1. Challenge to the constitutional validity of a profession tax levied on pensioners under the City Municipal Act, 1919. (Para 1 , 2 )
Back
Next 
1964 Supreme(SC) 56
SUPREME COURT OF INDIA
3rd March, 1964.
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO, J.C. SHAH, N. RAJAGOPALA AYYANGAR AND S.M. SIKRI, JJ.
C. Rajagopalachari, Appellant
Versus
The Corporation of Madras and another, Respondent.
Civil Appeal No. 580 of 1962.
Advocates appeared
M/s. R. M. Seshadri and R. Gopalakrishnan, Advocates, for Appellant; Mr. R. Ganapathy Iyer, Advocate, for Respondent No. 1; Mr. A. Ranganadham Chetty, Senior Advocate, (Mr. A. V. Rangam, Advocate with him), for Respondent No. 2.
Advocates:
A.RANGANADHAM CHETTY, A.V.RANGAM, R.Ganapathy Iyer, R.GOPAL KRISHNAN, R.M.Sachthey
A.RANGANADHAM CHETTY, A.V.RANGAM, R.Ganapathy Iyer, R.GOPAL KRISHNAN, R.M.Sachthey
A tax on pensioners is a tax on income, not a profession tax. To be saved under Art. 277 of the Constitution, it must have been lawfully levied immediately before the Constitution; any gap in the levy or change in the charge renders it a new, invalid tax.
Headnote:(A) Constitution - Art. 277, Art. 372, Schedule VII, Item 60 of State List and Entry 82 of Union List - City Municipal Act - Section 111(1) - Government of India Act, 1935 - Section 143(2) and Section 292 - Tax on profession, trades, callings and employments - A tax on a person because they are in receipt of a pension is in substance a tax on income and not a tax on profession, trade, business, calling or employment. (Paras 7, 16)
(B) Saving of existing taxes - For a tax to be saved under Art. 277 or Section 143(2) of the Government of India Act, 1935, it must have been "lawfully levied" immediately before the commencement of the relevant constitutional provision. The mere existence of a power to bring a tax into operation by resolution cannot be equated with a tax that was being lawfully levied. (Paras 11, 12)
(C) Relationship between general and special saving clauses - Art. 372, which saves pre-Constitution valid laws, must be read subject to Art. 277, which specifically deals with the saving of taxes, duties, cesses, or fees. A special provision regarding finances takes precedence over the general saving provision. (Para 17)
(D) Legislative Competence - A provision stating that a tax on professions shall not be invalid on the ground that it relates to a tax on income only assists if the tax is actually one on a profession, trade, calling, or employment; it does not permit a state to levy a tax on income and label it as a profession tax. (Para 18)
Facts of the case:
A pensioner challenged a demand for profession tax levied by a municipal corporation. The tax was based on a municipal act where a subsequent amendment shifted the imposition of the tax from a statutory charge to one dependent on a resolution by the council. The appellant contended that as a pensioner, they did not fall under the categories of profession, trade, calling, or employment, and thus the levy was an illegal tax on income.
Findings of Court:
The tax on pensioners is a tax on income, falling within the Union's legislative competence. It cannot be sustained as a state tax unless it was lawfully levied prior to the Constitution. The transition from a statutory charge to a resolution-based charge, combined with a gap in the assessment rules, meant the tax was not "lawfully levied" immediately before the relevant saving provisions took effect.
Issues: Whether a tax on pensioners can be classified as a tax on "profession, trades, callings and employments" and whether such a tax was "lawfully levied" prior to the Constitution to be saved under Art. 277.
Ratio Decidendi: A tax on the receipt of pension is a tax on income. For such a tax to be validly continued by a state authority under Art. 277, it must have been lawfully levied immediately before the Constitution. If the statutory charge was lifted and replaced by a resolution that created a temporal gap in the levy, the tax is a new levy and not a continuation of a pre-existing lawful tax.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the levy constitutes a tax on profession or income and if it was lawfully levied prior to the Constitution to be saved by Art. 277. (Para 7 , 9 )
3. Tax on pensioners is a tax on income; the 1936 amendment and 1942 schedule changes interrupted the continuity of the lawful levy. (Para 11 , 13 , 16 )
4. A tax on pensioners is a tax on income; it cannot be saved as an existing tax if the continuity of lawful levy was interrupted. (Para 11 , 14 , 17 )
5. Writ of prohibition granted against the Corporation to prevent enforcement of the tax demand. (Para 19 )
6. Is a tax levied on a person solely because they receive a pension a tax on profession, trade, calling or employment?
No. Such a tax is in truth and substance a tax on income. A pensioner is not in present employment, and the tax does not apply to the carrying on of a profession or trade. (Para 16 )
7. What is the requirement for a tax to be continued under Art. 277 of the Constitution or S. 143(2) of the Government of India Act, 1935?
The tax must have been lawfully levied immediately before the commencement of the Constitution or Part III of the 1935 Act. A break in the statutory charge or a new levy prevents such saving. (Para 11 , 12 )
8. Does the general saving of laws under Art. 372 enlarge the scope of the saving of taxes under Art. 277?
No. Art. 277 is a special provision for taxes, duties, cesses, or fees. Art. 372 must be read subject to Art. 277 and cannot be used to bypass the specific conditions for saving taxes. (Para 17 )
9. Does a provision stating that a profession tax shall not be invalid on the ground that it relates to a tax on income allow the State to levy a tax on income?
No. Such a provision only protects a valid tax on profession, trade, calling, or employment from being invalidated as an income tax; it does not empower the State to levy a tax on income and label it a profession tax. (Para 18 )
Judgment
AYYANGAR, J. : This appeal comes before us by virtue of a certificate of fitness granted by the High Court of Madras under Art. 133(1)(c) of the Constitution against its judgment dismissing a petition filed by the appellant under Art. 226 of the Constitution seeking a writ of prohibition against the Corporation of Madras challenging he constitutional validity of a notice requiring the appellant to pay profession tax.
2. The appellant held office as the last Governor-General of India. Under S. 3 of Central Act XXX of 1951 the appellant is entitled to a pension of Rs. 15,000/- per annum and has been drawing this sum residing in the city of Madras. The Corporation of Madras- the first respondent before us demanded profession tax from the appellant under S. 111(1) (b) of the City Municipal Act, 1919 hereinafter called the Act for the year 1958-1959 on the ground of the appellant s residence within the city for the period therein specified and his drawing the pension to which he was entitled. The appellant addressed a communication to the Corporation asserting that this demand was illegal as the Corporation was empowered by the relevant constitutional provisions merely to levy a tax "on a profession, trade, calling or employment" and that as he as a pensioner did not fall under any of these classes the said demand was illegal. The authorities of the Corporation, however, insisted on compliance with the demand on the ground that under the express terms of the Act persons in receipt of pensions were also liable to the tax. The appellant thereupon filed a writ petition for the relief already set out, and as the validity of the State Act was impugned impleaded the State of Madras also as a respondent.
3. It would be seen from the foregoing that the question for consideration is whether the 1st respondent Corporation is entitled to levy a tax on pensioners in respect of the pensions received by them. In order to appreciate the submissions made to us by learned Counsel for the appellant it would be necessary to set out the history of the legislation in relation to profession tax and the impugned tax and the impugned tax on persons in receipt of pensions applicable to the City of Madras because it is on a construction of these provisions that the learned Judges of the High Court have upheld the validity of the levy and dismissed the appellant s writ petition. For this purpose it is not necessary to travel to any period anterior to the enactment of the Madras City Municipal Act (Madras Act IV of 1919) which with certain amendments to be referred to presently is still in force. The Act received the assent of the Governor on March 26, 1919, of the Governor-General in June, 1919 and came into force on publication in the Gazette which was in the same month. Having been enacted while the powers of the Local Legislatures were governed by the Government of India Act, 1915, the constitutional validity of the legislation is not open to any challenge. Section 111 (1) of this enactment ran :
"Every person not liable of the companies tax, who within the city and for the period prescribed in S. 113, exercises a profession, art, trade or calling or holds an appointment, public or private bringing him within one or more of the classes of persons specified in the taxation rules in Schedule IV, shall pay by way of licence fee and in addition to any other licence fee that may be leviable under this Act a tax as determined under the said rules but in no case exceeding rupees five hundred in the half year and such tax may be described as the profession tax."
The Section had two explanations of which the second is material and this reads :
Explanation 2:
"A person in receipt of a pension paid from any source shall be deemed to be a person holding an appointment within the meaning of this section."
4. The next change in the relevant provision was effected by Madras City Municipal Amendment Act, 1936 (Madras Act X of 1936) which came into force on 14th April
