CIVIL APPELLATE JURISDICTION Civil Appeal No. 1852 of 1967. Appeal by special leave from the judgment and order dated March 28, 1967 of the Mysore High Court in Writ Petition No. 704 of 1966. R. B. Datar, for the appellant. A. R. Somnath Iyer and S. P. Nayar, for respondent No. 1. Rameshwar Nath, for respondent No. 2. The Judgment of the Court was delivered by Sikri C. J This appeal by special leave is directed against the judgment of the High Court of Mysore dismissing the prayer for a declaration of the invalidity of s. 99(2)(b) of the City of Bangalore Municipal Corporation Act, 1949hereinafter referred to as the Corporation Act-as amended by the City of Bangalore Municipal Corporation (Amendment) Act, 1964-hereinafter referred to as the 1964 Act. By its judgment dated March 28, 1967 the High Court gave a limited relief to the appellant in respect of the notice No. 4606 dated March. 31, 1966 issued by the Assistant Revenue Officer, Corporation of Benglore, to the appellant and quashed it to the extent it related to the period anterior to, the date of notice. The following points were urged before the High Court
"(1) The new provision, section 99(2)(b) of
the Corporation Act, introduced by the
amending Act is beyond the legislative
competence of the State Legislature.
(2) The said provision is violative of the
fundamental rights of the petitioners
guaranteed under Articles 14 and 19(1)(f) of
the Constitution.
(Note : The case of alleged violation of
Article 19 (1)(f), it is conceded, is not
available to the petitioner in writ
Petition 704 of 1966 which is an incorporated
Company.)
(3) The Corporation has omitted to observe
the procedure prescribed by section 98 of the
Corporation Act, and cannot therefore levy the
tax."
Two other points were raised with which we are
not concerned. The learned counsel for the appellant, in view of our decision in Assistant Commissioner of Urban Land Tax v. The Buckingham & Carnatic Co.,(1) has not pressed point No. 1 before us. In order to appreciate the other points it is necessary to set out a few facts. The appellant company are the proprietors of the West End Hotel, Race Course Road, Bangalore. The premises of the hotel comprises a total extent of 19.43 acres or 11,19,168 sq. ft. out of which the building area is 1,05,683 sq. ft. The entire vacant land, excluding the built area and appurtenant thereof is being made use of for the beneficial enjoyment of the building in the area as garden and lawns. Pursuant to the powers conferred upon the Municipal Corporation of Bangalore under the Corporation Act, as amended by the 1964 Act, to levy tax on the basis of estimated market value of lands, a notice was issued to the appellant on March 30, 1966 demanding a sum of Rs. 35,717.20 as tax on vacant land. It was stated in the notice that the vacant land, over and above the limit, measuring 89,293 sq. yds. is assessed at 0.4% of the market value, plus Education Cess, plus Health Cess with effect from April 1, 1965. Property tax was also demanded on the building of the hotel but no question arises in this case as to its validity. The High Court expressly stated that they were excluding from consideration in this case all contentions of the appellant relating to property tax on buildings. and the appellant was (1) [1970] 1 S. C. R. 268. left to pursue his normal remedies under the Corporation Act regarding the property tax on buildings. Objections were filed on behalf of the appellant before the Commissioner. The appellant also filed a writ petition under art. 226 of the Constitution challenging s. 99(2)(b) of the Corporation Act, as amended by the 1964 Act, as unconstitutional and void and prayed for other consequential reliefs. We may now set out the relevant provisions of the Corporation Act, as amended by the 1964 Act. Part III Chapter V of the Corporation Act deals with taxes. Section 97 enumerates taxes and duties which the Corporation may levy and one of the taxes enumerated therein is "a property tax". Section 98(1) requires that before the corporation passes any resolution imposing a tax or duty for the first time it shall direct the commissioner to publish a notice in the Official Gazette and fix a reasonable period not being less than one month from the date of publication for submission of objections. The sub-section further provides that the Corporation may after considering the objections, if any, received within the period specified, determine by resolution to levy the tax or duty and such resolution shall specify the rate at which, the date from which and the period of levy, if any, for which such tax or duty shall be levied. Sub-s. (2) of s. 98 provides that "when the corporation shall have determined to levy any tax or duty for the first time or at a new rate, the commissioner shall forthwith publish a notice in the manner laid down in subsection (1) specifying the date from which, the rate at which and the period of levy, if any, for which such tax or duty shall be levied." Sub-sections (3) and (4) are not relevant for our purpose.
Section 99(1) reads as under:
"If the corporation by a resolution determines
that a property tax shall be levied, such tax
shall be levied on all buildings and lands
within the city save those exempted by or
under this Act or any other law."
sub-section (2) of s. 99, provides
"(2) save as otherwise provided in this Act,
the property tax shall be levied,--
(a) in the case of buildings at such
percentages, not being less than ten per
cent and not more than twenty per cent of the
annual value of such buildings as may be fixed
by the Corporation:
Provided that the percentage to be fixed may
be different for different classes of
buildings.
(b) in the case of any land at 0.4 per cent
of the market value of the land:
Provided that the tax levied on any such land
shall not be less than rupees ten per annum.
Explanation.-For purposes of this section,
’building includes any land appurtenant to
such building used as garden and grounds for
the more beneficial enjoyment of such
building, not exceeding thrice the area
occupied by such building."
Sub-section (3) of s. 90 reads:
"(3) For the purposes of assessing the
property tax the annual value of any building
or the market value of the land shall be
determined by the Commissioner:
Provided that the annual value of any building
or the market value of the land the tax for
which is payable by the commissioner shall be
determined by the mayor."
Section 100(1) provides that every building
shall be assessed together with its site and
other adjacent premises occupied as
appurtenances thereto unless the owner of the
building is a, different person from the owner
of such site or premises. Sub-section (2) of
s. 100 provides:
"The annual value of a building shall be
deemed to be the gross annual rent at which
such building may at the time of assessment
reasonably be expected to let from month to
month or from year to year, less a deduction
of 16 2/3 per cent of such annual rent and the
said deduction shall be in lieu of all
allowance for repairs or on any other account
whatever...... (proviso omitted)." Sub-section (3) provides that "the market value of lands shall be determined in accordance with the estimated value at the time of assessment of such lands in the area in which such lands are situate." It is contended that the tax on vacant land is violative of Art. 14 of the Constitution because (i) it is levied at an average rate without any relation to the actual or potential income of the land; (ii) the manner of determining the market value was discriminatory, and (iii) the classification of vacant land and land’ appurtenant to a building is discriminatory. The learned councel relied on the decision of this Court in Kunnathat Thathunni Moopil Nair v. The state of Kerala(1). It will be remembered that the charging section in that case was s. 4 of the Travancore-Cochin Land Tax Act, 1955, which read as follows:
"4. Subject to the provisions of this Act,
there shall be charged and levied in respect
of all lands in the State, of whatever
description and held under whatever tenure, a
uniform rate of tax to be called the basic
tax."
Our attention was drawn to the following
passage in Chief Justice Sinha’s judgment:
"It is common ground that the tax, assuming
that the Act is really a taxing statute and
not a confiscatory measure, as contended on
behalf of the petitioners, has no reference to
income, either actual or potential, from the
property sought to be taxed.........
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, and, therefore, is
levied with due regard to the incidence of the
taxation. 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 arid desert. The second one
does not make any income, but could raise some
crop after a disproportionately large invest-
ment 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.".
(1) [1961] 3 S. C. R. 779 91. We are unable to hold that the impugned Act is discriminatory. The scheme of the Act is that the market value of the land is first ascertained and then tax at 0.4 per cent is levied. Under sub-s. (3) of S. 99 the Commissioner has to determine the urged by the learned counsel that the expression "estimated as to how to determine the market value of the land. It was urged by the learned counsel that the expression "estimated value" and the word "area" are very vague. We are unable to agree with him in this respect. In the context of determining the market value of the land, which has a well-known connotation, the Commissioner is directed to look at the lands in the area of the land which is being assessed. In the context he can only look at the lands which are similarly situate, and are similar in nature to the lands being assessed, and the area must mean the locality in which the land being assessed is situate and the extent of the locality would be determined by the well-known characteristics such as commercial area, residential area or factory area, etc. In other words the sub-section is drawing the attention of the Commissioner to the well-known principle, which is followed in assessing the market value, that lands similarly situate and of similar potentiality should be taken as exemplars. The next question that arises is whether fixing property tax at 0.4 per cent is itself discriminatory. We are unable to see how this is discriminatory. This Court has held that the State legislatures have power to levy property tax by assessing the market value of it and levying a percentage on it. If all lands are assessed to the same rate of taxation we are unable to see how there is per se any discrimination. The facts in Kunnathat Thathunni Moopil Nair v. The State of Kerala(1) were quite different. There no attention was paid at all to the income of. the land. Here it is true that income of the land is not taken into consideration and instead market value is the basis of taxation But market value of land always bears a definite relationship to the actual or potential income being derived or derivable from the land and there cannot be any objection to a levy at uniform rate on the market value. Reference was made to the decision of this Court in State of Kerala v. Haji K. Kutty(2). There the facts were again quite different. The legislature adopted the floor-area of the building as the basis of tax irrespective of all other consideration. The market value of the property stands on a different footing because, like income, the market value of property is one of the indices of the benefit which the owner derives or can derive from It and the very concept of market value takes, into account the present or the potential income and other relevant considerations. (1) [1961] 3 S. C. R. 77. (2) (1969) 1 S. C. R. 645 It was next contended that the classification of vacant land is discriminatory. While land appurtenant to a building used as garden and as grounds for the more beneficial enjoyment of such building, not exceeding thrice the area occupied by such building, has been treated as a part of the building and taxed as such, land in excess of thrice the area of a building and other lands not appurtenant to buildings have been classified separately. The learned counsel said that the distinction is artificial as the land in excess of thrice the area of a building is also being used for the same beneficial enjoyment of the building. It seems to us that in cities like Bangalore, where land is scarce, excessive use of land as gardens and grounds is not in the public interest and the legislature can validly tax the excess land on a different and higher basis. It may in a particular case cause hardship but the legislature cannot be denied the right to classify the lands in such a manner. Three times the area occupied by a building is not a small area and we are unable to hold that this figure is not reasonable. It was said that the Act did not give any indication as to which land would be treated as surplus but in our view it is nit necessary to specify the lands because the idea is to tax the excess land being used for a particular building and as this land would be located in a block it was not necessary to specify the land. The last point urged before us was that this was a new tax and the procedure prescribed in s. 98 should have been followed. We are unable to hold that it is a new tax. Tax was being levied before the 1964 Act. The lands were being assessed to property tax even before the 1964 Act, either separately or as part of the building. We cannot say that this tax is being imposed for the first time within the meaning of s. 98. In the result the appeal falls and is dismissed but in the circumstances there will be no order as to costs. G.C. Appeal dismissed.