(1) The second appeal and the revision petitions have been post before us, as Kailasam J., before whom they came up in the first instance, considered that, in view of the Municipal Council, Tiruvarur v. Muhammad Abu Baker, ILR (1944) Mad 405 : (AIR 1944 Mad 85) they should be decided by a Division Bench. They relate to levy of licence fee on private markets within the limits of the Melapalayam Municipality, in Tirunelveli District. The licence fee levied was computed at 15 per cent of the gross income of the owner from the market in the preceding year. This was in accordance with S. 262-A of the Madras District Municipalities Act, 1920. The Municipality instituted suits for recovery of the arrears of fees payable for the markets of the respondents in the second appeal and the petitioners in the revision petitions. Their defence was that as a fee it could not be justified on the quid pro quo basis. The suits were, however decreed. In one of them, the respondents concerned preferred an appeal and successfully. It is from this decree in appeal that the Municipality has come up here in second appeal. The defendants who have been unsuccessful, have filed the two revision petitions.
(2) The common question that arises is, whether the licence fee claimed by the Municipality at 15 per centum is justifiable and legal. It is well settled now that a tax and a fee are distinct and different exactions compulsorily. They differ in their purpose and nature. A tax is a compulsory levy by the Government or local body for purposes of running the Government or the local institution, and the tax collected by the Government goes into what is called the "consolidated fund". A tax is not related to any particular object or purpose but is generally devoted for meeting the expenses of the State. But a fee is essentially in the nature of a compensation for special services rendered to particular persons or institutions. Having regard to that nature of the exaction, there should necessarily be a relationship between the exaction and the services rendered. As the fee is a quid pro quo for the services rendered by the Government or the local body, which levies the fee, such fee levied should be commensurate in their quantum with the expenses incurred in rendering the services. It is true, of course, that an exact balance or a precise equation is not expected between the two factors, for it is impossible in actual administration. There are several decided cases which lay down these propositions and it is quite needless to refer to them.
(3) In ILR (1944) Mad 405 : (AIR 1944 Mad 85) a Division Bench of this court justified the levy of fees at 15 per centum of the gross income from a market, without reference to the quid pro quo basis. In Muthuswami Raja v. Kadayanallur Panchayat Union Council, one of us had occasion to refer to this decision and observe that it was not possible to regard it as laying down good law any longer, because it took no notice of the distinction between a tax and a fee. We are of the same view. Realising this position, Mr. Alagiriswami, for the Municipality wanted to argue that the fee under S. 262-A of the Act is really not that but a tax. But he could not pursue the point and sustain it in view of the constitutional position in regard to that matter. There is no entry in List II which empowers the State Legislature to levy a tax on the private market or the income from it. It is obvious that though the law in relation to local bodies is enacted and justified as coming within the purview of Entry 5 of list II, any provision therein delegating to the local body the authority to levy a tax or licence fee must be related to one or the other topics of legislative powers in List II, where the State Legislature is concerned. Since that test cannot be applied successfully, it follows that what is levied under S. 262-A is not a tax.
(4) Since no attempt appears to have been made by the Municipality to justify the licence fee imposed on the quid pro quo basis, it follows the second appeal should fail and the revision petitions should succeed. The second appeal is dismissed and the revision petitions are allowed. No costs.
(5) Appeal dismissed : revision petitions allowed.