# [1975] 3 S.C.R. 475

- **Citation:** [1975] 3 S.C.R. 475
- **Court:** Supreme Court of India
- **Decided:** 1975-02-10
- **Bench:** K. K. Mathew, P. N. Bhagwati, N. L. Untwalia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1975-3-s-c-r-475-6420
- **Pages:** 14

## Headnote

Bombay Public T_rusts Act, 1950, ss. 57 and 58 and Rule 32 of rules
framed under Act-Difference between tcx and fee-Liability for co11tributio11 by
public trust at 2% of gross income-If tax or fee.
Section 57(1) of the Bombay Public Trusts Act, 1950 states that there shall
be established a Fund to be,called the 'Public Trusts Administration Fund' and that
the fund shall vest. in the Charity Commissioner appointed under the Act.. One
of the amounts which ~o to make the Fund is the contribution made by a public
trust under s. 58. Section 58 as amended by Amending Act, 1962, provides that
in the case of a public trust, other than a dharmada, the contribution shall be at
the prescribed rate on the ·gross annual income. Gross annual income is defined
to mean the gross income from all sources, in:luding donations and offerings
excluding, inter alia payments made with a specific direction that the payme~t
made shall form part of the corpus of the public trust.
Rule 32 of the rules
made under the Act prescribed the rate of 2 % of the gross annual income, In
the Amending Act, provision was made in s. 4 for retrospective operation of
the provisions of the Act and the rule.
·
The respondent was registered as a public limited company under the Indian
Companies Act, 1913, and also under the Bombay Public Trusts Act, 1950. In
the years 1954, 1955 and 1956 it received certain sums from its international
organisation.
Upon these amounts and other collections in India, in 1963, the
respondent was called upon to pay the contribution of 2% as required by s. 58
of the Act read with r. 32. The respondent thereupon filed a writ petition in
the High Court challenging the levy. The High Court held that though the levy
was a fee in the beginning, it assumed the character of a tax by the end of 31
March, 1958, when there wa> a substantial surplus with the Fund, and that thereafter the levy was illegal and ulira vires as the actual levy was made after it
assumed the character of a tax.
";,.,.-:.
In appeal to this Court,
HELD : ( 1) The respondent has an independent legal personality as it was
registered under the Companies Act, and so, the amounts which it received cannot but be regarded as donations coming within purview of s. 58 and.· r. 32.
[487C-D]
.
,
2(a) A tax is a compulsory exaction of money by a public authorify for··a
public purpose enforceable by law and is not a payment for any speci{\c service.
rendered. The levy of a tax is for the purpose of general revenue, which, when
collected, for~ part of the public revenues of the. State. !here is. no element
of quid pro quo between the tax payer and the public ~uthonty. A fe~1 h!>~ever,
is generally defined to be a charge for a special service ren,dered to "lpd1V1duals
bv the government or. some other agency like a local authonty or statutory corporation. The amount of fee levied is supposed to be based on the exl?en~es
incurred in rendering the services though, in many cases, the costs are arb1tarily
assessed. Fees are generally uniform but absence of uniformi<y is not a criteri~n
on which alone it can be said that the levy is in the nature of a !&if. As m fee 1s.
regarded as a sort of return or consideration for services rendere4 it is necess3;rY "1•
that the levy of a fee should be correlated to the expenses incurred, in Jend~riqg ,·
the services. It is also generally necessary. that the paym~nts demanded for ten,.-~.
dering services must be set apart or specifically appropriated .for that purpose ..
and that they should not be merged in the general revenue o! the State to ~e speRr-·
for general public purposes. It may not, however, be possible to prove m every
case that the fees colle:ted always approximate to the expenses that mre incuri:e<t,•
in rendering the particular kind of services or in performing any. particular wort.·
\for the benefit of certain individuals.
[481E-482C]
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476
SUPREME COURT REPORTS
[1975] 3 s.c.R.
In the present case, the revenue expenditure, is about

## Text

_Characters 0–39,937 of 45,858. This is a partial read: ask again with offset=39937 for what follows._

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ST ATE OF MAHARASHTRA & ORS.
v.
475
THE SALVATION ARMY, WESTERN INDIA TERRITORY
February 10, 1975
[K. K. MATHEW, P. N. BHAGWATI AND N. L. UNTWALIA, JJ.]
Bombay Public T_rusts Act, 1950, ss. 57 and 58 and Rule 32 of rules
framed under Act-Difference between tcx and fee-Liability for co11tributio11 by
public trust at 2% of gross income-If tax or fee.
Section 57(1) of the Bombay Public Trusts Act, 1950 states that there shall
be established a Fund to be,called the 'Public Trusts Administration Fund' and that
the fund shall vest. in the Charity Commissioner appointed under the Act.. One
of the amounts which ~o to make the Fund is the contribution made by a public
trust under s. 58. Section 58 as amended by Amending Act, 1962, provides that
in the case of a public trust, other than a dharmada, the contribution shall be at
the prescribed rate on the ·gross annual income. Gross annual income is defined
to mean the gross income from all sources, in:luding donations and offerings
excluding, inter alia payments made with a specific direction that the payme~t
made shall form part of the corpus of the public trust.
Rule 32 of the rules
made under the Act prescribed the rate of 2 % of the gross annual income, In
the Amending Act, provision was made in s. 4 for retrospective operation of
the provisions of the Act and the rule.
·
The respondent was registered as a public limited company under the Indian
Companies Act, 1913, and also under the Bombay Public Trusts Act, 1950. In
the years 1954, 1955 and 1956 it received certain sums from its international
organisation.
Upon these amounts and other collections in India, in 1963, the
respondent was called upon to pay the contribution of 2% as required by s. 58
of the Act read with r. 32. The respondent thereupon filed a writ petition in
the High Court challenging the levy. The High Court held that though the levy
was a fee in the beginning, it assumed the character of a tax by the end of 31
March, 1958, when there wa> a substantial surplus with the Fund, and that thereafter the levy was illegal and ulira vires as the actual levy was made after it
assumed the character of a tax.
";,.,.-:.
In appeal to this Court,
HELD : ( 1) The respondent has an independent legal personality as it was
registered under the Companies Act, and so, the amounts which it received cannot but be regarded as donations coming within purview of s. 58 and.· r. 32.
[487C-D]
.
,
2(a) A tax is a compulsory exaction of money by a public authorify for··a
public purpose enforceable by law and is not a payment for any speci{\c service.
rendered. The levy of a tax is for the purpose of general revenue, which, when
collected, for~ part of the public revenues of the. State. !here is. no element
of quid pro quo between the tax payer and the public ~uthonty. A fe~1 h!>~ever,
is generally defined to be a charge for a special service ren,dered to "lpd1V1duals
bv the government or. some other agency like a local authonty or statutory corporation. The amount of fee levied is supposed to be based on the exl?en~es
incurred in rendering the services though, in many cases, the costs are arb1tarily
assessed. Fees are generally uniform but absence of uniformi<y is not a criteri~n
on which alone it can be said that the levy is in the nature of a !&if. As m fee 1s.
regarded as a sort of return or consideration for services rendere4 it is necess3;rY "1•
that the levy of a fee should be correlated to the expenses incurred, in Jend~riqg ,·
the services. It is also generally necessary. that the paym~nts demanded for ten,.-~.
dering services must be set apart or specifically appropriated .for that purpose ..
and that they should not be merged in the general revenue o! the State to ~e speRr-·
for general public purposes. It may not, however, be possible to prove m every
case that the fees colle:ted always approximate to the expenses that mre incuri:e<t,•
in rendering the particular kind of services or in performing any. particular wort.·
\for the benefit of certain individuals.
[481E-482C]
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476
SUPREME COURT REPORTS
[1975] 3 s.c.R.
In the present case, the revenue expenditure, is about 62 % of the amount of
revenue. receipts. from 1953 to 1970. As there is approximate correlation, the
levy is in the nature of a fee.
[484B-C]
Hingir-Rampur Coal Co. Ltd. v. The State of Orissa [196112 S.C.R. 537 at
549, H. H. Sudhundra Tirtha Swamiar v. Commissioner for Hmdu Religious &
Chairtab/e Endowments, Mysore, (1963] Supp. 2 S.C.R. 302 at 323; The Commis·
sioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Tirtha Swamiar
of Shirur Mutt [1954] S.C.R. 1005 at 1037, 1040, Mahant Sri Jagamzath Rwnanuj
Das and Arother v. The State of Orissa and Another [1954] S.C.R. 1046 at 1053,
Ratilal Panachand Gandhi v. The State of Bomba;y [1954] S.C.R. 1055 at 1075.
Nagar Mahapa/ika, Varanasi
v.
Durga Das Bhattacharya & Others, [19681 3
S.C.R. 374, at 385; and Government of Madras v. Zenith Lamp and E/ectric11/ Lrd.
(1973] 1 S.C.C. 162, referred to.
Delhi Cloth and General Mills Co. Ltd. v. Chief Commissioner, Delhi [1970]
2 S.C.R. 348, at 354,_ followed.
·
. (b) A review of the relevant provisions in the Act leads to the condusion
that the provisions are enacted with a. view that public trusts are administered
for the purpose intended by the authors of the trust and for preserving the trust
properties from waste and misappropriation by trustees. Taking precautionary
measures to see that public trusts are administered for the purposes intended by
the authors of the trust and exercising control and supervision with a view to
preserve the trust properties from being wasted or misappropriated by tmstees
are certainly special services for the benefit of the trust Therefore. it could
not be contended that no siie:ia.J benefits were or are being conferred L"pon the
public trust in administenng the provisions of the· Act. [484F-H]
(3) The ~ervices are mostly rendered by the officers of the Charity Organisation. With the proliferation of public \rusts in the State it became necessary
to expand the charity organisation and to increase the staff for supervision and
control. It also became necessary to have more regional offices for the more
. elfective and immediate supeI'.Vision and control.
The expenditure in constmcting
htiil<lings for locating th:: head office and regional offices and the increase in
a!lowances or other amencties to the staff have also to be included in the costs of
the services. When there is surplus it cannot immediately be said that thi: surplus must necessarily go in reduction of the rate of contribution to be J.evied
thereafter. It would neither be expedient nor prudent to lay down any abstract
proposition that whenever there is surplus in a particular year or years that the
surplus must always be taken into consideration and the rate of the contribution should be reduced for the next year or subsequent years.
An organbation
like the one in question may have to incur capital expenditure for the better
allowances or other amenities to the staff have also to be included in the costs of
administration of the trust and it might not be able to foresee all the contin.~c:ncies
in which such expenditure will have to be incurred for the more efficient wo;·king
of the organisation.
But. at the same time, when it is seen that after taking into
ac~ount the capital and other expenditure necessary for the efficient fu11ciionit1g of
the organisation for the better administration of the trust. a very larr.e surplus is
still left, then the question wili arise whether it is permissible for the organisation to continue the levy at the same rate which would only result in further surplus and to invest this surrlus solely for earning income or to divert the surplus
for other obiccts, though charitable in nature.
Such levy for investment
or
diversion of the surplus would not be consistent with the principles b-~hind the
levy of a fee. No hard and fast rule applicable in all contingencies c:in be
formulated.
While it is not necessary that all available surplus should always
go in reducing the rate of contribution for subsequent years, the organisation
cannot be allowed to accumulate unreasonable amounts, that is, amounts which
may not reasonably be required for the proper and efficient working of the
organisation in a foreseeable foture.
In drawing the line, the Court will have
. to look into the nature oli the organisation, the potentiality for its growth .. the
multiplication in its work consequent on its expansion for rendering the service:>
visualised by the Act and the necessity for capital expenditure in the near future
.as also the amount of levy collected or expected to be collected in a year. [485C486CJ
.
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MAHARASHTRA v. SALVATION ARMY (Mathew, J.)
4.77
(a) In tho present case, !hero Wll8 an available surplus which waa used for
purcbasin~ a bailding. Even accordin& to the High Court investment of the
i;urplus in building<; or locating the head and regional offices cannot be said to
be c!i~ersion of the surplus for purposes alien to the object of the organisation
namely, the better administration of the trust.
Therefore, it could not be said
that by the end of March 1958, when there was rome iiUrplus, the contribution
had assumed the character of a tax.
[486G-E]
(b) But, by tho end of March, 1970, there was a surplus of Rs.- 54 lacs.
The rate of fee' at. 2% cannot continue, thereafter, without taking into account
the corpus of Rs. 54 lacs and the income therefrom. If the Organisation ia
allowea to go'\on increasing its surplus year after year out of the amount of fee
collected under s. 58 of the Act it would demonstrate that the fee levied waa
unjustifiably dlSproportionate to the service rendered. The contribution at the
rato of 2 % on tho gross 'incomo atter 31st March, 1970, undoubtedly assumed
the character of tax as that merely augmented the income of the Charity Organi1ation. Therefore, beforo levyin~ any fee or determining its rate after 1970 the
Charily Organisation Ii.as to balan<:e its budget.
[486G-487A]
( 4) The High Court was of tho view that the levy of contribution
was
11/Jra vires at the time tho leY:v was made because it ceased to be a fee and became a tax. By virtue of the retrospective operation of the amended s. 58 as
provided in ~. 4 of the Amending Act, the respondent became liable to pay contribution in respect of the 3 donations in the year in which they were received,
that is, in 195-4, 19.55 and 1956. Therefore, even on the basis of the reasoning
of the High Court that the levy assumed the character of a tax after 3 lst March,
1958, it could not be held that the levy of contribution in those years became
e·xonerated from tho liability. The fact that the actual levy was made after
t 962 would not mll¢ any difference in the liability to pay the contribution R.'I
the liability was incurred when tho Ievv had not assumed tho character of tax
even according to tho Hi~ Court. [4870-H]
( 5) (a) Tho respondent, therefore, is liable to pay contributions in respect
o( 1hc three sums and tho High Court was wrong in quashing the orders passed.
1487H]
(b) After 31st March, 1970, the levy at 2% of the gross income cannot
be justified as a fee.
[487Hl
(c) This doe1 not mean that no levy of contribution was permissible therc-
:tfter. It only means that in levying a fee thereafter 1t should have correlation
with the services, taking into consideration tho exhtonco of tho surplus fund
aoJ th~ income therefrom.
[488A-B]
( d) Rule 32 is ultra i·ires.
[488B]
C1vrL APPELLATE JuRismcnoN : Civil Appeals Nos.
487
and
488 of 1973.
From the judgment and order dated the 31st January, 1972 of
th~. Bombay High Court in 0.S. No. 38 & 39 of 1971.
Niren De, .Attorney General of India, S. Bapti:Jta and
M. N.
Shroff, for the appellants. (in both the appeals).
P. P. Khambatta, Ashok Desai, A. G. Meneses, and K. John, for
the respondents.
(In C.A. No. 487 /73).
As/wk Desai, A. G. Meneses and K. J. John, for the respondent
Nos. 1, 2 & 4--8 (In C.A. No. 488/73).
· T. Civil Appeal No. 487 of 1973
MATHEW J.-The respondent in this appeal is the Salvation Army,
Western India Territory. It is a part of the world-wide· orl!llnisation
. known as the Salvation Army.
Th~ headquarters of thQ 0rganisation is
lo-423SCll75
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SUPREME COUAT REPORTS
(1975) 3 1;.c.R.
in London. The organisation in India was registered as a public~ limited company under the Indian Companies Act, 1913, having obtained a licence to carry on its activities without suffixing the
word
•Jimited' after its name. It is also registered under the
Bi1)IDbay
Public Trusts Act, 1950 (hereinafter called the 'Act') and carries on
various charitable activities. The Company has its headquarters in
Bombay. The fund:s of the Company are administered under the
Articles of Association bv a Board consisting of a General, a Chiet
of Staff and various other officers. The accounting year of the Compainy is from 1st of October to the 30th of September of each year.
In the years ending 30-9-1954, 30-9-1955
and
30-9-1956,
the
respondent received three sums from the international organisation,
namely, Rs. 1,97,302/-, Rs. 2,50,228-14-0 and Rs. 2,67,732-15..0.
Besides these amounts, the respondent had made collections in India.
Upon all these amounts the respondent was called upon to pay a
contribution 6f 2 per cent as required by s. 58 of, the Act read with
· rule 32 of the Bombay Public Trust Rules.
The respoildent claimed
exemption from liability to pay contribution upon the three donations.
Appellant No. 3 disallowed the claim. The respondent's
appeal
against the order wacs dismisse,d by appellant No.
4.
The
respondent thereupon filed a writ pertition in the High Court of Bc.mibay
for a declaration that the provision for levy of contribution contained
in s.58 of the Act and rules 32 and 33 of the Rules as also th~: provisions of sections 2 and 4 of the Maharashtra Act 29 of 1962 (hereinafter referred to as the "Amending Act of 1962") were beyond the
powers of the Stare L•egislature and that the levy of contribution on the
three donations was therefore illegal. The respondent also prayed
for quashing the orders passed by appellants 3 and 4 disallowing its
claim for exemption from levy o~ contribution upon the aforesaid
sums.
A learned Single Judge of the High Court held that the levy was
bad as it was not a fee but tax.
Against· this decision, an appeal was preferred before the Division Bench by the appellants. The Bench came to the conclus!on that
though the levy of 2 per cent on the gross income of the publtc trusts
was a fee in the beginning, it assumed the character 0£ a tax by the
end of 31st March, 1958 as there was a surplus of Rs. 30,44,541 by
that time and therefore the levy assumed the character of tax. and
wa_, illegal from that date. The Court further held that the levy of
contribution on the three donations was ultra vires as the actual levy
was made after it assumed the character of a tax. It is against iliis
judgment that this appeal has been filed on the basis of certi:fi.cat.c
granted by the High O>urt.
The Act was brought into force from 14-8-1950. The object of
the Act is to re_gulate and make better provision for the administra~
tion of public religious and charitable trusts in the State of Bombay.
Section 57(1) states that there shall be established a fund to be called
the Public Trusts Administration Fund and that the Fund shall vest
in the Charity Olmmissioner appointed under the Act. Oause.s (a)
to (() of sub-section (2) of the section specify the amounts which go to
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MAHARASHTRA v. SALVATION ARMY (Mathew, J.)
479
make the fund. Of these, clause (b) concerns the contribution made
under s.58.
Section 58 was amended by the Amending Act of 1962 and the
Amending Act came into force on 27-8-1962. That section, at all
times, prescribed that every public trust shall pay to the Public Trusts
Administration Fund annually such 'contribution on such date and
in such manner as may be prescribed. The contribution to be paid
was originally fixed by rule 32 which was also amended by the Amending Act of 1962.
Section 58 as it originally stooa provided ti· t the contribution prescribed under the section shall, in the case of ublic trusts other than
dhannada, be fixed at rates in proportion to t e gross annual, income
of such public· trust and the Explanation stat .d that, for the purpose
of thei section, the gross annual income shfill include gross income
£rom all sources in a year excluding donation given or offering made
with a specific direction that they shall form part of the corpus of the
public trust.
Rule 32(1) of the Bombay Public Trus~ Rules, 1951, framed under
s.84, clause (b), provided that every pub'lic trust other than a trust
exclusively for the purpose of secular tftlucation imparted by a recognised institution or exclusively for tlle purpose of medical relief
shall pay annually to the Public Trust$ Administration Fund out of
its property or funds a c:ontribultion at the rate of 2 per cent of its
:gross annual income or, where the public trust is a dharmada, its
gross annual collection or receipts. In sub-rule (3) of Rule 32, it was
provided that in calculating the gross annual income or receipts for the
purpose of assessing the contributiml. the following deduction shall
be allowed:
"donations given with specific directions that they shall form
part of the corpus (vide Explanation to s.58)."
By a Government notification
dated
3-12-1953, rule 32
was
amended. The provision for levy of contribution was substantially
1the same as in sub-rule (n of Rule 32 but the amended sub-rule (3)
of Rule 32 was as follows:
"(3) In calculating the gross annual income of a Public
Trust, or where the public trust is a dhannada, its gross
annual collection or receipts, for the purpose of assessing
the contribution, the following deductions shall be allowed,
namely:"
and clause (iiii) oorresponding to the original clause (iii) of Rule 32
(3) ran as follows :
"donation received during the year from any sources."
This rule was patently ultra vires of s.58 itself, for, the Explanation
to s.58 excluded donations given or offerings made with a specific
direction that they shall tlotm part of the corpus of the public trust.
But Clause (iii) of Rule 32(3), after its amendment in 1953, excluded
all donations received
during the year from any source. The state
480
SUPREME COURT REPORTS
(1975] 3 i!l.C.R.
legislature th<~refore passed the Amending Act of 1962 which in.serted
certain provisions of Rule 32 of the Rules as substantive provisions in
the Bombay Public Trust Act, 1950. The legislation amended s.58
itself and the amended section was substituted for the old
sc::ctioii.
The amended section, so far as it is material, provides :
"58(1) Subject to the provisions of this section, every
public trust shall pay to the Public Trusts Administration
Fund annually such contribution at a rate or rates not ex··
ceeding five per cent of the gross annual income, or as the
case may be, of the gross collection or receipt, on such date,
and in such manner, as may be prescribed.
The contribution prc!SCiibed under this section shall :
(i) in the case of a dharmada, be fixed at a rate or rates on
the gross annual collection or receipts of the dharmada.
(ii) in the case oli other public trusts, be fixed at a rate or
rates on the gross annual income of such public trust.
Explanation( O. For the purpose of this
sub-section
'gross annual income' means gross ru.come
from all.
sources in a year (including all donations and offerings),.
but does not include any payment made or anything:
given with a specific direction that it shall form part of
the corpus of the public trust, ~1or include any deductions which the State
Government · may
allow
by
rules .......... ".
Provision was also made fo1· the period durirtg which Rule 32
remained in operation and therefore s.4 of the Amending Act of 1962
provided for retrospective operation of the provisions of the Act. Section 4 provides :
"The substitution of section 58 in the princir-al Act by
section 2 of this Act shall be and shall always be deemed to
have been made iin the principal Act· and the provisions of
· clause (iii) of sub-rule (3) of rule 32 of the Bombay Public
Trust Rules, 1951, shall be deemoo to have been deleted
from the date on which those rules came into force; and accordingly, rule 32 of these rules as amended shall be
deemed always to have been validly made and to have full
effect, as if it had been duly made under the principal Act
as amended by this Act and anything done or action taken
under that Rule shall be deemed to have been validly done
or taken.''
An amendment was also effected by the Act itself in Rule 32 by
deleting clause: (iii) of sub-rule (3) of Rule 32.
The validity of these amendments was not challenged before this
Court.
The two main questions which arise for consideration
in
this
appeal are : ( 1) whether the levy of contribution under s. 58 read
with rule 32(3) was a tax from the inception of the levy or whether,
although the levy was a fee in its inception, it assumed the chara1cter
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of tax in any subsequent year by reason of the accumulation-ef-the
surplus of the income over the expenditure, and (2) whether the levy
of contribution on the three donations was justified.
As already stated, the learned Single Judge was ofl the view that
the levy was in the nature of a tax from its inception for the reason
that the ·contribution levied had no correlation to the services rendered. The learned Judge in taking this view was largely intluenced
by the statement of the income and expenditure of the charity organisation contained in Exhibit I for the years from 1953 to 1970. The
learned Judge said that the ratio of revenue expenditure to the receipt
every year was 53.33 per cent on an average and that there was always
a surplus of about 47 per cent after meeting all the annual recurring
expenditure, that accumulation to the extent of 47 per cent oh an
average every year had ultimately brought about the result that even
after meeting the total expenditure, the &urplus came to Rs. 44,60,973
on 31-3-1965, that it was augmented further to Rs. 84,49,473
by
31-3-1970 and therefore the levy was at all times a tax and was beyond the power of the legislature. He further held that the respondent was not liable to pay contribution in respect of the three
amounts.
On appeal, the Division Bench, after considering the distinction
between a fee and a tax as laid down by this Oourt came to the conclusion that the contribution at the rate of 2 per cent of the income
of the trusts was a fee till the end of March 31, 1958 aI!d that, on
account of the accumulation of surplus to the tune of Rs. 30,44,541
by the end
of
the year
1958,
it
assumed
the
character
of a tax and therefore, after 31st March 1958, the levy became ultra
vires the powers of the legislature.
Now th~ fii'St questiun·for -consideration-is~.What is the.nature
of a fee ? It is idle to parade the familiar learning on the question
of the distinction between a tax and a fee.
A tax is a compulsory
exaction of money by a public authority for a public purpose enforceable by law and is not a payment for any specific service rendered.
The levy of a tax is for the purpose of general revenue which when
collected forms part of the public revenues of the State.
There is
no element of quid pro quo between the tax payer and the public
authority. A fee is generally defined to be a charge for a special
,service rendered to ·individuals by the government or some other
agency like a local authority or statutory corporation.
The amount
pf fee levied is supposed to be based on the expenses incurred by
the Government or the agency ~n rendering the service thou&h
in
many cases the costs are arbitrarily assessed.
Fees are ordmarily
uniform but absence of uniformity is not a criterion on which alone
it can be said that a levy is in the nature of tax. In the case of a
fee, no account is taken of the varying abilities of different recipients of the service to pay.
As a fee is regarded as a sort of return
or consideration for services rendered, it is necessary that the levy
of fees should be correlated to the expenses incurred by the agency in
rendering the services. "If the special service rendered is distinctly
and primarily meant for the benefit of a specified class or· area the
482
SUPREME COURT REPORTS
[1975] 3 s.c.R.
fact that in benefiting the specified class or area the state as a whole
may ultimately and indirectly be benefited would not detract from the
character of the levy as a fee." ( 1). It is also generally necessary that
the payments demanded for rendering of such services must be set
apart or specifically appropriated for that purpose and that
they
should not be merged in the general revenue of the State to be spent
for general public purposes. It may not be possible to prove in every
case that the fees that are collected by the Government or the agency
always approximate to the expenses that are incurred by it in rendering
the particular kind ofl services or in performincr any particular work
for the benefit of certain individuals. "A levy fn the nature of a fee
does not cease to be of that character merely because there is an element of compulsion o:r coerciveness present in it, nor is it a postulate
of a fee that it must have direct relation to the actual services rendered
by the authority to individual who obtains the benefit of the service.
If with a view to proviide a specific service, levy is imposed by law and
expenses for maintaining the service are met out of the amounts collected there
being
a reasonable
relation
between
the
levy
and the expenses incw-recl for rendering the service, the levy woul.d be
in the nature of a fee :and not in the nature of a tax."(%) That there is
correlation between the levy and the services can be proved by showing that on the face of the legisla,tivc provision itself, the collections
are not merged in th': general revenue but arc set apart and appropriated for rendering !these services. Thus, two elements are essential
in order that a payment may be regarded as a fee.
In the firsf place,
it must be levied in consideration of certain services which the individuals accept either willingly or unwillin~ly and in the second place,
the amount collected must be earmarked to meet the expenses of rendering these services and must not go to the general revenue o:r: the
state to be spent for general public purposes.(1)
In Nagar Mahapaliga, Vara11asi v. Durga Das Bhattacharya
&
Others( 4 ) the question was whether a certain by-law under
which
the owners of rickshaws were liable to pay an annual sum of Rs 30/-
and the drivers a sum of Rs. 51- par took the character of a fee. In
the course of the judgment the Court said :
"The High Court was of the opinion that the amount of
Rs. 68,000 spent for paying the bye-lanes and Rs. 20,000 for
lighting of
stre<ets
and
lanes cannot be considered
to
have
been
spent
in
rendering
services
to the
rickshaw owners and rickshaw drivers. The reason was that
(I) seeHinglr-RaTTl()ur-Coal Co. Lt. v. The State of Orissa [1961 ]2 S. C. R. 537 at
S49.
(2) soc H. H. Sudhundra Thlrtha Swamlar v. Commis!lontr for Hindu Rel/g/ou.i &
Charitable Endowments Mysore, (1963) Supp. 2 S. C. R. 302, at 323.
(3) ~1e C?lnmlnlon~r, Fli,111, Religious E11d1wment!, Madras v. Sri Lakshmindra
Thlrtha Swamfar of Shirur M ult. [1954] S. C. R. 1005, at 1037, 1040; M ahant Sri
lagannath Ramanuj DIU and Another v. The State of Orissa and Another, [I 954] S. C;
R. 1046 at 10S3; and Ratilal Panachand Gandhi the State of Bombay [19S44 S. C. R.
10.S.S, at 107S.
(4). [1968] 3. S. C. R. 314, at 38.S.
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MAHARASHTRA v. sALVATION ARMY (Mathew, J.)
483
under s. 7(a) of the Act it was the statutory duty of the
Municipal Board to light public streets and places and under
cl. {it) of the same section to construct and maintain public
streets, culverts etc. The expenditure under these two items
was incurred by the Municipal board in the discharge of its
statutory duty and it is manifest that the licence fee cannot
be imposed for reimbursing the cost of ordinary municipal
services which the Municipal Board was bound under the
statute to provide to the general public (see the decision
of the Madras High Court in India Sugar and Refineries Ltd.
v. The Municipal Council, Hospet (l.L.R.
1943 Madras
521)."
In Delhi Cloth and General Mills Co. Ltd. v.
Chief Commissumer, Delhi ( 1) the point for consideration was whether the amount
payable for renewal of licence to run the fuctory i.n question was a
fee or tax. The Court observed :
"The High Court further found, which finding being of
fact, must be considered as final that 60% of the amount of
licence fees which were being realized was actually spent on
services rendered to the factory owners. It can, therefore,
hardly be contended that the levy of the licence fee was
wholly unrelated to the expenditure incurred out of the total
realization."
In Government of Madras v. Zerith Lamp and ElectricalTtd.(~),
this Court considered, in the context of levy of
Court fees,
the
relevant facturs which might be taken into consideration in adjudging
whether the levy was a fee or tax. The Court said :
"While levying fees the appropriate legislature is competent to take into account all relevant factors, the value of the
subject-matter of the dispute, the steps necessary in the pro.-
secution of a suit or matter, the entire cost of the upkeep of
courts and officers administering civil justice, the vexatious
nature of a certain type of litigation and other relevant matters."
In the light of this discussion, let us see whether the levy here
was a fee and if it was a fee at the inception, whether, by reason of
the accumulation of surplus, it. became a tax in any subsequent year.
According to exhibit 1, the total receipts from all sources from the
year 1953 to the year 1970 came to Rs. 2,20,78,080/-. According
to the statement given by the Attorney General during the course of'
argument the total contribution under s.58 of the Act came to Rs.
1,73,56,874/- treating the figures of total receipts in the years 1953
to 1956 as receipts only under s.58. There is a mistake in the figure
of the chart given by the Attorney General for the years 1963, 1964
1965
and 1966. Substituting the correct figures fur those years
which tally with the earlier chart given by the Attorney General, also
during the course of the argument, the amount of revenue receipts
(1) [1970] 2 S. C. R. 348, at 3S4.
(2) [1973) 1 S. C. R. 162.
484
WPUME COURT REPORTS
[1975) 3 S.C.R.
under s. 58 would come to Rs. 1,90,19,978/( insteap of Rs. l,'73,56,-
874/-.
The: total revenue expenditure from
1953
to
1970
according to exhibit 1 is Rs. 1,17,86,443/-. Although in exhibit 1 the
total revenue expendituri; is shown to be 53.33 per cent of the total
of Rs. 2,20,78,080/- actually the percentage has to be calculated
with reference to the figure of Rs. 1,90, U ,9181-. Calculating on that
basis, the percentage will come to about 62. On the basis of the decision of this Court in the Delhi Cloth and General Mills case (supra)
the levy was in the nature of fee as the expenditure was 62 per cen•
of the contributions fovied and as there was appro:Umate correlation.
It was, however, argued on behalf of the respondent on the basis
of the decisions in Corporation of Calcutta v. Liberty Cinema( 1) and
Nagar Mahapalika, Varanasi v. Durga Das Bhattacharya (supra) that
the exercise of the power of supervision and control of public trusts
under the provisions of the Act would not be special services, that
performance of the statutory functions a.nd duties U'ilder the· Act is
owed to the public and cannot be regarded as special benefits to the
public trusts in the statt for which a fee oan be exacted as consideration.
The object of the Act as seen from its preamble is to regulate' and
make better provisions for the administration of public religious and
charitable trusts rn. the State of Bomtfay. Chapter IV of the Act provides for registration of public trusts. Chapter V deals with submission of the budgets by the trustees of certain trusts and maintenance
of accounts.
Chapter V-A concerns the investment of public trust
money and restrictions on alienations of trust property. Chapter VI deals
with control.
It mak•es provisions for supervision and control over
public trusts, for issuing directions by the Commissioner, for sus.pen··
sion •and removal of trustees and for protection of charities in general.
A review of the relevant provisions in these chapters can only lea.d . to
the conclusion that the provisiO'n.s are enacted with a view that public
trusts are administered for the purpose intended by the authors of the
trusts and for preserving the trust properties from waste and misappropriation by trustees. Taking precautio!l'ary measures to see that
public trusts are administered for the purposes intended by the authors
of the trusts and exercising control and supervision with a view to
preserve the trust properties from berag wasted or misappropriated by
trustees are certainly special services for tqe benefit of the trust. 111.erefore. there is no substance in the argument that no special benefits
were or are being conferred up on the public trusts in administt:rins
the provisions of the Act.
.
The question then is whether, by reason ot the accumulation of
iurplus from 19.53 O'awards, the levy of contribution became a tax
and if it became a tax, the point of time at which the levy assumed
that character. It is not dispute that the collections by way of contribution exceeded the expenditure from 1953 onwards.
The respondent submitted tlrat surplus must be taken into consideration in determining the character of the levy. Relying upon the
decisions in Mukundaraya v. State of Mysore( I)
and
Dal,pathbhai
Hemchand v. Chansma Municipality,(') the respondent
contended
(I) [1965) 2 S. C, R. 477.
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MAHARASHTRA v. SALVATION ARMY (Mathew, J.)
48 5
that the benefit of the surplus should go to those who have to pay the
contributions and that ihe rate of the levy should at any rate be reduced ~o as to Il1aintain the just relation between the levy and the
services. In other words, the argument was that if it is found that the
fee imposed resulted in surplus, the rate of the subsequent imposition
should correspondingly be reduced so that it may be commensurate
with the expenses ihat are to be incurred in connection with the services.
As we said, the fee must, as far practically as possible, be commensurate with the services rendered.
One should not seek for any
mathematical accuracy in these matters but be content with rough
approximations.
The services are mostly rendered by the officers of
the Chariiy Organisation.
With the proliferation of public trusts in
the State it became necessary to expand the Charity OrganisatiO'a and
to increase the staff for supervision and control. It also became necessary to have more regional offices for the more effective and immediate
supervision a',1d control.
The expenditure in constructing buildinwi
for locating the head office and regional offices and the increase in the
allowances oi other amenities to the staff have also to be included in
the costs of the services. When there is surplus, it cannot immediately
be said that the surplus must necessarily go in reduction of the rate
of contribution to be levied thereafter. We thi·ilk that it would neither
be expedient nor prudent to lay down any abstract'proposition that
whcne.vc there is surplus in a particular year or a number of yC'ar~.
that surplus must always be taken into consideration and the rate of
the .contribution should be reduced for the next year or subsequrnt
years.
An organisation like the one in question may have to incur
capieal expend iturc fer the better administration of the trusts and it
might not be able to foresee an the contingencies in which such expe'Dditurc will have to be incurred for thr more efficient working ot
the orranisation.
Thi<> Court ha.s expr1;sslv stated in the Delhi Cloth
and General Mills case (supra)" that services worth 61 per cent of
contribution would be sufficient quid pro quo to make a lt:"y a fee.
So, when we find that in this case the organiS'ation has been rendering
services worth 62. per cent of the contributiO'il, it cannot per se be said
that there is no correlation between the fee levied and the services
rendered. But at the same time when it is seen that after taking into
account the capital and other expenditure necessary for the efficient
functioning of the orga•niS'ation for the better administration of the
trusts, a large surplus is still left, then the question will arise whether
it is permissible for the organisation to continue the levy at the same
rate which will only result in further surplus and to invest this surplu~
solely for earning income or to divert the surplus for other objects,
though charitable in nature. We do not thhk any such levy for investment or diversion of the surplus would be consistent with the principle
behind the levy of a fee.
Whili: we do not think it necessary that all
available surplus in a year or for some years should always go in for
reducing the rate of contribution for the subsequent year. or year8,
. ---·-------......:.-
(I) A.I.R. [19601 Mysore 18.
(2) A.I,R. [1968] Gujarat 38.
486
SUPREME COURT REPORTS
(1975] 3 ,il.C.R.
we are of the view that the organisatio11 cannot be allowed to accumulate an unreasonable amount unreasonable in the sense that the
amount might not be re1asonably required for the proper and efficient
working of the organisation in a foreseeable future.
No hard and
fast rule appltcable i'il all contingencies can be formulated. The Court
will have to draw a line somewhere when the surplus mu~t be taken
into considerarion for reducing the levy of contribution. In drawingi
rhe line, the Court will have to look into the nature of the organisation.
the poteutiality for its growth, the multiplication in its work coasequent on its expansion for rendering the services visualized by the
Act and the nccessily for capital exrenditure in the near future, as
also the amount of hvy collected or expected to be collected in a
year. As already stated, the Division Bench was of the view that the
~tage when the surplus must be taken into account to determine the
character of the levy was reached by the end of March, 31, 1958 when
the available surplus came to Rs. 30,44,541/-. The Division Bench
was alive to the desirability of locating the head office and regional
offices in buildings to be owned by the organisat10n and incurring of
capital expenditure in that behalf.
The Charity Organisatioa
has
purchased a building worth about Rs. 30 lakhs.
Even according to
the Division Bench, investment of the surplus in buildings for locating)
the head and regiona.l offices cannot be said to be diversion of the
surplus for purposes alien to the object of the orga•aisation, namely,
the better administration of the trusts. Therefore, we do not think that
the contribution had assumed the character of a tax at the end of
March, 1958.
The surplus in the account of the Public Trusts Administmtiou
Fund at the end of March, 1970, was Rs. 84,49,473/- after meetinl§
the capital expeuditure of Rs. 17,46,794/- ir:curred during the years
1953 to 1970. In the: figure of Rs. 84,49,473 /- is included the figur~
of Rs. 7,06,016/-, the accumulated balances under the repealed enactments tran~.ferred to the Public Trusts Administration Fund, plus
interest of Rs. 7,13,004/- on the said figure vide exhibit No. 3. Even
deducting the Rs. l.4 lakhs from Rs.