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PETITIONER: UNION OF INDIA OWNER OF THE EASTERN RAILWAY

       Vs.

RESPONDENT: THE COMMISSIONER OF SAHIBGANJ MUNICIPALITY

DATE OF JUDGMENT22/02/1973

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) RAY, A.N. PALEKAR, D.G. DWIVEDI, S.N. MUKHERJEA, B.K.

CITATION:  1973 AIR 1185            1973 SCR  (3) 541  1973 SCC  (1) 676

ACT: The  Railways (Local Authorities Taxation) Act, 1941, Ss.  3 and  4--Scope of-Liability of Railway Administration to  pay municipal Tax with respect to their buildings under s.  154, Government  of  India  Act,  1935,  and  Art.  285  of   the Constitution.

HEADNOTE: Pursuant  to  s. 135 of the Indian Railways Act,  1890,  the Governor General in Council issued a notification dated  24 August, 1911, declaring that the administration of the  East Indian Railway shall be liable to pay in aid of the funds of the  local authorities set out in the Schedule  thereto  the taxes specified therein.  In one of the local authorities so set  out, ’the railway administration constructed 32  blocks of  buildings,  some after 31 March 1937 and some  after  25 January  1950.  These buildings were assessed  to  municipal tax by the respondent with effect from the fourth quarter of 1965-66.    The  appellant  contended  that  there  was   no liability to pay the municipal tax because of s. 154 of  the Government of India Act, 1935, and Art. 285 of the Constitu- tion.   The High Court held that the notification issued  by the  Government in 1911 continued by virtue of s. 4  of  the Railways  (Local Authorities Taxation) Act, 1941,  that  the 1941-Act was a federal law, that the 1.911 notification was. not  in  respect  of  any  particular  property,  and  that, therefore,  the  railway  properties  whether  in  existence before 1st April, 1937, or coming into existence thereafter, were liable to pay the taxes. Allowing the appeal to this Court, HELD, : The High Court was in error in construing that  the, notification issued in 1911 under the 1890-Act continued  by virtue of s.   4 of the 1941-Act. [544G-H] Under  S.  154 of the 1935-Act all property  vested  in  His Majesty for purposes of the Federation shall save in so  far as any Federal law may otherwise provide, be exempt from all taxes  imposed by, or by ,,any authority within, a  Province or  a State.  The proviso to the section states  that  until any  Federal law otherwise provides any property so  vested,

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which  was immediately before the commencement of Part  III. of  the  1935-Act liable to any such tax shall, so  long  as that  tax continues, continue to be liable.  Article 285  of the  Constitution  also provides that 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 any authority within a State, and, cl.  (2)  of that  Article  states that nothing in cl. (1)  shall,  until Parliament  by  law  or  otherwise  provides,  prevent   any authority in a State from levying any tax on any property of the  Union to which such property was immediate  before  the commencement  of the Constitution. liable, so long  as  that tax continues to be levied in that State. [543B-F] The  32 blocks of buildings were not in existence  before  1 April,  1937, and hence were not vested in His  Majesty  for purposes  of the Federation, and were not liable to pay  the municipal tax before that 542 date.  They were, therefore. exempt from all taxes  imposed by any authority within a Province until a Federal law other wise provided; and could be made liable only if  Parliament, by law, provided to that effect.  Section 4 of the  1941-Act did not provide, for payment of taxes in respect of  Railway property.  Section  3  of the Act,  however  states  that  a railway administration shall be liable to pay any tax in aid of  the  funds  of  any, local  authority’  if  the  Central government by notification in the official gazettee declares it  to  be so liable.  But no  such  notification  declaring railway properties to be liable to pay any tax in aid of the funds of any local authority under s. 3 of the 1941-Act  has been issued. [544C-F] Corporation of Calcutta v. Governors of St’.  Thomas School, Calcutta [1949] F.C.R. 368, applied.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos. 2304  and 2042 of 1968. Appeals  by certificate from the judgments and orders  dated 22nd  September  1965 and 2nd July 1968 of  the  Patna  High Court at Patna in C.W.J.C. Nos. 431 of 1962 and 344 of 1968. F.   S. Nariman, Addl.  Solicitor-General of India, B. D. Sharma    and S. P. Nayar, for the appellant. M.   C. Setalvad and D. Goburdhun, for the respondent The Judgment of the Court was delivered by RAY,  J. The only question which falls for determination  in these  two appeals by certificate is whether the  respondent Municipality  is  entitled to levy and collect taxes  on  31 blocks,  of buildings some constructed after 31 March,  1937 and some after 25 January, 1950. The  buildings are situated within the municipal  limits  of the Sahibganj Municipality in the State of Bihar. Pursuant  to  section 135 of the Indian Railways  Act,  1890 referred to as the 1890 Act, the Governor General in Council by a Railway Department, Railway Board notification No.  225 dated  24 August, 1911 declared that the  administration  of East  India  Railway shall be liable to pay in  aid  of  the funds  of  the  local authorities set out  in  the  Schedule thereto  annexed, the taxes specified in the, second  column thereof.   In  the  Schedule; the  names  of  various  local authorities  are  set out.  Sahibganj is one such.   In  the second  column  the  taxes are  mentioned.   In  respect  of Sahibganj  Municipality the taxes specified are  House  rate and latrine fees.

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In 1961 the Sahibganj Municipality revised the valuation  of the  buildings and premises with effect from 1 April,  1961. The  32 blocks of buildings forming subject matter of  these two  appeals  were  assessed with  effect  from  the  fourth quarter of 1965-66. 543 It  is common ground that these 32 blocks of  buildings  and premises were constructed some after 31 March, 1937 and some after 25 January, 1950. The  appellant contended that these 32 blocks  of  buildings could not be. made liable to pay the municipal tax by virtue of the provisions contained in section 154 of the Government of India Act, 1935 and Article 285 of the Constitution. Part  III of the Government of India Act, 1935 referred  to, 4s  the  1935 Act came into force on 1 April,  1937.   Under section  154  of the 1935 Act all property  vested  in  ’His Majesty’  for purposes to the Federation shall, save  in  so far as any Federal law may otherwise provide, be exempt from all taxes imposed by, or by any authority within, a Province or  Federal State.  The proviso to section 154 of  the  1935 Act  states that until any Federal law  otherwise  provides, any  property  so vested which was  immediately  before  the commencement of Part III of the 1935 Act liable or  treated as  liable,  to  any such tax shall, so  long  as  that  tax continues,  continue  to  be liable, or  to  be  treated  as liable, or to be treated as liable thereto. Article 285 of the Constitution also provides that the  pro- perty 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 any authority within a State.  Clause  (2) of  Article  285 states that 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  oil, treated  as  liable,  so long as that tax  continues  to  be levied in that State. The,  High Court held. that the Railways Local   Authorities Taxation)  Act,  1941  referred to as the  1941  Act  was  a federal  law and section 4 of-the 1941 Act thereof  rendered the buildings liable to taxation.  The reasons given by  the High  Court  were  these.  The notification  issued  by  the Government in 1911 under the 1890 Act continued by virtue of the provisions contained in section 4 of the 1941 Act.   The 1911  notification  was  not in respect  of  any  particular property.   Therefore  the  railway  properties  whether  in existence before 1 April 1937 or coming into existence after that date were liable to pay taxes. Section  4 of the 1941 Act provided as follows  The  Central Government   may   be  notification  revoke  or   vary   any notification  issued under clause (1) of section 135 of  the 1890 Act.  Where a: notification is so revoked any liability arising out of the notification to pay any tax to the  legal authority shall cease.  Where a 544 notification  is so varied the liability arising out of  the notification,   shall  be  varied  accordingly.    There-was neither   revocation   nor  variation   of   the   aforesaid notification issued under section 135 of the 1890 Act. The  High  Court overlooked the effect of section 3  of  the 1941  Act.   Section 3 provides that  any  railway  property vested  for  purposes  of the Central  Government  shall  be liable  to pay tax in aid of the funds of a local  authority if the Central Government by notification declares it to  be so  liable.  This section therefore requires a  notification

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declaring liability to pay.  The notification under the 1941 Act  creates  a liability for railway property  coming  into existence after the 1941 Act.  But no such notification  was issued. The  32 blocks of buildings were not in existence  before  1 April,  1937.  These 32 blocks of buildings  were  therefore not vested for purposes of the Government of the  Federation before the commencement of Part III of the 1935 Act.   These 32  blocks  of buildings were thus exempt  from,  all  taxes imposed by any :authority within a province until a  federal law  otherwise provided.  Section 4 of the 1941 Act did  not pro  ’de  for  payment  of  taxes  in  ,respect  of  railway property.  Section 3 of the 1941 Act stated that a  railway administration shall be liable to pay any tax in aid ,of the funds  of any local authority if the Central  Government  by notification  in the official gazette declares it to  be  so liable.   It  is an admitted feature in these  appeals  that there was no notification under section 3 of the 194 1,  Act declaring the railway properties to be liable to pay any tax in aid of the funds of any local authority. Under Article 285 of the Constitution property of the  Union was exempt from all taxes until Parliament by law  otherwise provides.   There is no such law providing for taxation  of railway property. Clause  (2)  of Article 285 speaks of liability  of  railway property  to pay taxes where such property  was  immediately before  the  commencement  of  the  Constitution  liable  or treated  as liable to pay- any tax levied by  any  authority within  a  State.   These 32 blocks of  buildings  were  not liable  to, pay any tax because they were not  in  existence before,  1st  April 1937 or before the commencement  of  the Constitution. The  High Court was in error in construing the  notification issued in 1911 under the 1890 Act to, continue by virtue  of the  provisions  contained  in section 4 of  the  1941  Act. These  32  blocks of buildings vested in the Union  some  of them after 1 April 1937 and some after the Constitution came into  existence.  These properties could be made  liable  to pay  tax  to  the municipality only  if  Parliament  by  law provided to that effect.  545 The  High  Court referred to the decision of this  Court  in Corporation of Calcutta v. Governors of St. Thomas’  School, Calcutta(1) 1949 F.C.R. 368 and held that the ruling in that decision  did not apply to the facts in the present  appeals by  reason  of  section  4 of the  1941  Act  rendering  the properties  liable to tax.  The High Court misconstrued  the provisions  of section 4 of the 1941 Act.  The  decision  of this  Court  in  St. Thomas’ School  case  (supra)  directly applies to these appeals.  St. Thomas School was situated at 4,  Diamond  Harbour  Road, Calcutta.   The  buildings  were constructed before April, 1942.  The premises were  assessed to consolidated rates under the Calcutta Municipal Act.   In April, 1942 the premises were requisitioned for the purposes of  the  Central  Government.   After  the  requisition  the Central   Government  erected  several  structures  on   the premises.   In 1944-45 there was, a general  revaluation  by the  Corporation  of Calcutta.  The cost of  the  additional structures erected by the Central Government was taken  into account  in  determining the annual value of  the  premises. The Governors of St. Thomas School objected to the valuation and  claimed that the value of the buildings put up, by  the Government  should  be  excluded in  the  revaluation.   The Calcutta High Court held that section 154 of the  Government of  India Act, 1935 applied to the buildings constructed  by

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the Central Government and the proviso to section 154 of the 1935  Act  was  not applicable.  This Court  held  that  the buildings constructed by the Central Government were, vested in the Government.  In view of the fact that the  additional structures were put up by the Central Government after  1942 it  was  held that these were not subject to  municipal  tax before April, 1937. The  32 blocks of buildings in the present appeals were  not in existence before 1 April, 1937 and 26 January, 1950.  The notification  under the 1890 Act did not apply to  these  32 blocks  of  buildings.  There is no law declaring  these  32 blocks of buildings to be liable to payment of municipal fax as claimed by the respondent municipality. For  these  reasons the judgment of the High, Court  is  set aside and the appeals are allowed.  Each party will pay  and bear their own costs. V.P.S.                                    Appeal allowed. 546