04 February 1964
Supreme Court


Case number: Appeal (civil) 316 of 1962






DATE OF JUDGMENT: 04/02/1964


CITATION:  1965 AIR  177            1964 SCR  (6) 666  CITATOR INFO :  R          1970 SC 169  (8)  R          1982 SC 697  (26)  RF         1986 SC1323  (36)  O          1990 SC  85  (4,9,28,29,35)  C          1991 SC1676  (11,14,16,24,27,29,31,64,65)

ACT: Mining  Lease-Notice  of demand for payment  of  land  cess- Validity-Land  cess,  if recoverable as an  arrear  of  land revenue-It  a  tax on mineral  rights-Expression  "Royalty", meaning of-If includes royalty payable under a mining lease- Madras District Boards Act (Mad.  Act No.XIV  of  1920), ss.   78   and  79-Mines  and   Minerals   (Regulation   and Development)  Act,  (LIII of 1948), and Act LXVII  of  1957, Entry 49 of the State List.

HEADNOTE: Under  the  terms of a mining lease the  lessee  worked  the mines  and won iron ore in a tract of land in a  village  in Chittor district and bound himself to pay a dead rent if  he used the leased land for the extraction of iron ore, to  pay a royalty on iron ore if it were used for extraction of iron and  in  addition to pay a surface rent in  respect  of  the surface area occupied or used.  The lessee working the mines extracted ore and marketed it.  After separation from Madras in 1953, the District of Chittoor became part of the  Andhra State.   In 1955 a demand was made for the payment of.  land cess  under ss. 78 and 79 of the Madras District Boards  Act and including in the computation of the ,annual rent value", the  amounts  payable to Government in each year  under  the mining lease both as surface rent and royalty.  On challenge to the validity of this notice by the lessee, the High Court quashed the notices. (1)  [1958] S.C.R. 1355.                             667 After this decision the lessee died.  On March 10, 1955, two notices  were issued to the appellant demanding  payment  of cess  for  the years 1952-54 and  1955-57  respectively  and threatening coercive proceedings, for their recovery in  the



event  of  non-compliance.  Impugning the  validity  of  the earlier  notices  of  demand, the  appellant  filed  a  writ petition   in  the  High  Court  and  a   similar   petition challenging  the  validity of the notice of demand  for  the later  period.  Pending these petitions a further notice  of demand for payment of cess for the years 1958-59 was  served on the appellant in August 29, 1960 and to obtain a  similar relief  in  respect of this notice and the  proceedings  for recovery  thereof,  the appellant filed a writ  petition  in this Court and contended: (1) that the expression  "royalty" under  s.  79(1)  does  not  signify  royalty  as   commonly understood  but  is  confined to the rent  payable  for  the beneficial use of the surface of the land; (2) assuming that royalty in the sense mentioned in point No. 1 is within  ss. 78 and 79, of the Act, the provision imposing the land  cess quad  royalty  under the mining leases must be  held  to  be repealed  by the Central Acts of 1948 and 1957; (3)  is  the land  cess demanded by the impugned notices dated March  10, 1958  and August 29, 1960 recoverable as an arrears of  land revenue under the law? (4) s. 221 of the Act which made  the provision  for  the recovery of sums due as  taxes  had,  by reason  of the changes effected in the rules, ceased  to  be applicable to the recovery of land cess under s. 78. Held:(i)  Where  the land is held on lease, as  in  the present case, the lease amount is specifically ref0erred  to in  s.  79  of  the Act as one of  the  components  for  the computation  of  the  annual rent value.   It  is  therefore obvious  that ’royalty’ which follows the expression  ’lease amount’ is something other than the return to the lessor  or licenser for the useof the land surface and  represents as it normally connotes the paymentmade     for     the materials or minerals won from the land. (ii) There  is  no  connection between  the  regulation  and development of mines and minerals dealt with in the  Central Acts  and the levy and collection of land cess under ss.  78 and  79 of the Act.  There is therefore, nothing  in  common between the Act and the Central Acts of 1948 and 1957 so  as to  require any detailed examination of the  enactments  for discovering whether there is any overlapping. Hingir  Rampur Coal Co. v. State of Orissa, [1961] 2  S.C.R. 537  and State of Orissa v. M. A. Tullock, A.I.R. 1964  S.C. 1284, distinguished.  (iii)  In the context of ss. 78 and 79 of the Act  and  the scheme ofthose provisions it is clear that the land cess is in  truth a ’tax on lands’ within the entry 49 of the  State List. Where  the land is held under lease it is the  lease  amount that  forms  the basis. Where land is held  under  a  mining lease,  that  which  the  occupier  is  willing  to  pay  is accordingly  treated  as  the "annual  rent  value"  of  the property; such rent value would, therefore, necessarily 668 include  not merely the surface rent but the dead  rent,  as well  as  the  royalty payable by the  licensee,  lessee  or occupier for the user of the  property. (iv) The cess under s. 78 would be "a cess lawfully  imposed upon  land" under s. 52 of the Madras Revenue  Recovery  Act and  would therefore be covered by its terms.  The  legality of  the procedure, which the respondents proposed  to  adopt for  the  recovery  of the sums  could  not,  therefore,  be successfully challenged.




CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 316-A  and 316-B of 1962. Appeals  by special leave and by certificate  from  judgment and  order dated March 25, 1960, of the Andhra Pradesh  High Court in Writ Petitions Nos. 534 and 535 of 1958.                             AND Writ Petition No. 302 of 1960. petition under Art. 32 of the Constitution of India for  the enforcement of Fundamental Rights. P.   Ram Reddy, for the appellant (in C.A. No. 316A and 316B of 1962) and the petitioner (in petition No. 302 of 1960). T.   V.  R.  Tatachari  and  B. R.  G.  K.  Achar,  for  the respondents (in both the appeals and the petition). February  4, 1964.  The Judgment of the Court was  delivered by J.   AYYANGAR  J.-The  two Civil Appeals  and  the  Petition under  Art.  32 of the Constitution which  have  been  heard ’together  raise  a common point regarding the  validity  of notices  of  demand for the payment of land cess  under  the Madras  District Boards Act (Madras Act XIV of  1920)  which for shortness we shall call the Act, and the legality of the procedure  for the recovery of the amount of the said  cess. The  impugned notices made a demand also for education  cess but  as this cess is merely a proportion of the landed,  and as the validity of that demand stands or falls with that  of the land-cess, it is sufficient if we refer to and  consider the challenge to the demand of land-cess                             669 alone, as that will determine the validity of the entire sum demanded. The  appellant’s  father obtained a mining  lease  from  the Government of Madras dated September 15, 1953 under which he was permitted to work and win iron ore in a tract of land in a  village in Chittoor district.  The terms upon  which  the lessee was to work the mines are not very relevant but  what is  material is that under this instrument the lessee  bound himself  to  pay a dead rent of Rs. 1,140/2 per year  if  he used  the leased land for the extraction of iron ore  and  a higher amount if used for other purposes.  Besides, he  also bound  himself to pay a royalty of 8 annas per ton  of  iron ore  if the ore were used for extraction of iron and if  the iron ore was used for any other purpose such as for sale  in specie,  at Re. 1 /- per ton.  In addition, the  lease  also stipulated for the payment of surface rent at Rs. 1-8-3  per acre  per annum in respect of the surface area  occupied  or used.   The  lessee  worked the  mines,  extracted  ore  and marketed it. To  raise finances for carrying on the local  administration in  the District Boards, several taxes are leviable.   Among them  section 78 of the Act imposes a land-cess on lands  in the district in these terms :               "78.   The  land-cess shall be levied  on  the               annual  rent  value of all occupied  lands  on               whatever  tenure held and shall consist  of  a               tax  of two annas in the rupee of  the  annual               rent value of all such lands in the district." The "annual rent value" on the basis of which the  land-cess to  be levied was to be computed in the manner laid down  in s. 79 and this section ran :               "79.   The  annual rent value shall,  for  the               purposes  of section 78, be calculated in  the               following manner               (i)   In  the case of lands held  direct  from               Government  on ryotwari tenure or on lease  or               licence, the assessment, lease amount, royalty



             or  other  sum payable to Government  for  the               lands,               670               together  with  any water-rate  which  may  be               payable  for their irrigation, shall be  taken               to be the annual rent value.               (ii)  In the case of inam lands or lands  held               wholly or partially free from assessment,  the               full assessment which such lands would bear if               they  were not inam, together with any  water-               rate   which   may  be   payable   for   their               irrigation,  shall be taken to be  the  annual               rent  value;  and  such  full  assessment  and               water-rate shall be determined by the district               collector  under  the general  orders  of  the               Board of Revenue.               (iii)In  the case of lands held on  any  other               tenure,   the  annual  rent  payable  to   the               landholder,   sublandholder   or   any   other               intermediate  landholder holding on an  under-               tenure  created, continued or recognized by  a               landholder or sub-landholder, as the case  may               be,  by his tenants, together with any  water-               rate   which   may  be   payable   for   their               irrigation,  shall be taken to be  the  annual               rent value; and where such lands are  occupied               by the owner himself or by any person  holding               the  same  from  him  free of  rent  or  at  a               favorable rent, the annual rent value shall be               calculated  according  to the  rates  of  rent               usually paid by occupancy riot for ryoti lands               in  the neighborhood with similar  advantages,               together  with  any water-rate  which  may  be                             payable  for  the irrigation of the  l ands  so               occupied.               (iv)  In the case of lands, the assessment  of               rent of which is paid in kind, the annual rent               value  shall  be calculated according  to  the               rates   of  rent  established  or   paid   for               neighboring lands of a similar description and               quality,  together with any  water-rate  which               may be payable for the irrigation of the lands               first   mentioned,  or  if  such   method   of               calculation is, in the opinion of the Board of               Revenue, impracticable in any                                    671               particular case, according to any method which               the Board of Revenue may approve for that case               :               Provided  that, where any landholder  or  sub-               landholder  has obtained under the  provisions               of  sections  30(iii)  and 33  of  the  Madras               Estates  Land Act, 1908, a  decree  empowering               him to increase his rent in consequence of any               additional  payment by way of water-rate  made               by  him to Government, the annual  rent  value               shall be the balance remaining after deducting               such increase of rent up to the amount of  the               waterrate   from   the  sum   ascertained   as               aforesaid." When  the  State  of Andhra was  separated  from  Madras  in October,  1953 the district of Chittoor became part  of  the State of Andhra.  In 1955 a demand was made upon the  father of the appellant for the payment of land cess calculated  in



accordance  with the provisions of ss. 76 and 79 of the  Act and  including  in  the computation of  the  "  annual  rent value". the amounts payable to Government in each year under the  mining  lease both as surface rent  and  royalty.   The validity of this notice was objected to on grounds which are no  longer  material and the objections  being  upheld.  the notices  were  quashed on writ petitions filed to  the  High Court, Andhra Pradesh by the appellant’s father. After  the  decision  by the High Court in  his  favour  the appellant’s father died.  On March 10, 1958 two notices were issued  to the appellant demanding the payment of  the  sums specified therein as being the messes for the years 1952  to 1954 and 1955 to 1957 respectively and threatening  coercive proceedings  for their recovery in the event of  the  demand not  being  complied with.  Impugning the  validity  of  the notices  of demand for the earlier triennial, the  appellant filed writ petition 534 of 1958 in the High Court of  Andhra Pradesh  and a similar petition No. 535 of 1958  challenging the  validity of the notice of demand for the later  period. While  these petitions were pending before the High Court  a further notice of demand claiming the pay- 672 ment  of cess for the years 1958 and 1959 was served on  the appellant  in August 1960 and to obtain a similar relief  in respect of this notice and the proceedings for the  recovery thereof,  the appellant has filed writ petition 302 of  1960 in  this  Court.   To  complete the  narrative  it  is  only necessary  to mention that both the writ petitions  534  and 535  of 1958 were dismissed by the High Court and  when  the appellant  sought  to  obtain certificates  of  fitness  the learned  Judges  granted a certificate in respect  of  their judgment in writ petition 535 of 1958 on the ground that the value  of the claim made against the appellant was over  Rs. 20,000,  but refused a similar certificate in writ  petition 534  of  1958 where the amount demanded was less  than  that figure-it  was Rs. 15,000 and odd.  The appellant  thereupon moved  this  court  for  special leave  in  respect  of  the dismissal  of  his writ petition 534 of 1958  and  the  same having been granted all these three matters have been  heard together. The matter in controversy in the appeal is very limited  and the  point  involved  very  narrow.   Mr.  Ram  Reddylearned counsel for the appellant raised three points in support  of the  appeal  :  (1) What is the meaning  of  the  expression ’royalty’  in  s.  79(1) of the Art?  Does  it  include  the royalty  payable under a mining lease on the ore won by  the lessee, (2) Assuming that royalty in the sense mentioned  in point  No.  1  is  within ss. 78 and  79,  of  the  Act  the provision imposing the land cess quoad royalty under  mining leases must be held to be repealed by the Mines. &  Minerals (Regulation  & Development) Act, 1948 (Central Act  Llll  of 1948) or in any event, by the Mines & Minerals (Regulation & Development) Act, 1957 (Central Act LXVII of 1957). so  that after the date when these Central enactments came into force the  land  cess  that could be levied under s.  78  must  be exclusive  of royalty under a mining lease. (3) Is the  land cess which, was demanded by the impugned notices dated March 10,  1958  and August 29, 1960 recoverable as an  arrear  of land revenue under the law? We shall examine these submissions in that order.  The first contention that the expression ’royalty’ under s. 79(1) does not signify royalty as commonly understood but is                             673 confined  to the rent payable for the beneficial use of  the surface    of   the   land,   scarcely   deserves    serious



consideration.   Where the land is held on lease, as in  the present  case, the lease amount is specifically referred  to in  s.  79  of  the Act as one of  the  components  for  the computation  of  the annual rent value.   It  is  therefore. obvious  that "royalty" which follows the expression  "lease amount" is something other than the return to the lessor  or licenser for, the use of the land surface and represents  as it  normally connotes the payment made for the materials  or minerals  won  from  the land.  The  argument  is  therefore without substance and is rejected. The  second  point has not, in our opinion, more  merit  The entirety  of  the  argument on this head  is  based  on  two decisions of this Court in which this Court had to  consider the  continued operation of the Orissa mining  areas  (Deve- lopment  Fund)  Act, (Act XXVII of 1952) The  Hingir  Rampur Coal  Co.  Ltd.  and  Others v.  The  State  of  Orissa  and Others(1) and State of Orissa v. M. A. Tullock & Co.(1).  As a  matter  of fact it might be mentioned  that  the  present appellant  intervened in State of Orissa v. M. A. Tullock  & Co. and there was a direction by this Court that the present appeals  and petition might be heard after the judgment  was pronounced in the Orissa appeals.  We are, however,  clearly of the opinion that neither of the two decisions, the  later one  really following the earlier in respect of  the  matter now  relevant, really help the appellant in  these  appeals. In Hingir-Rampur Coal Co.’s case(1) the decision rendered an writ  petitions  filed in this court under Art.  32  of  the Constitution  challenging the validity of the Orissa  Mining Areas (Development Fund) Act.  A cess had been levied  under that enactment and it was the validity of the imposition  of the  cess  that was the subject of debate in  the  petition. One of the points urged in support of the petition was  that on  the enactment of the Minoan & Minerals  (Regulation  and Development) Act, 1948 (Central Act LIII of 1948) the Orissa Act   stood  repealed  and  the  cess  leviable  under   its provisions was not thereafter capable of (2)  A.I.R. 1964 S.C. 1284. (1) [1961] 2 S.C.R. 537. 134-159 SC-43 674 being  enforced,  with the result that the  demand  for  the cess.  could  not be sustained.  This Court  on  a  detailed comparison  of  the  provisions of the Orissa  Act  and  the Central Act of 1948 came to the conclusion that the  Central Act  covered  the same field as the  Orissa  enactment.   An examination  of the scheme of the Orissa Act disclosed  that it  had  been passed for the purpose of the  development  of ’mining  areas’  in  the  State and  this  was  affected  by constituting  "mining  areas" and making provision  for  the development of such areas by improving communications by the construction  of  roads, by providing  means  of  transport, supply  of  water,  electricity  and  other  amenities   for sanitation as also for the education of the labour force  to attract workmen to these ,mining areas’.  The cess which was there impugned was levied and collected for meeting the cost of  this development of the "mining areas".  An  examination of  the Central enactment which was also passed  to  provide for the conservation of minerals was held to cover the  same field  as  the Orissa Act.  The Orissa State  enactment  had been passed in pursuance of the legislative power  conferred by Entry 23 of the State List in the 7th Schedule reading :               "Regulation  of mines and mineral  development               subject  to  the  provisions of  List  I  with               respect  to regulation and  development  under               the control of the Union."



The provision in List I referred to here is Entry 54 in  the Union List reading :               "Regulation  of mines and mineral  development               to  the  extent to which such  regulation  and               development under the control of the Union  is               declared  by  law  made by  Parliament  to  be               expedient in public interest."               It was argued on behalf of the State that  the               Central  Act  of 1948 though  it  contained  a               declaration    that   the    Regulation    and               Development  of mines and mineral  development               was  expedient in the public  interest,  still               such a declaration was not by "Parliament"  as               required by Entry No. 54, but by the  Dominion               legislature and could not on the terms of item               23  of  List  II affect  the  State  power  of               legislation.  This                                    675               argument  was accepted and the State Act  was,               therefore, held to be competently enacted, and               to   remain  unaffected  H.  by  the   Central               Legislation.  It was the same enactment of the               Orissa   legislature   that   came   up    for               consideration  in  State of Orissa  v.  M.  A.               Tullock   &  Co.(1).  By  that  date   however               Parliament  had  legislated  and  had  enacted               Central Act LXVII of 1957 which contained,  if               anything,  more comprehensive  provisions  for               the  regulation and development of  mines  and               minerals throughout the country.  The  Central               Act also contained a declaration that "it  was               expedient  in  the public  interest  that  the               Union  should  take  under  its  control   the               regulation  of  mines and the  development  of               minerals to the extent hereinafter  provided."               This  Court  held that having  regard  to  the               comprehensive  provisions  contained  in   the               several   sections  of  the  Act  which   were               examined, "the extent provided" included those               which  fell within the scope of the State  Act               of  Orissa which was, as stated  earlier,  for               the  regulation  and  development  of  "mining               areas" within the State.  For these reasons it               was held that the Orissa Act must be deemed to               have   been  implies  repealed  and   rendered               ineffective by the Central Act.               It will be seen that there is no  resemblance,               whatever, between the provisions of the Orissa               Act  considered in the two decisions  and  the               provision for the levy of the land cess  under               ss.  78  and 79 of the Act with which  we  are               concerned.  Sections 78 and 79 have nothing to               do and are not concerned with the  development               of  mines  and minerals or  their  regulation.               The proceeds of the land cess are, under 92 of               the Act, to be credited to the District  fund,               into  which,  under the terms of  the  Finance               Rules in Sch.  V to the Act, the land-cess  as               well as several other taxes, fees and receipts               are directed to be credited.  This fund is  to               be  used under Ch.  VII of the Act with  which               s. 112 starts "for everything necessary for or               conducive  to the safety, health,  convenience               or   education  of  the  inhabitants  or   the               amenities  of  the local  area  concerned  and



             everything  incidental to the  administration"               and include in particular the several  matters               which  are  mentioned in those  sections.   It               will thus be seen that there is no  connection               between the regulation               (1)   A.I.R. 1964 S.C. 1284.               676               and  development of mines and  minerals  dealt               with  in the   Central Acts and the  levy  and               collection of land-cess for which provision is               made  by ss. 78 and 79 of the Act.   There  is               therefore  no scope, at all, for the  argument               that  there is anything in common between  the               Act  and the Central Acts of 1948 and 1957  so               as  to  require any  detailed  examination  of               these enactments for discovering whether there               is any over-lapping.               It  was  next  urged that  the  land-cess  was               really a tax on mineral rights falling  within               Entry 50 of the State List reading               "Taxes  on  mineral  rights  subject  to   any               limitation   imposed  by  Parliament  by   law               relating to mineral development" and  that the Central Acts under which also taxes  and  fees might  be levied brought into play the last portion of  this Entry and that as a result the power to impose this tax  was not  available after the Central Acts of 1948 and 1957  came into  force.  In this connection Mr. Ram Reddy  pointed  out that as the impugned land-cess was payable only in the event of  the mining lessee winning the mineral and so paying  the royalty  and not when no minerals were extracted, it was  in effect  a tax on the minerals won and therefore  on  mineral rights.   We  are unable to accept this  argument.   When  a question arises as to the precise head of legislative  power under  which a taxing statute has been passed,  the  subject for enquiry is what in truth and substance is the nature  of the tax.  No doubt, in a sense, but in a very remote  sense, it  has  relationship to mining as also to the  mineral  won from  the mine under a contract by which royalty is  payable on  the quantity of mineral extracted.  But that,  does  not stamp it as a tax on either the extraction of the mineral or on the mineral right.  It is unnecessary for the purpose  of this  case to examine the question as to what exactly  is  a tax on mineral rights seeing that such a tax is not leviable by Parliament but only by the State and the sole  limitation on  the  State’s power to levy the tax is that it  must  not interfere  with a law made by Parliament as regards  mineral development.  Our attention was not invited to the provision of any such law enacted by Parliament.  In 677 the context of ss. 78 and 79 and the scheme of those  provi- sions  it is clear that the land cess is in truth a "tax  on lands" within Entry 49 of the State List. Under  s. 78 of the Act the cess is levied on occupied  land on  whatever  tenure  held.  The basis of the  levy  is  the "annual rent value" i.e., the value of the beneficial enjoy- ment  of the property.  This being the basis of the tax  and disclosing its true nature, s. 79 provides for the manner in which  the "annual rent value" is determined i.e.,  what  is the  amount for which the land could reasonably be let,  the benefit to the lessor representing the ratable value "or the annual rent value".  In the case of ryotwari lands it is the assessment which is payable to the Government that is  taken as  the rental value being the benefit that accrues  to  the Government.   Where the land is held under lease it  is  the



lease amount that forms the basis.  Where land is held under a mining lease, that which the occupier is willing to pay is accordingly  treated  as  the "annual  rent  value"  of  the property.   Such a rent value would, therefore,  necessarily include  not merely the surface rent, but the dead rent,  as well  as  the  royalty payable by the  licensee,  lessee  or occupier for the user of the property.  The position then is that  the rent which a tenant might be expected to  pay  for the  property  is,  in the  case  of  lease-hold  interests, treated  as  the  statutory  "annual  rent  value".   It  is therefore  not possible to accept the contention,  that  the fact  that  the  lessee or licensee pays a  royalty  on  the mineral won, which is in excess of what he would pay if  his right  over  the land extended only to the mere use  of  the surface  land, places it in a category different from  other types  where the lessee uses the surface of the land  alone. In  each case the rent which a lessee or  licensee  actually pays  for the land being the test, it is manifest  that  the land-cess is nothing else except a land tax. Learned  counsel pointed out that in the case of inam  lands and  other lands dealt with in cls. (ii), (iii) and (iv)  of s. 79 the royalty payable by the lessee or licensee did  not figure  in the computation of the annual rent value.   That, however, appears to us to be wholly irrelevant, for 678 what  we are concerned with is whether on the terms of  sub- cl. (i) the land cess is not in truth a tax on land. The  last of the points raised relates to the threat on  the part of the Government to recover the impugned demands as an arrears  of land revenue.  Learned counsel pointed out  that s.   221 of the Act which made provision for the recovery of    su ms due as taxes had, by reason of the changes effected in the rules, ceased to be applicable for the recovery of land cess under  s. 78.  The learned Judges of the High  Court  upheld this submission and, in our opinion, correctly, but this  is of  no assistance to the appellant because of s. 52  of  the Madras Revenue Recovery Act which enacts:               "52.  All arrears of revenue other than  land-               revenue  due  to  the  State  Government,  all               advances  made  by the  State  Government  for               cultivation  or other purposes connected  with               the  revenue,  and  all  fees  or  other  dues               payable  by any person to or on behalf of  the               village servants employed in revenue or police               duties,  and all cesses lawfully imposed  upon               land and all sums due to the State Government,               including compensation for any loss or  damage               sustained  by them in consequence of a  breach               of  contract,  may be recovered  in  the  same               manner  as arrears of land-revenue  under  the               provisions  of this Act, unless  the  recovery               thereof  shall have been or may  hereafter  be               otherwise specially provided of for." It  was not disputed that the cess under s. 78 would  be  "a cess  lawfully  imposed upon land" and  would  therefore  be covered by its terms.  The legality of the procedure,  which the  respondents proposed to adopt for the recovery  of  the sums could not, therefore, be successfully challenged. The  appeals  and the writ petition fail and  are  dismissed with costs-one hearing fee. Appeals and petition dismissed. 679