Holding

A classification made by a taxing authority, even if not the most refined, is a permissible exercise of legislative discretion and does not violate Article 14; therefore the 1993 Assessment Rules and the two notifications are valid.

Summary

The State of Bihar and the Patna Municipal Corporation challenged the validity of the Assessment of Annual Rental Value of Holding Rules, 1993 and two notifications issued by the corporation, which classified holdings by road categories and type of construction and fixed rental rates per square foot. The Patna High Court struck down clauses (a) and (c) of sub‑rule (1) of Rule 3 and declared the notifications unconstitutional under Article 14. The Supreme Court held that a mere possibility of a better classification does not render a statutory classification invalid, especially in taxation, and that the classifications, though not exhaustive, are a permissible exercise of legislative discretion. It further observed that the rules reduced the tax burden and did not amount to hostile discrimination. Consequently, the High Court’s order was set aside and the rules and notifications were upheld. The appeal was allowed.

Issues considered

The clauses (a) and (c) of sub‑rule (1) of Rule 3 of the 1993 Assessment Rules violate Article 14 of the Constitution.
The notifications issued under Rules 3(2) and 5(1) are ultra vires Sections 123 and 130 of the Patna Municipal Corporation Act.
Whether a classification that is not the most refined possible can be struck down as arbitrary or discriminatory.
Whether the reduction in tax rates and the method of assessing annual rental value infringe the equality clause.

Legislation cited

Patna Municipal Corporation Acts. 123, s. 124, s. 130, s. 134, s. 136, s. 150, s. 227

Subjects

Article 14Equality clauseTaxationClassificationMunicipal corporationAssessment of annual rental valueStatutory validityJudicial reviewPatna Municipal Corporation Act

Judgment

(

A STATE OF BIHAR AND ORS.
v.
SACHCHlDANAND KISHORE PRASAD SINHA AND ORS. "'· .
JANUARY 16, 1995
r
B [B.P. JEEVAN REDDY AND SUJATA V. MANOHAR, JJ.]

Constitution of India-Art. 14--Assessment of Annual Rental Value of _.._
Holding Rules, 1993-Rule 3(1)(a) and (c)--Patna Municipal Corporation
Act-Classification of holding-Notification issued under Rule 3(2) classifying
c "road''-Notification under Rule 5(1) specifying rates of rental value-
Validity--Plinciples applicable in case of taxing enactments and Art. 14--Clas-
siftcation made by Municipal Corporation-A mere possibility of a better clas-
siftcation- No ground to strike dbwn classification made by Rule as
discliminatory-Order of High Court striking down clauses (a) & (c) of sub-
mle ( 1) of Rule 3 and also two notification as violative of equality clause-in-
D supportable in law.
_, .,.,
Having regard to various factors under the scheme of taxation in
vogue till the Assessment of Annual Rental Value of Holding Rules, 1993
came into force the government felt that the system provided ample room
for corruption and arbitrariness. With a view to eliminate such abuse.
E
corruption or arbitrariness that the 1993 Rules were made and notified in
the Bihar Gazette. After publication of the same the Patna Corporation
issued two notifcations dated September 8, 1992. Under the first notifica-
tion issued under Rule 3(2), the Corporation classified the roads in Patna
city into three categories. In the second notification issued under Rule 5(1), ~I
F the Corporation has specified the rates of rental value per square foot
depending upon the situation, use and nature of construction of the
holdings.

The validity of the 1993 Rules was challenged. The High Court struck
G down clauses (a) and (c) of sub-rule m of Rule 3 as being violative of the
equality clause enshrined in Article 14 of the Constitution of India. The
High Court held that the classifications made under Rule 3(1), in the case
roads and in the case of types of construction were wholly inadequate and
incomplete and were therefore bound to lead to the result quite unrelated
to the actual letting value of the holdings. Thi.! High Court suggested an
H enlargement of the classification. It was then held that the division of the
256
~·.
STATE v. S.K. SINHA 257

municipal corporation area with reference to roads was bad and that it A
should have been done on the basis of zones. Regarding the two notifica-
tions, the High Court found that they were equally indicative of the slip
shod manner in which the scheme was sought to be implemented. It was
held that so far as the notification issued under Rule 5(1) was concerned,
the counter affidavit did not disclose the objective materials that went into
consideration for determining the rates. B

Dealing with the notification issued umlrr rule 3, the High Court
observed that the classification suffered from complete non-application of
mind to the details. Accordingly, both the notifications were declared bad
-~d inoperative. This appeal was filed against the order of the High Court. C

Allowing the appeal, this Court

HELD : 1.1. A mere possibility of a better classification is no ground
to strike down the classification made by the statutory authority, more
particularly in the case of a taxing enactment. Saying so would be to deny D
~ ,._ the range of selection and freedom in appraisal not only in the objections
and manner of taxation but also in the determination of the rate or rates
applicable. The objection that the municipal corporation are ought to have
been divided on the basis of zones and not on the basis of the roads is also
not a ground upon which the court could have invalidated the rule. E
[269-E-F]
1.2. The division with reference to roads was not shown to amount to
hostile treatment. In case of such classification, there will always be some
instances where one gets an advantage and other suffers a disadvantage but
that is no ground for invalidating a statute and more particularly a taxing F
statute. The merit of the Assessment Rules. 1993, is that they rid the
house-owners of the harassment and the constant threat of revision of
annual rental value by the concerned official of the corporation. Unless
found to be offending the constitutional or statutory provisions, it must be
allowed to be worked out. One should start with the presumption that the
Corporation knows what is the better method of classification. It has chosen G
to divide it with reference to roads. It is difficult for the court to substitute
~ its opinion for that of the Corporation nor can any one guarantee that if the
municipal corporation area is divided on the basis of zones its will be a
perfect classification and would eliminate all complaints and grievances of
differential treatment. It is because of the inherent complex nature of H
/
-~

258 SUPREME COURT REPORTS [1995] 1 S.C.R.

A taxation that a greater latitude and larger elbow room is conceded to the
legislature, or its delegate, as the case may be, in such matters.
(269-G-H, 270-A-D] ,,, ,....
1.3. The grounds upon which the notifications have been invalidated
are unsustainable in law. Whereas the percentage of taxation under the
B previous system of taxation was about 43.75% it had been reduce to 9%
only. While putting the method of determination of annual rental value on
a more uniform basis eliminating room for arbitrariness and corruption,
the Corporation has substantially reduced the rate of tax. Taking the
instance of a single holding and invalidating the notificatioin on that basis
C was not a correct approach. (272-B-C]

Twyfford Tea Company Limited v. State of Kerala, (1970] 3 SCR 383;
R.K. Garg v. Union of India, (1982] 1 SCR 947; Secretary of Agriculture
Central Reig Refining Company 94 L. Ed. 381; State of Maharashtra v. M.B.
Badiya, (1988] Suppl. 2 SCR 482; Income Tax Officer, Shillong and Anr.
D Etc. v. N. Takim Roy Rymbai etc. etc.; Mrs. Meenakslti and Others v. State
of Kamataka; Anant Mills Co. Ltd. v. State of Gujarat and Ors; Khandige
Sham Bhat and Ors. v. The Agricultural Income-Tax Officer, The State of
Jammu and Kashmir v. Triloki Nath Khosa and Ors., AIR (1974) SC-1;
Khandige Sham Bhat v. Agrl. I. T. Officer, (1963) 3 SCR 809; P.M. Ash-
wathanarayana Setty v. State of Kamataka (1989) Suppl. 1 696; G.K Krishna
E v. State of Tamil Nadu, (1975) 1 SCC 375 and San Antonio Independent
School District v. Rodriquez, 39 L.Ed. 2d. 16, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 772 of
1995.

F From the Judgment and Order dated 4.3.94 of the Patna High Court
in C.W.J.C. No. 11234 of 1993.

S.B. Sanyal and B.B. Singh for the Appellants.

S. Muralidhar for the Resrondents.
G
The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. Leave granted. Heard counsel for the
parties.

H This appeal is preferred against the judgment of the Patna High
STATE v. S.K. SINHA [JEEVAN REDDY, J.] 259

Court striking down clauses (a) and (c) of sub-rule(l) of Rule 3 of the A
Assessment of Annual Rental Value of Holding Rules, 1993 (hereinafter
referred to as "Assessment Rules") framed by the State Government under
Section 227 read with Section 130 of the Patna Municipal Corporation Act
and the two notifications issued by the Patna Municipal Corporation under
Rules 3 and 5 of the said Rules. The High Court is of the opinion that the
said clauses offend the equality clause enshrined in Article 14 of the B
Constitution of India.

Sub-section (1) of Section 123 of the Municipal Corporation Act
empowers the corporation to impose, with the previous approval of the
State Government, the taxes mentioned under clauses (a) to (p) of the said
sub-section. We are concerned herein with the taxes mentioned under C
clauses (a), (b) and (c), viz., "(a) a tax on holdings situated within Patna
as$essed on their letting value; (b) a water tax assessed on the annual letting
value of holdings; and (c) a latrine tax assessed on the annual letting value
of holdings". Section 124 prescribes the ceiling beyond which the tax on
holdings shall not be imposed. The ceiling prescribed is twelve and a half D
per cent of the annual value of the holdings. Section 130 defines the
- >- expression "annual value of holdings" occurring in sub-section (1) of Sec-
tion 124. Sub-section (1) of Section 130 says that "save as may be prescribed
by the rules made by the State Government, the annual value of a holding
shall be deemed to be the gross annual rental at which the holding may
reasonably be expected to let". Sub-section (2) deals with a situation where E
there is a building or buildings on a holding and the actual cost of erection
of the same can be ascertained and which building (s) is not intended for
letting or for the residence of the owner himself, the annual value of such
holding shall be deemed to be an amount which may, subject to the rules
made by the Government, be equal to but not exceed twelve and a half per
cent of such cost in addition to a reasonable ground rent for the land F
comprised in the building. ·sub-section (3) says that the value of any
machinery or furniture which may be a holdiµg shall not be taken into
consideration in estimating the annual value of a holding. Section 136
prescribes the procedure following which the corporation s~all determine
the percentage of the valuation of holding at which tax on holdings shall G
be levied. It says that subject to provisions of Section 124, the corporation
shall, at a meeting to be held before the close of the year preceding the
relevant year, determine the percentage of the valuation of holdings at
which the tax shall be levied. This has to be done after calling for a report
from the Chief Executive Officer and the standing committee and after
H
J
260 SUPREME COURT REPORTS (1995) 1 S.C.R.

A considering the same. The percentage so fixed shall remain in force until
the corporation decides otherwise. (The High Court observes in the judg-
ment under appeal that under the scheme of taxation in vogue till the
Assessment Rules, 1993 came into force, the rate of taxation had already
reached the maximum prescribed rates.) Once the tax is assessed in respect
of a holding, it is open to the person dissatisfied with the assessment or
B with the valuation to apply to the Chief Executive Officer or other officer
empowered in that behalf by the State Government for a review of the
assessment or valuation or to exempt him from the assessment or the tax
(vide Section 150). Section 227 confers upon the State Gvoernment the
power to make rules as to taxation. According to the rules (framed under
C Section 227 read with Section 130) in force prior to the coming into force
of the Assessment Rules. 1993, the annual letting value (which is the basis
for levying tax on holdings, water tax and latrine tax) was to be determined
separately for each individual holding, having regard to various relevant
circumstances. The government felt that such a system provided ample
room for corruption and arbitrariness and, therefore, it thought of devising
D a system of taxation which would eliminate altogether any room for abuse,
corruption or arbitrariness. It is with this view that the 1993 Rules were
made and notified in the Bihar Gazette extra-ordinary dated August 12,
1993. A brief reference to these rules is necessary for a proper appreciation
__.,. -
of the contentions arising herein.

E Rule 2(b) defines "annual rental value" to mean the rent that a
holding is capable of fetheing over a period of one year. Clause (d) and
(e) of Rule 2 define the ,expression 'commercial holding' and 'industrial
holding' respectively. Rule 3, which is the rule most relevant for our
purposes, provides for ~lassification .of holdings. It reads as follows :
F 3" Classification of holding-- (1) The holding in the Corporation
area shall be classified by the Corporation on the following criteria:

(a) Situation of the holding:

G (i) Holdings on the Principal Main Road.

(ii) Holdings on the Main Road.

H
(iii) Holdings other than sub-clauses (i) and (ii).

(b) Use of the Holding:
-
STATE v. S.K. SINHA[JEEVAN l;lEDDY,J.] 261

(i) Purely residential; A

- )
(ii) Purely commercial or industrial (whether self owned or
otherwise);

(iii) partly residential and partly commercial/industrial;
B
(iv) All holdings other than sub-clauses (i), (ii)alld (iii).

.. (c) Type of construction:

(i) Pucca building with R.C.C. roof.

(ii) Pucca building with asbestos/corrugated sheet roof.
c
(iii) All other buildings not covered in sub-clauses (i) and (iii).

2. Subject to the approval of the State Government the Corporation
may from time to him, publish the list of Principal main roads as D
well as main roads and if necessary modify the lists of the purposes
of these Rules."

Rule 4 provides the manner in which the carpet area has to be
calculated. Rule 5 empowers the corporation to fix the rental value and
annual rental value. Sub-rule(l) says "the rate of rental value per square E
foot shall be fixed by the corporation with the prior approval of the State
Government having regard to the situation, use and the type of construe-
tion of the holdings". Sub-rule (2) of Rule 5 says that the annual rental
value shall be computed as a multiple of the carpet area and the rental
value fixed under sub-rule (1) while sub-rule (3) says that the "rental value
F
per square foot of the carpet area for different classes of holding shall be
published from time to time by the corporation with the prior approval of
the State Government". Rule 6 prescribes the rate of tax. It reads thus :

"6. Rate of tax--Tax shall be assessed on the basis of Annual value
on the following rates: - G

.,..,, 1. Holding Tax--at the rate of 2.5 percent of Annual Rental Value .

\ 2. Water Tax--at the rate of 2% of Annual Rental Value.

3. Latrine Tax--at the rate of 2% of Annual Rental Value." H
262 SUPREME COURT REPORTS [1995) 1 S.C!R.

A Rule 7 empowers the corporation to revise the rate of tax on Annual
Rental Value (A.RV.) with the prior approval of the State Government
whereas Rule 8 confers upon the State Government the power to remove 'f \.o..
difficulties in giving effect to the said rules.

After publication of the Assessment Rules, 1993 the corporation
B issued two notifications dated September 8, 1992, one under Rule 3(2) and
the other under Rule 5(1) of the said Rules. Under the first notification
issued under Rule 3(2), the corporation classified the several roads in
Patna city into three categories. Twenty four roads have been identified as
'Principal main roads', eighty eight have been identified as 'main roads'
C while the rest of the roads, streets, lanes bye-lanes, gullies, alleys not falling
under first two categories are placed in the third category. In the second
notification issued under Rule 5(1), the corporation has specified the rates
of rental value per square foot depending upon the situation, use and the
nature of contruction of the holdings. To mention a few, the rental value
D of a pucca building used for residential purpsoe and situated on a principal
a
main road is fixed at Rs. 18 per sq. ft., for building meant for commercial
use situated on a principal main road, the annual rental value is Rs. 54 per.
sq. ft.; the rental value of a residential building situated on a main road is
fixed at Rs. 12 pre sq ft. and that of a commercial building on a main road
at Rs. 36 per sq.ft.; the !'ental value of residential buildings on roads other
.t
E than principal main roads and main roads is fixed·at Rs. 6 per sq. ft. and
that of a commercial buildings at Rs. 16 per sq. ft.

Several contentions were urged by the writ petitioners (respondents
in this appeal) before the High Court, some of which were rejected by the
F High Court and some relegated to appeal and other remedies provided by
the Act. The court confined its attention to the validity of the Assessment
Rules, 1993. The grounds which appealed to the High Court and on the
basis of which clauses (a) and (c) of sub-ruJe (1) were struck down, may
best be sec out in the words of the High Court itself :

G "It appears to me that the impugned Assessment Rules were well
intended and contained the seeds of a good and reasonable idea
which unfortunately floundered for want of proper attention to the
details of the schemes. The main shortcoming of the Assessment
I
Rules is that the classifications made thereunder, either in case of
H roads or in case of types of constructions are wholly inadequa~e
STATEv. S.K.SINHA[JEEVANREDDY,J.] 263

and incomplete and are, therefore, bound to lead to results quite A
unrelated to the actual letting value of holdings. Had the
authorities paid proper attention to the details of the scheme, they
would have, perhaps, enlarged the classification regarding nature
of construction by adding more heads and sub-heads classifying
not only the types of construction of the structure but also taking
into account other features such as quality of finish, appeartenan-
B
ces, provisions, conveniences and facilities available with a holding.
Perhaps, classifying holdings into A, B and C classes depending
upon the quality of finish etc. in addition to the types of construc-
tion of the structure would have gone a long way in meeting the
challenge advanced by the petitioners. c
Similarly the three possible heads under which all the roads of
Patna are to be classified for determining the locational value of
holding is wholly incomplete to say the least. Perhaps, if the
authorities had taken care to divide the entire city into different D
zones or areas and had then proceeded to classify the roads,
streets, lanes and gullies in each zone, on an objective basis and
under a larger number of head then the petitioners' challenge
could have been easily met. The necessity to divided the city into
zones, in the case of Patna is best illustrated by Ashok Raj Path.
This road, over 10-12 kilometers long runs through the better part E
of the entire length or the city. It passes through the new parts of
the city where markets and shops and the main hospital and the
university are located and it also possess through the old and
congested ~ity where it narrows down considerably. In the
Corporation's notification the whole of Ashok Raj Path has been F
classified as 'principal main-road'. Now I find it difficult to accept
that all holding on this road (either in the commercial class .or in
the residential class) would have the same rental value regardless
of whether they are situated in the new city (commonly), known
as Bankinore) or in the old city (commonly known as Patna City).
In my view, a· road like Ashok Raj Path can only be headled G
properly by dividing the city into different zones.

However, as the relevant provisions contained in rules 3(1) (a)
and (c) stand at present I have no option but to hold and declare
that these infringe Article 14 of the Constitution and were ultra H
264 SUPREME COURT REPORTS [1995) 1 S.C.R.

A vires sections 123 and 130 of the Patna Municipality Corporation
Act."

The High Court then took up two notifications and found that they
are "equally indicative of the slip shod manner in which the scheme is
sought to be implemented" The High Court held that so far as the notifica-
B tion issued under Rules 5(1) is concerned, the counter-affidavit does not
disclose "the objective materials that went into consideration for determin-
ing the rates". It then referred to the property owned by the respondents
which was said to have been let out on a monthly rental of Rs. 1,200 (annual
rent of Rs. 14,400) whereas its annual rental value as per the impugned
c notifications would be Rs. 1,55,520. * The High Court observed that this
fact shows the enormous burden placed upon certain house-owners. Deal-
ing with the notification issued under Rule 3, the High Court observed
that the classification suffers from "complete inapplication of mind to the
details". It opined that classifying Hardinge Road as a principal main road
D and classifying Desh Ratan Marg (said to be the most prestigious road in
the town), Strand road, Circular road in the third category defies logic. It
observed, "the very basis said to have been adopted by the Corporation,
namely, intensity of traffic and commercial activity appears to be lop sided
and unreasonable" and proceeded to say "for consideration of space, I do
not propose to dilate on the question of classification of roads made by the
E Corporation; otherwise the classification appears to be so unreasonable
and arbitrary as to be summarily rejected. I only like to observe here that
classification for the purpose of taxing statute is a serious business and
must be undertaken seriously". Accordingly, both the notifications were
declared bad and inoperative. While concluding the High Court observed.:
F
"The idea of determining the annual rental value of a holding on
floor area basis may not be per se bad. It is also understandable
that this method has a number of practical advantages over the
existing mode of determination of annual rental value of the
holding. But before introducing the floor ara method great care
G must be taken in classification of holding and in the determination
of the rate of rental per square foot so that the annual rental value
reckoned by this method may at least approximately correspond

The High Court ought to have noticed that tax on the said holding at the rate of nine
per cent (tax on holding, water tax and latrine tax together) would be Rs. 13, 996.80p.,
H a fact set out in the counter filed by the corporation in the High Court.
STATE v. S.K. SINHA [JEEVAN REDDY, J.] 265

with the rental the holding may be reasonably expected to fetch in A
practice. Otherwise, the scheme cannot be held intra vires sections
123 and 13() of the Patna Municipal Corporation Act."

The State of Bihar and the Patna Municipal Corporation challenge
the correctness of the said holding in this a,ppeal. Sicne the rules and the
notifications have been struck down on the ground of Article 14 of the B
Constitution, it is but appropriate to remind ourselves of the relevant
principles applicable in the case of taxing enactments and Article 14.

In Twyford Tea Company Limited v. State of Kera/a, [1970] 3 S.C.R.
383, Hidayatullah, C.J. , speaking for the majority of the Constitution c
Bench, observed :

"This indicates a wide range of selection and freedom in appraisal
not only in the objects of taxation and the manner of taxation but
also in the determination of the rate or rates applicable .......... the
burdens of proving discrimination is aiways heavy and heavier still D
when a taxing statute is under attack. ..... the burden is on a person
complaining of discrimination. The burden is proving not possible
'inequality' but hostile 'uni;>qual' treatment. This is more so when
uniform taxes are levied".
E
In R.K. Garg v. Union of India, [1982] 1 S.C.R. 947, Bhagwati, J.,
speaking for the Constitution Bench, made the following oft-quoted obser-
vations:

"Now while considering the constitutional validity of a statute said
to be violative of Article 14, it is necessary to bear in mind certain F
well established principles which have been evolved by the courts
as rules of guidance in discharge of its constitutional function of
Judicial review. The first rule is that there is always a presumption
in favour of the constitutionality of a statute and the burden is
upon him who attacks it to show that there has been a clear G

..
transgression pf the constitutional principles ...... Another rule of
equal importance is that laws relating to economic activities should
be viewed with greater latitude than Jaws toughing civil rights such
as freedom of speech, religion etc. It has been said by no less a
person than Holmes, J. that the legislature should be allowed some
play in the joints, because it has to deal with complex problems H
,_
J
\

266 SUPREME COURT REPORTS (1995) 1 S.C.R.

A which do not admit of solution through any doctraire or straight
jacket formula and this is particularly true in case of legislation
dealing with economic matters, where, having regard to the nature
, "-

of the problems required to be dealt with, greater play in the joints
has to be allowed to the legislature. The court should feel more·
inclined to give judicial deference to legislature judgment in the
B field of economic regulation than in other areas where fundamental
human rights are involved ........ The court must always remember
that "legislation is directed to practical problems, that the
..t
economics mechanism is highly sensitive and complex, that many
problems are singular and contingent, that laws are not abstract
propositions and do not relate to abstract units and are not to be
c measured by abstract symmetry" that exact wisdom and nice adap-
tion of remedy are not always possible and that "judgment is largely
a prophecy based on meagre and uninterpreted experience". Every
legislation particularly in economic matters is essentially empiric
and it is based on experimentation or what one may call trial and
D error method and therefore it cannot provide for all possible
situations of anticipate all possible abuses. There may be crudities
and inequities in complicated experimental economic legislation
~
r
but on that account alone it cannot be struck down as invalid. The
courts cannot, as pointed out by the United States Supreme Court
in Secretary of Agricultural v. Central Reig Refining Company, (94
E Lawyers' Edition 381) be converted into tribunals for relief from
such crudities and inequities. There may even be possibilities of
abuse, but that too cannot of itself be a ground for invalidating the
legislation, because it is not possible for any legislature to an-

F
ticipate as if by some divine prescience, distortions and abuse of
its legislation which may be made by those subject to its provisions
and to provide against such distortions and abuses. Indeed, how-
ct· ....
ever great may be the care bestowed on its framing, it fa difficult
to conceive of a legislation which is not capable of being abused
by perverted human ingenuity. The Court must therefore adjudge
the constitutionality of such legislation by the generality of its
~
G provisions and not by its crudities or inequiii~s or by the pos-
sibilities of abuse of any of its provisions. If any crudities, inequities
or possibilities of abuse come to light, the legislature can always
step in and enact suitable amendatory legislation. That is the
essence of pragmatic approach which must guide and inspite the
legislature in dealing with complex economic issues".
.....
~

..
H
STATEv. S.K.SINHA[JEEVANREDDY,J.] 267

To the same effect are the observations of a division Bench in State A
of Maharashtra v. M.B. Badiya, [1988) Suppl. (2) SCR 482) wherein Sabyas-
chi Mukharji, J. observed :

"About discrimination it is well to remember that a taxation law
cannot claim immunity from the equality clause in Article 14 of B
the Constitution. But in view of the intrinsic complexity of fiscal
adjustments of diverse elements, a considerably wide discretion
and latitude in the matter of classification for taxation purpose is
permissible. See the observations of this Court in Income Tax
Officer, Shillong and Anr. etc. v. N. Takim Roy Rymbai etc. etc.,
(supra). Also see the observation in Mrs. Meenakshi and other v. C
State of Kamataka, (supra);Anant Mills Co. Ltd. v. State of Gujarat
& Ors., (supra) and Khandige Sham Bhat and Ors. v. The Agricul-
tural Income-tax Officer, (supra)."

We may also refer in this connection to the very perceptive observa- D
tions of Chandrachud, J. in The State of Jammu & Kashmir v. Triloki Nath
Khosa & Ors., A.l.R. (1974) S.C. 1. Adverting to the danger of indulging
in minute and micro-cosmic classifications, the learned Judge observed: "let
us not evolve, through imperceptible extensions, a theory of classification
which may subvert, perhaps submerge, the precious guarantee of equality.
The eminent spirit of an ideal society is equality and so we must not be E
left to ask in wonderment; that after all is the operational residue of
equality and equal opportunity?"

Let us examine the facts of this case in the light of the aforestated
+
principles. The main objection of the High Court to Rule 3(1) is that "the F
classifications made thereunder, either in case of roads or in case of types
of constructions are wholly inadequate and incomplete and are therefore
bound to lead to the result quite unrelated to the actual letting value of
the holdings". The High Court suggested an enlargeme:qt of the classifica-
tion; it opined: "perhaps classifying buildings into A, B and C classes,
depending upon the quality of finish etc. in addition to the type of con- G
struction of the structure would have gone a long way in meeting the
challenge advanced by the petitioners". The other criticism against the rule
is that the division of the municipal corporation area with reference to
roads is bad and that it should have been done zone-wise, i, e., on the basis
of zones. H
268 SUPREME COURT REPORTS [1995] 1 S.C.R.

A Taking the first criticism, the High Court does not say that the
classification made by the rule-making authority is bad. The rule has
divided the buildings into three categories on the basis of the type of
construction, viz., (i) pucca buildings with R.C.C. roof, (ii) pucca buildings
with asbestos/corrugated sheet roof and (iii) all other buildings not falling
under (i) and (ii). That this is a reasonable classification for the purposes
B of fixing different rates of tax is not disputed. What is said by the High
Court is that there should have been a further classification among these
three categories depending upon the quality of finish, appurtenances,
provisions, conveniences and facilities etc. The High Court is of the opinion
that all buildings in any one of the said three categories do not fetch the
C same rent and that the rent of a building depends upon several factors
mentioned by it and for that reason, the classification has been held to be
inadequate and incomplete. The question is whether the absence of further
classification on the basis suggested makes the classification made by the
Rule discriminatory and offensive to Article 14? We think not. This was
precisely the argument which was dealt with and rejected in Twyford Tea
D Company Limited. The contention was that the Act impugned therein
provided for "a uniform rate of tax per hectare which ever owner of a
named plantation has to pay irrespective of the extent or value of the
produce and therefore the law imposes a uniform tax burden on unequal's".
Repelling the argument, Hidayatullah, C.J., speaking for the majority,
stressed that in such cases "the burden is proving not possible 'inequality'
E but hostile 'unequal' treatment. This is more so when uniform taxes are
levied. It is not proved to us how the different plantations can be said to
be hostilely or unequally treated. A uniform wheel tax on care does not
take into account the value of the car, the mileage it runs, or in the case
of taxis, the profits it makes and the miles per gallon it delivers. An
Ambassador taxi and a Fiat taxi gives different outturns in terms of money
F
and mileage. Cinema pay the same show fee. We do not take a doctrinaire
view of equality. The le!iislature has obviously thought of equalising the tax
through a method which is inherent in the tax scheme. Nothing has been
said to show that there is inequality much less hostile treatment. All that
is said is that the state must demonstrate equality. That is not approach.
G At this rate nothing can ever be proved to be equal to another" (Emphasis
added).

It is one thing to suggest that the rule-making authority may consider
making a further distinction on the lines suggested and an altogether
H different thing to strike down the rule itself on the ground of inadequate
SJ'ATE v. S.K. SINHA [JEEVAN REDDY, J.] 269

classification. It is true that the rental value of building falling in any of the A
three categories will not be uniform. There would be any number of
distinguishing features even among, say, pucca buildings with R.C.C. roof
depending upon the quality of finish, the nature of fittings, the dimensions
of rooms, the type of material used in construction and so on and so forth.
.... It would be an endless quest. It would not be to draw the lines of B
distinction. It may not be possible to evolve a classification to cater to all
these several distinctions. Even if it is so evolved, not only would it be too
complex and elaborate, it would leave too much discretion to assessing
authorities, the elimination of which is one of the main objects of the new
Rules. The low rates of tax specified in Rule 6 of the Assessment Rules (2
1/2% of the annual rental value in the case of tax on holdings, 2% of annual
c
rental value in the case of water tax as well as latrine tax) ensures that even
a building with an inferior quality of furnish is not subjected to an undue
burden of tax. Treating all pucca buildings with R.C.C. roof as one class

-
and subjecting them to uniform rate of tax- subject, ofcourse, to the
location and nature of user- cannot be said to amount to hostile discrimina- D
tion so as to offend Article 14. A mere possibility of a better classification
is no ground to strike down the classification· made by the statutory
authority - more particularly in the case of a taxing enactment. Saying so
would be to deny the "range of selection and freedom in appraisal not only
in the objects of taxation and the manner of taxation but also in the E
determination of the rate or rates applicable". It would also run counter to
the entire reasoning of this Court in R.K Garg in the passages quoted
above. Similarly, the other objection that the municipal corporation ares
ought to have been divided on the basis of zones and not on the basis of
the roads is also not a ground upon which the court could have invalidated
F
the rule. It is not pointed out that the division with reference to roads
amounted to hostile treatment. In case of such classification, there will
always be some instances where one gets an advantage and the other
suffers a disadvantage but that is no ground, as has been repeatedly
emphasised by this court in the decisions referred to above for invalidiating G
a statute and more particularly a taxing statute. The merit of the Assess-
ment Rules, 1993, as emphasised by the High Court at more than one place,
is that they rid the house-owners of the har.assment and the constant threats
of revision of annual rental value by the concerned officials of the corpora-
tion. The earlier system of taxation left too much discretion in their hands.
H
1-

j

270 SUPREME COURT REPORTS (1995) 1 S.C.R.

A Now, the only thing that has to be ascertained is the carpet area of the
house, the rest is determined by the Rules and the notifications. There is
no question of revisions of annual rental value periodically on the ground
that the rental value has gone up. A new system, with all good intentions ,.
,.... .
is being tried out - a system designed in the interest of the body of house
B owners-tax payers as well as the corporation. May be, this is the trial and
error method spoken of in R.K Garg. Unless found to be offending the
-
consi:itutional or statutory provisions, it must be allowed to be worked out.
One should start with the presumption that the corporation known what is
the better method of classification. It has chosen to divide it with reference
to roads. It is difficult for the court to substitute its opinion for that of the
c corporation nor can any one guarantee that if the municpal corporation
area is divided on the basis of zones it will be a perfect classification and
would eliminate all complaints and grievances of differential treatment. It
is because of the inherent complex nature of taxation that a greater latitude
.·.
and a larger elbow room is conceded to the legislature - or its delegate, as t. I
D the case may be - in such matters. Dealing with a similar objection, this
court said in Khandige Sham Bhat v.Agrl. I.T. Officer, (1963) 3 S.C.R. 809:

"It is suggested that a more reasonable course would have been to
tax the assessees in the Madras area for the income that accrued
to them' during the 5 months by treating the said income as the
E income for the entire year commencing from April 1, 1956 and
ending on March 31, 1957 and that in that even not only their
income for the said period could not have escaped taxation but it
would have also avoided the unjust treatment meted out to them
in the rate of tax. Prima facie there appears to be some plausibility
F in this argument; but a closer examination discloses that though
the method suggested may have been better than the methods
actually adopted, the hardship in individual cases cannot in any
event be avoided. It is true taxation law cannot claim immunity
from the equality clause of the Constitution. The taxation clause
shall.· also not be arbitrary and oppressive, but at the same time
G
the Court cannot, for obvious reasons, meticulously scrutinize the
impact of its burden on different persons or interests. Where there ,_,
is more than one method of assessing tax and the legislature
selects one out of them, the Court will not be justified to strike
down the law on the ground that the legislature should have
H
STATE v. S.K. SINHA [JEEVAN REDDY, J.) 271

adopted another method which, in the opinion of the Court, is A
more reasonable, unless it is com1inced that the method adopted
is capricious, fanciful, arbitrary or clearly unjust."

Reference may also be had to the recent decision of this Court in
P.M. Ashwatha11araya11a Setty v. State of Karnataka, (1989) Suppl. 1 696,
where Venkatachaliah, J., speaking for the court made the following per- B
tinent observations:

"The lack of perfection in a legislative measure does not necessarily
imply its unconstitutionality. It is rightly said that no economic
measure has yet been devised which is free from all discriminatory C
impact and that in such a complex arena in which no perfect
alternatives exist, the court does well not to impose too rigorous
fiscal services. In G.K Krishnan v. State of Tamil Nadu, (1975) 1
S.C.C. 375, this Court referred to, with approval, the majority view
in San Antonio Independent School District v. Rodriguez, 39 L.ed.
2d. 16 speaking through Justice Stewart: D

'No scheme of taxation, whether the tax is imposed on
.
,,
•
property, income or purchases of goods and services, has yet
been devised which is free of all discriminatory impact. In
such a complex arena in which no perfect alternatives exist, E
the court does well not to impose too rigorous a standard of
scrutiny lest all local fiscal scheme become subjects of
criticism under the Equal Protection clause ..........

The observations of this Court in ITO v. KN. Takin Roy Rymbai,
[1976) 1 S.C.C. 916 made in the context of taxation laws are worth F
recalling:

"(T)he mere fact that a tax falls more heavily on some in the
same category, is not itself a ground to render the law invalid.
It is . only when within the range of its selectioin, the law G
operates unequally and cannot be justified on the basis of a
valid classification, that there would be a violation of Article
14'."

We are, therefore, of the opinion that grounds upon which clauses
(a) and (c) have been invalidated are insupportable in law. H
(

272 SUPREME COURT REPORTS [1995] I°S.C.R.

A Coming to the impunged notifications issued by the corporation, we
are equally of the opinion that the grounds upon which the notifications
have been invalidated unsustainable in law. It is the common case of both
.
the parties that whereas the percentage of taxation under the previous
system of taxation was about 43.75% it has now been reduced to 9% only. ·t
I-
While putting the method of determination of annual rental value on a
B more uniform basis eliminating room for arbitrariness and corruption, the
L
corporation has substantially reduced the rate of tax. We are unable to see
any room for legitimate grievance on this account. Taking the instance of ~-
single holding and invalidiating the notification on that basis is not correct
approach. Insofar as the holding of the respondents referred to in Para ·
c (25) of the High Court's judgment is concerned, it is stated in the counter-
r
affidavit filed in the High Court that the carpet area of the said holding is
2,880 sq. ft. (after giving the exemptions as provided by the rules) and that
~
it has been put to commercial use, being let out as shops. It is also stated ..-
I

that besides shops, there is a residential hotel, called Sunway Hotel. The
D respondents-writ petitioners say that the monthly rental of the entire \
building is only Rs. ·1,200 which appears to us wholly unaceptable. It is ,,..
difficult to believe that any tenament in Patna city with 2,880 sq_. ft. of ...y
carpet area, having commercial value and situated on one of the principal
main roads of the city would fetch a rent of Rs. 1,200 only. It is not stated b
by the respondent-writ petitioners that this low rent is because of the
E applicability of the Rent Control Act and the fixation of fair rent. But for ...
the applicability of the Rent Control Act and fixation of fair rent there- I
under, it is difficult to believe the respondents' case that propertf'of the •I-
above nature and dimensions would fetch such a low rent. According to
the impugned rules and notification, its annual rental value is determined
rr
F at Rs. 1,55,520 (annual tax of Rs. 13,996.80p. at the' rate of nine per cent)
which in the circumstances cannot be said to be either excessive or un- ~

reasonably high. We have dealt with this particular instance because the
High Court has made it a ground for invalidating the notifications and not
for any other reason.

G Sri Muralidhar, learned counsel for the respondents submitted that
rules and the notifications do not take into account building which are
covered by the Rent Control Act and that where the said Act applies, the
rent cannot be enhanced except to a limited extent provided by the Act
and that in such cases the said rules and notifications operate with undue
H harshness. But no such argument was addressed before the High Court nor
STATEv. S.KSINHA[JEEVANREDDY,J.] 273

it has been dealt by it. We, therefore, do not propose to express any opinion A
on the said submission, nor with the reply given by the learned counsel for
the appellants to the said submissions.

Sri Muralidhar also submitted that no notification was issued under
Section 134 of the Act with respect to Circle VIII-A in which the
respondents' holding is situated. The High Court has declined to entertain B
the said plea on the ground that it can always be raised in the appeal and
other remedies provided by the statute. We are in agreement with· the High
Court. We too have confined our attention only to the validity of the rules
and the notifications as the High Court had done, leaving other question
is to be agitated in an appropriate forum at the appropriate stage.
c
For the above reasons, the appeal in allowed and the judgment of
the High Court is set aside. No costs.

A.G. Appeal allowed.

D