Govinda Bhat, J.:— The Petitioner is a dealer in radios in Mangalore Town. The 1st respondent is the City Municipal Council, Mangalore. By a Notification dated 31st August, 1968 published in the Mysore Gazette dated 14th November, 1968, issued by the Commisioner City Municipal Council Mangalore (Respondent No. 2) under Section 256 of the Mysore Municipalities Act, 1964 hereinafter referred to as the Act, licence fees were levied on radio dealers at double the monthly rental of the premises used or the assessed property tax whichever is higher, subject to a maximum of Rupees 500. The monthly rental of the premises of one of the shops of the petitioner under the name ‘Melody House’ is Rs. 100 and that of another place of business under the name ‘Kalpana Radios’ is Rs. 200. In respect of the said places of business, the petitioner became liable to pay annually a licence fee of Rs. 200 and Rs. 400 respectively. The petitioner has challenged the validity of the levy under the Notification dated 31st August, 1968. The Relief of declaration that Section 256(4) of the Act is unconstitutional was not pressed at the hearing.
2. Sub-section (1) of Section 256 of the Act provides that no one shall use any premises for any of the purposes mentioned in clauses (a), (b), (c) and (d) of the said sub-section without a licence granted by the Municipal Commissioner. sub-section (4) of Section 256 empowers the Municipal Council to fix a scale of fees to be paid in respect of the premises licensed under sub-section (1) subject to a maximum of Rs. 500 per annum. The relevant provisions of Section 256 run thus:
“256. Premises not to be used for certain purposes without licence.—
(1) No person shall use or permit to be used any premises for any of the following purposes without or otherwise than in conformity with the terms of a licence granted by the Municipal Commissioner or Chief Officer in this behalf, namely—
(a) any of the purposes specified in Par-I of Schedule XIII;
(b) any purpose which is, in the opinion of the Municipal Commissioner or Chief Officer dangerous to life, health or property or likely to cause a nuisance;
(c) keeping horses, cattle or other quadruped animals or birds for transportation, sale or hire or for sale of the produce thereof; or
(d) storing any of the articles specified in Part II of Schedule XIII except for domestic use of any of those articles:
Provided that the municipal council declare that premises in which the aggregate quantity of articles stored for sale does not exceed such quantity as may be prescribed by bye-laws in respect of any such articles shall be exempted from the operation of clause (d).
(2) ……………………………………..
(3) ……………………………………..
(4) The municipal council shall fix a scale of fees to be paid in respect of premises licensed under sub-section (1) or sub ………….. of fees to be paid in respect of premises licensed under sub-section (1) or sub-section (2):
Provided that no such fee shall exceed five hundred rupees per annum. …………………..”.
3. The relevant portion of the Notification issued by the Municipal Commissioner under Section 256 runs thus—
“Under Section 256 of the Mysore Municipalities Act, 1964 (Mysore Act No. 22 of 1964) as amended upto date, the Mangalore City Municipal Council hereby notifies in supersession of the previous notifications, under section referred to in Schedule XIII, Parts I and II that hereafter no place within the limits of this City Municipalities shall be used for anyone or more of the sub-joined purposes unless a license authorising such use has been obtained from the Municipal Commissioner and Municipal Health Officer and except in accordance with the conditions specified therein.
SCHEDULE XIII
Section (256)
S. No.
Purpose for which premises may not be used without a licence
Rate of Licence Fee
(1)
(2)
(3)
(4)
x
x
x
x
21. Carrying on the Trade or Business of or any Operation Connected with the Trade of:
x
x
x
x
x
x
x
x
(xii) Radio (Wireless receiving set) selling, repairing, servicing or manufacturing.
* Double the monthly rental of the premises used or the assessed property tax which ever is higher for the month of which the application is made, subject to a maximum of Rs. 500”
4. The case of the petitioner was that the impugned levy is a tax in disguise on places of business and that the procedure for imposition of tax as provided under Chapter VI not having been followed, the levy is illegal and ultravires of the Act. It was argued by Sri U.L Narayana Rao for the petitioner that under the powers conferred by Section 256(4), the Municipal Council is competent to levy only licence fees which does not exceed the cost of issuing licences and the cost of inspection and supervision of the premises licensed and that in the instant case the levy has no correlation to such expenses.
5. In the counter-affidavit filed by the Municipal Commissioner it has been submitted that sub-section (4) of Section 256 empowers the Municipal Council to fix a fee to be levied on each trade specified in Schedule XIII of the Act and the quantum of fees has been fixed taking into consideration the nature, of the trade the income and turnover etc., of the business. This is what has been stated in paragraph 6 of the counter affidavit dated 10th December, 1969:—
“6. ……sub-section (4) of Section 256 of the Act empowers the Municipal Council to fix up the fee to be levied on each trade specified in Schedule XIII attached to the said Act. While fixing up the fee the facts have not been overlooked. The nature of the trade, i.e, whether necessity or luxury, expected income, turnover, have been taken into consideration before fixing the licence fee. Further the said trade causes public nuisance and with a view to have a check on the increase of such trade and nuisance it is found necessary to impose a reasonable fee……”.
6. At the hearing, Sri Vasudeva Reddy, for respondents 1 and 2 submitted that it is not the contention of the Municipal Council that the fees levied has any correlation to the cost of Municipal issuing the licences and the cost of inspection and supervision of the premises sought to be regulated under the Act. He argued that under sub-section (4) of Section 256 the Municipal Council is empowered to levy licence fees; that there is a difference between ‘fees’ and ‘licence fees’ and that where ‘licence fees’ are empowered to be levied by the Act, the Municipal Council has the power to levy fees for purposes of raising revenue.
7. On the submissions made by learned counsel at the Bar the point in dispute between the parties was brought within narrow compass. The question for decision is, whether certain sums which are charged to the petitioner by the Mangalore Muncipal Council by way of fees for licenses to carry on the business of radio dealers within the limits of Mangalore Municipality were validly charged under the powers contained in the Act.
8. License laws are of two kinds; those which require the payment of licence fee by way of raising revenue, and are therefore the exercise of the power of taxation, and those which are mere police regulations, and which require the payment only of such licence fee as will cover the expense of the licence and of enforceing the regulations. Vide A Treatise on Constitutional Limitation by Cooley, pages 586-587.
9. A right to licence an employment conferred on a Municipality or a local authority does not imply a right to charge a license fee therefor with a view to revenue unless such seems to be the manifest purpose of the power; but the authority of the corporation will be limited to such a charge for the licence as will cover the necessary expenses of issuing it and the additional labour of officers and expenses thereby imposed. If the licence is for regulation, the charge must be reasonable. Fee for the licence must be such only as it legitimately assists the regulation and it should not exceed the necessary or probable expense of issuing the licence and of inspecting and regulating the business which it covers.
10. Is the power conferred by Section 256(4) of the Act referable to the power of taxation or the power of regulation? The validity of the impugned levy turns on the determination of the question whether the imposition of the fee is in the exercise of the power of taxation or the power of regulation. If the imposition is merely an exertion of the power of regulation, then it is not contended that the levy can be justified as having correlation to the expense of regulation.
11. According to the scheme of the Act there is a clear distinction between taxes properly so-called and fees. There is a logical and Clear-cut division of the Act into several Chapters and taxes by whatever designation they may be called, are all comprehended and dealt with in Chapter VI and by that Chapter alone. Section 256 occurs in Chapter IX, Section 256 to 260 are found under the sub-heading “Nuisances from certain trades and occupation.” The scheme of Chapter IX, shows that the provisions contained therein are meant for the purpose of regulation of certain trades and professions. The heading of Chapter VI is “Municipal Taxation”. The sub-heading for Sections 94 to 98 is “Taxes and procedure for levy.” Section 94 enumerates the taxes that may be levied by a Municipal Council. Section 95 prescribes the procedure to be observed as preliminary to the imposition of any tax. It is common ground that the procedure prescribed by Section 95 to 97 have not been followed in the instant case. The levy purports to be one under Section 256(4) which does not require the procedure laid down in Section 95 to 97 to be followed.
12. A similar question arose under the Rangoon City Municipal Act, 1922 (hereinafter called the Rangoon Act) whether licence fees levied by the Corporation of Rangoon under Section 178(3) of the Rangoon Act in respect of private markets was a fee or tax. The owners of private markets in Rangoon, were charged licence fees at the rate of Rs. 10 for every 100 square feet of the floor area of such market. Section 125 of the Rangoon Act provided that no one shall keep open a private market without a licence from the Corporation and by sub-section (3) of Section 178 the Corporation was empowered to charge a fee at such rate as shall from time to time be fixed by the Corporation. Section 125 corresponds to sub-section (1) of Section 256 of the Act; sub-section (3) of Section 178 of the Rangoon Act corresponds to sub-section (4) of Section 256. The levy was challenged as illegal and ultra vires by suit brought on the original side of the Rangoon High Court. Cuniffe, J. who tried the suit on the original side, decreed the suit. The matter came up on appeal before a Division Bench which affirmed the judgment of the learned trial Judge; the appellate judgment is reported in Municipal Corporation of Rangoon v. Sooratee Bara Bazar Company Ltd.(1). The levy by the Corporation of Rangoon had been made by Rule added to the Schedule to the Rangoon Act. It was held that the Corporation could not fix the fees by a Rule but only by Resolution Having stated the ground of their decision which would ordinarily be sufficient to dispose of the appeals, the learned Judges on appeal proceeded to consider whether a Resolution of the Corporation to the same effect as the Rule would be reasonable or not. Being invited to express their opinion on the said question, the learned Judges expressed the view that the Corporation was not restricted to charging licence fees on the bear scale indicated by Cunliffe, J. but could charge them at such a scale as would cover the extra costs occasioned by the statutory supervision and regulation of private markets.
13. In the light of the decision in Sooratee Bara Bazaar Company Ltd. case, the Rangoon Corporation taking into consideration the total cost of regulation and supervision of the private markets apportioned the costs amongst the several private markets and levied the licence fees. The said levy was challenged again; but the suits were dismissed by the Appellate Bench of the High Court of Rangoon. The matter was taken to the Judicial Committee of the Privy Council whose judgment is reported in Pazdundaung Bazaar Company Ltd. v. Municipal Corporation of the City of Rangoon(2). Lord Russel of Killowen who delivered the Judgment of the Judicial Committee stated that licence fee might reasonably cover the cost of all special services necessitated by the duties and liabilities imposed upon the Corporation in respect of the supervision and regulation of private markets. He further stated that if the Corporation in good faith charged the fees in question and fixed the amount thereof upon the footing that the sums paid would cover the cost aforesaid, their Lordships would feel unable to hold that it was beyond the powers of the Corporation to exact payment of those fees.
14. In Corporation of Madras v. Spencer & Com. Ltd.(3), licence fees for storing spirits was raised from Rs. 25 to Rs. 200 under the provisions of the Madras City Municipal Act, 1919. Beasely, J., as he then was, held that the fees are leviable as compensation to the Corporation for the expenses incurred in the issue of licences and the general regulation of the trades and other occupations which are licenced and there must be some relation between these expenses and the amount of fees leviable. That view was affirmed on appeal by Phillips and Reilly, JJ. It was held that the power of levy of charging licence fees cannot be used for taxation and that the fees charged must not be very much in excess of what the duties cast upon them and their staff in connection with the licence cost them, viz., the cost of issuing the licences, the cost of inspecting the premises to see whether they are suitable for the purpose proposed and the subsequent cost of inspecting the premises. The levy was held illegal as being unreasonable. The view taken in Spencer and Company Ltd.. Case was followed by Curgenven and Bhashyam Iyengar, JJ. in Municipal Council, Kumbakonam v. Ralli Brothers(4). In the said case, the levy of licence fees for storage of groundnuts on the premises of Ralli Brothers at Rs. 50 per annum was challenged. It was held that the levy was unreasonable and that it was clearly a tax in disguise.
15. The question arose before the Supreme Court under the U.P Municipalities Act, 1916 whether the levy of licence fees on rikshaw owners and rickshaw drivers at Rs. 30 and Rs. 5 respectively was valid. The challenge made by rickshaw owners and rickshaw drivers was upheld by the Allahabad High Court and that decision was affirmed by the Supreme Court in Nagar Mahapali varnasi v. Durga Das Bhattacharya(5). The Supreme Court stated that if the imposition is in the nature of a tax the procedure contemplated by Sections 131 to 135 of the U.P Municipalities Act (which correspond to Sections 95 to 97 of the Act) should be followed by the Municipal Board for the imposition of tax. It was further stated that under Section 294 of the U.P Act the Municipal Board has authority to impose licence fee only. The Supreme Court noticed that according to the scheme of the U.P Act there was a sharp and clear distinction between taxes properly so-called and fees what was permitted to be imposed by Section 294 is only a fee in the restricted sense as distinguished from a tax. It was held that there was no sufficient quid pro quo for the fees charged and therefore the imposition was ultra vires and illegal.
16. In Secretary, Government of Madras, Home Department v. Zenith Lamp and Electricals Ltd.,(6) the question arose whether ‘court fees’ can be levied for the purpose of general revenue. Agreeing with the view of the Madras High Court, the Supreme Court held that fees taken in the Courts are not a category by themselves and must contain the essential elements of the fees as laid down by the Supreme Court in a number of cases.
17. From the above cited authorities it is clear that according to law as laid down by the Judicial Committee of the Privy Council before independence and thereafter by the Supreme Court, ‘Licence fees’ for purposes of regulation must have correlation to the cost of issuing the licences and the cost of inspection and supervision of the places sought to be regulated and that ‘licence fees’ cannot be levied for purposes of raising revenue.
18. Sri Vasudeva Reddy for the respondents in support of his contention relied on the majority judgment of the Supreme Court in Corporation of Calcutta v. Liberty Cinema(7). The levy of licence fees for cinema theatres at Rs. 5 per show in a house under the Calcutta Municipal Act, 1951 was challenged before the Calcutta High Court. The challenge was upheld by the Calcutta High Court; but on appeal, the Supreme Court upheld the levy as valid. Sarkar, J., as he then was, with whom Raghubar Dayal and Mudholkar, JJ. concurred, took the view that the words ‘licence fee’ in Section 548 of the Calcutta Act do not necessarily mean a fees for services rendered and they are not intended to be a fee for service and that if the levy of licence fee partakes the character of a tax the same cannot be challenged. The minority judgment delivered by Rajagopala Ayyangar, J., with whom Subba Rao, J., as he then was concurred, took the contrary view. The minority judgment affirmed the views expressed by the High Courts in I.L.R 5 Rangoon 212 : I.L.R 52 Madras 764 and A.I.R 1931 Madras 197. The majority judgment in Liberty Cimema's case was not noticed in Durga Das Bhattacharya's case. There appears to be a conflict of views between the two decisions of the Supreme Court. The majority decision in Liberty Cinema's case appears to have rested more on the fact that the levy was only Rs. 5 per show in a house.
19. In our Judgment, under the scheme of the Act there is a clear distinction made between taxes properly so-called, and licence fees. The power of levying licence fees conferred by sub-section (4) of Section 256 on Municipal Councils is referable to the power of regulation of trades and in exertion of that power the Municipal Council is not competent to impose fees for purpose of revenue. The fee levied has admittedly no correlation to the cost of issuing licences and the cost of inspection and supervision. The levy is a tax in disguise on shops and other places of business falling under Section 94(1)(xi) of the Act. No tax can be levied without following the procedure laid down in Section 95 to 97 of the Act. Therefore, the impugned levy is illegal and ultra vires of the powers of the Act.
20. For the reasons stated above, we declared that the impugned levy under the Notification dated 31st August, 1968 on radio dealers is illegal and ultra vires of the Act and issue a writ in the nature of mandamus directing respondents 1 and 2 to forbear from enforcing the same against the petitioner.
In the circumstances, there will be no order as to costs.