Model Town Residents Association, Patiala v. State of Punjab
2001-08-27
G.S.SINGHVI, M.L.SINGHAL
body2001
DigiLaw.ai
JUDGMENT G.S. Singhvi, J. - The common question of law which arises in these petitions involves determination of the constitutionality of Sections 3(1) of the Punjab Municipal Act, 1911 (as amended by Punjab Act No. 11 of 1984 for short, the Act). In CWP Nos. 14253 of 1996 and 3386 of 1999, the petitioners have also challenged the vires of Section 67(3). In CWP No. 3386 of 1999, the constitutional validity of Section 3(8a) has also been challenged. The other questions raised by the petitioners relate to the legality of the orders of assessment and/of appellate or revisional orders and/or notices issued by the concerned municipalities for recovery of house tax. 2. The petitioners have referred to the un-amended and amended definition of the expression "annual value" contained in section 3(1) of the Act and have averred that Clause (b) of amended Section 3(1) is liable to be declared ultra vires to the legislative power of the State because it seeks to empower the municipalities to levy house tax on the capital value of the property occupied by the owner and this subject falls within the exclusive domain of the Parliament under Entry 86 of List-I (Union List) of the Seventh Schedule of the Constitution. They have further averred that Section 3(1) of the Act is discriminatory and violative of Article 14 of the Constitution of India because the classification made between the land or building on the basis of their occupation by tenant or owner is artificial, arbitrary and irrational and has no nexus with the object of imposing tax on land or building. 3. The respondents have defended the impugned provision by asserting that the house tax is being levied on land or building and not on capital assets of the owner and the State Legislature is competent to legislate on this subject under Entry 49 of List-II (State List) of the Seventh Schedule of the Constitution. They have averred that for the purpose of giving effect to the mandate of the provisions contained in Part IX-A of the Constitution, the Punjab Municipal Act, 1911 was amended by the State Legislature imposing greater burden on the municipalities and with a view to enable them to generate more revenue to meet the additional expenditure, the definition of annual value was also amended.
In the written statements filed on behalf of some of the municipalities, it has been averred that determination of annual value under the amended definition is commensurate with the expenses incurred by them in providing services to the owners and occupants of lands and holdings. They have further averred that amendment in the definition of annual value was necessitated to provide better structure to the local bodies to meet the growing needs of the urban population and better civic amenities to the residents, According to them, gross annual rent is the basis for determination of annual value of the land or building in occupation of the tenant and the concept of annual value has been introduced for land or building occupied by the owner. 4. Before adverting to the arguments of the learned counsel for the parties, we deem it proper to notice Entry 86 of List-I and Entry 49 of List-II of the Seventh Schedule of the Constitution, un-amended and amended Section 3(1), Section 3(8a), Sections 61(a) and 67(3) of the Act which have direct bearing on the decision of these petitions. The same read as under : "Entry 86 of List-I 86. Taxes on the capital value of the assets, exclusive of agricultural land of individuals and companies; taxes on the capital of companies. Entry 49 of List-II 49. Taxes on lands and buildings. Un-amended Section 3(1) of the Act 3. Definition.
The same read as under : "Entry 86 of List-I 86. Taxes on the capital value of the assets, exclusive of agricultural land of individuals and companies; taxes on the capital of companies. Entry 49 of List-II 49. Taxes on lands and buildings. Un-amended Section 3(1) of the Act 3. Definition. - In this Act, unless there is something repugnant in the subject or context - (1) "Annual value" means a) in the case of land, "the gross annual rent at which it may reasonably be expected to let from year to year" provided that in the case of land assessed to land revenue or of which the land revenue has been wholly or in part released, compounded for, redeemed or assigned, the annual value shall if, the State Government so direct, be deemed to be double the aggregate of the following amount, namely : i) The amount of the land revenue for the time being assessed on the land, whether such assessment is leviable or not; or when the land revenue has been wholly or in part compounded for or redeemed, the amount which, but for such composition, or redemption would have been leviable; and ii) When the improvement of the land due to canal irrigation has been excluded from account in assessing the land revenue the amount of owners rate or water advantage rate or other rate imposed in respect of such improvement; b) In the case of any house or building, the gross annual rent at which such house or building, together with its appurtenances and any furniture that may be let for use or enjoyment forthwith, may reasonably be expected to let from year to year subject to the following deductions : i) such deduction not exceeding 20 per cent of the gross annual rent as the committee in each particular case may consider a reasonable allowance on account of the furniture let therewith; ii) a deduction of 10 percent for the cost of repairs and for all other expenses necessary to maintain the building in a state to command such gross annual rent.
The deduction under sub-clause shall be calculated on the balance of the gross annual rent after the deduction (if any) under sub-clause (i); iii) where the land is let with a building, such deduction not exceeding 20 percent of the gross annual rent as the committee in each particular case may consider reasonable on account of the actual expenditure, if any, annually incurred by the owner on the upkeep of the land in a state to command such gross annual rent; Explanation-I. - For the purpose of this clause, it is immaterial whether the house or building, and the furniture and the land let for use or enjoyment therewith, are let by the same contract or by different contracts and if by different contracts whether such contracts are made simultaneously or at different times. Explanation-II. - The term "gross annual value" shall not include any tax payable by the owner in respect of which the owner and tenant have agreed that it shall be paid by the tenant. c) in the case of any house building, the gross annual rent of which cannot be determined under clause (b), 5 per cent on the sum obtained by adding the estimated present cost of erecting the building, less such amount as the committee may deem reasonable to be deducted on account of depreciation (if any) to the estimated market value of the site and any land attached to the house or building; Provided that - i) in the calculation of the annual value of any premises no account shall be taken of any machinery thereon; ii) when a building is occupied by the owner under such exceptional circumstances as to tender a valuation at 5 per cent on the cost of erecting the building, less depreciation, excessive a lower percent age may be taken. Amended Section 3(1) of the Act. 3. Definition in this Act, unless there is something repugnant in the subject or context : i) Annual value means a) in the case of land or building which is in the occupation of a tenant, the gross annual rent at which the land or building has actually been let.
Amended Section 3(1) of the Act. 3. Definition in this Act, unless there is something repugnant in the subject or context : i) Annual value means a) in the case of land or building which is in the occupation of a tenant, the gross annual rent at which the land or building has actually been let. Provided that in the event of increase in the rent, the Committee may make corresponding increase in the annual value : Provided further that where the land or building has been let by the owner to any of his relations and the Committee is of the opinion that the rent fixed does not represent the true rent, the rent fixed under the agreement of lease shall not be taken into consideration and the annual value shall be determined in accordance with the principles contained in clause (b); b) in the case of land or building which is occupied by the owner, the annual value shall be five per cent on the sum obtained by adding the present market value of the land and, estimated cost of erecting the building less ten per cent depreciation : Provided that in the calculation of annual value of any land and building, no account shall be taken of the furniture or machinery thereon; c) in the case of any land on which no building has been erected but on which a building can be erected and on any land on which a building is in the process of erection, the annual value shall be fixed at five per cent of the estimated market value of such land; d) in the case of any land on which no building has been erected but on which a building can be erected or which is partially built and is being used by erecting tenants, temporary structures for the purpose of accommodating marriage parties, circus shows or for any entertainment purposes or such other purpose as may be, specified in this behalf by the committee with the previous sanction of the state government the annual value shall be twenty per cent of the estimated market value of such land. Section 3(8a) of the Act.
Section 3(8a) of the Act. (8a) "market value" means the market value of the land or the building which is determined in accordance with the principles contained in section 23 of the Land Acquisition Act, 1894, or as determined in accordance with the provisions of the Registration Act, 1908. Section 61(a) of the Act 61. Taxes which may be imposed - Subject to, any general or special orders which the state government may make in this behalf, and to the rules, any committee may, from time to time for the purposes of this Act, and in the manner directed by this Act, impose in the whole or any part of the municipality any of the following taxes, namely : a) A tax payable by the owner of building and lands exceeding fifteen per cent of the annual value. Section 67(3) of the Act Notwithstanding anything contained in this Act, the Committee may with a view to give effect to the annual value as modified by the Punjab Municipal (Amendment) Act 11, 1994, amend the assessment list of the year commencing on the first day of April of the relevant year for increasing or reducing annul value of any property and of the assessment thereupon after giving notice any time to any person affected by the amendment of a period not less than one month from the date of service at which the amendment is to be made and the Committee shall consider any objection made in this regard by any such person and the amended assessment list shall come into force with effect from the first day of April of the year in which notice was given to the person affected." 5. A perusal of the above quoted provisions shows that while Entry 86 of List I relates to taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies, taxes on the capital of companies. Entry 49 of List-II talks of taxes on lands and buildings. The provisions relating to taxation are contained in Chapter-V of the Act (Sections 61 to 86). Section 61 of the Act empowers the Municipal Committees to impose the taxes specified in that section including a tax payable by the owner of buildings and lands not exceeding 15% of the annual value.
The provisions relating to taxation are contained in Chapter-V of the Act (Sections 61 to 86). Section 61 of the Act empowers the Municipal Committees to impose the taxes specified in that section including a tax payable by the owner of buildings and lands not exceeding 15% of the annual value. (Before its substitution by Punjab Act No. 11 of 1994, the rate of this tax was 12-1/2% of the annual value). Section 62 lays down the procedure for imposition of taxes. Section 62-A(1) empowers the State Government to issue order requiring a Committee to impose any tax mentioned in Section 61, not already imposed and Section 62-A(2) confers upon the State Government to require a Municipal Committe to modify the rate of any tax already imposed. Sections 63 to 67 contain the procedure for preparation of assessment list, publication and completion of assessment list, public notice of time fixed for revising assessment list, settlement of lists and further amendments of assessment list. Sub-section(3) of Section 67 empowers the municipality to revise the assessment in terms of the amended Section 3(1) of the Act. Section 68(1) provides for preparation of new assessment list after a period of five years. Sub-section (2) thereof lays down that the annual value of the land or building occupied by the tenant may be revised when revision in the rent is made. Section 68-A empowers Municipal Committees to amend the assessment already made. Section 70(1) empowers the Municipal Committees to exempt in whole or in part any person from payment of tax for a period not exceeding one year. Likewise, Section 71 empowers the State Government to grant exemption in whole or in part time to time to any person or class of persons or any property from payment of tax. 6. Learned Counsel for the petitioners argued that even though the language of amended section 3(1)(b) suggests that it is a tax on land or building occupied by the owner, but in reality it is a tax on capital assets of the owner and a legislation on this subject can be enacted only by the Parliament under Entry 86 of List-I and not by the State Legislature under Entry 49 of List-II.
They referred to the averments contained in the written statements filed on behalf of the municipalities and the formula contained in Section 3(1)(b) for determination of the annual value of the land or building occupied by the owner and argued that in the garb of authorising the municipalities to impose tax on land or building occupied by the owner, the State has tried to invest them with the power to impose tax on capital value of the property of the owner and this the Legislature of the State is not competent to do. 7. The Learned Deputy Advocate General and counsel representing the municipalities argued that the impugned provision is directly relatable to Entry 49 of List-II and, therefore, competence of the State Legislature to enact the same cannot be questioned. They submitted that even though the capital value of the land or building occupied by the owner is the criteria for determination of annual value, the impugned provision cannot be related to Entry 86 of List-I so as to exclude the jurisdiction of the State Legislature to enact law for levy of tax on land or building. 8. We have given serious thought to the respective arguments. At the out-set, we deem it proper to observe that while deciding the issue relating to competence of the Parliament or the State Legislature to enact a particular legislation with reference to the entries contained in Lists I, I and III, the Court has to keep in mind a well-settled principle that the entries in the three lists must be interpreted in their widest amplitude and none of the items contained therein is to be read in a narrow or restricted sense and keeping these guiding principles in mind, we shall examine whether the impugned amendment is beyond the legislative competence of the State. A careful analysis of unamended Section 3(1) of the Act shows that the criteria for determination of annual value in the case of land was the gross annual rent at which it could reasonably be expected to let from year to year [S. 3(1)(a)]. For house or building, the criteria was the gross annual rent at which such house or building, together with its appurtenances and any furniture that may be let for use or enjoyment forthwith may reasonably be expected to let from year to year subject to certain deductions. [S. 3(1)(b)].
For house or building, the criteria was the gross annual rent at which such house or building, together with its appurtenances and any furniture that may be let for use or enjoyment forthwith may reasonably be expected to let from year to year subject to certain deductions. [S. 3(1)(b)]. Sub-clauses (i) to (ii) of section 3(1)(b) related to different types of deductions. Clause (c) of Section 3(1) provided for determination of annual value of any house or building of which the gross annual rent could not be determined under Clause (b). In neither of the three clauses of Section 3(1), i.e. (a), (b) or (c), any reference was made to the occupation of land, house or building by the tenant or the owner. The amended Section 3(1) lays down two different modes for determination of annual value for land or building which is in the occupation of tenant and land or building which is occupied by the owner. In the first case, the annual value means the gross annual rent at which the land and building has actually been let. In the second case, the annual value is 5% on the sum obtained by adding the present market value of land and estimated cost of erecting building less 10% depreciation. Clauses (c) and (d) of Section 3(1) provide for determination of annual value in case of land on which no building has been erected. In terms of Section 33(8a) which has been inserted by Punjab Act No. 11 of 1994, "market value" means the market value of the land or building which is determined in accordance with the principles contained in Section 23 of the Land Acquisition Act, 1894 or in accordance with the provisions of the Registration Act, 1908. 9. In our opinion, even though the criteria laid down in the amended Section 3(1)(b) for determination of the annual value of the land or building occupied by the owner for the purpose of levy of imposition of house tax is based on its capital value, in substance and effect, it is a tax on land or building and not on the capital assets of the owner. The incidence of tax leviable under Section 61(a) read with Section 3(1)(b) is on the land or building and not on the capital assets of the owner of the land or building.
The incidence of tax leviable under Section 61(a) read with Section 3(1)(b) is on the land or building and not on the capital assets of the owner of the land or building. Therefore, the mere fact that the criteria for determination of the annual of land or building occupied by the owner is its capital value cannot lead to an inference that it is a tax on capital value of the assets of the owner. Therefore, amended Section 3(1)(b) cannot be declared ultra vires to the legislative power of the State. This view of ours is based on the decisions of the Federal Court and the Supreme Court. 10. In Ralla Ram v. The Province of East Punjab, A.I.R. 1949 Federal Court 81, the Federal Court interpreted Item 54 of List-I and Item 42 of List-II of the Seventh Schedule of the Government of India Act, 1935 in the context of challenge to the legislative competence of the Provincial Legislature to enact Punjab Urban Immovable Property Tax Act, 1940. While repelling the challenge to the competence of the Provincial Legislature to enact the impugned law, their Lordships of the Federal Court observed as under : "Where there is an apparent conflict between an Act of the Federal Legislature and an Act of the Provincial Legislature, the Court must try to certain the pith and substance or the true nature and character of the conflicting provisions and before an Act is declared ultra vires, there should be an attempt to reconcile and two conflicting jurisdictions, and, only if such a reconciliation should prove impossible, the impugned Act should be declared invalid. Where ever the annual value of property is the basis of a tax, that tax does not necessarily become a tax on income. There are other factors to be taken into consideration. It is the essential nature of the tax charged and not the nature of the machinery which is to be looked at.... In substance, the property tax levied by S.S. Punjab Urban Immovable Property Tax Act, 1940 falls within item 42 of the Provincial list and is not a tax on income falling within item 54 of the Federal List, Government of India Act, although the basis of the tax is the annual value of the building. It is not impossible to reconcile the seeming conflict between the provision of the Act in question and the income-tax Act.
It is not impossible to reconcile the seeming conflict between the provision of the Act in question and the income-tax Act. The extent of the alleged invasion by the Provincial Legislature into the field of the Federal Legislature is not so great in the case in question as to justify the view that in pith and substance the impugned tax is a tax on income. It is, therefore, within the legislative competence of the Punjab Legislature to levy such a tax." (Emphasis supplied). 11. In Ajoy Kumar Mukherjee v. Local Board of Barpeta, A.I.R. 1965 S.C. 1561, a Constitution Bench of the Supreme Court considered the challenge to the levy of tax on land used as market on the ground that in substance, it was a tax on market and not on land. while rejecting the challenge, the Supreme Court observed as under : "It is well settled that the entries in three legislative lists have to be interpreted in their widest amplitude and, therefore, if a tax can reasonably be held to be a tax on land, it will come within Entry 49 List II. Further, it is equally well settled that tax on land may be based on the annual value of the land and would still be a tax on land and would not be beyond the competence of the State Legislative on the ground that it is a tax on income.... It follows, therefore, that the use to which the land is put can be taken into account in imposing a tax on it within the meaning of Entry 49 of List II, for the annual value of land which can certainly be taken into account in imposing a tax for the purpose of this entry would necessarily depend upon the use to which the land is put." 12. In Sudhir Chandra Nawn v. Wealth-Tax Officer, Calcutta and others, A.I.R. 1969 S.C. 509 a Constitution Bench of the Supreme Court considered the challenge to the levy of tax under the Wealth Tax Act, 1957 on the ground that it was beyond the legislative competence of the Parliament. While rejecting the challenge, their Lordships interpreted Entry 86 of List-I and Entry 49 of List-II and observed as under : "Again Entry 49, List II of the Seventh Schedule contemplates the levy of tax on lands and buildings or both as units.
While rejecting the challenge, their Lordships interpreted Entry 86 of List-I and Entry 49 of List-II and observed as under : "Again Entry 49, List II of the Seventh Schedule contemplates the levy of tax on lands and buildings or both as units. It is normally not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of owner under Entry 86, List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under Entry 49, List-II the State Legislature may adopt for determining the incidence of to tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under the two entries overlapping." (Underlining is ours) 13. In Assistant Commissioner of Urban Land Tax, Madras and others v. Buckingham and Carnatic Company Ltd. and others, A.I.R. 1970 S.C. 169, the legislative competence of the State of Madras to enact Madras Urban Land Tax Act, 1966 was upheld and the argument that there was a conflict between Entry 86 of List and Entry 49 of List II was rejected in the following words : "There is no conflict between Entry 86 of List I and Entry 49 of List II. The basis of taxation under the two entries is quite distinct. As regards Entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date, the tax is not imposed on the components of the assets of the assessee. The tax under Entry 86 proceeds on the principles of aggregation and is imposed on the totality of the value of all the assets.
It is not a tax directly on the capital value of assets of individuals and companies on the valuation date, the tax is not imposed on the components of the assets of the assessee. The tax under Entry 86 proceeds on the principles of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessee owns and in determining the net wealth not only to encumbrances specifically charged against an item of assets, but the general liability of the assesses to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional case, where a person owes no debts and is under no enforceable obligation to discharge any liability out of his assets, it may be possible to break up the tax which is leviable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under Entry 49, List II. But in a normal case a tax on capital value of assets bears no definable relation to land and buildings which may or may not form a component of the total assets of the assesses. But Entry 40 of List II, contemplates a levy of tax on lands and buildings or both as units. It is not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assesses. By legislation in exercise of power under Entry 86, List I tax is contemplated to believed on the value of the assets. For the purpose of levying tax under Entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings.
By legislation in exercise of power under Entry 86, List I tax is contemplated to believed on the value of the assets. For the purpose of levying tax under Entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability do not make the fields of legislation under the two entries overlapping." (Emphasis added) 14. In Sh. Prithvi Cotton Mills Ltd. v. Broach Borough Municipality and others, A.I.R. 1970 S.C. 192, the Supreme Court upheld the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963) and observed as under : "The doubt which is created by Entry 86 of List I "Taxes on the capital value of assets", no longer exists after the decision of this Court in Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta, A.I.R. 1969 S.C. 59. In that case the respective ambits of the two entries are explained. It is pointed out that unlike the tax contemplated by entry 49 (List II) the tax under entry 86 (List I) is not a direct tax on lands and buildings but on net assets, the components of which may be lands and buildings and other items of assets excluding such liabilities as may exist. The incidence of the tax is not on lands and buildings, as units of taxation but on the net assets of which lands and buildings are only some of the components. This is not the case under entry 49 (List II) where the tax can be laid directly on lands and buildings as units of taxation. Therefore, a tax on lands and buildings is fully within the competence of the legislature and it is open to it to authorise the municipality to levy the same tax indicating the mode of levy. This the legislature has done by indicating the different modes which may be adopted in making the levy, one such mode being a percentage of the capital value." (Emphasis added). 15. The last mentioned two decisions were relied upon by another Constitution Bench. of the Supreme Court in D.G. Gose and Co. v. State of Kerala and another, (1980)2 S.C.C. 410 for upholding the constitutional validity of Kerala Building Tax Act, 1975.
15. The last mentioned two decisions were relied upon by another Constitution Bench. of the Supreme Court in D.G. Gose and Co. v. State of Kerala and another, (1980)2 S.C.C. 410 for upholding the constitutional validity of Kerala Building Tax Act, 1975. In that case, it was argued on behalf of the appellant that the tax in question was a tax on the capital value of the assets of an individual or company and falls within the scope of Entry 86 of List I and not under Entry 49 of List II of the Seventh Schedule and, therefore, it was beyond the legislative competence of the State. The Supreme Court rejected the challenge and held as under : "It may be that the building owned by an assessee may be a component of his total assets, but a tax under Entry 86 will not bear any direct or definable relation to his building. Ones building may imperceptibly be the subject- matter of tax as a component of his assets under Entry 86 of List I and also may be subjected to direct tax under Entry 49 of List II, but as the two taxes are separate and distinct imposts, they cannot be said to overlap each other, and would be within the competence of the legislatures concerned. The State legislature was thus competent to enact the Kerala Building Tax Act, 1975 and impose tax on buildings under Entry 49 of List I." 16. In Government Co-operative House Building Society Ltd. v. Union of India, A.I.R. 1998 S.C. 2636, a Division Bench of the Supreme Court rejected the argument that Delhi Municipal Corporation Act, 1957 was ultra vires to the power of the State Legislature and held as under : "There is no substance in the submission that if the annual rent actually received is taken as the basis for determination the rateable value of the property, the property tax will become a tax on income of the owner and thus fall beyond legislative competence of the State Legislature as being a tax on income it would fall in Entry 82 of List (sic) instead of Entry 49 of List I of the Seventh Schedule to the Constitution." 17.
In view of the above discussion, we hold that Section 3(1)(b) of the Act (as amended by Punjab Act No. 11 of 1994) is not ultra vires to the legislative power of the State. 18. The question which remains to be considered is whether Section 3(1) is violative of the doctrine of equality. The argument of the learned counsel for the petitioners is that the distinction made between the land or building in occupation of the tenant and the land or building occupied by the owner for the purpose of determination of annual value for imposition of house tax is per se discriminatory and violative of Article 14 of the Constitution. They further argued that the classification of land or building with reference to its occupation by the tenant or owner is wholly arbitrary and capricious and bears no nexus with the object of determination of annual value for levy of house tax under Section 61(a). Ld. counsel laid emphasis on the fact that Entry 49 of List II of the Seventh Schedule empowers the State Legislature to enact law for imposition of taxes on land and buildings and from that point of view, different yard-sticks or modes cannot beadopted for determination of annual value for & purpose of levy of house tax. They gave several examples to show that by virtue of the amended definition of annual value, two properties having similar area, cost and quality of construction and situation will be subjected to house tax at different rates simply because one is occupied by the tenant and the other by the owner and submitted that this differentiation has no rational relation with the object of legislation, namely, determination of annual value for levy of house tax. Some of the learned counsel also argued that Section 8(8a) should be declared unconstitutional because the legislature has not laid down any guide-line for determination of the market value in accordance with the principles contained in Section 23 of the Land Acquisition Act, 1894 or in accordance with the provisions of the Registration Act, 1908 and it has been left to the sweet-will of the municipalities to devise either of the modes.
They have also assailed Section 67(3) by arguing that it confers un-bridled and unguided power upon the municipalities to undertake exercise for redetermination of the annual value of the land or building in terms of amended Section 3(1) of the Act. 19. Learned counsel for the respondents argued that the amended definition of anal value does not suffer from the vice of discrimination and violation of Article 14 of the Constitution because the classification made between the lands or buildings occupied the tenant on the one hand and those occupied by the owner is reasonable and has a direct nexus with the purpose of legislation. They submitted that the lands or buildings occupied by the tenants and owners constitute two separate classes and among them, no distinction has been made for the purpose of determination of annual value for levy of use tax. Learned counsel then argued that even though the incidence of tax under Section 61(a) is on the owner of building and land, the criteria prescribed in Section 3(1)(b) for determination of annual value of land and building occupied by the owner cannot be termed as arbitrary and unreasonable. On the issue of constitutionality of Section 3(8a), ld. Deputy Advocate General submitted that thought it contemplates tow modes for determination of annual market value of the land or building and the Legislature has not laid down the principles for adopting either of the two modes, the municipalities have, by and large, followed the principles contained in Section 23 of the Land Acquisition Act, 1894 for determination of market value for the purpose of Section 3(1)(b) of the Act. 20. Before dealing with the arguments of the learned counsel, we consider it appropriate to notice the decision of the Supreme Court in Devan Daulat Rai Kapoor v. New Delhi Municipality, AIR 1980 S.C. 541 and Dr. Balbir Singh and others v. M/s. M.C.D. and others, AIR 1985 S.C. 339. In both the cases, unamended Section 3(1) had come up for interpretation before the Court. In the first case, their Lordships of the Supreme Court held that the annual value of the building must be determined with reference to standard rent in accordance with the principles laid down in Delhi Rent Control Act, 1958.
In both the cases, unamended Section 3(1) had come up for interpretation before the Court. In the first case, their Lordships of the Supreme Court held that the annual value of the building must be determined with reference to standard rent in accordance with the principles laid down in Delhi Rent Control Act, 1958. Some of the observations made in that decision are extracted below : "According to the definition occurring in Section 3(1)(b) of the Punjab Municipal Act (3 of 1911) annual value of a building would be the gross annual rent at which the building may reasonably be expected to let from year to year. It is obvious from this definition that unlike the English Law where the value of occupation by a tenant is the criterion for fixing annual value of the building for rating purposes, here it is the value of the property to the owner which is taken as the standard for making assessment of annual value. The criterion is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. The rent which the landlord might realise if the building were let is made the basis for fixing the annual value of the building. What the landlord might reasonably expect to get from a hypothetical tenant, if the building were let from year to year, affords the statutory yardstick for determining the annual value, there would ordinarily be in a free market close approximation between the actual rent received by the landlord and the rent which he might reasonably expect to receive from hypothetical tenant. But where the rent of the building is subject to rent control legislation, this approximation may and often does get displaced." 21.
But where the rent of the building is subject to rent control legislation, this approximation may and often does get displaced." 21. In Balbir Singhs case (supra), the Supreme Court explained the first decision by making the following observations : "The rateable value of a building, whether tenanted or self occupied, is limited by the measure of standard rent arrived at by the assessing authority by applying the principles laid down in the Rent Act and cannot exceed the figure of the standard rent so arrived at by the assessing authority, the standard rent determinable on the principles set out in the Rent Act is the upper limit of the rent which the landlord may expect to receive from a hypothetical tenant, but it may in a given case be less than the standard rent having regard to various attendant circumstances and considerations. If, for example, the building is not in a proper state of repair or is so situate that it has certain disadvantages from the point of view of easy accessibility or means of transport or any other similar cause the actual rent which the owner may reasonably expect to receive from a hypothetical tenant may be less than the standard rent determinable on the principles laid down in the Rent Act. The test, therefore, is not what is the standard rent of the building but what is the rent which the owner reasonably expects to receive from a hypothetical tenant and such reasonable expectation can in no event exceed the standard rent of the building determinable in accordance with the principles laid down in the Rent Act, though it may in a given case be lower than such standard rent." 22. The constitutionality of amended Section 3(1)(a) has not been challenged by the petitioners. Even if they had done so, their plea would have been negatived because the actual rent at which the land or building is let out is one of the three accepted modes of determining the annual value of the land or building - Bombay Municipal Corporation v. Life Insurance Corporation, A.I.R. 1970 S.C. 1584. 23.
Even if they had done so, their plea would have been negatived because the actual rent at which the land or building is let out is one of the three accepted modes of determining the annual value of the land or building - Bombay Municipal Corporation v. Life Insurance Corporation, A.I.R. 1970 S.C. 1584. 23. A perusal of the un-amended and amended Section 3(1) shows that while unamended section did not make a distinction between self-occupied land, house or building and tenanted land, house or building for the purpose of determination of annual value for levy of house tax, the amended Section 3(1) makes a marked departure from the un-amended section, inasmuch as, it lays down two different criteria for determination of annual value of the same land or building depending on the facts of its occupation by the tenant or the owner. In the case of land or building which is in the occupation of a tenant, the annual value is to be determined on the basis of gross annual value at which the same has been actually let with a provision that in the event of increase in the rent, the Municipal Committee may make corresponding increase in the annual value. As against this, in the case of land or building occupied by the owner, the annual value is 5% on the sum obtained by adding the present market value of the land and estimated cost of erecting the building minus 10% depreciation. Proviso to Section 3(1)(b) lays down that the calculation of annual value of any land or building should be made without considering the furniture or machinery thereon. The market value of the land or building is to be determined in accordance with the principles contained in Section 23 of the Land Acquisition Act, 1894 or in accordance with the Registration Act, 1908. 24. It is, thus, evident that after the amendment of Section 3(1), the annual value of the two identically situated properties, i.e., the same area, same type of construction (qualitative and quantitative) and same price may be altogether different depending on its occupation by the tenant or the owner.
24. It is, thus, evident that after the amendment of Section 3(1), the annual value of the two identically situated properties, i.e., the same area, same type of construction (qualitative and quantitative) and same price may be altogether different depending on its occupation by the tenant or the owner. If the property is in occupation of the tenant, then the annual value for the purpose of levy of house tax will be determined on the basis of cross annual rent (actual) and if is occupied by the owner, then the annual value will be calculated by adopting the following formula : 5 100 X Market value of land plus estimated cost of erecting the building minus 10% depreciation. 25. In this manner, the house tax payable by the owner of land building falling in the second category will always be higher than in the first category. Even ill respect of the same property, the owner may have to pay house tax at different rates at two points of time. When the property is let out to a tenant, he will have to pay house tax at tile rate of 15% of annual value determined in terms of Section 3(1)(a) and when it is occupied by himself, he will have to pay house tax at 15% of the annual value determined in accordance with Section 3(1)(b). Likewise, the two identically situated properties belonging to one person may be subjected to house tax at different rates simply because one is occupied by the tenant and the other by the owner himself, Section 3(8-a) contemplates two different modes for determination of the market value, It may be determined in accordance with the principles contained in Section 23 of the Land Acquisition Act, 1894 or in accordance with the provisions of the Registration Act, 1908. However, no guide-line has been laid down by the legislature for adopting the particular mode for determination of market value and it has been left to the sweet-will of the particular municipality to choose either of the modes for determination of the market value.
However, no guide-line has been laid down by the legislature for adopting the particular mode for determination of market value and it has been left to the sweet-will of the particular municipality to choose either of the modes for determination of the market value. If this anomaly in the rate of house tax is considered in the context of purpose of legislation under Entry 49 of List-II, it becomes clear that the classification of lands and buildings made on the basis of their occupation by the tenant or the owner is artificial and has no nexus with the object of legislation. As logical corollary to this conclusion, we hold that Section 3(1)(b) is discriminatory and violative of Article 14 of the Constitution. 26. The ambit and scope of the doctrine of equality enshrined in Article 14 and other related Articles, i.e., Articles 15 and 16 has been considered in several cases. Article 14 of the Constitution declares that the State shall not deny to any person equality before the law or the equal protection of law within the territory of India. It is one of the most valuable and important guarantee given to the people. However, this does not mean that all laws must be general in character and universal in application and the State does not have the power to distinguish or classify persons or things for the purpose of legislation. Rather, it must be treated as settled that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purpose of legislation. The broad test of reasonable classification envisages the existence of two conditions, namely, (1) that the classification must be founded on an intelligible different which distinguishes persons or things, that are grouped together from others left out of the group and (ii) that differential must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different basis.
The classification may be founded on different basis. There are cases where the legislature itself makes a complete classification of person or things and apply to them which it enacts and others where legislature merely lays down the law to be applied to the persons or things answering to a given description or exhibiting certain common characteristics, but being unable to make a complete and precise classification confers power upon an administrative authority to make a selective application of law to persons or things within the defined grouped while laying down a standard or at least indicating in clear terms the only policy and purpose which the administrative authority is expected to apply while selecting the persons or things to be grouped under the operation of law - Charanjit Lal v. Union of India, A.I.R. 1951 S.C. 41; State of Bombay v. E.N. Balsara, A.I.R. 1951 S.C. 318; State of West Bengal v. Anwar Ali Sarkar, A.I.R. 1952 S.C. 75; Budhan Choudhry v. State of Bihar, AIR 1955 S.C. 191; Ram Krishna Dalmia v. Justice Tendolkar, A.I.R. 1958 S.C. 538; and Express Newspaper (Pvt.) Ltd. v. Union of India and others, A.I.R. 1958 S.C. 578. 27. In Mohammad Shujat Ali v. Union of India and others, A.I.R. 1974 S.C. 1631, a Constitution Bench explained the doctrine of reasonable classification in the following words : "The doctrine of reasonable classification recognises that the legislature may classify for the purpose of legislation but requires that the classification must be reasonable. It should ensure that persons or things similarly situated are all similarly treated, The measure of reasonableness of a classification is the degree of its success in treating similarly those similarly situated. A reasonable classification is one which includes all persons or things similarly situated with respect to the purpose of the law. There should be no discrimination between one person or thing and another, if as regard the subject-matter of the legislation their position is substantially the same. The classification must be founded on an intelligible differential which distinguishes certain persons or things that are grouped together from others and that differential must have a rational relation to the object sought to be achieved by the legislation.
The classification must be founded on an intelligible differential which distinguishes certain persons or things that are grouped together from others and that differential must have a rational relation to the object sought to be achieved by the legislation. The fundamental guarantee is of equal protection of the laws and the doctrine of classification is only a subsidiary rule evolved by courts to give a practical content to that guarantee by accommodating it with the practical needs of the society and it should not be allowed to submerge and drown the precious guarantee of equality. The doctrine of classification should not be carried to a point where instead of being a useful servant, it becomes a dangerous master." 28. However, in relation to the laws relating to taxation, the courts have repeatedly held that very wide latitude is available to the Legislature while classifying the objects, persons or things for the purpose of taxation - East India Tobacco Co. v. State of A.P., A.I.R. 1962 S.C. 1773; State of M.P. v. Bhopal Sugar Industries Ltd, AIR 1964 S.C. 1179; State of Kerala v. Aravind Ramakant Modawdakar, A.I.R. 1999 S.C. 2970; R.K. Garg v. Union of India, (1981)4 S.C.C. 675 and State of Maharashtra v. Madhukar Balkrishna Badiya, (1988)4 SCC 290. But, at the same time, it has been held that the Court will not hesitate to strike down a statute simply because the differentiation in the imposing of tax on similarly situated persons or things is not motivated K.T. Moopil Nair v. State of Kerala, AIR. 1961 S.C. 552 and State of M.P. v. Bhopal Sugar Industries Ltd. (supra). 29. In K.T. Moopil Nair v. State of Kerala (supra) a Constitution Bench of the Supreme Court considered the Constitutionally of the Travancore-Cochin Land Tax Act, 1955 [as amended by the Travancore-Cochin Land Tax (Amendment) Act, 1957]. While striking down the tax charging section on the ground that it created inequality, their Lordships of the, Supreme Court laid down the following propositions : "The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally.
While striking down the tax charging section on the ground that it created inequality, their Lordships of the, Supreme Court laid down the following propositions : "The guarantee of equal protection of the laws must extend even to taxing statutes. It has not been contended otherwise. It does not mean that every person should be taxed equally. But it does mean that if property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack the result of the taxation may be that the total burden on different persons may be unequal. Hence, if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. 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. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause Article 14, though the Courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution..." 30.
The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution..." 30. In R.K. Garg v. Union of India (supra), a Constitution Bench of the Supreme Court dealt with this aspect of the matter at length and held as under : "Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. .......... Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry; that exact wisdom and nice adoption of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses.
Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be credits and inequities in complicated experimental economic legislation but on that account alone, it cannot be struck down as invalid. The Courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig. Refining Co. be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, dostortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues." 31. In State of Maharashtra v. Madhukar Balkrishna Badiya (supra), a Division Bench of the Supreme Court observed as under : "About discrimination it is well to remember that a taxation law cannot claim. In immunity from the equality clause in Article 14 of the Constitution. But in view of the intrinsic complexity of fiscal adjustments of diverse elements, considerably wide discretion and latitude in the matter of classification for taxation purpose is permissible. See the observations of this Court in ITO v. R. Takin Roy Rymhai. Also see the observations in Meenakshi v. State of Karnataka, Anant Mills Co, Ltd. v. State of Gujarat and Khandige Sham Bhat v. Agricultural Income Tax Officer." 32. We may now refer to some of the decisions which have direct bearing on the issue raised in these petitions. In New Manek Chowk Spg.
Also see the observations in Meenakshi v. State of Karnataka, Anant Mills Co, Ltd. v. State of Gujarat and Khandige Sham Bhat v. Agricultural Income Tax Officer." 32. We may now refer to some of the decisions which have direct bearing on the issue raised in these petitions. In New Manek Chowk Spg. and Wvg. Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad, A.I.R. 1967 S.C. 1801 the petitioner successfully challenged the levy of property tax on the basis of a flat rate per 100 square feet of its floor area and all other textile mills, factories, buildings of the universities etc., while striking down the charging section of Bombay Provincial Municipal Corporation Act, 1949, the Constitution Bench of the Supreme Court observed as under : "There was nothing to show that conditions pre-requisite for determination of annual value of textile factories in Ahmedabad on the basis of rental value per foot super of floor area existed at the relevant time nor had it been shown that the so-called contractors basis was adopted by the Municipal Authorities for Ahmedabad. The method was not also one which was generally recognised by authorities on rating. Applied indiscriminately it was sure to give rise to inequalities as there had been no classification of the factories on any rational basis, there did not seem to be any basis for dividing the factories and the building thereof under two general classes as buildings used for processing and buildings for non-processing purposes." 33. In State of Kerala v. Haji K. Kutti Naha and others, AIR 1969 S.C. 378, a three-Judges Bench declared Section 4 and Schedule of Kerala Building Tax Act as unconstitutional on the ground that the classification made for the purpose of levy of tax was irrational. The provision which was successfully challenged before the High Court contemplated levy of tax in respect of every building the construction of which was completed on or after 2.3.1961 and which had a floor area of 1000 square feet or more. While declaring the criteria contained in the statute for levy of tax to be unconstitutional, their Lordships of the Supreme Court observed as under : "But in enacting the Kerala Building Tax Act no attempt at any rational classification is made by the legislature.
While declaring the criteria contained in the statute for levy of tax to be unconstitutional, their Lordships of the Supreme Court observed as under : "But in enacting the Kerala Building Tax Act no attempt at any rational classification is made by the legislature. As already observed the legislature has not taken into consideration in imposing tax the class to which the building belongs, the nature of construction, the purpose for which it is used, its situation, its capacity for profitable user and other relevant circumstances which have a bearing, on matters of taxation. They have adopted merely the floor area of the building as the basis of tax irrespective of all other considerations. Where objects persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discreinination may result, for in our view, refusal to make a rational classification may itself in some cases operate as denial of equality. This Court in a resent judgment has decided that the levy of tax in exercise of the power under Entry 49, List II of the Seventh Schedule in respect of factory buildings in a municipal area based on floor area was illegal : New Manek Chowk Spinning & Weaving Mills Co. Ltd v. Municipal Corporation of City of Ahmedabad, (1967)2 S.C.R. 679 : (A.I.R. 1967 S.C. 1801). The Court held in that case that the method of adopting a flat rate for a floor area for determining the annual value adopted by the Corporation of Ahmedabad in exercise of the powers conferred upon it by the Bombay Provincial Municipal Corporation Act 49 of 1949 was against the provisions of the Act and the Rules made thereunder as well as all recognised principles of valuation for the purpose of taxation. If levy of tax in the municipal district based on floor area in respect of a factory building violates Article 14 of the Constitution when the tax is sought to be levied by the Municipal Corporation, we see no reason to uphold the tax imposed under the impugned Act when the State in exercise of legislative authority conferred by Entry 49, List-II, Schedule VII, imposes liability to tax buildings solely on floor area. The vice of the Act in the present case is more pronounced than it was in New Manek Chowk Spinning and Weaving Mills case (1967)2 S.C.R. 679 : (A.I.R. 1967 S.C. 1801).
The vice of the Act in the present case is more pronounced than it was in New Manek Chowk Spinning and Weaving Mills case (1967)2 S.C.R. 679 : (A.I.R. 1967 S.C. 1801). In that case the Rules under which the tax was sought to be levied on the basis of floor area were restricted in their operation to factory buildings within the Corporation limits of Ahmedabad, whereas Act 19 of 1961 which is challenged in the present case applies to the whole State of Kerala in respect of buildings completed on or after March 2, 1961, whatever may be the nature or class of the building, the use to which it is put, materials used in its construction and the extent of profitable user to which the building may be put, its cost and its circumstances to consider whether imposition of a tax only on buildings constructed after March 2, 1961, and exempting buildings completed before that date may not violate Article 14 of the Constitution." 34. If the constitutionality of the impugned provision is examined in the light of the above noted decisions, we do not find any difficulty in declaring that Section 3(1) of the Act is violative of Article 14 of the Constitution of India because it does not satisfy either of the two conditions of valid classification. The object of the legislation, as discussed above, is to levy house tax on lands or buildings situated within the municipal limits. In the context of this object, the distinction sought to be made between the land or building in occupation of the tenant and the one occupied by the owner is ex facie arbitrary and unreasonable and has absolutely no nexus with the object of legislation. The impugned provision does not seek to make a distinction between the two classes of properties with reference to their situation, use and nature of construction, but simply on basis of occupation thereof by the tenant or the owner. Therefore, the classification made on the basis of occupation of the building by the particular individual cannot be treated as rational and justified with reference to the purpose of legislation. 35.
Therefore, the classification made on the basis of occupation of the building by the particular individual cannot be treated as rational and justified with reference to the purpose of legislation. 35. Before parting with this aspect of the case, we deem it proper to refer to two recent decisions relied upon by the learned Deputy Advocate General, State of Bihar v. Sachidanand Kishore Prasad Sinha, (1995)3 S.C.C. 86 and State of U.P. and another v. Kamla Palace, (2000)1 S.C.C. 557. The facts of the first case show that classification of the holdings made on the basis of situation (buildings on principle main road, main road and other), type of construction (pucca building with RCC roof, pucca building with asbestos/corrugated roof and other) etc. were declared by the High Court of Patna to be unconstitutional. While reversing the judgment of the High Court, their Lordships of the Supreme Court observed as under :- "Treating all pucca buildings with RCC roof as one class and subjecting them to uniform rate of tax - subject, of course, to the location and nature of user - cannot be said to amount to hostile discremination so as to offend Article 14. A mere possibility of a better classification is no ground to strike down the classification made by the statutory authority - more particularly in the case of a taxing enactment. Saying so, would be to deny the "range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate of rates applicable". There would be any nummber of distinguishing features even among, say, pucca buildings with RCC roof depending upon the quality of finish, the nature of fittings, the dimensions of rooms, the type of material used in construction and so on and so forth. It would be an endless quest. It would not be easy to draw the lines of distinction. It may not be possible to evolve a classification to cater to all these several distinctions. Even if it is so evolved not only would it be too complex and elaborate, it would leave too much discretion to assessing authorities, the elimination of which is one of the main objects of the new Rules.
It may not be possible to evolve a classification to cater to all these several distinctions. Even if it is so evolved not only would it be too complex and elaborate, it would leave too much discretion to assessing authorities, the elimination of which is one of the main objects of the new Rules. The low rates of tax specified in Rule 6 of the Assessment Rules (2-1/2% of the annual rental value in the case of tax on holdings, 2% of annual rental value in the case of water tax as well as latrine tax) ensures that even a building with an inferior quality of furnish is not subjected to an undue burden of tax. It is one thing to suggest that the rule-making authority may consider making a further distinction on the lines suggested and an altogether different thing to strike down the rule itself on the ground of inadequate classification. Similarly, the other objection that the Municipal Corporation area ought to have been divided on the basis of zones and not on the basis of the roads is also not a ground upon which the Court could have invalidated the rule. It is not pointed out that the division with reference to roads amounts to hostile treatment. In case of such classification, there will always be some instances where one gets an advantage and the other suffers a disadvantage but that is no ground for invalidating a statute and more particularly a taxing statute." 36. In the second case, their Lordships of the Supreme Court negatived the plea of the cinema owners receiving grant-in-aid that the incentive scheme framed by the State Government was unconstitutional. The relevant extracts of that judgment are reproduced below : "The legislature gaining wisdom from historical facts, existing situations, matters of common knowledge and practical problems and guided by considerations of policy must be given a free hand to devise classes - whom to tax or not to tax, whom to exempt or not to exempt and whom to give incentives and lay down the rates of taxation, benefits or concessions. In the field of taxation if the test of Article 14 is satisfied by generality of provisions the courts would not substitute judicial wisdom for legislative wisdom.
In the field of taxation if the test of Article 14 is satisfied by generality of provisions the courts would not substitute judicial wisdom for legislative wisdom. In the instant case, in the year 1992, when the impugned provision was enacted, there existed two classes of cinema-owners : one, those who were receiving grant-in-aid; under some incentive scheme enunciated by the State Government; and two, such cinema-owners as were not receiving such grant-in- aid. The grant-in-aid schemes promulgated by the-State-Government were temporary schemes having a life span of three to five years which extended incentive depending on the population of the place where the cinema house was situated. The incentive was by way of grant-in-aid equivalent to a certain percentage of the quantum of entertainment tax collected by the cinema-owners for the State Government. As a condition precedent to the entitlement for such grant-in-aid the cinema-owners were subjected to a disability of not charging the fee for admission beyond a ceiling i.e. Rs. 2.50, later on revised to Rs. 5. Such cinema-owners formed a class by themselves different and distinct from those cinema-owners who were not receiving any grant-in-aid under an incentive scheme and/or were free to charge fee for admission without any restriction as to the upper limit, i.e. their fee for admission to entertainment could be more than Rs. 2.50 or Rs. 5. Such classification is clear, well defined and real. The object sought to be achieved was to encourage the cinema-owners in boosting entertainment facilities available to the people. That was achieved by providing grant-in-aid under an incentive scheme to one class of cinema- owners and by permitting recovery of a certain amount by way of charges for maintenance to such other class of cinema owners as were not receiving any grant-in-aid. Thus it cannot be said that the classification had no nexus with the object sought to be achieved. Moreover, the incentive schemes releasing the grant-in-aid were optional. Such of the cinema-owners as felt that the fixation of Rs. 2.50 or Rs. 5 as a ceiling on fee for admission was not beneficial to them and they would stand to benefit by opting out from the incentive scheme and availing the benefit of recovering charges for maintenance conferred by the 1992 Amendment, were always and at any time free to do so." 37.
2.50 or Rs. 5 as a ceiling on fee for admission was not beneficial to them and they would stand to benefit by opting out from the incentive scheme and availing the benefit of recovering charges for maintenance conferred by the 1992 Amendment, were always and at any time free to do so." 37. In our opinion, the afore-mentioned decisions do not support the case set up by the respondents. In those cases, their Lordships of the Supreme Court found that the criteria adopted by the State for classification was not only rational and just but had direct bearing with the purpose of the legislation. As a matter what we have said about the factors which may constitute a valid ground to classify a land or building for the purpose of determination of annual value finds its echo in the judgment of the Supreme Court in Sachidanand Kishore Prasad Sinhas case (supra). 38. In view of the above discussion, we hold that Section 3(1)(b) suffers from the vice of discrimination and on that ground, it is liable to be declared unconstitutional. 39. Section 67(3) of the Act empowers the Municipal Committee to amend the as sessment list of the year commencing on the first day of April of the relevant year for increasing or reducing annual value of any property and of the assessment thereupon after giving notice and opportunity of hearing to the affected person. This was added with the sole object of giving effect to the amendment made in Section 3(1) of the Act and in view of the in-built safeguard, i.e., statutory embodiment of the rules of natural justice, the impugned provision cannot be declared as discriminatory or violative of Article 14 of the Constitution. However, what we have said about Section 67(33) is not applicable to Section 3(8a) which, on its plain reading, confers unguided power to the municipalties to adopt any of the two modes for determination of market value of the property. The argument of the learned Deputy Advocate General that the municipalities have, by and large, followed the principles contained in Section 23 of the Land Acquisition Act, 1894 for determination of market value is not sufficient to save the provision from the charge of discrimination. 40.
The argument of the learned Deputy Advocate General that the municipalities have, by and large, followed the principles contained in Section 23 of the Land Acquisition Act, 1894 for determination of market value is not sufficient to save the provision from the charge of discrimination. 40. The assertion made in the written statements filed on behalf of the municipalities that the impugned amendment has co-relation with the services provided by them deserves to be discarded for the simple reason that no material has been placed before the Court to prove that different types of services and amenities are provided by the municipalities to different types of properties. Rather, during the course of arguments, learned counsel for the respondents had to concede that the services provided by the municipalities are common to all types of properties irrespective of their occupation by the tenant or the owner. 41. We also do not find any substance in the argument of the learned counsel for the respondents that the impugned provision should be declared ultra vires to the Constitution because all the tenanted premises have been treated at par for the purpose of determination of annual value. This argument of the teamed counsel misses the central point raised by the petitioners, namely, determination of market value of land or building only from the point of view of its occupation by the tenant or the owner. In our opinion, if the argument of the learned counsel for the respondents is accepted, no legislative enactment or administrative decision can be invalidated on the ground of violation of Article 14 of the Constitution and such an interpretation cannot be accepted as valid. 42. We may now refer to the facts and the prayer made (in addition to the common prayer for striking down Section 3(1) of the Act) in each of the above noted petitions. (Remaining para dealing with individual writ petitions - omitted. [Editor] 43. In the result, the writ petitions are allowed. Sections 3(1)(b) and 3(8a) of the Act are declared unconstitutional and struck down. The orders of assessment as well as the appellate and revisional orders and notices issued by the concerned municipalities for levy of house tax are illegal and quashed. The concerned municipalities are directed to refund the excess tax, if any, collected from the petitioners.
Sections 3(1)(b) and 3(8a) of the Act are declared unconstitutional and struck down. The orders of assessment as well as the appellate and revisional orders and notices issued by the concerned municipalities for levy of house tax are illegal and quashed. The concerned municipalities are directed to refund the excess tax, if any, collected from the petitioners. The State shall be free to suitably amend section 3(1) to provide for levy of house tax by adopting a uniform criteria for determination of annual value of similarly situated properties. The State shall also be free to amend Section 3(1) and lay down a uniform criteria for determination of annual value of properties occupied by the tenants as well as the owners is the light of the judgment of the Supreme Court in Sachidanand Kishore Prasad Sinhas case (supra) and observations made in this order. It is, however, made clear that any such enactment shall not effect the assessments made prior to the amendment of Section 3 by Punjab Act No. 11 of 1994 and the old cases, if any pending shall be decided in accordance with the un-amended provision. It is also made clear that his judgment shall be adversely affect the exemptions granted by the municipalities and the State Government under Sections 70 and 71 of the Act. Petition allowed.