The main legal point established in the judgment is that the Municipal Council had substantial compliance with the provisions of the Madras District Municipalities Act in levying the tax on vacant lands belonging to the railway company, and that the Municipal Council did not act ultra vires its powers in resorting to the capital value method. The judgment also clarified the power of the Local Government to prescribe rules for determining the capital value of lands falling under Section 81(3) and the justification of the levy under Section 81(3) in support of the tax levy.

Somayya, J.

1. These are two appeals filed against the decrees of the Court of the Subordinate Judge, Bezwada, in two suits filed by the appellant against the respondent for refund of certain taxes which were alleged to have been illegally levied under the Madras District Municipalities Act (Madras Act V of 1920) on the vacant lands belonging to the appellant. The appellant is the Madras and Southern Maharatta Railway Company owning several buildings and vacant sites within the limits of Bezwada Municipality and the Municipal Council of Bezwada is the respondent. The respondent Council levied certain taxes under the Madras District Municipalities Act on the appellants vacant lands from 1929 to 1935. The plaint in O.S. No. 41 of 1935 was filed for recovery of Rs. 22,092-13-0 which was the tax levied for the year 1931-32. The other suit O.S. No. 61 of 1935 was filed for recovery of a sum of Rs. 76,706-10-4 made up of various sums which were levied for the years 1929-30, 1930-31, 1932-33, 1933-34 and 1934-35, that is, for five years. The Subordinate Judge tried the two suits together, dismissed O.S. No. 41 of 1935 and decreed O.S. No. 61 of 1935 in part ordering a refund of the sums claimed in respect of 1929-30 and 1930-31 and dismissing the rest of the claim. The plaintiff appeals. A.S. No. 297 of 1937 is the appeal against the decree in O.S. No. 41 of 1935 and A. S No. 240 of 1937 is the appeal against the decree in O.S. No. 6 of 1935. The main judgment was delivered in O.S. No. 61 of 1935 and the relevant papers are printed in the appeal against that decree. In both the suits substantially the same question arises for consideration, namely, whether the levy of the tax is legal.

2. To understand the questions raised in these suits, certain provisions of the Indian Railways Act and of the Madras District Municipalities Act have to be referred to. Under the Indian Law, railway companies are not liable to pay any tax to any local authority unless the Governor-General in Council notifies under Section 135 of the Indian Railways Act that the railway company is liable to pay and the railway company is then bound to pay the taxes mentioned in the notification. In this case a notification was issued on 14th February, 1929, under the above section by which the appellant company was declared liable to pay in aid of the funds of the respondent Municipality, the general property tax, and a water and drainage tax. There were prior notifications with which we are not concerned as the notification of 14th February, 1929, was in supersession of all prior notifications. Under Section 78 of the District Municipalities Act every Municipal Council may levy among other things a property tax. Under Section 81 (1) of the said Act the Municipal Council may by a resolution levy property tax on all buildings and lands situated within the Municipality subject to certain exceptions and the property tax may comprise among other things (1) a tax for general purposes and (2) a water and drainage tax. Section 81 (2) provides that these taxes shall be levied at such percentages of the annual value of the lands or buildings or both as may be fixed by the Municipal Council. Under Section 81, Clause (3) the Municipal Council may in the case of lands which are not used exclusively for agricultural purposes and which are not occupied by or adjacent and appurtenant to buildings, levy these taxes at such percentages of the capital value of such lands or at such rates with reference to the extent of such lands as it may fix. This power is subject to a certain proviso which will be mentioned later on. Section 82 provides for the method of assessment. Under Clause (2) of this section the annual value of the lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year subject to certain deductions. The proviso to this sub-section says that in the case of Government or railw