1. This is a reference made by the Ct of Small Causes, Madras, under Rule 17, Sen. IV, Madras City Municipal Act IV (4) of 1919 (hereinafter referred to as the Act). The questions of law referred for the decision of this Ct are the following :
'1. Whether by reason of the issue of two notices, Exs. A. 1 & A. 2, simultaneously with Ex. A. 3, the last mentioned notice is invalid & as a consequence, the levy of tax on escaped assessment under Section 137 B, City Municipal Act is also invalid?
2. Whether Section 137B, City Municipal Act applies to a case of escape of tax on property?
3. Whether the operation of Section 137 B is confined to cases of complete escape of assessment or extends also to cases where there has already been an assessment, but at a lesser amount than what is proper?'
The Bombay Mutual Life Assurance Society Ltd, which was the applt before the Ct below is the owner of premises No 378 China Bazar Road, Madras. An amount of Rs. 856-2-0 was demanded from the Company as the property tax due in respect of the said premises for the first half year 1946-47 & was duly paid. The tax was demanded in that sum calculated on an annual valuation of the property at Rs. 7644. On 28-2-1947 three notices were issued by the Corpn of Madras purporting to be under Rule 3, Rule 3A, Schedule IV & Section 137B of the Act. The notice under Rule 3 (Ex. A. 2) intimated to the applt that the property tax assessment books would be amended by altering the annual value of the property & the amount of the property tax payable thereof from the valuation of Rs. 7644 & tax of Rs. 856-2-0 to the valuation ofRs. 23380 & tax of Rs. 2618-8-11 in respect of the property in question for the first half year 1946-47 & further intimated that any objection to the amendment would be heard by the Revenue Officer on 6-3-1947. The notice under Rule 3A Ex. A. 1 bearing the same date was to the effect that the assessment on the property had been enhanced by raising the annual value thereof from Rs. 7644 to Rs. 23380 for the first half year 1946-47 & intimated that a petn for revising the assessment would be considered if it reached the Municipal Office within thirty days from the date of service of the notice. The third notice Ex. A. 3 also of the same notice purporting to be under Section 137 B of the Act was as follows :
'Whereas you are the owner of the buildings & lands shown in the schedule below (hereinafter referred to as the premises) ;
Whereas under Section 104, City Municipal Act you are the person liable to pay the property tax assessed on the premises;
Whereas the premises were assessed for property tax for the half year ending 30-9-1946 on an annual value of Rs. 7644 & on such assessment a sum of Rs. 956-2-0 was paid;
Whereas the annual value of the premises which shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month in the abovemen-tioned half year, namely, the half year ending 30-9-1946, was Rs. 23380 & the property tax payable thereon was Rs. 2618-8-11 & not Rs. 856-2-0 at which the premises were assessed;
Whereas you have in consequence escaped assessment in the aforesaid half year & you are liable to pay the amount of tax which has escaped assessment, namely, a sum of Rs. 2618-8-11.
I hereby in exercise of the powers conferred upon the Comr by Section 137 B, Madras City Municipal Act & delegated to me under Section 16 thereof give you notice assessing you to the tax of Rs. 2618-8-11 which has escaped assessment & I hereby demand payment thereof within fifteen days from the date of service of this notice. Please take notice that if payment is not made within the period abovementioned, steps will be taken against you for realisation of the aforesaid amount of Rs. 2618-8-11.
Premises above referred to No. 378 China Bazar Road, Division 8.'
2. The applt availed himself of the remedies provided by the Act. There was an appeal to the Taxation Appeals Committee before whom he was successful (sic) & there was a further appeal to the Ct of Small Causes which was also dismissed. The applt thereafter applied to that Ct to make a reference to this Ct under Rule 17, Schedule IV of the Act & accordingly this reference was made.
3. The first point need not detain us long. Dr. John the learned counsel for the Corpn did not attempt to justify the issue of the three notices above mentioned simultaneously. Undoubtedly, they are mutually contradictory & would certainly have the effect of leaving the applt completely confused. By the notice Ex. A. 2 under R. 3, the applt was informed of a proposal to alter the annual value & the tax; whereas by the notice Ex. A. 1 under Rule 3A he was informed that the valuation had been increased. The third notice without making any reference to the other two notices called upon the applt to pay the enhanced tax within 15 days from the date of service of the notice. By Ex. A. 2 the applt was informed that his objection would be heard on 6-3-1947. In Ex. A. 1 he was given 30 days to file a revn petn. The third notice did not give him any opportunity to raise any objection. But I do not think it necessary to discuss this question, because it will be academic in the view we are disposed to take on the construction of Section 137 B of the Act.
4. The second & third questions call for a construction of Section 137 B & arguments of counsel on both sides were practically confined to these two questions. Section 137 B runs thus,
'Notwithstanding anything to the contrary contained in this Act or the rules made thereunder, if for any reason any person liable to pay any of the taxes or fees leviable under this Chapter has escaped assessment in any half year or year, the Comr may, at any time within three years from the date on which such person should have been assessed, serve on such person a notice assessing him to the tax or fee due & demanding payment thereof within fifteen days from the date of such service; & the provisions of this Act & the rules made thereunder shall so far as may be apply as if the assessment was made in the half year or year to which the tax or fee relates.'
To appreciate the cpntentions of parties as regards the construction of this section, it is necessary to have a brief survey of all the material provisions relating to the property tax which are contained both in the Act & in Sen. IV to the Act. Under Section 98 of the Act, the council may levy among other taxes, property tax. If the council by resolution demands that a property tax shall be levied such tax shall be levied on all buildings & lands within the city save those exempted whether under that Act or any other law (Section 99 (1)). The property tax comprises a tax for general purposes, a water & drainage tax & lighting tax. These taxes shall be levied at such percentages of the annual value of buildings & lands as may be fixed by the council (Section 92 (2)) & for the purpose of assessing the property tax, the annual value of any building or land shall be determined by the Comr (Section 99 (3)). The method of assessment of the property tax is set out in Section 100. The annual value of the lands & buildings shall generally be deemed to be the gross annual rent at which they may at the time of assessment reasonably be expected to let from month (sic) or from year to year less certain deductions. Section 103 declares that the property tax shall, subject to the prior payment of the land revenue due to the Govt, be a first charge upon the buildings & lands & upon the movable property, if any, found within or upon such buildings or lands belonging to the person liable to such tax. The property tax shall be levied every half year & shall, except as otherwise expressly provided in Sen. IV, be paid by the owner of the assessed premises within 15 days after the commencement of the half year (S. 104). The express provision in Sen. IV referred to is that under which an occupier of a property may be called upon to pay the tax though he may not be the owner. Section 106 lays down the relative obligations of transferor & transferee in respect of the tax. Section 109 confers on the Comr power to call on the owner of any property to furnishhim with returns of the rent payable lor it, tne cost of erecting the building & other information for the purpose of assessing the property Dax.
5. The procedure for assessment, levy & collection of the property tax is laid down in Schedule IV, Part 1 A. Part 1 contains provisions common to taxes in general. The material provisions of Part 1A which have a bearing on the questions to be decided in this case are the following. The Comr shall enter in the assessment books the annual value of all lands & buildings & the tax payable thereon (R. 1-C). These books shall be completely revised by the Comr once in every five years (1 D). An assessment once made shall continue in force until it is revised & until the revised assessment takes effect (I-E). Rule 2 relates to the preparation of the assessment books for the first time & to the general revision of such books. The aggrieved parties are given the right to file revn petns in respect of the entries in the books so prepared or revised. Rules 3 & 3 A are very important & they are in these terms :
'3. The Comr may after giving notice to the parties concerned & hearing their objections if any, amend the property tax assessment books at any time between one general revn & another by inserting therein or removing therefrom any property or by altering the valuation of any property or the amount of tax. Such amendment shall be deemed to have taken effect on the first day of the half year in which it is made.
Provided that when the amendment is made in any half year after the demand notice for that half year has been issued, it shall have effect only from the succeeding half year.
3 A. In every case in which between one general revision & another the Comr assesses any property for the first time or increases the assessment on any property otherwise than in consequence of a general enhancement of the rate at which the property tax is leviable, the Comr shall intimate by a special notice to the owner or occupier of such property that a petn for revising the assessment will be considered if it reaches the municipal office within thirty days from the date of service of such notice in the case of Govt, a railway administration or a company & within fifteen days from the said date in other cases.'
R. 4 provides for revn petn to reduce the tax on the ground that the annual value has decreased since the last assessment. Part VI, of the same schedule contains rules relating to the collection of taxes including the property tax. R. 29 enables the Comr to require the occupier of a property to pay tne tax. It is this provision which is referred to in Section 104 already mentioned.
6. The first contention on behalf of the applt which is embodied in question 2 is that Section 137 B does not apply to property tax. The argument is based entirely on a distinction sought to be made between assessment on a person & assessment on a property. Under the several provisions of the Act, the property tax is assessed on the property. In contradistinction the profession tax is assessed on the person. Though it is correct to say that in the last instance it is the person who is liable to pay the property tax as much as any of theother taxes nevertheless in the case of property tax, it is the property that is assessed; the person himself never is. So when Section 137 B speaks of the person having escaped assessment, it can only have reference to a tax which can be properly described as a tax assessed on the person. The words 'the date on which such person should have been assessed' & 'A noticeassessing him to tax' clearly indicate that the tax is one which is assessed on the person & this could not be property tax, because it is the property that is assessed. So the argument ran. Reference was made to Section 99 of the Act which says that the property tax is levied on all buildings & lands, to Section 100 which provides thatevery building shall be assessed in a particular :.nianner, to the expression 'the assessed preimises' in Section 104, & a like expression 'in Section 106 (4). In antithesis, our attention was drawn to Rules 7 & 8 of Schedule IV which provides that companies & persons shall be assessed. Much reliance was also placed on the use of the word 'assessed' in Section 111 (1) (b). It was therefore urged that when Section 137B refers to a person having escaped assessment & to a person who should have been assessed & to assessing him to the tax, it could not be in respect of the property tax, because under the Act the property tax is assessed & levied on the property & noton the person.
7. In my opinion, it will be most unsafe todraw any inference from the mere use of the words 'assess' or 'assessment'. These words do not have one & an only meaning & connotation. In taxation statutes, the word 'to assess' is sometimes used as meaning 'to fix the amount of tax'; sometimes in the senseto impose the tax' & sometimes to mean 'to value or calculate for taxation'. The word 'assessment' in the Indian Income-tax Actdoes not have the same meaning throughout the Act. Lord Romer in 'Comr of Income-tax v. Khemchand Ramdas , observed:
'One of the peculiarities of most Income-tax Act is that the word 'assessment' is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable & sometimes the whole procedure laid down in the Act for imposing liability upon the tax-payer.'
In 'Income-tax Comrs v. Gibbs', 1942 A C 402, Viscount Simon L. C. said :
'The word 'assessment' is used in our Income-tax Code in more than one sense. Sometimes, by 'assessment' is meant the fixing of the sum taken to represent the actual profit for the purpose of charging tax upon it. In another context the 'assessment' may mean the actual sum In tax which the tax payer is liable to pay onhis profits. These two things are of course not the same............ It is remarkable that thesetwo separate meanings of the word 'assessment' may occasionally be found within thebounds of a single section'.
Lord Macmillan in the same case makes the following caustic comment,
'Verbal consistency is the last virtue that can be attributed to a Code which uses so vital a term as 'assessment' in riot less than eight 'differing senses.'
If this be so where qualified persons draft the enactment in their own language, it is idle to expect draftsmen using a foreign language to be consistent in the use of the word 'assessment'. We respectfully follow the dictum of Lord Wrenbury that,
'No reliance can be placed upon an assumption of accuracy in the use of language in these Acts ('Kensington Income-tax Comr v. Aramayo', (1916)-1 AC 215: 84 L JK B 2169.'
That the words 'assessed' & 'assessment' have been used in the City Municipal Act indiscriminately to import different processes in taxation can be demonstrated by a few references In Section 99 (3) we have the words 'for the purpose of assessing the property tax'. Here 'assessing' evidently means reckoning or calculating or fixing, but it is the tax which is said to be assessed, vide also Section 109 (1). In the very next section, namely, Section 100 (1), every building is to be 'assessed' together with its site & adjacent premises. Here apparently it means 'valued', In Schedule IV Part 1 which contains provisions common to taxes in general, Rule 1 provides that the Comr shall prepare & keep assessment books in such form as he thinks fit showing the persons & property liable to taxation. Under Rule 12 any assessee who is dissatisfied with the assessment of any tax under this Act other than the property tax, the transfer duty & the tax on timber may make an appln in writing to the Comr for the revision of such assessment. Here 'assessment' may mean the fixing or levy, taut Rule 13 (b) mentions the tax based on the 'assessment prevailing' in the year previous to the year in question. A distinction is made between tax & assessment & there is mention of the tax being based on the assessment. In my opinion much cannot be made out of the use of the words 'assessment' & 'assess' in Section 137B. It expressly applies to any person liable to pay any of the taxes leviable under that Chapter, i.e., Chap V. Now certainly one of the taxes which a person is liable to pay is the property tax on property belonging to him. Though the property tax may be calculated on its animal value & therefore in one sense it may be said. that it is assessed on the property, i.e., it to reckoned on the value of the property, there can be no doubt that it is the person i.e., the owner (& it may be on occasions the occupier as well) who is liable to pay the tax when assessed. We do not think it very inaccurate to speak of the owner of a property being assessed to the tax on property belonging to him. Rigby L. J. in dealing with the word 'assessed' with reference to water rate remarked :
'The word 'assessed' means 'reckoned on the value'. It is not accurate to say 'assessed on the premises'; but it is not very far from accurate to say that a water rate is a rate assessed upon the lessees in respect of the house (Re: Floyd v. Lyons & Co., (1897)-1 Ch. 633 : 66 LJ Ch 350.'
Then again except in R. 8 nowhere else in theAct or in the rules are persons mentioned as being assessed to any tax. The word is notused in the provisions relating to taxes on carriages & animals but it would not be inaccurateto say that a person being in possession of taxable carriage has been assessed to the tax on thecarriage. .
8. In my opinion there is nothing in the language of Section 137 B which compels us to ex-clude from the scope of its application the pro-perty tax leviable under the Act. My answer to question 2 is in the affirmative.
9. The last question remains. Section 137 B was Inserted in the Act by Section 81, Madras City Municipal Amendment Act X (10) of 1936. This Actalso made important changes in the provisions contained in Schedule IV. To understand the scope of the new section it is necessary to acquaint ourselves with the scheme of assessment in respect of the property tax before the amending Act. Before the amendment, Part I of Schedule IV, contained the rules relating to the assessment of the property tax. Rule 1 corresponded to the present R. 1 A. Rules 1D & 1E are new. Rules 2, 4, 5 & 6 in Schedule IV as they stood before themendment ran as follows :
'3. The comr shall amend the property tax registers by altering adding or deleting Items as circumstances may require.
4. In every case in which any building or bad is assessed for the first time, the comrball give the owner or occupier special notice of the assessment.
5. In every case in which the assessment onany building or land is increased, otherwise than in consequence of the enhancement by the council of the rate at which the property tax is leviable, the comr shall give the owner or occupierspecial notice stating the amount of the increase of the reasons therefor.
6. When the Comr makes an amendment under Rule 3, it shall be deemed to have taken effect from the earliest date in the current year on which the circumstances justifying themendment existed; no instalment of the property tax at the revised rate shall however, be payable until fifteen days after the service orending of the notice required by Rule 4 or Rule 5.' It is important to note that while rule 6 before the amendment provided that an amendmentshall be deemed to have taken effect from the earliest date in the current year on which the circumstances justifying the amendment existed, under the new Rule 3 the amendment shall be deemed to have taken effect on the first day of the half year in which it is made, & a proviso(sic) added that when the amendment is made inany half year after the demand notice for that half year has been issued, it shall have effect only from the succeeding half year.
10. In the sister Act relating to the Municipalities in the mofussil, namely, the Madras Dist Municipalities Act which contains similar provisions regarding pryoperty tax, originally the rule relating to the effect of an amendment of the valuation of a property ran thus,
'Rule 15. When the chairman has amended theasessment books of his own motion otherwise(sic) in the course of a general revision....themendment shall be deemed to have effect from the earliest date on which the circumstances justifying the amendment existed is the year to which the orders have reference.'
Rule 8 conferred the power on the chairman to mend at any time the assessment books by inserting therein or removing therefrom any property or by altering the amount of tax. InMunicipal Council, Kumbakonam v. South Indian Rly Co. Ltd.', 52 Mad 792 : AIR 1929 Mad 849, the legal implications of Rules 8 & 35 of Schedule IV came up for consideration. In that case the Municipal Council of Kumbakonam assessed the South Indian Railway for the year 1921-22 to property tax on a certain footing. A demand notice for a certain amount was sent on 31-7-1921 with a foot-note that the demand was provisional & subject to revision under proviso (a) to Section 82 (2) of the Act. This proviso did not relate to any power of revision. Such power was contained in R. 8 of Schedule IV. In February 1923 the chairman amended the tax & sent a communication to the railway company informing them of the altered assessment & also stating that the new assessment would take effect from 1-4-1921. The question was Whether the amendment made in 1923 could be made so as to operate from 1-4-1921. Ramesam & Jackson JJ. held that there was nothing in the Act to prevent an amendment in 1923 of an assessment made in 1921. The year to which the orders had reference (Rule 15) was held to be the year 1921, the date of the original demand. But they held that because of Section 345 an amendment made more than three years after the year for which it was intended to have effect was useless, & as the rules & the Act stood, the amendment of an assessment could be made at any time within three years so as to operate retrospectively. It was urged before the learned Judges that Inconvenience may result By such a construction as they adopted of Rule 15, but they said.
'In the face of the section & the rules the inconvenience cannot prevent the operation of the Act & the rules made thereunder.'
This decision was given on 18-4-1929. In 1930 the Madras District Municipalities Act was amended by Madras Act X (10) of 1930. There was a radical alteration in the rule relating to the amendment of the assessment. Rules 6 to 12 were substituted for the original rules. Rule 8 (2) runs thus,
'The executive authority may amend the assessment books at any time between one general revision & another by inserting therein or removing therefrom any property or by altering the valuation of any property or the amount of tax. Such amendment shall be deemed to have taken effect on the first day of the half year in which it is made;
Provided that when the amendment is made in any half year after the demand notice for that half year has been issued, it shall have effect only from the succeeding half year.' The result of the alteration has been practically to abrograte the decision in 'Municipal Council of Kumbakonam v. South Indian Rly. Co. Ltd. : AIR1929Mad849 . Apparently it was thought that the result held to follow from the old Rule 15 by the learned Judges of this Ct would lead to hardship & inconvenience & therefore a new rule was substituted which considerably restricted the retrospective effect of the amendment.
11. Six years later the City Municipal Act. was amended. Rule 3 of Schedule IV after the amendment is in 'pari materia' with Rule 8 (2) of Schedule IV, District Municipalities Act. As the rules stand both in the District Municipalities Act & in the City Municipal Act, no amendment of the assessment books by the alteration of the valuation will have effect except in respect of the half year in which it was made & even this result would be excluded if a demand had been made for that half year. Now it must not be overlooked that Section 137 A was inserted in the City Municipal Act by the same amending act which also inserted Rule 3 in Schedule IV of the Act. According to well established canons of statutory construction, both Section 137 B & R. 3 ought to be so read as not to make one of the sections nugatory. It is not permissible to ascribe to the Legislature an intention on the one hand to restrict the retrospective operation of an alteration of valuation by R. 3 to the half year in which the amendment is made & at the same time to attribute to it an intention to give retrospective effect to such an alteration extending to three years. It may be said that Rule 3 deals with both adding to & removing from the assessment books & altering the valuation either by increase or by decrease. This may be so, but from the point of view of the tax payer, it is only when there is an increase in valuation that a retrospective operation causes hardship. To begin with, therefore, Section 137 B should not be read so as to override Rule 3. There is also another aspect of the circumstance, i.e., the insertion of both Section 137 B & Rule 3 by the same enactment. If under Section 137 B there can be an amendment which becomes effective from three years past why it is necessary to provide in B. 3 that the amendment shall be deemed to take effect on the first day of the half year in which it is made. The larger power would obviously include the much lesser power.
12. Let us look at the language of Section 137 B. Is there anything in it which enables the Corpn to obtain any relief when a property has been under-assessed by imposing an additional assessment at any time within three years from the date on which such person may be said to have been under-assessed? We think not. The section only provides that if any person liable to pay any tax leviable under that Chapter has escaped assessment in any half year or year, the Comr may serve on such person a notice assessing him to the tax due & demanding payment thereof. There is no mention there of increase of tax already assessed. A person should have been liable to pay a tax, & that person should have escaped being assessed to that tax. Then the Corpn can within three years from the date on which the person should have been assessed assess him to the tax which he was liable to pay but which was not levied on him. In this case the applt was no doubt liable to pay the property tax in respect of the building owned by it. But it has not escaped assessment of that tax. So, there can be no question of the Corpn assessing the applt to that tax. On the plain meaning of the words of the section, it does not appear to contemplate the same (case ?)of an escape by the tax payer from what may be considered subsequently as the proper assessment of any tax. The section would obviously apply to a case where a person was liable to pay the profession tax for a particular half year but the tax was not imposed on & collected from him. It would also apply to other taxes from which a person has escaped liability. It may possibly apply to the case of property tax as well. It may be said that, if a person was the owner of a building within the area of the Municipality in a particular half year, but the property tax in respect of that building had not been levied on & collected from him, he has escaped assessment of the property tax in respect of it; but in the case of a building the annual value of which is found entered in the assessment books the position is entirely different. An assessment once made shall continue in force until it is revised & until the revised assessment takes effect; so says Rule 1 E of Schedule IV. The only provision which fixes the time from which a revised assessment takes effect, when the revision is not general, is Rule 3 & under that rule the amendment will take effect only from the first day of the half year in which it is made & if a demand has been made it would have effect only from the succeeding half year. Till an enhancement of valuation is made & it duly takes effect from a particular time, it cannot be said that a person has been under-assesseed in respect of the property when a tax has been levied on him calculated on the assessment found in the assessment books & which must be deemed to continue in force until a revised assessment takes effect. It should not be overlooked that Section 137 B by itself does not give the power to the Corpn to amend the valuation of a property for the purpose of imposing the property tax. That section gives power only to demand from a person a tax to which he was. liable but which he has escaped from paying. If the procedure under Br. 3 & 3 A is not resorted to, then the entries in the assessment books will continue to be in force & the property tax will have to be calculated only on the calculation contained in the books. If a person has paid that amount of tax, then one fails to see how he has escaped assessment even partially, assuming that the section applies to the case of a partial escape. Even in the case of profession tax, though a person who was liable to that tax, but who has escaped from paying it may under Section 137 B be compelled to pay it, yet if he has already paid the tax on a particular scale as demanded by the Council during a half year, he cannot under Section 137 B be made liable to pay an enhanced tax on a higher scale for the same half year. This is because the person has not escaped assessment of the profession tax.
13. It is not difficult to explain why Section 137 B was introduced into the Act. It was evidently to get over the difficulty pointed out in the decision in 'Prince of Arcot v. Corpn of Madras', 52 Mad 866: AIR 1930 Mad 200. In that case the learned Judges held that under the provisions of the City Municipal Act & the rules made thereunder, profession tax becomes 'due' by a person liable to pay it only after he has been assessed to a particular amount by the comr. Such assessment must be made in, each respective half year, & hence, profession, tax for any half year prior to the current half year cannot be levied unless it had been assessed in that half year. Now under Section 137 B such assessment though it had not been made in that half year can be made & levied subsequently within a period of three years from the date on which the person should have been assessed. In 'Sarveswara Bao v. Umameshwara Rao', ILR (1941) Mad 383 : AIR 1941 Mad 152, Wadsworth J. observed as follows with reference to this section,
'It seems to us that this provision was obviously intended to make the machinery for the levy of the tax applicable to a retrospective assessment & not meet any possible objection which might be raised owing to the delay in making the assessment. The whole of Section 137 B was apparently drafted to meet the situation created by the decision in 'Prince of Arcot v. Corpn of Madras', 52 Mad 866 : AIR 1930 Mad 200.'
Applying it to the case of property tax, if there has been a delay in the assessment of the property tax in any year, then the Corpn can even after the lapse of the year, proceed tomake the assessment.
14. Reliance was placed by Dr. John on decisions under the Incometax Act, 1922, construing Section 34 of that Act as it stood before the amendment of 1941. That section 'inter alia' provided that if for any reason, profits or gains chargeable to income-tax has escaped assessment in any year or has been assessed at too low a rate the Incometax officer may at any time within one year of the end of that year serve on the p&rson; liable to pay tax on such income, profits or gains a notice & proceed to assess or re-assess such income, profits or gains. In 'Madan Mohan v. Comr of Incometax, Punjab', AIR 1935 Lah 742 : 16 Lah 937 & other cases it was held that even if an item of income was included in the return submitted by the assessee but was left unassessed by the Incometax officer & in similar circumstances, income can be said to have escaped assessment within the meaning of that section. But the observations of their Lordships of the P. C. in 'Rajendranath v. Comr of Incometax, Bengal , throw considerable doubt on the proposition that a case of an under-assessment is also a case of an escaped assessment. Their Lordships said that they could not assent to reading the expression 'has escaped assessment' as equivalent to 'has not been assessed'. This was apparently why the section was amended in 1941 inserting the words 'or have been under-assessed'. It must not be overlooked that under Section 34 it is the income or the profits or gains that is described as having escaped assessment & not any person. Under Section 3 which is the charging section, incometax shall be charged for any year in respect of the total income of the previous year of every individual, family, company etc. Section 6 of that Act enacts that certain heads of income 'shall be chargeable to incometax in the manner hereinafter appearing'. Under Section 137 B however, it is a person who has escaped assessment of any tax that is rendered liable to be served with a notice of demand of the tax which he has escaped from paying. The notion of an item of income or a portion of the income escaping assessment is not warranted by the language of Section 137 B. If a person has been assessed to property tax, it cannot be said that he has escaped assessment of the property tax because less tax was demanded from him than might have been demanded on an enhanced valuation which was the proper valuation.
15. The general principle is well stated in Dillon on Corpns, Vol. IV at p. 2440 thus,
'The Legislature may, unless restricted or controlled by constitutional provision, authorise a municipality to 'levy & collect retrospective taxes', upon property which was subject to taxation in 'past' (sic) years, but which has escaped taxation through omission from the assessment roll or otherwise;..........The legislature has also authority to 'revalue & re-assess property' which in preceding years has been grossly undervalued; a gross undervaluation of property is within the principle applicable to an entire omission of the property.'
The remarks in the note to this statement have a direct bearing on the present case.
'A statute which authorises the assessment of property omitted in previous years does not authorise increase in the valuation of property which was assessed in previous years..... .Thus,where the pltf's credits were assessed & a tax paid thereon, an assessor cannot in a subsequent year impose an additional assessment upon the credits for the past year on the ground. that a part thereof was omitted. But when the credits were entirely omitted from the assessment of the previoas year, an assessment thereon may be imposed under the statute....... .Undervaluation of taxable property throughmere error does not authorise a re-assessment if taxes have been levied & paid.'
Section 137 B speaks of escaped assessment. 'Escape' when used with reference to liability imports the idea of the existence of the liability. You cannot pscape from a tiling unless the thing exists. Now if the property tax calculated on the valuation in force in a particular half year is demanded & paid, it cannot be said that there has been an escape from a higher assessment, because that higher assessment did not exist during that half year, & unless there is an escape of assessment the power under Section 137 B cannot be exercised. For altering the valuation, the Corpn musf go to the provisions of Rules 3 & 3 A of Schedule IV. Those rules clearly fix the limit of the retrospective operation. The opening words of Section 137 B,
'Notwithstanding anything to the contrary contained in this Act or the rules made thereunder'
do not themselves help the Corpn in the circumstances. I find that this view was also taken by Horwill J. in 'Corpn of Madras v. Abdul Hussain Nazarally & Co.', C. C. C. A. No. 53 of 1949: : AIR1951Mad277 .
16. My answer to question 3 is that the operation of Section 137 B is confined to cases of complete escape of assessment & does not extend to cases where there has already been an assessment but at a lesser amount than what is proper.
Viswanatha Sastri, J.
17. I have had the advantage of reading the judgment of my Lord & I am in respectful agreement with him. In view of the importance of the question debated I add a few words of my own. The crucial question is what is the meaning of the words 'escaped assessment' in Section 137B, Madras City Municipal Act. This section was enacted in order to get over the decision of this Ct in 'Ghulam Muhammad All Sahib v. Corpn of Madras', 52 Mad 866 : AIR 1930 Mad 200, invalidating retrospective assessments to profession tax. But it does not follow that Section 137B affects only assessments to profession tax & does not extend to property tax. Section 137 B is comprehensive & applies to 'any of the taxes or fees leviable under this Chapter' which are enumerated in Section 98, 'property tax' heading the list.
18. It is argued for the rate-payer that, according to the scheme of the Act, property tax is levied only on lands & buildings & not on 'persons' & therefore Section 137 B does not apply to the levy of property tax. Reference is made to Sections 99, 100, 102, 104, 106 (4) & Rules 1, 3 A & 4 of the taxation Rr. in Part 1 A of Schedule IV of the Act to reinforce the argument that theproperty tax is not 'assessed on persons' but only on lands & buildings within the City. I am unable to accept this contention. The expression 'assessment' used in the Incometax Act has been variously interpreted as having reference to the subject of taxation, the ground of liability, the computation of income, the levy of tax & indeed the whole procedure laid down in the Incometax Act for imposing liability on the tax payer. The meaning depends on the context in which the expression occurs. Similarly the word 'assessment' as used in the enacting part of the City Municipal Act & the rules framed thereunder, varies in its connotation according to the context as explained by my Lord. It is, in my opinion, erroneous to proceed on any theory that property tax is levied on 'lands & buildings' only & not on 'persons' & thereby seek to exclude the operation of Section 137 B on that basis. It is the owner & in some cases the previous owner & in others the occupier, that is liable to pay the 'property tax' under the Act. The tax is in this sense a tax on 'persons' though it is based on the annual value of the property & is further secured by a statutory charge on the property in order to avoid loss of revenue to the Corpn.
19. The further question is whether there can be a retrospective assessment of property tax under Section 137 B unhampered by the limitations imposed by ft. 3 Part 1A of Schedule IV of the Act. Dr. John for the Corpn lays stress on the opening words of Section 137 B which runs as follows :
'Notwithstanding anything to the contrary contained in this Act or the rules made thereunder, if for any reason any person liable to pay any of the taxes or fees leviable under this Chapter has escaped assessment in any half year or year etc.'
He also relies on decisions interpreting Section 34, Incometax Act, as justifying the back assessment that has been sought to be made in this case.
20. In my opinion the incometax decisions are not of assistance on account of the fundamental difference between the scheme of income tax legislation & the provisions of the City Municipal Act. Income-tax, as Lord Macnaughten reminded us, is a single tax on income & not a collection of taxes' essentially distinct, though for convenience of computation & levy, it is divided into different heads. It is really the State's share of a citizen's income, profits & gains. Sections 7 to 12, Incometax Act merely prescribe different methods of computing income according to the different sources from which it is derived. Though property is a source of income, incometax is levied on the owner at a rate varying with his total income from all sources. There is no difference in kind between duties of incometax as assessed under one or other of the heads of charge enumerated in Section 6, Incometax Act. Since the whole block of income is assessed to income-tax, if any portion of that income' is either not disclosed by the assessee or is mistakenly left out of account by the Incometax Officer, there is 'pro tanto' an escape of that slice of income from the tax that it has to bear in accordance with the rates applicable to the total income of the assessee under the Annual Finance Act. It was therefore held by the Cts in the cases cited that Section 34, Income-tax Act applied not onlyto cases where there had been no previous assessment because the assessee had not come under the notice of the Incometax Officer at all, but also to cases where the assessee after having been brought to his notice, had either not been assessed or not assessed at the proper rate applicable to his total income. Section 34, Income-tax Act catches a portion of a homogenous income which has not been assessed or taken into computation by inadvertance, mistake or concealment. Therefore it is that Section 34 refers to income that has 'escaped assessment or has been assessed at too low a rate.'
21. The scheme of taxation under the City Municipal Act is entirely different. Section 98 of the Act authorises the levy of different kinds of taxes & fees, each of which has no relation to the other. The taxes & fees are levied for different periods & on different principles. The income-tax decisions are, therefore, not in 'pari materia'.
22. What then is the effect of Section 137 B, City Municipal Act? This section should not be read 'in vacuo' but must be interpreted & applied with due regard to the rules in Part 1 A of Schedule IV of the Act. A conflict between the enacting part & the Rules should be avoided if possible. Under Rules 1C & 1D the Comr is required to keep assessment books with the prescribed particulars among which are included the description & name of each item of land or building in the City, its annual value & the amount to tax payable thereon. Rule 1 E provides that an assessment once made shall continue in force until it is revised & the revised assessment takes effect. The revn contemplated is obviously in accordance with the procedure prescribed by Rule 3. This rule allows an amendment of the property tax assessment books between one general revision & another by altering the valuation of any property or the amount of tax payable but provides that the amended assessment shall take effect from the first day of the half year in which it is made or from the next half year, if a notice of demand had been issued before the amendment. During the relevant period there was no revn of the assessment under R. 3 in the present case. This is not a case where a property liable to tax has not come within the notice of the revenue authorities of the Corpn at all. Nor is it a case where the property has been inadvertently omitted from the assessment books. Nor is it a case where the amount of tax has, by inadvertence, been entered at a lower figure in the assessment books. Nor is it a case of a new building emerging into existence & not caught within the net of taxation for a year or two. In such cases Section 137 B might apply & a retrospective assessment to property tax according to the terms of that section might be permissible. But it is not, in my opinion, a legitimate construction of Section 137 B to hold that it allows a retrospective enhancement of property tax for 3 years even in cases where the tax has been levied & collected according to the rules above referred to & in strict conformity therewith, merely because the revenue authority of the Corpn, three years after the tax had been levied & collected is of the opinion that the annual value could or should have been entered at a higher figure in its own assessment books during the previous period. The assessee in this case has not eludedthe notice of the revenue authority. He has beencaught in the net of taxation. He was assessedto property tax & assessed to the full amountof the tax payable in accordance with the statutory rules in force at the time. Three yearsthereafter the revenue authority happens toentertain the opinion that the annual valuemight have been fixed at a higher value thanthat entered in the assessment books of theprevious period. Can it be said that in sucha case the assessee has 'escaped assessment'during the previous period within the meaningof Section 137 B? I think not. There can be an'escape' only from an existing burden or liability imposed by law. There was no suchburden or liability or escapement of assessmentin this case.