Citation Codes

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Case Number

O.P Nos. 834, 972, 1137, 1175, 1200, 1230, 1254, 1286, 1303, 1310, 1327, 1392, 1420, 1421, 1467, 1514, 1531, 1543, 1589, 1592, 1610, 1663, 1677, 1705, 1784, 1792, 1892, 1918, 1932, 1948, 2058, 2100, 2128, 2136, 2156, 2184, 2220, 2240, 2249, 2252, 2277, 2282, 2323, 2367, 2395, 2397, 2410, 2438, 2449 of 1963 and 1213 and 80 of 1964

Advocates

For the Appellant: V. P. Gopalan Nambiar

Judges

P. Govindan Nair, J.

Acts

Kerala Buildings Tax Act, 1961, Act 19 of 1961 (hereinafter called the Act).
Kerala Buildings Tax Act, 1961, Act 19 of 1961
sub-section (f) of S. 2
Cochin Land Tax Act,
sub-section (1)(ii)

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Smart Summary

Judgment Summary: Challenges to the Kerala Buildings Tax Act, 1961 (Act 19 of 1961)

Factual and Procedural Background

These writ applications challenge the validity of the Kerala Buildings Tax Act, 1961 (Act 19 of 1961) on two principal grounds: (1) that the Act was not within the legislative competence of the State under entry 49 of List II to the Seventh Schedule of the Constitution (i.e., the State lacked authority to enact the law as it is framed), and (2) that the Act is discriminatory and violates Articles 14, 19 and 31 of the Constitution.

The judgment describes relevant provisions of the statute relied upon in the petitions, including:

The preamble: "Whereas it is expedient to provide for the levy of a tax on buildings;"
Definitions in Section 2: definition of "building", "floorage" and "owner" (sub-section (f));
Exemptions in Section 3(1)(ii): buildings used principally for religious, charitable, educational purposes or as factories or workshops;
Charging provision in Section 4: buildings tax charged at rates in the Schedule for buildings completed on or after 2nd March, 1961 having floorage of 1,000 sq. ft. or more; tax payable by the owner; with explanatory provisions about completion, subsequent increase of floorage, and computation on total floorage;
Other procedural provisions noted include Section 5 (computation of floorage), Section 6 (return of completion), Section 8 (assessment), Section 10 (appeal), Section 11 (reference to District Court) and Section 12 (powers of revision of the District Collector).

The Court states that the petitions raise both a question of legislative competence under entry 49 and a question of discrimination under Articles 14, 19 and 31, but proceeds to decide the matter on the discrimination ground.

Legal Issues Presented

Whether the Kerala Buildings Tax Act, 1961 is intra vires the State Legislature under entry 49 ("Taxes on lands and buildings") of List II to the Seventh Schedule of the Constitution, including the contention that "tax on lands and buildings" has a specialized historical meaning that restricts State power to local authorities and taxes imposed for local purposes.
Whether the Act is arbitrary or discriminatory and therefore violative of Articles 14, 19 and 31 of the Constitution, specifically in light of (a) classification of buildings by date (post-2-3-1961 vs pre-2-3-1961); (b) imposition of a uniform tax based solely on floorage across buildings of differing capital and letting values and locations; and (c) failure to take quality or usefulness of buildings into account.

Arguments of the Parties

Petitioners' Arguments

The Act is beyond the State Legislature's competence under the entry relied upon (entry 49, List II), because "tax on lands and buildings" is argued to have a special meaning historically and in practice that confines it to local-purpose taxes imposed by local authorities and based on actual letting value.
The Act is discriminatory and violates Articles 14, 19 and 31 for several reasons:
- Classification by date (taxing buildings constructed on or after 2-3-1961 while exempting those before that date) is arbitrary and discriminatory;
- Using floorage alone as the tax base results in a uniform tax across locations and properties with widely varying capital values and letting values, creating inequality;
- A uniform tax based on floorage disregards the quality, usefulness and income-producing capacity of buildings, producing arbitrary taxation and inequality of burden.
Affidavits filed in support of the petitions contain specific averments illustrating inequalities arising from the floorage-based tax (differences in location, construction cost, land cost and letting value resulting in unequal burdens).

Respondent's (State) Arguments

As stated in paragraph 9 of the counter-affidavit for the State of Kerala: fixing the tax on the basis of floor area is "reasonable and legal." The State contends that buildings situated under the same circumstances are treated alike and that the provisions do not violate Article 14 or 19(1) of the Constitution.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 562	Explains that a tax on land or land revenue is assessed on the actual or potential productivity of the land; the tax has reference to income actually made or that could have been made with due diligence, and is levied with due regard to incidence of taxation.	The Court relied on this principle to support the proposition that the proper tax base for land/buildings taxation is value (capital value or annual letting value) and that taxation must relate to income or value to ensure equitable distribution of the tax burden. This supports the conclusion that a floorage-only basis is arbitrary.
Supreme Court decision referred to as AIR 1961 SC 552 (decision concerning the Travancore-Cochin Land Tax Act)	Observed that the Act exhibited "inequality writ large" and that lack of classification creates inequality; held that Articles 14 and 19 are attracted in such taxation matters.	The Court invoked the observation that lack of classification creates inequality to conclude that the Kerala Buildings Tax Act similarly lacks classification and creates inequality. The Court relied on this precedent to hold that the taxing provisions cannot stand under Article 14.

Court's Reasoning and Analysis

The Court's analytical approach proceeds in these main steps, based strictly on the materials recited in the opinion:

Identification of the issues: The Court recognizes two broad challenges — legislative competence under entry 49 of List II, and alleged discrimination/infringement of Articles 14, 19 and 31. The Court elects to decide the matter on the discrimination ground rather than resolve the competence issue.
Examination of the statute's provisions: The Court sets out the preamble, definitions (including "building", "floorage" and "owner"), exemptions (Section 3), and the charging section (Section 4) that levies a buildings tax on completed buildings (completed on or after 2-3-1961) with floorage of 1,000 sq. ft. or more, payable by the owner. The explanations regarding completion and subsequent increases of floorage are noted.
Consideration of the tax base and authoritative statements: The Court surveys authorities (American Jurisprudence, Corpus Juris Secundum, Cooley on Constitutional Limitations, World Tax Series, Basu, and other treatises) to extract the general principle that the base of taxes on land and buildings is commonly the capital value or annual/rental/ratable value of the property. The Court emphasizes that valuation of property is the usual and equitable basis for such taxes and that taxation unrelated to value risks becoming arbitrary.
Application to statutory structure: The Court observes that the Kerala statute uses "floorage" (area) as the sole quantitative basis for imposing tax and disregards other relevant factors such as location, quality, capital value or income-producing capacity. The Court reasons that floorage is indifferent to essential value-differentiating characteristics (e.g., site value or letting value), and therefore taxing solely by floorage leads to unequal burdens between similarly sized buildings of very different values.
Reliance on precedent about classification and equality: The Court cites the Supreme Court's prior observations (AIR 1961 SC 552) that lack of classification can create inequality "writ large" and that Articles 14 and 19 may be engaged in taxation matters. The Court finds a parallel between that decision (concerning the Travancore-Cochin Land Tax Act) and the present Act: here too the taxing section is intertwined with provisions that lack a rational classification scheme and therefore produce inequality.
Conclusion on severability: The Court finds that the invalid aspects are intertwined with the charging section (Section 4) so that valid portions cannot be severed from invalid ones; the structure of the Act makes it impossible to preserve a constitutional core separate from the offending provisions.
Disposition: On the basis of the above reasoning — the statutory choice of floorage as the sole tax base, the absence of classification accounting for variations in value and income potential, and supporting precedent that values-based assessment is the accepted tax base for property taxation — the Court holds the Act to be arbitrary and violative of Article 14, and therefore strikes down the Kerala Buildings Tax Act, 1961.

Holding and Implications

Core Ruling: The Court struck down the Kerala Buildings Tax Act, 1961 (Act 19 of 1961) and allowed the writ petitions.

Direct consequences for the parties:

The writ applications were allowed.
The Kerala Buildings Tax Act, 1961 was declared invalid and struck down.
No order as to costs was made.

Broader implications: The opinion decides the matter on the ground of discrimination under Article 14 and relies on prior authority and accepted taxation principles (valuation as the base for property taxation). The opinion does not set out an expansive new doctrine beyond applying established principles to strike down the Act; it confines its result to invalidating the statute as framed and does not articulate broader remedial or legislative directions in this text.

(Order dated as reflected in the provided opinion: "Petitions allowed." No costs ordered.)

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Nelliyil Kunhali Haji v. State Of Kerala And Another

JUDGMENT

1. These writ applications raise a common question about the validity of the Kerala Buildings Tax Act, 1961, Act 19 of 1961 (hereinafter called the Act). The validity of the Act has been questioned mainly on two grounds. Firstly, it is argued that entry 49 of List II to the Seventh Schedule of the Constitution of India pursuant to which it is claimed the Act has been passed, does not enable the State Legislature to pass such a law. Secondly it is urged that in any view of the matter, the Act is discriminatory and is violative of Articles 14, 19 and 31 of the Constitution.

2. Before examining these contentions, it is necessary to refer to the relevant provisions in the statute. The preamble of the Act states

“Whereas it is expedient to provide for the levy of a tax on buildings;”

and S. 2, (Definitions), defines ‘building’, in sub-section (d) thereof as

“‘building’ means a house, out-house garage, or any other structure, or part thereof, whether of masonry, bricks, wood, metal, or other material, but does not include any portable shelter or any shed constructed principally of mud bamboos, leaves, grass or thatch or a latrine which is not attached to the main structure”:

“‘floorage’ means the area included in the floor of a building, and, where a building has more than one floor the aggregate area included in all the floors together;

and ‘owner’ under sub-section (f) of S. 2 means

“‘owner’ includes a person who for the time being is receiving or is entitled to receive, the rent of any building whether on his own account or on account of himself and others or as an agent, trustee, guardian or receiver for any other person or who should so receive the rent or be entitled to receive it if the building on part thereof were let to a tenant;”

3. Section 3 dealing with exemptions provides under sub-section (1)(ii) that:

“buildings used principally for religious, charitable a educational purposes or as factories nr workshops”

are exempted from the provisions of the statute. Section 4 is the charging section and it is in these terms:

“4 Charge of buildings fax. (1) Subject to the other provisions contained in this Act, there shall be charged a tax (hereinafter referred to as ‘buildings tax’) at the rate specified in the Schedule, in respect of every building the construction of which is completed on or after the 2nd day of March, 1961 and which has a floorage of one thousand square feet or more

(2) the buildings tax shall be payable by the owner of the building.

Explanation 1. For the purposes of this section, the construction of a building shall be deemed to have been completed when it is ready for occupation or has been actually occupied, whichever is earlier.

Explanation 2. A building, which is not liable to be taxed under the provisions of this Act on account of its having a floorage of less than one thousand square feel, shall become liable to be so faxed if the floorage of the building is subsequently increased to one thousand square feet or more as computed in the manner specified in S. 5 by constructions or additions or combinations.

Explanation 3. Where the floorage of a building, which has already been taxed, is subsequently increased by new extensions or additions or combinations, tax shall be computed on the total floorage of the building including that of the new extensions or additions or combinations, and credit shall be given to the lax already levied and collected in respect of the building before such extensions or additions or combinations.”

4. Section 5 deals with ‘Computation of floorage of buildings’; S. 6 with the ‘return of completion of new buildings’ and S. 8 about the ‘assessment’ to be made. Section 10 provides for ‘appeal’; S. 11 for ‘reference to District Court’, S. 12 about ‘Powers of revision of the District Collector’ and the rest of the Sections, I think, are unnecessary for the purpose of deciding the questions raised in this case. On the first of the grounds referred to, two contentions have been raised. Firstly it is said that the tax imposed by the statute is really a lax on ‘construction of a building’ of ‘on extension of a building’ and secondly a far more fundamental question has been mooted and this is based on the contention that a “tax on lands and buildings” (Item 19 in List II to the Seventh Schedule) has acquired a special meaning in legislative history and practice “Tax on lands and buildings” means a lax on buildings for local purposes imposed by local authorities and is a tax on the actual lei ling value of such lands and buildings. They contend that such taxes cannot be imposed by the State Government for the purposes of the general revenue of the State.

5. I do not wish to deal with either of the above aspects in these writ applications, for, I feel that the petitioners are entitled to succeed on the second ground relating to discrimination.

6. Counsel contend that the imposition of tax by the statute is arbitrary and discriminatory for the following reasons:

(a) the classification of buildings into those that came into existence after 2-3-1961 and those before that date, taxing the former and not the latter is discriminatory.

(b) the imposition of a uniform tax merely on the ‘floorage’ basis on buildings situate in different locations whose capital value and whose letting value have no similarity is discriminatory.

(c) That the uniform rate of tax applied to all buildings merely on the ‘floorage’ disregarding its quality and/or usefulness is also discriminatory.

7. There are specific averments in this regard in many of the affidavits in support of the petitions. The only answer given by the State to these averments as far as I am able to see, is in paragraph 9 of the counter-affidavit filed on behalf of the 1st respondent, the State of Kerala, I extract the relevant part of paragraph 9 of the counter-affidavit

“Fixing the tax on the basis of the floor area of the building is also reasonable and legal. The buildings situated under the same circumstances are treated alike and no discrimination is shown. Such provisions do not in any way offend Article 14 or 19(1) of the Constitution.”

8. In order to understand the contention and for the purpose of determining the question as to whether Articles 14 and/or 19 or for that mailer 31 have been violated, is necessary to understand what has come to be known as the base of the tax. The entry in the Constitution relied on, as indicated earlier, is entry 49 in List II to the Seventh Schedule of the Constitution which reads as follows:

“Taxes on lands and buildings.”

9. There is another entry, entry 45 in the same list which runs thus:

“Land revenue including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenues.”

10. The particular enactment, Act 19 of 1961, is said to be passed under the entry in item 49 in List II to the Seventh Schedule of the Constitution, if will assume for the purpose of the discussion that this entry would entitle the State Government to impose a tax for the purpose of raising general revenue for the State.

11. What is meant in a tax has been the subject of judicial decisions for a considerable length of time. It is unnecessary to refer to all those decisions: but I would refer to the meaning of the expression ‘tax’ as given in the American Jurisprudence, Volume 51, at p. 35 “‘Tax’ A tax is a forced burden, charge, exaction, imposition, or contribution assessed in accordance with some reasonable rule of apportionment by authority of a sovereign State upon the persons or properly within its jurisdiction to provide public revenue for the support of the government”

and in the same volume at page 59, dealing with the General Indicia of Properly Taxes, it is said that if the tax is computed upon a valuation of property, it is considered a properly tax.

12. Further in the book. World Tax Series (India), dealing with Local Taxes on Real Property, it is said that local taxes on land and buildings are based on the annual value or ratable value And in World Tax Series (U.K) at page 67, it is stated that “The rental value of properly provides the tax base”. In the Book World Tax Series (Australia) at page 61 it is stated that “The basis of assessment in all states is the unimproved capital value of the land.”

13. There are a number of decisions of the Courts in the United States that the base of taxation is the value of the property and in Corpus Juris Secundum, Vol LXXXIV. page 151 there is this passage:

“Constitutional provisions requiring taxation to be according to value do not apply to every species of taxation; generally they apply only to property taxes.”

14. The meaning of the word “assess” is also given in Corpus Juris Secundum, Vol LXXXIV, p. 749 as

“Assess primarily means to tax; secondarily or derivatively, to place a valuation on property for the purpose of apportioning a tax.”

15. There are passages in Cooley on Constitutional Limitations which I consider are relevant at page 708, it is said:

“When taxes are levied upon property there must be an apportionment with reference to a uniform standard, or they degenerate into mere arbitrary exertions”.

“A tax on bicycles for the construction of bicycle paths, bicycles being within the classes of property subjected to general taxation, is void for inequality, and where such tax is assessed regardless of valuation it is invalid for like reasons”.

16. At page 712 of the same book, it is said:

“Some other constitutions contain no provisions upon this subject;

(taxation on the basis of valuation of property);

But the necessity for valuation is nevertheless implied, though the mode of making it, and the periods at which it shall be made are left to the legislative discretion.”

17. Basu in his commentaries to the Shorter constitution, Second Edition, page 637 says:

“A municipal legislation which provides that the basis of valuation for the purpose of levying a tax on lands may be either capital or annual letting value is not ultra vires.”

18. And in the Book, Public Finance, by Dr. Eastable, 3rd Edition, page 272 it is said:

“Most of the actual property or capital taxes are so only in name, being really paid out of the income of the persons subject to the charge.”

19. I may dealing with this aspect, conclude by referring to the decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala, AIR 1961 SC 562. Dealing with the land tax, what Their Lordships said is:

“A tax on land or land revenue is assessed on the actual or the potential productivity of the land sought to be taxed in other words the tax has reference to the income actually made or which could have been made with due diligence, and, therefore, is levied with due regard to the incidence of taxation”

20. One thing is clear from the above. The base of the tax is either the capital value of the land and the buildings or the annual letting value of the land and buildings And the theory of taxation appears to be that in order that there may be an equitable distribution of the burden of taxation, it is necessary to resort to some such method. The procedure is often, though not always, to tax the rich and let off the poor. The value of the property therefore always loomed large, and in fact, it appears to me, has been the only guiding principle on the basis of which the impost is to be made. The value of the property in a sense may be gauged with reference to the value of the income that may be earned from the property. If disregarding this basis, which seems to have been uniformly accepted in almost all the civilized countries in the world, an impost is made, it becomes an arbitrary impost which cannot satisfy the requirements of reasonableness or equality.

21. Only a glance at the statute and the averments in the affidavits in support of these petitions is sufficient to satisfy any one that the Act purports to impose an arbitrary levy. The floorage has been defined in the statute. This has reference only to the basement excepting when there is a first or second floor. The basement has nothing to do with the quality of the building, its location, its usefulness and much less its value or for that matter, the Income that can be derived from that building. A building may be located in a busy town or city. Its value will be much higher than its counterpart elsewhere due to various reasons (the cost of construction, the cost of land in which it is built etc.) and the letting value will also be different from that of a similar building situate in the country Both have been taxed in the same manner. This has resulted in inequality. The inequality arises from lack of classification. That is the ground that has been relied on by the Supreme Court in the decision in AIR 1961 SC 552. Talking with reference to the Travancore Cochin Land Tax Act, the Supreme Court observed:

“Inequality is writ large on the Act and is inherent in the very provisions of the taxing section. It is also clear that there is no attempt at classification in the provisions of the Act. It is one of those cases where the lack of classification creates inequality”.

22. It appears to me that this is another of those cases where the lack of classification has created inequality. The distribution of the burden has not been equitable. It has fallen on shoulders that cannot support it. I am aware that in the matter of taxation, there is a large discretion vested in the Legislature.

23. It is for them to decide the person or the property to be taxed. It is for them to decide the incidence of tax, as who should be taxed and in what manner. But large as these powers are, they are still subject to the provisions in the Constitution, and if they are violative of Article 14, they cannot stand. That Articles 14 and 19 are attracted even in regard to such matters; has been ruled by the Supreme Court in the very same decision. AIR 1961 SC 552 This is one of those cases where it is not possible to sever the valid from the invalid provisions in the statute for the provisions in the Act are intertwined with the charging section, section 4, which cannot stand for the reasons stated above.

24. In the result, I strike down the Kerala Buildings Tax Act, 1961, Act 19 of 1961 and allow these writ applications, but make no order as to costs.

II/A.G.J/R.G.D

25. Petitions allowed.

Nelliyil Kunhali Haji v. State Of Kerala And Another

Judgment Summary: Challenges to the Kerala Buildings Tax Act, 1961 (Act 19 of 1961)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Respondent's (State) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Nelliyil Kunhali Haji v. State Of Kerala And Another

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