# SURI PRITHVI COTION MILlS LTD.&: ANR v. BROACH BOROUGH MUNICIPALITY & ORS

- **Citation:** [1970] 1 S.C.R. 388
- **Court:** Supreme Court of India
- **Decided:** 1969-04-25
- **Bench:** I\i. HIDAYATULLAH, J. M. Shelat, V. Bhargava, B K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/suri-prithvi-cotion-mills-ltd-anr-v-broach-borough-municipality-ors-4784
- **Pages:** 8

## Headnote

Bombay M1u1icipal Boroughs A.cl, 1925, s. 13-Uvy of 'rare' on tax
and buildings-'Rate' held not to include tax on capital value or percen.
rage of cpi1al value-Defect Sought IO be removed by Gujarar Imposition
of Taxes by Municipalities (Validation) Act, 1963-Enacrmenr of s. 99 of
Gujarat Municipalities Act to give power to municipalities to levy tax on
capital value or percentage of capital value of lands and buildingtPowor of Stare ugislature undtr item 49 List II of Seventh Schedt 'e ro
Constitution levy tax on capital value of buildings-Elficacy of V tu .. !e.. •ing
Act-Principles on which retrospective validation can be upheld ..
Section 73 of the Bombay Municipal Boroughs Act, 1925 allows the
municipality to levy 'a rate on building or lands or both situate within the
municipality'. The Rules under the Act applied the rates on the basis df
the percentage on the capital value of lands and buildings.
In Patti
Gordhandas Hargovindas v. Municipal Commissionor, Ahmedabad, [1964]
2 S.C.R. 608 this Court held that the term 'rate' must be given the special
meaning it had acquired in English law and must be confined to an impost
on the basis of the annual letting value; it could not be validly levied on
the basis of capital value though capital value could be used for the purpose of workin' out the annual letting value.
Paced with this decision
the Gujarat Legislature pasoed the Gujarat Imposition of Taxes by Municipalities (Validation) Act. 1963. By s. 3 of this Act pest a.uessment and
collection of 'rate' on lands and buildings on the basis of capital value or a
percentage o! capital value was declared valid despite any iudgment of a
court or Tribunal to the contrary, and future assessment and collection on
the basis of cal'ital value for the ocriod before and after the Validation
Act was authorised.
At the same time s. 99 was enacted in the Gujarat
Municipalities Act to provide for the levy·of a tax on lands and buildinll'
'lo be ba!icd on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both."
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Appellant No. I was a company carrying on the manufacturers of
cotlon goods al Broach. It was B!!essed for the assessment years 1961-62,
1962-63 and 1963-64 to a rate on lands and buildings under s. 73 of the
Bombay Municipal Borou,hs Act on the basis of a percentaRe
of the
capital value.
It filed wnt petitions in the High Court challenging
the
uid as~csscnents. After the Validation Act of 1963 was passed it amendG
ed the petitions to challenae the validity and efficaciousness of s. 3 of the
said Act. The Hi~h ·Court dismissed the writ petitions.
Appeals with
certificate were flied before this Court.
HELD : (I) When a le.•islature sets out to validate a tax declared by a
court to he illegally collecred under an ineffective or invalid law, the call!e
for ineffectiveness or invalidity mult he removed befdrc validation can be
H
said to take place effectively.
The most imoortant condition is that the
leei .. t:iture must pos<;e<;o:; the power to impose the t1tx, for if it d~ not.
the action must ever r"'main ineffective and illegal.
Granted le~is1~tive
competence it is not sufficient to .declare merely that the decision of the
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PRITHVI: MILLS V. BROACH MUN!C.
389
court shall , not biud, for that is tantamount to reversing the decision in
exercise of judicial wwer .which the legislature does not possess or exercise.
A Court's decision must always
bind unless
the conditions on
which it is based are so fundamentally altered that the decision could not
have been given in the altered circumstances, [392 H-393 BJ
Ordinarily, a court bolds a tax to be invalidly imposed because the
power to tax is wanting or the statute or the rules or both are invalid or
do not sufficiently createJ'urisdiction. Validation
of a tax so declared
illegal ma7 be dono only · the grounds elf illegality or invalidity are capable of being relllOftd. and are in fact removed and the tax thus made lega

## Text

388
SURI PRITHVI COTION MILlS LTD.&: ANR.
v.
BROACH BOROUGH MUNICIPALITY & ORS.
April 25, 1969
[I\i. HIDAYATULLAH, C.J., J. M. SHELAT, V. BHARGAVA,
B
K. S. HEGDE AND A. N. GROVER, JJ.]
Bombay M1u1icipal Boroughs A.cl, 1925, s. 13-Uvy of 'rare' on tax
and buildings-'Rate' held not to include tax on capital value or percen.
rage of cpi1al value-Defect Sought IO be removed by Gujarar Imposition
of Taxes by Municipalities (Validation) Act, 1963-Enacrmenr of s. 99 of
Gujarat Municipalities Act to give power to municipalities to levy tax on
capital value or percentage of capital value of lands and buildingtPowor of Stare ugislature undtr item 49 List II of Seventh Schedt 'e ro
Constitution levy tax on capital value of buildings-Elficacy of V tu .. !e.. •ing
Act-Principles on which retrospective validation can be upheld ..
Section 73 of the Bombay Municipal Boroughs Act, 1925 allows the
municipality to levy 'a rate on building or lands or both situate within the
municipality'. The Rules under the Act applied the rates on the basis df
the percentage on the capital value of lands and buildings.
In Patti
Gordhandas Hargovindas v. Municipal Commissionor, Ahmedabad, [1964]
2 S.C.R. 608 this Court held that the term 'rate' must be given the special
meaning it had acquired in English law and must be confined to an impost
on the basis of the annual letting value; it could not be validly levied on
the basis of capital value though capital value could be used for the purpose of workin' out the annual letting value.
Paced with this decision
the Gujarat Legislature pasoed the Gujarat Imposition of Taxes by Municipalities (Validation) Act. 1963. By s. 3 of this Act pest a.uessment and
collection of 'rate' on lands and buildings on the basis of capital value or a
percentage o! capital value was declared valid despite any iudgment of a
court or Tribunal to the contrary, and future assessment and collection on
the basis of cal'ital value for the ocriod before and after the Validation
Act was authorised.
At the same time s. 99 was enacted in the Gujarat
Municipalities Act to provide for the levy·of a tax on lands and buildinll'
'lo be ba!icd on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both."
c
D
E
F
Appellant No. I was a company carrying on the manufacturers of
cotlon goods al Broach. It was B!!essed for the assessment years 1961-62,
1962-63 and 1963-64 to a rate on lands and buildings under s. 73 of the
Bombay Municipal Borou,hs Act on the basis of a percentaRe
of the
capital value.
It filed wnt petitions in the High Court challenging
the
uid as~csscnents. After the Validation Act of 1963 was passed it amendG
ed the petitions to challenae the validity and efficaciousness of s. 3 of the
said Act. The Hi~h ·Court dismissed the writ petitions.
Appeals with
certificate were flied before this Court.
HELD : (I) When a le.•islature sets out to validate a tax declared by a
court to he illegally collecred under an ineffective or invalid law, the call!e
for ineffectiveness or invalidity mult he removed befdrc validation can be
H
said to take place effectively.
The most imoortant condition is that the
leei .. t:iture must pos<;e<;o:; the power to impose the t1tx, for if it d~ not.
the action must ever r"'main ineffective and illegal.
Granted le~is1~tive
competence it is not sufficient to .declare merely that the decision of the
A
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E
F
PRITHVI: MILLS V. BROACH MUN!C.
389
court shall , not biud, for that is tantamount to reversing the decision in
exercise of judicial wwer .which the legislature does not possess or exercise.
A Court's decision must always
bind unless
the conditions on
which it is based are so fundamentally altered that the decision could not
have been given in the altered circumstances, [392 H-393 BJ
Ordinarily, a court bolds a tax to be invalidly imposed because the
power to tax is wanting or the statute or the rules or both are invalid or
do not sufficiently createJ'urisdiction. Validation
of a tax so declared
illegal ma7 be dono only · the grounds elf illegality or invalidity are capable of being relllOftd. and are in fact removed and the tax thus made legal.
Sometimes this la done by providing for jurisdiction where jurisdiction bas
not been properly invested before. Sometimes this is done by re-enacting
retrowectively a valid an4 le"1 taxing provision and then by fiction '!lak·
ing the tax already collecltd to stand under the re-enac;ted law. Sometimes
the legislature gives it oWn meaning and interpretation of the law under
which the tax wa• collected and by legislative fiat makes the new meaning
binding on courts. The legislature may follow any one :nethod or all of
them and while it does so It may neutralise the effect of the earlier decision elf the court which becomes ineffective after the change of the law.
[393B-D]
Whichever method' is adopted it must be within the competence of the
legislature and legal and adequate to attain the object of validation. If
the legislature bas t])e power over the subject-matter and competence to
make a valid law, it can at any time make such a valid law and make it
retrospectively so as to bind even past transaction. The validity of a Valida!·
ing law, therefore, depetids upon whether
the legislature possesses
the
competence which it: clailns over the subject-matter and whether in mak·
in~ the validation it femove,s the defect which the courts had found in the
existing law and mates adequate provisions in Validating law for a valid
imposition of the taxi
ti93D-FJ
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(ii) After this Cout1'.• decision in Sudhir Chandra Nawn's case it
could no longer be 'l'!eStlol)ed' that the State Legislature had power under
entry 49 of List II Of·111!1 Seventh Schedule to the Constitution to levy a
tax on the capital value ijf lands and buildings. It was open to the State
legislature to. author~· ~
municipality to levy the same tax indicating the
mode of levy. This tbe,:Jegislature bad done by enacting s. 99 of the
Gujarat Mu~icipalities Mt and by indicat'ng the different modes which
may be adopted in making the levy, one such mode being a percentage
of the capital value. [394C-E]
Sudhlr Chandra Nawn v. Wealth-tax Officer, Calcutta,
A.I.R. 1969
S.C, 59, applied.
(iii) The legislaiwe by the Validation A~t provided for the following
matters. . First, it st•ted, that. no tax or 'rate by whichever name called
G
and laid on the capi1'i! "*1ue of lands and buildings must be deemed to be
invalidly assessed, iuiposed, collected or recovered simply on the gro1..lnd
that a rate is based·on Ille annual letting value. Next it provided that the
tax must be deemed to be validly assessed, imposed, collected or recovered and the imposition ll!USt be deemed to be always so authorised.
The
leg_islature by this eQBc¥t retrospectively imposed the tax on lands and
buddings based on their capital value and as the tax was already imposed,
II
levied and collected on that basis, made the imposition, levy collection
and recovery of the tax
1
~alid, notwithstanding the declaration by the
court that ·as 'rate', the evy wps incompetent. The legislature not only
equated the tax collected .to a tax on lands and buildings which it had the
power to levy, but also to a mte giving a new meaning to the word 'rate'
L13Sup.C.I/69-11.
390
SUPREME oomT llE~TS
[ l 970J 1 S.C.lt..
IDd while doing oo it put out of action 1ho dect of tho deciliona of the
courts to the contrary. The exercile of power by the legillatura wu valid
because the legislature does posseaaes the r,wer to levy a tu on landa
and buildings based on capital value thereo and in validatin& the levy on
that basis, the implication of the word 'rate' could be effectively removed
IDd the tax on lands and bulldinp imposed instead. 1be tu tbe,.,fore
could no longer be questioned on the iffiUlld that s. 73 spoke of a rate
and the imposition was not a rate u properly understood but a tu OD
capital value.
[394F-39SEJ
CIVIL APPELLATE JuR1SD1cr10N : Civil Appeals Nos. 2197
and 2198 of 1966.
Appeals from the judgment and decree dated September 10,
1966 of the Gujarat High Court in Special Civil Applications NOi.
B
846 of 1963 and 765 of 1964.
c
A. K. Sen, A. K. Verma, D. Daita and Ravinder Narain, for
the appeUants (in both the appeals).
M. c. Chag/a and I. N. Shroff, for the respondents Nos. 1 and
2 (in both the appeals).
B. Sen and S. P. Nayar, for respondent No. 3 (in both the
appeals).
The Judgment of the Court was delivered by
Hidayatollah, C.J. These matters arise under Art. 226 of the
Constitution and are appeals by urtificate gra:;ted by the ffigh
Court of Gujarat against its judgment and order, SCptember 10,
1966. The appellant No. 1 Is a Company which has spinning
and weaving mills at Broach and manufactures and sells cotton
yarn and cloth. Respondent No. I is the Broach Borough Municipality constituted under s. 8 of the Bombay Municipal Borougha
Act, 1925.
Ln the assessments years 1961-62, 1962-63 and
1963-64 the Municipality purporting to act under s. 73 of the
Bombay Municipal Boroughs Act, 1925 and the Rules made
thereunder imposed a purported rate on lands and buildings belonging to the respondent at a certain percenta!I" of the capital
value.
Section 73 of the Act allows the Munictpality to levy "a
rate on buildings or lands or both situate within the municipal
borough". The Rules under the Act applied the rates on the basis
of the percentage on the capital value of lands and buildings. The
assCS&mcnts lists were published and tax was imposed accordin&
to the rates calculated on the basis of the capital value of tho
property of the appellant and bills in respect of the tax were
served. The writ petitions were filed to question the assessment
and to get the assessment cancelled.
During the pcndency of the writ petitions the legialature of
Gujarat passed the Gujarat Impolition of-Tue. ~ Municipalitiel
(Validation) Act, 1963. AJ a result the writ pecitiOllS were amenD
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lmHVI MILLS v. BllOACH MUNIC. (Hidayatullah, C.J.)
391
ded aod the Validation Act was also questioned. The appellants
also filed a second writ petition questioning the validity of Lhe
Validation Act under Arts. 19(l)(f), (g) and 265 of the Constitution.
By the order under appeal here both the writ petitions
were dismissed although a certificate of fitness was granted.
The V alidatlon Act was presumably passed because of the
decision of this Court reported in Patel Gordhandas Hargovindas
v. Municipal Commissioner, Ahmedabad('). In that case the
validity of the Rules framed by the Municipal Corporation under
~. 73 were called in question, particularly Rule 350A for rating
open lands which provides that the. rate on the. area of open
lands shall be levied at 1 ~
centum on the valuation based upon
capital value; Dealing with the word 'rate' as used in these statutes, it was held by :his Court that the word 'rate' had acqui.red
a special meaning in Bnglish legislative history and pract!c!l and
also in Indian legislation and it meant a tax for local purposes
imposed by local authorities. The basis of such tax was the annual value of the lands or buildings.
It was discussed in the
case. that there were three methods by which the rates could be
imposed : the first was to take into account the. actual rent fetched
by the land or building where it was acthally let the second was,
wt.ere it was not let, to take rent based on hypothetical tenancy,
particularly in the case of buildings; and the third was wherec
neither of thecse two modes was available, by valuation based on
capital value from which annual value had to be fouad by applying suitable percentage which might not be the same for lands and'
buildings. It was held that in s. 73 the word 'rate' as used must
have been used in the special sense in which tiie word was understood in the legislative practice of India before that date. Rulec
350A which laid the rate on land at a percentage of the valuation
basecd upon capital was therefore declared ultra vires the Act
itself. In short, the word 'rate' was given a specialised meaning
and was held to mecan a kind of imposition the annual letting value
of property, if actually let out, and on a notional letting value if
the property was not let out.
The legislature of Gujarat then
passed the Validation Act seeking to validate the imposition or
the tax as well as to avoid any future interpretation of the Act on
\he li.ncs on which Rule 350A was construed. The Act came into
force on January 29, 1964. After defining the expressions used
in the Act and providing for its application, the Act enacted. s. 3
which concerned validation of impositions and collections of taxes
or rates by Municipalities in certain cases. That section reads as
follows:
"3. Validation of imposition and collection of taxes
or rates by municipalities in certain cases.
(I) [1954] 2 S.C.R. 608.
392
SUPREME COllaT 11.EPOll.TS
[1970] 1 S.C.ll·
Notwithstanding anything contained in any judgment, decree or order of a Court or 'Tribunal or any
other
authority,
no
tax or rate
Ulcued or
purporting to have been
assessed by a municipality under the relevant municipal law or any rules made
thereunder on the basis of the capital value ol a building or land, as the case may be, or on the basis of a
percentage of such capital value, and imposed, collected
or recovered by the municipality at any time before the
commencement of this Act shall be deemed to have been
invalidily assessed, imposed, collected or recovered by
reason of the assessment being based on the capital
value or the percentage of the capital value, and not
being based on the annual letting value, of the building
or land, as the case may be, and the imposition, collection and recovery of the tax or rate so assessed and
the provisions of the rules made under the relevant
municipal law under which the tax or rate was so assessed shall be valid and shall be deemed always to have
been valid and shall not be called in question merely on
the ground that the assessment of the tax or rate on the
basis of the capital value of the building or land, as
the case may be, or on the basis of a percentage of such
capital value was not authorised by law; and accordingly any tax or rate, so assessed before the commencement of this Act and Ieviable for a period prior to such
commencement but not collected or recovered before
such commencement, may be collected and recovered
in accordance with the relevant municipal law, and the
rules made thereunder."
If this section is valid then the imposition cannot be questioi;od
and the short question which arises in this case is as to the validity of this section. It is not denied that a legislature does possess
the power to validate statutes and to pass retrospective laws. It
IS, however, contended that the Validation Act is ineffective in
carrying out its avowed object. This is the only point which falls
for consideration in these appeals.
Before we examine s. 3 to find out whether it is effective in
its purpose or not we may say a few words about validating statutes in general.
When a legislature sets out to validate a tax
declared by a court to be illegally collected under an ineffective
or an invalid Jaw, the cause for ineffectiveness or invalidity must
be removed before validatioo can be said to take place effectivelv.
The most important condition, of course, is that the legislature
must posses.~ the power to impose the tax, for, if it does not,
the action must ever remain ineffective and illegal. Granted Ie&isB
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A
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bm1VI MILLS v. BllOACH MUNIC. (Hidayatullah, C.J.)
393
Jative compet>ence, it-is not sufficient to declare merely that the
decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the legislature does not possess or exercise. A court's decisipn must always bind unles sthe conditions on which it is based are so fun~
damentally altered that the decision could not have been given
in the altered circumstances. Ordinarily, a court holds a tax to
be invalidly impoeed because the power to tax is wanting or the
statute or the rilles or both are invalid or do not sufficiently create
the jurisdiction. Validation of a tax so declared illegal may be
done only if the ~ounds of illegality or invalidity are capable of
being removed and ~ in fact removed and the tax ~us made
legal. Sometimes this is done by providing for jurisdiction where
juriJdiction had not been properly invested before. Sometimes this
is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to
stand under the re-enacted law. Sometimes the legislature givel
its own meaning· and interpretation of the law under which the
tax was collected and by legislative fiat m~kes the new meanlJll
binding upon courts. The legislature may follow any one method
or all of thl1!0 and while it does so it may neutralise the effect Cll
the earlier decision of the court which becomes ineffective afta'
the change of the Jaw. Whichever method is adopted it must be
within the competence of the legislature and legal and adequate to
attain the object of validation. If the legislature has the power
over the subject-m11tter and competence to make a valid law, it
can at any time make such a valid Jaw and make it ret:rospectively
so as to bind even past transactions. The validity of a Validating
Jaw, therefore, depends upon whether the legislature possesses
the competence whicli it claims over the subject-matter and whether in making the validation it removes the defect which the
courts had found in the existing law and makes adequate provisions in the Validating Jaw fOr a valid impositioo of the tax.
The inquiry in this ~
may begin by as;Idng whether the legislature posses~ competence to pass a Jaw imposing a tax on lands
and buildings on the basis of a percentage of their capital .value.
If the legislature posscis~es that :Power then it can authorise the
Municipality to levy that tax.
To test the proposition we may
consider s. 99 which has now been enacted in the Gujarat Municipalities Act. It reads :
.
"99. Taxes which may be imposed.
(1) Subject to any general or special orders which.
the State Govequncnt may make in this liehalf and fo
the provjsions of sections 101 and 102, a muni~ipality
may impose for the purposes of this Act any of the following taxes, namely :-
394
SUPREME COURT REPORTS
[1970] 1 S.C.R.
(i) a tax on buildings or lands situate w~thin the
municipal borough to be based on the annual let~ng value
or the capital value or a percentage of capital value
of the buildings or lands or both;
"
Learned counsel for the appellants did not contend that this section was outside the powers of the legislature. In fact, he could
not in view of entry 49 of List II of the Seventh Schedule to the
Co~stitution. That entry reads : "Taxes on lands and buildings"
and a tax on lands and buildings based upon capital value falls
squarely within the entry. 'fhe doubt which is created by entry
86 of List I "Taxes on the capital value of assets", no longer
exists after the decision of this Court in Sudhir Chandra Nawn
v. Wealth-Tax Officer, Calcutta('). In that case the respective
ambits of the two entries are explained.
It is pointed-out that
unlike the tax contemplated by _entry 49 (List II) the tax under
entry 86 (List I) is not a direct tax on lands and buildings but
on net assets, the components of which may be lands and buildings and other items of assets excluding such liabilities as may
exist.
The incidence of the tax is not on lands and buildings
as units of taxation but on the net assets of which fands and buildings are only some of the components. This is not the case under
entry 49 (List II) where the tax can be laid directly on lands and
buildings as units of taxation.
Therefore, a tax· ori lands and
buildings is fully within the competence of the fogislature and it is
open to it to authorise the municipality to levy the same tax indicating the mode of levy. This the legislature has done by indicating the different modes which may be adopted iii making the
levy, one such mode being a percentage of the capital value.
The legislature in s. 73 had not authorised the levy of a tax
in this manner but had authorised the levy of a rate. That led
to the discussion whether a rule putting the tax on capital value
of buildings answered the description of the impost in the Act,
namely, 'a rate on buildings or lands or both situate within the
Municipal borough'. It was held by this Court it did not, because
t~e word 'rate' ~ad a~qu~ed ~ special m~aning in legislative practice.
Faced with this s1tuation the legislature exercised i.ts undoubted powers of redefitn:ing 'rate' so as to equate it to a tax on
capital value and convert the tax purported to be collected as a
'rat~' i~to a tax on lands and buildings.
The legisfature in the
V.ahda~ron Act, therefore, provided for the following matters.
First, 1t stated that no tax or rate by whichever name called and
laid Qil the capital value oi lands and buildings must be deemed
(1) A-1.R. 1969 S.C. 59.
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PIUTRVI MILLS v. BllOACH MUNIC, (Hidayatul/ah, C.J.)
395
A to be invalidly assc.wed, imposed, collected or recovreed simply
on the ground that a rate is based on the annual letting value.
Next it provided that the tax must be deemed to be validly assessed, imposed, collected or recovered and imposition must be
deemed to be always so authorised. The legislature by this enactment retrospectively imposed the tax on lands and buildings based
B on their capital value and as the tax was alr.eady imposed,
levied and collect.ed on that basis, made the imposition, levy collection and recovery of the tax valid, notwithstanding the declaration by the Court that as 'rate', the levy was incompetent.
The legislature not ooly equated the tax collected to a tax on
lands and buildings, which it had the power to levy, but also to
<: a rate giving a new meaning to the expression 'rate'' and while
doing so it put out of action the effect of the decisions of the
courts to the contrary. The exercise of power by the legislature
was valid because the legislature does possess the power to levy a
tax on lands and buildings based on capital value thereof and in
validating the levy on that basis, the implication of the use of the
word 'rate• could be effectively removed and the tax on lands
D and buildings im~
instead. The tax, therefc;ire, can no longer
be questioned on .the ground that s. 73 spoke of a r~te and the
imposition was not a rate as properly understood but a tax on
capital value. In this view of the matter it is hardly necessary
to invoke the 14th clause of s. 73 which contains a residuary
power to im,Pose any other tax not expressly mentioned.
In our judgment these appeals possess no merits after the passing of the V alidalion Act and must be dismissed but in the circumstances without any order about costs.
·G.C.
Appeals dismissed.