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1978 DIGILAW 162 (KER)

State Bank Of Travancore v. Municipal Council

1978-07-05

M.P.MENON, V.P.GOPALAN NAMBIYAR

body1978
JUDGMENT M.P. Menon, J. 1. The State Bank of Travancore, a subsidiary of the State Bank of India, and with branches at Alwaye, Thiruvalla and Quilon, among other places, is the petitioner in all the three writ petitions; and the levy of profession tax at annual rates exceeding Rs. 250 in respect of the above three branches by the concerned municipalities, is under challange. The said three municipal towns are situated in the area of the former Travancore State. The Travancore District Municipalities Act, 1116 provided for levy of profession tax at rates exceeding Rs. 250 a year. The Kerala Municipalities Act, 1960 repealed the Travancore Act; but the proviso to R.19(1) of the Taxation and Finance Rules in Schedule II to the Kerala Act permitted the continuance of the levy at such higher rates, obviously in the light of the proviso to Art.276(2) of the Constitution of India. The main point raised in the Original petitions is that proviso to R.19(1) travels beyond the limits of the proviso to Art.276(2). 2. To appreciate the nature of the contentions advanced, the relevant constitutional and statutory provisions have to be examined. Art.276 of the Constitution reads: "276. (1) Notwithstanding anything in Art.246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income. (2). The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two hundred and fifty rupees per annum: Provided that if in the financial year immediately preceding the commencement of this Constitution there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate, of which exceeded two hundred and fifty rupees per annum, such tax may continue to be levied until provision to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities. (3) The power of the Legislature of a State to make laws as aforesaid with respect to taxes on professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments." R.16(1) forming part of the "Taxation Rules" in Schedule II to the Travancore Act was in the following terms: "16. (1) The classes into which companies and persons shall, for the purposes of assessment to the profession tax, be divided and the maximum half year tax leviable on each class shall be as follows: Class Half Yearly income Maximum half yearly tax Rs. Chs. Rs. Chs. I More than 21,00 .. 275 0 **                     **                        ** **                     **                        ** XII Do 150 but more than     300 0 14 Provided that a company whose half yearly income is more than twenty one thousand rupees shall, notwithstanding anything contained in this or any other rule, pay in addition to the maximum half yearly tax of rupees two hundred and seventy five and additional half yearly tax on such excess calculated at the rate of one rupee per one hundred rupees or part thereof." And R.19(1) of the Taxation and Finance Rules in Schedule II forming part of the Kerala Act reads: "19. (1) The classes into which companies and persons shall, for the purposes of assessment to the profession tax, be divided and the maximum half yearly tax leviable on each class shall be as follows: Class Half yearly Income Rs. Maximum half Yearly tax Rs. I More than Rs. 15,000 12,500 **                      **                      ** **                      **                      ** IX ,, 600 but more than Rs. 1,200 300 Provided that if in the financial year immediately preceding the commencement of the Constitution of India any municipality was imposing profession tax at a rate higher than two hundred and fifty rupees per annum and continued to levy the tax at such higher rate immediately before the commencement of this Act, such municipality may continue to levy profession tax at such rate." 3. Art.276(1) protects State enactments relating to profession tax from attack on the ground that it is a tax on income which, under the Scheme of Art.246 and the VII Schedule, is a Union subject. Art.276(1) protects State enactments relating to profession tax from attack on the ground that it is a tax on income which, under the Scheme of Art.246 and the VII Schedule, is a Union subject. Clause (2) however restricts the aforesaid legislative power by providing that the maximum profession tax per annum shall not exceed by Rs. 250. The proviso then relaxes the restriction to a certain extent by authorising State Legislatures to continue the levy at higher rates if such levy was there immediately before the commencement of the Constitution, until provision to the contrary is made by Parliament by law. Admittedly, Parliament has not so far made any such law; and the question therefore is whether the proviso to R.19(1) of the Taxation and Finance Rules in Schedule II of the Kerala Act, amounts to a "continuance" of the levy as envisaged by the proviso to Art.276. 4. A Division Bench of this Court had answered this question in the affirmative in Travancore Minerals Ltd. v. Commissioner, Quilon Municipality and another. 1965 KLJ 376 we are in agreement with this view; and the matter should have rested there, but for the persuasive efforts of counsel for the petitioners to canvass its correctness, particularly with reference to an earlier Division Bench decision, and also a subsequent one, to which one of us (the learned Chief Justice) was a party. We shall therefore proceed to examine the two decisions and clarify the position. 5. The earlier decision in M/s Harrisons and Crossfield Ltd. v. Commissioner, Quilon Municipality 1961 KLJ 971 arose from a challenge to the validity of the Profession Tax (Validating and reassessment) Act, XIV of 1958. R.18 of the Taxation Rules in Schedule II to the Travancore District Municipalities Act, 1116 as it originally stood provided for assessment of profession tax in respect of business income, at a percentage of the income computed under S.8 of the Travancore Income Tax Act. The Finance Act subsequently extended the Indian Income Tax Act to Part B States (including Travancore - Cochin), repealing the Travancore Income Tax Act and therefore some assessments thereafter made were set aside by the T.C. High Court on grounds which are not material here. The Finance Act subsequently extended the Indian Income Tax Act to Part B States (including Travancore - Cochin), repealing the Travancore Income Tax Act and therefore some assessments thereafter made were set aside by the T.C. High Court on grounds which are not material here. An attempt was then made in February, 1956 to amend Rule 18 with retrospective effect from 1st April 1950, substituting the word "Indian Income Tax Act, 1922" in the place of the words "Travancore Income Tax Act". This was set at naught by another decision of this Court which held that there was no power under the Act to frame rules with retrospective effect. It was then that the Kerala Legislature stepped in with the Validating Act of 1958; and this Court, in the decision under reference, held the legislation to be invalid on the ground that an attempt to fill the gap created by the repeal of the Travancore Income Tax Act was beyond the competence of the Kerala Legislature. This Court specifically formulated the issue before it thus: "Whether the permission under the Constitution to continue levy of the profession tax on incomes, includes the authority to enact fresh rules, that empower profession tax being charged beyond the limits imposed by Art.276(2) ?" The very framing of the issue shows that the Court was confining its attention to the only question whether the Validating Act had permitted imposition of profession tax beyond the limits imposed by Art.276. The Court found that the legislation had that effect. Had the Court found that the limit was not exceeded, the further question would probably have arisen as to whether reenactment by the Kerala Legislature was a permissible method for such "continuance". This question had not directly arisen at all. The Court found that the legislation had that effect. Had the Court found that the limit was not exceeded, the further question would probably have arisen as to whether reenactment by the Kerala Legislature was a permissible method for such "continuance". This question had not directly arisen at all. The following observations in the Harrisons and Cross field's case it was however contended, had touched upon this question: "The inevitable consequence of our interpretation is that though the several municipalities in the Travancore area of this State enjoy the benefits of the enactment authorising levy of larger profession tax, which was operative in the last financial year prior to the inauguration of the Constitution, there is after January 26, 1950, no enacting power in the State Legislature either to amend the machinery parts of such legislation, or to fill the gaps therein so as to continue the levy under the new rules beyond the constitutional limitation." All that was said, as is clear from the portion underlined, was that the legislative power recognised in Art.276(1) and the proviso to Art.276(2) could not be used to continue the levy beyond the constitutional limits. When the case reached the Supreme Court in Commissioner, Quilon Municipality v. Harrisons and Cross field Ltd. AIR 1965 SC 1174 that Court also took the view, after examining the relevant facts, that the effect of the Validating Act was "to enhance the quantum of tax on the same turnover with respect to the same period", and that too, with effect from a date (1-4-1950) subsequent to the commencement of the Constitution. The Constitutional limits had thus been exceeded in two respects i.e., both as regards rate and also continuance. 6. The subsequent Division Bench decision in Trichur Wholesale Cooperative Consumers' Stores Ltd. v. Commissioner Trichur Municipality and another 1973 KLT 965 also does not disclose a different approach. The case arose from the Cochin area. The Cochin Municipal Act, 1113 had also provided for levy of Profession tax at a rate in excess of Rs. 250 a year, but societies registered under the Cochin Cooperative Societies Act were outside the purview of that Act, as a "company" was defined as not including a Cooperative Society registered under the latter. The Cochin Municipal Act, 1113 had also provided for levy of Profession tax at a rate in excess of Rs. 250 a year, but societies registered under the Cochin Cooperative Societies Act were outside the purview of that Act, as a "company" was defined as not including a Cooperative Society registered under the latter. But the Kerala Municipalities Act defined a "company" so as to include a registered Cooperative Society; and the petitioner Society in the case was sought to be assessed at rates exceeding Rs. 250 per annum, by taking advantage of the extended definition in the new Act, read with R.19(1) of Part I of Schedule II. After referring to the Supreme Court decision in Ramakrishna Ramnath v. Janpad Sabha AIR 1962 SC 1073 the Division Bench said. "Being so, it is clear that there is no power to change the rate of tax that was being levied at the relevant period referred to in the proviso to Art.276(2); or even to alter the nature and the incidence of the tax, or to substitute a new levy for the old. We need not pause to consider whether after the repeal of the Cochin Act and the reenactment of the Kerala Act, there could be a continuance of the levy at all within the proviso to Art.276 of the Constitution. Assuming that this could be done, we are satisfied that the tax imposed by the Kerala Act is not the same in its nature or incidence as the one that was imposed by the Cochin Act. Therefore, we think, there is no 'continuance of the levy' within the meaning of the proviso to Art.276(2). Under the Cochin Act the tax could not be imposed on Cooperative Societies, both by reason of the definition of the term 'Company' under S.3(viii), as well as by the operation of the proviso to S.72. Under the Kerala Act, the provisions are fundamentally different. By reason of the provisions of S.3(9) read with S.110 of the Kerala Municipalities Act, the tax can be levied on cooperative societies. The Kerala Act therefore cannot be said to have merely preserved the old tax. Under the Kerala Act, the provisions are fundamentally different. By reason of the provisions of S.3(9) read with S.110 of the Kerala Municipalities Act, the tax can be levied on cooperative societies. The Kerala Act therefore cannot be said to have merely preserved the old tax. It widened the range and ambit of the tax under the Cochin Act, and even its incidence and operation." The principle of the decision was that the limited legislative power saved under the proviso to Art.276(2) was confined to preserving and continuing something, and was not available for widening its reach and range or changing its nature and character. Something which was not there could not have been preserved or continued. That the proviso to Art.276(2) recognised a legislative power was clearly kept in mind as could be seen from the following passage from the Supreme Court decision in Ramkrishna Ramnath's case AIR 1962 SC 1073 , extracted by the learned Chief Justice: "This would therefore post a limited legislative power in the Province to indicate or express a desire to continue or not to continue the levy. If in the exercise of this limited power the Province desires to discontinue the tax and effects a repeal of the relevant statute the repeal would be effective. Of course, in the absence of legislation indicating a desire to discontinue the tax, the effect of the provision of the constitution would be to enable the continuance of the power to levy the tax but this does not alter the fact that the provision by its implication confers a limited legislative power to desire or not to desire the continuance of the levy subject to the overriding power of the Central Legislature to put an end to its continuance and it is on the basis of the existence of this limited legislative power that the right of the Provincial Legislature to repeal the taxation provision under the Act of 1920 could be rested. Suppose for instance, a Provincial Legislature desires the continuance of the tax but consider the rate too high and wishes it to be reduced and passes an enactment for that purpose, it cannot be that the legislation is incompetent. .....". Suppose for instance, a Provincial Legislature desires the continuance of the tax but consider the rate too high and wishes it to be reduced and passes an enactment for that purpose, it cannot be that the legislation is incompetent. .....". The legislative power being conceded, there could be no valid objection to its being exercised from time to time, so long as such exercise is only for preservation and continuance, and not for widening or otherwise outstepping the limits of Art.276. 7. Thus, the decision of this Court in Harrisons and Cross field's case 1961 KLJ 971 and Wholesale Cooperative Consumer Stores' case 1973 KLJ 965 are in no way irreconcilable with the view taken in the Travancore Mineral's case 1965 KLJ 376 ; and if this is so, the contention of the petitioners on this aspect should fail. In fact the very question arising here, namely whether after, or along with the repeal of the Act authorising a higher rate of levy, there can be a continuance of the levy by the reenacted legislation, was expressly left open by the Division Bench in the Wholesale Cooperative Consumer Stores' case 1973 KLJ 965 . That question arises here and is directly covered by the Travancore Mineral's case 1965 KLJ 376 . In our opinion reenactment by the Kerala Legislature for the limited purpose of continuing the levy under the repealed Travancore Act, does not offend the proviso to Art.276. 8. The other point raised is that the levy continued under the Kerala Act is not the same as the one imposed by the Travancore Act; in other words that there was not a mere 'continuance', but the levy of a new or a different impost. For this the petitioners relied on the definition of the term "company" in the Travancore Act. S.3(8) of the Act reads: "Company' means a company as defined in The Travancore Companies Act, 1114 and includes any firm or association carrying on business in Travancore whether incorporated or not and whether its principal place of business is situated in Travancore or not." The proviso to R.16(1) of Schedule II to the Travancore Act applies only to companies as defined in that Act i.e., companies covered by the Travancore Companies Act, 1114. The petitioner bank, it is said, is not such a company, but one constituted under S.3 of the State Bank of India (Subsidiary Banks) Act 38 of 1959. The argument is that a statutory corporation like the petitioner, was outside the purview of the proviso to R.16(1) of the Travancore Act, whereas it was brought within its fold in the Kerala Act. Therefore, it was said, the nature and character of the levy had been changed, and there was not a mere 'continuance' of the old levy, but the imposition of a different levy. We cannot agree. It is possible that a statutory corporation was not a well known entity, to be separately and specifically dealt with, at the time when the District Municipalities Act of 1116 was passed. Whatever that be, a legislative intent to keep the definition as wide as possible so as to rope in the carrying on of any business, is discernible in S.3(8). Taking into account the purpose and the scope of the Act, we feel little difficulty in holding that the petitioners would fill the bill of "an association carrying on business, whether incorporated or not" in S.3(8) of the Travancore Act of 1116. 9. It may also be relevant to note that the Travancore Bank Limited was the predecessor of the State Bank of Travancore before the latter was constituted on 1st January 1960, under Central Act 38 of 1959. In view of what is stated above, the Original Petitions have to be dismissed and we do so, but without any order as to costs.