Tax on Lands and Buildings remains a property tax despite annual-value measurement; provincial enactment upheld.

Whether an annual tax computed by reference to annual value is a property tax or an income tax is decided by applying the pith and substance test and reconciling overlapping federal and provincial entries; the statutory charge and assessment machinery determine character. The use of an "annual value" measurement or levy payable by the owner does not transform a land-and-buildings tax into an income tax where assessment permits only limited deductions and does not ascertain actual net income. Operatively, the impugned levy is characterised as a tax on lands and buildings, leaving provincial legislative competence intact.

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Issues: Whether the Punjab Urban Immovable Property Tax Act, 1940, insofar as it levies an annual tax computed with reference to the annual value of buildings and lands and made payable by the owner, is beyond the legislative competence of the Provincial Legislature as being in substance a tax on income falling under the Federal Legislative List.

Analysis: Applicable constitutional provisions include Section 316, Section 99(1), Section 100 and Section 107(1) of the Government of India Act, 1935, which allocate subjects between Federal and Provincial Lists and provide for repugnancy. Item 42 of List II (taxes on lands and buildings, hearths and windows) and item 54 of List I (taxes on income other than agricultural income) are the competing entries. The charging provisions of the impugned statute (Section 3) and the assessment machinery (Section 5) must be examined to ascertain the pith and substance of the levy. The statutory language of item 42 is clear and not confined to taxation of occupiers; provincial practice and prior legislation support taxation of owners. The mere adoption of a measurement standard called "annual value" does not convert a property tax into an income tax. The mode of assessment under the Punjab Act permits only limited deductions (repairs and land revenue) and does not aim to ascertain actual net income as under income-tax law; the tax is payable irrespective of actual profits, encumbrances, or vacancies. Precedents establishing the pith and substance test and requiring reconciliation of overlapping entries are applied; reliance on authorities holding that use of annual or rateable value is insufficient, by itself, to characterise a levy as income-tax was accepted.

Conclusion: The impugned levy is in substance a tax on lands and buildings and not a tax on the income of the owner; consequently the Provincial Legislature was competent to enact the Punjab Urban Immovable Property Tax Act, 1940. The appeal is dismissed and costs are awarded to the respondent.

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