Pandit Ram Narain vs The State Of Uttar Pradesh Andothers

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 224 of 1955

Decision Date: 20 September 1956

Coram: S.K. Das, Natwarlal H. Bhagwati, Syed Jaffer Imam, P. Govinda Menon

In this matter, the Supreme Court considered an appeal filed by Pandit Ram Narain against the State of Uttar Pradesh and other respondents. The judgment was delivered on the twentieth day of September, 1956, and the bench comprised Justice S K Das, Justice Natwarlal H Bhagwati, Justice Syed Jaffer Imam, Justice P Govinda Menon, and Justice S K Das. The case is reported in the 1957 volume of the All India Reporter at page 18 and also appears in the 1956 edition of the Supreme Court Reports at page 664. The dispute concerned the legal authority for a tax imposed under the United Provinces Town Areas Act of 1914, specifically the provisions of section 14(1)(f) which dealt with taxes on “circumstances and property.” The central question was whether a person’s residence within a town area was an essential condition for the levy of such a tax, and whether a tax assessed under clause (f) could be justified by reference to clause (d) of the same section, which authorized taxes on trades, callings or professions. The court also examined the validity of Rule 3 contained in the Rules regarding the Limitations, Restrictions and Rate subject to which the Circumstances and Property Tax shall be levied by the Town Area Committees, a rule framed under section 39(2) of the Act.

The factual background revealed that the appellant, a businessman, operated a motor-bus service but did not reside within the town area of Karhal. The Town Area Committee nonetheless imposed a tax of twenty-five rupees on him under clause (f) of section 14(1), characterising it as a tax on “circumstances and property.” The appellant challenged this assessment before the High Court, arguing that the tax could not be levied under clause (f) because his residence lay outside the jurisdiction of the Town Area Committee. The High Court dismissed the writ application, holding that it was unnecessary to consider the applicability of clause (f) since the tax could be readily justified under clause (d), which permitted taxation of trades, callings or professions. On appeal, the Supreme Court affirmed that residence was not a sine qua non for the levy of the tax under clause (f). The court held that the mere fact of carrying on business within the town area established a sufficient nexus for the tax’s imposition under clause (f), and that the assessment was therefore legally valid. It further clarified that the legality of a tax must be examined with reference to the specific clause under which the assessment was made; a different provision that might also apply could not be invoked to support the assessment. Concerning Rule 3, the Court observed that the rule did not extend beyond the ambit of clause (f) of section 14(1) and consequently was not invalid.

Procedurally, the appeal was a civil appeal numbered 224 of 1955, taken by special leave from the judgment and order dated the seventh of May, 1954, of the Allahabad High Court in Civil Miscellaneous Writ No. 133 of 1952. The appellant was represented by counsel, while the respondents were instructed by their respective legal representatives. The judgment of the Court was delivered by Justice S K Das, who outlined the above findings and reasoning in reaching the final decision on the matter.

In May 1954 the High Court of Judicature at Allahabad rejected an application filed by the appellant seeking a writ of certiorari under article 226 of the Constitution. The appellant, whose residence was in the town of Mainpuri, occupied himself in the business of hiring a motor bus. The bus operated on alternate days on the route that linked Etawah with Mainpuri, and the town of Karhal lay on that route. It was an admitted fact that passengers regularly alighted from, or boarded onto, the appellant’s bus at a bus stand situated within the municipal limits of Karhal. Moreover, the appellant maintained a booking office inside the Karhal town area where tickets were sold and a record of the business was kept. The Town Area Committee of Karhal, invoking clause (f) of sub-section (1) of section 14 of the United Provinces Town Areas Act, 1914 (U. P. Act II of 1914), thereafter imposed a tax of twenty-five rupees on the appellant for the financial year 1950-51. The same assessment also fixed the appellant’s income derived from his bus-hiring operations within the Karhal town area at eight hundred rupees for that year, the sum on which the tax was calculated.

The appellant challenged the assessment by filing an appeal under section 18 of the Act. In his appeal he advanced two principal grounds: first, that he did not reside within the limits of the Karhal town area; and second, that he did not carry on any trade or business within that area. The Appeal Officer considered the matter and, by an order dated 20 October 1951, concluded that the appellant indeed conducted his business inside the town limits and consequently was correctly taxed under clause (f) of sub-section (1) of section 14. The Appeal Officer therefore dismissed the appellant’s appeal. Although the appellant had been directed to produce an account of his income, he failed to do so, and the assessing officer estimated his monthly earnings at approximately sixty-seven rupees, amounting to about eight hundred rupees annually. No contention was raised before this Court regarding the quantum of the tax, and the Court saw no necessity to elaborate further on that point. Unsatisfied with the outcome, the appellant subsequently instituted a writ application before the Allahabad High Court, contending that no tax could be levied under clause (f) of sub-section (1) of section 14 because he resided outside the jurisdictional boundaries of the Karhal town area.

The learned Judge observed that the tax assessed against the appellant could readily be justified under clause (d) of sub-section (1) of section 14 of the Act; consequently, it was unnecessary to examine whether the same tax might also be validly imposed under clause (f) of the same sub-section. He further held that a person’s residence within the Town Area was not a prerequisite for the levy of tax under clause (d); it was sufficient that the appellant carried on his trade or business inside the Town Area. Relying on these conclusions, the learned Judge dismissed the writ application filed by the appellant. The principal argument advanced on behalf of the appellant before this Court was that the assessment of tax under clause (f) of sub-section (1) of section 14 was invalid because residence within the Town Area was a mandatory condition for a tax to be levied under clause (f). Counsel for the appellant also contended that, once the assessing authority had imposed tax on the appellant under clause (f), the High Court could not simply recharacterise the levy as valid under a different provision, namely clause (d) of sub-section (1) of section 14. In support of his second contention, counsel referred to sections 15 to 17 of the Act. He explained that, under section 15, a list must be prepared naming the persons liable to pay the tax imposed by section 14 and specifying the amount each person must pay. This list may be amended by the District Magistrate, but any such amendment must be submitted to the Magistrate for confirmation. Once the list receives the Magistrate’s confirmation, it may be altered only under sub-section (2) of section 15 by the District Magistrate herself or pursuant to an appeal order made under the provisions of section 18. We agree that counsel has correctly pointed out that, with respect to the present appellant, the list prepared under section 15 would have shown him assessed to a particular sum of tax under clause (f) of sub-section (1) of section 14, and that this assessment would have been confirmed by the District Magistrate on that basis. Accordingly, the legality of the tax imposed on the appellant must be examined with reference to the specific clause under which the assessment was actually made, and a different clause that might theoretically apply cannot be invoked to sustain the assessment. Consequently, we turn to consider the validity of the tax imposed on the appellant by reference to clause (f) of sub-section (1) of section 14 of the Act. The core issue for determination is whether residence within the Town Area constitutes a necessary condition for the levy of tax under clause (f). It is essential, therefore, to read section 14 of the Act in the context of this particular point.

In this case the Court examined the language of section 14(1) of the Act, which provides that, subject to any general rules or special orders of the State Government in this behalf, the taxes which a Committee may impose are the following: clause (d) a tax on trades, callings or professions not exceeding such rates as may be prescribed; and clause (f) a tax on persons assessed according to their circumstances and property not exceeding such rate and subject to such limitations and restrictions as may be prescribed, provided that such a person is not already assessed under clauses (a) to (e) above. The Court noted that the power of a Town Area Committee to levy a tax under clause (f) is therefore conditioned on two matters. First, the power is subordinate to any general rules or special orders issued by the State Government. Second, the power is limited by the “limitations and restrictions” that may be prescribed. Those limitations and restrictions are to be found in the rules made by the State Government under section 39(2) of the Act, which are styled as the Rules regarding the Limitations, Restrictions and Rate subject to which the Circumstances and Property Tax shall be levied by the Town Area Committee. The Court observed that those rules were brought into operation by Notification No. 681-T/IX-79T-50 dated 20 July 1950. Among the many provisions, two rules were identified as material for the present consideration, namely rules 2 and 3. Rule 2 provides that the tax shall be assessed on every person to whom it is imposed in two separate parts – (1) on his circumstances and (2) on the property, if any, owned by him – and that the aggregate of the sums so determined on both counts shall constitute the total composite amount payable as the circumstances and property tax, with the clarification that it is not irregular to assess a person on only one of the two counts if he does not fulfil the conditions for liability with respect to the other count. Rule 3, in its first sub-paragraph, states that the tax assessed on the circumstances of an assessee may be imposed on any person residing or carrying on business within the limits of the town area, provided that such person has resided or carried on business for a total period of at least six months in the year of assessment. Sub-paragraph (2) of rule 3 says that no tax shall be imposed on any person whose total taxable income is less than Rs 200 per annum. Sub-paragraph (3) limits the rate of the tax to not exceed one anna in a rupee on total taxable income, and sub-paragraph (4) caps the total amount of tax assessable on any person in any year at Rs 250. An explanatory note defines “taxable income” as gross income accruing within the limits of the town area and explains that “carrying on business” means the carrying on of any trade, profession, calling or other practice or activity which yields or is capable of yielding income, but does not include service under the Government or a local body. The Court emphasized that the salient point derived from these rules is that, under rule 3, the tax on circumstances may be imposed on any person who either resides in the town area or carries on business there, subject to the six-month residence or business requirement.

In this case the Court observed that Rule 3 provides two alternative conditions for the imposition of a tax on an assessee: either the person must reside within the limits of the town area or the person must be carrying on business within those limits. A third condition requires that the residence or the business be continuous for at least six months in the year of assessment, but the Court noted that no question concerning this third condition was raised, and therefore it was unnecessary to consider it. Consequently, assuming the validity of Rule 3, the tax imposed on the appellant under clause (f) of section 14 is valid, because it is undisputed that the appellant carried on a trade or business inside the Karhal Town Area. The appellant argued that Rule 3 is invalid on the ground that clause (f) of sub-section (1) of section 14 expressly requires residence within the Town Area as a prerequisite for taxation. The Court rejected this argument, holding that the wording of clause (f) does not expressly make residence a necessary condition. The Court explained that the Rules clarify a “nexus” between the territorial jurisdiction of the Town Area Committee and the tax provision for each clause of sub-section (1). For clause (d) the nexus is that the trade, calling or profession must be carried on within the town limits; for clause (f) the Rules make clear that the nexus may be satisfied by either residence within the limits or by carrying on business within those limits. The Court further noted that clause (f) was introduced by the Uttar Pradesh Town Areas (Validation and Amendment) Act, 1950, and that Section 1(2) of that amending Act gave retrospective effect to the amendment. The proviso attached to clause (f) was highlighted, which states that a person already assessed under clauses (a) to (e) cannot be assessed again under clause (f). The purpose of the proviso is to prevent multiple taxation, and the Court observed that the proviso reveals the possibility of overlapping of the different clauses in sub-section (1). For example, a person may fall under both clause (d) and clause (f) if he carries on a trade within the town limits. Hence the proviso was necessary to avoid taxing the same person more than once under different clauses of section 14. If residence within the limits of the Town Area were a sine

In this case, the Court observed that the phrase “qua non” for the imposition of a tax under clause (f) means that a conflict between clauses (d) and (f) would arise only when the person subject to the tax both resides in and carries on a trade within the limits of the Town Area. The Court noted that if the argument advanced by counsel for the appellant were correct, then the proviso to clause (f) would be without purpose because it would imagine an overlap between clause (d) and clause (f) in situations where such an overlap does not actually exist. Upon a proper construction of clause (f), read together with the limitations and restrictions set out in the Rules framed under section 39 of the Act, the Court held that residence within the Town Area of Karbal was not a necessary condition for the tax to be imposed on the appellant. The Court then turned to the provisions of sub-section (4) of section 15-A of the Act. Section 15-A deals with the preparation of preliminary proposals for taxes under section 14, the publication of those proposals, and the drafting of rules. Sub-section (4) provides that “any inhabitant of the Town Area may, in the prescribed manner, file an objection in writing on such proposals and the committee shall take into consideration the objections so filed and finally settle its proposals.” Accordingly, any inhabitant of the Town Area is entitled to lodge an objection to the preliminary proposals for the imposition of taxes under section 14. The Court considered the argument that because only an inhabitant of the Town Area could object to preliminary proposals, residence within the Town Area must be read as a mandatory condition for the levy of taxes under every clause of sub-section (1) of section 14. The Court found this contention unsound. First, it pointed out that an objection to preliminary proposals is distinct from an objection to a final assessment; the legislature may have deliberately limited the right to object to proposals to the inhabitants of the Town Area. Second, the Court highlighted that other provisions of the Act, such as sections 20 and 21, demonstrate that a tax may be imposed on persons who are not residents of the Town Area but who have another nexus with that area. Third, the Court observed that the validity of sub-section (4) of section 15-A was not in issue, because the appellant had already been assessed to tax and had exercised his right to appeal that assessment. No complaint was made regarding the failure to use the objection mechanism provided in sub-section (4). Therefore, the Court concluded that it was unnecessary to pronounce on the validity of sub-section (4) itself, and it was sufficient to state that, by reason of sub-section (4) of section 15-A, residence within the Town Area cannot be regarded as a necessary condition for the imposition of tax under the various clauses of sub-section (1) of section 14.

The counsel for the appellant drew the Court’s attention to two judgments of the Allahabad High Court, namely District Board, Farrukhabad v. Prag Dutt (1) and District Board, Dehra Dun v. Damodar Dutt (2). The second case, which was decided earlier, arose out of a suit for recovery of circumstances and property tax under the Uttar Pradesh District Boards Act (Local Act X of 1922). The central issue in that decision was whether the District Board of Dehra Dun could levy a tax on defendants who did not reside within the geographical area over which the Board exercised jurisdiction. It is important to note that section 114 of the Uttar Pradesh District Boards Act stipulated that the power of a Board to impose a circumstances and property tax was conditioned on the tax being levied on any person who was residing or carrying on business in the rural area within the Board’s territory. Consequently, the only question before the Allahabad Court was whether the defendants had their residence in the rural area of the Board so as to render them liable for the tax. The Court found that the defendants did not reside in the rural area and consequently held that the imposition of the tax was illegal; the Court also held that section 131 of the Uttar Pradesh District Boards Act did not bar the suit. This decision, however, does not aid the appellant’s position. If anything, it demonstrates that the Board was authorised to impose a circumstances and property tax on any person residing or carrying on business in the rural area.

In the 1948 Allahabad decision, the principal question was whether the provisions of section 2 of the Professions Tax Limitation Act (20 of 1941) affected the powers conferred on the District Board by section 108 of the Uttar Pradesh District Boards Act to levy a circumstances and property tax. A subsidiary question concerned whether section 131 of the Uttar Pradesh District Boards Act barred the suit. With respect to the principal issue, the Court observed that the label attached to a tax was irrelevant; what mattered was the “pith and substance” of the levy. The Court held that, in substance, the tax fell within the ambit of section 2 of the Professions Tax Limitation Act. The Court described a tax on “circumstances and property” as a composite tax, explaining that the term “circumstances” referred to a person’s overall financial position, including his income from trade or business. The Court rejected the principle that a person’s income from trade or business within the Town Area could be ignored when assessing his circumstances, thereby endorsing the view that such income may be taken into account. In delivering this judgment, Justice Bind Basni Prasad referred to section 128 of the Uttar Pradesh Municipalities Act, 1916, which deals with taxes on circumstances and property, to illustrate the legislative intent behind such levies.

The tax described as “tax on circumstances and property” was placed in a heading separate from the heading “taxes on trades, callings, vocations and employments,” and the argument advanced was that taxes under different headings should be regarded as entirely distinct from each other. It was correctly observed that it is not a sound principle of construction to interpret expressions employed in one statute by reference to their usage in another statute. The meaning of each word and expression used in a statute must be derived from the context in which it appears within that same statute. It is also true that, in the statute under consideration, the taxes that the Town Area Committee may impose are listed under separate headings in subsection (1) of section 14. We have already noted that, although the clauses are different, the language of the section indicates that there may be some overlap among the various clauses. To avoid the situation where the same person is subjected to more than one tax, a proviso was inserted in clause (f). Considering the words and expressions used in section 14, we cannot accept the contention that clause (f) should be read as wholly independent of, and unconnected with, the other clauses. Nor can we read the condition of residence within the Town Area as an essential part of clause (f). To do so would require inserting into clause (f) words that do not actually appear in its text. The restrictions applicable to the levy of a tax under clause (f) are set out in Rule 3. Residence is merely one of several alternative conditions for imposing the tax, not a mandatory prerequisite as argued by counsel for the appellant. Consequently, the Court held that the assessment of tax on the appellant under clause (f) of subsection (1) of section 14 was legally valid. The appeal was therefore dismissed, and the appellant was ordered to bear the costs of the proceedings.