K. Veeraswami, J.
1. The petitioners, who are affected by the provisions of the Madras Urban Land Tax Act, 1963 (Madras Act XXXIV of 1963), assail its validity on grounds of legislative incompetency to enact it and of violation of constitutional limitations. The petitions are by different owners of urban lands in the City of Madras to quash the notification either under Section 9 or under Section 16(3) of the Act, in so far as they relate to the petitioners, or the levy and demand of tax on some of them under its provisions. To deal with the legal contentions, it will suffice to mention the facts in one or two petitions, as the facts in almost all the petitions are related and of more or less similar pattern, except as to particular owners, the locality of the lands in different zones and sub-zones and their character and market value. If it is necessary, reference will be made to other specific facts in disposing of the prayer for quashing of the urban land tax and Settlement Schmes prepared and published under the Act.
2. In W. P. No. 1614 of 1964, the petitioner is the owner of property in R.S. No. 1693/1, Mylapore, its area being 4 cawnies 1 ground and 1595 square feet. The building on the land bears several door numbers in Luz Church Road, Royapettah High Road and Veerabhadran Street, Mylapore. By a notification dated 7th October, 1964, the Act has been extended to the area of Mylapore, among the various other areas in the city, and he has been, pursuant to the Notification, included in the provisional list of assessees as per Section 16(3) of the Act and Rule 6(3) of the Madras Urban Land Tax Rules, 1963; and the list, among other particulars, contains a description of the extent of the land in respect of which the petitioner is liable to pay urban land tax. Under Sections 17 to 21, the inclusion of his name in the provisional list of the assessees would lead to demand of tax from him. After making reference to various sections of the Act, the petitioner submits that the basis of the levy of urban land tax, as provided under that Act, is arbitrary and leads to discrimination. The tax is levied under the charging provision not on the actual market value of such urban land, but on the average value of lands in a locality. for the purpose of taxation, the entire area in a sub-zone is taken as a unit and the tax so arrived at for the locality is distributed among the owners on the basis of the extents owned by each owner in the locality, with the result that a person owning a piece of a very inferior land of small value in a sub-zone, where the average value of the land is very much more, will be made to pay tax not on the value of his land, but on the market value of lands of others. The average market value, which is taken into account, is the gross value and not the net value and the net value of one owner will be different from the net value of another owner. Further, the only objections, which are contemplated under the Act, are the objections relating to the draft settlement scheme prepared under Section 8 of the Act and can relate either to the delimitation of sub-zone or to the average market value of the land of the particular assessee. The provision for objections under Sections 9 and 12 is merely farcical. There is also no provision for objecting to a particular land being treated as urban land '. The definition of urban land ' leaves to the arbitrary determination by the Urban Tax Authorities the question whether a particular land is capable of being used as a building site; and there is also no warrant in excepting from the definition any land which is registered as wet in the Revenue Account of the Government and used for the cultivation of wet crops. It is not the registry that distinguishes an urban land, from a non-urban land. The remedies provided under Sections 11 to 13 of the Act are illusory and further there is no provision in the Act by which the assessee can have the correct market value of his urban land assessed. The jurisdiction of the civil Court is also barred from deciding or dealing which any question which arises or decided by the authorities under the Act. Sections 26 and 31 of the Act are repugnant to the fundamental rights under Article 19(1)(f) of the Constitution. The provisions of Section 29 of the Act replacing the existing tenures by imposition of urban land tax and purporting to be in lieu of other assessments offend Article 372(1) of the Constitution. Such tenures without being altered by a law properly enacted cannot be defeated by Section 29 of the Act. The Act, therefore, offends Articles 14, 19(1), (f), 265, 31(2) and 372(1) of the Constitution. In addition, the petitioner say that the Act is not competent under Entry 49 in List II of Schedule VII of the Constitution but falls within the purview of Entry 86 of List I. In certain other petitions, a further submission is made that having regard to the history and legislative practice prior to the Constitution the power under Entry 49 read with Entry 5 should be limited to imposition of tax for municipal purposes and cannot be availed of for purposes of general revenue.
3. The petitioner in W.P. No. 2191 of 1965 is the Buckingham and Carnatic Company Limited, which prayed that the demand of urban land tax served on it under Section 22 of the Act for fasli 1373 in relation to R.S. No. 144 in Perambur Village be quashed. The petitioner is the owner of the Buckingham and Carnatic Mills in Perambur and, in connection with its business, it is the owner of the lands in Perambur Village. The properties involved in the petition are stated to be in twelve blocks, each block comprising numerous survey numbers on some of which quit rent has till now been levied by the Government; the other survey numbers are held on payment of ground-rent to the Government and a few items free of assessment. The petitioner, as in the other petitions, is questioning the validity of the Act itself, besides the legality and correctness of the individual demand notices on certain grounds. The further point, stated in attack on the validity of the Act, is that while the Madras Urban Land Tax Act is one imposing a tax on the lands falling under Entry 49, List II in Schedule VII of the Constitution, the property tax levied under the Madras City Municipal Act, 1919 is also a tax on lands and buildings falling under the same Entry and that it is ultra vires and incompetent for the State Legislature to levy two different taxes on the same property under the same Entry. The municipal annual value was fixed by the Corporation of Madras in respect of certain buildings including the land appurtenant to them and the Corporation has levied tax in respect of such vacant lands. The provisions of the Act relating to payment of tax at a percentage of the average market value of the urban land in a sub-zone are invalid and ultra vires as being arbitrary and without any guidance and further because the actual provisions are meaningless and unworkable. Section 3 refers to the average market value of the land which, according to Section 7(2) has to be decided with reference to the stated factors. Section 7 provides that the Assistant Commissioner shall determine the highest and the lowest market -value of the land in a zone and then the section proceeds to empower him to determine the average market value of the land in a sub-zone. To start with, the very concept of ' average market value ' is both vague and irrelevant for the purpose of taxation based on the market value of the land. Neither the Act nor the Rules prescribe how the average is to be determined. Any average implies a number of known figures and it is impossible to say from what figures, this average is to be determined. Further, there is no reason why any land owner should pay a tax based on the average market value even if such a figure can be correctly arrived at, which may be far in excess of the value of his land. The provisions relating to determination of the value being arbitrary and farcical, the so-called appeals provided in the Act are meaningless and infructuous. An individual land owner can certainly state and prove the market value of his land on any particular date and no land owner can effectively make any case or representation about what is called the average market value of a land in a zone.' The factual basis and grievance in respect of the submissions, according to the petitioner, can be appreciated by a scrutiny of the figures which are furnished where the disproportion between the quit rent and the present demand is to be noted as well as the disproportion between the municipal annual valuation and the demand under the Act. So far as the demands on the petitioner are concerned, they are attacked on the ground that the authorities have determined an imaginary average market value in respect of each sub-zone. The petitioner's lands are comprised in sub-zones F (8), F (24) and F (25) of the North Madras ' F ' zone. From enquiries, the petitioner understands as he says, that what the authorities had done was simply to take some of the transactions of sales at a very high rate and fix the average market value for each sub-zone on that basis. The demands have been made on the basis of survey numbers which ultimately have little relevance to the taxation of the type based on the value of the land. The petitioner suggests that the only proper course would be to take each property as a whole which in this case would be each one of the twelve blocks marked in a plan attached to the petition and says that survey and sub-division number has no significance in this connection, as each plot by itself cannot be sold or enjoyed separately.' The arbitrary nature of the proceedings, according to the petitioner, can' be seen when in a number of instances, separate assessments have been made in respect of survey numbers which are part of the same property and where in one or two cases the assessment has been made as a single one on a number of survey numbers including survey numbers not included in that block. The assessments are, on the face of. the record, so excessive as to be quashed on the ground of being not bona fide determinations and for this purpose it will be enough to compare the assessment with the municipal valuation. The petitioner further says that the ground-rent lands are held under a tenure from Government in respect of which the ground rent is fixed under detailed rules contained in the Board's Standing Orders based on the value of the land; and the Government which has fixed the value of the land for ground rent purposes cannot itself for another purpose fix a value which is totally out of proportion to that value. The petitioner claims that he is entitled to quashing of the assessment under the Act in respect of two items of land held free of assessment, namely, R.S. No. 219/1 in Serum Institute Cooks Road and Survey No. 219/5 in the same road. It is stated that as the lands are held free of assessment, it is incompetent for the State to make a levy on these two items under the Act. The so-called tax under the Act is in fact only land revenue in another form and any grant by the State free of assessment Would give immunity to the land from being taxed again merely as land whether under the-same or other Entry.
4. The respondents in their counter-affidavits deny the validity of the submissions and averments of the petitioners and state that the Act is valid, that the scheme is but to impose a tax on urban land though the measure of tax is determined on its average market value as ascertained in the manner specified in Section 7, that the Act is entirely within the ambit of Entry 49 of List II in Schedule VII and is not one falling under Entry 86, List I, that while Entry 86 in List I deals with capitalised value of the assets, Entry 49 of List II is not directly concerned with the capitalised value of the land and buildings, though in a particular piece of legislation, the capital value of the land or building may be taken into account as the basis for levying the tax and that it is open to the State Legislature,. while levying tax on urban lands to correlate the tax either to the annual value of such land or to its market value and that the Act in the instant case has adopted the latter as the measure of tax, namely, 0.4 per centum of the average market value of the urban land in a sub-zone. The respondents add that in determining the market value, the authorities are not concerned with the real economic capital value of the land in question but only to find out the market value, apart from its real capital value in its economic sense and that the average market value of the land determined under the Act would not be the same as the capital value of the same land if it was determined by Parliament for purposes of levying a tax on capital, value under Entry 86 of List I. They refute the contention of the petitioners that the basis of the levy of urban land tax is arbitrary and leads to discrimination and that the remedies provided under the Act are meaningless and illusory. They point to the provisions of Sections 6 and 7, as well as Rule 4, and to the criteria and considerations which would be borne in mind by the relative authorities in classifying zones and sub-zones and determining the average market value of lands in a sub-zone. The expression ' average,' the respondents would say, has been added to the expression, 'market value' so as to ignore freak sale, if any, in the sub-zone and as such, this is only in favour of the assessee; The respondents in particular refer to Section 6(3) and submit that on its terms there can be no question of inferior land being included in a sub-zone where the average market value of the land is very much more. The respondents have denied also the other grounds of the petitioners for their contention that the provisions of the Act are discriminatory. As regards the contention that the Act contains no provision for determining the correct value of each urban land, the respondents categorically answer that such determination is not necessary because the basis of taxation is the average market value. According to the respondents, a more frequent revision of a final settlement scheme will be administratively impracticable and further such frequent revision will fail to ensure definiteness in the amount of tax payable under the Act. The respondents assert that Section 29 is valid and does not offend Article 372(1) of the Constitution. They also deny that Sections 26 and 31 offend Article 19(1)(f) and Article 31(2) of the Constitution. Entry 49 authorises the State Legislature to levy tax on lands, and buildings and this power, according to the respondents, could not be said to have been taken away or exhausted because similar levy has already been in force under a different Act and on a different basis. They further state that the Act provides for levy of tax on the urban lands on a new pattern, that side by side with-the property tax levied by the Corporation there was the land tax, and that the urban land tax has only replaced the existing land tax. They would also say that the basis of taxation, the incidence of taxation and the property taxes are not identical in the case of municipal property tax and the urban land tax. The respondents do not admit that there is any legislative history or practice which has the effect of cutting down the wide ambit of the legislative power under Entry 49, List II or that the State 'Legislature cannot levy under the same Entry two different taxes on the same subject-matter.
5. Though the pleadings in the various petitions are thus somewhat lengthy and cover elaborate legal contentions and submissions and the arguments before us have been no less prolonged, the questions we are called upon to decide, broadly speaking,. fall on the following main heads:
(1) Is the impugned Act within the ambit of Entry 49, List II, Schedule VII of the Constitution (2) Does the Act contravene Article 14, and (3) Does the Act offend Article 19(1)(f)? We shall deal with these points in that order. But before doing so, we shall first examine the provisions of the Act.
6. The Madras Urban Land Tax Act, 1963, received, the assent of the President on 25th February, 1964. The Bill had appeared in the Fort St. George Gazette (Extraordinary), dated 1st February, 1963. Though the Statement of Objects and. Reasons forms no part of the Act, which has to be construed on its own language, the statement is not prohibited from being adverted to by Courts. It stated that the question of rationalisation of the then existing scheme of taxation of land in. urban areas so as to secure a return commensurate with the pronounced increase in land values in recent years had been engaging the attention of the Government. Reference was also made to the fact that the Taxation Enquiry Commission and the Planning Commission had been suggesting the need to impose a suitable levy on lands put to non-agricultural use in urban areas and that after the examination, of the problem, the Government decided to levy a tax on urban land on the basis of the market value of the land at the rate of 0.4 per centum of the market value., It was proposed to bring the Act into force in the City of Madras with effect from 1st. July, 1962 but actually the Act came into force in relation to the City, on 1st July, 1963. The Act may be extended to other municipal towns, townships or any areas within sixteen kilometres of the City of Madras or such municipal towns or townships by a notification of the Government for that purpose. The urban land tax payable in respect of any urban land shall be in lieu of the ryotwari assessment, the assessment levied under the Madras Inams (Amendment) (Assessment) Act, 1956, the ground-rent, the quite-rent, any amount levied under the Madras City Land Revenue Act, 1851 and such other amount as the Government may specify; but the urban land tax shall be in addition to any other tax on such land payable under any law for the time being in force. The object, as mentioned in the Preamble to the Act, is to provide for the levy of tax on urban land in the State of Madras. Section 1 relates to the title of the Act and the commencement thereof in the City of Madras and contains power for the Government to extend the Act as aforesaid subject to the condition that any notification in that behalf shall be laid on the table of the Legislative Assembly and shall not be issued unless the draft is approved by the Assembly. Section 2 contains definitions. An 'assessee ' means a person by whom urban land-tax is payable under the Act and includes every other person in respect of whom any proceeding under the Act has been taken for the determination of the urban land tax payable by him. The term ' occupier ' includes any person who for the time being pays or is liable to pay to the owner, rent or any portion of the rent of the urban land or the buildings constructed on it or part of it. A 'rent-free occupant' is also within the term but which however, does not include a person who is entitled to the kudiwaram in respect of any inam land but in respect of which land any other person is entitled to the melwaram. ' Owner ' is to include a mortgagee in possession and any person who for the time being receives or is entitled to receive whether on his own account or as agent, trustee, guardian, manager, or receiver for another person or for any religious or charitable purposes, the rent or profits of the urban land or of the building constructed on it and also any person who is entitled to the kudiwaram in respect of any inam land. A shrotriemdar or any person who is entitled to the melwaram in respect of any inam land and in respect of which any other person is entitled to the kudiwaram is not within the term 'owner'. For purposes of the definition of ' occupier ' and 'owner', inam land includes lakhiraj tenures of land and shrotriem land. ' Urban land ' means any land which is used or capable of being used as a building-site and includes garden, grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue account of the Government and used for the cultivation of wet crops. There is an Explanation to this definition which says that for its purpose any site on which any building has been constructed shall be deemed to be urban land. Then comes Section 3 which is the charging section:
Subject to the other provisions contained in this Act, there shall be levied and collected for every fasli year commencing from the date of the commencement of this Act, a tax on urban land hereinafter referred to as the urban land tax) from every owner of urban land at the rate of 0,4 per centum of the average market value of the urban land in a sub-zone as determined under Sub-section (2) of Section 7.
Sections 4 and 5 relate to Urban Land-tax Authorities and constitution of Tribunals for purposes of the Act. Chapter IV covers preparation of urban land tax settlement scheme. An Assistant Commissioner of Urban Land Tax is appointed by Government by notification with jurisdiction over such area as may be specified in such notification. Section 6(1) charges him with the duty of classifying the entire area within his jurisdiction into distinct zones and every zone into distinct sub-zones. Under Sub-section (2), in making such classification, he is to follow the procedure prescribed and have regard to the locality in which urban land is situate, the predominant use to which the urban land is put, that is to say, industrial, commercial or residential, accessibility or proximity' to market, dispensary, hospital, railway station, educational institution or Government Offices, availability of civic amenities like water-supply, drainage and lighting and such other mattes as may be prescribed. Sub-section (3) says:
Subject to the provisions of Sub-section (2), in classifying sub-zones under Sub-section (1), the Assistant Commissioner shall, as far as practicable, include in a sub-zone urban lands which are contiguous and as nearly as may be of the same market value.
7. Section 7(1) directs the Assistant Commissioner to determine the highest and the lowest market value of the urban land in a zone. The rest of the section reads:
(2) Subject to such rules as may be made by the Government, the Assistant Commissioner shall also determine the average market value of the urban land in a sub-zone.
(3) The market value under Sub-section (I) or the average market value under Sub-section (2) shall be determined as on the date of the commencement of this Act and in so determining the Assistant Commissioner shall have regard to the matters specified in Clauses (a) to (e) of Sub-section. (2) of Section 6.
A draft urban land tax settlement scheme shall be prepared by the Assistant Commissioner which should contain particulars of all zones and sub-zones as classified under Section 6, particulars of the average market value of the urban land in each sub-zone as determined under Sub-section (2) of Section 7 and such other particulars as may be prescribed. When this is done under Section 8, the draft settlement scheme is forwarded to the Commissioner of Urban Land Tax who after verification is required by Section 9 to publish it in the Fort St. George Gazette and in such other manner as may be prescribed with a notice stating that objections to the draft shall be preferred within a specified time. If there are objections, the Commissioner decides the same after affording a reasonable opportunity of being heard to the objectors and confirms the scheme with or without modification. The final settlement scheme is again published in the Fort St. George Gazette and in such manner as may be prescribed. Sections 11, 12 and 13 provide certain limited remedies to aggrieved persons in regard to delimitation of sub-zones and the average market value of urban land in sub-zones as specified in the final settlement scheme. Under Section 11, the Board of Revenue, on application by any person aggrieved by the delimitation of any sub-zone in the final settlement scheme, may modify such delimitation and, while doing so, may pass orders including such incidental and consequential orders as may be necessary in respect of the average market value of the sub-zone. Any order passed by the Board of Revenue, which is prejudicial to any party, can only be after it has given such party a reasonable opportunity of making his representations. Any person aggrieved by the average market value of the urban land in a sub-zone, as specified in the final settlement scheme or as modified under Section 12, is given a right of appeal to the Tribunal to be preferred within a specified time. The power of the Tribunal is confined to a determination of the propriety of the average market value of the urban land in a sub-zone as specified in the final settlement scheme. But the Tribunal will have no power to alter or modify the delimitation of a zone or a sub-zone as specified in such scheme as settled or modified. The Tribunal, while disposing of appeals, should hear all appeals relating to a sub-zone in one batch and make a common order. Sections 12 and 14 require the Commissioner to give effect to orders passed under Sections 11 and 13 and publish the modifications if any of the final settlement scheme in the manner required or prescribed. Once a final settlement scheme is published, it shall remain in force for a period of ten years from the 1st day of July of the fasli year in which the said scheme is published or for a further period not exceeding ten years as the Government may direct. After the expiry of the period, the Government may direct revision of the final settlement scheme by going through the procedure under Sections 8 to 14 relating to preparation, publication and duration of the final settlement scheme. We have then Chapter V relating to preparation of list of assessees. The Assistant Commissioner should prepare a provisional list of assessees in his jurisdiction containing particulars of the survey and sub-division number of each urban land in the sub-zone/particulars of the extent of urban land in respect of which each assessee is liable to pay urban land tax, particulars of the names of assessees and such other particulars as may be prescribed. The same officer is further required by Section 16 to serve on each assessee an extract of such portion of the provisional list as relates to him together with a statement that the assessee shall be liable for payment of urban tax on the basis of the rates specified in the final settlement scheme. In addition, public notice in the prescribed manner should also be given of the provisional list of the assessees. Sections 17 and 18 provide for objections to entries in the list or omissions therefrom or otherwise with respect to the list and for consideration and disposal of such objections by the Assistant Commissioner. These orders are subject to revision by the Commissioner under Section 19. A list of demand is then to be prepared by the Assistant Commissioner under Section 21(1). It must contain particulars of survey number, sub-division number of the urban land, the extent of urban land liable for tax, names of the assessees, annual amount of urban land tax payable by each assessee under the final settlement scheme and such other particulars as may be prescribed. The manner of preparing the list of demand is to be as prescribed. A public notice of the demand list should be given under Section 21(3) in the manner prescribed and such notice shall mention the date from which the list of demand may be inspected. On such notice being given, every person claiming to be the owner or occupier of urban land mentioned in the demand including the agent of such person may inspect the list and shall be entitled to obtain a certified extract there from on payment of the prescribed fee. Section 22(1) provides for notice to individual assessees. A notice of demand containing such particulars as may be prescribed shall be served every fasli year or part thereof on the owner calling upon him to pay within a period of fifteen days from the date of service of the notice, the urban land tax which has fallen due. If there is default, the tax shall be recovered from the assessee as arrears of land revenue. Sections 23 and 24 provide for power in respect of tax escaping assessment and of refund of excess payment. The urban land tax shall under Section 25 be a first charge upon the urban land. Section 26 provides for recovery of urban land tax from the occupier of the urban land in certain cases. Section 28 requires a survey of urban lands for the purpose of the preparation of the draft settlement scheme, provisional list of assessees and carrying out the other purposes of the Act and the survey so carried out shall be in accordance with the principles contained in the Madras Survey and Boundaries Act, 1923. Certain special provisions are made in Chapter VII. Section 29 provides that the urban land tax payable under the Act shall be in lieu of and in addition to certain taxes. Under Section 30, the urban land tax is not to be taken into account for payment of compensation under the Madras Estates (Abolition and Conversion into Ryotwari) Act, 1948, the Madras Inam Estates (Abolition and Conversion into Ryotwari) Act, 1963 and the Madras Leaseholds (Abolition and Conversion into Ryotwari) Act, 1963. Where in any case the amount of the urban land tax payable in respect of any land is in excess of the amount of the annual rent payable in respect of such land or the building thereon under the Madras City Tenants' Protection Act, 1921 or the Madras Buildings (Lease and Rent Control) Act, 1960, the Court, authority or officer empowered to fix the rent under any of these Acts may, on application from the owner, add to the annual rent aforesaid, an amount not exceeding the urban land tax payable under the Act. This power under Section 31 is required to be exercised in accordance with the principles specified by rules made by the Government in/that behalf. Section 32 makes a certain concession of tax in respect of owner occupied buildings. Under Section 33, the Government has power to reduce or remit urban land tax in certain cases. Chapter VIII deals with exemptions and Chapter IX contains certain miscellaneous provisions which we need not refer to in detail. Section 47 confers on the Government power to make Rules to carry out the purposes of he Act including certain specified matters.
8. In exercise of the rule making power contained not only in Section 47(1) but also in some of the other provisions of the Act, the Government have framed the Madras Urban Land Tax Rules, 1963. Chapter II of the Rules relates to the preparation of urban land tax settlement scheme. Chapter' III relates to the preparation of list of assessees. Chapter IV is concerned with the survey of urban land. Rule 3(2) says that in making classification of zones under Sub-section (1) of Section 6 the Assistant Commissioner shall for the purposes of Clause (e) of Sub-section (2) of Section 6 have regard to the boundaries of revenue villages or corporation or municipal divisions. Rule 4 deals with determination of market value under Section 7(3). This rule says that in determining the market value of the land, the Assistant Commissioner shall, in addition to the matters specified in Clauses (a) to (d) of Sub-section (2) of Section 6 have regard. to certain other matters which are specified, namely, the prices for which lands have been bought and sold in the zone or sub-zone making dueallowances for the special features, if any, in any individual transaction, the rents fetched for the lands in the zone or sub-zone, the principles generally adopted in valuing lands under the Land Acquisition Act, 1894 and the compensation awarded by the Court in recent land acquisition proceedings after deducting the solatium, if any for compulsory acquisition. The rest of the Rules are matters of detail which do not have to be noticed in the present context.
9. It may be seen from the provisions of the Act and the Rules we have adverted to, that the Act is intended to levy tax on urban land in the State of Madras, but to start with in the City of Madras, that the tax is levied on the urban land from its owner and that the liability is computed at the rate of 0.4 per centum of the average market value of the urban land in a sub-zone as determined under Sub-section (2) of Section 7. The City is divided for the purpose into zones and sub-zones taking into account in making the classification the matters specified by and under the Act. While the Assistant Commissioner shall determine the highest and lowest of the market value of the urban land in a zone, he shall also determine the average market value of the urban land in a sub-zone. In determining the market value of urban land in a zone, the Assistant Commissioner should keep in view the considerations mentioned in Rule 4. The draft and final settlement schemes set out, among other things, particulars of the average market value of the urban land in each sub-zone but are not required to specify the market value of each urban land brought to tax. In fact, there is no provision in the Act for determination of the market value of each urban land on which its owner is called upon to pay tax and there is no indication either in the Act or the Rules how and in what manner, apart from the classification of urban lands, the market value of urban land in a sub-zone is to be determined or arrived at. The charging section makes it manifest that the charge is not on the market value of the urban land but only on the average market value of the urban lands in a sub-zone. That this is precisely the case is evident from the other provisions of the Act as well. We shall presently examine more closely the scope, incidence and effect of the levy and their validity when we consider the second question we have already formulated for our decision.
10. We shall now turn to the question of competency of the legislation. This will be considered under three sub-heads; (a) the true scope and ambit of Entry 49, List II, Schedule VII of the Constitution; (b) whether the Act falls within the purview of Entry 86, List I; and (c) whether the State Legislature, while enacting under Entry 49, List II, is competent to authorise levy of two different taxes on the same subject-matter on two different bases. On the first sub-head, the argument is that Entry 49 should be read with Entry 5, List II and in the light of legislative history and that, if so read, Entry 49 will be seen to be of restricted scope and will enable only levy of tax on lands for the purpose of local authorities usually based on annual rental value of the lands. In other words, it is stated, Entry 49 cannot be used for raising general revenue for purposes of the State and it is intended to be confined to raising revenue for purposes of municipal or local bodies. In support of this contention, our attention has been invited to certain manuals and reports as to the history and practice relating to the municipal taxation on non-agricultural lands and a few decided cases not all of them directly in point. We may, however, state immediately that in our opinion the contention cannot prevail.
11. In construing or interpreting a head of authority or power to legislate as under each of the Entries in the Lists, Schedule VII, it will not be right first to explore into the history and practice of prior legislation and then in the light and back-ground of it, read an Entry and then fix its scope and meaning. Under the Constitution, the legislative power is distributed between the Parliament and State Legislatures by specific and express Entries in the three Lists. These Entries contain broad heads of power which should be given the widest amplitude, consistent of course, with the actual language employed in the particular Entry and also the comparative scope of parallel, related or other Entries in each of the Lists. We should remember that the Entries, occurring as they do in so fundamental and such an organic document as the Constitution, which is meant to serve all the ages and apply to all situations, should receive a broad and liberal interpretation and cannot be restricted in scope and amplitude by preconceived or a priori reasoning or with reference to external factors. The most direct, proper and reasonable way of Construing the Entries is to look at the language itself in each of them, read and understand it in the grammatical and natural sense. Where the language itself in each of them, read and understand it in the grammatical and natural sense. Where the language of an Entry is clear and unambiguous, it is not, in our opinion, permissible to depart from its plain tenor and scope, and import into it extraneous considerations in order to cut down or restrict its ambit and meaning., In fact, where the language is express and plain, no problem of construction normally arises. Where, however, there are two parallel or related Entries in the same or different Lists, the apparent conflict will have to find its solution from a harmonious reading of such entries and an attempt at reconciliation for delimiting the mutual scope and ambit of such Entries. If the language ex facie is not plain or is ambiguous then naturally the aids of construction will have to be resorted to which will include some times-reference to previous history and practice of legislation.
12. Craies on Statute Law (Sixth Edition) says at page 127:
It was said by Alderson B. in Gorham v. Bishop of Exeter (1850) 5 Ex. 630, that ' we do not construe Acts of Parliament by reference to history', and Farwell, L.J. said in a later case S.V. West Riding County Council L.R. (1906) K.B. 676, ' The mischief sought to be cured by an Act of Parliament must be sought in the Act itself. Although it may perhaps be legitimate to call history in aid to show what facts existed to bring about a statute, the inferences to be drawn there from are exceedingly slight.' In Ewart v. Ewart (1958) 3 W.L.R. 680, Lord Merriman, P. said : ' The Court in face of the plain words of the statute is not concerned with questions of the public policy which are said to have prevailed before it was passed'.
The same Author proceeds to point out cases where, history as an aid to interpretation, is admissible in certain contexts. But these are cases in which the language under interpretation involved ambiguity. For instance in Henrietta v. Attorney-General 58 M.L.J. 300 : A.I.R. 1930P.C. 120 (121.), the Judicial Committee had to decide whether the word 'person' in Section 24 of the British North America Act, 1867 included a female. The Lord Chancellor, speaking for the Board, observed:
In coming to a determination as to the meaning of a particular word in a particular Act of Parliament it is permissible to consider two points, viz.: (i) The external evidence derived from extraneous circumstances such as previous legislation and decided cases; (ii) internal evidence derived from the Act itself.
Applying these tests it was held that the word 'person' included also a female. The Supreme Court in Gordhandas v. Municipal Commissioner : 2SCR608 (1750), in construing the word ' rate ' in Section 73(1)(v) of the Bomaby Municipal Boroughs Act, 1925 referred to the meaning given to the word in England and the legislative history and practice in India up to 1925 as an aid. In the majority Judgment it was observed at page 1750:
Therefore when the first clause of Section 73(1) gives power to the municipality to impose a rate on buildings or lands it meant that kind of tax which had acquired a special meaning and was known as rate in the legislative history and practice of England as well as of India up to then. That Legislative history and practice we have considered and it shows that the word ' rate ' whenever used up to 1925 with reference to local taxation meant a tax on the annual value of lands and buildings and not a tax on the capital value.
It may be seen that because the word ' rate ' in that case had acquired a particular meaning before the Bombay Act was enacted, the previous legislative history and practice was resorted to in order to elucidate and fix the sense in which the Bombay Legislature used the word in the Act. The particular meaning of the word was not obvious and to clear the ambiguity the external aid was applied by the Supreme-Court. Lord Herschell in a different context in Bank of England v. Vagliano Brothers L.R. (1891) A.C. 107, stated that the proper course was in the first instance to Examine the language of the statute and to ask what was its natural meaning, uninfluenced by any considerations, derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment would bear an interpretation in conformity with this view. The Noble Lord added:
I am of course far from asserting that resort may never be had to the previous state of the law for the purpose of aiding in the construction of the provisions of the Code. If, for example, a provision be of doubtful import, such resort would be perfectly legitimate. Or, again, if in a code of the law of negotiable instruments words be found which have previously acquired a technical meaning, or been used in a sense other than their ordinary one, in relation to such instruments, the same interpretation might well be put upon them in the code. I give these as example merely; they, of course,, do not exhaust the category. What, however, I am venturing to insist upon is, that the first step taken should be to interpret the language of the statute, and that an appeal to earlier decisions can only be justified on some special ground.
This point of view of Lord Herschell clearly, if we may say so, brings out the true principles of interpretation, namely, first we should interpret the language of the statute by reference to such language alone and it is only where there is ambiguity, resort should be had to other aids, external or internal.
13. Entry 49 in List II is ' Taxes on lands and buildings'. There is nothing in this plain language to suggest that the power under this head is confined to taxation for municipal or local purposes and does not extend to raising taxes there under towards general revenue of the State. The Entry is in general terms and the words 'taxes' is all pervasive and is not confined to local taxation. A tax is a compulsory exaction which is not related to any particular service or as a quid pro quo, and is meant for support and purposes of Government or local Government. When these major requisites are satisfied, the impost will be a tax within the meaning of the Entry. The term will obviously not include a fee; in fact a separate Entry is to be found relating to fees in respect of any of the matters in List I or List II, excluding fees taken in any Court. The word ' land ' also is of broad import and will include all kinds of lands, open, occupied, agricultural or not, urban lands as well as lands in villages and townships irrespective of the uses to which they will be put. Similarly buildings may mean all kinds of buildings, both residential and non-residential, public and private. So then, any imposition or charge, the incidence of which is on lands and buildings, will be within the purview of Entry 49 and, therefore, will be competent for the State Legislature. Constitutional limitations and other restrictions under the Constitution on this power will be a different matter. The object of the charge must be land and or building. Under the guise of an impost on lands and buildings, an impost on something else in reality cannot of course be supported; under Entry 49. But an impost on lands and buildings does not become any the less so, because the extent of the liability is measured or quantified in terms of certain percentage of their market value or some other yard-stick like acreage or floorage basis. So long as the object of taxation remains to be land or building, the essential character of the charge also remains the same irrespective of the mode or manner or basis adopted for taxing the quantum of liability under the charge or impost. The two things are different, the actual charge with its incidence on something and the basis of its measure or extent. We can find no warrant in the language of Entry 49 for the contention that the power is confined to an impost based only on rating value or that the nature of the impost as falling within the purview of the Entry, depends on whether the impost is based on a certain percentage of the annual value as distinguished from the capital value. Nor can we find any justification to limit the power under Entry 49 to levy of local taxation. In our opinion, therefore, so long as the charge is on lands and buildings, it is a tax within the purview of Entry 49, whatever basis the Legislature may adopt for measuring or quantifying the extent of the charge, whether the basis is a certain percentage of the annual value or the market value of such lands or buildings. A tax on land may be based: on its productivity, as a tax on buildings on its rating value. In that sense land revenue may also be within the purview of Entry 49 but for a separate Entry- Entry 45 relating to that subject of taxation 'including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and record of rights, and alienation of revenues.'
14. It is, however, pressed on us that Entry 49 should be read with Entry 5 of List II and that having regard to the legislative history and practice relating to the local taxation, ' taxes on lands and buildings ' in Entry 49 should be read as taxes on lands and buildings for purposes of local taxation based on annual letting value.. In our view, the contention cannot be accepted. It is true under delegated legislation in this country local taxation has been generally of a particular pattern. The legislative history and practice on this matter has been elaborately referred to in the majority judgment in Gordhandas v. Municipal Commissioner : 2SCR608 (1749). It was observed:
It will thus be seen that all Indian statutes till 1911 dealing with municipal taxation impose a tax on the annual value of lands or buildings without always using the word ' rate.' In some of the statutes the word ' rate' is used but the tax is again on the annual value.... these Acts which were passed between 1912 and 1925, which repeal the earlier Acts also provide for taxation on lands and buildings, and though the word ' rate' is not used in any of these Acts, the tax is still on the annual value of lands and buildings. This shows that there was a uniform legislative history and practice in. India also, though sometimes the impost was called a tax on lands and buildings and at others a rate. But it was always a tax on the annual value of lands and buildings.
In view of this conclusion in the majority judgment it is needless for ourselves to reiterate the enactments relating to local taxation in various parts of this country from 1797 to 1925 in order to ascertain the said legislative history and practice. Our attention was invited to certain passages in Volume I of the Madras Manual of Administration, Volume I of the Report of the Indian Taxation Enquiry Committee, 1924-25, Volume I (Part I) of the Report of Joint Committee on Indian Constitutional Reform (1933-34) and Volume III of the Report of the Taxation Enquiry Commission, 1953-54. But they don't take us further. One of the learned Judges in Bhuvaneswariah v. State of Mysore A.I.R. 1965 Mys. 170, has also mentioned in detail certain references which bear on the legislative history and practice as to local taxation prior to the Constitution. We may take it that local taxation on lands and buildings within municipal areas in this country was levied on the basis of a certain percentage of the annual letting value thereof arrived at from the actual rent or hypothetical rent which included the mode of fixing the annual value at a certain percent- age of the capital value. But the question is whether the history and practice control and limit the power of the Legislature to impose tax on lands and buildings, that is, to local taxation of a particular pattern or kind. In our view, the answer should clearly be in the negative.
15. The majority judgment in Gordhandas v. Municipal Commissioner : 2SCR608 , was dealing with the validity of Rule 350-A of the Rules framed in relation to Sections 73 and 75 of the Bombay Municipal Boroughs Act, 1925. Section 73 authorised the Municipality to impose for the purposes of the Act, any of the taxes specified therein, the first of which was ' a rate on buildings or lands or both situate within the municipal borough '. Section 75 prescribed the procedure to be followed preliminary to imposing any tax under Section 73. The section also used the word ' rate ' and the Explanation to the section stated that in the case of lands, the basis of valuation might be either capital or annual letting value. Rule 350-A provided that the rate on open land should be levied at one per cent of the valuation based on capital. ' Valuation based on capital ' was defined in Rule 243 as the capital value of buildings and lands as might be determined from time to time by the valuers of the Municipality. The validity of Rule 350-A was impugned on the ground that the word 'rate' used in Section 73(1)(i) had acquired a special meaning by the time the Act came to be enacted and the tax should be on the annual value of the lands or buildings and not on the capital value and this ground prevailed in the Supreme Court. On the view that the word ' rate' having regard to the legislative history and practice both in England and India had acquired a special meaning, namely, a tax on the annual value of the lands and buildings and not on their capital value, the majority judgment did not have to deal with the question whether it would be incompetent for the State Legislature to expressly provide for local taxation on lands and buildings on the basis of capital value or to levy a tax on lands and buildings on the basis of a certain percentage of their market value for the purpose of general revenues. The decision entirely proceeded on the special meaning, the word 'rate' used in the Bombay Act had acquired in the English and Indian Legislative History and Practice prior to its enactment. In addition to the legislative history and practice in England, the majority judgment also noticed that in England the land tax, which was levied for the first time by the Land Tax Act, 1797 and which was a charge on land to be borne by the owner and not on the income likely to arise from occupation of the land, existed independently of and side by side with the rates on lands and buildings for municipal purposes. If we may say so, in fact the Supreme Court recognised at page 1749:
The matter might have been different if the words in, Clause (i) of that section (Section 73(1)), were ' a tax on buildings or lands or both situate within the municipal borough' for then the word ' tax' would have a wide meaning and would not be confined to any special meaning. But the use of the word ' rate ' in Clause (i) definitely means that it was that particular kind of tax which in legislative history and practice was known as a ' rate ' which the municipality could impose and not any other kind of tax.
Clearly, therefore, Gordhandas v. Municipal Commissioner : 2SCR608 is not of assistance to the petitioner's contention that Entry 49 should be read in a restricted sense limited to local taxation on lands and buildings based on annual rating value.
16. On the other hand, the previous history of the power to tax on lands and buildings leads us to the conclusion that Entry 49 is intended to be comprehensive in its scope and not restricted as contended for by the petitioners. Under the Scheduled Taxes Rules framed under Section 80-A (3)(a), Government of India Act, 1919, the Legislative Council of a Province was given power to make, without the previous sanction of the Governor-General, any law imposing or authorising any local authority to impose for the purpose of such local authority any tax included in Schedule II to the Rules. Likewise, the Council could make a law imposing for the purpose of the Local Government any tax included in Schedule I as 'tax on land put to use other than agricultural '. In Schedule II, item 2 is ' tax on land or land values ' and item 3 reads : ' a tax on buildings '. Item 11 in Schedule II relates to a tax imposed in return for service rendered such as, water rate, lighting rate, scavenging, sanitary or sewage rate, drainage rate and under this item is also included fee for the use of markets and other public conveniences. What is to be particularly observed from the Scheduled Taxes Rules is that powers were conferred separately on the Legislative Council, one for making a law imposing a tax on land put to non-agricultural use which was for purposes of Government, that is to say, Provincial purposes and the other to make a law authorising any local authority to impose, for purposes of such local authority, a tax on land or land values or on buildings. It follows, therefore, that under the Scheduled Taxes Rules, the Legislative Council was competent to make a law imposing a tax on land put to non-agricultural use for purposes of the general revenue of the Provincial Government then called the Local Government, a power distinct and separate, as we said, from the other power restricted to imposition of tax for purposes of local authority. The Joint Committee on Indian Constitutional Reform, 1933-34 had originally proposed enumeration of various topics of power distributed between the Federation and the Provinces and each List at the end contained an entry relating to power to levy taxes, fees, etc., in connection with the subjects in each List. Later revised Lists were suggested in which subjects were enumerated separately from the heads of power to impose taxes--Vide Sundararamier & Co. v. State of Andhra Pradesh (1958) 1 M.L.J. 179 : 1958 S.C.J. Item 8 in the Annexure to List II recommended by the Committee was ' Taxes on lands and buildings A.I.als, boats, hearths and windows; sumptuary taxes and taxes on luxuries '. There was no mention in the Annexure of any power relating to land revenue. In the Government of India Act, 1935 the scheme of separate enumeration of subjects of power and taxing power was adopted and Item 42 in List II relating to the Provinces was ' Taxes on lands and buildings, hearths and windows '. Item 39 in this List related to ' land revenue, including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights and alienation of revenue '. We may thus observe that in List II, Item 42 consolidated under one head the power to levy tax on lands and buildings, hearths and windows without making any distinction as to its use for purposes of Provincial Governments or local authorities unlike under the devolution rules we referred to. What were distinct powers of the Legislative Council under the Scheduled Taxes Rules, one enabling the Council to impose taxes for purposes of Local Government and the other to impose or authorise the local authority to impose for the purpose of such local authority ' taxes on lands and buildings ' were merged into a single head of power under Item 42 of List II in the 1935 Act. It would follow, therefore, that it will be quite incorrect to limit Item 42 in List II of that Act to local taxation. Entry 49 of List II in the Constitution is much the same as Item 42 of List II in 1935 Act except in the former the words ' hearths and windows ' have been omitted. In our opinion, therefore, we cannot uphold the contention that Entry 49 in List II of the Constitution should be given a restricted interpretation and confined to local taxation based on annual value. We hold that the power under that Entry is comprehensive and complete to impose a tax on lands and buildings either for purposes of general revenue or local bodies, including Municipalities and it is quite open to the Legislature, in exercise of its power, to pick and choose, subject of course to constitutional restrictions and limitations, a convenient mode or basis of fixing the extent or quantum of liability under the charge.
17. That takes us to the second sub-head as to whether the impugned Act falls within or trenches on Entry 86 of List I. Entry 86 relates to ' Taxes on the capital value of the assets, exclusive of agricultural land, individuals and companies; taxes on the capital of companies'. The argument for the petitioners is that the impugned Act in effect levies a tax on capital value of the urban land and is, therefore, a law which falls within the ambit of Entry 86 of List I and necessarily, therefore, outside the ambit of Entry 49 of List II. The argument is also put in a different way, namely, Entries 49 and 86 in the two Lists, read harmoniously and in the light of each other, would exclude from the scope of the former Entry a tax on land based on its market or capital value. In our opinion, the two Entries are distinct and different from each other and do not either overlap or stand to any extent on a field common to both, so as to call for a reconciliation between conflicting areas of power and restricting the scope of one entry in order to define the limit of and give full effect to the other power. No doubt, in order to appreciate the scope of a particular Entry the whole scheme of distribution of legislative power between the Union and the States should be looked into on a comparative and contrast basis. In doing so, full scope and effect must be given to each Entry in the organic statute and that construction most beneficial to the widest possible amplitude of each of the enumerated powers should be applied. The cardinal rule of interpretation of the Entries, as of any statute, is that the grammatical and ordinary sense of the words is to be adhered to unless that course would lead to absurdity, repugnancy or inconsistency. In such a case, the grammatical and ordinary sense of the words must give way to a restricted or legalistic meaning to be decided by Courts. Once the scope of legislative power under an enumerated head in the Lists is fixed, the question of competence of a legislation is approached with reference to the pith and substance doctrine. That is to say, in deciding whether a particular statute falls and does not fall within the ambit of a given head of power, we should find out the pith and substance or the purpose or the object of the legislation. The true intention and purpose of a legislation can also be determined from its legal effect. These principles are so well settled that scarcely any authority need be cited in support.
18. We have already dealt with the scope of Entry 49. The charge under the Entry is on the land or building; the incidence is on them, and lands and buildings are the subject-matter of the charge. We have already pointed out how the fixation or the mode or basis of fixation of the extent of liability under the charge is a matter independent of the charge itself and is but incidental or ancillary to it. The tax under Entry 86, List I of the Constitution is on the capital value of the assets of individuals and companies or on the capital of companies. This is not a tax on the asset itself but on its capital value which, as we think, means its real economic value. That again implies net value of the assets, for, if the assets are encumbered, protanto they cease to be assets. In ascertaining the capital value or the economic value of the assets, therefore, deductions will necessarily have to be allowed of the value of encumbrance on such assets. Further the tax under Entry 86 falls on the owner of the assets which is clear from the words used ' of individuals and companies ', and not occupiers. In some decided cases, the view has been expressed that the subject-matter of taxes under Entry 86 is the value of the totality of the assets. In our opinion, if we may say so with respect, that is the correct view to take. We are not persuaded by the contention that because under the General Clauses Act plural includes singular, even one of the assets of an individual can be taxed on its capital value under the Entry. The economic value of the assets of an individual is not and cannot be the same as the economic value of one of the assets of an individual. The economic value of the assets of an individual can possibly be determined only on a consideration of the total position of the rights and liabilities in relation to the total assets, and the economic value of one of the assets cannot serve the purpose. It may be that a law made under Entry 86 to tax the capital value of the assets of individuals may single out one of the assets for an additional levy as under the Finance Act, 1965; but that does not detract from the point. These observations relating to Entry 86 clearly bring out the distinction and difference between this Entry and Entry 49. The import Under Entry 49 is on the land, and need not necessarily be from its owner but may be from the occupier thereof the impost under Entry 86 is not on the assets themselves of an individual but on their economic value, that is to say, their real value as reduced by the value of encumbrances thereon and is on the owner of the assets. In other words, the tax under Entry 86 is on the net economic value of the totality of the assets. The assessee under Entry 86 must be the owner or his representative. An occupier of assets of an individual cannot be taxed under Entry 86. Nor can the tax under that Entry be based on part only of the assets of an individual. The term' assets ' in the context cannot be read in that sense, As a matter of fact, the Wealth-tax Act, 1957 by Section 3 of the Act imposes a wealth-tax and says that there shall be charged for every assessment year a tax in respect of the 'net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule '. The Act contains provisions how to determine the net wealth which provide for deductions of certain liabilities on the assets. As is seen from the Schedule to the Act, wealth-tax is computed on a progressive rate depending on the quantum of net wealth on slab basis.
19. Sir Byramjee v. Province of Bombay : AIR1940Bom65 , decided that the Urban Immovable Property Tax levied on buildings and lands by Section 22 forming part of Part 6, Bombay Finance Act, at ten per cent, of the annual letting value of such buildings and lands was not a tax on income or on capital value of lands and buildings and Part 6, Bombay Finance Act, 1932 was not, therefore, ultra vires the Provincial Legislature. Beaumont, C.J., while observing that the tax impugned there, was tax on lands and buildings within Item 42 of the Provincial List in the Government of India Act, 1935 expressed the view that it was not a tax on income within Item 54 of the Federal List or a tax on the capital value of the assets within Item 55 of that List. It is on the view that the basis of quantifying the tax, namely, annual letting value did not convert the tax into one on income and that the tax itself was imposed without any relation to the capital value except so far as such value could be ascertained with reference to rate able value. Broomfield, J., said at page 71:
What is meant by the capital value of assets in that item (item 55) is by no means clear.... It may be that what is intended is a tax on the total value of assets in the nature of a capital levy. In any case the measure of the capital value of assets would appear to be the market price that would obviously be affected by several factors, e.g. mortgages and charges, of which the impugned tax takes no account.
Kania, J., as he then was, dealing with the question whether the tax was on the lands and buildings or on the income of the lands and buildings considered at page 74:
If lands and buildings are treated as investments and the return, as income, is taxed it is a tax on the income. On the other hand, if the tax is on the lands and buildings themselves and the assessment is on a standard named by the Legislature which may fluctuate or vary on the produce or income from it, it would be a tax on the property. As has been pointed out in In re. A reference under the Government of Ireland Act, 1920. L.R. (1936) A.C 352 the measure of the tax is not itself the test. In determining the nature of the tax consideration may be given to the standard on which the tax is levied, but that is not the determining factor..
One of the learned Judges thus thought that Item 55 of the Federal List related to a tax on the total net value of the assets in the nature of a capital levy. The Court was also of the view that the measure of tax is not a determining factor but the test would be whether the tax was on lands and buildings or on the income as such.
Ralia Ram v. The Province of East Punjab (1949) 1 M.L.J. 213 : (1949) F.L.J. 8 : 948 F.C.R. 207, was concerned with the Punjab Urban Immovable Property Tax Act which levied an annual tax on buildings and lands situated in the rating areas at a certain rate in per centum of the annual value of such buildings and lands. Then it was provided that the tax should be paid by the owner of the buildings and lands. It was held that the tax levied by the Act was in pith and substance ' a tax on land and buildings ' covered by Item 42 of the Provincial List in the Government of India Act, 1935 and not a tax on income within the meaning of Item 54 of the Federal List. Fazl Ali, J., observed:
It is true that the annual value was used as the basis, but it was very different from the annual value which may be used for getting at the true profits or income. The annual value, as has been pointed out, is at best only notional or hypothetical income and not the actual income. It is only a standard used in the Income-tax Act getting at income, but that is not enough to bar the use of the same standard for assessing a Provincial tax. If a tax is to be levied on property, it will not be irrational to correlate it to the value of the property and to make some kind of annual value the basis of the tax without intending to tax income.
In J.N. Duggan v. I.T. Commissioner, Bombay City : 21ITR458(Bom) , Chagla, C.J., held somewhat a different view that if the Legislature could impose a tax on all the assets of an individual it could not be assumed that the Legislature could not do something much less than that, namely, impose a tax only on some assets and not on the full value but on a value arrived at after some deductions and proceeded to say:
Now, lands and buildings would undoubtedly be assets. But whereas the Provincial Legislature is competent to impose a tax one ands and buildirgs, the Central Legislature is empowered under Entry 55 of List I to impose a tax not on lands and buildings as such but on the capitalised value of lands and buildings. Therefore, the power of the Provincial Legislature is restricted to tax on lands and buildings without taking into consideration the capital value of lands and buildings.
This view was dissented from by Municipal Corporation, Ahmedabad v. Gordhandas : AIR1954Bom188 , 184 on both the points. Gajendragadkar, J., as he then was, said:
With very great respect, I am unable to agree with this last observation.... As I have already pointed out, I have come to the conclusion that even if the capital value of lands is taken into consideration by the Municipal Corporation in determining the amount of tax to be levied on the open land, the tax does not become a tax on the capital value of the assets.
The actual decision upholding the validity of Rule 350-A framed under the Bombay Municipal Boroughs Act, 1925 was no doubt reversed by the Supreme Court in Gordhandas v. Municipal Commissioner (1965) 2 S.C.J. 15, but that was on the ground of the special meaning which the word ' rate ' had acquired in the context of local taxation. The principle laid down by the Bombay High Court that the character of the means and machinery devised by the Legislature for levying a tax would not by itself determine the character of the tax as such is however left unaffected. The Bombay High Court pointed out that one must examine the essential features of the tax and consider the pith and substance of the legislation before deciding whether it is a tax on land as such or it imposes a tax on the capital value of the assets consisting of the lands. U. P. Large Land Holdings Tax Act, 1957 by Section 3 provided for levy on the annual value of each land holding of a tax at the rates specified in the Schedule to the Act. The Allahabad High Court in Ouch Sugar Mills v. State of U.P. : AIR1960All136 , upheld the validity of that levy observing that the mere fact that the tax was calculated on the annual value of the lands and the rate was applied on progressive scale did not make the tax any the less a tax on the land. The learned Judges held the view:
The scope of Entry No. 49 is wide enough to include a capital levy on agricultural land Even a tax on the capitalised value of non-agricultural land would fall under Entry No. 49 of List II and not under Entry No. 86 of List I of the Seventh Schedule. It is permissible to restrict the meaning of the word ' assets ' in Entry No. 86 by excluding land, both agricultural, as well as non-agricultural, from its ambit in order to give full scope to the expression ' Taxes on land' occurring in Entry No. 49 of List II.
With respect, we feel that we cannot go as far as that and justifiably exclude the non-agricultural land from the purview of Entry 86 especially when the framers of the Constitution when putting in Entry 86 had applied their minds as to what should be excluded from that Entry and provided for exclusion of agricultural lands. On our construction of Entry 49 in the State List, the question of exclusion from Entry 86 of the Union List of non-agricultural lands does not arise. In any case, no argument was addressed to us on those lines. In Jagannath Baksh Singh v. State of U.P. : 46ITR169(SC) which was on appeal from Ouch Sugar Mills v. State of U.P. : AIR1960All136 , the Supreme Court did not go in to the question of the ambit of Entry 86 but upheld the validity of the legislation as falling within the purview of Entry 49 of List II and not violative of Article 14 or Article 19(1)(f) of the Constitution. In the dissenting judgment of Sarkar, J., as he then was, in Gordhandas v. Municipal Commissioner (1965) 2 S.C.J. 15, the relative scope of Item 42 of the Provincial List and Item 55 of the Federal List in the Government of India Act, 1935 was touched upon and it was observed:
The Provincial Legislature had been given the power to tax units of lands and buildings irrespective of their value and the Central Legislature the power to tax the value of assets.
Indication is to be found in this judgment that by value of assets is meant the net economic value of the totality of the assets and that further under Item 55 the levy could be only on the individual owning the assets and the tax could not be recovered from the occupier of the assets or any part thereof.
20. The preponderance of judicial opinion is, therefore, in favour of the construction that Entry 86 of List I of the Constitution occupies a field quite different from that of Entry 49 in List II of the Constitution and relates to a charge on the net economic value of the totality of assets belonging to an individual and that the levy can be collected only from the owner of the assets. On the other hand, Entry 49, List II is concerned with imposition of taxes on lands and buildings qua lands and buildings irrespective of their economic value and the levy is not necessarily on the owner but the incidence may be on the occupier. So long as the object of taxation is land or building, the measure of tax would make no difference to the incidence of tax on such land or building. The measure may be on the basis of annual letting value or gross market value of the lands or buildings or some other factor like acreage or floorage space or even the user to which the lands and the buildings may be put. The choice of the particular basis or machinery is entirely within the discretion of the Legislature, as a matter incidental or ancillary to power to levy tax on lands and buildings. The machinery, measure or basis of computing or quantifying the extent of liability under the charge on lands or buildings is a matter different from the charge itself and the two cannot be mistaken as synonymous to each other, just as the end and the means are not one and the same thing. The real test is where the incidence of the charge or impost falls and not how the liability is calculated, though the latter is also a relevant consideration. It was on this basis local taxation on lands and buildings on the basis of their annual letting value was held to be not income-tax. It was on a parallel reasoning again profession tax has been held to be notincome-tax-Vide C. Rajagopalachari v. Corporation of Madras (1964) 2 S.C.J. 234.
21. The pith and substance of the Madras Urban Land Tax Act is that for the purposes of general revenue of the State it imposes a tax on urban lands, first, within the limits of the City of Madras and with a power for the State to apply the Act to other areas. The subject of imposition under the charging section is clearly the urban land qua land and the tax is collected from the owner of such urban land. 'Owner' is defined, as we already mentioned, to include an occupier and also a mortgagee, in possession, receiver, trustee, guardian and manager. The term ' occupier ' is also defined in the Act as one who is liable to pay rent to the owner as defined. The tax is of course to be computed at the rate of 0.4 per centum of the average market value of the urban land in a sub-zone. This does not mean that the subject of charge is the average market value. The average market value of the urban land is only the basis for computation of the extent of the liability under the charge which is always on the urban land. The charge is thus entirely in accord with the object of the Act declared in the Preamble, namely, to provide levy of tax on the urban land in the City of Madras. A perusal of the rest of the provisions of the Act shows that, in determining the average market value of the urban land, allowance is not made for any charge or encumbrance on such land. The basis of computation is not related to the net economic value of the urban land. Further, as we said, the tax as may be seen from Section 26 can be recovered from the occupier of urban land. Section 29 makes it clear that urban land tax is in lieu of the ryotwati assessment, ground rent, quit rent and other amounts specified in the section and in addition to any other tax on such land payable under any law for the time being in force. Having regard to these features, we are clearly of opinion that the Madras Urban Land Tax Act squarely falls within the ambit of Entry 49 of the State List and does not, to any extent, or in any manner trench on Entry 86 of the Union List.
22. Another argument for some of the petitioners is that it is not competent for the State Legislature, acting under Entry 49, to levy two taxes on different bases which may even be conflicting with each other. What is meant is the local taxation on lands and buildings under enactments relating to local bodies including the City Corporation, Municipalities and Panchayats in the State is on, the basis of certain percentage of the annual letting value actual or hypothetical and the urban land tax under the impugned Act is not levied on the same basis but on the basis of a certain percentage of the average market value of such land. Both enactments being under Entry 49 of the State List or the corresponding power under the earlier Constitutions, the State Legislature will not be competent to levy two taxes on the same subject on two different bases. It may be permissible, according to the argument, to raise additional revenue by way of a charge but not by an independent Act and by a separate impost measured undoubtedly on a different basis. We must confess we have not been able to fully appreciate the argument; nor is any direct authority cited in support of it. As We have already held, Entry 49 of the State List is not confined to levy or authorise the levy of impost on land and building for local or municipal purposes but also comprehends such levy for the purpose of the general revenue of the State. That being the case, we can find no objection to the competency of the State Legislature to make the impugned Act. The enactments authorising the local taxation on lands and the impugned Act serve different purposes, though both have been enacted by the Legislature acting under the same head of power. We are not persuaded, therefore, that the Madras Urban Land Tax Act is incompetent on this ground either. We hold on the first ground of the petitioners that this Act is within the purview of Entry 49 of the State List and does not trench on Entry 86 of the Union List and is entirely within the competence of the State Legislature.
23. We pass on to the second and more substantial ground urged by the petitioners, namely, that the Act is arbitrary, unequal in its incidence and offends Article 14 of the Constitution. That the fundamental rights in Part III of the Constitution apply to tax laws is now beyond question. Article 265 of the Constitution declares that no tax shall be levied or collected except by authority of law. The law that is referred to in the Article is also covered by Article 13 which attracts to it the rights conferred by Part III. Any law made in contravention of those rights shall, to the extent of the contravention, be void. Tax laws should, therefore, not only answer the test of legislative competency but should satisfy that they are not in contravention of the fundamental rights of which equality is clearly one. It will suffice to refer to Jagannath Baksh Singh v. State of U.P. : 46ITR169(SC) , 1570, where it was held:
In recent years, there has been a consensus of opinion in the decisions of this Court that the validity of the legislation imposing a tax can be challenged pot only on the ground of lack or absence of legislative competence but also on the ground that the impugned legislation violates the fundamental rights guaranteed by Part III of the Constitution : vide Mohammad Yasin v. Town Area Committee : 1SCR572 , State of Bombay v. United Motors (India) Ltd. : 4SCR1069 , Bengal Immunity Co., Ltd. v. State of Bihar : 2SCR603 , Tika Ramji v. State of Uttar Pradesh : 1SCR393 and Balaji v. Income-tax Officer (1961) 1 S.C.J. 376. Therefore, it must now be taken to be settled that the validity of a tax law can be challenged on the ground that it infringes one or the other of the fundamental rights guaranteed by Part III, and so, the argument that the tax with which we are concerned is invalid because it offends against Articles 14 and 19(1)(f) cannot be rejected as inadmissible.
We shall, therefore, proceed to consider if the impugned Act offends Article 14 of the Constitution.
24. In the decision of the Supreme Court just referred to by us it was also pointed out when a taxing statute could be held to contravene Article 14, namely, ' if it purports to impose on the same class of property similarly situated an incidence of taxation which leads to obvious inequality '. The Supreme Court in K.T. Moopil Nair v. State of Kerala (1961) 2 S.C.J. 269 : A.I.R. 1951 S.C. 552, struck down the Travancore-Cochin Land Tax Act, 1955 as violative of Article 14. That Act was passed by the Kerala State Legislature to provide for the levy of a low and uniform rate of basic tax on all lands in Travancore-Cochin. The charging Section 4 stated that there should be charged and levied in respect of all lands in the State, of whatever description and held under whatever tenure, a uniform rate of tax called the basic tax. The next section as amended fixed the rate at Rs. 2 per acre and the basic tax so charged and levied at that rate was to be in lieu of any existing tax in respect of land. The Supreme Court referred to the principle:
But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property.
and dealt with the question whether the Act violated Article 14. Finding that the Act in imposing a flat rate of tax on acreage basis was without reference to income from the land, either actual or potential, and, therefore, it obliged every person, who held land, to pay the tax at the flat rate whether or not he made any income out of the property or whether or not the property was capable of yielding any income, the Supreme Court held that inequality was. writ large on the Act and was inherent in the very provisions of the taxing section. The Court observed at page 558:
It is also clear that there is no 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. It is, therefore, clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution.
Again the Mysore Buildings Tax Act, 1963 provided for levy of a tax on buildings on floorage basis. One of the learned Judges with whom the other concurred on this point in Bhuvaneswariah v. State of Mysore A.I.R. 1965 Mys. 170, held that such basis was unscientific, arbitrary and mechanical and that under that basis the incidence of tax fell unevenly on things similar. The Act Was struck down as being in contravention of Article 14. Likewise the Kerala High Court in N. Kunhali Haji v. State of Kerala : AIR1966Ker14 ., struck down the Kerala Buildings Tax Act, 1961 on the ground of lack of classification resulting in inequality, as this Act also imposed a tax on buildings on the basis of floor area of buildings.
25. What is the position under the Madras Urban Land Tax Act It is contended for the petitioners that the Act totally lacks any classification resulting in unequal incidence and distribution of tax. We are of the view that the contention is clearly one of substance. We have already referred to the main provisions of the Act. The purpose of the Act is to raise tax to add to the general revenues. The tax, as we said, is on urban land and is levied from every owner as defined in the Act. The charging section expressly adopts the average market value of the urban land in a sub-zone as determined under Sub-section (2) of Section 7 as the basis for determination of the extent of liability to tax on the urban land. The rate of tax is fixed at 0.4 per centum of the average market value of the urban land. The very expression 'the average market value' demonstrates that it is not the actual market value of the urban land which is taxed, that is taken as the basis for fixing the extent of liability to tax and pre-supposes that it is the mean of uneven figures representing market values, that forms the basis for measure of the tax. The word 'average ' as a verb means to estimate by dividing the aggregate of a series by the number of its units, and as an adjective it means equal to what would be the result of taking an average. See the Shorter Oxford English Dictionary. So the phrase ' average market value of the urban land ' definitely conveys the idea of the arithmetic mean of a series of market values. If, for instance, a sub-zone consists of two pieces of urban lands owned by two different persons and the market value of one of which is Rs. 10,000 per ground and the other Rs. 5,000 per ground, the average market value is arrived at by adding the two figures and dividing the total by two. The result is that the average market value per ground in the sub-zone will be Rs. 7,500 per ground. If the rate of 0.4 per centum of the average market value is applied, the burden of incidence of tax on the land whose market value is Rs. 5,000 is obviously heavier on the basis of the higher average market value and the burden is less for the other piece of land whose market value is higher than the average market value. 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 land, a lower tax. We have not been 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. There is here in the charging section a total lack of classification of urban lands according to their market values and correlating and applying the rate of tax to such market value. The result is, by adopting the basis of average market value for the urban land for fixing the quantum of tax, inequality in the incidence and distribution of tax is brought about. This inequlity is so patent ex facie the charging section.
26. It is true that Sub-section (3) of Section 6 says that subject to the provisions of Sub-section (2), in classifying sub-zones under Sub-section (1), the Assistant Commissioner shall, as far as practicable, include in a sub-zone urban lands which are contiguous and as nearly as may be of the same market value. In our opinion, this Sub-section hardly serves to remove the inequality in the incidence of tax. The Assistant Commissioner is not obliged in every case to put into a sub-zone urban lands of equal market value. The Sub-section uses phrases like ' as far as practicable ' and ' as nearly as may be of the same market value ' and is not designed to make a departure from the basis of average market value of urban lands for fixing the quantum of tax a particular urban land should bear, and to adopt the market value as the basis. Indeed that the Act does not intend a levy on urban land on the basis of its market value is quite obvious from the fact that nowhere it provides for determination of the market value of the urban land of each owner in a sub-zone. On the other hand, in the counter affidavit filed on behalf of the respondents, the stand has been taken that no such determination of the market value of each urban land is necessary for purposes of levy of urban land tax under the Act. Our attention has also been invited by the petitioners to the proceedings of the Commissioner of Urban Land Tax dated 23rd September, 1965, relating to W.P. No. 3386 of 1965 in which the Officer said:
A distinctive treatment of lands comprised within a sub-zone is not called for. The lands included in a sub-zone have to be taken as a whole when once they have been delimited into a sub-zone and the valuation fixed.
and to a further order of this officer dated 8th September, 1965, in which he expressed himself even more explicitly:
The contention that the value should be fixed on the basis of the value of each land individually and not on the basis of the average of the lands in a sub-zone is not supported by statutory provisions. Sub-section (2) of Section 7 lays down that the Assistant Commissioner shall determine the average market value of the urban lands in a sub-zone. What is not provided for under the. Act cannot be done as suggested by the petitioner.
It is not contended for the respondents that this view of the Officer as to the effect of the provisions of the Act is wrong. We think that the Commissioner of Urban Land Tax correctly understood the provisions of the Act as not providing for and authorising the Assistant Commissioner to determine the market value of the urban land of each owner and to make it the basis for fixing the extent of the liability to tax. In our opinion, therefore, Section 3 of the Act clearly denies to owners of urban lands equal protection by a total lack of classification on the basis of market value of such lands and by imposing unequal burden on them, and violates Article 14 of the Constitution. The Act does not give the necessary criteria relevant to imposition of tax on the urban land of a particular assessee and in a sense the charging section is also vague and ambiguous as to the measure of tax. The charge is not on the basis of indicia or factors which relate to the particular land of an assessee but on considerations extraneous thereto, namely, those relevant to other lands of other assessees. Further in actual working of the provisions of the Act, the ultimate measure of tax will depend upon how the Assistant Commissioner may classify zones and sub-zones and arrive at average market value. Sections 6 and 7 do not furnish proper criteria and serve as a definite guide in the light of which the Assistant Commissioner may act in the matter of classification of zones and sub-zones and determining the average market value. How is the Assistant Commissioner to find out the average market value of lands in a sub-zone without fixing the market value of each of the lands in the sub-zone is not clear; nor is it clear from Sections 6 and 7 whether the Assistant Commissioner is to determine the market value for purposes of Sub-section (3) of Section 6 and then to proceed to make the classification or whether he is to classify the lands first as zones and sub-zones and then to determine the average market value. The two sections are somewhat vague and do not provide definite guidance in the matter of classification of zones and sub-zones in deciding the average market value. In view of the fact, therefore, that the charging section contravenes Article 14 of the Constitution and Sections 6 and 7 do not furnish proper and definite guidance in the matter of classification of zones and sub-zones and determination of the average market value of urban lands in a sub-zone, they must be struck down as unconstitutional. Without the charging section, the rest of the Act cannot independently exist and operate. We, therefore, declare the entire Act to be void and unenforceable. On this view, it is unnecessary to consider the validity of certain other provisions of the Act.
27. Our attention was invited to the Urban Land Tax Schemes prepared in relation to Perambur, Triplicane, Mylapore and Mount Road areas and it was contended for some of the petitioners that they demonstrated the arbitrary character of the determination of the average market value and the resulting inequality in the incidence of tax. On that ground, we were called upon to quash the Urban Land Tax Schemes involved in the petitions and demands made under the Act for payment of tax. But on the view we have taken on the validity of the Act, no separate consideration of the validity of the schemes is necessary because those schemes and demands cannot stand without the Act.
28. Lastly we come to the argument based on Article 19(1)(f) of the Constitution which, however, has not been developed at any length before us apparently because of the view taken by the Supreme Court in certain cases on the effect of the Presidential Orders suspending the operation of Article 19(1)(f) during the currency of emergency. Mr. V.K. Thiruvenkatachari for some of the petitioners suggested that the view of the Supreme Court may require reconsideration for some reasons. He submits that Article 358 of the Constitution should be construed as having only a limited scope by reason of its place in the Chapter on ' Emergency Provisions ' in the Constitution. According to him, it is only emergency legislation expressly so designed by the Legislature that will be saved from the purview of Article 19 and the ban under that Article will operate in respect of other: laws, as it will, in relation to pre-proclamation laws. On this view, learned Counsel says, Article 19 would also in respect of such laws be subject to Presidential Orders under Article 359 and that Article 358 deals with executive action as regards action under laws validated thereby. On this matter, he invites our attention to an article of his which appears in (1956) 1 S.C.J. 1. As the argument was not pursued beyond mentioning it, we express no opinion on it. There is one other matter which we may advert to. In some of the petitions in which Mr. V.K. Thiruvenkatachari appears, the petitioner is an incorporated company. It is now well settled that such a company will not be a citizen and, therefore, cannot invoke Article 19 in its aid. But the argument is that though it is a company which cannot invoke that Article, if an Act at the instance of a citizen is held to contravene Article 19, then by reason. of Article 14, the Act cannot be applied to such companies alone. Here again we express no opinion on this question since we have not dealt with Article 19 in relation to the impugned Act.
29. On our view that the impugned Act contravenes Article 14 of the Constitution and is void, the petitioners must succeed. The petitions are allowed and the rules nisi in them are made absolute. The petitioners in W.P. Nos. 2191 of 1965 and 1614 of 1964 will be entitled to costs with Counsel's fees in each of the petitions fixed at Rs. 250. There will be no order as to costs in the rest of the petitions.