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PETITIONER: NEW DELHI MUNICIPAL CORPORATION ETC.

       Vs.

RESPONDENT: STATE OF PUNJAB ETC.ETC.

DATE OF JUDGMENT:       19/12/1996

BENCH: B.P.  JEEVAN   REDDY,  A.S.   ANAND,  SUBHAS   C.SEN,   K.S.PAARIPOORNAN, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:            JUDGMENT OF HON’BLE B.P. JEEVAN REDDY,          A.S. ANAND, SUHAS C. SEN, K.S. PARIPOORHAN              AND B.N. KIRPAL, JJ. DELIVERED BY                     B.P. JEEVAN REDDY.J.      Article 289(1)  of the  Constitution of  India declares that the  "property and  income of  a State  shall be exempt from Union  taxation". The question in this batch of appeals is whether  the properties  of the  States situated  in  the Union Territory   of  Delhi are  exempt from  property taxes levied under  the municipal enactments in force in the Union Territory of  Delhi. The Delhi High Court has taken the view that they  are. That  view is  challenged in  these  appeals preferred by  the New  Delhi Municipal  Corporation and  the Delhi Municipal Corporation.      Leave granted in the Special Leave Petitions.      Prior to  1911-12, a  large part  of the  territory now comprised in  the Union Territory of Delhi was a district of the Province  of Punjab.  By a  proclamation dated September 17, 1912, the Governor General took the said territory under his immediate  authority and  management, to be administered as a separate Province to be known as the Province of Delhi. [This was  in connection  with the  decision  to  shift  the Capital from Calcutta to Delhi.] In the same year, the Delhi Laws Act, 1912 {1912 Act] was enacted. It came into force on and with effect from the Ist day of October, 1912. Schedule- A to  the Act  defined the  "territory" covered  by the  new Province. Sections  2 and  3 of  the 1912 Act provided inter alia that  the creation  of the  new Province of Delhi shall not effect  any change in the territorial application of any enactment. One  of the  Acts so  applying to  the  territory comprised in  the new  Province  of  Delhi  was  the  Punjab Municipal Act, 1911.      In the  year 1915,  another Act  called "The Delhi Laws Act, 1915"  [1915 Act]  was enacted.  Under this  enactment, certain areas  formerly comprised in the United Provinces of Agra and  Oudh were included in and added to the Province of Delhi with  effect from  Ist April,  1915. Section  2 of the 1915 Act also contained a saving clause similar to Section 2 of the 1912 Act.      In the  Constitution  of  India,  1950,  as  originally

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enacted, the  First Schedule  contained four  categories  of States, viz.,  Part ‘A’,  Part ‘B’,  Part ‘C’  and Part ‘D’. Part ‘D’  comprised only of Andaman and Nicobar Islands. The Chief Commissioner’s  Province of  Delhi was one of the Part ‘C’ States.  By virtue  of the  Part ‘C’  States [Laws] Act, 1950,  the   laws  in   force   in   the   erstwhile   Chief Commissioner’s Province  of Delhi were continued in the Part ‘C’ State of Delhi. This Act came into force on the 16th day of April, 1950.      In the year 1951, the Parliament enacted the Government of Part  ‘C’ States  Act, 1951.  This Act  contemplated that there shall be a legislature for each of the Part ‘C’ States specified therein  which included  Delhi. Section  21 stated that the  legislature of  a Part  ‘C’ State  shall have  the power to  make laws  with respect  to  any  of  the  matters enumerated in  List-II and  List-III of the Seventh Schedule to the  Constitution. In  the  case  of  Delhi  legislature, however, it  was provided  that it  shall not  have power to make  laws   with  respect   to  matters  specified  therein including     "the  constitution  and  powers  of  municipal corporations and  other local  authorities,  of  improvement trusts and of water supply, drainage, electricity, transport and other  public utility  authorities in  Delhi or  in  New Delhi". Section  22  provided  that  any  law  made  by  the legislature of  a Part‘C’  State shall,  to  the  extent  of repugnancy with  any law made by Parliament, whether enacted earlier or later, be void. It is necessary to notice the two distinctive features of the legislatures of Part ‘C’ States; not only  were they created under an Act made by Parliament, the laws  made by  them even  with respect  to  any  of  the matters enumerated  in List-II  were subject to any law made by the  Parliament. In  case of  repugnancy, the law made by legislature was  to be  of no  effect. So  far as  Delhi  is concerned, the  Parliament placed certain additional fetters referred to in Section 26.      It is  stated that  in the year 1952, a legislature was created for  Delhi which  functioned upto  November 1,  1956 when the  Government  of  Part  ‘C’  States  Act,  1951  was repealed by  Section 130  of the States’ Reorganisation Act, 1956. While repealing the Government of Part ‘C’ States Act, 1951, the  States’ Reorganisation  Act, 1956 did not provide for the creation or continuance of legislatures for the Part ‘C’ States.  The legislature constituted for Delhi thus came to an end.      By Constitution  Seventh [Amendment] Act, 1956, some of the Part  ‘C’ States  ceased to exist, having been merged in one or  the  other  State  while  some  others  continued  - designated as  Union territories.  The categorisation of the States into  Parts A,B,C  and D  was done  away with. In its place,  the   First  Schedule   came  to  provide  only  two categories, viz.,  "(i) the  States"  and  "(ii)  the  Union territories". The  Seventh  [Amendment]  Act  specified  six Union   territories,    viz.,   Delhi,   Himachal   Pradesh, Manipur,Tripura, Andaman  and Nicobar  Islands and  Laccadiv Minicoy and  Amindivi Islands.  Delhi thus  became  a  Union territory. With  the  inclusion  of  Goa  and  other  former Portugese territories  in the  Union, the  number  of  Union territories grew  to  eight  by  1962.  In  that  year,  the Constitution Fourteenth  [Amendment} Act,  1962 was enacted. Pondicherry was  added as a Union territory as S1.No.9. More important, the  said Amendment Act introduced Article 239-A. The new  Article provided that "Parliament may by law create for any  of  the  Union  territories  of  Himachal  Pradesh, Manipur, Tripura,  Goa, Daman  and Diu  and  Pondicherry,  a body,  whether  elected  or  partly  nominated,  and  partly

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elected  to   function  as   a  legislature  for  the  Union territory, or  a council  of ministers,  or both  with  such constitutional powers  and functions in each case, as may be specified in the law" [Emphasis added]. It is significant to note that the said article did not provide for creation of a legislature or  a council  of ministers, as the case may be, for the Union Territory of Delhi.      Pursuant  to  Article  239-A,  Parliament  enacted  the Government  of  Union  Territories  Act,  1963  [1963  Act]. Obviously, this  Act applied only to those Union territories as were  referred to  in Article  239-A. It did not apply to Delhi.  This   Act  provided  for  creation  of  Legislative Assemblies for  the Union  territories mentioned  in Article 239-A and  the extent  of their  legislative power.  Section 3(1) declared  that "there  shall be  a Legislative Assembly for each  Union territory"  whereas Section  18(1)  provided that "subject to the provisions of this Act, the Legislative Assembly of a Union territory may make laws for the whole or any part  of the  Union territory with respect to any of the matters enumerated  in the State List or the Concurrent List in the  Seventh Schedule  to the Constitution insofar as any such matter is applicable in relation to Union territories." Sub-section (2) of Section 18 read with Section 21, however, conferred over-riding  power upon the Parliament to make any law with  respect to any matter for a Union territory or any part thereof. In case of inconsistency between a law made by Parliament and a law made by the legislature of any of these Union territories,  the latter  was to be void to the extent of repugnancy, notwithstanding whether the Parliamentary law was earlier  or subsequent  in point  if time. Section 19 of the Act  exempted the  property of  the Union from all taxes imposed by or under any law made by the Legislative Assembly of a Union territory except insofar as is permitted by a law made by Parliament.      By the  Constitution Sixty Ninth [Amendment] Act, 1991, Article  239-AA   was  introduced   in  Part-VIII   of   the Constitution .  This Article re-named the Union Territory of Delhi as  the "National  Capital  Territory  of  Delhi"  and provided that there shall be a Legislative Assembly for such National Capital  Territory.  The  Legislative  Assembly  so created was  empowered by clause (3) of the said Article "to make laws  for the whole or any part of the National Capital Territory with  respect to  any of the matters enumerated in the State  List or  in the  Concurrent List,  insofar as any such matter  is applicable  to  Union  territories,  except, matters with respect to Entries 1,2 and 18 of the State List and Entries 64,65 and 66 of that List insofar as they relate to the  said Entries  1,  2  and  18".  Clause  (3)  further provided that  the  power  conferred  upon  the  Legislative Assembly of  Delhi by  the said  article shall  not derogate from the powers of the Parliament "to make laws with respect to any matter for a Union territory or any part thereof". It further provided  that in  the case  of repugnancy,  the law made by  Parliament shall prevail, whether the Parliamentary law is  earlier or  later to  the  law  made  by  the  Delhi Legislative Assembly.  The Parliament  is also  empowered to amend, vary  or repeal  any  law  made  by  the  Legislative Assembly. Article  239-AA came  into force  with effect from February 1,  1991. Pursuant  to the  article, the Parliament enacted the  Government of  National  Capital  Territory  of Delhi Act,  1991. It not only provided for constitution of a Legislative Assembly  but also its powers as contemplated by Article 239-AA.  This Act too came into force on February 1, 1991. The subordinate status of the Delhi Legislature is too obvious to merit any emphasis.

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    So far as the MUNICIPAL LAWS GOVERNING THE TERRITORY OF DELHI is  concerned, the following is the position: by Delhi Laws Act,  1912, referred to supra, the Punjab Municipal Act continued to  govern the  territory comprised  in the  Chief Commissioner’s Province  of Delhi. The Act is stated to have been  extended   to  Part   ‘C’  State   of  Delhi  under  a notification issued  under Part  ‘C’ State [Laws] Act, 1950. In the  impugned judgment,  the High  Court has  stated  the following facts:      "The  various   Punjab   enactments      which were  then in  force  in  the      territory of  Delhi continued to be      in force  by virtue  of  the  Delhi      Laws Act  of 1912  and later by the      Part C  States Laws Act of 1950 and      the Union  Territories Laws  Act of      1950. The application and the later      extension of  this law to the Union      Territory of  Delhi was, therefore,      not by  the authority  of the State      Legislature but that of the Central      Legislature, that  is, the  Central      Legislature under the Government of      India Act  followed by  the Central      legislature under  the Constitution      of India,  that is,  the Parliament      of India......  The Delhi  Laws Act      1912, the  Union Territories [Laws]      Act, 1950  as  indeed  the  Part  C      States [Laws]  Act, 1950  were  all      central   statutes   and   when   a      provincial Act  or an Act which may      be treated  as a  provincial Act or      State  Act   was  extended   to   a      territory    by     a    particular      legislature, it  would be deemed to      be  the   enactment   of   such   a      legislature and  this principle  is      clearly recognised  by the  Supreme      Court in  the case of Mithan Lal v.      The State  of  Delhi  and  another,      1959 S.C.R.445...It  is thus  clear      that on the extension of the Act to      the Union Territory of Delhi by the      various     Central     Legislative      enactments referred  to  above,  it      became a  Central Act  or an Act of      Parliament as  if made by virtue of      power of  Parliament  to  legislate      for the Union territory of Delhi by      virtue of clause (4) of Article 246      of the Constitution of India."      The correctness  of the above factual statement has not been disputed by anyone before us. Indeed, the contention of Sri P.P.  Rao,  who  led  the  argument  on  behalf  of  the respondents-State governments  was to  the same  effect.  He contended that inasmuch as the Punjab Municipal Act has been extended to Part ‘C’ State of Delhi Under the Part ‘C’ State [Laws] Act,  1950 with  effect from  April 16, 1950, it is a post-constitutional enactment  made by  Parliament and hence the taxes  levied thereunder  constitute Union  taxation. He placed strong  reliance upon  the decision  in Mithan Lal v. The State  of Delhi & Anr. [1959 S.C.R.445] and also certain observations  in   T.M.  Kanniyan  v.  Income  Tax  Officer, Pondicherry &  Anr. [1968  (2) S.C.R.103] in that behalf. It

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is obvious  that  this  was  also  the  case  of  the  State governments before  the Delhi  High  Court.  We,  therefore, proceed on  the basis  that the  Punjab  Municipal  Act  was extended to  Part ‘C’  State of Delhi under and by virtue of the Part  ‘C’ State of Delhi under and by virtue of the Part ‘C’ States  [Laws] Act, 1950 which came into of the force on April 16, 1950.      By virtue  of the Constitution Seventh [Amendment] Act, 1956, the  Part ‘C’ State of Delhi was designated as a Union Territory. The  Punjab Municipal Act continued to govern the Union Territory  of Delhi.  In the year 1957, the Parliament enacted the Delhi Municipality Act, 1957. The First Schedule to the  Act specified  the boundaries  of New  Delhi  within which area  the Punjab  Municipal Act  continued  to  be  in force. The  remaining  area  was  designated  as  the  Delhi Municipal  Corporation   area  and   the   Delhi   Municipal Corporation Act, 1957 was made applicable to it. In the year 1994,  the   Parliament  enacted  the  new  Delhi  Municipal Corporation Act,  1994 repealing Punjab Municipal Act, 1911. This Act  has been  brought into  force with effect from May 25, 1994. It is, however, confined in its application to the area comprised in the New Delhi Municipal Corporation. Delhi and New  Delhi are  thus  governed  by  different  municipal enactments. The  Delhi Municipal  Corporation  Act  and  New Delhi Municipal  Corporation Act are, without a doubt, post- constitutional laws enacted by Parliament.                          PART - II      Article 1(1) of the Constitution of India declares that India, i.e.,  Bharat, shall be a Union of States. As amended by the Constitution Seventh [Amendment] Act, clauses (2) and (3) Article 1 read:      "(2) The States and the territories      thereof shall  be as  specified  in      the First Schedule.      (3) The  territory of  India  shall      comprise--      (a) the territories of State;      (b) the Union territories specified      in the First Schedule; and      (c) such  other territories  as may      be acquired."      Clause  (30)   in  Article   366  defines   the  "Union territory" in the following words:      "‘Union territory’  means any Union      Territory specified  in  the  First      Schedule  and  includes  any  other      territory   comprised    with   the      territory   of    India   but   not      specified in that Schedule."      The  expression   "State"  is   not  defined   in   the Constitution. It is defined in the General Clauses act, 1397 which is  made  applicable  to  the  interpretation  of  the Constitution  by   Article  367.  As  on  the  date  of  the commencement of  the Constitution,  clause (58) in Section 3 of the  General Clauses Act defined "State" in the following words"      "(58). ‘State’  shall mean a Part A      State, a  Part B  State or a Part C      State."      The said  definition was  amended by  the adaptation of Laws Order  No.1 of 1956 issued by the President in exercise of the  power conferred  upon him  by Article  372-A of  the Constitution  introduced   by   the   Constitution   Seventh [Amendment] Act. The amended definition reads thus:      "(58) ‘States’--

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    (a) as  respects any  period before      the     commencement     of     the      Constitution  (Seventh   Amendment)      Act, 1958,  shall  mean  a  Part  A      State, a  Part B  State or a Part C      State; and      (b) as  respects any  period  after      such  commencement,  shall  mean  a      State  specified   in   the   First      Schedule to  the  Constitution  and      shall include a Union territory."      The definitions  in the  General  Clauses  Act,  it  is necessary to  remember, have  to be read and applied subject to the  opening words  in Section  3, viz., "unless there is anything repugnant in the subject or context....".      Part-XI  of   the   Constitution   contains   provision governing relations  between the  Union and the States. This part  is   divided  into   two  chapters,   viz.,  Chapter-I containing Articles  245 to  255 and  Chapter-II  containing Articles  256   to  263.   Chapter-I   carries   the   title "legislative   relations"   while   Chapter-II   is   called "Administrative relations".  Article 245,  which carries the heading/marginal note "The extent of laws made by Parliament and the  Legislature of States" contains two clauses. Clause (1)  says   that  subject   to  the   provisions   of   this Constitution, Parliament  may make laws for the whole or any part of  the territory  of India  and the  legislature of  a State may make laws for the whole or any part of the State." Article  246  is  of  crucial  relevance  herein  and  must, therefore, be set out in its entirety:      "246.     subject-matter  of   laws      made  by   Parliament  and  by  the      Legislatures     of     States.-(1)      Notwithstanding anything in clauses      (2)   and   (3),   Parliament   has      exclusive power  to make  laws with      respect  to   any  of  the  matters      enumerated in List I of the Seventh      Schedule   to    the   Constitution      referred to as the ‘Union List’).      (2)  Notwithstanding  anything   in      clause   (3),    Parliament,   and,      subject   to    clause   (1)    the      legislature  of  any  State...also,      have  power   to  make   laws  with      respect  to   any  of  the  matters      enumerated  in   List  III  in  the      Seventh     Schedule     to     the      Constitution  referred  to  as  the      ‘Concurrent List’).      (3)  Subject  to  clauses  (1)  and      (2),   the   Legislature   of   any      State....has  exclusive   power  to      make laws  for such  State  or  any      part thereof with respect to any of      the matters  enumerated in  List II      in  the  Seventh  Schedule  to  the      Constitution  referred  to  as  the      ‘State List’).      (4) Parliament  has power  to  make      laws with respect to any matter for      any of  the territory  of India not      included in a State notwithstanding      that  such   matter  is   a  matter      enumerated in the State List."

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           [Emphasis added]      It is  relevant to  point out  that in  clauses (2) and (3),  as   originally  enacted   -  and   upto  the  Seventh [Amendment] Act - the expression "State" was followed by the words "specified in Part-A or Part-B of the First Schedule". Similarly, the  words, "in  a State"  in  clause  (3),  were followed by  the words  "in Part-A  or Part-B  of the  First Schedule". In  other words,  clauses (2)  and (3) of Article 246 expressly  excluded Part  ‘C’ and  Part ‘D’  States from their purview.  The  position  is  no  different  after  the Constitution Seventh  [Amendment] Act,  which designated the Part-C States  as  Union  territories.  They  ceased  to  be states. As  rightly pointed  out by  a Constitution Beach of this Court  in T.M.  Kanniyan, the  context of  Article  246 excludes Union  territories from the ambit of the expression "State" occurring therein. As a matter of fact, this is true of Chapter-I  of Part-XI  of the Constitution as a whole. It may be remembered that during the period intervening between The Constitution Seventh [Amendment] Act, 1962, there was no provision  for   a  legislature   for  any   of  the   Union territories.  Article   239-A  in   Part-VII  -  "The  Union Territories" -  [which  before  the  Seventh  Amendment  was entitled "The  States in  Part-C  of  the  First  Schedule"] introduced by  Constitution Fourteenth  [Amendment] Act  did not itself  create a  legislature for  Union territories; it merely empowered  the Parliament  to create them for certain specified Union  territories [excluding Delhi] and to confer upon  them   such  powers   as  the   Parliament  may  think appropriate. Thus,  the  legislatures  created  for  certain Union territories  under the  1963 Act were not legislatures in  the   sense  used  in  Chapter-III  of  Part-IV  of  the Constitution, but  were mere  creatures of  the Parliament - some sort  of  subordinate  legislative  bodies.  They  were unlike the legislatures contemplated by Chapter-III of Part- VI of  the Constitution  which  are  supreme  in  the  field allotted to  them, i.e.,  in the field designated by List-II of the  Seventh Schedule.  The legislatures  created by  the 1963 Act  for certain  Union territories owe their existence and derive  their powers  from the Act of the Parliament and are subject  to its  over-riding authority.  In  short,  the State legislatures  contemplated by Chapter-I of Part-XI are the legislatures  of States  referred to  in Chapter-III  of Part-VI  and  not  the  legislatures  of  Union  territories created by  the 1963  Act. Union  territories are not States for the purposes of Part-XI [Chapter-I] of the Constitution.      Article 248  confers the  residuary  legislative  power upon the  Parliament. The  said power  includes the power to make any  law imposing a tax not mentioned in either List-II or List-III.  Articles 249, 250, 252 and 357 confer upon the Parliament power  to  make  laws  with  respect  to  matters enumerated in  List-II in  certain  exceptional  situations, which may,  for the sake of convenience, be called a case of "substitute legislation". It would be enough to refer to the marginal headings of these four Articles. They read:      "249.     Power  of  Parliament  to      legislate with  respect to a matter      in  the   State  in   the  national      interest.      250. Power   of    Parliament    to      legislate  with   respect  to   any      matter  in  the  State  List  if  a      Proclamation  of  Emergency  is  in      operation.      252. Power   of    Parliament    to      legislate for two or more States by

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    consent  and   adoption   of   such      legislation by any other State.      357. Exercise of legislative powers      under  Proclamation   issued  under      article 356."      We may  now set out ARTICLE 285 AND      289:      "285. exemption  of property of the      Union from  State  taxation.--  (1)      The property  of the  Union  Shall,      save in so far as Parliament may by      law otherwise  provide,  be  exempt      from all  taxes imposed  by a State      or by an authority within a State.      (2) Nothing  in clause  (1)  shall,      until Parliament  by law  otherwise      provides,  prevent   any  authority      within a State from levying any tax      on any  property of  the  Union  to      which such property was immediately      before  the  commencement  of  this      Constitution liable  or treated  as      liable,  so   long  as   that   tax      continues  to  be  levied  in  that      State.      289.  Exemption   of  property  and      income  of   a  State   from  Union      taxation.-- (1)  The  property  and      income of  a State  shall be exempt      from Union taxation.      (2) Nothing  in  clause  (1)  shall      prevent the  Union from imposing or      authorising the  imposition of, any      tax to  such  extent,  if  any,  as      Parliament many  by law  provide in      respect of  a trade  or business of      any  kind  carried  on  by,  or  on      behalf of,  the Government a State,      or   any    operations    connected      therewith, or  any property used or      occupied for  the purposes  of such      trade or  business  or  any  income      accruing in connection therewith.      (3) Nothing  in  clause  (2)  shall      apply to  any trade or business, or      to any  class of trade or business,      which Parliament may by law declare      to be  incidental to  the  ordinary      functions of Government."      A federation  pre-supposes two  coalescing  units:  the Federal Government/Centre  and the States/Provinces. Each is supposed to be supreme in the sphere allotted it/them. Power to tax  is an incident of sovereignty. Basic premise is that one sovereign  cannot tax  the other  sovereign. Article 285 and 289  manifest this  mutual regard  and immunity but in a manner peculiar  to our  constitutional  scheme.  While  the immunity created  in favour  of the  Union is  absolute, the immunity created in favour of the States is a qualified one. We may elaborate: Article 285 says that "the property of the Union shall...be  exempt from  all tax imposed by a State or by  any   authority  within  a  State"  unless,  of  course, Parliament  itself  permits  the  same  and  to  the  extent permitted by  it. [Clause  (2)  of  Article  285  saves  the existing taxes  until the Parliament otherwise provides, but this is  only a  transitional provision.] The ban, if it can

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be called  one, is  absolute and emphatic in terms. There is no way  a State legislature can levy a tax upon the property of the  Union. So  far as  Article  289  is  concerned,  the position is  different. Clause  (1), had it stood by itself, would have  been similar  to clause  (1) of  Article 285. It says that  "the property-and  income-of  a  State  shall  be exempt from Union taxation". But it does not stand alone. It is qualified by clause (2) and clause (3) is an exception to clause (2).  But before  we refer to clause (2), a word with respect  to   the  meaning   and  ambit  of  the  expression "property" occurring  in this article. Expression "property" is wide  enough to take in all kinds of property. In Re. the Bill to  amend Section  20 of  the Sea Customs Act, 1878 and Section 3  of the  Central Excises  and Salt Act, 1944 [1964 (3) S.C.R.787],  all the  learned Judges  [both majority and dissenting]  were   agreed  that   the  expression  must  be understood in  its widest sense. There is no reason to put a restricted  construction   thereon.  Indeed,   there  is  no controversy about  this proposition  before  us.  Coming  to clause (2), it says that the ban imposed by clause (1) shall not prevent  the Union  from  imposing  or  authorising  the imposition of  any tax  to  such  extent,  if  any,  as  the Parliament may  by law  provide, in  respect of (a) trade or business of  any kind  carried on  by or  on behalf  of  the Government of  a State  or (b) any operations connected with such trade  or business or (c) any property used or occupied for the purposes of such trade or business or (d) any income accruing  or  arising  in  connection  with  such  trade  or business. [The inspiration for this provision may perhaps be found in  certain United States’ decision on the question of the power  of the  units of  a federal  polity to  tax  each others’ properties.]  Clause (3)  empowers the Parliament to declare, by  law, which  trade or  business or  any class of trades or businesses is incidental to the ordinary functions of  the   Government,  whereupon  the  trades/businesses  so specified go out of the purview of clause (2).      It would  be appropriate  at this  state to  notice the ratio of  two judgments  of this  Court dealing with Article 289. In Re: Sea Customs Act, a Special Bench of nine learned Judges, by a majority, laid down the following propositions: (a) clause  (1) of  Article 289  provides for  exemption  of property and  income of  the States  only from taxes imposed directly upon  them; it has no application to indirect taxes like duties  of excise and customs; (b) duties of excise and customs are  not taxes on property or income; they are taxes on manufacture/production  of goods  and on import/export of goods, as the case may be, and hence, outside the purview of clause (1)  of Article  239. The  other decision  in  Andhra Pradesh State  Road Transport  Corporation v. The Income Tax Office [1964 (7) S.C.R.17] is the decision of a Constitution Bench. The  main holding  in this case is that income of the A.P.S.R.T.C. is  not the  income  of  the  State  of  Andhra Pradesh since  the former is an independent legal entity and hence, Article  289(1) does  not avail it. At the same time, certain observations  are made in the decision regarding the scheme of  Article 289.  It is  held that  clause (2)  is an exception of a proviso to clause (1) and as such whatever is included in  clause (2)  must be  deemed to  be included  in clause  (1).  In  other  words,  the  trading  and  business activities referred  to in clause (2) are included in clause (1) and  precisely for  this reason  the exception in clause (2) was  provided. Clause  (3), it was held, is an exception to clause (2). In the words of the Constitution Bench:      "The scheme  of Art.289  appears to      be  that   ordinarily,  the  income

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    derived  by   a  State   both  from      government and  non-governmental or      commercial  activities   shall   be      immune from  income-tax  levied  by      the Union, provided, of course, the      income in  question can  be said to      be  income   of  the   State.  This      general  proposition   flows   from      clause (1).      Clause   (2)   then   provides   an      exception and  authorises the Union      to impose  a tax  in respect of the      income derived by the Government of      a  State  from  trade  or  business      carried on by it, or on its behalf:      that is  to say,  the  income  from      trade or business carried on by the      Government of  a State  or  on  its      behalf which  would not  have  been      taxable under  clause (1),  can  be      taxed, provided  a law  is made  by      Parliament  in   that  behalf.   If      clause (1)  had stood by itself, it      may not  have been  easy to include      within its  purview income  derived      by   a    State   from   commercial      activities, but  since clause  (2),      in terms,  empowers  Parliament  to      make  a   law  levying   a  tax  on      commercial activities carried on by      or  on   behalf  of  a  State,  the      conclusion  is   inescapable   that      these  activities  were  deemed  to      have been  included in  cl. (1) and      that alone can be the justification      for the  words in which cl. (2) has      been adopted  by the  Constitution.      It is plain that cl.(2) proceeds on      the  basis   that   but   for   its      provision,  the   trading  activity      which is  covered by  it would have      claimed   exemption    from   Union      taxation under  cl.(1). That is the      result of  reading clauses  (1) and      (2) together.      Clause (3) then empowers Parliament      to declare by law that any trade or      business would  be taken out of the      purview of  cl.(2) and  restored to      the  area   covered  by  cl.(1)  by      declaring that  the said  trade  or      business  is   incidental  to   the      ordinary functions  of  government.      In  other   words,  cl.(3)   is  an      exception    to    the    exception      prescribed  by   cl.(2).   Whatever      trade or business is declared to be      incidental    to    the    ordinary      functions of government, would then      be exempt from by cl.(2). and would      then be exempt from Union taxation.      That, broadly stated, appears to be      the result of the scheme adopted by      the three clause of Art.289."                          PART - III

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    The crucial  question arising  in this batch of appeals pertains to  the meaning  of the expression "Union taxation" occurring in  Article 289(1).  According to  the appellants- municipal corporations,  the property taxes levied either by Punjab Municipal Act, 1911, as extended to and applicable in the New  Delhi Municipal  Corporation area  or by  the Delhi Municipal Corporation  Act, 1957  applicable  to  the  Delhi Municipal Corporation  area do  not fall within the ambit of the expression  "Union taxation".  According to them, "Union taxation" means  levy of  any of  the taxes mentioned in the Union  List   [List-I  in   the  Seventh   Schedule  to  the Constitution]. May  be, it  may also  take in  levy of Stamp duties [which  is the  only taxation entry in the Concurrent List] by  Parliament, but by no stretch of imagination, they contend, can  levy of  any tax  provided in  the State  List [List-II in  the Seventh  Schedule] can  be characterised as Union taxation. Merely because the Parliament levies the tax provided in  List-II, such taxation does not amount to Union taxation. There  are many situations where the Parliament is empowered by  Constitution to  make  laws  with  respect  to matters enumerated  in List-II.  For example,  Articles 249, 250, 252  and 357  empower the  Parliament to make laws with respect  to   matters  enumerated   in  List-II  in  certain specified situations.  If any taxes are levied by Parliament while legislating  under any  of the  above  articles,  such taxation cannot  certainly be termed as "Union taxation". It would still  be State  taxation. The  levy  of  taxation  by Parliament within  the Union  territories is  of  a  similar nature.  Either   because  the   Union  territory   has   no legislature or because the Union territory has a legislature but the  Parliament chooses  to act in exercise of its over- riding power,  the taxes levied by a Parliamentary enactment within such  Union territories  would not be Union taxation. It is  relevant to notice, the learned counsel contend, that the legislatures  of the  Union territories  referred to  in Article 239-A as well as the legislature of Delhi created by Article 239-AA  are empowered  to make  laws with respect to any of the matters enumerated in List-II and List-III of the Seventh Schedule, just like any other State legislature; any taxes levied  by  these  legislatures  cannot  certainly  be characterised  as   "Union  taxation".  Merely  because  the Parliament has been given an over-riding power to make a law with respect  to matters  enumerated  even  in  List-II,  in suppression of  the law made by the legislature of the Union territory, it  does not  follow that  the law so made is any the less  a law  belonging to  the sphere  of the State. The test in  such matters  - it  is contended - is not who makes the law  but to  which matter  in which List does the law in question pertain.  Clause (4)  of Article  246  specifically empowers the  Parliament to  make laws  with respect  to any matter  enumerated   in  List-II   in  the   case  of  Union territories. This shows that even the said clause recognises the distinction  between List-I  and List-II  in the Seventh Schedule, it is submitted.      The learned Attorney General appearing for the Union of India supported  the contentions  of the appellant-municipal corporations.      On the  other hand,  the  contentions  of  the  learned counted for  the respondents  are to the following effect: a Union territory  is not  a "State"  within  the  meaning  of Article 246. Even prior to the Seventh [Amendment] Act, Part ‘C’ States,  or for  that matter  Part-D  States,  were  not within the  purview of the said article. The division of the legislative powers  provided by  clauses (1), (2) and (3) of article 246  has  no  relevance  in  the  case  of  a  Union

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territory. Union territory, as the name itself indicates, is a territory  belonging to  Union. A  Union territory  has no legislature as  contemplated by Part-VI of the Constitution. A Union  territory may  have a legislature  or may not. Even if it  is bestowed  with one,  it is  not by  virtue of  the Constitution but  by virtue  of a  Parliamentary enactments, e.g., Government  of Part  ‘C’ States  Act, 1951  [prior  to November 1,  1956] and  Government of Union Territories Act, 1963. Even  the legislature  provided for  Delhi by  Article 239-AA of the Constitution with effect from February 1, 1992 is not  a legislature  like that  of the  States governed by Part-VI of  the Constitution.  Not only  the  powers  of  he legislature  are   circumscribed  by   providing  that  such legislature cannot  make  laws  with  reference  to  certain specified entries  in List-II  but any  law made  by it even with reference  to a  matter enumerated in the State List is subject to  the law  made by  Parliament. In  any event, the position obtaining  in Delhi  after February  1, 1992 is not relevant in  these appeals  since these appeals pertain to a period anterior  to the said date. The Punjab Municipal Act, 1911[as extended and applied to the Union Territory of Delhi by Part  ‘C’ States  [Laws] Act]  and  the  Delhi  Municipal Corporation Act,  1957 are  Parliamentary laws enacted under and by  virtue of the legislative power vested in Parliament by clause  (4) of  Article 246. The taxes levied by the said enactments constitute "Union taxation" within the meaning of Article 289(1)  and hence,  the properties  of the States in the Union  Territory of Delhi are exempt therefrom. Reliance is placed  upon the majority opinion in Re.: Sea Customs Act in support  of the  above propositions. It is submitted that there are no reasons to take a different view now.      On  a   consideration  of  rival  contentions,  we  are inclined to  agree with  the respondents-States.  The States put together  do not  exhaust the  territory of India. There are certain  territories which do not form part of any State and yet  are the  territories of  the Union. That the States and Union  territories of  the Union.  That the  States  and Union territories  are different  entities, is  evident from clause (2)  of Article  1 - indeed from the entire scheme of the Constitution.  Article 245(1) says that while Parliament may make  laws for the whole or any part of the territory of India, the  legislature of  a State  may make  laws for  the whole or  any part  of the  State. Article  1(2)  read  with Article 245(1)  shows that  so far  as the Union territories are concerned,  the only  law-making body is the Parliament. The legislature  of a  State cannot make any law for a Union territory; it can make laws only of that State. Clauses (1), (2) and  (3) of Article 246 speak of division of legislative powers between  the Parliament  and State legislatures. This division is  only  between  the  Parliament  and  the  State legislatures,  i.e., between the Union and the States. There is no  division of  legislative powers between the Union and Union territories. Similarly, there is no division of powers between States  and Union   territories.  So  far  as  Union territories are  concerned, it  is clause (4) of Article 246 that is  relevant. It  says that the Parliament has power to make laws  with respect  to any  matter for  any part of the territory of  India not  included in a State notwithstanding that such  matter is  a matter enumerated in the State List. Now, the Union territory is not included in the territory of any State.  If so,  Parliament is  the only  law-making body available for such Union territories. It is equally relevant to mention  that the Constitution, as originally enacted did no provided for a legislature for any of the Part ‘C’ States [or, for  that matter, Part‘D’ States]. It is only by virtue

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of the  Government of  Part ‘C’  States Act,  1951 that some Part ‘C’  States including Delhi got a legislature. This was put an  end to  by the  States Reorganisation  Act, 1956. In 1962,  the   Constitution  Fourteenth  [Amendment]  Act  did provide for  creation/constitution of legislatures for Union territories [excluding,  of course, Delhi] but even here the Constitution did  not itself  provide for  legislatures  for those Part‘C’  States; it merely empowered the Parliament to provide for  the same by making a law. In the year 1991, the Constitution did  provide for  a legislature  for the  Union Territory of  Delhi [National Capital Territory of Delhi] by Sixty-Ninth [Amendment]  Act [Article  239AA] but  even here the  legislature   so  created   was  not   a  full  fledged legislature not  did have  the effect  of - assuming that it could -  lift the  National Capital  Territory of Delhi from Union territory  category to  the category  of States within the meaning  of Chapter-I  of Part-XI  of the Constitution . All  this  necessarily  means  that  so  far  as  the  Union territories are  concerned, there is not such thing as List- I,  List-II  or  List-III.  The  only  legislative  body  is Parliament -  or a  legislative  body  created  by  it.  The Parliament  can   make  any  law  in  respect  of  the  said territories  -   subject,  of   course,  to   constitutional limitations other than those specified in Chapter-I of Part- XI of the Constitution. Above all, Union Territories are not "States" as  contemplated by  Chapter-I of Part-XI; they are the territories of the Union falling outside the territories of the  States. Once  the Union  territory is  a part of the Union and  not part  of any  State, it  follows that any tax levied  by   its  legislative   body  is   Union   taxation. Admittedly, it  cannot be called "State taxation"- and under the  constitutional  scheme,  there  in  no  third  kind  of taxation. Either  it is  Union taxation  or State  taxation. This is  also the opinion of the majority in Re.:Sea Customs Act. B.P.  Sinha, C.J.,  speaking on behalf of himself, P.B. Gajendragadkar, Wanchoo  and Shah,  JJ. - while dealing with the  argument  that  in  the  absence  of  a  power  in  the Parliament to levy taxes on lands and buildings [which power exclusively belongs  to State legislatures, i.e., Item 49 in List-II], the  immunity provided  by Article 289(1) does not make any sense - observed thus:      "It is true that List I contains no      tax directly  on property like List      II, but  it does  not  follow  from      that the  Union  has  no  power  to      impose a  tax directly  on property      under  any  circumstances.  Article      246(4) gives power to Parliament to      make  laws   with  respect  to  any      matter  for   any   part   of   the      territory of  India not included in      a State  notwithstanding that  such      matter is  a matter  enumerated  in      the State  List. This means that so      far  as   Union   territories   are      concerned Parliament  has power  to      legislate not  only with respect to      items  in  List  I  but  also  with      respect to items in List I but also      with respect  to items  in List II.      Therefore,   so    far   as   Union      territories     are      concerned,      Parliament has  power to  impose  a      tax directly  on property  as such.      It cannot  therefore be  said  that

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    the exemption  of States’  property      from  Union  taxation  directly  on      property under  Art.289(1) would be      meaningless as  Parliament  has  no      power to impose any tax directly on      property.  If   a  State   has  any      property  in  any  Union  territory      that property  would be exempt from      Union taxation  on  property  under      Art.289(1). The  argument therefore      that Art.289(1)  cannot be confined      to tax directly on property because      there is  no such  tax provided  in      List I cannot be accepted."      Rajagopala Iyyengar,J.  agreed with  Sinha, CJ. on this aspect, as  indeed on  the main  holding.  The  decision  in Re.:Sea Customs  Act has  been rendered  by a  Bench of nine learned Judges. The decision of the majority is binding upon us and  we see  no reason  to take a different view. Indeed, the view  taken by  the majority accords fully with the view expressed by us hereinabove.      Now, so  far as  the analogy of laws made by Parliament under Articles 249, 250, 252 and 357 are concerned, we think the analogy  is  odious.  Articles  249,  250  and  357  are exceptional situations which call for the Parliament to step in and make laws in respect of matters enumerated in List-II and which laws have effect for a limited period. Article 252 is a case where the State legislatures themselves invite the Parliament to  make a  law on  their behalf.  These are  all situations of  what may be called "substitute legislation" - either because of a particular situation or because there is no legislature  at a  given moment to enact laws. As against these provisions,  clause (4)  of Article 246 is a permanent features and  laws made  thereunder are  laws  made  in  the regular course.      In this  connection, it  is necessary  to remember that all the  Union territories  are not situate alike. There are certain Union territories [I.e., Andaman and Nicobar Islands and Chandigarh] for which there can be no legislature at all -  as  on  today.  there  is  a  second  category  of  Union territories covered  by  Article  239-A  [which  applied  to Himachal Pradesh,  Manipur, Tripura,  Goa, Daman and Diu and Pondicherry -  now, of  course, only Pondicherry survives in this category,  the rest  having acquired  Statehood]  which have legislatures  by courtesy of Parliament. The Parliament can, by  law, provide  for constitution  of legislatures for these States and confer upon these legislatures such powers, as it  may think  appropriate. The  Parliament  had  created legislatures for  these Union  territories  under  the  "The Government of  Union Territories Act, 1963", empowering them to make  laws with  respect to  matters in List-II and List- III,  but  subject  to  its  over-riding  power.  The  third category is  Delhi. It  had no  legislature with effect from November 1,  1956 until  one has  been created  under and by virtue of the Constitution Sixty-Ninth [Amendment] Act, 1991 which introduced  Article 239-AA. We have already dealt with the special  features of  Article 239-AA and need not repeat it. Indeed,  a reference  to Article  239-B read with clause (8) of Article 239-AA shows how the Union Territory of Delhi is in  a class by itself but is certainly not a State within the meaning  of Article  246 or Part-VI of the Constitution. In us,  it is  also a  territory governed  by clause  (4) of Article 246. As pointed out by the learned Attorney General, various  Union   territories  are  in  different  stages  of evolution. Some have already acquired Statehood and some may

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be on  the way  to it. The fact, however, remains that those surviving as  Union  territories  are  governed  by  Article 246(4) notwithstanding  the differences  in their respective set-ups -  and  Delhi,  now  called  the  "National  Capital Territory of Delhi", is yet a Union territory.      It would be appropriate at this state to refer to a few decisions on  his aspect.  In T.M.  Kanniyan, a Constitution Bench speaking through Bachawat, J. had this to say:      "Parliament has  plenary  power  to      legislate for the Union territories      with regard  to any  subject.  With      regard to  Union territories, there      is no  distribution of  legislative      power. Article  246(4) enacts  that      ‘Parliament has  power to make laws      with respect  to any matter for any      part of  the territory of India not      included in a State notwithstanding      that  such   matter  is   a  matter      enumerated in  the State  List.’ In      R.K.  Sen   v.   Union   [1966]   1      S.C.R.480, it  was pointed out that      having  regard   to  Art.367,   the      definition of ‘State’ in s.3(58) of      the  General   Clauses  Act.   1897      applies for  the interpretation  of      the Constitution  unless  there  is      anything repugnant  in the  subject      or context.  Under that definition,      the expression  ‘State’ as  respect      any period  after the  commencement      of   the    Constitution   (Seventh      Amendment) Act,  1956 ‘shall mean a      State  specified   in   the   First      Schedule to  the  Constitution  and      shall include  a Union  territory’.      But this  inclusive  definition  is      repugnant  to   the   subject   and      context  of   Art.246.  There,  the      expression ‘State’ means the States      specified in  the  First  Schedule.      There   is    a   distribution   of      legislative      power      between      Parliament and  the legislatures of      the  States.   Exclusive  power  to      legislate  with   respect  to   the      mattes enumerated in the State List      is assigned  to the legislatures of      the State  established by  Part VI.      There   is   no   distribution   of      legislative power  with respect  to      Union  territories.   That  is  why      Parliament  is   given   power   by      Art.246(4) to  legislate even  with      respect to  matters  enumerated  in      the State  List. If  the  inclusive      definition of ‘State’ in s.3(58) of      the General  Clauses  Act  were  to      apply  to   Art.246(4),  Parliament      would have  no power  to  legislate      for  the   Union  territories  with      respect to  matters  enumerated  in      the  State   List   and   until   a      legislature empowered  to legislate      on those  matters is  created under

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    Art.239A for the Union territories,      there  would   be  no   legislature      competent  to  legislate  on  those      matter is  created  under  Art.239A      for the  Union  territories,  there      would be  no legislature  competent      to  legislate   on  those  matters;      moreover, for  certain  territories      such as  the  Andaman  and  Nicobar      Islands  no   legislature  can   be      created  under  Art.239A,  and  for      such territories  there can  be  no      authority  competent  to  legislate      with respect  to matter  enumerated      in   the   State   List.   Such   a      construction is  repugnant  to  the      subject and  context to Art.246. It      follows that in view of Art.246(4),      Parliament has  plenary  powers  to      make laws  for Union territories on      all matters.  Parliament can by law      extend the  Income-tax Act, 1961 to      a   Union   territory   with   such      modifications as it thinks fit. The      President in  the exercise  of  his      powers  under   Art.240  can   make      regulations  which  have  the  same      force  and  effect  as  an  Act  of      Parliament which  applies  to  that      territory.   The    President   can      therefore by  regulation made under      Art.240 extend  the Income-tax Act,      1961 to  that territory  with  such      modifications as he thinks it.      The   President   can   thus   make      regulations  under   Art.240   with      respect  to   a   Union   territory      occupying the  same field  on which      Parliament can  also make  laws. We      are not  impressed by  the argument      that  tush  overlapping  of  powers      would lead  to a  clash between the      President and Parliament. The Union      territories      are      centrally      administered through  the President      acting through an administrator. In      the cabinet  system  of  Government      the President acts on the advice of      the Ministers  who are  responsible      to    Parliament....It    is    not      necessary to  make any distribution      of income-tax with respect to Union      territories  as  those  territories      are centrally  administered through      the President."             [emphasis added]      We respectfully agree with the above statement of law.      We do not think it necessary to refer to or discuss the propositions laid  down in  Management of  Advance Insurance Co.Ltd. V.  Shri Gurudasmal  &  Ors.  [1970  (3)  S.C.R.881] holding that  the amended  definition of  "State" in  clause (58) of  Section 3  of the  General Clauses  Act applies  to interpretation of  Constitution by  virtue of  Article 372-A nor with the contrary proposition in the dissenting judgment of Bhargava, J. in Shiv Kirpal Singh v. Shri V.V. Giri [1971

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(2) S.C.R.197  at 313].  It is enough to say that context of Article 246  - indeed  of Chapter  - I in Part XI - excludes the application of the said amended definition.      In  Mithanlan   [Supra],  T.L.   Venkatrama  Iyer,  J., speaking for  the Constitution  Bench, while dealing with an argument based on Article 248(2) observed:      "That Article  has reference to the      distribution of  legislative powers      between the  Centre and  the States      mentioned in  Parts A  and B  under      the three  Lists in Sch.VII, and it      provided that in respect of matters      not   enumerated   in   the   Lists      including    taxation,     it    is      Parliament that  has power to enact      laws. It has no application to Part      C States  for which  the  coverning      provision is Art, 246(4). Moreover,      when a  notification is  issued  by      the     appropriate      Government      extending the law of a Part A State      to a  Part  C  State,  the  law  so      extended derives  its force  in the      State to  which it is extended from      6.2 of the part C States (Laws) Act      enacted by  Parliament. The  result      of a notification issued under that      section is  that the  provisions of      the law  which is  extended  become      incorporated by  reference  in  the      Act itself,  and  therefore  a  tax      imposed thereunder is a tax imposed      by Parliament.  There  is  thus  no      substance in this contention."             [Emphasis added]      To the  same effect is the decision of a Division Bench in Satpal & Co. v. Lt. Governor [1979 (3) S.C.R 651].      It is  then argued for the appellants that if the above view is  taken, it  would  lead  to  an  inconsistency.  The reasoning in  this behalf  runs thus:  a  law  made  by  the legislature of  a Union territory levying taxes on lands and buildings would  be "State taxation", but if the same tax is levied by  a  law  made  by  the  Parliament,  it  is  being characterised as  "Union taxation"; this is indeed a curious and inconsistent  position, say  the learned counsel for the appellants. In  our opinion,  however, the very premise upon which this  argument is  urged is  incorrect. A  tax  levied under   a law  made by  a legislature  of a  Union territory cannot be called "State taxation" for the simple reason that Union territory  is not  a "State"  within  the  meaning  of Article 246  [or for  that matter,  Chapter-I of Part-XI] or Part-VI or Article 285 to 289.      Lastly, we  may refer  to the  circumstance that  Delhi Municipal Corporation  Act, 1957  was enacted by Parliament. Hence, so  far as  the Delhi  Municipal Corporation  area is concerned, the  taxes are  levied under  and by  virtue of a Parliamentary enactment.  So far  as the New Delhi Municipal Corporation area  is concerned,  the taxes  were levied till 1994 under  the Punjab  municipal Act,  1911 as extended and applied by  the Part  ‘C’ State  [Laws] Act, 1950 enacted by Parliament. It  is held  by this  Court  in  Mithanlal  that extension   of an  Act to  an area has the same effect as if that Act  has been made by the extending legislature for the area. The Court Said:      "Moreover, when  a notification  is

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    issued    by     the    appropriate      Government extending  the law  of a      Part A State to a Part C State, the      law so  extended derives  its force      in  the   State  to   which  it  is      extended from  s.2 of  the  Part  C      States  (Laws)   Act   enacted   by      Parliament.   The   result   of   a      notification  issued   under   that      section is  that the  provisions of      the law  which is  extended  become      incorporated by  reference  in  the      Act itself,  and  therefore  a  tax      imposed thereunder is a tax imposed      by Parliament.  There  is  thus  no      substance in this contention." [Also see T.M. Kanniyan [1968 (2) S.C.R.203 at 108].]      It must accordingly be held that with effect from 1950, it is as if the property taxes are levied by a Parliamentary enactment. In 1994, of course, Parliament itself enacted the New Delhi  Municipal Corporation  Act [with  effect from May 25, 1994]  repealing the  Punjab Municipal Act. Taxes levied under these  enactments cannot but be Union taxation - Union taxation in a Union Territory.      For all  the above  reason, we  hold that  the levy  of taxes on  property by  the Punjab  Municipal Act,  1911  [as extended to  Part ‘C’  States of  Delhi by  Part ‘C’  States (Laws) Act, 1950], the Delhi Municipal Corporation Act, 1957 and the  New Delhi  Municipal Corporation  Act,  1994  [both Parliamentary  enactments]  constitutes  "Union  taxation  " within the meaning of Article 289(1).                          PART - IV      The Delhi  Municipal Corporation  Act, 1957, the Punjab Municipal Act,  1911 [as  extended to the Union Territory of Delhi] and  the New  Delhi Municipal  Corporation Act,  1994 [N.D.M.C. Act]  specifically exempt  the properties  of  the Union from  taxation. Section  119 of  the  Delhi  Municipal Corporation  Act   is  in   terms  of  Article  285  of  the Constitution. It reads:      "119. Taxation  of Union properties      --  (1)   Notwithstanding  anything      contained    in    the    foregoing      provisions of  this Chapter,  lands      and buildings  being properties  of      the Union  shall be exempt from the      property taxes specified in section      114:      Provided that  nothing in this sub-      section    shall     prevent    the      Corporation from levying any of the      said  taxes   on  such   lands  and      buildings    to  which  immediately      before the  26th January 1950, they      were liable  or treated  as liable,      so long as that tax continues to be      levied by  the Corporation on other      lands and buildings."      Sub-section (3)  of Section  61 is  also  in  terms  of Article 285 of the Constitution. It reads:      "Nothing in  this sub-section shall      authorise the imposition of any tax      which  the  provincial  legislature      has  no  power  to  impose  in  the      Province under the Constitution--      Provided  that  a  committee  which

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    immediately before the commencement      of the  Constitution shall lawfully      levying any  such  tax  under  this      section  as   then  in   force  may      continue to  levy  such  tax  until      provision to  the contrary  is made      by Parliament."      Sub-section (1)  of Section  65 of  the N.D.M.C. Act is again in the same terms as Article 285.      None of  the above  enactments provide any exemption in favour of  the properties  of a State. Section 115(4) of the Delhi Municipal  Corporation Act,  Section 61  of the Punjab Municipal Act  and  Section  62  of  the  N.D.M.C  Act  levy property  tax   on   all   the   properties   within   their jurisdiction. From  the fact  that properties  of the  Union have been  specifically exempted in terms of Article 285 but the properties of the States have not been exempted in terms of Article  289 shows  that so  far as  these enactments go, they purport  to levy tax on the properties of the States as well. The  State governments, it is equally obvious, are not claiming  exemption   from  municipal   taxation  under  any provision of  the concerned  State enactment  but only under and by  virtue of  Article 289 of the Constitution. They are relying upon  clause (1) of Article 889 which is undoubtedly in absolute  terms. Clause  (1) of  Article 289  says,  "the property and  income of  a State  shall be exempt from Union taxation". But  clause (1)  does  not  stand  alone.  It  is qualified by  clause (2)  - which  in turn  is qualified  by clause (3).  Where an exemption is claimed under clause (1), we cannot  shut our  eyes to  the said qualifying clause and give  effect  to  clause  (1)  alone.  In  the  decision  in A.P.S.R.T.C., this  Court has  held that  clause (2)  is  an exception to  clause (1) and that clause (3) is an exception to clause  (2). When  a claim  for exemption  is made  under clause (1)  of Article  289, the  Court has  to examine  and determine the  field  occupied  by  clause  (1)  by  reading clauses (1)  and (2)  together. If  there is  a la w made by Parliament within  the  meaning  of  clause  (2),  the  area covered by  that law will be removed from the field occupied by clause (1). By way of analogy, we may refer to sub-clause (f) of  clause (1)  and clause  (5) of Article 19, which has been explained  by a  Special Bench of eleven Judges in R.C. Cooper v.  Union  of  India  [1970  (1)  S.C.C.248]  in  the following words:  "Clause (5)  of Article 19 and clauses (1) and (2)  of Article  31 prescribe  restrictions  upon  State action, subject  to which  the  right  to  property  may  be exercised." But before we elaborate this aspect, it would be appropriate to examine the meaning and scheme of Article 289 and the object underlying it.      Since Article  289 is  successor to  Section 155 of the Government of  India Act,  1935 -  no  doubt,  with  certain changes -  it would  be helpful  to refer to and examine the purport and  scope of  Section 155  [as it obtained prior to its amendment  in 1947].  We would  also  be  simultaneously examining the scheme and purport of Article 289. It would be appropriate  to  read  both  Article  289  and  Section  155 together:      "289.     Exemption of property and      income  of   a  State   from  Union      taxation --  (1) The  property  and      income of  a State  shall be exempt      from Union taxation.      (2)  Nothing in  clause  (1)  shall      prevent the Union from imposing, or      authorising the  imposition of, any

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    tax to  such  extent,  if  any,  as      Parliament may  by law  provide  in      respect of  a trade  or business of      any  kind  carried  on  by,  or  on      behalf  of,  the  Government  of  a      State, or  any operations connected      therewith, or  any property used or      occupied for  the purposes  of such      trade or  business, or  any  income      accruing or  arising in  connection      therewith.      (3) nothing  in  clause  (2)  shall      apply to  any  trade  or  business,      which Parliament may by law declare      to be  incidental to  the  ordinary      functions of Government.      155.(1)  Subject   as   hereinafter      provided,  the   Government  of   a      Province  and   the  Ruler   of   a      federated State shall not be liable      to Federal  taxation in  respect of      lands  or  buildings    situate  in      British India  or income  accruing,      arising  or   received  in  British      India;      Provide that-      (a)  where a  trade or  business of      any kind  is carried  on by  or  on      behalf  of   the  Government  of  a      province in  any  part  of  British      India, outside  that Province or by      a Ruler  in  any  part  of  British      India, nothing  in this sub-section      shall  exempt  that  Government  or      Ruler from  any Federal taxation in      respect of  that trade or business,      or   any    operations    connected      therewith, or any property occupied      for the purposes thereof;      (b)  nothing  in  this  sub-section      shall  exempt   a  Ruler  from  any      Federal taxation  in respect of any      lands, buildings  or  income  being      his personal  property or  personal      income.      (2)  Nothing in  this  Act  affects      any exemption from taxation enjoyed      as of  right at the passing of this      act by the Ruler of an Indian State      in respect of any Indian Government      securities   issued   before   that      date."      The first  distinguishing feature to be noticed is that while Section  155 spoke  of "lands and buildings" belonging to the  Government of  a Province  situate in  British India being exempt  from Federal  taxation [we are leaving out the portion relating  to Rulers  of  Acceding  States/Federating States], Article  289(1) speaks of "the property" of a State being  exempt  from  Union  taxation.  The  second  material difference is  between proviso  (a) to  Section  155(1)  and clause (2)  of article  289 corresponding  to it.  Under the proviso, trade  or  business  carried  on  by  a  Provincial government was  excluded from  the exemption provided in the main limb  of sub-section  (1) whereas  clause (2)  does not itself deny  the exemption  to such  trade or  business;  it

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merely enable  the Parliament  to make  a law levying tax on such  trade   or  business.   This  change   has  a  certain background,  which  we  shall  refer  to  later.  The  third distinguishing feature  between the  said proviso and clause (2) is  this: while  the denial of exemption provided by the proviso was  to the  trade  or  business  carried  on  by  a Provincial government  outside its  territory, clause (2) of Article 289  contains no  such restrictive words. The fourth distinguishing feature  is the  provision in  clause (3)  of Article 289,  which enables  the Parliament to declare which trades/ businesses  are incidental  to ordinary functions of government, in which event those trades/businesses go out of the purview  of clause  (2); no  such provision  existed  in Section 155.      Even under  the Government of India Act, 1935 the power to levy  taxes on  lands and  buildings was  vested  in  the Provincial legislatures  alone. Federal  legislature had  no power to  levy such  taxes. If so, the question arises - why did the  British  Parliament  provide  that  the  lands  and buildings of  a Provincial  government situated  in  British India are  exempt from  Federal taxation.  Since, no Federal tax could  ever have  been levied by the Federal legislature on lands or buildings, is the exemption meaningless? This is the question  which was  also agitated  before  the  learned Judges who  answered the  Presidential reference in Re.: Sea Customs  Act.   Sri  P.P.  Rao  and  other  learned  counsel appearing for  the State  governments submit  that the  said exemption is  neither   meaningless  nor  unnecessary.  They submit that  the language  used in  the main  limb  of  sub- section (1)  of Section  155 was  used advisedly  to meet  a specific situation. Their explanation, as condensed by us in our words, is to the following effect:      even at  the time  of enactment and      commencement of  the Government  of      India  Act,   1935,  the  area  now      comprised in the Union Territory of      Delhi was  comprised in  the  Chief      Commissioner’s Province  of  Delhi;      besides Delhi,  there were  several      other     Chief      Commissioner’s      Provinces  within   British  India;      every  Provinces   government   and      almost every major native State had      properties in  Delhi for one or the      other   purpose;   prior   to   the      commencement of the 1935 Act, there      was no  such thing  as division  of      powers between  the Centre  and the      Provinces;  Provinces   were   mere      administrative units;  the  concept      of division  of powers  between the      Federation [Centre]  and its  units      [Provinces], i.e., the concept of a      Federation, broadly  speaking,  was      introduced by  the said Act for the      first time; in such a situation, it      was  necessary   that  the   mutual      respect  and   regard  between  the      Centre and the Provinces basic to a      federal concept,  is  affirmed  and      given      due       constitutional      recognition     even   before   the      enactment of  the Delhi  Laws  Act,      1912,  the   Governor  General   in      Council  with   the  sanction   and

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    approbation  of  the  Secretary  of      State   for    India,    had,    by      proclamation      published      in      Notification No.911  dated the 17th      day of September, 1912, taken under      his   immediate    authority    and      management,     the     territories      mentioned in  Schedule-A to the Act      [that portion  of the  district  of      Delhi  comprising   the  tehsil  of      Delhi   and   police   station   of      Mehrauli]   which   were   formerly      included in the Province of Punjab,      with a  view  to  provide  for  the      administration   thereof by a Chief      Commissioner   as   a      separate      Province  to   be  known   as   the      Province of  Delhi; it was the said      status which  was affirmed  by  the      Delhi Laws  Act, 1912; Section 5 of      the Government  of India  Act, 1935      made a  clear  distinction  between      the   Provinces   and   the   Chief      Commissioner’s Provinces; while the      Provinces   were    provided   with      legislatures [Chapter-III  of Part-      III  of   the   Act],   the   Chief      Commissioner’s Provinces,  governed      by Part  - IV  of the  Act, had  no      legislatures of their own; the only      legislature  for   them   was   the      Federal legislature; any tax levied      in   the    Chief    Commissioner’s      Province should  have  been  levied      only by  the Federal legislature or      the Governor  General, as  the case      may be;  Section 99(1)  of the  Act      provided    that    "the    Federal      Legislature may  make laws  for the      whole or  any part of British India      or for  any Federated  State and  a      Provincial  Legislature   may  make      laws for  the Province  or for  any      part thereof";  all this shows that      the tax  on lands  or buildings  in      the Chief  Commissioner’s Provinces      including  Delhi  could  have  been      levied only by Federal legislature;      Section 155(1)  was meant to exempt      the   lands    or   buildings    of      Provincial  governments  from  such      federal taxation - it is submitted.      We find the above explanation cogent and acceptable. It fully explains the use of the words "lands and buildings" in Section 155(1) of the Act. We think it unnecessary to repeat the whole reasoning once again.      As against the words "lands and buildings" belonging to a Provincial  government in Section 155 of the Government of India Act,  1935, Article  289(1) uses  a single  expression "Property" and says that property of a State shall be exempt from  Union   taxation.   The   expression   "Property"   is indubitably much  wider. It  takes in  not  only  lands  and buildings but  all forms  of property. While the Constituent Assembly debates  do not throw any light upon the reason for this change  - from  "lands or buildings" to "property" - it

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is, in  all probability, attributable to the large number of representations made  by several  Provincial governments  to the Constituent  Assembly  that  not  merely  the  lands  or buildings but any and every trade and business carried on by a State  government should equally be entitled to exemption. Sri B.Sen invited our attention to those representations and submitted that it is these representations which induced the Constituent Assembly to draft clause (2) of Article 289 in a manner different from proviso (1) to Section 155(1). Be that as it  may, The  fact remains that the expression "property" in Article  289(1) has  to be  given its  natural and proper meaning. It  includes not  only lands  and buildings but all forms of  property. The  explanation offered  by the learned counsel appearing  for the  States,  set  out  in  extension hereinabove, for  the use  of the words "lands or buildings" in Section 155(1) is equally valid for clause (1) of Article 289 insofar as it pertains to lands and buildings.      It must  be remembered  that both  Section  155(1)  and Article 289(1)  exempt the  income  as  well  derived  by  a Provincial Government/State  government from Union taxation. Both the  property and  income of the States are thus exempt under clause  (1) of  Article 289  subject,  of  course,  to clause (2) thereof.      Now what  does clause (2) of Article 289 say? It may be noticed that  the language  of the  first proviso to Section 155  and  of  clause  (2)  of  Article  289  is  practically identical  [except   for  the  two  distinguishing  features mentioned hereinbefore].  It would, therefore, suffice if we discuss the proviso. It says - omitting reference t Princely States -  that where  a trade  or business  of any  kind  is carried on  by or  on behalf of the government of a Province in any  part  of  British  India  [outside  that  Province], nothing in sub-section (1) shall exempt that Government from any Federal taxation in respect of that trade of business or any operations  connected therewith or any income arising in connection  therewith  or  any  property  [i.e.,  lands  and buildings]  occupied   for  the   purposes  thereof.  It  is necessary to  emphasis that  the proviso  to Section  155(1) which by  its own  force levied  taxes upon  the trading and business operations carried on by the Provincial governments did not  either define the said expressions or specify which trading or  business operations  are subject to taxation. On this account.  the proviso  was not and could not be said to have been,  ineffective or  unenforceable. It  was effective till January  26, 1950.  Clause  (2)  of  Article  289  also similarly does  not define  or specify - nor does it require that the law made thereunder should so define or specify. It cannot be  said that  unless the  law made  under  and  with reference to  clause (2) specifies the particular trading or business operations  to be  taxed, it  would not  be  a  law within the  meaning  of  clause  (2).  Coming  back  to  the language of  clause (2),  a question is raised, why does the proviso speak  of taxation  in respect  of trade or business when the  main limb  of sub-section (1) speaks only of taxes in respect of lands or buildings and income? Is the ambit of proviso wider  than the  main limb?  Is  it  an  independent provision of  a substantive nature notwithstanding the label given to  it as a proviso? Or is it only an exception? It is asked. We are, however, of the considered opinion that it is more important  to give  effect to  the language  of and the intention underlying  the proviso  than to  find a label for it. It  is clarificatory  in nature  without a    doubt;  it appears to  be more  indeed. It is concerned mainly with the "income" [of Provincial governments] referred to in the main limb of  sub-section (1).  It speaks of tax on the "lands or

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buildings" in that context alone, as we shall explain in the next paragraph.  The idea  underlying the proviso is to make it  clear   that  the  exemption  of  income  of  Provincial government operates  only where  the  income  is  earned  or received by  it as a government; it will not avail where the income is  earned   or received by the Provincial government on account of or from any trade or business carried on by it - that  is a  trade or  a business  carried on  with  profit motive. In  the light  of the  language of  the  proviso  to Section 155  and clause  (2)  of  Article  289,  it  is  not possible to  say that  every  activity  carried  on  by  the government is governmental activity. A distinction has to be made between  governmental activity  and trade  and business carried on  by the  government, at  least for the purpose of this clause.  It is  for this reason, we say, that unless an activity in  the nature  of trade and business is carried on with a  profit motive,  it would  not be a trade or business contemplated by  clause  (2).  For  example,  mere  sale  of government properties,  immovable or movable, or granting of leases and  licences in  respect of  its properties does not amount to  carrying on trade or business. Only where a trade or business  is carried  on with  a profit  motive -  or any property is  used or occupied for the purpose of carrying on such trade  of business  - that  the proviso  [or   for that matter clause  (2) of Article 289] would be attracted. Where there is  no profit  motive involved in any activity carried on by the State government, it cannot be said to be carrying on  a   trade  or   business  within   the  meaning  of  the proviso/clause (2),  merely because some profit results from the activity*.  We may pause here a while and explain why we are attaching such restricted meaning to the words "trade or business" in the proviso to Section 155 and in clause (2) of Article 289.  Both the  word import  substantially the  same idea though,  ordinarily speaking, the expression "business" appears to be wider in its content. The expression, however, has no definite meaning; its meaning varies with the context and several  other factors.  See Board  of Revenue  v.  A.M. Ansari [1976  (3) S.C.C.512]  and State of Gujarat v. Raipur Manufacturing Company  [1967 (1)  S.C.R.618]. As observed by Lord Diplock  in Town  Investments Limited  v. Department of Environment   [1977   (1)   All.E.R.813-H.L.],   "the   word ‘business’  is  an  etymological  chameleon;  it  suits  its meaning to  the context  in which  it is  found. It is not a term of  legal art  and its dictionary meanings, as Lindley, C.J. pointed  out in Rolls v. Miller embrace almost anything which is  an occupation,  as  distinct  from  a  pleasure  - anything which  is an  occupation or  a duty  which requires attention is  a business....’." Having regard to the context in which  the words  "trade or  business" occur - whether in the proviso  to Section 155 of the Government of Indian Act, 1935 or  in clause  (2) of Article 289 of our Constitution - they must be given, and we have given, a restricted meaning, the context  being levy  of tax  by one unit of federal upon the income  of  the  other  unit,  the  manifold  activities carried on  by governments  under out constitutional scheme, the necessity  to maintain  a balance between the Centre and the States and so on.      *For example,  almost every  State government maintains one or  more guest-houses  in Delhi  for accommodation their officials and  others connected  with  the  affairs  of  the State. But,  when some  rooms/accommodation are not occupied by  such   persons  and   remain   vacant,   outsiders   are accommodated therein,  though at higher rates. This activity cannot obviously be called carrying on trade or business nor can it be said that the building is used or occupied for the

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purpose of  any trade  or business  carried on  by the State government. ordinarily speaking, the expression "business" appears to be wider in  its  content.  The  expression,  however,  has  no definite meaning;  its meaning  varies with  the context and several other  factors. See  Board of  Revenue v. A.M.Ansari [1976  (3)   S.C.C.512]  and  State  of  Gujarat  v.  Raipur Manufacturing Company [1967 (1) ALL.E.R.813-H.L.], "the word ‘business’  is  an  etymological  chameleon;  it  suits  its meaning to  the context  in which  it is  found. It is not a term  of   legal  art   and  its   dictionary  meanings,  as Lindlay,C.J. pointed  out in Rolls v. Miller embrace ‘almost anything which is an occupation, as distinct from a pleasure - anything  which is  an occupation or a duty which requires attention is  a business..."-"  Having regard to the context in which  the words  "trade or  business" occur - whether in the proviso  to Section 155 of the Government of Indian Act, 1935 or  in clause  (2) of Article 289 of our constitution - they must be given, and we have given, a restricted meaning, the context being levy of tax by one unit of federation upon the income  of  the  other  unit,  the  manifold  activities carried on  by governments  under our constitutional scheme, the necessity  to maintain  a balance between the Centre and the State and so on.      Proviso (i)  not  only  speaks  of  trade  or  business carried on  by the  Provincial governments  [outside   their respective territories]  but also  "any operations connected therewith or  any income  arising in connection therewith or any property  occupied for  the purposes thereof." So far as operations  connected   with  the   trade  or   business  is concerned, they  naturally go  along with  the main trade or business. No  difficulty is  expressed  by  anyone  on  this count. Similarly,  with respect  to any  income  arising  in connection with such trade or business too, no difficulty is expressed since  the income  is an  incident of the trade of business. Difficulty  is, however,  expressed regarding  the other set  of  words  "or  any  property  occupied  for  the purposes thereof". The said words, in our opinion, mean that if any  property, i.e.,  any land or building is occupied by the Provincial  government for  the purpose  of any trade or business carried  on by the Provincial government, such land or building  too loses the benefit of exemption contained in the main  limb of  sub-section (1);  it  becomes  liable  to Federal taxation. To repeat, the central idea underlying the proviso is to remove the trading or business operations from the purview  of the  main limb of sub-section (1) of Section 155. Now,  coming to  clause (2) of Article 289, position is the same  with the  two  distinguishing  features  mentioned supra, viz.,  (a) under this clause, removal of exemption is not automatic; it comes about only when the Parliament makes a law  imposing taxes  in respect  of any  trade or business carried  on   by  a  State  government  and  all  activities connected   therewith or  any property  used or occupied for the purposes  of such  business as  also the  income derived therefrom. If  any property - whether movable or immovable - is used  or occupied  for the  purpose of  any such trade or business, it  can be denied the exemption provided by clause (1) but  this denial  can be  only by  way of  a law made by Parliament and  (b) the exception contemplated by clause (2) is not  confined to trade and business carried on by a State outside its  territory as  was provided by the first proviso to Section  155. Even  the trade or business carried on by a State within  its own  territory can  also be brought within the purview  of the  enactment made [by Parliament] in terms of the said clause.

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    Adverting to  the matters  before us,  the question  is whether the  Parliament has  made any law as contemplated by clause (2)  of Article  289? For, if no such law is made, it is evident,  all the  properties of State governments in the Union Territory  of Delhi  would be  exempt  from  taxation. [Parliament has  admittedly not made any law as contemplated by clause (3) of Article 289.] We have observed hereinbefore that the claim of exemption put forward by State governments in respect  of their  properties situated  in  N.D.M.C.  and Delhi Municipal  Corporation areas is founded - and can only be founded - on Article 289. The States invoke clause (1) of he article  but we are of the considered opinion that clause (1) cannot  be looked  at in  isolation;  it  must  be  read subject to  clause (2). All the three clauses of Article 289 are parts  of one  single scheme.  Hence, when  a claim  for exemption with reference to clause (1) is made, one must see what is  the field  on which  it operates  and that  can  be determined only  by reading  it along  with clause  (2). The exemption provided  by Article  289(1) is  a qualified one - qualified by  clause (2),  as explained  hereinbefore. It is not an  absolute exemption  like the one provided by Article 285(1). If  there is a law within the meaning of clause (2), the field  occupied by  clause (1)  gets  curtailed  to  the extent specified  in clause (2) and the law made thereunder. It is,  therefore,  necessary  in  this  case  to  determine whether  the   Punjab   Municipal   Act,   Delhi   Municipal Corporation Act  and N.D.M.C. Act are or can be deemed to be enactments within  the meaning of clause (2) of Article 289. These  enactments   -  and  certainly  the  Delhi  Municipal Corporation Act  and N.D.M.C.  Act - are post-constitutional enactments. As  stated hereinbefore,  these enactments while specifically exempting  the Union  properties  in  terms  of Article 285,  do not  exempt the properties of the States in terms of Article 289*. The      *As a  matter of  fact, "Section  115(4) of  the  Delhi Municipal Corporation  Act and Section 62(1) of the N.D.M.C. Act  expressly   exempt  properties   used  exclusively  for ‘charitable purposes’ or ‘for public worship’ [as defined by them] but do not provide for an exemption in the case of the properties of  the States in terms of Article 289. It cannot be said,  or presumed,  that Parliament was not aware of, or conscious of,  Article 289  while enacting  the  said  Acts. Section 62(1)  and (2) of the N.D.M.C Act read: "62(1). Save as otherwise provided in this Act, the property tax shall be levied in  respect of  all lands  and buildings in New Delhi except --  (a) lands  and buildings or portions of lands and buildings exclusively  occupied and  used for public worship or by a society or body for a charitable purpose:      Provided that  such society of body is supported wholly or in  part by voluntary constitutions, applies its profits, if any,  or other  income in  promoting its objects and does not pay any dividend or bonus to its members.      Explanation.-- ‘Charitable  purpose’ includes relief of the poor,  education and medical relief but does not include a purpose which relates exclusively to religious teaching;      (b) lands  and buildings  vested  in  the  Council,  in respect of  which the  said tax,  if levied, would under the provisions of this Act be leviable primarily on the Council; omission cannot  be said  to be unintentional - particularly in the  case of Delhi Municipal Corporation Act and N.D.M.C. Act. The  intention is  clear and obvious: the enactments do not  wish   to  provide  for  any  exemption  in  favour  of properties of  the States  situated within  their respective jurisdictions. Texes  are levied  on all  properties  within their  jurisdiction   [except  the  properties  specifically

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exempted], irrespective  of who  owns then  and to  what use they are  put. In  such a  situation, the  question is,  how should they  be understood? Two views can be taken: one that since the  said enactments  do not expressly purport to have been made under and as contemplated by clause (2) of Article 289,  they  should  not  be  read  and  understood  as  laws contemplated by  or within  the meaning  of the  said clause (2). The effect of this view would be that the properties of the State in Union Territory of Delhi will be totally exempt irrespective of the manner of their (c) agricultural lands and buildings (other than dwelling houses). (2) Lands and buildings or portions thereof shall not be deemed to be exclusively occupied and used for public worship or for a charitable purpose within the meaning of clause (1) of sub-section (1) if any trade or business is carried on in such lands and buildings or portions thereof or if in respect of such lands and buildings or portions thereof, any rent is derived. use and occupation. In other words, the consequence would be that the relevant provisions of the said enactments would be ineffective and  unenforceable against  all  the  properties held by  the States  in the Union Territory/National Capital Territory of Delhi, irrespective of the nature of their user or occupation. The second view is that since there is always a presumption of constitutionality in favour of the statutes and  also   because  the   declaration  of   invalidity   or inapplicability of  a statute  should be  only to the extent the enactment  is clearly outside the legislative competence of the  legislative body making it or is squarely covered by the ban  or prohibition  in  question,  the  declaration  of invalidity should  not extend  to the  extent the enactments can be  related to  and  upheld  with  reference    to  some constitutional  provision,  even  though  not  cited  by  or recited in  the enactment.  Similarly,  the  declaration  of inapplicability should  only be  to the  extent the  law  is plainly covered  by the  ban or prohibition, as the case may be. What  is not covered by the constitutional bar should be held to  be applicable  and  effective.  In  our  respectful opinion the  latter view  is consistent  with the well-known principles of  constitutional interpretation  and should  be preferred. We  may pause here and explain our view-point. If the law had expressly stated that it is a law made under and with reference  to clause  (2) of  Article 289,  no  further question would  have arisen.  The only  question is where it does not  say so*,  can its  validity  or  applicability  be sustained with  reference to  clause (2).  In our considered opinion, it  should be  so sustained,  even though it may be that the appellant-corporations have not chose to argue this point specifically.  As would  b evident  from some  of  the decisions referred  to hereinafter, the fact that a party or a government  does not  choose to  put forward  an  argument cannot be  a ground for the court not to declare the correct position in  law. The  appellants are  saying that  all  the properties of  the States  are not  exempt because the taxes levied by them do not constitute "Union taxation" within the main of  clause (1)  of Article 289. We have not agreed with them. We  have held  that the  taxes levied by the aforesaid enactments do constitute "Union taxation" within the meaning of *This is  the normal  situation. No enactment states that it is made  under and  with reference  to a  particular head of legislation in the Seventh Schedule to the Constitution or a provision in  the Constitution.  Only when  the enactment is questioned on  the ground  of legislative competence, is the

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court required  to ascertain  the  head  of  legislation  or provision to which the enactment is referable. clause (1)  of  Article  289  and  that  by  virtue  of  the exemption provided  by clause (1), taxes are not leviable on State properties.  In view  of the fact that clauses (1) and (2) of  Article 289 go together, form part of one scheme and have to be read together, we cannot ignore the operation and applicability of  clause (2), at the same time. Reference to a few  decisions would  bear out  our view. In Charanjit Lal Chowdhary v.  Union of  India [1950 S.C.R.869], Fazl Ali, J. stated: "....it  is the  accepted doctrine  of the  American Courts, which  I consider  to be  well-founded on principle, that  the   presumption  is   always  in   favour   of   the constitutionality of  an enactment,  and the  burden is upon him who  attacks it  to show  that there  has been  a  clear transgression of the constitutional principles". In Burrakur Coal Co.  V. Union  of India  [A.I.R.1961 S.C.  654 at 963 = 1962  (1)   S.C.R.44],  Mudholkar,   j.,  speaking  for  the Constitution Bench,  observed: "Where  the validity of a law made by  a competent legislature is challenged in a Court of law, that  Court is  bound  to  presume  in  favour  of  its validity. Further, while considering the validity of the law the  court  will  not  consider  itself  restricted  to  the pleadings of  the State  and would be free to satisfy itself whether under  any provision of the Constitution the law can be sustained." In Rt.Rev.Msgr. Mark Netto v. State of Kerala &  Ors.   [1979  (1)   S.C.C.23],  the   Constitution  Bench considered  the   question  whether   a  rule  made  by  the Government of  Kerala is  violative of  the right  conferred upon the minorities by Article 30. It was held:      "In that  view of  the  matter  the      Rule in question its wide amplitude      sanctioning  the   withholding   of      permission for  admission  of  girl      students  in   the  boys   minority      school is  violative of Article 30.      if so widely interpreted it crosses      comes in the region of interference      with  the   administration  of  the      institution,  a   right  which   is      guaranteed to  the  minority  under      Article 30.  The  Rule,  therefore,      must be interpreted narrowly and is      held  to   be  inapplicable   to  a      minority educational institution in      a situation  of the kind with which      we are  concerned in  this case. We      do  not   think  it   necessary  or      advisable to  strike down  the Rule      as a  whole  but  do  restrict  its      operation and  make it inapplicable      to    a     minority    educational      institution in a situation like the      one which arose in this case."      Reference may  also be  made  to  another  Constitution Bench decision  in Sanjeev  Coke Manufacturing  Co. v.  M/s. Bharat Coking  Ltd. &  Anr. [A.I.R.1983  S.C.239 =  1983 (1) S.C.C.147].  The   following  observation  in  Para  26  are apposite:      "The deponents  of  the  affidavits      filed into  Court may speak for the      parties on  whose behalf they swear      to  the  statements.  They  do  not      speak for  the Parliament.  No  one      may speak  for the  Parliament  and

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    Parliament  is   never  before  the      Court. After  Parliament  has  said      what it  intends to  say, only  the      Court may  say what  the Parliament      meant to  say. None  else.  Once  a      statute  leaves  Parliament  House,      the Court’s  is the  only authentic      voice which  may  echo  (interpret)      the Parliament. This the Court will      do with  reference to  the language      of   the    statute    and    other      permissible  aids.   The  executive      Government  may  place  before  the      Court their  understanding of  what      Parliament has  said or intended to      say  or   what   they   think   was      Parliament’s  object  and  all  the      facts and  circumstances  which  in      their view  led to the legislation.      When they  do so, they do not speak      for   Parliament.    No   Act    of      Parliament  may   be  struck   down      because  of  the  understanding  or      misunderstanding  of  Parliamentary      intention    by    the    executive      government or  because  their  (the      Government’s)  spokesmen   do   not      bring  out  relevant  circumstances      but  indulge  in  empty  and  self-      defeating affidavits.  They do  not      and they  cannot  bind  Parliament.      Validity of  legislation is  not to      be  judged   merely  by  affidavits      filed on  behalf of  the State, but      by all  the relevant  circumstances      which the Court may ultimately find      and more  especially by what may be      gathered from  what the legislature      has itself said."      Lastly,  we   may  quote   the  pertinent  propositions enunciated in  Ram Krishna Dalmia v. Justice Tendolkar [1959 S.C.R.279] to the following effect:      "(b)  that   there  is   always   a      presumption  in   favour   of   the      constitutionality of  an  enactment      and the  burden  is  upon  him  who      attacks it  to show  that there has      been a  clear transgression  of the      constitutional principles;      (e) that  in order  to sustain  the      presumption  of   constitutionality      the    Court    may    take    into      consideration  matters   of  common      knowledge,   matters    of   common      report, the  history of  the  times      and may assume every state of facts      which can  be conceived existing at      the time of legislation; and...." These are  well-settled propositions. Applying them, it must be held  that the  aforesaid Municipal Laws are inapplicable to the  properties of  State governments  to the extent such properties are  governed and  saved by clause (1) of Article 289 and  that insofar as the properties used or occupied for the purpose  of a  trade or business carried on by the state government [as  explained hereinbefore]  are concerned,  the

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ban in  clause (1) does not avail them and the taxes thereon must be held to be valid and effective. It may be reiterated that the  Delhi Municipal  Corporation  Act,  1957  and  the N.D.M.C. Act,  1994 are  post-constitutional enactments  and that the  Punjab Municipal  Act too  must be  deemed to be a post-constitutional  enactment   for   the   reasons   given hereinabove. It  must, therefore,  be held  that the levy of property taxes by the said enactments is valid to the extent it relates to lands and buildings owned by State governments and used  or occupied  for the  purposes  of  any  trade  or business carried  on by  such  State  government.  In  other words, the  levy must be held to be invalid and inapplicable only to  the extent  of those  lands and buildings which are not used  or occupied  for the  purposes  of  any  trade  or business carried  on by  the State  government, as explained hereinbefore.  It   is   for   the   appropriate   assessing authorities to  determine which  land/building falls  within which category  in accordance  with law  and in the light of this judgment  and take  appropriate further action. In this connection, we  may mention  that the  assessing authorities under the Act have to decide several questions under the Act including the  questions whether  any land  or  building  is being used  for "charitable  purpose" or  "public  worship". They also  have to decide whether a land is an "agricultural land". These  are difficult  questions as  would be  evident from a  reference to  the plethora  of decisions  under  the Income Tax  Act where  these  expressions  occur.  For  this reason, neither  the exemption can be held to be ineffective nor the  authorities can  be said to have no jurisdiction to decide these questions. Appeals are provided to civil courts against the orders of the assessing authorities.      In the  light of  the above  position of law, it is for the Union  of India  to consider whether any steps are to be taken to  maintain the  balance between  the Union  and  the States in the matter of taxation.                           PART - V      The  following   conclusions  flow   from   the   above discussion: (a)  the property  taxes levied  by  and  under  the  Punjab Municipal Act,  1911, the  New Delhi  Municipal  Corporation Act, 1994  and the  Delhi Municipal  Corporation  Act,  1957 constitute "Union taxation" within the meaning of clause (1) of Article 289 of the Constitution of India; (b)  the  levy   of  property   taxes  under  the  aforesaid enactments on  lands and/or buildings belonging to the State governments is  invalid and  incompetent by  virtue  of  the mandate contained  in clause (1) of Article 289. However, if any land or building is used or occupied for the purposes of any trade  or business  - trade  or business as explained in the body  of this  judgment -  carried on by or on behalf of the State government, such land or building shall be subject to levy  of property taxes levied by the said enactments. In other words,  State property exempted under clause (1) means such property  as is  used for the purpose of the government and not for the purposes of trade or business; (c)  it is  for the authorities under the said enactments to determine with  notice to  the  affected  State  government, which land  or building is used or occupied for the purposes of any  trade or business carried on by or on behalf of that State government.      We  direct   that  this  judgment  shall  operate  only prospectively. It  will   govern the  Financial Year 1996-97 [commencing on April 1, 1996] and onwards. For this purpose, we invoke  our power  under Article 142 of the Constitution. The reasons are the following;

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(a)  according to  the judgment under appeal, the properties of the  State were  exempt in toto whereas according to this judgment, some  of the  properties  of  the  State  situated within the  Union Territory  of Delhi  may become  liable to tax. The  assessees are  the State governments and the taxes are being  levied  under  a  Parliamentary  enactment.  This inter-State character of the dispute is a relevant factor; (b)  from the  year  1975  upto  now,  there  have  been  no assessments because of the judgment of the High Court; and (c)  retrospective assessment  of properties under the above enactments appears  to be  a doubtful  proposition -  at any rate, not  an   advisable thing  to do  in all the facts and circumstances of this case.      Before parting  with this case, it would be appropriate to refer to a submission of Sri B.Sen. He submitted that the exemption provided by clause (1) of Article 289 does not and cannot apply  to compensatory taxes like water tax, drainage tax  and   so  on.   Even  where   the  enactment  does  not specifically and  individually enumerate these components of property taxes,  i.e., where  the levy is of a composite tax known as  "Property tax",  it must  be  presumed,  says  Sri B.Sen, that  part of  the property taxes are compensatory in nature. We are, however, not inclined to express any opinion on this  aspect in  the absence  of any  material placed  in support thereof.  We cannot permit this new plea, which does not appear  to be  a pure  question of law, to be raised for the  first   time  at   the  time   of  arguments  in  these appeals/writ petitions.      The appeals and writ petitions are accordingly disposed of in  the above terms. The judgment of the High Court shall stand  modified  to  the  extent  it  is  contrary  to  this judgment.      There shall be no order as to costs.