Summary
Section 73 of the Bombay Municipal Boroughs Act, 1925 allows the municipality to levy 'a rate on building or lands or both situate within the municipality'. The Rules under the Act applied the rates on the basis of the percentage on the capital value of lands and buildings. In Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad, [1964] 2
S.C.R. 608 this Court held that the term 'rate' must be given the special meaning it had acquired in English law and must be confined to an impost on the basis of the annual letting value; it could not be validly levied on the basis of capital value though capital value could be used for the purpose of working out the annual letting value. Faced with this decision the Gujarat Legislature passed the Gujarat Imposition of Taxes by Municipalities (Validation) Act, 1963. By s. 3 of this Act past assessment and collection of'rate' on lands and buildings on the basis of capital value or a percentage of capital value was declared valid despite any judgment of a court or Tribunal to the contrary, and future assessment and collection on the basis of capital value for the period before and after the Validation Act was authorised. At the same time s. 99 was enacted in the Gujarat Municipalities Act to provide for the levy of a tax on lands and buildings "to be based on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both."Appellant No.1 was a company carrying on the manufacturers of cotton goods at Broach. It was assessed for the assessment years 1961-62, 1962-63 and 1963-64 to a rate on lands and buildings under s. 73 of the Bombay Municipal Boroughs Act on the basis of a percentage of the capital value. It filed writ petitions in the High Court challenging the said assessments. After the Validation Act of 1963 was passed it amended the petitions to challenge the validity and efficaciousness of s. 3 of the said Act. The High Court dismissed the writ petitions. Appeals with certificate were filed before this Court.HELD : (i) When a legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition is that the legislature must possess the power to impose the tax, for if it does not, the action must ever remain ineffective and illegal. Granted legislative competence it is not sufficient to declare merely that the decision of the 389court shall not bind, for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. [392H-393 8]Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the'rules or both are invalid or do not sufficiently create jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction has not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the legislature gives it own meaning and interpretation of the law under which the tax was collected and by legislative flat makes the new meaning binding on courts. The legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. [393B-D]Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the legislature has the power over the subject-matter and competence to make a valid law, it can at. any time make such a valid law and make it retrospectively so -as to bind even past transaction. The validity of a Validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in Validating law for a valid imposition of the tax. [393D-F](ii) After this Court's decision in Sudhir Chandra Nawn's case it could no longer be questioned that the State Legislature had power under entry 49 of List II of the Seventh Schedule to the Constitution to levy a tax on the capital value of lands and buildings. It was open to the State legislature to authorise the municipality to levy the same tax indicating the mode of levy. This the legislature had done by enacting s. 99 of the Gujarat Municipalities Act and by indicating the different modes which may be adopted in making the levy, one such mode being a percentage of the capital value. [394C-E]Sudhir Chandra Nawn v. Wealth-tax Officer, Calcutta, A.I.R.1969 S.C. 59, applied.(iii) The legislature by the Validation Act provided for the following matters. First, it stated that no tax or'rate by whichever name called and laid on the capital value of lands and buildings must be deemed to be invalidly assessed, imposed, collected or recovered simply on the ground that a rate is based on the annual letting value.Next it provided that the tax must be deemed to be validly assessed, imposed, collected or recovered and the imposition must be deemed to be always so authorised. The legislature by this enactment retrospectively imposed the tax on lands and buildings based on their capital value and as the tax was already imposed, levied and collected on that basis, made the imposition, levy collection and recovery of the tax valid, notwithstanding the declaration by the court that as'rate', the levy was incompetent. The legislature not only equated the tax collected to a tax on lands and buildings which it had the power to levy, but also to a rate giving a new meaning to the word 'rate' Sup.C.I/69-11.390 and while doing so it put out of action the effect of the decisions of the courts to the contrary. The exercise of power by the legislature was valid because the legislature does possesses the power to levy a tax on lands and buildings based on capital value thereof and in validating the levy on that basis, the implication of the word 'rate'could be effectively removed and the tax on lands and buildings imposed instead. The tax therefore could no longer be questioned on the ground that s. 73 spoke of a rate and the imposition was not a rate as properly understood but a tax on capital value. [394F-395E]See the full content of this document
Extract
Shri Prithvi Cotton Mills Ltd. & Anr. VS. Broach Borough Municipality & Ors.
PETITIONER: SHRI PRITHVI COTTON MILLS LTD. & ANR.Vs.RESPONDENT: BROACH BOROUGH MUNICIPALITY & ORS.DATE OF JUDGMENT: 25/04/1969BENCH: HIDAYATULLAH, M. (CJ)BENCH: HIDAYATULLAH, M. (CJ)SHELAT, J.M.BHARGAVA, VISHISHTHAHEGDE, K.S.GROVER, A.N.CITATION: 1970 AIR 192 1970 SCR (1) 358 1969 SCC (2) 283CITATOR INFO : R 1970 SC1292 (7)RF 1971 SC 231 (6)R 1972 SC1061 (89,100,139,174)RF 1972 SC1148 (5)RF 1972 SC2205 (21)RF 1973 SC1461 (596)R 1974 SC1069 (63)RF 1975 SC1116 (3)RF 1975 SC2299 (190,607)R 1977 SC1686 (6)R 1978 SC 803 (26)R 1979 SC1550 (14,19)E 1984 SC1291 (12)RF 1984 SC1780 (11)F 1985 SC1683 (6,7)RF 1988 SC 587 (15)R 1989 SC 516 (30)F 1990 SC 781 (47)ACT: Bombay Municipal Boroughs Act, 1925, s. 73-Levy of 'rate' on tax and build...
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