12 September 1996
Supreme Court


Bench: SINGH N.P. (J)
Case number: Appeal Civil 799 of 1981






DATE OF JUDGMENT:       12/09/1996


CITATION:  JT 1996 (8)   180



JUDGMENT:                       J U D G M E N T N.P. SINGH, J      These  appeals   have  been  filed  on  behalf  of  the Cantonment Board,  Mathura (hereinafter  referred to  as the ‘Board’) for  setting aside  the judgment  of the  Allahabad High Court,  declaring  notification  dated  22.11.1958,  by which tax  at the  rate of  0.75 p.  per thousand bricks had been fixed  by the  Board  within  the  cantonment  area  as invalid.      The respondent  is the  owner of  a brick  kiln and was carrying on  the business  of manufacturing  and selling  of bricks. A  suit was  filed on  behalf of the said respondent for restraining  the appellant-Board from realising tax from the said  respondent at  the rate  of 0.75  per thousand  of bricks.  It  was  alleged  that  previously  the  Board  was realising the  tax from  the manufacturers  of bricks at the rate of  0.19 per thousand. But by impugned notification, it raised the  rate of  the tax at 0.75 per thousand of bricks. It was  alleged and  asserted that  the  respondent  as  the manufacturer of  bricks was  neither deriving  any advantage from the  Board nor  any service  was being  provided by the Board. As  such, the realisation of the tax at the aforesaid rate was  in contravention and in violation of Section 60 of the Cantonments  Act, 1924  read with Section 128 (1)(ii) of the U.P.  Municipalities Act, 1916. The suit filed on behalf of the  respondent was  dismissed by  the Trial  Court. That judgment was  affirmed by  the Court  of Appeal. However, on second appeal  being filed on behalf of the said respondent, the High  Court came  to the conclusion that the ceiling and restriction imposed  by Article 276 (2) of the Constitution, as applicable  to the  State, any municipal, district board, local board  or other  local authority  within such State in respect of  imposition of  taxes on  professions, trades and callings, was  applicable even  on the  Board which had been established under  the aforesaid  Cantonments Act.  On  that finding the  notification was  declared to  be invalid being



hit by Article 276 (2) of the Constitution.      Section 3  of the  Cantonments Act  provides  that  the Central Government  may, by  notification  in  the  Official Gazette, declare  any place  or places  in which any part of the Forces  is quartered  or which, being in the vicinity of any such place or places, is or are required for the service of such  forces to  be a  cantonment for the purposes of the said Act  and may  by a  like notification, declare that any cantonment shall  cease to  be a cantonment. In view of sub- section  (4)   of  Section  3  Central  Government  may,  by notification in  the Official Gazette, direct that any place declared a  cantonment under  sub-section (1) the provisions of any  enactment relating  to local  self-Government  other than this  Act shall  have effect  only to  such  extent  or subject  to   such  modifications,  or  that  any  authority constituted  under   any  such   enactment  shall   exercise authority only  to such  extent, as  may be specified in the notification. Section 6 provides that when by a notification under Section  3, any  cantonment ceases to be a cantonment, the local area comprised therein shall immediately be placed under the  control of  a local authority, the balance of the cantonment fund  and other  property vesting  in  the  Board shall also vest in such local authority, and the liabilities of the  Board shall  be transferred to such local authority. Similarly, Sections  7 and  8 make  provisions in respect of cantonment fund  and its  property which is placed under the control of  some other  local  authority,  in  view  of  the notification under  Section 4,  because of  which any  local area forming  part of  cantonment ceases  to  be  under  the control of a particular Board. Section 60 of the Cantonments Act provides:      "General power of taxation -      (1)  The   Board  may,   with   the      previous sanction  of  the  Central      Government,    impose     in    any      cantonment any  tax which under any      enactment for  the  time  being  in      force,  may   be  imposed   in  any      municipality in  the State  wherein      such cantonment is situated:      (2)  Any  tax  imposed  under  this      section shall  take effect from the      date of  its  notification  in  the      Official Gazette or where any later      date is specified in this behalf in      the notification,  from such  later      date. Because of  aforesaid Section 60 the Board may with previous sanction of the Central Government impose in any cantonment, any tax  ‘which under  any enactment  for the  time being in force, may be imposed in any municipality in the State where such cantonment  is  situated’.  For  imposing  any  tax  in exercise of  the power under Section 60, two conditions have to be  fulfilled and  complied with  (i)  there  must  be  a previous sanction  of the  Central Government to impose such tax and  (ii) the tax to be imposed must be such which under any enactment  for the time being in force may be imposed in any municipality  in the  State wherein  such cantonment  is situated.      So far  the municipality within any State is concerned, its power  to impose a tax in respect of professions, trades or callings is governed and controlled by Article 276 of the Constitution, which says:      "Taxes  on   professions,   trades,      callings and employments -



    (1)  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.      (2) 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  thousand and      five hundred rupees per annum.      (3) The power of the Legislature of      a State  to make  laws as aforesaid      with   respect    to    taxes    on      professions, trades,  callings  and      employments shall  not be construed      as limiting in any way the power of      Parliament  to   make   laws   with      respect to taxes on income accruing      from or arising out of professions,      trades, callings and employments." There is  a non-obstante  clause in  Article 276  (1) of the Constitution saying  that notwithstanding anything contained in Article  246 no  law made  by 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,  tradings, callings or  employments shall be invalid on the ground that it relates  to a  tax on income. Having said so a ceiling on the amount  of tax has been imposed by Article 276(2), which was Rs.250/-  earlier and  has been  raised to Rs.2,500/- by the Constitution  (Sixtieth Amendment) Act, 1988 with effect from 20.12.1988.  In the case of Bharat Kala Bhandar Ltd. v. Municipal Committee,  Dhamangaon, AIR 1966 SC 249 = 1965 (3) SCR 499 a Constitution Bench in its majority judgment said:           "Before  we  deal  with  these      cases it  is necessary to point out      the rationale upon which S.142-A of      the Govt.  of India  Act, 1935  was      enacted and on which Art.276 of the      Constitution now  rests. It is that      the  legislative   spheres  of  the      Provinces and the Centre came to be      clearly  demarcated  in  regard  to      items falling within Lists I and II      of Schedule  VII of  the  Govt.  of      India Act  and now to those falling      within the  same lists  of Schedule      VII of  the Constitution.  Taxes on      professions. trades.  callings  and      employments are taxes on income and      are thus outside the provincial and      now  State   -  lists   and  belong      exclusively   to   Parliament   and      before   that    to   the   Central      Legislature.  Yet   under  a  large



    number of  laws enacted  before the      Govt. of  India Act, 1935 came into      force, power was conferred on local      Governments and  local  authorities      to impose taxes on such activities.      This was obviously in conflict with      S.100 of  the Govt.  of India  Act.      When this  was realised S.142-A was      enacted by  the British  Parliament      which saved  the power conferred by      pre-existing laws  but limited  the      amount payable  to Rs.50 after 31st      March, 1939.  A  saving  was  made,      however,   of   pre-existing   laws      subject to  certain conditions with      which we  are  not  concerned.  The      provisions  of  this  section  have      been  substantially  reproduced  in      Article  276  of  the  Constitution      with  the   modification  that  the      upper limit of such tax payable per      annum would  be Rs.250  instead  of      Rs.50. A  tax can be recovered only      if it  is ‘payable’ and it would be      payable only  after it is assessed.      It is, therefore, futile to contend      that  the   ban   placed   by   the      aforesaid provisions  extends  only      to recoveries and not to an earlier      stage.                      (emphasis supplied)      ...................................      We may  further observe  that where      there is  an express prohibition in      a statute against a local authority      from  imposing   a  tax,   as   for      instance,  the   recovery  in   the      Statute construed  by this Court in      the    Poona     City     Municipal      Corporation case,  C.A.  No.582  of      1961, dated  5-5-1964: (AIR 1965 SC      555) (supra) or where a prohibition      can be implied - whether it be with      regard to  an item  of taxation  or      with regard  to the  rate of tax or      the quantum  of tax  payable by  an      individual assessee - the action of      a local  authority or of any of its      instrumentalities in  transgressing      that prohibition  must be  regarded      as   being   in   excess   of   its      jurisdiction.  Here   there  is   a      prohibition  in   S.142-A  of   the      Government of  India Act and now in      Art.276 of  the Constitution, which      precludes a  State Legislature from      making  a   law  enabling  a  local      authority  to   impose  a   tax  on      "professions, trades,  callings and      employments" in  excess  of  Rs.250      per annum. These provisions have to      be read  in the Act or to be deemed      by implication  to be  there as the      Constitution is  the paramount  law      to which all other laws are subject



    as was the Government of India Act,      1953 before  January 26,  1950. If,      therefore, after the date specified      in S.142-A  of  the  Government  of      India Act or after the commencement      of   the   Constitution   a   local      authority    or    any    of    its      instrumentalities    imposed     or      imposes a tax which is in excess of      the permissible amount, it would be      exceeding its  jurisdiction  and  a      provision like  S.84(3) of  the Act      will not  bar the jurisdiction of a      civil Court  to  entertain  a  suit      instituted by a person from whom it      is collected  for the  repayment of      the money  recovered  from  him  in      excess    of     the    permissible      amount.............................      Here since  the  Assessing  Officer      had no  authority  to  levy  a  tax      beyond   what    S.142-A   of   the      Government  of   India  Act,   1953      permitted or  what Art.276  permits      his proceedings  are void in so far      as they  purport to  levy a  tax in      excess of  the  permissible  amount      and authorise  its  collection  and      the assessment  order is  no answer      to the suit for the recovery of the      excess amount. To this extent, even      the  order   of  assessment  cannot      obtain the protection of S.84(3) of      the   Act   and,   therefore,   the      appellant’s suit is maintainable."      Again in  the case of Mahapalika of the city of Agra v. The Agra Brick Kiln Owners Association and Another, (1976) 3 SCC 42,  the scope  of Article 276(2) was considered by this Court in  connection with  the aforesaid U.P. Municipalities Act, 1916. The State Government issued a notification in the year 1947  imposing a  tax under  Section 128(1)(ii)  of the said Act, at the rate of 14 annas per thousand bricks. Brick kiln owners who were effected by the said notification filed a suit  for declaration  that the tax was void as such could not be  realised in  view of Section 142-A of the Government of India Act, 1935 and Article 276 of the Constitution. This Court said:      "The Government of India Act, 1935,      certainly set  a maximum on the tax      on trades and callings and we agree      that the  High Court  was right  in      holding that  the Municipal Board’s      right to  levy tax  under  the  the      notification Ex.H could be valid up      to  Rs.50  per  year  and,  to  the      extent it  went beyond  that limit,      was void.  So, we  affirm the  High      Court’s holding for the period upto      January 26, 1950 that no sum higher      than  Rs.50   as  set  out  in  the      Government of  India Act,  1935 can      be exacted under Section 128 of Act      II of 1916.      From the  Raj to the Republic was a      big break  in  constitutional  law,



    but  there   was  some   continuity      maintained. A  certain  ceiling  on      taxes   on   professions,   trades,      callings and  employments had  been      set   by   Article   276   of   the      Constitution  of  India,  but  this      maximum was  not, Rs.50  as in  the      Government of  India Act,  1935 but      Rs.250.      ...................................      Inevitably, it  follows that during      the    post-Constitution     period      nothing by way of taxes on trade or      callings above  the limit so set is      recoverable and  hence the  maximum      levy from  each  person  under  the      notification issued  under  Act  II      of 1916 rises to Rs.250.      ...................................      This does  not mean  that  anything      beyond Rs.250 {the tax freeze under      Article 276(2)}  can be levied. No.      The constitutional maximum prevails      as it  covers all taxes on trade or      calling  even   today.   Therefore,      until Parliament  makes  any  other      law, as contemplated in the proviso      to Section  172 of  the  Adhiniyam,      the maximum  of  Rs.250  binds.  We      have to  read down the notification      Exhibit H for the post-Constitution      period, in tune and conformity with      the  Constitution  and  uphold  its      validity   to    the   extent    of      constitutional permissibility." In the  case of Mahapalika of Agra v. Agra Brick Kiln Owners Association (supra)  the validity  of a  notification issued under Section  128 (1)(ii)  of the  U.P. Municipalities Act, 1916 in  respect of  Agra Municipal  Board imposing a tax on brick manufacturers  at the  rate of  14 annas  per thousand bricks was considered by this Court and it was held that any such notification must conform and fulfil the requirement of the ceiling fixed by Article 276(2) of the Constitution.      In view  of Article  276, it has to be held that no law of legislature  of a  State relating  to imposition of 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 shall be valid, if it provides  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, exceeding  the   limit  fixed   by  Article  276(2)  of  the Constitution.      Now the question which is to be answered is whether the ceiling prescribed  by Article  276(2) of  the  Constitution shall also be applicable to Board which has been established under the  Cantonments Act.  It need not be pointed out that the Board  has been  established under Cantonments Act which is a  Central Act.  So far  Article  276  is  concerned,  it relates to  the power  of the legislature of a State to make law for  the benefit  of the  State or  of  a  municipality, district board,  local board  or other  local  authority  in respect of  taxes on  professions, trades,  callings  saying that it  shall not  be invalid on the ground that it relates to tax  on income. But at the same time, by Article 276(2) a



ceiling has  been fixed  in respect of the amount payable to the State,  or anyone  municipality, district  board,  local board, or  other local  authority in  the  State.  This  was necessary because  the power  to  tax  on  income  has  been provided under Entry No.82 of List I in the Seventh Schedule and only  Parliament can enact a law in respect thereof. The State legislature  cannot make  a law in respect of taxes on the income  of individuals  within the State. It can be said that Article  276 of  the Constitution  within a  prescribed limit, enables  the legislature  of a  State to make law for imposition of  taxes on  income for the benefit of the State or municipality,  district board, local board or other local authority from professions, trade, callings saying that such law shall  not be invalid on the ground that it relates to a tax on income.      So  far   the  Board   is  concerned   which  has  been established  under  the  Cantonments  Act,  has  issued  the impugned notification in exercise of the power under Section 60 of  the Cantonments  Act. As  such the  said notification shall not be deemed to have been issued in exercise of power under a  law enacted  by the  legislature of a State for the objects mentioned in Article 276. To that extent, we are not in agreement with the opinion expressed by the learned Judge of the  High Court.  Whether the  provisions of  Article 276 shall be  applicable, has  to be  examined by construing the scope of  Section 60  of the  Cantonments Act. Section 60 of the  Cantonments   Act,  prescribes   two   conditions   for imposition of  tax by the Board. Firstly, that there must be a previous  sanction of  the Central Government and secondly that only  such tax  can be  imposed within  any  cantonment which under any enactment for the time being in force may be imposed in  any  municipality  in  the  State  wherein  such cantonment is  situated. The  framers of  the Cantonment Act did not desire to delegate and authorise the Board to impose any tax.  The power  of  the  Board  to  impose  a  tax  was circumscribed by prescribing a limitation that the Board may impose in  the cantonment  any tax which under any enactment for  the  time  being  in  force,  may  be  imposed  in  any municipality  in   the  State  wherein  such  cantonment  is situated.      Section 128(1)(ii) of the U.P. Municipalities Act, 1916 provides:           "A tax  on trades and callings      carried  on  within  the  municipal      limits   and    deriving    special      advantages   from,    or   imposing      special   burdens   on,   municipal      services." In exercise of power under Section 128(1)(ii), the Municipal Board of  any municipality within the State of Uttar Pradesh could impose  a tax on trades and callings carried on within the municipal  limits. Therefore, any Board within the State of U.P.  can also impose such tax within the cantonment area because of Section 60 of the Cantonments Act. In view of the clear and  unambiguous provision  of Section 60, the learned counsel appearing  for the  appellant-Board did  not contest this position.  But according to him, it does not mean, that Board is  also bound by the rates of the taxes so imposed by the municipality  or the  local board  within that State. It can prescribe  its own  rates of  taxes on  the  trades  and callings. According  to us,  it is  difficult to accept this contention. If  the framers of the Constitution did not give this liberty  and latitude  to the legislature of a State in respect of  taxes on  professions, trades  or  callings  for benefit of  the State or municipality, district board, local



board  or   other  authority   under  Article   276  of  the Constitution, how  an unlimited power so far the rate of tax is concerned,  can be  conceded in favour of the Board which is  a   creature  and   authority  established   under   the Cantonments Act?  When Section  60 links the power to impose tax with  any enactment  for the  time  being  in  force  in respect  of   any  municipality   in  the  State  where  the cantonment is  situated, then it shall be deemed that it has also prescribed  the limit  of the  ceiling of such tax with reference to  the said  enactment in force in respect of any municipality in that State. If it is held otherwise, it will lead to  an anomalous  position, so far the nature of tax is concerned, because  of Section  60 the power of the Board is circumscribed with  reference to  any enactment for the time being in  force in  respect of  municipality in  that  State whereas so far the rate of such tax which is more vital, has been left to the discretion of the Board.      On behalf  of the  appellant-Board it  was pointed  out that the Board cannot exercise arbitrary power under Section 60 because  any such  tax including the rate thereof, has to be first  sanctioned by the Central Government. According to us, because  of Article  276 if the State legislature cannot tax on  professions, trades  or callings  for the benefit of the State,  municipality, district  board,  local  board  or other  local  authority,  beyond  the  limit  prescribed  by Article 276(2)  as it  amounts to tax on income, then how it can be  held that  the Board has unlimited power without any ceiling to  tax on  professions, trades  or  callings  being carried on  within the  cantonment  area?  When  Section  60 provides that  Board  may  with  previous  sanction  of  the Central Government  impose in  any cantonment  any tax which under any  enactment for  the time  being in  force  may  be imposed in  any  municipality  in  the  State  wherein  such cantonment is  situated, such  restriction shall not be only in respect  of the nature of the tax, but also in respect of the  ceiling   on  rates  prescribed  under  the  enactment, relating to the municipality.      On behalf  of the  appellant, reference was made to the judgment of  Allahabad High Court in the case of M/s. Punjab Lime and  Lime-stone  Co.,  Dehradun  v.  Cantonment  Board. Dehradun and another, AIR 1967 Allahabad 15. A learned Judge in connection with Section 60 of the Cantonments Act said:           "Section 60 of the Cantonments      Act nowhere  says  that  Cantonment      Boards can  levy taxes which can be      levied by municipalities subject to      the  same  limitations.  It  simply      provides that  the taxes  which are      realizable by  Municipal Boards are      also   realizable   by   Cantonment      Boards. This does not mean that the      limitations  on   the   powers   of      Municipal  Boards   to  levy  their      taxes must also be applied to taxes      levied by Cantonment Boards."      A contrary  view was expressed in the case of Madan Lal v. Cantonment  Board, Mathura,  1978  All  L.J.  1147  by  a learned Judge  of the same High Court saying that Cantonment Board while  imposing a  tax on  per thousand of bricks must fix  the   maximum  limit  which  does  not  contravene  the provisions of  Article 276  of the  Constitution. A Division Bench of  Rajasthan High  Court in  the case  of Narain  and another v.  Cantonment Board,  Nasirabad, AIR 1963 Rajasthan 190 said:           "Considering section 60 of the



    Act, we  may  point  out  that  the      legislature     empowering      the      respondent  to   levy  and  collect      taxes used  the word  "impose" only      and evidently,  therefore, the term      should ba  taken to  have been used      in  a   wider  sense.  Besides  the      object   and   purport   underlying      section 60  appears to  be that the      taxes  to   be   imposed   by   the      respondent    (Cantonment    Board)      should  be   consistent  with   and      should conform  to the  State  laws      relating to  imposition or taxes by      the local  authorities. Section  60      further does  not  refer  to  State      laws in force at a particular point      of  time   but   the   State   laws      generally as  might be from time to      time have been referred to. It will      be  hardly   in  keeping  with  the      object   and    policy   underlying      section  60   that  the  respondent      should  be  permitted  to  continue      taxes  in  contravention  of  State      laws.  the  term  "impose"  should,      therefore, be  taken to  have  been      used in  wider sense  in section 60      and that  being so,  the respondent      cannot     collect     taxes     in      contravention of State laws." In the  case of  Hira Lal  and another v. Union of India and another, 1972 Tax L.R. 2051, the Himachal Pradesh High Court has also come to the conclusion that under Section 60 of the Cantonments Act,  while imposing  a profession  tax, Article 276(2) of the Constitution cannot be violated.      Accordingly, the  appeals fail and are dismissed. There shall be no order as to costs.