# NAGAR MAHAPALJKA VARANASI v. DURGA DAS BHAITACHARYA I: ORS

- **Citation:** [1968] 3 S.C.R. 374
- **Court:** Supreme Court of India
- **Decided:** 1968-03-04
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/nagar-mahapaljka-varanasi-v-durga-das-bhaitacharya-i-ors-4402
- **Pages:** 13

## Headnote

NAGAR MAHAPALJKA VARANASI
A
v.
DURGA DAS BHAITACHARYA I: ORS.
March 4, 1968
[J. C. SHAH, V. RAMAswAMI AND G. K •. Mrm!1t, 11.]
I
U.P. Municipalities Act (II o/ 1916) Chapters V, VIII t:nd JX~e
fees from ownerr of rickshaws and rickshaw drivers-I/ in tlu 1ltlltlH of
t@-Whether quid pro quo in tlu form of ttrVices by munic/palit;y _.,_
saey.
Under a. 294 of the U.P. Municipalities Act, 1916 a Municipal Boord
may charae a fee, to be Hxed by byHaw. for any Ii~ and, s. 298 mables the Board to make the bye-laws. Purporting to act UDder s. 298(2)
and List 1-H, of the Act, the appellant (Municipal Boord,
Varanui)
framed certain by~aws relating to the plying of ricbbawa. Wlder which,
the owner Of each rickshaws had to pay an annual licence fee of Ra. 30/-
and each rickshaw driver an annual licence fee of Ra. SI-. The ricbbaw
owners and drivers challenged the validity of the bye-laws ill a 111it on the
groUDd that the licence fem were not comme111uh1te with the services and
advantages rendered or provided by the appellant.
The trial court dismi'8ed the suit. The High Court, on -1. Jield
that the Imposition of licence fees at the1rates of Ra. 30/· and Ra. SJ• was
ultra vires and illegal, because, after excluding certain items of expenditme
the balanoe did not constitute sullicient quid pro quo for the amount of
licence fees charged.
In appeal to this Court, it was contended: (i) that the fee charaed
was not for rendering any serviC<ll but waa in the nature Of a tax; (2) that
s. 294 of the Act contemplates the charge of a fee not only in the reatricclld
senae of a fee for which a quid pro quo is provided but also in the seme
of a fee in which the taxation element is predominant, that such a licence
fee could be imPo9ed by enacting a bye-law for that purpooo under a. 298,
and that the licence fee in the present case was of that cateaory and (3)
that even if it was held to be a fee in the restricted seMe for services
renderd by the appellant, there was sufiici•nt quid pro quo.
HELD : (I) The fees mentioned in Chapter VIII, which contains a.
294, are meant for the purpose of regulation of certain trades and professiOlll, for rendering services and for tho maintenance of public ufety and
convenience of the inhabitants of the municipality, and, it ia not contemplated that they should be merged in the public revenues Of the municipality
or should go for the upkeep of the roads and other matters of aeneral
public utility. Therefore, the fees impooed under a. 294, are onlf fees in
the restr;cted sense of a fee for which a quid pro quo is pl'OVlded and
cannot be considered to be an impost in the nature of a tax. (384 E-GJ
The
Co1nmissioner~ Hindu Religious Endowments. Madras
v. Sri
Lokshmindra Thirtha SIWJmiar of Sri Slrur Mutt, [19S4] S.C.R. 1005, 1042,
followed.
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(2) The Act contemplates only two cateaories of impost, that is, ·taxes
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enumerared in Chapter V and fees mentioned in as. 293, 293.A and 294
of Chapter VIII. If a levy is a tax the imposition could be lawfully made
only after following the mandatory procedure prescribed under as. 131 to
13S.
Under s. 128(1) (iii) and (Iv), which aro in Chapter V, it is
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MAffAPALIKA v. BHATTACHARYA (Ramaswami, J.)
375
competent to a municipality to impose a tax on rickshaw drivers and
rickshaw owners. If ·it is assumed that the tax element was predominant
in the present ca"Se and that therefore the licence fee was in the nature
of a tax, the imposition would be u/Jra virer because the procedure under
ss. 131 to 135 was not followed.
There is no third category of impost
of licence fee which is in the nature of a tax for which the procedure
prescribed by ss. 131 to 135 is not applicable, but the procedure contemplated by Chapter IX, which contains s. 298, is applicable. [383 G-H;
384 D-El
I 3) The items disallowed by the High Coun could not be CGnsidered
as ~ving been spent in rendering any servioos to rickshaw owners and
drivers. because they were spent over paving bye-lanes suita

## Text

NAGAR MAHAPALJKA VARANASI
A
v.
DURGA DAS BHAITACHARYA I: ORS.
March 4, 1968
[J. C. SHAH, V. RAMAswAMI AND G. K •. Mrm!1t, 11.]
I
U.P. Municipalities Act (II o/ 1916) Chapters V, VIII t:nd JX~e
fees from ownerr of rickshaws and rickshaw drivers-I/ in tlu 1ltlltlH of
t@-Whether quid pro quo in tlu form of ttrVices by munic/palit;y _.,_
saey.
Under a. 294 of the U.P. Municipalities Act, 1916 a Municipal Boord
may charae a fee, to be Hxed by byHaw. for any Ii~ and, s. 298 mables the Board to make the bye-laws. Purporting to act UDder s. 298(2)
and List 1-H, of the Act, the appellant (Municipal Boord,
Varanui)
framed certain by~aws relating to the plying of ricbbawa. Wlder which,
the owner Of each rickshaws had to pay an annual licence fee of Ra. 30/-
and each rickshaw driver an annual licence fee of Ra. SI-. The ricbbaw
owners and drivers challenged the validity of the bye-laws ill a 111it on the
groUDd that the licence fem were not comme111uh1te with the services and
advantages rendered or provided by the appellant.
The trial court dismi'8ed the suit. The High Court, on -1. Jield
that the Imposition of licence fees at the1rates of Ra. 30/· and Ra. SJ• was
ultra vires and illegal, because, after excluding certain items of expenditme
the balanoe did not constitute sullicient quid pro quo for the amount of
licence fees charged.
In appeal to this Court, it was contended: (i) that the fee charaed
was not for rendering any serviC<ll but waa in the nature Of a tax; (2) that
s. 294 of the Act contemplates the charge of a fee not only in the reatricclld
senae of a fee for which a quid pro quo is provided but also in the seme
of a fee in which the taxation element is predominant, that such a licence
fee could be imPo9ed by enacting a bye-law for that purpooo under a. 298,
and that the licence fee in the present case was of that cateaory and (3)
that even if it was held to be a fee in the restricted seMe for services
renderd by the appellant, there was sufiici•nt quid pro quo.
HELD : (I) The fees mentioned in Chapter VIII, which contains a.
294, are meant for the purpose of regulation of certain trades and professiOlll, for rendering services and for tho maintenance of public ufety and
convenience of the inhabitants of the municipality, and, it ia not contemplated that they should be merged in the public revenues Of the municipality
or should go for the upkeep of the roads and other matters of aeneral
public utility. Therefore, the fees impooed under a. 294, are onlf fees in
the restr;cted sense of a fee for which a quid pro quo is pl'OVlded and
cannot be considered to be an impost in the nature of a tax. (384 E-GJ
The
Co1nmissioner~ Hindu Religious Endowments. Madras
v. Sri
Lokshmindra Thirtha SIWJmiar of Sri Slrur Mutt, [19S4] S.C.R. 1005, 1042,
followed.
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(2) The Act contemplates only two cateaories of impost, that is, ·taxes
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enumerared in Chapter V and fees mentioned in as. 293, 293.A and 294
of Chapter VIII. If a levy is a tax the imposition could be lawfully made
only after following the mandatory procedure prescribed under as. 131 to
13S.
Under s. 128(1) (iii) and (Iv), which aro in Chapter V, it is
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MAffAPALIKA v. BHATTACHARYA (Ramaswami, J.)
375
competent to a municipality to impose a tax on rickshaw drivers and
rickshaw owners. If ·it is assumed that the tax element was predominant
in the present ca"Se and that therefore the licence fee was in the nature
of a tax, the imposition would be u/Jra virer because the procedure under
ss. 131 to 135 was not followed.
There is no third category of impost
of licence fee which is in the nature of a tax for which the procedure
prescribed by ss. 131 to 135 is not applicable, but the procedure contemplated by Chapter IX, which contains s. 298, is applicable. [383 G-H;
384 D-El
I 3) The items disallowed by the High Coun could not be CGnsidered
as ~ving been spent in rendering any servioos to rickshaw owners and
drivers. because they were spent over paving bye-lanes suitable for rickshaws and for the lighting of stteets and lanes; and, under s. 7(a) and (h)
of the Act, it was the statutory duty of the municipal board to light public
streets and places and to cdnstruct and maintain public streets, culverts
etc. A licence fee cannot be imposed for re-imbursing the cost of ordinary
municipal services perf<*med in the discharge of its statu:ory duty to provide for the aeneral public. Since the balance of expenditure constituted
only 44% of the total income of the appellant from the licencees, the High
Coun was right in holding that sufficient quid pro quo was not cstabli•hed
in the circumstances of this case. (385 G-H; 386 A-CJ
India Sugar and Refinerie1 Ltd. v,
The Municipal Council, Ho1pet,
J.L.R. (1943) Mad. 521, approved.
CML APPELLATE JURISDICTION : Civil Appeal No. 558 of
1967.
Appeal from the judgment and decree dated November 23,
1961 of the Allahabad High Court. in First Appeal No. 315 of
1958.
.
C. B. Agarwa/a, Ravindra Rana and 0. P. Rana, for the
appellant.
S. V. Gupte, Jai Shankar Lal, Yogeshwar Prasad and Mohan
Behari Lal, for the respondents.
The Judgment of the Court was deJiyered by
Ramaswami, J, This appeal is brought, by certificate, from
the judgment of the Allahabad High Court dated November 23,
1961 in First Appeal No. 315 of 1958 by which the appeal of the
respondents was allowed and the suit was decreed with costs
throughout.
On March 26, 1956, the plaintiff respondents who are rickshaw owners and rickshaw drivers filed a representative suit in
the court of Civil Judge, Varanasi praying for a decree against
the appellant to restrain it by means of a permanent injunction ,
from charging any license fee or preventing the respondents from
plying ri~kshaws for hire without paying license fee within the
municipal limits of Varanasi. Purporting to act Under s. 298(2),
List I-H of the U.P. Municipalities Act, 1916 (Act No. II of
1916), hereinafter referred to as the 'Act', the Municipal Board
L6Sup.C.I/68-lt
.
376
SUPREME COURT REPORTS
[1968] 3 S.C.R.
of Varanasi framed certain bye-Jaws relating to the plydig of
A
rickshaws.
The bye-laws were first published
by Government
order No. 3471/XXIII-9994 dated March 10, 1941 and were
subsequently amended by two notifications No. 4022/XXUI-445
dated February 2, 1950 and No. 5834-XXIII-745 dated September 6, 1951. Under these bye-Jaws, as ·they stood amended, the
owner of each rickshaw had to pay an annual licence fee of
Rs. 30/- and each driver of. a rickshaw had to pay an annual fee
- of Rs. 5 /-. The respondents challenged the validity of these bye·
laws mainly on the ground that considering the amount that was
being levied what should have been only a fee was really a tax
which the Municipal Board had no authority to levy.
It was
contended on their behalf that a licence fee could be levied only
for services rendered or advantages provided a,nd the imposition
must be commensurate with the services and advantages so rendered or provided. It was urged that so far as . the rickshaws
that were being plied within the municipal limits of Varanasi
were concerned no advantages or services were provided which
could justify the levy of a fee at such a rate. The suit was con·
tested by the appellant Municipal Board on the ground that services and advantages were, in fact, provided and their cost was
much more than the total amount that was being realised from
the rickshaw owners and drivers.
By his judgment dated March
26, 1958 the 1st Additional Civil Judge, Varanasi dismissed the
suit of the respondents, holding that the bye-laws in question were
not invalid. The respondents took the matter in appeal to the
Allahabad High Court being First Appeal No. 315 of 1958. The
appeal was first placed before Gurtu and Srivastava, JJ.
who
referred it for consideration by a larger Bench. The appeal was
finally heard by the Chief Justice, J agdish Sahai and Bishambhar
Dayal, JJ.
By a majority judgment dated November 23, 1961,
the appeal of the respondents was allowed, the judgment of the
trial court was set ·aside and the suit of the respondents decreed.
It was held by Sahai and Dayal, JJ. who delivered the majority
judgment that the imposition of the license fee at the rate of
Rs. 30 /- on each of the rickshaw owners and Rs. 5 / • on each
of the rickshaw drivers was ultra vires and a permanent injunction was accordingly granted restraining the appellant from realising the license fees at this rate for the period in question. It was
however, m.ade clear that it was open to the Municipal Board to
reduce the fee to a reasonable figure and co-relate it to the services
rendered by the Municipal Board.
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Chapter V of the Act deals with Municipal Taxation. Section
128 falls within that Chapter and reads as follows :
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"(1 ) Subject to any general rules or special orders
of the State Government in this behalf, the taxes which
MAHAPALIKA v. BHATTACHARYA (Rama.swami, /,)
377
A
a board may impose in the whole or any part of a
municipality areB
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(iii)
(iv)
a tax on trades, caliings and vocations including all employments remunerated by salary or
fees,
a tax on vehicles and other conveyances plying
for hire or kept within the municipality or on
boats moored therein;
"
..........................................
Section 131 deals with framing of preliminary proposals
and
reads as follows :
"131. ( 1 ) When a board desires to impose a tax,
it shall by special resolution frame proposals specifying-
(a)
(b)
(c)
(d)
the tax, being une of the taxes described in subsection (1) of section 128, which it desires to
impose;
the persons or class of persons to be made liable,
and the description of property or other tax·
able thing or circumstances in respect of which
they are to be made liable, except where and in
so far as any such class or description is already
sufficiently defined under clause (a) or by this
Act,
the amount or rate leviable from each such per·
son or class of persons;
any other matter referred to in section 153,
which the State Government requires by rule to
be specified.
(2) The board shall also prepare a draft of the rules
which it desires the State Government to make
in respect of the matters referred ·to in section
153.
(3) The board shall, thereupon, publish in )he man·
ner prescribed in section 94 the proposals fram·
ed under sub-section (1) and the draft rules
framed under sub-section (2) along with
a·
notice in the form set forth in Schedule rn."
Section .132 provides for filing objections by inhabitants of the
municipality and the procedure for dealing with such objections.
It reads :
378
SUPREME COURT REPORTS
(1968) 3 S.C.R.
"132. ( 1) Any inhabitant of the municipality may,
within a fortnight from the publication of the said
notice, submit to the board an objection in writing to
all or any of the proposals framed under the preceding
section, and the board shall take any objection so submitted into consideration and oass orders thereon by
special resolution.
·
( 2) If the board decides to modify its proposals
or any of them, it shall publish modified proposals 11nd
(if necessary) revised draft rules along with a notice
indicatin~ that the proposals and rules (if any) are in
modification of proposals and rules previously published
for objections.
(3) Any objections which may be received to the
modified proposals shall be dealt with in the manner
prescribed in sub-sectk>n (1 ) .
( 4) When the board ha5 finally settled its proposals, it shall submit them along with the objections (if
any) made in connection therewith to the (Prescribed
Authority)."
Section 133 relates to the power of State Government to reject
sanction or modify the proposals of the Municipal Board. Section
134 states :
"(I) When the proposals have been sanctioned by
the Prescribed Authority or the State Government, the
State Government, after .taking into ·consideration the
draft rules submitted by the board, shall proceed forthwith to make under section 296, such rules in respect
of the tax as for the time being it considers necessary.
(2) When the rules have been made the order of
sanction arid a copy of the rules shall be sent to the
board, and thereupon the board shall by special resolution direct the imposition of the tax with effect from a
date to be specified in the. resolution."
Section 135(1) & (2) provide as follows:
"( l ) A copy of the resolution passed under section
134 shall be submitted to the State Government, if the
tax has been sanctioned by the State Government and
to the Prescribed Authority, in any other case.
(2) Upon receipt of the copy of the resolution the
State Government or Prescribed Authority as the case
may be, shall notify in the Official Gazette, the imposiA
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MAHAPALIKA v. BHATTACHARYA (Rama.swami, J.)
379
lion of the tax from the appointed date, and the imposi•
tion of a tax shall in all cases be subject . to the condi·
ti on that it has been so notified."
Chapter VII deals with powers. of the.Municipal Board in respect
of buildings, public drains, streets, extinction of fires, scayenging
and water supply. Chapter VIII deals with other powers in respect of markets, slaughter-houses, sale of food, public safety, sanitation and prevention of disease, inswction, entry, search, rent
and charges etc.
Sections 293 and 294 fall within Ch.
VIII.
Section 293 of the Act reads as follows :
"( 1) The board may charge fees to be fixed by byelaw or by public auction or by agreement, for the use
or occupation (otherwise than under a lease) of any im·
movable property vested in, or entrusted to the manage·
ment of the board, including any public street or place
of which it allows the use or occupation whether by ·
allowing a projection thereon or otherwise.
(2) Such fees may either be levied along wl:h the
fee charged under section 294 for the sanction, licence
or permission or may be recovered in the manner provided by Chapter VI."
Section 293-A of the Act is to the following effect :
"A board may with the previous sanction of the
State Government impose and leVy fees for use of any
place to which the· public is allowed access . and at
which the Board may provide sanitary and other facili·
lilies to the public."
Section 294 of the. Act enacts as follows :
"The board may charge a fee to be fixed by bye-law
for any licence, sanction or permission which it is entitled or required to grant by or under '.his Act."
Section· .298 relates to the power· of the Board to make bye-laws
and reads as follows :
"298. ( 1) A board by special resolution may, and
where required by the State Government shall
make
bye-Jaws applicable to the whole or. any part of the
municipality, consistent with this Act and with· any
rule, for the purpose of promotin~ or maintaining the,
health, safety, and eonvenience of the inhabitants of the
municipality and for the
furtherance
of municipal
administration under this Act.
q >. In particular, and ~ithout prejudice to the
generality of the power conferred by sub-secti.IJn ( 1),
380
SUPREME COURT REPORTS
[1968] 3 s.c.R.
the board of a municipality, wherever, situated, may,
A.
in the exercise of the said power, make any bye-Jaw,
described in List I below and the board of a municipality-wholly or in part situated in a hilly tract may further make, in the exercise of the said power, any byel aw described in List II below.
List I
............................................
ff-Public safety and convenience
............................................
( c) Imposing the obligation of taking out licences
on the proprietors or drivers of vehicles other than
motor vehicles boa1s or animals kept or plying for hire,
or on persons hiring themselves out for the purpose of
carrying loads within the limits of the municipality,
and fixing the fees payable for such licences and the
conditions on which they are to be granted and may
be revoked;
( d) Limiting the rates which may be demanded for
the hire of a carriage, cart, boat or other conveyance,
or of animals hired to carry loads or for the services
of persons hired to carry loads, and the loads to be
carried by such conveyances, animals or persons when
hired within the municipality for a period not exceeding twenty-four hours or for a service which would
ordinarily be performed within twenty-four hours;
"
................ ·, ........................ .
Bv Government Notification No.
3471/XXIII-994 dated
March IO, 1941 the bye-laws framed by the Municipal Board
under s. 298, List I-H (c) and (d) of the Act and confirmed
· by the Commissioner, were published.
Paragraphs 12, 13 and
14 of the bye-laws are to the following effect :
"12. For every licence granted under these
byelaws to the proprietor of the rickshaw, a fee of Rs. 25
per annum shall be charged for cycle rickshaw and
Rs. 3 per annum for hand-drawn rickshaws.
13. The licences shall be annual and shall terminate on the 31st March, in each year.
14. A fee of Re. 1 shall be charged from every
person who desires to take out a licence for drivinp; a
rickshaw and the licence shall be issued to the applicant
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MAHAPALIKA v. BHATTACHARYA (Ramaswami, J.)
381
on receipt of the prescribed fee by the licensing officer,
after ascertaining that he is strong, healthy and above
the age of 18 years, provided that the Licensing Officer
may refuse the license if. he is of opini'on that it would
be inexpedient to grant it to the person applying."
An amendment was made by the Municipal Board to the byelaws by Government Notification No. 4022/XXIJI-745 (45-49)
dated February 2, 1950 and No. 5834/XXIII-745 dated September 6, 1951 which read thus :
"No. 4022/XXllI-745 (45-49) dated 2-2-1950:
The following amendment in the Rickshaw bye-laws
for the Banaras Municipality published under notification No. 3471/XXIII-994 dated March Hl, 1941, which
has been made by the Banaras Municipal Board under
section 298-H(c) and (d) of the U.P. Municipalities
Act 1916 and confirmed by the Commissioner, is hereby
published as required under Section 301 (2) of the said
Act.
AMENDMENT
In the 2nd line of rule 12 of the Rickshaw bye-laws
read 'Rs. 30' instead of 'Rs. 25' in between the words
'a fee of' and 'per annum'.
No. 5834/XXllI-745 dated September 6, 1951:
The fo!lowing amendment in the bye-laws for the
regulation and control of Rickshaws plying for hire or
kept for private use in the Banaras Municipali'ly sanctioned under G.O. No. 3471/XXIII-994 dated March
10, 1941, which bas been made by the Municipal Board
of Banaras, under Section 298-H ( c) and ( d) of the
U.P. Municipalities Act, 1961, as confirmed by the Commissioner is hereby published as required by Section
301 (2) of the said Act.
Amendment
In Rule 14 between the words 'A fee' and 'shall
be charged' 'rupees five' be substituted in place of
'Re. !/-' occurring in the first line."
On behalf of the appellant Mr. Agarwala argued, in !he first
place, that the impugned bye-laws under which
the
appellant
charged the license fee from the respondents were not ultra vires
the powers of .the Board. It was maintained that the impost was
not a fee in the sense lhat the Municipal Board had to give a quid
38:1.
SUPREME COURT REPORTS
(1968) 3 S.C.R.
pro quo to the persons from whom the fee was charged.
In
other words, . the contention of the appellant was that the fee
charged was not under the bye-laws a fee taken for rendering
any services but it was a license fee· which was in the nature of
a tax.
l"t was contended that it was not necessary to show that
there was any co-relationship between the amount of license fee
and the services rendered by the. Municipal Board to rickshaw
owners and rickshaw drivers concerned. The question aboll't the
distinction between a tax and a fee has been considered by this
Court in The Commissioner, Hindu Religious Endowments,
Madras v. Sri Lakshmindra
Tirtha Swamiar of Sri Shirur
Mutt(') in which the constitutional validity of the Madras Hindu
Religious and Charitable Endowmeffis Act 1951 (Madras Act
XIX of 1951) came to be examined.
Amongst the sections
challenged was s. 76(1).
Under this section every relig:ous
institution h~d to pay to the Government annual contribution not
exceeding 5 per cen: of its income for the services rendered to
it by the said Government; and the argument was that the contribution thus exacte:I was not a fee but a tax and as such outside
the competence of the State Legislature.
In dealing with this
argument Mukherjee, J., as he then was, cited the definition of
tax given by Latham, C.J., in the case of Matthews(') and has
elaborately considered the distinction between a tax and a fee.
"A tax", said Latham. C.J., is a compulsory exaction of monev
by public authority for public purposes enforceable by law and
is not payment for services rendered''.
Jn brin~ing out the essential features of a tax this definitit>n also assists in distinguishing
a tax from a fee.
Jt is true that between a tax and a fee ther~
is no generie difference; both are compulsory exactions of money
by public authorit.ies; but whereas a tax is imposed for public purposes and is not supported by any consideration of service rendered in return, a fee is levied essentially for services rendered
and ;is such there is an element of quid pro quo between the
person who pays the fee and the public authority which imposes
it.
Jn "'i'he Commissioner, Hindu Religious Endowments, Madril:'!
v. Sri Lakshmindra Tirtha Swamiar of Sri Shirur Mutt(')
Mukherjee, J. examined the scheme of the Act and observed as
follows:
"If, as we hold, a fee is regarded as a sort of return
or consideration for services rendered, it is absolutely
necessary that the levy of fees should, on the face of
the legislative provision, be co-related to the expenses
incurred by Government in rendering the services.
As
indicated in Article 110 of the Constitution, ordinarily
there are. two classes of cases where Government imposes 'fees' upon persons.
In the first class of cases,
(1) (19S4].S.C.R. 1J05,1042.
(2) 60 C.LR. 263, 276.
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MAHAPALIKA v. BHATTACHARYA (Ramaswami, I.)
383
Government simply grants a permission or privilege to
a person to do something, which otherwise that person
would not be competent to do and extracts fees either
heavy or moderate from that person in return for the
privilege that is conferred."
After giving an illustration of licence fees for motor vehicles as
coming under that class of cases, Mukherjee, J. proceeds to
state :
"In such cases, according to all the writers on public
finance, the tax element is p~edominant, and
if the
money paid by licence holders goes for the upkeep of
roads and other matters of general public utility, the
licence fee cannot but be regarded as a tax.
In the other class of cases, the Government docs
some positive work for the benefit of persons and the
money is taken as the return for the work done or
services rendered. If the money thus paid is set apart
and appropriated specifically for the performance of
such work and is not merged in the public revenues for
the benefit of the general public, it could be c~untcd as
fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman,
the taxing power of a State may man:fest itself in three
different forms known respectively as special assessments, fees and taxes."
On behalf of the appellant learnecl Counsel relied upon this passage and said that licence fee fell within the first class of cases
mentioned by Mukherjee, J. and it was not necessary for the
appellant to show that there was any co-relationship be!Ween the
levy of the fees and the expenses incurred by the Municipal Board
in rendering the services.
We shall assume in favour of the appellant that the tax clement is predominant in the imposition of the fee upon the respondents under the impugned bye-laws and the license fee is therefore in the nature of tax.
Even upon that assumption the imposition of the fee under the machinery contemplated by s. 294 of
the Act is ultra vires t.he powers of the Municipal Board. The
reason is that if the imposition is in the nature of a tax the procedure contemplated by ss. 131 to 135 of the Act should be followed by the Municipal Board and in the absence of such procedure
being followed the imposition of this kind of fee would be ultra
v:'res.
It is manifest from s. 128(1) (iii) & (iv) that it Is competent to the Municipality to impose a tax on vehicles plyin~ for
hire or kept within the municipality and also on trades, callings
and vocations including rickshaw drivers and rickshaw owners.
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SUPREME COURT REPORTS
[1968] 3 s.c.R.
But the imposition of such a tax can only be lawfully made by
the Municipal Board after following
the procedure prescribed
under ss. 131 to 135 of the Act.
It was, however, contended for the appellant that under s. 294
of the Act the Municipal Board has authority to impose a licence
fee by enacting a bye-law for that purpose under s. 298 of the
Act. It was said that s. 294 of the Act contemplates the charge
of a fee not only in the restricted sense of a fee for which a
quid pro quo is provided but a:so in the sense of a fee in which
the taxation element is predominant.
It was hence argued that
the procedural machinery for the imposition of tax contemplated
under ss. 131 to 135 of the Act need not be followed in such
a case.
We are unable to accept th'.s argument as
correct.
Accordin~ to the scheme of the Act there is a sharp and clear
distinction between taxes properly so called and fees.
There i>
a logical and clear~cut division of the Act into several Chapters.
and taxes, by whatever designation they may be called, are all
comprehended and dealt with in Ch. V. and by that Chapter alone.
And what is permitted to be imposed by s. 294 which occurs in
Ch. VIII is only a fee in the restricted sense as distinguished from
a tax. To put it differently, the Act contemplates only two categories of impost, i.e., taxes enumerated in Ch. V and fees mentioned in ss. 293, 293-1\ and 294 of Ch. VIII. It is not contemplated in the scheme of the Act that there should be a third
category of impost of licence fee which is in the nature of a tax
. for which the procedure contemplated by Ch. IX is applicable. In
our opinion, the scheme of Ch. VIII of the Act shows that the
provisions contained therein are meant for the purpose of regulation of certain trades and professions and for maintenance of
public safety and convenience of the inhabitants of the municipality.
The fees mentioned in s. 294 are meant to be impoicd
for the purpose of regulation of trade and professions and for
rendering services. It is not contemplated by the Act that licence
fees imposed by s. 294 should be merged in the public revenues
of the municipality and should go for the upkeep of the roads and
other matters of general public utility. It is therefore not permissible for the Municipal Board to impose a tax on the respondents under the guise of a license fee without following the mandatory procedure for imposition of the taxes prescribed by ss. 131
to 135 of the Act. Otherwise <here will be a circumvention of
the provisions of ss. 131 to 135 of the Act. It is manifest that
s. 294 of the Act must be interpreted in such a manner as to
prevent the circumvention of the safeguards of the provisions of
ss. 131 to 135 of the Act.
In this context it is important to notice that the power to tax
is not included in the police power in the American Municipal
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MAHAPALIKA v. BHATTACHARYA (Ramaswami, J.)
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Law.-(Dillon on 'Municipal Corporations' Vol. IV, 5th E<ln.,
p. 2400). It has been held that the police and taxing powers
of the legislature though co-existent, are distinct powers. Broadly
speaking, the distinction is thatJhe taxing power is exercised for
the purpose of raising revenue and is subject to certain designated
constitutional limitations, while the police power is exercised for
B . lhe promotion of the public welfare by means of the regulation of
dangerous or potential!y dangerous businesses, occupations, or
activities, and is not subject to the constitutional restrictions applicable to the taxing power. "It may consequently be said that if
th~ primary purpose of a statute or ordinance exacting an impoc
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sition of some kind is to raise revenue, it represents an exercise
of the taxing power, while if the primary purpose of such an
enactment is the regulation of some particular occupation, calling
or activity, it is an exercise of the police power, even if it ind·
dentally produces revenue." (American Jurisprudence, 2nd Edn.
Vol. 16, p. 519).
We pass on to consider the next question raised in this appeal,
namely, whether there was a quid pro quo for· the licence fees
realised by the appellant and whether the impost was a fee in the
strict sense as contemplated by s. 294 of the Act. A finding bas
been recorded in 1he present case by the trial court that a sum
of Rs. 1,43,741/7/0 was spent by the Municipal Board for
providing facilities and amenities to owners and drivers of rick·
shaws.
This sum of Rs. 1,43,741/7 /0 is made up of the following items :
"Rs. 68,000/- spent over the paving of bye-lanes,
in these the only conveyance that can operate is a rickshaw.
Rs. 20,000/ - spent as expenses for lighting of streets
and lanes.
Rs. 47,741/7 /0 spent in making provision for parking grounds.
Rs. 8,000/ - spent on payment of salary to the staff
maintained for issuing licences and inspecting
rickshaws."
The High Court was of the opinion that the amount cf
Rs. 68,000/- spent for paving of bye-lanes and Rs. 20,000/ • for
lighting of streets and lanes cannot be considered to have been
spent in rendering services to the rickshaw owners and· rickshaw
drivers. The reason was that 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. (h) of the same section to construct and
maintain public streets, culverts etc.
The expenditure under
386
SUPREME COURT REPORTS
[ 196~] 3 s.c.R.
these two items was incurred by the Municjpal Boatll in the discharge of its statutory duty and it is manifest that the licence fee
canno< be imposed for reimbursing the cost of ordinary municipal
services which the Municipal Board was bound under the statu:e
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('). If these two items are excluded from consideration the balance of. expenditure incurred by the Municipal
Board for the benefit of the licensees is Rs. 55,741/7/0. In
other words, the expenditure constitit.ed about 44% of the total
income of the. Municipal Board from the licensees. In our op -
nion, there is no sufficient quid pro quo established in the circumstances of this case and the High Court was therefore rigl:rt in
holding that the imposition of the licence fees at the rate of
Rs. 30/- on each rickshaw owner and Rs. 5/- on eaclt rickshaw
driver was ultra vires and illegal.
For the reasons expressed we hold that the judgment an:I
decree of the Allahabad High Court dated November 23, 1961
in First Appeal No. 315 of 1958 is correct and this appeal is
accordingly dismissed with costs.
V.P.S.
Appeal dismissed.
( 1)1.L.R. [194)] Mad. S21.
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