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PETITIONER: STATE OF PUNJAB & ANOTHER

       Vs.

RESPONDENT: BRITISH INDIA CORPORATION LTD.

DATE OF JUDGMENT: 15/02/1963

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS DAS, S.K. SARKAR, A.K. AYYANGAR, N. RAJAGOPALA

CITATION:  1963 AIR 1459            1964 SCR  (2) 114  CITATOR INFO :  R          1968 SC 919  (11)  RF         1977 SC2425  (5)

ACT: Property Tax--Exemption--"Used for the purpose of a factory" and "Rent "--Meaning of--Punjab Urban Immovable Property Tax Act, 1940 (Pb. 17 of 1940), ss. 3, 4--Punjab Urban Immovable Property Tax   Rules ,1941 ,r. 18.

HEADNOTE: The property involved in the first appeal was a set of rooms used  for indoor games by the mill employees, one  big  hall used  as  the  Gurkha Guards Club, a set of  rooms  used  as Officers’  Club  and  a set of  rooms  used  as  residential quarters by workers of the mills.  The property involved  in the  second appeal consisted of 200 quarters which had  been allotted to the workers of the factory for their occupation. The question was whether these properties were exempted from taxation under s.   4 of the Punjab Urban Immovable Property Tax Act, 1940  115 or not.  The assessing Authority held that these  properties were liable to taxation.  Appeals against the orders of  the Authority  were rejected by the Deputy Excise  and  Taxation Commissioner.   The respondents moved the High  Court  under Art. 226 of the Constitution for getting the orders quashed. The High Court held in both cases that the petitioners  were entitled  to exemption prayed for and quashed the orders  of assessment.  The State of Punjab came to this Courts against the order of the High Court. Held,  that  no  tax was leviable  under  the  Punjab  Urban Immovable  Property  Tax  Act.  1940,  in  respect  of   the buildings in the two appeals and the High Court had  rightly quashed the orders of assessment.  In the first appeal,  the buildings were allotted for the use of workmen and that  was a purpose which was necessary for the efficiency of workmen. In the second appeal also, the allotment of 200 quarters was necessary for the welfare and efficiency of workmen.   Hence it  must be held that the buildings were being used for  the purposes of a factory.  Just as the use of a building for  a

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purpose which maintains the efficiency of the machines is  a user for the purpose of a factory, so also is the user of  a building  for  the purpose of providing something  which  is necessary for maintaining the efficiency of workers.   Where a  building  is  used for a purpose which  the  Factory  Law requires  must  be fulfilled in order that the  factory  may function, that user is also for the purpose of a factory. Held, also, that the word "rent" in cl. (ii) of r. 18 (4) of the Punjab Urban Immovable Tax Rules, 1941, means payment to a landlord by a tenant for the demised property and does not include payments made by licensees. London   Co-operative   Society  Ltd.  v.   Southern   Essex Assessment Committee, [1942] 1 K. B. 53, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 639 of 1961. From  the judgment dated August 4, 1960 of the  Punjab  High Court  at  Chandigarh in Letters Patent Appeal  No.  186  of 1957.                             AND              Civil Appeal No. 287 of 1962. 116 From the judgment and order dated September 7, 1960, of  the Punjab  High Court at Chandigarh, in Civil Writ No.  216  of 1958. S.   M. Sikri, Advocate-General of Punjab, N.     S.  Bindra and P.  D. Menon, for the appellants. Bhagirath Das and B. P. Maheshwari, for respondent (In C. A. No. 639/61). A.   V. Viswanatha Sastri, O. P. Malhotra, O.     C. Mathur, J. B. Dadachanji and Ravinder Narain, for the respondent (in C. A. No. 287/62). 1963.  February 15.  The judgment of the Court was delivered by DAS  GUPTA J.-These two appeals raise the  question  whether certain  buildings belonging to the Respondent  the  British India  Corporation  Ltd., in one appeal and  the  respondent Shri Gopal Paper Mills Ltd., in the other appeal, are liable to  taxation under the Punjab Urban immovable  Property  Tax Act,  1940.  The buildings in both these cases are  situated in  the  rating area shown in the Schedule to  the  Act  and would  consequently be liable to taxation under s. 3 of  the Act  unless  the exemption provided in s. 4 of  the  Act  is available.  That section provides that the tax shall not  be levied in respect of the properties mentioned in cls. (a) to (g) thereof.  Clause (g) mentions "such buildings and  lands used  for  the purpose of a factory as may  be  prescribed." "Prescribed"  has been defined as ’prescribed by  the  rules made  under the Act.’ Rule 18 of the Punjab Urban  Immovable Property   Tax  Rules,  that  were  framed  by  the   Punjab Government in 1941, prescribed buildings ’and lands for  the purpose of cl. (g) of s. 4. The  Assessing Authority rejected the claims  for  exemption made by the respondents and assessed  117 the  buildings for the purpose of taxation.  The appeals  to the   Deputy   Excise   and   Taxation   Commissioner   were unsuccessful.   The respondents then moved the  Punjab  High Court  under Art. 226 of the Constitution praying  that  the order of the Taxation Commissioner be -quashed.  In both the cases the High Court held that the petitioners were entitled to  the  exemption  prayed for and  quashed  the  orders  of assessment.   The  question in these  appeals  therefore  is

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whether  the  High  Court was right in  its  view  that  the buildings of the respondents come within the class which has been prescribed for exemption by Rule 18 of the Punjab Urban Immovable Property Tax Rules, 1941.  The relevant portion of this  Rule, which has been altered from time to time,  stood thus in 1956 when the assessment order was made :- " 18. (1) Under the provisions of clause (g) of  sub-section (1) of s. 4 of the Act, all buildings and lands used for the purpose of a factory, which are owned by the proprietors  of such   factory,  shall  be  exempt  from  the  tax,   if   a manufacturing  process involving the use of power  is  being and  has been carried on therein for a continuous period  of six  months, or in the case of a seasonal factory since  the commencement of the working season.                ............................. (4) The exemption provided by sub-rules (1) and (2) shall not extend to- (i)godowns outside the factory compound; (ii)godowns,  shops,  quarters or other  buildings,  whether situated  within or without the factory compound, for  which rent is charged either from employees of the factory or from other persons; and 118 (iii)     bungalows  or houses intended for or  occupied  by the  managerial           or superior staff whether  situate within or without the factory compound." There  is  a proviso to sub.rule (1) with which we  are  not concerned.  We are also not concerned with sub-rules (2) and (3) of Rule 18. The  effect  of  this  Rule  therefore  is  that   buildings belonging  to  the proprietors of the factory will  get  the benefit  of  exemption from taxation under s. 4 of  the  Act provided  three conditions are satisfied : (1) the  building must  be used for the purpose of a factory; (2) the  factory must be one where a manufacturing process involving the  use of  power is being and has been carried on for a  continuous period  of six months; and (3) (a) no rent is being  charged for  the  buildings;  (b) it is not  a  godown  outside  the factory  compound,  or  (c) it is not a  bungalow  or  house intended  for  or  occupied by the  managerial  or  superior staff.   In  the present case there is no dispute  that  the second  condition was satisfied, viz., that the factory  was one  in  which manufacturing process involving  the  use  of power  was  being and had been carried on for  a  continuous period of six months.  Admittedly, also the building was not a godown outside the factory compound nor was it a  bungalow or  house  intended  for or occupied by  the  managerial  or superior staff.  The controversy is limited thus only to two questions. (1) Whether the building was used for the purpose of a factory and (2) whether rent was being charged for it. Before we examine the facts of the two cases for solving the controversy we have to arrive at the correct  interpretation of  the  words "used for the purpose of a factory"  and  the word "rent" in the Rule. It  is neither necessary nor desirable to attempt to  define what amounts to "’use for the purposes of  119 a  factory." That the legislature left this undefined  is  a good indication that the intention of the legislature was to have  the  question decided, in any case  where  controversy arises over it, on a consideration of the facts of the case. It  appears to us to be reasonable to think,  however,  that two  principles will be easy of application in the  solution of tile problem in the majority of cases.  One is that where the  building  is used for a purpose which the  factory  law

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requires  must  be fulfilled in order that the  factory  may function,  that will be user for the purpose of  a  factory. The other is that where the user of the building is such  as is  necessary for the efficiency of the machines or  of  the workmen  engaged in the factory the building should be  held to be used for the purpose of a factory. The  5th  Chapter  of the factories  Act  contains  numerous provisions  for  the  welfare of  workmen  employed  in  the factory.   Section  42 requires that adequate  and  suitable facilities for washing shall be provided and maintained  for the  use of the workers in every factory.  It  empowers  the State Government to prescribe standards of the facilities to be  provided.  Section 43 empowers the State  Government  to make rules in respect of any factory or class or description of factories requiring the provision "of suitable places for keeping  clothing not worn during working hours and for  the drying  of  wet  clothing." Section 46  empowers  the  State Government  to  make rules requiring that in  any  specified factory wherein more than two hundred and fifty workers  arc ordinarily employed, a canteen or canteens shall be provided and maintained by the occupier for the use of the workers. Section  47  requires that in every factory  employing  more than  one hundred and fifty workers "adequate  and  suitable shelters  or  rest  rooms and a suitable  lunch  room,  with provision  for drinking water, where workers can  cat  meals brought by them shall be provided and maintained for the use of the workers.’ 120 Section  48  requires  the provision and  maintenance  of  a "’suitable  room or rooms for the use of children under  the age  of six years of such women" employed in the factory  if more  than fifty women are employed ordinarily.  Section  92 makes  the  contravention. of any of the provisions  of  the Factory  Act or of any Rule made thereunder or any order  in writing  given  thereunder punishable with  imprisonment  or fine. It is obvious therefore that in . order, that a factory  may function  in  accordance  with law  buildings  or  parts  of buildings  have to be provided by the owner for the  use  of the  workmen  for  the purposes  mentioned  in  the  several sections mentioned above.  Such use of these buildings  must therefore be held to be "’use for the purpose of a factory." Advances  in scientific knowledge as to how  the  industrial efficiency  can  be improved have made it  clear  that  even other  facilities and amenities,. other than those  required by the factory legislation, conduce in a great measure to  a rise  in  the efficiency of the industrial worker  and  that some  of these arc indeed necessary to the maintenance of  a proper  standard of efficiency.  Many enlightened  employers of  labour,  taking  a long view of  things  have  therefore invested  considerable sums; of money for the  provision  of such  facilities and amenities even though not  required  by law  and  have  raised buildings for that  purpose’  In  our opinion,  the  use of buildings for the  provision  of  such facilities   and  amenities  which  are  necessary  to   the maintenance  of  a  proper standard  of  efficiency  of  the factory  workers  must  also be held to  be  "’Use  for  the purpose  of  a factory." The learned  Advocate-General,  who appeared for the State of Punjab, readily agreed that when a building  is provided for the use of the machinery in  order that  the machinery may function efficiently or that it  may not  deteriorate,  the  building is  being  used  "’for  the purpose of a factory".  He is reluctant  121 however  to apply a similar rule to a building used for  the

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purposes of maintaining the efficiency of the men ;go-- work the machinery.  We are unable to see any reasonable  "ground for this differentiation. just as the use of a building  for a purpose which maintains the efficiency of the- machines is a  user  for  the  purpose of a factory,  so  also,  we  are convinced, is the user of a building for the purpose of pro- viding  something  which is necessary  for  maintaining  the efficiency of the workers. A  large number of cases were cited at the Bar to  show  how the  English  courts have understood the  words  "industrial purpose" or "purpose other than the manufacturing process or handicraft carried on in the factory" in connection with the Rating  and Valuation (Apportionment) Act, and  the  Factory Act  1901.  No useful purpose will be served  by  discussing all  these  cases as the schemes of those Acts  are  largely different  from our Act.  We shall refer only,  however,  to the  decision  in  London  Co-operative  Society  Ltd.,   v. Southern  Essex  Assessment Committee (1), to  indicate  the tendency  of  the  English courts in more  recent  times  to attach  importance to what is necessary for the welfare  and efficiency of the workers in deciding the question. There was a place of refreshments for persons employed in  a laundry  which was, qualified as a factory and workshop  and therefore  was an "’industrial hereditament".  The  question was whether this refreshment place was ,solely used for some purPose other than the manufacturing process or  handicraft, carried  on in the laundry".  The Kings Bench answered  this question  in the negative.  Viscount Caldecote, C.  J.  said that applying the up-to-date considerations in the equipment and  layout of a factory, the Canteen was not a place  which was  "solely  used  for some purpose other  than  the  manu- facturing process or handicraft carried on in the - (1)  [1942] 1 K.B. 53, 122 laundry."  His Lordship observed that  these  considerations might  assist  in  the determination  of  the  character  of parts  .  of  a factory like--a lavatory, or  a  room  where surgical first aid is provided or a cloakroom or a number of other  parts  of the hereditament.  Tucker J.  agreed-  with this conclusion and observed :- ((The  element which, to MY mind., is decisive is  that  the facts  stated  show  that  the  canteen  was  necessary  and essential  for  the welfare and efficiency  of  the  workers engaged  in  the admittedly industrial part  of  the  under. taking." For applying the two principles mentioned above to the facts of  these two appeals we have to ascertain to what  use  the property in question has been put.  In the first appeal ( In which the British India Corporation Ltd. is the  respondent) we are concerned -with four units : (1) A set of rooms  used for  indoor  games by the mill employees; (2) One  big  hall used  as the Gurkha Guards Club; (3) A set of rooms used  as officers  Club, and (4) A set of rooms used  as  residential quarters by workers of the mills. In our opinion, the allotment of these buildings for the use of the workmen was made for a purpose which was necessary to the efficiency of the workmen. The  property  assessed in the other appeal (in  which  Shri Gopal  Paper Mills Ltd., is the respondent) consists of  200 quarters which have been allotted to workers of the  factory for  their  occupation.  The provision of such  quarters  is clearly  necessary  to  the welfare and  efficiency  of  the workmen  and  it  must be held that in this  case  also  the buildings were being used for the purpose of a factory.  123

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The next question is : what is the meaning of "rent" in  cl. (ii)  of  Rule 18 (4).  In its wider sense  rent  means  any payment  made  for  the use of land or  buildings  and  thus includes the payment by a licensee in respect of the use and occupation  of any land or building.  In its narrower  sense it  means  payment made by tenant to landlord  for  property demised   to  him.   Did  the  rule-making  authority   when providing  that the exemption provided by sub.rules 1 and  2 of Rule 18 shall not extend to quarters and other  buildings for  which  "rent" is charged, used the word  in  its  wider sense  or  in its narrower sense?  In seeking an  answer  to this  question  it is legitimate to examine the use  of  the word "rent" in the Act for which these rules were made.   At the time the rules were first made in 1941 the Act used  the word "rent" only in two sections.  First, in s. 5, where  in providing how the annual value of land or building shall  be ascertained   the   legislature  said  that  it   shall   be ascertained  "by estimating the gross annual rent  at  which such land or building ..................... might reasonably be  expected  to let from year to year.   It  is  absolutely clear  that here the word "rent" is used in its  strict  and narrower sense of payment by tenant to landlord for  demised property.  The other section where the word "rent" occurs is s. 14, where in providing for recovery of tax in arrears the legislature  said : ..........  it shall be lawful  for  the prescribed authority to serve upon any person paying rent  ...............  to the person from whom  the  arrears are due, a notice stating the amount of such arrears of  tax and  requiring  all future payments of rent  by  the  person paying  the  rent  to  be  made  direct  to  the  prescribed authority and also providing that such notice shall  operate to  transfer  to  the  Prescribed  authority  the  right  to recover, receive and give a discharge for such rent".  While the  section  itself  leaves it doubtful  whether  the  word "rent" has been used in the narrower or the wider 124 sense,  the marginal note describes the  subject-matter  ,of the  section thus : "Recovery of tax from tenants." If  this note  is taken into consideration it becomes clear  that  in this  section also the word "rent" was used in its  narrower sense to mean payment made by tenant to landlord for demised property. When in 1941 the rule-making authority set about framing the Rules, it had before it this clear use of the word "rent" in its  narrower sense in s. 5 and the marginal note in  s.  14 which  was some indication that there also the  word  "rent" was used in the narrower sense.  In the absence of  anything to  indicate the contrary, it would be reasonable  to  think that  the  rule-making authority would not depart  from  the meaning  in  which  it  had  reason  to  believe  that   the legislature had used the word, and that it used the word  in cl.  (ii)  of  Rule 18 (4) in the  same  narrower  sense  of payment by tenant to landlord for demised property. Our conclusion therefore is that the word "rent" in cl. (ii) of  Rule 18 (4) means payment to a landlord by a tenant  for the  demised property and does not include payments made  by licensees. In coming to this conclusion we have not overlooked the fact that there is scope for an argument that in cls. (d) and (e) of  s.  4 of the Act as they stand after the  amendments  in 1954  and 1957, respectively, the word "rent" has been  used in  the wider sense.  Assuming that this is so, such use  of the word in 1954 and 1957 cannot be -taken into account  for the   purpose   of  interpretation,  as   the   Rule   under consideration was framed long before these dates.

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Coming now to the facts of the two cases before us, we  find that  admittedly, in both the cases. the property  that  has been assessed was allowed to be  125 used  by  the  employees on  leave  and  license.   Whatever payment  was  received from them was  not  therefore  "rent" within the meaning of cl. (ii). Our  conclusion therefore is that no tax is  leviable  under the  Punjab  Urban  Immovable property  Tax  Act,  1940,  in respect  of  the buildings in these two appeals.   The  High Court  therefore rightly quashed the orders  of  assessment. The appeals are accordingly dismissed with costs. Appeals dismissed.