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Challenge to Property tax imposed by Municipal bodies


Avinder Singh Versus State Of Punjab And Haryana – AIR 1979 SC 321
(5) Likewise, the plea that a flat rate of Re. 1.00 per bottle, be it brandy or other stronger beverage or be it Rs. 50.00 or 500.00 per bottle, cannot be seriously pressed. In the field of taxation many complex factors enter the fixation and flexibility is necessary for the taxing authority to make a reasonably good job of it.

(22). The correct law is found in East India Tobacco Co. (1963) 1 SCR 404 at p. 409 : (AIR 1962 SC 1733 at pp. 1734-35.)

"It is not in dispute that taxation laws must also pass the test of Art. 14. That has been laid down recently by this Court in Moopil Nair V/s. The State of Kerala. But 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 the 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.

The following statement of the law in Wills on "Constitutional Law" page 587, would correctly represent the position with reference to taxing statutes under our Constitution :-
"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.... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation."

Both the sides relied on certain important criteria contained in the Judgement of Wanchoo, C. J., especially because it is a Bench of seven Judges and the ratio therein laid down has considerable authority and binds us. Dealing with municipal bodies and the nature and content in that Municipal Act, the court observed what is instructive for us in the present case :

Municipal Corporation Of Delhi Versus Birla Cotton, Spinning And Weaving Mills Limited, Delhi – AIR 1968 SC 1232
(34) Another guide or control on the limit of taxation is to be found in the purposes of the Act. The Corporation has been assigned certain obligatory functions which it must perform and for which it must find money by taxation. It has also been assigned certain discretionary functions. If it undertakes any of them it must find money. Even though the money that has to be found may be large, it is not, as we have already indicated, unlimited for it must be only for the discharge of functions whether obligatory or optional assigned to the Corporation. The limit to which the Corporation can tax is therefore, circumscribed by the need to finance the functions, obligatory or optional which it has to or may undertake to perform. It will be not open to the Corporation by the use of taxing power to collect more than it needs for the functions it performs. It cannot, for example, raise the rate of taxation to such an extent, as to provide a surplus which is much more than what it needs for its existence in carrying out the functions assigned to it, subject to its having the minimum cash balance of Rs. 4,00,000.00 as provided in the Act at the end of a year.

(35) Another limit and guide-line is provided by the necessity of adopting budget estimates each year as laid down in sec. 109 of the Act. That section provides for division of the budget of the Corporation into four parts, i.e., general, electricity supply, transport, water and sewage disposal. The budget will show the revenue and expenditure and these must balance so that the limit of taxation cannot exceed the needs of the Corporation as shown in the budget to be prepared under the provisions of the Act. These four budgets are prepared- by four Standing Committees of the Corporation and are presented to the Corporation where they are adopted after debate by the elected representatives of the local area. Preparation of budget estimates and their approval by the Corporation is therefore another limit and guide-line within which the power of taxation has to be exercised. Even though the needs may be large, we have already indicated that they cannot be unlimited in the case of the Corporation, for its functions both obligatory and optional are well defined under the Act. Here again there is a limit to which the taxing power of the Corporation can be exercised in the matter of optional taxes as well, even though there is no maximum fixed as such in the Act.

(37) Finally there is another check on the power of the corporation which is inherent in the matter of exercise of power by subordinate public representative bodies such as municipal boards. In such cases if the act of such a body in the exercise of the power conferred on it by the law is unreasonable, the courts can hold that such exercise is void for unreasonableness. This principle was laid down as far back as 1898 in Kruse V/s. Johnson, in connection with a bye-law made by a county council. In that case the county council made a certain bye-law and its validity was challenged on the ground that it was unreasonable. The Court held that a bye-law could be struck down on the ground of unreasonableness but took pains to point out that in determining the validity of a bye-law made by a public representative body, such as a county council, the Court ought to be slow to hold that the bye-law was void for unreasonableness. The Court further held that "a bye-law so made out ought to be supported unless it is manifestly partial and unequal in its operation between different classes, or unjust or made in bad faith, or clearly involving an unjustifiable interference with the liberty of those subject to it." The same principle would apply to the fixation of rates of taxation and if per chance the Corporation fixes rates which are unreasonable, there is control in the court to strike down such an unreasonable impost.

(90) It was asserted that the doctrine of excessive delegation of legislative power is inapplicable to the conferment of taxing power on local authorities. It was said that the power to tax is in its essence a sovereign power of the State, and since a Municipal Corporation exercises auxiliary authority in the important business of local self-government, in exercising the power to tax for limited municipal purposes, it is not acting as a delegate, but on behalf of the State. We are unable to accept the broad proposition that when authority is conferred upon a local authority by the Legislature to tax, the local authority exercising power so conferred acts as an agent of the State. A local authority is undoubtedly an instrument of the State in the matter of local government restricted to a particular area in which it functions. By investing a local authority with powers of legislation for administration of the Act relating to local government, sovereign power of the State is entrusted to the body for limited purpose; but the entrustment of power is as a delegate, and must in our view be within the limits of permissible entrustment consistent with the constitutional scheme. The power of the State to legislate in matters of taxation within the allotted field is plenary, but in entrusting that power to a local authority the legislature cannot confer unguided authority.

(95) It was also said that the standards or guidance furnished by the Act for exercising the delegated authority are to be found in the "the needs of the Corporation", and "needs of the Corporation" are of necessity an adequate guidance. Strong reliance in that behalf was placed upon the Judgement of this Court in the Liberty Cinema's case, 1965 2 SCR 477, which we have already referred. Sarkar, J., speaking for the majority of the Court observed (of SCR)

"It seems to us that there are various decisions of this Court which support the proposition that for a statutory provision for raising revenue for the purposes of the delegate, as the section now under consideration is, the needs of the taxing body for carrying out its functions under the statute for which alone the taxing power was conferred on it, may afford sufficient guidance to make the power to fix the rate of tax valid."



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