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PETITIONER: SPENCER & CO.

       Vs.

RESPONDENT: STATE OF MYSORE & OTHERS

DATE OF JUDGMENT27/04/1971

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) MITTER, G.K. VAIDYIALINGAM, C.A. REDDY, P. JAGANMOHAN DUA, I.D.

CITATION:  1971 AIR 1321            1971 SCR  502

ACT: City of Bangalore Municipal Corporation Act, 1949 as amended by  City of Bangalore Municipal Corporation Act,  1964,  ss. 98,  99 and 100--Levy of property tax-Vacant land  taxed  at uniform  rate  on market value of  land--Provisions  whether discriminatory-Whether  procedure in s. 98 relating to  levy of new tax ought to have been followed.

HEADNOTE: The  appellant  company  owned a hotel  at  Bangalore.   The vacant  land  appurtenant to the building was used  for  the beneficial  enjoyment of the building as gardens and  lawns. Under  s.  99(2)  (b) of the  City  of  Bangalore  Municipal Corporation Act, 1949 as amended in 1964 land appurtenant to a  building  not exceeding thrice the area occupied  by  the building was to be taxed as a part of the building, land  in excess  of that limit was to be taxed at a uniform  rate  of 0.4  per cent of its market value.  A notice was  issued  to the appellant on March 20, 1966 demanding tax on the  vacant land  in  excess of thrice the area occupied  by  the  hotel building.   The  appellant challenged the levy in  the  High Court  but  its petition under Art. 226 was  dismissed.   In this Court the questions that fell for considerations  were: (i)  whether for the reasons canvassed by the appellant  the tax was discriminatory; (ii) whether the levy was invalid on the ground that the procedure in s. 98 for the levy of a new tax had not been followed. HELD:     (i) The Act is not discriminatory.  The scheme  of the  Act  is  that the market value of  the  land  is  first ascertained  and  then the tax at 0.4 per  cent  is  levied. Under sub-s. (3) of s. 99 the Commissioner has to  determine the market value of the land and sub-s. (3) of s. 100  gives guidance  as  to how to determine the market  value  of  the land.  The expressions ’estimated value’ and the word ’area’ in s. 100(3), are not vague.  In the context of  determining the  market  value  of  the land,  which  has  a  well-known connotation  the  Commissioner is directed to  look  at  the lands  in the area of the land which is being assessed.   In the  context be can only look at lands which  are  similarly situate  and  are  similar  in nature  to  the  lands  being

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assessed,  and the area must mean the locality in which  the land  is  situate and the extent of the  locality  would  be determined   by  the  well-known  characteristics  such   as commercial  area, residential area or factory area etc.   In other words the sub-section is drawing the attention of  the Commissioner to the well-known principle, which is  followed in assessing the market value, that lands similarly  situate and of similar potentiality should be taken as exemplars. (ii) This  Court has held that the State  legislatures  have power to levy property tax by assessing the market value  of it  and  levying  a  percentage on it.   If  all  lands  are assessed to the same rate of taxation it cannot be held that there  is per se any discrimination.  Market value  of  land always  bears  a  definite relationship  to  the  actual  or potential  income being derived or derivable from  the  land and there cannot be any objection to a levy at uniform  rate on market value.  Moopil Nair’s case where no attention  was paid at all to income of the land was therefore distinguish- able. 503 Kunnathat Thathunni Moopil Nair v. State of Kerala, [1961] 3 S.C.R. 77, 91 and State of Kerala v. Haji K. Kutty, [1969] 1 S.C.R.. 645, distinguished. (iii)     No  discrimination can be said to result from  the fact  that  land  appurtenant to a  building  not  exceeding thrice  the area occupied by such building has been  treated as a part of the building and taxed as such whereas land  in excess of thrice the area of a building and other lands  not appurtenant  to buildings have been  classified  separately. In cities like Bangalore where land is scarce, excessive use of land as gardens and grounds is not in the public interest and  the  legislature can validly tax the excess land  on  a different  and  higher basis.  It may in a  particular  case cause  hardship  but the legislature cannot  be  denied  the right  to classify the lands in such a manner.  Three  times the  area occupied by a building is not a small area and  it cannot be held that this figure is not reasonable. It  was not necessary to specify as to which land  would  be treated  as  surplus because the idea is to tax  the  excess land  being  used for a particular building  and  such  land would be located in a block. (iv) It was not necessary to have followed the procedure  in s.  98 of the Act to levy the impugned tax.  The lands  were being  assessed  to property tax even before  the  1964  Act either separately or as part of the building.  It could  not be  said that the tax was being imposed for the  first  time within the meaning of s. 98.

JUDGMENT: CIVIL APPELLATE JURISDICTION Civil Appeal No. 1852 of 1967. Appeal  by special leave from the judgment and  order  dated March 28, 1967 of the Mysore High Court in Writ Petition No. 704 of 1966. R. B. Datar, for the appellant. A. R. Somnath Iyer and S. P. Nayar, for respondent No. 1. Rameshwar Nath, for respondent No. 2. The Judgment of the Court was delivered by Sikri C. J This appeal by special leave is directed  against the  judgment  of the High Court of  Mysore  dismissing  the prayer for a declaration of the invalidity of s. 99(2)(b) of the  City  of  Bangalore Municipal  Corporation  Act,  1949- hereinafter referred to as the Corporation Act-as amended by the City of Bangalore Municipal Corporation (Amendment) Act,

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1964-hereinafter referred to as the 1964 Act. By  its judgment dated March 28, 1967 the High Court gave  a limited relief to the appellant in respect of the notice No. 4606  dated March. 31, 1966 issued by the Assistant  Revenue Officer,  Corporation  of  Benglore, to  the  appellant  and quashed  it to the extent it related to the period  anterior to, the date of notice. 504 The following points were urged before the High Court               "(1)  The new provision, section  99(2)(b)  of               the   Corporation  Act,  introduced   by   the               amending   Act  is  beyond   the   legislative               competence of the State Legislature.               (2)   The  said provision is violative of  the               fundamental   rights   of   the    petitioners               guaranteed  under Articles 14 and 19(1)(f)  of               the Constitution.               (Note  :  The  case of  alleged  violation  of               Article  19  (1)(f), it is  conceded,  is  not               available  to the petitioner in writ               Petition 704 of 1966 which is an  incorporated               Company.)               (3)   The  Corporation has omitted to  observe               the procedure prescribed by section 98 of  the               Corporation Act, and cannot therefore levy the               tax."               Two other points were raised with which we are               not concerned. The learned counsel for the appellant, in view of our  deci- sion  in  Assistant Commissioner of Urban Land  Tax  v.  The Buckingham  & Carnatic Co.,(1) has not pressed point  No.  1 before  us.  In order to appreciate the other points  it  is necessary to set out a few facts. The  appellant company are the proprietors of the  West  End Hotel,  Race  Course Road, Bangalore.  The premises  of  the hotel  comprises a total extent of 19.43 acres or  11,19,168 sq.  ft. out of which the building area is 1,05,683 sq.  ft. The  entire  vacant  land,  excluding  the  built  area  and appurtenant thereof is being made use of for the  beneficial enjoyment  of the building in the area as garden and  lawns. Pursuant   to  the  powers  conferred  upon  the   Municipal Corporation  of  Bangalore  under the  Corporation  Act,  as amended  by  the  1964  Act, to levy tax  on  the  basis  of estimated market value of lands, a notice was issued to  the appellant on March 30, 1966 demanding a sum of Rs. 35,717.20 as tax on vacant land.  It was stated in the notice that the vacant land, over and above the limit, measuring 89,293  sq. yds. is assessed at 0.4% of the market value, plus Education Cess,  plus  Health  Cess with effect from  April  1,  1965. Property tax was also demanded on the building of the  hotel but no question arises in this case as to its validity.  The High  Court expressly stated that they were  excluding  from consideration in this case all contentions of the  appellant relating to property tax on buildings. and the appellant was (1)  [1970] 1 S. C. R. 268. 505  left  to pursue his normal remedies under  the  Corporation Act regarding the property tax on buildings. Objections were filed on behalf of the appellant before  the Commissioner.   The  appellant also filed  a  writ  petition under  art. 226 of the Constitution challenging s.  99(2)(b) of  the  Corporation  Act, as amended by the  1964  Act,  as unconstitutional and void and prayed for other consequential reliefs. We  may now set out the relevant provisions of the  Corpora-

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tion Act, as amended by the 1964 Act.  Part III Chapter V of the Corporation Act deals with taxes.  Section 97 enumerates taxes  and duties which the Corporation may levy and one  of the  taxes enumerated therein is "a property tax".   Section 98(1)  requires  that  before  the  corporation  passes  any resolution  imposing  a tax or duty for the  first  time  it shall  direct  the commissioner to publish a notice  in  the Official Gazette and fix a reasonable period not being  less than  one month from the date of publication for  submission of  objections.  The sub-section further provides  that  the Corporation  may after considering the objections,  if  any, received  within the period specified, determine by  resolu- tion  to  levy  the tax or duty and  such  resolution  shall specify  the  rate  at which, the date from  which  and  the period of levy, if any, for which such tax or duty shall  be levied.   Sub-s.  (2)  of  s. 98  provides  that  "when  the corporation  shall have determined to levy any tax  or  duty for the first time or at a new rate, the commissioner  shall forthwith  publish a notice in the manner laid down in  sub- section  (1)  specifying the date from which,  the  rate  at which and the period of levy, if any, for which such tax  or duty  shall  be levied." Sub-sections (3) and  (4)  are  not relevant for our purpose.               Section 99(1) reads as under:               "If the corporation by a resolution determines               that a property tax shall be levied, such  tax               shall  be  levied on all buildings  and  lands               within  the  city save those  exempted  by  or               under this Act or any other law."               sub-section (2) of s. 99, provides               "(2)  save as otherwise provided in this  Act,               the property tax shall be levied,--               (a)   in   the  case  of  buildings  at   such               percentages, not being less than ten per               cent and not more than twenty per cent of  the               annual value of such buildings as may be fixed               by the Corporation:               Provided  that the percentage to be fixed  may               be   different   for  different   classes   of               buildings.               506               (b)   in the case of any land at 0.4 per  cent               of the market value of the land:               Provided that the tax levied on any such  land               shall not be less than rupees ten per annum.               Explanation.-For  purposes  of  this  section,               ’building  includes  any land  appurtenant  to               such  building used as garden and grounds  for               the   more   beneficial  enjoyment   of   such               building,   not  exceeding  thrice  the   area               occupied by such building."               Sub-section (3) of s. 90 reads:               "(3)   For  the  purposes  of  assessing   the               property tax the annual value of any  building               or  the  market  value of the  land  shall  be               determined by the Commissioner:               Provided that the annual value of any building               or  the market value of the land the  tax  for               which is payable by the commissioner shall  be               determined by the mayor."               Section  100(1) provides that  every  building               shall  be assessed together with its site  and               other    adjacent   premises    occupied    as               appurtenances thereto unless the owner of  the               building is a, different person from the owner

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             of such site or premises.  Sub-section (2)  of               s. 100 provides:               "The  annual  value  of a  building  shall  be               deemed  to be the gross annual rent  at  which               such  building may at the time  of  assessment               reasonably  be expected to let from  month  to               month  or from year to year, less a  deduction               of 16 2/3 per cent of such annual rent and the               said  deduction  shall  be  in  lieu  of   all               allowance for repairs or on any other  account               whatever...... (proviso omitted)." Sub-section  (3)  provides that "the market value  of  lands shall  be determined in accordance with the estimated  value at the time of assessment of such lands in the area in which such lands are situate." It is contended that the tax on vacant land is violative  of Art.  14 of the Constitution because (i) it is levied at  an average rate without any relation to the actual or potential income  of  the  land; (ii) the manner  of  determining  the market    value   was   discriminatory,   and   (iii)    the classification  of  vacant land and land’ appurtenant  to  a building  is discriminatory.  The learned councel relied  on the decision of this Court in Kunnathat Thathunni  507 Moopil  Nair  v.  The  state  of  Kerala(1).   It  will   be remembered  that the charging section in that case was s.  4 of  the Travancore-Cochin Land Tax Act, 1955, which read  as follows:               "4.  Subject  to the provisions of  this  Act,               there  shall be charged and levied in  respect               of  all  lands  in  the  State,  of   whatever               description and held under whatever tenure,  a               uniform  rate  of tax to be called  the  basic               tax."               Our  attention  was  drawn  to  the  following               passage in Chief Justice Sinha’s judgment:               "It  is common ground that the  tax,  assuming               that  the Act is really a taxing  statute  and               not  a confiscatory measure, as  contended  on               behalf of the petitioners, has no reference to               income,  either actual or potential, from  the               property    sought   to   be    taxed.........               Ordinarily,  a tax on land or land revenue  is               assessed  on  the  actual  or  the   potential               productivity  of the land sought to be  taxed.               In  other words, the tax has reference to  the               income actually made, or which could have been               made,  with due diligence, and, therefore,  is               levied with due regard to the incidence of the               taxation.  Under the Act in question we  shall               take  a  hypothetical  case  of  a  number  of               persons owning and possessing the same area of               land.   One  makes nothing out  of  the  land,               because  it  is arid desert.  The  second  one               does not make any income, but could raise some               crop after a disproportionately large  invest-               ment  of labour and capital.  A third one,  in               due  course of husbandry, is making  the  land               yield  just enough to pay for  the  incidental               expenses  and labour charges besides land  tax               or  revenue.   The  fourth  is  making   large               profits, because the land is very fertile  and               capable  of yielding good crops.   Under,  the               Act, it is manifest that the fourth  category,               in  our illustration, would easily be able  to

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             bear the burden of the tax.  The third one may               be  able to bear the tax.  The first  and  the               second  one  will have to pay from  their  own               pockets,  if  they could afford the  tax.   If               they  cannot afford the tax, the  property  is               liable to be sold, in due process of law,  for               realisation  of  the  public  demand.   It  is               clear,  therefore,  that  inequality  is  writ               large  on the Act and is inherent in the  very               provisions of the taxing section.  It is  also               clear   that   there   is   no   attempt    at               classification in the provisions of the Act.".               (1)   [1961] 3 S. C. R. 779 91. 508 We  are  unable to hold that the impugned Act  is  discrimi- natory.   The scheme of the Act is that the market value  of the  land is first ascertained and then tax at 0.4 per  cent is  levied.  Under sub-s. (3) of S. 99 the Commissioner  has to  determine  the  urged by the learned  counsel  that  the expression  "estimated  as to how to  determine  the  market value of the land.  It was urged by the learned counsel that the  expression  "estimated value" and the word  "area"  are very  vague.   We  are  unable to agree  with  him  in  this respect.  In the context of determining the market value  of the   land,   which  has  a  well-known   connotation,   the Commissioner is directed to look at the lands in the area of the  land  which is being assessed.  In the context  he  can only look at the lands which are similarly situate, and  are similar in nature to the lands being assessed, and the  area must  mean the locality in which the land being assessed  is situate  and the extent of the locality would be  determined by  the well-known characteristics such as commercial  area, residential  area or factory area, etc.  In other words  the sub-section is drawing the attention of the Commissioner  to the well-known principle, which is followed in assessing the market value, that lands similarly situate and    of similar potentiality should be taken as exemplars. The next question that arises is whether fixing property tax at     0.4 per cent is itself discriminatory. We are  unable to   see  how this is discriminatory.  This Court  has  held that the  State legislatures have power to levy property tax by assessing the    market   value  of  it  and  levying   a percentage on it.  If all lands are     assessed to the same rate  of taxation we are unable to see how there is  per  se any discrimination.  The facts in Kunnathat Thathunni Moopil Nair v. The State of Kerala(1) were quite different.   There no  attention  was paid at all to the income of.  the  land. Here  it is true that income of the land is not  taken  into consideration and instead market value is the basis of taxa- tion  But  market  value of land  always  bears  a  definite relationship to the actual or potential income being derived or derivable from the land and there cannot be any objection to a levy at uniform rate on the market value. Reference was made to the decision of this Court in State of Kerala  v.  Haji K. Kutty(2).  There the  facts  were  again quite different.  The legislature adopted the floor-area  of the  building as the basis of tax irrespective of all  other consideration.  The market value of the property stands on a different footing because, like income, the market value  of property  is  one of the indices of the  benefit  which  the owner derives or can derive from It and the very concept  of market  value  takes,  into  account  the  present  or   the potential income and other relevant considerations. (1) [1961] 3 S. C. R. 77. (2) (1969) 1 S. C. R. 645

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509 It was next contended that the classification of vacant land is  discriminatory.   While land appurtenant to  a  building used  as  garden  and as grounds  for  the  more  beneficial enjoyment  of such building, not exceeding thrice  the  area occupied by such building, has been treated as a part of the building  and  taxed as such, land in excess of  thrice  the area  of  a  building and other  lands  not  appurtenant  to buildings  have  been classified  separately.   The  learned counsel said that the distinction is artificial as the  land in  excess  of thrice the area of a building is  also  being used for the same beneficial enjoyment of the building.   It seems  to  us that in cities like Bangalore, where  land  is scarce, excessive use of land as gardens and grounds is  not in  the public interest and the legislature can validly  tax the excess land on a different and higher basis.  It may  in a particular case cause hardship but the legislature  cannot be denied the right to classify the lands in such a  manner. Three  times the area occupied by a building is not a  small area  and  we  are unable to hold that this  figure  is  not reasonable. It  was said that the Act did not give any indication as  to which land would be treated as surplus but in our view it is nit  necessary to specify the lands because the idea  is  to tax the excess land being used for a particular building and as  this  land  would  be located in  a  block  it  was  not necessary to specify the land. The  last point urged before us was that this was a new  tax and  the  procedure  prescribed in s. 98  should  have  been followed.  We are unable to hold that it is a new tax.   Tax was being levied before the 1964 Act.  The lands were  being assessed  to property tax even before the 1964  Act,  either separately  or as part of the building.  We cannot say  that this  tax  is being imposed for the first  time  within  the meaning of s. 98. In  the result the appeal falls and is dismissed but in  the circumstances there will be no order as to costs. G.C.                         Appeal dismissed. 510