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PETITIONER: VISAKHAPATNAM MUNICIPALITY

       Vs.

RESPONDENT: KANDREGULA NUKARAJU & ORS.

DATE OF JUDGMENT29/08/1975

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN

CITATION:  1975 AIR 2172            1976 SCR  (1) 544  1975 SCC  (2) 773  CITATOR INFO :  E          1984 SC 583  (20,21)

ACT:      Andhra Pradesh  District Municipalities Act (6 of 1965) ss. 3,  81, 83  and  Schedule    9,  Clause  12    Scope  of Inclusion of  new areas   within  municipality Imposition of property tax  on residents  of those areas without following procedure in s. 81  Property.

HEADNOTE:      Under s.  4(1)(c) of  the District  Municipalities Act, 1920, the State Government declared its intention to include within the  limits of  the appellant  municipality the local areas comprised  in two villages. ’The 1920 Act was repealed by the  Andhra Pradesh  Municipalities Act,  1965 which came into force on April 2, 1965. Section 3(1)(b) of the 1965 Act corresponds to s. 4(1)(c) of the repealed Act. Under s.3(3), the Government  may include  within a  municipality a  local area after  considering  any  objections  submitted  by  the residents of  the local are: Under s. 3(4) the provisions of the 1965-Act  come into  force in  that area  on  the  first April, if  that is the date of the notification under sub-s. (3)  and   in  any  other  cases  the  first  day  of  April immediately succeeding. The State Government, in exercise of its  power  under  s.  3(3)  of  the  1965-Act,  issued  the notification in  March 1966  including within  the limits of the appellant  municipality the  areas comprised  in the two villages with  effect from  April  1,  1966.  In  1971,  the Municipal Council  after considering  objections,  passed  a resolution for levying property tax on land and buildings in the two  villages with effect from October 1, 1970, but, The municipality issued  notices to  the respondents,  who  were residents of  those two villages, demanding the property tax from them  from April  1, 1966  the date of inclusion of the villages. The  respondents thereupon challenged the levy and the High Court upheld the challenge.      In appeal  to this  Court, it  was contended  that  the appellant municipality  was entitled  to demand the tax even from April  1, 1966, under cl. 12 of Schedule 9 of the 1965- Act. This  clause provided  that any  tax  which  was  being lawfully levied by the municipal council at the commencement

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of the  1965-Act and which may be lawfully levied under that Act shall  continue to  be levied  by the council unless the Government by general or special order directs otherwise.      Dismissing the appeal to this Court, ^      HELD :(1)  The inclusion of the two villages within the limits of  the appellant  municipality is in order, because, under cl.  13 of Schedule 9 of the 1965-Act the notification issued under  s. 4(1) of the 1920-Act must be deemed to have been issued under s. 3 (1) of the 1965-Act. [547 D-F]      (2) However, clause 12 of Schedule 9 cannot justify the imposition of  the tax  under the repealed Act of 1920, from April 1,  1966, on  property situate  in the  newly included areas. [548 B-C]      (a) The  clause is  of a  transitional nature  and  its object is  to authorise  the levy  of taxes  which,  at  the commencement of  the 1965-Act were levied under the repealed law. That is, in the present case, if any tax etc. was being lawfully levied  by the  appellant on  April 1, 1966, (which was the date of commencement of the Act in the two villages) and if  it can be lawfully levied under the 1965-Act, it can continue to  be levied. But on April 1, 1966, no tax at all. was being  levied by  or on  behalf of  the appellant on the property situate  in the  two villages  included within  the municipality on  that date.  Therefore, the appellant had no occasion or power to direct that a property tax may continue to be  levied on  those properties,  and hence cl. 12 has no application. [548 C-E]      (b) It  cannot be  urged that because the appellant was levying property  tax on  property situate within its limits (other than  the 2  villages) the property tax was not being levied for the first time. Qua the two villages newly 545 included in  the municipal limits, the tax was being imposed for the first time, and therefore, it was incumbent upon the municipality to follow the procedure prescribed by the first proviso to  s. 81(2),  because, the residents of these areas had no opportunity to object lo the imposition of tax or for the municipality  to invite  objections and  consider  them. [549 C-E]      (3) The  first proviso  to s.  81 requires  that before passing a  resolution imposing  a tax for the first time the council  shall  publish  a  notice,  invite  objections  and consider the objections received within the stipulated time. Since the procedure was not followed in regard to the period prior to  October 1,  1970 the  levy of  property tax on the properties of  the respondents  for that  period is  without authority of  law and  consequently illegal. By s. 83 when a council determines  to levy any tax for the first time or at a  new   rate  the   Secretary  shall  forthwith  publish  a notification in  the prescribed  manner specifying  the rate and the  date from which the tax shall be levied. Section 83 is expressly subject to s. 81 and under the latter provision no tax  can  be  imposed  for  the  first  time  unless  the procedure prescribed therein is followed [548G-549 B]      (4) When  the State  Government issued the notification declaring   its intention to include the two villages within the  limits   of  the  municipality  the  residents  had  an opportunity to  object, not to the imposition of the tax but only to  "any thing  contained  therein",  meaning  anything contained in  the notification,  that is  to  the  inclusion within the municipality. The question of imposition of a tax within the  included areas,  arises  only  after  the  final notification under s. 3(3) followed by a resolution under s. 81 (1) . [547F-550 B]

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    (5) It  could not also be contended that mere inclusion of two  villages with  in the  municipal area  automatically attracts the tax. On the contrary, what s. ..(4) provides is that  once  a  notification  including  any  area  within  a municipality is  published under  s. 3(3), the provisions of the Act,  that is,  ss. 81  and 83, shall come into force in that area  from the  first day  of  April,  and  hence,  the procedure prescribed  therein will  have to be followed.[550 F-H]      Atlas Cycle  Industries Ltd. v. State of Haryana & Anr. [1972] 1 S.C.R. 127, explained.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 1157 of 1974.      Appeal by  special leave  from the  judgment and  order dated the  20th June,  1973 of the Andhra Pradesh High Court in Writ Appeal No. 411 of 1973.      F.S. Nariman and P. P. Rao, for the appellant.      A. Subba  Rao, for respondents Nos. 1-10, 12-31, 33 and 36.      The Judgment of the Court was delivered by      CHANDRACHUD, J.-The  Andhra Pradesh Municipalities Act. VI of  1965, (hereinafter  called "the Act") came into force on April  2, 1965.  Section 3(1)(a)  of the Act empowers the State  Government   to  constitute   a  local   area  as   a municipality. Section  3(1)(b) empowers  the Government,  by notification in  the Gazette  "to declare  its intention  to include within a municipality any local area in the vicinity thereof and  defined in  such notification". Section 3(1)(c) confers  power   on  the   Government  to   exclude  from  a municipality any local area comprised therein and defined in such notification.  Under section  3(2), any  resident of  a local area  or taxpayer  of a  municipality, in  respect  of which a  notification under  section 3(1) is published, may, if he  desires to  object  to  anything  therein  contained, submit his objection in writing to the Government within six weeks from the 546 publication of  the notification and the Government is under an   obligation   to   take   all   such   objections   into consideration. Under  section 3(3)  after the  expiry of the aforesaid  period  o  six  weeks  and  on  considering  the objections,  the  Government  may  by  notification  in  the Gazette declare  to be  a  municipality  or  include  in  or exclude from  a municipality,  the local area or any portion thereof. By  section 3(4),  the provisions  of the  Act come into force  in or cease to apply to and municipality or part thereof, as  the case  may be, on the date of publication of notification under sub-section (3) if such date is the first day of  April, or  in any  other case,  on the  first day of April immediately  succeeding the  ’date of  publication  of such notification.      Respondents 1  to 36  are  residents  of  two  villages called Ramakrishnapuram  and Sriharipuram. Prior to the year 1966, the  area comprised in these villages was not included within   the   municipal   limits   of   the   Visakhapatnam Municipality.  Most  of  these  respondents  own  properties situated within the limits of the two villages but they were not assessed  to  property  tax  under  the  Andhra  Pradesh (Andhra Area)  District Municipalities Act 1920 which was in force until  the introduction  of the  Act. They used to pay taxes to the village Panchayat. .

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    In  exercise   of   the   powers   conferred   by   the corresponding provision  of the District Municipalities Act, 1920, namely  section  4(1)(c),  the  Government  of  Andhra Pradesh declared  its intention to include within the limits of Visakhapatnam  Municipality the  local area  comprised in the  villages  of  Ramakrishnapuram  and  Sriharipuram.  The district Municipalities  Act, 1920  was repealed  by section 391(1) of  the Act which, as stated earlier, came into force on April 2, 1965. On March 24, 1966 the Government of Andhra Pradesh acting  in  the  exercise  or  powers  conferred  by section 3(3)  of the  Act issued  a  notification  including within the limits of the Visakhapatnam Municipality the area comprised  in   the   villages   of   Ramakrishnapuram   and Sriharipuram with effect from April 1, 1966.      on March  24, 1970  and June  10,  1970  the  Municipal Council declared  its intention  to levy property tax in the areas newly  included within  the  municipal  limits.  After considering the  objections, the Council passed a resolution on August  28, 1970  confirming the  levy of property tax on buildings and  lands situated  within the  municipal limits, with effect  from October 1, 1970. However, the municipality issued notices to respondents 1 to 36 demanding property tax from them  not from  October 1, 1970 but from April 1, 1966, that is  to say, with effect from the date when the villages of Ramakrishnapuram  and Sriharipuram  were included  within the municipal  limits. These  notices would  appear to  have been issued on the supposition that taxes leviable under the District Municipalities  Act, 1920  could  be  levied  under clause 12,  Schedule IX  of the  Act, unless  the Government directed otherwise.      On January  24, 1971  respondents 1  to 36  filed  writ petition 442  of 1971  in the  High Court  of Andhra Pradesh against the State of 547 Andhra Pradesh and the Visakhapatnam Municipality asking for a declaration  that  the  levy  of  property  tax  on  their properties for  the period  prior to  October  1,  1970  was illegal. The writ petition was dismissed by a learned Single Judge on the view that it was competent to the municipality, under the District Municipalities Act 1920, to levy property tax on  properties situated in the newly included areas from April 1, 1966 to October 1, 1970.      Respondents 1  to 36  filed writ  appeal  411  of  1972 against the  decision on the Single Judge, which was allowed by a  Division Bench of the High Court by its judgment dated June 13,  1972. lt  held that  the provisions  contained  in clause 12  of Schedule IX had no application and that it was incompetent to  the municipality  to impose the property tax on the  newly included areas without following the procedure prescribed by sections 81 and 83 of the Act. The correctness of that view is challenged by the Visakhapatnam Municipality in this appeal by special leave. The State of Andhra Pradesh is respondent No. 37 to the appeal.      The   circumstance   that   whereas   the   preliminary notification declaring the intention of the State Government to include  new areas within the municipal limits was issued under  the  District  Municipalities  Act  1920,  the  final notification confirming  that intention was issued under the Act presents  no difficulty. In so far as relevant, Schedule IX clause  13 of  the Act, read with clause 1, provides that any action taken under the District Municipalities Act, 1920 by any  authority before  the commencement of the Act shall, unless inconsistent  with the  Act be  deemed to  have  been taken by  the authority  competent to take such action under the Act.  The preliminary  notification, though issued under

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section 4(1) (c) of the 1920 Act must therefore be deemed to have been  issued under  section 3(1)(b)  of  the  Act.  The inclusion  of   the   villages   of   Ramakrishnapuram   and Sriharipuram  within   the  limits   of  the   Visakhapatnam Municipality is accordingly in order.      The true  question for our consideration is whether the property tax  which  could  lawfully  be  levied  under  the District Municipalities  Act, 1920  can be levied, after the repeal of  that Act,  on properties  situated in  the  areas included within  the municipal limits after the constitution of the  municipality. Section  391(1) of  the Act  expressly appeals the  District Municipalities Act, 1920 from which it must follow  that ordinarily,  no action  can be taken under the Act  of 1920  after April  1,1966 when the repeal became effective on the coming into force of the Act.      But counsel  for the  appellant  municipality  contends that clause  12 of Schedule IX of the Act keeps the repealed enactments  alive   for  tax   purposes  and  therefore  the municipality has  authority to impose the property tax under the Act  of 1920,  notwithstanding its  repeal by  the  Act. Schedule  IX   appears   under   the   title   "Transitional Provisions" and clause 12 thereof reads thus: 548           "12. Continuance  of existing taxes, etc. Any tax,      cess   or fee  which was being lawfully levied by or on      behalf of  any council  at the commencement of this Act      and which may be lawfully levied under this Act, shall,      notwithstanding any  change in  the method or manner of      assessment or  levy of  such tax, cess or fee, continue      to be  levied by  or on  behalf of  the council for the      year in  which this  Act is  brought into  . force, and      unless the  Government  by  general  or  special  order      otherwise direct, for subsequent years also."      This provision  cannot justify  the imposition  of  tax under the repealed Act of 1920 on properties situated in the newly included  areas. In the first place, as the very title of Schedule  IX  shows,  the  provisions  contained  in  the Schedule are  of a transitional nature. They are intended to apply during  the period  of transition  following upon  the repeal of old municipal laws and the introduction of the new law. Some time must necessarily elapse before a municipality can act under the new law but taxes have all the same to the imposed and  collected during the interregnum. The object of clause 12  of Schedule  IX is to authorise the levy of taxes which, on the commencement of the Act, were levied under the repealed laws.  The material  date for  this purpose  is the date of  the commencement  of the  Act, namely April 1, 1966 and the  legality of  the exercise of the power conferred by clause 12  is to  be judged  in reference  to that  date. In other words,  if any  tax, cess  or fee  was being  lawfully levied by  or on  behalf of any council on April 1, 1966 and if it  can be lawfully levied under the Act, it can continue to be  levied notwithstanding  any change  in the  method or manner of  assessment or  levy of  such tax, cess or fee. On April 1, 1966 no tax at all was being levied by or on behalf of any  council on  properties situated  in Ramakrishnapuram and Sriharipuram  and therefore  the appellant  municipality had no occasion or power to direct that the property tax may "continue to be levied" on those properties. "Continuance of existing taxes", after the commencement of the Act being the theme of clause 12 and since the property tax was not levied by or  on behalf  of any  council at the commencement of the Act on  the properties  situated in the two villages, clause 12 has no application.

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    Imposition of  certain kinds  of taxes is an obligatory function of  municipal  councils,  under  the  Act.  Section 81(1)(a) provides  that every  council shall, by resolution, levy a  property tax,  a profession  tax, a tax on carriages and carts  and a  tax on  animals. under.  section  81(2)  a resolution of  a  council  determining  to  levy  tax  shall specify the  rate at  which and  the date from which the tax shall be  levied. The  first  proviso  to  this  sub-section requires that  "before passing  a resolution  imposing a tax for the  first time"  or increasing  the rate of an existing tax, the  council shall  publish a  notice in the prescribed manner declaring  the requisite  intention The  council  has further to  invite objections  and it is under an obligation to consider  the objections  received within  the stipulated time. By  section 83,  when a council determines, subject to the provisions  of section 81, to levy any tax for the first time or at a new rate, the Secretary shall forthwith publish a 549 notification in the prescribed manner specifying the rate at which, the  date from  which and the period of levy, it any, for which,  such tax  shall be  levied. Section  83 is  thus expressly  subject  to  section  81  and  under  the  latter provision no  tax can be imposed "for the first time" unless the procedure  prescribed therein  is  followed.  Since  the procedure prescribed  by the  first proviso to section 81(2) was not followed in regard to the period prior to October 1, 1970  the   levy  of  property  tax  on  the  properties  of respondents 1 to 36 for that period is without the authority of law and consequently illegal.      It was  urged on behalf of The appellant that the first proviso to  section 81(2)  would apply  only when  a tax was imposed for  the first  time ’  and  since    appellant  was levying properly  tax long  before  its  imposition  on  the properties of  respondents 1  to 36,  it was  unnecessary to follow the  procedure prescribed  by the  proviso. It is not possible to  accept this  submission. The Municipality might have been  levying property  tax since  long  on  properties situated within  its limits  but until  April  1,  1966  the villages of Rarmakrishnapuram and Shriharipuram were outside those limits.  Qua  the  areas  newly  included  within  the municipal limits,  the tax  was being  imposed for the first time and  therefore it  was incumbent on the Municipality to follow the  procedure prescribed  by the  first  proviso  to section 81(2).  Residents and taxpayers of those areas, like respondents 1  to 36,  never had an opportunity to object to the imposition  of the  tax and  that  valuable  opportunity cannot  be  denied  to  them.  It  is  obligatory  upon  the Municipality not  only to  invite objections to the proposed tax but  also to  consider the  objections  received  by  it within  the   specified  period.   Such  period  has  to  be reasonable, not being less than one month. The policy of the law is  to afford  to those  likely to  be affected  by  the imposition of  the tax a reasonable opportunity to object to the proposed levy.      According  to   the   appellant,   the   residents   of Ramakrishnapuram and  Sriharipuram  had  an  opportunity  to object  to   the  imposition  of  the  tax  when  the  State Government issued  a notification  under section  3(1)(b) of the Act  declaring its intention to include the two villages within the limits of the municipality. It is not possible to accept this  submission either.  When the  State  Government issues a  notification under  any of  the clauses of section 3(1), any  resident of  the local  area concerned or any tax payer of  the municipality  can "object to  anything therein

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contained"  meaning   thereby,  anything  contained  in  the notification. A  notification issued under section 3 (1) (b) contains only  the declaration of the Government’s intention "to include  within a  municipality any  local area  in  the vicinity thereof  and defined  in  such  notification".  The right  of  objection  would  therefore  be  limited  to  the question whether  a particular  area should, as proposed, be included within  the municipal limits. It would be premature at that  stage to  offer objections to the imposition of any tax because  it is  only after  the  final  Notification  is issued under  section 3(3)  that the  question would  at all arise as  regards the  imposition of  a  tax  on  the  newly included areas.  A notification under section 3(3) has to be followed by a 550 resolution under  section 81(1) if the municipality wants to impose a   tax,  and for the resolution to be effective, the procedure prescribed  by the  first proviso to section 81(2) has  to  be  followed.  The  appellant  municipality  short- circuited this  mandatory  procedure  and  thereby  deprived respondents 1  to 36  of the  valuable right of objecting to the imposition of the tax.      Finally, relying  on section  3(4) of  the Act, learned counsel for  the appellant  contended that  the inclusion of the two  villages within  the municipal area attracts of its own force  every provision  of the  Act with effect from the date on  which the  final notification  is published  by the Government under section 3(3). This argument is said to find support  in   a  decision  of  this  Court  in  Atlas  Cycle Industries Ltd.  v. State  of Haryana  & Anr.(1).  Far  from supporting the argument, we consider that the decision shows how a  provision like  the one  contained  in  Section  3(4) cannot have  the effect  contended for  by the "appellant in the  Atlas   Cycle  case,   section  5(4)   of  the   Punjab Municipality Act. 1911 provided that when any local area was included in a municipality, "this Act and............... all rules, bye  laws, orders, directions and powers made, issued or conferred  under this  Act and  in force  throughout  the whole municipality  at the time, shall apply to such areas". The industrial  area within  which the  factory of the Atlas Cycle was situated was by a notification included within the municipality  of   Sonepat.  The   municipality   thereafter purported to  impose octroi  duty on the goods manufactured, by the company without following the procedure corresponding to that  prescribed by sections 81 and 83 of the Act. It was held by this Court that since section 5(4) of the Punjab Act did not,  significantly, refer  to notifications  and  since section 62(10) of the Punjab Act spoke of "notification" for the imposition  of  taxes,  it  was  not  competent  to  the municipality to  levy and collect octroi from the company on the strength  merely of  the provision  contained in section 5(4) of  the Punjab  Act. Tn  the instant case, what section 3(4) provides is that once a notification including any area within a municipality is published under section  3(3), "The provisions of  this Act  shall come into force into ........ any municipality  or part  thereof..  .....on  the  date  of publication of  the notification  under sub-section  (3), if such date  is the  first day of April, or in any other case, on the first day of April immediately succeeding the date of publication of  such notification".  Thus. by  section 3(4), once a  notification is  issued under  section 3(3), all the provisions of  the Act  come into  force.  That  means  that sections 81  and 83, which are a part of the act, would also apply to  the  entire  Municipal  area.  It  would  then  be obligatory for  the municipality  to  follow  the  procedure

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prescribed in these sections. Taxes can be imposed under the Act only  by passing  appropriate resolutions  under section 81. Section 3(4) does not provide that on the inclusion of a new area  within a  municipality, the  resolutions passed by the   municipal   council   before   such   inclusion   will automatically apply  to the  new   area. Plainly, such could not be the intention of the legislature in (1) [1972] 1 S.C.R. 127. 551 view of the importance which it has attached to the right of the citizens  to object to the imposition of a proposed tax. Though, therefore,  by reason of section 3(4) the provisions of the  Act would  apply to  the new areas included within a municipality, it  is not  competent to  the municipality  to take resourse  to the  resolution passed for imposing tax on the old areas for the purpose of levying taxes on new areas. The procedure  prescribed by  section  81  and  83  must  be followed if a tax is proposed to be levied on the new areas.      For these  reasons we  confirm the judgment rendered by the Division Bench of the High Court and dismiss this appeal with costs. V.P.S.                                     Appeal dismissed. 552