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PETITIONER: R. R. ENGINEERING CO.

       Vs.

RESPONDENT: ZILA PARISHAD, BAREILLY & ANR.

DATE OF JUDGMENT10/03/1980

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) KRISHNAIYER, V.R. UNTWALIA, N.L. SHINGAL, P.N. KOSHAL, A.D.

CITATION:  1980 AIR 1088            1980 SCR  (3)   1  1980 SCC  (3) 330  CITATOR INFO :  R          1984 SC 420  (15)  R          1989 SC2015  (10)  C          1990 SC 781  (72)  RF         1991 SC1676  (30,35)  RF         1992 SC1383  (12,13)  RF         1992 SC2084  (8)

ACT:      U. P.  Kshetra  Samitis  &  Zila  Parishads  Act  1961- Circumstances and  Property Tax-Nature  of tax-If  a tax  on income or profession.      State Legislature, if competent to impose tax.

HEADNOTE:      Acting under  the power conferred by section 108 of the District Boards  Act,  1922  the  District  Board,  Bareilly imposed  "Circumstances   and  Property   Tax"  on   persons according to  their circumstances  and property. In 1958 the powers and  functions of  the District Boards were vested in or were  transferred to the Antarim Zila Parishads and later they were  transferred to  the  Zila  Parishads  constituted under the  U.P. Kshetra Samitis and Zila Parishads Act 1961. The 1961-Act  empowered the  Zila Parishads  to  impose  the "Circumstances and  Property Tax."  It  also  provided  that where  before   the  appointed   date  there  was  in  force "Circumstances and Property Tax" under the 1922 Act such tax may continue  to be levied by the Zila Parishads at the same rates and  on the  same conditions  under which it was being levied under the 1922 Act. The tax which till then was being levied by  the District  Boards was henceforth levied by the Zila Parishads.      Dismissing the  appellants’ writ petition impugning the constitutional validity  of the  Act the High Court held (1) that the  tax on circumstances and property was a single tax possessing altogether  a separate and distinct identity from other taxes  and could  neither be  equated with  a  tax  on professions, trades,  callings or employments nor with a tax on property  and (2)  that the  tax fell under the residuary entry of List I, namely, Entry 97 (any matter not enumerated

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in any  other Entry  in List  I or  in any of the Entries in List II and III) and that it could be continued to be levied by virtue of Article 277 of the Constitution.      In CA  564 of  1973 the appellants were assessed to the tax by  the Town  Area Committee  under the  U.P. Town Areas Committee Act, 1914 as amended in 1950. The appellants’ suit challenging the  validity of  the tax  was  allowed  by  the Munsiff on  the ground  that the  tax on  circumstances  and property was  in truth  and substance  a tax  on income  and since prior  to the  Constitution it  was not lawful for the Town Area  Committee to levy it, it was not saved by Article 277. The  Civil Judge dismissed the appeal of the Committee. The High Court upheld the validity of the tax.      In appeal  to this  Court it  was  contended  that  the limitation contained  in Article  276(2) of the Constitution cannot be  transgressed by the State Legislature by adopting the subterfuge of imposing a consolidated tax by clubbing up two  or  more  entries  in  List  II,  and  that  the  State Legislature could not 2 exercise the  power to  levy  a  tax  on  circumstances  and property by  an artificial  understanding on that expression so as to acquire power to impose a tax on income.      Dismissing the appeal, ^      HELD :  1. (a)  There is  a basic distinction between a tax on income and a tax on circumstances and property. While income  tax   can  only   be  levied   on  income,   tax  on circumstances and  property can  be on the total turnover of the assessee  from his  trade or  calling or the fact of his having an  interest in  property. For  the levy  of  tax  on circumstances and  property it  is not  necessary that there should be  income in the hands of the assessee, in the sense of the  Income Tax  Act. A person can be subjected to tax on circumstances and  property in  relation to the status which he occupies  by reason of the pursuit by him of a beneficial calling or the possession by him of an interest in property. While determining  the  status  of  an  individual  for  the purpose of  the tax  on circumstances, the total turnover of his business  or avocation  may, therefore,  be legitimately taken into consideration. [8 G-H; 9 C-D]      (b) The fact that the tax on circumstances and property is levied  on the basis of income which an assessee receives from his  profession, trade,  calling  or  property  is  not conclusive of  the nature of the tax. It is only as a matter of convenience  that income  is adopted  as a  yardstick  or measure for assessing the tax. The measure of the tax is not a true  test of  the nature of the tax and, therefore, while determining the  nature of  a tax,  though the  standard  on which the  tax is levied may be a relevant consideration, it is not a conclusive consideration. [9 E]      District Board  of Farrukhabad  v. Prag  Dutt, AIR 1948 All 382  (FB), Zila  Parishad, Muzaffarnagar & Anr. v. Jugal Kishore Ram Swarup and Anr. AIR 1969 All 40, approved.      Re. a Reference under Government of Ireland Act, [1936] A. C.  352;  Governor-General  in  Council  v.  Province  of Madras, 72 I.A. 91, 99, referred to.      2. (a) The tax is referable to Entry 49 (taxes on lands buildings) Entry  60 (taxes on professions, trades, callings and employments)  and among other items to item 58 (taxes on animals and  boats) of  List  II.  The  impugned  tax  is  a composite tax, one of its components being the circumstances of the  assessee. By  ’circumstances’ is meant his financial position, his status as a whole, which depends inter-alia on his income  from his  lands and buildings and from his trade

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or calling.  The tax  is wide  enough to cover certain other items in  List II  like Item  58 which  relates to  "tax  on animals and boats". [12 H; 11 G-H]      The Notified Area Committee & Anr. v. Sri Ram Singhasan Prasad Kalwar. AIR 1970 Allahabad 561, approved.      (b) Yet the fact that one of the components of the tax, namely, the  component of  ’circumstances’ is  referable  to other  Entries  in  addition  to  Entry  60  should  not  be construed as  conferring an  unlimited charter  on the local authorities to impose disproportionately excessive levies on the assessees  who are subject to their jurisdiction. [13 A- B] 3      3. The  High Court  was wrong in holding that by reason of the  fact that  the circumstances  and property  tax is a composite  tax   and  since   the  element   of   ’property’ necessarily enters  into that composition, the tax cannot be identified as  a tax  on professions,  trades,  callings  or employments. It  is also  not correct  to say that since the tax on  circumstances and property did not place as an entry expressly enumerated  in any  of  the  three  Lists  of  the Seventh Schedule it falls under the residuary entry, namely, Entry 97  of List  I. It  is erroneous  to  take  resort  to Article 277 for the purpose of saving the tax. The mere name of a  tax does  not bear  on legislative  competence and the absence of express enumeration of a tax by a particular name will not justify the tracing of legislative authority to the residuary entry. [13 D-G]

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1528 of 1970.      From the  Judgment and  Order dated  23-5-1969  of  the Allahabad High Court in Civil Misc. Writ No. 37/67                             AND                Civil Appeal No. 564 of 1973.      Appeal by  special leave  from the  Judgment and  Order dated 29-11-72  of the Allahabad High Court in Second Appeal No. 2359 of 1966.      Yogeshwar Prasad,  S. K.  Bagga, Mrs.  S. Bagga, Ashoke Srivastava and  Mrs. Rani  Chhabra for the Appellant in C.A. No. 1528/70.      E. C. Agarwala for the Appellant in C.A. 564/73.      K.  C.  Agarwala  and  M.  M.  L.  Srivastava  for  the Respondent in C.A. 1528/70.      J. P.  Goyal and  S. K. Jain for the Respondent in C.A. 564/73.      The Judgment of the Court was delivered by      CHANDRACHUD, C.J.-These  are  two  appeals  from  Uttar Pradesh involving  the validity  of a  levy which  bears the somewhat unusual  name of  ’Circumstances and Property Tax’. Civil Appeal  1528 of  1970 is by certificate granted by the Allahabad High  Court under Articles 132(1) and 133(1)(c) of the Constitution  while Civil  Appeal  564  of  1973  is  by Special Leave granted by this Court.      The facts  leading to  Civil Appeal 1528 of 1970 are as follows:-      The appellant  M/s. R.  R.  Engineering  Company  is  a partnership firm  engaged in the business of manufacture and sale  of   machinery,  machine   tools  and   as  structural engineers.   Its    registered   office   is   situated   at Clutterbuckganj which  was at  one  time  within  the  local limits  of   the  jurisdiction  of  the  District  Board  of

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Bareilly. Acting under the power conferred by section 108 of the District Boards Act, 1922, 4 the District  Board, Bareilly,  by Resolution  No.  3  dated February 18,  1928 decided  to impose the ’Circumstances and Property Tax’  on persons  according to  their circumstances and property. Rule 7 framed under section 172 of the Act for assessment and  collection of  the said tax was published on March 10,  1928, providing for the maximum assessment of Rs. 2,000/- on  any single  assessee. Later  by  a  Notification dated November  29, 1933 the State Government directed under section 114(d)  of the  Act that  the total amount of tax on circumstances and  property imposed  by a  District Board on any single  assessee shall not in any year exceed the sum of Rs. 2,000/-.      On April  20, 1958  the U.  P.  Antarim  Zila  Parishad Ordinance  1958   was  enacted   by  the  State  Government, providing for  the establishment  of Antarim  Zila Parishads for the  internal administration of local self-Government in rural areas,  thereby facilitating the establishment of Zila Parishads for  the  coordinated  administration  of  affairs concerning economic  and social  planning and of local self- Government in  the various  Districts of  Uttar Pradesh. The Ordinance was repealed by the U.P. Antarim Zila Parishad Act 1958.      In 1961,  the U.  P. Kshetra Samitis and Zila Parishads Act, 33 of 1961, was passed. By section 274 of that Act, the U. P.  District Boards  Act, 1922,  was repealed as from the date Kshetra Samitis were established in a District, and the U. P.  Antarim Zila  Parishads Act  was repealed as from the date on  which  the  Zila  Parishad  was  established  in  a District. The  powers and  functions of District Boards were vested in  or were transferred to the Antarim Zila Parishads and from  them to  the Zila Parishads on their establishment in the District.      By section  119 of  the U.  P. Kshetra Samitis and Zila Parishads Act  1961, the  Zila Parishads  were empowered  to impose the  ’Circumstances and Property Tax’. Section 120 of that Act  provides that  where, before  the appointed  date, there was  in force  ’Circumstances and  Property Tax’ under the District  Boards Act,  1922, such tax may continue to be levied by  the Zila  Parishad at  the same  rates and on the same conditions  under which  it was  being levied under the District Boards  Act. Section  121 provides  that the  total amount of  the tax  shall not  exceed the  amount as  may be prescribed by  rules framed  under the  Act. Rule  7  framed under section  172 of  the District  Boards Act, 1922, which provides for  a maximum  levy of  Rs. 2,000/-  on  a  single assessee, remains  in force until the framing of rules under the Act of 1961.      The appellant’s  registered office  which was  situated within the jurisdiction of the District Board of Bareilly is now within  the jurisdiction of the Zila Parishad, Bareilly. The Circumstances and Property Tax 5 which was  being levied by the District Board of Bareilly is now being levied by the Zila Parishad of Bareilly.      The appellant  having been  assessed to  a tax  of  Rs. 2,000/- for the year 1965-66, filed Writ Petition 37 of 1967 in  the   High  Court   of  Allahabad   to   challenge   the constitutional validity  of that tax. A learned single Judge referred the  Petition to  a Division  Bench which  in  turn referred it  to a  Full Bench.  The Full Bench consisting of Mr. Justice  R. S.  Pathak, Mr.  Justice M.  H. Beg  and Mr. Justice H.  C. P.  Tripathi dismissed  the Writ Petition but

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granted certificate to the appellant to appeal to this Court under Articles 132(1) and 133(1)(c) of the Constitution.      In  Civil  Appeal  564  of  1973,  appellants  who  are residents of  Kuraoli, District  Mainpuri, were  assessed to Circumstances and Property Tax by the Town Area Committee of Kuraoli, for  the years  1961-64. The  tax was levied by the Committee under  section 14(f)  of the  U.P. Town  Area Act, 1914, as  amended by  the U.P.  Town  Area  (Validation  and Amendment)  Act,   1950,  which   empowers  the   Town  Area Committees to  impose a  tax on  persons according  to their "circumstances and  property", not  exceeding such  rate and subject to  such limitations  and  restrictions  as  may  be prescribed.      The appellants  filed a  suit, 62 of 1964, to challenge the validity  of the  tax. That  suit  was  decreed  by  the learned Munsif,  Munsir, on  the  ground  that  the  tax  on circumstances and  property was in truth and substance a tax on income  and since,  prior to the Constitution, it was not lawful for  the Town  Area Committee  to levy it, it was not saved by  Article 277  of the Constitution. The appeal filed by the  Committee against that judgment was dismissed by the learned Civil  Judge, Mainpuri, but in Second Appeal 2859 of 1966, the  High Court  of Allahabad  by its  judgment  dated November  29,  1972,  took  a  contrary  view,  allowed  the Committee’s  appeal   and  directed  the  dismissal  of  the appellant’s suit.  The learned  Single Judge who decided the Second Appeal, followed the Full Bench decisions of the High Court in  (i) M/s R. R. Engineering Co. which has given rise to the companion appeal herein, namely, Civil Appeal 1528 of 1970, and  (ii) The  Notified Area  Committee & Anr. vs. Sri Ram Singhasan Prasad Kalwar. Being aggrieved by the judgment of the  High Court, the appellants have filed this appeal by Special Leave of this Court.      The three learned Judges who constituted the Full Bench of the High Court in R. R. Engineering Co. (supra) delivered separate judgments, coming ultimately to the same conclusion though not by 6 the same  process of reasoning. It was urged before the High Court that  the tax in on ’circumstances and property’ was a tax on  professions, trades,  callings and  employments  and therefore the  total amount  of tax  in respect  of any  one person could  not,  by  reason  of  Article  276(2)  of  the Constitution, exceed  Rs. 250  per  annum.  It  was  further contended that  though the proviso to Article 276(2) enables the levy  of a  tax on  professions,  trades,  callings  and employments in  excess of  Rs. 250/-  per annum  if  in  the financial year immediately preceding the commencement of the Constitution the  tax was being imposed, the authority which is now  seeking to  impose the  tax being different from the one which  was  imposing  the  tax  immediately  before  the Constitution came  into force,  the proviso  would  have  no application. Mr.  Justice R. S. Pathak and Mr. Justice M. H. Beg rejected  the contention  that the tax on ’circumstances and property’  was a tax on professions, trades, callings or employments. Consequently,  they held  that  the  limitation contained in  Art. 276(2)  of the Constitution to the effect that the  total amount  payable in respect of any one person to the  State or  to any  one municipality,  district board, local board  or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed  two hundred  and fifty  rupees per annum was not applicable.  Justice   Pathak   held   that   the   tax   on circumstances and property is a composite tax and although a person’s status  and property  are two  intertwined  strands

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which enter  into the composition of the tax, the tax cannot be considered  as consisting  of two  distinct taxes under a single denomination. According to the learned Judge, the tax on circumstances  and property  is a  single tax  possessing altogether a separate and distinct identity from other taxes and could  neither be  equated with  a tax  on  professions, trades, callings  or employments nor with a tax on property; that is  to say,  the constituent  elements which enter into the composition  of the  tax could  not be separated. On the question whether  the circumstances  and property tax levied by District Boards prior to the Constitution could be levied thereafter, the  learned Judge  relied upon  Art. 277 of the Constitution as  authorising the continued imposition of the tax. When the Constitution came into force, said the learned Judge, circumstances  and property  tax did not find a place in any  of the  three Lists  of  the  Seventh  Schedule  and therefore it  fell under  the residuary entry, namely, entry 97 of  List I  which refers  to any matter not enumerated in any other  entry in List I or in any of the entries in Lists II and III.      Justice M.H.  Beg largely  shared the  view of  Justice Pathak that  the tax  on circumstances  and property  was  a composite tax  and not  merely a tax on professions, trades, callings or employments and therefore, 7 the limit  imposed by  Art. 276(2) was not applicable to the tax. According to the learned Judge, the relevant enquiry in regard to  the tax was as to what was the legal basis of the tax or  the reason without which there could be no such tax. He answered that question by saying that the best answer one could give  was that  the tax  on circumstances and property was a  tax on  the status  of a  person. The  learned  Judge shared the  view of  Pathak, J., that after the enactment of the  Constitution,   Art.  277   authorised  the   continued imposition of the tax.      Tripathi, J. followed an earlier Full Bench judgment of the  Allahabad   High  Court   and  held  that  the  tax  on circumstances and  property was  in the  nature of  a tax on professions, trades, callings or employments. The limitation prescribed by  Art. 276(2)  would, therefore,  be attracted, but the  proviso to that article saved the imposition of the tax even if it was in excess of Rupees two hundred and fifty per annum because the tax was in force in the financial year immediately preceding  the commencement  of the Constitution and the  Parliament had not by law made any provision to the contrary. The  contention, that the Proviso would apply only if the authority imposing the tax after the enactment of the Constitution was  the same which did so immediately prior to the Constitution  was rejected  by the  learned Judge on the ground that  what was  important for  the  purposes  of  the Proviso was  the identity  of the  purpose for which the tax was and  is imposed,  and the area of its operation, and not the identity of the authority imposing the tax.      In the  companion Appeal,  564  of  1973,  a  different consideration arose  in a  significant respect, namely, that the tax  was not  in force in the financial year immediately preceding  the   commencement  of   the  Constitution.   The assessment having been made by the Town Area Committee under section  14(f)  of  the  U.P.  Town  Areas  Act,  which  was introduced by  a post-Constitution  amendment of  1950,  the proviso to  Art 276(2)  had no application and therefore the levy in  excess of  Rs. 250  per annum could not be saved by the proviso,  if the  tax was  in  respect  of  professions, trades etc.  A learned  Single  Judge  of  the  High  Court, however, upheld  the validity  of the tax following the Full

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Bench judgment in R. R. Engineering Co. (supra).      Before us  also, the main controversy centred round the application of  Article 276,  the contention  being that the imposition of  the impugned  tax in  excess of  Rs. 250  per annum is  invalid. It  was urged  by Mr. E. C. Agarwala, who appears on  behalf of  the appellant in Civil Appeal No. 564 of 1973, that although Entry 60 in List II empowers 8 State Legislatures  to  levy  tax  on  professions,  trades, callings and  employments, the  exercise of  that  power  is necessarily limited  by Article  276(2) of the Constitution. The constitutional  limitation,  according  to  the  learned counsel, contained  in Article 276(2) must be given its full effect and  that limitation  cannot be  transgressed by  the State Legislature  by adopting  the subterfuge of imposing a consolidated tax  by clubbing-up two or more entries in List II. Counsel  further contended  that the  State  Legislature cannot over-reach  its taxing  power by making an artificial definition of  words and expressions used in the legislative entries. Just  as it  cannot, by an artificial definition of ’sale of goods’, exercise a power to legislate in respect of a subject  matter outside its sphere, it cannot exercise the power to  levy a tax on ’circumstances’ by an artificial and colourable understanding of that expression so as to acquire the power  to  impose  a  tax  on  income.  Lastly,  it  was contended by Shri Agarwala, and by Shri Yogeshwar Prasad who appears in  the companion  appeal, that  the power to levy a tax on  ’circumstances not  being incidental to the power to tax professions,  trades, etc.  the  doctrine  of  pith  and substance had no application and could not save the impugned tax on circumstances and property.      The nature  and validity  of the  tax on ’circumstances and property’  have agitated the minds of the learned Judges of the  Allahabad High  Court for a long time, as is evident from various  Full Bench  judgments,  which  are  not  quite consistent with  one another,  and some  of which  have even taken conflicting positions. In some cases decided by single Judges or  Division Benches, the view was taken that the tax on ’circumstances  and property’ is a tax on ’income’. (Tata Oil Mills  Co. Ltd.  v. District Board of Allahabad; Western U. P. Electric Power and Supply Co. Ltd. Etawah v. Town Area Jaswant Nagar and Raghubir Singh v. Town Area Committee. The correct position  is, however, the one which was pointed out by Malik  C.J., in his Full Bench judgment in District Board of Farrukhabad  v. Prag  Dutt.  The  learned  Chief  Justice elaborated the  point by dwelling upon the basic distinction between a  tax on  ’income’ and  a tax on ’circumstances and property’. It is trite that income-tax can only be levied on income, that  is to  say, it  can  be  levied  provided  the assessee is  in receipt of an income. If there is no income, there can  be  no  income-tax.  In  contrast,  the  relevant consideration in the case 9 of a  tax on  ’circumstances and  property" can be the total turnover of  the assessee  from his  trade or calling or the fact  of   his  having  an  interest  in  a  property.  This consideration  assumes   relevance  because   the   tax   on circumstances and  property is  a tax,  so to  say,  on  the status of  the assessee,  in their endeavour to give to that tax a  local name and habitation, in order perhaps to soften resistance to  it, the  learned Judges of the Allahabad High Court have  described it as a tax on ’Haisiat’ which, as far and as  best as  translation can go, means ’status’. For the levy of  tax  on  circumstances  and  property,  it  is  not necessary that  there should  be income  in the hands of the

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assessee, in the sense of the Income-tax Act. The outgoings, the deductions,  the carry-forward  losses, the  development rebate and  the like  may leave no income in the hands of an assessee which  could be brought to tax under the Income-tax Act. But  a person  can be subjected to tax on circumstances and property  in relation  to his ’Haisiat’, that is to say, the status  which he  occupies by  reason of the fact of the pursuit by  him of a beneficial calling or the possession by him of an interest in property. While determining the status of  an   individual  for   the  purposes   of  the   tax  on circumstances,  the   total  turnover  of  his  business  or avocation  may   therefore  be   legitimately   taken   into consideration.      It  may   be,  and   is  often  so,  that  the  tax  on circumstances and  property is levied on the basis of income which the  assessee receives  from  his  profession,  trade, calling or property. That is, however, not conclusive on the nature of  the tax.  It is  only as  a matter of convenience that income  is  adopted  as  a  yardstick  or  measure  for assessing the  tax. As  pointed out  in Re a Reference under Govt. of  Ireland Act,  the measure of the tax is not a true test of  the nature of the tax. Therefore, while determining the nature of a tax, though the standard on which the tax is levied  may  be  a  relevant  consideration,  it  is  not  a conclusive consideration.  One  must  have  regard  in  such matters, as  stated by the Privy Council in Governor General in Council v. Province of Madras, not to the name of the tax but to  its real  nature, its pith and substance, which must determine into what category it falls. Applying these tests, the tax  on ’circumstances’  will fall  in the category of a tax on  "a man’s  financial position,  his status taken as a whole and  includes what may not properly be comprised under the term ’property’ and at the same time ought not to escape assessment." This  quotation finds  place in the judgment of Malik C.J. in the Full Bench decision in 10 District Board  of  Farrukhabad.  (supra)  The  formulation, which  the  learned  Chief  Justice  would  appear  to  have extracted from  another source,  since he  has put it within quotes, is  in similar terms as that of this Court in Pandit Ram Narain  v. The  State of  U.P. In  that case an assessee challenged his liability to pay the tax on circumstances and property under  section 14  (1) (f)  of the U. P. Town Areas Act, 1914  on the  ground that  he did not reside within the jurisdiction of  the Town  Area Committee of Karhal and that Rule 3  framed under  section 39 (2) of the Act was invalid. This Court,  after referring  approvingly to the decision in District Board  of Farrukhabad,  (supra) particularly to the statement therein  that the  name given  to a  tax  did  not matter and  that what  had to be considered was the pith and substance of it, observed:      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.      The Full  Bench decision  under appeal  in the  instant case, R.  R. Engineering Co. (supra) has taken the same view of the  nature of  the tax  on circumstances and property by holding that  it is  not a  tax on  income but is a tax on a man’s financial  position, his  status as a whole, depending upon his income from trade or business. Earlier another Full Bench of  the Allahabad High Court had held in Zila Parishad Muzaffrnagar v.  Jugal Kishore that the tax on circumstances and property  is fundamentally  distinct from  and cannot be

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equated with  income tax, that it is not covered by item 82, List I,  Schedule 7,  of the  Constitution and  that  it  is essentially a  tax on  status or financial position combined with a  tax on  property. These decisions correctly describe the nature  of the  tax on  circumstances and  property.  We affirm the view taken therein, especially that the aforesaid tax is not a tax on income.      But even  though the  impugned tax  is  not  a  tax  on income, it is necessary to consider whether it is within the legislative competence  of the State legislature and, if so, under which  entry it  would fall.  The reason  for such  an inquiry is  mainly two-fold:  firstly, even  if the  tax  on circumstances is  within the  legislative competence  of the State legislature,  being referable  to entry  60 of List II which relates  to taxes on professions, trades, callings and employments, it  cannot exceed  the limit of two hundred and fifty rupees  per annum  prescribed by Article 276(2) of the Constitution, unless the proviso to that article 11 is attracted: secondly, if the tax is beyond the legislative competence of  the State  legislature, being a composite tax not liable  to be split up into distinct component parts, it will be  necessary to  examine whether  the tax  is saved by article 277 of the Constitution.      Article  276(1)   of  the  Constitution  provides  that notwithstanding anything  in article  246,  no  law  of  the legislature of  a State relating to taxes for the benefit of the State  or of a municipality, district board, local board or other  local authority therein in respect of professions, trades, callings  or employments  shall be  invalid  on  the ground that  it relates to a tax on income. By clause (2) of that Article, the total amount payable in respect of any one person to  the State  or to  any one  municipality, district board, local  board or other local authority in the State by way  of   taxes  on   professions,  trades,   callings   and employments shall  not exceed  two hundred  and fifty rupees per annum.  The proviso  to this  clause says that if in the financial year  immediately preceding  the  commencement  of this Constitution  there was  in force  in the  case of  any State or  any such municipality, board or authority a tax on professions, trades,  callings or  employments the  rate, or the maximum  rate of  which exceeded  two hundred  and fifty rupees per  annum, such  tax may continue to be levied until provision to  the contrary is made by Parliament by law, and any law  so made  by Parliament may be made either generally or in  relation to  any  specified  States,  municipalities, boards or authorities.      Entry 49 of List II Seventh Schedule, relates to "taxes on lands  and buildings"  while Entry  60 of  the same  list relates to  "taxes  on  professions,  trades,  callings  and employments". Having  already considered  the true nature of the tax on circumstances and property, we are of the opinion that it  is, in  any event  and at  the least,  referable to Entries 49 and 60 of List II. The profession, trade, calling or employment  which a  person pursues  and  the  lands  and buildings which  he  owns  determine  the  status  which  he occupies. The  impugned tax  is a  composite tax  one of its components being  the ’circumstances’  of the  assessee.  By ’circumstances’ is  meant his financial position, his status as a  whole, which  depends, inter  alia, on his income from his lands  and buildings and from his trade or calling. That is the view which was taken by a Full Bench of the Allahabad High Court  in Zila  Parishad, Muzaffarnagar & Anr. v. Jugal Kishore Ram  Swarup and  Anr. (supra).  Broome, J. who spoke for the  court in  that case observed that it was clear from

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the very  nomenclature of the tax that it was of a composite character and consisted of two components: a tax on property and a tax on circumstances. The tax on property was confined to immovable property and 12 fell within  the jurisdiction  of the  State Legislature  by virtue of  Item 49  of the  State  List  while  the  tax  on circumstances, that is to say, status or financial position, meant the  tax  on  man’s  trade,  business,  profession  or employment which was covered by Item 60 of the State List.      This question  was also  considered by  a Special Bench consisting of Five Judges of the Allahabad High Court in The Notified Area Committee and Anr. v. Sri Ram Singhasan Prasad Kalwar. Mr.  Justice S.N. Dwivedi who delivered the Judgment of the  Special Bench  traced  the  entire  history  of  the impugned tax  in reference  to three periods: (1) the period prior to  the 1935  Constitution Act; (2) the period between 1935 and 1950; and (3) the post-Constitution period. After a careful examination  of the  nature of  the tax  the learned Judge summed up the position thus:      To sum  up, the history of the tax on circumstances and      property after  1935 definitely shows that it was not a      distinct and  separate impost.  The Government of India      Act, 1935  and the Constitution treat it as a composite      tax as  its name  suggests.  As  its  constituents  are      already covered  by one  or  the  other  entry  in  the      legislative Lists,  it is  not enumerated as a category      in the Lists as it was enumerated in the White Paper. The conclusion  to which  the Special  Bench came was that a tax on  circumstances and  property is a composite tax, that its components  are varied,  but that two of such components are firstly  a tax  on  trades,  callings,  professions  and employments and  secondly, a  tax on lands and buildings. In coming to  this  conclusion,  reliance  was  placed  by  the learned Judge on the decision of the Supreme Court in Pandit Ram Narain  (supra) and  that  of  the  Full  Bench  in  the District Board of Farrukhabad (supra). But the amplification of the legislative authority which the Special Bench made is significant. It  did not  say as Broome, J. said in the Full Bench decision  in the  Zila Parishad, Muzaffarnagar (supra) that the tax on circumstances and property is referable only to two  entries in  List  II  namely,  Entries  49  and  60. According to  the Special  Bench, the tax was wide enough to cover certain  other items  in List  II, like  Item 58 which relates to  "taxes on  animals and  boats". We  are  of  the opinion that  the Special  Bench was right in coming to this conclusion. Accordingly,  we affirm its view that the tax on circumstances and  property is  referable to items 49 and 60 of List II of the Seventh Schedule, and amongst other items, to item  58 of  that List.  The  validity  of  the  tax  has therefore to be upheld. 13      While doing  so, we  would like  to  utter  a  word  of caution. The fact that one of the components of the impugned tax, namely,  the component  of ’circumstances’ is referable to other  entries in  addition to  Entry 60,  should not  be construed as  conferring an  unlimited charter  on the local authorities to impose disproportionately excessive levies on the assessees  who are  subject to  their  jurisdiction.  An excessive levy  on  circumstances  will  tend  to  blur  the distinction  between   a  tax   on  income   and  a  tax  on circumstances. Income  will then  cease to be a mere measure or yardstick  of the  tax and  will become  the very subject matter of  the tax.  Restraint in  this  behalf  will  be  a prudent prescription for the local authorities to follow.

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    All that remains to be done is to express our inability to accept  as correct  the view  taken by  Mr. Justice  R.S. Pathak and  Mr. Justice  M.H. Beg  in R.  R. Engineering Co. (supra) that  by reason  of the  fact that the circumstances and property tax is a composite tax and since the element of ’property’ necessarily enters into that composition, the tax cannot be  identified  as  a  tax  on  professions,  trades, callings or  employments. Our  conclusion that  the  tax  is referable, inter  alia, to entries 49 and 60 of List II must necessarily result  in  the  rejection  of  that  view.  The learned Judges  were of  the  opinion,  with  which  we  are respectfully  unable   to  agree,  that  since  the  tax  on circumstances and  property did  not find  place as an entry expressly enumerated  in any  of  the  three  Lists  of  the Seventh  Schedule,  it  falls  under  the  residuary  entry, namely, Entry  97 of  List I.  On that  basis they held that Article 277  of the Constitution would save the tax since it was within the competence of the Parliament to impose it. In the view  that we  have taken, namely, that the impugned tax falls within  the competence  of the  State  Legislature  by virtue of  entries 49  and 60,  inter alia, of List II, this part of  the reasoning  of the  learned  Judges  has  to  be rejected. It  is unnecessary  and in  fact erroneous to take resort to Article 277 of the Constitution for the purpose of saving the  tax on circumstances and property. The mere name of a  tax does  not bear  on legislative  competence and the absence of express enumeration of a tax by a particular name will not justify the tracing of legislative authority to the residuary entry. What is true in other jurisdictions is true in this  branch of  law also,  namely, that  one  must  have regard to the substance of the matter and not to the form or label. We  may also  mention that in so far as the Town Area Committees are  concerned, Article  277 will  not  save  the impugned tax  since it was levied by the Town Area Committee in pursuance of the power conferred by clause (f) of section 14 of  the Town  Areas Act,  which was introduced by a post- Constitution amendment. We accept the reasoning 14 of Mr. Justice S. N. Dwivedi in The Notified Area Committee, (supra)  by   which  the   Special   Bench   expressed   its disagreement with  the view  taken by the two learned Judges in R. R. Engineering Co (supra) in regard to the application of Article  277 on  the basis  that the  residuary entry  is attracted.      For these  reasons we uphold the validity of the tax on circumstances and  property in  both the appeals and dismiss the appeals with costs. P.B.R.                                    Appeals dismissed. 15