# SUPREME COURT REPORTS [1964]VOL. PATEL GORDHA:"lDAS HARGOVJNDAS v. MUNICIPAL COMMISSIONER, AHMEDABAD

- **Citation:** [1964] 2 S.C.R. 608
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** B. P. SINHA c. ], s. K. DAS, A. K. SAU KAR K. N. vVA:\'CI!OO, K. c. DAS GUPTA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/supreme-court-reports-1964-vol-patel-gordha-ldas-hargovjndas-v-municipal-2949
- **Pages:** 39

## Headnote

Municipality-lmpoaitt'.on of rate on vacant land-ll'h,thu
rnt. to be
based on annual wlue or capital ralue of landWhether rules ultra vires-llistory of rates in England and
Inclia-Gf)1:er111ncnl of [11dir1
Act 1 JfJ.)5 (2U Geo. 5 ch. 2),
Set:ent!t ._)'r::liulufr, /.,ist 1.ihm 6.j,
Liat 11, ite1n 42-Brnnbay
.lfunicipal lloroag/,s Act, Jf/25 (li01n. 18 of zn6), 88. 73, 76
llule• 243, 3-50-A.
'
A suit was filed by the appellant• to challenge the imposition of a rate by the Municipal Corporation of Ahmedabad
on vacant lands situate within
the municipal limits. The rate
was levied under section 73 of the Bombay Municipal Boroughs
Act, 1925, rca<l \vith
E~planati'->11 to s. 75 of the Act.
The
Municipality framed rule 350-A for rating open lands which
provides that the rate on the area of open lands shall be levied
at 1 per centum on the valuation based upon capital. The
contention of the appellants was that reading the two rules
together, the rate was levied at a percentage of the capital
value of open lands and that the municipality could not do.
Rule 350-A read with rule 243 wa. ultra vires ss. 73 and 75
inasmuch as it pcrtnirte<l tlie fixation of rate at a percentage
of capital ,·alue and that was
not permitted by the Act.
'l'he word "rate-'' 11'.\ed in s.73 had acquired a special meaning by
the time the Act came to be passed and meant a tax on the
annual value of land< and buildings and not on their capital
value.
It was also contended that if the Act permitted the
levy of a rate on a percentage of capital value of the lands and
buildings, that "'as 11ltra 1:ires the Provincial Legislature.
It
was further contended that the assessment
ba.!cd on rule
350·A read \Yith
rule 243 was u..ltrfl i·irea and the assc!sment
list prepared pursuant to the said rule wa. illr,gal and void
The trial court held that rule 350-A read with rule 243
was illegal and void and beyond the authority given to municipality under s. 73 of the Act.
The trial Court granted the relief
claimed by the appellants. The High Court reversed the erder
2 S.C.R.
SUPREME COURT REPORTS 609
of the trial court and the appellants came to this court after
getting a certificate.
H.Zd (Slrkar J., dissenting), that rule 350-A read with
rule 243 is ultra vircs s. 73 of the Bombay Municipal Boroughs
Act, 1925, read with Explanation to
s. 75. The assessment
list for the year 1947°48 published by the municipality for
levying the said tax in so for as it was prepared under
rule 350-A is illegal, ultra vires and void. The municipality
was restrained from recovering the said tax on the open lands
from the appellants.
The word "rate" had acquired a special meaning in
English legislative history and practice and also in Indian
legislation where that word was used and it meant a tax for
local purposes imposed by local authorities. The basis of the
tax was the annual value of the lands or buildings on or in
connection with which it was imposed, arrived at in one of the
three ways, namely, (1) actual rent fetched by land or building
where it is actually let, (2) where it is not let, rent based on
hypothetical tenancy, particularly in the case of buildings, and
(3) where either of these two mode• is not available, by valua·
tion based on capital value from which annual value has to be
found by applying a suitable percentage which may not be the
same for lands and buildings.
When in 1925, s. 73 (1) of the
Act while specifying taxes which could be imposed by a municipal borough, used the word 'rate' on buildings or lands situate
within the municipal borough, the word 'rate' must have been
used in that particular meaning which it had acquired in the
legislative history and practice hath in England and India
before that date. The use of the word 'rate' in cl. (i) definitely
means that it was that particular kind of tax which in legislative history and practice was known as a 'rate' which the municipality could impose and not any other kind of tax.
That though mathematically it may be possible

## Text

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1963
Match 28
608
SUPREME COURT REPORTS [1964]VOL.
PATEL GORDHA:"lDAS HARGOVJNDAS
v.
MUNICIPAL COMMISSIONER, AHMEDABAD
(B. P. SINHA c. ]., s. K. DAS, A. K. SAU KAR
K. N. vVA:\'CI!OO, and K. c. DAS GUPTA JJ.)
Municipality-lmpoaitt'.on of rate on vacant land-ll'h,thu
rnt. to be
based on annual wlue or capital ralue of landWhether rules ultra vires-llistory of rates in England and
Inclia-Gf)1:er111ncnl of [11dir1
Act 1 JfJ.)5 (2U Geo. 5 ch. 2),
Set:ent!t ._)'r::liulufr, /.,ist 1.ihm 6.j,
Liat 11, ite1n 42-Brnnbay
.lfunicipal lloroag/,s Act, Jf/25 (li01n. 18 of zn6), 88. 73, 76
llule• 243, 3-50-A.
'
A suit was filed by the appellant• to challenge the imposition of a rate by the Municipal Corporation of Ahmedabad
on vacant lands situate within
the municipal limits. The rate
was levied under section 73 of the Bombay Municipal Boroughs
Act, 1925, rca<l \vith
E~planati'->11 to s. 75 of the Act.
The
Municipality framed rule 350-A for rating open lands which
provides that the rate on the area of open lands shall be levied
at 1 per centum on the valuation based upon capital. The
contention of the appellants was that reading the two rules
together, the rate was levied at a percentage of the capital
value of open lands and that the municipality could not do.
Rule 350-A read with rule 243 wa. ultra vires ss. 73 and 75
inasmuch as it pcrtnirte<l tlie fixation of rate at a percentage
of capital ,·alue and that was
not permitted by the Act.
'l'he word "rate-'' 11'.\ed in s.73 had acquired a special meaning by
the time the Act came to be passed and meant a tax on the
annual value of land< and buildings and not on their capital
value.
It was also contended that if the Act permitted the
levy of a rate on a percentage of capital value of the lands and
buildings, that "'as 11ltra 1:ires the Provincial Legislature.
It
was further contended that the assessment
ba.!cd on rule
350·A read \Yith
rule 243 was u..ltrfl i·irea and the assc!sment
list prepared pursuant to the said rule wa. illr,gal and void
The trial court held that rule 350-A read with rule 243
was illegal and void and beyond the authority given to municipality under s. 73 of the Act.
The trial Court granted the relief
claimed by the appellants. The High Court reversed the erder
2 S.C.R.
SUPREME COURT REPORTS 609
of the trial court and the appellants came to this court after
getting a certificate.
H.Zd (Slrkar J., dissenting), that rule 350-A read with
rule 243 is ultra vircs s. 73 of the Bombay Municipal Boroughs
Act, 1925, read with Explanation to
s. 75. The assessment
list for the year 1947°48 published by the municipality for
levying the said tax in so for as it was prepared under
rule 350-A is illegal, ultra vires and void. The municipality
was restrained from recovering the said tax on the open lands
from the appellants.
The word "rate" had acquired a special meaning in
English legislative history and practice and also in Indian
legislation where that word was used and it meant a tax for
local purposes imposed by local authorities. The basis of the
tax was the annual value of the lands or buildings on or in
connection with which it was imposed, arrived at in one of the
three ways, namely, (1) actual rent fetched by land or building
where it is actually let, (2) where it is not let, rent based on
hypothetical tenancy, particularly in the case of buildings, and
(3) where either of these two mode• is not available, by valua·
tion based on capital value from which annual value has to be
found by applying a suitable percentage which may not be the
same for lands and buildings.
When in 1925, s. 73 (1) of the
Act while specifying taxes which could be imposed by a municipal borough, used the word 'rate' on buildings or lands situate
within the municipal borough, the word 'rate' must have been
used in that particular meaning which it had acquired in the
legislative history and practice hath in England and India
before that date. The use of the word 'rate' in cl. (i) definitely
means that it was that particular kind of tax which in legislative history and practice was known as a 'rate' which the municipality could impose and not any other kind of tax.
That though mathematically it may be possible to arrive
at the same figure of the actual tax to be paid as a rate whether
based on a capital value or based on annual value, the levying
of the rate as a percentage of the capital value would still be
illegal for the reason that the law provides that it should be
levied on the annual value and not otherwise. By levying it
otherwise directly as a percentage of the capital value, the real
incidence of the tax is camouflaged and the electorate not
knowing the true incidence of the tax may possibly he subjected
to such heavy incidence as in some cases may amount to confiscatory taxation.
Per Sarkar J .-Rate is the na111e given to an in1post levied
by a local authority to raise funds for its expenses irrespective
1963
Patel Gordhindas
Hargovindas
v.
Municipal Commissio•
ner, dhmedabad
!96J
Patti Gordhania1
H1r:Qvindas
v.
Mrmicipcl CommUsio··
n!r, Ahm1tf•b11d
610 SUPRE!vIE COURT REPORTS [1964] VOL.
of the basis on which it is levied. There is no authority for the
proposition that the word 'rate' has acquired a technical meaning indicating a levy on the basis only of yearly value of
property. Such authority is not furnished by the fact that in
England in all rating statutes the yearly value has always been
adopted as the basis of valuation for calculating rate!. The
English text books on rating only stated that in England in fact
the rating statutes ahvays based on rates on yearly value.
In
our country, legislatures have used both the words 'tax' and
'rates' to indicate the impost by a local authority and in some
cases have permitted a local authority to levy a "property tax"
at a percentajle of its capital value.
The word 'rate' in s. 73 of the Bombay Municipal
Boroughs Act, 1925 which authorises a Municipality to illlpose
a rate on lands cannot be understood in any technical sense.
This view is supported by the explanation in cl. (a) of s. 75 of
the Act which provides that rules may be made specifying that
the rate authorised bys. 73 may be levied on the basi• of the
capital value of land. There is nothing to indicate that in the
explanation the word• "capital value" had been med only for
the purpose of finding out the annual value froin it and not to
form by itself the basis of the valuation OJ.l vvhich tJ1c rate is
to lte imposed.
Rule 350-A framed under '· 75 of the Act read with r. 253
specifying that the rate on the land shall be levied at one per
cent of the capital value of laud is not ultra vi res the Act.
The Act imposes a t.x on lands and is within item 42 or
Li>t II of the Government of India Act, 1935. The fact that
it authorised that tax being quantified on the bash of the
capital value of the land subjected to it does not take it out of
that item and place it under itern 55 of List I dealing with
"tax~s on capital value of the assctsn \vhich onJy the Central
lccislature can le\'y. The identification ,,f the subject-matter of
the tax is to be found in the charging section onfy aad the
charging section in the present c.1.sc is s. 73 anrl the suhjcctmatter \vhich it taxes is land and not the capital value of it.
The subject.matter of taxation is sornething different from the
measure provided for quantification of the tax and one has no
effect on the other.
:\Toth\vith!ltanding the meaCJure of the tax
being based on the c?.pital value, the t;\x in the present case i3
nonetheless a tax on land.
Slate of Jfarlras \". Gamw11
IJ1tnk"ley & Co., [1959)
S. C.R. 379, l'roi•incial 1'reasu1·er of Alberta v. Kerr, [1933]
2 S.C.R.
SUPREME COURT REPORTS
611
A. C. 710, R. 0. Jall v. Union of India, [1962] Supp. 3
S. C. R. 436 and Ralla Ram v. Province of East Punjab,
[1948] F. C.R. 207, referred to.
·
CIVIL APPELLA'l'E juRISDIC'.l'ION : Civil Appeal
No. 253 of 1956.
Appeal from the judgment and decree dated
April 6, 1953 of the Bombay High Court in First
Appeal No. 223 of 1950.
P. B. Patwari, S. M. Tailor, Atiqur Rehman
and K. L. Hathi, for appellants Nos. 2, 4, 6, 8-10,
12-14 and 22.
P·urshottam Tricumdas, R. M. Shah, J. B.
Dadachanji, 0. O. Mathur and Ravinder Narain,
for respondent No. 1.
R. Ganq,pathy Iyer and R. H. Dhebar, for
respondent No. 2.
1963. March 28. The .Judgments of the Court
were delivered by
WANCHOO J.-This appeal on a certificate
granted by the Bombay High Court arises out of a
suit brought by the appellants to challenge the imposition of a rate by the respondent Municipal
Corporation of Ahmedabad on vacant lands situate
within the municipal limits, The rate was levied
under s, 73 of the Bombay Municipal Boroughs Act,
No. XVIII of 1925, (hereinafter referred to as the
Act) read with the explanation to s. 75 of the Act.
The Municipality framed r. 350-A for rating open
lands which provides that the rate on the area of
open lands shall be levied at l per cen1um on the
valuation based upon capital. "Valuation based
upon capital" was defined in r. 243 as the capital
value oflands and buildings as may be determined
from time to time by the valuers of thP. municipality,
who shall take into consideration such reliable data
1963
Patel·Gordhanr'1s
HargrJr;indar
v.
Municipal Con1mis.uo~
ner, Ahmedahad
1163
P•ll/ Gor~ts
Ha~
••
Municip.J CommissiD·
""· J/Jnu'41tlJ/
w .. m.. '·
612 SUPRE:ME COURT REPORTS [1964j VOL.
as the owners or the occupiers thereof may fumish
either of their own accord or on being called upon
to do so.
The contention of the appellants was that
reading the two rules together, the rate was levied at
a percentage of the capital value of open lands and
this the municipality could not do.
Two submissions
were made in support of this contention.
In the
first place it was urged that r. 350-A read with r. 243
was ultra vires ss. 73 and 75 inasmuch as it permitted
the fixation of rate at a percentage of capital value
and this was not permitted by the Act, for the word
"rate" used in s. 73 (I) (i) had acquired a special
meaning by the time the Act came to be passed and
meant a tax on the annual value of lands and
buildings and not on their capital value. In the
second place, it was urged that if the Act permitted
the levy of a rate on a percentage of capital value of
the lands and buildings rated thereunder, it was ultra
vires the Provincial Legislature because of item 5;),
List I, of the Seventh Schedule to the Govemment of
India Act, 1935. The appellants finally contended
that the asscssmen t based on r. 350-A read with
r. 243
was ultra
vires
and the
assessment
list
prepared pursuant to
the
said
rule was
illegal
and void. They
therefore prayed that
r. 350-A read with r. 243 for assessment of vacant
lands as well as the assessment charged on vacant
lands under the said rule since April I, 194 7, and the
assessment lists for the year 194 7 -48 which were prepared for that purpose be declared illegal and ultra
vires and further prayed that an order of permanent
injunction might be made against the respondent
'Municipality restraining it from collectin~ or causing
to be collected from the appellants any sum of money
as assessment for vacant lands for the year 1947-48
or for any year thereafter, based on capital valuation
on the strength of the said rule.
The suit was resisted by the municipality.
Its
defence in substance was that the rule was intra vires
2 S.C.R.
SUPREME COURT REPORTS
613
and the assessment lists had been properly prepared
in accordance with the provisions of the Act and
were not open to any objection. The trial court held
that r. 350-A read with r, 243 was illegal and void
and beyond the authority given to the municipality
under s, 73 of the Act, inasmuch as it would amount
to taxing the open lands as assets of individuals,
within the meaning of item 55 of List I of the
Seventh Schedule to the Government of India Act.
The trial Court therefore decreed the suit and granted
the relief as claimed by the appellants.
Then followed an appeal to the High Court
which was allowed. The High Court held that the
manner in which open lands were rated did not bring
the rate within item 55 of List I of the Seventh
Schedule to the Government of India Act, as the
method employed was only a mode of levying the
rate. The High Court therefore held that r. 350-A
read with r. 243 was not ultra vi res.
As to the other
contention that the rule was ultra vires ss. 73 and 75
of the Act, the High Court held that even if it be
assumed that by adopting the basis of capital value
the municipality must determine the annual value of
the property and levy rate on such value, it made no
difference to the result, as the municipality might
levy much higher rate of tax on the annual value of
the property determined on the basis of its capita!
value.
The High Court pointed out that the
municipality, by adopting this method, had done in
one step what could be done in two steps, and that
would have merely involved first determining the
capital value and then
the annual value, and
then fixing the rate on the annual value at a much
higher percentage. It was of the view that it was
all a matter of fixing a reasonable rate on open
land, and if the rate was otherwise reasonable it
would be difficult to hold that the rule levying the
rate was ultra vires ss. 73 and 75.
Thereupon the
appellants applied for a certificate of ~tness to enabl~
1909
Paid Gardlw.nia1
Hort•rintl'4
••
Mu11icipal CommiJsio~
ntr, Alrm1~1ia.d
r¥11nc111w }.
1963
Patti G1Jrdha11das
l/argor:i11dos
v.
,\frmitipd/ Co11tmiHio·
r.tr, .1lmtdabad
lt-'oncf1c11 J.
614 SUPREME COURT REPORTS [1964) VOL.
them to appeal to this Court, which was granted; and
that is how the matter has come up before us.
The same two points which were raised in the
High court have been urged before us.
We shall
first consider the point, whether r.:~50-A read with
r.2-J:I is ullm vires ss.7:l am! 7:) of the Act.
The
relevant part of s. n is as roJJows: -
"(I) Subject to any general or special orders
which the State Government may make
in this behalf and to the provisions of
sections 75 and 7(), a municipality may
impose for the purposes of this Act any of
the following taxes, namely:-
(i)
a rate on buildings or lands or both
situate within the municipal borou~h;
,,
Section i;) provides the procedure preliminary to
imposing any tax provided under s. i:3. The relevant
part thereof is as follows:-
"A :\[unicipality before imposing a tax shall
observe the following preliminary procedure: --
(a) it shall, by resolution passed at a general
mealing, select for the purpose one or
other of tlie taxes specified iu section 73
and
approve
rules
prepared
for the
purposes of clause (j) of section ii8 prescribing the tax selected, and in such resolution
and in such rules specify.--·
(i)
(ii)
(iii) in the case of a rate on buildings or
lands or both ; the basis, for eac)l class
2 S.C.R.
SUPREME COURT REPORTS
615
of the valuation on which such rate is
to be imposed ;
Explanation--In the case of lands the
basis of valuation may be either capital
or annual letting value."
It will be seen that though s. 73 opens with the words
"the municipality may impose for the purposes of
this Act any of the following taxes", the particular
tax specified on lands or buildings is designated as a
rate on buildings or lands or both.
The use of the
word "rate" in cl.(i) of s.73 (1) must be given its
due significance and the kind of tax which s. 73 (1)
(i) empowers the municipality to impose on lands
and buildings is a rate on lands and buildings. The
contention on behalf of the appellants is that the
words "rate on buildings or l"nds" had come to
acquire by the time the Act was passed a special
meaning and the tax which s. 73 (1) permitted the
municipality to impose on lands and buildings was
that kind of tax which had come by then to be
known as "rate on buildings and lands''. It is urged
that by the time the Act was passed, the words "rate
on lands or buildings" signified a tax not on their
capital value but on their annual value and therefore
whens. 73 (1) permitted the municipality to impose
a rate on buildings or lands or both it only gave it
jurisdiction to impose a tax by way of certain
percentage on the annual value of lands or buildings
and not by way of a percentage on their capital
value.
Reliance in this connection is placed on the
decision of this court in The State of 1viadras v.
Gannon Dunkerly and Co. (' ), where this Court held
that "the expression 'sale of goods' was, at the time
when the Government of India Act,
1935, was
enacted, a term of well-recognised legal import in
the general law relating to sale of goods and in the
(1) (1959] S. C. R. 379 .•
1963
Patel Gordhandar
H argovind4S
v.
Municipal Commis.rfo.
ner, Ahmedabad
Wanch"o J.
1963
P11ltl GordJJ1ridns
/{nrgcri1u/11.I
, ..
.\.1111icip.1i C6nrniisin-
,,,r, ..thmNi!J111tl
fVar.rh'>O J
616
SUPREME COURT REPORTS [1964) VOL.
legislative practice relating to that topic and must be
interpreted in Entry ·18 in List II in Sch. VII of the
Act as having the same meaning as in the Sale of
Goods Act, UJ30".
It is urged that the legislative
practice prevalent in England as well as in India
up to I !):?5 showed that wherever the term "rate" was
used in wnncction with local taxation it meant a tax
on the annual value of lands and b11ildings and not
on their capital value. It is therefore necessary to
look at the legislative history and practice to find out
what the word "rate" meant when the Act was
passed in l\J25.
The word "rate" has come to our country for
the purpose of local taxation from England. It will
therefore be useful to fincl out what exactly the word
· rate" when used in connection with local taxation
meant in England.
The English Rating Law is
largely derived from the Poor Relief Act, Will
(4:l Eliz. Cap. 2) which provided for raising "weekly
or otherwise, by taxation of every inhabitant, parson,
vicar and other and of every occupier of lands,
houses, tithes impropriate or propriations of tithes,
coa I mines or saleable underwoods, in the said parish
in such competent sum and sums of money as they
shal I think fit, a convenient stock of flax, hemp, wool
thread, iron and other necessary ware and stuff to
set the poor on work".
The chief provision of this
Act was to levy a tax on the occupier of lands and
houses and this tax in course of ti me c:ame to he
known as a rate. In ·•Rating Valuation Practice"
by Benn and
Lockwood, the authors observe as
follows at p. I :-
"The purpose of rating Valuations is to arrive
at a figure termed rateable value on which rates
arc levied upon the ratepayer at so much in
the pound in order to defray the expenses of
local government. The present rating law is
largely derived from the Poor Relief Act, 1601,
-
2 S.C.R.
SUPREME COURT REPORTS
617
which provided for the levying of taxation
on 'every occupier of land, house ......... towards
the relief of the poor'. Under this enactment
occupiers were to contribute to a poor rate
according to their means but no specific method
of assessment was laid down.
The annual
value of a person's property within the parish
gradually became recognised as the most
satisfactory basis
and this was first given
statutory approval in 1836".
This passage shows
that gradually by judicial
decisions what was levied on the occupier's lands
and buildings under the Poor Relief Act came to be
known as a rate on the annual value of the property
in beneficial occupation within the parish and this
practice was given statutory approval in 1836.
The
word "rate" thus gradually came to be applied to
such local taxation till we find that the Poor Rate
Act, 180 L was passed providing for certain appeals
and other remedies to persons on whom rates were
levied. Then came the Poor Rate
A~sessment and
Collection Act, 1869, which by its first
section
provided that the occupier of any rateable heredita·
ment shall be entitled to deduct the amount paid by
him in respect of any poor rate assessed upon such
hereditament from the rent due or accruing due to
the owner, and every such payment shall be valid
discharge of the rent to the extent of the rate so paid,
thus affording relief to the occupier. This history
will show that the rate was assessed generally on the
occupier of lands and buildings on account of his
beneficial occupation of such lands and buildings.
The very fact that the rate was
a~sessed on the
occupier of lands and buildings leads clearly to the
inference that the rate was to be levied on the annual
value of the land or building to the occupier and
had nothing to do with the capital value of the
land and building to the owner. In other words,
the rate was to be leyieg on the ~nnual value of tlw
1963
Patel Cordhandas
Hargovindas
••
Municipal Commissie·
ner, Ahmedabad
Wanchoo J,
1963
PdttJ Go1dl,muf1JJ
lfargovi.1 "'as
v.
.\lu11 icipal Comm iss/o·
ner, A.lanudahad
ll'and100 J,
618 SUPREME COURT REPORTS[l9M) VOL.
land or building depending upon its letting value
and not on the capital value.
In 1869, another Act was passed known as the
Valuation (Metropolis) Act, 186!!, which applied to
the city of London. That Act defined
a "ratepayer" as meaning "every person who is liable to
any rate or tax in respect of property entered in any
valuation list". It also defined "gross value" as
meaning "the annual rent which a
tenant might
reasonably be expected, taking one
year with
another. to pay for an hrreditament".
Lastly, it
definecl the words "rntcablc value" as meaning "the
gross value after deducting therefrom the probable
annual average cost of repairs, insurance, and other
expenses as aforr,said". Clearly therefore the rate
under this Act was a tax lcviable on the rateable
value, which meant the gross value subject to certain
deductions and the gross value was the annual rent
which a tenant might reasonably be expected to pay.
Finally, in llJ2;), came the Rating and Valua·
tion Act, 1!12/i, which was meant to simplify and
amend the law with respect
to the making and
collection of rates by consolidation of rates and
otherwise and to promote uniformity in the valuation
of property for the purpose of rates.
This Act was
passed about 1he same time as the Act with which
we arc concerned; and it provided for the levy of a
general rate and tht rateable value of a hereditament was to be the net annual value thereof.
In
s. 08. the "rate" was defined as a rate the proceeds
of which were applicable to local purposes of a
public nature and which was leviable on the basis
of an assessment in respect of the yrarly value of the
property. "Ratepayer" was defined to mean every person who was liable to any rate in respect of property
entered in any valuation list.
"Gross value"' was defined to mean the rent at which a hercditament might
reasonably be expected to let from year to year, and
2 S.C.R.
SUPREME COURT REPORTS
619
"hereditament" meant any lands, tenements, hereditaments or property which were or might become
liable to any rate in respect of which the valuation
list was made under the Act. .Section 22 rprovided
how the rateable value which was the net annual
value was to be arrived at from the gross value.
This history of the use of the word "rate" for
purposes of local taxation in English Law clearly
shows that the word "rate" was used with respect
to a tax which was levied on the net annual value or
rateable value of lands and buildings and not on
their capital value.
It would therefore not be wrong
to say that in the legislative history and practice in
England upto 1925, "rate" for the purpose of local
taxation meant a tax on the annual value of lands
and buildings liable to such taxation.
In Wharton's Law Lexicon, the word "rate"
is defined as a "contribution levied by some public
body for a public-purpose, as a poor rate, a highway
rate, a sewers rate, upon, as a general rule, the
occupiers of property within a parish or other area".
This again emphasises the fact that rate was levied
not on owners of property but on occupiers, from
which it follows that it could only be levied for
beneficial occupation,
which, in its turn would
bring in the annual rental value so far as the occupier
was concerned. The Rating and Valuation Act of
1925 to which we have already referred only gave
final recognition to this meaning of the word "rate"
and consolidated various rates prevailing for various
purposes by providing for a general rate for all
purposes. This general rate was raised on so much
of the pound of the rateable value of each hereditament according to the valuation list.
The methods in use for the purpose of arriving
at rateable value were generally th~ee. Where the
)and or building was actually let, the valuation was
1963
Patil Gordhantfas
H argovindas
v,
Municipal CommissioM
ner, Ahmedabad
Wanchoo J.
I rt CJ
alt/ Gqrdhaf.dtu
lftJrgo11in"tH
v.
Municipal Commiuio·
nrr, Ahmet/abad
IVonrho:i J.
620
SUPREME COURT REPORTS [196-1] VOL.
based on the rent at which it was let.
Where, however, the land or building was not let, two methods
were evol\'cd for the purpose of finding out
the
rateable value.
The first was lo assume a hypothetical tenancy (slleh as where the same person is the
owner and occupier) and find out the rent at which
the premises would be let.
The second was based
on the capital val uc of the premises.
But the tax
was not levied on the capital value itself;
the
capital
value was determined on the structural
value of the building to be assessed by what was
known to be c0ntractor's mnhod
or coutractor's
test in addition to the market value of the land.
Sometimes the words
"effective capital
value:'
were also used since in some cases the actual capital
cost of the building plus the market value: of land
might for some reason or the other be ineffective 1'..e.,
it might not be rent producing.
Having arrived at
the effective capital value it was necessary •.o apply
percentages tlicrcto in order lo arrive at the annual
value.
In England, the usual percentage in the case
where the property was used for commercial purposes, was ii per centum for the building and ·1 per
centum for the land.
It was after this annual value
was arrived at that the rate was imposed on this
annual value: (see Complete Valuation Practice by
Mustok Eve and Anstey, 5th Edn. pp. :?;'i3-2ii8).
Faraday "On Rating" also mentions that "it
is the nccupier who is
rateable in respect of his
occupation of rateable property" (p. 1).
After referring to the Poor Relief Act, HiOI, Faraday says
that later legislation had left the occupier as the
main bearer of the burden of rate, and the basis
of the rate i! the beneficia I occupation, meaning
thereby
the
ocrnpation of a hereditament
for
which somebodv would be prepared to pay somebody net rent. · Faraday also mentions the
same
three ways of valuing this beneficial
occupation
for the purpose of arri\·in.~ at the rateable value or
2 S.C.R.
SUPREME COURT REPORTS
62i
annual value of lands and buildings, in order to
levy the rate : (see Chap. II of Faraday "On
Rating".)
The same scheme is to be found in Ryde "On
Rating". At p. 7 it is mentioned that the rateable
person under the Poor Relief Act 1601 is the occupier and not the owner of the land, though the
liability is put in some cases by later Acts on the
owner. Ryde further points out that the Poor Relief
Act of 1601 did not attempt accurately to define
how the value of land was to be measured, and it
was for the first time in 1836 that the first statutory
definition of "net annual value" was given in the
Parochial Assessments Act, 1836, thus giving statutory recognition to the pratice which was
being
followed till then and this definition was "the rent
at which the hereditament might reasonably be
expected to let from year to year, free of all usual
tenant's rates and taxes, and tithe, commutation rent
charge, if any, and deducting therefrom the probable
average annual cost of the repairs, insurance and
other expenses, if any, necessary to maintain it in a
state to command such rent" : (see pp. 242-243).
The methods for arriving at the net annual value
are given as the same three, namely, (i) the actual
rent if the premises
were let, (ii) hypothetical
tenancy, and (iii) capital cost from which the annual
value was determined at a certain percentage : (see
Chapters XII and XIV).
That it is the annual value and not the capital
value which has always been the basis of the rate
upto 1925 is well brought out in the following
passage at p. 329 of Ryde "On Rating" :-
,,Where property is of a kind that is rarely let
from year to year, recourse, is sometimes had to
interest on capital value or on the actual cost,
of land and buildings, as a guide to the ascertainment of annual value.
There was some
1963
Patil GordhantioJ
Har:ovinrlos
v.
Municipal Cammissia~
ner, Ahmedabad
Wanclioo J.
lf63
Poltl (:r.rdlionda.1
I Jar got-ind a .1
v.
}vfu11in/1a' Commi;.ifo·
ntr, Ahmuiabad
IVanchoo J,
622
SUPREME COURT REPORTS [1964] VOL
apparent, if not real, conflict of decisions upon
the question whether intcrl'st on capital value,
or on co>t, might bt'. rnnsidcrtd at all; but the
dilhculty disappear' if the rule be th<Js stated :
the mca5ure of net annual value is defintd by
statute as the rent which might reasonably be
expected; interest on cost, or on capital value,
can11ot be substituted for the statutorv measure,
but in the absence of the best evidc1;ce, that is,
actual rents, it can be looked at as prima facie
evidence in order to answer the question of fact
what rent a tenant may reasonably be expected
to pay"1
It will thus be clear from the various statutes to
which we have referred and the various books on
rating in England that the rate always had the
meaning of a tax on the annual value or rateable
value of lands or buildings and this annual vnlue
or rateable value is arrived al by one of three modes,
namely, (i) actual rent fetched by land or building
where it is actually let. (iij where it is not let, rent
based on hypothetical tenancy, particularly in the
case of buildings, and (iii) where either of these two
modes is not available, by valuation based on capital
value from which annual value has to be found by
applying a suitable:: percentage which may not be the
same for lands and buildi11gs, and it was this position
which was finally brought out in bold relief by the
Rating and Valuation Act, l92G. It is clear further
that it is not the Rating and Valuation Act of 1!125
which for the first time applied the concept of net
annual value and rateable value as the basis for
levying a rate for purposes of local taxation; that
basis was alwavs there
for
centuries before the
Act of 1925 was 'passed.
The
present position
1s
summed
up in
Halsbury's Laws of England, Third Edition (Vol. :!2),
2 S.C.R. SUPREME cOtJRt REPORTS
623
paras 9 and 10. Paragraph 9 deals with the liability to the rate in general and is in these terms :-
"The general rate is leviablc by taxation of
every parson and vicar, and of every occupier of
lands, houses, tithes, impropriate, propriations
of tithes, coal mines, mines of every other kind,
woodlands, sporting rights,
and advertising
rights. In certain cases the owner of property
is rated in place of the occupier; and in a few
instances, owners as such are rateable ......... ..
,,
o o o o 0 0 o o o 0 0 0 0. 0 o o o 0 0 0 o o o 0 0 0 0 0 0 'o 0 o o o o 0 0 o o 0 o o o 0 o o o o o 0 0 0 I 0 0
Paragraph 10 deals with the meaning and nature of
rate in these terms :-
"The expression
'rate' means a rate the
proceeds of which are applicable to local purposes of a public nature and which is leviable
on the basis of an assessment in respect of the
yearly value of the property".
This meaning of the word "rate" in England is, as
we have shown above, not merely based on the
Rating and Valuation Act, 1925; itis borne out to
be so by English legislative history and practice even
before the Ra ting and Valuation Act of 1925, was
passed. Therefore, it cannot be doubted that in
England from where in this country
we have
borrowed the word "rate", that word had acquired
a special meaning namely that it was a tax on the
annual value of lands and buildings found in one of
the three modes we have already indicated.
It is also pertinent to note that Land Tax as
such was a different tax altogether in England and
was levied for the first time by the Land Tax Act of
1797. Land tax is a charge on land, and not on the
income likely to arise from occupation of land and
the intention was that it should be borne by the
owner of the land. The existence of this tax as
1963
Patel Gordh1mJas
Har1ooinda1
v.
Municipal Commis.i:io
ner, Ahmedahad
Wanchoo J.
1963
Paltl Gordho,oJ
Har101 in des
,.,
MUJ1icipai Commi.Hioner, Ahm~tl•btJd
IVanrhoo J.
624
SUPREME COURT REPORTS [1964] Vot.
distinct from the rate on lands and buildings brings
out what the word "rate" has always meant in local
taxation in England as indicated above : (sec p. :!32
of Benn
and
Lockwood
on
Rating Valuation
Practice, Fifth Edition).
Let us now look at the legislative history and
practice in India upto 1925.
The Bombay City
Municipal Act (No. Ill of 1888), bys. I:lU provided
for property tax.
Section 154 (1) thereof provided
for valuation of property assessable to property taxes
in these terms :-
"In order to fix the rateable value of any
building or land assessable to a property tax,
there shall be deducted from the amount of the
annual rent for which such land or building
might reasonably be expected to let from year
to year, a sum equal to ten per centum of the
said annual rent, and the said deduction shall
be in lieu of all allowances for repairs or on
any other account whatever".
It may however be noted that this Act did not use
the word "rate", though it has used the words
"rateable value" in s. liiJ.
The Bengal District Municipalities Act(No. III
of 1884) provides bys. 8ii for a rate on the annual
value of holdings situate within the municipalities,
and the word "holding" is defined in this Act as
"land held under one title or agreement''.
By its
very definition the rate is on the annual value in this
Act.
The
Madras
District
Municipalities Act
(No. IV of 1884) provides for a rnx on lands and
buildings, and further provides that the tax shall be
on the annual value of the buildings or lands or both.
This Act does not use the word "rate" but what in
,.
I
-I
-
2 S.C.R.
SUPREME COURT REPORTS
625
actual fact it provides for is a rate based on the
annual value of lands and buildings.
The Calcutta Municipal Act, (No.III of 1899)
specifically uses the word "rate" and provides for
imposition of rates on all buildings and lands by
s. 147.
Section 151 provides for valuation of build·
ings and lands for the purposes of rate, and it is the
annual value of lands and buildings which is the
basis of the rate, and that annual value is deemed to
be the gross annual rent at which the land might
reasonably be expected to let from year to year
(subject to certain deductions).
In North-Western Provinces and Oudh Municipalities Act (No. 1 of 1900), s. 59 provides for a tax
on houses, buildings and lands situate within the
municipality, and the tax is based on their annual
value.
Here the word "rate" is not used but the tax
is nothing other than a rate, for it is on the annual
Value of lands and buildings.
Section 59 of the Bombay District Municipalities Act (No. Ill of 1901 }, provides for the imposition
of a rate on buildings or lands or both situate within
the municipal district. The words in this Act are
exactly the same as in the Act under our consideration. Section 63 provides for the preparation of assessment lists and cl. (d) thereof lays down the annual
letting value or other valuation on which the property
i~ assessed.
In the Central Provinces Municipalities Act
(No. XVI of 1903), s. 35 provides for a tax on
houses, buildings and lands, and the tax is not to
exceed 7 per centum of the gross annual letting value
of the house, building or land.
Here again the
word "rate" is not used. although the tax is no more
than a rate.
1963
Patti Gordhar:tlas
Hargovinr'as
v.
Municipal Commissio•
ner, Ahmedabad
Wanchoo J.
1963
P.ul GonJlumr/as
HareaviRd«s
v.
MuJli,ifMJ Comrni1rif·
rur, Ahm1Uhad
WdU/loo J.
626
SUPREME COURT REPORTS [1964] VOL.
The J\.fadras Municipal Act (No. III of I 904)
by s. 129 provides for the levy of tax on buildings
and lands. It has not used the word "rate" but the
levy is on the annual value of buildings and lands
and the annual value bv s mo is deemed to be the
gross annual rent at whi~h the
lands might r~ason
ably be expected to let from year to year or from
month to month {subject to certain deductiom). It is
remarkable how the words used in the various Indian
Acts are almost the. same as in English statutes and
how they follow the English definitions of gross value
or annual value almost
word for word.
Though,
therefore, the word "rate" wa1 not usd in this Act,
the levy was on the annual value of the land.
Lastly, the Punjab Municipalitie.q Act, (~o. III
of 1911) provides for a tax on buildings and lands
and it further provides various modes for assessment
one of which is based on the annual letting value.
Two other ways are provided in this Act, namely,
so much per square yard of the ground area and "SO
much per foot of frontage on streets and bazars.
But that also does not change the nature of the tax
>Nhich is not based on capital value.
It will thus be seen that all Indian statutes
till 191 l dealing with municipal taxation impose a
tax on the annual value of lands or buildings without
always using the word "rate." In some of the statures
the word "rate" is used but the tax is again on the
annual value.
The le.gislation on this subject has
been summed up by Aiyangar in "Municipal Corporations in British India," (Vol. III, 1914 Edn.J at
p. I 53 in these words :·--
"All municipal corporations in Brirish India
are empowered to levy taxes on all buildings
and lands within their local limits subject to
certain specific exemptions. The owners are
made primariiy liable in some municipalities,
2 S.C.R.
SUPREME COURT REPORTS
627
while in others both the owners and occupiers
are made liable. Taxes which they can levy
form a fixed percentage on the rateable or annual values of all the said buildings and lands.
The percentage varies in the different municipalities and the mode of ascertaining the rateable or annual value also varies."
Turning now to the Acts passed in India between
1912 and 1925, we find the same state of affairs.
The U. P. Municipalities Act, (No. II of 1916)
provides for a tax on the annual value of buildings
or lands or of both bys. 128 {I) (i).
The Madras City Municipal Act, (No. IV
of 1919) imposes a property tax bys. 98.
This tax
is to be levied, under s. 99 on all lands and buildings
within the city at such percentages of the annual
value of buildings and lands as may be fixed by the
council, subject to a maximum and minimum, the
maximum being 20%.
The Madras District
Municipalities Act,
(No. V of 1920) imposes a property tax bys. 81 (l);
it is to be levied, by its sub-s. (2), at such percentages of the annual value of buildings or lands as
may be fixed by the municipal council.
The C. P. and Berar Municipalities Act, (No. II
of l!J22) provides for a tax payable by the owners of
lands and buildings situate within the limits of the
municipality, with reference to the gross annual
letting value of the buildings or lands.
The Bihar and Orissa Municipal Act, (No.
VII of l 922) provides by s. 82 ( 1) (a) for a tax upon
persons in sole or joint occupation of holdings within
the municipality. Further by cl.