Randhir Singh, J.
1. This is a reference made by the Additional District Magistrate (Judicial) of Lucknow under Section 162, U. P. Municipalities Act.
2. The Union Government has quite a number of buildings which are in the use of the Northern Railway in the City of Lucknow and the Municipal Board of Lucknow used to levy house and water taxes on these buildings. The last revision of assessment was made in the year 1948 and it appears that taxes were paid in respect of these buildings till 31-3-1953. A fresh assessment became due in 1953, and it is in connection with this assessment that a dispute arose between the Municipal Board and the Railway Authorities managing the property sought to be assessed, about the liability for payment of tax.
3. A brief history of the previous revision of assessment made in 1948 may be useful in appreciating the points in dispute. On 1-10-1947, the Municipal Board revised the basis of the assessment of taxes and adopted a system popularly known as slab system of levy of taxes. This was opposed by the Railway Authorities, as it resulted in an increase in the taxes and a reference was made to the District Judge of Lucknow, Dr. L. N, Misra, under Section 131(2), Railways Act, read with Section 3(2) of the Railways (Local Authorities Taxation) Act (XXV of 1941) and a notification dated 11-1-1944.
Dr. L.N. Misra, District Judge of Lucknow, gave his award and approved the basis of taxation under the slab system as proposed by the Municipal Board. No grievance was made thereafter in respect of the payment of taxes which were so assessed under the slab system till 31-3-1953. In the revision of the assessment sought to be made in 1953 which was to be applicable with effect from 1-4-1953, some objection was raised on behalf of the Railway Authorities in charge of the property of the Union. These objections were, however, not accepted by the Assessing Officer and an assessment was made. An appeal was then made to the Additional District Magistrate (Judicial) against the order of the Assessing Officer. When the appeal came up for hearing before him, he felt some doubt about certain points and the following points were then referred to this Court for decision.
1. Is it open to an assessee, in appeal under Section 160, U. P. Municipalities Act, to challenge an assessment on a ground not raised by way of objection under Section 143 (2) of the Act, as in this case, where it was not alleged in the objections that building No. 3 had been let out, and it is only now alleged in para. 4 of the grounds of appeal that the building in question should have been assessed under Section 140 (1) (b) on rental basis?
2. In view of the deletion of the provision for allowing depreciation in the Act of 1900, from the provisions of the present Act, is it permissible to allow depreciation in assessing the present cost of erecting the building within the meaning of Section 1.40 (1) (a) of the Municipalities Act?
3. Is the Union Government through the Northern Railway liable to pay house and water taxes to the Lucknow Municipality?
4. If so, is it liable only in respect of those buildings which existed on 26-1-1950, when the Constitution of India came into force,' and in respect of which the Central Government through the Railway Administration of the E. I. Railway was liable or was treated as liable on that crucial date?
5. If the Union Government through the Northern Railway is held to be liable to pay house and water taxes to the Lucknow Municipality is it so liable to pay them at the rate imposed or in force on 26-1-1950, or also to any enhanced rates that may have come into force at a later date? These points have to be dealt with separately.
4. Point No. 1.--It has been argued on behalf of the assessee Union Government that this point ought not to have been referred for decision to this Court and reliance was placed on the provisions of Section 162, U. P. Municipalities Act. The relevant Part of Section 162 is as follows:--
'(1) If, during the hearing of an appeal under Section 160, a question as to the liability to, or the principle of assessment of, a tax arises on which the officer hearing the appeal entertains reasonable doubt, he may, either of his own motion or on the application of a person interested, draw up a statement of the facts of the case and the point on which doubt is entertained and refer the statement with his own opinion on the point for the decision of the High Court.'
A perusal of the material part of Section 162 quoted above shows that the questions which can be referred for decision to the High Court should relate to (1) the liability to assessment of a tax or to (2) the principle of assessment of a tax. If, therefore, a decision has to be given on any of these two points by the officer hearing the appeal and he entertains a reasonable doubt, he may make a reference on these points only. Point No. 1, however, relates entirely to a different matter and neither the principle of assessment nor the liability to payment of a tax is involved in this question.
It is open to the officer hearing the appeal to decide whether an objection not raised earlier before the assessing officer should or should not be allowed to be raised at the time of appeal. This matter was entirely within the purview of the jurisdiction of the officer hearing the appeal and did not relate to any of the matters mentioned in Section 162 of the Municipalities Act. We, therefore, refrain from giving any opinion on this point, which has to be decided by the officer hearing the appeal on his own judgment.
5. Point No. 2.--There has been some change in the language of the U. P. Municipalities Act, 1916, as compared with the old Act of 1900. 'Annual value', as defined by Section 140 (1) (a) of the Act of 1916 means,--
'(a) in the case of railway stations, hotels, colleges, schools, hospitals, factories and other such buildings a proportion not exceeding five per centum to be fixed by rule made in this behalf of the sum-obtained by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto'.
There was a specific provision in the old Act for allowing depreciation while assessing the annual, value for a building but that provision has now been omitted in the present Act and it has been argued that the words ''estimated present cost of erecting the building' do not include any depreciation, which should not now be taken into consideration while assessing the annual value. The words 'estimated present cost of erecting the building' would evidently mean the cost which would be incurred in erecting the building at the time of the assessment.
If the interpretation sought to be put on behalf of the Municipal Board on these words is accepted, it would mean that even an old building standing on the date of assessment would have the same annual value as the building of the same type and accommodation now erected. This evidently appeals to be unfair and should not be deemed to be the correct interpretation. The words 'the building' would evidently mean the building in ejustence. If a literal meaning is given to these words, it would mean that the assessing authority should find out the cost of erection of the old building if it were to be erected with the old material on the date of the assessment, which would be wholly impracticable.
It appears to us that these words connote that the cost of the building should be calculated if a new building were to be erected on the date of assessment but allowance should be made for depreciation in assessing the value depending upon the condition of the building. There may be buildings which may be only ten years old but their condition may have become very bad because they were not maintained properly while there may be other buildings much older but properly maintained which would have a much lesser depreciation in their value. The assessing authority should, therefore, see that the depreciation depending upon the condition of the building is taken into consideration on the basis of the cost of erection on the date, when the assessment has to be made.
This would entirely be a question of fact depending on the condition of the building itself and no hard and fast rules or formula can be laid down for assessing the depreciation. It may not be altogether correct to describe such a concession or allowance in calculating the cost of, the building as a 'depreciation' but the only method of calculating the present cost of erecting the building, i.e. the old building in its existing condition would be to calculate the cost of erecting a new building of the same type, design and dimensions and making a suitable reduction in the cost depending on the condition of the building.
The cost so arrived at would be the present cost of erecting the building. Our answer to the question formulated by the Additional District Magistrate is that the present cost of construction of the building should be arrived at by calculating the cost of construction of a new building and deducting from it an amount which would cover the deterioration depending on the condition of the building. In effect the deterioration will have to be assessed and deducted from the present cost of erecting a new building in order to determine the cost of erect-ling the building as it exists.
6. Point No. 3 : A good deal of argument has been addressed on behalf of the Railways on this question but it appears to us that question can be decided on a much simpler point. Article 285 of the Constitution contains the exemption of the property of the Union from State taxation.
A distinction has been sought to be made by the learned Counsel for the Railways that the property which was the subject of assessment in this case belonged to the Northern Railway at present. It is conceded that the property belongs to the Union of India and the fact that it is being managed by the Railway Authorities would make no material difference in the ownership of the property. The property continues to vest in the Union of India and we are unable to agree with the contention that the change in the name of the Railway from the East Indian Railway to the Northern Railway would make any difference in the ownership of the property. Article 285 of the Constitution is as follows:
'1. The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.
2. Nothing in Clause (1) shall until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such properly was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State.'
There was a similar provision in the Government of India Act, 1935, and property which was, immediately before the coming into force of Part 3 of the Government of India Act, liable to tax or which was treated as liable to tax continued to be liable for the payment of the tax. This exemption of the Union property from the liability to taxation was continued in the Constitution of India which came into force on 26-1-1950, but all property belonging to the Union Government which was liable for payment of tax or which was treated as liable for payment of tax immediately before the commencement of the Constitution continued to remain liable for the payment of tax until Parliament by law otherwise provided.
It is not disputed that the Municipal Board had levied the house tax and water tax on the property in dispute long before the commencement of the Constitution and this tax continued to be paid till 31-3-1953, after which the Railway Authorities for the first time questioned their liability for payment of tax. The Constitution of India came into force on 26-1-1950, and on that date the property was admittedly treated as liable to tax. It is also not in dispute that no law has since the enforcement of the Constitution, been passed by the Parliament providing otherwise. The liability for the payment of tax therefore continues in view of the provisions of Art. 285 of the Constitution of India:
7. Reliance has been placed on the Railways (Local Authorities' Taxation) Act (25 of 1941). Section 3(1) of this Act is as follows :
''In respect of property vested in His Majesty for the purposes of the Central Government, being property of a railway, a railway administration shall be liable to pay any tax in aid of the funds of any local authority, if the Central Government by notification in the Official Gazette, declares it to be so liable.'
It has been argued that no notification such as the one mentioned in Section 3(1) has been made by the Central Government and in the absence of such a notification the property in dispute was not liable for the payment of tax. It is conceded that there had been a notification under Section 135 (1), Railways Act, 1890, which authorised the Municipal Board to levy such taxes on the Railway property. Section 4 of the Railway (Local Authorities' Taxation) Act, 1941, clearly indicates that the notification made under Clause (1) of Section 135, Railways Act, 1890, shall continue to be operative until it is varied or revoked by a subsequent notification.
No such revocation has been pointed out or brought to our notice. The liability to payment of tax levied by the Municipal Board shall, therefore, be deemed to have continued even after Act 25 of 1941 had been passed without any fresh notification to that effect. This point, however, is not material in view of Art. 285 of the Constitution of India, There can, therefore, be no doubt that the property in dispute in this, case which admittedly belongs to the Union of India is liable for the payment of house and water taxes and the question is answered in the affirmative.
8. Point No. 4: The learned Counsel for the Railways states that no fresh building has come into existence after 26-1-1950, and this point, therefore, does not arise,
9. Point No. 5: It has been argued on behalf of the Railways that the Municipal Board was not entitled to increase the taxes which were being paid on the date when the Constitution of India came into force. The Municipal Board addressed the Central Government on, this point and certified copies of letters sent and received in reply have been filed on behalf of the Municipal Board. By letter No. 14 (3) P-53 dated 8-10-1953, the Central Government has sanctioned the increase in the Municipal rates in respect of Union Government properties covered by Clause (2) of Art. 285, where such increase is due either to a general increase in valuation of such properties or general increase in the rate of the levy of tax applicable to all properties within the jurisdiction of the local body concerned.
It was further argued that this letter was issued on 8-10-1953, and did not give a retrospective effect to the levy of tax which was sanctioned only with effect from 1-4-1954. A further reference was made by the Municipal Board in this connection and ultimately by their letter No. 14 (3)-P/53 dated 8-6-1954, the Central Government modified their earlier order and permitted increase of taxes in the case of Part A States retrospectively with effect from 1-4-1948, or from the date of increase of taxes, whichever was later. The present increase is sought to Be made with effect from 1-4-1953. In view of this sanction of the Central Government the Municipal Board is authorised to increase the taxes with effect from 1-4-1953.
10. Moreover, it is the nature of the tax for which, sanction has to be obtained. Any variation of the quantum of tax based on an Increase in the value of the property or additions made to that property would also be covered by the proviso to Art 285 of the Constitution. This point; also arose, if appears, in a Calcutta case in Governor-General of India in Council v. Corporation of Calcutta : AIR1948Cal116 , and it was observed by Mukherjea J. that the liability for rates that exists in respect of a particular property prior to April 1937, and which is to continue according to the proviso, may certainly include any future variation resulting from alteration in the valuation of the property or the rate of assessment, but it does not include any future liability on account of any new property being added to if.
This view was expressed when the Constitution of India bad not come into force but, as pointed out above, there was a provision similar to the one to be found in Art. 285 in the Government of India Act, 1935 and the observations made by Mukherjea J, in the case referred to above with which we entirely agree with respect if we say so are applicable to Article 285 of the Constitution. The liability to pay tax on the property in dispute was there and any increase in the valuation would not alter the nature of the tax. It is admitted that there has been no addition to the existing buildings nor any new buildings have been constructed. In either view of the case the property sought to be assessed is liable for the payment of the increased taxes and We answer Point No. 5 accordingly.
11. Let tile decisions on the points referred to us be communicated to the Additional District Magistrate (Judicial).