Corporation of Madras vs The Reserve Bank of India

Jagadisan, J.—The Petitioner is the Corporation of Madras. It levied on the Reserve Bank of India, Madras, a tax called companies tax for

six half years commencing from the second half-year of 1955-56 to the first half-year of 1958-59 at one thousand rupees per year. The Bank

objected to the levy and preferred an appeal to the Taxation Appeals Committee. The Committee, however, confirmed the levy. Thereupon the

Bank preferred a further appeal in the Court of Small Causes at Madras and contended that the levy of tax was improper and invalid. The Court of

Small Causes allowed the appeal and held that the Bank was not within the purview of the City Municipal Act and that the levy of Companies Tax

was, therefore, not in accordance with law. In this Civil Revision Petition, the Corporation of Madras contends that the order of the Court of Small

Causes cancelling the levy of tax imposed under the provisions of the City Municipal Act is unsustainable in law.

In order to appreciate the legal submissions made in the case both by the learned Counsel for the Corporation and the learned Counsel for the

Bank, it is necessary to refer briefly to the relevant statutory provisions. The power of the Corporation to levy tax on companies is provided for u/s

110 of the Madras City Municipal Act, 1919. It is in these terms:

If the council by a resolution determines that a tax- on companies shall be levied, every company which, after the date specified in the notice

published under Sub-section (2) of Section 98-A transacts business within the city in any half year for not less than sixty days in the aggregate shall

pay, in addition to any licence fee that may be leviable under this Act, a half-yearly tax assessed in accordance with the rules in Schedule IV, but in

no case exceeding rupees one thousand.

(The proviso is omitted as it is not relevant for the present case.)

There is no difficulty in comprehending the scope of this provision of law. Every company transacting business within the City in any half-year for

not less than sixty days in the aggregate is liable to pay the tax. It is the definition of the word company which is really important and which calls for

interpretation. Section 3(9-A) of the Act defines company:

Company means a company as defined in the Indian Companies Act, 1913, or formed in pursuance of an Act of Parliament of the United

Kingdom or of Royal Charter or Letters Patent, or of an Act of the Legislature of a British possession or of a law of an Indian State, and includes

any foreign company, whether incorporated or not, and any co-operative society registered or deemed to be registered under any law for the time

being in force in a Part A State or a Part C State.

I shall now refer to the terms of the Reserve Bank of India Act, 1934, as they have a bearing on the question whether the Reserve Bank falls

within the definition of the word company under the Madras City Municipal Act. The preamble to this Act reads:

Whereas it is expedient to constitute a Reserve Bank of India to regulate the issue of Bank notes and the keeping of reserves with a view to

securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage;.....

Section 2(a) states that:

The Bank means the Reserve Bank of India constituted by this Act.

Section 3(1) provides that:

A Bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the

Central Government and of carrying on the business of banking is accordance with the provisions of this Act,

Section 3(2) enacts that:

The Bank shall be a body corporate by the name of the Reserve Bank of India, having perpetual succession and a common seal, and shall by the

said name sue and be sued.

Sections 2 and 3 and some other provisions of the Act came into force on 1st January 1935, and the other provisions in the Act came into force

on 1st April 1935, and, this was by appropriate notifications by the Central Government in the Gazette of India. Now, turning to the definition

section of the City Municipal Act, defining company it is obvious that the Reserve Bank is not a company as defined under the Indian Companies

Act, 1913, or the new Companies Act, 1956. Nor is it formed in pursuance of an Act of Parliament of the United Kingdom or of Royal Charter or

Letters Patent. But, certainly the Reserve Bank of India Act, 1934, is an Act of the Legislature of a British possession. India, having been a British

possession in 1934, when the Act was brought upon the statute book. So far the position is clear. But there are certain words in Section 3(9-A)

which should not be lost sight of. The company should be formed in pursuance of an Act of Parliament of the United Kingdom or of Royal Charter

or Letters Patent, or of an Act of the Legislature of a British possession or of a law of an Indian State. Can it be said that the Reserve Bank has

been formed in pursuance of an Act of the Legislature of a British possession? That is the sole and vital question now in issue.

That the Reserve Bank is a statutory corporation created by the special enactment does not admit of any doubt. In fact, the express provisions

of the Act state that the Reserve Bank is constituted by the Act. The Act also expressly states that the Bank shall be a body corporate by the name

of the Reserve Bank of India. I may here mention one argument of Mr. Chengalvaroyan, the learned Counsel for the Petitioner, only to reject it. He

contends that the Bank came into existence not as a direct result of the passing of the enactment, but, by a separate notification under the Act, and

that brought the Bank within the provisions of the City Municipal Act. It seems to me that this contention is repugnant to the substantive provisions

of the Reserve Bank Act, as unmistakably the Act states that the Bank is constituted by the Act. It is true that Section 3 of the Act which states

that a Bank shall be constituted for the purpose of taking over the management of the currency came into operation by a notification of the Central

Government published in the Gazette of India. This notification was issued only to bring into effect certain provisions of the Act including Sections 2

and 3. The Bank is incorporated by the Act and the notification was merely instrumental in setting the wheels of the Act in motion.

The decision in Elve v. Boyton (1891) 1 Ch. 501, is of no assistance to Mr. Chengalvaroyan who cited it in support of his contention that the

Bank was not the creature of the Act but the creature of the notification. In Elve v. Boyton (1891) 1 Ch. 501, by an Act of Parliament, the Crown

was empowered to grant a charter of incorporation to a marine insurance company. In pursuance of this Act, the Crown granted a charter to a

concern called the London Assurance. A trustee of a Will, who had power to invest in shares of any company incorporated by Act of Parliament

invested in shares of the London Assurance. The question raised was whether the London Assurance was a company incorporated by an Act of

Parliament within the meaning of the investment clause. The Court of Appeal held that it was such a company. The following observations of

Lindley L.J., at page 508, has been relied upon by the learned Counsel:

Now let us take the case and stop there, and ask ourselves whether such a corporation so created is not, in the language of this will, incorporated

by Act of Parliament? It is said, no; it is incorporated by Charter. The answer is, it would have been impossible, without the Act of Parliament, to

create such a corporation by that Charter or any other Charter. The real truth is, that, if you look at it very closely, the corporation owed its birth

and creation to the joint effect of the Charter and of the Act of Parliament, and you can no more neglect the Act of Parliament than you can neglect

the Charter. It appears to us that, upon any reasonable construction of this clause, this first corporation was a corporation incorporated by Act of

Parliament within the true meaning of that clause.

That was a case quite different from the present case. The Act of Parliament empowered the grant of a charter of incorporation to a marine

insurance company. It was open to the competent authorities to issue or not to issue a charter. Without a charter, the insurance company would

not get special privileges, as contemplated. In the opinion of the learned Lord Justice, the charter was as essential and important as the Act of

Parliament and certainly the charter was not a negligible factor. The corporation itself could not have come into existence without the charter. It

cannot be said in the present case that the incorporation of the Bank was as a result of the notification. It is familiar legislative practice to bring into

operation portions of an enactment on different dates according to the attendant circumstances; Section 1(3) of the Reserve Bank of India Act

reads:

This section shall come into force at once, and the remaining provisions of this Act shall come into force on such date or dates as the Central

Government may, by notification in the Gazette of India, appoint.

It seems to me that because portions of the Act came into force on a certain day and the other portions, on a certain other day, it cannot be said

that the incorporation or the creation of the statutory body itself was caused by the Central Government''s notification of the date of operation of

the incorporating provision.

In the view that the Bank is constituted by the Act, the question would be whether it falls within the purview of the definition of company under

the Madras City Municipal Act. It is the precise meaning of the words in pursuance of that arises for decision and which is of clinching importance.

The learned Counsel for the Corporation contends that the words in pursuance of really means by. This is met by the learned Counsel for the Bank

who contends that the proper meaning of the expression is under. The genesis of the rival contentions put forward in the present case is really the

decisions of this Court in G. Narayanaswami Naidu Vs. C. Krishnamurthi and Another, One of the questions that came in for consideration in that

case was whether the disqualification of a candidate for election to the Legislative Assembly or Legislative Council of a State was one which could

properly be described as imposed by or under any law made by Parliament. It was in this connection that Rajagopala Ayyangar, J., as he then

was, dealt with the distinction between by and under a law. At page 547 the following observations occur:

That the article in the Constitution draws a distinction between a disqualification imposed by a law made by Parliament and one imposed under a

law made by Parliament would appear to admit of no doubt...it is this idea which is expressed in the following passage in Stroud''s Judicial

Dictionary dealing with the word by; A company incorporated by Act of Parliament means one which by an Act is brought into existence, and

does not include a company incorporated under an Act; therefore, a power to invest in the shares, etc., of a company incorporated by an Act,

does not include the shares, etc., of a company registered under the Companies Act, 1862, In Re. Smith, Davidson v. Myrtle (1896) 2 Ch. 590.

The distinction is too well known to need any further elaboration.

The words that I have to construe are in pursuance of. These are not words of art; nor do they connote any definite legal concept. One has

necessarily to be guided by the dictionary meaning to ascertain their true sense. Pursuance means carrying out or following out. Pursue means to

proceed in accordance with. One of the meanings given to the word by is in accordance with. A body corporate incorporated by a special

enactment can well be said to have been so created in pursuance of the Act. I do not think it would be misuse of the English language to

understand the expression in pursuance of as by in a particular context, I, may refer to the decision of the Rajasthan High Court in Sadaria v.

Rajasthan Board of Revenue ILR (1954) 4 Raj. 861 just to point out that the words in pursuance of have a wide range of meaning. At page 225,

one of the learned Judges observes as following:

The words tin pursuance of do not mean what would be conveyed by in exercise of powers conferred by. The words in pursuance of have several

meanings, and the most appropriate in the present case would be ''confirmable to'' or ''in accordance with'',

In that case there was an ordinance in the following terms:

The Rajasthan (Protection of Tenants) Ordinance shall come into force at once and shall remain in force for a period of two years unless this

period is further extended by the Rajpramukh by notification in the Rajasthan Gazette.

The extension of the life of the Ordinance was made by a notification which ran thus:

In pursuance of Sub-section (3) of Section 1 of the Rajasthan (Protection of Tenants) Ordinance, 1949 (No. 9 of 1949), His Highness the

Rajpramukh is pleased to extend the period for which the said Ordinance shall remain in force for a further term of two years with effect from 21st

June 1951.

The contention urged was that there was delegation of legislative powers as the extension was made by somebody and not in accordance with the

provisions of the ordinance. This was not accepted by the Division Bench of the Rajasthan High Court. The appropriateness of this citation is only

for the specific purpose of showing that the words in pursuance of have to be understood and interpreted having regard to the context in which

they are found.

There is no indication in the scheme of the provisions of the City Municipal Act relating to the levy of tax on companies that the Legislature

intended that the subject of the levy should only be such corporate bodies as are not directly created by a statute, but, which come into existence

as a result of certain enabling provisions of enactments. It is not the intention that matters, but the words employed. No rule of interpretation of

statutes, however, forbids the ascertainment of the legislative mind to the extent indicated by the phraseology. If the contention urged on behalf of

the Bank were to be accepted, it would really mean that a large section of corporate bodies which spring into existence as a direct result of

constitution under statutes should go out of the purview of the Municipal Act. It seems to me that the general trend of the definition of the word

company occurring in Section 3(9-A) of the City Municipal, Act is such as to bring within its scope all corporate bodies, irrespective of the fact

whether they wore the direct progeny of a statutory enactment or the indirect result of a statute which enabled the body to come into existence. I

should think that the term company as defined in the City Municipal Act has to receive a liberal interpretation giving the words occurring therein

their full and comprehensive meaning. I have no hesitation in holding that the words in pursuance of are of wide amplitude, not susceptible of being

limited to and read as equivalent to the word under in contrast to the word by. I hold that the Reserve Bank of India is a company u/s 3(9-A) of

the City Municipal Act and that the levy of companies tax u/s 110 was properly made.

In the result, the Civil Revision Petition is allowed. The order of the Court of Small Causes, Madras, is set aside. There will, however, be no

order as to costs throughout.