important point
Properties occupied by the tenants and properties which are self occupied constitute two separate classes. The amount of tax on the capital value having been recognized valid and commercial properties earning much higher than residential ones, classification of properties into let-out and self occupied ones does not suffer from the vice of discrimination

Headnote:Municipal Taxation – Concept of Value, market value discussed. (Para 9)
       Municipal Taxation – The word “rate” does not indicate a levy on the basis only of annual value of property – It should be based on capital value of the house to be assessed by contractor’s method, in addition to the market value of the land. (Para 10)
       1964 (2) SCR 608 – Relied upon.
       Punjab Municipal Act, 1911 – Section 3(1)(b) and Section 3(8aa) (as substituted by Punjab Amending Act 11 of 1994) – In cases where the property is actually let out and it is possible to decide the annual value on the basis of actual rent then the annual value is equated to the gross annual rent at which the land or building has actually been let – It is the tax on the scarce resources, mainly the land whose prices are escalating, which provides an intelligible differentia (rational basis) having requisite connection with the object sought to be achieved – Where it is not possible to obtain figures of actual rent or hypothetical rent, the cost of construction plus the market value of the land can form the basis for arriving at the annual value. (Paras 11, 12 and 14)
       Punjab Municipal Act, 1911 – Section 3(1)(b) (as substituted by Punjab Amending Act 11 of 1994) – Properties occupied by the tenants and properties which are self occupied constitute two separate classes – The amount of tax on the capital value having been recognized valid and commercial properties earning much higher than residential ones, classification of properties into let-out and self occupied ones does not suffer from the vice of discrimination – High Court erred in holding the provision ultra vires being discriminatory. (Paras 15)
       Punjab Municipal Act, 1911 – Section 3(8aa) (as substituted by Punjab Amending Act 11 of 1994) – Under Section 3(1)(b), a formula has been evolved by which in the case of self occupied premises the tax has to be imposed on annual value calculated on the basis of the present market value of the land plus the cost of construction minus 10% deduction on account of depreciation – In addition, u/s 3(8aa), the Assessing Officer has to keep in mind the principles mentioned in the Land Acquisition Act, 1894 and also the market value of land as assessed from sale instances and construction costs at the relevant time – High Court erred in holding Section 3(8aa) ultra vires and unconstitutional for want of guidelines which gives wide powers to the officers in the matter of fixing annual value. (Para 16)
       Constitution of India – Article 14 – A permissible classification must be founded on an intelligible differentia which distinguishes persons or premises that are grouped together from others left out of the groups and the differentia must have a rational relation to the object sought to be achieved by the Act in question – Equality is violated by treating persons similarly situated differently – If a law deals equally with members of a well defined class, it is not open to challenge such a law on the ground of denial of equal protection – In order to sustain the presumption of constitutionality, the court can take into consideration matters of common knowledge and, at the same time, the court must presume that the Legislature understands and correctly appreciates the need of its own people – Instantly, the Legislature seems to have recognized that the land prices have been rising which hitherto remains excluded from the composite valuation of an asset, namely, land or building which is self occupied and for which there is no measurable, identifiable and quantifiable data of actual or hypothetical rent – This having nexus with the object to be achieved, Sections 3(1)(b) and 3(8aa) of the Punjab Municipal Act, 1911 (as substituted by Punjab Amending Act 11 of 1994) provision cannot be struck down as ultra vires Article 14. (Paras 17 and 18)
       Judicial Activism – It is not open to the High Court under Article 226 of the Constitution, particularly in the matter of taxation directing the State not to amend the law retrospectively – Such a direction is unsustainable, particularly in a taxing statute – It is always open to the State Legislature, particularly in tax matters, to enact validation laws which apply retrospectively – The High Court cannot take away the power of the State Legislature to amend the tax law retrospectively – The basis of the law can always be altered retrospectively. (Paras 21 and 22)
       Facts of the case :
       Validity of Section 3(1)(b) which defines “annual value” and Section 3(8aa) which defines “market value” in the Punjab Municipal Act, 1911 as substituted by Punjab Amending Act 11 of 1994 is in question in these appeals.
       Findings of the Court :
       The provisions under challenge do not suffer from impermissible classification, discrimination or lack of proper guidelines as recorded by High Court. They cannot be held ultra vires.
       Result : Appeals allowed.

Judgment

KAPADIA, J.—

1.Leave granted.

2.The short point involved in this batch of civil appeals is whether the High Court was right in holding that Section 3(1)(b) which defines “annual value” and Section 3(8aa) which defines “market value” in the Punjab Municipal Act, 1911 (“the said Act”) as substituted by Punjab Amending Act 11 of 1994 suffers from the vice of discrimination and, therefore, they are unconstitutional. We have before us a batch of civil appeals. For the sake of convenience, we reproduce hereinbelow the facts in the case of Civil Appeal No. 684/03 in the case of Municipal Committee, Patiala v. Model Town Residents Asson. & Ors..

3.At the outset, we may state that under Section 71(1) of the said Act the State Government has given exemption to the self occupied residential houses from the payment of house tax. Therefore, the grievance is confined to the payment of house tax by self occupied commercial premises.

4.Before examining the grounds of challenge, we quote hereinbelow the unamended Section 3(1) of the said Act :

“3.Definition. — In this act, unless there is something repugnant in the subject or context-

(1)‘annual value’ means-

(a)in the case of land, the gross annual rent at which it may reasonably be expected to let from year to year. Provided that in the case of land assessed to land revenue or of which the land revenue has been wholly or in part released, compounded for, redeemed or assigned, the annual value shall if, the State Government so direct, be deemed to be double the aggregate of the following amounts, namely :

(i)The amount of the land revenue for the time being assessed on the land, whether such assessment is leviable or not; or when the land revenue has been wholly or in part compounded for or redeemed, the amount which, but for such composition, or redemption would have been leviable and;

(ii)When the improvement of the land due to canal irrigation has been excluded from account in assessing the land revenue the amount of owner’s rate or water advantage rate or other rate imposed in respect of such improvement;

(b)In the case of any house or building, the gross annual rent at which such house or building, together with its appurtenances and any furniture that may be let for use or enjoyment forthwith, may reasonably be expected to let from year to year subject to the following deductions;

(i)such deduction not exceeding 20 per cent of the gross annual rent as the committee in each particular case may consider a reasonable allowance on account of the furniture let therewith;

(ii)a deduction of 10 percent for the cost of repairs and for all other expenses necessary to maintain the building in a state to command such gross annual rent. The deduction under sub-clause shall be calculated on the balance of the gross annual rent after the deduction (if any) under Sub-clause (i);

(iii)where the land is let with a building, such deduction not exceeding 20 percent of the gross annual rent, as the committee in each particular case may consider reasonable on account of the actual expenditure, if any, annually incurred by the owner on the upkeep of the land in a state to command such gross annual rent;

Explanation-I- For the purpose of this clause, it is immaterial whether the house or building, and the furniture and the land let for use or enjoyment therewith, are let by the same contract or by different contracts and if by different contracts whether such contracts are made simultaneously or at different times.

Explanation-II.- The term “gross annual value” shall not include any tax payable by the owner in respect of which the owner and tenant have agreed that it shall be paid by the tenant.

(c)in the case of any house or building, the gross annual rent of which cannot be determined under Clause (b), 5 per cent of the sum obtained by adding the estimated present cost of erecting the building, less such amount as the committee may deem reasonable to be deducted on account of depreciation (if any) to the esti

Click Here to Read the rest of this document

2007 Supreme(SC) 1022

Cases Referred (1)