The Judgment of the Court was delivered by

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KP Right to Information Act. KP Right to Services Act. Removal of Encroachment from Public Property Act. Local Governance, Historical perspective in the sub-continent. Local Government System in Pakistan since 1958. LOCAL GOVERNMENT, ELECTIONS & 7 Tehsil Munciple Officer 17 35 x. Urban immovable property tax 64. 1950 1995 Geneva Geneva New York 1958 London. Ebook download as PDF File (.pdf. This Act may be called the Direct Tax Act. The first is that of the printer. Free download as PDF File (.pdf). Parameters act as containers for ideas. On graduation in 1958. The Boswell Amendment,” October 31. Haryana State.

Anantanarayanan, C.J:— The Madras Urban Land Tax Act 12 of 1966, received the assent of the President on the 9th of September, 1966; by virtue of Sec. 1, sub-section (2)(a)(i), most of the provisions of this Act, with three stated exceptions, are deemed to have come into force in the City of Madras, on the first of July, 1963. In the proceedings before us, the vires of this measure has been challenged, upon grounds of the absence of legislative competence, and attack under the combined effect of Articles 14 and 19(1) of the Constitution of India; admittedly, grounds of great significance and interest. In Buckingham & Carnatic Co. Ltd. v. State of Madras, (1966) 2 Mad LJ 172 the Division Bench of Veeraswami and Natesan, JJ., dealt with a predecessor enactment, namely, Madras Urban Land Tax Act XXXIV of 1963, and, while upholding the measure in terms of legislative competence, struck down the charging section (Section 3) as violative of Article 14, and in consequence, held that the entire Act was void and unenforceable. Upon the present measure, arguments have been submitted before us, at considerable length, and covering a wide range of precedents and authorities.

2. I have had the advantage of perusing the judgment of my learned brother (Veeraswami, J.) in which every aspect of the matter in controversy has been dealt with, and analysed, exhaustively, and at length; also. I am in entire agreement with his conclusions. For these reasons, I have debated within myself whether I should deliver any separate judgment. But I have been impelled to do so, on one important ground. The arguments before us do not merely cover the present enactment; they have a wider significance, as attaching to the true interpretation of Entry 49 of List II Urban Land Tax (FB) of the Seventh Schedule of the Constitution, and have considerable potentialities for the future. Again, both the arguments on legislative competence, and the assault on the measure upon the combined effect of Article 14 and Article 19 now that the Emergency has been lifted, admit of several perspectives of approach. For these reasons, I am expressing my own views, as analytically as possible, and within a more restricted compass. The judgment of my learned brother (Veeraswami, J.) enables me to dispense with the discussion of several aspects and facts, that have received elaborate treatment at his hands; further, it enables me to commence in medias res without the necessity to analyse the particulars of the writ petitions, or the structure. In detail, of the Act itself. For the purpose of this judgment, I am taking the main argument of Mr. V.K.T Chari on legislative competence, and combining it with a part of the arguments of Mr. Vedantachari on the legislative history of Entry 49 of List II of the Seventh Schedule. In my view, this total process of reasoning represents the most formidable attack on the measure, presented during arguments. I am segregating, for brief separate treatment, the two other extreme positions pressed by Mr. Vedantachari: (1) that under Entry 49 of List II, even the State Legislature is incompetent to legislate, except for purposes of finances for the Local Bodies, or what has been termed ‘rates legislation’ and (2) that, on proper analysis, the enactment before us really falls under ‘Land Revenue’ which is Entry 45 of List II, in which case, the proportion of the produce that the State can take away, by any such taxing measure, has a limit that is historically determined, and cannot be exceeded.

3. After dealing with this broad area of the arguments, which is the vital part. I shall devote scrutiny and analysis to the combined effect of Articles 14 and 19 of the Constitution on the measure itself, to the extent to which it may be termed ‘confiscatory’ and, in particular, upon Section 6 of the measure. I am in entire agreement with Veeraswami J., that Section 6, at least, does not survive any such analysis, and amounts to an excessive delegation, of utterly arbitrary and capricious power, which cannot be upheld; I shall add a few words, on the effect of the retroactive clause in the enactment.

4. The argument of Mr. Chari has to be presented in its most acute form, for a true appreciation. Article 246 of the Constitution of India, as is well-known, defines the respective spheres of legislative competency of the Parliament (clause 1), of the State Legislature (clause 3) and of both with regard to matters enumerated in List III of the Seventh Schedule (Clause 2) which is concurrent jurisdiction, Article 39, clause (c), is a directive principle that “the operation of the economic system does not result in the concentration of wealth and means of production, to the common detriment” Article 366(9) contains a definition of ‘estate duty’, with reference to the principal value. Entry 82 of List I (Taxes on income). Entry 86 (Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies ………) and Entry 88 (Duties in respect of succession to such property), form, according to Mr. Chari, a constellation of Entries, of very considerable significance Actually, these are not merely powers of taxation, in the restricted sense of an impost that could be levied by the Legislature, for the purpose of revenue; they comprise an adumbrated scheme, by which the great principle of Article 39-C is to be effected for the Nation. The Union reserves a power, to tap or take away accretions of wealth, where these are so vast as to threaten to disturb the economy to be achieved on a Socialistic pattern. Such increases are taken away either as capital gains tax under Entry 82, or in the form of wealth tax and estate duties under Entries 86 and 87. Mr. Chari would agree with certain precedents, which have emphasised that the subject of taxation, and the measure of the tax, must be kept in mind as distinct entities. In Byramjee Jeejeebhoy v. Province of Bombay, AIR 1940 Bom 65 (FB) Kania, J., (as he then was) pointed out, on the authority of A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland) 1934 (1936 AC 352), that “the measure of the tax is not itself the test”. But Mr. Chari contends that the indications of measure in these Entries are of deep significance. In a conceivable case, the measure and subject may be identical, as, for instance, in income-tax which has been defined as a tax or impost on ‘income in the widest sense’; per Tendolkar, J. in J.N Duggan v. Commr. of Income-tax, AIR 1952 Bom 261. This significance can be inferred from the above constellation of Entries, and it implies that no State Legislature, under Entry 49 of List II, can tax the capital value of urban land; it even implies that the Union Parliament itself cannot use the instrument of taxation, in this sense except under Entry 86 or Entry 87.

5. The entire argument takes us a little further afield, into modern theories of taxation. I think it is important to realise that the stage has now arisen, for differentiation between different expressions in the fiscal sphere, which might have very varying implications. I refer to the expressions: ‘Capital levy’, ‘Capital value of assets’, ‘Capitalised value’, ‘Market value’, ‘tax’, and ‘annual yield or annual letting value’.

6. Among the modern Economists whose studies have been cited before us, are Professor Kaldor, Professor Peacock Professors Hicks, Findlay Shirras, Dalton etc. Though the precise definition of ‘tax’ Is difficult, with which I shall commence, it is important to note that there is an Inclusive definition of ‘taxation’ in Article 366(28) and the matter will be found discussed, with reference to the Sydney Harbour Bridge Case, AIR 1930 PC 129. In any event, the theory of taxation has travelled far, since the days of Laissezfaire economics, and it has since become a dynamic instrument for levelling inequalities of wealth, not merely a power to tap sources of State revenue. Findlay Shirras discusses taxation as a ‘power to destroy’, that is, to sterilize the assets. ‘Capital levy’, according to Kaldor and other Experts, is a single and total impost on wealth, or a proportion of wealth, generally caused by some emergency. With great respect to Chagla, C.J, who appears in Duggan's case, AIR 1952 Bom 261, to treat ‘capital value of assets’ as equivalent to ‘capitalised value’, I think that they have to be clearly distinguished. Mr. Balasubramaniam has placed before us some valuable excerpts on the etymology of the word ‘assets’, and it is clear that this expression in the plural, signifies the total wealth of the individual, in the sense of ‘net wealth’, measured in terms of exchange value. ‘Capitalised value’, on the contrary, is a mode by which, when other modes fail or are not practicable, the exchange or market-value is ascertained by a capitalisation of income, at so many years' purchase, with the multiplier generally depending on the rate of interest on gilt-edged securities. Actually, even Experts in Economic Theory find it very difficult to distinguish between the incidence of a tax, whether it falls on capital or on income; I shall refer to this aspect in another context of discussion. For the tune being, I shall content myself with observing that Mr. Chari's argument is that the Act before us, to the extent to which it purports to tax the ‘market value of lands and buildings’, entrenches on the Union power, and is legislatively incompetent. This is buttressed by the argument based on the legislative history of Entry 49 of List III which both Mr. Chari and Mr. Vedantachari have stressed, at considerable length.

7. On the main argument of Mr. Chari, since the directive principle embodied in Article 39(c) applies both to the Parliament and the State Legislatures, I find it very difficult to conceive how the constellation of Entries in List I, would exclude altogether any power by the State Legislature to implement the same principle, if the relevant Entry in List II grants that power; I am assuming, of course, that there is no domain of conflict between the two Entries. The principles on which the Entries have to be construed, are well settled, and, as I shall show presently, the degree to which legislative history may aid in the interpretation, has also been the subject of several pronouncements of authority. I shall here give a conspectus of this area of the law before proceeding to the cases under Entry 49 of List II and the actual task of interpretation.

8. This matter has received an elaborate exposition in several cases, such as In re C.P Motor Spirit Act, 1939 FCR 18 : (AIR 1939 FC 1). Subrahmanyan Chettiar's case, 1940 FCR 188 : (AIR 1941 FC 47), Atiqa Begum's case, AIR 1941 FC 16, Chaturbhai's case, AIR 1960 SC 424 and Banarsidas's case, AIR 1965 SC 1387. The canon has been stated in the form that words in a Constitution, which is an organic document, conferring Legislative power must be liberally construed, so that they may have effect in widest amplitude; a restricted meaning may have to be given, only where it is necessary to prevent a conflict between two exclusive jurisdictions. Words have to be read in their ordinary, natural and grammatical meaning, subject to the rider about the need for liberal construction, where the grant is of the legislative power. But, after stressing these well-known principles, the Division Bench observed in 1966-2 Mad LJ 172 that legislative history need be brought into the picture for the purpose of interpretation, only where the language is not express and plain, and a problem of construction arises. The dicta of Lord Herscheli in Bank of England v. Vagliano Brothers, (1891) AC 107 to the effect that an appeal to earlier decisions “can only be justified on some special ground”, were cited and followed. But in this matter of resort to prior legislative history, I do not think that too strict a view can be taken, for an important reason. The question whether the words are so plain and unambiguous, as they may seem at the first blush, or do conceal some difficulty in interpretation, may itself become controversial; in which case, the exclusion of all resort to legislative history, may involve the fallacy of a circular argument. As stated by Murphy, J., in Harrison v. Northern Trust Co., (1942) 317 US 476 : 87 Law Ed 407 “words are inexact tools at best, and for that reason there is wisely no rule of the law forbidding resort to explanatory legislative history no matter how ‘clear the words may appear on superficial examination’”. My own view is that legislative history, particularly with regard to construction of an Entry which embodies a power, is always relevant and frequently illuminating. But I would entirely agree with the Division Bench and Veeraswami, J., in the present proceedings that it can never be a conclusive determinant.

9. Further, there is a very important reason why, in this case, the prior legislative history, with regard to the Entry 49 of List II. may not be conclusive, on the true scope of its power. I shall refer to this ground later. Another aspect of this matter is, whether there is any kind of conflict in reality, between Entry 86 of list I and Entry 49 of List II? If a conflict of jurisdiction does exist then the other principles come into play, on the problem of reconciliation or interpretation, which have been fully expounded in In re C.P Motor Spirit Act, 1939 FCR 18 : (AIR 1939 FC 1) and need not be dilated upon here. The Courts must then give a restricted meaning to one or the other Entry, in terms of the respective spheres of legislative competence, and effect a harmonious interpretation. In Duggan's case, AIR 1952 Bom 261 Chagla, C.J, observed that “the liberal interpretation which must be given must not be an interpretation which is opposed to the legislative practice”. But, in my view, (1) the theory that the constellation of Entries in list I precludes the State Legislature from taxing the capital value of lands and buildings under Entry 49 of List II, cannot be accepted. Actually there is no juristic principle for sustaining such a theory, nor is it supported by any precedent. (2) There is really no conflict between Entry 86 of List I and Entry 49 of List II; the differentia are sharp, and the bases are totally different. The fact that taxation under Entry 49 of list II may have very similar incidents on the subject of the tax, as a fiscal enactment under Entry 86 of List I, is quite beside the point (3) The legislative history of Entry 49 of List II, overwhelmingly shows that prior legislative practice has been confined, to taxes on such properties on annual yield or annual letting value, either on the yield itself as a frank species of ‘rating legislation’ or on a percentage of the capitalised value as a measure of the yield. In almost all such cases, the enactments have been for local or Municipal purposes. (4) But this legislative history, while its force and its relevance are undeniable, is not the true determinant of the power. The amplitude of the power is wider and, on a proper interpretation, the Entry clothes the State Legislature with the power to tax the capital value of lands and buildings. Before proceeding to furnish my reasons for these conclusions, I shall refer to the case-law on this subject, somewhat briefly, in view of the extensive treatment of this by my learned brother (Veeraswami, J.) and to the documents of the Legislative history, namely, the Devolution Rules, 1920, Schedule Taxes Rules, and White Paper, 1931, placed before us by Mr. Balasubramaniam as well as the Government of India Act.

10. I might first refer to Byramjee Jeejeebhoy v. Province of Bombay, AIR 1940 Bom 65 (FB). This decision held that the Bombay Finance (Amendment) Act, 1939, was intra vires the State Legislature, and was valid. Beaumont, C.J, held that the impugned measure was not a tax on income, and, although it was a tax on lands and buildings, it was not a tax on the capital value of the lands and buildings. Broomfield, J., also distinguished the measure, as not within the mischief of Item 55 in the Federal List. Ralla Ram v. Province of East Punjab, 1948 FCR 207 : (AIR 1949 FC 81) upheld the validity of the Punjab Urban Immovable Property Tax Act, and the argument that this encroached on the Central List, as it amounted to a tax on income, was repelled. In Duggan's case, AIR 1952 Bom 261 Chagla, C.J, thought that though the Provincial Legislature was competent to impose a tax on lands and buildings, only the Central Legislature could impose a tax not on land and building, as such, but on the capitalised value of lands and buildings. The learned Chief Justice interpreted Entry 55 (Federal List), as including a power, not merely to impose a tax on all the assets of the individual or company, but also to do something which was a lesser power, namely, the imposition of a tax only on some assets, such as lands and buildings. In Municipal Corporation v. Gordhandas, AIR 1954 Bom 188, Gajendragadkar, J., (as he then was) expressed his inability to agree with these observations of the learned Chief Justice. In Oudh Sugar Mills v. State of U.P, AIR 1960 All 136 (FB), that High Court upheld the validity of the U.P Act the charging section of which provided for levy on the annual value of each land, and observed to at the scope of Entry 49 was wide enough to include a capital levy on agricultural land. Finally, I must refer to Gordhandas v. Municipal Commr., Ahmedabad, AIR 1963 SC 1742 for the important reason that this decision reviews the entire prior history of ‘rate legislation’ under Entry 49. The majority judgment dealt with two matters, which are of considerable interest to the present context of discussion. Firstly, after the history had been reviewed, note was taken of sub-section (3) of Section 81 of the Madras District Municipalities Act, enabling a property tax to be levied at percentages of the capital value, with respect to certain lands. Their Lordships expressed no final view on the validity of any such Amendment, after the Government of India Act of 1935 and the Constitution of India had come into force. Again, their Lordships were concerned with the method of capitalising the annual yield, and then fixing the rate or tax at a small percentage of that capitalised value, which might be the same in a conceivable instance as a tax taking away a proportion of the annual yield. They pointed out that, by such means, “the real incidence of the levy is camouflaged”, and observed that had it been realised that such a percentage may, in reality, take away a substantial portion of the annual yield, the legislation might not have received assent. The entire case-law, at the highest for the arguments pressed by Mr. Chari before us, is inconclusive. It only exhibits the feature that, so far, Entry 49 of List II has largely been utilised for taxation of lands and buildings for Local or Municipal purposes, on the lines of ‘rate legislation’ in England and here, as some portion or share of the annual yield or letting value. This does not show that the Entry, or rather the width of its amplitude is confined to enactments of this kind alone.

11. The two decisions that have been cited by learned counsel on this aspect of the arguments are, again, not decisive at all of the issue. In New Manek Chowk Spinning and Weaving Mills v. Municipal Corporation, AIR 1967 SC 1801 their Lordships looked into the legislative practice with regard to the question whether the word land’ would include plants and machinery, as part of the hereditament. The interpretation sought to be based on practice in the United Kingdom, was repelled. In Diamond Sugar Mills Ltd. v. State of Uttar Pradesh, AIR 1961 SC 652, the question arose with regard to the interpretation of the words ‘local area’ in Entry 52 of List II of the Seventh Schedule. It was held that the premises of a factory could not constitute such a local area’ within the meaning of the Entry. These decisions merely emphasise that legislative history is not irrelevant, but that the problem is really one of interpretation on the tests of the manifest meaning and purport, the need for liberal construction of a part of an organic document, and the caution that a restriction has to be imposed, only where there is ambiguity or conflict of jurisdiction, or the compelling effect of prior legislative history.

12. I shall refer only very briefly to the documents on this aspect, since they have been elaborately dealt with by my learned brother (Veeraswami, J.) namely, the Devolution Rules, the Schedule Taxes Rules, the Illustrative Lists embodied in the White Paper, 1931, and the Revised Lists by the Joint Parliamentary Select Committee, 1933–1934. It is interesting to note that the immediate predecessor of Entry 49 in the Schedule of the Government of India Act admittedly read as “Taxes on lands and buildings, hearths and windows”, the latter two expressions certainly being strongly reminiscent of ‘rate’ enactments for Local Bodies in the United Kingdom. But the real point is that the ultimate outcome of all this analysis is that distinct entities of the Second Schedule in the Schedule Taxes Rules, namely, ‘a tax on land or land values’ (Entry 2) and ‘a tax on buildings’ (Entry 3), have combined ultimately to become the Entry “Taxes on lands and buildings hearths and windows” (Entry 42) in List II of the Seventh Schedule to the Government of India Act, 1935. This really disposes of the arguments that the Entry itself is integral and composite; that a separate tax on lands, as under the present Act, is beyond the legislative competence of the Entry. This can be further authoritatively shown as sustainable under two decisions of the Supreme Court, namely, Jagannath Baksh Singh v. State of Uttar Pradesh, AIR 1962 SC 1563, where (in paragraph 10) a tax on land Without any imposition on buildings, was upheld as one under Entry 49, and H.R.S Murthy v. Collector of Chittoor, AIR 1965 SC 177 at p. 182, where a cess on lands alone was held to fall under Entry 49. The power enables a disjunctive use, and the present enactment is, to that extent, perfectly valid.

13. The true reasons why, in my view, the prior legislative history is not the determinant and notwithstanding the doubts expressed by their Lordships in AIR 1963 SC 1742 the Entry does appear to include a power to tax the capital value of lands and buildings, are these. Firstly there is no conflict of jurisdiction whatever between Entry 86 of List I and Entry 49 of List II, as precise differentia can be set forth. I am unable to accept the suggestion put forward by Mr. Chari, that Entry 86 of List I might, conceivably, include a power to tax the entire assets of an individual, without making any deductions for liabilities, such as mortgages, encumbrances or debts. Such a view would render the expression ‘capital value of assets’ devoid of true meaning, in the sense of the logic of economic theory; if the burden extinguishes the corpus of wealth, as my learned brother (Veeraswami, J.) has pointed out, there are really no ‘assets’ left. Per contra, Entry 49 has nothing whatever to do with the individual or his wealth; the tax runs with the land, as in this case, and the encumbrance on the land is irrelevant. Even if the Union Legislature segregates for taxation a portion of assets, such as a land and its building, under Entry 86, that would be a different base of fiscal power, and a wholly different tax. Again, the tax under Entry 49 could even fall on the occupier of the land, and not merely on the owner. Next, I would unhesitatingly interpret Entry 49 as including a legislative competence to tax the capital value of the subject, for this reason.

14. There was an academic controversy, some years back, with regard to the character of India as a Federation, in terms of Constitutional Law: Was it a Federation with the base of residual sovereignty in the Centre, or in the States? Was it almost a unitary kind of Federation, or a loose-knit Federation with sovereignty largely in the States, or a Federal entity between these extremes? I am referring to this argument among academicians for the important reason that, as a matter of political and constitutional history, it is indisputable that free India did not come into being as a merger of autonomous Sovereign States; it came into being as a successor, through freedom, of a pre-existing unified country. For that reason, the entries in List II are literally grants of power to the States, and we must assume that the framers of such a List were perfectly aware, not merely of the prior legislative history, but also of the potentialities of future taxation. They must have been aware that taxation was no longer merely the mode for imposts for raising revenue, in order to run the administration; it had become a concept with a dynamism capable of achieving socialistic objectives. When this is borne in mind, we see one important reason why the prior legislative history may not be decisive of the amplitude of Entry 49 of List II. It may very well be that this history was kept in mind, but that the conclusion was implicit, that the Entry had a far wider scope in respect of legislative competence. It could include a power to tax the capital value of lands and buildings, because such a concept was not limited to the Union, and to the constellation of Entries in List I, as Mr. Chari would urge.

15. I would thus conclude that, neither upon an interpretation of the Entries themselves, nor upon a consideration of the legislative history, including the case-law, the Devolution Rules, the Schedule Taxes Rules and Government of India Act, 1935, can we accept the interpretation that would confine the power under Entry 49 of List II to taxes on the annual letting value alone. Needless to say, this also disposes of the extreme argument of Mr. Vedantachari that the power itself can only be wielded for the purpose of financing Local Bodies or Municipalities. My learned brother (Veeraswami, J.) has repelled this argument, at some length, in his judgment. I would content myself with the observation, that it may no longer be practicable to draw any firm dividing line, between the concerns of Local Bodies and Municipalities and of the State Government the State Government may take over several projects, such as Electricity or Water Supply undertakings which were run by Local Bodies, and may allocate finances to such Bodies out of its own revenues.

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16. I now proceed to notice a very interesting argument Mr. Vedantachari urged, with a background of considerable scholarship in this field, that the measure before us really falls under Entry 45 of List II, namely. ‘Land revenue’, in which case, quite different consequences, would follow as restricting the powers of the State Legislature. We have been referred to A.K Gopalan v. State Of Madras., 1958-2 Mad LJ 117 : (AIR 1958 Mad 539), and to the discussion in that decision on the history of ‘land revenue’. We have been also referred to the genesis of Khirai-free or ‘Lakhiraf’ lands, to the Permanent Revenue Settlement, and to passages from Mclean's Manual of the Administration. In order to show the source of Article 276 of the Constitution, Mr. Vedantachari has made available to us the entire history of Local Taxation in Madras, including India Act XIV of 1856, Madras Act IX of 1865, Madras Act IX of 1867, Act V of 1871 and Act I of 1884. He has also cited passages on the origin of ‘quit rent’ on building sites, and shown how these comprised part of the land revenue system. Property taxes, which are now being levied by the Corporation, owe their origin to the Madras City Land Revenue Act XII of 1851, and, according to learned counsel, ‘quit rent’ in Madras is and has always been, a special form of land revenue. He points out at the grounds sustaining his main argument that the present enactment is (1) a levy only on land exclusive of buildings. (2) under Section 23, it is in lieu of the ryotwari assessment, ground rent, quit rent, and any amount due under the Act of 1851 etc., (3) under Section 17, it is a first charge on the urban land and (4) the amount is made payable by the owner of the land. But it is clear to us that this entire trend of argument rests upon one single proposition, which is not supported, and which, in fact, is opposed to the recent decisions of the Supreme Court, namely that under Entry 49 there can be no tax on land without building, or land apart from the building. As I have already pointed out, the Supreme Court has held that taxes on such lands do far under Entry 49—Vide AIR 1962 SC 1563: ‘land revenue’, is, historically speaking, a totally different concept, of the share of the State in the produce of land, and can have no relationship to taxes on urban land, whether on market or capital value, or on annual yield, which form and have always formed, a clear species of legislation under Entry 49.

17. I may now proceed to the history of the present measure, and the predecessor enactment which was dealt with by the Division Bench. This is of significance, on the test of reasonableness, with regard to the combined impact of Article 19 and Article 14 of the Constitution. We have been referred to passages in the Taxation Enquiry Committee's Report, to the Report of the Special Officer, Mr. M.V Subramaniam, I.C.S, which pre-figured these enactments, and to the stated objectives and reasons under the earlier Act, which was struck down. All these documents have regard to what has been loosely termed “unearned increment”, resulting from an appreciation of land values and building values, in urban areas, in recent years. Strong opinions have been repeatedly expressed that, these are accretions of wealth due to general economic causes, and not to individual exertions, which do constitute, a fruitful source for equitable taxation. But, in my view, the argument conceals a fallacy, to overlook which may be to perpetrate substantial injustice. It is true that building values and urban site values have sharply accelerated in recent years, owing to inflationary trends. It is true that persons possessing large areas of urban land, have found themselves richer by many multiples of wealth, owing to economic causes alone. But it is equally true, that many of the properties are merely properties with a few grounds of land and a building thereon, which have been acquired out of savings, by members of the middle class. They represent investments of hard-earned money, probably actuated by the belief that real estate may further appreciate in value, while the purchasing power of money is continuously declining. In no sense can these investments be termed unearned increments possessed by these persons. Taxation, springing from any such idea, does not, in fact, render justice, as between those who are still the fortunate possessors of large extents of urban lands originally acquired cheaply, and those who have invested accumulations of earned in come on such properties, in recent years.

18. The word ‘confiscatory’ has been frequently employed, with regard to legislation of this kind, and it is true that because of the combined impact of Article 19 and Article 14, enactments have sometimes been struck down upon such a reasoning. But there is one important factor to be guarded against, in this context, and that springs from what I have already expressed concerning the legislative competence of the State Legislature under Entry 49. If the power is to be confined to a taxation on the annual yield or on annual letting value, then the word ‘confiscatory’ acquires a different significance altogether. But, if the power is not so confined, then it becomes difficult to define the limit particularly where, as in this case, the impost is annual, and at a very small percentage of the market-value namely 0.4 per cent. Cases on this aspect are not particularly helpful, and I may immediately refer to Attorney-General of Alberta v. Attorney-General of Canada, AIR 1939 PC 53, where the Bill was struck down, on the ground that though it was enacted by the Province of Alberta, as a taxation measure ex facie, within its competence, it was not truly a measure to raise revenue for Provincial purposes, but part of a legislative plan to prevent the operation within the Province, of certain banking institutions, which had derived their authority from Parliament. In dealing with this aspect in Devkumarsinghji Kasturchandji v. State of Madhya Pradesh, AIR 1967 Madh Pra 268, Dixit, C. referred to this decision, as well as to K.T Moopil Nair v. State of Kerala, AIR 1961 SC 552 and Srinivasamurthy v. State of Mysore, AIR 1959 SC 894. In Moopil Nair's case, AIR 1961 SC 552, again, the ground of interference was that the Act was discriminatory, that it imposed unreasonable restrictions on the holding of property and that it was confiscatory in character and effect. The point here is whether, when the power itself has an amplitude which includes the taking away of wealth or the sterilization of assets, the term ‘confiscatory’ could be properly used, to strike down the measure under Article 19, But as Dixit, C.J, observed, nevertheless, there are limits to taxation, and the Courts cannot accept any theory that taxation can be unlimited. The entire reasoning is somewhat academic, with regard to the present enactment, for Mr. Chari is not able to show that, granted legislative competence, the Act before us has to be struck down as ‘confiscatory’ in character. He has no doubt, stressed its undesirable features which, in practice, would appear to lead to startling anomalies. But, in respect of the charging provision itself, it is difficult to see how the combined impact of Article 19 and Article 14, necessarily destroys that provision. The mischief occurs elsewhere, as I shall presently show.

19. In view of the importance of the argument that Entry 49 of List II does not include the power to tax the capital value of lands and buildings, in any form, I would like to distinguish between the power itself, and the present enactment. In my view, the power is what I have held it to be, and it cannot be confined either to ‘rates legislation’, or to taxation on annual letting value or yield, though, legislative history or practice, so far has been so confined. But, actually, the Act, with which we are concerned, can be strictly justified, even on the restricted interpretation of Entry 49, and even if it were to prevail with respect to the charging provision. For, as Kaldor points out, the question whether the tax falls on capital or income “is not whether it is levied on the one or the other, but whether it is a singular (once for all payment), or recurrent”. There is no particular magic about the expression ‘market-value’ nor does the mere fact of an impost is a very small percentage of the market-value, necessarily imply that the tax is not on the annual yield or income. For, notwithstanding what their Lordships observed in AIR 1963 SC 1742 about the camouflaging effect of such a device, the Legislature might well adopt such a mode, particularly if it thought that there may be other difficulties of an administrative character, in imposing the tax at a straightforward percentage of the annual yield. I must here stress certain features of the present Act, which render this interpretation feasible; we have nothing else to go upon, and the legislative intendment has necessarily to be gathered from the provisions. These are (1) the fact that the impost is of annual recurrence at 0.4 per cent of the market-value (2) that it enures under Section 13 for a period of ten years, and may enure for a further similar period (3) that though the tax itself is not diminished in its magnitude, under Section 25, the owner can pass on to the occupier, in the shape of rent, the difference between the tax, and one-half of the amount of the annual rent and (4) the concession under Section 27, in respect of owner-occupied buildings. This aspect need not be taken up further, as I am expressing it as a consideration which might save the generality of the measure and the charging provision, even upon a restricted interpretation of Entry 49 of List II of the Seventh Schedule.

20. I am not dealing in this judgment, with the effect of the date on which the Emergency was lifted, in relation to the impact of Articles 14 and 19, and the amounts that might have been collected prior to that date, which are deemed to be collected under this Act under the retroactive provision (Section 1, clause (2)(a)(i).) The matter has been efficiently discussed by Veeraswami, J.

21. I must now pass on to a more Important consideration, namely, the effect of Articles 19 and 14 upon Section 6 of the Act, which, it appears to me, is quite unsustainable, in the form in which it stands. I must first refer to State of Madras v. V.G Row, AIR 1952 SC 196, particularly for the view that, “though the social philosophy and the scale of values of the Judges participating in the decision should play an important part” in evaluating what would be ‘reasonable’ under Article 19(5), nevertheless, since the majority of the elected representatives of the people have authorised the restrictions, the judiciary must necessarily keep this in mind, before striking down any part of the Act under Article 14. I may also refer here to Balaji v. Income-tax Officer, AIR 1962 SC 123, Moopil Nair's case, AIR 1961 SC 552, Chhotabhai v. Union of India, AIR 1962 SC 1006 : AIR 1962 SC 1563, Khyberbari Tea Co. v. State of Assam, AIR 1964 SC 925 and Jawaharmal v. State of Rajasthan, AIR 1966 SC 764.

22. But, bearing all these principles in mind, it nevertheless seems to me to be indisputable, that Section 6 of this Act is an excessive delegation of a power which is bound to work, in the circumstances, in a most arbitrary and capricious manner. It is no answer to this argument to point out, as has been done, that the owner of the land has to submit a return, including his opinion of market-value, under Section 7, that the Commissioner collects information under Section 9, that the owner can produce evidence in pursuance of the notice under Section 10(2)(b), and that, if the Commissioner disagrees, he determines the market-value himself, which is subject to appeal to the Tribunal under Section 20. The real point is that the entire concept of ‘market-value’ determinable in respect of ‘urban land’ as defined in this measure, which is kept, quite apart from any capitalization of annual letting value, is bound to be both arbitrary and unequal, in the light of certain indisputable facts.

23. Under the definition of urban land, (S. 2(13)) as is clear from the Explanation, it is the land which is the subject of the tax, excluding any building thereon. Now, in Madras City, the area necessarily includes also the old City, or the core of the metropolis, where lands which could be used as house-sites, have been built up for decades past. As learned counsel argues, probably not a square inch is left, but for the roads and the road-margin. On the contrary, in the suburbs, particularly those that are now being formed, it is perfectly practicable to speak of the market-value of sites. In most cases, as Mr. Chari has shown from working sheets, the vast majority of the properties are built-up sites, so that the sale-values of sites alone, in that locality are practically unobtainable. The result is that the authorities have been constrained to base their estimates on sale deeds relating to lands and buildings in the nearest localities recent years, arriving at the value of the land per ground, by deducting the cost of the building, on what is known as the ‘Contractor's method’ (vide Harichand's case, (1939) 2 Mad LJ 722 : 66 Ind App 258 : (AIR 1939 PC 235), Secy. of State v. Narain Khanna, (1942) 2 Mad LJ 289 : 69 Ind App 93 : (AIR 1942 PC 35), Parasuram's case, (1965) 2 Mad LJ 20 and New Manek Chowk Spg. & Wvg. Mill's case, AIR 1967 SC 1801).

24. This method, when applied to the land and building of some other person, is obviously unjust, for the person affected by the valuation has no means to intrude on the property of another, and to check the correctness of the estimate. Further, a highly complicating feature intrudes, by the working of the Madras Buildings (Lease and Rent Control) Act. Since extensive compounds cannot, directly and proportionately, contribute to the rent, or the fair rent fixed under Section 4 of that Act, the result is that any reasonable proportion of the annual letting value, may be far less than the 0.4 percentage of the market-value determined with regard to the entire area; the tax could be more than the annual yield itself. Mr. Chari has illustrated these startling anomalies by several instances as my learned brother (Veeraswami, J.) has pointed out. It may, perhaps, be stated that all this is the complication arising from the machinery, and does not touch any part of the enactment itself. It could be argued that appropriate Rules can still be framed, and that, though the authorities would appear to have abandoned the method of capitalisation of annual letting value, as a means of estimating the market value, safeguards could still be provided. But the point is that Section 6 really appears to impose, on the concerned Assistant Commissioner, a task which is so impracticable that the power becomes utterly arbitrary and capricious. The difficulty is illustrated from the following passage in “Public Finance” by U.K Hisks (pages 174–176):

“The difficulty about site valuation lies on the side of the actual valuation. Only vacant sites are sold alone and even then improvements are often incorporated in them; in all other cases it is the unit of site and improvement which comes on the market and consequently it is only in respect of this that market evidence is available. Once a building had been erected on a site there is no objective means of establishing the respective contribution of site and building to the value of the whole; even if they can be logically disentangled, which is by no means certain. There is thus a chronic shortage of market evidence on which site valuation can be based. This implies an element of arbitrariness in the valuation………

(Emphasis ours).

25. In other words, the market-value of any ‘urban land’, if it is to be estimated as the price which, in the opinion of the Assistant Commissioner, the land would have fetched if sold in open market on the date of the commencement of the Act, is per se quite an arbitrary estimate, and bound to be so; not merely this, it is bound to result in gross inequalities. In the pristine or neuclear areas of the City, which have been built up for decades, such value can merely be a wild guess. If it is to be arrived at, without any reference whatever to the annual letting value of the land and building, it may be not merely unrealistic, but even fantastic. In the suburbs, in the process of formation, the subject of taxation may be far better off, as data can be gathered. But even here, I am quite unable to see how there can be a total delegation, of an unfettered, unguided and arbitrary power of estimate. Again, the words, ‘if sold in the open market’, will be quite meaningless in many cases, as there is no open market in built-up areas, and such a market is not even conceivable. The learned Advocate-General argues, on the analogy of one of the Wealth Tax Cases, viz., Standard Mills Co. Ltd. v. Commr. of Wealth Tax, AIR 1967 SC 595, that an open market need not be ‘actual’, but may be conceivable. But it is impossible to imagine a market of that kind, for plinth areas of houses in George Town or Broadway of Madras City, as existing at any time, except in the 19th century. In my view, therefore, Section 6 cannot be maintainable as a reasonable restriction on the right to hold property, or as delegation of power by the Legislature to the authority making the impost, which can be construed as within the constitutional limits. This part of the Act must necessarily be re-enacted, in my view, providing for differentia or criteria for any estimate, which could well be related to the annual letting value or yield, which is perfectly ascertainable. In fact, Mr. Chari has even argued that the Corporation figures of such assessments are binding on the Government, on the principle of res judicata.

26. Concerning the retroactive provision, I do not desire to differ from my learned brother (Veeraswami, J.) in his view on this question. But I would add that where, as in this enactment, the assessments so far made are found to be arbitrary, capricious and unsustainable, because they have been made under Section 6, which has to be struck down, it appears to me that a retroactive provision of this kind could hardly be justified.

27. In conclusion, I desire to record my own sense of indebtedness, and on behalf of my learned brothers also, to all the learned counsel and the learned Advocate-General, who have spared no pains to make a study of available material and precedents and place them before us, in the course of the extended arguments.

28. Veeraswami, J.:— The validity of the Madras Urban Land Tax Act, 1966 is under attack in this batch of petitions under Article 226 of the Constitution either for certiorari, mandamus or prohibition, as the case may be, to quash orders of assessment or to restrain the Urban Land Tax Authorities from enforcing its provisions. If a certain view is held as to the tax base under the charging provisions, the Act is said to be without legislative competence. On the view that the power of the Legislature to tax lands and buildings under the appropriate legislative entry is confined to a charge on the occupier's basis, that is to say, on their annual letting value, the extent and manner of the tax incidence, it is said, is so burdensome and unequal that it is unreasonable, confiscatory and violative of constitutional limitations. The third ground of attack is that the machinery provisions relating in particular to a determination of the market value of urban lands especially of built-up sites are wholly without guidance and ex facie arbitrary. There are various steps of detail compressed into each of these three broad grounds. But a very large area of the present controversy was covered and adjudicated by 1966-2 Mad LJ 172. There a Division Bench of this Court constituted by two of us held the Madras Urban Land Tax Act, 1963 to be competent but struck it down as invalid on the view that its tax effect fell unequally on urban lands. Since then the Madras Urban Land Tax Act, 1966, hereinafter called the Act has been enacted which evidently has purported to rectify the offending defects in the earlier Act and in doing so, recast some of its provisions. To enable a reconsideration of 1966-2 Mad LJ 172 in the context of the current challenge to the validity of the Act, a larger Bench has been constituted.

29. We have heard full arguments for and against, of Mr. Tiruvenkatachari followed by Mr. V. Vedantachari for some of the petitioners, counsel for the rest of them sailing and adopting them and the learned Advocate General for the State and Mr. V. Balasubramaniam representing the Commissioner of Income-tax, in a few cases the Wealth Tax Officers concerned and also acting to a measure as amicus curiae in addressing an argument on certain aspects of the mutual scope of relative legislative Entries.

30. The facts of the petitions are of a common pattern except that the petitioners are different owners of varying extents of urban lands with or without buildings on them in the City of Madras. Their market prices also vary in each case and so too their annual Municipal letting values. Some of the petitioners have filed returns and others have not, giving particulars as to ownership, extent of the land with its location and the amount which, in the opinion of the particular owner, is the market value of such land. The Urban Land Tax Officers have in these cases either assessed the market-value of the urban land concerned and sent a notice of demand of tax or proceeded by notice to inform owners to show cause against the proposed fixation of the market value. In none of the cases of urban lands with buildings assessed to Corporation Property Tax, have the authorities under the Act determined the market values of the urban lands by means of capitalisation at so many times of the annual Municipal letting value thereof. In a few of such cases, the market values of the urban lands including built-up sites have been arrived at on the basis or comparative basis of the contractor's method but as applied sometimes to another property consisting of land and building sold together. As illustrative of the facts, in W.P No. 2835 of 1967, the petitioner owns land and buildings bearing R.S No. 3147 known as ‘Claybrooke’, Municipal Door No. 30, Kilpauk Garden Road, Madras-10. The extent is 80 grounds with two buildings, garages and two outhouses in a small portion whose total plinth area is about two grounds. From 1946 onwards, the entire land with the buildings has been let out on a monthly rent of Rs. 500/-. According to the petitioner, he is not in a position to increase the rent in view of the stringent provisions of the Madras Buildings (Lease and Rent Control) Act, 1960. The annual letting value as fixed by the Madras Corporation for the property is said to be Rs. 5460 with reference to which the property tax demanded is Rs. 1400 per annum. The petitioner has been served with a notice dated September 18, 1967 which proposes to fix the market value of the urban land at Rs. 13,000 per ground and requires him to state his objections, if any, before a specified date. The basis for the proposed market value is said to be a certain sale deed relating to 10 grounds in a different locality far away from the petitioner's property. He says that the market value arrived at on that basis is unreasonably high and that further the property has been deliberately classified as in a commercial area with a view to arrive at such a high market value, as in fact there are no shops at or about the vicinity of the land. At Rs. 13,000 per ground, the petitioner's urban land is valued at Rs. 10,40,000 on which the urban land tax at 0.4 per cent amounts to Rs. 4,160 per annum. While the petitioner does not of course invite this Court to go into the merits of his objections as to the proposed valuation, he calls attention to them in order to furnish a proper perspective to the grounds of attack based on lack of legislative competency, and on Articles 14 and 19 of the Constitution on the validity of the Act. The further factual details relative to the arguments addressed to us on the footing of Articles 14 and 19 will be noticed at the proper place.

31. The provisions of the Madras Urban Land Tax Act, 1963, hereinafter called the earlier Act, their scheme, scope, the nature and effect of the incidence of tax thereunder as well as the background of the legislation including the objects and reasons have been fully set out and considered in 1966-2 Mad LJ 172 and require no reiteration. The outstanding difference between that Act and the present one is in the measure of the urban land tax. Whereas the earlier Act charged tax on urban land at the rate of 0.4 per cent on the average market value of such land in a sub-zone as determined by the procedure prescribed thereunder and the Act was struck down as violative of the principle of equality, the Act under consideration with a view apparently to avoid that defect charges the urban land at the same rate of 0.4 per cent of the market value thereof and has dropped the provisions relating to the classification of the entire urban area into distinct zones and sub-zones and the elaborate procedure prescribed for arriving at the average market value on that basis for the purpose of levy of tax. The Act, which received the assent of the President on September 9, 1966 and was published in the Fort St. George Gazette Extraordinary on the next day, replaced the Madras Urban Land Tax Ordinance, 1966. It bears the same preamble as the earlier Act and contains eight Chapters of which Chapters I, II and VI to VIII are more or less in pari materia with Chapters I, III, VII to IX respectively of the earlier Act. The Act came into force on the date of ltd. publication in the Fort St. George Gazette but all the sections have been given retrospective effect from July 1, 1963 except Sections 19, 47 and 48, the first two of which have force from May 21, 1966 in the City of Madras. By notification and prescribed procedure, the provisions of the Act can be extended by the Government to any other Municipal town, or township or any area specified therein and within sixteen kilometres of I the City of Madras or such Municipal town or township. The date of the commencement of the Act is defined in relation to the City of Madras as July 1, 1963. There are other definitions of certain phrases used in the Act. “Building” includes a house, out-house, stable, latrine, godown, shed, hut, wall and any other structure whether of masonry, bricks, mud, wood, metal or any other material whatsoever. “Each urban land” means the land comprised in a survey number or a sub-division number. “Occupier” includes any person who pays or is liable to pay to the owner rent or any portion of the rent for the urban land or the building “constructed thereon or any part of it or damages on account of the occupation of such land building or part. “Owner” is given an extended meaning so as to include any person receiving or is entitled to receive on his own account or in any of the capacities mentioned the rent or profits of the urban land or of the building constructed thereon. The definition takes in also a mortgagee in possession and any person who is entitled to the kudiwaram in respect of any mam land; but it does not include a shrotriemdar or any person who is entitled to the melwaram in respect of any inam land and does not own kudiwaram. Lakhiraj tenures of land and shrotriem land are classified in this connection as inam land. “Urban land” means “any land which is used or is capable of being used as a building site and Includes garden or grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops”. The Explanation to this definition of “urban land” says:

“For the purposes of this clause, any, site on which any building has been constructed shall be deemed to be urban land”. Sections 3 and 4 relate to Urban Land Tax Authorities, conferment of powers on them and Constitution of Tribunals. Each Tribunal shall consist of one person only who shall be a Judicial Officer not below the rank of a Subordinate Judge, The charging Section 5 reads:

“Subject to the other provisions contained in this Act, there shall be levied and collected for every fasli year commencing from the date of the commencement of this Act a tax on each urban land (hereinafter referred to as the urban land tax) from the owner of such urban land at the rate of 0.4 per centum of the market value of such urban land.”

32. The next section providing for determination of the market value of each urban land states:

“For the purposes of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of this Act”

33. Then follow provisions for submission of return by every owner of urban land in the prescribed manner within a specified time and containing the required particulars and for the procedure the assessing officers should follow in dealing with the returns or cases where there are no returns. Where the assessing officer does not accept the market value as given in a return or there is no return made, the assessing officer may himself or through such agency as he thinks fit obtain the necessary information to enable him to determine, by an order in writing, the market value of a particular urban land and the tax payable thereon and if for he should have given an opportunity to the owner concerned of being heard and placing such evidence as he may have before him, in support of his case. After determination of the market value and quantifying the tax, the Urban Land Tax Officer sends a notice of demand specifying the amount of tax payable by the assessee and containing such other particulars as may be prescribed. A separate notice of demand should be served on the assessee for each fasli year. The officer is empowered to assess or reassess urban land which has escaped assessment or has been wrongly or incorrectly assessed for any fasli year. But the power is to be exercised within such period and after following such procedure as may be prescribed. Provision is made for the recovery of urban land tax from the occupier of the urban land in the manner prescribed and in that case the occupier shall be at liberty to deduct the amount so paid by him from the amount of rent or any other sum due from him to the owner or intermediary. The Act requires transfers of urban lands to be notified to the Urban Land Tax Officer concerned. Once the quantum of tax has been determined for any urban land, it shall be in force for a period of ten years from then on and the Government may further extend the period by not exceeding ten years. Revision of urban land tax is contemplated thereafter. Any person objecting to the market value as determine by the Urban Land Tax Officer has a night of appeal to the Tribunal within a specified time and so too any person denying his liability to be assessed. The Commissioner of Urban Land Tax, who objects to the market value as fixed by the Assistant Commissioner, is given a right of appeal to the Tribunal. Chapter 7 Act Provides for survey of urban land but in doing so, no provision has been made prescribing the procedure therefor or for notice to the particular land owner. The Act takes into account the existing tenures as regards urban land and provides that the urban land tax payable thereunder in respect of any urban land is in lieu of the ryotwari assessment the assessment levied under certain Madras Acts relating to specific inams, the ground rent, the quit rent or any amount due under the Madras City Land Revenue Act, 1851. Specific provision is made that the urban land tax is in addition to any tax on urban land payable under any other law for the time being in force. The Government is given the power to specify that urban land tax under the Act shall be in lieu of any other amount. The Government also has power to exempt or reduce urban land tax in respect of any class of urban lands or by any class of persons on ground of undue hardship and for this purpose, it may cancel or modify any order of assessment to urban land tax. Certain types of urban lands with reference to their corporate or public ownership or the nature or purposes of their uses have been exempted from the purview of the Act. There are two special provisions in the Act which are of a concessional character. One of them is that where the amount of urban land tax on any urban land exceeds one half of the amount of the annual rent payable in respect of such land or the building thereon under the Madras City Tenants' Protection Act, 1921 or the Madras Buildings (Lease and Rent Control) Act, 1960 the Court, authority or officer empowered to fix rent under any of these Acts may on the owner's application for that purpose add to the annual rent an amount not exceeding the difference between the urban land tax payable under the Act and one half of the annual rent. The effect of this provision is not that the owner of the urban land is relieved of his liability to pay the tax at the rate of 0.4 per cent of the market value but he can have the amount by which the tax exceeds one half of the annual rent passed on to the occupier by the owner getting the same added to the annual rent. The second provision is that in case of the owner occupying the building only for residential purposes, his tax burden on his application may be reduced by 25 per cent of the tax assessed on the urban land on which the building has been constructed and on the urban land appurtenant to such building. The owner should, however, make the application in such form and within such period as may be prescribed. There are certain miscellaneous provisions relating to the powers of revision to the Board of Revenue, the power of the Urban Land Tax Authorities including the Tribunal to rectify any error apparent on the face of the record within a specified period of years, their power to take evidence on oath, and call for information, delegation of power by Government, the power of the Government to issue orders and directions in respect of any matters relating to the powers and duties of Urban Land Tax authorities but excluding the Tribunal, bar of suits in civil Courts to set aside or modify any assessment made by the Act, power of the Urban Land Tax Authorities not including the Tribunal to enter upon urban lands and preparation of book of assessment. Section 43 confers rule-making powers on the Government. They can make rules to carry out the purposes of the Act or in respect of the matters specified in the section.

34. The pith and substance of the Act is that with the object of raising and adding to the general revenues of the State, it imposes a tax on each urban land including the area on which a building stands and uses its gross market value as on the date of the commencement of the Act as a measure with reference to which the rate of tax to be imposed is fixed. It does not charge the building on the urban land but leaves it out of its purview. Machinery provisions usual in any fiscal statute to effectuate the charge, namely provision for returns, assessment and collection of tax, exceptions, exemptions, remedies and rule-making power are also found in the Act. That the subject-matter of the tax is the urban land itself is clear not only from the charging section but also from certain other provisions of the Act. For instance Section 17 makes urban land tax to be a first charge on the urban land. Section 23 which makes urban land tax to be in lieu of certain taxes, Section 29 which exempts certain classes of lands from the purview of the Act and Section 22 which deals with survey of urban lands also confirm the position. In fact there has been no controversy before us that the tax imposed under the Act is on the urban land qua such land. The Act judged from its charging and machinery provisions would, therefore, appear to fall squarely within the ambit of Entry 49 of the State List which is “Taxes on lands and buildings.”

35. But it is argued that the Act is in excess of the powers of the State Legislature under that Entry because (a) it uses the market value of urban land as a measure of tax; (b) Entry 49 of the State List authorises only a tax on the yield or annual letting value of the lands and buildings; (c) it does not authorise a tax on the land alone excluding the building thereon and (d) under the Entry a tax can be raised only for Municipal purposes and not for those of the State. These different aspects of the contention turn on the true scope and character of the power of the State Legislature under Entry 49. It is said that because market value, which is assumed to be equivalent to capital value as a measure of tax, is specifically provided for in Entry 86 of the Union List, market value as a measure of tax on lands and buildings is excluded from the purview of Entry 49 of the State List and as the Act charges the market value of urban land, it trenches on Entry 86 of the Union List and is, therefore, invalid. This point is not covered by any authority and has been raised by Mr. Tiruvenkatachari for the first time. The argument appears to proceed on three assumptions, (1) that there is a common area between the two Entries, (2) that the capital value in Entry 86 is a measure of tax and (3) that the two Entries are differentiated only by the exclusive assignment to Parliament in Entry 86 of the market value as a measure of tax on the capital value of the assets of individuals.

36. The legislative Entries are grants of heads of power in a scheme of distribution between the Union and the States, Each head represents the subject or purposes on or in respect of which laws can be enacted by the appropriate Legislature. Being a constituent and organic power, its field under each Entry should be read both liberally and as widely as the language permits. In doing so, the grammatical and ordinary sense of the words employed in making the grant should normally be adhered to unless such construction leads to absurdity, repugnancy or inconsistency. In such a case, it may be necessary to give the words a restricted or legalistic meaning. But subject to these observations, the Entries should receive a construction most beneficial to the widest possible amplitude of the power enshrined in them. While the Legislature has exclusive power to make laws with respect to any of the matters assigned to it, the exclusiveness is relative and controlled by the scheme of distribution of legislative power contemplated by Article 246 of the Constitution. The non-obstante clauses in Article 246(1) and (2) show that Parliament's power to make laws with respect to any of the matters enumerated in the Union List is exclusive notwithstanding anything contained in clauses (2) and (3) of the Article. With respect to any of the matters mentioned in the Concurrent List, both Parliament and the State Legislatures have power to make laws, but the Parliament can exercise such power notwithstanding anything in clause (3) and the State Legislature can do so only subject to clause (1) of the Article. The exclusive power of a State Legislature to make laws with respect to matters in the State List is, however, subject to clauses (1) and (2) of Article 246. Though the legislative fields under each of the Lists are thus mutually exclusive, it is so in the related sense indicated in Article 246. While the scheme of distribution is on a disjunctive basis and is complete in itself, in the nature of things it is possible there is interlacing or overlapping of the fields of power or subject matters for legislation in the Entries in the same List or between them and those in one or both of the other Lists. In that event, reconciliation is called for and for this purpose the Entries will have to be read in the light of each other on a compare and contrast basis and sometimes they have to be read even as a whole. In doing so, it may be necessary to restrict the ordinary meaning of the words in an Entry and the scope of the grant thereunder. Before so restricting the meaning and scope of an Entry and testing the validity of a given piece of legislation with respect thereto, there may be room for invoking other aids of interpretation such as the doctrine of double aspect, ancillary or necessary incidental powers, history and legislative practice.

37. In In re C.P Motor Spirit Act, AIR 1939 FC 1 : 1939 FCR 18 Gwyer, C.J referred to the fact that disputes with regard to the Centre and Provincial spheres were inevitable in every Federal Constitution and pointed out that a broad and liberal spirit should inspire those whose duty it is to interpret a constitution enactment with its nice balance of jurisdictions, cautioning at the same time that by this it is not to be implied that the Courts are free to stretch or pervert the language of the enactment in the interests of any legal or constitutional theory or even for the purpose of supplying omissions or of correcting supposed errors. The learned Chief Justice has further observed that the Court may lightly reflect that a Constitution of Government is a living and organic thing which of all instruments has the greatest claim to be construed ut res magfis valeat quam pereat. The view of Jayakar, J. in dealing with a conflict of powers is also worthy of note:

“Even where there has been an endeavour to give pre-eminence to the Central Legislature in cases of a conflict of powers, it is obvious that, in some cases where this apparent conflict exists, the Legislature could not have intended that powers exclusively assigned to the Provincial Legislature should be absorbed in those given to the Central Legislature”.

38. Each of the learned Judges of the Federal Court in that case quoted with approval the following observations of the Privy Council in Citizens Insurance Co. v. Parsons, (1881) 7 AC 96:

“It is the duty of the Courts, however, difficult it may be, to ascertain in what degree, and to what extent, authority to deal with matters falling within these classes of subjects (mentioned in the Central and Provincial Lists) exists in each Legislature and to define, in the particular case before them, the limits of their respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result, the two Sections must be read together, and the language of one interpreted, and, where necessary modified by that of the other. In this way, it may, in most cases, be found possible to arrive at a reasonable and practical construction of the language of the sections so as to reconcile the respective powers they contain and give effect to all of them. In performing this difficult duty, it will be a wise course for those on whom it is thrown to decide each case which arises as best as they can, without entering more largely upon an interpretation of the statute than is necessary for the decision of the particular question in hand.”

39. Attorney-General for Ontario v. Attorney-General for Canada, 1912 AC 571 is mentioned and this has also been noticed by the Federal Court:

“In the interpretation of a completely self-governing constitution founded upon a written organic instrument (such as the Government of India Act of 1935) if the text is explicit, the text is conclusive, alike in what it directs and what it forbids. When the text is ambiguous, as, for example, when the words establishing two mutually exclusive jurisdictions are wide enough to bring a particular power within either, recourse must be had to the context and scheme of the Act.”

40. The Federal Court in In re C.P Motor Spirit Act, AIR 1939 FC 1 construed Entry 48 of the Provincial list in the Government of India Act, 1935, “a tax on the sale of goods” and Entry 45 in List I, “duties of excise” and held that the two powers were distinct and different and were mutually exclusive so as not to bring into operation the provisions of Section 100 corresponding to Article 246 of the Constitution. It was pointed out that the duties of excise were an impost on the manufacturer or producer of the excisable articles at the stage of or in connection with the manufacture or production, while a tax on sale of goods was an impost levied on the occasion of sale and fell on the goods. 1966-2 Mad LJ 172 pp. 181, 186 made mention of the general rules of Interpretation and stated in particular s

“The most direct, proper and reasonable way of construing the Entries is to look at the language itself in each of them, read and understand it in the grammatical and natural sense. Where the language of an Entry is clear and unambiguous it is not, in our opinion, permissible to depart from its plain tenor and scope, and import into it extraneous considerations in order to cut down or restrict its ambit and meaning. In fact, where the language is express and plain, no problem of construction normally arises. Where, however, there are two parallel or related Entries in the same or different Lists, the apparent conflict will have to find its solution from a harmonious reading of such entries and an attempt at reconciliation for delimiting the mutual scope and ambit of such Entries. If the language ex facie is not plain or is ambiguous then naturally the aids of construction will have to be resorted to which will include sometimes reference to previous history and practice of legislation……… No doubt in order to appreciate the scope of a particular Entry the whole scheme of distribution of legislative power between the Union and the States should be looked into on a comparative and contrast basis. In doing so, full scope and effect must be given to each Entry in the organic statute and that construction most beneficial to the widest possible amplitude of each of the enumerated powers should be applied. The cardinal rule of Interpretation of the Entries, as of any statute, is that the grammatical and ordinary sense of the words is to be adhered to unless that course would lead to absurdity, repugnancy or inconsistency. In such a case, the grammatical and ordinary sense of the words must give way to a restricted or legalistic meaning to be decided by Courts. Once the scope of legislative power under an enumerated head in the Lists is fixed, the question of competence of a legislation is approached with reference to the pith and substance doctrine. That is to say, in deciding whether a particular statute falls and does not fall within the ambit of a given head of power, we should find out the pith and substance or the purpose or the object of the legislation. The true intention and purpose of a legislation can also be determined from its legal effect.”

41. Bearing these principles of interpretation in mind, we have to approach the problem of determining the true scope and ambit of Entry 86 in the Union list and Entry 49 in the State List.

42. Entry 86 is:

“Taxes on the capital value of the assets, exclusive of agricultural land, of Individuals and companies; taxes on the capital of companies.”

43. This is a tax on the individual as an owner of assets and is imposed on the capital value of his assets. It is a tax on his total worth. The tax is not on the assets as such but on the capital value thereof. The subject-matter of the tax is capital value which is not merely a measure of tax. The words “assets” as well as “capital value” point to aggregation and signify the totality of the value of all the assets. The word “assets” is not used in the Entry in the sense of property, though of course “assets” may include property like lands and buildings. The expression may include movables, cash and securities. That the assets include land is obvious from the exclusion, from the purview of the Entry, of agricultural land. The word “assets” may be inappropriate to refer to any particular item of property by itself. Asset in singular means, according to the Webster's New Twentieth Century Dictionary, “anything owned that has exchange value’ and in accounting the word in its plural sense means “all the entries on a balance sheet that show the entire property or resources of a person or business as accounts and notes receivable, cash inventory, equipment, real estate eta”; and in law assets mean property, as of a business, bankrupt etc. usable to pay debts. The same dictionary gives the meaning of ‘capital’ as “money or wealth used in trade, manufacture or in any business; stock in trade, product of industry which remains either in the shape of national or of individual wealth, after a portion of what is produced is consumed, and what is still available for further production”. Mill's meaning of the word “capital” is the accumulated stock of the product of former labour. In accounting, Capital’ is used in the sense of net worth of a business, the amount by which the assets exceed the liabilities. The word “value”, as stated in Webster's dictionary, has also different shades of meaning; a fair or proper equivalent in money, commodities, etc; for something sold or exchanged; fair price; worth of a thing in money or goods at a certain time; market price; the equivalent of something in money, as for instance, she lost jewels to the value of four thousand dollars. In Eric L. Kohler, a dictionary for accountants, “asset” in singular is defined as “any owned physical object or right having a money value, an item or source of wealth, expressed in terms of its cost depreciated cost, or, less frequently some other value”. The Author differentiates “property” from “asset” and says that the latter means any balance-sheet item and is usually associated with cost or the portion thereof recognized for balance-sheet purposes. While property having a more restricted application is more often applied to items transferable between persons, any right to its uses and benefits is being safeguarded and governed by a body of law. It is further pointed out by him that accounting conventionally recognizes certain sources of wealth as assets but not others, typical examples for the former being cash, investments, claims, materials, supplies, goods in process of manufacture or for sale, land, buildings, machinery, tools, and other plant assets, prepaid expenses, purchased good-will, patents and trade-marks; an item of wealth may be an asset recognized in the accounts, even though not realisable in cash, as, for example, a prepaid expense relating to an expected future activity, such an expenditure being regarded as recoverable in the form of future services or benefits. Assets not conventionally recognized in the accounts are generally intangible or are derived from costs not readily assignable to them, as for instance, an advertising campaign, managerial foresight, standing with the trade, or the competence of its technical staff. The Author further mentions that in economics, “asset” is sometimes synonymous with “capital”; but in this sense, only useful material objects owned by natural persons are included and property rights and claims against other individuals or organizations are excluded and that the accounting meaning of “ownership” as applied to an asset is usually legal ownership with exceptions, as an equity in an item of property, coupled with possession and use, is considered an asset to the owner of the equity. He also says that capital in a commercial sense may mean net worth or net assets. The Shorter Oxford English Dictionary gives the meaning of the word “assets” used as plural to be “all the property of a person or company which may be made liable for his or their debts. “Capital levy” as appears from the Dictionary is confiscation by the State of a proportion of all property. Having regard to the different shades of the meanings just referred to it is reasonable and legitimate to construe the words “capital value of the assets” of an individual in Entry 86 of the Union List as the net worth of all in aggregate that is owned by him which has money value. Net worth is, therefore, the subject-matter of tax which is not imposed on the assets as such. That is the pith and substance of Entry 86. The Entry is in a group of Entries each of which, like Entry 86, proceeds on the basis of the principle of aggregation. Entry 87 of the Union List is “Estate duty in respect of property other than agricultural land”. Article 366(9) of the Constitution defines “estate duty” as a duty to be assessed on or by reference to the principal value, ascertained in accordance with such rules as may be prescribed by or under laws made by Parliament or the Legislature of a State relating to the duty, of all property passing upon death or deemed, under the said laws, so to pass. The Entry read with this definition clearly contemplates a duty imposed (1) on the principal value ascertained in the prescribed manner and (2) of the entire property passing upon death. The definition also indicates the taxable event. What is important to note is that the principal value of all property in the aggregate is the subject-matter of taxation. Taxes on income other than agricultural income which is Entry 82 of the Union List have also their incidence on the aggregate income, because the concept of tax on income is that it is a tax on the totality of the income from all sources, such aggregate income being the subject of taxation.

44. Entry 49 in List II, “Taxes on lands and buildings”, notwithstanding the plural used contemplates, on the other hand, a tax on lands and buildings as units in contrast to Entry 86. Tax under Entry 49 is on lands and buildings qua lands and buildings. It is true that lands and buildings of an individual may be included as part of his total assets and go into the computation of the capital value of his cossets for purposes of Entry 86 of the Union List. But, on that ground, it cannot be said that there is anything common between Entry 86 of the Union List and Entry 49 of the State List. They contemplate taxes of different nature, character and concept both with reference to the subject of taxation and their incidence. While the taxes contemplated by Entry 86 are taxes on the net economic worth of the aggregated assets belonging to an individual which have money value, the taxes envisaged by Entry 49 are those on lands and buildings as units which constitute the subject-matter of taxation. There is nothing in Entry 49 to indicate that the incidence of tax on lands and buildings should necessarily be on the owners and cannot be on their occupier.

45. It is not, therefore, possible to accept the contention that market value as a measure of tax on lands and buildings is not authorised by Entry 49 of the State list. Assuming that capital value is a measure and not subject-matter of taxation with reference to Entry 86, which is not the correct view to take, even so the scope and subject-matter of taxation in Entry 86 are entirely different from those of Entry 49 and that being the case, giving the fullest amplitude to the words used in Entry 49, there is no reason or basis to justify the proposition that the market value as a measure of taxation is excluded from the purview of Entry 49 of the State List. Taxes on lands and buildings may include agricultural lands if the words are read in their widest amplitude as they should be. The State Legislature is authorised to impose taxes on agricultural income, levy duties in respect of succession to agricultural land and estate duty in respect of agricultural land which correspond to Entries 82, 87 and 88 of the Union List in respect of non-agricultural income and property other than agricultural land. Looked at in that perspective, if Entry 49 includes agricultural lands, it is difficult to discover why market value as a measure of tax is not open in respect of such lands. If it is said that because Entry 86 of the Union List excludes from its purview agricultural lands and, therefore, market value as a measure of tax is open under Entry 49 of the State List but only in respect of agricultural lands, it will lead to an inconsistency if not an absurdity, for, it will mean that Entry 49 does not authorise taxes on the urban lands and buildings on their market value as a measure of tax, while it authorises such a measure in respect of agricultural lands. Further, if agricultural lands are to be excluded from the purview of Entry 49, this will lead to a lacuna, because there will be no provision in the State List for taxation on agricultural lands corresponding to Entry 86. A perusal of the tax Entries in Lists I and II shows that wherever agricultural lands or income is excluded from the purview of the Entries in List I, they are brought within the purview of list II. We are inclined to think, therefore, that this is another reason why we should, hold that the State Legislature under Entry 49 is not prohibited from levying tax on the market value of lands and buildings including agricultural lands. As a matter of fact, the tax Entries in the Lists refer to the subject-matter of taxation and sometimes point to the individual on whom the tax is to be imposed or the taxable event but not the measure or manner of taxation. See Mathurai Pillai v. State of Madras, 1954-1 Mad LJ 110 : (AIR 1954 Mad 569). As we said, we are not persuaded to read capital value or principal value as but a measure and not the subject-matter of taxation. It is true that assets for purposes of Entry 86 may include urban lands and buildings. But on that ground, it cannot be said that lands and buildings are taxed twice on their capital value, both under Entry 86 of the Union list and under Entry 49 of the State list. The two taxes are entirely different in their basic concept and fall on different subject-matters. A tax on the aggregate value of the whole is not equivalent to a tax on some of the units of such a whole.

46. Let us now see such authorities as there are which throw light upon the construction of Entry 86 of the Union List and Entry 49 of the State List. The earliest of them is AIR 1940 Bom 65 : ILR (1940) Bom 58 (FB). Their Lordships of the Bombay High Court including the then Chief Justice held that the Bombay Finance (Amendment) Act, 1939 was intra vires the State Legislature and was valid. The Amending Act, which came into force in March 1939, authorised by Section 22 levy of, and payment to the Provincial Government, a tax on buildings and lands at a certain percentage of the annual letting value of such buildings or lands and at a lower percentage of the annual letting value of such lands and buildings in the City of Bombay which did not exceed Rs. 2000 and, by Section 24, levy by the Municipality concerned of a tax on urban lands within its limits in the same manner in which the property tax is levied and collected in that area. The validity of Section 22 was attacked on the ground that it was in excess of the powers of the Provincial Legislature under Entry 42 and trenched upon Entries 54 and 55 of the Central List in the Government of India Act, 1935. Entry 42 was the counterpart of Entry 49 of the present State List and Entries 54 and 55 corresponded to Entries 82 and 86 of the Union List. The unsuccessful argument was that the tax imposed by that section was tax on income and in any case on the capital value of the assets. Beaumont, C.J held that it was not a tax on income and observed with reference to Entry 55:

“………in my opinion it is impossible to say that this tax, although it is a tax on lands and buildings, is tax on the capital value of the lands and buildings. It is imposed without any relation to the capital value except so far as such value can be ascertained by reference to rateable value.”

47. Broomfield, J. considered that the tax was a tax on lands and buildings imposed on the owners qua owners and assessed by a somewhat arbitrary but inequitable standard which was not dependent either on the income of the assessees or on the capital value of the properties. The learned Judge pointed out that the power to impose tax on lands and buildings meant power to impose taxes on persons, owners or occupiers as the case might be in respect of those properties, that no limit was prescribed as to the amount of tax which might be imposed and that as to the character of the tax or method of assessment the only restrictions, or the only ones which concerned the Court, at any rate, were that the Provincial Legislature could not tax income or capital value by reason of items 54 and 55 in the Central List. As to the scope of Entry 55, Broomfield J., said:

“It was rather faintly suggested that if the impugned tax is not a tax on income it must be a tax on capital and within the mischief of item 55. What is meant by the capital value of assets in that item is by no means clear, and the argument threw little light on the matter. It may be what is intended is a tax on the total value of assets in the nature of capital levy. In any case the measure of the capital value of assets would appear to be the market price. That would obviously be affected by several factors, e.g, mortgages and charges, of which the impugned tax takes no account.”

48. Kama J., as he then was, observed:

“Section 22 of the Act in terms states that it is a tax on buildings and lands. The other words used in that section by themselves or read with the other sections do not displace this character of the tax…… I do not think that the impugned tax is of a nature to encroach upon item 55 in List I. Under that item the tax should be on the total capital assets, and not on individual portions of a person's capital”. The learned Judge also observed:

“As has been pointed out in 1936 AC 352 the measure of the tax is not itself the test. In determining the nature of the tax consideration may be given to the standard on which the tax is levied, but that is not the determining factor.”

49. 1948 FCR 207 : (AIR 1949 FC 81) upheld the validity of an annual provincial tax levied by the Punjab Urban Immovable. Property Tax Act on buildings and lands situate in the rating areas at a certain percentage of the annual value thereof as a tax on lands and buildings under Entry 42 of the Provincial List. The attack on the Act was based on a contention that the tax levied was one on income, which was repelled. Fazl Ali, J. said:

“If a tax is to be levied on property it will not be irrational to correlate it to the value of the property and to make some kind of annual value the basis of the tax without intending to tax income”. Chagla, C.J, in AIR 1952 Bom 261 at p. 262, however, departed from the view that prevailed earlier in the Bombay High Court and said:

“Now Entry 55 empowers the Central Legislature to impose taxes not on assets but only on the capital value of the assets, in other words, the capitalised value of the assets. It is important to see this entry in juxtaposition with certain entries in List II. Entry 42 in List II empowers Provincial Legislatures to impose taxes on lands and buildings, hearths and windows. Now, lands and buildings would undoubtedly be assets. But whereas the Provincial Legislature is competent to impose a tax on lands and buildings, the Central Legislature is empowered under Entry 55 of List I to impose a tax not on lands and buildings as such but on the capitalised value of lands and buildings. Therefore, the power of the Provincial Legislature is restricted to tax on lands and buildings without taking into consideration the capital value of lands and buildings.”

50. The learned Chief Justice refused to accept the contention that Entry 55 authorised imposition of a tax such as would affect the total assets of an individual or a company and expressed the view that if the Legislature could impose a tax on all the assets of an individual or a company and assess a tax on the full value of the assets, there was no reason why the Legislature could not do something much less than that, namely, impose a tax only on some assets and not on the full value but on a value arrived at after certain deductions. The question which the learned Chief Justice was there considering was whether the provision imposing income-tax on capital gains made by the Income-tax and Excess Profits Tax (Amendment) Act of 1947 was ultra vires which he answered in the negative. Gajendragadkar, J., as he then was, was not prepared to accept in AIR 1954 Bom 188 at p. 194 the view of Chagla. C.J 6

“With very great respect, I am unable to agree with this last observation. It is clear that the scope of Entry 42 in List II was not argued fully before the learned Chief Justice and, in fact, the Court was not directly called upon to consider the proper construction of the said Entry at all……… As I have already pointed out, I have come to the conclusion that even if the capital value of the lands is taken into consideration by the Municipal Corporation in determining the amount of tax to be levied on the open land, the tax does not become a tax on the capital value of the assets.”

51. Though the decision of Gajendragadkar and Vyas, JJ. holding that Rule 350A made under the Bombay Municipal Boroughs Act, 1925 was valid, was reversed by the Supreme Court in AIR 1963 SC 1742 : 1964-2 SCR 608, it did not affect the view of Gajendragadkar, J. which we have just extracted. In AIR 1960 All 136 (FB) the High Court upheld the validity of the U.P Large Land Holdings Tax Act, 1957 which by the charging section provided for levy on the annual value of each land holding of a tax at the rate specified in the Schedule to the Act. The Court referring to Entry 86 in the Union List and Entry 49 in the State List expressed the view:

“The scope of Entry No. 49 is wide enough to include a capital levy on agricultural land. Even a tax on the capitalised value of non-agricultural land would fall under Entry No. 49 of List II and not under Entry No. 86 of List I of the Seventh Schedule. It is permissible to restrict the meaning of the word ‘assets’ in Entry No. 86 by excluding land both agricultural as well as non-agricultural, from its ambit in order to give full scope to the expression ‘Taxes on lands’ occurring in Entry No. 49 of List II.”

52. (1966) 2 Mad LJ 172 at p. 186 was no prepared to go so far as to exclude from the purview of Entry 86 non-agricultural land. The argument in that case was that Entries 49 and 86 read harmoniously and in the light of each other would exclude from the scope of the former Entry a tax on land based on its market or capital value. This Court expressed:

“In our opinion the two Entries are distinct and different from each other and do not either overlap or stand to any extent on a field common to both, so as to call for reconciliation between conflicting areas of power and restricting the scope of one Entry in order to define the limit of and give full effect to the other power……… The charge under the Entry (Entry 49) is on the land and building; the incidence is on them, and lands and buildings are the subject-matter of the charge……… the fixation or the mode or basis of fixation of the extent of liability under the charge is a matter independent of the charge itself and is but incidental or ancillary to it. The tax under Entry 86, List I of the Constitution is on the capital value of the assets of individuals and companies or on the capital of companies. This is not a tax on the asset itself but on its capital value which, as we think, means its real economic value. That again implies net value of the assets for, if the assets are encumbered pro tanto they cease to be assets. In ascertaining the capital value or the economic value of the assets therefore deductions will necessarily have to be allowed of the value of encumbrance on such assets. Further the tax under Entry 86 falls on the owner of the assets which is clear from the words used ‘of individuals and companies’, and not occupiers. In some decided cases, the view has been expressed that the subject-matter of taxes under Entry 86 is the value of the totality of the assets. In our opinion, if we may say so with respect, that is the correct view to take. We are not persuaded by the contention that because under the General Clauses Act plural includes singular, even one of the assets of an individual can be taxed on its capital value under the Entry. The economic value of the assets of an individual is not and cannot be the same as the economic value of one of the assets of an individual. The economic value of the assets of an individual can possibly be determined only on a consideration of the total position of the rights and liabilities in relation to the total assets, and the economic value of one of the assets cannot serve the purpose. It may be that a law made under Entry 86 to tax the capital value of the assets of individuals may angle out one of the assets for an additional levy as under the Finance Act, 1965; but that does not detract from the point. These observations relating to Entry 86 clearly bring out the distinction and difference between this Entry and Entry 49. The import under Entry 49 is on the land, and need not necessarily be from its owner but may be from the occupier thereof………… The preponderance of Judicial opinion is, therefore, in favour of the construction that Entry 86 of list I of the Constitution occupies a field quite different from that of Entry 49 in List II of the Constitution and relates to a charge on the net economic value of the totality of assets belonging to an individual and that the levy can be collected only from the owner of the assets. On the other hand. Entry 49 List II is concerned with imposition of taxes on lands and buildings qua lands and buildings irrespective of their economic value and the levy is not necessarily on the owner but the incidence may be on the occupier. So long as the object of taxation is land or building the measure of tax would make no difference to the incidence of tax on such land or building. The measure may be on the be is of annual letting value or gross market value of the lands or buildings or some other factor like acreage or floorage space or even the user to which the lands and the buildings may be put. The choice of the particular basis or machinery is entirely within the discretion of the Legislature, as a matter incidental or ancillary to power to levy tax on lands and buildings. The machinery, measure or basis of computing or quantifying the extent of liability under the charge on lands or buildings is a matter different from the charge itself and the two cannot be mistaken as synonymous to each other, just as the end and the means are not one and the same thing. The real test is where the incidence of the charge or impost falls and not how the liability is calculated, though the latter is also a relevant consideration. It was on this basis, local taxation on lands and buildings on the basis of their annual letting value was held to be not income-tax. It was on a parallel reasoning again profession tax has been held to be not income-tax. See C. Rajagopalachari v. Corporation of Madras, (1964) 2 SCJ 234 : (AIR 1964 SC 1172)”

53. After hearing arguments at the Bar over again, far from being persuaded to take a different view, we are satisfied that the view expressed in 1966-2 Mad LJ 172 as to the scope and ambit of each of the Entries 86 in the Union List and 49 in the State List is the correct view and should be confirmed. It may be mentioned that subsequent to 1966-2 Mad LJ 172 one of us sitting with Ramaprasada Rao, J. expressed a similar view in Rajah D.V Apparao Bahadur v. First Wealth Tax Officer, W.P Nos. 1252 to 1255 of 1963, D/- 25-1-1969 (Mad) as to the scope of the two Entries. Reference may also be made to the dissenting judgment of Sarkar. J. in AIR 1963 SC 1742 at p. 1755 in which the learned Judge expressed his view thus:

“In my view the Bombay Act imposes a tax on lands and is, therefore, within item 42 of List II. The fact that it has provided for that tax being quantified on the basis of the capital value of the land taxed does not take it out of item 42 of List II and place it under item 55 of List I. It is quite obvious that in providing the two items, namely, item 55 of List I and item 42 of List II the makers of the Government of India Act contemplated two different varieties of taxes. The Provincial Legislature had been given the power to tax units of lands and buildings irrespective of their value and the Central Legislature the power to tax the value of the assets………… a tax on land cannot become a tax on capital value of assets because it is made assessable on the basis of the capital value of the land……This tax is leviable on land on the basis of its capital value even though the land may be subject to a charge and even though that charge may exceed the capital value of the land. In such a case for the purpose of assessment the charge can be completely ignored and the tax levied notwithstanding that to the owner the property is of no value in view of the charge. If the tax was in reality a tax on capital value of assets it could not in the circumstances that I have imagined be levied at all. That very clearly marks out the essential difference between this Act and an Act imposing a tax on capital value of assets. Another distinction is that in the case of a tax on capital value of assets the tax can be levied only on individuals owning the assets. That I think follows from the words of item 55 of List I. Under Section 85 of the Bombay Act, however, the present tax can be levied on a person in occupation of the land who holds it on a building lease taken from another. He is not the owner of it but non-etheless he is liable to be taxed under the Act on the basis of the full capital value of the land and not on the value of his leasehold only. If the tax was on the capital value of assets, such a person could not have been so taxed. Again, under the same section a proportionate part of the tax which is primarily payable by the owner under the Act may be recovered from a tenant in possession of the land and this would of course not be possible if the Bombay Act, was an Act imposing a tax on the capital value of assets of individuals for the asset, that is, land did not belong to the tenant at all.”

54. These observations clearly bring out the distinction between Entry 42 of List II and Entry 55 of List I of the Government of India Act, 1935 which correspond to Entry 49 of the State List and Entry 86 of the Union List in the Constitution. The majority opinion in that case did not deal with the scope of the Entries but proceeded on the special meaning of the word “rate” in connection with the Municipal Property Tax. The Majority judgment referred to the amendment in 1930 by insertion of sub-section (3) to Section 81 of the Madras District Municipalities Act, 1920 which authorised levy of tax on lands not used exclusively for agricultural purposes and not occupied by or are adjacent and appurtenant to buildings at such percentages of the capital value of such lands or at such rates with reference to the extent of such lands as may be fixed, and stated that it expressed no opinion as to the validity of this amendment after the Government of India Act, 1935 and the Constitution of India had come into force.

55. Mr. Tiruvenkatachari suggested four possibilities of construction of Entries 86 in List I and 49 in List II: (1) Entry 49 may include a tax on capital value of lands and buildings and being a special Entry, it is excluded from the scope of Entry 86: (2) Under both the Entries there can be tax on capital value and such a taxation under Entry 49 does not infringe Entry 86: (3) There can be no tax at all on lands and buildings under Entry 49 in view of Entry 86 and (4) Entry 86 relates to taxes on capital value while Entry 49 to a tax on annual letting value. Learned counsel argues that the last of these possibilities should be preferred as the only reasonable and sound construction. We are unable to accept this view. He says that the idea that the tax contemplated by Entry 86 is on the totality of assets is wrong. Where there is power to tax assets, the Legislature is not compelled to tax all of them or none. In support of this proposition he refers to Willis ‘On Constitutional Law’ (1936-Edition) where it is said that “a State does not have to tax everything in order to tax something”. We find no difficulty in accepting this statement as a proposition of law. Willis made this observation in connection with the power of the Legislature to make classification for taxation. In making a fiscal Act, the Legislature is allowed to pick and choose, as Willis says, districts, objects, methods and even rates for taxation and we will add, that it may choose what it wills to tax provided it is within its legislative powers. A similar view was expressed by the East India Sandal Oil Distilleries Ltd. v. State of Andhra Pradesh, (1962) 13 STC 79 : (AIR 1962 Andh Pra 204). It follows that if the Parliament so chooses it may confine a law which it makes under Entry 86, to imposition of a tax on the capital value of only a few of the assets of an individual and leaving the rest untouched. But that is not to say that on that account the tax under that Entry is one on the capital value of the units of assets. The concept of the tax is that it is a tax on the capital value of the assets, that is to say, on the net worth of an individual. It is no departure from the concept or it does not affect it, if the Legislature leaves out certain assets in ascertaining the net worth or singles out one or more Items of the total assets for an additional levy as indeed the Wealth Tax Act does. Mr. Tiruvenkatachari himself at later stages of his argument did not stick to this position but was prepared to take it that Entry 86, having regard to its language and purpose, necessarily means and implies totality of assets but he sticks to his view, however, that capital value in Entry 86 means a tax imposed on capital value as a measure in respect of assets selected for taxation and accepts that each separate asset included can be taxed at a different rate. He also urges that under Entry 86 the Parliament is not compelled to impose a tax only on the net wealth and not on its gross value. We have already dealt with this aspect of the matter. We have said that the tax under Entry 86 of List I is not on the asset itself but on the capital value of the assets and this means their real economic value and that if the assets are encumbered, pro tanto they cease to be assets. As pointed out in 1966-2 Mad LJ 172, capital value in Entry 86 has been used in the sense of real economic value of the totality of the assets and that the economic value of the assets of the individuals is not and cannot be the same as the economic value of one of the assets of the individual and further such economic value of the assets of an individual can possibly be determined only on a consideration of the rights and liabilities in relation to the total assets and the economic value of one of the assets cannot serve the purpose. As to the distinction that a tax under Entry 86 cannot be imposed on an occupier but only on the owner, Mr. Tiruvenkatachari, if we understood him aright, contends that the occupier of lands can be made liable to a tax under that. Entry. We cannot accept this view. There is nothing to support it in Paragraph 936 in 23 Halsbury (Third Edition). It only says that an occupier of lands is liable to land tax. This observation was made with reference to the English Land Tax Act, 1797 and is not apposite in the present context. The Entry itself speaks of assets of an individual or capital of a company, and that makes it clear that the tax is on the owner and not on the occupier of the assets. Entry 49 of the State List does not say whether the tax thereunder should be on the market value or on the annual value. All that it says is “Taxes on lands and buildings”. We do not see why as a matter of construction of the actual words used, they should be confined to a tax on the annual value and why the tax cannot be on the market value so long as it is in essence and fact a tax on lands and buildings per se. The words employed do not expressly or by implication forge any limitation upon their scope as to the kind of measure of tax to be adopted. On the other hand Entry 86 presents a contrast and it expressly says that it is a tax on the capital value; that means that the tax cannot be on the annual value. On this view, therefore, there can be a tax on the market value both under Entry 86 of List I and Entry 49 of List II. But in a conceptual sense the two taxes will be different and distinct both as to the subject of taxation as well as the scope and nature of the incidence. We do not think that the first construction suggested by Mr. Tiruvenkatachari looks at the problem in the right perspective. In our view, Entry 49 cannot be regarded as a special Entry which is excluded, so to speak, from the purview of Entry 86 regarded as a general Entry. As we said, they contemplate two different taxes. The third possibility that there can be no tax at all levied under Entry 49 because the field is covered apparently by Entry 86, we take that to be the implication of the argument, is an extreme contention and leads to an absurdity. In fact, neither Mr. Tiruvenkatachari nor any other counsel pressed for acceptance of this construction.

56. Mr. Tiruvenkatachari made another approach to drive home his point that capital value as a measure is not available under Entry 49 as it has been specifically provided for by Entry 86 of list I. He says that this method of taxation is peculiar to Entries 86 and 87 which go in a group along with Entry 88, each of which authorises imposition of a tax of a confiscatory character. According to him, sterilisation of assets is not the principle of taxation and if the effect of the impost is confiscation, it is no tax but confiscation simpliciter. He adds that sequestration of a part of a capital is not within Entry 49. He recognised that Article 39 applies to the State Legislature as well as to the Parliament, and the State can make a law with a view to securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. But he would say that Entry 49 of the State list is qualified by Entries 86 as well as 87 of the Union List. Learned counsel goes so far as to suggest that in a sense Entries 86 and 87 may not have been regarded as taxation Entries because prima facie the tax will have the effect of killing the tax yielding subject or activity. From this standpoint, he would add that Entry 49 is not meant for social purposes. We are not impressed by these considerations and they do not necessarily lead us to the conclusion that learned counsel wants us to draw. Reference was made to sub-clause (b)(i) of clause (5) of Article 31 of the Constitution in the course of the argument at this stage, but we do not think that this is of any assistance in interpreting the scope of Entries 86 and 49. The imposition of taxes does not belong to the field of Eminent Domain and is not to be and cannot be viewed from the standpoint of compulsory acquisition of property. It seems to us that the said provision in the Constitution has been inserted by way of abundant caution Under Entry 86 of the Union List there can be a capital levy the effect of which will be to take away the wealth of an individual in whole or in part. That will be within the Entry and constitutional limitation is quite a different matter. Taking may be by one stroke under Entry 86 or it may be spread over years by an annual levy at progressive rate proportionate to the quantum of the capital value of the assets. The tax under Entry 49 falls directly on lands and buildings and its effect may be so heavy that it may wipe out the entire value of the lands and buildings. The mode of taxation may be on the market value or on the annual value of the lands and buildings under that Entry and the rate applied may be a progressive one on a slab basis of the market value or annual flat rate as in the case of the Urban Land Tax Act, 1966. Every one of these cases will squarely fall within the scope of Entry 49. If the tax effect is confiscatory, it does not affect the competency of the legislation under Entry 49, whatever its validity may be, if tested by the other provisions of the Constitution, placing limitations on the exercise of the legislative power.

57. Independent of what has been said before. Mr. Tiruvenkatachari next contends that in view of the history and legislative practice, Entry 49 in the State List should be given a limited meaning and confined to a tax on the rating value of the lands and buildings taxed. To substantiate his point, he heavily relies on AIR 1963 SC 1742. We shall presently refer to this decision in some detail, but we may observe at once that it does not assist learned counsel for limiting the scope of the Entry in that fashion. The history adverted to traces the origin of the grant of power to the State Legislature by Entry 49 and the legislative practice refers to the pattern of Municipal taxation of property over the decades. Both these aspects have been fully dealt with in 1966-2 Mad LJ 172 at p. 181 and we find no adequate reasons to depart from the conclusions arrived therein in this regard. We shall, however, briefly deal with the matter. But before we do so, it is necessary to make certain preliminary observations. The history and legislative practice as aids of interpretation are not to be resorted to as a matter of course, especially when the language of a statute or a legislative Entry is plain and obvious. Whatever the antiquity, it cannot control the express and clear words of the Legislature. This will be particularly so when the Courts are called upon to interpret grant of heads of power by the Constitution. But there may be situations or circumstances or context which may warrant a departure from this rule, and history and legislative practice, as an aid to construction, may become relevant and may well be invoked. 1966-2 Mad LJ 172 at p. 181 referred to certain decisions on this aspect and stated:

“Where the language of an Entry is clear and unambiguous, it is not, in our opinion, permissible to depart from its plain tenor and scope, and import into it extraneous considerations in order to cut down or restrict its ambit and meaning. In fact, where the language is express and plain, no problem of construction normally arises. Where, however, there are two parallel or related Entries in the same and different Lists, the apparent conflict will have to find its solution from a harmonious reading of such entries and an attempt at reconciliation for delimiting the mutual scope and ambit of such Entries. If the language ex facie is not plain or is ambiguous then naturally the aids of construction will have to be resorted to which will include some times reference to previous history and practice of legislation.”

58. The same judgment touched on 1891 AC 107 and the observation of Lord Herschell which has been extracted there, and continued:

“This point of view of Lord Herschell clearly, if we may say so, brings out the true principles of interpretation namely, first we should interpret the language of the statute by reference to such language alone and it is only where there is ambiguity, resort should be had to other aids external or internal.”

59. As an aid to interpretation, legislative practice was relied upon in Wallace Brothers and Co. Ltd. v. Commr. of Income-tax, Bombay City, 1948 FCR 1 : (AIR 1948 PC 118), State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd and Co., AIR 1958 SC 560 and AIR 1963 SC 1742 but in each one of these cases, it may be seen that the language which the Court was called upon to consider and interpret had either acquired a special legal meaning in legislative jurisprudence or the special context required a restricted meaning being given to the language. State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd and Co., AIR 1958 SC 560 held that the words “sale of goods” in Entry 48 relating to tax on sale of goods of the Provincial list of the Government of India Act should be understood in terms of the definition of sale in the Sale of Goods Act. The ratio of this view has been thus stated:

“If the words “sale of goods” have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law acquired a definite and precise sense, and that accordingly, the Legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore we have only to ascertain the precise connotation which it possessed in law.”

60. In AIR 1963 SC 1742 also it was considered that the word “rate” had come to this country from England and the Supreme Court, therefore, proceeded to find out what exactly the word “rate” when used in connection with the local taxation meant in England. After referring to the history of the use of the word “rate”, the Supreme Court stated that the word “rate”, was clearly used in England in respect of a tax which was levied on the net annual value or rateable value of lands and buildings and not on their capital value. The legislative history and practice in India was then traced with reference to Municipal enactments in the various Provinces from 1884 and it was observed:

“It will thus be seen that these Acts which were passed between 1912 and 1925, which repeal the earlier Acts also provide for taxation on lands and buildings, and though the word “rate” is not used in any of these Acts, the tax is still on the annual value of lands and buildings. This shows that there was a uniform legislative history and practice in India also though sometimes the impost was called a tax on lands and buildings and at others a rate. But it was always a tax on the annual value of lands and buildings…… It will be dear further that in India upto the time the Act with which we are concerned was passed, the word “rate” had acquired the same meaning which it undoubtedly had in English legislative history and practice upto the year 1925, when the Rating and Valuation Act came to be passed consolidating the various rates prevalent in England. It would therefore be right to say that the word “rate” had acquired a special meaning in English legislative history and practice and also in Indian legislation where that word was used and it meant a tax for local purposes imposed by local authorities and the basis of the tax was the annual value of the lands or buildings on or in connection with which it was imposed, arrived at in one of the three ways which we have already indicated”. In that case, the Supreme Court was concerned with the validity of Rule 350-A framed by the Municipal Corporation of Ahmedabad for rating open lands read with Rule 243. The Majority opinion held the Rule to be ultra vires Sections 73 and 75 of the Bombay Municipal Boroughs Act, 1925 which permitted the fixation of rate at some percentage of capital value of the lands and not on their annual value. Section 73 authorised a Municipality in the Province of Bombay to impose a tax, namely, “a rate on buildings or lands or on both situated within the Municipal borough”. Section 75 provided the procedure for imposition of the tax under Section 73. The procedure showed that the Municipality should by a resolution passed of a general meeting select the tax to be imposed and frame rules specifying “in the case of a rate on buildings or lands or both, the basis for each class of the valuation on which such rate is to be imposed”. There was an explanation to this provision which read: “In the case of lands, the basis of valuation may be either capital or annual letting value”. In exercise of this rule-making power, the Ahmedabad Municipal Corporation framed Rule 350-A which provided that the rate on the area of open lands should be levied at one per centum on the valuation based on capital Rule 243 stated that the valuation based on capital meant the capital value of lands and buildings such as might be determined from time to time by the valuers of the Municipality who should take into consideration such reliable data as the owners and occupiers thereof might furnish of their own accord or on being called upon to do so. The contention of the assessee who was the appellant in the Supreme Court, was that reading the two rules together the rate was levied at a percentage of the capital value of open lands and this the Municipality could not do. A two-fold submission was made in support of the contention, one of them being that Rule 350-A read with Rule 243 was ultra vires Sections 73 and 75 inasmuch as it permitted fixation of rate at a percentage of capital value which was not permitted by the Act, for, the word “rate” used in Section 73(1) had acquired a special meaning by the time the Act came to be passed and meant a tax on the annual value of lands and buildings and not on their capital value. The other was that if the Act permitted the levy of a rate at a percentage of capital value of the lands and buildings rated thereunder, it was ultra vires the Provincial Legislature because of item 55 List I of the Government of India Act, 1935 which corresponds to Entry 86 of the Union List in the Constitution of India. The Bombay High Court dealt with both the contentions and decided against the assessee. The Majority Judgment of the Supreme Court ruled on the first limb of the argument but left open the second based on the scope of Entry 55 of List I of the Government of India Act, 1935. After tracing the history and legislative practice both in England and India as to the meaning of the word “rate”, it held, as we said, that the word “rate” in Section 73 should be given the meaning the word had acquired earlier in the Municipal enactments relating to local taxation of property, lands and buildings, and that is a rate or tax based on the annual value of the lands and buildings which may be arrived at on the basis of the actual rent at which the lands and buildings were let out or when they were not let out on the basis of a hypothetical tenancy and letting value or on the basis of the capital value of the premises. The Supreme Court pointed out where the last mode was adopted the tax was not to be levied on the capital value itself but the capital value was determined at so many times the annual letting value and not on the structural value of the buildings to be assessed, arrived at by the contractor's method or the contractor's test in addition to the market value of the land. The Supreme Court visualised the possibility that mathematically the same amount of rate payable by an occupant of a land might be arrived at whether the rate was fixed at a particular percentage of the capital value or at a particular percentage of the annual value. The Majority opinion said:

“But this identity would not in our opinion make any difference to the invalidity of the method of fixing the rate on the capital value directly. If the law enjoins that the rate should be fixed on the annual value of lands and buildings, the municipality cannot fix it on the capital value and then justify it on the ground that the same result could be arrived at by fixing a higher percentage as the rate in case it was fixed in the right way on the annual value. Further by fixing the rate as a percentage of the capital value, directly the real incidence of the levy is camouflaged.”

61. This was illustrated by an example by supposing that the capital value was Rs. 100 and the rate was fixed at 1 per centum of the capital value, it would work out to be Re. 1. The Majority judgment pointed out:

“The same figure can be arrived at by the other method. Assume that 4 per cent is the annual yield and thus the annual value of the piece of land, the capital value of which is Rs. 100 will be Rs. 4. A rate levied at 25 per cent will give the same figure, namely, Re. 1………In the example which we have given above, the incidence appears as if it is only 1 per cent but in actual fact the incidence is 25 per cent of the annual value. Further if it is open to the Municipality to fix the rate directly on the capital value at 1 per cent it will be equally open to it to fix it say at 10 per cent which would, taking again the same example mean, that the rate would be 250 per cent of the annual value, and this clearly brings out the camouflage. Now a rate at 10 per cent of the capital value may not appear extortionate but a rate at 250 per cent of the annual value would be impossible to sustain and might even be considered as confiscatory taxation. This shows the vice in the camouflage that results from imposing the rate at a percentage of the annual value as it should be.”

62. It was on this view that the Majority reversed the judgment of the Bombay High Court and declared Rule 350-A to be ultra vires Sections 73 and 75 of the Bombay Municipal Boroughs Act. It is noteworthy that in the course of the judgment, the Majority also said:

“The matter might have been different if the words in clause (i) of that section (Section 73(1)) were ‘a tax on buildings or lands or both situate within the municipal borough’ for then the word ‘tax’ would have a wide meaning and would not be confined to any special meaning.”

63. That clearly shows that the Majority of the Supreme Court in that case applied the history and legislative practice in delimiting the meaning of the word “rate” in the special context of the Municipal property taxation. At the same time the Majority judgment made it clear that if Sections 73 and 75 had used “tax” on lands and buildings or both in the Municipal Boroughs Act the learned Judges would have given a wider meaning and would not confine the word ‘tax’ to any special meaning.

64. Now Entry 49 in the State List in the Constitution does not use the word “rate” but uses the word “taxes”, as did Entry 42 in List II of the Government of India Act, 1935. There is an inclusive definition of taxation in Article 366(28) according to which the word includes the imposition of any tax or impost, whether general or local or special, and ‘tax’ should be construed accordingly. There is therefore, no reason to limit the word “taxes” in Entry 49 in the State List as having reference only to local taxation. Even so, as observed by the Majority of the Supreme Court in AIR 1963 SC 1742 the word “taxes”, unlike the word “rate”, cannot be said to have acquired any special meaning in order that its scope can be limited. So, a tax under Entry 49 of the State List can be imposed on the market value of the lands and buildings and such market value may be ascertained either on the basis of the structural value of the buildings and lands on the contractor's or any other method, or of the market price of the lands or on the basis of capitalisation on the multiples of the annual rating or letting value of the premises. Such a tax will entirely be within the competence of the State Legislature under Entry 49. The legislative practice relating to local property taxation based on annual letting value does not control or conclude the scope of Entry 49. The passages to which our attention was invited in Volume I of the Madras Manual of Administration, Volume I of the Report of the Indian Taxation Enquiry Committee 1924–1925, Volume I (Part i) of the Report of the Joint Committee on Indian Constitutional Reforms (1933–1934) and Volume III of the Report of the Taxation Enquiry Committee, 1953–1954 do not advance the matter further. One of the learned Judges in Bhuvaneswariah v. State of Mysore, AIR 1965 Mys 170 thought that the legislative practice as to the Municipal property taxation in the country concluded the scope of Entry 49 of the State List. We do not accept this view. The legislative practice referred to has no bearing whatever on the scope of that Entry which clearly uses the language “Taxes on lands and buildings”. The definition of taxation in the Constitution makes it impossible to accept the contention that the word “taxes” in the Entry should be limited to the rate as understood in the Municipal property taxation. Further it should not be lost sight of that Entry 49 is a grant of power and the legislative practice referred to has no relevance to the interpretation of the scope of the grant. It is true that the Constitution-makers should be taken to have been aware of the legislative practice while drafting Entry 49 but nothing prevented them from using the word “rate” instead of “taxes” in Entry 49. We may add that it is not correct to say that because in authorising the Municipal property for local taxation the Legislature has in practice provided for its levy on the basis of a certain percentage of the annual letting value arrived at from the actual rent or hypothetical rent or on the basis of fixing the annual value at a certain percentage of the market value, it necessarily follows that the power of the Legislature for that reason is confined to that mode of taxation. The power is one thing and its exercise or the extent of its exercise is quite another. The amplitude of the power cannot be measured by or limited to the manner and the extent, and quality of the exercise of the power, however constant or uniform it may be in particular fields or instances.

65. Before proceeding further, we shall deal with a related point urged by Mr. V. Vedantachari. He goes further than Mr. V.K Tiruvenkatachari and contends that not only Entry 49 of the State List is confined to tax on the annual letting value of lands and buildings but it is limited to raising taxes only for Municipal or local purposes. He goes to the extent of suggesting that the Entry can be applied only to local bodies and does not enable the Legislature to impose a tax on lands and buildings for purposes of the general revenues of the State. The language of the Entry, wide as it is does not justify the argument. It does not say that a tax can be levied under the Entry only for Municipal purposes. In fact the definition of taxation in the Constitution we referred to conclusively provides the answer against the contention. We do not think that AIR 1961 SC 652 gives any support to it. Entry 52 of the State List, “Taxes on the entry of goods into a local area for consumption, use or sale therein” came up for interpretation by the Supreme Court in that case. In exercise of the powers conferred by Section 20(1) of the Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1953, there was a notification to the effect that during 1954–1955 crushing season, a cess at a rate of three annas per maund should be levied on the entry of all sugarcane into the local areas comprised in the factories mentioned in the Schedule for the consumption, use or sale therein. The question was whether the premises of a factory could, for the purposes of the entry, be regarded as a local area. It was answered in the negative. In coming to that conclusion the Supreme Court relied on the legislative history as provided by items 7 and 8 of the Second Schedule to the Scheduled Taxes Rules made under the Government of India Act, 1919 and Entry 49 of the Provincial List of the Government of India Act, 1935. Entry 49 of the Government of India Act, 1935 uses the same language as Entry 52 of the State List. But items 7 and 8 in the Second Schedule use the words “An Octroi” and “A terminal tax on goods imported into, or exported from a local area, save where such tax is first imposed in a local area in which an octroi was not levied on or before the 6th July, 1917.” ‘Octroi’ means a tax on entry of goods into a town or a city or a similar area for consumption, sale or use therein. The Supreme Court referred to the meaning of Octroi as given in the Encyclopaedia Britannica and observed that the characteristic feature of an octroi tax was that it was on the entry of goods into an area administered by a local body. It then proceeded to say:

“It was with the knowledge of the previous history of the legislation that the Constitution makers set about their task in preparing the lists in the Seventh Schedule. There can be little doubt, therefore, that in using the words ‘Tax on the entry of goods into a local area for consumption, use or sale therein’, they wanted to express by the words ‘local area’ primarily area in respect of which an octroi was leviable under Item 7 of the Scheduled Tax Rules, 1920 — that is, the area administered by a local authority such as a Municipality, a District Board, a Local Board or a Union Board, a Panchayat or some body constituted under the law for the governance of the local affairs of any part of the State.”

66. Reference was made to Article 277 of the Constitution which uses the words “local area” to indicate an area in respect of which there is an authority administering it. On these premises, the conclusion of the Supreme Court was that a factory was not a local area within the meaning of Entry 52 of the State List. Mr. Vedantachari relied on AIR 1963 SC 1742 which we have already referred to and as we said, the Majority opinion did not deal with the interpretation and scope of “Taxes on lands and buildings, hearths and windows”, in Entry 42 of the Provincial List of the Government of India Act, 1935. AIR 1967 SC 1801 to which learned counsel invited our attention held that the property tax imposed by the Bombay Provincial Municipal Corporations Act on textile mills, buildings etc., within the limits of the Corporation of Ahmedabad on a flat rate based according to the floor area adopted for determining the rent, for determining the rateable value was held to be invalid. The Supreme Court also held that levy of property tax on plant and machinery by Rule 7(2) framed under the Bombay Provincial Municipal Corporations Act was not authorised by Entry 49 of the State List, and, therefore, was invalid. In expressing that view the Supreme Court applied the principle of AIR 1961 SC 652. The decision of the matter is to be found in the following words:

“But if the State Legislature had power to levy a tax only on lands and buildings we do not see how the same could be levied on machinery contained in or situate on the building even though the machinery was there for the use of the building for a particular purpose.”

67. It may be seen that this decision also is of no assistance to Mr. Vedantachari to limit the scope of Entry 49 in the State List. There are a number of Entries in the State List in respect of which Municipalities have been authorised to impose taxes, as for instance taxes on professions, trades, callings and employment (Entry 60), taxes on animals and boats (Entry 58) and taxes on vehicles (Entry 57). So far as the profession tax is concerned, Article 276(1) of the Constitution makes it quite clear that such a tax could be raised not merely for the benefit of a Municipality, District Board. Local Board or other Local Authority but also for the benefit of the State. It will be neither proper nor reasonable to read taxes in these Entries as applicable to only Local Bodies, notwithstanding that the word “taxes” includes, as is clear from Article 366(28), imposition of any tax or impost, whether general or local or special.

68. On the other hand, a close study of the evolution of Entry 49 of the State List clearly shows that its scope cannot be limited, as has been contended for by the petitioners. Section 45-A of the Government of India Act, 1919 provided for making rules under the Act for the devolution of authority in respect of provincial subjects to local Governments, and for the allocation of revenues or other moneys to those Governments. Section 80-A(3)(a) stated that the Local Legislature of any province might not without the previous sanction of the Governor-General make or take into consideration any law imposing or authorising the imposition of any new tax unless the tax was a tax scheduled as exempted from this provision by rules made under the Act. The Government of India, by a notification dated December 16, 1920 made rules under that provision called the “Scheduled Tax Rules”. These Rules contained two Schedules. The first Schedule contained eight items of tax or fee. The Legislative Council of a Province may without obtaining the previous sanction of the Governor-General make and take into consideration any law imposing for the purposes of the local Government any tax included in Schedule I. Schedule II contained eleven items of tax. In making a law imposing or authorising any local authority to impose for the purposes of such local authority any tax in Schedule II, the Legislative Council required no previous sanction of the Governor-General. Item 1 in Schedule I was a tax on land put to uses other than agriculture. Without the previous sanction of the Governor-General the Legislative Council could impose under this power a tax on non-agricultural lands, or lands put to uses other than agricultural for raising general revenue for purposes of the Local Government. Likewise it could raise a tax on any specified luxury under Item 6. In Schedule II Item 2 was tax on land or land values and item 3 was a tax on buildings. Item 4 was a tax on vehicles or boats. Item 5 was a tax on animals. A tax on trades, professions and callings was Item 9. Item 10 was a tax on private markets. Item 11 related to certain service taxes, as water rate, lighting rate scavenging, sanitary or sewage rate, drainage tax and fees for use of markets and other public conveniences. Item 2 evidently excluded land put to uses other than agricultural comprised in Item 1 in Schedule I. Schedule II included an octroi (Item 7) and a terminal tax on goods imported into or exported from a local area subject to certain limitation (Item 8). The expression “taxes for the purposes of Schedule II” took in cess, rate, duty or fee. What is to be mainly noticed in the Scheduled Tax Rules is the dichotomy between items of taxes to be levied and collected for purposes of the Provincial Government and the taxes to be imposed for the purpose of Local Authority. Under this scheme, therefore, the Legislative Council of a Province could make a law imposing a tax on lands put to non-agricultural uses for raising general revenues but it could not impose a tax for that purpose on land or land values or on buildings which were earmarked for Local Authorities. This dichotomy of tax powers and of tax purposes has not been maintained in the distribution of powers between the Centre and the Provinces under the Government of India Act, 1935. In the “White Paper” containing the proposals for the Indian Constitutional Reform, three Lists of power were suggested, (1) exclusively Federal. (2) exclusively Provincial and (3) concurrent. In the First List, imposition and administration of taxes on income other than agricultural income or the income of corporation but subject to the power of the Provinces to impose surcharges, imposition and administration of duties on property passing on death other than land, imposition and administration of terminal taxes and the imposition and administration of taxes not otherwise specified in the List or the Provincial List, were included. In the Provincial List were found, among others, the legislative subjects like Local Self-Government, District Boards, matters relating to the constitution and power of Municipal Corporations, Improvement Trusts, and other local authorities established for the purpose of Local Self-Government and village administration, land revenue including assessment and collection of revenue and maintenance of land records, survey for revenue purposes and records of rights, land tenures, title to land and easements, excise duties on alcoholic liquors, drugs and narcotics other than tobacco. Item 67 in the Provincial List related to “the raising of provincial revenue, (1) from sources and by forms of taxation specified in the annexure appended to the List and not otherwise provided for by the Lists and (2) by any otherwise unspecified forms of taxation subject to the consent of the Governor-General given in his discretion after consulting the Federal Ministry and Provincial Ministries or their representatives.”

69. In the Annexure, Item 1 was revenue from the Public Domain, including lands, buildings, mines, forests, fisheries and any other real property belonging to the Province. Item 7 was, taxes on land including death or succession duties in respect of succession to land and the next item was taxes on personal property and circumstances, such as taxes on houses, animals, hearths, windows, vehicles, Chaukidari taxes, sumptuary taxes and taxes on trades, profession and callings. Item 9 related to taxes on employment such as taxes on menials and domestic servants Item 11 related to taxes on agricultural incomes, Item 13 to taxes on entertainments and amusements, betting, gambling and private lotteries and Item 14 to any other receipts accruing in respect of subjects administered by the Province. The Concurrent List did not contain any tax items. Tax items, it must be seen, were strewn among the several items in each of the Lists relating to heads of power on defined and enumerated subjects. The changes in the scheme were, however, to be found in the revised lists prepared by the Joint Select Committee of Parliament in Volume I of the Report both in the reassignment of certain powers and grouping of tax Entries. Item 5 in List I was taxes on the capital and the income (other than the agricultural capital and income) of companies. Item 51 was taxes on other incomes (other than agricultural income) but subject to the power of the Provinces to impose surcharges. The other relevant items are, 52, duties in respect of succession to property other than land, 53, taxes on mineral rights and on personal capital other than land. The last item is apparently the predecessor of Entry 86 in List I of the Constitution and it may be noted that the power did not include to tax land which would otherwise form part of personal capital. The exclusion of land is to be found also in respect of duties on succession to property. In List II of the Revised List which pertained to Provinces, item 1 related to Local Self-Government etc., as found in the original proposed item 1 item 22, Land Revenue including assessment and collection of revenue, maintenance of land records, survey for revenue purposes and records of rights and alienation of land revenue. Item 23 related to land tenures, including transfer and devolution of agricultural land and easements? item 19, duties of excise confined to certain articles; item 65, surcharges within such limits as may be prescribed by Order in Council on federal rates of income-tax and super-tax to be assessed on the incomes of persons (not companies) resident in the Province, and item 66, imposition of fees, taxes, cesses, or duties in connection with the subjects in this list and of taxation in any of the forms specified in the annexure thereto. This item suggests that the taxing powers were also related to and connected with the subjects of legislative power in the Provincial List. The Annexure listed seven items of taxes, (1) Capitation taxes, (2) duties in respect of succession to land, (3) taxes on lands and buildings, animals, boats, hearths and windows; sumptuary taxes and taxes on luxuries, (4) taxes on trades, professions, callings and employments, (5) taxes on consumption; cesses on the entry of goods into a local area; taxes on sale of commodities and on turn-over; taxes on advertisements, (6) taxes on agricultural Income and (7) taxes on entertainments amusements, betting and gambling. We may see that in the “White Paper” taxes on land which included death or succession duties in respect of succession to land were given as a separate item and taxes on personal property were not included and were given as an independent item and personal property included houses animals, hearths, windows and vehicles and this tax item also provided for other taxes like chaukidari taxes, sumptuary taxes and taxes on trades, professions and callings. Item 3 in the Annexure aforesaid has clubbed together taxes on lands and buildings, animals, boats, hearths and windows as well as sumptuary taxes and taxes on luxuries. Taxes on trade, professions, callings and employment were separately enumerated. No mention was made that any of the tax items in the White Paper or the Report of the Joint Select Committee of Parliament was confined to raising revenues only for the purpose of local bodies. Distribution of legislative power was on the basis of exclusive powers of the Federation and the Provinces with a concurrent field without reference to any limitation as to the purpose for which tax could be raised Section 100 of the Government of India Act, 1935 which word for word in material particulars corresponds to Article 246 of the Constitution, contained the final scheme of distribution of powers on that basis, that is to say, that within the spheres, subjects and heads of power exclusively allocated to the Federal Legislature or the Provincial Legislatures, they were sovereign subject to the limitations contained in the section. The power of the Provincial Legislatures was to make laws with respect to any of the matters enumerated in the Provincial List and likewise the power of the Federal Legislature was to make laws with respect to any of the matters enumerated in the Federal List. No limitation was placed on the Federal or Provincial Legislatures and they could enact laws in exercise of exclusive powers for raising general revenues for the Provincial Government and raising revenues for the purpose of local bodies. This scheme, as it should be observed, is entirely different from that adopted by Schedules I and II to the Scheduled Tax Rules under the Government of India Act, 1919. In allocation of powers, the Government of India Act, 1935 did not adopt the report of the Joint Select Committee that some of the taxes could be raised in connection with the subject-matter of legislation under other entries in a particular List. In each of the two Lists, it enumerated the subjects of legislation first and then grouped and set out the tax items one after the other, the last item being fees in respect of any of the matters but not including fees taken in any Court. This is also the scheme adopted by the Constitution of India. This particular aspect of the matter was noticed by Sundararamier & Co. v. State of Andhra Pradesh, 1958-1 Mad LJ (SC) 179 : 1958 SCJ 459 : 1958-1 Andh WR (SC) 179 : (AIR 1958 SC 468). Unlike before, the Government of India Act, 1935 not only regrouped the legislative Entries in that manner but also made substantial changes to the scope of some of them in each of the Lists. Thus taxes on the capital value of the assets exclusive of agricultural land, of individuals and companies and taxes on the capital of companies were provided by Entry 55 of the Federal List. Taxes in respect of agricultural land and agricultural income and other taxes in respect thereto have been allocated entirely to the Provincial List. But at the same time Entry 55 in the Federal List included non-agricultural lands and other personal property having capital value. Duties in respect of succession to property other than agricultural land which is Entry 88 in List 1 of the Constitution did not find a place in List I of the Government of India Act but in that List Entry 56 provided duties only in respect of succession to property other than agricultural land which the Federal Court had occasion to interpret and hold as not including estate duty as the expression is understood in the United Kingdom. Entry 21 of the Provincial List was land that is to say rights in or over land, land tenures including the relation of landlord and tenant and the collection of rents, transfer, alienation and devolution of agricultural land, land improvement and agricultural loans; colonization; Courts of Wards; encumbered and attached estates; treasure trove which corresponds to Entry 18 in the State List with some modifications and omissions. Entry 45 of the State List is land revenue including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues, the same as Entry 39 in List II of the Government of India Act, 1935. Entry 49 of the State List, Taxes on lands and buildings was Entry 42 in the Provincial List but with the addition of hearths and windows. Entry 49 of the State List, like Entry 42 of the Provincial List, clubbed together item 1 in Schedule I and items 2 and 3 in Schedule II of the Scheduled Tax Rules, namely, tax on land put to uses other than agricultural, a tax on land or land values and tax on buildings and this is not merely in respect of the subject-matter but also included a fusion and merger of the purposes for which taxes could be raised, so that no longer can it be said that Entry 49 of the State List, like Entry 42 of the Provincial List, is confined to raising revenues for Municipal purposes on any particular pattern either on the market or annual rating value and does not extend to raising the general revenue for the purposes of the State Government. So long as a law made by the State Legislature in its pith and substance imposes a tax on lands and buildings, irrespective of the machinery employed or the measure it adopts for quantifying the levy and collection of tax, it cannot be assailed on ground of want of legislative competency. It is in this context the definition of taxation and taxes by Article 366(28) is important Taxes on lands and buildings as a subject or head of power have themselves not acquired any special meaning and there is no reason why their grammatical and natural meaning in its fullest amplitude should not be accorded to the head of power. We are, therefore, unable to read any limitations into Entry 49 of the State List as that it is confined to taxes on the annual letting value of lands and buildings for Municipal purposes.

70. Taxes in Entry 49 in the State List mean both Provincial taxes and taxes raised for the local bodies. The tax being on lands and buildings, there is no warrant for the supposition that it should be on their annual letting value or on the basis of their yield. The expression “land” is wide enough to include also agricultural land. AIR 1962 SC 1563 held:

“We have therefore no hesitation in rejecting the argument that Entry 49 in List II does not take in agricultural land.”

71. The U.P Large Land Holdings Tax Act provided for the imposition and collection of tax on large land holdings for the purpose of general revenue of the State and one of the attacks on the validity of the Act was that Entry 49 of the State List did not include agricultural lands. The Supreme Court considered that the word “lands” in that Entry was wide enough to include all lands whether agricultural or not. It also sustained the validity of the Act although it raised revenues for the State purposes. In fact that aspect of the matter was specifically considered by AIR 1967 Madh Pra 268. Dixit, C.J and Bhave, J. held that Entry 49 of the State List authorised a levy both for purposes of the State as well as the local bodies.

72. The discussion so far relating to the scheme of distribution of powers from the Scheduled Tax Rules onwards also shows that the contention of Mr. Tiruvenkatachari that the power under Entry 49 of the State List is to tax lands and buildings and not the lands alone or the buildings without the lands, has no force. Schedule II to the Scheduled Tax Rules makes it quite clear with reference to Items 2 and 3 therein that there might be a tax on buildings alone or the lands or the land values, separately. As we said, these two Items were clubbed with a tax on land put to non-agricultural uses and the final shape they have taken is in the form of the words in Entry 49 of the State List as in Entry 42 of the Provincial List. We are of the view that the word “and” in the Entry can and should, in the context be read in the sense of “or” as well Apart from that, we do not see why if the power is used to tax lands and buildings, it cannot, on principle, be used for taxing any of them independently. But it is suggested that a tax on lands without buildings will come under Entry 45 of the State List and, therefore, would be excluded from Entry 49. In this connection, our attention was invited to the view of Seervai in his treatise on “Constitutional Law of India” see p. 938:

“Entry 49 refers to a tax on lands and buildings, and it is not clear whether a tax on vacant land is the subject of Entry 45, and a tax on lands and buildings is subject to the tax on lands and buildings. If a tax on lands and buildings is read as a tax on lands or buildings, then it would appear that land revenue on vacant land would be indistinguishable from a tax on vacant land.”

73. We have already referred to the view of the Supreme Court that Entry 49 of the State List includes agricultural land, in fact all kinds of lands. Apart from that, land revenue has an ancient history. From time immemorial it has been recognised and considered to be a common law prerogative right of the native Sovereigns of old succeeded by later Governments to a portion of the produce from land, whatever the theory on which the right was founded. As a matter of fact, there has been no statutory law which directly provided at least in this State for raising land revenue in the form which obtains here. There are a number of statutes which indirectly have recognised the ryotwari system of assessment of land revenue. As pointed out in 1958-2 Mad LJ 117 : (AIR 1958 Mad 539), the land revenue has two aspects: it is an inherent feature of the ryotwari system that the Government has a share, and as stated in Board's Standing Order 1, Rule 4, the assessment represents the commuted value of the Government's share of the cultivation and (2) the assessment is by virtue of the prerogative right of the Government which under the law obtaining in this country, it always possessed. The Supreme Court in AIR 1961 SC 552 also observed:

“Ordinarily a tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made with due diligence……”

74. Land revenue because of its ancestry, though a tax with all the features of a tax, is related to and based upon the productivity of the land and that, in our opinion, is the significance of Entry 45 of the State List. In any case, there is nothing in the relationship of that Entry and Entry 49 to suggest that the latter authorised a tax on lands and buildings taken together and not merely on any one of them, or that Entry 49 does not include a tax on lands computed at a certain percentage of its market value.

75. Mr. Vedantachari wanted to relate Entry 49 to Entry 5 and Entry 45 to Entry 18 in the State List in support of his contention for giving a limited scope to Entry 49. We have already touched upon this aspect. As pointed out by us, tax entries in the Government of India Act, 1935 and in the Constitution, unlike in the “White Paper” and the Report of the Joint Select Committee of the Parliament, are not related to the subject-matters of legislation in each of the Entries. Each tax Entry is complete by itself. In any case, even on the assumption that Entry 49 is related to Entry 5, it does not mean that its relationship conclusively delimits and confines the scope of the power under Entry 49 to making a law imposing taxes on lands and buildings only on the basis of the annual letting value and that too for Municipal purposes.

76. In view of the above considerations, we are clearly of opinion that the pith and substance of the Madras Urban Land Tax Act, 1966 in imposing a tax on urban lands at a percentage of their market value is entirely within the ambit of Entry 49 of the State List and within the competence of the State Legislature and the Act does not in any way trench upon Entry 86 of the Union List.

77. There is also another aspect which may be considered as an alternative basis for upholding the validity of the Act in relation to its competency under Entry 49. Section 5 of the Madras Urban Land Tax Act, 1966, as already noticed, imposes a tax on each urban land at the rate of 0.4 per centum of the market value of such land. It directs that it should be levied for every fasli year. Does the tax fall on the corpus or on the yield, actual or notional, from it? Normally speaking, recurrence of incidence may be indicative of its being on the yield and this notion will be strengthened by the fact that the impost is at a flat rate and that it is of a small percentage in quantum though expressed to be of the market value of land. According to Nicholas Caldor the criterion for determining whether a particular tax falls on capital or income is not whether it is levied on the one or the other but whether it is singular (once-and-for-all payment) or recurrent. He would regard the annual tax on capital as merely a particular species of income-tax even though it may be expressed as a percentage of a capital and not as percentage of Income. It is true that as Gulati on ‘Capital Taxation in a Developing Economy (India) points out that while capital tax is reckoned in terms of capital value, capital values are not perfectly correlated with changes in income from capital and that capital values do not rise or fall immediately following and to the same extent as the rise or fall in income from capital. As the Author, however, points out there is as it were a timelag as well as a price lag in the capital income and capital value adjustment. Having regard to the present level of values of urban lands, a tax of 0.4 per cent of the market value thereof is most unlikely to be paid out of the capital and in that sense it may well fall on their yield or income. While the tax under the Act remains to be a tax on urban lands, its incidence is not necessarily on their corpus having regard to its recurrence, flat incidence and smallness of the rate of charge. But because the incidence of the tax effect is on the yield it would not convert the character of the tax into a different one. See 1936 AC 352. On the alternative basis that Section 5 imposes a charge having its incidence in effect on the yield and that it does not fall on the corpus of the land, we would be prepared to hold the Act to be legislatively competent under Entry 49 of the State List.

78. We shall next consider whether the Act is violative of Article 19(1)(f) of the Constitution. We may premise that the attack on the validity of the Act based on Article 19(1)(f) proceeds on the assumption that Entry 49 of the State List authorises tax only on the occupier's basis, in other words, on the basis of the yield measured in terms of annual letting value of each urban land which we have not accepted. If, as we have held, the tax on market value of urban lands is within the purview of Entry 49, obviously having regard to the fact that the rate is only 0.4 per cent of the market value, it cannot be held to be confiscatory of property or in any sense be unreasonable. Nevertheless, as we have heard arguments on this ground of attack, we shall deal with them but on the assumption with which they have proceeded, namely, the occupier's basis of the tax power, under Entry 49.

79. Article 265 says that no tax shall be levied or collected except by authority of law. It is well settled that tax laws, like any other law within the meaning of Article 13, are subject to the test of fundamental rights for their validity. Prima facie a tax on property affects the right to acquire, hold and dispose of property in its broad aspects and its validity is sustained on the ground that it is a reasonable restriction on the exercise of fundamental right in the Interests of the general public. There are numerous decided cases on the subject and it is unnecessary to refer to them. In Atiabari Tea Co. Ltd. v. State of Assam, 1961-1 SCR 809 : AIR 1961 SC 232 the proposition was applied. AIR 1961 SC 552 : 1961-3 SCR 77 struck down a taxation statute as violative of fundamental rights under Articles 14 and 19 of the Constitution.AIR 1962 SC 1563 : 1963-1 SCR 220 also recognised that fundamental rights applied to taxing statutes though in that case the contention that the statute there offended Article 19(1) was not accepted. We have, however, not been shown a single authority in which a tax law was found to be competent legislatively but found to violate Article 19(1) on the ground of unreasonableness. Unreasonableness is a very flexible and legalistic term, the content, quality and the measure of which are bound to vary with the personal outlook and philosophy of each Judge on men and things, social and economic as well as political matters and policies. Also there appears to be force in the following view of Seervai in his “Constitutional Law of India” see page 292:

“It is submitted that the reasonableness of a taxing statute would be wholly beyond the competence of a Court for it involves an evaluation of factors which the Court is neither entitled, nor competent, to evaluate. The objects to be taxed, the persons to be taxed, the amount of the tax to be levied, the political, social and economic policies which a tax is designed to subserve, are all matters of political and legislative judgment, and they have been entrusted to the legislature and not to the Courts. As long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, the reasonableness of a tax cannot be questioned.”

80. Where a tax law is within the competence of a Legislature, it will be a nice and difficult question to draw the line and say that beyond which the tax is confiscatory. But having said that, it is neither possible nor wise to generalise when, how and in what circumstances a tax law can be held to be unreasonable under Article 19(1) and the test will have to be applied in each case. No doubt Courts are not concerned with matters of policy which must be left to the Legislature. But this statement cannot be stretched to the extreme limits of denying the Courts the power to judge the reasonableness of the tax law under Article 19(1) in particular circumstances. There is also no reason why the Court's power under Article 19(1)(f) to judge the reasonableness of the tax law should be confined to a case where it finds the tax to be confiscatory of property. Reasonableness as applied to taxation may mean not taking more than a reasonable proportion of the subject base of tax which may be either capital or yield. But what a reasonable proportion is an imponderable. It is suggested that if it is a case of capital levy, deprivation of capital wealth, in order to be reasonable, should be in stages and that if it is yield, the rate should not be such as will take it excessively so as to make holding of property wholly unremunerative. The matter is put in a slightly different way and it is stated that if the Legislature does not address itself to the facts of the case and relevant considerations in fixing the rate on capital value or yield but proceeds on extraneous considerations, the law will be bad as unreasonable. All that we need say in the present context is that these considerations do not in the particular circumstances enable us to hold any of the provisions of the Act to be unreasonable and violative of Article 19(1). It is a charge on the market value, which is a low, flat, annual rate and a reasonable fraction of the market value. Even if it falls on the yield, we cannot even in that case hold it to be unreasonable so long as the yield is not related to the actual letting value which is not in the contemplation of the Act.

81. Mr. Tiruvenkatachari in these cases in invoking Article 19(1) of the Constitution not merely says that the incidence of the charging provision in the Madras Urban Land Tax Act, 1966 is confiscatory in effect of the entire income from urban lands in many instances but he relies on certain other aspects to show that the Act infringes Article 19(1)(f). But before going into these details, certain preliminary facts which provide the background must be noticed.

82. As has been stated in the Report of the Special Officer for Urban taxation in 1962, which preceded the enactment of the Madras Urban Land Tax Act, 1963, the Madras City has a total area of 49 square miles of which an extent of 20 square miles was newly added in 1947. An extent of 11,650 acres is occupied by residential buildings, 610 acres by buildings utilised for commercial purposes, 970 acres by industrial undertaking and the rest by public buildings, roads, waterways etc. Every one knows that the major portion of the City is thickly built up though there are interspersed vacant lands in certain areas. The deponent of the affidavit in support of W.P No. 2835 of 1967 states on the figures he had obtained from the Corporation of Madras that for the year 1964–1965 the total number of buildings assessed by Corporation to property tax were 1,01,055 and the number of vacant lands assessed were 3,919. The total annual value of buildings and lands in that area is said to be Rs. 13,27,58,428-77. The number of property tax assesses were 1,04,974 and the total Corporation tax amounted to Rs. 3,42,10,725-53. According to the deponent, the Government expected about Rs. 75,00,000 from urban land tax from about 1,00,000 assessees. In respect of assessment of non-agricultural lands, the report of the Taxation Enquiry Commission 1953–1954 noticed that the majority of the States had not given attention to the taxation of unearned income derived from lands put to non-agricultural uses and recommended that the assessment of such lands at rates higher than those for agricultural lands was wholly justifiable, since the increase in the value of non-agricultural lands was not generally due to any expenditure or effort on the part of the owner but arose because of external factors. The Report of the Special Officer for Urban Taxation 1963 made a similar recommendation. The Report concluded by stating that the urban land tax had great potentialities and its importance lay in that it might act as curb on the inflationary trends of urban land values and its revenue was also bound to increase steadily as land values went up. These recommendations show clearly that what the Government wanted was to absorb by a tax on urban lands a part of the rise in their values. This appears to be in keeping with the charging section in the Act which levies a tax at 0.4 per cent of the market value of urban lands.

83. Mr. Tiruvenkatachari urges that the existing property tax under Section 100 of the City Municipal Corporation Act and the tax on urban lands under the Act under consideration, both enacted under Entry 49 of the State List, one of them imposing a tax on the capital value of urban lands and the other on the annual value of lands and buildings must necessarily result in haphazard incidence of the two put together. Further, as he adds, the result is that the Municipal property tax on lands and buildings and the urban land tax based on capital value of lands alone exhaust unreasonably a high proportion of the income. Learned counsel illustrates the haphazard incidence with reference to particular facts in some of the cases. In W.P No. 2835 of 1967, we have already referred to the extent of the land and buildings owned by the petitioner therein and the rent it fetches per month. The annual income on that basis is Rs. 6000. The proposed market value for the lands alone comes to Rs. 10,40,000 at the rate of Rs. 13,000 per ground. The property tax for two half years comes to a total of Rs. 1400. The urban land tax at 0.4 per cent of the market value is Rs. 4160 and the income-tax at the rate applicable to the petitioner that is 32.05 per cent on his income from the property is Rs. 1234. The total tax burden in the aggregate under the three heads is Rs. 6794. Outgoing itself is shown to exceed the income which cannot be increased because of the provisions of the Madras Buildings (Lease and Rent Control) Act, 1960. The proposed market value for the land alone works out 190 times the capital value of land and building based on the Municipal Annual value multiplied by 20 times. In W.P No. 3683 of 1967 the Municipal annual value is Rs. 4095, the property tax is Rs. 1049 and the urban land tax at 0.4 per cent is Rs. 1523. The proportion of the two taxes together to yearly or annual Municipal value works out to Rs. 62.5 per cent and the proposed market value is about 83 times of the market value based on 20 times the Municipal annual value. The proportion of the two taxes put together to yearly rent or annual value varies in some of the cases between 39 per cent and 91 per cent of the income or to the multiple of the annual value of lands and buildings together, namely, 20 times of the annual value, varies from 5 to 849 times. It is, therefore, said that there is no equality in the levy and the incidence is haphazard, and further the two taxes put together nearly exhaust the total income, not to speak of other outgoings like income-tax on the property. It is suggested, therefore, that the charging section in the Act is unreasonable and violates Article 19(1).

84. The answer to the contention is that the charge under the Act is on the basis of the market value of urban lands and not on their annual letting value on which the Municipal property tax is based. The bases of the two taxes being different, the one under the Act having no relation to the income unlike the property tax, they cannot be equated, clubbed together and used to measure the proportion of their cumulative burden on the income on the basis of annual letting value. If the tax is on the market value of urban land, as it is the case, it does not admit of a complaint that it takes away unreasonably a high proportion of the income. Further, while the annual letting value is not proportionate to a larger area of urban land forming part of properties consisting of lands and buildings and mainly depends upon the plinth area of the building and a reasonable portion of the land appurtenant thereto, the extent of the market value of the land is proportionate to its extent. It is this factor which accounts for the comparatively heavier incidence of the urban land tax based on market value than the Municipal rate on property based on annual letting value. So long as the Legislature has the power to tax under Entry 49 urban lands and to authorise Municipal authorities to levy rates on lands and buildings on the basis of their annual letting value, the two taxes can validly co-exist as was held in AIR 1967 Madh Pra 268 and the urban land tax cannot be struck down as unreasonable on the basis of the cumulative tax effect of both the taxes levied on different bases on the income from the urban lands charged to tax. A tax on land values and a tax on letting value, though both are taxes under Entry 49 of the State List “Taxes on lands and buildings”, cannot be clubbed together in order to test the reasonableness of one or the other of the impost for purposes of Article 19(1). It has not been stated before us that the levy at 0.4 per cent of the market value of the urban land is by any means confiscatory of the land values. Another step in the argument for the petitioners based on Article 19(1) is with reference to the procedure adopted in fixing the market value of particular urban land. In certain cases it is said that the market value of the urban land has been arrived at by applying what is known as the contractor's method not to the building which stands on the land whose value is ascertained by that means but to some other building on a different land taken for comparison. Mr. Tiruvenkatachari says that it is difficult enough for a man to test the contractor's method of valuation to his own building which could be done by a competent architect after taking into account all measurements etc., but it is absolutely an impossible task to check up or make objections to the contractor's method applied to another man's property which cannot be trespassed upon. He also says that the contractor's method is the last resort in valuation when a building has to be valued apart from the land and that it is a topsyturvy application of it to use it to value the land without the building particularly when valuation of land can be made by applying the principles of the Land Acquisition Act. He says that the value of urban land determined or proposed in Urban Land Tax notices to assessees by applying the contractor's method to another man's property is unreasonable. There is certainly force in the argument. But this will not help the petitioners to strike down the charging section or the Act itself. That will affect only the individual notice or order in which the proposed or determined value is on the basis of the contractor's method applied to another man's property. What is a contractor's method is described by the Privy Council in 1939-2 Mad LJ 722 (726) : 66 Ind App 258 : (AIR 1939 PC 235 at p. 237):

“The subject to be valued being a building apart from the site, the principle of fixing value by ascertaining the cost of reproducing the building at the present time and then allowing for depreciation in consideration of the age of the building and for the cost of such repairs as might be required apart from depreciation, is quite a well-known and recognised method of valuing buildings for the purpose of compensation.”

85. The Privy Council there was concerned with the Land Acquisition Act. But this method of valuation can be resorted to only in the absence of any better way of estimating the rent and this appears from the following extract from Feraday on Eating (5th Edition) which has been noticed by the Supreme Court in AIR 1967 SC 1801:

“The ‘contractor's method’ by which it is assumed, in the absence of any other better way of estimating the rent, that the tenant would arrive at it by finding the figure for which a contractor would provide him with premises neither more nor less suitable for his purpose and the rate of interest on that cost which the contractor would charge him as rent.”

86. The Supreme Court also extracted the observation from 32 Halsbury 77 (Third Edition):

“Where neither actual rents nor the profits of trade afford evidence of annual rental value, a percentage of the cost of construction of structural value of the hereditament, or of a suitable hereditament, is sometimes taken as evidence.”

87. This observation from Halsbury shows that if a contractor's method is to be applied at all, it may sometimes be permissible to apply to a suitable hereditament in order to find out the annual rental value of a particular building, but whether resort should be made to this process of finding out the annual letting value will depend upon the circumstances of each case and the method itself is not likely to be more than a rough and ready one for finding out such value. If the method is not permissible or has been improperly and wrongly applied, that is a matter in which the particular determination of the annual letting value or rent can be set aside but that will not by itself justify striking down the charging or any of the machinery provisions of the Act, Yet another argument of Mr. Tiruvenkatachari under the head of violation of Article 19(1) is that the valuations of urban lands are made without reference to the Municipal annual value determined by the Corporation, an authority created by the Legislature under Section 100 of the Madras City Municipal Corporation Act for the purpose and to assess lands and buildings to property tax and that even where the annual valuation is accepted or revised by the Small Causes Court, that is disregarded. Reliance is placed upon Article 261 and it is contended that full faith and credit are not given to such valuation which is a public act under authority of a statute. But Section 6 of the Act under consideration is clear that the market value of any urban land shall be estimated to be the price which it would fetch if sold in the open market on the date of the commencement of the Act that being the case, the petitioners cannot insist upon the market value being determined on the basis of only annual letting value of the land. In any case, if there is any impropriety or injustice fix that regard, that has to be corrected by way of an appeal provided under the Act we do not see how on that ground we can hold any of the provisions of the Act to be unreasonable and strike it down as invalid. In the circumstances we are of the view that no question arises of not giving full credit and faith under the Act to the annual valuation determined or fixed by the Corporation in respect of particular property for purposes of testing the reasonableness of the Act. It is true that Section 25 of the Act, which we have earlier referred to, contemplates that the urban land tax on land alone would possibly exceed half year rent on lands and buildings. But that has no bearing on the measure for quantifying the urban land tax which is determined at a percentage of the market value fixed on the basis of the market price and not on the basis of annual letting value. The purpose of Section 25 is but to enable the owner of urban land to have the rent enhanced by following the prescribed procedure and thus pass on a part of his burden to the tenant if there is one. If there is none and the land or building is owner-occupied, a concession of 25 per cent in the urban land tax is allowed by Section 26 of the Act. We do not think that either Section 25 or Section 26 provides a basis for an argument of unreasonableness in violation of Article 19(1). It may be, not that we decide it, that the valuation of urban lands under the Act may possibly affect the citizens in wealth tax, estate duty and probably court-fee levy and there is no provision in the Act enabling resort to Superior Courts in order to show that the assessment of market value is wrong or excessive or is for any reason illegal. But there is Article 226 of the Constitution which an aggrieved assessee can resort to in proper cases. We also find that Section 4 provides that each Tribunal shall be a Judicial Officer not below the rank of Subordinate Judge as an appellate authority for the purposes of the Act. Usually taxing statutes themselves provide for a reference or revision to the High Court on a point of law arising from the impugned orders. It is rather unfortunate that the Urban Land Tax Act, 1966 does not make a similar provision. But on that account, we are not persuaded that the Act could be held to be unreasonable. Nor are we satisfied that because each urban land is defined as comprised in a survey number or a sub-division number and, therefore, separate valuation for each survey number or sub-division number is made calling for separate notice under the Act to the assessees, instead of treating the property as one, it becomes necessary for them to file so many appeals, the Act offends Article 19(1). We suppose that as to the character of the land whether it is urban land or not, the Urban Land Tax Officers will have jurisdiction to decide it so too the Tribunal on appeal as a jurisdictional issue. The attack on the validity of the Act so far made on the basis of violation of Article 19(1) should, therefore, fall.

88. One other ground based on Article 19(1) is this. Though the Act was enacted and brought into force from September 10, 1966, it has been given retrospective effect so far as the City of Madras is concerned from July 1, 1963. Sec. 2(5) says that the date of the commencement of the Act means in relation to the City of Madras, July 1, 1963 and under Section 6, the market value of an urban land is to be determined as on that date. That was the date on which the Madras Urban Land Tax Act, 1963 came into force which by reason of 1957-2 Mad LJ 172 was invalidated. That decision was given on March 25, 1966. The contention is that retrospective effect given to the Act now under consideration is unreasonable. It is explained that during the intermediate years between July 1963 and September 1966, the assessees could not have expected such a retrospective levy and they would have spent away the rents received and it would be hard to adjust their finances by reopening closed things for the back years. Also it is argued that even on principle, such retrospective taxation is unreasonable. In any case, we are told that excessive retrospective effect spread over more than three years should be struck down under Article 19(1). We are by no means satisfied that these contentions are substantial.

89. It has been repeatedly held by Courts that a power to enact laws includes a power to make the law operate retrospectively, and, this proposition must apply equally to fiscal laws. We recognise that it is seldom that retrospective taxation is resorted to. But it is not unusual that where a taxing provision is held to be invalid by Courts for some reason, the amending law which seeks to rectify the offending defect is made retrospective in order to plug the lacuna in taxation. We cannot say that it is unreasonable, for, tax laws have a bearing upon the budgets of a State and are taken into account in assessing the net proceeds of revenue and where one of such laws is struck down as invalid by Court, it will have its repercussion on the budgetary position. Naturally, this result is sometimes avoided by making the amending law retrospective. Taxation by itself cannot be held to be unreasonable but at the same time if the retrospective taxation is excessive in the sense that it reaches an unreasonable back period which will seriously affect the finance of those concerned it will be a question whether the retrospective effect is so excessive as to render it per se unreasonable. On this aspect of the matter, we may notice the following observations of the Supreme Court in AIR 1966 SC 764 at p. 772:

“So, it would be idle to contend that merely because a taxing statute purports to operate retrospectively, the retrospective operation per se involves contravention of the fundamental right of the citizen taxed under Article 19(1)(f) or (g). It is true that cases may conceivably occur where the Court may have to consider the question as to whether excessive retrospective operation prescribed by a taxing statute amounts to the contravention of the citizens' fundamental right; and in dealing with such a question, the Court may have to take into account all the relevant and surrounding facts and circumstances in relation to the taxation.”

90. The Court was there concerned with the proviso to Section 3(1) of the Rajasthan Passengers and Goods Taxation Act, 1959 which provided for a charge of tax retrospectively during the period between May 1, 1959 and March 8, 1961 at specific rates and it was held that the retrospective operation did not offend Article 19(1).

91. In the present case, we may reasonably assume the circumstances in which the Act has been given retrospective effect from July 1, 1963. The previous Act came into force on that date and until it was struck down in March 1966, under its provisions, proceedings had presumably been taken which stood at various stages. Apparently in certain instances the tax had been collected. So far as things done and closed are concerned, when the earlier Act was in force, we have not heard any argument that they should be reopened. If the present Act had not been made retrospective, that would certainly mean that the budgetary position and the receipt and expenditure made on the basis of the expected revenue during the period between July 1, 1963 and September 1966 would adversely be affected. The State would have to make up the deficit resulting from the invalidation of the Act. In such circumstances, we do not think it unreasonable on the part of the Legislature to make the Act retrospective so as to cover and balance the public finance of that period. In that sense, the retrospective effect cannot be considered to be excessive. On this view, it is unnecessary to consider the further question whether Article 19(1) could at all be relied on by the petitioners for the period covered by the President's Proclamation and in view of the bar created by Article 358. In fact the learned Advocate-General did not address any cogent arguments taking that ground for the State.

92. We come to the last but serious ground urged by the petitioners, which in our view has force and has to be upheld. This relates to Section 6 of the Act and the attack on it is that it amounts to excessive delegation which is both unreasonable and arbitrary, so that it violates Articles 19(1) and 14. Section 6 is as follows:

“For the purposes of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be such urban land would have fetched or fetch. If sold in the open market on the date of the commencement of this Act.”

93. The Assistant Commissioner or the Tribunal is given the power under the section to determine the market value. In doing so, they can estimate the market prices. The estimation is left to their opinion, namely, what they opine to be the price for the urban land if sold in open market on July 1, 1963 would be the market value. What the criteria they should apply in estimating the prices and what method they should adopt in the process of doing it, has not been stated anywhere in the Act. Section 6 does not indicate whether in ascertaining the market price as on the anterior date, it could be guided by the prices settled by Court under the Land Acquisition Act or on the basis of comparable sale deeds or awards or capitalised values of lands with reference to multiples of annual letting value or by statutory determination of the market value of particular lands by public officers in exercise of the powers under the relevant statutes as in the case of determination of fair rent under the provisions of the Madras Buildings (Lease and Rent Control) Act, 1960. Nor does the section Indicate the methods to be applied in determining the market value of blocks of lands of vast extents as well as small sites taken with or independent of situation, circumstantial advantages and drawbacks. The situation is more obscure in the case of a site on which a building stands which by the Explanation is made part of the definition of urban land under Section 2(13). A site which has been built upon and on which a building stands is deemed to be an urban land. It will be hardly necessary to point out that such a site cannot conceivably be thought of having an open market. In such a case the land goes with the building and they are together valued. Seldom will there be evidence in such a case on which the market value of the site on which the building stands can be ascertained independently of the building. If the land and the building therein are together valued, again there is no indication in Section 6 as to how with reference to that value, the Officers concerned are to arrive at the market value of that site. The position is worse when the market value of such site falls to be determined with reference to an anterior date, in this case as on July 1, 1963, about three years before the time when the value is assessed. We do not also see how the words “if sold in open market” can without a statutory guidance be applied to a built up site as on a date in the earlier years. Obviously there can be no open market for such a land except perhaps in the case of a purchase of a site with a building thereon with a view to its demolition. No doubt in arriving at the market value of a site and building put together the value of the site may be roughly taken into account but rarely it is done on the basis of there being an open market for the site alone without the building. We think, therefore, that for these reasons arbitrariness is writ large on the face of Section 6 and it is also unreasonable in so far as it makes such excessive delegation.

94. Under the earlier Act, there were provisions which gave guidance for classification and determination of the market value of urban lands as for instance Sections 6 and 7. In exercise of the rule-making powers, rules were framed under that Act of which Rule 4 related to determination of market value under Section 7(3). That rule stated that the market value of the land should be determined subject to the principles indicated therein. The principles included that in determining the market value the prices for which lands have been bought and sold in the zone or sub-zone making due allowances for the special features, if any, in any individual transaction the rents fetched for the use and occupation of the lands in a zone or sub-zone, the principles generally adopted in valuing lands under the Land Acquisition Act, 1894 and the compensation awarded in recent land acquisition proceedings after deducting the solatium, if any, for compulsory acquisition, should be kept in view. Some of these criteria were dropped by a later amendment of the Rule which, however, need not detain us. But the point is that the earlier Act did give some guidance at least in determining the market value which is totally absent in the present Act.

95. We are aware that the Act outlines a scheme of submission of returns in which the assessees themselves are called upon to estimate the market values of the urban lands with which they are concerned which would be charged to tax. Where the Urban Land Tax Officers differ and assess on a different market value, remedies are provided for the assessees aggrieved by way of appeal which will be dealt with by a Judicial Officer of the status of a Subordinate Judge. We do not think that this in any way detracts from the gravamen of the charge against Section 6, namely, excessive delegation involving arbitrariness and unreasonableness. The estimates given by the owners in their returns of the market values need not be accepted by the Urban Land Tax Officers. They are empowered even in such cases, if they think fit, to differ from such valuation and estimate the market values themselves in their discretion. Section 9 enables Assistant Commissioners of Urban Land Tax to collect information in respect of particulars including market value of lands. Where no returns are filed, the Officers are free to assess the market value as they consider best without their being tied down to a particular principle of valuation. In our view, it is no satisfactory answer to say where the valuation is wrong or erroneous, it can be corrected in appeal and, therefore, the validity of Section 6 is not affected. This perspective of the matter overlooks the magnitude of the mischief which excessive delegation may bring about in entrusting to the officers jurisdiction to determine the market value in their discretion without any guidance whatever with reference to the matters we have adverted. We, therefore, hold that Section 6 of the Madras Urban Land Tax Act, 1966 offends Article 19(1)(f) and Article 14 of the Constitution and strike it down as invalid. The validity of the rest of the Act is upheld.

96. On our view of the Invalidity of Section 6 of the Act these petitions are all allowed but in the circumstances there will be no order as to costs in any of them.

97. Ramakrishnan, J.:— I concur with the view of my Lord the Chief Justice, and my learned brothers, Veeraswami and Natesan, JJ., about the competence of the State Legislature in enacting Section 5, as it stands, providing for the levy of Urban Land Tax at a low percentage of the market value. While agreeing also with their view about the invalidity of Section 6, I will append the following observations:

98. Section 6 provides for the calculation of the market value of urban land for the purpose of the levy under Section 5, as the price which in the opinion of the Assistant Commissioner of Urban Land Tax or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act, namely, 1st July, 1963, in the case of assessees in the City of Madras. Bearing in mind the definition of “urban land” in Section 2(13) which will include, in the case of a built up site, the site alone dissociated from the building, it was impressed upon us that the Madras Act 12 of 1966 has approached the problem of the levy of urban land tax from an entirely new angle not attempted hitherto by other States in India for the levy. The Taxation Enquiry Committee long ago made suggestions for such a levy for augmenting State revenues. The report of a Special Officer, a senior Member of the Board of Revenue, has also stressed the desirability of tapping this source of revenue bearing in mind the sudden spurt in the prices of urban land in the decade following 1960. But the Taxation Enquiry Committee did not outline the procedure now found in the Act for detaching, in the case of built up sites, the land from the building, for the purpose of calculating the market value of the land and the subsequent levy of a percentage on that market value as urban land tax. On the other hand it recommended the system of assessment on non-agricultural lands as it then prevailed in Bombay. The Bombay Act, 1939 thus referred for provided a tax of 10% on the annual letting value of buildings or lands, and. It was this levy which was upheld in AIR 1940 Bom 65. Other States, when carrying out the recommendations of the Taxation Enquiry Committee, have adopted differ rent methods for the levy. The Madhya Pradesh Act, Act 14 of 1964, adopted a much simpler method by levying a rate of 7 per cent on the annual letting value of the land or building, the levy being in addition to any other tax for the time being payable under any other enactment in respect of such land or building, evidently referring to Municipal or Corporation Property Tax already in existence all over India including Madras City. The Mysore enactment of the year 1964 provided for the levy on the basis of the total floorage of the building, the construction of which is completed and which has the floorage of 1,000 square feet or more.

99. I may point out Incidentally that the charging provisions of the Mysore Act have been struck down as ultra vires in AIR 1965 Mys 170 as being violative of Articles 14 and 19 of the Constitution. The Madhya Pradesh enactment came up for consideration in AIR 1967 Madh Pra 268. The Court held that Act was not violative of Article 14 of the Constitution; but the learned Judges declined to go into the question of the Act offending Article 19 of the Constitution because of the proclamation of emergency. But so far as the Madras Act is concerned. It is common ground that the state of emergency has been lifted before these petitions came on for hearing and therefore the enactment is open to attack, on the basis of the provisions of the Constitution dealing with fundamental rights including Article 19. Before the State Legislatures in India took the clue from the recommendations of the Taxation Enquiry Committee for levying a tax on urban land as a source of State revenue, in practically every enactment passed in the different States in India, it appears that the uniform practice followed was to treat such a levy as a “rate” for municipal or corporation purposes to be levied on owners or occupiers of urban property. The formula adopted was to levy a tax described as Property Tax on all buildings and lands. The tax was levied at a percentage of the annual value of the buildings and lands calculated on the actual or expected rental value. The Madras City Municipal Corporation Act provides that the aggregate property tax shall not be less than 151 per cent or greater than 25 per cent of the annual value. The building and the site have to be assessed together. The annual value is to be calculated at the gross annual rent which the building and the site can be reasonably expected to let from month to month or from year to year less a deduction, in the case of buildings, of 10 per cent of the portion of the annual rent attributable to the building alone apart from the site and the adjacent land occupied as an appurtenant to the building, towards allowance for repairs etc. The proviso mentions the excepted case of a Government or Railway building and a building of a class not ordinarily let. For these excepted cases the annual value shall be deemed to be 6 per cent of the total of the estimated market value of the land at the time of the estimation and the estimated cost of erecting the building at such time, after deducting for depreciation a reasonable amount not less than 10 per cent of the cost.

100. Before examining the constitutionality of Section 6, it is necessary to advert for a moment to certain principles in regard to the valuation of urban land in populated areas for the purpose of levy of tax. These principles have received attention at the hands of economic experts and other students of the problem in its broad perspective. The expression of views in the book on Public Finance by U.K Hicks has been quoted at length by one of my learned brothers in his judgment, and it is not necessary for me to extract them. I will refer to the comments of another well-known authority on taxation and public finance G. Findlay Shirras. His comments are found under the heading “Taxation of land” in Chapter XX of the book “Science of Public Finance” Volume I, where a complete survey of the problem from the economic aspect is found. The following are relevant excerpts:

“The taxation of unearned increment (on land values) may be done in one of four ways. In the first place, the increment may be taxed from a fixed date in the past. This method has two disadvantages. Firstly, it is difficult to ascertain the value of land at a fixed date in the past. Again it is quite probable that the increment may have been amortised on each occasion when it changed hands. It would be unfair, therefore, to tax the present holder. The second method is to tax past increments accruing to persons at the time of purchase or exchange. This is the method followed in many German cities. Since the beginning of the nineteenth century, in Frankfurt there has been an ad valorem tax on changes of ownership of real property irrespective of its increase in value. The increment tax, the wertzuwachs-steuer of 1904, is levied in addition to this tax when land changes hands by purchase or exchange but not by inheritance. Its sale price is taken as a rule as proof of its value. This tax varies according as (1) the land is or is not built on; (2) the period since the last sale; and (3) the amount of increment that has accrued. Where the land has been built on and has been in the possession of the same owner for a minimum period of twenty years the increment tax is levied on the selling price of lands and buildings together at the time of the last sale. The tax rises with the length of the period since the last sale. In New York, Boston, and some other States in the United States site and building are separately valued, but the tax is levied on the capital value of the whole and not on the site value alone. Unbuilt land in Frankfurt which has not changed hands for twenty years pays a similar tax as in the case of land built on, but the rate is higher. No tax is levied if the owner can show that the present price is not higher than the previous price, when account is taken of the cost of any building made in the interval or where the tax would equal the amount of the increment. If the increase is less than 15 per cent no tax is levied; but in other instances from 2 to 25 per cent of the increment is taxed by the municipality, the greater the increment the higher the tax. The example of Frankfurt was followed by Cologne, Hamburg, and other cities. The third method is to tax only future increments. This necessitates the valuation of land and buildings by expert valuers. Thus the scheme which became law in the United Kingdom by the Finance Act, 1910, involved the valuation of 11 million units of land, especially the site value, which meant the market value of land less the value of buildings and improvements on it. It is the practice to tax usually the incremental value of sites only, but it is not unusual to include the value of buildings and sites. Indeed much is to be said for including both. The scheme of 1910 in the United Kingdom broke down owing to complicated provisions for separating the value of the site from the value of buildings and other Improvements. A tax to absorb 20 percent of all increase beyond 10 per cent in land values after 30th April, 1909 was imposed, and was payable each time the property changed hands by sale or on death. The costs of valuation were high and the proceeds of the tax at first low. Its abandonment in 1920 cannot be said to have been taken after a fair trial. It is, all things considered, preferable to tax the increase in the value of both the site and building after making the necessary deductions for improvements. On grounds of uncertainty and expense it is difficult to separate these two values, although their separation is not impossible”.

(italics mine).

101. One is impressed by the fact that well-known experts on public finance who have examined the problem from the manner in which it has been tackled in different countries for a long period of time, have come to the conclusion that on the ground of uncertainty and expense it is difficult to separate the site value from the building value, although they make at the same time the very cautious comment that such separation is not impossible. But the warning against attempting what is prima facie a very difficult task, is plain, in these expert studies.

102. While the question of separate taxation of a built up site dissociated from the building has posed to economists and students of public finance such a formidable problem from the point of view of fixation of market values. Section 6 of the impugned Act has dealt with it, by what appears to me to be a method of complete over-simplification, without making any attempt which we can discover either in the section itself, or anywhere else in the statute or in the rules to tackle the problem in the true perspective of its formidable difficulties and after taking into account its impact upon the assessees.

103. No doubt, the method of providing for an estimate of the market price of a property to be arrived at on the basis of the opinion of the assessing officer, which is the sole test provided in Section 6 of the Act is found in certain other taxation laws in this country. Thus, in Section 7 of the Wealth Tax Act of 1957 there is a provision for making an estimate of the value of any asset as the value which in the opinion of the Wealth Tax Officer it would fetch if sold in the open market on the valuation date. But this section at the same time provides for rules to be made in that behalf. That clearly implies that though this section gives power to the assessing officer to make an estimate of the market value of assets it is not to be an arbitrary or unguided opinion; there is provision for statutory rules either framed or to be framed for his guidance for the purpose. In regard to the Wealth Tax Act, our attention was drawn to a circular issued by the Central Board of Revenue, CBR, No. 3-W.T. of 1967 dated 28-9-1967:—

“Land and Buildings: The value of lands and buildings should be estimated with due regard to the nature, size and locality of the property the amenities available and the price prevailing for similar assets in the same locality or in the neighbourhood of that locality. Where the value is not easily ascertainable in this manner, the Wealth Tax Officer may adopt the capital value of the property determined by the appropriate authority in the latest assessment for purposes of property taxation, under the laws and regulations relating to municipalities and municipal corporations. However, where the municipal valuation is prima facie too low, having in view the rents actually received, or where an assessment of capital value is not made by a Municipality, or the property is located in an area where there is no municipality, the Wealth Tax Officer may estimate the reasonable annual value of the property and determine its capital value at a multiple, say, 20 times, of such annual value.”

104. The point to note is that when confronted with the difficulties of ascertaining the market value of a built up property, the assessing officer under the Wealth Tax Act is given a specific discretion by a circular to capitalise it from rental values a method which can be considered as a safe one, as it avoids the uncertainty and also the difficulty of obtaining actual site values in densely built up areas in a big city. As far as we are aware, it is this circular that is being followed by the taxing authorities administering the Wealth Tax Act. Further, that Act does not pose the problem to the assessing authority of separating land value from the composite value of land and building. In the Land Acquisition Act, Section 11 provides for the Collector, i.e, the land acquisition officer in his award to fix an amount of compensation which in his opinion should be allowed for the land. The point to remember in connection with the Land Acquisition Act is that in effect the compensation fixed by the land acquisition officer in his award is really an offer, and the person whose land is acquired is given the right to decline the offer and get a reference made to the civil Court under Section 18, and thereafter the civil Court takes full evidence and under Section 23 fixes the market value of the land as on the date of the publication of the notification under Section 4(1) of the Act. The decision of the Court on the market value is thus arrived at after a judicial consideration of all the relevant circumstances. Therefore? the provisions in Section 11 of the Land Acquisition Act for fixing the amount of compensation in an award according to the opinion of the acquiring officer and a similar provision in the Wealth Tax Act cannot serve as precedent for sustaining the provision in Section 6 of the impugned Act for fixing the market value of a building site dissociated from the building, on the subjective opinion of the Assistant Commissioner, without the safeguard to the assessee of a further judicial decision by a Court of law as if the Land Acquisition Act. No doubt there is a provision in the impugned Act for an appeal to a Tribunal and the Tribunal has to be manned by a judicial officer not below the rank of a Subordinate Judge. But the Tribunal so constituted is not the same as a Court of law. The Tribunal is a creation of the Act and has to function within the four corners of the Act. When there are no guiding lines in the Act or in the Rules under the Act for the purpose of fixing the market value of a built up urban land, whatever handicaps attach to the Assistant Commissioner in making a subjective estimate of the market value, by reason of the lacunae in the provisions of the Act, will also attach to the decision of the Tribunal.

105. Before parting with the Land Acquisition Act it is also necessary to bear in mind the fact that though Section 11 reads as if the acquiring officer has a full discretion in the matter of arriving at the valuation of the land to be acquired by a purely subjective process, in practice, he invariably follows certain important instructions in the Land Acquisition Manual as applied to the State of Madras. These instructions embody a set of principles which the acquiring officers are required to follow, and they may be referred to, if not as authority having the force of law binding on a civil Court, at least as laying down valuable principles culled by practical experience in the course of working of the Land Acquisition Act over a long period of years. They also embody principles laid down in several High Court decisions. In Chapter XIV of the said Manual under the heading “Buildings” we find the following observations:

“It is a fallacy to value land and building separately, and take the total as the value of both. The property must be valued according to what it is worth in the market, and not according to what it cost. The market value of the property must be fixed on the basis of the net rental value of the whole property. The building cannot be separated from the land for it will be impossible to say what proportion of rent is to be fixed on the building and what proportion on the land. When a property consisting of a building surrounded by 8½ acres of garden land had been let as a whole block for several years before the acquisition of it by the. Government and the lower Court awarded 20 times the net annual rental (deducting municipal taxes, revenue charges and cost of repairs) as compensation to the owner, the Madras High Court held that it was a reasonable price and that it was not a proper method to value the land and building separately as independent items and award the aggregate value as compensation.

2. There is no objection to giving surplus land a valuation, but it must be really surplus land, separatable from the building and its compound.

3. The market value of a building with its site is arrived at by capitalising the average annual letting value. From the gross rent obtainable for the building the following deductions should be made 5: (i) Taxes and land revenue charges which the owner has to pay and (ii) the annual cost of ordinary repairs, which the Madras High Court fixed in one case at a month's rate. In the case of buildings which are in reasonable good condition, the resulting net annual rent should be capitalised at a certain number of years' purchase which must depend on the rate of interest which gilt edged securities will yield in the money market. For this purpose, the rate should be taken as the average yield on long-term securities at the time having a currency of, say 30-35 years are not available for the purpose of calculation, the average yield of medium term securities having a currency at that time of, say, 15-20 years should be taken as the basis with an addition of one per cent to such yield to work out the rate for a long-term security.”

106. From the above it would appear that when a building-cum-site, is acquired under the Land Acquisition Act, the acquiring officer is permitted to adopt as a proper method the capitalised value of the rental for the purpose of fixing the market value of building-cum-site. He is warned that it is fallacious to value land and building separately. He is also told that if the value of a building alone has to be fixed apart from the site in special cases, value on the basis of the original cost of construction can be adopted if there has been no sale in the neighbourhood of similar buildings or if the building in question has never been let out; only in such a case is he permitted to obtain an estimate of the cost of the building from the Public Works Department. At the same time there is a caution that such estimate may be taken as a guide though not the sole determining factor in arriving at the market value.

107. The method referred to above for the valuation of buildings is often known as the contractor's method. That method came for consideration in a Privy Council decision reported in (1939) 2 Mad LJ 722 : (AIR 1939 PC 235). The Privy Council observed that where the subject to be valued for the purpose of land acquisition is a building apart from its site, the principle of fixing its value by ascertaining the cost of reproducing the building and then allowing for depreciation and cost of the repairs required apart from depreciation, was a recognised method of valuation for the purpose of compensation. But it is stressed by learned counsel Thiru. V.K.T Chari appearing for the petitioners in some of these writ petitions, that the contractor's method has been utilised only for the determination of the value of a building when the building alone has to be valued for payment of compensation apart from the site. In such circumstances, in the very nature of things, it will be impossible to get data of sales for a building of similar description and with similar advantages. The learned counsel points out that the situation will be entirely different where after the value of building plus site is ascertained from a sale deed, the contractor's method is used for separating the value of the building for arriving at the value of the site. According to him, it will be a reversal of the situation for which the contractor's method is recognised as a permissible method in the Privy Council decision cited above. This argument finds support in the view expressed in the Land Acquisition Manual extracted above, that the contractor's method should be resorted to only if in certain special cases, the value of the building alone has to be determined apart from the site; but when from the value of land-cum-building, the building value under the contractor's method is deducted for arriving at the value of the site, the method will suffer from the fallacy of valuing the land and building separately in the case of valuing built up land, where the normal rule is to value it as a whole.

108. Again, in the Madras Act 18 of 1960. Madras Buildings (Lease and Rent Control) Act, there is a provision in Section 4 for fixation of fair rent of a building plus its appurtenant site. Section 4 outlines a method for determining the fair rent on the basis of 6 per cent per annum of the total cost. The statute itself has laid down precise directions for determining the market value of the site and then adding thereto the cost of construction of the building according to the prescribed rates, less depreciation. For the purpose of valuing the building, the statute has provided for different classifications. No doubt, the market value of the site enters into such determination, and no clue is given as to how the market value has to be ascertained after the site has been built upon. But in the case of a determination of fair rent under the Madras Buildings (Lease and Rent Control) Act (Madras Act 18 of 1960), in addition to the detailed procedure given in the Act and in the rules, there is provision for the dispute being referred to a Rent Controller with right of appeal and revision before a hierarchy of higher Tribunals where all issues regarding valuation can be canvassed. The detailed procedure for the determination of a value of a building in the Madras Buildings (Lease and Rent Control) Act, indicates the difficulty of the problem of ascertaining urban land values especially when the land is a built up one and the consequent necessity for statutory guidance for making the appraisal, with judicial control by a Court of law.

109. In this connection. It has to be noticed that the Special Officer, whose report led to the framing of the Act for the first time in 1963, was aware of the difficulties inherent in the problem. He gave statistics to show that in the Madras City out of the total area of 48.74 sq miles, 19.36 sq. miles were added in 1947, that 11,650 acres are occupied by residential buildings, 610 acres by buildings for commercial purposes 970 acres by industrial undertakings and the rest by public buildings, roads, waterways, etc. He made the significant remark that a major portion of the City is thickly built I up, but there are vacant lands in areas north of Erukkancheri High Road and west of the metre gauge section of the Southern Railway. The petitioners have filed before us a tabular statement, from the figures obtained from the Corporation of Madras, which show that in 1964–1965 the total number of buildings assessed in Madras City were 1,01,055, that vacant lands (subject-matter of the assessment to Property Tax) were only 3,918 (9) and the two figures made up the total of 1,04,974 assessees to Property Tax. This would show that only about 3 to 4 per cent of the total represents vacant sites, and that nearly 97 per cent are built up sites. The Special Officer in his report gave an outline for the procedure to be adopted for working out the Urban Land Tax for Madras City. He adumbrated the scheme of dividing the City into zones and sub-zones depending upon the market value and suggested the adoption of a uniform market value for lands in each I sub-zone. At the same time he made the comment that while the scheme (of zones and sub-zones) was attractive, it was difficult to work out a table for the lands in each zone, that there were a certain number of unprecdictable factors in the matter of the market value of the sites and that they did not lend themselves to be reduced to a formula. Then he gave directions for investigation and the drawing up of a schedule of market values of sites, according to zones and sub-zones. He also added the comment that no hard and fast rule could be laid down and that the land values would have to be determined to some extent in an ad hoc manner. The problem therefore clearly bristled with difficulties. The Zonal scheme suggested by the Special Officer was embodied in the main portion of the Urban Land Tax Act of 1963, and in the rules framed thereunder. One of the rules thus framed included originally a direction for taking into account the value determined for the site by the authorities in land acquisition proceedings, but this was altered subsequently to the value awarded by Courts, giving rise to the comment by Thiru. Chari that while the usually higher estimates by Courts for the value of land would work in favour of the owners receiving compensation, it would work adversely from the point of view of urban land tax assessment, whereas the lower amounts fixed by the Land Acquisition Officer in awards would work in favour of urban land tax assessees. A Bench of this Court consisting of two of us struck down the principle of valuation in the 1963 Act based on the Zonal system as discriminatory as well as vague and ambiguous, vide decision reported in (1966) 2 Mad LJ 172. Thus, the valuation on the basis of the zonal system has now gone completely out of the picture. But in the amended enactment, which emerged in 1966, which is the Act now impugned before us, while the zonal system of valuation has been entirely left out, no guiding lines have been substituted in its place, and the valuation has to depend upon the subjective opinion of two authorities, the Assistant Commissioner in the first instance and the Appellate Tribunal in the second instance, the decision arrived at by them being declared to be final.

110. It was stressed on us by the petitioners' learned counsel in the course of the arguments that the urban land tax assessee faced with this method of assessment suffers from several disadvantages, namely,—

(1) for the building-cum-land, he pays property tax to the Corporation which is often as high as 30 per cent of the annual rental value and he pays urban land tax for the land portion alone on the basis of the market value determined by the Assistant Commissioner;

(2) Though at the present moment the urban land tax is only 0.4 per cent of the market value, if the stand taken by that learned Advocate-General on behalf of the Government that there is no intention to prescribe an upper ceiling to the percentage in terms of annual yield, or rental value and that the Government as advised at present, intend to treat the law as a levy on capital and not on rental value, it may be easy to visualise, a stage where the percentage may get increased. It is necessary to stress in this connection that Section 13 of the impugned Act makes the determination once made, valid for 10 years with a further period for its validity not exceeding 10 years at the discretion of the Government. If at any particular phase of the working of the Act the rates are increased to say 5 per cent of the capital value, then after the lapse of 20 years the entire capital value of the land would be depleted by the taxation. But the owner who occupies the building will continue to pay urban land tax even though the corpus of the tax, namely, the land, has been exhausted by the levy. It was the likelihood of such oppressive increase of the burden ensuing to the assessee that during arguments we repeatedly asked the learned Advocate-General to state in precise terms as to whether there was any upper limit or ceiling in contemplation for the levy such as a percentage of the annual yield or rental value. But we were told that no such upper limit or ceiling would be conceded on the part of the State.

(3) An argument was put forward that the assessee himself could submit a return under Section 7, giving the amount, which, in his opinion, will be the proper market value of the urban land, and at the enquiry under Section 10 of the Act the assessee has the right to adduce evidence regarding the market value of the urban land. It was urged that these provisions of the Act would give the assessee a very fair opportunity of putting forward his case and adducing adequate evidence, in support of his valuation of the site. While the above argument at first blush seems plausible, a little further reflection will show that in the case of entirely built up sites in crowded parts of the City like George Town or Triplicane and those in parts of the City where houses are built wall to wall abutting long streets, an assessee who owns a building built several years ago, will be in no position to supply data for the value of the land on an anterior date like 1963 mentioned in the Act. If there is a recent sale of a building with its site somewhere in his neighbourhood, all that he can give is information about the value of building-cum-site. He may not be in a position to engage a contractor for valuing the building covered by the sale of the property of a resident in some other street or locality who will be an utter stranger to him; further there are no guide lines provided either in the Act or in the Rules as to how the contractor's method has to be applied for valuing such a building in contrast with the rules found in the Madras Buildings (Lease and Rent Control) Act. We may also recall the warning given in the Land Acquisition Manual about the fallacy in valuing land and building separately for the purpose of dissociating the site value from the composite value of land and building. The learned Advocate-General said that the Board of Revenue has issued a set of administrative instructions to the Assistant Commissioner for his guidance in making valuation. We wish to point out that in a quasi-judicial decision which the Assistant Commissioner has to arrive at in these cases, such instructions will be improper and out of place. The assessees will also be entirely in the dark as to the nature of these instructions and how they affected the decision of the Assistant Commissioner. It appears therefore that the protection afforded to the assessee by way of filing a return and by way of adducing evidence to support the market value in the return will prove illusory in the cases of most of the assessees who own built up houses, and particularly those living in the most crowded parts of the City.

111. We were supplied with extracts of the computation of assessment, made in some of the writ petitions out of those that came before us for consideration. The significant point to note from these extracts is that in several cases where the existing Property Tax and the proposed Urban Land Tax are taken together, the burden thrown on the assessees is found to be oppressive; it also shows such a wide range of variation in the incidence that it is difficult to resist the impression that the burden of this tax as levied under Section 6, falls unevenly on assessees. It may be called to mind also at this stage that the uneven impact of the levy was one of the main grounds on which this Court struck down the procedural sections in the 1963 Act which prescribed the zonal method for estimating the land value when the matter came before a Bench on an earlier occasion in (1966) 2 Mad LJ 172. The Bench held that by reason of the unequal burden, Article 14 of the Constitution was violated. The same vice continues in the present scheme of valuation under Section 6 of the impugned Act.

112. This point can be illustrated by the figures supplied to us from the several individual assessments in the writ petitions before us. In Writ Petition No. 3683 of 1967 (a house in D'sylva Road, Mylapore, standing on 29.3 grounds occupied by the Managing Director of Messrs Sundaram Motors Private Limited) the property tax plus urban land tax work out to a ratio of 62.5 per cent of the annual value. In Writ Petition No. 3823 of 1967 (a house in Luz Church Road, Mylapore standing on a plot of 70 grounds 630 sq. ft.) the ratio is 45 per cent in Writ Petition No. 3552 of 1967 (a house in Rasappa Chetty Street in George Town standing on an area of 1594 sq ft.) the property tax as well as the urban land tax gives a ratio of 39 per cent of the annual value. In Writ Petition No. 3453 of 1967 for a house standing on 1 ground 1547 sq ft. In Mint Street, the two taxes represent a ratio of 33 per cent of the annual value. In Writ Petition No. 3456 of 1967 for a house on 2 grounds 2135 sq ft., in Eldams Road the ratio is 41 per cent. There is a curious case of a building occupied by Amalgamations (Private) limited in Edward Elliots Road, Madras, the area on which the building stands is 2 cawnies 23 grounds 1644 sq. ft.; in this case the land tax and the property tax represent a ratio of 91 per cent of the annual value. No doubt in some of these cases a large extent of appurtenant land surrounds the building. The Corporation, for computing the annual value, takes mainly the rental of the building which plays the most important part in the computation of the annual value. But for the purpose of urban land tax the large area of the compound comes in for a much larger share in the valuation. But it is pointed out by Mr. Chari, that this makes no difference to the burden on the owner because the Madras Buildings (Lease and Rent Control) Act in force in the City, prevents him from enhancing the rent or evicting the tenant from the surplus area of the land. Therefore, though the owner is in possession of a large area of land whose values have increased, he is not in a position to realise the benefit of these large values, and continues to get rents limited by the provisions of the Madras Buildings (Lease and Rent Control) Act and is also subject to other restrictions about eviction and so on. He will not also be able to get the full benefit of the increased value of the land even by a sale unless he is able to secure vacant possession to the vendee, which will constitute a separate problem involving often protracted litigation if the tenant is unwilling to vacate.

113. What I have outlined above is intended for bringing into focus the peculiar difficulties inherent in the problem of estimating urban land value, where, as in most parts of the Madras City, land has been built up several years ago, under the present method outlined in Section 6 of the Act to dissociate the land from the building, and leave the question of determination of the market value of the land to the unfettered discretion of the authorities appointed under the Act without the provision of guide lines expressed in the Act or in the Rules, and without any provision for resort to a civil Court for correcting the erroneous determination based on a subjective valuation, unlike in the case of the Land Acquisition Act I have already referred to the problem of site valuation as one which bristles with enormous difficulties in the case of built-up sites and how classical economists, dealing with the science of public finance, have repeatedly stressed the formidable nature of the problem involved.

114. The learned Advocate-General invited us to give our suggestions for evolving proper principles of valuation, which the authorities would implement by amendments to the Act and framing of rules if necessary. But what I have already stressed earlier in this judgment is sufficient to show the difficulties which such an attempt would involve. The difficulties perhaps could be dealt with if there is a preliminary scientific study by an expert committee, of the entire scope of the problem including the problem of determination of site values and the problem of how to avoid uneven impact of the burden on the assessees. After such a study, concrete principles could perhaps be formulated, whether for the purpose of amending the Act or for framing rules. In such a state of affairs, it will be beyond the jurisdiction of this Court to make any concrete suggestions in this regard.

115. I am of the opinion that the Madras Urban Land Tax Act of 1963 failed to reach a proper solution of this problem when it enacted the zonal system for determination of the market value, adopting the suggestions in the Special Officer's report. That procedure for valuation was found by the Bench of this Court to be discriminatory, and also oppressive on the assessee because of its vagueness and ambiguity. It appears to me that the 1966 Act by enacting Section 6 errs by going to the opposite extreme, when it deliberately omits all guiding principles for valuation and leaves the entire question to the unfettered and arbitrary discretion of two authorities constituted under the Act by an over-simplification of the problem. Section 6, in my judgment, suffers from the grave defect of arbitrary and excessive delegation of power, leading to the consequence that the assessees are likely to be deprived of their property, by an arbitrary decision of the assessing officer without proper guiding lines. Such a provision offends Article 19 of the Constitution. It is also discriminatory because of the variable incidence of the burden of the assessment from assessee to assessee attracting the bar of Article 14 of the Constitution.

116. Kailasam, J.:— These batch of writ petitions challenge the validity of the Madras Urban Land Tax Act, 1966 (Act No. 12 of 1966). The petitioner in W.P No. 2835/67 is the owner of land and building bearing R.S No. 3147 known as ‘Claybrooke’, municipal door No. 30, Kilpauk Garden Road, Madras-10, consisting of an acre of eighty grounds with two buildings, garages and two outhouses in a portion of the said land. The land along with the buildings had been let out from 1946 on a monthly rent of Rs. 500/-. The annual letting value as determined by the Corporation of Madras for the property is Rs. 5460/-. and the property tax fixed by the Corporation is Rs. 1,400/- per annum. The Assistant Commissioner of Urban Land Tax issued a notice to the petitioner on 15-9-67 proposing to fix the market value of the suit urban land at Rs. 13,000/- per ground, and levying a tax of Rs. 4,160/- per annum, called upon the petitioner to state his objections. It is submitted by the petitioner that the notice issued by the first respondent ex facie proposes to fix an unreasonably high market value, ignoring the well-established principles of law applicable in the matter of fixing the market value of land. The levy is challenged on various grounds which will be referred to in due course.

117. The Madras Urban Land Tax Act, 1963 (Madras Act XXXIV of 1963) came into force in the City of Madras on the 1st day of July 1963. In the statement of objects and reasons for the introduction of the Madras Act XXXIV of 1963. It was stated that the Taxation Enquiry Commission and the Planning Commission were suggesting the need to impose a suitable levy on lands put to non-agricultural use in urban areas. The Government after examining the report of the Special Officer decided to law a levy on urban land on the basis of the market value of the land, at the rate of 0.3 per centum of such market value. Section 3 of Act XXXIV of 1963, which will be referred to as the old Act, provided that there shall be levied and collected for every fasli year commencing from the date of the commencement of this Act, a tax on urban land from every owner of urban land at the rate of 0.4 per centum of the average market value of the urban land in a sub-zone as determined under sub-section (2) of Section 7. Section 7 provided for the determination of the highest and the lowest market value of the urban land in a zone. For determining the average market value, it was provided that the Assistant Commissioner shall have regard to the matters specified in clauses (a) to (e) of sub-section (2) of Section 6, namely,

(a) the locality in which the urban land is situated;

(b) the predominant use to which the urban land is put, that is to say industrial, commercial or residential;

(c) accessibility or proximity to market, dispensary, hospital, railway station, educational institution, or Government offices;

(d) availability of civic amenities like water supply, drainage and lighting; and

(e) such other matters as may be prescribed.

118. Rule 4 of the Madras Urban Land Tax Rules, 1963, provides that in determining the market value of the land, the Assistant Commissioner shall, in addition to the matters specified in clauses (a) to (d) of sub-section (2) of Section 6, have regard to—

(a) the prices for which lands have been bought and sold in the zone or subzone making due allowances for the special features, if any, in any individual transaction;

(b) the rents fetched for the use and occupation of the lands in the zone or sub-zone;

(c) the principles generally adopted in valuing lands under the Land Acquisition Act, 1894 (Central Act I of 1894); and

(d) the compensation awarded in recent land acquisition proceedings after deducting the solatium, if any, for compulsory acquisition.

119. The validity of the Act (Act 34 of 1963) was questioned and a Bench of this Court in (1966) 2 Mad LJ 172 held (1) that the Act fell under Schedule VII, List II, Entry 49, and was within the legislative competence of this State; and (2) that it was permissible for the State to levy a tax for State purposes (contrasted with a power to tax for municipal purposes). But the Act was struck down as violating Article 14 of the Constitution of India because the tax under the charging section (Section 3) of the Act is levied on an urban land not on the actual market value of such urban land, but on the average value of lands in a locality known as subzone. The impugned Act (Act 12 of 1966) was passed by the Government after examining the judgment of this Court in 1966. In the new Act, the provision relating to fixation of average market value in the sub-zone was done away with. Instead. Section 5 of the new Act provides that there shall be levied and collected for every fasli year commencing from the date of the commencement of the Act, a tax on each urban land from the owner of such urban land at the rate of 0.4 per centum of the market value of such urban land. Section 6 provides that the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act. By Section 7, every owner of urban land liable to pay urban land tax is required to submit a return in respect of each urban land giving particulars as to (a) the name of the owner of the urban land, (b) the extent of the urban land, (c) the name of the division or ward and of the street, survey number and sub-division number of the urban land and other particulars of such urban land; and (d) the amount which in the opinion of the owner is the market value of the urban land. Section 9 of the new Act empowers the Assistant Commissioner to obtain the necessary information, if the owner of the urban land fails to furnish a return as required under Section 7. Under Section 10, the Assistant Commissioner is required to examine the return furnished by the owner, and after making such enquiries, if he is satisfied that the particulars mentioned in the return are correct and complete, he shall determine the market value and the amount of urban land tax payable in respect of such urban land. If he is not satisfied that the particulars mentioned in the return are correct and complete, he shall serve a notice on the owner either to attend in person at his office, or to produce any evidence on which the owner may rely in support of his return. Under Section 10, the Assistant Commissioner is empowered to determine the market value of the urban land, after hearing such evidence as the owner may produce and such other evidence as the Assistant Commissioner may require to be produced. If the owner failed to attend and failed to produce evidence, the Assistant Commissioner will determine the market value on the basis of the enquiry made by him. Section 11 prescribes the procedure for assessing the tax when the owner fails to furnish a return. Section 20 provides an appeal to the Tribunal against the orders of the Assistant Commissioner. The amount of urban land tax thus determined is to be in force for a period of ten years from the 1st July of the fasli year in which the urban land tax is so determined, and for a further period not exceeding ten years as the Government may direct. The tax is leviable with retrospective effect from 1st day of July 1963.

120. The validity of the new Act (Madras Act 12 of 1966) is challenged on various grounds, which may be summarised as follows:—

(1) The tax falls under Schedule VII, Item I, Entry 86, as it is based on capital value; and not under Item II, Entry 49, and therefore it is not within the competence of the State Government.

(2) The right to tax on capital value is open only under Entry 86 and Entry 87 of Item I. and that method of valuation is not open regarding any other entry in List I, or List II, except Entry 48 which specifically mentions a duty on capital value.

(3) As the present tax is only on land and not on land and building, the tax would not fall under List II, Item 49.

(4) The power of the State Government to tax either on Entry 49 lands and buildings or Entry 45 land revenue can only be based on the share of the produce and must be related to the actual or imputed income,

(5) Under List II, Entry 49, the State cannot tax except for municipal purposes.

(6) The Act does not provide machinery or guidelines for determination of the market value and therefore violative of Articles 19 and 14 of the Constitution of India.

(7) The Act imposes unreasonable restrictions on the right to acquire, hold and dispose of property.

121. List I, Entry 86. Seventh Schedule is in the following terms:—

Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies. List II, Entry 49 is taxes on lands and buildings. Article 246 of the Constitution of India provides that Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule and the Parliament and the Legislature of any State have power to make laws with respect to any of the matters enumerated in List III, and subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule. The words “with respect to” occurring in Article 246 of the Constitution of India are expressed in very wide terms. The rule of interpretation of words in the Constitution conferring legislative power is that such words should be read in their ordinary, natural and grammatical meaning, and the most liberal construction should be put upon the words so that they may have effect in their widest amplitude. In AIR 1962 SC 1563, the Supreme Court reiterated the view expressed by it in Navinchandra Mafatlal, Bombay v. Commr. of Income-Tax, AIR 1955 SC 58 and AIR 1941 FC 16 and stated the position as follows:— (at page 1568):

“It is an elementary cardinal rule of Interpretation that the words used in the Constitution which confer legislative power must receive the most liberal construction and if they are words of wide amplitude, they must be interpreted so as to give effect to that amplitude. It would be out of place to put a narrow or restricted construction on words of wide amplitude in a Constitution. A general word used in an entry like the present one must be construed to extend to all ancillary or subsidiary matters which can fairly and reasonably be held to be included in it.”

122. But the rule of interpretation as to liberal construction is subject to certain exceptions. The Courts have given a restricted meaning to words when it was found to be necessary to avoid conflict between two entries. In 1939 FCR 18 : (AIR 1939 FC 1), the Federal Court held that the expression “duty of excise” was wide enough to include a tax on the sale of goods, but as power was expressly given to the Provincial Legislatures to impose such a tax, the expression “duty of excise” should be given a restricted meaning as a duty on the manufacture or production of goods. In 1959 SCR 379 : (AIR 1958 SC 560) it was held that the expression “sale of goods” was a term of well recognised legal import in the general law relating to the sale of goods and in the legislative practice relating to that topic and must be interpreted as having the same meaning as in the Sale of Goods Act, 1930. The principle that a liberal construction must be put on the legislative power is understood to carry with it all ancillary and subsidiary powers in aid of the main topic of legislation, and for the purpose of preventing evasion and to provide for punishment for breach of the provisions of law. In cases of conflict the doctrine of pith and substance is applied. In 1940 FCR 188 : (AIR 1941 FC 47), the Federal Court held that the Madras Agriculturists Relief Act, 1938 was not in pith and substance a law with respect to negotiable instruments or promissory notes, and the fact that the debts were in practice evidenced by negotiable instruments or promissory notes was an accidental circumstance which could not affect the validity of the enactment.

123. Reading Entry 49, List II in the Seventh Schedule, taxes on lands and buildings, in its ordinary, natural and grammatical meaning and giving it a liberal construction, it would include taxes both on income and the value of the land and building. The contention on behalf of the petitioners is that normally a tax could be levied on the income, and the provision enabling the Government to tax on capital value of the assets and the levy of an estate duty are specific provisions relating to tax on capital as opposed to tax on income, and the right to tax on the assets is not available to Parliament except under these two entries, and to the State under List II, Entry 48 which provides for levy of estate duty in respect of agricultural land. Learned counsel Sri V.K Thiruvenkatachari was unable to cite any authority in support of this submission. The right of the State to tax is beyond question. The entries in Lists I and II relating to taxation are for the purpose of avoiding conflict between the Parliament and the State Legislatures. The Parliament has residuary power to tax on any of the matters not enumerated in Lists II and in Article 39(c) of the Constitution of India, in Part IV Directive Principles of State Policy, requires the State to direct its policy towards securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The State is also required to direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. As a welfare State, the functions of the Parliament and the State Legislature include several schemes for improvement of the conditions of the people, and for achieving these objects, it is not only necessary that tax should be levied on income, but also on capital. There is nothing in any of the provisions of the Constitution to Indicate that the power to tax is confined only to income and not to capital, except under Entries 86 and 87 of List I. It is no doubt true that only Entry 86 in List I mentions taxes on the capital value of the assets and Entry 87 mentions estate duty in respect of property other than agricultural land. Estate duty is defined in Article 366 of the Constitution as meaning a duty to be assessed on or by reference to the principal value, ascertained in accordance with such rules as may be prescribed by or under laws made by Parliament or the Legislature of a State relating to the duty, of all property passing upon death. The contention that the power to tax capital is confined only to Parliament cannot also be accepted, for, under Entry 48, List II, the State is empowered to levy estate duty in respect of agricultural land which duty is based on the principal value of property passing upon death. Thus, the plea that a tax on capital is beyond the competence of the State Government cannot be accepted. In this connection Article 31(5)(b)(i) of the Constitution may be noted. It provides that the provisions as to payment of compensation under Article 31(2) will not affect the provisions of any law which the State may make for the purpose of imposing or levying any tax or penalty. The words “any tax” would indicate not only tax on income, but also tax on capital. In List II. several entries would indicate that the State can levy taxes on capital. In Entry 50, a tax can be levied on mineral rights. A tax on mineral rights would include a tax on capital. Entry 51 relates to duties of excise on certain goods and it must include a tax on capital. Entries 57 and 58 relate to taxes on vehicles including tramcars and taxes on animals and boats. It is significant that Entry 46 is taxes on agricultural income. If the Constitution intended that taxes on lands and buildings could only be on the income of lands and buildings, it would have specifically stated so as in the case of Entry 46. Giving a wider interpretation to the entries, a power to tax capital would also be available to the State. Reading Entry 86 in List I, and giving the words their natural and grammatical meaning, it appears that what is intended is to empower the Parliament to levy a tax on capital value of the assets of a person. The basis of the tax is the capital of the asset and is personal, whereas Entry 49 in List II is taxes on lands and buildings. The two entries relate to different powers. It may be that in computing the capital value of the assets of a person, the value of the land and the building may be taken Into account; but that does not mean that the State Government would not be entitled to levy a tax on capital that is on the value of the land and building. The tax under List I Entry 86 is on the person on his assets, whereas the tax in List II, Entry 49 is a tax on land and building. So construed, there is no question of the taxation under the Act trenching on any of the entries in List I.

124. In support of the contention that Entry 49 in List II taxes on lands and buildings, has been construed as income from land and building, several decisions were relied upon on behalf of the petitioners. In AIR 1940 Bom 65 it was held that the urban immovable property tax levied on buildings and lands by Section 22 forming part of Part 6 of the Bombay Finance Act, 1932 was not a tax on income or on capital value of lands and buildings, and the tax impugned was tax on lands and buildings. Beaumont, C.J held that the tax was within item 42 of the Provincial List, corresponding to Entry 49 of List II. The learned Judge observed that the levy of a tax at ten per cent on the rateable value upon the owner of particular lands and buildings is not a tax on income, as the charging section imposed tax on lands and buildings and not on income. The basis may be arbitrary and may be applied as well for ascertaining capital value, as for ascertaining income, and the fact that some concession is allowed to the small owner, cannot alter the nature of the tax. The tax is found to have been realised without any relation to the capital value except so far as such value can be ascertained by reference to rateable value. In (1949) 1 Mad LJ 213 : (AIR 1949 FC 81) the Punjab Urban Immovable Property Tax Act was questioned which levied an annual tax on lands and buildings. It was held that the tax was in pith and substance a tax on land and buildings covered by Item 42 of the Provincial List in the Government of India Act, 1935, corresponding to List II, Entry 49. In that case, though the annual value was used as the basis, the annual value was only notional and hypothetical income, and not the actual income. It was held that when a tax is levied on property, it will not be irrational to correlate it to the value of the property and to make some kind of annual value on the basis of the tax without intending to tax income. In the two cases cited, the tax on lands and buildings based on annual value was held to be not a tax on income, but a tax on lands and buildings. In AIR 1952 Bom 261 Chagla, C.J was of the view that as the Central Legislature could Impose a tax on the capitalised value of lands and buildings, the power of the Provincial Legislature is restricted to tax on lands and buildings without taking into consideration the capital value of lands and buildings. This view was dissented by Gajendragadkar, J. as he then was in AIR 1954 Bom 188. The learned Judge was of the view that even if the capital value of lands was taken into consideration by the Municipal Corporation for determining the amount of tax to be levied on the urban land, the tax does not become a tax on capital value of assets. In Vysya Raju Badri Narayanamurthy v. Commr. of Wealth Tax, ILR (1964) Cut 1 : (AIR 1964 Orissa 128), the Court took the view that Entry 86, dealt with the capitalised value of land whereas Entry 49, List II was not directly concerned with such value though it may be adopted for the purpose of taxation. The same view was taken by the Kerala High Court in Mammad Keyi… v. Wealth Tax Officer, Calicut…., ILR (1961) 2 Ker 368 : (AIR 1962 Ker 110) and by the Allahabad High Court in 1959 All LJ 754 : (AIR 1960 All 136) (FB). In AIR 1965 Mys 170 one of the learned Judges was of the view that the State under List II, Entry 49 can only impose a tax on buildings on the normal basis of the annual value based on the rent at which the building may reasonably be expected to be let and as in the impugned Act the intention of the State Legislature was to take a part of the wealth of the urban property owners in the State it would be a capital levy and as such unconstitutional. The Allahabad High Court in AIR 1960 All 136 (FB) dealing with the tax calculated on the annual value of the land held that the scope of Entry 49 is wide enough to include a capital levy on agricultural land and that the meaning of the word “assets” in Entry No. 86 should be restricted by excluding land, both agricultural as well as non-agricultural, from its ambit. In AIR 1962 SC 1563 the Court held that the legislation was valid as it fell under Entry 49, list II, which would include both agricultural and non-agricultural land. But the Supreme Court did not consider the question whether a tax on land would include a tax on capital value of such land as an asset.

125. Certain observations made by the Supreme Court in AIR 1963 SC 1742 were relied on by Sri V.K Thiruvenkatachari for his submission that Entry 49, taxes on lands and buildings, would not Include tax on capital the Court held that the rule permitting the fixation of the rate at a percentage of the capital value of the lands and not on their annual value was ultra vires, as the Act empowered the Municipality only to impose on lands and buildings a rate on lands and buildings, and the use of the word ‘rate’ must be given its due significance. Wanchoo, J. (as he then was) who delivered the judgment on behalf of the majority dealing with the amendment made in the Madras District Municipalities Act by the insertion of sub-section (3) in Section 81 of that Act which provided that “in case of lands which are not used exclusively for agricultural purposes and/or not occupied by, or adjacent and appurtenant to buildings” the property tax may be levied at such percentages of the capital value of such lands or at such rates with reference to the extent of such lands as may be fixed, observed that this amendment was an exception to Section 81(2) of the Act which provided generally for levying these taxes at such percentages of the annual value of lands and buildings as may be fixed by the Municipal Council. It was held that the explanation cannot be read as meaning a percentage of the capital value itself. The learned Judge refrained from expressing any opinion as to the legality of the Amendment after the Government of India Act, 1935 and the Constitution of India came into force. From this observation, it is contended that the question as to the validity of the levy of a tax on capital value of lands and buildings under Entry 49 is not valid. Delivering the minority judgment in the Gordhandas' case, Sarkar, J. expressed the view that the fact that the Bombay Act had provided for the tax being quantified on the basis of the capital value of the land taxed, did not take it out of Item 42 of List II and place it under Item 55 of List I (Item 86 of List I of the Constitution), as it was quite obvious that in providing the two items, the makers of the Government of India Act contemplated two different varieties of taxes.

126. As already stated, the Supreme Court was considering the rule of the Municipal Corporation of Ahmedabad which permitted fixation of rate at percentage on capital value of the land and not on their annual value. The Court held that the tax which the Municipality was competent to levy was an impost on lands and buildings and is a rate on lands. The Court dealt at length with the legislative history and practice in India relating to the levy of taxes on lands and buildings by Municipalities. After referring to several municipal enactments, the Court held that in India upto the time the Bombay Municipal Boroughs Act, 1925 was passed, the word “rate” had acquired the same meaning which it undoubtedly had in English legislative history and practice upto the year 1925, when the Rating and Valuation Act came to be passed consolidating the various rates prevalent in England. The Court held that when in 1925 the Act while specifying taxes which could be imposed by a municipal borough used the word ‘rate’ on buildings or lands situate within the municipal borough, the word ‘rate’ must have been used in that particular meaning which it had acquired in the legislative history and practice both in England and India before that date. The Court further observed that the matter might have been different if the words in cl. (i) of that section were “a tax on buildings or lands or both situate within the municipal borough”, for then the word “tax” would have a wide meaning and would not be confined to any special meaning. Thus, the decision was based entirely on the use of the word “rate” and the Court was of the view that if the words “a tax on buildings and lands” were used, the meaning would have been different.

127. List II, Entry 49 uses the words “taxes on lands and buildings”. It was submitted that these words had a legislative history and practice which would indicate that the words were used as meaning a tax on income from lands and buildings. Under the Scheduled Taxes Rules framed under Section 80-A(3)(a) of the Government of India Act, 1919, the Legislative Council of a province may, without the previous sanction of the Governor-General, make and take into consideration any law imposing, or authorising any local authority to impose, for the purpose of such local authority, any tax included in Schedule II to the Rules. In Schedule II, Item 2 is a tax on land or land values, and Item 3 is a tax on buildings. Item 11 related to a tax imposed in return for services rendered, such as (a) water rate, (b) lighting rate, (c) scavenging, sanitary or sewage rate, (d) drainage tax and (e) fees for the use of markets and other public conveniences. Under the same Rules, the Legislative Council of a province may, without the previous sanction of the Governor-General, make and take into consideration any law imposing, for the purposes of the local Government, any tax included in Schedule I of the Rules. Item 1 in Schedule I is a tax on land put to uses other than agriculture. Thus, while a tax on land put to uses other than agriculture may be used for the purpose of the local Government, taxes under Schedule II may be imposed for the purpose of the local authority. It may be noted that in the Local Board Act 5 of 1884, by Section 64, in computing land values, the annual value of the land was only taken. While the power of taxation in Item 1 in Schedule II may be confined to a tax based on annual value of the income, such restriction cannot be said to have been existed regarding tax on land put to uses other than agriculture in Item 1, Schedule I, which was for the purpose of the local Government. In the White Paper containing proposals for the Indian Constitutional reform, in the Provincial List, Item No. 12 is land revenue, including (a) assessment and collection of revenue and (b) maintenance of land records, survey for revenue purposes and records of rights. Item 67 of the Provincial List provided that for the purpose of provincial revenue, taxation may be imposed and collected from sources specified in the annexure appended to the list. In the annexure. Item No. 1 relates to revenue from the public domain, including lands, buildings, mines, forests, fisheries and any other real property belonging to the Province and Item (2) relates to revenue from public enterprises such as irrigation, electric power and water supply, markets, slaughter houses, drainage, tolls and ferries and other undertakings of the province. Item (7) relates to taxes on land, including death or succession duties in respect of succession to land. Item (8) is taxes on personal property and circumstance, such as taxes on houses, animals, hearths, windows, vehicles, chaukidari taxes, sumptuary taxes and taxes on trades, profession and calling. Item No. 11 relates to taxes on agricultural incomes. As already stated, Item (7) in the annexure is taxes on land, including death or succession duties in respect of succession to land and Item (8) relates to taxes on personal property such as houses, animals, etc. There is no indication that these taxes could be levied only on the revenue as indicated in items (1) and (2) of the annexure which relate to revenue from the public domain including lands, buildings, mines, etc. and revenue from public enterprises such as irrigation, electric power, etc. In the revised lists prepared by the Joint Select Committee of Parliament Item (37) in List I, relates to taxes on the capital and the income (other than the agricultural capital and income) of companies, and Item (49) is taxes on other incomes (other than agricultural income), but subject to the power of the Provinces to impose surcharges. In List II (Provincial), Item (12) is land revenue, including (a) assessment and collection of revenue; (b) maintenance of land records, survey for revenue purposes and records of rights and (c) alienation of land revenue. Item (8) to the annexure is taxes on lands and buildings, animals, boats, hearths and windows; sumptuary taxes and taxes on luxuries. Considering the various entries in the White Paper and in the revised lists prepared by the Joint Select Committee of Parliament, there is nothing to indicate that the power of the Provincial Government is confined only to tax income from lands and buildings and not on the capital value of lands and buildings.

128. When the Government of India Act, 1935 was passed, three lists, namely, Federal Legislative List, Provincial Legislative List and Concurrent Legislative List, were provided for under Section 100 of the Act. Section 100 of the Act corresponds to Article 246 of the Constitution of India. Entry (42) in List II of Government of India Act, 1935, is taxes on lands and buildings, hearths and windows, and Entry (55) in List I is taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies. When the Federal Legislative List, Provincial Legislative List and the Concurrent Legislative List were prepared for the Government of India Act, 1935, and the Union List, State List and the Concurrent List were made for the Constitution of India, there was no restriction placed on the power to levy tax on the income alone. The distinction which was kept up before the Government of India Act, 1935 and the Constitution between taxes for the purpose of local Government and the local authority, was given up. When taxes on lands and buildings were included in the Provincial Legislative List in the Government of India Act, 1935, and in the State List in the Constitution, whatever the previous history might have been before the Government of India Act, 1935, the restriction which was imposed for taxation for municipal purposes could no longer be read into the entries.

129. Mr. Vedantachari strenuously contended that the taxes on lands and buildings can only be for the benefit of the local authority, and the State cannot legislate under Entry 49, List II of the Constitution of India, except for purposes of the local authority. There is no support either in the Constitution or in any of the decided cases for this contention. Whatever might have been the position before the Government of India Act, 1935, it is now clear that the State can impose taxation for its benefit as well as for the benefits of municipalities, District Boards or Local Boards. Article 276 of the Constitution provides that no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority, in respect of professions trades, callings or employments shall be invalid on the ground that it relates to a tax on income. Taxes on professions, trades, callings and employments is Entry 60 in List II of the Constitution, and Article 276-A provides that taxation under these entries may be for the benefit of the State also. In AIR 1961 SC 652, the Supreme Court held that the Uttar Pradesh Sugarcane Cess Act, 1956 is not valid as the impost of the cess on the entry of sugarcane into the premises of a factory did not fall within Entry 52 of the State List. The tax was levied for the purpose of revenue to the State. Considering the legislative competence to tax under Entry 52 of the State List, namely, taxes on the entry of goods into a local area for consumption, use or sale therein, the Supreme Court observed that if the premises of the factory was a local area, the legislation was clearly within the competence of the State Legislature, and if it was not, the law was beyond the legislative competence of the State and must be struck down. The legislation was struck down on the ground that the premises of the factory would not be a local area coming within the entry. But the levy of a tax for entry of goods into a local area was held to be within the competence of the State Government. It is clear therefore that the tax levied by the State under list II, Entry 49 cannot only be for the benefit of the municipalities and local boards, but also for the benefit of the State. The entries in List II of the 1935 Act and the entries in the State List in the Constitution of India, should, therefore, have to be construed as empowering to tax not only for municipal purposes, but for securing revenue for State also. By the Government of India Act, 1935, the power of the Government to impose taxes whether on capital or income cannot be disputed. There is no basis for the contention that the entries relating to the State List relate to power of taxation with regard to income alone. Any such construction would go against the concept of a federal constitution. The Parliament and the State Legislatures have unlimited powers of taxation in respect of their respective lists subject to the fundamental rights. The legislative history cannot be of much assistance to the petitioners. In construing an entry in either of the lists, it may be permissible to look into the legislative history. But when the words are clear and explicit, it will not be permissible to import legislative history to discern the meaning of the entry. In AIR 1955 SC 58, the legislative history and practice was not accepted. In Navnit Lal v. Appellate Asst. Commr., of Income-tax, Bombay, AIR 1965 SC 1375, the Supreme Court declined to accept the traditional concept and held that loan to shareholder was income. In AIR 1965 SC 1387 the legislative history was held to be of no assistance and an individual was held to include a joint family. On a consideration of the authorities cited above, the plea of the petitioner that legislative history regarding the words “tax on lands and buildings” should be taken into account for giving a narrower meaning as comprising only tax on income from lands and buildings cannot be accepted.

130. It was next contended that as Entry (49) List II provides for taxes on lands and buildings, the impugned Madras Act 12 of 1966 which imposed tax on lands alone cannot be held to fall under the entry. It was submitted that when the legislature deliberately taxed only land and not building, the legislative power may be traced to list II, entry 45, and not to entry 49. In tracing the legislative history, it has been pointed out that in the Scheduled Taxes Rules, there were two entries in Schedule II, entry 2 being a tax on land or land values and entry 3 being a tax on buildings. In the Government of India Act, 1935, the entries are combined and List II, Entry 42 is taxes on lands and buildings, hearths and windows. Before the Government of India Act, 1935, lands and buildings were taxed separately and all that was done in the Government of India Act, 1935 and the Constitution was to combine the two entries relating to land and building into a single entry. This inference is supported by a reference to other entries also. In the Scheduled Taxes Rules, in Schedule II, Entry 4 is tax on vehicles or boats, and Entry 5 is a tax on animals. In the Government of India Act, 1935, Entry 47 in List II is taxes on animals and boats. Thus, in Entry 47, List II of the Government of India Act, 1935, the two items, viz. Entry 4 tax on vehicles or boats and Entry 5 tax on animals in List II, Scheduled Taxes Rules, were combined Into one. The legislative history does not lend any support to the plea of the petitioners that Entry 49, List II, of the Constitution relating to taxes on lands and buildings cannot be separated. The decided cases also do not lend any support to the contention of the petitioners. In A.K Gopalan v. State Of Madras., AIR 1950 SC 27 in construing the words “the circumstances under which, and the class or classes of cases in which” occurring in Article 22(7)(a) of the Constitution of India, the Supreme Court negatived the contention that both the conditions should be fulfilled before a person is detained. The Supreme Court held that by the clause, as worded, the legislature intended that the power of preventive detention beyond three months may be exercised either if the circumstances in which or the class or classes of cases in which, a person is suspected or apprehended to be doing the objectionable things mentioned in the section.

131. In AIR 1961 SC 552. It was contended that the State Legislature had power to legislate about forests under Entry 19 of the List and also as to lands under Entry 18. There is no power to Impose a tax on forests while there is power under Entry 49 of that list to tax land. It was therefore contended that there is no power to impose tax on lands on which forests stand. The Supreme Court held that ‘land’ in Entry 49 is intended to include land on which a forest Stands. The taxation in the case cited related only to land and did not include buildings. In AIR 1962 SC 1563 a tax was imposed by the Uttar Pradesh Government on land holdings under the Uttar Pradesh Large Land Holdings Tax Act, 1957. The Supreme Court held that the tax on land would include agricultural land. In AIR 1965 SC 177 the cess on land was held to fall under Entry 49 of the State List. In Ajoy Kumar Mukherjee v. Local Board Of Barpeta, AIR 1965 SC 1561, a tax on land used as a market was held to fall under Entry 49. In Commr. of Income-tax v. Alps Theatre, (1967) 2 ITJ SC 166 : (AIR 1967 SC 1437) it was held that building will not include land for taxing purposes. The authorities referred to above clearly established that the entry taxes on lands and buildings should be construed as taxes on lands and taxes on buildings.

132. Sit V.K Thiruvenkatachari submitted that the legislature has no power to levy two taxes on the same subject-matter under two laws, and even if it is held that the State is competent to impose two taxes, they should be linked together, and the effect of the combined operation of the two taxes must be made clear. It was submitted that if the municipality is permitted to levy a tax on the annual value of lands and buildings, and the State on the market value of the urban land, the result would be most unsatisfactory in that certain property may be subjected to unbearable tax burden. Learned counsel referred to the facts of the writ petitions and submitted that the combined effect of the taxation under the City Municipal Act and the Urban Land Tax Act would exhaust the entire income. The learned counsel was not able to cite any authority for the proposition that the State Government has no competence to levy two taxes on the same subject. When the State is competent to levy a tax, the question whether it is advisable to levy a second tax on the subject is for the legislature to decide, subject to the validity of the tax in relation to Articles 14 and 19 of the Constitution of India. Even if the consequences of the taxes lead to irregular and unsatisfactory nature of taxation, it is for the legislature to correct it, and not for the Courts to go into it. As long as the legislature has the competence, and the taxation does not offend the fundamental rights, the validity of the enactment cannot be impugned. In AIR 1967 Madh Pra 268, while holding that a tax imposed by the Corporation on lands and buildings and a tax imposed by the State Legislature can, validly co-exist, the Court observed that in the matter of double taxation by the State and Municipal bodies, a policy of forbearance, adjustment and co-ordinated action is no doubt necessary. The plea that the effect of both the taxes was confiscatory in nature was not gone Into because of the declaration of Emergency by the President under Article 352 of the Constitution of India. Sri V.K Thiruvenkatachari submitted that but for the declaration of Emergency, the Court would have declared that the effect of the double taxation is confiscatory in nature, and hence the enactment should be struck down. The decision does not support the contention of the petitioners that both the taxes cannot stand together, or that they should be levied by a co-ordinated action. Regarding the plea that it is confiscatory in nature, it will be considered in due course.

133. The urban land tax is a tax on the market value of the urban land. The learned Advocate-General in reply to a question by the Court made it clear that the tax is intended to be a tax on the market value of the urban land, irrespective of the income or the annual value. He did not attempt to support the tax as a tax on annual value or on the income from the urban land. Sri V.K Thiruvenkatachari submitted that the tax is not based on the income or annual value, as there is no machinery for determining the income or annual value of the urban land. Section 5 of the Act provides that there shall be levied and collected for every fasli year, a tax on each urban land from the owner of such urban land at the rate of 0.4 per centum of the market value of such urban land Section 6 provides that for the purposes of the Act, the market value of any urban land shall be estimated to be the price, the urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act. Section 7 among other particulars requires the owner of the urban land to furnish in the return the amount which in the opinion of the owner is the market value of the urban land. Section 10 empowers the Assistant Commissioner to determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. Section 10(2)(b) empowers the Assistant Commissioner to determine the market value after hearing such other evidence as he may require, when he does not accept the return furnished by the owner. Section 10(2)(c) empowers the Assistant Commissioner to determine the market value in case where the owner has failed to attend or produce evidence in pursuance of the notice under clause (a) of sub-section (2) of Section 10. Section 11 enables the Assistant Commissioner to determine the market value in cases where the owner of an urban land has failed to furnish the return under Section 7. Thus it will be seen that the tax is based only on the market value, and there is no procedure for determining the income or annual value of the urban land in the enactment. The only reference to income is found in Section 25 of the Act which reads thus:

“Notwithstanding anything contained in the Madras City Tenants' Protection Act, 1921 (Madras Act III of 1922), or in the Madras Buildings (Lease and Rent Control) Act, 1960 (Madras Act 18 of 1960), where in any case the amount of the urban land tax payable in respect of any land under this Act is in excess of one half of the amount of the annual rent payable in respect of such land or the building thereon under any of the said Acts, the Court, authority or officer empowered to fix the rent under any of the said Acts, may, on application from the owner, add to the annual rent aforesaid, an amount not exceeding the difference between the urban land tax payable under this Act and one half of the annual rent aforesaid.”

134. This section empowers the authorities, on the request of the owner, to enhance the rent, if the urban land tax levied on him exceeds six months rent from the land and building. Section 31 of the 1963 Act (Act 34 of 1963) provided for enhancement of the rent where the urban land tax payable was in excess of the annual rent payable in respect of such land or building. This Section is intended to cover certain classes of cases where the urban land tax is high in relation to the rent realised from the property. In the case of a building with extensive grounds around, as is the case in one of the writ petitions where the extent of land around the building is eighty grounds and the value of the ground is fixed at Rs. 10,000/- a ground, the rent realisable from the building will be low. Though originally, the enhancement of the rent was permissible under the old Act only in cases where the urban land tax levied was more than a year's rent, in the new Act, an increase in rent is allowed if the urban land tax exceeds six months' rent. This provision, in my view, does not disclose any intention on the part of the legislature to base the tax on the income. It has already been found that the State is competent to levy a tax on the market value of the land, and the tax is levied on the market value. It may be that the tax is recurring and may be a small percentage of the market value of the land. That does not make the tax as based on income. A recurring capital tax is usually of a very small percentage, and very often it is paid out of current income. Even when it is paid out of the income, the nature of the tax is not changed, and it remains to be a tax on market value. The urban land tax is a tax on land. There cannot be any real income from the land on which the building stands. Even from the lands appurtenant to the building, there is usually very little income, as they are used as approach for the building and for such other purposes. The intention of the legislature could not, therefore, have been to base the tax on the income. The legislature, as already pointed out has levied the tax on the market value, and if the tax is sought to be supported on any income basis it would run counter to the intention of the legislature. In AIR 1963 SC 1742 Wanchoo, J. as he then was, observed that if the law enjoins that the rate should be fixed on the annual value of lands and buildings, the municipality cannot fix it on the capital value, and then justify it on the ground that the same result could be arrived at by fixing a higher percentage as the rate in case it was fixed in the right way on the annual value. The learned Judge expressed his view that by fixing the rate otherwise at a percentage of the capital value directly, the real incidence of the levy is camouflaged, and the electorate not knowing the true incidence of the tax may possibly be subjected to such a heavy incidence as in some cases may amount to confiscatory taxation. The learned Advocate-General was, therefore, right in his statement that the tax is on the market value, and that he would not support it on the basis that it is a tax on income or annual value I am of the view that the tax cannot be supported on the basis of income or annual value as it would run counter to the mode of levy prescribed under the enactment. In fact, there cannot be any income from the land on which the building stands, and little income from the land appurtenant to the building. Further, the theory that the tax is on the basis of income cannot stand if the percentage of the tax is stepped up thereby exceeding the income from the land. The tax cannot be supported as a levy on the income.

135. The attack made against Act 12 of 1966 is that there is no guidance given and requisite machinery provided for determining the market value, as was given in the previous enactment relating to fixation of the market value, and therefore the Act should be struck down. While Madras Act 34 of 1963 provided for the determination of the average market value in the zone, the present enactment, Act 12 of 1966, has changed the procedure. While determining the average market value under the 1963 Act, the Assistant Commissioner, under Section 6(2) of the Act shall have regard to (a) the locality in which the urban land is situated; (b) the predominant use to which the urban land is put, that is to say, industrial, commercial or residential; (c) accessibility or proximity to market, dispensary, hospital railway station, educational institution, or Government offices; (d) availability of civic amenities like water supply, drainage and lighting; and (e) such other matters as may be prescribed. Rule 4 of the Madras Urban Land Tax Rules, 1963 provided that in determining the market value of the land, the Assistant Commissioner shall, in addition to the matter specified in clauses (a) to (d) of sub-section (2) of Section 6, have regard to (a) the prices for which lands have been bought and sold in the zone or sub-zone making due allowances for the special features, if any, in any individual transaction; (b) the rents fetched for the use and occupation of the lands in the zone or sub-zone; (c) the principles generally adopted in valuing lands under the Land Acquisition Act, 1894 and (d) the compensation awarded in recent land acquisition proceedings after deducting the solatium, if any, for compulsory acquisition. As the fixing of the average market value in the zone and imposing a tax on the land in the zone were struct down by this Court, in the impugned Act, a different method of fixing the tax is resorted to.

136. It is submitted by Sri V.K Thiruvenkatachari, the learned counsel for the petitioners, that the guidance given in the 1963 Act has been dispensed with and the authority is not bound to take into account amongst others such matters as sale price of like sites, the rent fetched for use and occupation of the land, the principles generally adopted in valuing lands under the Land Acquisition Act and the compensation awarded in recent land acquisition proceedings. The compensation awarded in land acquisition proceedings other than by Court is not recognised under the new Act. This plea cannot be accepted, as all these materials will be considered in assessing the market value by a different procedure, that Is, by requiring the assessee to file a return and the officer determining the market value after giving due notice and hearing the persons concerned. If several methods are available to the legislature for determining the tax, they are at liberty to adopt any one of the methods, provided it is not capricious, fanciful, arbitrary or clearly unjust. In Khandige Sham Bhat v. Agricultural Income-tax Officer, AIR 1963 SC 591, the Supreme Court was considering the mode of ascertaining the average annual income for the purpose of finding the rate for imposing the tax. The Court on the facts found that primarily there was some force in the contention that the treatment meted out to the aggrieved party in the matter of the rate of tax was unjust. But the Court ruled that it cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests, and where there is more than one method of assessing tax and the legislature selects one out of them, the Court will not be justified to strike down the law on the ground that the legislature should have adopted another method which, in the opinion of the Court, is more reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust. The Court also expressed its view that the advantages or disadvantages to individual assessees are accidental and inevitable and are inherent in every taxing statute as it has to draw a line somewhere and some cases necessarily fall on the other side of the line.

137. The procedure prescribed for determination of the market value and assessment of urban land tax is given in Chapter III of the Act the tax is to be levied on the estimated price which in the opinion of the Assistant Commissioner it would fetch in the open market. This opinion is not subjective but should be formed according to the procedure laid down in Section 7 to Section 11 of the Act. Instead of the Assistant Commissioner classifying the urban land and determining the market value in a zone, the present Act requires a return to be submitted by the owner mentioning the amount which, in the opinion of the owner, is the market value of the urban land. On receipt of the return, if the Assistant Commissioner is satisfied that the particulars mentioned are correct and complete, he can determine the market value as given by the owner of the land. If he is not satisfied with the return, he shall serve a notice to the owner asking him to attend his office with the relevant evidence in support of his return after hearing the owner and considering the evidence produced, the Assistant Commissioner may determine the market value. In case, the owner failed to attend or failed to produce the evidence, the Assistant Commissioner is to assess the market value on the basis of an enquiry made by him. Section 11 prescribes the procedure for determining the market value when the owner fails to furnish a return as required under Section 7. The section requires the Assistant Commissioner to serve a notice on the owner specifying amongst other things the amount, which in the opinion of the Assistant Commissioner, is the correct market value and direct the owner to attend in person at his office on a date specified in the notice or to produce any evidence on which the owner may rely. After hearing such evidence as the owner may produce and considering such other evidence as may be required, the Assistant Commissioner may fix the market value. Provision is also made for the Assistant Commissioner to fix the market value in case where the owner has failed to attend or to produce evidence. Thus the formation of the opinion of the officer regarding the market value is judicial in nature that is after giving notice to the person concerned and giving a hearing to him. Section 20 provides for an appeal by the assessee objecting to the determination of the market value made by the Assistant Commissioner to a Tribunal within thirty days from the date of the receipt of the copy of the order. The Act requires that the Tribunal shall consist of one person only who shall be a judicial officer not below the rank of a Subordinate Judge. Chapter V provides for survey of urban land. By Section 30, the Board of Revenue is empowered either on its own motion or on application made by the assessee in this behalf, to call for and examine the records of any proceeding under the Act (not being a proceeding in respect of which an appeal lies to the Tribunal under Section 20) to satisfy itself as to the regularity of such proceeding or the correctness, legality or propriety of any decision or order passed therein, and if it appears to the Board of Revenue that any such decision or order should be modified, annulled, reversed or remitted for reconsideration, it may pass orders accordingly. Section 32 enables the urban land tax officer, or the Assistant Commissioner, or the Board of Revenue or the Tribunal to rectify any error apparent on the face of the record at any time within three years from the date of any order passed by him or it. Thus, the Act envisages a detailed procedure regarding submission of returns, making of an assessment after hearing objections and a right to appeal to higher authority. The same procedure is adopted in many taxing statutes.

138. It is now well settled that tax laws are subject to fundamental rights under Articles 14 and 19 of the Constitution of India. But due to the inherent complexity of fiscal adjustment of diverse elements, a larger discretion to the Legislature in the matter of classification is permitted. The power of the Legislature to classify is of wide range and flexibility, so that it can adjust its system of taxation in all proper and reasonable ways. That the taxing statutes are subject to the constitutional limitations under Articles 14 and 19 or the test of reasonableness laid down in Article 304(b) has been held in Ramkrishna Das… v. State Of Bihar, AIR 1963 SC 1667. The Court held that if the taxing statute fails to provide procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In AIR 1961 SC 552 it was held that in order that the law may be valid, the tax proposed to be levied must be within the legislative competence of the legislature imposing a tax and authorising the collection thereof and, secondly, the tax must be subject to the conditions laid down in Article 13 of the Constitution of India. Referring to Section 5-A of the impugned Act which provides that it shall be competent for the Government to make a provisional assessment on the basis of tax payable by a person in respect of the lands held by him and which have not been surveyed by the Government and upon such assessment such person shall be liable to pay the amount covered in the provisional assessment, the Supreme Court held that the Act being silent as to the machinery and procedure to be followed in making the assessment and leaves it to the executive to evolve the requisite machinery and procedure, the provisions cannot be held to be valid. The Supreme Court observed: (at page 559)

“Ordinarily, a taxing statute lays down a regular machinery for making assessment of the tax proposed to be imposed by the statute. It lays down detailed procedure as to notice to the proposed assessee to make a return in respect of property proposed to be taxed, prescribes the authority and the procedure for hearing any objections to the liability for taxation or as to the extent of the tax proposed to be levied, and finally, as to the right to challenge the regularity of assessment made, by recourse to proceedings in a higher Civil Court…………… Again, the Act does not impose an obligation on the Government to undertake survey proceedings within any prescribed or ascertainable period, with the result that a land-holder may be subjected to repeated annual provisional assessments on more or less conjectural basis and liable to pay the tax thus assessed.”

139. The Court further held:

“The Act thus proposes to impose a liability on land-holders to pay a tax which is not to be levied on a judicial basis, because (1) the procedure to be adopted does not require a notice to be given to the proposed assessee; (2) there is no procedure for rectification of mistakes committed by the assessing authority; (3) there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law, as is generally found in all taxing statutes, and (4) no duty is cast upon the assessing authority to act judicially in the matter of assessment proceedings. Nor is there any right of appeal provided to such assessees as may feel aggrieved by the order of assessment.”

140. In AIR 1962 SC 1563, the Court held that if a taxing statute makes no specific provision about the machinery to recover tax and the procedure to make the assessment of the tax and leaves it entirely to the executive to devise such machinery as it thinks fit and to prescribe such procedure as appears to it to be fair, the Court may come to the conclusion that the tax is an unreasonable restriction within the meaning of Article 19(5) of the Constitution of India. In AIR 1963 SC 1667, the position is stated thus: (at page 1673).

“Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery, for assessment and levy of the tax or that it is confiscatory. Courts would be justified in striking down the impugned statute as unconstitutional.”

141. In Gopal Narain v. State of Uttar Pradesh, AIR 1964 SC 370, where the Act conferred on a municipality, a power to levy a tax on persons or class of persons to be made liable, and the said rate to be imposed on the persons or class of persons is ascertained by a quasi-judicial procedure after giving an opportunity to the parties affected subject to revision by the State Government, it was held that the power conferred upon the municipal board was not arbitrary offending Article 14 of the Constitution. The Act provided a quasi-judicial procedure in selecting the person liable to pay tax. The Municipal Board was required to make a proposal specifying the tax, the rate and the persons or the class of persons liable to pay the tax and such other details prescribed thereunder. Then the Board was required to publish in the manner prescribed, and the inhabitant of the municipality was given a right to submit his objections and thereafter the board was to consider the objections and pass orders thereon by special resolution. After final orders by the Board, the proposals along with the objections were to be submitted to the prescribed authority, and the prescribed authority would then submit the proposals and the objections to the State Government, which will make the final orders. Finally, the State Government was required to make rules having regard to the draft rules submitted by the Board, and when the rules were sanctioned by the State Government, they were to be sent to the Board and thereupon the Board by special resolution was empowered to direct the imposition of the tax with effect from a date specified in the resolution. The procedure thus prescribed for fixing the rate to be levied on the persons or class of persons liable to pay the same had reasonable relation to the subjects taxable under the Act, and the rate to be imposed and the persons or the class of persons liable to pay the same are ascertained by a quasi-judicial procedure after giving opportunity to the parties affected, subject to revision by the State Government. It may be noted that there is no provision for reference to superior Civil Court or the High Court.

142. The procedure and the requisite machinery for fixing the market value is embodied in several other enactments. In the Wealth-tax Act, 1957, Section 7 provides that the value of any asset for the purposes of the Act shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market, on the valuation date; this opinion of the price should be formed in the manner prescribed in Chapter IV of the Act. Section 14 requires a person liable to tax to furnish to the Wealth-tax Officer a return in the prescribed form. Section 16 empowers the Wealth-tax Officer to assess the net wealth of the assessee on the return furnished by the person. Sub-section (2) provides that if the Officer is not satisfied, he shall serve a notice on the assessee either to attend in person at his office on a date to be specified in the notice or to produce on that date any evidence on which the assessee may rely in support of his return. Sub-section (3) provides that after hearing the evidence produced, the officer may assess the net wealth of the assessee. Sub-section (5) empowers the officer to estimate the net wealth and the amount of Wealth-tax payable by the person in case he fails to make a return in response to the notice issued. The opinion of the officer regarding the value is after notice and hearing the parties and (Sic) (are) judicial in nature. An appeal is provided to the Appellate Assistant Commissioner against the assessment order. A further appeal is provided to the Appellate Tribunal from the orders of the Appellate Assistant Commissioner. The Commissioner is empowered to direct the Wealth-tax Officer to appeal to the Appellate Tribunal against orders of the Appellate Assistant Commissioner, if he is not satisfied as to the correctness of any such orders passed. Section 27 provides for a reference to the High Court on questions of law, arising out of any order of the Appellate Tribunal. Thus, apart from the provision for making a reference to the High Court on questions of law, the procedure is more or less similar as in the impugned Act. In the Gift-tax Act (Act XVIII of 1958) the same procedure as to submission of returns and the assessment by the Gift-Tax Officer is provided for. There is a provision for appeal to the Appellate Assistant Commissioner and a further Appeal to the Appellate Tribunal. There is also a provision for reference to the High Court.

143. In the Estate Duty Act, 1953 (Act 34 of 1953), more or less the same procedure is followed. Section 36 provides that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death; this opinion about the price will have to be formed by the procedure prescribed under the Act Section 53 enumerates the persons who shall be accountable for the whole of the estate duty on the property passing on the death of a deceased. After the receipt of the account as provided for, the Controller is empowered to make a provisional assessment. Under Section 58 of the Act, if the Controller is satisfied without requiring the presence of the person accountable that an account delivered under Section 53 or Section 56 is correct and complete, he shall assess the principal value of the estate of the deceased and shall determine the amount payable as estate duty. If he is not satisfied, he is required to serve a notice on the person accountable either to attend in person at his office on a date to be specified in the notice, or to produce or cause to be produced on that date, any evidence on which the person accountable may rely in support of his account. After hearing such evidence, the Controller may assess the principal value of the estate of the deceased and determine the amount payable as estate duty. Section 58(4) provides that when no account is produced or the person accountable fails to comply with the terms of the notice served under sub-section (2), the Controller shall make the assessment to the best of his judgment and determine the amount payable as estate duty. An appeal against the orders of the Controller is provided under Section 62 of the Act to the Appellate Controller, and a second appeal is provided to the Appellate Tribunal. Under Section 64, the person accountable may present an application to the Appellate Tribunal requiring the Tribunal to refer to the High Court any question of law arising out of such order.

144. In the Madras Agricultural Income-tax Act, 1955 (Madras Act V of 1955), provision is made for submission of return of income, and the assessment of tax on such return. Under Section 17 of the Act, if the Agricultural Income-tax Officer is satisfied that a return made under Section 16 is correct and complete, he shall assess the total agricultural income of the assessee and determine the sum payable by him on the basis of the return. If the officer is not satisfied with the correctness of the return, he shall serve a notice on the person to attend his office or to produce any evidence on which such person may rely in support of the return. After hearing the person and considering the evidence, the officer may proceed to assess the total agricultural income of the assessee and determine the sum payable by him on the basis of such assessment. Under Section 17(4), if any person fails to make a return under sub-section (2) of Section 16, or fails to comply with all the terms of a notice issued under sub-section (4) of that section, the officer may proceed to make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment. An appeal is provided to the Appellate Tribunal consisting of one but not more than three members, provided that at least one member of the Tribunal shall be a Judicial Officer not below the rank of a District Judge. The Act also provides a right to the assessee to prefer an application to the High Court against the order on the ground that the Appellate Tribunal or the Commissioner has decided erroneously or failed to decide any question of law. Thus, it will be seen that except the provision for reference to the High Court, the procedure for the formation of the opinion of the officer regarding the value and the levy of tax in the Wealth Tax Act, Gift Tax Act and the Estate Duty Act and procedure for assessment of the tax under the Madras Agricultural Income-tax Act, is the same as in the impugned Act.

145. In the Land Acquisition Act, 1894, a slightly different procedure is adopted. The Collector under Section 9(2) of the Act gives notices to persons interested in the land to appear and state the nature of their respective interests in the land and the amount and particulars of their claims to compensation for such interests, and their objections, if any, to the measurements under Section 8. The Collector after enquiry and after hearing the objections of persons interested in the land is empowered to make an award determining the true area of the land, the compensation which should be awarded for the land and the apportionment of the said compensation among all the persons interested in the land. The award of the Collector shall be final subject to a reference to a Court which the Collector is required to make on the written application of the person interested objecting to the measurement of the land, the amount of compensation, the persons to whom it is payable, or the apportionment of the compensation among the persons interested. No doubt, in the Land Acquisition Act the compensation is to be determined by a Court. The failure to provide for reference to Court, in my view, will not vitiate a taxing statute when provision is made for an appeal to a Tribunal which is presided by a Subordinate Judge.

146. In considering the validity of Section 5-A of the Travancore-Cochin Land Tax Act, 1955 which enabled the Government to make a provisional assessment of the basic tax payable without any procedure, the Supreme Court in the Moopil Nair's case, AIR 1961 SC 552 stated supra, observed that the Act was silent as to the machinery and procedure to be followed in making the assessment leaving it to the executive to evolve the requisite machinery and procedure. The section did not make any provision for giving any notice before making assessment. In that context, the Supreme Court pointed out that the levy by the Act was not on a judicial basis because the usual procedure in taxing statutes has not been followed. The observation of the Supreme Court “that there is no procedure prescribed for obtaining the opinion of a superior Civil Court on questions of law as is generally found in all taxing statutes” makes it clear that the Supreme Court did not intend to state that the absence of such a procedure for reference to a superior Civil Court would invalidate a taxing statute. What is necessary to validate a taxing statute as pointed out by the Supreme Court is, detailed procedure as to notice to the proposed assessee, submission of returns, assessment after hearing parties and provision as to appeal. This position is made clear in the latter decision of the Supreme Court in AIR 1962 SC 1563 where what was insisted upon in a taxing statute is specific provision about the machinery to recover tax and the procedure to make the assessment of the tax without leaving it entirely to the executive to devise such machinery as appears to it to be fair. In AIR 1964 SC 370, the Supreme Court observed that fixing of the rate to be imposed, and the persons or class of persons liable to pay the tax ascertained after quasi-judicial procedure after giving opportunity to parties subject to revision by the State is valid, though no reference to superior Civil Court or High Court is provided. Considering all these decisions, I am of the view that the impugned Act fulfils all the requirements specified by the Supreme Court. The fact that no provision for reference to superior Civil Court or the High Court is provided for against levy of taxes in Madras Acts like the District Municipalities Act, the Madras Panchayats Act, the Madras Motor Vehicles Taxation Act, the Madras Sales of Motor Spirits Taxation Act makes it clear that absence of such provision would not invalidate the enactment. I am unable to subscribe to the view that the failure to provide a procedure for obtaining the opinion of a superior Civil Court on questions of law, or to make provision for making a reference to the High Court will invalidate the statute. In fact, the learned counsel appearing for the petitioners did not contend that absence of such procedure would invalidate the taxing statute. There is ample quasi-judicial procedure provided for in the impugned Act. The Act provides that a Subordinate Judge should be the Tribunal. Sufficient opportunity to the assessees to present their cases and judicial determination along with a right of appeal to a judicial authority and a revision to the Board of Revenue are provided for. If there is any error apparent on the face of the record, or failure to follow the procedure laid down in the enactment, or when extraneous and irrelevant materials are taken into account in arriving at the market value, the assessee can always move the High Court for exercise of its jurisdiction under Article 226 of the Constitution of India.

147. The contention of Sri V.K Thiruvenkatachari that as the new enactment does not provide for determination of the market value as found in Section 6 of the 1963 Act, and the rules made thereunder, the charging section should be struck down cannot be accepted. As already pointed out, the machinery for assessment has been changed. Instead of the Assistant Commissioner fixing up the market value for the zone, in the new Act provision is made for a person to submit a return regarding the market value of the urban land, and for the determination of the market value by the officer after hearing the person concerned and giving him an opportunity to produce the documents in support of his case. The officer is bound to take into account all relevant materials in fixing the market value. This method has been adopted in various taxing statutes, and the validity of such a machinery has not been questioned. In a recent decision of the Supreme Court in AIR 1967 SC 595, the Court held that Section 7 of the Wealth Tax Act was intended to provide machinery for determination of the value of assets. Section 7 of the Wealth Tax Act is in the following terms:

“Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth Tax Officer it would fetch if sold in the open market on the valuation date.’

148. The section that is under attack in the impugned Act, that is Section 6, is more or less on the same lines, and it provides that the market value shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of this Act. Though Section 7(1) of the Wealth Tax Act provides that the value of any asset shall be estimated subject to the rules made on this behalf and Section 46(1) of the Act empowers the Board to make rules for carrying out the purposes of the Act, and Section 46(2) of the Act provides that in particular, and without prejudice to the generality of the power under sub-section (1), rules made under the sub-section may provide for the manner in which the market value of any asset may be determined in the Wealth Tax Rules made under Section 46 of the Act, no provision is made for determining the value of the asset from landed properties. The Rules relate to the valuation of interest in partnership or association of persons, determination of the net value of assets of business as a whole, adjustments in the value of an asset not disclosed in the balance sheet, etc. The Supreme Court has held that machinery is provided under Section 7 of the Wealth Tax Act for determination of the value of the property. The wording of Section 6 of the Madras Urban Land Tax Act, 1966 is more or less the same. Though provision is made for framing rules, no rules have been framed under the Wealth Tax Act for determination of the market value of the landed property. So also, no rules have been framed under the Madras Urban Land Tax Act. The observation of the Supreme Court in the Standard Mills case, AIR 1967 SC 595 is equally applicable to Section 6 of the Act, and its validity cannot be questioned on the ground that the opinion of the officer as to the value is subjective or that no adequate machinery is provided for the determination of the market value.

149. In Gift Tax Officer v. Kastur Chand, AIR 1965 Cal 70 construing the duty of the Gift Tax Officer to form an opinion and to make an estimate of the value of the property gifted, the Court observed that the valuation is an Art. and not a precise science, and that his opinion is a judicial opinion. It is not final, it is justiciable, it is liable to be tested on appeal to the Appellate Assistant Commissioner. Thus the provision as to formation of an opinion and making an estimate of the value of the property by the officer is recognised in the Gift Tax Act.

150. It was submitted that forming an opinion as to the market value of the urban land in the absence of clear and specific rule is almost impossible and the entrustment of this duty to the officer cannot be held to be valid. It was submitted that there is no provision for making allowances for encumbrances that might have been on the land, the impact of the various legislative enactments such as Madras Buildings (Lease and Rent Control) Act, the Fair Rent Act and the tax levied by the Municipal Corporation. As the machinery provided for the determination of the market value of the land is by requiring the person to submit a return and the scrutinising of it by the officer after giving a notice and an opportunity to the person concerned, it is not necessary to enumerate the various items that are to be taken for forming the opinion as to the market value. The person concerned is entitled to rely on the impact of the various enactments while submitting his return, and the officer is bound to take that into consideration. It is difficult to form an opinion as to the market value of any urban land, and much more so in the case of a land on which a building is standing, and this is perhaps the reason why the legislature refrained from framing any rules for forming an opinion as to the market value; but had recourse to the method of asking for the return from the person concerned and arriving at an estimate on the basis of that figure. The difficulty in valuing urban land has been felt. The value of land would depend upon very many things, such as situation, size, shape, frontage and depth, return frontages, width of roadway, vistas and nature of the soil and tanks. It is impossible to lay down hard and fast rules for valuing a site in an urban area. Several factors such as whether the plot is north-facing or south-facing or whether there is open space or park adjoining the site which would secure an unobstructed flow of air and light, would alter the value of the site. If rules are framed for ascertaining the value of the site, it would be indefinite, leading to prolonged litigations and disputes. This is the reason why in the Land Acquisition Act the legislature purposely refrained from defining the word ‘market value’. Further, the procedure for determining the market value has been time and again laid down by the Courts in the country affording guide lines for arriving at the market value. The authorities who are directed to form an opinion as to the market value are bound to take into consideration the guide lines afforded by judicial decisions. The valuation of land on which the building is constructed is more difficult, and its market value cannot be determined with accuracy. In this connection, a suggestion made by Sri V.K Thiruvenkatachari, the learned counsel for the petitioners, is worth mentioning. He submitted that if the purpose of the Act was to raise revenue by taxation, the legislature might have levied a surcharge on the property tax levied by the Corporation and thus avoided the difficulty in determining the market value of urban land and the expenses incurred in the administration of the Act. The learned counsel may be right in his submission. It may be that the State has embarked on a difficult task of valuing urban land. Whether it is advisable to resort to urban land tax or to levy a surcharge on the property tax is for the legislature to decide. So long as the legislature is competent to impose a levy on the market value of the urban land, however difficult the process of ascertaining the market value may be the Act imposing the tax cannot be struck down. The petitioners also cannot plead that in the absence of rules, the market value cannot be satisfactorily determined. Urban land is defined as any land which is used or is capable of being used as a building site and includes garden or grounds, if any, appurtenant to a building, but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops. The explanation to the definition provides that any site on which any building has been constructed shall be determined to be urban land. For determining the market value of the urban land, the value of the land on which the building has been constructed will also have to be taken into account.

151. Section 23 of the Land Acquisition Act provides that in determining the amount of compensation to be awarded for land acquired under the Act, the Court shall take into consideration the market value of the land at the date of the publication of the notification under Section 4, sub-section (1). Neither in the Act nor in the rules it is provided as to how the market value has to be determined. When the land and the building belong to different persons, the land, even though on which the building is constructed, has to be valued and is being valued under the Land Acquisition Act. The term market value is not defined in the Land Acquisition Act. The difficulty. In defining ‘market value’ was felt by the Select Committee which observed:

“The section as drafted in the bill, contained a definition of market-value to which exception has been widely taken as inapplicable to any part of the country, and when applicable, open to such objection.”

152. The Select Committee was of the view that the price which a willing vendor might be expected to obtain in the market from a willing purchaser, should be left for the decision primarily of the Collector and, ultimately of the Court. The report of the Joint Select Committee stated further:

“We have again considered the question of definition of the term “market-value but we adhere to the opinion of our Preliminary report that it is preferable to leave the term undefined. No material difficulty has arisen in the interpretation of it; the decisions of the several High Courts are at one in giving it a reasonable meaning of ‘the price a willing buyer would give to a willing seller’ but the introduction of a specific definition would sow the field for a fresh harvest of decisions, and no definition could lay down for universal guidance in the widest divergent conditions of India any further rule by which that price should be ascertained.”

153. In considering the market value, it is well settled that there need not be evidence of the existence of specified purchasers. It may be that there is no market for the property and that the only imaginary bidder will be the officer acquiring the property. Even then, the market value will have to be determined. The Courts have evolved a method of valuing land for which there is no market. Even easementary rights, the right to light and air have been valued.

154. In the Madras Court-fees and Suits Valuation Act, 1955, Section 7(g) provides that where the land is a house-site whether assessed to full revenue or not, poramboke land, or is land not falling within the descriptions (a) to (f), its market value should be taken as the basis for the purpose of Court-fee. There is no guidance in the Act for determination of the market value. It is often not possible to determine the market value with any degree of accuracy, and it may vary according to the persons valuing it. Several methods for determining the market value will have to be adopted in arriving at as correct a valuation as possible. But the difficulties in arriving at the market value will not make a provision imposing tax on the market value, unsustainable in law.

155. It was suggested that the wording of Section 6 is such that it cannot be given effect to. The market value of the urban land is required to be estimated as the price which in the opinion of the Assistant Commissioner or the Tribunal, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act. The suggestion was that the urban land on which a building has been constructed would not fetch any price, if sold in the open market. Section 7 of the Wealth Tax Act provides that the value of any asset may be estimated to be the price which in the opinion of the Wealth Tax Officer it would fetch if sold in the open market on the valuation date. The wordings in both the sections in the two enactments are similar. Merely because the property could not have a market in that the land on which the building stands, cannot be sold separately would not make it impossible to determine the market value. The fiction by which site on which building has been constructed is deemed to be an urban land will have to be kept up for determining the value it would fetch in the open market. In administering the Land Acquisition Act and in disputes between the owners of the superstructure and the site the value of the site on which a building has been constructed is valued by courts. In arriving at the valuation of the site on which a building exists, the locality in which the site is situated would be material. The value of the same superstructure standing on the same extent of land in the suburban area and in the centre of the city would greatly vary, as the demand for the building in the centre of the city is higher. The value of the land in the centre of the city will, therefore, be higher. Though it cannot be said that there is market for the land on which the building is constructed, the market value has been arrived at by following various principles laid down by Courts. It may be that the market value that is arrived at may not be accurate and be a “scientific guess”, but such kind of valuation has been approved by Courts. In Commr. of Income-tax v. Alps Theatre, (1967) 2 ITJ 166 : (AIR 1967 SC 1437) the question arose whether the value of the land on which the building stands should be excluded in computing depreciation. The Supreme Court held that in computing the depreciation on the value of the building, the value of the site on which the building stands should be excluded. The Court held that if it is a first class substantial building, the rate is less, while it will be higher in the case of a third class building, and that it would be difficult to appreciate why the land under a third class building should depreciate three times quicker than land under a first class building. It was held that land does not depreciate and if depreciation was allowed, it would give a wrong picture of the true income. The Court accepted the value of the land on which the building stood and held that no depreciation was allowable on the cost of the land. The decision is an authority for the proposition that the land on which a building stands can be valued. In answer to a specific question by the Court, Sri V.K Thiruvenkatachari, learned counsel for the petitioners admitted that it is possible to value the land on which building has been constructed. The objection to the validity of Section 6 on the ground that it is not possible to determine the market value according to the Section, and as such, the section should be struck down, is, in my view, not valid.

156. Sri V.K Thiruvenkatachari submitted that the Act should be struck down as an unreasonable restriction on the right to acquire, hold and dispose of property, and as such violative of Article 19 of the Constitution of India. He submitted that the aim of the legislation was to rationalise the scheme of taxation of land in urban areas so as to secure a return commensurate with the pronounced increase in land values in recent years. It was pointed out by the learned counsel that in many cases, the person who derived the advantage of such a rise in prices is not taxed, but the purchaser for full value becomes the target of the tax, as a purchaser of the property. Learned counsel drew attention to certain cases in which there were extensive lands around a small building, and because of the urban land tax, the owner of the building had been left without any income at all. In a particular case, it was pointed out, a building with eighty grounds of land around was leased out for a very small sum and the tax was more than the income; and under the Madras Buildings (Lease and Rent Control) Act, the owner is not at liberty to take possession of any portion of the land and to sell it. The circumstances pointed out by the learned counsel do not in any way affect the competency of the legislature to tax the land. The particular case mentioned by the learned counsel may be a hard one, and the applicability of the Madras Buildings (Lease and Rent Control) Act works considerable hardship. It may be a fit case for the Government to exempt such property from the application of the Madras Buildings (Lease and Rent Control) Act by taking appropriate steps. But these circumstances cannot be relied on for contending that the enactment (Madras Act 12 of 1966) is in violation of Article 19 of the Constitution of India. It has been held that the constitutionality of a taxing law can be challenged as an unreasonable restriction upon the fundamental rights guaranteed by Article 19(1)(f) or 19(1)(g). In the Moopil Nair's case, AIR 1961 SC 552 stated supra, it was held that the impugned Act was in effect confiscatory in nature. In AIR 1962 SC 123 the Supreme Court held: (at page 128).

“A combined and plain reading of the said provisions (of the Constitution) makes it abundantly clear that a law which is inconsistent with any of the provisions of Part III is void. It cannot be denied that a law providing for levy and collection of taxes is a law within the meaning of Part III of the Constitution, and therefore it must stand the test laid down by Article 13 of the Constitution. The law in Article 265 of the Constitution must be a valid law. A law to be valid must not only be one passed by the Legislature in exercise of a power conferred on it, but must also be one that does not infringe the fundamental rights declared by the Constitution.”

157. It is not for the Courts to embark on an enquiry whether a tax imposed by a statute is unreasonably high and whether it should be fixed at a lower level. In AIR 1962 SC 1563 the Supreme Court held that a challenge to a taxing statute on the ground of colourable exercise of legislative power cannot succeed by merely showing that the tax is unreasonably high or excessive. In AIR 1963 SC 1667, the Supreme Court observed: (at page 1673).

“The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Article 19, Courts would naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional.”

158. As I am of the view that the tax is based on the market value and not on the income or annual value of the urban land, 0.4 per centum of such market value cannot be said to be unreasonably high or expropriatary in character. This contention that the Act is invalid as expropriatary in character has to be rejected.

159. The impugned Act provides for retrospective operation of the Act. It provides that except Sections 19, 47 and 48, other sections shall be deemed to have come into force in the City of Madras on the 1st day of July 1963 and Sections 19 and 47 shall be deemed to have come into force in the City of Madras on the 21st May, 1966. It also provides that Section 48 shall come into force on the date of the publication of the Act in the Fort St. George Gazette. Section 6 of the Act provides that the market value of the urban land shall be the price which such urban land would have fetched or fetch if sold in the open market on the date of the commencement of the Act, that is, 1st July, 1963. The urban land tax is payable from 1st of July 1963. The imposition of retrospective taxation is challenged as beyond the competence of the legislature. It may be noted that the Madras Urban Land Tax Act, 1963 came into force from 1st of July 1963, and it provided for the levy of urban land tax. The enactment was struck down as invalid as it provided for fixation of average market value for particular zones. The legislature by giving retrospective effect to the Madras Act 12 of 1966 intends that the urban land must be taxed from the date on which the 1963 Act came into force. The Supreme Court in AIR 1963 SC 1667 held that the legislature can pass a law and make its provisions prospective or retrospective. But it would be open to a party to contend that the retrospective operation of the Act so completely alters the character of the tax imposed by it as to take it outside the limits of the entry which gives the Legislature competence to enact the law; or it may be open to contend in the alternative that the restrictions imposed by the Act are so unreasonable that they should be struck down on the ground that they contravene the fundamental rights guaranteed under Article 19(1)(f) and (g). In this case, it cannot be said that the retrospective operation has the effect of changing the nature of the statute so as to affect the power of the legislature itself.

160. In AIR 1966 SC 764 the Supreme Court has held thus: (at page 770).

“It is well recognised that the power to legislate includes the power to legislate prospectively as well as retrospectively, and in that behalf, tax legislation is not different from any other legislation. If the legislature decides to levy a tax, it may levy such tax either prospectively or even retrospectively. When retrospective legislation is passed imposing a tax, it may, in conceivable cases, become necessary to consider whether such retrospective taxation is reasonable or not. But apart from this theoretical aspect of the matter, the power to tax can be completely exercised by the legislature either prospectively or retrospectively”.

161. In the case cited, retrospective effect was given in order to give effect to a particular provision in the enactment which was found to be defective. Taking into account the legislative background, the Court held that there could be little doubt that there was no element of unreasonableness involved in the retrospective operation of the provision. The Madras Urban Land Tax Act, 1966 seeks to cure the defect which the earlier Act of 1963 was found to be suffering from. On the principles laid down by the Supreme Court in the Jawaharmal's case, AIR 1966 SC 764 stated supra, it cannot be said that the retrospective operation is objectionable.

162. Before concluding, the objection that the Act does not provide machinery for determining whether a particular land is an urban land or not may be considered. It has to be noted that land is any land which is used or is capable of being used as a building site and includes garden or grounds, if any appurtenant to a building; but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops. The explanation to the definition provides that any site on which any building has-been constructed shall be deemed to be urban land. Section 5 of the Act provides that there shall be levied and collected for every fasli year commencing from the date of commencement of the Act, a tax on each urban land from the owner of such urban land at the rate of 0.4 per centum of the market value of such urban land, and Section 6 empowers the Assistant Commissioner to fix the market value of the urban land. Read along with the definition, it would be clear that only urban land is liable to tax, and the Assistant Commissioner can levy a tax only on an urban land. Section 7 requires only owners of urban land liable to pay urban land tax to submit a return. If the land is not urban land, no return need be filed. Section 11 requires the Assistant Commissioner to serve a notice on the owner in respect of each urban land, where the owner of the urban land failed to furnish the return under Section 7, specifying the extent of the urban land and the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, directing him to attend at his office on a date to be specified in the notice or to produce on that date any evidence on which the owner may rely. At this stage, the owner will be entitled to plead that the land is not an urban land and that he is not liable to pay urban land tax. On hearing the objections, the Assistant Commissioner shall have to determine whether the land in question is a land which is liable to tax, that is, a land which comes under the definition “urban land”. If it is not urban land, the authority will have no right to levy any tax. Though the power to determine the question whether a particular land is urban land or not is not specifically provided for in the section, it is implied. In construing Section 7-A (as inserted by Act 28 of 1963) of the Employees' Provident Funds Act, 1952, which provides that the authority may, by order, determine the amount due from any employer under any provision of the Act or of the scheme, and for this purpose may conduct such enquiry as it may deem necessary, a Bench of this Court in Regional Provident Fund Commr. v. K.R.S.T Factory, AIR 1967 Mad 129 held that the section gives an opportunity to the employer to press his objections before the authorities mentioned therein, to any claim for payment made against him, and this will include the ground that it is oppressive or unjust in nature. The decision can be read as an authority for the view that the authority before levying the tax must be satisfied that the land is liable to tax under the Act.

163. In the result. I hold that all the objections to the validity of the enactment (Madras Act 12 of 1966) will have to be rejected. I find that the Act falls within the legislative competence of the State under Entry 49, List II and that the legislature is competent to tax on the capital value of the urban land. The challenge to the validity of the Act as violative of Articles 14 and 19 of the Constitution of India on the ground that no proper machinery and guidelines for determination of the market value had been provided for, has to be rejected, I also find that the Act is not imposing unreasonable restrictions on the right to acquire, hold and dispose of property; and the retrospective operation of the enactment is not violative of the fundamental rights of the petitioners. Rejecting all the objections raised by the learned counsel for the petitioners, I would dismiss all the writ petitions.

164. I would place on record my appreciation of the full and thorough manner in which the petitioners case was presented by Sri V.K Thiruvenkatachari. My thanks are due to Sri V. Balasubra-maniam, amicus curiae, for his assistance to the Court during the rather long hearing of these petitions.

165. Natesan, J.:— I agree with the conclusion in the judgment of my learned brother Veeraswami, J., just now pronounced with which my Lord the Chief Justice and my learned brother Ramakrishnan, J., concur, striking down Section 6 of the Madras Urban Land Tax Act (Act 12 of 1966) as violative of the constitutional guarantees under Articles 14 and 19(1)(f). The reason for this separate judgment is, while in agreement generally with the substantial reasons given in the judgment, for upholding the competency of the State Legislature to levy a tax on the market value of urban land, with respect I find I have to differ on the alternative ground set out for supporting the State's competency. I propose to briefly touch also one or two other points arising in these cases and endeavour to state as shortly as I can in my own words the reasons which impel me to allow these writ petitions.

166. Despite some fresh lines of approach now made in the attack on the Act as not falling under Entry 49 of List II and as a straight trespass into the Legislative field of the Union under Entry 86 of List I, since these problems were mooted and overruled by a Division Bench of two of us in (1966) 2 Mad LJ 172, like my learned brethren, I feel unconvinced that the present Act cannot be brought within the purview of Entry 49 and that it trenched on Entry 86 of the Union List. The new angle from which Mr. V.K Thiruvenkatachari, learned counsel for the petitioners presented the case for the petitioners in the later part of his arguments on the question of competency, is no doubt attractive and tempting in its approach, offering a solution for several of the riddles raised in the course of arguments requiring reconciliation and clearance if the lists should be interpreted as intending the State Legislature also to levy tax on the market value of lands and buildings. The argument, as I understand it is, that a levy on capital value of property, however, small the percentage may be is really a confiscatory measure aimed at the property itself, he doubt truly in accordance with the directive principles of State Policy formulated in Article 39 of Part IV of the Constitution. Having regard to the fact that it is a matter of high policy, and uniformity of law throughout the country is desirable the power in regard to taxing capital, it is said, is vested exclusively in the Union except in regard to agricultural land. Capital value as a measure, it is pointed out, is found only in Entries 86 and 87 of List I read with Article 366(9). A special significance, it is said, has therefore to be attached to these entries, since an argument would be open but for the reference to the measure in the entries, that the levy thereunder was not taxation but confiscation of property. Entry 88 of List I, it is said, is of the same character. With reference to agricultural land corresponding to Entry 88, the State, it is said, has been given power under Entry 47 of List II. The submission goes to this extent that Entries 86 and 87 of List I are not properly speaking, taxation entries and the object of specifying the measure itself in the entries is to differentiate them from the general powers of taxation. Learned counsel would submit that the normal method of taxation is not to tax capital and would argue that an impost on capital value was permitted to the Parliament only, under the two Entries 86 and 87 of List I. Even the Parliament it is submitted, cannot rely on the general residuary power under Entry 97 for taxation on the capital value of property. Arguments were advanced that Capital Gains Tax, Wealth Tax and Estate Duty form one scheme of Legislation, and to permit Provincial taxation on capital assets would be an impermissible intrusion into the scheme. The submission for the petitioners has gone to the extent of suggesting that confiscatory taxation if made under those entries having regard to the expressed measure, would not be amenable to appeals based on Article 19, at least relatively. Tax on capital value has no reference to the yield; the yield or income is not under contemplation in such levies and the impugned Act which expressly has made a levy on the market value is an instrument for the confiscation of capital outside the ambit State Legislative power—so the argument ran.

167. It is difficult to accept contentions. They proceed on the assumption that taxations should only on the income or yield or gains from property and that ex necessitate all taxation laws have to be based on income or profit. But taxation under the Constitution as defined under Article 366(28), includes the imposition of any tax or impost, whether general or local or special, and shall be construed accordingly. Tax on income is separately defined as including a tax in the nature of an excess profits tax. It is needless in this brief reference for me to discuss the distinctions between capital tax and capital levy and capital value of property and capital assets of an individual. According to David A. Wells, (see Cooley on Taxation, Vol I, Paragraph 7, at pages 72–73); (“Scientifically considered taxation is the taking or appropriating such portion of the product or property of a country or community as is necessary for the support of its Government, by methods that are not in the nature of extortion, punishment or confiscation”). Taxation under the Constitution includes any impost, whether general or local or special. The fact that a levy may lead to capital consumption will not make it the less a tax. The imposition of capital tax which may lead to capital consumption is a matter of fiscal policy and here we are concerned with the existence of power in the State Legislature to levy tax on capital value of land.

168. Reference may usefully be made to the opinion of the Federal Court in In re Levy of Estate Duty, 1944 FCR 317 at p. 328 : (AIR 1944 FC 73 at p. 78) under the Constitution Act of 1935 before its amendment in 1945 by the India (Estate Duty) Act, 1945, 8 and 9 George VI, Chapter VII. Prior to the amendment of the Constitution Act in 1945, there was no entry in the Federal Legislature List providing for the levy of Estate Duty. There was Entry 55 providing for tax on the capital value of assets and Entry 56, duties in respect of succession to property, agricultural land of course being excluded. Residual power of Legislation was not given then by any provision in the Lists, as we now have in Entry 97 of List I of the Constitution. But Section 104 of the Constitution Act vested residual powers of Legislation providing for the Governor-General by public notification empowering either the Dominion Legislature or the Provincial Legislature to enact laws with respect to any matter not enumerated in any of the lists in the VII Schedule of the Constitution Act, including a law imposing a tax not mentioned in any such list. Among the questions referred to the Federal Court, the principal question was whether the Federal Legislature had power to make a law providing that upon the death of any person there shall be levied an Estate Duty in respect of property other than agricultural land, passing upon the death. Reliance was placed on Entry 56 providing for succession duties in respect of property other than agricultural land as empowering the levy of Estate Duty by the Federal Legislature. While answering the reference that Entry 56 of List I did not cover all cases of passing of property upon the death, it was observed:

“The argument based upon the improbability of Parliament having withheld the power to levy such a tax when framing the Constitution in 1935 has no great force. Section 104 has been enacted to meet that very difficulty. That section has also some bearing on the argument founded on S. 137: the Governor-General may by a notification under Section 104 confer the power even on a Provincial Legislature. If, however, the situation cannot be satisfactorily met in that way, the matter must, of course, go before Parliament.”

169. The Federal Court was of the view that the power to levy Estate Duty was a taxation power and could be granted to the Legislature under the residual powers of Legislation imposing tax provided for in the Constitution Act. This in a way meets the argument of learned counsel that Entries 86 and 87 in List I alone confer Legislative powers which may be confiscatory of capital and outside the entry even Parliament cannot levy any tax on capital and cannot rely for any tax levy on capital on Entry 97.

170. It may be a matter of policy and good government to relate the tax specifically to the yield, unless special circumstances warrant a departure. But it cannot affect the power of the State. The power of taxation has been considered as an essential and inherent attribute of sovereignty and generally constitutional provisions relating to the power of taxation are regarded not as grant of power but as limitation upon the power which would otherwise be practically without limit. True, ours is a controlled Constitution and the plenary powers of taxation have to be found in the Lists. But the only limitation on the power of taxation is found in the Constitution and I am unable to see from the entries in the Lists the limitations now suggested. The entry “taxes on lands and buildings” is wide in its coverage giving the language its normal and natural import. Traditional concepts of fiscal policy and taxation are rapidly giving way before a fast changing world which today is far removed from what it was when the Constitution Act of 1935 was passed and enabling words in an organic instrument like the Constitution must, unless clearly defined and necessarily circumscribed in their import, get their interpretation according to the settled concepts of the times. Legislative practice and pre-Constitution norms in taxation cannot be the sole determinent in these matters, when there has been a radical change in the concept of the State and its functions.

171. If the view that the Legislative power given to the Union under Entry 86 does not preclude the State from levying the tax at a percentage of the market price of lands and buildings under Entry 49 of List II is erroneous, I am afraid that the Act now under consideration cannot be sustained on any alternative basis. The tax at a percentage of the market price cannot, on the language of the Act, be viewed as giving a measure of taxation on lands and buildings on the yield, actual or notional, and as not a tax on corpus. It is one thing to say that all kinds of wealth could give a yield of some kind or other and that a small annual tax on capital value would, in its incidence, be on the yield. But from that it does not follow that tax on a form of wealth could, when examining Legislative power, be considered as tax on the yield therefrom. The manner in which the tax burden could be met would not convert the nature of the tax. If Entry 49 in List II does not empower the State Legislature to levy tax on the market price of lands and buildings, then the Act has to fall on the ground of want of competency in the State Legislature in that regard. The fact that because of the low percentage, 0.4 per cent of the market value, it would be paid out of the yield or income, cannot validate it. That aspect may, in this case, have a bearing on the non-confiscatory character or reasonableness of the taxation under Article 19. The Act as it stands, does not purport to tax lands and buildings on the basis of any yield actual or hypothetical therefrom or on the annual value, providing as a measure, of such tax a percentage on the capital value. True, even if the Legislature on the face of the Act avowed that it intended thereby to legislate with reference to a subject over which it had no jurisdiction, if on scrutiny the enacting clause of the Act brought the Legislation within its Legislative sphere, the court would not declare it ultra vires. It is for the court to examine the substance of the Act and determine whether in substance the Legislation is beyond the powers of the Legislature or within its powers. The expressions used may not be conclusive of the character of the Act for the purpose of determining whether it is to be condemned or saved from condemnation. The court could certainly examine the effect of the Legislation, its object, purpose and design for ascertaining the true character of the enactment and the class or subject of Legislation to which it really belongs. But this inquiry in the present case, in my view, cannot save the Act. To start with, if a percentage of the market price on lands and buildings should be construed as a measure, the market price in effect is looked upon as capitalisation based on yield. First it is an involved formula not contemplated by the Legislation. And to a specific question, the learned Advocate-General appearing for the State categorically stated that the Government's stand was that the market value alone was taken and not the annual letting value for computing the tax and that the local Government had power to tax on capital value.

172. So, apart from the express language of the relevant provisions not permitting any room for the contention that the percentage of the market price is only a measure as will be seen presently, we have the expressed stand taken by the learned Advocate-General that the Government was not adopting the percentage of the market price as a measure only and that the Act has no regard to the yield, actual or hypothetical, from lands and buildings.

173. It is not the case of the State that the market price is taken as a kind of capitalisation of the yield of the annual value. The charging section, Section 5, levies tax on the owner of urban land. Section 6 provides for the ascertainment of market value of urban land and it will be the price which in the opinion of the Assistant Commissioner, or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act. Absolutely no quarter is given for any inference that the market price has any relation to the yield, actual or hypothetical from the property. It is not statutorily based on the capitalisation of any income from the property. The subject of the tax and the measure of the tax are emphatically related by the Act to the market value of urban land, the price which the land would fetch if sold in the open market. Neither under the Act nor under the rules any special machinery has been provided for ascertainment of the market value from which one may infer that the market value is related to the yield or income. Section 6 speaks of the market value as a price which the urban land will fetch if sold in the open market. True, the provision dealing merely with the machinery of taxation ought not to be presumed to impose a charge. Here the charging section itself levies the tax on a percentage of the market value and Section 6 makes it mandatory that the market value shall be estimated at the open market price of the land, of course, the statute should be read as a whole and the language used in other parts may well be called in aid for interpretation of the charging section. But that can be done only when there is ambiguity in the charging section. There is nothing to show in the Act that the market value has been mentioned only as a convenient mode for assessment of the tax, but that the intention was to base the tax on the yield, actual or hypothetical. We have to read many words into the section to produce the result that the tax is related to the yield or annual value. The subject-matter of the tax is clearly identified by Sections 5 and 6 of the Act. Sections 25 and 26 providing certain concessions to the assessee cannot control or alter the plain words of Sections 5 and 6 and relate the tax to the income from his property. Under Section 25 the owner of urban land where the land or the building thereon has been let out, is permitted in certain circumstances to add to the annual rent, an amount not exceeding the difference between the urban land tax payable under the Act and one half of the annual rent. Under Section 26 an owner-occupier of a building for residential purposes gets a concession of 25 per cent reduction in the amount of urban land tax payable on the urban land on which a building has been constructed and on the urban land appurtenant to such building. These two provisions are only concessions shown to the assessee of urban land tax. Section 25 does not lead to the inference that the real tax base is the income from the land. On the contrary, the section envisages the possibility of the tax exceeding half the rental income and there is no limit to the difference. The tax is not pegged down and kept below the annual rent. In this connection one may refer to Section 31 of the earlier Urban Land Tax Act, 1963 which provided that if the tax payable in respect of any land under the Act was in excess of the amount of the annual rent payable in respect of such land or building thereon, to the annual rent an amount not exceeding the urban land tax could be added. The true nature of the charge thus being a charge on the market value of urban land, legislative competence cannot be found for the Act by regarding it as imposing a charge on the yield or Income and not on the corpus. To just say that it is a tax on land takes one nowhere: Is it a tax on land according to its extent, or on land value or the yield therefrom?

174. In my view, even if legislative competence for the Act could be found by regarding the charge as really related to the yield from the property, then also the Act has to be struck down as camouflaging the real incidence of the levy. The decision of the Supreme Court in AIR 1963 SC 1742 at pp. 1751 and 1752 will then directly apply and invalidate the Act. A tax related to the yield is clearly different from a tax on the corpus that is, the market or capital value of property. The taxes are distinct and different in their incidence. A capital tax payable annually may in fact, be paid out of income and one can envisage a case where an assessee may be compelled to pay a tax on yield or annual value out of capital. But all the same even if the same amount of revenue is taken annually from each tax-payer, the effective incidence of a tax assessed on capital may differ to a not unimportant degree from a tax assessed on the annual income or yield. The Supreme Court observed in the case cited above:

“It is however urged that it really makes no difference whether the rate is levied at a percentage of the capital value or at a percentage of the annual value arrived at on the basis of capital value by fixing a certain percentage of the capital value as the yield for the year. It is true that mathematically it is possible to arrive at the same figure for the rate by either of these methods………… But this identity would not in our opinion make any difference to the invalidity of the method of fixing the rate on the capital value directly. If the law enjoins that the rate should be fixed on the annual value of lands and buildings, the municipality cannot fix it on the capital value, and then justify it on the ground that the same result could be arrived at by fixing a higher percentage as the rate in case it was found in the right way on the annual value. Further by fixing the rate as a percentage of the capital value directly, the real incidence of the levy is camouflaged…………… if it is open to the municipality to fix the rate directly on the capital value at 1 per cent it will be equally open to it to fix it, say at 10 per cent, which would, taking again the same example, mean that the rate would be 250 per cent of the annual value, and this clearly brings out the camouflage. Now a rate at 10 per cent of the capital value may not appear extortionate but a rate at 250 per cent of the annual value would be impossible to sustain and might even be considered as confiscatory taxation. This shows the vice in the camouflage that results from imposing the rate at a percentage of the capital value and not at percentage of the annual value as it should be……………………… By levying it otherwise directly at a percentage of the capital value, the real incidence of the rate is camouflaged, and the electorate not knowing the true incidence of the tax may possibly be subjected to such a heavy incidence as in some cases may amount to confiscatory taxation………… It follows therefore that as the tax in the present case is levied directly at a percentage of the capital value it is ultra vires of the Act and the assessment based in this manner must be struck down as ultra vires the Act.”

175. In the present case the charge is fixed at 0.4 per cent of the market value: that is, the tax is Rs. 4/- where the market value is Rs. 1,000/-, ex facie not extortionate. If we should take it that a capitalisation of the annual yield or value has been made taking the yield as from an investment at 5 per cent, then 0.4 per cent of the market value would work out to 8 per cent of the annual value. If the investment return goes below 5 per cent, then the tax at a percentage of the annual value will go up. There is nothing to preclude the State from increasing the levy on the market value from 0.4 per cent to 2 per cent or even higher. A levy of 2 per cent on the capital value will be equal to a levy of 40 per cent on the annual value, and a levy of 6 per cent on the capital value will be equal to a levy of 120 per cent on the annual value. If the power of the Legislature to tax is only on the yield or annual value of lands and buildings, the real incidence of the tax is camouflaged by showing the tax at a low percentage of the capital value and on the authority of AIR 1963 SC 1742 at p. 1751 the Act has to be struck down as beyond the competence of the State Legislature. In AIR 1962 SC 1563 at p. 1572 (and 1573) the Supreme Court observed:

“In other words the conclusion that a taxing statute is colourable would not and cannot normally be raised merely on the finding that the tax imposed by it is unreasonably high or heavy because the reasonableness of the extent of the levy is always a matter within the competence of the Legislature. Such a conclusion can be reached where in passing the Act, the Legislature has merely adopted a device and a cloak to confiscate the property of the citizen taxed.”

176. However, as stated by me at the outset, I am in entire agreement with the view that Entry 86 of List I does not preclude the State from levying a tax on the market value of lands and buildings. The lower percentage of the tax can, in this case, be related to the yield from the property actual, notional or hypothetical to show that the tax is not confiscatory in character.

177. I shall now take up for consideration Section 6 of the Act, I am strongly inclined to the view that while Section 5 is not constitutionally invalid under Articles 14 and 19(1)(f), Section 6 of the Act is clearly invalid under those Articles. I am not examining the attacks on the charging Section 5 under Article 19(1)(f). as it is considered in detail by my learned brother Veeraswami, J. This Article was not available, to the owners of urban lands when Act XXXIV of 1963 was questioned before us. Nor is there anything for me to add on the vires of the retrospective provisions of the present Act. It is urged for the petitioners that the Act providing for imposition of tax on land only estimating the market price of the land apart from the buildings thereon and the absence of any statutory directions for the ascertainment of the market value, makes the incidence of the charge haphazard, arbitrary and capricious. The base for taxation is the price the urban land in the opinion of the Assistant Commissioner or the Tribunal of appeal from him would have fetched if sold in the open market on the 1st day of July, 1963, a day more than three years prior to the Act. The absence of any provision to resort to the Civil Court when the ascertainment of market value is found to be arbitrary and capricious is referred to and relied upon for invalidating the provision under Article 19(1)(f). It cannot now be questioned that the validity of a taxing statute can be challenged on the ground that it contravenes one or other of the fundamental rights guaranteed by Part III of the Constitution. A citizen can challenge the constitutionality of a tax law on the ground that it offends Article 14 or Article 19 of the Constitution. It is sufficient here to refer to the observations in AIR 1962 SC 1563 at p. 1570, where Gajendragadkar, J., (as he then was) speaking for the court observed:

“In recent years, there has been a consensus of opinion in the decisions of this Court that the validity of the Legislation imposing a tax can be challenged not only on the ground of lack or absence of legislative competence but also on the ground that the impugned legislation violates the fundamental rights guaranteed by Part III of the Constitution, Vide Mohammad Yasin v. Town Area Committee, Jalalabad, 1952 SCR 572 : (AIR 1952 SC 115), State of Bombay v. United Motors (India) Ltd., 1953 SCR 1069 : (AIR 1953 SC 252), Bengal Immunity Co. Ltd. v. State of Bihar, (1955) 2 SCR 603 : (AIR 1955 SC 661), Tika Ramji v. State of Uttar Pradesh, 1956 SCR 393 : (AIR 1956 SC 676) and AIR 1962 SC 123. 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 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 Articles 14 and 19(1)(f) cannot be rejected as inadmissible.”

178. Section 2(13) of the impugned Act defines “urban land” as meaning any land which is used or is capable of being used as a building site and includes garden or grounds, if any, appurtenant to a building but does not include any land which is registered as wet in the revenue accounts of the Government and used for the cultivation of wet crops. The Explanation says:

“For the purposes of this clause, any site on which any building has been constructed shall be deemed to be urban land.”

179. Under the definition of urban land, the land is separated from the building and it is the site on which the building stands that is assessed. While Section 5 provides for levy of tax on each urban land, each urban land being defined as land comprised in a survey number or sub-division, number. Section 6 provides for the estimation of the market price of the land. Section 6 runs thus:

“For the purposes of this Act, the market value of any urban land shall be estimated to be the price which in the opinion of the Assistant Commissioner or the Tribunal, as the case may be, such urban land would have fetched or fetch, if sold in the open market on the date of the commencement of this Act.”

180. Section 7 of the Act provides for the owner of urban land submitting a return within the period prescribed containing inter alia the amount which in the opinion of the owner is the market value of the urban land. Under Section 8 if any owner of urban land fails to furnish the return under Section 7, the Assistant Commissioner may obtain the necessary information in respect of the particulars specified in Section 7, either by himself or through such agency as he thinks fit. The language here is not quite happy, for it looks as if the Assistant Commissioner has to obtain information of the amount which “in the opinion of the owner” is the market value of urban land. Under Section 10, the Assistant Commissioner has to determine the market value. When a return is furnished under Section 7, the Assistant Commissioner has to examine the return and make such enquiry as he deems fit. If he is satisfied that the particulars mentioned in the return are correct and complete, he shall, by order in writing, determine the market value of urban land and the amount of urban land tax payable in respect of such urban land. Where on examination of the return and after the enquiry he is not satisfied that the particulars mentioned in the return are correct and complete, he shall serve a notice on the owner either to attend in person at his office on a date to be specified in the notice or to produce or cause to be produced on that date any evidence on which the owner may rely in support of his return. The Assistant Commissioner, after hearing such evidence as the owner may produce in pursuance of the notice and such other evidence as Assistant Commissioner may require on any specified points shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. Where the owner has failed to attend or produce evidence in pursuance of the notice issued to him, the Assistant Commissioner shall, on the basis of the enquiry made, by an order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. Under Section 11 where the owner of urban land has failed to furnish the return under Section 7 and the Assistant Commissioner has obtained the necessary information under Section 9, he shall serve a notice on the owner in respect of each urban land specifying inter alia the amount which, in the opinion of the Assistant Commissioner, is the correct market value of the urban land, and direct him to attend in person at his office or to produce or cause to be produced any evidence on which the owner may rely on prescribed date. At this enquiry after hearing such evidence as the owner may produce and such other evidence as the Assistant Commissioner may require on any specified points, the Assistant Commissioner shall, by order in writing, determine the market value of the urban land and the amount of urban land tax payable in respect of such urban land. If the owner does not respond to the notice issued, the Assistant Commissioner shall, on the basis of information obtained by him under Section 9, by order in writing, determine the market value of the urban land and the amount of the urban land payable in respect of such urban land Under Section 20, an appeal is provided to the Tribunal under the Act from the determination of the Assistant Commissioner. Sub-clause (6) of Section 20 provides that any order passed by the Tribunal under Section 20 shall be final. The amount or urban land tax determined under Section 10 or 11, with the modification if any, made in any appeal under Section 20, shall, as per the provisions in Section 13, remain in force for a period of ten years from the 1st day of July of the fasli year in which the urban land tax is so determined, or for a further period not exceeding ten years as the Government may direct. The Tribunal constituted under the Act is required, by Section 4, to consist of a person who shall be a judicial officer not below the rank of Subordinate Judge. Section 43(1) of the Act enables the Government to make rules to carry out the purposes of the Act. Section 43(2) provides that without prejudice to the generality of the power given under Section 43(1) the rules may provide for certain specific matters with which we are not now concerned.

181. It is admitted for the State that no rules have been made under Section 43 for guidance to the authorities under the Act for determination of market value of urban land. Of course, Section 6 is specific as to what has to be ascertained. It provides that the market value shall be estimated to be the price which in the opinion of the Assistant Commissioner, or the Tribunal, the urban land would have fetched or fetch, if sold in the open market on the date of the commencement of the Act. But it is a matter of common knowledge that there is no such thing as open market for land in the City of Madras, at any rate in the greater part of the metropolitan area. But what is required under the Act is the value of the land alone, that is, a site on which the building stands, leaving out of consideration the value of the building thereon. The Act, it must be said, is made to commence retrospectively from the 1st day of July, 1963 with reference to the City of Madras from which these writ petitions arise. The Act itself was published in the Fort St. George Gazette only on the 10th of September, 1966. The earlier Act, Madras Act XXXIV of 1963 which this Court struck down, had provided some rules for determination of the market value of urban land. But the charging section there made the levy on the average market value of urban land in the related sub-zone and so was struck down as violative of Article 14. The rules under the prior Act provided that, while determining the market value, consideration should be of not only the price of land but also the rents fetched for the use and occupation of lands in the zone or sub-zone, the principles generally adopted in valuing lands under the Land Acquisition Act, 1894, and the compensation awarded in recent land acquisitions after deducting the solatium, if any. Later there was an amendment of the rules deleting the reference to land acquisition awards. The absence of adequate, reasonable and satisfactory provisions for the ascertainment of the market value of urban land, particularly when the site has to be valued apart from the buildings, is attacked as wholly unreasonable and devoid of any guidance, where clear guidance is called for. It is strongly urged that no acceptable reason could be found for the State not adopting the value of land and buildings ascertained in the City for taxation purposes by the City Corporation, its own statutory authority. The City Corporation tax, it is pointed out, is levied under entry 49 of List II. Counsel points out that in ascertaining the value of the site, apart ‘from the building, what is known as “Contractor's method”, is generally adopted by the authorities. This is made out by reference to the orders and notices issued by the authorities under the Act filed in the several cases before us. In the absence of evidence of sale of vacant sites for the purpose of valuing one person's land, it is said, the value of land in the neighbourhood arrived at by adopting the contractor's method to a sale of some third person's land with building thereon is taken into consideration. It is urged that it would be practically impossible in the greater part of the City to get evidence of the market price of land alone, appeal from the price of land with buildings thereon. For the year 1964–1965 the number of buildings severally assessed by the Corporation in the City was 1,01,055 and the number of vacant sites, 3,918, the total number of assessees of lands and buildings being 1,04,974. Under the Contractor's method where a particular property in the neighbourhood has been sold, the cost of construction of the building is calculated providing for depreciation and that is deducted from the value of the land and building as sold. Learned counsel points out that while a person may find it difficult to test the contractor's method of valuation even with reference to his own land and building and must have a competent architect to help him, it is not practical possibility for him to checkup or make objections to the valuation arrived at by the authorities under the Act, adopting the contractor's method to land of third party.

182. There can be no doubt that in the application of the Act in municipal areas the problem of site valuation is beset with difficulties. The value of urban land will differ from site to site and sales of neighbouring properties at the relevant period, even if available, may not be of much assistance in finding the fair value of a particular urban land. The authorities under the Act may generally have to adopt what is referred to as Contractor's method where data for that method is available, for ascertaining the value of the site alone. Only vacant sites could be sold as sites and generally it is the unit of site with building thereon that comes into the market. Rarely will there be market evidence or open market for site only and the valuation of site apart from building has never been regarded as a proper and satisfactory method of valuation for the ascertainment of the true market value of the site. Even the reverse process has been condemned. As early as 1907 with reference to an acquisition under the Land Acquisition Act where the final determination is by court, it is observed by Macleod, J., in In re Dhanjibhoy Bomanji, (1908) 10 Bom LR 701 at p. 710.

“The fallacy of valuing land and building separately and taking the total as the value of both seems too obvious to require being exposed. It by no means follows that if a man spends Rs. X on land and Rs. Y on building he produces a property, worth Rs. X plus Y. The property must be valued according to what it is worth in the market and not by what it costs.”

183. In Rathnamasari v. Secy. of State, AIR 1923 Mad 332 at p. 334 this Court observed:

“The appellant's next contention is that the 81 acres of land on which the buildings stand should be valued separately and that the buildings should also be valued separately and the two added together to get the total market value of the plots with the buildings standing thereon. That is hardly the way in which property consisting of a house and garden is valued in the market. We think that a plot consisting of a house and a garden is much more satisfactorily valued in the manner in which the District Judge has done, by capitalising the rental in the absence of other evidence which would give a more satisfactory value.”

184. In that case the annual rental value was ascertained at Rs. 680/- and taking 20 years' purchase the plots and buildings were estimated at Rs. 13,600/-. For ascertaining the value of the lands alone, the value of the buildings Rs. 6,300/- was deducted and the value of the lands worked out at Rs. 850/- an acre. It must be noted here that for ascertaining the value of the land, the annual value of land and building was capitalised and the cost of the building deducted. Reference may be made to Secy. of State v. Shunmugaraya, (1893) ILR 16 Mad 369 (PC) where the Judicial Committee had to value the seven pagodas of Mahabalipuram under the Land Acquisition Act, a difficult task. The State acquired the property for preservation of the monuments. The Privy Council held that taking into consideration the nature of the property and the absence of market value for temples and their architectural carvings, the best method of valuation was to estimate the possible rent of the entire property on the basis of the actual rent of a portion of the property which was available, and capitalise at 25 years' purchase of the hypothetical rental. Of course, if buildings are to be valued separate from the site for assessing compensation, the principle adopted is fixation of the value by ascertaining the cost of purchase of the building at the relevant period and then allowing depreciation in consideration of the age of the building and costs of such repairs' as may be required. Economists in text books on Public Finance emphasise the difficulty of ascertaining site value of built up lands for the purpose of taxation, as market evidence may not be available of the value of site in built up areas. In Public Finance by Hicks (Cambridge Economic Hand Books, 2nd Edition, 1959 Reprint) it is said at page 176:

“Once a building has been erected on a site there is no objective means of establishing the respective contribution of site and building to the value of the whole; even if they can be logically disentangled, which is by no means certain. There is thus a chronic shortage of market evidence on which site valuation can be based. This implies an element of arbitrariness in the valuation…………… But when he (valuer) is assessing the value of a built-up site a much greater effort of the imagination is required, the appeal from his valuation is virtually impossible.”

185. It is argued for the State that no guidance is required as to how the market value of property has to be ascertained and reference is made to the Land Acquisition Act, the Wealth Tax Act and Gift Tax Act. So far as the Land Acquisition Act is concerned, the definition of land in the Act includes also buildings thereon and the acquisition generally is of land with buildings. Occasionally the building may be the subject of acquisition. Then generally the contractor's method is adopted for ascertaining the value of the building. So far as the Wealth Tax or for that matter Gift Tax is concerned, here again the valuer is not called upon statutorily to embark on the difficult task of disentangling the value of the site, apart from buildings. True, valuation of immoveable property is not a precise Science. Under the Land Acquisition Act the Collector only makes an offer and the final determination is left to the Civil Court. The matter is left to Judicial adjudication with right as of course for an appeal to the High Court. Both under the Wealth Tax Act and Gift Tax Act, though the value of the property is the price which it would fetch if sold in open market, there are provisions giving an hierarchy of Tribunals. The Appellate Tribunal may refer the question of disputed value, when the assessee requires it, to the arbitration of two valuers one of whom is nominated by the appellant and the other, by the respondent. From the Appellate Tribunal there a provision for reference to the High Court on a question of law and also for appeal to the Supreme Court from the High Court when the High Court certifies that it is a fit case for appeal to the Supreme Court. Under the present Act it must be noticed that the order of the Appellate Tribunal, who is no doubt a Judicial Officer now below the rank of Subordinate Judge, is final. The fact that an aggrieved owner may apply to the High Court under Article 226 is no consolation, as the jurisdiction of the High Court under Article 226 is limited. In questioning a valuation which is not admittedly a precise Science, a citizen can hope for little-chance to succeed on the merits, in an application under Article 226 of the Constitution. The property whose market value has to be ascertained here generally being site with buildings thereon, the valuer is left to draw much on his experience and imagination and the High Court in its special extraordinary jurisdiction under Article 226 will have little scope for interference on the valuation itself. But undoubtedly the element of judgment enters into the valuation to a considerable degree. While a provision for resort to civil court at some stage may not always and necessarily be the sine qua non for reasonableness of a law, having regard to the complicated nature of the determination required, in my view, the absence of some statutory provision for a resort to the civil court affects the reasonableness of the provision for the determination of the value of urban land in the Act. In this connection it has to be noted that the determination of value once made would enure for a period of ten years with an option for the Government to extend it for a further period of 10 years. In AIR 1961 SC 552 at pp. 557 and 559 in which the Travancore-Cochin Act 15 of 1955 was struck down, the Supreme Court, when examining the constitutionality of the Act under Articles 14 and 19, referred to the absence of provision for challenging the regularity of assessment by recourse to proceedings in a higher civil court. The Supreme Court remarked that there was no procedure prescribed for obtaining the opinion of a superior civil court on question of law, as was generally found in all taxing statutes.

186. Whether or not the machinery providing for determination of market value is unequal to its task and so unreasonable, one thing is clear that in its actual incidence the method of determination of the market value would make the tax discriminatory harsh and unequal in its incidence, as will be seen presently. In Moopil Nair's case, AIR 1961 SC 552 just now referred, the Supreme Court observes:

“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 on the ground of inequality, even though the result of the taxation may be that the total burden on different persons may be unequal.”

187. When the validity of a tax is impugned as violative of Article 14, the Court cannot rest content with the apparent tenor and language of the statute. It is not the phraseology that governs the matter but the effect of the law. Under the Act in question, tax is levied at a flat rate of 0.4 per cent of the market value. Whether the owner of urban land makes no income or some income or high income, however, high it may be, by his use of the land he has to pay the same rate of tax. To take an illustration, an owner of two grounds of urban land in a locality where the land value is determined at Rs. 10,000/- per ground will have to pay urban land tax at Rs. 80/- per fasli. He may have a small building on the property which he may have let out at a rent of Rs. 200/- per month. His immediate neighbour owning similarly two grounds having the finance to exploit the potentiality of the land may have put up six storied building and be getting a monthly rental of Rs. 1,200/-. He too need pay as urban land tax only Rs. 80/-. To take another case: say a person has a plot of ten grounds in extent on which he has constructed a building on a plinth area of one ground. It may be that he gets no service from the vacant portions. Still he has to pay urban land tax of Rs. 400/- on the tan grounds. His neighbour who has fully utilised his entire land of 10 grounds similarly situated and gets an income from every sq foot of the land would also be paying the same tax. The vice making the tax burden fall unequally is, in the absence of suitable guidelines for estimating the value of urban land, for taxation purposes. The question is whether this feature of the levy inherent in the Act as it now stands would make the levy void under Article 14 of the Constitution. In Moopil Nair's case, AIR 1961 SC 552 at p. 558, the Supreme Court said:

“Ordinarily a tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed. In other words, the tax has reference to the income actually made, or which could have been made with the diligence, and therefore, is levied with due regard to the incidence of the taxation”

188. A reading of the judgment in that case shows that the State appears to have relied on Entry 49 of List II for the State's powers to tax the land. A flat rate of Rs. 2/- per acre had been levied and the State had contended that the income from forest lands in question was entirely irrelevant, that it was irrelevant whether the lands were productive or not, and that the tax was “an impost on land”, that is, a tax on the property itself. For the citizen it was argued inter alia that the State had no power to impose tax on forests, the power under Entry 49 of List II being to tax only lands. In the dissenting judgment of Sarkar, J. (as he then was), the taxation power in that case was found to be under Entry 49. It cannot be otherwise as the other possible Entry 45 of List II Land Revenue would straightway make the yield or productivity a material factor. Anyway as both the entries are under the same List the non-mention of Entry 49 in the majority judgment, in my opinion, does not affect the position. In the majority judgment in that case which struck down the Act in question as violative of Articles 14 and 19(1)(f), it is observed:

“Under the Act in question we shall take a hypothetical case of a number of persons owning and possessing the same area of land one makes nothing out of the land, because it is and desert. The second one does not make any income, but could raise some crop after a disproportionately large investment of labour and capital. A third one in due course of husbandry, is making the land yield just enough to pay for the incidental expenses and labour charges besides land tax or revenue. The fourth is making large profits, because the land is very fertile and capable of yielding good crops. Under the Act it is manifest that the fourth category, in our illustration, would easily be able to bear the burden of the tax. The third one may be able to bear the tax. The first and the second one will have to pay from their own pockets, if they could afford the tax. If they cannot afford the tax, the property is liable to be sold, in due process of law, for realisation of the public demand. It is clear therefore, that inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is no attempt at classification in the provisions of the Act. Hence no more need be said as to what could have been the basis for a valid classification. It is one of those cases where the lack of classification created inequality. It is, therefore, clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution. The argument that productivity or yield or income actual or hypothetical cannot be made a test for imposition of tax on land obviously has not weighed with the majority. Only in the dissenting judgment it is observed:

“The tax is not levied because the land is productive but because the land is held in the State. Again if the tax which could be imposed on land had to be correlated to its productivity, then the State would have no power to tax unproductive land and the provision in the Constitution that it would have power to tax land would, to that extent be futile.”

189. True, under the Act now considered, the tax base is the individual value of each urban land, and this is an important distinction. But we cannot ignore that in the City, the owner's right of eviction of tenants of lands with buildings (a good part of the City is under tenancy rights), is severely restricted by the Control Acts — City Tenants Protection Act and the Rent Control Act — for the owner of tenant occupied property to utilise the full yield potential of the land. In the result the burden falls unevenly on the owners for no cause of their own making. In my view whatever may be its relevancy on the question of legislative competence, when the tax is being scrutinised under Article 14, the Court can take into consideration the sound principle of taxation that the citizens should be taxed in accordance with their ability to pay. That unequal incidence of taxation having regard to the related capacity of the assessee to pay is a matter to be watched with reference to tax legislation, will be apparent from the following observations of Mukherjee. J. (as he then was) in the Commissioner, H.R & C.E v. L.T Swamiar, AIR 1954 SC 282 at p. 285.

“Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.”

190. The following passage from Cooly on Taxation, Vol. I, pages 64–65, set out in AIR 1965 Mys 170 at p. 208 may be usefully quoted in this context:

“……they (taxes) are levied by authority of law, and by some rule of proportion which is intended to insure uniformity of contribution and a just apportionment of the burdens of Government. In an exercise of the power to tax, the purpose always is that a common burden shall be sustained by common contributions regulated by some fixed general rule, and apportioned by the law according to some uniform ratio of equality. So the power is not arbitrary, but rests upon fixed principles of justice, which have for their object the protection of the tax-payer against exceptional and invidious exactions, and it is to have effect through established rules operating impartially.”

191. The following passage from the same volume is also pertinent:

“Equality to taxation means equality of sacrifice, that is, the apportioning the contributions of each person towards the expenses of Government, so that he shall feel neither more nor less inconvenience from his share of the payment than every other person experiences from his. Equality does not mean an equal tax against each person or against each lot or piece of property.”

192. The capacity or ability to pay in my opinion must be correlated with reference to the tax base under the consideration. Under the impugned Act it is shown that the same class of property similarly situated is subject to an incidence of taxation resulting in inequality if regard be had to its use or yield. The vital difference between sites built upon and unbuilt sites, sites fully exploited and put to use and sites that are not or could not be put to full use pass unnoticed. The failure to classify or provide for differential treatment where classification is called for, it is seem, results in unequal incidence of the tax. The Madras City Tenants Protection Act and the Madras Buildings Lease and Rent Control Act generally peg down the yield from the sites. If it is the ‘unearned income’ that is sought to be tapped by the tax, its benefit in the context of the Control Acts will not be reaped by many. As this aspect of the question has been examined by my Lord the Chief Justice, I shall not elaborate on the same here. It is no answer to this approach based on the unequality of the burden by reference to the use and benefit from the land derived by the owner, to say that it is the land that is taxed on its market value, and that the yield therefrom or the use to which it is put is irrelevant consideration in the context. As I read the judgment of the Supreme Court in Moopil Nair's case, AIR 1961 SC 552, it 19 a similar plea of the State that was overruled by the majority.

193. It is one thing to say that under entry 49 of List II the State can tax the land itself: it can levy tax on what is referred to as capital value of land. Legislative competence is one thing. Its validity under Article 13 of the Constitution is another fundamental requisite and it is here one finds that the levy as made falls unevenly on persons similarly situated. In my view, the yield actual or potential or the beneficial use to which the land is put or could be put is a relevant matter for consideration in examining the incidence of the tax, be it a tax on land. Even capital tax like tax on wealth levied on the principal has been considered a tax on accrual and not one on the principal itself. Nicholas Kaldor in his Report of Indian Tax Reforms says at page 19:

“An annual tax on wealth, though it is levied on the value of the principal, is really a tax on accrual and not a tax on the principal itself — as for example, estate duties or a capital levy are. If all property yielded the same percentage of income, an income-tax and a wealth tax would amount to the same thing. The two differ precisely because some property yields a large money income, other property a small income (or no money income at all) in relation to its current market value.”

194. As mentioned already, the number of vacant lands liable to be assessed as such is few. The number of buildings assessed in 1964–1965 is 1,01,055 and the number of vacant lands 3,919. A few concrete cases from the petitions before us are illustrative of the glaring unequal incidence of the taxation. It will reveal that valuing the site or land apart from building can work great injustice on owners of site and building. In W.P No. 2835 of 1967 urban land of the total extent of 80 grounds with buildings on a plinth area of about two grounds has been let out for a rent Rs. 500/- per month. The market value of the land proposed under the Act is Rs. 13,000/- per ground. Here the annual value adopted by the City Corporation for the land is Rs. 5,460/- under the provisions of the Municipal Act. The Corporation tax for one year is Rs. 1,400/-. The urban land tax as proposed comes to Rs. 4,160/- and it is said that the owner of the land has to pay income-tax at the rate applicable to him on the property. The total outgoings from the property is stated to be Rs. 6,794/- as against the annual income of Rs. 6,000/-. If the value of the land with building thereon is ascertained by capitalising the annual value as is usually done by multiplying the annual value by 20, the market value of the land alone, as determined for the purpose of tax under the Act, is 190 times the capital-value of the land and building. In this case, it is said that contractor's method as applied to another property where land and building had been sold, was adopted to find out the market value of the land in the locality. It may be that buildings bring the greater part of the income. But it cannot be denied that the land also contributes for the income and it is this that introduces complication and difficulty in the assessment of the market value of the site apart from building. In W.P No. 3478 of 1967 where the extent was about 56 grounds and 1511 sq. ft. the municipal annual value was Rs. 800/-, the value under the Urban Land Tax Act per acre was fixed at Rs. 12,000/-. In this case the value of the land alone as determined under the Act is 849 times the value of land and building ascertained by capitalising the annual value. This may be compared with the position in W.P No. 3455 of 1967 where the extent of urban land was 1 ground and 1547 sq ft. The property is located in Mint Street. The municipal annual value was Rs. 10,074/- and the value of the land alone as determined under the Act is Rs. 62,000/-. Here the value of land as determined under the Act is only six times the capitalised value of land and building on the basis of annual value. It is rather extremely anomalous that there should be such vast and varying disparity between the value of land with buildings thereon obtained on a capitalisation of the annual value statutory my determined under the Madras City Municipal Corporation Act and the value of land alone determined under the impugned Act. There must be something inherently wrong somewhere and clearly it must be in the ascertainment of the site value. The annual value fixed by the City Corporation under the City Municipal Corporation Act is statutorily determined value. It is adopted and accepted by the income-tax authorities for tax purposes. Leaving even a wide margin for errors and vagaries in the assessment of annual value it is inconceivable how there can be such startling difference. Disparity there may be but not to the extent seen here. Probably a determination of site value as in AIR 1923 Mad 332 at p. 334 by first capitalising the annual value of land and building, and deducting therefrom the cost of construction applying the contractor's method may not show such marked difference so as to lead to an inference of the existence of some basic error. The following figures from some of the petitions before us graphically illustrate how unequal the tax incidence can be.

W.PsExtent of land with buildings.Corporation annual value.Market value of land alone under the Act.Proportion between capitalised value of land and buildings at 20 times annual value and market value of land alone under the Act—roughly.283580 grdsRs. 5,460/-Rs. 10,40,000/-1 : 190368329.3 grdsRs. 4,095/-Rs. 3,81,554/-1 : 83389370 gr. 650 sq. ft.Rs. 25,115/-Rs. 10,55,937/-1 : 4235521594 sq. ft. Business Locality.Rs. 4,368/-Rs. 38,000/-1 : 2834591 gr. 1547 sq. ft.Rs. 10,074/-Rs. 62,000/-1 : 634562 grs. 2135 sq. ft.Rs. 1,201/-Rs. 43,344/-1 : 363479117 grds.Rs. 1,98,580/-Rs. 43,29,000/-1 : 21360636 grds. 960 sq. ft.Rs. 4,773/-Rs. 3,64,000/-1 : 7636079 grds 559 sq. ft.Rs. 38,220/-Rs. 1,97,796/-1 : 5

195. In AIR 1963 SC 591 at p. 596 Subba Rao, J. (as he then was) speaking for the Court, said:

“It is true, taxation law cannot claim immunity from the equality clause of the Constitution. The taxation statute shall not also be arbitrary and oppressive, but at the same time the Court cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the Legislature selects one out of them, the court will not be justified to strike down the law on the ground that the Legislature should have adopted another method which, in the opinion of the Court is more reasonable, unless it is convinced that the method adopted is capricious, fanciful, arbitrary or clearly uniust.”

196. Can it not be said in this case that the failure to provide a suitable machinery for valuing the site leads to injustice? Is it not made out that the mode of ascertaining the value of site is arbitrary and unreasonable and discrimination is inherent? In the case cited above, the Supreme Court observed: at page 594.

“Though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinize the effect of the law carefully to ascertain its real impact on the persons or property similarly situated.’

197. In AIR 1962 SC 1563 at p. 1570 cited already, the approach of the Court in applying Article 14 to a taxing statute is thus enunciated:

“A taxing statute can be held to contravene Article 14 if it purports to impose on the same class of property similarly situated an incidence of taxation which leads to obvious inequality. There is no doubt that it is for the Legislature to decide on what objects to levy what rate of tax and it is not for the court to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax. It is also true that the Legislature is competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. But if in operation any taxing statute is found to contravene Article 14, it would be open to courts to strike it down as denying to the citizens the equality before the law guaranteed by Article 14.”

198. In State of Andhra Pradesh v. Raja Reddy, AIR 1967 SC 1458 at p. 1469, Subba Rao, C.J, delivering the judgment of the Court, reiterated the principle enunciated in Moopil Nair's case, AIR 1961 SC 552 and AIR 1963 SC 591 observing thus:

“It is, therefore, manifest that this Court while conceding a larger discretion to the Legislature to the matter of fiscal adjustment will insist that a fiscal statute just like any other statute cannot infringe Article 14 of the Constitution by introducing unreasonable discrimination between persons or property either by classification or lack of classification.”

199. Clearly, in my view, even though the charging section, Section 5, may be valid as being within the competence of the State Legislature under Entry 49, unreasonableness and wide room for arbitrariness is writ large on the provisions of the Act prescribing the mode of ascertainment of the base for assessment.

200. The ascertainment of market value of urban land as provided under Section 6 without further guidance is wholly unsuited to heavily built up areas as in the City of Madras and could result in unjustly discriminatory levy. It follows that Section 6 of the Act has to be struck down as violative of Articles 14 and 19(1)(f) of the Constitution. As all the levies and demands under the Act are wholly dependent on the application of Section 6 of the Act, all such levies and demands are illegal and void and have to be struck down.

201. The writ petitions have therefore to be allowed.

ORDER:—

202. By virtue of the opinions of the majority of the Full Bench, Section 6 of the Madras Act XII of 1966 must be struck down, as violative of Articles 19(1) and 14 of the Constitution of India. It follows that all the proceedings before us under Article 226 of the Constitution will have to be allowed, but there will be no order as to costs.

203. Petitions allowed.