REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.                     OF 2008 (Arising out of S.L.P. (C) No.10810 of 2007)

Vivekanand School Through Headmaster …Appellant

Vs.

President of Zila Panchayat and Ors. …Respondents

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Leave granted.

2. Challenge  in  this  appeal  is  to  the  judgment  of  a  Division

Bench of the Uttarakhand High Court dismissing the writ petition filed by

the appellant.  

3. Factual background in a nutshell is as follows:

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Demand of tax was made by the Tax Assessing Officer, Zila

Panchayat,  Dehradun  under  Section  121  of  The  Uttar  Pradesh  and

Uttaranchal (Kshetra Panchayat and Zila Panchayats) Adhiniyam, 1961

(hereinafter referred to as the ‘Act'), for the assessment years 1998-1999,

1999- 2000 and 2000-2001. The appellant took the stand that it has no

liability to pay the tax.  The appeal before the Commissioner, Garhwal

Division, has been dismissed.  A writ petition was filed challenging the

orders.  It was submitted that the School was not a commercial venture

and in any event, the income level stipulated under Section 121 had not

been  crossed  and,  therefore,  the  demand  of  tax,  as  raised  cannot  be

maintained.

The  President  of  Zila  Panchayat  and  its  officials  filed  counter

affidavit justifying the  demand,  inter  alia,  stating that  the School is  a

commercial body and it had collected Rs.2,86,472/- and Rs.3,32,435/- as

fees from the  students  in  the  year  1993-94  and  1994-95  respectively.

Therefore, the demand was justified.  The High Court on consideration of

the counter affidavit filed, dismissed the writ petition.   

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3. Learned  counsel  for  the  appellant  submitted  that  the  true

scope and ambit of Section 121 of the Act has not been kept in view.

4. There is no appearance on behalf of the respondents in spite of

service of notice.

5. Section 121 deals with tax on “circumstances and property”.

The relevant portion of Section 121 reads as follows:

“121  –  Conditions  and  restrictions  for  tax  on

Circumstances  and  Property –  The power  of a  Zila

Panchayat  to  impose  a  tax  on  circumstances  and

property shall be subject to the following conditions

and restrictions, namely-

a) the  tax  may  be  imposed  on  any  person

residing or  carrying on  business  in  the   rural  area

provided that  such person has so resided or carried

on business for a total period of atleast six months in

the year under assessment;

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b) no  tax  shall  be  imposed  on  any  person

whose  total  taxable  income  is  less  than  twelve

thousand rupees per annum;

c) the rate of tax shall not exceed three Naye

Paise in the rupee on the total taxable income; and  

d) the  total  amount  of tax  imposed  on any

person  shall  not  exceed such  maximum,  if any,  as

may be prescribed by rule.”

6. Rule 6  of the U.P.  Zila Panchayat  (Imposition,  Assessment

and collection of Circumstances and Property Tax) Rules, 1994 (for short

‘the Rules') provides that tax shall be assessed and paid on the basis of

the total taxable income of the assessee in the previous financial year.  As

provided in clause (e)  of Rule 7  of the Rules,  the total amount  of tax

imposed on any person shall not exceed rupees six thousand per annum.

Different provisions of the Rules envisage the powers and duties of the

taxing authority, basis and conditions of assessment of tax, assessment

and collection of tax, notice to general public for inspection of the list and

filing of objection against the tax so assessed.

7. A bare reading of the Act shows that the tax is leviable on the

total income.  “Taxable income” is a well known concept.  In Pandit Ram

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Narain Vs. State of U.P. & Ors. (1956 SCR 664), it was noted as follows:

“A tax on ‘circumstances and property' is a

composite tax and the word ‘circumstances’ means a

man’s  financial  position,  his  status  as  a  whole

depending,  among other things,  on his income from

trade or business.”

8. In  M/s. R.R. Engineering Co. Vs. Zila Parishad, Bareilly and

Anr.   (AIR 1980 SC 1088), it was, inter-alia observed as follows:

“But  a  person  can  be  subjected  to  tax  on

circumstances and property in relation to his ‘Haisiat',

that is to say, the status he occupies by reason of the

fact of the pursuit  by him of a  beneficial calling or

possession  by  him of  an   interest   in    property.

While determining the status of an individual for the

purposes of tax on circumstances, the total turnover of

his business or avocation may therefore be legitimately

taken into consideration.”

9. Strictly speaking,  R.R. Engineering case (supra) did not deal

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with the question as to what is taxable income.  The said expression can

be considered in the background of what has been stated in the Income

Tax Act, 1961 (in short `the Income Tax Act).

10. Pursuant  to  our  directions,  the  Balance  Sheets  as  on

31.3.1994 and 31.3.1995 and the Income-Expenditure Statement for the

financial years 1993-94 and 1994-95 were produced.  Receipt from the

students was Rs.2,86,472/- for the first period, while for the subsequent

period,  it  was  Rs.3,32,425/-.   Apparently,  the  respondents  were  not

justified in treating the said amounts to be the taxable income.

11. It appears  from the financial statements  that  apart  from the

students’  fees,  donation  was  received  from  Indian  School  Society

amounting to Rs.3,15,000/- for the first year and Rs.2,84,000/- for the

subsequent  year.   After  deduction  of  the  expenses,  the  surplus,  i.e.

income  over  expenditure  which  was  transferred  to  the  school  fund

account  was  Rs.28,449.15  for  the first  year  and  Rs.26,647.80  for  the

subsequent year. The question may arise as to whether donation could be

treated as a part of the receipts for computing the taxable income.  We

need not express any opinion in that regard because the authorities have

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proceeded on erroneous premises. The High Court also fell into error by

considering the students’ fees as taxable income.

12. In the circumstances, we set aside the impugned order of the

High Court and direct the authorities to compute the taxable income and

then decide as to whether any tax is leviable.

13. Another aspect which has been submitted by learned counsel

for the appellant is that even if it is conceded for the sake of arguments

that while computing the surplus i.e. income over expenditure donations

can be taken into account, yet, the tax payable cannot exceed three  naya

paisa  on  a  rupee  on  the  total  taxable  income.   The relevance of  this

question can only arise after the authorities decide as to whether there is

any taxable income or not.

14. The appeal is allowed to the aforesaid extent. No costs.

………………………….……….J. (Dr. ARIJIT PASAYAT)

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………………….………………..J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, November 14, 2008   

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