2005 Supreme(SC) 430

2005(3) Supreme 92
Supreme Court of India
(From Calcutta High Court)
S.N. Variava, Dr. AR. Lakshmanan and S.H. Kapadia, JJ.
Calcutta Municipal Corporation and Ors. —Appellants
versus
M/s. Shrey Mercantile Pvt. Ltd. and Ors. —Respondents
Civil Appeal No. 5631 of 2000
With
Civil Appeal No. 6121 of 2000
And
Civil Appeal No. 412 of 2001
Decided on 9-3-2005
Counsel for the Parties :
For the Appearing Parties : Tapash Ray, Pradip Kumar Ghosh, Jaideep Gupta, Sr. Advocates, L.C. Agrawala, Avijit Bhattacharjee, Atanu Saikia, A. Mukherjee, Ms. Shipra Ghose, G.S. Chatterjee, Satish Vig, K.V. Vishwanathan, Anil Agarwalla, Jagdeep Anand, Ms. Reshmee Ray and K.V. Vijayakumar, Advocates.

Important point
The imposition for the process of change in the name of the owner in the assessment books of the Municipal Corporation of Calcutta is in the nature of a tax and the levy is irrational, arbitrary, discriminatory and beyond Section 183(5) of the Calcutta Municipal Corporation Act.

Headnote:(i) Calcutta Municipal Corporation Act, 1980—Section 183 as amended by Calcutta Municipal Corporation (Amendment) Act, 1988—Calcutta Corporation (Taxation) Regulations, 1989—Mutation entry—Imposition for process of change in the name of the owner in assessment books of the Corporation—Whether in the nature of ‘a fee’ or ‘tax’—Sale of premises to respondent developers—Developers decided to construct a new building after demolishing the existing old structure—Municipal Corporation refused to accept building plan without the names of developers being brought on record by way of mutation—Developers applied for mutation by deletion of names of previous owners and substitution of their names—Corporation demanded mutation fees of Rs. 3 lacs—Writ petition challenging the demand as imposition of tax without sanction of law—High Court allowed the writ petition by holding that the Corporation was not justified in using its power to levy fees on mutation by charging large sums which partake of the character of taxation—Whether the impugned imposition is in the nature of a ‘fee’ or a ‘tax’ —Levy is irrational, arbitrary, discriminatory and beyond Section 183(5) of the Act—Impugned levy is in the nature of tax and not in the nature of a fee.

       Held : The main difference between “a fee” and “a tax” is on account of the source of power. Although “police power” is not mentioned in the Constitution, we may rely upon it as a concept to bring out the difference between “a fee” and “a tax”. The power to tax must be distinguished from an exercise of the police power. The “police power” is different from the “taxing power” in its essential principles. The power to regulate, control and prohibit with the main object of giving some special benefit to a specific class or group of persons is in the exercise of police power and the charge levied on that class to defray the costs of providing benefit to such a class is “a fee”. Therefore, in the aforestated judgment in Kesoram’s case, it has been held that where regulation is the primary purpose, its power is referable to the “police power”. If the primary purpose in imposing the charge is to regulate, the charge is not a tax even if it produces revenue for the government. But where the government intends to raise revenue as the primary object, the imposition is a tax. (Para 15)

       Section 183 which deals with notice of transfer also comes under the same part. It is true that under section 183(5), fees are payable for mutation as may be prescribed under the regulations, still as stated above, the primary object of such a charge is to augment the revenue and the levy of such a charge cannot be treated to be a part of the regulatory measure. Further, under the Regulations, the corporation while prescribing fees has levied fees on ad valorem basis which is one more circumstance to show that the impugned levy is in the nature of tax and not in the nature of a fee. Further, the quantum of levy indicates that it is a tax and not a fee. The analysis of the various provisions of the Act and the impugned regulations show that the impugned levy is in exercise of power of taxation under the said Act to augment the revenues primarily and not as a part of regulatory measure. As stated above, the purpose of mutation is to register the transfer in the records of the corporation which in turn would help the corporation to recover taxes from the existing tax payers. Therefore, no special benefit results to the transferee who is made statutorily liable to inform the corporation of the change, if any, in the name of the person primarily liable to pay the tax. (Para 17)

       Now coming to the question of challenge to the levy as arbitrary and discriminatory and violative of Article 14, we find that the functions of the corporation with regard to mutation remains the same, whether the applicant is a transferee under a conveyance or a lessee or a beneficiary under a will or an heir in the case of intestate succession. Once an application for mutation is made, the same is examined by the department and after hearing the objections, if any, the record is ordered to be changed. Ultimately, the exercise is for fiscal purpose. Similarly, the property valuation may be below Rs. 50,000/- or above Rs. 2 lacs, the function of the corporation in making the mutation entry remains the same. Similarly, whatever may be the cause of mutation, whether it is case of transfer or devolution, the activity of mutation remains constant in all the cases. The expenses incurred in all the cases also cannot vary, whatever be the value of the property or the cause of mutation. In the circumstances, there is no reason given for charging different rates depending on the value of the property and the cause of transfer. By doing so, the incidence of the levy falls differently on persons similarly situated resulting in violation of article 14 of the Constitution. Moreover, the quantum of fees is disproportionate to the so called “services” which is one more circumstance showing arbitrariness in the levy of such imposition. So far as article 14 is concerned, the Courts in India have always examined whether the classification was based on intelligible differentia and whether the differentia had a reasonable nexus with the object of legislation. (Para 20)

       Applying the said tests to the impugned levy, we find that the levy is irrational, arbitrary, discriminatory and beyond section 183(5) of the said 1980 Act. (Para 21)

       (ii) Words and Phrases—‘Fee’ and ‘tax’—Meanings—‘Taxes’ are burdens of a pecuniary nature imposed for defraying the cost of governmental functions—Charges are ‘fees’ where they are imposed upon a person to defray the cost of particular services rendered to his account.

       Held : According to “Words & Phrases”, Permanent Edition, Vol. 41 Page 230, a charge or fee, if levied for the purpose of raising revenue under the taxing power is a “tax”. Similarly, imposition of fees for the primary purpose of “regulation and control” may be classified as fees as it is in the exercise of “police power”, but if revenue is the primary purpose and regulation is merely incidental, then the imposition is a “tax”. A tax is an enforced contribution expected pursuant to a legislative authority for purpose of raising revenue to be used for public or governmental purposes and not as payment for a special privilege or service rendered by a public officer, in which case it is a “fee”. Generally speaking “taxes” are burdens of a pecuniary nature imposed for defraying the cost of governmental functions, whereas charges are “fees” where they are imposed upon a person to defray the cost of particular services rendered to his account. (Para 13)