1. Challenge to profession tax demand under Bihar and Orissa Municipal Act 1922 — alleged violation of fundamental rights under Articles 14, 19, and 31 of the Constitution. (Para 1 )
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1967 Supreme(SC) 62
SUPREME COURT OF INDIA
K. SUBBA RAO, C.J.I., J.C. SHAH, S.M. SIKRI, V. RAMASWAMI AND C.A. VAIDIALINGAM JJ.
Ram Bachan Lal, Petitioner
Versus
The State of Bihar and another, Respondents.
Writ Petn No. 194 of 1966
D/- 28-2-1967.
Advocates appeared
Mr. B. Sen, Senior Advocate (Mr. K. K. Sinha Advocate with him) for Petitioner; Mr. B. P. Jha Advocate for Respondents.
Advocates:
B.P.JHA, B.SEN, K.K.SINHA
B.P.JHA, B.SEN, K.K.SINHA
The court held that specifying maximum tax rates and the purpose of the tax provides sufficient guidance to the taxing authority, and the use of established income-tax procedures for assessment and a review mechanism constitutes a reasonable and non-arbitrary legal framework.
Headnote:(A) Bihar and Orissa Municipal Act 1922 - Sections 388, 389, 82(1)(ff), 150-A to 150-E - Constitution of India - Articles 14, 19(g) and 31 - Profession Tax - Validity of provisions - Power of State Government to constitute a notified area and impose taxation therein - Provisions providing guidance for the constitution of a municipality versus a notified area are not arbitrary as the latter is used when specific criteria for a municipality are not met but administrative provisions are necessary - Power to fix tax rates within maximum limits specified in the schedule and for specific purposes constitutes sufficient guidance and does not violate Article 14 - Reference to the procedure of the Indian Income-tax Act 1922 for determining taxable income is a valid assessment procedure - Provision for review by a committee of commissioners is a reasonable remedy. (Paras 7, 8, 10, 12)
(B) Administrative Law - Delegated Legislation - For a statutory provision raising revenue for a taxing body, the needs of the taxing body for carrying out its functions under the statute for which the taxing power was conferred may afford sufficient guidance to make the power to fix the rate of tax valid. (Para 8)
Facts of the case:
A notice of demand for profession tax was issued to an employee of a private company by a notified area committee under the municipal act. The petitioner challenged the validity of the provisions allowing the constitution of notified areas and the imposition of profession tax, alleging that such provisions infringe upon fundamental rights under Articles 14, 19, and 31 of the Constitution.
Findings of Court:
The court found that the Act provides sufficient guidance for the government to distinguish between constituting a municipality and a notified area. The limits on tax rates and the specified purposes for the funds provide adequate guidance for fixing taxes. The assessment procedure linked to the income-tax law and the review mechanism provided under the Act are reasonable and not arbitrary.
Issues: Whether the provisions for constituting notified areas and imposing profession tax under the municipal act are arbitrary and violate Articles 14, 19(g), and 31 of the Constitution.
Ratio Decidendi: The court held that the existence of specific criteria for municipalities and the use of a notified area as a fallback for administrative necessity prevents arbitrariness. Furthermore, specifying maximum tax rates and the purpose of the tax provides sufficient guidance to the delegating authority, and adopting established income-tax procedures for assessment ensures fairness.
Result: Petition dismissed.
Legal Category Hierarchy
- constitutional law
- administrative law
- taxation law
- practice and procedure
Table of Contents
2. Validity of provisions for constituting notified areas and imposing profession tax — alleged arbitrary power and lack of guidance in tax assessment and exemption. (Para 6 )
3. Provisions for notified areas and tax imposition are guided by population criteria, maximum rate schedules, and specified fund utilization, preventing arbitrary exercise of power. (Para 7 , 8 , 9 , 10 , 11 , 12 )
4. Statutory power to fix tax rates is valid if guided by maximum limits and the needs of the taxing body to carry out its functions. (Para 8 )
5. Petition dismissed. (Para 14 )
6. Whether the power to constitute a notified area under Section 388 of the Bihar and Orissa Municipal Act 1922 is arbitrary?
No. Section 4 provides specific criteria for constituting a municipality; Section 388 applies when those criteria are not met but administrative provisions are still necessary, providing sufficient guidance to the Government. (Para 7 )
7. Does the lack of a specific formula for fixing profession tax rates render the taxing power arbitrary?
No. Guidance is provided through the specification of maximum tax rates in the Fourth Schedule and the designated purposes for fund utilization under Section 150-D, which justifies the power to fix rates. (Para 8 )
8. Is the procedure for assessing taxable income for profession tax valid if it refers to the Indian Income-tax Act 1922?
Yes. The court held that computing taxable income in accordance with the procedure laid down in the Indian Income-tax Act 1922 provides a proper and valid assessment method. (Para 10 )
9. Is the absence of a formal appeal process, replaced by a review mechanism, a violation of reasonable procedure?
No. A review process under Section 150-E, conducted by a committee entitled to take evidence and make enquiries, constitutes a reasonable remedy for an aggrieved person. (Para 12 )
Judgement
SIKRI, J. : In this petition under Art. 32 of the Constitution a notice of demand issue ed by the Dehri-Dalmianagar Notified Area Committee demanding Rs. 100/- on account of Profession Tax levied under the BIHAR AND ORISSA MUNICIPAL ACT 1922 (B. and O. Act VII of 1922) - hereinafter referred to as the Act- for the period 1963-64 to l965-66 from the petitioner Shri Ram Bachan Lal, Land Officer, who is in the employment of Rohtas Industries Ltd., Dalmianagar, is sought to be quashed or, the ground that the provisions of the Act under which it has been issued infringe the fundamental rights of the petitioner under Arts. 14, 19 and 31 of the Constitution.
2. The Dehri-Dalmianagar Notified Area Committee was constituted by notification dated May 23, 1942, issued in exercise of the powers conferred by sub-s. (1) of S.388 of the Act. Section 388 reads as In follows:
"388. Constitution of notified area-
(1) The State Government may by notification declare that it is necessary to make administrative provision for all or any of the purposes of this Act in any area specified in the notification, other than a municipality or a cantonment.
(2) An area in respect of which such a notification has issued is hereinafter called a notified area".
Section 389 enables the State Government to impose taxation in, apply enactments to and constitute committees in the Notified area. This section reads thus:
"389. Power to impose taxation in, apply enactments to and constitute committees in, notified area.-
The State Government may by notification-
(a) apply or adapt to a notified area or to any part of a notified area any provision of this Act which may be applied to a municipality, or any rule or by-law in force or which can be made in any municipality under this or any other Act;
(b) impose in a notified area or in any part of a notified area any tax which could be imposed by the Commissioners if the notified area were a municipality, and
(c) appoint or make rules for appointment or election of a committee to carry out the purpose of this Act in the notified area". In exercise of the powers under S. 389 by notification dated May 23, 1941, the Governor of Bihar applied to the notified area the following provisions of the Act:
"Chapter I Section 3.
Chapter II sections 21-27, 29-48, 51-52 clauses (b), (c) and (d).
Chapter III Sections 58-78 and 81.
Chapter IV Sections 82 (1) (b), (c), (f), (i), (j) and sections 82 (2), 84, 86-88, 98-150, 163-164.
The whole of chapters V, VI, VII, VIII and X Chapter XI sections 340, 341 and 342-343 The whole of chapters XII and XIII." The Act was amended by the Bihar Municipal (Amendment) Act, 1953 (Bihar Act XXXII of 1953). It inserted Cl. (ff) in sub-s. (1) of S. 82, which reads as follows:
"82. Power to impose taxes.-
(1) The Commissioners may, from time to time, at a meeting convened expressly for the purpose, of which due notice shall have been given, subject to the provisions of this Act and with the sanction of the State Government, impose within the limits of the municipality the following taxes and fees, or any of them:-
* * * * *
(ff) a tax on the trades, professions, callings and employments specified in the Fourth Schedule at such rates not exceeding the rates specified therein as may from time to time be determined by the Commissioners at a meeting;
Provided that the rates determined by the Commissioners at a meeting shall be subject to the approval of the State Government and subject to such modification in the rates of taxes and exemption of classes of profession, trades and callings to be taxed as the State Government may direct."
3. Proviso (iv) was added to sub-s. (1) of S. 82 of the Act by Bihar Act III of 1959, and reads as follows:
"Provided that the Commissioners-
* * * * *
(iv) shall, if so directed by the State Government by notification, impose within limits of a municipality the taxes mentioned in clauses (c), (b), (f) or (ff) at such rates, subject to the maxima specified in Sections 84 and 85 and the Fir
