of a percentage of such capital value was not authorised by law; and accord ingly any tax or rate, so assessed before the commence ment of this Act and Ieviable for a period prior to such commencement but not collected or recovered before such commencement, may be collected and recovered in accordance with the relevant municipal law, and the

rules made thereunder."

If this section is valid then the imposition cannot be questioi;od and the short question which arises in this case is as to the vali dity of this section. It is not denied that a legislature does possess the power to validate statutes and to pass retrospective laws. It IS, however, contended that the Validation Act is ineffective in carrying out its avowed object. This is the only point which falls for consideration in these appeals.

Before we examine s. 3 to find out whether it is effective in its purpose or not we may say a few words about validating sta tutes in general. When a legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid Jaw, the cause for ineffectiveness or invalidity must be removed before validatioo can be said to take place effectivelv. The most important condition, of course, is that the legislature must posses.~ the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. Granted Ie&isversing the decision in exercise of judicial power which the legis lature does not possess or exercise. A court's decisipn must al ways bind unles sthe conditions on which it is based are so fun~ damentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly impoeed because the power to tax is wanting or the statute or the rilles or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the ~ounds of illegality or invalidity are capable of being removed and ~ in fact removed and the tax ~us made legal. Sometimes this is done by providing for jurisdiction where juriJdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing pro vision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the legislature givel its own meaning· and interpretation of the law under which the tax was collected and by legislative fiat m~kes the new meanlJll

binding upon courts. The legislature may follow any one method or all of thl1!0 and while it does so it may neutralise the effect Cll the earlier decision of the court which becomes ineffective afta' the change of the Jaw. Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the legislature has the power

over the subject-m11tter and competence to make a valid law, it can at any time make such a valid Jaw and make it ret:rospectively so as to bind even past transactions. The validity of a Validating Jaw, therefore, depends upon whether the legislature possesses the competence whicli it claims over the subject-matter and whe ther in making the validation it removes the defect which the courts had found in the existing law and makes adequate provi sions in the Validating Jaw fOr a valid impositioo of the tax.

The inquiry in this ~ may begin by as;Idng whether the legis lature posses~ competence to pass a Jaw imposing a tax on lands and buildings on the basis of a percentage of their capital .value. If the legislature posscis~es that :Power then it can authorise the

Municipality to levy that tax. To test the proposition we may consider s. 99 which has now been enacted in the Gujarat Muni cipalities Act. It reads :

"99. Taxes which may be imposed.

(1) Subject to any general or special orders which. the State Govequncnt may make in this liehalf and fo the provjsions of sections 101 and 102, a muni~ipality may impose for the purposes of this Act any of the fol lowing taxes, namely :municipal borough to be based on the annual let~ng value or the capital value or a percentage of capital value of the buildings or lands or both;

" Learned counsel for the appellants did not contend that this sec tion was outside the powers of the legislature. In fact, he could not in view of entry 49 of List II of the Seventh Schedule to the Co~stitution. That entry reads : "Taxes on lands and buildings" and a tax on lands and buildings based upon capital value falls squarely within the entry. 'fhe doubt which is created by entry 86 of List I "Taxes on the capital value of assets", no longer exists after the decision of this Court in Sudhir Chandra Nawn v. Wealth-Tax Officer, Calcutta('). In that case the respective ambits of the two entries are explained. It is pointed-out that unlike the tax contemplated by _entry 49 (List II) the tax under entry 86 (List I) is not a direct tax on lands and buildings but on net assets, the components of which may be lands and build ings and other items of assets excluding such liabilities as may exist. The incidence of the tax is not on lands and buildings as units of taxation but on the net assets of which fands and build ings are only some of the components. This is not the case under entry 49 (List II) where the tax can be laid directly on lands and buildings as units of taxation. Therefore, a tax· ori lands and buildings is fully within the competence of the fogislature and it is open to it to authorise the municipality to levy the same tax indi cating the mode of levy. This the legislature has done by indi cating the different modes which may be adopted iii making the levy, one such mode being a percentage of the capital value.

The legislature in s. 73 had not authorised the levy of a tax in this manner but had authorised the levy of a rate. That led to the discussion whether a rule putting the tax on capital value of buildings answered the description of the impost in the Act, namely, 'a rate on buildings or lands or both situate within the Municipal borough'. It was held by this Court it did not, because t~e word 'rate' ~ad a~qu~ed ~ special m~aning in legislative prac tice. Faced with this s1tuation the legislature exercised i.ts un doubted powers of redefitn:ing 'rate' so as to equate it to a tax on capital value and convert the tax purported to be collected as a 'rat~' i~to a tax on lands and buildings. The legisfature in the V.ahda~ron Act, therefore, provided for the following matters. First, 1t stated that no tax or rate by whichever name called and laid Qil the capital value oi lands and buildings must be deemed

Next it provided that the tax must be deemed to be validly asses sed, imposed, collected or recovered and imposition must be deemed to be always so authorised. The legislature by this enact

ment retrospectively imposed the tax on lands and buildings based B on their capital value and as the tax was alr.eady imposed,

levied and collect.ed on that basis, made the imposition, levy col lection and recovery of the tax valid, notwithstanding the dec laration by the Court that as 'rate', the levy was incompetent. The legislature not ooly equated the tax collected to a tax on

lands and buildings, which it had the power to levy, but also to <: a rate giving a new meaning to the expression 'rate'' and while

doing so it put out of action the effect of the decisions of the courts to the contrary. The exercise of power by the legislature was valid because the legislature does possess the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the use of the

word 'rate• could be effectively removed and the tax on lands D and buildings im~ instead. The tax, therefc;ire, can no longer

be questioned on .the ground that s. 73 spoke of a r~te and the a imposition was not a rate as properly understood but tax on capital value. In this view of the matter it is hardly necessary to invoke the 14th clause of s. 73 which contains a residuary power to im,Pose any other tax not expressly mentioned. In our judgment these appeals possess no merits after the pas sing of the V alidalion Act and must be dismissed but in the cir cumstances without any order about costs.

·G.C. Appeals dismissed.