Case Note & Summary
The dispute concerned the levy of house tax by the Barsi Municipal Council on mills, factories and buildings connected therewith belonging to Lokamanya Mills and other respondents. Until 1947, the Municipality levied house tax on the basis of annual letting value. In 1947, fresh rules were made, and Rule 2(c) fixed the annual rental value of mills, factories and connected buildings at a uniform rate of Rs. 40 per 100 square feet of floor area, irrespective of actual rental value. The Supreme Court in Lokamanya Mills, Barsi Ltd. v. Barsi Borough Municipality (1962) 1 SCR 306 struck down Rule 2(c) as ultra vires the Bombay Municipal Borough Act, 1925 and violative of Article 14 of the Constitution because it adopted an assumed uniformity of return per square foot and deprived rate-payers of the right to object to valuation. Following this decision, the Maharashtra Legislature enacted the Borough Municipalities (Validation of Certain Taxes on Buildings and Lands) Act, 1965, to validate retrospectively the levy and collection of house tax on such properties and to enable municipalities to levy tax on the basis of floor area. The Validating Act substituted the Explanation to Section 75 of the Boroughs Act to include floor area as a basis of valuation for mills, factories and connected buildings, and Sections 4 and 5 purported to validate past levies and collections notwithstanding the Supreme Court decision. The respondents filed writ petitions before the Bombay High Court challenging the constitutional validity of the Validating Act under Article 14 and seeking to restrain the Municipality from levying or collecting house tax on their mills and factories. The High Court held sections 3(b), 4(1), 4(2) and 5 of the Validating Act invalid for contravening Article 14 and granted the reliefs. On appeal by certificate, the Supreme Court considered two points: whether Rule 2(c) was available to the Municipality for imposing the tax and whether the rule could be deemed to have been in operation for retrospective validation. The Court observed that when Rule 2(c) was struck down, it could never be deemed to have been passed. Apart from Rule 2(c), there was no charging provision in either the Boroughs Act or the Validating Act for levying house tax on mills, factories and buildings connected therewith. The Municipality did not frame any fresh rule under Section 75 of the Boroughs Act after the striking down. The Validating Act did not revive or resurrect Rule 2(c); the substituted Explanation to Section 75 only permitted floor area as a basis of valuation but did not create a charge. Therefore, in the eye of law, there was no charging provision, and no tax could be levied or collected. The Court held that this conclusion was sufficient to grant all reliefs claimed by the respondents, and it did not need to decide the constitutional validity of the impugned sections. Accordingly, the appeals were dismissed, and the High Court's order restraining the Municipality from levying house tax and quashing the demand notices was upheld.
Headnote
A) Municipal Law - Taxation - Charging Provision - Bombay Municipal Borough Act, 1925, Section 75 Explanation; Bombay Municipal Boroughs Rules, Rule 2(c) - When a rule is struck down by a court, it is deemed never to have been passed; consequently, after the Supreme Court struck down Rule 2(c) in Lokamanya Mills, no charging provision existed for levying house tax on mills, factories and buildings connected therewith. Held that without a charging provision, no house tax could be imposed on those properties. (Paras Not mentioned) B) Validation Act - Retrospective Validation - Need for Charging Section - Borough Municipalities (Validation of Certain Taxes on Buildings and Lands) Act, 1965, Sections 4, 5 - A validating act cannot validate a levy or collection of tax unless the charging section, earlier struck down, is revived or resurrected. The Validating Act did not revive Rule 2(c); it merely provided that floor area could be basis of valuation in the Explanation to Section 75. Held that Section 4 did not resurrect Rule 2(c) and hence no tax could be levied or collected. (Paras Not mentioned) C) Municipal Law - Basis of Valuation - Floor Area for Mills and Factories - Bombay Municipal Borough Act, 1925, Section 75 Explanation (as substituted) - The substituted Explanation to Section 75 only allowed floor area as a basis of valuation for mills, factories and buildings connected therewith; it did not by itself create a charge or authority to levy tax on that class. Held that the absence of a charging provision meant the municipality could not levy house tax on those properties. (Paras Not mentioned) D) Constitutional Law - Article 14 - Avoidance of Constitutional Question - Constitution of India, Article 14 - Since the court concluded that there was no charging provision and the respondents were entitled to relief on that ground, it declined to express any opinion on the validity of sections 3(b), 4(1), 4(2) and 5 of the Validating Act under Article 14. Held that the High Court's order restraining levy and quashing demand notices was correct, and appeals dismissed. (Paras Not mentioned)
Issue of Consideration
Whether Rule 2(c) of the Bombay Municipal Boroughs Rules was available to the appellant Municipality for imposing house tax on mills, factories and buildings connected therewith after it had been struck down by the Supreme Court; and whether the rule could be deemed to have been in operation so that the levy and collection of house tax might be validated with retrospective effect by the Borough Municipalities (Validation of Certain Taxes on Buildings and Lands) Act, 1965.
Final Decision
The Supreme Court dismissed the appeals. It held that when Rule 2(c) was struck down, it could never be deemed to have been passed; neither the Boroughs Act nor the Validating Act contained any other charging provision for house tax on mills, factories and buildings connected therewith; and the Validating Act did not revive Rule 2(c). Consequently, there was no authority to levy or collect the tax. The Court upheld the High Court's order restraining the Municipality from levying house tax and quashing the demand notices, and declined to decide the constitutionality of the impugned sections.
Law Points
- A levy of tax cannot be validated by a validating act unless the charging section
- earlier struck down
- is revived or resurrected
- when a rule is struck down by a court
- it is deemed never to have been passed
- without a charging provision no tax can be levied or collected
- a validating act that only alters basis of valuation but does not create a charging provision cannot authorize imposition of tax.
