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Judgment
Kalyan Jyoti Sengupta, J.—By this petition-the Petitioners challenged the vires of Section 174(4) of the Kolkata Municipal Corporation Act, 1980 (hereinafter referred to as the said Act) or in, the alternative a declaration that the valuation of a building or a portion of which is used for public cinema shows or any of the purposes mentioned in Section 174(4) of the said Act by a tenant and not by the landlord cannot be determined u/s 170(4) of the said Act and also asked for quashing of the order dated August 29, 2002.
The short fact of the case is that the Petitioners No. 1 is a public charitable trust and being managed and administered by the Petitioner Nos. 2 to 8 who are the trustees under the scheme framed by this Hon''ble Court. A portion of the premises has been let out for running a cinema show known as ''Naz Cinema'' at monthly rent of Rs. 2,000/-. The above building has been valud for the purpose of payment of property tax u/s 174(4) of the said Act by the hearing officer by, the impugned order. Section 174(4) of the Act enables to take into consideration of income amongst others from cinema business for determining gross annual rent for the purpose of levying property tax. The aforesaid Sub-section is quoted hereunder:
174 Determination of annual valuation.
1.
2.
3.
(4) In the case of any land or building or part thereof used for public cinema shows or theatrical purposes or as a place of similar public recreation, amusement or entertainment, the gross annual rent of such land or building or part, as the case may be, shall be deemed to be 71/2 % of the gross annual receipts in respect of which cinema shows of theatrical purposes or place o1 public recreation-, amusement or entertainment, including receipts from rent and advertisements and sale of admission tickets but excluding tax on the sale of such tickets.
Provided that the provisions of the Sub-section shall not apply in the case of temporary fairs, circuses and casual shows or purposes.
The said business of cinema show is not a temporary one.
Mr. Bhaskar Sen, learned Senior Counsel submits while supporting this petition that the aforesaid Sub-section (4) ultra vires Constitution of India in as much as the measure for determination of annual rent in essence is a tax on income from the business of the cinema show and the same does not relate to land and building. The Slate legislature is not competent to legislate for imposition or levy of tax on income. The object of the present Act is to enable Corporation to realize tax in relation to land and building which falls under entry 49 of list II in the 7th schedule of the Constitution of India, whereas tax on income falls under entry 82 of list I in the same schedule, He contends further that upon, careful reading of the aforesaid Sub-section it appears that determination of the tax has no bearing nor any relation to the building rather it has got direct nexus with the income of cinema business.
His next contention is that, the method is wholly irrational and absurd by reason of fact that the same will not achieve basic purpose and object as mentioned in Section 171(1) of the said Act. To clarify it, he contends, that in the event any income in the cinema business nil in a particular year there cannot be-any levy of tax in relation to the house and building and in true sense the owner of that land and building will be enjoying exemption which is contrary to the object and purpose of the Act.
Moreover, there is no intelligible differentia for making such classification with regard to the nature of the building for the purpose of realization of the tax. The house and-building let out for the purpose as mentioned in the said Sub-section are treated differentially from the other house and building not used nor let out for the aforesaid business purpose. He also submits there is hostile discrimination as there is no provision for deduction of 10% on account of cost of the repairs and other expenses to maintain such land or building in a state to command annual receipt whereas in case of land and buildings that are used for the purpose as mentioned in the aforesaid Sub-section (1) such provision is there. So, it offends Article 14 of the Constitution of India.
In the alternative he submits that the aforesaid Sub-section may be declared to be applicable in case of house and building used for the purpose mentioned in the Sub-section by the owner himself, not in case of user by the tenants. In the event the writ petition succeeds, he Submits, the impugned order is liable to be set aside automatically and be set aside. In support of his submission he has relied on the following decisions in the case of M/s. Orissa Cement Ltd. and Others Vs. State of Orissa and others, , India Cement Ltd. and Others Vs. State Of Tamil Nadu and Others, Bhagwan Dass Jain Vs. Union of India (UOI) and Others, , Budhan Choudhry and Others Vs. The State of Bihar, .
Mr. Asok Das Adhikary while opposing the application contends that validity of the aforesaid section is no longer res Integra. In the case of Roma Sur v. Calcutta Municipal Corporation 95 C.W.N. 58 reported in, the constitutional validity of amongst other Section 174 was challenged and this Court declared the said section is constitutionally valid.
His next contention is that in the judgment though incompetence of the state legislature was not taken but the same was decided on some other points. As such challenge of the said section on some other ground is not permissible. In this connection he has relied on decision of the Supreme Court in the case of Delhi Cloth and General Mills Ltd. Vs. Shambhu Nath Mukherji and Others, , Commissioner of Wealth Tax, Hyderabad Vs. Trustees of HEH, , Land and Brick Entertainment Ltd. v. Calcutta Municipal Corporation 2000 (1) C.H.N. 594 : 1951 (2) A.E.R. 587 : 1951 (2) A.E.R. 587 , Government Servant Co-operative House Building Society Limited and Others Vs. Union of India and Others, , Khyerbari Tea Co. Ltd. and Another Vs. The State of Assam, and R.K. Garg and Others Vs. Union of India (UOI) and Others, cited by him are not helpful in this case.
His further contention is that annual receipt from the cinema shows etc. as mentioned in the said Sub-section is not an income and the same is treated to be a measure for determintion of property tax and this annual receipt, is arising out of the use of the land and building, so the basis of determination of rent has got direct nexus and relation to the land and building.
Mr. Indrajit Sen, appearing for the learned Advocate General contends that Section 174(4) does not suffer from any unconstitutionality. The method of determination of the annual rent evolved thereunder, is not really enacted to impose any tax on income rather impost of land and building and the same is perfectly within competence of state legislature. The annual receipt mentioned in the said Sub-section is though relatable to the income from the use of building, this is one of the methods to realize tax in relation to the land and building. He contends that some degree of overlapping in enacting laws between the two lists, namely List I and List II in the 7th Schedule of the Constitution is bound to occur. The court should look into the pith and substance of the aforesaid Sub-section and not in the form. In support of his contention he has relied on two decisions of the Supreme Court reported in Goodricke Group Ltd. v. State of West Bengal 1995 (Suppl.) 1 S.C.C. 707 and B.S.E. Brokers Forum, Bombay and Others etc. Vs. Securities and Exchange Board of India and Others etc., .
I have carefully considered the contention and rival contention of the respective learned Counsels. Basic point for consideration in this matter is whether the State legislature is competent to legislate Sub-section (4) of Section 174 of the said Act or not. Before deciding the issue it is necessary to examine whether the measure and method in the aforesaid Sub-section is an impost on the land and building and if not then whether this subject falls within State List or not.
It is argued that in Roma Sur''s case constitutional validity of Section 174 as a whole has been /decided that the said section is held to be intravires Constitution. It has been further argued that in view of the Supreme Court decision reported in Delhi Cloth Mills Ltd. v. Sambhunath Mukherjee(Supra) once constitutional validity is decided it is not open to decide the same issue again on some other new point. There is no dispute to the proposition and principle laid down by the Hon''ble Supreme Court. In my view plea of constructive-res judicata is applicable in relation to same litigating parties but it is settled position if it is decided on a principle of law by any competent Court of law, this will be treated as a binding precedent in the subsequent case; In Roma Sur''s case the learned Judge has not decided nor there was any argument on, the question of validity and legality of Section 174(4) in particular, of the Act, Sections 174(1) and 174(4A) were challenged in reference to Article 14 of the Constitution. His Lordship discussed therein as regard the aforesaid two Sub-sections. There was no separate decision on this Sub-section (4) of Section 174. His Lordship without any discussion or decision held in general that all the contentions and submissions made in respect of Section 174 of the said Act for declaring the same as ultra vires appear to be without any substance and/ or misconceived and the said provision, is constitutionally valid. So the above decision was rendered in the context of argument advanced. I find argument was confined in Sections 174(1), 174(4A). I am of the view sweeping conclusion without argument being advanced or any reasoning or discussion of Sub-Section 174(4) of the Act is not binding. Accordingly the decision of Supreme Court reported in Delhi Cloth & General Mills Co. Ltd. v. Sambhunath Mukherjee(Supra) is of no assistance.
In my view challene on the anvil of Article 14 of the Constitution of India stands on different footing from that of the challenge on the question of competence of the legislature. Question of competence of the legislature goes deep into the root of the matter as, if the legislature is found not to have been empowered to enact on a particular subject the entire Act is void one, whereas the challenge based -on Article 14 of the Constitution of India is still open albeit competence of legislature.
Mr. Sen contends that applying pith and substance theory if Section 174(4) of the said Act is examined it will appear it is an impost on income arising out of the user of the building and is a measure to determine property tax. The provision of the aforesaid Sub-section is very clear. The argument of Mr. Sen is impressive at the first blush. But on close examination of the subject it does not appear to be so. By the aforesaid Section 174(4) of the said Act the legislature intends that gross annual rent is to be ascertained taking gross annual receipts in respect of cinema shows, theatrical performance and other sources in connection therewith as basis thereof.
In my view the expression ''annual receipt'' is nothing short of income and this income is relatable to the business of the cinema or other public entertainment mentioned in the aforesaid Sub-section. This income cannot be equated with the income from house and building. The cinema business is carried out using the building in question with investment of capital and effort of the owners or operators of the cinema house and their employees. Tire other income while carrying on cinema business mentioned in the aforesaid Sub-section are arising because of the attraction of and consequent upon such business. The income from the house and building is distinct from the income of cinema shows, theatrical performance, etc. held in the building in case of former no further capital nor any human effort is required. In this case this particular house and building is let out to the private Respondent who is paying rent for user o the same and this rent is yielding because of user can be basis and/or measure for imporing tax on the said building as it is static or invariable unless disturbed by the contracting parties themselves and further it has direct nexus to the building. It is worthwhile to note that rental income is not taken as basis of determination of Annual rent.
Thus, I am unable to accept the contention of Mr. Indrajit Sen that it is measure or basis for imposition of. tax on the house and building. The basis is. wholly-unreliable'' and irrational because of its variability and unpredictability. If. for any reason no annual receipt is fetched from the cinema shows or theatrical performance then the property tax cannot be levied from the building, eventually the property would be exempted from payment of taxes. It is antithesis to basic object of this legislation so far as levy and realization of property tax is concerned. In support of any aforesaid observation the decision of the Supreme Court reported in the case of India Cement Ltd. and Others Vs. State Of Tamil Nadu and Others, is appropriate. In that case Section 115 of the Madras Panchayats Act, 1958 (as amended by Act of 1964) was challenged on the ground of legislative incompetence. By the said Act local cess at the rate of 45 paise per rupee was sought to be imposed on the amount of the royalty imposed and realized in the corresponding Central Act. The aforesaid levy in the said Act was sought to be made and realized on the plea the same related to impost on land in entry 49 of List II. The Supreme Court while examining the aforesaid Section held that such levy of cess did not relate to pith and substance of the land or land revenue. Therefore, the said legislature is wholly incompetent to make provision by Section 115 to realize any cess. In the context of this factual aspect in para. 22 at page 93'' of the said judgment it was observed amongst other that:
But in the instant case royalty being that which is payable on the extraction from the land and cess being an additional charge on that royalty cannot, by parity of the same reasoning be considered to be a tax on land. But since it was not a tax on land and there is no entry like entry 46 in the instant situation like the position before this Court in the aforesaid decision, .enabling the State to impose tax on royalty in the instant situation, the state was incompetent to impose such a tax/there is a clear distinction between tax directly on. land and tax on income arising from the land.
It has been again observed in para. 23 of the same judgment by the Supreme Court that royalty which is indirectly connected with the land cannot be said to be a tax directly on land'' as unit.
The aforesaid India Cement case Ltd. was considered by another Constitution Bench of the Supreme Court in the case of M/s. Orissa Cement Ltd. and Others Vs. State of Orissa and others, . In the case of Orissa Cement under the concerned Orissa State Act and also other large number of State Acts cess was sought to be levied on the royalty of the mining operation. It has been observed in para. 27 amongst other that:
Therefore, the present cess is not a tax on mineral rights. It is a tax on the minerals actually produced and can be no different in pith and substance from a tax on goods produced which comes under item 84 of List I, as duty of excise; The present levy therefore under s: 4 of the Act cannot be justified as a tax on mineral right.
Again in para. 28 of the said judgment it has been observed amongst other that:
Can, then the cess be described as a tax on land ? The'' Statute considered in India Cement as Sri Iyer correctly points out, was differently worded. It purported to levy a cess oh land revenue and the royalty was brought within the definition of that expression. It was therefore, a case where the levy had no reference to land at all but only to the income from the land in the case of Government lands, got by way of land revenue or otherwise.
In case of Goodricke Group Ltd.(Supra) the Supreme Court held that:
The cess imposed in respect of land taking the yield and/or income to the land in question is held to be the tax on land so it was thus within the competence of the state legislature under 49 of list 2 of 7th Schedule.
In this decision all the earlier decisions on this subject were examined and it was observed in para. 32 thereof amongst other that:
The tax on land or building reasonable speaking cannot include income from a manufacturing activity carried on such land or the income of an industry run upon such land. The products of such manufacturing activity and industry would be of such manufacturing activity and industry, as the case may be and not of the land whereas the tea leaves are the produce/ yield of the land. The distinction is too obvious to be glossed over. Similarly, the income of a building would mean the rent that is or that can be received, it cannot include the income of some activity carried on therein....
The reliance placed on a decision of Supreme Court reported in B.A.E. Brokaforum Bombay v. Security Exchange Bond of India (Supra) by Mr. I. Sen is of no value. This decision dealt with challenge to Regulation 10 of Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulation, 1992. By this Regulation a fee is prescribed for levy on Stock Brokers taking annual, turn over as measure. This fee was held to be regulatory one and-it has nexus with object of regulatory measure in shares and stock dealings and transaction. It was held not to be tax. A portion of observation in this context of the Apex Court in para. 39 (P.1024) is very relevant and appropriate, accordingly the same is set out,
....What the Court has to investigate while examining a Challenge of this nature is to see what is the primary object of the Regulation for which the fee is being collected and find out whether the Regulation in question is in public interest or not. Once the levy is in public interest and connected with larger trade in which the contributories are involved then confirming the services only to the contributories does not arise, as has been held by this Court in City Corporation of Calicut Vs. Thachambalath Sadasivan and Others, Applying the said principle, we are of the opinion that since the amount collected under the impugned levy is being spent by the Board on various activities of the stock and securities market with which the Petitioners are directly connected, the fact the entire benefit of the levy does not accrue to contributions i.e. the Petitioners would not make the levy invalid.
From the aforesaid decision of the Supreme Court it is clear that in order to test whether a particular levy or tax is on land and building within the entry 49 of the list 2 of the 7th Schedule is judged from the measure or method having nexus with income directly fetched from land and building. In the Orissa Cement case it was found that the cess sought to be imposed by the state legislature on royalty of the mining operation had no direct nexus with income yielded from land. Royalty out of the mining operation was not treated to be land on income or revenue from the land. It was observed further that unless there is mining operation question of realization and payment of cess does not arise in case of service rent and rent on land irrespective of any operation or any tax in relation thereto has to be paid.
Similar is the situation in the case on hand that the annual receipt from the cinema business has no relation and/or nexus with the income of the building. Income of. the building in case of being let out is the rent being paid by the tenant to the landlord but here income being the basis of method is arising out of the cinema or theatrical performance business as I have observed earlier. Therefore, I hold that the method and measure in Section 174(4) for determination of annual rent out of the gross annual receipts in respect of such shows or theatrical performance or place or public recreation etc. does not relate to income from land and buildings. Consequently this measure of levy does not come within the Entry 49 of List II in 7th Schedule of the constitution. Mr. B. Sen has rightly contended that it relates to the income of the business. Thus, it is beyond legislative competence.
In this case the argument has been advanced that this Sub-section has provided an unreasonable classification amongst the equals for not having provided for deduction of amount on account of costs of repairs and other expenses. Long time back the Supreme Court has settled the law that Article 14 of the Constitution forbids class legislation, it does not forbid reasonable classification in the legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely (1) that the classification must be founded on an intelligible differentia which distinguishes persons or goods that are grouped together from the others left out of the group and (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different basis, namely geographical or according to object or occupations or the life. What is necessary is that there must be a nexus between the bases of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure. This has been reiterated by the apex Court in the case of Budhan Chowdhury v. State of Bihar (Supra)
In the context as aforesaid now it has to be examined whether the method of determining annual valuation of Section 174(4) stands on a special and classified position or not. Upon comparative reading of both the Sub-sections (1) and (4) it seems to me that the method in Sub-section (4) certainly stands in a classified and different footing from that of Sub-section (1), In the method it is provided that annual rent of the land or building or part thereof shall be deemed to be 7 1/2% of the gross annual receipts in respect of such cinema shows, theatrical performances or place of public recreation etc. Mr. Das Adhikary of Course contends that the word ''deemed'' means a hypothetical expression, I do not agree to this plea, the figure annual rent in reality has to be ascertained from the actual annual receipts fetched from cinema shows, theatrical performance, etc. If there is no business consequently there is no annual receipts or in a given situation annual receipt in respect of cinema show Or theatrical performance is much less than annual rent that might have been determined under the provision of Sub-section (i) of the Section 174 in ordinary course, then what would happen for levy of the property tax ? In case of no annual receipt for suspension of the business or for recession of the business there cannot be any unit available for determining annual rent, naturally there shall not be any realization of property tax. The whole object u/s 170 read with Section 171 is to levy and realize property tax on the land and building except u/s 172 whether it yields any income or not, if there be no real income, hypothetical income is the basis. In Sub-section (4) idea of hypothetical income of the land and building has been ruled out because of the unit and/or measure based on and/or having relation to actual income indirectly. In my view it is not the object of the legislation that there shall be no property tax in relation to the use of building where there is no actual income therefrom. So, I hold that this measure has no rational nexus with the object sought to be achieved by the statute.
Moreover, I also find that in this subjection hostile discrimination has been meted out having not been provided for allowance for the cost of repairs and other expenses necessary to maintain such land or building in state or command to annual receipt. The owners and the occupiers of land and building used for the aforesaid business as mentioned in Sub-section (4) are also required to repair or maintain such condition and state that help to carry on cinema shows, theatrical performance etc. Therefore, I hold that this classification is. without having any intelligible differentia.
Under these circumstances, I, therefore, I old that the aforesaid Section 174(4) is ultra vires Constitution of India. The same is accordingly struck down.
As far as another writ petition filed by the writ Petitioner being No. 4343 of 1988 is concerned it appears there was omnibus challenge to Sections 171, 174, 189, 195 and 219 of the said Act. In my view the challenge to those Sections except Sub-section (4) of Section 174 must fail in view of the judgment rendered in Dr. Roma Sur Vs. State of West Bengal, , as such this writ petition is dismissed. However, in this writ petition there was no specific challenge of Section 174(4) of the said Act, but the benefit of the judgment in writ petition being No. 236 of 2003 shall be extended.
Therefore, I direct the Kolkata Municipal Corporation to assess the house and building in its entirety on the basis and method as provided in Section 174(1). of the said Act, but the benefit of this judgment should be given from the 4th Quarter of 1980-81 and not with retrospective effect. However, it would be open for the Municipal authority to impose commercial surcharge under the Act in relation to the cinema show or any other business being carried on at the building in question.
Thus the writ petition succeeds to the extent as above.