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Challenging taxing provisions

Srinivasa Theatre Versus Government Of Tamil Nadu – AIR 1992 SC 999
12 The decisions of this court on the above aspect are legion, starting from Moopil Nair V/s. State of Kerala, (1961) 3 SCR 77. One of the latest decisions is in Spences Hotel Pvt. Ltd. V/s. State of West Bengal, (1991) 2 SCC 154: (1991 AIR SCW 757), wherein almost all the earlier decisions of this court on this aspect have been referred to and discussed. To bring out the principle, it would be sufficient if we refer to two of them namely, S. K. Datta, I.T.O. V/s. Lawrence Singh Ingty, (1968) 2 SCR 165 and Elel Hotel and Investments Ltd. V/s. Union of India, (1991) 2 SCC 166. In the former case, this court observed:

"It is not in dispute that taxation laws must also pass the test of Art. 14. That has been laid down by this Court in Moopil Nair V/s. State of Kerala, (1961) 3 SCR 77. But as observed by this Court in East India Tobacco Co. V/s. State of Andhra Pradesh, (1963) 1 SCR 404, in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Art.

14. It is well settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably."

Federation Of Hotel And Restaurant Association Of India, Versus Union Of India – AIR 1990 SC 1637
46 It is now well settled that though taxing laws are not outside Art. 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes.

47 But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its governmental power, has, of necessity, to make laws operating differently in relation to different groups or classes of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience.

Raja Jagannath Baksh Singh Versus State Of Uttar Pradesh – AIR 1962 SC 1563
The power of taxation is, no doubt, the sovereign right of the State; as was observed by Chief Justice Marshall in McCulloch V/s. Maryland, (1819) 4 Law. Ed. 579, "The power of taxing the people and their property is essential to the very existence of Government and may be legitimately exercised on the objects to which it is applicable to the utmost extent in which the Government may choose in carry it".

In that sense, it is not the function of the Court to enquire whether the power of taxation has been reasonably exercised either in respect of the amount taxed or in respect of the property which is made the object of the tax.

Art. 265 of the Constitution provides that no tax shall be levied or collected except by authority of law; and so, for deciding whether a tax has been validly levied or not, it would be necessary first to enquire whether the Legislature which passes the Act was competent to pass it or not.

But that is not the only enquiry which is relevant in deciding the validity of a taxing statute. Since a taxing statute is a law, it is a law for the purpose of Art. 13 and so, its validity can be challenged on the ground that it contravenes one or the other of the fundamental rights guaranteed by Part III.

It is thus clear that a citizen can challenge the validity of a taxing statute on the ground that it offends against Art. 19 or Art. 14 of the Constitution.

Therefore, it must now be taken to be settled that the validity of a tax law can be challenged on the ground that it infringes one or the other of the fundamental rights guaranteed by Part III, and so, the argument that the tax with which we are concerned is invalid because it offends against Arts. 14 and 19(1)(f), cannot be rejected as inadmissible.

New Manek Chowk Spg.And Wvg.Mills Company Limited, Versus Ahmedabad Municipal Corporation
From this it follows that it would be useless for the assessee to take objections or file appeals against the decisions on rateable value to the authorities prescribed by the Act if he was challenging the determination of the rateable value as being violative of Art. 14 of the Constitution. It is no answer to such a charge to say that the rateable value could be determined properly by the municipal authorities acting under the Act and the rules thereunder when they do not resort to any of the well-known methods of valuation and cannot justify their arbitrary method.

Moreover, it appears to us that the right of appeal in a case where the rateable value is challenged on the ground of Art. 14 is hardly of any use to the assessee.

As already noted, sec. 128 of the Act shows that a municipal tax may be recovered by presenting a bill or by serving a written notice of demand or by attachment and sale of the defaulter's immovable property, etc.

As the Commissioner is not likely to pay heed to any complaint against the determination of any rateable value based on Art. 14 of the constitution, he is bound to authenticate the assessment book under R. 19 and can under R. 39 cause to be presented to the assessee a bill for the amount of the tax due.

Under . 41 he can serve upon the person liable for the payment of the tax a notice of demand in Form G if the amount of the tax has not been paid into the municipal office or deposited with him as required by sub-sec. of sec. 406 within 15 days from the service of the bill.

Rule 42 (1) lays down that if the person to whom the notice of demand has been served under R. 41, does not within 15 days from the said service pay the sum demanded or show sufficient cause for non-payment of the same to the satisfaction of the Commissioner and if no appeal is preferred against the said tax, such sum with costs of recovery may be levied under a warrant in Form H to be issued by the Commissioner by distress and sale of moveable property of the defaulter or the attachment and sale of immovable property of the defaulter, etc.

sec. 406 (1) provides for appeals against any rateable value or tax fixed or charged under the Act. sec. 406 (2) provides inter alia as follows :
"No such appeal shall be heard unless- (a) it is brought within fifteen days after the accrual of the cause of complaint: (b) in the case of an appeal against a rateable value a complaint has previously been made to the Commissioner as provided under this Act and such complaint has been disposed of ; (e) in the case of an appeal against a tax, or in the case of an appeal made against rateable value after a bill for any property tax assessed upon such value has been presented to the appellant, the amount claimed from the appellant has been deposited by him with the Commissioner."

16 The net result of all this is that unless the assessee pays the amount of tax demanded, his appeal cannot be heard so that if he questions the rateable value or the levy of the tax, he must in any event, deposit the amount demanded. In effect, the Act and the appeal rules do not make any provision for relief to an assessee who complains that the assessment book has been prepared in violation of the law.

27 It, therefore, appears to us that R. 7 (2) of the rules framed under the Bombay Act of 1949 was beyond the legislative competence of the State. The rule also suffers from another defect. namely, that it does not lay down any principle on which machinery is to be specified by public notice by the Commissioner to be deemed to form part of such building for the purpose of fixing the rateable value.

To this, Mr. Setalvad argued that if the building was equipped with machinery for the purpose of running a textile mill, whatever machinery was there for the purpose would be valued. According to him the question would be which of the machinery would help in the enjoyment of the property and thereby add to its rateable value.

Unfortunately, the specification of the classes is done from time to time by the Commissioner with the approval of the Corporation irrespective of the question as to where they are to be found. It, therefore, depends on the arbitrary will of the Commissioner as to what machinery he would specify and what he would not.

Moreover, he is the only person who can examine this question. There is no right of appeal from any specification made under sub-r. (3) of R. 7 except that the Commissioner is to act under the directions of the Standing Committee. Rule 7 (2) shows the' all plant and. machinery may not be taken into account for the purpose of valuation and any such plant or machinery which is not included in the classification may escape rateability, however, much they may be prized by the tenant who takes the premises on rent. It seems to us, therefore, that R. 7 (2) is beyond the legislative competence of the State Legislature and sub-r. (3) of R. 7 is also invalid on account of excessive delegation of powers by the Legislature.




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