Usha Paper Products Private Ltd. and anr. Vs. Kalyan Municipal Council and ors. - Court Judgment

Chandurkar, J.

1. Respondent No. 1, Kalyan Municipal Council (hereinafter referred to as the 'Municipal Council'), had by resolution dated 30th July, 1969 imposed a consolidated property tax as contemplated by Section 105, Sub-sections (1) (a) and (2) of the Maharashtra Municipalities Act, 1965 (hereinafter referred to as 'the Act'), at the rate of 20% to be effective from 1st Oct., 1969. Under the provisions of the Act the said imposition should have been made before 30th June, 1969 and power having been given to the State Government to extend that date, the Municipal Council had asked for such extension which was accordingly granted by the State Government. The period of assessment in question in this petition is 1970-71 to 1972-73. The Municipal Council issued a notice under Section 123 (1) of the Act alleging that in the property in question which belonged to the petitioner, some additional constructions were made and therefore, the assessment had to be revised, and the revised assessment came to Rs. 11,986/- and at the rate for four years a sum of Rs. 56,156.80 was due from the petitioners. We arc not concerned with the merits of the objections which the petitioners raised, but it suffices to say that the petitioners' objections were rejected and accordingly a notice of demand was issued by the Municipal Council on 9th Jan., 1975 for the period 1st April, 1970 to 3Ist March, 1974 demanding a total amount of Rupees 51,626.80 which included combined properly tax of Rs. 44,170.80 and the appropriate amount of the education case and additional health tax.

2. This notice of demand has been challenged by the petitioner in this petition substantially on two grounds. The first ground is that the resolution dated 30th July, 1969 is entirely without jurisdiction. The Municipal Council could not have increased the rate of assessment from 15% which was originally the rate to 20% and that the same is contrary to the provisions of Section 112 of the Act and secondly, in any case, having regard to the decision of the Full Bench of this Court in Sholapur Municipal Corporation v. Ramchandra 74 Bom LR 469 : 1972 Tax-LR 2581, the Municipal Council has no power to make a demand for the period prior to the official year in which the alteration in the assessment list has been made.

3. It is not in dispute that before the special general meeting of the Municipal Council passed the resolution dated 30th July, 1969, the rate of property tax recovered by the Municipal Council was 15%. It is this rate, according to the learned Counsel, which has been raised to 20% and it is contended that Clause (b) of the proviso to Section 112 of the Act restricts the scope of the increase in the rate of the tax and it could not exceed 10% of the amount a which the tax was leviable during the preceding official year. What is contended is that having regard to the provisions of Clause (b) of the proviso to Section 112 (1), the maximum increase permissible to the Municipal Council was only by 1.5% being 10% of the 15% of the rate able value. On a perusal of the provisions of Chap. IX of the Act it appears to us that the contention is clearly misconceived. Sections 105 to 112 of the Act deal with imposition of compulsory and voluntary taxes. One of the innovations introduced in Section 105 of the Act was that the Municipal Councils were statutorily obliged to impose a consolidated property tax on lands or buildings or both situated within the municipal area and on their rate able value as determined in accordance with Section 114. Section 105 (2) specified the components of the consolidated property tax. These components were

(a) a general tax,

(b) a general water tax,

(c) a lighting tax,

(d) a general sanitary tax,

(e) a special latrine tax.

The State Government framed the Maharashtra Municipalities (Consolidated Property Tax) Rules, 1969 (hereinafter referred to as 'the Rules'). Rule 4 of these Rules which dealt with the procedure preliminary to imposing the fax provided that every Council, other than the one to which Rule 5 applies, shall by a resolution passed at a general meeting convened, within 30 days from the date of coming into force of these Rules for such further period or periods as the State Government may in any case allow), decide to levy the tax on lands and on buildings and approve the rate at which the tax shall be levied. It is in compliance with this Rule 4 that the resolution dated 30th July, 1969 was passed. Therefore, the consolidated property tax under the new Act was for the first time decided to be imposed by the resolution dated 30th July, 1969. This resolution did not have the effect of increasing the rate of the tax which was already in force because the concept of the general tax on property was introduced for the first time by Section 105 of the Act. The provisions of Section 112 would be attracted only where the taxes which are imposed under Section 105 are to be increased. Since in the instant case, by the resolution dated 30th July, 1969 what was done was not any increase in the tax which was already being levied but a new tax was for the first time being imposed, the provisions of Section 112 would not be attracted and consequently the limits of the increase provided in the proviso to Section 112 (1) did not fetter the powers of the Municipal Council to levy the consolidated property tax at 20%.

4. There is, however, much substance in the second contention raised on behalf of the petitioners. There is no dispute that the notice dated 7th of Nov., 1973 was a notice issued to the petitioners for amending an assessment list as contemplated by Section 123 (1). Section 123 (1) gives power to the Chief Officer of the Municipal Council to alter an assessment list after it has been authenticated under Section 121. This alteration can be made by inserting or altering any entry in respect of any property. If such entry has been omitted from or erroneously made in the assessment list through fraud, accident or mistake, the power of amendment can also be exercised in respect of any building constructed, altered, added to or reconstructed in whole or any part where such construction, alteration, addition or reconstruction has been completed after the preparation of the assessment list. Section 123 (1) also prescribes the procedure which has to be followed by the Municipal Council before the assessment list is amended. The procedure is that a notice to the person interested in the alteration of the list has to be given and he has to be informed of the date which has to be not less than one month from the date of service of such notice before which the person concerned is required to raise such objections as he desires to the proposed alteration. Under Sub-section (2) of Section 123 the objection has to be dealt with in the same manner as the objection against the assessment list made for the first time by Section 190.

5. The crucial provision on which the learned Counsel relies is in Sub-section (3) of Section 123 which reads as follows:

'An entry or alteration made under this section shall subject to the provisions of Sections 169 and 171 have the same effect as if it had been made in the case pf a building constructed, altered, added to or reconstructed on the day on which such construction, alteration, addition or reconstruction was completed or on the day on which the new construction, alteration, addition or reconstruction was first occupied, whichever first occurs, or in other cases, on the earliest day in the current official year on which the circumstances justifying the entry or alteration existed; and the tax or the enhanced tax, as the case may be, shall be levied in such years in the proportion which the remainder of the year after such day bears to the whole year.'

It may be pointed out that the provisions in Section 123 (3) is a substantial reproduction of Section 82(3) of the Bombay Municipal Boroughs Act, the construction of which fell for consideration before the Full Bench in Sholapur Municipal Corporation case. Section 82 (3) referred to above read as follows :

'An entry or alteration made under this section shall subject to the provisions of Section 110, have the same effect as if it had been made in the case of a building constructed, altered, added to or reconstructed on the day on which such construction, alteration, addition or reconstruction was completed or on the day on which the new construction, alteration, addition or reconstruction was first occupied, whichever first occurs, or in other cases, on the earliest day in the current official year on which the circumstances justifying the entry or alteration existed; and the tax or the enhanced tax as the case may be shall be levied in such year in the proportion which the remainder of the year after such day bears to the whole year.'

Construing the provisions of Section 82 (3) of the Bombay Municipal Boroughs Act, the Full Bench has held that an alteration made under Section 82 (3) in the assessment list prepared under Section 78 of the Act does not become effective for any period prior to the commencement of the official year in which the alteration in the assessment list is made and, therefore, the Municipality is not entitled to levy tax for an official year or any part thereof which has already expired. The Full Bench further held that the alteration becomes effective from the commencement of the official year in which it is made so as to entitle the Municipality to levy the tax with effect from the commencement of that year only. The Full Bench also construed the words 'current official year' found in Section 82 (3) to mean the earliest day in the official year which is current when the amendment of the assessment list takes place, that is to say, the expression refers to only that official year which is running at the time when the amendment is made by insertion or alteration of an entry under Section 82 (1) of the Bombay Municipal Boroughs Act.

6. Relying on the ratio of this decision of the Full Bench, Mr. Jhunjhunwala has contended that the Municipal Council was not entitled to make any demand for the period 1st April 1970 to 31st March, 1974 because admittedly the alteration in the assessment list was made after 31st March, 1974.

7. Mr. Singhavi who appears on behalf of the Municipal Council has not disputed that the provisions of Section 82 (3) of the Bombay Municipal Boroughs Act are identical to the provisions of Section 123 (3) of the Act and, in our opinion, rightly. The Maharashtra Municipalities Act, 1965 was enacted with a view to unify, consolidate and amend the law relating to municipalities with a view to provide for a uniform pattern for the constitution, administration and powers of municipalities in the State of Maharashtra. The Bombay Municipal Boroughs Act came to be repealed by the Maharashtra Municipalities Act, 1965, and the ratio of the Full Bench decision, whatever it may be, must, therefore, squarely control the construction of the provisions of Section 123 (3) of the Act. Mr. Singhavi appearing for the Municipal Council has, however, contended that the Full Bench was merely concerned with the construction of the expression 'current official year' and that the Full Bench was dealing with a case which fell within the residuary clause in Sub-section (3) of Section 82 of the Act. It was coo-tended that there was no ambiguity in Subsection (3) of Section 123 with regard to the effect which an entry or an alteration made under Section 123 (1) was to have in the case of a building constructed, altered, added to, or reconstructed after the assessment list is already made. In so far as the above categories of cases are concerned, according to the learned Counsel, the alteration was to have the same effect as if it had been made in the assessment list on the day on which the new construction, alteration, addition or reconstruction was made or it was first occupied, whichever occurred first. It is only in cases which do not fall within the above mentioned categories of alteration that according to the learned Counsel, the alteration in the assessment list becomes effective on the earliest day in the current official year. Emphasis was laid on the fact that in the latter part of Sub-section (3), the legislature has provided for 'other cases' which meant cases other than cases of new construction, alteration, addition or reconstruction and it is in these other cases, according to the learned Counsel, that the alteration in the assessment list became effective on the earliest day in the current official year on which the circumstances justifying the entry or alteration existed. The contention appears to be that the tax or the enhanced tax which is required to be levied by the concluding part of Sub-section (3) in such year is in the proportion which the remainder of the year after such day bears to the whole year governs only the residuary portion in Section 123 (b). It has been vehemently argued that if the legislature has provided that the alteration in the assessment list is to become effective on the date of construction, alteration or reconstruction, as the case may be, the, liability to pay the tax must arise on that day and, therefore, the Municipal Council would be justified in issuing the demand for such tax which must be treated as having been retrospectively levied.

8. Having carefully read the decision of the Full Bench we are inclined to take the view that the matter is no longer res integra and even, in a case where alteration fn the assessment list is made because of an additional construction, the Municipality can levy tax only with effect from the commencement of the official year in which the alteration has been made. We have merely to refer to the two questions which the Full Bench posed for decision. These two question were:

'Whether on a true construction of Section 82 (3) of the Bombay Municipal Boroughs Act, 1925,

(i) an alteration made in the assessment list prepared under Section 78 thereof becomes effective for any period prior to the commencement of the official year in which the alteration in the assessment list is made so as to entitle the Municipality to levy tax for an official year or any part thereof which has already expired or

(ii) whether the alteration becomes effective from the commencement of the official year in which it is made so as to entitle the Municipality to levy tax with effect from the commencement of that year only ?'

While recording answers to these two questions, the Full Bench has categorically answered the first question in file negative and the second question in the affirmative. When the first question was answered in the negative, the Full Bench has authoritatively held that the alteration in the assessment list does not become effective for any period prior to the commencement of the official year in which the alteration in the assessment list is made so as to entitle the Municipality to levy tax for the official year or any past there of which has already expired. We are unable to see how we can depart from this ratio of the Full Bench decision. The contention of the learned Counsel for the Municipal Council that the Full Bench was merely concern ed with the construction to be placed on the expression 'current official year' is not wholly correct, though that was one of the questions which was considered by the Full Bench, That consideration became necessary in order to properly construe the provisions of Section 82 (3) and in order to enable the Full Bench to effectively answer the two questions posed by the Full Bench for consideration. The Full Bench was not unmindful of the fact that having regard to the different reasons which necessitated amendment or alteration of the assessment list, different results follow, as will be clear from the observations at page 474 on which reliance was placed by the learned Counsel for the Municipal Council. After referring to the provisions of Section 82 (1) which dealt with the circumstances which permitted the amendment of the assessment list to be made, the provisions of Section 82(1) of the Bombay Municipal Boroughs Act being identical to the provisions of Section 123(1), the Full Bench posed a question, 'If an entry is thus amended, then the question arises, what is the effect of amendment?' and pointed out that that is provided by Sub-section (3) of Section 82 which contemplates three different categories to which a different effect takes place. These categories were stated as follows;--

'I. In the case of a building constructed, altered, added to, or reconstructed, the amendment will take effect from the day on which such construction, alteration, additional reconstruction was completed; or

2, on the day on which the new construction, alteration, addition or reconstruction was first occupied whichever of the two occurs first.

These two clauses, therefore, make it clear that the amendment made will operate from the date of completion or the date of occupation whichever event occurs first. Then we come to the third category of cases which is the crucial category with which we are concerned in this matter.

3. It is a residuary category. In cases other than the two mentioned above the amendment is effective 'on the earliest day in the current official year on which the circumstances justifying the entry or alteration existed.'

9. Now, it is important to point out that on facts in the case before the Full Bench, the owner of the house which was assessed for the years 1959-60 to 1963-64 was issued a notice for amendment of the assessment list on 22nd Jan., 1963 because in 1962 he had constructed two privies for the benefit of the tenants. The assessment was, therefore, sought to be altered. The objections raised by the owner were rejected on 20th Mar.. 1964 and the annual rent value of it enhanced. Supplementary bills for house tax were submitted to the owner for 1962-63 and 1963-64. He had complied with the demands for payment of the additional amounts under protest and then filed a suit for refund relying on the decision in Sholapur Municipality v. Governor General, 49 Bom I.R 752 : AIR 1948 Bom 145 in which the Division Bench of this Court had held that the Municipality could not recover tax with retrospective effect.

10. We have referred to these facts in order to point out that notwithstanding the ease before the FuH Bench being one which related to additional construction, the Full Bench: took the view that where objections were taken after notice by the Municipality, the fact of the acceptance or rejection of the objections itself is one of the circumstances justifying the entry or alteration within' the meaning of Section 82 (3) and that Section 82 (3) would not come into play until, the objections under Section 81 were finally disposed of Having taken this view, the Full Bench answered the first question in the negative and the second in the affirmative. This decision which was given with reference to a corresponding provision in the Bombay Municipal Boroughs Act, which was already in force, in our view, squarely governs the construction of Section 123 (3). We are bound by the decision of the Full Bench and having regard to that decision, we must therefore hold that the demands made in respect of the years 1970-71 to 1973-74 were not authorised by the provisions of Section 123 (3) and that demand is, therefore, liable to be quashed.

11. Consequently the notice of demand for Rs. 52,143.30 issued by the Chief Officer, Kalyan Municipal Council, on 18th June 1975 to the petitioners is quashed. The petitioners to get the costs of this petition from respondent No. 1 Municipal Council. The bank guarantee furnished by the petitioners is permitted to be withdrawn. The petitioners will also be entitled to the refund of the amount of Rs. 35,000/- deposited on 27th Aug., 1975 if the petitioners are not in arrears of any faxes for the subsequent period. If the petitioners are in such arrears, the Municipal Council will be entitled to adjust this amount towards these arrears.

12. Mr. Singhavi appearing on behalf ofthe Municipal Council applies for leave toappeal to Supreme Court. Since we havemerely applied the Full Bench decisionwhich has held the field for now more thanseven years, we do not think that any casefor leave is made out. Application refused.

13. Petition allowed.