JUDGMENT

B. P. JEEVAN REDDY, J.:—Leave granted. Heard counsel for the parties.

2. This appeal is preferred against the judgment of the Patna High Court striking down clauses (a) and (c) of sub-rule (1) of Rule 3 of the Assessment of Annual Rental Value of Holding Rules, 1993 (hereinafter referred to as "Assessment Rules") framed by the State Government under Section 227 read with Section 130 of the Patna Municipal Corporation Act and the two notifications issued by the Patna Municipal Corporation under Rules 3 and 5 of the said Rules. The High Court is of the opinion that the said clauses offend the equality clause enshrined in Article 14 of the Constitution of India.

3. Sub-section (1) of Section 123 of the Municipal Corporation Act empowers the corporation to impose, with the previous approval of the State Government, the taxes mentioned under clauses (a) to (p) of the said sub-section. We are concerned herein with the taxes mentioned under clauses (a), (b) and (c), viz., "(a) a tax on holdings situated within Patna assessed on their letting value; (b) a water tax assessed on the annual letting value of holdings; and (c) a latrine tax assessed on the annual letting value of holdings". Section 124 prescribes the ceiling beyond which the tax on holdings shall not be imposed. the ceiling prescribed is twelve and a half per cent of the annual value of the holdings. Section 130 defines the expression "annual value of holdings" occurring in sub-section (1) of Section 124. Sub-section (1) of Section 130 says that "save as may be prescribed by the rules made by the State Government, the annual value of a holding shall be deemed to be the gross annual rental at which the holding may reasonably be expected to let." Sub-section (2) deals with a situation where there is a building or buildings on a holding and the actual cost of erection of the same can be ascertained and which building(s) is not intended for letting or for the residence of the owner himself, the annual value of such holding shall be deemed to be an amount which may, subject to the rules made by the Government, be equal to but not exceed twelve and a half per cent of such cost in addition to a reasonable ground rent for the land comprised in the building. Sub-section (3) says that the value of any machinery or furniture which may be a holding shall not be taken into consideration in estimating the annual value of a holding. Section 136 prescribes the procedure following which the corporation shall determine the percentage of the valuation of holdings at which tax on holdings shall be levied. It says that subject to provisions of Section 124, the corporation shall, at a meeting to be held before the close of the year preceding the relevant year, determine the percentage of the valuation of holdings at which the tax shall be levied. This has to be done after calling for a report from the Chief Executive Officer and the standing committee and after considering the same. The percentage so fixed shall remain in force until the corporation decides otherwise. (The High Court observes in the judgment under appeal that under the scheme of taxation in vogue till the Assessment Rules, 1993 came into force, the rate of taxation had already reached the maximum prescribed rates.) Once the tax is assessed in respect of a holding, it; is open to the person dissatisfied with the assessment or with the valuation to apply to the Chief Executive Officer or other officer empowered in that behalf by the State Government for a review of the assessment or valuation or to exempt him from the assessment or the tax (vide Section 150). Section 227 confers upon the State Government the power to make rules as to taxation. According to the rules (framed under Section 227 read with Section 130) in force prior to the coming into force of the Assessment Rules, 1993, the annual letting value (which is the basis of levying tax on holding, water tax and latrine tax) was to be determined separately for each i