A classification of lands and buildings on the basis of occupation by tenant or owner for the purpose of determining annual value for house tax purposes is unreasonable and arbitrary and has no nexus with the object of legislation, and therefore, is discriminatory and violative of Article 14 of the Constitution.

G.S. Singhvi, J. - The common question of law which arises in these petitions involves determination of the constitutionality of Sections 3(1) of the Punjab Municipal Act, 1911 (as amended by Punjab Act No. 11 of 1984 for short, the Act). In CWP Nos. 14253 of 1996 and 3386 of 1999, the petitioners have also challenged the vires of Section 67(3). In CWP No. 3386 of 1999, the constitutional validity of Section 3(8a) has also been challenged. The other questions raised by the petitioners relate to the legality of the orders of assessment and/of appellate or revisional orders and/or notices issued by the concerned municipalities for recovery of house tax.

2. The petitioners have referred to the un-amended and amended definition of the expression "annual value" contained in section 3(1) of the Act and have averred that Clause (b) of amended Section 3(1) is liable to be declared ultra vires to the legislative power of the State because it seeks to empower the municipalities to levy house tax on the capital value of the property occupied by the owner and this subject falls within the exclusive domain of the Parliament under Entry 86 of List-I (Union List) of the Seventh Schedule of the Constitution. They have further averred that Section 3(1) of the Act is discriminatory and violative of Article 14 of the Constitution of India because the classification made between the land or building on the basis of their occupation by tenant or owner is artificial, arbitrary and irrational and has no nexus with the object of imposing tax on land or building.

3. The respondents have defended the impugned provision by asserting that the house tax is being levied on land or building and not on capital assets of the owner and the State Legislature is competent to legislate on this subject under Entry 49 of List-II (State List) of the Seventh Schedule of the Constitution. They have averred that for the purpose of giving effect to the mandate of the provisions contained in Part IX-A of the Constitution, the Punjab Municipal Act, 1911 was amended by the State Legislature imposing greater burden on the municipalities and with a view to enable them to generate more revenue to meet the additional expenditure, the definition of annual value was also amended. In the written statements filed on behalf of some of the municipalities, it has been averred that determination of annual value under the amended definition is commensurate with the expenses incurred by them in providing services to the owners and occupants of lands and holdings. They have further averred that amendment in the definition of annual value was necessitated to provide better structure to the local bodies to meet the growing needs of the urban population and better civic amenities to the residents, According to them, gross annual rent is the basis for determination of annual value of the land or building in occupation of the tenant and the concept of annual value has been introduced for land or building occupied by the owner.

4. Before adverting to the arguments of the learned counsel for the parties, we deem it proper to notice Entry 86 of List-I and Entry 49 of List-II of the Seventh Schedule of the Constitution, un-amended and amended Section 3(1), Section 3(8a), Sections 61(a) and 67(3) of the Act which have direct bearing on the decision of these petitions. The same read as under :

"Entry 86 of List-I

86. Taxes on the capital value of the assets, exclusive of agricultural land of individuals and companies; taxes on the capital of companies.

Entry 49 of List-II

49. Taxes on lands and buildings.

Un-amended Section 3(1) of the 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, compound