Holding

The proviso to Section 127‑A(2)(b) is ultra vires the charging provision and cannot be used to levy tax on properties exempt under the Act, as no tax rate is prescribed for such properties.

Summary

The appellants, joint owners of thirteen houses, were assessed a property tax by the Raigarh Municipal Council under the Madhya Pradesh Municipalities Act, 1961, which aggregated the annual letting values of all their properties and taxed the aggregate despite each property’s individual letting value being below Rs.1,800, the statutory exemption threshold. The lower court quashed the assessment, but the district court reinstated it, and the High Court upheld the assessment, relying on earlier decisions. The Supreme Court examined whether the proviso to Section 127‑A(2)(b) permitting aggregation could constitutionally override the exemption provision and whether such aggregation could lawfully determine a tax rate for properties otherwise exempt. It held that the plain language of the Act shows no rate for properties with letting value below Rs.1,800, and that the proviso cannot be read to create a tax liability absent a clear charging provision, rendering the proviso ultra vires. Consequently, the Court struck down the proviso and set aside the High Court’s order, allowing the appeal.

Issues considered

Whether the proviso to Section 127‑A(2)(b) of the Madhya Pradesh Municipalities Act, 1961, which aggregates the annual letting value of exempt properties with other properties, is constitutionally valid.
Whether aggregation of annual letting values can render a property, whose individual letting value is below Rs.1,800, liable to tax in the absence of a prescribed tax rate.
Whether the provision violates the principle of tax legislation that the tax must be clearly defined in terms of subject, liable person, and rate.

Legislation cited

Constitution of Indias. Article 265

Subjects

property taxaggregation of letting valueexemption thresholdinterpretation of tax statutesultra viresmunicipal taxationArticle 265legislative intent

Judgment

MA THURAM AGRA WAL A
v.
STATE OF MADHYA PRADESH

OCTOBER 28, 1999

[S.P. BHARUCHA, B.N. KIRPAL, V.N. KHARE, SYED SHAH B
MOHAMMED QUADRI AND D.P. MOHAPATRA, JJ.]

Municipalities:

MP. Municipalities Act, 1961: Section 127-A(2)(b) proviso. c
Property tax-Rate of-Annual letting value-Less than Rs. 1800-Not

.. prescribed-Levy of-By aggregating annual letting value of all properties
owned by assessee-Permissibility of-Held: Not permissible since such
aggregating may result at a figure which is higher than the value of the
property itself-Such is not the intention of the legislature in the absence of D
a specific provision in the charging Section-Hence, proviso to Section 127-
A(2)(b) struck down being ultra vires the charging Section-Thus the High
Court erred in confirming the assessment order and dismissing·the assessee's
writ petition.

Constitution of India, I950: Article 265. E

Taxing Statutes-Tax law-Ambiguity-Effect-Components of-Held:
(i) subject of tax; (ii) person who is liable to pay tax and (iii) rate at which
tax has to be paid-If there is any ambiguity with regard to these ingredients,
there is no tax in law-It is for the legislature to do the needful in the F
matter-Further, in a taxing Act no intention or governing purpose beyond
that stated in plain language can be assumed-Economic results expected
in a particular taxing provision not relevant in interpreting a fiscal statute-
Interpretation of Statutes.

The appellant and respondents 4 to 7 were joint owners of 13 separate G
items of house properties situated in a Municipal area. The assessment
proceedings for levy of property tax in respect of the aforesaid properties were
initiated by the Municipal Council under the M.P. Municipalities Act, 1961.
The Municipal Council invoked the proviso to Section 127-A(l)(b) of the Act
by aggregating the annual letting value of all the buildings and levied property H
195
196 SUPREME COURT REPORTS [1999] SUPP. 4 S.C.R.

A tax on the deemed letting value so aggregated.
The appellant and respondents 4 to 7 filed an appeal under Section 139
of the Act before the Civil Judge who allowed the appeal and quashed the
assessment order and the demand notice. However, the District Judge allowed
the revision petition preferred by the Municipal Council.
B
Thereafter the appellant and respondents 4 to 7 filed a writ petition
before the High Court challenging the constitutional validity of the proviso to
Section 127-A(2)(b) of the Act and also the assessment order on the ground
that it was not in conformity with the provisions of the Act. The High Court
C rejected the contentions and confirmed the assessment order relying on
Dattatraya Dahan/car's case and Leelawati Mishra 's case. Hence this appeal.

Allowing the appeal, the Court

HELD: 1. As the annual letting value of the property escalates the rate
D of tax increases. The very fact that no rate of tax is prescribed in the Table
for a property the annual letting value of which is less than Rs. 1,800 clearly
indicates the intention of the Legislature not to levy the tax on such properties.
This position is further clarified in Section 127-A(2)(b) of the M.P.
Municipalities Act, 1961 in which it is laid down that house, buildings and
lands, the annual letting value of which does not exceed Rs. 1,800, are exempt
E from property tax. (201-H; 202-A-B)
2.1. The intention of the Legislature in a taxation statute is to be gathered
from the language of the provisions particularly where the language is plain
and unambiguous. In a taxing Act it is not possible to assume any intention
F or governing purpose of the statute more than what is stated in the plain
language. It is not the economic results sought to be obtained by making the
provision, which is relevant in interpreting a fiscal statute. Equally
impermissible is an interpretation, which does not follow from the plain and
unambiguous language of the statute. Words cannot be added to or substituted
so as to give a meaning to the statute, which will serve the spirit and intention
G of the legislature. The statute should clearly and unambiguously convey the
three components of the tax law i.e. the subject of the tax, the person who is
liable to pay the tax and the rate at which the tax is to be paid. If there is any
ambiguity regarding any of these ingredients in a taxation statute then there
is no tax in law. Then it is for the legislature to do the needful in the matter.
H (202-F, G, H; 203-A, BJ
MATHURAMAGRAWALv.STATE [D.P.MOHAPATRA,J.) 197
/RC v. Duke of Westminster, (1936) AC 1 and Russel (Inspector o/Taxes) A
·· v. Scott, (1948) All ER I, referred to.

2.2. The proviso to Section 127-A(2)(b) of the Act requires the exempted
property to be subjected to tax and for the purpose ofvalulng that property
alone the value of the other properties is to be taken into consideration. But, B
if in doing so, the said property becomes taxable, the Act does not provide at
what rate it would be taxable. One cannot determine the ratable value of the
small property by aggregating and adding the value of other properties, and
arrive at a figure which is more than possibly the value of the property itself.
Moreover, what rate of tax is to be applied to such a property is also not
indicated. (202-F; 204-C, DJ C

2.3. There may be a ca~e where a person owns 10 buildings, 8 of which
are small ones fetching annual rental value of:Rs. 1,500 each and the other
2 fetching annual rental value of Rs. 60,000-each; then applying the ratio of
Dattatraya Dahankar 's case the annual rental value of each of the small
buildings will come to Rs. I, 32,000 and the owner will have to pay tax D
according to the highest slab for each building. Such an intention on the part
of the legislature cannot be accepted, particularly in the absence of a specific
provision in the charging Section. Hence, the proviso to Section 127-A(2)(b)
;: of the Act being contrary to the charging Section is struck down as ultra
vires. (204-E, F) E

Administrator, Municipal Corporation, Bilaspur v. Dattatraya Dahankar,
(1992) l SCC 361 and Leelawati Mishra v. President, Municipal Committee,
Mungao/i, (1990) MPLJ 28, MP overruled.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1990 of F
1995.

From the Judgment and Order dated 13.10.93 of the Madhya Pradesh
High Court in M.P. No. 2188of1993.
G
B. Sen, Prakash Shrivastava and Ms. Pratibha Jain for the Appellant.
-·
A.K. Chitale, Ms. Madhur Dadlani and S.K. Agnihotri for the Respondent.

The Judgment of the Court was delivered by
H
198 SUPREME COURT REPORTS (1999] SUPP. 4 S.C.R.

A D.P. MOHAPATRA, J. This case calls in question the vires ofprov'iso
to clause (b) of sub-section (2) of Section 127-A of Madhya Pradesh
Municipalities Act, 1961 (for short the 'Act') and the levy and collection of ·.
property tax in respect of the buildings owned by the appellant.
' .
B The relevant facts of the case, shorn of unnecessary details, may be
stated 'as under:

The appellant and respondents 4 to 7 are joint owners of I 3 separate
items of house properties bearing No. 56/2(1) to 56(2)/13 situated in ward No.
15 of Raigarh Municipal area. The assessment proceeding for the purpose of
C levying property tax was initiated under the provisions of the Madhya
Pradesh Municipalities Act, 196 I (M.P. Act No. 37of1961) (hereinafter referred
to as 'the Act') by the Municipal Council, Raigarh, respondent no.2 herein.
The Municipality purporting to invoke the proviso to the section 127-A(2) of
the Act aggregated the annual letting value of all the buildings and levied
property tax on the deemed annual letting value so aggregated. The assessment
D order was followed by the demand notice.

Feeling aggrieved by the levy and collection of property tax in the
manner aforementioned, the appellant and respondents 4 to 7 preferred appeal
under Section 139 of the Act before the Civil Judge Class-II, Raigarh. The
E appellate authority allowed the appeal and quashed the assessment order and
the demand notice. On a revision petition being filed by the Municipality the
District Judge, Raigarh allowed the revision, set aside the order of the appellate
authority and confirmed the order of assessment made by the concerned
authority.

p The appellant and. the respondents 4 to 7 filed the Writ Petition in the
High Court of Madhya Pradesh challenging the order of assessment, inter
alia, on the grounds that it was not in conformity with the provisions of the
Act. They also challenged the constitutional validity of the proviso to sub-
clause (b) of Section 127(A) (2) of the Act. By the impugned judgment a
Division Bench of the High Court rejected the contentions raised by the
G petitioners including the challenge to the constitutional validity of the proviso
to Seqtion 127(A)(2) and confirmed the assessment order of the municipality
and dismissed the writ petition. The High Court placed reliance mainly on the
decision of this Court in Administrator Municipal Corporation, Bilaspur v.
Dattatraya Dahankar, Advocate and Anr., [1992] 1 SCC 361 and its own
H decision in the case of Leelawati Mishra and Ors. v. President, Municipal
MATHURAM AGRAWAL v. STATE [D.P. MOHAPATRA, J.] 199
Committee, Mungaoli, ( 1990) M.P.L.J. 28. Thereafter one of the petitioners in A
the Writ Petition, Mathurarn Agrawal, filed this appeal challenging the judgment
of the High Court.

When the case was taken up by a Bench of two learned Judges of
this Court a submission was made on behalf of the petitioner that in the light
of the decision of this Court in the case of Administrator, Municipal B
Corporation, Bilaspur (Supra) decided by a Bench of three learned Judges of
this Court construing Section 127(1)(2) of the Act the question as to the
constitutional validity of that proviso arises for consideration. Taking note of
the said submission the bench passed the order dated 13.2.95, relevant
portion of which reads as follows: C
"In view of the construction made by a Bench of three learned Judges
in the above quoted decision, the question of considering the
constitutional validity of the provision does arise. However, the
question for consideration also is whether the alternative construction
which would support the constitutional validity of the provision is D
to be preferred and is also available on the language of the statute.
It is, therefore, appropriate that the matter is considered by a Bench
of five learned Judges."

The question that arises for consideration is when several items of
properties (houses, buildings or lands) within the municipality, the annual E
letting value of each of which dose not exceed Rs. 1,800 per annum, are
owned by one person, then, is the owner liable to pay property tax for such
properties.

Since determination of the question largely depends on interpretation
of Section 127 (A) and its interaction with other relevant provisions of the F
Act it would be convenient to quote the relevant statutory provisions before
proceeding to consider the merits of the case.

S.126 Definition of annual letting value - In this Chapter, the
expression "annual letting value" shall mean:

(i) where any building or land is let out, the annual rent for which G
it is actually let out;
(ii) where the rent of any building has been determined under the
Madhya Pradesh Accommodation Control Act, 1955 (23of1955),
the annual rent as so determined; and
H
200 SUPREME COURT REPORTS (1999] SUPP. 4 S.C.R.

A (iii) in any other case, the annual rent for which any building or land
exclusive of furniture or machinery contained or situated therein
or thereon, might reasonably be expected to let from year to year,
and shall include any payment made or agreed to be made by
a tenant to the owner of the building or land on account of
occupation taxes, insurance or other charges incidental to the
B tenancy;
Provided that if it appears to the Council that the annual rent
of any building or land is much lower than the annual rent for
which it might reasonably be expected to let at the time of
assessment, such letter rent shall be deemed to be the annual
c letting value in respect of such building or land."
Section 127 reads as follows:
"127 Taxes which may be imposed (I) A Council may, from time
to time and subject to the i>rovisions of this Chapter, and any general
D or· Special order which the State Government may make in this
behalf, impose in the whole or in any part of the Municipality any
of the following taxes, for the purposes of the Act, namely:-
(i) a tax payable by the owner of houses, buildings or lands situated
within the limits of Municipality with reference to annual letting
E value of the house, building or land called property tax:
127(A) Imposition of property tax (1) Notwithstanding anything
· contained in this Chapter, as and from the financial year
1976-77, there shall be charged, levied and paid for each
financial year a tax on the lands or buildings or both situate in
a Municipality other than Class IV Municipality at the rate
F specified in the table below:
TABLE
(i) where the annual letting . value 6 per centum of the annual
exceeds Rs. 1800 but does not letting value
G exceed Rs. 6000
(u) where the annual letting value 8 1/3 per centum of the
exceeds Rs. 6000 but does not annual letting value
exceed Rs. 12000
H (tit) where the annual letting value I0 per centum of the annual
(
MATHURAMAGRAWAL v. STATE [D.P. MOHAPATRA, J.] 201

exceeds Rs. 12000 but does not letting value A
exceed Rs. 18000

(iv) where the· annual letting value 15 per centum of the annual
exceeds Rs. 18000 but does not letting value
exceed Rs. 24000
B
(v) where the annual letting value 20 per centum of the annual
exceeds Rs. 24000 letting value

(2) The property tax levied under sub-section (1) shall not be
leviable in respect of the following properties, namely:-

(a) building and lands owned by or vesting in- c
(i) the Union Government

(ii) the State Government;

(iii) the Council;
D
(b) buildings and lands the annual letting value of which does
not exceed eighteen hundred rupees:

Provided that if any such building or land in the ownership of a
person who owns any other building or land in the same Municipality,
the annual letting value of such building or land shall for the purpose E
of this clause, be deemed to be the aggregate annual letting value of
all buildings or lands owned by him in the Municipality.
(Emphasis supplied)

xxx xxx xxx"
F
From the statutory provisions quoted above it is clear that the incidence
of the tax is the house, building or land situated within the limits of the
municipality. The tax is to be paid by the owner(s) of the house, building
or land. The amount of tax to be paid by the owner(s) is to be determined
with reference to the annual letting value of the house, building or land in G
question. The manner of determination of the annual letting value is
prescribed in section 126 of the Act. The Table in Section 127, which
provides for the rate at which the tax is to be levied, starts with property the
annual letting value of which exceeds Rs. 1,800 per annum but does not
exceed Rs. 6,000, and in such a case the tax is to be levied at 6 per centum
of the annual letting value. As the annual letting value of the property . H
202 SUPREME COURT REPORTS (1999) SUPP. 4 S.C.R.

A escalates the rate of tax increases. The very fact that no rate of tax is
prescribed in the Table for a property the annual letting value of which is Jess
than Rs. 1800 clearly indicates the intention of the Legislature not to levy the
tax on such properties. This position is further clarified in clause (b) of sub-
section(!) of Section 127 in which it is laid down that house, building and
B lands annual letting value of which does not exceed Rs. 1800 are exempt from
property tax.

On a fair reading of the proviso to section 127 (A)(2)(b) it is clear that
in respect of any building or land whose letting value is less than Rs. 1800
which is owned by a person who owns any other building or land in the same
C municipality, the annual letting value of such ·building or land shall be
deemed to be the aggregate annual letting value of all building or lands
owned by him in the municipality. The provision also makes it clear that
this exception is meant for the purpose of this clause i.e., clause (b) of sub-
section (2). It follows, therefore, that the exemption to the levy under sub-
section (I) of section 127(A) will not be available in a situation to which
D the proviso applies.

Then the further question for determination is whether such a building
or land, annual letting value of which does not exceed Rs. 1800, automatically
becomes liable for payment of tax and if so what is the rate of tax in such
E a case. The provision in sub-section (I) of section 127(A), which is a charging
.section, makes no provision regarding the rate at which the tax is to be paid
in case the building or land in question annual letting value of which is less
than Rs. 1800 is to be taxed.

Another question that arises for consideration in this connection is
F whether sub-section (!) of Section 127-A and the proviso to sub-section 2
(b) should be construed together and the annual letting values of all the
buildings owned by a person to be taken together for determining the
amount to be paid as tax in respect of each building. In our considered view
this position cannot be accepted. The intention of the Legislature in a
taxation statute is to be gathered from the language of the provisions
G particularly where the language is plain and unambiguous. In a taxing Act
it is not possible to assume any intention or governing purpose of the statute
more than what is stated in the plain language. It is not the economic results
sought to be obtained by making the provision which is relevant in
interpreting a fiscal statute. Equally impermissible is an interpretation which
H does not follow from the plain, unambiguous language of the statute. Words
MATHURAMAGRAWALv. STATE [D.P. MOHAPATRA,J.] 203
cannot be added to or substituted so as to give a meaning to the statute A
which will serve the spirit and intention of the legislature. The statute should
clearly and unambiguously convey the three components of the tax law i.e.,
the subject of the tax, the person who is liable to pay the tax and the rate
at which the tax is to be paid. If there is any ambiguity regarding any of
these ingredients in a taxation statute then there is no tax in law. Then it B
is for the legislature to do the needful in the matter.

In the case of Bank of Chettinad Ltd v. Commissioner of Income-tax,
Madras, the Privy Council quoted with approval the following passage from
the opinion of Lord Russel of Killowen in Inland Revenue Commissioners v.
Duke of Westminster, (1936) A.C. I: C
"I 'confess that I view with disfavour the doctrine that in taxation
. cases the subject is to be taxed if in accordance with a Court's view
of what it considers the substance of the transaction, the Court thinks
that the case falls within the contemplation or spirit of the statute. The
subject is not taxable by inference or by analogy, but only by the D
plain words of a statute applicable to the facts and circumstances of
his case. As Lord Cairns said many years ago in (1869) 4 H L 100(2)
at p. 122: "As I understand the principle of all fiscal legislation it is
this" If the person sought to be taxed comes within the letter of the
law he must be taxed, however great the hardship may appear to the
judicial mind to be. On the other hand ifthe Crown, seeking to recover E
the tax, cannot bring the subject within the letter of the law, the
subject is free, however, apparently within the spirit of the law the
case might otherwise appear to be."

In the case of RUSSEL (INSPECTOR OF TAXES) v. SCOTT. 1948 The p
All England Law Reports page I, Lord Simonds in his opinion at page 5
observed:

"My Lords, there is a maxim of income tax law which, though it may
sometimes be over-stressed, yet ought not to be forgotten. It is that
the subject is not to be taxed unless the words of the taxing statute G
unambiguously impose the tax on him. It is necessary that this
maxim should on occasion be reasserted and this is such an occasion."
I
In Administrator, Municipal Corporation, Bilaspur v. Dattatraya
Dahankar, Advocate and another (supra) this Court while accepting the
position that each building is a unit for the purpose of taxation and that there H
204 SUPREME COURT REPORTS [1999) SUPP. 4 S.C.R.

A is no provision for taxation in respect of a building having annual letting
value less than Rs. 1800 and that the deeming proviso to clause (b) of sub-
section (2) as expressly stated is "for the purpose of this claluse", held that
since the aggregation of annual letting value of all buildings or lands is
permitted, then, all such buildings or lands have to be taken as one unit for
B the purpose of taxation. The Court was of the view that any other construction
would render the proviso nugatory and defeat the object of the Act.

This construction, in our considered view, amounts to supplementing
the charging section by including something which the provision does not
state. The construction placed on the said provision does not flow from the
C plain language of the provision. The proviso requires the exempted property
to be subjected to tax and for the purpose of valuing that property alone the
value of the other properties is to be taken into consideration. But, if in doing
so, the said property becomes taxable, the Act does not provide at what rate
it would be taxable. One cannot determine the ratable value of the small
property, by aggregating and adding the value of other properties, and arrive
D at a figure which is more than possibly the value of the property itself.
Moreover, what rate of tax is to be applied to such a property is also not
indicated.

Take, for instance, a case where a person owns I 0 buildings, 8 of which
are small ones fetching annual rental value of Rs. 1,500 each and the other
E 2 fetch annual rental value of Rs. 60, 000 each; then applying the ratio of
Administrator Municipal Corporation, Bilaspur (supra) the annual rental value
of each of the small buildings will come to Rs. 1, 32,000 and the owner will
have to pay tax according to the highest slab for each building. Such an
intention on the part of the legislature cannot be accepted, particularly in the
F absence of specific provision in the charging section.

Jn view of the discussions in the foregoing paragraphs the proviso to
clause (b) ofsub-section(2) of section 127-A of the Act being contrary to the
charging section is struck-down as ultra vires.

G The appeal is allowed and the judgment of the High Court under
challenge is set aside. There will, however, be no order as to costs.

v.s.s. Appeal allowed.