Judgement

WANCHOO, CJI. (also on behalf of Shelat, J.) :- These two appeals on certificates granted by the High Court of Delhi raise common questions relating to the constitutionality of delegation of taxing powers to municipal corporations and the effect of the Validation Act, passed by Parliament, in connection with tax on the consumption or sale of electricity levied by the Municipal Corporation of Delhi (hereinafter referred to as the Corporation) from July 1, 1959 to March 31, 1966. The facts are not in dispute and may be briefly narrated. On February 9, 1959, the Corporation passed a resolution purporting to be under sub-s. (1) of Section 150 of the Delhi Municipal Corporation Act, No. 66 of 1957 (hereinafter referred to as the Act) for levy of three taxes, including a tax on the consumption or sale of electricity. Section 113 of the Act which confers powers on the Corporation to impose taxes has divided them into two kinds, namely, obligatory taxes, which the Corporation must impose [S. 113 (1)], and optional taxes which the Corporation may impose [Section 113 (2)]. Further S. 150 (1) of the Act provides that maximum rate of tax to be levied in the case of optional taxes will be specified by a resolution of the Corporation. After the maximum rate has thus been specified, the resolution has to be submitted to the Central Government for sanction under Section 150 (2) and if sanctioned by Government, the rate comes into force on and from such date as may be specified in the order of sanction. Under sub-section (3) of Section 150 the Corporation then passes another resolution determining the actual rates at which the tax is levied and the tax comes into force on the first day of the quarter of the year next following the date on which such second resolution is passed. The Corporation forwarded the resolution dated February 9, 1959 which was somewhat defective inasmuch as it did not specify the maximum rates, but merely the rates, which were to be enforced for the ensuing year, to Government for sanction. On June 20, 1959, the Central Government sanctioned the tax on consumption or sale of electricity with effect from July 1, 1959. In giving the sanction the Central Government modified the rates. On June 23, 1959, the Standing Committee took the Government sanction into consideration and recommended to the Corporation that rates of tax as sanctioned by Government be determined under sub-section (3) of Section 150 as the actual rates at which the tax would be leviable for the year 1959-60. On June 24, 1959, the Corporation resolved that the recommendations of the Standing Committee regarding tax on consumption or sale of electricity be approved. Then followed demands by the Corporation on the basis of the imposition of tax from July 1, 1959.

2. When the tax was demanded from the respondent, it filed a writ petition in the High Court challenging the levy of the tax. This writ petition was dismissed by a learned Single Judge. The respondent then went in appeal and the appeal court allowed the appeal holding inter alia (i) that the Central Government could not modify the rates specified in the resolution under Section 150 (1) but could only either withhold sanction thereto or sanction them, and (ii) that the liability to pay tax could not commence earlier than April 1, 1960 in view of the provisions contained in Section 109 (2) read with Section 150 (4) of the Act.

3. On December 3, 1966, Parliament passed the Delhi Municipal Corporation (Validation of Electricity Tax) Act, No. 35 of 1966 thereinafter referred to as the Validation Act). By this Act, it purported to validate the levy of electricity tax from July 1, 1959 to March 31, 1966 (both days inclusive). In view of the Validation Act, fresh demands were made by the Corporation on the respondent.

4. On February 17, l965, the Corporation passed another resolution in pursuance of Section 150 (1) and this time provided maximum rates for the levy of tax on consumption or sale of ele