# THE LOKMANY A MILLS v. THE BARSI BOROUGH MUNICIPALITY

- **Citation:** [1962] 1 S.C.R. 306
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 125 to 129 of 1957
- **Bench:** J. L. Kapur, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-lokmany-a-mills-v-the-barsi-borough-municipality-2118
- **Pages:** 9

## Headnote

Municipality -
House tax-Fixation of -Annual letting
value-Rule directing computation on floor area-If intra viresM ethod of computation-Bombay Municipal Boroughs Act, 1925
(Born. 18 of 1925), s. 58, r. 2C.
The Bombay Municipal Boroughs Act, 1925, empowered a
municipality to levy rates on lands and buildings which were to
be assessed on the valuation based on the capital or the annual
letting value. The Act defined the annual letting value inter
alia as the annual rent for which any building or land might
reasonably be expected to let from year to year. The General
Body oi the Municipality of Barsi framed new rules under s. 58
of the Act for levying rates: for all buildings and non-agricultural
lands the rate was to be levied on the annual letting value, but
for mills and factories and buildings relating thereto it was provided by r. 2C that the annual letting value was to be fixed on
the floor area. The Municipality issued notices of demand under
the new r. 2C calling upon the appellant (which is a company
owning a textile mill) to pay house and water taxes which were
assessed as rates which was paid by the appellants under protest.
The question to be determined was whether by r. 2C the
Municipality was entitled to collect tax leviable as a rate after
computing the annual letting value solely on the area of the
factory and building relating thereto.
Held, that a rate may be levied by a municipality under
the Bombay Municipal Boroughs Act, r925, on the valuation
made on the basis of capital or on the annual letting value of a
building and not on a valuation computed merely on the floor area
of the structures, such a rate was clearly not a tax based either
on the capital value or on the annual letting value, for "annual
letting value" postulates rent which a hypothetical tenant may
reasonably be expected to pay for the building if Jet.
The
Municipality had no power under the Act to ignore the methods
of valuation prescribed by the Act, and to adopt a method not
sanctioned by the Act.
By prescribing valuation computed on the area of the factory building the Barsi Municipality not only fixed arbitrarily
the annual letting value which bore no relation to the rental
which a hypothetical tenant may reasonably be txpected
to pay but rendered the statutory right of the tax payer to
challenge the valuation illusory as the objection which the tax
payer could raise thereto was in substance restricted to the area
of the building and not to its valuation.
I
•
I S.C.R. SUPREME COURT REPORTS
307
The rule adopting a flat and uniform rate on the assump- ·
tion that all factory buildings within the area of a municipality
were not alike in essential features and \Vere not intended to be
used for purposes which were alike was not permissible under
the Act.
The vice of the rule lies in an assumed uniformity of return
per square foot which structures of different classes in their
nature not similar, may reasonably fetch if let out to tenants
and in the virtual deprivation to the rate payer of his statutory
right to object to the valution. Rule 2C by the Barsi Borough
Municipality under s. 58 of the Bombay Municipal Boroughs
Act. 1925, was illegal and ultra vires.
The Madras and Southern M ahratta Railway Co. Ltd. v. The
Bezwada Municipality, I.L.R. 1945 Mad. r, not applicable.
The Borough Municipality of Amalner v. The Pratap Spinning
Weaving and Manufacturing Co. Ltd., Amalner, l.L.R. 1952 Born.
918, not approved.
Motiram Kcshavdas v. Ahmedabad Municipal Borough, (1942)
44 Born. L.R. 280, referred to.

## Text

.~larch r4,
306
SUPREME COURT REPORTS
[1962]
THE LOKMANY A MILLS
v.
THE BARSI BOROUGH MUNICIPALITY
(J. L. KAPUR and J. C. SHAH, JJ.)
Municipality -
House tax-Fixation of -Annual letting
value-Rule directing computation on floor area-If intra viresM ethod of computation-Bombay Municipal Boroughs Act, 1925
(Born. 18 of 1925), s. 58, r. 2C.
The Bombay Municipal Boroughs Act, 1925, empowered a
municipality to levy rates on lands and buildings which were to
be assessed on the valuation based on the capital or the annual
letting value. The Act defined the annual letting value inter
alia as the annual rent for which any building or land might
reasonably be expected to let from year to year. The General
Body oi the Municipality of Barsi framed new rules under s. 58
of the Act for levying rates: for all buildings and non-agricultural
lands the rate was to be levied on the annual letting value, but
for mills and factories and buildings relating thereto it was provided by r. 2C that the annual letting value was to be fixed on
the floor area. The Municipality issued notices of demand under
the new r. 2C calling upon the appellant (which is a company
owning a textile mill) to pay house and water taxes which were
assessed as rates which was paid by the appellants under protest.
The question to be determined was whether by r. 2C the
Municipality was entitled to collect tax leviable as a rate after
computing the annual letting value solely on the area of the
factory and building relating thereto.
Held, that a rate may be levied by a municipality under
the Bombay Municipal Boroughs Act, r925, on the valuation
made on the basis of capital or on the annual letting value of a
building and not on a valuation computed merely on the floor area
of the structures, such a rate was clearly not a tax based either
on the capital value or on the annual letting value, for "annual
letting value" postulates rent which a hypothetical tenant may
reasonably be expected to pay for the building if Jet.
The
Municipality had no power under the Act to ignore the methods
of valuation prescribed by the Act, and to adopt a method not
sanctioned by the Act.
By prescribing valuation computed on the area of the factory building the Barsi Municipality not only fixed arbitrarily
the annual letting value which bore no relation to the rental
which a hypothetical tenant may reasonably be txpected
to pay but rendered the statutory right of the tax payer to
challenge the valuation illusory as the objection which the tax
payer could raise thereto was in substance restricted to the area
of the building and not to its valuation.
I
•
I S.C.R. SUPREME COURT REPORTS
307
The rule adopting a flat and uniform rate on the assump- ·
tion that all factory buildings within the area of a municipality
were not alike in essential features and \Vere not intended to be
used for purposes which were alike was not permissible under
the Act.
The vice of the rule lies in an assumed uniformity of return
per square foot which structures of different classes in their
nature not similar, may reasonably fetch if let out to tenants
and in the virtual deprivation to the rate payer of his statutory
right to object to the valution. Rule 2C by the Barsi Borough
Municipality under s. 58 of the Bombay Municipal Boroughs
Act. 1925, was illegal and ultra vires.
The Madras and Southern M ahratta Railway Co. Ltd. v. The
Bezwada Municipality, I.L.R. 1945 Mad. r, not applicable.
The Borough Municipality of Amalner v. The Pratap Spinning
Weaving and Manufacturing Co. Ltd., Amalner, l.L.R. 1952 Born.
918, not approved.
Motiram Kcshavdas v. Ahmedabad Municipal Borough, (1942)
44 Born. L.R. 280, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
125 to 129 of 1957.
Appeals by special leave from the judgment and
decree dated October 7, 1952, of the Bombay High
Court in Second Appeals Nos. 601 to 605 of 1952.
S. T. Desai, Avadh Behari and B. P. Maheshwari,
for the appelants.
A. V. Viswanatha Sastri and A.G. Ratnaparkhi, for
the respondents.
1961. March 14.
The Judgment of the Court was
delivered by
SHAH, J.-Those five appeals raise a common question about the validity of Rule 2C framed by the
respondent-the Municipality of Barsi under s. 58(j)
of the Bombay Municipal Boroughs Act, 1925-hereinafter called the Act. The Lokmanvf1 Mills-hereinafter
called the appellants-are a company registered under
the Indian Companies Act holding an extensive area
of land City Survey No. 2554 within the Municipal
Borough on which are constructed buildings of the
factory, ware-houses, bungalows and other structures
appurtenant to the factory. The respondent, a Borough
Municipality constituted under the Act is bys. 73,
The Loktnanya,
JU ills
v.
The Barsi
Borough
Jl.1 unicipality
Shah ].
r96r
The Lokmanya
]Hills
v.
The Barsi
Borough
Municipality
Shah ].
308
SUPREME COURT REPORTS
(1962]
entitled to levy a rate on lands and buildings and also
a water-rate. Under the rules framed by the Municipality, house-tax and water-tax were levied on buildings and non-agricultural lands on their annual letting
value at uniform rates whether the purpose was residential, business or manufacturing.
In 1944, the Municipality resolved to enhance the
assessment of lands and buildings within its area.
After some correspondence with the Commissioner,
Central Division, the General Body of the Municipality resolved that the rental value for levying rates on
mills and factories within its limits be fixed at Rs. 40
for every 100 square feet.
Notices of this resolution
under s. 75(b) of the Act were issued and objections
to the proposed enhancement were invited from the
tax-payers, and after obtaining the approval of the
Government of Bombay, the new rules were made
operative from April I, 1947.
The rules relevant for
the purposes of these appeals are:
Rule 2A:-"The assessment of house-tax on all
lands, buildings and non-agricultural lands, other
than Government buildings coming under Proviso
A of s. 73 of the Bombay Boroughs Act of 1925, at
rates mentioned in the ScheduJ.e attached to these
rules."
Rule 2B:-In case Government buildings coming
under Proviso A of s. 73 of the Bombay Boroughs
Act are used beneficially, the assessment of such
buildings shall be made as specified in sub-s. 2 and
3 of s. 74.
Rule 20 :-As regards Mills, factories and buildings relating thereto, the annual letting value shall
be fixed at Rs. 40 per 100 square feet or part thereof for every floor, ground floor or cellar and the tax
shall be assessed on the said annual letting value,
at the ordinary rate.
Explanation:-The words "buildings pertaining
thereto" include buildings in the compound of the
Mills such as ware-houses, godowns, shops of the
mills etc. but does not include residential buildings
that is to say bungalows and out-houses.
N ote:-Assessment shall be made at the ordinary
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1 S.C.R. SUPREME COURT REPORTS
309
. rate on buildings which are not taxed under rule 2C
above.
The Municipality prepared an assessment list under
the new scheme of taxation in respect of factory
buildings and buildings relating thereto and issued
notices of demand calling upon the appellants to pay
house.tax and water-tax newly assessed thereon. The
appellants paid under protest the tax demanded, and
filed five suits in the court of the Civil Judge, Junior
Division of Barsi to recover the amounts levied by the
Municipality in excess of the amounts due under the
old scheme. In all these suits, the principal issue
raised was about the validity of rule 2C framed by the
Municipality for levy of rates "on Mills, Factories and
other buildings relating thereto". The trial court
held that .rule 2C was valid and within the competence
of the Municipality and dismissed the suits for refund
of house-tax and water-tax. The District Court at
Sholapur in appeal declared rule 2C "illegal and ultra
vires" and by injunction restrained the Municipality
from making any claim or demand for house-tax and
other taxes from the appellants on the basis of that
rule. The High Court of Judicature at Bombay set
aside the decree of the District Court disagreeing with
the view that rule 2C was ultra vires.
In these appeals filed with special leave against the
judgments of the High Court,, the only question which
falls to be determined is whether by rule 2C the Municipality is entitled to collect tax leviable as a rate
after computing the annual letting value solely on the
area of the factory and buildings related thereto. By
s. 73, the Municipality is authorised subject to any
general or special orders which the State Government
may make in that behalf and to the provisions of
ss. 75 and 76, to impose for the purposes of the Act
any one or more of the classes of taxes, amongst which
are included a rate on buildings or lands or both
situate within the municipal borough and general
water-rate which may be imposed in the form of a
rate assessed on buildings or lands or in any other
form. Section 75 prescribes the procedure preliminary
to imposing a tax. The procedure for assessing the
The Lokmanya
Mills
v.
The Barsi
Dorough
Municipality
Shah ].
The Lokmanya
.1.Vlills
v.
The Barsi
Horough
Municipality
Shah j.
•
310
SUPREME COURT REPORTS
[1962]
liability to rates on lands and buildings is prescribed
by ss. 78 to 84 of the Act which provide for preparation of the assessment list, its authentication and
amendment. When a rate on building or lands or
both is imposed, the Chief Officer causes an assessment-list of all buildings or lands or lands and buildings in the municipal borough to be prepared containing inter alia the names of the owner, the valuation
based on capital or annual letting value as the case
may be on which the property is assessed and the
amount of tax assessed thereon.
The expression
"Annual letting value" is defined ins. 3(1) of the Act
as meaning the annual rent for which any building or
land, exclusive of furniture or machinerv contained
or situate therein or thereon might reasoii'ably be expected to Jet from year to year, and shall include all
payments made or agreed to be made by a tenant to
the owner of tho building or land on account of
occupation, taxes, insurance or other charges incidental to his tenancy.
Bys. 78 sub-s. (1) cl. (d) and Explanation to s. 75,
the rate to be levied on lands and buildings may be
assessed on the valuation of the lauds and buildings
based on capital or the annual letting value.
By the
rules in operation prior to April 1, 194 7, house-tax
and water-tax were levied as rates in respect of all
lands, buildings and non-agricultural lands on the
annual letting value (except Government buildings).
Evon under the new rules, house-tax and water-tax
continued to be levied in respect of all buildings and
non-agricultural lands as rates: but the rate in respect
of buildings falling within rule 2C was assessed on a
valuation computed on the floor area of the structures, and not on the capital value nor on the annual
rent for which the buildings may reasonably be expected to let. This was clearly not a tax based on the
annual letting value, for "Annual letting value"
postulates rent which a hypothetical tenant may reasonably be expected to pay for the building if let.
A
rate may be levied under the Act on valuation made
on capital or on the annual letting value. If the rate
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1 S.C.R. SUPREME COURT REPORTS
311
is to be levied on the hasis of capital value, the building to be taxed must be valued according to some recognised method of valuation: if the rate is to be
levied on the basis of the annual letting value, the
building must be valued at the annual rental which a
hypothetical tenant may pay in respect of the building.
The Municipality ignored both the methods of
valuation and adopted a method not sanctioned by
the Act.
By prescribing valuation computed on the
area of the factory building, the Municipality not only
fixed arbitrarily the annual letting value which bore
no relation to the rental which a tenant may reasonably pay, but rendered the statutory right of the taxpayer to challenge the valuation illusory.
An assessment list prepared under s. 78, before it is authenticated and finalised, must be published and the taxpayers must be given an opportunity to object to the
valuation. By the assessment list in which the valuation is not based upon the capital value of the building or the rental which the building may fetch, but
on the floor area, the objection which the tax- payers
may raise is in substance restricted to the area and
not to the valuation.
Counsel for the Municipality sought to rely upon
The Madras and Southern Mahratta Railway Go., Ltd.
v. The Bezwada JYJunicipality (') decided by the Judiciitl Committee of the Privy Council, in support of the
plea that the rate based on valuation in proportion to
the floor area is validly levied. By s. 81 sub-s. (2)
of the Madras District Municipalites Act, 1920, a tax
for general purposes and a water and drainage tax
were to be levied at such fractions of the annual value
of lands or buildings or both as may be fixed by the
:Municipal Council.
By s. 82 sub-s. (2) of that Act,
the annual value of lands and buildings was to be the
gross annual rent at which they may reasonably be
expected to let, but by the proviso, it was enacted
that in the case of any Government or Railway building, the annual value of the premises shall be deemed
to be 6% of the total of the estimated value of the
land and the estimated present cost of erecting the
(1) I.L.R. (1945) Mad r.
The Lokin<111ya
Ill ills
v.
The Barsi
JJorough
Municipality
Shah J.
The Lok1nanya
Al ills
v.
The Barsi
Borough
lliunicipality
Shah J.
312
SUPREME COURT REPORTS
[1962J
building subject to certain deductions. The Municipality of Bezwada levied property tax on a piece of
vacant land belonging to the Madras and Southern
Mahratta Railway Company on the annual value computed at 6% of its capital value. This method of
t11xation was challenged by the Railway Company on
the contention that all methods of valuation other
than the method prescribed by the proviso to s. 82(2)
were by necessary implication prohibited. This contention was rejected because the generality of the substantive enactment was left unqualified except in so
far as it concerned the particular subjects to which
the proviso related. Open lands were not covered by
the proviso and it was competent to the municipality
to levy the tax under s. 82(2) on the annual value and
that value would be determined by any of the recognised methods of arriving at the rent which a hypothetical tenant may reasonably be expected to pay
for the lands in question. This case has in our judgment no relevance to the present case.
If the Municipality of Barsi had adopted any of the
recognised methods of valuation for assessing the
annual letting value, the tax would not be open to
challenge, but the method adopted was not a recognised method of levying the rate.
The High Court relied upon its earlier judgment in
The Borough Municipality of Amalner v. The Pratap
Spinning Weaving and Manufacturing Co., Ltd., Amalner (1 ).
In that case, the court negatived the challenge to the validity of the rules similar to those
impugned in these appeals. The Amalner Municipality had by rules framed under the Bombay Municipal Boroughs Act sought to levy a rate equal to a percentage of the annual letting value which was computed on the floor area of "mills and factories". The
court held that the method of taxation adoptecl by ·
the Municipality had remained unchallenged for a ·
long time, that the rules had been sanctioned by the
Government and they were not shown to be "capricious, arbitrary and unreasonable" and that the valuation of the property by reference to the floor area was
\I) l.L.R. (1952) Bom. 918.
•
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I S.C.R. SUPREME COURT REPORTS
313
not altogether unknown to the law of rating. The
High Court also observed that in assessing the rent
which a hypothetical tenant may pay, several methods
are open to the Municipality and if on examining
the cases of all the factory buildings within their
jurisdiction, the Municipality concluded that the
rent which the hypothetical tenant may reasonably be
expected to pay for those buildings fits in with the
rent which they had fixed by adopting the fiat and
uniform rate, the principle of fixing the annual letting value on the basis of the floor area would not be
open to challenge. It was assumed in that case that
all factory buildings within the area of the Amalner
Municipality were alike in essential features and were
intended to be used for purposes which were alike, and
that probably the Municipality may have been satisfied
that the principle enunciated in the rule impugned
worked out on the whole as a fair basis for determining the valuation of the building in question. In our
view, this approach to a rating problem arising under
the Act is not permissible. In any event, there is no
evidence on the record of this case that the factories
and "buildings relating thereto" such as ware-houses,
godowns and shops of the Mills situate in the com-
. pound of the mills, may be separately let at the uniform rate prescribed by the Municipality. The vice
, of the rule lies in an assumed uniformity of return
per square foot which structures of different classes
which are in their nature not similar, may reasonably
fetch if let out to tenants and in the virtual deprivation to the rate-payer of his statutory right to object
to the valuation.
Another judgment of the Bombay High Court in
Motiram Keshavdrts v. Ahmedabad Municipal Borough (1) calls for reference. It was held in Motiram's
case that a water-tax imposed by the Ahmedabad
Municipality as a rate not depending upon the value
of the property assessed but in lump sum was not a
rate for the purpose of s. 73(x) of the Bombay Munici-
•
pal Boroughs Act, 1925 and the rule which authorised the levy of such a lump sum was ultra vires.
(1) {1942) Born. L.R. 280
40
•
The Lohmanya
Mills
v.
The Barsi
Borough
Municipality
Shah ].
I96I
The Lokmanya
Mills
v.
The Ba1si
Borough
Muni&ipality
Shah ].
Mar&h x4.
314
SUPREME COURT REPORTS
[1962]
These appeals must be allowed and the decrees passed by the High Court set aside and the decrees passed by the District Court of Shola pur restored with
costs in this court and the High Court. One hearing
fee.
Appeals allowed.
ENDUPURI NARASIMHAM AND SON
v.
THE STATE OF ORISSA AND OTHERS
(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH,
J. C. SHAH and T. L. VENKATARAMA ArYAR, JJ.)
Sales Tax-Transactions intra-State and inter-State-TestConstitution of India, Art. 286(2)-0rissa Sales Tax Act, r947
(XIV of r947), s. 5(2)(a)(II).
The petitioner who was a registered dealer under the Orissa
Sales Tax Act, 1947, was carrying on the business of purchasing
and reselling castor seeds, etc., in the State of Orissa. Under
a declaration given by him for the purpose of obtaining his registration certificate the goods purchased by him in Orissa were to
be resold in that State. He purchased certain commodities
inside the State but in contravention of his declaration sold the
goods to dealers outside the State. The Sales Tax Officer included in the taxable turnover of the petitioner the purchase made
by him inside the State in accordance with s. 5(2)(a)(II) of the
Act. The contention of the petitioner was that the purchase
was in course of inter-State trade and was exempted under
Art. 286(2) of the Constitution of India.
Held, that the transaction of sale which has been taxed
was wholly inside the State of Orissa and was distinct and separate from the sale made by the purchaser to dealers outside the
State. The former transaction was taxable nnder s. 5(2)(a)(II)
of the Act while the latter was exempted under Art. 286(2) of
the Constitution.
Messrs. Mohanlal Hargovind Das v. The State of Madhya
Pradesh, [1955] 2 S.C.R. 509, distinguished.
In order that a sale or purchase might be inter-State, it is
essential that there must be transport of goods from one State
'