Mohammad Yasin vs The Town Area Committee, Jalalabad

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Petition No. 132 of 1951

Decision Date: 27 February 1952

Coram: M. Patanjali Sastri, Mehr Chand Mahajan, B.K. Mukherjea, N. Chandrasekhara Aiyar

The judgment concerned the case of Mohammad Yasin versus the Town Area Committee of Jalalabad, which was decided on 27 February 1952 by the Supreme Court of India. The bench that heard the matter comprised Chief Justice M. Patanjali Sastri, Justice Mehr Chand Mahajan, Justice B. K. Mukherjea and Justice N. Chandrasekhara Aiyar. The petitioner in the suit was Mohammad Yasin and the respondents were the Town Area Committee of Jalalabad together with another party. The decision was recorded on the same date, 27 February 1952, and is reported in the official law reports with the citation 1952 AIR 115 as well as 1952 SCR 572. Subsequent citator information lists numerous later references, including F 1952 SC 118, R 1953 SC 252, R 1954 SC 403, R 1955 SC 661, RF 1957 SC 790, R 1958 SC 296, RF 1958 SC 578, R 1958 SC 956, R 1959 SC 480, R 1962 SC 123, R 1962 SC 1006, F 1962 SC 1563, R 1962 SC 1621, R 1970 SC 564, D 1971 SC 1737, RF 1975 SC 1443, RF 1992 SC 1033, among others. The legal provisions that were examined included Article 19(1)(g) and Article 32 of the Constitution of India, 1950, as well as Sections 293(1) and 298(2)(g)(d) of the Uttar Pradesh Municipalities Act, 1916.

The headnote of the judgment explained that a tax such as income-tax differs fundamentally from a licence fee that is imposed for the purpose of carrying on an occupation, trade or business. A licence fee, unlike a pure tax, not only demands payment but also infringes upon the property rights of the licence holder and operates as a restriction on the holder’s fundamental right to pursue his business. Consequently, if a licence fee is levied without legal authority, it may be challenged by invoking Article 32 of the Constitution. Under Article 19(1)(g) a citizen is entitled to engage in any occupation, trade or business, and the only permissible limitation on this right is a law made by the State that relates to such occupation, trade or business, as specified in clause (6) of the same article and as amended by the First Amendment Act of 1951. The Court observed that when a licence fee cannot be justified on the basis of a valid law, the question of its reasonableness does not arise, because an illegal imposition is inherently unreasonable and therefore violates the right guaranteed by Article 19(1)(g). Such a violation, the Court held, may appropriately be addressed through a petition under Article 32.

The specific municipal regulation under scrutiny was Bye-law No. 1 of the Bye-laws of the Town Area Committee of Jalalabad, which lies within the United Provinces. That bye-law stated that no person was permitted to sell or purchase any vegetables or fruit within the prescribed limits of the Town Area Committee by way of wholesale or auction unless the person paid the fees that were fixed by the bye-law to the designated authority. This provision formed the basis of the petitioner's contention that his constitutional right to carry on his wholesale trade was being unlawfully restrained.

The Town Area Committee had issued Bye-law No 4(b), which allowed any person to sell wholesale anywhere in the town area on condition that the prescribed fees were paid to the licencee appointed by the Town Magistrate. A wholesale dealer in vegetables and fruits who had been operating his own shop in Jalalabad for seven years filed an application under Article 32, asserting that these bye-laws infringed his fundamental right to practice his trade guaranteed by Article 19(1)(g) and were therefore void. The Court examined sections 293(1) and 298(2)(J)(d) of the Uttar Pradesh Municipalities Act, 1916, as amended when extended to town areas in the United Provinces. It held that those provisions did not empower the Town Area Committee to enact any bye-law authorising the levy of fees except for the use or occupation of property vested in or entrusted to the Committee’s management, including public streets. Consequently, the bye-laws that imposed a prescribed fee on a wholesale dealer, irrespective of any use or occupation of such immovable property, were plainly ultra vires the Committee’s authority. The Court therefore concluded that the bye-laws could not be regarded as a valid law capable, under Article 19(6) of the Constitution, of imposing a restriction on the right conferred by Article 19(1)(g). In the absence of any valid law authorising the charge, the imposition operated as an illegal restraint that infringed the dealer’s unfettered right to carry on his occupation, trade or business as guaranteed by Article 19(1)(g). The Court distinguished the Kairana case (1950 SCR 566) and Ramji Lal v. Income-Tax Officer, Mohindargarh (1951 SCR 127).

The petition, identified as Petition No 132 of 1951, sought a writ of mandamus under Article 32 of the Constitution. The material facts of the case were set out in the judgment. Counsel for the petitioner was appointed, and counsel for the respondents represented the Committee. The judgment was pronounced on 27 February 1952. The application was filed by Mohammad Yasin, who claimed that the respondent Committee’s actions infringed his fundamental right to conduct his wholesale vegetable and fruit business, a trade he had pursued for approximately seven years from his shop in Jalalabad, Muzaffarnagar, Uttar Pradesh. The Court therefore granted protection to the petitioner, holding that the bye-laws imposing the fee were beyond the Committee’s statutory powers and thus could not validly restrict the petitioner’s constitutional trade right.

In this case, the Court observed that the vegetable growers used to auction their produce through any vegetable dealer they preferred, and that each dealer charged a commission of one anna for every rupee of sale. The Court explained that the respondent, a Town Area Committee, had framed certain bye-laws which vested in the Committee, or any agency it appointed, the exclusive right and power to levy or collect commission on the sale or purchase of vegetables and fruits within the town limits. Under those bye-laws no person or entity other than the Committee was authorised to deal in wholesale vegetables and fruits or to collect such commission anywhere.

The Court further noted that the Committee, by way of auction, awarded the contract for the sale of vegetables and fruits and for the collection of the commission for the current year to a person identified as Bishamber. It was alleged that Bishamber had never previously dealt in vegetables or fruits. The Court pointed out that the Committee had neither established a market nor framed any bye-laws providing licences to vegetable and fruit merchants, although the bye-laws did contain provisions for prosecution of any breach of their terms.

Although the Court said that the bye-laws did not expressly prohibit a person from carrying on the business of a wholesale dealer in vegetables and fruits, the effect of requiring wholesale dealers to pay the prescribed fee of one anna per rupee to the contractor who held the monopoly amounted, in practice, to a total prohibition of the wholesale business. The petitioner argued that by granting Bishamber a monopoly over wholesale trade in vegetables and fruits, the Committee had effectively prevented the petitioner from continuing his business, thereby infringing his fundamental right under article 19(1)(g) of the Constitution.

The petitioner also contended that the Committee lacked legal authority to impose the tax it sought to levy, that the charge of one anna per rupee was in substance a sales tax rather than a licence fee, and that such unauthorised imposition constituted an illegal restraint on his article 19(1)(g) right. The Court recorded that a notice of motion had been served on both the Committee and Bishamber, and that the respondents had entered appearance, filing an affidavit in opposition, affirmed by their agent on record.

The Court reproduced paragraph 4 of that affidavit, which declared that paragraphs 4, 5, 6 and 7 of the petition were wrong and misleading. It asserted that a full reading of the bye-laws showed that the Town Area Committee had lawfully imposed certain taxes on the purchase and sale of fruits and vegetables within its jurisdiction, and that instead of collecting those taxes directly, the Committee chose to auction the right to collect the taxes to the highest bidder, whom it considered fit and proper.

In the operative description, the Committee found it more convenient and less costly to auction the right to collect the taxes and to award the contract to the highest bidder or to any person it considered suitable. The description expressly states that there is no restriction on any person who wishes to purchase or sell; the only requirement is that the person pays the prescribed tax to the Town Area Committee through the appointed Contractor. According to this description, the market is open and operates throughout the entire territory of the Town Area Committee, allowing any person to purchase from any other person and any person to sell to any other person without any control or intervention by the Contractor. The Contractor’s role is presented merely as that of a tax-collector acting on behalf of the Committee. Rather than receiving a fixed salary, the Contractor receives any profits that may arise and also bears the risk of loss if the Contractor’s gross receipts are less than the amount paid for the contract. The description concludes by asserting that this arrangement is legally sound and that it does not interfere with the petitioner’s rights.

The petitioner attached to the petition copies of a set of bye-laws dated 24 June 1942 and a copy of a resolution of the respondent Committee dated 16 March 1950, which recommended the addition of several bye-laws to the earlier set. At the hearing, both sides agreed that the petition should be decided solely on the basis of the 1942 bye-laws, and the respondent’s counsel produced the original 1942 bye-laws for the Court’s consideration. Bye-law 1 provides that no person shall sell or purchase any vegetable or fruit within the prescribed limits of the Town Area Committee, Jalalabad, by wholesale or at auction without paying the fee fixed under the bye-laws to the licensee appointed by the Town Magistrate. Bye-law 4(b) further states that any person may sell wholesale at any place within the Town Area provided the prescribed fees are paid to the licensee. Consequently, these bye-laws do not, in their terms, prohibit anyone from dealing in vegetables and fruits, contrary to the petitioner’s allegation, and they differ materially from the bye-laws examined by this Court in the Kairana case, which therefore do not govern the present matter. Nevertheless, counsel for the respondent argued, and the Court found the argument persuasive, that although the bye-laws contain no explicit prohibition on carrying on a wholesale business, in practice they have effectively halted the wholesale dealers’ commercial activities. Under the scheme, wholesale dealers must pay the prescribed fee to the contractor appointed through auction and are compelled to charge growers an amount above the prescribed fee in order to retain a profit margin. In such a situation, no grower would have his produce sold or auctioned by the wholesale dealers at a

In the discussion, it was explained that if wholesale dealers accepted the higher commission prescribed by the bye-laws, all dealers would inevitably go to the contractor, who would charge only the prescribed commission. Conversely, if the dealers charged the growers only the commission fixed by the bye-laws, they would have to remit the entire amount to the contractor and would retain no profit for themselves. This situation would effectively turn the wholesale dealers into mere collectors of the contractor’s or the respondent Committee’s tax, without receiving any remuneration from either side. Consequently, the argument was advanced that, in practical terms, the bye-laws have resulted in a complete prohibition of the wholesale dealers’ business in a commercial sense. The Court noted that it did not consider this contention to be unsound or untenable. The counsel for the petitioner further asserted that the respondent Committee lacked legal authority to impose a fee of one anna per rupee on the value of goods sold or auctioned, characterising such an imposition as a sales tax rather than a licence fee.

The counsel for the respondent raised a preliminary objection to this line of argument. He observed that the Constitution expressly forbids the levy of a tax without statutory authority under article 265, and therefore article 81(1) should be interpreted as referring to deprivation of property other than by imposing a tax. He further contended, relying on the decision of this Court in Ramjilal v. Income-tax Officer, Mohindargarh, that an illegal tax may be challenged only in a properly constituted suit and not by an application under article 32. The Court pointed out that this view overlooked the distinction between an income-tax and a licence fee for conducting a business. A licence fee not only deprives the licencee of property but also restricts the licencee’s right to carry on the business, because the business cannot continue without payment of the fee. The earlier case cited did not address this aspect and therefore was not applicable to the present facts. Moreover, under article 19(1)(g) a citizen has the right to pursue any occupation, trade or business, a right that is presumed to be unfettered. The only permissible restriction is the State’s authority to enact a law relating to such occupation, trade or business as provided in clause (6) of the same article, as amended by the Constitution (First Amendment) Act, 1951. Consequently, if the licence fee could not be justified on a valid legal basis, it would constitute an unreasonable restriction on the citizen’s constitutional right.

If a levy is imposed without any basis in a valid law, the question of whether it is reasonable does not arise, because an illegal imposition is always an unreasonable restriction and inevitably infringes the citizen’s right to pursue his occupation, trade or business under Article 19(1)(g) of the Constitution. Such an infringement can therefore be examined and challenged under Article 32 of the Constitution. (1) [1951] S.C.R. 127. The counsel for the respondents then directed attention to the Uttar Pradesh Town Areas Act (No. 11 of 1914), which is the statute governing the respondent Town Area Committee. Section 14 of that Act obliges the Committee, each year, to determine and report to the District Magistrate the amount that must be raised in any town area for purposes authorised by the Act. The section further provides that the amount so determined shall be raised by levying a tax on the occupiers of houses or lands within the limits of the town area, either according to their general circumstances or according to the annual rental value of the houses or lands occupied, as may be decided by the Committee. At the time when the Committee’s bye-laws were originally framed, Section 14 was accompanied by five provisos, none of which authorised the levy of any tax on business activities, and therefore those provisos are irrelevant to the issue presently before the Court. Nonetheless, the respondents’ counsel highlighted Section 38 of the same Act, which empowers the Provincial Government, by publication in the Official Gazette, to extend to any part of a town area any enactment then in force in any municipality of the United Provinces, and to impose such extensions subject to any restrictions or modifications that the Government deems appropriate. He further referred to Notification No. 397/XI-871-E, dated 6 February 1929, which, in supersession of all earlier notifications, used the authority conferred by Section 38(1) of the Uttar Pradesh Town Areas Act, 1914, to extend the provisions of Sections 293(1) and 298(2)(J)(d) of the United Provinces Municipalities Act (11 of 1916) to the entire town area in the United Provinces, in the modified form set out in that notification. The original bye-laws, as produced by counsel, claim to have been framed by the Committee under Sections 298(2)(F)(a) and 294 of the United Provinces Municipalities Act (11 of 1916). No notification has been cited that extends Section 294 of the Municipalities Act to the Committee. It appears, however, that the Committee’s bye-laws were revised in September 1942 and were then said to have been made under Section 298(2)(J)(d). Consequently, it is necessary to determine whether those revised bye-laws fall within the scope of Section 298(2)(J)(d) as modified for application to the respondent Committee. It will be noticed

In this case the Court explained that, according to the modified provision of section 298(2)(J)(d), the Town Area Committee was empowered solely to enact bye-laws that could determine the amount of charges or fees, or a schedule of such charges or fees, payable under section 9.93(1). The Committee could also prescribe the times at which those charges or fees must be paid and could designate the persons authorized to receive the payments. The Court further noted that the amended section 293(1) allowed the Committee to levy fees—whether fixed by bye-law, set by public auction, or agreed upon—for the use or occupation, other than by lease, of any immovable property that was vested in or entrusted to the Committee’s management. This included any public street or place of which the Committee permitted use or occupation, whether by allowing a structure to be erected there or by any other means. The Court then turned to the specific bye-laws of the Committee. Bye-law 1 prohibited any person from using land within the town area for buying or selling fruits and vegetables unless the prescribed fee was paid. By contrast, Bye-law 4(b) permitted any person to conduct wholesale sales at any location in the town area, provided the prescribed fees were paid to the licensed authority. The Court observed that these bye-laws did not attempt to set a fee for the use or occupation of any immovable property vested in or entrusted to the Committee, nor for any public street or place of which the Committee allowed use or occupation. Consequently, the Court held that sections 293(1) and 298(2)(J)(d) of the United Provinces Municipalities Act, as they stood when extended to town areas, did not give the Committee authority to make a bye-law that imposed fees for purposes other than the use or occupation of property vested in or entrusted to the Committee, including public streets. Accordingly, the Court found that, on their face, the bye-laws exceeded the powers granted to the Committee. The petitioner complained that these bye-laws were being enforced against him, even though he operated his business from his own shop and did not use any immovable property vested in the Committee or entrusted to its management. Counsel for the Committee argued, however, that vegetable and fruit growers entered the public street on foot, in carts or on horseback, and stood outside the petitioner’s shop, and that the Committee was therefore within its authority to charge fees for such use of the public street. From the submissions of the Committee’s counsel, it was clear that the only persons using the public street were the growers who came to the petitioner’s shop to have their produce auctioned, and that the petitioner himself was not using the street for any purpose that would attract a fee under the purported authority of the Committee.

The Court observed that the by-laws attempted to impose a prescribed fee on a wholesale dealer regardless of any use or occupation by him of immovable property. Such property included land vested in or entrusted to the management of the Town Area Committee, and it also covered any public street. The Court held that these by-laws were clearly beyond the powers of the respondent Committee and therefore were ultra vires. Consequently, the Court declared that the by-laws could not be regarded as a valid law capable of imposing a restriction on the right granted by article 19(1)(g) of the Constitution under article 19(16). In the absence of any valid law authorising such a charge, the Court found that the imposition operated as an illegal restraint. The Court further concluded that this illegal restraint infringed the wholesale dealer’s unfettered right to carry on his occupation, trade or business, a right guaranteed by article 19(1)(g) of the Constitution. Accordingly, the Court held that the petitioner was entitled to a suitable order protecting his fundamental right. However, the Court noted that the prayer in the petition was framed in language that was far too wide and could not be granted as presented. The Court therefore fashioned an appropriate order directing the respondent Committee not to prohibit the petitioner from carrying on the business of a wholesale dealer in vegetables and fruits. This direction applied within the limits of the Jalalabad Town Area Committee until proper and valid by-laws were framed, and thereafter only pursuant to a licence obtained under those by-laws. The Court further ordered that the respondent Committee should pay the costs of this application to the petitioner. The petitioner was represented by an agent named Naunit Lal and the respondent was represented by an agent named P.C. Aggarwal.