# ·c NEW DELHI MUNICIPAL COUNCIL v. STATE OF PUNJAB ETC. ETC

- **Citation:** [1996] Supp. 10 S.C.R. 472
- **Court:** Supreme Court of India
- **Decided:** 1996-12-19
- **Case number:** Civil Appeal Nos. 1388-90 of 1975
- **Bench:** Am. Ahmadi, J.S. Verma, S.C. Agrawal, B.P. Jeevan Reddy, Dr. As. Anand, B.L. Hansaria, S.C. Sen, K.S. Paripoornan, B.N. Kirpal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-new-delhi-municipal-council-v-state-of-punjab-etc-etc-14692
- **Pages:** 113

## Headnote

Constitution of India, 1950 :
Articles 285 and 289-Exemption of property of Union from State
taxation and exemption of property and income of State Government.; from
Union taxation-Held, the immunity created under Article 285(1) in favour
of the Union is absolute, but the immunity created under Article 289( 1) in
D favour of the States is qualified by clause (2) and it can be denied by way of
a law made by parliament authorising imposition of any tax in respect of a
trade or business carried on by or on behalf of the Government of a State or
any property used or occupied for the purpose of such trade or business--Punjab Municipal Act, 1911, Delhi Municipal Corporation Act, 1957 and New
Delhi Municipal Council Act, 1994 are enactments with reference to Article
E 289(2) and tax levied thereunder on properties owned by the State Governments and used or occupied for the purpose of trade or business is valid-It
ca1111ot be said that unless the law made under and with reference to Article
289(2) specifies the particular trading or business operations to be taxed, it
would not be a law within the meaning of clause (2)-Punjab Municipal Act,
F
1911, Delhi Municipal Corporation Act, 1957 and New Delhi Municipal
Council Ac~ 1994---Govemment of India Ac~ 1935-Ss. 154 and 155.
Mieles 246 and 289-Union taxation-Held, any tax levied within a
Union Territory is "Union Taxation"---Parliament is law making body for
G Union Territories-Legislatures for Union Territories under Government of
India Territories Act, 1963 are created by parliament.
Articles 1(2), 239-A, 239-AA, 239-B, 245(1), 246, 285 and
289-"State''-Held, Union Territory of Delhi is not "State''within the meaning
of Articles 246, 285 and 289-Definition of State providing in s. 3(58) of
H · General Clauses Ac~ 1897 is inapplicable to Article 246.
472
N.D.M.C. v. STAIB
473
Article 142----Exercise of power by Supreme Cowt-Judgment to be A:
operative prospectively.
Centre State, Relation~Taxation-Inter-govemmental immunity--
Maintaining balance between Union and State~~suggestion to Union of
India.
Punjab Municipal Act, 1911/Delhi Municipal C01poration Act,
1957/New Delhi Municipal Council Act, 1994:
B
S.61/s. 115(4)/s.62-Properties of State Govemme11ts situated withi11
U11io11 Territory of Delhi-Levy of tax on--Held, the provisions purport to levy C
tax 011 properties of States as well-But prope1ties used for purposes of
Govemme11t a11d 11ot for purposes of trade or busi11ess are exempt under
clause ( 1) of Article 289 of the Constitutio11.
Doctri11e of i11ter-govemmental immu11ity : bnmu11ity from intergovemmel!tal taxation-Applicability of with refere11ce to Co11stitution of D
India.
/11terpretation of Statutes :
Co11stitutio11ality of Statutes-Presumption-There is al'ways a
presumptio11 of constitutionality of a statute-What is 11ot covered by the E
constitutio11al ba11 should be held to be applicable and effective--Doctrine of
Presumption of constitutio11ality of Legislations.
Word!' and phrases :
''Property''-Occurri11g in Article 289(1) of the Constitution-Meaning F
of
The appellant, New Delhi Municipal Committee, which continued to
be governed at the relevant time by the Punjab Municipal Act, 1911, levied
property tax on the immovable properties of the respondent-States
situated within the Union Territory of Delhi. The respondents filed writ G
petitions before the High Court challenging the levy and ·the demand on
the ground that the properties of the State Governments were, by virtue of
Article 289(1) of the Constitution, 'exempt from property taxes levied under
the municipal enactments in force in the Union Territory of Delhi. The
High Court, allowed the writ petitions. Aggrieved, the N.D.M.C. filed H
474
SUPREME COURT REPORTS[l996) SUPP.10 S.C.R.
A , appeals before this Court The appeals along with some other petitions were
listed before a Division Bench of this Court, which felt that in view of the
'
previous decisions of the Court, the matter should be heard by a larger B

## Text

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A
B
·c
NEW DELHI MUNICIPAL COUNCIL
v.
STATE OF PUNJAB ETC. ETC.
DECEMBER 19, 1996
[AM. AHMADI, CJ., J.S. VERMA, S.C. AGRAWAL, B.P. JEEVAN
REDDY, DR. AS. ANAND, B.L. HANSARIA, S.C. SEN, K.S.
PARIPOORNAN AND B.N. KIRPAL, JJ.)
Constitution of India, 1950 :
Articles 285 and 289-Exemption of property of Union from State
taxation and exemption of property and income of State Government.; from
Union taxation-Held, the immunity created under Article 285(1) in favour
of the Union is absolute, but the immunity created under Article 289( 1) in
D favour of the States is qualified by clause (2) and it can be denied by way of
a law made by parliament authorising imposition of any tax in respect of a
trade or business carried on by or on behalf of the Government of a State or
any property used or occupied for the purpose of such trade or business--Punjab Municipal Act, 1911, Delhi Municipal Corporation Act, 1957 and New
Delhi Municipal Council Act, 1994 are enactments with reference to Article
E 289(2) and tax levied thereunder on properties owned by the State Governments and used or occupied for the purpose of trade or business is valid-It
ca1111ot be said that unless the law made under and with reference to Article
289(2) specifies the particular trading or business operations to be taxed, it
would not be a law within the meaning of clause (2)-Punjab Municipal Act,
F
1911, Delhi Municipal Corporation Act, 1957 and New Delhi Municipal
Council Ac~ 1994---Govemment of India Ac~ 1935-Ss. 154 and 155.
Mieles 246 and 289-Union taxation-Held, any tax levied within a
Union Territory is "Union Taxation"---Parliament is law making body for
G Union Territories-Legislatures for Union Territories under Government of
India Territories Act, 1963 are created by parliament.
Articles 1(2), 239-A, 239-AA, 239-B, 245(1), 246, 285 and
289-"State''-Held, Union Territory of Delhi is not "State''within the meaning
of Articles 246, 285 and 289-Definition of State providing in s. 3(58) of
H · General Clauses Ac~ 1897 is inapplicable to Article 246.
472
N.D.M.C. v. STAIB
473
Article 142----Exercise of power by Supreme Cowt-Judgment to be A:
operative prospectively.
Centre State, Relation~Taxation-Inter-govemmental immunity--
Maintaining balance between Union and State~~suggestion to Union of
India.
Punjab Municipal Act, 1911/Delhi Municipal C01poration Act,
1957/New Delhi Municipal Council Act, 1994:
B
S.61/s. 115(4)/s.62-Properties of State Govemme11ts situated withi11
U11io11 Territory of Delhi-Levy of tax on--Held, the provisions purport to levy C
tax 011 properties of States as well-But prope1ties used for purposes of
Govemme11t a11d 11ot for purposes of trade or busi11ess are exempt under
clause ( 1) of Article 289 of the Constitutio11.
Doctri11e of i11ter-govemmental immu11ity : bnmu11ity from intergovemmel!tal taxation-Applicability of with refere11ce to Co11stitution of D
India.
/11terpretation of Statutes :
Co11stitutio11ality of Statutes-Presumption-There is al'ways a
presumptio11 of constitutionality of a statute-What is 11ot covered by the E
constitutio11al ba11 should be held to be applicable and effective--Doctrine of
Presumption of constitutio11ality of Legislations.
Word!' and phrases :
''Property''-Occurri11g in Article 289(1) of the Constitution-Meaning F
of
The appellant, New Delhi Municipal Committee, which continued to
be governed at the relevant time by the Punjab Municipal Act, 1911, levied
property tax on the immovable properties of the respondent-States
situated within the Union Territory of Delhi. The respondents filed writ G
petitions before the High Court challenging the levy and ·the demand on
the ground that the properties of the State Governments were, by virtue of
Article 289(1) of the Constitution, 'exempt from property taxes levied under
the municipal enactments in force in the Union Territory of Delhi. The
High Court, allowed the writ petitions. Aggrieved, the N.D.M.C. filed H
474
SUPREME COURT REPORTS[l996) SUPP.10 S.C.R.
A , appeals before this Court The appeals along with some other petitions were
listed before a Division Bench of this Court, which felt that in view of the
'
previous decisions of the Court, the matter should be heard by a larger Bench;
and ultimately the matter was referred to a Bench of nine Judges.
It was contended for the N.D.M.C. that the property taxes levied
B either under the Punjab Municipal Act, 1911 or under the Delhi Municipal
Corporation Act, 1957 pertain to the State List (List-II of the Seventh
Schedule to the Constitution) and cannot be characterised as "Union
taxation" under Article 289(1); and, therefore, the States were bound to
pay the taxes to the N.D.M.C. or to the Municipal Corporation of Delhi.
c
The contention of the respondent-States was that a Union Territory
is not a "State" within the meaning of Article 246. It was submitted that
the Punjab Municipal Act, 1911 (as extended and applied to the Union
Territory of Delhi by part 'C' States (Laws) Act, 1950) and the Delhi
Municipal Corporation Act, 1957 were Parliamentary laws enacted under
D and by virtue of the legislative power vested in the Parliament by clause
( 4) of Article 246; the taxes levied by the said enactments thus constituted
"Union Taxation" within the meaning of Article 289(1) and, therefore, the
properties of the States in the Union Territory of Delhi were exempt from
the property tax.
E
F
Disposing of the matters, this Court
HELD : Per Curiam :
(i) Any tax levied within a Union Territory is a "Union taxation".
(ii) Union Territory of Delhi is not a "State" within the meaning of
Articles 246, 285 and 289'
1of the Constitution.
(iii) Article 289(1) of the Constitution generally exempts the property
and income of the States from Union taxation. But this exemption is
G subject to clause (2) of Article 289 which confers upon the Parliament the
power to enact law to tax commercial activities of State Governments. The
three clauses of Article 289 are interlinked; clause (2) of Article 289 is an
exception to clause (1) and clause (3) is an exception to clause (2).
Per Jeevan Reddy J. (For himself and for Dr. A.S. Anand, Suhas C.
H Sen, KS. Paripooman and B.N.Kirpal, JJ.)
N.D.M.C. v. STATE
475
1. The levy of property taxes under the Punjab Municipal Act, 1911, A
the Delhi Municipal Corporation Act, 1957 and the New Delhi Municipal
Council Act,
1994, on lands and/or buildings belonging to the State
Governments is invalid and incompetent by virtue of the mandate contained in clause (1) of Article 289 of the Constitution. However, if any land
or building is used or occupied for the purpose of any trade or business B
carried on by or on behalf of the State government, such land or building
Shall be subject to levy of property taxes levied by the said enactments.
State property exempted under clause (1) means such property as is used
for the purpose of government and not for the purpose of trade or
business. [523-D-E]
2.1. The Property taxes levied by and under the Punjab Municipal
Act, 1911 the Delhi Municipal Corporation Act, 1957 and the New Delhi
Municipal Council Act, 1994 constitute "Union taxation" within the meaning of clause (1) of Article 289 of the Constitution of India. [523-C]
c
Re. the Bill to amend Section 20 of the Sea Customs Act, 1878 and D
Section 3 of the Central Excises and Salt Act, 1944, [1964] 3 S.C.R. 787,
relied on.
2.2. Any tax levied by the legislative body of a Union Territory is
"Union taxation" within the meaning of Article 289(1); it cannot be called E
"State taxation". Under the constitutional scheme, there is no third kind
of taxation. Either it is Union taxation or State taxation. [503-D]
2.3. Article 1(2) read with Article 245(1) shows that in respect of the
Union Territories the only law making body is the Parliament. The legislature of a State cannot make laws for a Union Territory; it can make laws F
only for the State. Clause (1), (2) and (3) of Article 246 speak of division
of legislative powers between the Parliament and the State legislatures.
This division is only between the Union and the States. There is no division
of legislative powers between the Union and the Union Territories. Similar-
.
.
Iy there is no division of legislative powers between States and Union
Territories. There is no such thing as List-I, List-II or List-III as regards G
the Union Territories. For them, it is clause ( 4) of Article 246 that is
relevant; it indicates that the only legislative body is Parliament • or a
legislature created by it · which has power to make laws for a Union
Territory with respect to any matter notwithstanding that such matter is
a matter enumerated in the State List. (502-D-F]
H
476
SUPREME COURT REPORTS[1996) SUPP. 10 S.C.R.
A
3.1. Union Territories are not "States" within the meaning of Article
B
246 (or for that matter Chapter I of Part XI) or Part VI or Articles 285 to
289 of the Constitution. The context of Article 246 - indeed of Chapter I in
Part XI - excludes the application of the amended definition of 'State' in
s. 3(58) of the General Clauses Act, 1897. [508-B; 507-B]
T.M: Kanniyan v. Income Tax Officer Pondicherry & Anr., [1968] 2
S.C.R. 103, relied on.
Management of Advance lllsurance Co. Ltd. v. Shri Gurndasmal &
Ors., [1970] 3 S.C.R. 881; Shiv Kirpal Singh v. Shri V.V. Giri, [1971] 2 S.C.R.
C 197; Mithan Lal v. The State of Delhi & Anr., [1959] S.C.R. 445; Satpal &
Co. v. Lt. Govemor, [1979] 3 S.C.R. 651, referred to.
3.2. During the period intervening between the Constitution Seventh
(Amendment) Act, 1956 and the Constitution Fourteenth (Amendment)
Act, 1962, there was no provision for a legislature for any of the Union
D Territories. Article 239-A in Part-VII - "The Union Territories" - (which
before the Seventh Amendment was entitled "The States in Part-C of the
First Schedule") introduced by Constitution Fourteenth (Amendment) Act,
1962 did not· itself create a legislature for Union Territories; it merely
empowered the Parliament to create them for certain specified Union
E territories (excluding Delhi) and to confer upon them such powers as the
Parliament may think appropriate. Accordingly the Parliament created
legislatures for Union Territories under the Government of Union Territories Act, 1963. [495-F-G; 504-G]
3.3. The Legislature created for certain Union Territories under the
F 1963 Act were not legislatures in the sense used in Chapter-III of Part-IV
of the Constitution, but were mere creatures of the Parliament-some sort
of subordinate legislative bodies. They owe their existence to and derive
their powers from the Act of the Parliament and are subject to its overriding authority. The State legislatures contemplated by Chapter-I of Part-XI
G are the legislatures of States referred to in Chapter-III of Part VI and not
the legislatures of Union Territories created by. the 1963 Act. [495-F-G]
3.4. Delhi had no legislatures with effect from November 1, 1956 until
the one created under and by virtue of the Constitution Sixty-Ninth
(Amendment) Act, 1991. Even here the legislature so created is not a full
1 H fledged legislature nor would it have the effect of - assuming that it would
;
N.D.M.C. v. STATE
477
• lifting the National Capital Territory of Delhi from Union Territory A
category to the category of States within the meaning of Chapter-I of Part
XI of the Constitution. Artick 239-B read with clause (8) of Article 239-AA
shows that the Union Territory of Delhi is in a class by itself but is certainly
not a State within the meaning of Article 246 of Part VI of the Constitution.
It is a Union Territory governed by Article 246(4). [505-A-C]
4.1. Power to tax is an incident of sovereignty. Basic premise is that
one sovereign cannot tax the other sovereign. Articles 285 and 289 manifest
B
this mutual regard and immunity but in a manner peculiar to our constitutional scheme. While the immunity created under Article 285(1) in
favour of the Union is absolute, the immunity created under Article 289(1) C
in favour of the States is a qualified one • qualified by clause (2) and it
can be denied by way of a law made by Parliament authorising the imposition of any tax in respect of a trade or business of any kind carried on by
or on behalf of the Government of a State or any operation connected
therewith or any property used or occupied for the purpose of such trade
or business. Clause (1) is thus qualified by clause (2) which in turn is D
qualified by clause (3). Clause (2) is an exception to clause (1) and clause
(3) is an exception to clause (2). [497-E-H]
Re, the Bill to amend Section 20 of the Sea Customs Act, 1878 and
Section 3 of the Central Excises and Salt Act, 1944, [1964] 3 S.C.R. 787 and E
Andhra Pradesh State Road Transport Corporation v. 77ie Income Tax
Officer, [1964] 7 S.C.R. 17, relied on.
R. C. Cooper v. Union of India, [1970] 1 S.C.C. 248, referred to.
4.2. When a claim for exemption is made under clause (1) of Article
289, as has been made in the instant case, Court has to examine and
determine the field occupied by clause (1) by reading clauses (1) and (2)
together. If there is a law within the meaning of clause (2), the field
occupied by clause (1) gets curtailed to the extent specified in clause (2)
and the law made thereunder. [510-D; 518-C]
F
G
4.3. Validity of the Punjab Municipal Corporation Act, 1911, the
Delhi Municipal Corporation Act, 1957 and the NDMC Act can be sustained with reference to clause (2) of Article 289. Delhi Municipal Corporation Act, 1957 was enacted by Parliament. Hence, so far as the Delhi
Municipal Corporation area is concerned, the taxes are levied under and H
478.
SUPREME COURT REPORTS(1996) SUPP. IO S.C.R.
A
by virtue of a Parliamentary enactment. So far as the New Delhi Municipal
Council area is concerned, the taxes were levied till 1994 under the Punjab
Municipal Act, 1911 as extended and applied by the Part 'C' State (Laws)
Act, 1950 enacted by Parliament. Extension of an Act to an area has the
same effect as if that Act been made by the extending legislature for the
B area. Therefore, with effect from 1950, it is as if the property taxes are
levied by a Parliamentary enactment. In 1994, of course, Parliament itself
enacted the New Delhi Municipal Council Act (with effect from May 25,
1994) repealing the Punjab Municipal Act. Taxes levied under these
enactments cannot but be Union taxation-Union taxation in a Union
Territory._[508-C-I); G-H]
c
4.4. Since there is always a presumption of constitutionality in
favour of the statutes and also because the declaration of invalidity or
inapplicability of a statute should be only to the extent the enactment is
clearly outside the legislative competence of the legislative body making it
D or is squarely covered by the ban or prohibition in question, the declaration of invalidity should not extend to the extent the enactments can be
related to and upheld with reference to some constitutional provision, even
though not cited by or recited in the enactment. Similarly, the 4eclaration
of inapplicability should only be to the extent the law is plainly covered by
the ban or prohibition, as the case may be. What is not covered by the
E constitutional bar should be held to be applicable and effective. [519-D-F]
Charanjit Lal Chowdhmy v. Union of India, [1950] S.C.R. 869 ;
Burrakur Coal Co. v. Union of India, A.l.R. (1961) S.C. 654 at 963 = [1962]
1 S.C.R. 44; Sanjeev Coke Manufactwing Co. v .. Mis. Bharat Coking Ltd. &
p Anr., A.l.R. (1983) S.C. 239 = [1983] 1 S.C.C. 147; Ram J?islma Dalmia
v. Justice Tendolkm; [1959] S.C.R. 279 and Rt. Rev. Msqor. Mark Netto v.
State of Kamataka & Ors., [1979] 1 SCC 23, referred to.
4.5. Section 61 of the Punjab Municipal Act, 1911, s. 115(4) of the
Delhi Municipal Corporation Act, 1957, ands. 62 of the N.D.M.C. Act levy
G property tax on all the properties within their~uri~diction. From the fact
that properties of the Union have been specifically exempted in terms of
Article 285 but the properties of the States have not been exempted in
terms of.Article 289 shows that so far as these enactments go, they purport
to levy tax on the properties of the States as well. The omission cannot be
H unintentional - particularly'ip the case of Delhi Municipal Corporation
N.D.M.C. v. STATE
479
Act and NDMC Act. The intention is clear and obvious : the enactments do not A
wish to provide for any exemption in favour of properties of the State situated
within their respective jurisdiction. Taxes are levied on all properties within their
jurisdiction (except the properties specifically exempted), irrespective of \tlio
ows them and to what use they are put. [518-E; 519-A]
5.1. The Punjab Municipal Act, the Delhi Municipal Corporation Act
and the New Delhi Municipal Council Act are inapplicable to the proper·
ties of State governments to the extent such properties are governed and
saved by clause (1) of Article 289. In so far as properties used or occupied
for the purpose of a trade or business carried on by the State government
B
are concerned, the ban in clause (1) does not avail them and the taxes C
thereon must be held to be valid and effective. [522-D]
5.2. The expression "property'' occurring in Article 289(1) 1s mdubitably much wider than the expression "lands and buildings" as occurring in s. 155 of the Government of India Act, 1935, the predecessor of
Article 289. The expression has to be given its natural and proper meaning.
It includes not only lands and buildings but all forms of property. [514-D]
D
5.3. Both s. 155(1) of Government of India Act, 1935 and Article
289(1) exempt the income as well derived by a Provincial Government/State
Government from Union taxation. Both the property and income of the E
State are thus exempt under clause (1) of Article 289 subject, of course, to
clause (2) therefore. The language of proviso (a) to s. 155 and of clause (2)
of Article 289 is practically identical. The proviso says that where a trade
or business of any kind is carried on by or on behalf of the government of
a Province in any part of British India (outside that Province), nothing in
the sub-section shall exempt that Government from any federal taxation in F
respect of that trade or business or any operations connected therewith or
any income arising in connection therewith or any property (i.e., lands and
buildings) occupied for the purpose thereof. [514-F-H; 515-A]
Board of Revenue v. A.M. A11sa11; [1976] 3 S.C.C. 512 and State of G
Gujarat v. Raipur Manufacturing Company, [1967] 1 S.C.R. 618, referred to.
Town Investments Limited v. Department of Environment, [1977] 1 All.
E.R. 813 • H.L., referred to.
5.4. It cannot be said that unless the law made under and with H
480
SUPREME COURT REPORTS(l996) SUPP.10 S.C.R.
A reference to Clause (2) of Article 289 specifies the particular trading or
business operations to be taxed, it would not be a law within the meaning
of clause (2). The proviso to s. 155(1), which by its own force levied taxes
upon the trading and business operations carried on by the provincial
Governments, did not either define the said expression or specily which.
B trading or business operations are subject to taxation, on this account, the
proviso was not and could not be said to have been in-effective or unenforceable. Clause (2) of Article 289 also similarly does not define or specify
- nor does it require that the law made thereunder should so define or
specify. [515-C-D]
C
5.5. In the light of the language of the proviso to section 155 and
clause (2) of Article 289, it is not possible to say that every activity carried
on by the government is governmental activity. A distinction has to be
made between governmental activity and trade and business carried on by
the government, at least for the purposes of this clause. It is for this reason
that unless an activity in the nature of trade and business is carried on
D with a profit motive, it would not be a trade or business contemplated by •
clause (2). Where there is no profit motive involved in any activity carried
on by the State government, it cannot be said to be carrying on a trade or
business within the meaning of the proviso/clause (2), merely because some
profit results from the activity. [515-G-H; 516-B]
E
6.1. It is for the appropriate assessing authorities under the relevant
enactments to determine with notice to the effected State government,
which land or building is used or occupied for the purposes of of any trade
to business carried on by or on behalf of that State government. [522-F]
F
6.2. The assessing authorities have to decide several questions including the questions whether any land or building is being used for "charitable
purpose" or "public worship" or whether a land is an "agricultural land".
These are difficult c1uestions. But, for this reason, neither the exemption
can be held to be ineffective nor the authorities can be said to have no
G jurisdiction to decide these questions. Appeals are provided to civil courts
against the orders of the assessing authorities. [522-H; 523-A]
7. This judgment shall operate only prospectively. It will govern the
Financial Year 1996-97 (commencing on April 1, 1996) and onwards. For
this purpose power under Artide 142 of the Constitution is invoked for the
H reasons : (a) according to the judgment under appeal, the properties of the
,.
N.D.M.C. v. STATE
481
States were exempt in toto whereas according to this judgment, some of the A
properties of the State situated within the Union Territory of Delhi may
become liable to tax. The assessees are the State governments and the taxes
are being levied under a Parliamentary enactment. This inter-State character of the dispute is a relevant factor; (b) from the year 1975 upto now,
there have been no assessments because of the judgment of the High Court; B
and (c) retrospective assessment of properties under relevant enactments
appears to be a doubtful proposition • at any rate, not an advisable thing
to do in all the facts and circumstances of this case. [523-G-H; 524-A-B]
8. It is for the Union of India to consider whether any steps are to
be taken to maintain the balance between the Union and the States in the C
matter of taxation. [583-B]
Per Ahmadi, GI (For himself vmd for J.S. Venna, S. C. Agrawal and
B.L. Hanswia, JJ.) - Expressing contrwy view 011 the question whether the
impugned legislations are enactments withi11 the meaning of clause (2) of
Article 289.
D
1. The term "Union taxation" occurring in Article 289(1) of the
Constitution would mean "all taxes leviable by the Union" and it includes
within its ambit taxes on property levied within Union Territories; therefore, the State can avail of the exemption provided in Article 289(1) in E
respect of their properties situated within Union Territories. [584-D]
Re: The Bill to amend Section 20 of the Sea Customs Act, 1878 and
section 3 of the Central Excises and Salt Act, 1944, [1964] 3 SCR 787 and
Andhra Pradesh State Road Transport Corporation v. 171e Income-Tax Officer & Anr., [1969] 7 SCR 17, relied on.
F
2.1. The term "Union Taxation" can and should be given the widest
amplitude, allowing it to encompass all taxes that are levied by the
authority of Parliamentary laws. As Clause (4) of Article 246 itself envisages situations where Parliame_nt is to make laws in respect of matters G
in the State List, it cannot be said that this is a rare or an unusual
circumstance. The Constitution does not contain any provision which
~
would indicate that the definition of "Union Taxation" should be restrictively interpreted so as to be within the confines of Article 246(1). Unless the
context requires otherwise· as in the case of Articles 249, 250, 252, 253 and
the Emergency Provisions in Part XVIII of the Constitution • the broad H
482
SUPREME COURT REPORTS(1996) SUPP. 10 S.C.R.
A definition of "Union Taxation" embracing all taxes Ieviable by Parliament
ought to be accepted for the purpose of interpreting Article 289(1).
'
,/
. , ., ·
[566-E-H; 567-A]
2.2. Under our Constitutional scheme, all taxation must fall within
eit~er of two)!jttegories; State Taxation or Urban Taxation. The phrase
B "Union Taxatfon'' will encompass Municipal taxes levied by Municipalities
in Union Territories. Since it is axiomatic that taxes levied by authorities
within a State, \YOUld amount to State taxation it would appear that the
words "or by any authority within a State" have beehadded in Article 285(1)
by way of abundant caution. [571-F]
C
3.1. The definition of 'State' provided in s. 3 (58) of the General
Clauses Act, 1897 which declares that the word 'State would include 'Union
Territory', is inapplicable to Article 246(4). [584-C]
T.M. Kanniyan v. Income-Tax Office1; Pondicheny & Anr., [1968] 2
D S.C.R. 103, relied on.
Management of Advance Insurance Co. Ltd. v. Shri Gwudasmal & Ors.,
(1970] 3 S.C.R. 881; Satya Dev Bushahri v. Padam Deo and Ors., [1955] 1
S.C.R. 549; Satya Dev Bushahri v. Padam Deo and Ors., [1955] 1S.C.R.561;
The State of Madhya Pradesh v. Shri /v,{aula Bux & Ors., [1962] 2 S.C.R. 794;
E Ram Kishore Sen v. Union of India, [1966] 1 S.C.R. 430 and S.K. Singh v.
Shri V.V. Giri, [1971] 2 S.C.R.197, referred to.
"
3.2. Under the scheme of the Indian Constitution, the position of the
Union Territories cannot be equated with that of the States. They are under
the supervision of the Union Government. Despite the fact that, of late,
F Union Territories have been granted greater powers, they continue to be very
much .under the control and supervision of the Union Government for their
governance. It cannot be said that their position is akin to that of States. ·
Though they do have a separate identity within the Constitutional
framework, this will not enable them to avail of the privileges available to
G the States. It is possible that since Parliament may not have enough time at
its disposal to enact entire volumes of legislations for certain Union Territories, it may decide, at least in respect of those Union Territories whose
importance is enhanced on account of the size of their territories and their
geographical location, that they should be given more autonomy in legislative matters. However, these changes will not have the effect of making such
H Union Territories as independent as the States. [566-C; 565-E-G]

484
SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.
A
Mc Culloch v. Ma1yland, 4 L. Ed 579 (1890) and South Carolina v.
United States, 199 U.S. 437 (1905) & Collector v. Day, 11. Wall. 113 (1871),
referred to.
B. Shiva Rao, The Framing of the Indian Constitution : A Study N.M.
B Tripathi Pvt. Ltd., Bombay (1968) pp. 649-99, referred to.
4.3. Comparing the text of Section 154 and 155 of Government of
India Act, 1935 it becomes clear that even under the scheme of the Act, the
ambit of the reciprocal immunities was not equal in length and breadth;
while Section 154 exempted the property of the Federal Government from
C "all taxes'', the Provincial Governments and Rulers of Federated States were
entitled to an exemption only in respect of "lands or buildings" situated in
British India and "Income" accruing thereof. The present Article 285 is
much the same as its predecessor Section 154. [556-H; 557-A; 558-D]
D
4.4. Under the scheme of the 1935 Act, those lands or buildings of
the Provinces and Federated States which were situated within the Chief
Commissioner's Provinces. were, by virtue of Section 155(1), exempted
from Federal Taxation. There can be no dispute about such a construction
of the provision for, otherwise, the exemption in Section 155(1) would have
E no meaning. Section 155(1) formed the basis for the present Article 289(1)
and, having closely examined the various stages by which Article 289(1)
replaced Section 155(1), this position was never sought to be deviated
from. The presumption, therefore, is that it was the intention of the
framers of the Constitution to maintain the status quo with respect to the
position regarding the Chief Commissioner's provinces which are now
F called "Union Territories". [567-C-F]
4.5. Unlike other Federations, the Union of India has a sizeable
territory of its own comprising the Union Territories which have been
specified in the First Schedule to the Constitution. Therefore, the reciproG cal inter-governmental immunity bestowed by the Constitution in Articles
285 and 289 is given fuller meaning by virtue of the adoption of the wider
meaning of "Union Taxation"; this would mean that, just as the properties
of the Union are exempt from taxes on property leviable by the States, the
properties of the States will also be exempt from taxes on property leviable
H by the Union in areas falling within its territorial jurisdiction. [567-F-G]
N.D.M.C. v. STATE
485
4.6. The Framers of Constitution did not expressly confer upon the A
Union the power to tax commercial activities of State Governments. The
exercise of such a power is made conditional upon the enactment of a
special, duly considered, legislation. It is also important to note that clause
(2) of Article 289 has made a departure from the proviso to Section 155(1).
Under the present scheme, the power to tax is not automatic and the B
responsibility of specifying the trading and business activities of State
Governments which would be liable to Union Taxation is expressly vested
in Parliament. [579-F-G]
Mc Cu/loch v. Maryland, 4. L Ed. 579 (1890); South Carolina v. United
States, 199 U.S. 437 (1905); New York v. United States 326 U.S. 572; 90 L. C
ED. 326 (1946) and South Australia v. Commonwealth, (1942) 65 C.L.R. 373,
referred to.
A Note on wtain clauses by the Constitutional Adviser, B. Shiva Rao,
Vol. III, p. 197; Report of the Expert Committee, B Shiva Rao, Vol. III p.
260; Text of draft Article 266, B. Shiva Rao, Vol. IV, p. 676; Revised draft by D
the Ministry of Finance, B. Shiva Rao, Vol. IV, pp. 731- 732 and Constituent
Assembly Debates, Vol. IX pp. 1167-69, referred to.
5.1. The Punjab Municipal Act and the Delhi Municipal Corporation
Act do not and cannot purport to be laws made by Parliament under E
Article 289(2). They are ordinary Municipal legislations. Neither the Punjab Municipal Act, which is a 1911 enactment, nor the Delhi Municipal
Corporation Act, can qualify as laws under Article 289. They do not specify
which of the trading activities of State Governments aere liable to taxation;
indeed by their very nature, they cannot purport to do so. The Punjab
Municipal Act and the Delhi Municipal Corporation Act are not Parliamentary Laws in the sense envisaged by Article 289(2). Though the Act
is sought to be construed as a post-Constitutional, Parliamentary enactment, the fact remains that it is a pre-Constitutional, colonial legislation.
F
As for the Delhi Municipal Corporation Act, it is, in essence, an ordinary
Municipal legislation enacted by Parliament instead of by State legislature. G
[578-C; 580-A-B; C]
5.2. It would be quite dangerous to assume that when Parliament
enacted the Delhi Municipal Corporation Act, it had intended that the
enactment should secure the purpose enshrined in Article 289(2). While
enacting the Delhi Municipal Corporation Act, Parliament must have H
486
SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.
A 'transplanted' a municipal legislation existing in a certain State, made the
necessary changes and completed the procedural formalities. That would
explain why the Delhi Municipal Corporation Act (as also the New Delhi
Municipal Council Act, 1994) contains an exemption on the lines of the
one prescribed by Article 285 - This is a typical feature of ordinary
B Municipal legislations, which are enacted by State legislatures who are
conscious of the Mandate of Article 285. Moreover, such legislations do not
contain exemption in favour of properties of State Governments because,
within the territory of a State, the properties of other State Governments
are liable to taxation. So. when such a legislation is 'transplanted' almost
verbatim into a Union Territory, it will obviously not contain an exemption
C in favour of properties of State Governments. [580-G-H'; 581-A-B]
Ramesh Birch v. Union of India, [1989] Supp. 1 SCC 430; Gulabbhai
v. Union of India, AIR (1967) SC 1110; In Re the Central Provinces & Berar
Act No. XIV of 1938, (1939) FCR 18 and Diamond Sugar Mills Ltd. v. The
D State of U.P., [1961] 3 SCR 242, referred to.
5.3. The Doctrine of Presumption of Constitutionality of Legislations
is not one of infinite application; it has recognised limitations. There
seems to be no pressing reason for invoking the doctrine. In the face of the
actual conditions which govern the enactment of laws for Union Territories
E by Parliament, it cannot be assumed that the omission of an exemption in
the Delhi Municipal Corporation Act in favour of State Governments, is
deliberate. The Punjab Municipal Act and the Delhi Municipal Corporation Act cannot, therefore, be said to meet the special requirements which
have been expressed by the framers to be necessary for complying with the
p
spirit of Article 289(2). [581-H; 581-C-D]
6.1. The decision whether the properties of State Governments occupied for commercial purposes should be subject to the levy of Union
taxes is one that is required by Article 289(2) to be made by a legislation
which specifies the activities which would be liable to tax. This decision
G cannot be entrusted to municipal functionaries. Therefore, it cannot be
said that the properties of State Governments occupied by them for trade
or business purposes are subject to the levy of taxes under the Punjab
Municipal Act and the Delhi Municipal.~orporation Act. [583-G-H]
H
Re : 771e Delhi Laws Act case, AIR (1951) SC 324, referred to.
..
N.D.M.C. v. STATE [REDDY,J.]
487
6.2. Tl!ere is no provision in the Delhi Municipal Corporation Act A
which states that the trading and business operations of State Govern-
. ments would be subject to property taxes. The Punjab Municipal Act is
equally silent on this aspect. ~onsequently, no guidlines in this behalf are
to be found within the parameters of these legislations. Under these'
circumstances, in the complete absence of any statutory policy or any B
guidelines for the delegation of such a policy, it would be impermissible
and hazardous to directly assign such a function, any power, to executive
Municipal authorities. [583-E-F]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1388-90
of 1975 Etc. Etc.
C
From the Judgment and Order dated 14.3.75 of the Delhi High Court
in C.W. No. 342/69, 845 and 567 of 1973.
Ashok H. Desai Attorney General, B. Sen, A.M. Singhvi, A.K. Ganguli, A.S. Nambiar, U.N. Bachawat, P.P. Rao, (J. Chalmeswar) Additional D
Advocate General for State of A.P., Ranjit Kumar, Ms. Binn Tamta, Yatish
Mohan, Ms. Anu Mohla, R.K. Maheshwari, R.N. Keshwani, Vineet
Maheshwari, A. Subba Rao, B.K. Prasad, Arnn K. Sharma, Ms. Vandana
Sharma, K.B. Rohatgi, Ms. Aparna Rohatgi, Praveen Jain, Baldev Atreya,
K. Ram Kumar, Ms. Asha Nair, C. Balasubranianiam, A. Mariarputham, E
Ms .. Aruna Mathur, G. Prakash, S.K. Agnihotri, Sapam Biswajit Meitei,
Ashok Kr. Singh, (J.R. Das) 'fbr Sinha & Das Co., Prem Malhotra, K.R.
Nambiar, C.S.S. Rao, T.T. Kunhikannan, T.C. Sharma, G.M. Kawoosa for
Ashok Mathur, M.A. Firoz, Ms. Mona Chakraverty for Raj Kumar Mehta,
Aruneshwar Gupta, S.K. Ningomban, Manoj Swamp, Ms. Hemantika F
Wahi, Ms. S. Hazarika, Ms. N. Singh, Ms. M. Kaur, D.M. Nargolkar, Rajiv
Khanna for Raju Ramachandran and D.P. Mohanty for the appearing
parties.
The Judgments of the Court were delivered by
G
B.P. JEEVAN REDDY, A.S. ANAND, SUHAS C. SEN, K.S.
,
PARIPOORNAN AND B.N. KIRPAL, JJ. Article 289(1) of the Constitu-
-...
tion of India declares that the "property and income of a State shall be
exempt from Union taxation". The question in this batch of appeals is
whether the properties of the States situated in the Union Territory of H
488
SUPREME COURT REPORTS(l996] SUPP. 10 S.C.R.
A Delhi are exempt from property taxes levied under the municipal enactments in force in the Union Territory of Delhi. The Delhi High Court has
taken the view that they are. That view is challenged in these appeals
preferred by the New Delhi Municipal Council and the Delhi Municipal
Corporation.
B
c
Leave granted in the Special Leave Petitions.
Prior to 1911-12, a large part of the territory now comprised in the
Union Territory of Delhi was a district of the Province of Punjab. By a
Proclamation dated September 17, 1912, the Governor General took the
said territory under his immediate authority and management, to be administered as a separate Province to be known as the Province of Delhi.
(This was in connection with the decision to shift the Capital from Calcutta
to Delhi.) In the same year, the Delhi Laws Act, 19U (1912 Act) was
enacted. It came into force on and with effect from the 1st day of October,
D 1912. Schedule-A to the Act defined the "territory" covered by the new
Province. Sections 2 and 3 of the 1912 Act provided inter a/ia that the
creation of the new Province of Delhi shall not effect any change in the
territorial application of any enactment. One of the Acts so applying to the
territory comprised in the new Province of Delhi was the Punjab Municipal
E Act, 1911.
In the year 1915, another Act called ''The Delhi Laws Act, 1915"
( 1915 Act) was enacted. Under this enactment, certain areas formerly
comprised in the United Provinces of Agra and Oudh were included in
F and added to the Province of Delhi with effect from Ist April, 1915. Section
2 of the 1915 Act also contained a saving clause similar to Section 2 of the
1912 Act.
In the Constitution of India, 1950, as originally enacted, the First
Schedule contained four categories of States, viz., Part 'A', Part 'B' Part
G 'C' and Part D. Part 'D' comprised only of Andaman and Nicobar Islands.
The Chief Commissioner's Province of Delhi was one of the Part 'C' States.
By virtue of the Part 'C' States (Laws) Act, 1950, the laws in force in the
erstwhile Chief Commissioner's Province of Delhi were continued in the
Part 'C' State of Delhi. This Act came into force on the 16th day of April,
H 1950.
N.D.M.C. v. STATE (REDDY, J.]
489
In the year 1951, the Parliament enacted the Government of Part 'C' A
States Act, 1951. This Act contemplated that. there shall be a legislature
for each of the Part 'C' States specified therein which included Delhi.
Section 21 stated that the legislature of a Part 'C' State shall have the power
to make laws with respect to any of the matters enumerated in List-II and
List-III of the Seventh Schedule to the Constitution. In the case of Delhi B
legislature, however, it was provided that it shall not have power to make
law with respect to matters specified therein including "the constitution and
powers of municipal corporations and other local authorities, of improvement trusts and of water supply, drainage, electricity, transport and other
public utility authorities in Delhi or in New Delhi". Section 22 provided
that any law made by the legislature of a Part 'C' State shall, to the extent C
of repugnancy with any law made by Parliament, whether enacted earlier
or later, be void. It is necessary to notice the two distinctive features of the
. legislatures of Part 'C' States; not only were they created under an Act
made by Parliament, the laws made by them even with respect to any of the
matters enumerated in List-II were subject to any law made by the Parlia- D
ment. In case of repugnancy, the law made by legislature was to be of no
effect so far Delhi is concerned, the Parliament placed certain additional
fetters referred to in Section 26.
It is stated that in the year 1952, a legislature was created for Delhi
which functioned upto November 1, 1956 when the Government of Part 'C' E
States Act, 1951 was repealed by Section 130 of the States' Reorganisation
Act, 1956.