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Union Of India v. Municipal Board
Case Summary: Reference under Section 162, U.P. Municipalities Act — Opinion by Randhir Singh, J.
Factual and Procedural Background
The reference arises from an appeal heard by the Additional District Magistrate (Judicial) of Lucknow under Section 162 of the U.P. Municipalities Act. The Municipal Board of Lucknow had levied house and water taxes on a number of buildings in Lucknow that are Union Government property and are in the use of the Northern Railway. The last assessment revision had been made in 1948 (when the Municipal Board adopted a slab system of taxation), and taxes were paid until 31 March 1953. A fresh assessment due to operate from 1 April 1953 produced objections by the Railway authorities about tax liability and elements of assessment. The Assessing Officer rejected some objections and made an assessment; an appeal was taken to the Additional District Magistrate (Judicial). The officer hearing that appeal entertained doubts on several points and referred five specific questions to the High Court for decision under Section 162.
Legal Issues Presented
- Whether an assessee in an appeal under Sec. 160 of the Municipalities Act may challenge an assessment on grounds not previously raised as objections under the Act (specifically, whether building No. 3 could now be alleged to have been let out and therefore assessable on a rental basis under Sec. 140(1)(b)).
- Whether, given deletion of a provision for allowing depreciation from the old Act of 1900, it is permissible to allow depreciation when assessing the "estimated present cost of erecting the building" within the meaning of Sec. 140(1)(a) of the U.P. Municipalities Act (1916).
- Whether the Union Government through Northern Railway is liable to pay house and water taxes to the Lucknow Municipality (with reference to Article 285 of the Constitution and related statutory provisions).
- If the Union Government is liable, whether liability extends only to buildings that existed on 26 January 1950 (the date of commencement of the Constitution) and that were then liable or treated as liable.
- If the Union Government is liable, whether it is liable to pay taxes only at rates in force on 26 January 1950 or also to any enhanced rates that come into force subsequently.
Arguments of the Parties
Union Government / Northern Railway (Assessee) — Arguments
- On Point 1: Argued that the question (challenging assessment on a ground not raised earlier) ought not to have been referred to the High Court; relied on Section 162 of the U.P. Municipalities Act to contend the reference was improper.
- On Point 3 and related matters: Argued that property in question belonged to the Northern Railway (managed by railway authorities) and contended issues as to liability for State/local taxation arising from ownership and management distinctions. It was also argued that no notification under the Railways (Local Authorities' Taxation) Act, 1941 (Sec. 3(1)) had been made and therefore liability under that Act did not arise.
- On Point 5: Argued that the Municipal Board was not entitled to increase the taxes payable on the date when the Constitution came into force (i.e., that the Union should not be subjected to increases after 26 January 1950 without proper authority).
Municipal Board / Assessing Authority — Arguments
- On Point 2: Municipal Board advanced an interpretation of "estimated present cost of erecting the building" that did not include allowance for depreciation; this would, per their argument, make the assessed annual value of an old building equal to a newly erected building of the same type.
- On Point 3 and statutory continuity: Relied on an existing notification under Sec. 135(1) of the Indian Railways Act, 1890, authorising levy of taxes on Railway property and on Sec. 4 of the Railways (Local Authorities' Taxation) Act, 1941, which preserves the effect of such notifications until varied or revoked.
- On Point 5: Pointed to Central Government letters (dated 8 Oct 1953 and later 8 June 1954) that sanctioned increases in municipal rates for Union Government properties in appropriate circumstances and, as modified, permitted retrospective effect to 1 April 1948 (for Part A states), thereby supporting municipal increases with effect from 1 April 1953.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Governor-General of India in Council v. Corporation of Calcutta, A.I.R. 1948 Cal. 116 | Interpreted a proviso (in the Government of India Act, 1935 context) retaining liability for rates that existed prior to a constitutional change; held that continued liability may include future variations resulting from valuation changes or rate changes but not new liability arising from addition of new property. | The court approved the observation of Mukherjea, J. in that case and applied the same reasoning to Article 285 of the Constitution: increased valuation or change in rate may be included in continued liability, but not liability for newly added property. |
Court's Reasoning and Analysis
The Court addressed each referred point separately and explained the legal reasoning it applied to the facts and statutory provisions:
Point No. 1
The Court examined Section 162 of the U.P. Municipalities Act, which permits reference to the High Court only on questions "as to the liability to, or the principle of assessment of, a tax" where the officer hearing the appeal entertains reasonable doubt. The Court concluded that Point No. 1—whether an assessee may raise in appeal a ground not previously raised before the assessing officer—does not relate to either liability to tax or the principle of assessment. Instead, it is a procedural/administrative matter falling within the discretion of the officer hearing the appeal. Accordingly, the Court declined to give an opinion on Point No. 1 and refrained from deciding it, leaving it to the officer hearing the appeal to determine in the exercise of his judgment.
Point No. 2
The Court compared the language of the U.P. Municipalities Act, 1916 (Sec. 140(1)(a)) with the earlier Act of 1900 which had provided for explicit depreciation allowances. The 1916 Act defines "annual value" for certain buildings by reference to a proportion of the sum of the "estimated present cost of erecting the building" and the estimated value of the land. The provision for depreciation in the 1900 Act had been omitted from the 1916 Act.
The Court rejected a literal interpretation that would treat an old building as having the same annual value as a new one (i.e., treating "present cost of erecting the building" as the cost of erecting a building with old materials), calling such an interpretation impracticable and unfair. Instead, the Court held that the correct method is to:
- Calculate the cost of erecting a new building of the same type, design and dimensions as of the date of assessment; and
- Make a suitable reduction (allowance) from that cost to reflect deterioration or the condition of the existing building—effectively an assessment of depreciation based on the building's condition.
The Court emphasized that the assessment of deterioration is a question of fact dependent on the building's condition and that no rigid formula can be prescribed; the resulting reduced amount is the "present cost of erecting the building" for assessment purposes.
Point No. 3
The Court considered Article 285 of the Constitution, which exempts Union property from State taxes but preserves, by proviso, any liability for tax that existed or was treated as existing immediately before commencement of the Constitution unless Parliament provides otherwise. The Court noted that the Municipal Board had levied house and water taxes on the properties long before the Constitution came into force, and taxes were paid until 31 March 1953. Since on 26 January 1950 the property was admittedly treated as liable to tax and Parliament had not enacted anything to the contrary, the proviso to Article 285 operated to continue the liability.
The Court also addressed the Railway (Local Authorities' Taxation) Act, 1941 (Sec. 3(1)) and the existence of a prior notification under Sec. 135(1) of the Indian Railways Act, 1890 authorizing municipal levies. It noted Sec. 4 of the 1941 Act preserves notifications made under Sec. 135(1) until varied or revoked and that no revocation had been shown. Nonetheless, the Court regarded Art. 285 as dispositive: the property belonging to the Union of India is liable for house and water taxes in light of the proviso to Article 285 because the liability existed before the Constitution's commencement.
The Court also rejected any significance to the change of name from East Indian Railway to Northern Railway as affecting ownership—the property continued to vest in the Union.
Point No. 4
The Court recorded that learned counsel for the Railways stated that no fresh buildings had come into existence after 26 January 1950; on that basis the specific point (whether liability extends only to buildings that existed on the constitution date) did not arise on the facts of this case.
Point No. 5
The Court considered whether the Union Government was liable only at rates in force on 26 January 1950 or also at subsequently enhanced rates. The Municipal Board produced correspondence showing Central Government sanction for increases in municipal rates for Union Government properties in appropriate circumstances. The Central Government's letter dated 8 October 1953 sanctioned increases where due to a general increase in valuation or a general increase in the rate of levy applicable to all properties. A later communication (8 June 1954) modified the earlier order to permit retrospective increases in Part A states from 1 April 1948 or from the date of increase, whichever was later. The present increase sought was with effect from 1 April 1953; the Court concluded that, given this sanction, the Municipal Board was authorised to increase taxes from that date.
The Court also relied on the principle from the Calcutta case (Governor-General of India in Council v. Corporation of Calcutta) that where liability to tax existed before the constitutional change, future variations resulting from alteration in valuation or rate of assessment are included in the continued liability, whereas liability on account of newly added property is not included. Applying this to Art. 285, the Court held that increases based on valuation changes or rate adjustments fall within the continued liability; since no additions or new buildings had been made, the increased taxes could be levied.
Holding and Implications
Core Rulings:
- Point 1: The High Court declined to decide the procedural question of whether new grounds may be raised on appeal (i.e., whether an assessee may raise an objection in appeal that was not raised before the assessing officer). The Court held this matter does not fall within Section 162's remit (liability or principle of assessment) and left it to the officer hearing the appeal to decide in the exercise of his discretion.
- Point 2: For assessing the "estimated present cost of erecting the building" under Sec. 140(1)(a), the correct method is to compute the cost of erecting a new building of the same type, design and dimensions as of the assessment date and then deduct an amount reflecting deterioration (i.e., a condition-based allowance analogous to depreciation). The resulting figure is the present cost of erecting the existing building.
- Point 3: The property of the Union of India in question is liable to pay house and water taxes to the Lucknow Municipality because, by the proviso to Art. 285 of the Constitution, property that was liable or treated as liable immediately before 26 January 1950 remains liable until Parliament otherwise provides; the facts show liability existed prior to that date and no Parliament law had removed it.
- Point 4: On the facts, the point as to new buildings post-26 January 1950 did not arise because learned counsel for the Railways stated no new buildings had come into existence after that date.
- Point 5: The Union Government is liable to pay taxes at rates that may be enhanced after 26 January 1950 where such increases are within the scope of continued liability (i.e., increases due to general valuation changes or rate changes). Given the Central Government's sanctions (8 October 1953, and modified 8 June 1954 permitting retrospective effect in Part A states), the Municipal Board was authorised to increase taxes with effect from 1 April 1953 in this case.
Implications:
- Direct effect on parties: The Court's answers confirm that (a) the Union-owned properties used by the Northern Railway remain liable to municipal house and water taxes, and (b) the Municipal Board is authorised (subject to Central Government sanction where applicable) to levy increases in tax based on valuation or rate changes applicable to existing properties, including the increases sought from 1 April 1953 in this matter.
- No ruling was made by this Court on the procedural question whether a new ground may be raised in appeal if not earlier objected to; that was left to the appellate officer.
- The Court applied established statutory interpretation principles and prior case reasoning (as in the Calcutta decision) to Art. 285; the opinion answered the referred questions for resolution by the Additional District Magistrate (Judicial) but did not purport to lay down a sweeping new legal precedent beyond these applications to the facts and statutory framework presented.
The decisions on the points referred to the High Court were to be communicated to the Additional District Magistrate (Judicial), as recorded in the opinion.
Randhir Singh, J.:— This is a reference made by the Additional District Magistrate (Judicial) of Lucknow under Sec. 162 of the U.P Municipalities Act.
2. The Union Government has quite a number of buildings, which are in the use of the Northern Railway in, the City of Lucknow and the Municipal Board of Lucknow used to levy house and water traces on these buildings. The last revision of assessment was made in the year 1948 and it appears that taxes were paid in respect of these buildings till the 31st March, 1993. A fresh assessment became due in 1953 and it is in connection with this assessment that a dispute arose, between the Municipal Board and the Railway authorities managing the property sought to be assessed, about the liability for payment of tax. A brief history of the previous revision of assessment made in 1948 may be useful in appreciating the points in dispute. On the 1st October, 1947, the Municipal Board revised the basis of the assessment of taxes and adopted a system popularly known as slab system of levy of taxes. This was opposed by the Railway authorities, as it resulted in an increase in the taxes and a reference was made to the District Judge of Lucknow, Dr. L.N Misra, under Sec. 131(2) of the Railway Act read, with Sec. 3(2) of Act XXV of 1941 and a notification dated 11th January, 1944. Dr. L.N Misra, District Judge of Lucknow, gave his award and approved the basis of taxation under the slab system as proposed by the Municipal Board. No grievance was made thereafter in respect the payment of taxes which were so assessed under the slab system till the 31st March, 1953. In the revision of the assessment sought to be made in 1953 which was to be applicable with effect from the 1st April, 1953, some objection was raised on behalf of the Railway authorities incharge of the property of the Union. These objections were, however, not accepted by the Assessing Officer and an assessment was made. An appeal was then made to the Additional District Magistrate (Judicial) against the order of the Assessing Officer. When the appeal came up for hearing before him, he felt some doubt about certain points and the following points were then referred to this Court for decision.
1. Is it open to an assessee, in appeal under Sec. 160 of the Municipalities Act to challenge an assessment on a ground not raised by way of objection under Sec. ??? of the Act, as in this case, where if was not alleged in the objections that building No. 3 had been let out and it is only now alleged in para. 4 of the grounds, of appeal that the building in question should have been assessed under Sec. 140(1)(b) on rental basis?
2. In view of the deletion of the provision for allowing depreciation in the Act of 1900, from the provisions of the present Act, is it permissible to allow depreciation in assessing the present cost of erecting the building within the meaning of Sec. 140(1)(a) of the Municipalities Act?
3. Is the Union Government through the Northern Railway liable to pay house and water taxes to the Lucknow Municipality?
4. If so, is it liable only in respect of those buildings which existed on the 26th of January, 1950, when the Constitution of India came into force and in respect of which the Central Government through the Railway Administration of the E.I Railway was liable or was treated as liable on that crucial date?
5. If the Union Government through the Northern Railway is held to be liable to pay house and water taxes to the Lucknow Municipality is it so liable to pay them at the rate imposed or in force on the 26th January, 1950, or also to any enhanced rates that may have come into force at a later date?
3. These points have to be dealt with separately.
Point No. 1.
4. It has been argued on behalf of the assessee Union Government that this point ought not to have been referred for decision to this Court and reliance was placed on the provisions of Sec. 162 of the U.P Municipalities Act. The relevant Part of Sec. 162 is as follows:—
(1) If, during the hearing of an appeal under Sec. 160, a question as to the liability to, or the principle of assessment of, a tax arises on which the officer hearing the appeal entertains reasonable doubt, he may, either of his own motion or on the application of a person interested, draw up a statement of the facts of the case and the point on which doubt is entertained and refer the statement with his own opinion on the point for the decision of the High Court.”
5. A perusal of the material part of Sec. 162 quoted above shows that the questions which can be referred for decision to the High Court should relate to (1) the liability to assessment of a tax or to (2) the principle of assessment of a tax. If, therefore, a decision has to be given on any of these two points by the officer hearing the appeal and he entertains a reasonable doubt, he may make a reference on these points only. Point No. 1, however, relates entirely to a different matter and neither the principle of assessment nor the liability to payment of a tax is involved in this question. It is open to the officer hearing the appeal to decide whether an objection not raised earlier before the assessing officer should or should not be allowed to be raised at the time of appeal. This matter was entirely within the purview of the jurisdiction of the officer hearing the appeal and did not relate to any of the matters mentioned in Sec. 162 of the Municipalities Act. We, therefore, refrain from giving any opinion on this point, which has to be decided by the officer hearing the appeal on his own judgment.
Point No. 2.
6. There has been some change in the language of the U.P Municipalities Act, 1916, as compared with the old Act of 1900. “Annual value,” as defined by Sec. 140(1)(a) of the Act of 1916 means,—“(a) in the case of railway stations, hotels, colleges, schools, hospitals, factories and other such buildings a proportion not exceeding five per centum to be fixed by rule made in this behalf of the sum obtained by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto.” There was a specific provision in the old Act for allowing depreciation while assessing the annual value for a building but that provision has now been omitted in the present Act and it has been argued that the words “estimated present cost of erecting the building” do not include any depreciation, which should not now be taken into consideration while assessing the annual value. The words “estimated present cost of erecting the building” would evidently mean the cost which would be incurred in erecting the building at the time of the assessment. If the interpretation sought to be put on behalf of the Municipal Board on these words is accepted, it would mean that even an old building standing on the date of assessment would have the same annual value as the building of the same type and accommodation now erected. This evidently appears to be unfair and should not be deemed to be the correct interpretation. The words “the building” would evidently mean the building in existence. If a literal meaning is given to these words, it would mean that the assessing authority should find out the cost of erection of the old building if it were to be erected with the old material on the date of the assessment, which would be wholly impracticable. It appears to us that these words connote that the cost of the building should be calculated if a new building were to be erected on the date of assessment but allowance should be made for depreciation in assessing the value depending upon the condition of the building. There may be building which may be only ten years old but their condition may have become very bad because they were not maintained properly while there may be other buildings much older but properly maintained which would have a much lesser depreciation in their value. The assessing authority should, therefore, see that the depreciation depending upon the condition of the building is taken into consideration on the basis of the cost of erection on the date, when the assessment has to be made. This would, entirely be a question of fact depending on the condition of the building itself and no hard and fast rules or formula can be laid down for assessing the depreciation. It may not be altogether correct to describe such a concession or allowance in calculating the cost of the building as a “depreciation” but the only method of calculating the present cost of erecting the building, i.e the old building in its existing condition would be to calculate the cost of erecting a new building of the same type, design and dimensions and making a suitable reduction in the cost depending on the condition of the building. The cost so arrived at would be the present cost of erecting the building. Our answer to the question formulated by the Additional District Magistrate is that the present cost of construction of the building should be arrived at by calculating the cost of cons truction of a new building and deducting from it an amount which would cover the deterioration depending on the condition of the building. In effect the deterioration will have to be assessed and deducted from the present cost of erecting a new building in order to determine the cost of erecting the building as it exists.
Point No. 3.
7. A good deal of argument has been addressed on behalf of the Railways on this question but it appears to us that question can be decided on a much simpler point. Art. 285 of the Constitution contains the exemption of the property of the Union from State taxation. A distinction has been sought to be made by the learned Counsel for the Railways that the property which was the subject of assessment in this case belonged to the Northern Railway at present. It is conceded that the property belongs to the Union of India and the fact that it is being managed by the Railway authorities would make no material difference in the ownership of the property. The property continues to vest in the Union of India and we are unable to agree with the contention that the change in the name of the Railway from the East Indian Railway to the Northern Railway would make any difference in the ownership of the property. Art. 285 of the Constitution is as follows:—
“(1). The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.
“(2). Nothing in clause (1) shall until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State.”
8. There was a similar provision in the Government of India Act, 1935 and property which was, immediately before the coming into force of part 3 of the Government of India Act, liable to tax or which was treated as liable to tax continued to be liable for the payment of the tax. This exemption of the Union property from the liability to taxation was continued in the Constitution of India which came into force on the 26th January, 1950, but all property belonging to the Union Government which was liable for payment of tax or which was treated as liable for payment of tax immediately before the commencement of the Constitution continued to remain liable for the payment of tax until parliament by law otherwise provided. It is not disputed that the Municipal Board had levied the house tax and water tax on the property in dispute long before the commencement of the Constitution and this tax continued to be paid till the 31st March, 1953, after which the Railway authorities for the first time questioned their liability for payment of tax. The Constitution of India came into force on the 26th January, 1950 and on that date the property was admittedly treated as liable to tax. It is also not in dispute that no law has since the enforcement of the Constitution, been passed by the Parliament providing otherwise. The liability for the payment of tax therefore continues in view of the provisions of Art. 285 of the Constitution of India.
9. Reliance has been placed on the Railways (Local Authorities' Taxation) Act (XXV of 1941). Sec. 3(1) of this Act is as follows:—
“In respect of property vested in His Majesty for the purposes of the Central Government, being property of a railway, a railway administration shall be liable to pay any tax in aid of the funds of any local authority, if the Central Government by notification in the official Gazette, declares it to be so liable.”
10. It has been argued that no notification such as the one mentioned in Sec. 3(1) has been made by the Central Government and in the absence of such a notification the property in dispute was not liable for the payment of tax. It is conceded that there had been a notification under Sec. 135(1) of the Indian Railways Act of 1890, which authorised the Municipal Board to levy such taxes on the Railway property. Sec. 4 of the Railway (Local Authorities' Taxation) Act, 1941, clearly indicates that the notification made under clause (1) of Sec. 135 of the Indian Railways Act, 1890, shall continue to be operative until it is varied or revoked by a subsequent notification. No such revocation has been pointed out or brought to our notice. The liability to payment of tax levied by the Municipal Board shall, therefore, be deemed to have continued even after Act XXV of 1941 had been passed without any fresh notification to that effect. This point, however, is not material in view of Art. 285 of the Constitution of India. There can, therefore, be no doubt that the property in dispute in this case which admittedly belongs to the Union of India is liable for the payment of house and water taxes and the question is answered in the affirmative.
Point No. 4.
11. The learned Counsel for the Railways States that no fresh building has come into existence after the 26th January, 1950 and this point, therefore, does not arise.
Point No. 5.
12. It has been argued on behalf of the Railways that the Municipal Board was not entitled to increase the taxes which were being paid on the date when the Constitution of India came into force. The Municipal Board addressed the Central Government on this point and certified copies of letters sent and received in reply have been filed on behalf of the Municipal Board. By letter No. 14(3) - P-53 dated 8th October, 1953, the Central Government has sanctioned the increase in the Municipal rates in respect of Union Government properties covered by clause (2) of Art. 285, where such increase is due either to a general increase in valuation of such properties or general increase in the rate of the levy of tax applicable to all properties within the jurisdiction of the local body concerned. It was further argued that this letter was issued on the 8th October, 1953 and did not give a retrospective effect to the levy of tax which was sanctioned only with effect from the 1st April, 1954. A further reference was made by the Municipal Board in this connection and ultimately by their letter no. 14(3) - P153 dated 8th June, 1954, the Central Government modified their earlier order and permitted increase of taxes in the case of Part A states retrospectively with effect from the 1st of April, 1948, or from the date of increase of taxes, whichever was later. The present increase is sought to be made with effect from the 1st April, 1953. In view of this sanction of the Central Government the Municipal Board is authorised to increase the taxes with effect from the 1st April, 1953.
13. Moreover, it is the nature of the tax for which sanction has to be obtained. Any variation of the quantum of tax based on an increase in the value of the property or additions made to that property would also be covered by the proviso to Art. 285 of the Constitution. This point also arose, it appears, in a Calcutta case in Governor-General of India in Council v. Corporation of Calcutta . A.I.R 1948 Cal. 116. and it was observed by Mukherjea, J. that the liability for rates that exists in respect of a particular property prior to April 1937 and which is to continue according to the proviso, may certainly include any future variation resulting from alteration in the valuation of the property or the rate of assessment, but it does not include any future liability on account of any new property being added to it. This view was expressed when the Constitution of India had not come into force but, as pointed out above, there was a provision similar to the one to be found in Art. 285 in the Government of India Act of 1935 and the observations made by Mukherjee, J. in the case referred to above with which we entirely agree, with respect, if we say so, are applicable to Art. 285 of the Constitution. The liability to pay tax on the property in dispute was there and any increase in the valuation would not alter the nature of the tax. It is admitted that there has been no addition to the existing buildings nor any new buildings have been constructed. In either view of the case the property sought to be assessed is liable for the payment of the increased taxes and we answer point no. 5 accordingly. Let the decisions on the points referred to us be communicated to the Additional District Magistrate (Judicial).
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