(1) These two writ petitions and three first appeals were argued together as they involved a common question relating to the validity of Maharashtra Act No. III of 1966 entitled 'The Borough Municipalities (Validation of Certain Taxes on Buildings and Lands) Act 1965.'
(2) In order to appreciate the contentions of the parties it would be useful to start with the facts leading to Special Civil Application No. 1476 of 1966. That petition has been filed by the Lokmanya Mills of Barsi against the Barsi Municipality and the State of Maharashtra for an appropriate writ or order under Article 226 of the Constitution declaring the said Maharashtra Act No. III of 1966 (hereinafter referred to as the 'impugned Act') unconstitutional, invalid and inoperative and requiring the Barsi Municipality not to take any steps in pursuance of the impugned Act. The petitioner, the Lokmanya Mills, has its spinning Mill in Barsi and the premises of the mill consist of a factory building, offices, bungalows, warehouses, out-houses, etc. Till 1947, the Barsi Municipality used to levy and recover a house tax on the buildings of the petitioner which was assessed on the basis of their annual letting value. Till that year the annual letting value of the petitioner's buildings was ascertained in the normal way, i.e. by ascertaining the among at which the buildings might reasonably be expected to let from year to year. In 1947 the Municipality made fresh rules regarding the levy of house tax and rule 2(c) of the new rules ran as follows:-
'2(c) In the case of Mills and factories and buildings connected therewith, house tax on buildings shall be levied at the usual rate on the Annual Rental value fixed at Rs. 40 for every 100 square feet or portions thereof for each storey, floor or celler.
Explanation : The expression 'Building connected therewith means and includes warehouses, godowns, mill shops, etc. which are within the compound of mill premises but does include residential buildings, such as bungalows outhouses.
Note. - Buildings which are not taxed under Rule 2(c) shall be taxed under the ordinary Rules.'
It will be noticed that under this rule the annual rental value of all the buildings of mills and factories other than residential buildings was fixed at a uniform rate of Rs. 40 for every 100 square feet of floor area irrespective of the actual rental value of its premises. The petitioner protested against this method of taxation on the ground that it was arbitrary and capricious, but paid under protest the taxes levied upon its buildings. Then in the years 1948 and 1949 the petitioner filed five suits to recover from the Municipality the excess amount which had been paid by the petitioner under the new rules over and above the amount which used to be paid in accordance with the assessment made under the old rules. The petitioner claimed refund of the excess amount in these suits on the ground that rule 2(c) was invalid. The suits had a chequered history, but they were eventually decreed by the Supreme Court. The Supreme Court held that rule 2(c) was ultra vires the powers of the Municipality under the relevant provisions of the Bombay Municipality Boroughs Act of 1925 by which the Municipality was governed (vide Lokmanya Mills Barsi Ltd. v. Barsi Borough Municipality, : 1SCR306 ). After referring to section 78 and the Explanation to section 75 of this Act (hereinafter referred to as the Boroughs Act), the Supreme Court pointed out that the Municipality could levy a rate on lands and buildings assessed on valuation based on capital or the annual letting value, and that in framing rule 2(c) the Municipality had ignored both the methods of valuation and had adopted a method not sanctioned by the Act. The Supreme Court observed:
'By prescribing valuation computed on the area of the factory building, the Municipality not only fixed arbitrarily the annual letting value which bore no relation to the rental which a tenant may reasonably pay, but rendered the statutory right of the taxpayer to challenge the valuation illusory.'
The Supreme Court further observed:
'The vice of the rule (rule 2(c) lies in an assumed uniformity of return per square foot with structures of different classes, which are in their nature not similar, may reasonably fetch if let out to tenants and in the virtual deprivation to the rate-payer of his statutory right to object to the valuation.'
Accordingly the Supreme Court allowed the appeals and decreed the petitioner's suits. Under these decrees the petitioner became entitled to recover about Rs. 12,000 from the Municipality. During the pendency of these suits the petitioner adopted other proceedings in respect of the levy and collection of the house tax for subsequent years and these proceedings are still pending.
(3) It appears that a rule similar to rule 2(c) of the Barsi Municipality had been made by five or six other municipalities in Maharashtra. The effect of the above decision of the Supreme Court was to render invalid the levy and collection of house taxes by these municipalities from the owners or occupiers of mills and factories. One of the objects of the impugned Act was to validate the levy and collection of these taxes with retrospective effect. The impugned Act, however, had another purpose also. In Gordhandas Hargovindas v. Municipal Commr. of Ahmedabad, : 2SCR608 , the Supreme Court held that a rule framed by the Municipal Corporation of Ahemedabad by which a rate on open lands was levied at a certain percentage of their capital value was ultra vires the provisions of the Boroughs Act. Section 73 (1) of the Borough Act authorised municipalities to impose ' a rate on buildings and lands' and the Supreme Court held that the word 'rate' had acquired a special meaning in legislative history and that it meant a tax for local purposes imposed by local authorities on the basis of the annual value of lands or buildings. The Supreme Court observed that a municipality which is authorised to impose a rate on lands and buildings may use their capital value for ascertaining their annual letting value, but cannot impose the tax on the basis of the capital value itself. Rules similar to the rule of the Ahmedabad Municipality had been made by some municipalities in Maharashtra and the second purpose of the impugned Act was to validate the levy and collection of taxes by those municipalities under such rules.
(4) In the preamble of the impugned Act a reference is made to the two decisions by the Supreme Court mentioned above, a the purpose of the Act is stated to be ' validate the levy and collection of all such taxes by the Borough Municipalities in the State and to provide for recovery of such taxes and for purposes connected with the matters aforesaid'. Section 3 of the impugned Act brings about certain amendments in the Boroughs Act. In section 3 of the Boroughs Act, which deals with definition a clause is inserted which lays down that 'rate on buildings or lands includes any tax imposed on buildings or lands' Another amendment introduced in the Boroughs Act is with reference to the Explanation to section 75. Prior to the amendment the Explanation to section 75 was as follows:-
'In the case of lands the basis of valuation may be either capital or annual letting value.'
This Explanation is substituted by the impugned Act by an Explanation which reads as follows:-
'Explanation:- For the purposes of a rate on buildings or lands, the basis of valuation may be-
(i). the annual letting value:
(iii). the annual value;
(v). the floor area, in the case of Mills Factories and buildings and lands connected therewith:
(vii). the capital value, in the case of vacant lands.'
Both these amendments are given retrospective effect from the beginning of the Boroughs Act. Section 4 and 5 of the impugned Act are designated to validate the levy and collection of the taxes despite the aforesaid decisions of the Supreme Court. The sections apply only to the municipality mentioned in the Schedule to the impugned Act and these municipalities are of Amalner, Barsi Bhusawal, Chalisgoan, Jalgoan, Karad and Sholapur. Section 4(1) provides that any house tax or water tax levied or collected under the Boroughs Act as amended by this Act shall be deemed to have been validly levied and collected and shall not be called in question 'merely on the grounds that the tax was not levied on the basis of the annual letting value, or was levied on the basis of a uniform rate on the floor area, or that it was levied on the basis of capital value or a percentage on such value, or on the ground that any procedure laid down in the Boroughs Act or in the rules was not followed'. Section 4 (2) lays down that no suit or other legal proceedings whatsoever shall be entertained or continued in any Court on any or all of the grounds mentioned in sub-section (1). While section 4 thus deals with the amounts of the tax which have been levied and collected by the said municipalities, section 5 deals with he recovery of amounts due on account of such taxes. It lays down that notwithstanding any judgment, decree or order of a Court, if any sum by way of any tax referred to in the last preceding section has not been paid to the municipality, such tax shall be payable to the municipality within thirty days of a demand being made therefore. Certain periods of limitation have been prescribed by section 5 during which the municipalities must make d demand for payment of the tax on any person. It will be noticed that section 5 has the effect of nullifying such decrees as might have been obtained by owners or occupiers of buildings or lands against the said municipalities either for the refund of the amounts recovered by the municipalities by way of such a tax or for restraining the municipality from recovering such amounts.
(5) The impugned Act came into effect on 18th February 1966. Before that date the Maharashtra Legislative had already passed the Maharashtra Municipalities Act, 1965, being Maharashtra Act XL of 1965, the purpose of which was to unify consolidate and amend the law relating to municipalities in the State of Maharashtra. By section 343 of this Act the Boroughs Act was repealed along with some other Municipal Acts was repealed along with some other Municipal Acts which prevailed in different parts of the Maharashtra State. Although section 1 of the Maharashtra Municipalities Act of 1965 had come into force on 10th September, 1965 (i.e. before the impugned Act), section 343 of the Maharashtra Municipalities Act came into effect on 15th June 1966. It is worthy of note that although some provisions of the Boroughs Act were amended with retrospective effect by the impugned Act, the corresponding provisions of the Maharashtra Municipalities Act of 1965 were not so amended. Under section 105 of this Act Municipalities have been empowered to impose consolidated property tax on lands or buildings or both based on their rateable value of any building or land is to be assessed on the basis of the amount for which such building or land might reasonably be expected to let or for which it is actually let.
(6) Before dealing with the grounds on which the impugned Act was challenged before us, it would be convenient to indicate the circumstances which have led to the other four matters which are being disposed of this judgment Special Civil Application No. 1424 of 1966 is a petition under Article 226 of the Constitution filed by Rajen (Textile) Mills Private Limited against the Barsi Borough Municipality and the State of Maharashtra. The Rajen Mills had made payments to the Municipality of the amounts of house tax assessed on the floor area of its buildings under rule 2(c). After the said decision of the Supreme Court in the : 1SCR306 . The Rajen Mills filed a suit against the Municipality for the recovery of Rs. 93,000 and odd, being the amount paid to the Municipality as the tax assessed under the said rule. The Rajen Mills obtained a decree from the trial Court for a sum of Rs. 39,000 and odd and filed an appeal in this Court for the balance. The appeal is still pending. In the meantime the impugned Act was passed and the Municipality which had not filed any appeal from the decree passed by the trial Court, sent a bill to Rajen Mills under section 5 of the impugned Act demanding the payment of about Rs. 30,397.31 Paise which amount was a part of the amount decreed by the trial Court in favour of the Rajen Mills. In their petition the Rajen Mills pray for an appropriate writ or order under Article 226 of the Constitution for declaring the impugned Act to be unconstitutional and invalid and for preventing the Municipality from recovering the amount of the said bill.
(7) The remaining matters are three first appeals in which the Jalgoan Municipality is the appellant. The Jalgoan Municipality had added in 1947 a revised rule No. 4 for the assessments of house tax in respect of buildings and lands included in factory premises. The relevant part of the rule was as follows:
'Factory premises shall be assessed according to the following Rules:
(a) Every built area within the factory premises and either used or intended to be used for the working of the factory or for the occupation of its owners or its employees shall be assessed according to the rental value and at rests specified in the schedule. Explanation:- The rental value of the mills and other factory premises shall be taken as under:
Built area for each storey; Rs. 6/- per 10 square feet or a part thereof.
Open area: Rs. 2 per 100 sq. feet or a part thereof'
It will be noticed that this rule, unlike the corresponding rule made by the Barsi Municipality, applied to residential as well as non-residential buildings in factory premises and also to open land comprised therein. Respondents in first appeal No. 2 of 1965 are the owners of a Dal Mill (a mill which prepares Dal from pulses) in Jalgoan, and the suit from which this appeal has arisen was filed by them against the Jalgoan Municipality for a permanent injunction to restrain the Municipality to recover an amount of about Rs. 36,000/-, which was claimed from them under various bills prepared in accordance with the said rule 4. The respondents in first appeals Nos. 120 and 121 of 1966 are owners of two oil mills in Jalgoan, and they had paid by way of taxes assessed at the flat rate provided in rule 4. The trial Court decreed the three suits on the ground that rule 4 was ultra vires the rule making powers of the Jalgoan Municipality. In doing so, the trial Court followed the decision of the Supreme Court in the Lokmanya Mills case, : 1SCR306 . The Jalgoan Municipality filed these three appeals from these decrees, and when the impugned Act was passed during the pendency of the appeals the Municipality obtained leave to take additional grounds to the effect that the decrees must be set aside in view of the provisions of the impugned Act. That is how a common question relating to the validity of the impugned Act has arisen in all these matters.
(8) As a question relating to the validity of an Act was involved in these five matters, notices to the Advocate General were issued. Mr. Porus Mehta appeared for the Advocate General in all the five matters and also for the State of Maharashtra in the two writ petitions. Besides Mr. Porus Mehta we heard Mr. Sukthankar for the Barsi Municipality and Mr. Chitale for the Jalgoan Municipality. Out of those who challenged the validity of the impugned Act, the main argument was addressed by Mr. Sorabjee.
(9) We are not concerned in this case with the validity of those provisions of the impugned Act which are impugned Act which are designated to validate the levy of a tax on lands on the basis of their capital value. We are concerned with the validity of those provisions which relate to the imposition, levy and collection of a tax on houses and buildings on the basis of their floor area. Under section 3 of the impugned Act the provision which is objected to is the one by which the Explanation to section 75 of the Boroughs Act is amended so as to enable buildings and lands of mills and factories to be valued on the basis of floor area for the purpose of that Act. Sections 4 and 5 of the impugned Act are also challenged, but only in so far as they relate to the levy and collection of taxes on buildings and lands on the basis of their floor area. The above provision of the impugned Act, in so far as they relate to the imposition, levy and recovery of taxes on buildings and lands on the basis of their floor area, are clearly severable from the rest of the impugned Ac and will be referred to hereafter as the impugned provisions.
(10) One of the grounds on which the impugned provisions were challenged in the two writ petitions was that they contravenes the petitioner's fundamental right under Article 19(1)(f) of the Constitution. This ground was not pressed before us in view of the proclamation of Emergency which continues to be in operation. The main contention advanced by Mr. Sorabjee was that the impugned provisions are discriminatory and violate Article 14 of the Constitution. Two additional submissions were also made by Mr. Sorabjee - that the impugned Act was beyond the competence of the Legislature, and that it was a colourable piece of legislation. These additional grounds are of little substance and we shall deal with them towards the end. We shall deal first with the main contention that the impugned provisions are discriminatory and contravening article 14 of the Constitution.
(11) The objection under Article 14 was advanced before us in two parts. In the first place, it was argued that the levy of tax on buildings and lands on the basis of floor area is necessarily arbitrary and capricious. Under such a mode of assessment the valuation of buildings and lands for the purpose of taxation can have no relation to their actual value. There is no warrant for the assumption that the value of different buildings and lands varies in proportion of their floor area. The value of lands in towns varies according to their location, and the value of buildings depends amongst other things on their location, age, mode of construction, material used, etc. A provision, it was argued, which enables municipalities to impose a uniform rate on buildings and lands of widely differing values is clearly discriminatory. It means a relatively higher taxation on those owners of factories whose buildings and lands are of comparatively poor value. According to this argument, this is one of those cases where a lack of classification leads to inequality.
(12) The second aspect of the objection based on Article 14 was that the provisions of the impugned Act discriminate against the owners of mills and factories by allowing their buildings and lands to be subjected to an arbitrary rate as distinguished from the owners of other buildings and lands. The purpose of the impugned provisions, it was pointed out, was not to enable the buildings and lands of mills and factories to be subjected to a higher tax: the irrational part of the classification is that whereas other owners are entitled to have their building and lands assessed according to their annual letting value and are also entitled to challenge the assessment where it is improper the owners of mills and factories are subjected to an arbitrary rate which has no connection with the value of their building and lands, and in such a way their right to challenge the propriety of the assessment is virtually taken away. There is no rational connection, it was argued, between the different mode of assessment which is allowed to be employed in the case of buildings and lands of factories and mills and the object of the Act which in this context is to provide for a proper mode of valuation of buildings and lands for assessing them to Property Tax.
(13) Before dealing with the merits of this two-fold objection, it is desirable to notice some arguments of a general nature advanced by Mr. Porus Mehta and Mr. Sukthankar. One of the arguments of Mr. Porus Mehta was that it is not necessary that a tax on property should have a reference to the value of the property and that it is legitimate for the Legislature to allow a tax to be imposed on the floor area of building and lands without reference to their value. According to this view, no discrimination is involved if a highly productive land and an arid land are both taxed at a uniform rate in accordance with their areas. As will present appear, we are not in agreement with this view. It is, however, necessary to emphasise at this stage that the purpose of the impugned Act was not to authorise municipalities to impose a tax on the floor area of buildings and lands without any reference to their value. This is clear from the provisions of section 75 of the Boroughs Act as amended by the Explanation added by the impugned Act. Section 75 describes the procedure to be followed by a municipality before it imposes a tax. It provides that, in the case of a rate on buildings or lands or both, the municipality shall pass a resolution and make rules specifying inter alia 'the basis for each class and the valuation on which such rate is to be imposed' Then the Explanation added by the impugned Act to section 75 provides that for the purposes of a rate on buildings or lands, 'the basis of valuation' may be in any of the four modes mentioned therein. One of the four modes is the floor area in the case of mills, factories and buildings and lands connected therewith. Thus the impugned Act itself makes it clear that the floor area is one of the alternative modes for the valuation of buildings and lands for assessing them to a tax. It cannot therefore, be held that the purpose of the impugned Act was to enable municipalities to impose a tax on the buildings and lands of mills and factories without reference to their value.
(14) It was argued by Mr. Sukthankar that no objection on the ground of discrimination can be taken to the provision of the floor area as one of the modes of valuation in the Explanation added by the impugned Act to section 75 of the Boroughs Act, because the said provision does not make it necessary that the valuation of the buildings and lands of mills and factories should be made at a uniform rate. According to Mr. Sukthankar, floor area can be reasonable mode of valuation if different rates are prescribed to different types of buildings or to lands in different localities. We find, however, that the said provision in the Explanation was intended by the Legislature to authorise the imposition of uniform rates on the basis of floor area, and that the provision cannot be given a restricted meaning as suggested by Mr. Sukthankar. The preamble of the impugned Act makes it clear that one of the purposes of the Act was to validate house taxes which were levied on the basis of a uniform rate on the floor area, and this is also clear from the provisions contained in section 4(1) of the impugned Act.
(15) Another argument of Mr. Porus Mehta may be noticed at this stage. He argued that the petitioners in the two writ petitions have not shown that they were aggrieved by the impugned Act and that they have, therefore, no right to challenge the validity of the Act. We do not find any substance in this argument also. Both the petitioners have obtained decrees against the Barsi Municipality for the refund of taxes recovered from them and those decrees would be nullified by the operation of the impugned Act. They are clearly aggrieved by the impugned Act and are entitled to challenge it.
Wednesday, the 23rd November 1966.
(16) Reverting to the main argument advanced by Mr. Sorabjee, we are inclined to hold that the impugned provisions are discriminatory and violative of Article 14 of the Constitution on both the grounds urged by him. We will first deal with the first ground, viz., that the impugned provisions lead to inequality because they permit the imposition of a tax assessed at a uniform rate on the floor area of buildings and lands without reference to their actual value. Many authorities were cited before us from both sides on this part of Mr. Sorabjee's argument, and we shall presently examine them. Their effect, however, may be summarised at this stage. It seems to be well established that a statutory provision may be struck down as discriminatory if it treats unequal objects or persons as if they were equal and subjects them to the same burden or liability. This principle, however, has a number of qualifications. In the first place, the difference between the objects or persons which are treated in a uniform manner by statutory provision may be irrelevant from the point of view of the object which was intended by the Legislature to be achieved by enacting the provision. If equal treatment of unequal objects or persons is consistent with the object of the Legislature, the provision will not be held to be discriminatory, unless of course, the object of the Legislature was itself discriminatory. Secondly, most statutes are intended to apply to wide categories of persons or objects or situations and it is not expected that the Legislature shall make meticulous adjustments in order to establish equality between the various objects, persons or situations dealt with by the statute. A statutory provision would be held to be discriminatory only where the equal treatment given by it to unequal subjects leads to patent discrimination. Thirdly, the above precaution has relatively greater relevance in taxing statutes, for the taxing powers of the Legislature are understood to be wide and comprehensive. A taxing statute, however, must conform to the requirement of equality before the law guaranteed by the Constitution and would be struck down if the equal treatment given by it to unequal objects and persons leads to patent discrimination.
(17) We have taken into consideration the above principle with all its qualifications in coming to the conclusion that the impugned provisions are violative of Article 14 of the Constitution. The object of the impugned provisions, we assume, was to lay down an equitable method for the assessment of lands and buildings for the purpose of a property tax. The fact that lands and buildings of the same floor area have widely different values is clearly not irrelevant to that legislative object. If, on the other hand, the object of the Legislature in passing the impugned provisions was merely to validate the taxes already imposed by certain municipalities on the basis of the floor area of buildings and lands, the object itself must be held to be discriminatory if the taxes operated with patent inequality as between the owners of different factories and mills. Though the powers of the legislature in matter of taxation are wide and comprehensive, the impugned provisions permit and authorise the creation of gross inequality leading to patent discrimination. In every town the value of a land in one locality is several times the value of a another land of equal extent in another locality. The value of buildings depends partly on the land on which they are constructed and partly on their age, the mode of their construction, the material used, and so forth. The value of the buildings of a textile mill is bound to be very different from the value of the buildings of a ginning factory or a Dal mill or a flour mill having the same floor area. Similarly the value of the buildings of an old textile mill will be materially different from the value of the buildings of a new textile mill having the same floor are. The disparity will be found to be all the greater if it is borne in mind that the word 'building' has been given a very wide meaning in the Boroughs Act. Section 3(2) of the Boroughs Act says that the word 'building' shall 'include any hut, shed or other enclosure, whether used as a human dwelling or for any other purpose, and shall also include walls (including compound walls and fencing). Varandahs, fixed platforms, plinths, doorsteps and the like.' Under this definition a fixed platform having a very shallow foundation and no walls or roof is as much a building as a solid structure erected on a proper foundation and provided with walls and a roof. An instance of such a platform being assessed as a building on the basis of its floor area is before us in First Appeal No. 2 of 1965 is which the respondents are the owners of a Dal mill situated in Jalgoan. It is well known that a Dal mill requires wide open platforms for the purpose of drying Dal prepared from pulses. It is not possible that the value per square yard of a platform constructed by a Dal mill will be anywhere near the value per square yard of, say, the office premises of a textile mill. Moreover, the word 'factory' is not defined in the impugned provisions, and it is apparently left to the municipalities to define the word as they think fit. We find that in the rules made by the Jalgoan Municipality the word 'factory; has been defined to mean any premises wherein or within the precincts of which steam, water or other mechanical power or electrical power is used in aid of any process for, or incidental to, making, altering, repairing, ornamenting, finishing or otherwise adapting for use, for transport or for sale any article or part of an article. According to this definition, a floor mill operated by the owner himself or members of his family is also a factory. When the word factory is so widely defined, the values of the buildings of different factories are bound to be widely divergent. We are accordingly of the view that the impugned provisions are patently discriminatory.
(18) Mr. Porus Mehta argued, and quite rightly, that impugned provisions must be assumed to be valid till the contrary is proved, and that they should not be held to be discriminatory if any set of facts can be reasonably conceived to justify them. Mr. Porus Mehta suggested several grounds for holding that the impugned provisions do not violate the principle of equality before the law. We will consider at this stage only those grounds which were urged by Mr. Porus Mehta in support of his contention that the imposition of a uniform rate on buildings and lands on the basis of their floor area does not violate the principle of non-discrimination. In appreciating Mr. Porus Mehta's arguments in this behalf we must bear in mind that 'discriminations are not be supported by mere fanciful conjecture and cannot stand as reasonable if they offend the plain standards of common sense' Hartford Steam Boiler Inspection and Insurance Co. v. William B. Harrison, (1937) 81 Law Edn. 1223.
(19) Two arguments were advanced by Mr. Porus Mehta to justify the imposition of a uniform rate of floor area. He argued in the first place, that under the impugned provisions mills and factories were taxed as manufacturing units, and that the productivity of mills and factories as manufacturing units has a reasonable relation to the floor area occupied by them. Now it appears to us in the first place, that the Legislature has not authorised the municipalities to tax mills and factories as manufacturing units. What the municipalities have been authorised to do is to tax buildings and lands within the area of their jurisdiction, including the buildings and lands of mills and factories. The Boroughs Act does not allow machinery contained in a building to be taken into consideration for the purpose of assessing it annual letting value. The Boroughs Act differs in this respect from British Rating Acts. It is true that the value of a building might be enhanced if it is adopted to a particular manufacturing process; nevertheless a building has to be valued as a building and not as a manufacturing unit. Moreover, the claim of Mr. Porus Mehta that the productivity of different manufacturing units varies in proportion to the floor area occupied by them is nothing but a fanciful conjecture. It has no basis in common sense. The productivity of floor area occupied by a textile mill cannot be the same per square yard as the productivity of the floor area occupied by, say, an oil mill or a flour mill.
(20) The other argument advanced by Mr. Porus Mehta in justification of the imposition of a uniform rate was that such an imposition would lead to simplicity and certitude. The answer to Mr. Porus Mehta's argument is that the Legislature is not entitled to achieve simplicity and certitude by sacrificing the principle of non-discrimination. While simplicity and certitude are proper objectives in a taxing statute, those objectives cannot be achieved by creating gross inequality in taxation.
(21) Turning to the precedents and authorities cited before us on this part of the case, we will first refer to the decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala, : 3SCR77 . There the Supreme Court examined the validity of an Act under which all the lands in the State of Kerala were subjected to a uniform tax at the rate of Rs. 2 per acre. It was alleged before the Supreme Court that the annual income of some of the forest lands in the State was less than the annual tax sought to be imposed under the said Act. This allegation was not admitted by the State. The Supreme Court held that the Act violated the principle of equality before the law contained in Article 14 of the Constitution. The Supreme Court observed:
'Ordinarily a tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made, with due diligence, and, therefore, is levied with due regard to the incidence of the taxation. Under the Act in question we shall take a hypothetical case of a number of persons owning and possessing the same area of land. One makes nothing out of the land, because it is arid desert. The second one does not make any income, but could raise some crop after a disproportionately large investment of labour and capital. A third one, in due course of husbandry, is making the land yield just enough to pay for the incidental expenses and labour charges besides land tax or revenue. The fourth is making large profits, because the land is very fertile and capable of yielding good crops. Under the Act, it is manifest that the fourth category, in our illustration, would easily be able to bear the burden of the tax. The first and the second one will have to pay from their own pockets, if they could afford the tax, if they cannot afford the tax, the property is liable to be sold, in due process of law, for realisation of the public demand. It is clear, therefore, that inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is not attempt at classification in the provisions of the Act. Hence, no more need be said as to what could have been the basis for a valid classification. It is one of those cases where the lack of classification creates inequality.'
This decision was followed by various High Courts. In P. Bhuvaneswariah v. State of Mysore, AIR 1965 Mys. 170, a Division Bench of the Mysore High Court held section 4 of an Act called the Mysore Buildings Tax Act to be invalid on the ground that it violated Article 14 of the Constitution. Under the scheme of the Act all buildings situated within the jurisdiction of all the local authorities in the State were liable to be subjected to a building tax which was to be assessed on the basis of their floor area. Cities and towns within the jurisdiction of the various local authorities were divided into three categories on the basis of their population. The rate of the tax was different in three categories. Again, residential and non-residential buildings in each category were taxed at different rates. Section 4 of the Act was the charging section, and it was this section which was held invalid by the Court. Mr. Justice Hegde (as he then was) the Senior Judge of the Bench and he said in his judgment:
'Value of sites differ from place to place in every town. They also vary from town to town. These variations are not nominal variations differences are very appreciable. That is so far as the ground value is concerned. Now coming to the value of buildings, they must necessarily vary from building to building. Buildings charged with tax range from cow-sheds to places.
The market value of the two is bound to widely differ. Therefore, there can be hardly any doubt that inequality is writ large on the Act and is inherent in the very provisions of the taxing section.'
A similar question arose before a Single Judge of the Kerala High Court in Nellivil Kunhali Haji v. State of Kerala, : AIR1966Ker14 . In that case the learned Judge struck down the Kerala Buildings Tax Act under which a tax was sought to be imposed on buildings on the basis of their floor area provided the floor area was 1,000 square feet or more. The learned Judge held the act to be discriminatory, because it created inequality in taxation. A similar question was considered by a Division Bench of the Madras High Court in the Buckingham and Carnatic Co. Ltd. v. State of Madras, (1966) 2 Mad LJ 172. In that case the Court struck down the Madras Urban Land Tax Act of 1963 on the ground of violation of Article 14 of the Constitution. The Act authorised the imposition of a tax on all urban lands in the State at a certain percentage of their average market value. For the purpose of assessing the tax the Government was authorised to appoint officers in different areas with the duty of classifying the area within their jurisdiction into zones and sub-zones. The zones were to be divided into sub-zones in such a way that the urban lands in sub-zone would have 'as nearly as may be' the same market value. The average market value of the urban land in each sub-zone was then to be fixed, and each urban land was to be taxed according to its area at the rate so fixed of the average market value. After pointing out that the value of one land in the same sub-zone might be as much as twice the value of another land of the same area in the same sub-zone, the Court observed:
'The burden which is unrelated to the market value thus falls unequally upon lands and consequently on their owners or occupiers. Urban lands in the same sub-zone are made to bear unequal burden, unequal in the sense that the burden is not related to the market value of each urban land but on the average market value applied to it. Urban land of lesser market value has to pay a heavier tax than similar land but of higher value which bears, on account of the averaging with the other hand, a lower tax. We have not seen able to see why the legislature has resorted to this system of averaging the market prices of lands for purposes of applying the rate of tax. If the tax is intended to add to the general revenues, we fail to see how this inequality in the incidence of tax is related to that purpose of taxation. It is of course open to the legislature to make such classification as it chooses for purposes of taxation, and apply rates of taxation, but this liberty is subject to the limitation of equal protection afforded by Article 14 of the Constitution.
(22) Mr. Porus Mehta argued that the Mysore, Kerala and Madras cases cited above cannot be held to have been rightly decided. They followed the decision of the Supreme Court in Moopil Nair's case, AIR 11961 SC 552 and the decision in Moopil Nair's case, : 3SCR77 , according to Mr. Porus Mehta, no longer holds the field because of certain observations on that decision made by the Supreme Court in the recently decided Bonus Act case, Jalan Trading Co. Private Ltd. v. Mill Mazdoor Union Civil Appeal No. 187 of 1966, D/- 5-8-1966=(reported in : (1966)IILLJ546SC ). In that case several sections of the Payment of Bonus Act of 1965 were challenged, and one of them was section 10, which provides that even if an establishment has experienced a trading loss in an accounting year, the employer is bound to pay bonus at 4 per cent of the salary or wage earned by an employee or Rs. 40 whichever is higher. This section was challenged on the ground that it created inequality by imposing a minimum liability on all establishments irrespective of their profit or loss in an accounting year. The contention was negatived by the Supreme Court on the ground that the provision of a minimum bonus was consistent with one of the objects of the Act which was to maintain peace and harmony between employers and employees. The Supreme Court observed that section 10 was an integral part of the scheme for providing payment of bonus at rates which do not widely fluctuate from year to year and that the provision was in furtherance of the object of the Act of maintaining peace and harmony between labour and capital. In delivering the judgment of the majority Mr. Justice Shah referred to the decision in Moopil Nair's case : 3SCR77 and observed that the judgment in that case had 'not enunciated any broad proposition as was contended for and on behalf of the employers, that when persons or objects which are unequal are treated in the same manner and are subjected to the same burden or liability, discrimination inevitably results. 'His Lordship further observed:
'It was not said by the Court in that case that imposition of uniform liability upon persons, objects or transactions which are unequal must of necessity lead to discrimination.'
His Lordship went on to say:
'If the classification is not patently arbitrary, the Court will not rule it discriminatory merely because it involves hardship or inequality of burden. With a view to secure a particular object a scheme may be selected by the Legislature, wisdom whereof may be open to debate; it may even be demonstrated that the scheme is not the best in the circumstances and the choice of the Legislature may be shown to be erroneous but unless the enactment fails to satisfy the dual test of intelligible classification and rationality of the relation with the object of the law, it will not be subject to judicial interference under Article 14................... Equal treatment of unequal objects, transactions or persons is not liable to be struck down as discriminatory unless there is simultaneously absence of a rational relation to the object intended to be achieved by the law.'
We do not think that these observations imply any disapproval of the principle laid down in Moopil Nair's case, : 3SCR77 . They make it clear, however, that the principle is subject to certain qualifications. It is pointed out here that the equal treatment of unequal objects, transactions or persons would not render a statutory provision invalid on the ground of discrimination unless there is absence of a rational connection between the object of the Legislature and the equality of treatment given by the statute, and unless the inequality so created is patently discriminatory. That the principle of Moopil Nair's case, : 3SCR77 was not disapproved by the Supreme Court is further clear from the fact that in the same majority judgment delivered by Mr. Justice Shah, section 34(2) of the Payments of Bonus Act has been held to be discriminatory by adopting that very principle. Section 34(2) defined a certain previous year as the 'base year' and provided, in substance that the ration of the bonus payable under the Act in any accounting year to the gross profits of that year shall not be less than the ratio of the bonus paid or payable in respect of the base year to the gross profits of the base year. This provision was objected to on the ground that the circumstances under which the amount of bonus payable in the base year was often determined by special circumstances, and that section 34 (2) was based on an unwarranted assumption that the ration between bonus and gross profits in the base year was the normal ration unaffected by special circumstances. This contention was accepted by the majority of the Supreme Court. In this connection Justice Shah observed in his judgment:
'If bonus contemplated to be paid under the Act is intended to make an equitable distribution of the surplus profits of a particular year, a scheme for computing labour's share which cannot be less than the amount determined by the application of a ration derived from the working of the base year without taking into consideration the special circumstances governing that determination in ex facie arbitrary and unreasonable. The Additional Solicitor General appearing for the Union of India and the representatives of the labour Unions and counsel appearing for them contended in support of their plea that section 34(2) was not invalid, because the ratio was intended to stabilize previous grant of bonus and to maintain in favour of labour whatever was achieved by collective bargaining in the base year. But the validity of a statute is subject to judicial scrutiny in the context of fundamental freedoms guaranteed to employers as well as employees and the freedom of equal protection of the laws becomes chimerical, if the only ground in support of the validity of a statute ex facie discriminatory is that Parliament intended inconsistently with the very concept of bonus evolved by it to maintain for the benefit of labour an advantage which labour had obtained in an earlier year, based on the special circumstances of that year, without any enquiry whether that advantage may reasonably be granted in subsequent years according to the principles evolved by it and for securing the object of the Act.'
His Lordship further observed:
'The vice of the provision lies in the imposition of an arbitrary ratio governing distribution of surplus profits.'
In the present case also, the vice of the impugned provisions lies, in our view in the imposition of an arbitrary rule for assessing the value of buildings and lands on the basis of floor area.
(23) Several decisions of the Federal Supreme Court of U. S. A. were also cited before us, Mr. Sorabjee relied on Cumberland Coal Co. v. Board of Revision of Tax Assessments in Greene County Pennsylvania, (1931) 76 Law Ed. 146. That decision clearly supports the view which we are inclined to take in the present case. The case before the Federal Supreme Court related to assessment for taxation of coal lands in several townships in Pennsylvania. For the purpose of taxation the coal lands in the same township were given the same value per acre, notwithstanding differences from transportation facilities and other factors. A uniform value for the coal lands in each township was fixed for the purpose of assessment at fifty per cent of the amount which was taken as their actual value. It was found that the coal lands which were in the vicinity of transportation facilities had twice the value of the coal lands in the same township which lay at a distance. It was held that the assessment for taxation of all the coal lands at the same sum per acre, notwithstanding differences in their actual or market value, violated the equal protection clause of the 14th Amendment of the American Constitution.
(24) Reliance was placed by Mr. Porus Mehta on several other decisions of the Federal Supreme Court of the United States. In Louis Houck v. Little River Drainage District (1915) 60 Law Ed. 266 the Federal Supreme Court upheld the validity of an Act under which certain Drainage Districts were formed and a levy at the maximum rate of 25 cents per acre was imposed on the owners of all the lands in the Drainage Districts to defray the preliminary expenses of carrying out surveys etc. The Drainage Districts were duly organised by a Court order under legislative authority. It was held that the levy did not contravene the due process clause and the equal protection clause of the 14th Amendment of the American Constitution. It was observed by the Supreme Court that the preliminary work was for the benefit of the district as a whole and the imposition of a tax at the rate of 25 cents per acre was not discriminatory. This was thus a case where the imposition of a uniform rate had a rational connection with the object of the statute and where, in any case, no patent discrimination was involved. In Roberts and Schaffer Co. v. Louis L. Emmerson, (1926) 70 Law Ed 827, an annual franchise tax which was imposed on Corporations was challenged on the ground that the tax was assessed on the basis of the authorised capital and not the paid-up capital of Corporations. The tax was held to be valid, and in doing so the Court specifically pointed out that the tax was not a property tax imposed on shares of stock or on the assets of the Corporation. The Court pointed out:
'It is a tax on the corporate franchise, which includes the privilege, whether exercised or not of issuing and using when issued, a particular kind of stock known as 'no par value stock'. As the stock may, under the statute, be issued for as much as 100 dollars a share, if the company so chooses, the statute fixes the maximum extent to which the privilege may be exercised as the basis for computing the tax.'
It was thus shown that the basis on which a tax was assessed had a rational connection with the object of the statute. A reference may next be made to Columbus and Greenville Rly. Co. v. W. J. Miller, (1931) 75 Law Ed. 861. This case was cited by Mr. Porus Mehta with a view to show that a statute taxing railways at a uniform rate of 350 dollars per mile was held by the Federal Supreme Court to be not violative of the equal protection clause of the 14th Amendment of the American Constitution. We find, however, that no such question was involved in the case. Under the statute in question a tax at the rate of 350 dollars per mile of railway lines was imposed on railway companies, but by a proviso an exception was made in the case of a railway company having less than 25 miles of main line in the district, and such railway company had to pay a tax at the rate of 50 dollars per mile only. This proviso was challenged by the State Tax Collector as being discriminatory Evidence was produced by a railway company which had less than 25 miles of railway line within the district to show that the exception made in its favour was not discriminatory. That evidence was excluded by the Court below. The evidence offered in support of the classification having been excluded, the question before the Supreme Court was whether the said proviso was invalid upon its face, and the Supreme Court held that the proviso was not so arbitrary and unreasonable on its face as to violate the due process and equal protection clauses of the 14th Amendment of the American Constitution. A reference may finally be made to the decision in New York Rapid Transit Corporation v. City of New York, (1937) 82 Law Ed. 1024. In that case the Federal Supreme Court considered the validity of the New York Excise Tax which was imposed on 'utilities' and was assessed at 3 per cent of their gross income. An objection was levelled against the Act on the ground that the gross profits of utilities did not correspond with their net profits, and that the taxing statute therefore operated unequally on different utilities and violated the equal protection clause of the 14th Amendment. In rejecting this objection the Court observed that the rule of equality permits many practical inequalities, and that no 'iron rule' of equality has been enforced in the field of taxation. It was also observed that the Legislature was not required to make meticulous adjustments in an effort to avoid incidental hardships. This decision emphasises the view, to which we have given due consideration, that a taxing statute cannot be held to be discriminatory on the ground that it imposes unequal burdens, unless the inequality is such as to make the statute patently discriminatory.
(25) Before leaving this part of the case we must notice another argument advanced by Mr. Porus Mehta. He argued that it was for the petitioners in the two writ petitions to produce facts and figures to show that the imposition of a property tax at a uniform rate on floor area operated unequally between the owners of mills and factories. Mr. Porus Mehta argued that the Petitioners have failed to do so and that, in the absence of concrete proof to the contrary, it must be assumed that the impugned provisions did not impose unequal burden on different owners of mills and factories. In order to appreciate Mr. Porus Mehta's argument, it is necessary to notice the averments in the two petitions and the affidavits of the parties in so far as they relate to the contention that taxation at a uniform rate on the floor area is necessarily discriminatory. As the averments in the two petitions are almost identical, it would be enough to refer to those in the petition of the Lokmanya Mills. In that petition it was alleged that taxation on the basis of floor area was arbitrary and capricious, and that it amounted to a denial of the right of the owners of factories and mills to show that the actual letting value of their buildings was different from the value assessed by the Municipality.
In the affidavit in reply filed by the Chief Officer of the Barsi Municipality the allegation about the tax being arbitrary and capricious was denied. It was incidentally averred that the properties of mills and factories consist of factory premises, office premises, canteens, godowns, store-rooms grain rationing shops, etc. In an affidavit filed by the petitioner in rejoinder it was claimed that mills and factories are of different types and different sizes such as an oil mill or a floor mill or a factory engaged in small scale industries or in a huge industrial concern. It was further stated that the situation of a factory may be in a costlier part of the locality whereas other factories may be on the fringe of the town where the prices of the land are lower. In sur-rejoinder the Barsi Municipality were allowed to file another affidavit of their Chief Officer. Two statements in that affidavit may be quoted. He stated:
'I deny that the mills and factories in the town of Barsi as well as all over the State of Maharashtra are of various types.'
And he further stated:
'I deny that the land values vary within the Municipal limits as alleged by the petitioner.'
We are of the view that these averments have been made without any sense of responsibility. Mills and factories are of various types, and land values do vary in the limits of all municipal Boroughs, despite what is stated to the contrary by the Chief Officer. We find, moreover, that both the affidavits filed by the Chief Officer do not contain the usual verification clause, so that it is not possible to know which part of his affidavits was claimed to be based on his personal knowledge and which part was claimed to be based on information received by him.
(26) We may add that after the arguments of Mr. Sorabjee were over and after Mr. Porus Mehta commenced his arguments in reply, the hearing of these matters had to be adjourned and was resumed after about ten days. At the resumed hearing Mr. Porus Mehta tendered an affidavit in sur-rejoinder on behalf of the State and asked our permission to file it. During the three days that Mr. Sorabjee argued the case of the petitioners no intimation was given by Mr. Porus Mehta that the Government intended to file any affidavit in sur-rejoinder. In view of the inordinate delay which was involved and because the arguments of the petitioners were already over, we did not permit the affidavit in sur-rejoinder to be brought on the record. We also found that some of the facts stated in the affidavit were not verified as having been based either on the knowledge of the person who made the affidavit or on the information received by him, but were claimed to be based on legal advice.
(27) In this state of the record Mr. Porus Mehta argued, as stated above, that the petitioners have failed to prove that the imposition of a uniform rate on the basis of floor area operated unequally on the owners of different mills and factories. Mr. Porus Mehta referred in this connection to the decision of the Supreme Court in Ajoy Kumar Mukherjee v. Local Board of Barpeta, : 3SCR47 . In that case an Assam Act had conferred powers on Local Boards to impose a tax on lands used as Market, and a rule made under the Act provided that the tax was to be graduated according to the size and importance of the market and that the maximum tax which a Local Board could impose on any land used as a market was Rs. 1,000. A tax at the maximum rate was imposed on the land of the appellant in that case, and the appellant complained that this imposition was discriminatory and contravened his right under Article 14 of the Constitution. The appellant had furnished no details to show that the tax was imposed in an arbitrary manner. It is in this context that their Lordships observed that the appellant, if he was to succeed on his plea under Article 14, 'had to adduce facts and figures, firstly, as to the size of the five markets on which the tax was levied in the relevant years and secondly, as to the relative importance of these markets.'
(28) We do not think that in making the above observations the Supreme Court intended to lay down any rule of general application. The type of proof which is required from a party in any case depends on the circumstances of that case. It is, moreover, well established that the Court is entitled to take judicial notice of facts which are of general knowledge. In the present case we have taken judicial notice of the fact that land values differ very materially in different towns in which municipalities are established under the Boroughs Act. We have taken judicial notice of the fact that different types of mills and factories require different types of buildings, and that their relative values do not vary according to their floor area. We have also taken judicial notice of the fact that the buildings of mills and factories are of different age, that some mills and factories are new and some are old, and that the value of a building decreases with its age. These facts are enough by themselves to show that the impugned provisions are ex facie discriminatory. Matters on which judicial notice may be taken by Courts have been thus described in the American Jurisprudence, Volume 20, Article 18:
'18. Matters of common knowledge: The matter of which a court will take judicial notice must be a subject of common and general knowledge. In other words, judicial knowledge of facts is measured by general knowledge of the same facts. A fact is said to be generally recognised or known when its existence or operation is accepted by the public without qualification or contention. The test is whether sufficient notoriety attaches to the fact involved as to make it proper to assume its existence without proof. The fact that a belief is not universal, however, is not controlling, for there is scarcely any belief that is accepted by everyone. Those matters familiarly known to the majority of mankind or to those persons familiar with the particular matter in question are properly within the concept of judicial notice. Judicial knowledge is continually extended to keep pace with the advance of art, science, and general knowledge.'
In the same volume of American Jurisprudence it has been pointed out in Article 121 that Courts may take judicial notice of changes in land values. The Supreme Court of the United States observed in Borden's Farm Products Co. v. Charles H. Baldwin, (1934) 79 Law Ed 281:
'The principle that the State has a broad discretion in classification, in the exercise of its power of regulation, is constantly recognized by this Court. Still, the statute may show on its face that the classification is arbitrary.'
Moreover, in their judgment in : 1SCR306 , which was one of the two decisions sought to be nullified by the impugned Act, the Supreme Court observed:
'By prescribing valuation computed on the area of the factory building, the Municipality not only fixed arbitrarily the annual letting value which bore no relation to the rental which a tenant may reasonably pay,' but rendered the statutory right of the tax payer to challenge the valuation illusory.'
(Underlying (here into ' ') supplied. The observation of their Lordships that the rate imposed by the Municipality on the basis of floor area was arbitrary and that it bore no relation to the rental value of buildings was obviously based on facts of which their Lordships had taken judicial notice. We have followed the same course in the present case.
(28A) We must add that in the three first appeals, which are also being disposed of by this judgment, evidence was led by the plaintiffs in each case that the different mills and factories at Jalgoan were situated in different localities, that some of them were situated in busy localities and some were not, that the buildings were of different types, and that some were new. Statements made by witnesses to the above effect were not subjected to any cross-examination. In one of the first appeals (First Appeal No. 121 of 1966) it was specifically pleaded as an independent ground that the rate imposed by the municipality on the basis of floor area was arbitrary and capricious, and an issue was raised to cover that plea. Mr. Porus Mehta emphasised that it was not open to us to consider this evidence in deciding the alleged invalidity of the impugned provisions as far as the two writ petitions were concerned. Mr. Porus Mehta was technically right in saying so. At the same time, nothing prevented us from dealing with the alleged invalidity of the impugned provisions while disposing of the first appeals. We could have given our decision on that point in the first appeals and thereafter in the writ petitions. Mr. Porus Mehta argued that when the evidence to the above effect was led in the Court below in the three suits from which the first appeals have arisen, the impugned Act had not been passed and the validity of the impugned provisions was not in question. But the Jalgoan Municipality which is the appellant in the first appeals, relies on the impugned Act, and the validity of the impugned provisions is squarely in issue in these appeals. Since the record of the three suits contains evidence which goes to show that the impugned provisions are violative of Article 14 of the Constitution, we asked Mr. Porus Mehta whether he desired that the Municipality should be allowed to lead additional evidence on the question involved. Mr. Porus Mehta said that he had no instructions in the matter. Then we asked Mr. Chitale, who appeared for the Municipality in the three first appeals, whether the Municipality wanted an opportunity to lead additional evidence, and Mr. Chitale replied that he also had no instructions in the matter. It appears to us that the reason why no desire was expressed by the Jalgoan Municipality to lead additional evidence was that the facts of which we have taken judicial notice are incapable of being controverted.
(29) We will now turn to these second ground advanced by Mr. Sorabjee in support of his contention, that the impugned provisions were discriminatory and violative of Article 14. He argued that there was no justification for classifying the owners of mills and factories into a separate category from the owners of other buildings and for having their lands and buildings assessed at a uniform rate based on their floor area. The purpose of this classification was not to subject the buildings and lands of mills and factories to a higher property tax. This was specifically conceded in the affidavits filed on the Barsi Municipality. Mr. Porus Mehta pointed out that the powers of the Legislature in matters of taxation are known to be very comprehensive, that it is within the competence of the Legislature to lay down different modes of assessment for different properties, and that no objection on the ground of discrimination can be validly taken if the Legislature did so. But the objection taken by the owners of factories and mills before us is not merely that their buildings and lands were subjected to a different mode of assessment; they object that the mode of assessment prescribed for their properties is arbitrary and has no relation to the value of the properties. In this form the argument appears to be very similar to the one which we have already deal with, but is essentially different. The owners of mills and factories have two separate objections to the imposition of the arbitrary mode of assessment - (1) that the imposition creates inequality between the owners of mills and factories on the one hand and the owners of other buildings and lands on the other. The first objection implies that the discrimination is the result of lack of classification and the second objection implies that the discrimination is the result of unreasonable classification.
(30) Mr. Porus Mehta argued in this connection that the buildings required for mills and factories are of a different type than buildings required for other purposes and that there is, therefore, a reasonable basis for putting the buildings and lands of mills and factories in a separate class. Although some of the buildings required by mills and factories such as office premises residential premises, godowns, canteens, rationing shops, etc. are similar to the buildings of other owners, it may be that there are intelligible differentia for classifying buildings and lands of mills and factories into a separate category. There is, however, no rational connection between the basis on which such buildings and lands are put in a separate class and the arbitrary mode which is allowed to be adopted for their assessment.
(31) In the affidavits in reply to the writ petitions filed on behalf of the Barsi Municipality three reasons were given to justify the assessment of the buildings and lands of mills and factories on the basis of their floor area. It was claimed, firstly, that little or no depreciation takes place in the properties of mills and factories as compared with other properties. This averment was the result of some misunderstanding of what is meant by depreciation, and Mr. Porus Mehta did not rely on this ground for justifying the mode of assessment adopted in the case of mills and factories. The second reason advanced in the affidavit was that the annual letting value of the properties of mills and factories does not change from time to time, whereas the annual letting value of other properties is liable to change. This statement also has no foundation in fact and was not relied upon by Mr. Porus Mehta. The third reason was that:
'The properties of Mills and Factories are never let or intended to be let and, therefore, it is very difficult or almost impossible for the municipality to get the usual data for determining what a 'hypothetical tenant' would pay in respect of the said properties.'
Reliance was placed by Mr. Porus Mehta on this averment in the course of his arguments. The petitioners denied that the properties of mills and factories are never let or intended to be let, and Mr. Sorabjee drew our attention to the fact that the buildings and lands of the mills have actually been let out in two of the three first appeals which are before us. But since this is a contested question of fact, we will assume in favour of the Municipality and the State Government that the properties of mills and factories are not usually let out and that it is very difficult to determine what a hypothetical tenant would pay for those properties. It seems clear, however, that the alleged difficulty in assessing the annual letting value on the basis of what hypothetical tenant would cannot possibly provide a rational basis for the imposition of an arbitrary mode of assessment on the buildings and lands of mills and factories. Many properties within municipal areas are never let out, and it is well known that if the letting value of a property cannot be assessed by ascertaining what a hypothetical tenant would pay, it can always be assessed on the basis of its capital value. In Ryde on Rating, Eleventh Edn. Page 433, the following statement occurs:
'Where property is of a kind that is rarely let from year to year, recourse is sometimes had to interest on capital value, or on the actual cost, of land and buildings, as a guide to the ascertainment of annual value.'
The following observation from the judgment of the majority of the Supreme Court in : 2SCR608 are also relevant in this connection:
'The method in use for the purpose of arriving at rateable value were generally three. Where the land or buildings was actually let, the valuation was based on the rent at which it was let. Where, however, the land or building was not let, two methods were evolved for the purpose of finding out the rateable value. The first was to assess a hypothetical tenancy (such as where the same person is the owner and occupier) and find out the rent at which, the premises would be let. The second was based on the capital value of the premises. But the tax was not levied on the capital value itself; the capital value was determined on the structural value of the building to be assessed by what was known to be contractor's method or contractor's test in addition to the market value of the land'
We have not referred to these observations for the purpose of showing that the Legislature could have prescribed a better mode for assessing the buildings and lands of mills and factories. These observations emphasise that there was no rational connection between the classification of the buildings and lands of mills and factories into a separate category and the arbitrary mode which was allowed by the legislature to be adopted in assessing them for the levy of a property tax.
(32) That there is no rational connection between the adoption of an arbitrary mode of assessment in the case of mills and factories and the alleged difficulty of ascertaining what a hypothetical tenant would pay for them is demonstrated by a number of other facts and circumstances. The very municipalities which adopted the floor area basis in and after 1947 used to assess till that year the buildings and lands of mills and factories in the normal way, i.e. by ascertaining their letting value as in the case of other buildings and lands. Even after 1947 most of the municipalities governed by the Boroughs Act continued to assess the buildings and lands of mills and factories in the same manner as other buildings and lands. Moreover, the Boroughs Act has been replaced by the Maharashtra Municipalities Act (Act XL) of 1965 with effect from 15th June 1966, and the buildings and lands of mills and factories will be assessed in the normal way under the provisions of that Act by all municipalities, including the municipalities of Barsi and Jalgoan and the other municipalities mentioned in the schedule to the impugned Act. We must accordingly hold that the basis on which the buildings and lands of mills and factories were put in a separate clause had no nexus with the arbitrary mode of assessing their value which was adopted by the municipalities and which was allowed to be adopted by the impugned provisions.
(33) A reference may next be made to the precedents which were cited by Mr. Porus Mehta on this part of the case. In Albeat A. Carmichael v. Southern Coal and Coke Co., (1937) 81 Law Ed 1245, the Federal Supreme Court upheld the validity of a State Act which imposed a tax on employers for contribution to an Unemployment Compensation Fund. The Act was claimed to be discriminatory on such grounds that it exempted from taxation employers of less than 8 workers and that it exempted employers of agricultural labourers, domestic servants, seamen etc. It was in this context that the Supreme Court observed that the due process and equal protection clauses of the 14th Amendment did not impose upon a State any rigid rule of equality of taxation and that inequalities which result from the singling out of one particular class for taxation or exemption infringe no constitutional limitation. That principle has clearly no application to the present case. In John E. Madden v. Commonwealth of Kentucky, (1939) 84 Law Ed 590, a State Act was challenged on the ground of discrimination because it imposed on its citizen an annual tax on deposits in Banks outside the State and the higher taxation to which they were subjected. Mr. Porus Mehta relied on the observation of the Court in its judgment that the 14th Amendment was not intended to compel the State to adopt an 'iron rule' of equal taxation. This observation has no application to the present case, because the grievance of the petitioners before us is that the impugned Act allows their properties to be assessed on arbitrary basis and not that it enables the municipalities to subject their properties to higher taxation. In Nashville, Chattanooga and St. Louis Rly. v. Gordon Browning, (1940) 84 Law Ed 1254, the facts were somewhat complicated but the objection in essence was to a higher taxation of the properties of public service corporations, including railways, as compared to other properties. In rejecting the objection the Supreme Court made the following observations on which Mr. Porus Mehta relied:
'The States may classify property for taxation; may set up different modes of assessment, valuation and collection; may tax some kinds of property at higher rates than others; and in making all these differentiation's may treat railroads and other utilities with that separateness which their distinctive characteristics and functions in society make appropriate-these are among the common-places of taxation and of Constitutional law.'
These observations also have little bearing on the question before us, for they do not justify the classification of some property owners into a separate category for the purpose of subjecting their properties to a wholly arbitrary mode of assessment.
(34) We are accordingly of the view that the impugned provisions are discriminatory on both the grounds urged by Mr. Sorabjee and that they contravene Article 14 of the Constitution and are invalid and inoperative.
(35) As stated earlier, two other grounds were advanced by Mr. Sorabjee in challenging the impugned provisions. He urged that the Maharashtra Legislature did not have the competence to enact the said provisions and that the provisions amounted to a colourable piece of legislation. These arguments were initially advanced by Mr. Sorabjee as separate grounds of attack, but Mr. Sorabjee later agreed that the second ground is included in the first, Mr. Sorabjee conceded that a statutory provision cannot be held to be a colourable piece of legislation if the Legislature had the competence to pass it. It is, therefore, unnecessary to deal with the cases which were cited before us on what is meant by colourable legislation. In the Bonus Act case referred to earlier, it has been observed in the majority judgment: 'An enactment may be charged as colourable, and on that account void, only if it be found that the legislature has by enacting it trespassed upon a field outside its competence.' We will accordingly confine ourselves to the consideration Mr. Sorabjee's argument that the Maharashtra Legislature had no competence to enact the impugned provisions.
(36) The subject matter of the impugned provisions is covered by item 49 of the State List in the 7th Schedule of the Constitution. Item 49 enables State Legislature to make laws on 'taxes on lands and buildings'. Mr. Sorabjee argued that the expression 'taxes on lands and buildings' in item 49 means taxes which are assessed on the annual letting value of lands and buildings and that the expression does not include a tax on the basis of floor area which is allowed to be imposed by the impugned provisions. This argument was based on the views expressed by the Junior Judge of the Bench of the Mysore High Court in AIR 1965 Mys 170, to which a reference has been made in another connection. In his judgment the learned Junior Judge traced the history of taxation on lands and buildings in Indian and other countries and came to the conclusion that the word 'taxes' in entry 49 of the State List means nothing more than a 'rate assessed on the basis of the annual letting value of lands and buildings. We find that the learned Senior Judge of the same Bench did not agree with this view, for he had held in his judgment that the Mysore Act with which the Court was dealing was within the competence of the Mysore Legislature. We are, with respect, unable to agree with the view of the learned Junior Judge. The fact that taxes on lands and buildings were in the past assessed on their rateable value in India and in other countries cannot imply that the word 'tax' itself, when applied to lands and buildings, has the limited meaning of a tax assessed on rateable value. The words used in the Seventh Schedule of the Constitution in defining the powers of taxation of the Union and State Legislatures cannot be given a restricted interpretation merely on the basis of past practice. Hence the impugned Act was within the competence of the Maharashtra Legislature. It follows that the Act cannot also be characterised as a colourable piece of legislation.
(37) For reasons given above, we hold that the following provisions of the impugned Act violate Article 14 of the Constitution and are invalid and inoperative;
Section 3(b) in so far as it includes item (iii) in the explanation to section 75 of the Boroughs Act, section 4(1) and section 4(2) in so far as they refer to and validate the levy and collection of a house tax on the basis of a uniform rate on the floor area, and section 5 in so far as it authorises the recovery of such a tax.
(38) We find that these provisions are severable from the rest of the impugned Act and the invalidity of these provision does not affect the validity of the remaining Act.
(39) We will now proceed to deal separately with each of the matters before us to the extent necessary.
Special Civil Application No. 1476 of 1966,
(40) Nothing more is required to be decided in this petition. It is declared that the provisions of the impugned Act mentioned above are invalid and inoperative and the respondents are directed not to enforce them against the petitioner. The respondents will pay the petitioner's costs. In assessing the petitioner's cost Rs. 500 will be allowed as Advocate's fees.
Special Civil Application No. 1424 of 1966.
(41) Nothing more is required to be decided in this petition also. But it is necessary to make a clarification. One of the prayers of the Petitioner is that a bill under which the Barsi Municipality has demanded an amount of Rs. 30,397.31 Paise from the petitioner should be quashed. As the bill was prepared on the basis of the powers conferred on the Municipality under that part of Section 5 of the impugned Act which we have held to be invalid, the prayer must be granted. We would, however, make it clear that our decision does not prevent the municipality from levying the house tax on the petitioner for the relevant years by assessing the petitioner's properties in the normal way, i.e. according to their annual letting value. This is because, on the finding that rule 2(c) of the rules of the municipality was invalid, the buildings and lands of mills and factories become assessable under rule 2(a) of the Municipality's rules. We do not know whether the right of the Municipality to tax the petitioner's buildings and lands for this relevant years under rule 2(a) is still a subsisting right or whether it is barred either by limitation or on the ground of delay. Our decision will not come in the way of the municipality levying and collecting the house tax from the petitioner during the relevant years under rule 2(a), if the municipality's right to do so is not otherwise barred. With this clarification it is directed that the Barsi Municipality (respondent No. 1) will not enforce against the petitioner the provisions of the impugned Act which have been declared by us to be unconstitutional and invalid, and that the municipality will not enforce the bill dated 13th July 1966 against the petitioner. The respondents will pay the petitioner's costs. In assessing the petitioner's costs Rs. 500 will be allowed as Advocate's fees.
First Appeal No. 2 of 1965.
(42) This appeal arises from a suit filed by the plaintiffs who are owners of a Dal mill in Jalgoan against the Jalgoan Municipality for a permanent injunction restraining the municipality from enforcing its bills for a total amount of Rs. 30,000 and odd which are specified in the plaint. The bills relate to the demands made by the municipality for tax assessed under rule 4 which we have quoted earlier in this judgment. It will be recalled that under the Explanation to rule 4 the rental value of the mills and factory premises in Jalgoan was fixed at Rs. 60 per 100 square feet on the floor area of buildings and Rs. 2 per 100 square feet of open area. The plaintiffs alleged in the plaint that they were entitled to the permanent injunction prayed for, because rule 4 was ultra vires and arbitrary and because the bills up to those of 1960-61 were not served on the plaintiffs. These contentions were denied in the written statement and it was further averred that the suit was barred by res judicata in view of a decision in a previous suit between the same parties in which rule 4 was held to be intra vires the municipality's powers. The learned trial Judge rejected the contention that the plaintiffs' suit was barred by res judicata and decreed the suit on the ground that rule 4 was ultra vires as well as on the ground that the bills upto those of 1960-61 were not served on the plaintiffs.
(43) Mr. Chitale on behalf of the appellant Jalgoan Municipality urged, in the first place, that the plaintiffs' suit should have been dismissed on the ground of res judicata. The former suit was of 1954 and was filed by the municipality against the present plaintiffs or their predecessors for the recovery of the amount of house tax of some previous years assessed in accordance with the Explanation of rule 4. One of the issues raised in the suit was whether rule 4 was ultra vires. The learned trial Judge held that the rule was not ultra vires by relying on the decision of this court in the Borough Municipality of Amalner v. Pratap Spinning, Weaving and ., 54 Bom LR 451=AIR 1952 Bom 401. As mentioned earlier the Supreme Court in : 1SCR306 , held the corresponding rule of the Barsi Municipality to be ultra vires and in doing so the Supreme Court referred to and disapproved the aforesaid decision of this Court. Mr. Chitale argued that the decision in the previous suit that rule 4 of the Jalgoan Municipality was not ultra vires is binding on the plaintiffs in this case, although the issue was an issue of law. If we were to accept Mr. Chitale's argument, the result would be that the Jalgoan Municipality can continue to enforce rule 4 against the plaintiffs in this case, even if the rule is held to be ultra vires in other cases and the municipality is restrained from enforcing that the rule against other owners of mills and factories including the respondents in the other two first appeals. We do not, however, find it necessary to accept Mr. Chitale's contention. The extent to which question of law decided in the case operates as res judicata in a subsequent litigation between the same parties was considered by a Full Bench of this Court in Province of Bombay v. Municipal Corporation of Ahmedabad, : AIR1954Bom1 FB. The ration of that case, in so far as it is material for present purpose, can be stated thus. No general proposition can be laid down that a decision on a question of law cannot have the effect of res judicata. Questions of law are of various types. The construction of an award, for instance, is a question of law, and so is the legality or otherwise of particular transaction between the parties to a suit. In a particular suit an award may be construed in a particular way or a transaction between the parties may be held to be legal or illegal. The same question regarding the construction of the award or the legality of the transaction will be res judicata if it arises between the same parties in a subsequent suit. The case is, however, different when a general question of law, such as the interpretation or the validity of a statutory provisions or a statutory rule or bye-law, is decided in a suit proceeding. The decision on such a general question of law is not binding on the parties in a subsequent proceeding, except where the subsequent proceeding relates to the same cause of action. When a general question of law arises in a litigation, what is substantially in issue is not the question of law but the rights of the parties which are determined by the question being answered in a particular way. This is because an abstract question of law dissociated from and unconnected with the rights claimed or denied by the parties is of no importance to the parties and cannot be held to have been substantially in issue between them. Applying these principles to the case before us, we must hold that what was substantially in issue between the Jalgoan Municipality and the present plaintiffs or their predecessors in the previous suit was whether the municipality was entitled to recover the amount of the bills claimed by it and not the validity or otherwise of rule 4 on the basis of which the amount of the bills was demanded. Mr Chitale pointed out that in the judgment of the Full Bench it has been stated that the question of law which was claimed to be res judicata in that case did not form the subject matter of a specific issue in the previous suit. We do not, however, think that the binding nature of a decision on a question of law in a previous suit can depend upon whether a specific issue as to that question was raised by the Court which decided the suit. In the case before us the relevant issue which was raised in the previous suit was 'Is rule No. 4 ultra vires?' The Court which decided that suit could as well have framed the issue in this form: 'Is the Municipality not entitled to the amount claimed on the ground that rule No. 4 is ultra vires?' It seems clear from what is stated in the judgment of the Full Bench that a finding on the above issue to the effect that the municipality was entitled to recover the amount would not have conferred the force of res judicata to the Court's view that rule 4 was intra vires the municipality's powers. Whether a decision on a question of law in a previous suit is or is not res judicata cannot depend on the form in which the court in the previous suit framed an issue on the question in dispute. We are accordingly of the view that the decision in the previous suit between the present parties that rule 4 was intra vires of the Municipality powers does not have the force of res judicata.
(44) Mr. Chitale then argued that the lower Court was wrong in the present case in holding that rule 4 was ultra vires of the municipality's powers. The objectionable part of the rule is found in the Explanation to clause (a) to that rule, for it is the Explanation which says that the rental value of the mills and other factory premises 'shall be taken' as specified therein. Mr. Chitale argued that the words 'shall be taken' should be read as meaning 'shall be presumed until the contrary is shown' According to Mr. Chitale the Explanation to rule 4 (a) merely created a rebuttable presumption the effect that the rental value of the buildings and lands of mills and factories was as mentioned in the Explanation. We do not find any warrant for such an interpretation. We cannot read into the rule what it does not say.
(45) It was next urged by Mr. Chitale that the Explanation to rule 4(a) is severable from the rest of the rule, and that it is the Explanation alone which is invalid in view of what was held by the Supreme Court in the Lokmanya Mill's case, : 1SCR306 . This position was fairly conceded by Mr. Divekar on behalf of the plaintiffs. The result is that, although the bills which are specified in the plaint cannot be enforced by the municipality as they were based on an assessment made in accordance with the Explanation to rule 4(a) it would be open to the municipality, if its right in that connection is not barred either on the ground of limitation or delay, to assess the buildings and lands of the plaintiffs for the relevant years as provided in the remaining part of rule 4, i.e. in accordance with the annual letting value of the properties assessed in the normal way.
(46) It was further argued by Mr. Chitale that one of the grounds on which the plaintiffs suit was decreed by the learned trial Judge was that the bills upto the year 1960-61, although they were issued in the name of one of the plaintiffs as the proprietor of the mills, were not served on the plaintiffs, but were served on the plaintiffs' lessee Chunilal. Mr. Chitale urged that this finding of the learned trial Judge is not justified. We find in the first place, that the question whether the bills were properly served on the plaintiffs or not is not relevant to the plaintiffs' prayer that the municipality should be restrained by a permanent injunction from enforcing the claim under the bills. Supposing that the bills were not properly served on the plaintiffs, the result would be that the municipality would be unable to have recourse to the expeditious provisions contained in sections 105 to 107 of the Boroughs Act for the recovery of the amount of the bills by filing a suit against the plaintiffs. Proper service of the bills on the plaintiffs is not a condition of the maintainability of such a suit. Evidence was led by the municipality in the court below to show that some of the bills were sought to be served on the plaintiffs by the municipality's peon, and that the peon served the bills on the lessee Chunilal because he was told to do so by plaintiff No. 1 himself. Mr. Chitale argued that there was no adequate reason why the evidence of the municipality's peon should not have been accepted Mr. Chitale also argued that in a subsequent bill which was duly served on the plaintiffs the amount of the previous bills was included and that, therefore, if rule No. 4 had been held to be valid, the right of the municipality to recover the amount of the bills by having recourse to section 105 to 107 of the Boroughs Act would not have been barred. We do not find it necessary to deal with these submissions of Mr. Chitale because we are of the view, as stated above, that the question whether the bills were properly served on the plaintiffs or not is irrelevant to the relief of permanent injunction which the plaintiffs have asked for in the suit.
(47) The Jalgoan Municipality has taken additional grounds of appeal to the effect that the decree of the trial Court has to be set aside in view of the provisions of the impugned Act. For reasons already given the contention taken in the additional grounds is rejected. In the result the appeal is dismissed with costs.
First Appeal No. 120 of 1966 and First Appeal No. 121 of 1966.
(48) Mr. Chitale, who appeared for the Jalgoan Municipality in these appeals, conceded that nothing survives in these appeals in view of our finding that the relevant provisions of the impugned Act are unconstitutional and invalid. The appeals are, therefore, dismissed with costs.
(49) Appeals dismissed.