T. R. SHAMANNA v. STATE OF MYSORE — 1970 DIGILAW 83 (KAR)

( 1 ) THE petitioners in these fourteen Writ Petitions are residents within the corporation limits of the Bangalore City Municipal Corporation, who are in receipt of water supply for domestic purposes. The respondents, who are common in all the Writ Petitions, are (1) the State of Mysore, (2) the Bangalore Water and Sewerage Board (hereinafter referred to as the Board) and (3) the Corporation of the City of Bangalore (hereinafter referred to as the Corporation ). ( 2 ) THOUGH the prayers are differently worded, two prayers which are common to all the Writ Petitions are- (i) for a declaration that S. 31 of the Bangalore Water Supply and sewerage Act, (Mysore Act 36 of 1964), is illegal, unconstitutional and void and to strike it down as such; and (ii) for a declaration that the water rates prescribed by the Board in 1965, which were in force till 31st December 1968 in respect of water supply for domestic use are illegal, unconstitutional and quite disproportionate to the reasonable value of services rendered, and to strike them down as such;together with a prayer for the issue of an appropriate writ preventing enforcement of those rates. In one of the Writ Petitions, viz. , W. P. No. 788 of 1969, there is a further prayer for a declaration that Regulation 53 framed under the Act is illegal and unconstitutional and therefore void. ( 3 ) THE first two prayers were already the subject of W. Ps. 847, 1061 and 1749 of 1965 on the file of this Court, which were disposed of oh 5th August 1966. The judgment of the Bench in those cases is in Shankarappa v. State of Mysore, 8 L. R. 458. ( 4 ) IN view of the said previous decision of this Court, the first prayer for a declaration of the invalidity of S. 31 of the Water Supply and Sewerage act appears to us be quite unsustainable. The question was argued at considerable length in the said cases and has also received elaborate consideration in the judgment of the Bench. The only ground, on which Mr. Narasimha Murthy, learned Counsel for the petitioner in Writ Petition no. The question was argued at considerable length in the said cases and has also received elaborate consideration in the judgment of the Bench. The only ground, on which Mr. Narasimha Murthy, learned Counsel for the petitioner in Writ Petition no. 788 of 1969 sought our permission to argue the question again before us, is that, according to his reading of a subsequent ruling of the Supreme court, the decision of this Court in Shankarappa's case (1) has ceased to be good law. We find it difficult to accept the argument. ( 5 ) NOW, S. 31 of the Act provides for payment to be made for water supplied and reads: -"notwithstanding anything contained in S. 127 or any law, contract or other instrument, for all water supplied under this Act, payment shall be made at such rates, at such times and under such conditions as may be specified by regulations, and different rates may be prescribed for supply of water for different purposes. ""regulations" by definition mean regulations made by the Board. The argument questioning the constitutional validity of the section pressed both before the previous Bench as well as before us is that by the said section, the Legislature has delegated to the Board essential legislative functions which cannot constitutionally be delegated. ( 6 ) IN rejecting this argument, this Court in Shankarappa's case (1) followed and applied the law as declared by the Supreme Court in the case of Corporation of Calcutta v. Liberty Cinema, AIR 1965 SC 1107 . The Court also cited the following passage from the said judgment of the Supreme Court:"it seems to us that there are various decisions of this Court which support the proposition that for a statutory provision for raising revenue for the purposes of the delegatee, as the section now under consideration is, the needs of the taxing body for carrying out its functions under the statute for which alone the taxing power was conferred on it, may afford sufficient guidance to make the power to fix the rate of tax valid. . . . . . . . . . . . . . Its power to collect tax, however, is necessarily limited by the expenses required to discharge those functions. It has, therefore, where rates have not been specified in the statute, to fix such rates as may be necessary to meet its needs. . . . . . . . . . . . . . Its power to collect tax, however, is necessarily limited by the expenses required to discharge those functions. It has, therefore, where rates have not been specified in the statute, to fix such rates as may be necessary to meet its needs. That, we think, would be sufficient guidance to make the exercise of its power to fix the rates valid. "it also referred to another observation of the Supreme Court in the same case to the effect thai the levy of a fee being in the nature of a return for services rendered, the very character of the fee implies a limit to the levy, viz. , that it has to be commensurate with the cost of the service. The court then made the following observation in paragraph 39 of the judgment at page 468 of the Report:"hence there is no need for the Legislature 'to give to the delegatee of the power to fix the rate of fee, any guidance as to how the rate or rates of fee should be fixed. Nor is it necessary for the Legislature to fix any maximum rate which should not be exceeded by the delegatee in fixing the rate or rates of fee. " ( 7 ) NOW, the subsequent ruling of the Supreme Court which, according to Mr. Narasimha Murthy, supports his argument that the decision of this court has ceased to be good law, is the case of Municipal Corporation of delhi v. Birla Cotton. Spinning and Weaving Mills, AIR 1968 SC 1232 . In the said case, the Supreme Court referred to several nrevions rulings of the same Court and summarised the principles governing the position. We are unableto agree that there has been any departure from the principles alreadv declared by the Supreme Court in previous rulings. Nor is there anything in the judgment to indicate that their Lordships found anything inaccurate in the statement of law made in the case of Liberty Cinema (2 ). We are unableto agree that there has been any departure from the principles alreadv declared by the Supreme Court in previous rulings. Nor is there anything in the judgment to indicate that their Lordships found anything inaccurate in the statement of law made in the case of Liberty Cinema (2 ). On the contrary, we find that the decision in the sa'd previous case was actually affirmed as correct-vide the following observations in paragraph 25 at page 1242-43 of the Report:"the next case to which reference may be made is Corporation of calcutta v. Liberty Cinema, where the majority upheld the fixation of a tax on cinema shows, even though the Calcutta Municipal Act of 1951 prescribed no limits to which the tax could go. In that case the majority referred to the view taken in Banarsi Das's Case (1959 SCR. 427), and interpreted the dictum in that case to mean that the fixation of rate can be left to a non-legislative body but this was qualified by the observation that when the power to fix the rate of tax was let to another bodv. the legislature must provide guidance for such fixation. In that case the majority found guidance in various provisions of the statute to which it is not necessary to refer though the minority was of the opinion that there was no guidance therein. " ( 8 ) NOW, Mr. Narasimha Murthy's argument is that the decision of this Court in Shankarappa's case (1) proceeded upon the assumption that there was no need for the Legislature to give to the Board any guidance is the matter of fixing the rate of fee in the observation in paragraph 39 of the judgment extracted above. With respect, it appears to us that that is not the correct way of reading the observation of this Court The effect of that observation is that the undoubted circumstance that the water rate was in the nature of fee and the well known legal concept of a fee and the conditions governing the same would in themselves constitute sufficient guidance in the matter of the fixation of rates. Indeed, that is also implicit in the judgment of the Supremp Court in Liberty Cinema's case (2) where one of the circumstances considered as sufficient to confer validity on the power to fix rotes was that the impost was in the nature of a fee for the services rendered, and another circumstance was that when the delegatee is empowered to raise money by taxes or rates to meet its needs or by needs of the exercise of its functions and powers, the nature of the power or the needs of its exercise itself furnish clear guidance. ( 9 ) WHAT is more, it should not be forgotten that the Bangalore Water supply and Sewerage Act contains ample guidance as well as sufficient safeguards to which reference has been made in the previous decision of this Court S. 16, for example, expressly indicates the purposes for which rates, fees and rentals are to be charged and the limits subject to which they may be charged. Secondly, regulations made by the Board are required by S. 122 of the Act to be placed before each of the two Houses of the state Legislature while it is in session for a total period of 30 days and each House is empowered to make such modification as it may consider necessary, and the regulation becomes enforceable subject to such modifictions and is to have effect as if enacted in the Act itself ( 10 ) WE are therefore clearly of the opinion that Sec 31 of the Act answers all the tests indicated by the Supreme Court in various rulings including the one cited by Mr Narasimha Murthy and is therefore not open to the attack of unconstitutionally on 1he ground that it delegates essential legislative functions to a non-legislative body. ( 11 ) WE see therefore no reason whatever to depart from the previous ruling of this Court in Shankarappa's case (1 ). ( 12 ) THE first prayer in these Writ Petitions for striking down S. 31 of the Act as unconstitutional is therefore rejected ( 13 ) THE case of alleged invalidity of Regulation No 53 can be disposed of very briefly The said regulation declares that:"all meters or other appliances for measuring or limiting the amount of water supplied within or outside the premises shall be the property of the Board. "mr. "mr. Narasimha Murthy's argument is that his client, the petitioner in w. P. 788 of 1969 has actually paid the cost of the meter, that therefore he must be regarded as the owner thereof and that therefore Regulation 53 must be regarded as depriving him of his property without payment of compensation ( 14 ) NOW, property can be acquired either by contract or under any statute or statutory rule. S. 47 of the Water Supply and Sewerage Act, 1964, before its amendment, stated in sub-sec. (2) that the expense. attaching a meter under sub-sec (1) thereof shall be paid by the owner of the premises. The said sub-section has been substituted by a new subsection by the Amending Act 6 of 1966 which reads:"the cost of meters, the expense of their installation, and the rent payable for use of meters, shall be such as may be prescribed by regulations, and shall be paid by the owner of the premises. "although the new sub-section states the position in more elaborate terms, it is clearly arguable position that it merely declares the pre-existing law in clearer and fuller terms. The language of the section makes it impossible to argue as a matter of law that by payment of the amounts mentioned in it, any person acquires ownership. That such could not be the intention of the statute is clear from the fact that among the payments required to be made is rent. ( 15 ) AS a matter of fact, however, it appears that the petitioner purchased the property or house to which the meter is attached from its previous owner. There is no material to hold definitely that the previous owner of the property paid anything by way of price of the meter and if so, the terms and conditions under which such payment was made were such as to confer ownership. ( 16 ) HENCE no declaration of invalidity of Regulation 53 as prayed for in W. P. No. 788 can be made, particularly at the instance of the petitioner therein. ( 17 ) THE real questions for examination and scrutiny are those relating to the prayer for striking down the water rates prescribed by the board in 1965 which were in force till 31st December 1968. ( 17 ) THE real questions for examination and scrutiny are those relating to the prayer for striking down the water rates prescribed by the board in 1965 which were in force till 31st December 1968. It would not have been necessary to examine those questions either, but for the fact that in Shankarappa's case (1), the petitioners therein failed for lack of material placed by them before Court to make out that the levy was so disproportionate to the value of services as to lose the character of fees. On behalf of the Board, certain tentative figures calculated for a period of 12 months were placed before the Court showing that, as against a total expenditure of 156. 31 lakhs, receipts from rates for supply of water were only 102. 90 lakhs leaving a deficit of 53. 41 lakhs. After adjusting against the said tentative deficit a sum of Rs. 50 lakhs receivable by the board from the Corporation under the terms of an agreement to which we shall make reference later, there remained still a shori fall of 3. 41 lakhs. The Court therefore did not find sufficient ground on the material then placed before it to strike down the rates but observed:"if in actual experience, the Water Board finds that the rates now prescribed under Regulation 36, leave a substantial surplus, that is, more than the total cosl of supplying water, then that should be a factor to be taken into account by the Water Board for revising the rates for supply of water thereafter. " ( 18 ) SINCE then, there has been a detailed examination of the position by the Committee of Estimates of the State Legislature who made a detailed report on 9th December 1968 and whose recommendations have actually been given effect to as from 1st January 1969. It is this report and the acceptance of the rates suggested by it as from 1st January 1969 which furnish the background or basis for the prayer made in these Writ petitions. ( 19 ) THE prayer, as we have already indicated, is limited to striking down the pre-existing rates, i. e. , the rates prescribed by the Board in 1965 shortly after its formation, which were in force till 31st December 1968. ( 19 ) THE prayer, as we have already indicated, is limited to striking down the pre-existing rates, i. e. , the rates prescribed by the Board in 1965 shortly after its formation, which were in force till 31st December 1968. There is no complaint or attack against the rates recommended by the committee of Estimates and actually brought into force by the Board by means of an appropriate regulation as from 1st January 1969. It follows from this that according to the case of the petitioners, the rates recommended by the Committee of Estimates are, in all circumstances of the case, reasonable and are such as to make the rates in actual legal effect a mere fee. The prayer in effect is to substitute the said rates for the preexisting rates or to make such order or direction as may be appropriate to the situation viewed on the footing that the 1969 rates are proper rates. ( 20 ) IF such a position had been conceded by or on behalf of the Board also, the only point for investigation would have been to see how the pre-existing rates compare with the new 1969 rates and whether upon such a comparison it would be legally possible to hold that the previous rates could not be described as fee at all. ( 21 ) BUT strenuous attempts have been made before us on behalf of the Board to show that the rates recommended by the Committee of Estimates have not been correctly or properly arrived at on the basis of figures which may be regarded as both correct and complete. The case put forward in the counter-affidavits and sought to be supported in 'the arguments was that while determining the rates, the Committee of Estimates has left out of account certain very important outgoings arising out of specific statutory obligations of the Board, and that if the same had been taken into account, the rates would not have been so low as actually recommended by the Committee. Indeed, it was even suggested in the course of the arguments that there was a dear case for putting up rates and that such a proposal was under active examination. Indeed, it was even suggested in the course of the arguments that there was a dear case for putting up rates and that such a proposal was under active examination. ( 22 ) IN view of this stand taken up by the Board, we have thought it proper to examine the Board's case in detail with a view to see whether it is possible to suggest that the rates recommended by the Committee of estimates and actually brought into force with effect from 1st January 1969 are not reasonable. ( 23 ) IT is necessary to narrate first the salient points in the history of water rates in Bangalore City. ( 24 ) THE sources ot water supply to the city are two reservoirs-one at Hesarghatta called the Chamaraja Sagar and the other at Thippagondanahalli at the confluence of the two rivers Kumadavathi and Arkavathi. The bunding of these reservoirs as well as all the works connected with water supply were originally undertaken by the Government of the erstwhile state of Mysore. Later, the water distribution system in the City area was made over to the Municipal Corporation. A committee appointed by the then Government estimated the cost of water at eight annas for 1000 gallons. The Government, however, agreed to supply water to the Corporation at 101/2 annas (65 Paise)for 1000 gallons as from 1-4-1966. It would appear that the Corporation for some length of time paid only the rate of 8 annas, the balance being regarded apparently as a subsidy by the Government. For collection of rates from the inhabitants there was a certain quantify of free allowance and a sliding scale of rates for water used in excess of the free allowance. The quantity of free allowance was calculated differently for the City area and for the Civil area. The rates for consumption of water in excess of the free allowance were the following: (i) Up to 25,000 liters (5,500 gallons ). 30 paise per 1000 litres (Rs. 1. 36 per 1000 gallons ). (ii) 25,000 to 50,000 litres (5,500 to 11,000 gallons ). 36 paise per 1000 litres (Rs. 1. 64 per 1000 gallons ). (iii) Above 50,000 litres (11,000 gallons ). 44 paise per 1000 litres (Rs. 2. 00 per 1000 gallons ). 30 paise per 1000 litres (Rs. 1. 36 per 1000 gallons ). (ii) 25,000 to 50,000 litres (5,500 to 11,000 gallons ). 36 paise per 1000 litres (Rs. 1. 64 per 1000 gallons ). (iii) Above 50,000 litres (11,000 gallons ). 44 paise per 1000 litres (Rs. 2. 00 per 1000 gallons ). For non-domestic consumption which was not entitled to any free allowance the rates were to be as follows: (i) Up to 25,000 liters (5,500 gallons ). 44 paise per 1000 litres (Rs. 2. 00 per 1000 gallons ). (ii) 25,000 to 50,000 litres (5,500 to 11,000 gallons ). 66 paise per 1000 litres (Rs. 3. 00 per 1000 gallons ). (iii) Above 50,000 litres (11,000 gallons ). 88 paise per 1000 litres (Rs. 4. 00 per 1000 gallons ). To meet the cost of free allowance and also generally to meet the cost of maintaining both the water supply system and the sewerage system, the municipal Corporation was collecting from inhabitants along with property tax in respect of lands and buildings certain additional items as water tax and sanitary cess. ( 25 ) THE Water Supply and Sewerage Board, the contesting respondent in these petitions, was constituted with effect from 1st October 1964 under the Water Supply and Sewerage Act 1964. Under the statute, one of the duties or functions imposed upon it is the duty of maintaining the water supply system as well as the sewerage system within the Metropolitan area of Bangalore City, meaning thereby the territory within the corporation limits. ( 26 ) THE Board introduced with effect from 1st April 1965 the following rates for domestic consumption : (i) Up to 10,000 litres (2,200 gallons ). 30 paise per 1000 litres subject to minimum of Rs. 2 per month (ii) 10,000 to 20,000 litres (2,200 or 4,400 gallons ). (Rs. 1. 36 per 1,000 gallons ). 32 paise per 1000 litres (iii) 20,000 to 40,000 litres (4,400 to 8,800 gallons ). (Rs. 1. 46 per 1,000 gallons ). 36 paise per 1000 litres (iv) Above 40,000 litres (8,800 gallons ). Rs. 4. 50 per month Rs. 4. 50 ). 44 paise per 1000 litres (Rs. 2. 00 per 1000 gallons ). There was no provision for any free allowance. For non-domestic purposes the rates were : (i) Up to 10,000 litres (2,200 gallons ). Rs. 4. 50 per months (Rs. 4. Rs. 4. 50 per month Rs. 4. 50 ). 44 paise per 1000 litres (Rs. 2. 00 per 1000 gallons ). There was no provision for any free allowance. For non-domestic purposes the rates were : (i) Up to 10,000 litres (2,200 gallons ). Rs. 4. 50 per months (Rs. 4. 50) 48 paise per 1000 litres (ii) 10,000 to 20,000 litres (2,200 or 4,400 gallons ). (Rs. 2. 18 per 1000 gallons ). 54 paise per 1000 litres (iii) 20,000 to 40,000 litres (4,400 to 8,800 gallons ). (Rs. 2. 46 per 1000 gallons ). 66 paise per 1000 litres (iv) Above 40,000 litres 8,800 gallons ). (Rs. 3. 00 per 1000 gallons ). Raw water was to be charged at 33 paise per 1,000 litres (Rs. 1. 50 per 1,000 gallons ). " ( 27 ) IN the above Rates Schedule the old free allowance allowed by the Municipal Corporation was abolished. Both on this point as well as on the enhancement of the rates, there was considerable public agitation. In consequence, on an agreement between the Corporation and the Board, the schedule of cash rebate was introduced in the place of free allowance. The said schedule was as follows:"rs. 4. 60 for the first 15,000 litres (3,300 gallons) per domestic water supply connection per month for houses with an annual rental value of not exceeding Rs. 1,000. Rs. 6. 20 for the first 20,000 litres (4,400 gallons) per domestic water supply connection per month, for houses with an annual rental value ranging from 1,001 to Rs. 5,000. Rs. 8. 00 for the first 25,000 litres (5,500 gallons) for domestic water supply connection per month, for houses having an annual rental value of Rs. 5,001 and above. " ( 28 ) CERTAIN amendments were made both in the Water Supply and sewerage Act as well as in the City of Bangalore Municipal Corporation act to enable the Corporation and the Board to enter into an agreement tor the above purposes. Under the system ol Municipal taxation prior to the coming into force of the Water Supply and Sewerage Act, as already stated, along with general property tax of 5 per cent of the annual value of the property, the Corporation was collecting 41/2 per cent to 6 per cent as water tax and 2 per cent as sanitary cess and 2 per cent as lighting tax. When the Water Supply and Sewerage Act was passed, the additional items of water tax and sanitary cess were removed from the purview of property tax. After the above amendment, the Corporation Act was amended so as to enable the Corporation to enhance the Property Tax upto 15 per cent of the annual value, the purpose of enhancement being to enable it to pay the Board such sums as ar necessary to neutralise the above cash rebate. ( 29 ) THE next change in the rates was made, as already stated, on the recommendation contained in the Report of the Committee of Estimates. According to the said recommendation, free allowance was determined at a uniform figure of 25,000 litres lor every domestic connection per month. In respect of water used in excess of free allowance, a sliding scale of rates was recommended. So far as domestic consumption or consumption for domestic purposes is concerned, the Rate Schedule recommended by the Committee is the following:"consumption rate per 1000 ltrs. Rate per 1000 gllns. (i) Up to 25,000 litres free allowance (ii) 25,000 litres to 50,000 litres 25 paise rs. 1. 14 (iii) 50,000 litres to 75,000 litres 30 paise rs. 1. 36 (iv) Above 75,000 litres 40 paise rs. 1. 82". ( 30 ) THESE are the rates which were accepted by the Board and brought into force with effect from 1st January 1969. The necessary regulation after compliance with the provisions oi S. 122 was approved by the State government. The previous agreement between the Board and the Corporation was also modified ana a fresh agreement entered into with effect from 1st January 1969. All these steps were taken to give effect to the recommendations of the Committee of Estimates which received acceptance in that way at the hands of not only the Board and the Corporation but also the State Legislature and the State Government. ( 31 ) TO examine the question of the reasonableness or otherwise of these rates, it is necessary to state briefly the steps in the reasoning adopted by the Committee of Estimates in support of its recommendations. ( 31 ) TO examine the question of the reasonableness or otherwise of these rates, it is necessary to state briefly the steps in the reasoning adopted by the Committee of Estimates in support of its recommendations. ( 32 ) THE Committee examined the financial implications of the original taking over of the assets of the Government and the Corporation connected with the water supply and sewerage system as well as the income and expenditure and the general financial position of the Board from its inception till 31st March 1968. The Board furnished the Committee with detailed figures and relevant information in the form of Notes. ( 33 ) AS already stated, the capital outlay for water supply system from Hesaraghatta and Thippagondanahalli reservoirs was originally made by the Government of the erstwhile State of Mysore. The value of the capital assets transferred by the Government was assessed at Rs. 543 lakhs which included Rs. 129 lakhs of Government assets transferred to the corporation and from the Corporation to the Board. In addition, the corporation itself had built up capital assets of the value of about Rs. 258 lakhs which were also transferred to the Board. For building those assets, the Corporation had borrowed, from time to time, large sums of money from the Government. The amount of such loans remaining to be recovered from the Corporation at the time of the formation of the Board was rs. 98. 80 lakhs. ( 34 ) THE Board did not pay anything for these assets, but the transfer of assets was subject to the following conditions. ( 35 ) THE original total capital outlay by the Government appears to have been Rs. 559 lakhs. Deducting therefrom Rs. 90 lakhs then standing to the credit of the depreciation reserve maintained by the Government and adding thereto the value of certain other minor assets, the depreciated or the written down value was fixed at Rs. 480 lakhs. This amount was treated as a permanent non-repayable loan to the Board (in other words, the original capital of the Board), and on the said amount interest is to be paid to the Government at the rate of six per cent, which works out to Rs. 28. 77 lakhs, per year. ( 36 ) THE liability of the Corporation for the balance loan of Rs. 98. 80 lakhs was taken over by the Board. 28. 77 lakhs, per year. ( 36 ) THE liability of the Corporation for the balance loan of Rs. 98. 80 lakhs was taken over by the Board. On a calculation made by the Accountant-General, the Board was to pay to the Government every year rs. 4. 33,300 for principal and Rs. 3,40,700 for interest. ( 37 ) FOR meeting the initial working expenses, the Government advanced what is called a maintenance loan of Rs. 25 lakhs to the Board the loan was to bear interest at six per cent and was to be repaid in instalments. It is found thait till 31st March 1966, the Board had repaid rs. 5,85,450, and a further sum of Rs. 5,00,000 during each of the years 1966-67 and 1967-68. ( 38 ) UNDER S. 24 of the Act, the Board is required to create a depreciation reserve and to credit to such reserve from its revenue at the end of every year such amount as would, if compounded at the rate of three per cent per annum, produce 90 per cent of the value at the end of the respective periods set out in the Schedule to the Act. On a calculation made by or on the advice of the Accountant-General, the annual depreciation in the case of Government assets of the value of Rs. 543 lakhs is 2. 3 per cent of the said value and in the case of the Corporation assets of the value of rs. 258 lakhs two per cent of the said value. In the case of other new assets acquired by the Board, the annual depreciation is about 1. 66 per cent of their value at acquisition. ( 39 ) LOOKING into the account statements furnished by the Board, the Committee found that in the accounts for six months ended 31st March 1965 and of the year 1965-66, the Board had made the mistake of thinking that the Government assets transferred to the Corporation and then to the board of the value of Rs. 129 lakhs were not included in the sum of Rs. 543 lakhs the alue fixed for the Government assets, and consequently they had calculated and debited in their accounts interest and depreciation on a total sum of Rs 672 lakhs This error was admitted by the Board. 129 lakhs were not included in the sum of Rs. 543 lakhs the alue fixed for the Government assets, and consequently they had calculated and debited in their accounts interest and depreciation on a total sum of Rs 672 lakhs This error was admitted by the Board. (We find that the same has been rectified in the audited accounts of 1966-67 now shown to us ). On correcting tho said error and certain other minor errors, the Board found that the deficit for six months ended 31st March, 1965 stood reduced from Rs 21 lakhs to Rs 18 lakhs, and that the deficit of Rs. 20 lakhs for the year 1965-66 became a surplus of six lakhs. They also found on the figures furnished that the surplus for the year 1966-67 was Rs. 14 lakhs and that for the year 1967-68 was Rs. 25 lakhs. Hence, they found that during the working of the Board from 1st October 1964 to 31st March 1968, the total overall surplus was Rs. 27 lakhs. ( 40 ) SO far, there is no dispute. ( 41 ) THE Committee then took up for exclusive examination the figures for the years 1967-68 for the purpose of arriving at a reasonable rate for water. ( 42 ) IN paragraph 4. 6 of the Report, the Committee found that, out of a total quantity of 46,636 million litres, only 33,572 million litres were actually billed for. The break-up of the said net quantity of 33,572 million litres actually billed is asfollows: million litres million gallons ( 43 ) THE expenditure was as follows: ( 44 ) NOW, under the agreement between the Corporation and the board, the former agreed to pay to the latter on account of cash rebate in lieu of free allowance in the case of domestic connections and for water used for public fountains at the rates specified in the agreement. The committee calculated the amount payable by the Corporation under the agreement and found it to be Rs. 59. 65 lakhs under the old agreement. ( 45 ) AS already stated, the source of the Corporation's income for meeting its liability under the agreement was the enhancement in the rate of property tax. The committee calculated the amount payable by the Corporation under the agreement and found it to be Rs. 59. 65 lakhs under the old agreement. ( 45 ) AS already stated, the source of the Corporation's income for meeting its liability under the agreement was the enhancement in the rate of property tax. Looking into the break-up of figures of the items constituting property tax before the constitution of the Board, the Committee determined that 71/2 per cent of the annual value, i e , one half of the total property tax levied at 15 per cent of the annual value would constitute the fund out of which the Corporation could meet its liability under the agreement. The Committee also found that t''e total annual value of property bearing property tax during 1967-68 was of the order of ten crores and that therefore the total property tax collected by the Corporation was 1. 5 crores out of which Rs 75 lakhs were available for meeting its liability under the agreement. ( 46 ) FOR calculating proper rate for domestic consumption, the Committee proceeded as follows: The total expenditure for the year was 110 lakhs. The total income from consumption of water for non-domestic purposes (Rs. 48. 30 lakhs), from meter hire (Rs. 3. 43 lakhs) and from other miscellaneous sources (Rs. 5. 61 lakhs) was just over 57 lakhs. Deducting the said sum of Rs. 57 lakhs from the total expenditure of Rs. 110 lakhs the balance of Rs. 53 lakhs would represent the amount to be met by the board from the Income derived from domestic supply and public fountains. Now, the total quantity of water consumed for domestic purposes (16,686 million litres) and public fountains (7,300 million litres) came to 23,986 million Hires. Dividing Rs. 53 lakhs by 23. 936 million litres, the Committee worked out the cost of water to be approximately 22 paise per 1000 litres. ( 47 ) IT is on this basis that they suggested that the amount to be paid by the Corporation on account of their recommended free allowance of 25,000 litres per domestic connection may be fixed at Rs. 66 per year and on account of public fountains at Rs. 660 per year for every public fountain. ( 47 ) IT is on this basis that they suggested that the amount to be paid by the Corporation on account of their recommended free allowance of 25,000 litres per domestic connection may be fixed at Rs. 66 per year and on account of public fountains at Rs. 660 per year for every public fountain. They pointed out that at this rale, the total liability of the Corporation on account of free allowance for domestic connections as well as public fountains would be about Rs. 52. 00 lakhs which is much below rs. 59. 65 lakhs as under the old agreement. ( 48 ) IT will al5o be seen that the sliding scale of rates recommended by the Committee for water used in excess of free allowance were slightly higher than the actual worked out cost of 22 paise. ( 49 ) NOW, there can be little doubt that if the cost can be said to have been correctly worked out by the Committee, their recommendations would be perfectly reasonable and justifiable in the circumstances. The only way in which the Board in its counter-affidavit tries to make out that the cost has not been correctly worked out by the Committee is that it has left out of account certain necessary outgoings whirh have a bearing on cost. The amounts so said to have been left out are listed as follows in the counter-affidavit: i. Amounts debitable under S. 16 (l) (a), viz. , depreciation on Corporation assets taken over valued at Rs. 2,57,90,455: 1964-65-1,99,806, 1965-66-5,99,419, 1966-67-5,99,419 and 1967-68-5,99,419. II. Amounts debitable under S. 16 (1) (b), viz. , repayment of loans: (1) Maintenance loan from the Government: 1964-65-Nil, 1965-66-5,85,450. 1966-67-5,00,000 and 1967-68-5,00,000. (2) Govt. loans taken over from the Corporation; 1964-65-4,33,300, 1965-66-4,33,300, 1966-67-4,33,300, 1967-68-4,33,300. III. Amounts debitable under S. 16 (1q) (c), viz. , amounts spent on improvement works of Arkavathi Scheme; ( 50 ) NOW, taking up first, the omission to include in the total cost the depreciation of Rs six lakhs on the Corporation assets, the result of adding that amount would be to enhance the total cost of Rs. 110 lakhs to rs. 116 lakhs and the cost of water for domestic supply and public fountains from Rs. 53 lakhs to Rs. 59 lakhs This would put up the cost for 100 litres from 22 paise to 24. 110 lakhs to rs. 116 lakhs and the cost of water for domestic supply and public fountains from Rs. 53 lakhs to Rs. 59 lakhs This would put up the cost for 100 litres from 22 paise to 24. 20 P. which is still below the rate fixed for the first slab of consumption above the free allowance. Hence the rate schedule above the free allowance will not result in any loss to the Board. ( 51 ) AT the same time, the enhanced rate will also result in an enhancement of the amount recoverable by the Board from the Corporation under the agreement. At the rate of 22 paise determined by the Committee it had calculated the total liability of the Corporation under the agreement both for free allowance as well as for public fountains at Rs. 52 20 lakhs this gets enhanced to Rs. 57. 72 lakhs. It will be remembered that the actual total liability worked out under the old agreement is Rs. 59. 65 lakhs. Hence there is no loss to the Board. Under the new agreement which came into force from 1st January 1969, the rates agreed to are Rs. 75 per annum for every domestic connection (total connection being taken pt 55,000) and Rs. 750 per annum for every public fountain (total number of fountains is 2,400); the total amount calculated is Rs 59. 25 lakhs Here again, there is no loss to the Board. I here is in fact an excess of about Rs. 2,00,000 ( 52 ) THE said excess would cover a considerable portion of the instalment repayments of the principal of the Corporation loan payable by the board to the Government which, as we have already pointed out, is fixed at Rs. 4,33,300. The short-fall is covered by interest on deposits not added to income by the Committee of Estimates. Hence, the omission to take note of the said instalment repayment will make no appreciable difference. ( 53 ) SO far as the repavmenf of maintenance loan is concerned, we are clearly of the opinion that the claim of the Board for its addition is unsustainable. Now, it will be seen that the maintenance loan is a loan for meeting the expenditure until the income starts coming in. ( 53 ) SO far as the repavmenf of maintenance loan is concerned, we are clearly of the opinion that the claim of the Board for its addition is unsustainable. Now, it will be seen that the maintenance loan is a loan for meeting the expenditure until the income starts coming in. When any amount out of it is spent for expenditure, the said amount is taken into account in arriving at the total expenditure. If the income ultimately received is sufficient to meet the expenditure, then the entire loan amount remains unspent and can be returned in fact without affecting any part of the income and expenditure account. Now, the rates are so fixed as to bring in an income equal yo or slightly more than the total expenditure. Even the enhancement resulting from the addition of Rs. 6,00,000 on account of depreciation on Corpotation assets does not take the expenditure beyond the income. Hence, there can be no complaint whatever that the Committee has mistakenly omitted to take into account the instalment repavments of the maintenance loan of Rs. 25 lakhs taken from the government. ( 54 ) THERE remains the question whether the Board is right in its contention that what it calls expenditure on improvement works of Arkavathi scheme should have been added as an amount legitimately debitable under section 16 (1) (c ). ( 55 ) FOR a clear appreciation of this argument, it is necessary to set out the full tests of Ss. 16 and 24a of the Act as amended by the Amending act 6 of 1966. The said Act substituted a new S. 18 for the old section of the same number and also introduced a new S. 24a, both with retrospective effect from the commencement of the Act. 16 and 24a of the Act as amended by the Amending act 6 of 1966. The said Act substituted a new S. 18 for the old section of the same number and also introduced a new S. 24a, both with retrospective effect from the commencement of the Act. ( 56 ) THE new Section 16 reads as follows:"general principles for Board's Finance.-- (1) For carrying on its operations under this Act, the Board shall levy rater, fees, rentals and other charges, and shall vary such rates, fees, rentals and other charges from time to time in order to provide sufficient revenue,- (a) to cover operating expenses, taxes and interest payments and to provide for adequate maintenance and depreciation; (b) to meet repayments of loans and other borrowings; (c) to finance normal year to year improvements; and (d) to provide for such other purposes beneficial to the promotion of water supply and disposal of sewage in the Bangalore Metropolitan area as the Board may determine. (2) No part of the revenue of the Board, after meeting the expenses referred to in clauses (a), (b) and (c) of sub-sec. (1) shall be used to augment the reserves of the Board other than the reserves referred to in Ss. 24 and 24a or for the general purposes of the Board including expenses in connection with capital works, other than improvement works. "the new Section 24a reads as follows:"improvement Reserve.-The Board shall create a reserve for improvement works and shall, at the end of every year, credit to such reserve from its revenue such percentage of the balance remaining after meeting its operating, maintenance and management expenses and after adequate provision is made for depreciation, taxes, interest and amortization payments on loans and other borrowings as the Board may determine, taking into consideration the improvement works which the Board will have to execute in order to provide adequate water suply and sewage disposal services in the Bangalore Metropolitan area. " ( 57 ) NOW S. 16 sets the limits for fixation of rates, fees, rentals, etc. , and expressly states what expenses and outgoings the same are intended to cover. By necessary intendment, the section prohibits recovery of rates, fees, rentals, etc. , for meeting any purposes other than what are set out in clauses (a) to (d) of sub-sec. (1) tnereof; sub-sec. , and expressly states what expenses and outgoings the same are intended to cover. By necessary intendment, the section prohibits recovery of rates, fees, rentals, etc. , for meeting any purposes other than what are set out in clauses (a) to (d) of sub-sec. (1) tnereof; sub-sec. (2) further expressly states that expenses of capital works can never be paid out of revenue. ( 58 ) THE principle behind the section is obviously that what can be collected under S. 16 (1) is only a fee for specified service or services and not a lax for general purposes. The express prohibition of charging expenses of capital works to revenue and against fixing the rate of fee on that basis also sub-serves the same purpose, because expenses of capital works are not expenses in connection with something that is consumed in the use during the year of expenditure. Capital works are of an enduring nature and are available for use over long periods which may vary from asset to asset and which have either to be fixed by statute or to be estimated on the basis of normal experience. If the asset is estimated to last a hundred years, the expenditure or outlay thereon would not be expenditure of one year but an expenditure to be spread over a period of 100 years. That is the foundation for the practice of writing down depreciation and carrying the same to a depreciation reserve, because that way the expenditure is rateably spread over the entire period of expected length of the life of the asset in question and enables the fixing of a rate which is really a fee and not a tax. ( 59 ) SUCH being the legal basis of S. 16, the expression 'normal year to vear improvements' in clause (c) of sub-sec. (1) should prima facie be taken to mean items, the expenditure in respect of which can rightly be regarded as a normal expenditure of the year in which it is incurred. ( 60 ) BUT some difficulty has been created, which has given room for much argument before us, by reason of the fact that neither the expression 'improvement' nor the expression 'improvement works' has been defined in the Act. ( 60 ) BUT some difficulty has been created, which has given room for much argument before us, by reason of the fact that neither the expression 'improvement' nor the expression 'improvement works' has been defined in the Act. There is, however, a definition of 'works' in clause (35) of section 2 which reads:"'water works' includes all lakes, tanks, streams, cisterns, springs, pumps, wells, reservoirs, aqueducts, water trucks, sluices, mains, pipes, culverts, hydrants, stand pipes and conduits and all lands, buildings, machinery, bridges and things used for, or intended for the purpose of supplying water. "it will be seen that all the items set out in this definition are obviously capital items, in respect of which depreciation is to be calculated and carried to a depreciaton reserve under S. 24 read with the Schedule. Under the said Schedule, the life of land owned under full title is shown as infinite, life of roads other tnan katcha roads one hundred years; so far as the other items set out in the definition are concerned, the Schedule would lead to the conclusion that their life should be estimated at fifty years. It is a reasonable inference therefore that these are all capital works and that any expenditure thereon will be expenditure on capital works which cannot, under S. 16, be charged to revenue. But the argument strenuously put forward by the Board is that because the prohibition against the charging of capital works to revenue is followed by the exception reading 'other than improvement works', it might as well be said that improvement works are a species of capital works. We find it a little difficult to accept this argument or to permit it to be taken, to its logical conclusion, viz. , that a capital work, which could last fifty years, can be brought within the expression 'of a year to year improvement'. ( 61 ) THERE is, on the other hand, a clear indication in the two Ss. 16, and 24a sufficient to make out that what is called the improvement reserve can only be a reserve intended 'to finance normal year to year improvements'. ( 61 ) THERE is, on the other hand, a clear indication in the two Ss. 16, and 24a sufficient to make out that what is called the improvement reserve can only be a reserve intended 'to finance normal year to year improvements'. ( 62 ) NOW, it will be seen that under S. 24a, the source of the improvement reserve is a percentage of the balance of the revenue which remains after meeting- (a) operating maintenance and management expenses, taxes, interest, and adequate provision for depreciation, and (b) amortization payments on loans and other borrowings. We have deliberately classified these items under two heads (a) and (b), because thereby it becomes perfectly clear that the items classified by us under (a) are identical with the items enumerated in clause (a) of sub-sec. (1) of S. 16, and the items classified by us under (b) are identical with the items enumerated in clause (b) of sub-sec. (1) of Section 16. In sub-sec. (2), it is no doubt stated that no part of ithe revenue, after meeting the expenses referred to in clauses (a), (b) and (c) of sub-sec. (1) shall be used for creating reserves other than depreciation reserve under s. 24 and improvement reserve under S. 24-A. This gives the impression that both these reserves are to be created after meeting the expenses referred to in clauses (a), (b) and (c) of sub-sec. (1 ). But in actual event, the transfer to the depreciation reserve is the same as the provision for adequate depreciation mentioned in clause (a) of sub-sec. (1), and the transfer to the improvement reserve is the same as the financing of normal year to year improvements under clause (c) thereof, because the surplus, out of which it can be created, is described in S. 24-A as the revenue balance which remains after meeting the expenses set out in clauses (a) and (b) of sub-sec. (1) of S. 16. ( 63 ) HENCE, both the legal principle underlying S. 16 which provides for the imposition of a fee and not a tax as well as the language of the two ss. 16 and 24-A lead to the inference that the creation and maintenance of the improvement reserve is intended only to finance year to year improvements and not any capital works. 16 and 24-A lead to the inference that the creation and maintenance of the improvement reserve is intended only to finance year to year improvements and not any capital works. ( 64 ) MUCH argument has been expended on the meaning to be assigned to the word 'improvement', and extracts cited from Law Lexicons and decided cases. The general effect of all these citations is that the idea of improvement is not an idea which exists in vacuo but has to be understood in connection with a specified property or asset and that with reference to such property or asset, 'improvement' means something which is beneficial to the said property or asset and enhances its value. What follows is that 'improvement' is an act in connection with, or with reference to, an existing asset, and not the creation of a new asset. ( 65 ) IN this view, the expression 'improvement works', both under s. 16 (2) as well as in S. 24-A of the Act, must reasonably be read as some work done to improve an existing capital asset described in clause (35) of S. 2, and not the creation or fresh acquisition of any asset falling within the defintion of that clause. The improvement works are referred to in s. 24a as those which the Board will have to execute in order to provide adequate water supply and sewage disposal services. We do not think that it could be said that the section assumes that the existing supply is inadequate and that, therefore, something has to be done to improve it to the level of adequacy, because that would clearly take in the undertaking of new and larger schemes incurring capital expenditure which, according to the express provisions of S. 16, cannot be met out of normal revenue. The only reasonable way to look at it is to hold that the improvement works, which are works in connection with the existing assets, are those which are intended to rectify a fall in existing efficiency or in other words, to correct any deficiency which has occurred, so that the level of efficiency may be maintained. The provision for depreciation, as already stated, proceeds upon the assumption that the asset would last for a specified number of years. The provision for depreciation, as already stated, proceeds upon the assumption that the asset would last for a specified number of years. If, for some unforeseen reason or by reason of unexpected natural calamity, the asset gets destroyed or ceases to be useful before the expiry of the said period, the same will have to be either replaced or repaired so as to bring its value to the level of the written down or depreciated value at the time in question, and to make it serviceable for the balance period also or longer, if possible. ( 66 ) THAT such a view is sufficient to meet all contingencies is also clear from the fact that where additional works are necessary for water supply and sewage disposal services in the case of new extensions or new layouts, the expenses are met either by the City Improvement Trust Board or by the person responsible for making the layout and also from the fact that in the case of new connections in existing residential areas, the party who seeks the connection pays the cost. ( 67 ) FROM all this discussion, one thing that follows clearly is that 'improvement works' are never capital works. To the extent they have something to do with the existing capital works, they may, after execution, form part of an existing capital work. That may perhaps be the reason why S. 16 (2) uses the expression 'capital works other than improvement works', and S. 24-A uses the expression 'improvement works which the board will have to execute'. ( 68 ) NOW, the items described in the counter-affidavit as 'improvement works' of Arkavathi scheme have at all times been treated by the board itself as capital works. Even in the resolution of the Board produced with the further counter-affidavit which we permitted the Board to file, the said works are described as capital works. The Resolution reads:"xxix. Classification of Capital Expenditure - Cauvery and atkavathy Schemes - Approach to water rates. The Board wanted the matter to be gone into in detail by the standing Technical Committee and the latter to place their recommendations before the Board, as this involved important question which might result in increase of water rates to be paid by the citizens of bangalore. The Board wanted the matter to be gone into in detail by the standing Technical Committee and the latter to place their recommendations before the Board, as this involved important question which might result in increase of water rates to be paid by the citizens of bangalore. " ( 69 ) THE argument before us was that these works, though actually executed in connection with the supply of water from Thippagondanahalli reservoir at the confluence of Kumadvathi and Arkavathi rivers, were mistakenly taken into account under the Cauvery Water Supply Scheme. It is, therefore, found necessary, according to the argument, to classify them and treat the works in connection with the Arkavathi scheme as improvement works which can be taken into account under S. 16 (1) (c) for fixing a rate, and for future also, the Board is entitled or bound to create an improvement reserve ior similar works from out of current revenue year by year. There are two good reasons why this attempt to convert capital wonts into improvement works should fail. The first reason is that a majority or the items listed in the several extracts and abstracts from accounts annexed to the further counter-affidavit are demonstrably items in the nature of capital works. Some of them are lands, some of them are buildings, some of them are mere cost of meters which is ultimately collected from the consumers themselves; some of them are new pipe lines and drains laid and some of them are bridges, culveris, etc. Whether and if so any of them may, without violence to law and principles, be regarded as mere improvements and not iresh capital works is more than one could say. The second and stronger reason is that the cod- of all these items was met out of loans received from the Government in connection with the cauvery Project. The total estimated cost of the said works is Rs. 22. 32 crores. Between February 1965 and May 1969, a total of Rs. 4,93,00,000 had been received. Loans from time to time received are shown as capital in the balance sheets of the Board and the amounts so far spent are shown on the right side of the balance sheets under the head "fixed Assets". 22. 32 crores. Between February 1965 and May 1969, a total of Rs. 4,93,00,000 had been received. Loans from time to time received are shown as capital in the balance sheets of the Board and the amounts so far spent are shown on the right side of the balance sheets under the head "fixed Assets". According to the latest Government Order dated 13th January 1970, an authenticated copy whereof has been produced before us, all the loans so far granted and still to be granted are to be treated as consolidated loans, and re-payments are to commence one year after the drawal of the last instalment of the consolidated loan and made in instalments spread over a period of 25 years thereafter. Interrdt accused on instalments already drawn is expected to De paid at the end of each year up to the commencement of re-payment of the principal and then, along with ye instalments of principal. In a Note presented to the Committee of Estimates, the Board has stated:"interest as well as repayment of instalments of loans borrowed from Government on Cauvery scheme are being capitalised. Further, the repayment of instalments og loan give a for maintenance works sd also the loans sanctioned to the Corporation under the plan schemes and transferred as a liability ol the Board are being capitalised under commercial principles and not changed to wayer rate. " (Vide Paragraph 4. 17 of the Committee's Report ). ( 70 ) WE are therefore oi the opinion that the Board's contention that the total of about Rs. 85 lakhs said to have been spent out of these loans for Arkavathi Scheme should be charged to revenue and taken into account for fixation of a reasonable rate for water supply during the period with which we are concepted, viz. , 1st October, 1964 10 31st December 1968, is not sustainable. For the future, the creation of an improvement reserve could be rightly done only in the light of what we have stated about the true meaning of the expression 'improvement' and the true statutory purpose of creating such a reserve. , 1st October, 1964 10 31st December 1968, is not sustainable. For the future, the creation of an improvement reserve could be rightly done only in the light of what we have stated about the true meaning of the expression 'improvement' and the true statutory purpose of creating such a reserve. The reserve, as will be remembered, has to be created only if there is a surplus, and when, as already pointed out, the rate schedule for consumption of water above the free allowance is progressively above the actual cost worked out, there is always a possibility of there being a surplus. Tt is apparently this possibility that the Legislature has taken into account in directing the Board to utilise the surplus for it movements so that a true balance may be maintained between the rates charged and the actual cost of maintaining an adequate water supply. ( 71 ) FOR all these reasons, we have no hesitation in holding that the recommendations of the Committee of Estimates both on the question of free allowance as well as in regard to the rates to be charged for water consumed in excess of the free allowance for domestic purposes are perfectly reasonable on the available material ( 72 ) THE further suggestion made on behalf of the Board in the course of the argument that there is or may be a case for actually enhancing the said rates appears to us, on existing and foreseeable circumstances, to be extravenant. As the Committee pointed out the number of domestic connections has shown a tendency to increase There is also considerate wastage of water which the Committee estimated at 28 per cent during the year 1967-68. which is capable of being reduced by taking effective measures. The depreciation reserve which according to the audited accounts now shown to us stood at Rs. 45-1/2 lakhs at the end of March 1967, must be a crore by now at an average of about 18-1/2 lakhs per year. The corresponding bank deposits must also have risen and both will steadily grow as years pass. The Corporation's capacity to pay for water which the Committee estimated at Rs. 75 lakhs during the year 1967-68 and which will grow, has not yet been fully tapped. The corresponding bank deposits must also have risen and both will steadily grow as years pass. The Corporation's capacity to pay for water which the Committee estimated at Rs. 75 lakhs during the year 1967-68 and which will grow, has not yet been fully tapped. ( 73 ) THERE only remains the question whether the rates actually charged for the period ended 31st December 1968 are so exorbitant or disproportienate to the cost of service as to be regarded as having lost their character as a fee. To examine this position we have had calculations made The result is tabulated below - ( 74 ) THERE is therefore no case for holding that the rates prevalent prior to 31st December 1968 were so far in excess of what are reasonable as a fee as to totally lose the character of a fee. ( 75 ) THE Writ Petitions are dismissed No order as to costs. --- *** --- .