The Western India Theatres Ltd vs Municipal Corporation of the City of Poona

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

Court: supreme-court

Case Number: Civil Appeal No. 146 of 1955

Decision Date: 16 January 1958

Coram: DAS, C. J.

In this case the Supreme Court of India delivered its judgment on 16 January 1958 concerning a dispute between The Western India Theatres Ltd, a public limited company that leased four cinema houses within the municipal limits of Poona, and the Municipal Corporation of the City of Poona. The company, which exhibited cinematograph films in those theatres, challenged the rate of licence taxes imposed by the municipal authority. The municipal corporation, exercising the power conferred on it by section 59(1)(XI) of the Bombay District Municipal Act, 1901, had originally levied a licence fee of two rupees per day on owners and lessees of cinema houses, effective from 1 October 1920. That Act remained applicable to the municipality until 1926, after which the Bombay Municipal Boroughs Act, 1925, governed the municipal functions. The corporation subsequently increased the tax to one rupee per show on 3 June 1941 and again to five rupees per show on 9 June 1948.

The Western India Theatres Ltd instituted suit seeking a declaration that the tax, the accompanying regulations, and the subsequent enhancements were illegal and beyond the statutory authority of the municipal corporation. The trial court granted the relief in part, but on appeal the High Court set aside that decision and dismissed the suit entirely. The appellant argued that the tax did not fall within Entry 50 of List II of the Seventh Schedule to the Government of India Act, 1935, which pertains to municipal taxes, but rather fell within Entry 46 concerning taxes on trade or calling, and therefore should be governed by Section 142A of that Act. The appellant further contended that section 59(1)(XI) of the Bombay District Municipal Act, 1901, was unconstitutional because it allegedly delegated essential legislative authority to the municipality, allowing it to determine the nature of the tax without appropriate guidance, thereby constituting an abdication of legislative function.

The Court held that both contentions raised by the appellant must fail. The first argument had already been decided in the appellant’s earlier appeal, Civil Appeal No. 145 of 1955, and that decision applied equally to the present matter. The Court observed that it was not correct to say that the power delegated to the municipality under section 59(1)(XI) was unguided. The statutory provision expressly authorised the municipality to impose only those taxes that were necessary for the purposes set out in the Act. The duties and functions imposed on municipalities by Chapter VII of the Act demonstrated that any tax could be levied solely for the implementation of those specified purposes and for no other reasons. Consequently, the Court concluded that the municipal corporation had acted within its legislative competence when it imposed and later enhanced the cinema licence tax.

The Court observed that the Legislature had effectively transferred its own authority to the Municipality, thereby relinquishing its own function. It further noted that the statutory provision expressly required that any power of taxation exercised by the Municipality could be exercised only after obtaining the approval of the Governor‑in‑Council, as set out in the relevant section. The Court explained that a marginal note attached to a statutory provision could not alter the meaning of the provision when the wording of the provision itself was clear and unambiguous. In particular, the Court held that the term “modify” did not merely imply a reduction but also embraced other forms of change, including an increase. Consequently, the substitution of the word “reduce” by the word “modify” in the body of section 60 of the Bombay Municipal Boroughs Act, 1925, even though the marginal note failed to reflect that change, demonstrated plainly the Legislature’s intention to expand the scope of that provision. On that basis, the Court concluded that the increase of the tax could validly be sustained under the amended language. The Court referred to the authorities Commissioner of Income Tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay, [1950] S.C.R. 335 and Stevens v. The General Steam Navigation Company, Ltd., L.R. (1903) 1 K.B. 890. The judgment concerned a civil appellate jurisdiction in Civil Appeal No. 146 of 1955. The appeal arose from a judgment and decree dated 10 February 1953 of the Bombay High Court in Appeal No. 953 of 1951, which itself was based on a judgment and decree dated 36 November 1951 of the Court of Joint Civil Judge, Senior Division, Poona, in Special Suit No. 76 of 1950. Counsel for the appellant comprised H. D. Banaji, R. A. Gagrat and G. Gopalakrishnan, while counsel for the respondent included M. C. Setalvad, Attorney‑General for India, S. N. Andley and J. B. Dadachanji. The judgment was delivered on 16 January 1959 by Justice DAS, Chief Justice. The appellant was identified as a public limited company incorporated under the Indian Companies Act, 1913, which leased four cinema houses located within the municipal limits of Poona City, namely “Minerva”, “The Globe”, “Sri Krishna” and “The Nishat”. The appellant exhibited both foreign and Indian cinematographic films in those four venues. The respondent, a corporate body, had been governed by the Bombay District Municipal Act, 1901 (Bombay Act III of 1901) until 8 June 1926, subsequently by the Bombay Municipal Boroughs Act, 1925 (Bombay Act XVIII of 1925) until 29 December 1949, and thereafter by the Bombay Provincial Municipal Corporation Act, 1949 (Bombay Act LIX of 1949). Effective 1 October 1920, the respondent, with the sanction of the Government of Bombay, imposed on owners and lessees of cinema houses within the former Bombay Province a licence fee of Rs. 2 per day. The respondent framed rules for the assessment and collection of that fee. Those rules were amended around 3 June 1941, raising the levy from Rs. 2 per day to Re. 1 per show, and were again revised around 9 June 1948, increasing the charge from Re. 1 per show to Rs. 5 per show. At all material times the tax was being collected at

Section 59 of the Bombay District Municipal Act 1901 authorized a municipality, subject to any general or special orders that the State Government might issue, to impose any of the taxes specified in that section after observing the preliminary procedure required by section 60 and obtaining the sanction of the authority mentioned therein. After listing ten specific heads of tax, the Act provided a residuary category in clause (xi), stating that a municipality could levy “any other tax to the nature and object of which the approval of the Governor‑in‑Council shall have been obtained prior to the selection contemplated in sub‑clause (1) of clause (a) of section 60.” Ever since the appellant became a lessee of the cinema houses in question, he has paid the tax prescribed by the municipality, but he has done so under protest. Having given the statutory notice required by the Act, the appellant instituted a suit on or about 31 March 1950 in the Court of the Civil Judge, Senior Division, Poona (Suit No. 76 of 1950) against the respondent. The reliefs claimed were a declaration that the levy and imposition of the tax from 1 October 1920 were invalid and illegal; that the subsequent enhancements—first on 3 June 1941 and later on 9 June 1948—were likewise invalid and illegal; that the resolutions and rules framed to levy, enhance, and collect the tax were ultra vires; a permanent injunction restraining the respondent from levying, recovering, increasing, or enhancing the tax; a refund of all amounts collected from the appellant together with interest; and costs of the suit. By judgment dated 30 November 1951, the trial court held that the original tax had been validly levied and imposed, but that the increases effected in 1941 and 1948 were illegal and ultra vires, and it further held that the suit was not barred by the statutes governing the respondent. Consequently, the trial court granted a partial injunction preventing the respondent from collecting the tax at the enhanced rate and entered a decree ordering the respondent to refund Rs 27,072 together with interest and costs. The respondent appealed the decision, and the appellant filed cross‑objections. The High Court, by its judgment and decree dated 10 February 1953, reversed the trial court’s findings, dismissed the appellant’s suit with costs awarded throughout, and also dismissed the appellant’s cross‑objections. On 10 December 1953 the High Court granted the appellant leave to appeal to this Court from that judgment. The present appeal therefore challenges the validity of the impugned tax. The first ground advanced in this appeal contends that the statute imposing the tax does not fall within entry 50 of List II of the Seventh Schedule to the Government of India Act 1935, but rather constitutes a tax on the appellant’s trade or calling under entry 46, and that, accordingly, section 142‑A of the Government of India Act limits the tax to a maximum of Rs 100 per annum. This particular point is not pursued further here because it has already been addressed in the appellant’s separate appeal No. 145 of 1955.

The Court noted that the tax in dispute was said to be levied under entry 50 in List II of the Seventh Schedule to the Government of India Act, 1935, but it was in reality a tax on the appellant’s trade or calling as referred to in entry 46, and therefore, under section 142‑A of the same Act, the tax could not exceed one hundred rupees per annum. The Court observed that this argument required no further discussion because it had already been addressed in the appellant’s other appeal, numbered 145 of 1955.

The second contention raised in support of the present appeal was that section 59(1)(xi) was unconstitutional because the legislature had allegedly abdicated its functions and had delegated essential legislative authority to the municipality to determine the nature of the tax to be imposed on rate‑payers. Counsel for the appellant argued that the power delegated to the municipality was unguided, unchanneled and vague, since the Act contained no provision preventing the municipality from imposing any tax it chose, even a tax of the character of an income tax. He further submitted that such an omnibus delegation could not be sustained as constitutional based on the authorities. The Court agreed with the High Court in rejecting this contention.

In its first reasoning, the Court held that the municipality’s power could not exceed the power of the provincial legislature, and consequently the municipality could not impose any tax, such as an income tax, which the provincial legislature itself was powerless to impose. In its second reasoning, the Court observed that section 59 authorized the municipality to impose only those taxes mentioned therein “for the purposes of this Act”. The duties and functions imposed on municipalities were set out in Chapter VII of the Act, and therefore taxes could be levied by the municipality only to implement those purposes and for no other purpose. Accordingly, the municipality was free to levy a tax in order to provide any of the amenities listed in the statute.

The Court illustrated this principle by referring to section 54, which enumerates the duties of municipalities. The first duty listed in that section requires the municipality to provide lighting for public streets; consequently, the municipality may impose an alighting tax, which corresponds to item (ix) in section 59(1). Similarly, the municipality’s duty to supply drinking water permits it to levy a water rate, identified as item (viii) in section 59(1). The Court clarified that it was not suggesting that municipalities could impose a tax only when it directly corresponded to a specific head of duty; rather, the tax imposed must bear a reasonable relation to the duties assigned to the municipality by the Act.

In its third reasoning, the Court stated that the rule of construction based on the principle of ejusdem generis could not be applied in this case, because items (i) to (x) of section 59(1) did not strictly belong to the same genus. Nevertheless, the Court indicated that those items nevertheless reveal, in its view, the kind and nature of tax which municipalities are

In the final analysis, the Court observed that the provincial legislature had not abdicated its authority in favour of the municipality, because the municipal power to levy a tax was expressly conditioned upon the approval of the Governor‑in‑Council. The Court explained that, under the Indian Councils Act of 1861 (24 & 25 Victoria, chapter 67), the expression “Governor‑in‑Council” could refer either to the Governor acting with his Executive Council or to the Governor acting with his Legislative Council. If the reference contained in section 59(1)(xi) is to the Governor’s Legislative Council, then no improper delegation of power occurred, since the municipal taxation power would be subject to the legislative control of that Council. The Governor’s Legislative Council, the Court noted, was composed of all members of the Governor’s Executive Council together with a few additional persons. Consequently, even if the reference were to the Governor in his Executive Council, the ultimate control would still reside with the Governor’s Legislative Council from a practical standpoint. The Court stated that it need not pursue this point further because, on the first three grounds, any delegation of legislative authority—if it existed—was not so excessive as to render its exercise unconstitutional. In the Court’s view, the impugned provision did establish a principle and set a standard that municipalities must follow when imposing a tax, and the legislature, under the circumstances, had not relinquished its own function; therefore the delegation of power to impose any other tax could not be struck down for exceeding permissible limits of legislative delegation. The Court then turned to the argument presented by counsel for the appellant, who contended that, under clause (xi) of section 59(1), the increases in tax rates made in 1941 and again in 1948 were unlawful because the municipality lacked authority to do so under the Bombay Municipal Boroughs Act of 1925. Counsel argued that the judgment being appealed, which upheld the validity of those rate enhancements, could not be supported by section 60 of that Act. The Court quoted section 60, which provides: “Power to suspend, reduce or abolish any existing tax … Subject to the requirements of the proviso to section 58, a municipality may, except as otherwise provided in clause (b) of the proviso to section 103, at any time for any sufficient reason, suspend, modify or abolish any existing tax by suspending, altering or rescinding any rule prescribing such tax.” The Court further noted that Chapter VII of the same Act, which deals with the imposition of taxes, applies likewise to the suspension, modification, or abolition of any tax and to the suspension, alteration, or rescission of any rule prescribing a tax. Reference was made to a marginal note that reads “power to suspend, reduce or abolish any existing tax”. Counsel suggested that the word appearing in the body of the section between “suspend” and “abolish” should be interpreted as “reduce”. The marginal note, according to counsel, indicates that the legislature intended a progressive diminution of the tax amount rather than an increase.

Several words had been placed in the contested section to show a gradual reduction in the amount of tax until the tax disappeared entirely. The discussion then turned to the basic meaning of the term “modify.” The Court observed that the root sense of “modify” was to make something smaller or to lessen it, and that the word did not include any notion of increasing the amount. The Court further held that a marginal note could not alter the meaning of the language that appeared in the body of the section when that language was clear and unambiguous. In support of this principle the Court referred to the decision in Commissioner of Income Tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay (see citation (1)).

Next, the Court considered the historical wording of the earlier statute. Section 67 of the Bombay District Municipal Act (Bombay III of 1901), which had earlier applied to municipalities, used the word “reduce” between the words “suspend” and “abolish.” When that provision was reproduced as Section 60 of the Bombay Municipal Boroughs Act, 1925, the word “reduce” was omitted and the word “modify” was inserted instead. The marginal note that accompanied the new text still displayed the word “reduce,” which the Court said was apparently an inadvertent failure to replace the old term with the new one. The Court reasoned that if “modify” were merely a synonym for “reduce,” the legislature would have had no reason to replace “reduce” with “modify.” Consequently, the Court inferred that the legislature deliberately chose a broader term so as to encompass not only reduction but also other forms of alteration. Section 76 of the same Act was cited, which explicitly described “modification not involving an increase in the amount to be imposed,” thereby clarifying that the statute allowed for modifications that could involve an increase. The Court also referred to the English Court of Appeal decision in Stevens v. The General Steam Navigation Company, Ltd. (see citation (2)) and to Collins, M. R.’s judgment at page 893, where “modification” was defined as an alteration that could either narrow or expand the provisions. In light of these authorities, the Court concluded that the removal of the word “reduce” and the insertion of “modify” in Section 60 clearly demonstrated the legislature’s intention to broaden the scope of the provision. Accordingly, the Court agreed with the High Court’s construction and dismissed the appeal, ordering costs against the appellant. The appeal was thus dismissed. (1) [1950] S.C.R. 335 at p. 353. (2) L.R. (1903) 1 K.B. 890.