# C. RAJAGOPALACHARI v. CORPORATION OF MADRAS - **Citation:** [1964] 6 S.C.R. 962 - **Court:** Supreme Court of India - **Decided:** 1964 - **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, J. C. Shah, N. Rajagopala Ayyangar, s. M. S!KRJ - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-rajagopalachari-v-corporation-of-madras-3235 - **Pages:** 17 ## Headnote City Munici_nality Act 1919 (Act No. 4 of 1919), 1. lll(b), Government ;f India Act, 1935, ss. 142A(l), 143(2), 292, Constitution of India, Art. 271-Drawing pension-If amounts to employment or profession within the meaning of Act-Whether taxable. The appellant held office as the last Governor-General of India. He bas been drawing Rs. 15,000 prr annum as pension while residing Jn the city of Madras. The Corporation of Madras demaaded profession tax from him under section lll(i)(b) of the City Municipal Act, 191~ for the year 1958-59 on the ground of his residence tJeing within J\.fadras city and his drawing the pension to which he wa3 entitlei:I. The ap.. pellant addressed a communication to the Corporation asserting that this derpand was illegal as the Corporation was empowered by the releYant constitutional provisions merely to levy a tax "on a profession, trade calling or employment" and that as he as a pensioner did not fall under any of these classes, the said demand was illegal. The Corporation diCl not accept the contention of the appellant and therefore, the appellant filed a writ petition under Art. 226 of the Constitution before the High Court. The High Court dismisse'd the writ petition of the appellant. The High Court granted a certificate under Art. 133(J)(c) of the'" constitution to the appellant to file on appeal t'J the Supreme Court. Hencl! tho appeal. The question before the Supreme Court was whether the Corporation was entitled to levy a tax on pensioners in respect of the pensions received by them in Madras City. Htld: (l) that the power of the Corporation Lo levy the tax is dependent on the subject of the tax being within the State Legislative power under the Constitution. The present levy comes within the purview of item 60 in the State list in Schedule VII of the Constitution, which reads as follows:...:. HJ'axcs on profeMion, tra'- ed in Sec. 113, exercises a profession, art, trade or calling or holds an appointment, public or private, bringing him within one or morr of the classes of persons specified in the tμadon rules in Schedule IV, shall ipay by way of Iic~nce fee and in addition to any other licence fee JHI C. Rll/aropalaclurrl ... Corpo•atio" of II ... il.17_,., I. SUPREME COURT REPORTS that may be Jeviable under this Act a tax as determined under the said rules but in no rase exceeding rupees five hundred in the half year and such tax may be described as the profession tax." The Section had two explanations of which the second i& material and thi& reada : ' Explanation 2 : "A person in receipt of a pension paid from any source shall be deemed to be a person holding an appointment within the meaning of this section." The .next change in the relevant provision was effected by Madras City Municipal Amendment Act, 1936 (Madras Act X of 1936) which came into force on 14th April 1936. By this amendment a new section-s. 111 was substituted for the old one just set out, and under this Explanation (2) was deleted and the substituted provision ran : "111 (1). If the Council by a resolution determines that a profession tax shall be levied, every person not liable to the tax, on companies, who after the date specified in the notice published under sub-sec. (2) of Sec. 98-A in any half year- ( a) exercises a profession, art or calling or transacts business or holds any appointment, public or private- ( i) within the city for not less than sixty days in the aggregate, or (ii) outside the city but who resides in the city for not less than sixty days in the aggregate; or ( b) resides in the city for not Jess than sixty days in the aggregate and is in receipt of any pension or income from investments, shall pay in addition to any licence fee that may - , . ' .. ' .. ' 6 S.C.R. SUPREME COURT REPORTS 967 be leviable under this Act, a half yearly tax 1961 assessed in accordance with the rules in c. &Jaro~ Schedule IV in no case exceeding rupees five c •·1 at h d d ,, orporat on un re . Madru Along with this was added a new section-s. 98-A which _.,,.,.,,,, I. ran: Sec. 98-A(l): "Before the council passes any resolution imposing a tax or duty for the first time it shall direct the Commissioner to publish a notice in the Fort St. George Gazette and in the local papers of its intention and fix a reasonable period not being less than one month from the date of publication of such notice in the Fort St. George Gazette for submission of objections. The Council may, after considering the objections, if any, received within the period specified, determine by resolution to levy the tax or duty. Such resolution shall specify the rate at .vhich, the date from which and the period of levy, if any, for which suc!lfax or duty shall be levied. (2) When the Council shall have determined to levy any tax or duty for the first time or at a new rate the Commissioner shall forthwith publish a notice in the manner laid down in sub-section ( 1) specifying the date from which the rate at which and the period of levy, if any, for which such tax or duty shall be levied." At this stage it is necessary to refer to Schedule IV in accordance with which the tax has to be assessed under the terms of s. 111 ( I ) . In the Act as enacted in 1919 the relevant rule in Schedule IV divided persons assessed to profession tax etc. into 8 classes, based upon the amount of ·monthly salary received in the case of those ho!ding appointments, and income derived in the case of those in trade, ;irt. calling etc. Each of these classes was again sub-divlded into two-the first sub-class comprising "persons holding appointl'Jents upon a monthly salary" and the other of 968 SUPREME COURT REPORTS 1964 "persons exercising any profession, trade, art, calling or c;;. R.i/agopalacliari transacting business". It would be seen that having regard v. to Explanation 2 to s. 111, as it stood in 1919, before its Corporation of d X Uadrm amen ment by Act of 1936 by reason of the provision which enacted that "persons in receipt of pension" were A1YIJll80• 1• deemed to be "persons holding appointments" when the rule in :'icheduk IV referred to "persons holding appointments" it included by the statutory fiction-pensioners who on the basis of the amount of pension which they derived were classilied as "persons holding appointments" under the various classes. But when this Explanation to s. 111 was deleted by the Amending Act X of 1936 and when the new s. 111 ( 1) ( b) referred to the "half-yearly tax assessed in accordance with rules in Schedule IV, 1t was urged that there could not have been an assessment of persons in receipt of pension unless they could be comprehended as within the category of persons holding appointments, or of persons exercising any profession, trade, or art or calling"- as these were the only classes-relevant to the present purpose who were within the scope of the rules under Schedule IV. We shall refer to the ~ubmission based on this feature as regards the terminology employed in Schedule IV in its proper place. The Corporation of Madras availed itself of the provisions of s. 98-A and after the issue of the notices prescribed by it passed a resolution at a meeting held on March 31, 1937 to levy inter a/ia "profession tax" for the y~r 1937-38 at the rates which were specified in the resolution. As regards "profession tax", the resolution read: "Resolved that the profession tax in respect of clauses 1, 2, 3, 4, 5 and 6 be fixed at the maximum rate and 25 per cent over and above the minimum rates prescribed in Schedule IV of the Act in respect of clauses 7, 8 and 9." This resolution further specified thqt the tax at the rates therein set · out which were higher than what prevailed before, were to have effect from April 1, 19~7. Notwithstam!ing tbe apparent inapplicability of the rules in Schedule JY to t!te le\'Y of profession ta:i: on pensioners, the Corporation continued to assess pensioners to the said tax and . ( .. 6 S.C.R. SUPREME COURT REPORTS 969 collected the same. The lacuna in the enactment was 1964 apparently noticed in 1942 when by a notification in the c. Ra;;;;;;;;;;,1ac1um· official gazette the Schedule was amended in exercise of the v .. powers conferred on Government by s. 34 7 ( 3) of the Act. Corp;:~';';; "" Under the amendment instead of the words "Persons holding any appointment or persons exercising profession, trade or Ayyangar 1• calling etc. "the classes were divided on the basis of "the half yearly income received by the individual specified in s. 111 (Ii''. This amendment to the Schedule was directed to come into force from April I, 1942. The relevant terms of Schedule IV have continued up to date in the same from as amended in 1942-oniy the rate of tax has been progressiveiy increased; first in 1950, then in 1958 and again in 1961, but in the view we take of the principal contention raised by the appellant it is not necessary to set out or deal with these ir.crcases. Pausing heie the ground upon which the demand for "profession tax" made by the Corporation was impugned may be briefly stated. The power of the Corporation to levy the tax is dependent on the subject of the tax being within State legislative power under the Constitution. The relevant entry in the Legislative Lists conferring taxing power on the State under which alone, if possible, the present levy could be supported was item 60 in the State List in Schedule VII of the Constitution reading : "Taxes on profession, trades, callings and employments." Being a "pensioner" cannot be a "profession, trade, business or calling", nor could a tax on a person because he is in 1 , receipt of a pension be said to be a tax on "employments". The tax therefore under the last portion of s. 111 (1 )(b) reading-Profession tax on persons "in receipt of any pension or income from investments"-is nothing but a tax on income falling within Entry 82 of the Union list. If, therefore, the Corporation could not justify the tax as being within the State legislative power the only manner in which it could be done would be by reference to Art. 277 of the C'.onstiturion by which "taxes, duties, etc." which "were being lawfully levied" prior to the commencement of the· SUPREME COURT REPORTS [1g64J !!!!_ Constitution were permitted to be levied "notwithstanding C. RA;.11opa/txhari that the tax was in the Union List" and "to be applied to Corpor;iion of the same purposes" as before. Unless therefore the Madrt11 Corporation could make out that the tax now impugned wa! A.yyanllJr J. being lawfully levied from before the Constitution the levy would be illegal and besides there was the complication introduced by the enhancement of the rates of tax which, as stated earlier, were effected in April, 1950, April 1958 and in 1961. Leaving aside for the moment the question of the effect of the enhancement of the rate, we have to see whether it has been established that the duty was lawfully levied by the Corporation prior to the Constitution. The answer to the question whether it was "lawfully levied" prior to 26th January, 1950 when the Constitution came into force would depend upon the effect of certain provisions of the Government of India Act, 1935. Under that enactment, as under the Constitution, the State legislative power as regards taxes of the nature now in controversy was couched in terms identical with that employed in entry 60 of the State List in the Constitution. Entry 46 in the Provincial Legislative List under the Government of India Act, 1935 ran : "Taxes on profession, trades, callings and employments" : and "taxes on income" fell within the exclusive Federal Legislative power under Entry 54 of List I. By the IndoBurma Miscellaneous Provisions Act, 1940 the Parliament of the U.K. enacted s. 142-A to whose terms we shall advert later and by the same enactment entry 46 was amended and the words : "Subject, however, to the provisions of s. 142-A" : were added at the end of entry 46. Here, again, it would be seen that if the right of the Corporation to levy profession tax on the pension received by a pemioner had to rest on the legislative entries it would fail because it was outside the legislative power of the Province under the Lists read with s. 100 of that Act corresponding to Art. 246 of the Comtitution. The validity of the levy during the period when the GoYernment of India Act was in force i.e. between 1st April, 1937 and 25th January, 1950 was dependent on - .. .. , 6 S.C.R. SUPREME COURT REPORTS 97I its falling within the saving contained in s. 143(2) of the Government of India Act which ran : "Any taxes, duties, cesses or fees which, immediately before the commencement of Part III of this Act, were being lawfully levied by any Provincial Government, municipality or other local authority or body for the purposes of the Province, municipality, district or other local - area under a law in force on the first day of January, nineteen hundred and thirty-five, may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Federal Legislative List, continue to be levied and to .be applied to the same purposes until provision to the contrary is made by the Federal Legislature." No doubt the Amending Act was not in force on 1st January, 1935 having been passed in April 1936, but this would not take it out of s. 143(2) because para 3 of the Indo-Burma (Transitory Provisions) Order, 1937, being an Order in Council by His Majesty in Council authorised by s. 310 of the Government of India Act, provided : "Para 3 (I): For a period of two yea~ from the commencement of Part III of the Indian Act, the provisions of sub-section ( 2) of section one hundred and forty-three of that Act (which authorises the continuance until provision to the contrary is made by the Federal Legislature. of certain provincial taxes falling within the Federal List) shall have effect as if the reference to the first of January nineteen hundred and thirty-five were a reference to the commencement of the said Part III." It would follow, therefore, that for the present demand to be sustained as valid it would be sufficient if it was shown that the tax was lawfully levied immedhtely prior to the commencement of Part HI of the Government of India Act, 1935, i.e., on 31st March. 1937. The learned Jud~es of the High Court held that this condition was satisfied and on this basis they have dismissed the appellant's petition. 1''4 C. Ra/agopaloclwf v. Corporotio• O! Jladra A.yya,.. I. 972 SUPREME COURT REPORTS 1ffl Learned Counsel for the appellant submitted four points C. JWJugopQ/~ri in support of the appeal : ( l) That the amending Act X ,.__ ~ .• ·. ,, of 1936 was not validly passed by reason of its contravening .,.,.por..,•on 9, · . · Modr(lf. the Devolutmn Rules framed under s. 45-A of the Govern- ,fyyqfllw: ,. ment of India Act, 1919 by which Local Governments were given legislative power inter alia to )evy taxes on professions, trades, etc. but that the present tax which is really a "tax on income" was a Central subject outside the competence of the Local Legislature, ( 2) Even assuming that Act X of 1936 was valid, the tax which was peniT!tted to be levied under it was, having regard to the terms of s. 111 (1) a new tax which was levied for the first time by the resolution of the Corporation only on and from April 1, 193 7 and, therefore, the present tax was not in operation prior to the commencement of Part III of the Government of India Act, 1935 and not therefore saved by s. 143(2) of that Act, ( 3) Besic!es, between 1st April, 193 7 to 1st April, 1942 it was not lawfully levied by reason of the lacuna created by the words of the rules in Schedule IV being inapplicable to the levy of a tax on pensioners, ( 4) The increase in the rates from 193 7 onwards could not be justified even under s. 143 ( 2) or Art. 277 and by reason of these changes in rates the tax became virtually a new tax and could not continue to be lawfully levied to any extent after the increases. The first point need not detain us long. Prima facie it would seem that there being no rigid distribution of legislative power between the Central and Local Governments under the Government of India Act, 1919 any inf.raction of the rules made under the Devolution Rules framed under s. 45-A would be validated by s. 80-A(3) and s. 84(2) of the Government of India Act, 1919. The learned Judges of the High Court before whom this contention was urged rejected it, and the learned counsel submitted that the decision on this point was not correct. But in the view that we took of the other submissions made to us, we die! not hear learned counsel fully on this point and therefore do not ,propose to express any final opinion on the tenability of tbe argument on this head. .. - ,.. inted out,. be equa!~.d with "a ta~. (!) [1964] 6 S.C.R. 9~7. • 6 S.C.R. SUPREME COURT REPORTS 975 which was being lawfully levied" before Part III of the 1964 Government of India AC!, 1935. c. Rajagopalac/tan The 3rd submission of learned Counsel for the appellant is· also well-founded. The conclusion we have reached as to the effect of the amendment to s. 111 by Act X of 193 6, and of the tax being imposed by resolution of the Council from 1st April, 1937 not being a tax which was being lawfully levied immediately prior to !st April, 1942, is reinforced by reference to the rules in Schedule IV which remained unamended till 1942. Under s. 111 ( 1) as amended, the tax could be levied only in accordance with the rules in Schedule IV and as those rules did not make a provision for the levy of a tax on pensioners. it would follow that the tax "was not being lawfully levied" on them. As already painted out, the relevant rules in that Schedule ...., were framed at a time when Explanation 2 formed part of s. 111 and "pemioners" were deemed to "hold appointments". With the deletion of the Explanation, the fiction created by the origin:il Madras Act IV of 1919 ceased and thereafter if the rules in Schedule IV had to be applied to them these had to be suitably modified. This, as we have pointed out earlier, was done only from April 1, 1942, so that in reality taxes on pensioners were "lawfully" levied upto 1936 and then after a break from April 1, 1942, we ~ use the wo:·d "lawfully" on the assumption that this could have been legally done under the Government of India Act, 1935, a point already discussed. The learned Judges of the High Court have rejected the argument addressed to them under this head by reference to s. 18 of the Madras General Clause Act corresponding to s. 24 of the General Clauses _, Act (Central Act X of 1897). With great respect to the learned Judges we do not see how this ·provision affords any assistance in the matter. The Schedule and the rules continued without repeal or amendment when the new s. 111 ( 1) was substituted in 1936, and when tliis section made a reference to the rules in Schedule IV it could only be a reference to the rules in the Schedule IV which stood · ,. unaltered. If the phraseology employed in the Schedule was inappropriate to a class which fell within s. 111 ( 1 ) , the· only effect would be that the tax could not be levied, because v. Corporation DI Madrtz1 .A.yyan1ar I. 976 SUPREME COURT REPORTS 1961 of the defect in the law imposing the tax, but such a situation • C. RJijagopalacltari is not remedied by reference to the provision in the General Corpor;i;011 of Clauses Act on which the learned Judges have relied. Madrai .A.yyangar I. If, therefore, the tax was one not lawfully levied just prior to April 1, 1937 and was one brought in after the Government of India Act, 1935 came into force, and really only from April l, 1942 assuming this to be lawful-it is obvious that the validity of this tax could not be sustained as a continuation of a lawful pre-existing levy under s. 143(2). In this view it is not necessary to consider the last of the points urged by learned Counsel and examine whether in case of an increase of rate, the entire tax would become a new tax and so unconstitutional or whether it is only the increase in the rate that would become unenforcenble. Learned Counsel for the respondent-Corporation submitted that the tax could not be deemed to be a tax on income, as was suggested by the appellant, but was really a tax on employment because it was in consideration of past services during employment that pension was payable. This argument was admittedly not urged before the learned Judges of the High Court and is obviously untenable. The taxes specified in item 60 are taxes on the carrying on of a profession, trade, etc. and would, therefore, apply only to a case of present employment. The mere fact that a person has previously been in a profession or carried on a trade, etc. cannot justify a tax under this Entry. The tax on the receipt of pension or on the income from investments which is referred to in the last part of s. 111 ( I) 1s in truth and substance a tax on income and in fact the argument before the High Court proceeded on this basis, so have the learned Judges. At the time the tax is levied the pensioner is in no employment but is only in receipt of income though it might be for past services, in an employment. He next submitted that Act X of 1936 which had been enacted prior to the Government of India Act, 1935 was continued as an existing law by s. 292 of the Government of India Act and as there was nothing in the Government