1979 (9) TMI 189 - SC - Indian Laws

Court upholds Kerala Building Tax Act, 1975 validity, ruling on state competence, retrospective application, and assessment procedures.

D.G. GHOSE & CO PVT. LTD. Versus STATE OF KERALA & ANR

The court upheld the validity of the Kerala Building Tax Act, 1975, dismissing all appeals. It ruled that the State Legislature had the competence to ... Whether determining capital value on the basis of the annual value recorded in the assessment books of the local authority concerned is arbitrary because of the absence of the necessary machinery for its determination? Whether the law governing the levy and fixation of annual value of buildings in the areas of the local authorities concerned provide the necessary procedure and the machinery for their assessment and final fixation? Held that:- Rule 4 of the Kerala Building Tax Rules, 1974, provides that the return under sub-section (1) or (3) of section 7, or section 8 of the Act shall be in Form II. Column 2 of that form makes a mention of the location of the building, but not the location of its ground or land, or the value thereof. It refers only to the annual value of the building in column (13) and its capital value in column 7, so that the location of the building, as distinct from the location of its ground, or the value of the ground as such, do not go in for the determination of the annual or capital value of the building. Section 29 of the Act declares, for the avoidance of doubt, that in fixing the fair rent of a building under section 5 of the Kerala Buildings (Lease and Rent Control) Act, 1965, the rent control court shall not take into consideration the building tax payable in respect of the building under the Act. That has given rise to the argument that the provision is extortionate as it prevents the owner from passing on the liability to the tenant. If the provisions of sections 11 and 18 are read harmoniously it would appear that if an, assessee is entitled to pay the building tax in instalments under the prescription referred to in section 18, he will not be identified to file an appeal if he has paid those instalments as and when they fall due. That is a fair and reasonable view to take of the relevant provisions of the Act, and we hold accordingly. Appeal dismissed. Issues Involved:1. Competence of the State Legislature to enact the Kerala Building Tax Act, 1975.2. Constitutionality of the retrospective application of the Act.3. Nature of the tax imposed by the Act.4. Method of determining the capital value of a building.5. Procedural machinery for the assessment of the annual value of buildings.6. Alleged discrimination and violation of Article 14 of the Constitution.7. Provisions regarding the payment of tax in installments and the right to appeal.Issue-wise Detailed Analysis:1. Competence of the State Legislature to Enact the Kerala Building Tax Act, 1975:The primary question was whether the State Legislature had the competence to enact the Kerala Building Tax Act, 1975. It was argued that the tax on buildings fell under entry 86 of List I of the Seventh Schedule of the Constitution, which pertains to taxes on the capital value of assets. However, the court held that a tax on buildings directly relates to entry 49 of List II, which allows for taxes on lands and buildings. The court clarified that the tax on buildings is a direct tax on the property and not on the total assets of an individual or company, thus falling within the legislative competence of the State Legislature.2. Constitutionality of the Retrospective Application of the Act:The Act was challenged on the grounds that it was retrospective, as it imposed a tax from April 1, 1973, despite being passed on April 2, 1975. The court referred to the definition of 'retrospective' and concluded that the Act did not take away or impair any vested right acquired under existing laws. The court held that the absence of an earlier taxing statute did not create a vested right that the tax shall not be levied in the future from an anterior date. The retrospective imposition was deemed constitutional as it did not attach any new obligation or disability in respect of past transactions.3. Nature of the Tax Imposed by the Act:The court examined whether the tax was on buildings alone or on both buildings and the lands on which they stand. It was held that the term 'building' inherently includes the site on which it stands, as per the ordinary meaning and the Act's definition. The court clarified that the tax was on buildings and not on lands separately, as the value of the land contributes to the value of the building.4. Method of Determining the Capital Value of a Building:The method of determining the capital value by multiplying the annual value by sixteen was challenged as arbitrary. The court upheld this method, stating that the Legislature had the competence to decide the basis for taxation. The annual value, determined by the rent a building could fetch, was a reasonable basis for calculating the capital value. The court found no constitutional infirmity in using this method and rejected the argument that it was hypothetical or arbitrary.5. Procedural Machinery for the Assessment of the Annual Value of Buildings:It was argued that the Act lacked procedural machinery for assessing the annual value of buildings. The court noted that the annual value fixed in the assessment books of local authorities was to be accepted. The court examined the relevant provisions in the Kerala Municipal Corporation Act, the Kerala Municipalities Act, and the Kerala Panchayats Act, which provided adequate procedures and machinery for determining the annual value. Thus, the court found no merit in the argument that the Act lacked procedural machinery.6. Alleged Discrimination and Violation of Article 14 of the Constitution:The argument was made that the Act treated unequals as equals by using a uniform multiple to determine the capital value of buildings, regardless of their location, construction standard, and amenities. The court held that the definition of 'annual value' took into account the rent a building could fetch, which inherently considered these factors. Therefore, the Act did not suffer from the vice of treating unequals as equals and was not discriminatory.7. Provisions Regarding the Payment of Tax in Installments and the Right to Appeal:The concern was raised that the proviso to sub-section (1) of section 11, which required the payment of building tax before an appeal could be filed, negated the provision for paying tax in installments. The court harmonized these provisions, stating that if an assessee was entitled to pay the tax in installments, they could file an appeal after paying those installments as they fell due. This interpretation was deemed fair and reasonable.Conclusion:The court dismissed all the appeals, upholding the validity of the Kerala Building Tax Act, 1975. The court directed that in cases where the building tax had not been assessed, the assessing authority should allow assessees to produce evidence supporting their returns. In cases where assessments had been made but appeals were not filed within the specified period, assessees were permitted to file appeals within 30 days from the date of the judgment. The court also clarified that pending matters under section 3(2) of the Act could be disposed of according to the law.