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Messrs Harrisons And... v. Commissioner, Quilon...
Structured Summary of the Opinion
Factual and Procedural Background
Six writ petitions challenged assessments of professional tax made under the proviso to Rule 18(2) of the Taxation and Finance Rules framed under the Travancore District Municipalities Act, No. XXIII of 1116 (the Act). Rule 16 established half-yearly income slabs and minimum taxes; Rule 18 dealt with the method of deeming income for municipal profession-tax assessments where a company transacted business partly within and partly outside a municipality. A proviso was added to Rule 18(2) by notification dated August 28, 1947, which directed that, where a company was assessable to income-tax, the total profits as disclosed by the income-tax assessment for the whole State for the relevant year should be apportioned in the proportion of municipal turnover for purposes of profession-tax assessment.
After the Travancore Income Tax Act was repealed and the Indian Income Tax Act extended to the Part B States, difficulties arose in applying the proviso. A notification dated 15-2-1956 amended Rule 18(1)(a) and the proviso (including substituting references to the Indian Income Tax Act and changing "whole State" to "whole of the Indian Union") and declared the amendments retrospective to 1-4-1950. A High Court judge subsequently held (in Highland Produce Co. proceedings) that the delegated authority could not make rules with retrospective operation and that the 1956 amendments were ultra vires. In response, the Kerala Legislature enacted the Profession Tax (Validation and Reassessment) Act, XIV of 1958, whose S.2 sought to validate the 1956 notification and make the levy/collection and reassessment based on it retrospectively effective from 1-4-1950.
The present six petitions (five filed by Messrs Harrisons and Crossfield, Ltd., and one by Messrs Brooke Bond (India) Ltd., Alleppey) challenge assessments made under the proviso to Rule 18(2) for various half-years from 1125 (M.E.) through 1957-58, and also raise the constitutionality of the 15-2-1956 notification and of Act XIV of 1958 (insofar as some petitions were amended to add the constitutional challenge after the 1958 Act was passed). The petitions seek vacation of the assessments and, in some instances, refunds of amounts already paid.
Legal Issues Presented
- Whether the subsequent notifications amending the proviso to Rule 18(2) and Act XIV of 1958 are constitutionally valid.
- Whether the Quilon Municipality is authorised, on the basis of principles under the General Clauses Act, to levy the profession tax by treating references to the Travancore Income Tax Act in Rule 18(1) as references to the Indian Income Tax Act.
Arguments of the Parties
Petitioners' Arguments
- The notification of 15-2-1956 (which amended Rule 18 and purported to operate retrospectively from 1-4-1950) was ultra vires because the delegated authority lacked power to frame rules with retrospective operation.
- Act XIV of 1958 (the Profession Tax (Validation and Reassessment) Act) is unconstitutional to the extent that it attempts to validate retrospective rule-making and to authorise assessments beyond the limit set by Article 276(2) of the Constitution.
- The constitutional limitation in Article 276(2) (the maximum aggregate municipal/profession-tax per person per year) prohibits new rules or legislation that would permit levies beyond that amount; the proviso to Article 276(2) preserves only pre-constitutional accrued rights and does not confer power to enact new or amended rules inconsistent with the constitutional limit.
Respondent Municipalities' Arguments
- The repeal of the Travancore Income Tax Act and the extension of the Indian Income Tax Act did not render the proviso ineffective; by virtue of the General Clauses Act principles, the reference to the Travancore Act should be treated as referring to the Indian Income Tax Act.
- A distinction exists between the substantive "basis" of taxation and the "machinery" (rules quantifying liability); Article 276(2) prohibits changing the basis but does not prevent adjusting the machinery. On that view, the proviso and machinery amendments (or their validation) were permissible to continue earlier rates.
- The municipalities relied on decisions such as Chopda Municipality v. Motilal and District Board v. Upper India Sugar Mills to support the view that machinery-type amendments can be effected to carry forward pre-constitutional rates or methods.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Harrisons and Crossfield, Ltd. v. Commissioner Quilon Municipality, ILR 1955 Trav Co. 1003 : (S) AIR 1956 Trav Co. 174 | Decision (Division Bench) that the proviso to Rule 18(2) provided for adoption of total profits as disclosed by an income-tax assessment for a particular year and that where the assessable area became impossible of ascertainment the proviso became inoperative. | The opinion records this prior decision as a relevant precursor and notes that it led to difficulties that prompted amendment attempts; it is recited as part of the factual and procedural background. |
| Highland Produce Co., Ltd. v. Commissioner, Alleppey Municipal Council, O.P. Nos. 196–202 of 1955, Dated 26-10-1956 (T.C.) | Held that the delegated authority could not frame rules with retrospective operation; therefore the 15-2-1956 amendments to Rule 18(1)(a) were ultra vires. | The Court treats this decision as pivotal: it was the ruling that the 1956 notification was ultra vires for retrospective operation and it concretely prompted the Kerala Legislature to pass the 1958 validation Act. The Court relied on the principle that delegated rule-making cannot validly be given retrospective effect to amend substantive liabilities. |
| Chopda Municipality v. Motilal, AIR 1958 Bom 487 | Invoked by respondents to support a distinction between the basis of taxation and machinery (rules quantifying liability). | The Court records that this case was relied upon by the municipalities but rejects the utility of making such a distinction for competence: both basis and machinery require competent legislative authority and are constrained by constitutional limits. |
| District Board v. Upper India Sugar Mills, (S) AIR 1957 All 527 | Invoked by respondents to support the basis/machinery distinction in tax legislation. | The Court notes the citation but does not accept the argument that machinery adjustments lie outside the constitutional competence limitation imposed by Article 276(2). |
| (S) AIR 1956 Trav-Co 124 | Referred to by respondents who contended that assessments were valid notwithstanding that decision. | The opinion records that respondents relied on this decision in support of the validity of assessment; the Court's ultimate analysis does not adopt this as a basis to uphold the assessments under the 1956 notification or the 1958 validation Act. |
Court's Reasoning and Analysis
The Court first identified the constitutional framework governing taxation powers: States are authorised under Article 246 read with Entry 60 of List II to levy taxes on professions for municipal purposes, while the Centre has power to levy income-tax under Entry 82 of List I. The Court reproduced Article 276 (both sub-sections and the proviso) and treated its text as central to the issue.
The Court's step-by-step analytical approach was:
- Construction of Article 276(2): The Court read Article 276(2) as an express and unequivocal limitation that the total amount payable by any one person to the State or any one municipality by way of profession taxes shall not exceed Rs. 250 per annum. The proviso preserves pre-constitutional rates that exceeded Rs. 250 but does not, in the Court's view, grant an ongoing legislative authority to the State to enact fresh laws or rules that would contravene the limit thereafter.
- Effect of the proviso to Article 276(2): The Court held that the proviso preserves accrued rights under laws existing in the financial year immediately preceding the Constitution's commencement but does not empower States to pass new legislation, or to amend existing legislation in a manner that would expand or continue a tax beyond the constitutional ceiling. The proviso's preservation of pre-existing enjoyment is distinct from conferring a legislative power to vary the law.
- Competence to amend or fill gaps: The Court rejected the contention that the proviso carried with it implied authority to amend existing laws, to fill gaps, or to frame new rules to continue the levy beyond Rs. 250. It reasoned that if such power had been intended, the Constitution would have said so expressly and Parliament, not the State Legislature, would be the appropriate body to vary or continue such pre-existing laws.
- Basis vs. machinery distinction: The Court considered and rejected the argument that a distinction between the basis of taxation and machinery (rules quantifying liability) allowed States to adjust machinery even where the constitutional limit applied. It held that both "basis" and "machinery" are legislative rules and, where competence is lacking, the State cannot validly make either type of rule so as to circumvent constitutionally imposed limits.
- Application to the 1956 notification and Act XIV of 1958: Applying these principles, the Court concluded that the notification of 15-2-1956 (which amended Rule 18 and purported to operate retrospectively) and the later validation Act XIV of 1958 (which sought to validate that notification and make reassessments collectible as if the amendments had been valid from 1-4-1950) were beyond the competence of the State legislature and of the delegated authority. The delegated authority was bound by the same constitutional limits, and delegated rule-making could not validly have retrospective operation so as to alter substantive liabilities beyond constitutional bounds.
- Resulting legality of assessments: Because the assessments challenged in the petitions were made under the proviso to Rule 18(2) as amended by the 1956 notification (and in some cases validated by the 1958 Act), and because those instruments were held to be beyond competence, the Court determined that such assessments for the period after repeal of the Travancore Income Tax Act were illegal and not in accordance with law.
Holding and Implications
Core Ruling: THE WRIT PETITIONS ARE ALLOWED AND THE CHALLENGED ASSESSMENTS ARE VACATED.
Direct Consequences for the Parties
- The assessments of the petitioners to profession tax under the proviso to Rule 18(2) (for the periods after the repeal of the Travancore Income Tax Act) are declared illegal and are vacated.
- The writ petitions are allowed with costs; the Court fixed counsel's fee at Rs. 200 for each petition.
- The decision is without prejudice to the municipalities' right to assess the petitioners afresh to profession tax in accordance with the legal provisions of Rule 18 (i.e., subject to the constitutional limit and the proper statutory scheme).
Broader Legal Implications Identified by the Court
- The proviso to Article 276(2) preserves only pre-constitutional accrued rights to exact a higher rate where such a tax was in force in the relevant pre-constitutional year; it does not confer on State legislatures (or delegated authorities) the power to enact new laws or rules that would permit levying profession taxes beyond the Rs. 250 per annum limitation.
- State legislatures and delegated rule-making authorities are constrained by Article 276(2); they cannot validly use retrospective rules or validation statutes to enlarge or continue taxation beyond the constitutional ceiling.
The opinion therefore both provides relief to the petitioners and furnishes a definitive statement on the limits of State competence under Article 276(2) with respect to future legislation or delegated rule-making intended to continue or replicate pre-constitutional higher tax rates.
Disposition
Petitions allowed; assessments vacated; costs awarded; counsel fee fixed at Rs. 200 in each petition.
Ansari, C.J:— This batch of six petitions challenges the writ petitioners' being assessed to the professional tax under the Proviso to Rule 18(2) of the Taxation and Finance Rules. These had been framed under the Travancore District Municipalities Act, No. XXIII of 1116, hereafter referred to as the Act, whose Section 91 authorises the profession tax being levied, if the Council by a resolution determine such a tax being levied. The Section further enacts among other tilings that every company, which, after the date specified in to notification published under Section 79, transacts business within the Municipality governed by the Act, for not less than sixty days in the aggregate in any half-year, should pay a half-yearly tax assessed in accordance with the Rules in Schedule II. Such schedule comprises among other things Rules 16 and 18, which alone are relevant for purposes of deciding these writ petitions. Rule 16 gives slabs of half-yearly income for purposes of assessment to the Profession tax with the minimum half-yearly tax against each slab.
2. The first item in the Rule states the half-yearly income to be more than Rs. 21,000/- and Rs. 275/- to be the tax on it. Then follow lesser slabs with, proportionately decreasing quantum of the tax; and the proviso states that a company, whose half yearly income is more than Rs. 21,000/- shall, notwithstanding anything contained in the Rules, pay, in addition to the maximum half-yearly tax of Rs. 275/- an additional half-yearly tax on such excess calculated at the rate of one rupee per one hundred rupees, or part thereof. The next Rule is Rule 18(1) and (2), which read as follows:
“18.(1). Where a company or person transacts business in any half year exclusively in the area of a single Municipality, the income of such Company or person from the transaction of such business shall, for the purpose of levying profession tax under this Act during the half-year, be deemed to be—
(a) where income-tax is assessed on such company or person under the Travancore Income-tax Act for the year, comprising the half-year, one-half of the amount at which the profits and gains of such business are computed under Section 8 of the Travancore Income Tax Act for the purpose of assessing the income-tax; and
(b) where the amount of the said profits and gains is not ascertainable or where such company or person is not assessed to income-tax, Such percentage as Our Government may prescribe, of the turnover of the business transacted in the area of the Muieipality during the half-year or where this is also unascertainable, during the corresponding half-year of the previous year.
(2) Where a company or person transacts business partly in the area of a Municipality and partly outside such area, the income of such company or person from the transaction of business in the area of the Municipality shall, for the purpose of levying profession tax under this Act be deemed to be the percentage prescribed under clause (b) of sub-rule (1) of the turnover of the business transacted on such area during the half-year or the corresponding half-year of the previous year, as the case may be”.
Rule 18(2) originally contained no proviso, but the authorities vested under S. 325 of the Act with the power of framing Rules, added a proviso to Rule 18(2) by notification of August 28, 1947. This proviso ran as follows:
“Provided that in the case of a company or person assessable to income-tax, the total profits earned by the company or person as disclosed by, the Income Tax assessment for the whole State for the year comprising the half-year for which the profession tax is to be levied, shall be divided in the proportion of the turnover of the business of the company or person in the Municipality and outside, for purposes of assessment to profession tax”.
3. The reference to the Travancore Income Tax Act in Rule 18(1)(a), which evidently extended to the proviso to Rule 18(2) as well, was likely to cause difficulties after the Finance Act had extended the Indian Income Tax Act to Part B States and repealed the State enactment. As was expected, after the aforesaid repealment, an objection to being assessed under the proviso was raised in O.P No. 34 of 1955, wherein the petitioner is the same that has filed O.P No. 240 of 1956 before us, and therein also the assessments made on the company were for the same period as in the petition before us, though under the proviso to Rule 18(2) as it then stood. The petition was allowed by a Division Bench, which held that the proviso to Rule 18(2) had really provided for the adoption of certain figures representing the total profits as disclosed by an income-tax assessment for a particular year, in which the emphasis was upon the assessable area, which, on becoming impossible of ascertainment, made the entire proviso absolute. ??? Vide Harrisons and Crossfield, Ltd. v. Commissioner Quilon Municipality, ILR 1955 Trav Co. 1003 : ((S) AIR 1956 Trav Co. 174).) The authorities then thought it advisable to Substitute new words in Rule 18(1)(a) and the proviso with retrospective operation; and this was done by notification of February 15, 1956. The aforesaid notification provided for the following amendments:
“(1) In clause (a) of sub-rule (1) of R. 18—
(a) for the words “Travancore Income Tax Act” wherever they occur the words and figures “Indian Income Tax Act, 1922” shall be substituted;
(b) for the word and figure “Section 8” the word and figure “Section 10” shall be substituted.
(2) In the proviso to sub-rule (2) of Rule 18 for the words “whole State” the words “whole of the Indian Union” shall be substituted.
4. These amendments shall be deemed to have come into effect from 1-4-1950”.
5. The effort to make the amendments operate retrospectively was soon after attacked, and a party, assessed to pay the tax, challenged the vires of the amendments on the ground that the power to frame rules could not be exercised retrospectively. The objection was upheld by a learned Judge of the High Court in the Highland Produce Co., Ltd. v. Commr. Alleppey Municipal Council, O.P Nos. 196 to 202 of 1955, D/- 26-10-1956 (T.C) where he found that the delegated authority under the relevant provisions of the Act could not frame rules with retrospective operations and, therefore, the amendments to Rule 18(1)(a) were ultra vires. The Kerala Legislature then thought it expedient to enact the Profession Tax (Validation and Reassessment) Act, XIV of 1958, whose S. 2 is necessary for purposes of deciding these writ petitions, and reads as follows:
“Validation of the levy or collection of profession tax under the Travancore District Municipalities Act, 1116: Notwithstanding any judgment, decree or order of any Court, the amendments to the Taxation and Finance Rules contained in Schedule II to the Travancore District, Municipalities Act, 2116 (XXIII of 1116), made by notification No. LS. 11-13975/55.DD dated 15-2-1956, of the Government of the former State of Travancore-Cochin, shall be deemed, to have come into force with effect from the firsts day of April, 1950, and the validity of the levy or collection of profession tax made under the said Act and Rules shall not be called in question on the ground that the amendments made by the notification aforesaid cannot have any retrospective operation, and any profession tax so levied but not collected may be collected as if the said amendment had been validly made with effect from the first day of April, 1950”.
6. We are now in a position to formulate the legal issue, which is common to all the petitions now before us. Very shortly put, it is whether the permission under the Constitution to continue levy of the profession tax on incomes, includes the authority to enact fresh rules, that empower profession tax being charged beyond the limits imposed by Art. 276(2)? It is obvious that should the decision on the issue be in the negative, neither the notification of 15-2-1956, nor Act XIV of 1958 Would be within the competence of the enacting authority, and the writ petitions would succeed. In this connection it may be mentioned that five of the writ petitions before us were filed before Act XIV of 1958 was passed, and, therefore they had then objected only to the assessments on the basis of the notification of 15-2-1956, being ultra vires; but after Act XIV of 1958 had been enacted, amendment petitions been filed in five petitions challenging the constitutionality of the aforesaid. Act as well. Thus they together raise the aforesaid common issue, and there is, however, no prayer to amend the sixth petition; but that would not adversely affect the petitioner's right, should Act XIV of 1958 be found to be beyond, the legislative competence of the enacting authority and, therefore, constitutionally void.
7. Before adjudicating the aforesaid complaint, it is but necessary to shortly narrate the averments in each of the aforesaid petitions, taking them according to their assessment years and remembering that only one company is the petitioner in five such petitions. Messrs Harrisons and Crossfield, Ltd., that is, the petitioner in O.P No. 240 of 1956, carried general trading business at Quilon and several other cities in the erstwhile Travancore-Cochin State as well as at Calcutta in West Bengal, and was once assessed to the profession tax under the proviso to Rule 18(2) as it stood before the notification. The assessment had been for the two half-years comprised in 1125 (M.E), the first 7½ months of 1126, and the two half-years in 1951-1952, 1952-1953, and in 1953-1954. The petitioner's appeal against the orders was dismissed, and the aforesaid assessments were then challenged by O.P No. 34 of 1955 in the High Court.
8. The petitioner did not deny the liability to pay to the Quilon Municipality the profession tax under Rule 18(2) read with Rule 18(1)(b), i.e, two per cent of the petitioner's turnover within the Quilon Municipality; but the taxing authorities had proceeded to charge under the proviso to Rule 18(2) as then stood. The writ petition was allowed by the High Court on August 9, 1955, and it was held that Rule 18(2) without the proviso, would be the relevant provision. As the petitioner had already paid the tax, requests for refund were made, and also lawyer's notice demanding the return of the amount so paid, was issued on March 5, 1956. Along with the reply to the notice the petitioner received a communication dated April 5, 1956, calling for information for what seas stated to be for re-assessment on the basis of the new proviso to Bide 18(2); and a statement is alleged to have been furnished on May 10, 1956, but the Municipality had on May 5, 1956 passed a resolution about the petitioner being reassessed. On July 27, 1956, the writ petition was filed challenging the notification of February 15, 1956 to be ultra vires on which the aforesaid reassessment had been based.
9. It would be recalled that the Kerala State Legislature had passed Act XIV of 1958 only after the decision of a learned Judge of this High Court in O.P No. 196 to 202 of 1955, D/- 26-10-1956 (TC) that held the notification to be ultra vires due to the absence of power in the delegated authority to make rules with retrospective operation and was given on October 26, 1956. That would have been relevant and decisive of this writ petition as well; but the petition was not heard till Act XIV of 1958 had teen enacted in March 1958. Thereafter the petitioner filed C.M.P 950 of 1959, whereby the constitutionality of the aforesaid enactment has been sought to be raised by way of amendment to the grounds taken in the writ petition against the assessments.
10. The same petitioner has by O.P No. 50 of 1958 challenged the assessment to the profession tax for both the halves of 1954-1955. Hardly any statement of facts in connection with this petition is necessary except that it was filed on January 26, 1958, which was before Act XIV of 1958 had been enacted; and, consequently, after the aforesaid enactment, the petitioner by C.M.P No. 954 of 1959 sought to amend the writ petition by adding the challenge to the constitutionality of the enactment as one of the grounds of the writ petition.
11. The same company has on March 29, 1956 filed O.P No. 88 of 1956; whereby the levy of the profession tax on the petitioner under the proviso to Rule 18(2) in respect of the first and second half-years of 1955-1956 been challenged. The tax demand amounts to Rs. 10,130/- and it is challenged on the ground, that was upheld by the Travancore-Cochin High Court in OP Nos. 196 to 202 of 1955 D/- 26-10-1956 (TC) which was later given on October 26, 1956. Because of the subsequent legislation, i.e, Act XIV of 1958 the original ground taken in the aforesaid writ petition had become infructuous; and, by CMP No. 953/59, a fresh ground for vacating the assessment order, which is similar to those taken in the other two petitions, has been added.
12. O.P No. 117 of 1957 is the fourth writ petition by the company and was filed on March 19, 1957. Thereby the petitioner challenges the company being, under the Proviso to Rule 18(2), assessed by the Quilon Municipality to the profession tax for the first and second half-years of 1956-1957. Evidently the assessment was after the pronouncement of this Court in O.P Nos. 196 to 202 of 1955 15/- 26-10-1956 (TC) and consequently what was therein decided was taken as the main ground for allowing the writ petition. It would be recalled that the Court had found the notification of February 1956 to be beyond the rule-framing power, due to its operation being retrospective; and that position was sought to be redressed by Act No. XIV of 1958. This has resulted in C.M.P No. 951 of 1959 being filed in this petition as well for the purpose of adding a ground in order to challenge the constitutionality of that Act.
13. O.P 156 of 1958 is the last of the five writ petitions by the company challenging its being assessed to the profession tax. The assessment is by the same Municipality for the half-years of 1957-1958 on the estimated half-yearly income of Rs. 3,00,000/-. The Petition was filed on March 15, 1958, and the ground against the leagality of the assessment taken is evidently the decision by the High Court holding the notification of February 15, 1956, to be ultra vires due to its being given retrospective operation Obviously that ground would not be available after Act No. XIV of 1958 had come into operation and that legislation was published in the Gazette on March 11, 1956. The writ petition, though filed after the enactment had become operative, had taken no ground against the constitutionality of the legislation, and C.M.P 827 of 1959 has been filed raising the ground. We do not think any useful purpose would be-served in deciding whether the writ petitioner should, in such circumstances, be given an opportunity to amend this writ petition, because, in his objection in the other petitioners against the constitutionality of the enactment be sustained;, the assessment challenged by O.P 156 of 1958 would be vitiated as well, and this writ petition would also be governed by the pronouncement on the aforesaid objections raised in the earlier four writ petitions. These are the necessary facts in the five writ petitions, that challenge the company's being assessed to the profession tax under the proviso to Rule 18(2), beginning from 1125 (M.E) to the first half of 1958.
14. Messrs Brooke Bond (India) Ltd., Alleppy, has filed O.P No. 161 of 1956 on May 23, 1956, and thereby seeks to vacate the assessment on the petitioner of the profession tax for the two half-years of 1952-1953. The aforesaid assessment has been made under the proviso to sub-rule (2) of Rule 18 as it then stood, and the petition seeks to challenge the tax on the ground that was upheld in ILR 1955 Trav-Co 1003 : ((S) AIR 1956 Trav-Co. 174). The ground is still the basis on which the petition rests; for, there is no application to amend the grounds initially taken. The learned advocate for the respondent in the circumstances, has urged that the proviso to Rule 18(2) as it then stood had not become ineffective due to the repealment of the Travancore Income Tax Act and the extension of the Indian Income Tax Act to Part B States. He has argued that the aforesaid repealment in substance amounts to re-enacting similar legal Tax Act in the proviso should be deemed to be the reference to the Indian Income Tax Act under the General Clauses Act.
15. He has urged that the assessment on the petitioner is valid notwithstanding the decision, in (S) AIR 1956 Trav-Co 124. The two questions, therefore, inviting adjudication, in these writ petitions fire:
(1) Whether the subsequent notifications amending the proviso to Rule 18(2) as well as Act XIV of 1058, are constitutionally valid? and
(2) Whether the Quilon Municipality, because of the principle underlying the provisions of the General Clauses Act already referred to, would be authorised to levy the profession tax on the basis of the Indian Income Tax Act, being deemed to have been substituted where the Travancore Income-tax Act had been mentioned in Rule 18(1)?
16. It is obvious that the decision on the constitutional issue cannot be deferred in any of these writ petitions; for, unless by the Constitution the States be found to be authorised to levy the profession tax according to rules different to those existing earlier, any levy under an amendment to the existing Acts, even through judicial interpretation, would not be permissible. In other words, it is necessary to determine whether any assessment, not according to the Act as it then stood, would be constitutionally valid. We, therefore, feel that the decision on the constitutional issue should be taken first and, any pronouncement on the second is unnecessary. For this purpose, we would recapitulate certain relevant constitutional provisions. It is clear that the States are, under Article 246 read with Entry 60 of List II of the Seventh. Schedule, authorised to levy tax on profession for purposes of Municipal administration. It is equally beyond dispute that the Centre can under Entry 82 of List I of the Seventh Schedule, levy income-tax; and to avoid any dash of such powers, the framers of the Constitution have provided in Article 276 as follows:—
“276. (1) Notwithstanding anything in Article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.
(2) The total amount payable in respect of any one person to the State or to any one municipality, district board, local board, or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two hundred and fifty rupees per annum:
Provided that if in the financial year immediately preceding the commencement of this Constitution there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate, of which exceeded two hundred and fifty rupees per annum, such tax may continue to be levied, until provision to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities.
17. It is obvious that the States' powers to levy the tax have been clarified and they have been authorised within certain limitations to tax income. That limitation on the powers to levy the profession tax has been placed by Article 276(2), which unequivocally provides that the total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions shall not exceed Rs. 230/- per annum. It follows that the States have after the Constitution no legislative competence to pass law authorising levy or collection of tax on professions beyond the aforesaid limit of Rs. 250/- per annum; and relying on the limitation, the writ petitioners' learned advocate has urged that the proviso to Article 276(2) only permits enjoyment of the earlier accrued right to collect the tax exceeding the limit under any enactment, which has been operative in the financial year immediately preceding the commencement of the Constitution. He has urged that under the proviso the States do not get any legislative authority to enact a new law in contravention of the limitation placed upon the enacting power under Article 276(2).
18. The arguments by the learned advocates for the Quilon and Alleppey Municipalities, those being the two municipalities that have levied the profession tax in the cases before us, are that a distinction should be drawn between the bases, on which the taxation is levied and the rules that quantify the liability and that the limitation under Article 276(2) prohibits changing the basis of the profession tax and not the machinery parts of any legislation, witch only quantify the liability. Much argument has been built on the use of the words “such tax” in (the proviso to Article 276(2), and a learned advocate has argued that the absence of the same words in the subsequent part of the proviso indicates permission to read just the rules concerning the machinery in Order to enjoy the right preserved by the proviso. To support this argument, reliance is placed on Chopda Municipality v. Motilal, AIR 1958 Bom 487 and District Board v. Upper India Sugar Mills, (S) AIR 1957 All 527.
19. Another learned advocate has urged that the proviso authorises the earlier rates of the professional tax being continued and the operation of the limitation being thus excluded the States with powers to enact fresh, legislation under Article 240 read with Entry 60 of List II of the Seventh Schedule can frame new rules concerning the earlier preserved rate. With respect, we feel that any distinction between rules dealing with basis of and those with the collections of taxes, is of no importance when the question of competence to legislate is raised, as both are rules and must. In order to operate, be by a competent authority. Therefore, the States without the authority to enact cannot frame valid rules even to adjust the machinery for collecting the tax on profession and any limitation on the legislative power would adversely affect such rules as well.
20. It follows that the main question in the cases is whether the Constitution having imposed, on the power to enact, the limit of Rs. 250/- has later Qualified the limitation?. We feel that there are difficulties in accepting the aforesaid limitation to have keen again relaxed, for, the prohibition concerning the future enactments, under Article 276(2) is in absolute form, and had the intention teen to qualify the limitation, the words of such modification would have been incorporated in the limitation itself. It is equally clear that having so epubanked the power for future legislation the embankament would not control the rights, that had accrued under the laws existing before the inauguration of the Constitution and the enjoyments of the aforesaid rights would be preserved. Such preservation to the States is not inconsistent with the limitation, and the proviso to Article 276(2) so states.
21. It has next to be determined whether the rights being so continued, further carries with it the power to amend, or fill the gaps in, the existing enactments, and whether such powers have been conferred by the proviso. We are convinced that they have not been reserved to the States; for, had the intention been to confer them with such powers, the authority to vary the existing laws would not be expressly vested in the Parliament, and there can be no two Legislatures with varying enacting authorities over the same rules. The inevitable consequence of our interpretation is that though the several municipalities in the Travancore area of this State enjoy the benefits of the enactment authorising levy of larger profession tax, which was operative in the last financial year prior to the inauguration of the Constitution, there in after January, 26, 1950 no enacting power in the State Legislature either to amend the machinery parts of such legislation, or to fill gaps therein so as to continue the levy under new rules beyond the constitutional limitation. In that view Act XIV of 1958 is beyond the competence of the State Legislature as it seeks to fill gaps brought about by the revealment of the Travancore Income Tax Act, and the position is not different so has as the notification of 15-2-11956 is concerned, as the delegated authority under the Act is as well bound by the constitutional limitation.
22. It follows that the assessment of the writ petitioners to the tax on profession according to the proviso to Rule 18(2) for the period subsequent to the revealment of the Travancore Income Tax Act, are illegal due to their not being according to law. We, therefore, vacate the assessment Orders; and these writ petitions being allowed would be without prejudice to the rights of the Municipalities to assess the petitioners afresh to the tax on profession, having regard to the legal provisions of Rule 18. Accordingly, the writ petitions are allowed with costs, and the assessments are vacated.
23. This judgment will govern all the six writ petitions, and the counsel's fee we fix at Rs. 200/- in each petition.
BF/V.S.B
24. Petitions allowed.
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