(1) Can the legality of a levy, which is in reality a tax, be upheld on he basis of a custom is the question for decision in this case. In the village of Elumalai in Madurai Dt., for over 30 years, it has been customary for the village community to make a collection called mahamai or tharagu in respect of certain articles brought into the village and certain other articles taken out of the village. The Panchayat Board of Elumalai passed a resolution on 16-12-1958 and levied a tax in respect of seven items of goods and articles brought into the village and certain other articles which were taken out of the village for purposes of the trade. The plaintiffs filed the suit, out of which the present appeal arises, questioning the levy. The first dependent Panchayat Board and the other defendants who were the lessees for collection of this levy, contested the suit claiming that the levy in question was valid on the basis of custom which had been given legal effect to by S. 58 of the Madras Village Panchayats Act 1950. The trial Court held that the mahamai fund is, in fact administered for the benefit of the villagers in common, that the lease of the mahamai collections had been going on for over 35 years and the collection has been going on for over 30 or 40 years and that the payment is not voluntary, but compulsory. Before the lower appellate Court, there was no dispute about the facts. The only question at issue was, whether the levy was valid?
(2) As already mentioned, the validity of the levy was sought to be supported on the basis of Sec. 58 of the Madras Village Panchayats Act 1950. Section 58 reads as follows:--
'58. Any property or income which by custom belongs to, or has been administered for the benefit of, the villagers in common, or the holders in common of village land generally or of lands of particular description or of lands under a particular source of irrigation shall vest in the Panchayat and be administered by it for the benefit of the villagers or holders aforesaid'.
(3) It follows from the findings of the Courts below that this is an income which by custom belongs to or has been administered for the benefit of the villagers in common. But this levy being compulsory, there is very little doubt, that it is in effect a tax. under Art. 265 of the Constitution of India no tax shall be levied or collected except by authority of law. Now, is Sec. 58 of the Madras Village Panchayats Act of 1950, the law, which authorises the levy and collection of the tax in question and if it does, is it valid?
(4) It is obvious that the State Legislature has no power to permit a local body or to enable that local body to levy a tax which is not included in the State List in the Constitution. In List II of Schedule VII to the Constitution of India, Entry 52 is as follows:--
'Taxes on the entry of goods into a local area for consumption, use or sale therein'.
Entry 89 in List I of the same Schedule is 'terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights'. The goods in this case are not carried by railway or sea or air and therefore, Entry 89 of List I of Schedule VII is not relevant. The only entry which is relevant is Entry 52 of List II of Schedule VII.
(5) Now the resolution in question purports to levy a tax not merely on goods brought into the jurisdiction of the Panchayat Board from outside and sold there, but also on agricultural produce and skins of goat and sheep taken out of the village for purposes of trade. in respect of goods taken out of the limits of the Panchayat Board for purposes of trade, even the State Legislature has no power to levy a tax. It is, therefore, not possible for the State Legislature either to permit the levy of such a tax by the Panchayat Board or to validate the levy of such a tax by the Panchayat Board. So, we have to consider only the validity of the levy only in so far as it is in respect of goods brought into the Panchayat Board limits for purposes of trade.
(6) If the effect of Sec. 58 of the Act is to recognise the right to levy such a tax and to sanction it, then the resolution of the Panchayat Board in question would be valid; otherwise not. Section 58 occurs in Chapter III of the Madras Village Panchayarts Act 1950 under the heading. 'Functions, Powers and Property of Panchayats'. Chapter IV deals with taxation and finance. Section 63 found in Chapter IV enables every Panchayat to levy in the village a house-tax, a profession-tax and a vehicle tax. It also enables a duty to be levied on certain transfers of property. Under sub-sec. (3) of that section, the Panchayat may also levy in a village, subject to such rules as may be prescribed and with the sanction of the Inspector and subject to such restrictions and conditions, if any, as may be imposed by him either at the time of granting sanction or later, a fee on any commercial crop bought and sold in the village, not being a crop on which fees are levied in the village by a market committee under Sec. 11 of the Madras Commercial Crops Markets Act 1933. It is not contended that the levy in question comes under Sec. 63.
(7) It may also be mentioned that in the Bill as published, which later became the Madras Village Panchayats Act, the clause corresponding to present Sec. 58 in Clause 59. In the statement of objects and reasons accompanying it, it is mentioned that the Panchayats are to levy a house tax, a profession tax and a vehicle tax and with the sanction of the Inspector of Municipal Councils and Local Boards, a cess on the entry of goods into the village for consumption, use or sale therein. The last item would be directly under Entry 52 of List 2 of Schedule VII to the Constitution. This statement in the statement of objects and reasons is given effect to by Section 63. There is no reference to Cl. 59 in the statement of objects and reasons. Though the fact that Sec. 58 finds a place in Chapter III relating to functions, powers and property of Panchayats, and not in the Chapter IV relating to the taxation and finance, that by itself would not conclude the question whether the levy is a permitted item of tax.
(8) Now income may be from any source. Income may be from property or it may be from taxes. In Stroud's Judicial Dictionary income is mentioned as signifying whatever comes in and that it is as large a word as can be used, to denote a person's receipts. But merely because the word 'income' finds a place in Sec. 58, it may not mean that it would include taxes also. Nor would it exclude an income from taxes. But in the context of the occurrence of Sec. 58 in Chapter III relating to property and the fact that S. 58 itself mentions 'any property or income' it may be said to show that the income therein referred to is income from property, which does not belong to the villagers in common. For instance, the irrigation tanks vest in the Government. But in many villages the fishery rights belong to the village community or to holders of the lands, under the ayacut of the irrigation tank. There may be cases where there are customary right of grazing on the lands. This would vest in Government as poromboke. But the village community might be getting an income from such grazing on the lands. That it is apparently such income that was contemplated, would be clear from the fact that Section 83 of the Madras Panchayats Act 1958 reads as follows:
'Any property or income including any fishery right which by custom belongs to, or has been administered for the common benefit of the inhabitants of the village or town, or of the holders in common of village land generally or of the holders of lands of a particular description or of holders of lands under a particular source of irrigation shall, if so declared by the Government, vest in the Panchayat and, be administered by it for the benefit of the inhabitants or holders aforesaid'.
It would be noticed that after the words 'any property or income' found in Sec. 58 of the 1950 Act, the words 'including any fishery right' have been newly added. Those words of inclusion would not mean that the general word 'income' preceding them are restricted in any way. In the context of the mention of fishery rights which is merely illustrative. I should think, that when S. 58 mentions 'income' it can only refer to income from sources other than property belonging to the Panchayat and particularly income from property which was not owned by the village community.
(9) The question whether the levy in the nature of tax can be supported on the basis of custom has come to be considered more than once. The general result of those decisions may be shortly stated thus: Such a levy would be valid only if it is an incident of the possession of any property or holding of any office. In Siriparapu Ramanna v. Mallikarjuna Prasada Naidu ILR (1894) Mad 43, the fee claimed by the landlord was the fee payable to Sivaganga goddess and it was observed by a Bench consisting of Muthuswami Iyer and Best JJ., thus (at page 45):--
'A duty to contribute to the expense of a temple is not an ordinary incident of the relation of landlord and tenant, nor has it any connexion with the jirayati tenure on which the ryot holds his land. prima facie the contribution is voluntary, and unless the fee is shown to be a charge on the land it cannot be treated as a payment which the Zamindar can legally compel the ryot to make'.
In Ramalingam Chettiar v. Ramaswami Aiyan : (1903)13MLJ379 , Tiruppani cess for the purposes of repairing certain buildings dedicated for charitable purposes was held to be one of an essentially voluntary character, and that therefore, its payment for a number of years cannot be a ground for implying that there was a legal contract or obligation to continue to pay it. In Venkatasubbanna v. Govinda Krishna Yachandrulu Bahadur, (1903) 19 MLJ 273 a Bench of this Court held that the levy by a zamindar of cess called 'Piratlavaru', cess intended to provide maintenance for the zamindar's purohit was not valid, though the defendant admitted that he and the other ryots have been paying the cess for a long time.
(10) The most important decision that has dealt with this question is the one reported in Gopalan v. State of Madras, : AIR1958Mad539 , decided by this Court. There the levy of land revenue on ryotwari lands was challenged as not having any statutory sanction behind it and therefore as contravening Art. 265 of the Constitution. The Bench dealt elaborately with this question and held that the assessment of land revenue is valid on the ground that it is one of the prerogatives of the sovereign in this country. The assessment of land revenue was also held valid because of the Revenue Recovery Act II of 1864 Sec. 3 of that Act is as follows:--
'Every landholder shall pay to the Collector, or other officer empowered by him to receive it, the revenue due upon his land on or before the day on which it falls due according to the kistbandi or other engagement, and where no particular day is fixed, then within the time when the payment falls due according to legal usage; provided that except where property is held under a Sanad-i-Milkiyat-i-istimrar or other similar instrument it shall be lawful for the Board of Revenue by notification published in the District Gazette, to alter and fix from time to time, the amount of the several kists or instalments, and the dates at which they shall respectively become payable'.
(11) The Bench interpreted this section as being a charging section providing for declaration of liability and also the recovery of the assessment leaving the actual assessment itself to the fact that a number of other statutes in Madras like the Madras Local Boards Act, 1920, Madras Act 26 of 1948, Madras Act 24 of 1954, and Act 30 of 1955, have recognised the ryotwari assessment. They also held that the assessment can be upheld on the basis that the law referred to in Art. 265 of the Constitution refers not only to statute law alone, but also to common law and that unless there is some provision in the Constitution which makes ryotwari assessment illegal, the law that previously existed in regard to it will continue to be valid even after the Constitution. They concluded the discussion by saying that though in origin the assessment was on the basis of a prerogative right it was recognised as lawful by custom and statute, the assessment procedure was codified, as it were, in the Board Standing Orders, and there was, therefore, a valid legal sanction prior to the Constitution for the levy, assessment and recovery of land revenue. It would thus be seen that the levy of land revenue was upheld not on the basis of custom, but on the basis of a number of considerations, not the least of which was the statutory basis provided by S. 3 of the Revenue Recovery Act II of 1864. The decision relied upon by the respondent in Radhaprasad v. Dinanath Missir, AIR 1918 Pat 388, is really not one which upholds a tax on the basis of custom. The relevant portion in the judgment at page 389 is as follows:--
'There was no dispute that it had been in existence from at least 1865. It would be difficult to say that a custom that prevailed for so long was contrary to public policy. It is only in exceptional cases that it is possible to say that a custom is unreasonable, because the fact that it has prevailed for a very long time raises a strong presumption that it is reasonable and after all the custom under which proprietors in India are encouraged to establish markets originates for the convenience of the people, if they were not entitled to realise some sort of dues not realisable from the holders of ordinary houses or lands, we would not find zamindars establishing markets for the convenience of the people. That is an established custom and in the absence of public bodies all over the country for establishing markets, there is no reason why the custom should not continue'.
Thus, the levy in that case was related to the establishment of a market and the sale of goods in the market belonging to the zamindar. A review of all the decisions relating to the subject will, thus, show that the levy of kind now in question can be contemplated only on the ground of its being related to the holding of some land or the holding of some office or at least some convenience of facility provided by a landholder. A mere custom unrelated to anything else by which the village community makes collections in respect of goods brought for the sale within its limits or goods taken out of its limits for sale outside cannot be said to be valid. There is no constitutional or legal basis for such a levy. The following decisions relied on by the respondents: State of Madras v. Subramania Swami, AIR 1962 Mad 48, Bari Rajeswar v. Tukaram Lahanu Teli, : AIR1959Bom54 , Sobhnath v. Ambika Prasad, : AIR1958All419 and Baba Narayan v. Saboosa , do not really help them. They are all decisions relating to customs which conferred rights on individuals or members of certain communities which are either in the nature of easement or customary rights conferred on a large body of persons which are not in the nature of easements. None of them refers to a right to levy a tax.
(12) In the result, the second appeal is allowed and the plaintiff's suit will stand decreed. As the question in this case is one of considerable difficulty and doubt, the parties will bear their own costs throughout. Leave granted.
(14) Appeal allowed.