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PETITIONER: STATE OF KERALA

       Vs.

RESPONDENT: HAJI K. HAJI K. KUTTY NAHA & ORS. ETC.

DATE OF JUDGMENT: 13/08/1968

BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. GROVER, A.N.

CITATION:  1969 AIR  378            1969 SCR  (1) 645  CITATOR INFO :  D          1970 SC1133  (13,38)  D          1971 SC1321  (15)  RF         1972 SC 828  (23,25)  R          1974 SC 497  (21)  D          1974 SC 894  (19)  RF         1980 SC 271  (3,18)  RF         1980 SC1789  (36)  D          1983 SC 762  (16)

ACT: Kerala  Buildings  Tax Act, 1961, s. 4 and  Constitution  of India,  Art, 14-Tax on buildings levied solely on  basis  of floor  area-Taxing  statute must not  be  inconsistent  with Constitution  or  violative of  fundamental  rights-Lack  of rational classification when results in discrimination.

HEADNOTE: Under s. 4 of the Kerala Buildings Tax Act, 1961,  buildings constructed  after  the  coming into force of  the  Act  and having a floor area of one thousand square feet or more were subjected to tax on a graduated scale. The tax was levied on the  basis  of  floor area only and  no  classification  was attempted.   The High Court in writ petitions filed  by  the present respondents held the charge to be invalid because of violation  of the equality clause of the Constitution.   The State appealed. HELD: (i) The law bY which a tax is levied must not only  be within  the competence of the legislature concerned  but  it must  also  not be inconsistent with any  provision  of  the Constitution.   The validity of a taxing statute is open  to question  on  the ground that it infringes  the  fundamental rights. [648 B-C] K.T. Moopil Nair v. State of Kerala, [1961] 3 S.C.R. 77  and Khandige  Sham  Bhat  v.  Agricultural  Income-tax  Officer, [1963]  3  S.C.R.  809, relied on. (ii) In the application of the principles expounded by  this Court for determining whether there has been denial of equal protection of the laws, the Courts, in view of the  inherent complexity  of fiscal legislation admit a larger  discretion to the Legislature in the matter of classification, so  long as  k adheres to the fundamental principles  underlying  the

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doctrine  of  equality.   The power of  the  legislature  to classify  is of ’wide range and flexibility’ so that it  can adjust its system of taxation in all proper  and ’reasonable ways. [648 H] But  when  objects  persons  or  transactions    essentially dissimilar  are treated by the imposition of a uniform  tax, discrimination  may result, for, refusal to make a  rational classification may itself in some cases result in denial  of equality. [649 C] in  enacting the Kerala Building Tax Act no attempt  at  any rational  classification has been made by  the  Legislature. The  Legislature  has   not  taken  into  consideration   in imposing  tax  the class to which a  building  belongs,  the nature  of construction, the purpose for which it  is  used, its  situation, its capacity for profitable user  and  other relevant  circumstances which have a bearing on  matters  of taxation.   They have adopted merely the floor area  of  the building  as  the  basis of tax irrespective  of  all  other considerations.   The  High  Court was  therefore  right  in holding  that the charging section of the Act was  violative of  the equality  clause of the Constitution. [649 B] Shri Ram Krishna Dalmia v. Shri  Justice S.R.  Tendolker   & Ors. [1959] S.C.R. 279, referred to. 646 New  Manek  Chowk  Spinning  & Weaving  Mills  Co.  Ltd.  V. Municipal  Corporation  o/the City of  Ahmedabad,  [1967]  2 S.C.R. 679, applied. [Question  whether  imposition of a tax  only  on  buildings constructed  after the coming into force of the Act and  the exempting  building completed before that date would violate Art. 14  of the constitution left open.]  [650 A]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1052,  1054 to  1058,  1060 to 1087, 1089 to 1095, 1097, 1100  to  1112, 1114 to 1118, 1120 to 1129, 1131 and 1133 to 1145 of 1968. Appeals by special leave from the judgment and order,  dated July  7, 1966 of the Kerala High Court in Writ Appeals  Nos. 35, 38 to 40, 43, 44, 46, 47, 57, 59 60 to 69, 71 to 77,  79 to  82, 84 to 86, 88, 89.92 to 95, 97, 99, 102, 184 to  186, 190 to 195, 202, 217, 218, 222 to 224, 226, 227, 231 to 240, 242, 245,247, 249 to 252, 257, 273, 274, 305 to 307, and 312 of 1965 respectively and Civil Appeals Nos. 1146 and 1147 of 1968. Appeals by special leave from the judgment and order,  dated September 19, 1966 of the Kerala High Court in Writ  Appeals Nos. 42 and 246 of 1965. B.R.L.  lyengar and ,A. G. Pudissery, for the appellant  (in all the appeals). Sardar Bahadur, Vishnu Bahadur and yougindra Khushalani, for the respondent (in C.As. Nos. 1080 and 1137 of 1968). H.R.  Gokhale and J. B. Dadachanji, for the  respondent  (in C.As. Nos. 1094 and 1144 of 1968). A.V.V. Nair, for the respondents Nos. 2 and 3 (in C.As. Nos. 1053, 1112 and 1139 of 1968). Lily  Thomas, for the respondent (in C.As. Nos.  1056,  1087 and 1128 of 1968) A.  Sreedharan  Nambiar, for the respondent (in  C.As.  Nos; 1067, 1075, 1091 and 1136 of 1968). M.C.  Chagla,  1. B. Dadachanji and  Thomas  Vallapally  for intervener (in C.A. No. 1144 of 1968). The Judgment of the Court was delivered by       ,., Shah, J. This group of appeals arises out of an order passed

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by  the  High  Court  of Kerala  holding  that   the  Kerala Buildings Tax Act 19 of 1961 is ultra. vires the Legislature in   that   it  infringes  the  equality   clause   of   the Constitution.  The  State Kerala has  appealed  against  the decision With special leave granted by this Court. 647 The  material provisions of the Kerala Buildings Act,  1961, may be briefly set out.  The Act extends to the whole of the State of Kerala; s. 1 (2), and shall be deemed to have  come into  force  with effect from March 2, 1961;  s.  1(3).   An "assessee" is defined by s. 2(b) as meaning a person by whom building tax or any other sum of money is payable under  the Act  and  includes  every  person in  respect  of  whom  any proceeding  under the Act has been taken for the  assessment of  building  tax  payable  by  him.  Section  2(d)  defines "building"  as  meaning a house, out-house,  garage  or  any other structure or part thereof whether of masonry,  bricks, wood,  metal,  or other material, but does not  include  any portable  shelter or any shed constructed   principally   of mud, bamboos, leaves, grass or thatch or a latrine which  is not attached to the main structure. "Floorage" is defined by s.  2(e)  as  meaning the area included in the  floor  of  a building, and where a building has more than one floor of  a building,  the  aggregate area included in  all  the  floors together.  By s. 3 buildings owned by the State  Government, the Central Government or any local authority and  buildings used  principally for religious, charitable  or  educational purposes  or  as  factories or  workshops  are  exempt  from payment  of tax under the Act.  By s. 4 it is provided  that there shall be a charge to tax in respect of every  building the construction of which is completed on or after March  2, 1961, and which has a floor area of one thousand square feet or  more, and that the building tax shall be payable by  the owner of the building.  The Schedule to the Act sets out the rates of building tax.  Buildings having a total floor  area of less than 1,000 sq. ft. are not liable to pay tax. The  Act,  on  a  bare  perusal,  discloses  some   singular provisions.  The  liability to tax in respect  of  buildings having  total  floor  area between 1,000 to  2,000  sq.  ft. varies  between  Rs. 100 to Rs. 200; for  buildings  with  a floor area between 2,000 to 4,000 sq. ft. varies between Rs. 400  to  Rs.  800; for buildings  having  total  floor  area between  4,000 to 8,000 sq. ft. it varies between Rs.  1,200 to Rs. 2,400; for buildings, with total floor area of  8,000 to 12,000 sq. ft. it varies between Rs. 3,200 to Rs.  4,800; and  in  respect  of  buildings  having  total  floor   area exceeding 12,000 sq. ft. a rate of 50 np. per sq. foot i.e., Rs. 6,000 or more per annum.  For determining the quantum of tax the sole test is the area of the floor of the  building. The  Act  applies  to the  entire   State   of  Kerala,  and whether  the building is situate in a large industrial  town or  in  an  insignificant  village,  the  rate  of  tax   is determined  by the floor area: it does not depend  upon  the purpose  for which the building is used, the nature  of  the structure,  the town and locality in which the  building  is situate,  the economic rent winch may be obtained  from  the building,  the  cost  of  the  building  and  other  related circumstances which may appropriately be taken into 648 consideration   in  any  rational  system  of  taxation   of building.  Under the Seventh Schedule List H Entry  49,  the State  Legislature  has the power to legislate  for  levying taxes on lands and buildings. But that power cannot be  used arbitrarily   and   in  a  manner  inconsistent   with   the fundamental  rights   guaranteed to  the  people  under  the

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Constitution.   No tax may be levied or collected under  our constitutional set-up except by authority of law:  and   the law  must not only be within the legislative  competence  of the  State,  but it must also not be inconsistent  with  any provision of the Constitution.  It has been frequently  said by this Court that the validity of a taxing Statute is  open to  question  on the ground that  it  infringes  fundamental rights.   In K.T. Moopil Nair V. State of Kerala,(1)  Sinha, C.J., delivering the judgment of the majority observed at p. 89:               "Article  265  imposes a   limitation  on  the               taxing  power  of the State in so  far  as  it               provides  that  the State shall  not  levy  or               collect a tax,  except by authority  of   law,               that is  to say,  a tax  cannot be levied   or               collected   by  a  mere  executive   fiat.  It               has  to be done by authority  of  law,   which               must mean valid law. In order that the law may               be  valid, the tax proposed to be levied  must               be  within the legislative competence  of  the               Legislature imposing a tax and authorising the               collection thereof and, secondly, the tax must               be subject to the conditions laid down in Art.               13   of   the  Constitution.   One   of   such               conditions   envisaged  by Art. 13(2) is  that               the Legislature shall not make an)’ law  which               takes away or abridges the equality clause  in               Art.  14, which enjoins the State not to  deny               to  any person equality before the law or  the               equal  protection of the laws of the  country.               It   cannot  be  disputed  that  if  the   Act               infringes  the  provisions of Art. 14  of  the               Constitution.  it  must  be  struck  down   as               unconstitutional.: Similar  observations  were made in Khandige  Sham  Bhat  V. Agricultural, Income-tax Officer. (2) The  principles which have been expounded by this  Court  in determining   whether  there  has  been  denial   of   equal protection  of the laws are also well settled: see Shri  Ram Krishna  Dalmia V. Shri Justice S.R. Tendolkar and  Ors.(3). It  is true that in the application of the  principles,  the Courts,  in  view  of  the  inherent  complexity  of  fiscal legislation admit a larger discretion to the Legislature  in the  matter of classification, so long as it adheres to  the fundamental principles underlying the doctrine of equality.. The power of the Legislature to classify is, it is said,  of "wide  (1)  [1961]  3 S.C.R. 77. (2) [1963] 3 S.C.R. 809. (3) [1959] S.C.R. 279 649 range  and flexibility" so that it can adjust its system  of taxation  in  all proper and reasonable ways  Khandige  Sham Bhat V. Agricultural Income-tax Officer(1). But  in enacting the Kerala Building Tax Act, no attempt  at any  rational classification is made by the Legislature.  As already  observed,  the  Legislature  has  not  taken   into consideration in imposing tax the class to which a  building belongs,  the nature of construction, the purpose for  which it is used, its situation, its capacity for profitable  user and  other  relevant circumstances which have a  beating  on matters of taxation. They have adopted merely the floor area of  the  building as the basis of tax  irrespective  of  all other    considerations.    Where   objects,   persons    or transactions  essentially  dissimilar  are  treated  by  the imposition of a uniform tax, discrimination may result, for,

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in  our view, refusal to make a rational classification  may itself  in some cases operate as denial of  equality.   This Court in a recent judgment has decided that the levy of  tax in  exercise  of  the power under Entry 49 List  II  of  the Seventh  Schedule  in  respect of  factory  buildings  in  a municipal  area based on floor area was illegal:  New  Manek Chowk  Spinning  and  Weaving Mills Co.  Ltd.  V.  Municipal Corporation of the City of Ahmedabad(2).  The Court held  in that  case  that the method of adopting a flat  rate  for  a floor  area for determining the annual value adopted by  the Corporation of Ahmedabad in exercise of the powers conferred upon  it by the Bombay Provincial Municipal Corporation  Act 49  of  1949 was against the provisions of the Act  and  the Rules  made thereunder as well as all recognized  principles of valuation for the purpose of taxation.  If levy of tax in a  municipal  district based on floor area in respect  of  a factory  building violates Art. 14 of the Constitution  when the tax is sought to be levied by the Municipal Corporation, we  see  no  reason  to uphold the  tax  imposed  under  the impugned   Act  when the State, in exercise  of  legislative authority  conferred by Entry 49 List II Sch.  VII,  imposes liability  to tax buildings solely on floor area.  The  vice of  the Act in the present case is more pronounced  than  it was in New Manek Chowk Spinning & Weaving Mills Case(2).  In that  case  the Rules under which the tax was sought  to  be levied  on the basis of floor area were restricted in  their operation  to  factory buildings  within   the   Corporation limits  of  Ahmedabad,  whereas  Act 19  of  1961  which  is challenged in the present case applies to the whole State of Kerala  in respect of buildings completed on or after  March 2,  1961,  whatever  may  be the  nature  or  class  of  the building, the use to which it is put, materials used in  its construction and the extent of profitable user to which  the building  may be put, its cost and its economic rental.   It is  unnecessary  in the circumstances  to  consider  whether imposition of a tax only on buildings constructed (1) [1963] 3 S.C.R. 809.                (2) [1967] 2  S.C.R. 679. 650 after  March  2,  1961, and  exempting  buildings  completed before   that   date  may  not  violate  Art.  14   of   the Constituiton. The  High Court was, in our judgment, fight in holding  that the charging section of the Act is violative of the equality clause of the Constitution. The appeals therefore fail and are  dismissed  with   costs. Parties appearing in different groups of appeals through the same Advocate in tiffs Court will be entitled to one hearing fee. G.C.                                      Appeals dismissed. 651