The Western India Theatres Ltd. vs Municipal Corporation Of The City Of...

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 16 January 1959

Coram: K.N. Wanchoo, M. Hidayatullah, P.B. Gajendragadkar, Das C.J.

The case was titled The Western India Theatres Ltd. versus Municipal Corporation of the City of Poona and was decided on 16 January 1959 by the Supreme Court of India. The bench consisted of Justices K.N. Wanchoo, M. Hidayatullah and P.B. Gajendragadkar, and the judgment was authored by Chief Justice Das. The appellant, Western India Theatres Ltd., was a public limited company that had been incorporated under the Companies Act. The company leased four cinema halls located within the municipal limits of Poona, namely the Minerva, the Globe, the Sri Krishna and the Nishat. In each of these premises the company exhibited motion pictures, both foreign and Indian. The respondent, the Municipal Corporation of Poona, was a body corporate that had been governed successively by three statutes: the Bombay District Municipal Act, 1901 (referred to as Bomb. III of 1901) until 8 June 1926; the Bombay Municipal Boroughs Act, 1925 (Bomb. XVIII of 1925) until 29 December 1949; and thereafter by the Bombay Provincial Municipal Corporation Act, 1949 (Bomb. LIX of 1949). With the approval of the Government of Bombay, the respondent began to levy a licence fee on owners and lessees of cinema houses within the former province of Bombay, effective from 1 October 1920. The fee was initially fixed at two rupees per day. The municipal corporation framed rules to collect the tax, and those rules were amended on or about 3 June 1941, when the rate was altered to one rupee per show. A further revision took place on or about 9 June 1948, increasing the levy to five rupees per show, and at all relevant times the tax was collected at this last rate.

Section 59 of the Bombay District Municipal Act, 1901 provided that, subject to any general or special orders that the State Government might make, a municipality could, after observing the preliminary procedure required by section 60 and with the sanction of the authority mentioned therein, impose any of the taxes enumerated in that section. After listing ten specific heads of tax, the act included a residuary category in clause (xi), which allowed the imposition of “any other tax to the nature and object of which the approval of the Governor in Council shall have been obtained prior to the selection contemplated in sub‑clause (i) of clause (a) of section 60.” From the time Western India Theatres Ltd. became a lessee of the four cinema houses, it continued to pay the tax but did so under protest. After giving the statutory notice required by law to the municipal corporation, the appellant instituted a suit on or about 31 March 1950 in the Court of the Civil Judge, Senior Division, Poona. The suit, recorded as Suit No. 76 of 1950, sought a declaration that the original levy and imposition of the tax from 1 October 1920 were invalid and illegal, that the subsequent enhancements in 1941 and 1948 were likewise invalid and illegal, and that the resolutions and rules formulated to levy, enhance and collect the tax were ultra vires. The plaintiff also prayed for a permanent injunction restraining the municipal corporation from levying, recovering, collecting or further increasing the tax, for a refund of the amounts already paid, for costs of the suit and for interest.

In this case, the appellant sought a permanent injunction to stop the defendants from levying, recovering, increasing or enhancing a certain tax, claimed that the tax enhancements effective from 3 June 1941 and again from 9 June 1948 were invalid and illegal, and asked that the resolutions and rules made in connection with the levy, imposition, enhancement and collection of that tax be declared invalid, illegal and ultra vires. The appellant also asked that the defendants be restrained from any further levy or recovery of the tax, that the appellant be repaid the amounts previously collected under the tax together with interest, and that the costs of the suit be awarded.

By a judgment dated 30 November 1951, the trial court held that the original tax had been lawfully levied and imposed, but that the subsequent increases of 1941 and 1948 exceeded the authority of the municipality and were therefore illegal and ultra vires. The trial court further concluded that the suit was not barred by the statutes governing the respondent. Accordingly, the trial court issued an injunction preventing the respondent from levying, recovering or collecting the tax at the enhanced rates, and it passed a decree directing the respondent to refund the sum of Rs 27,072 together with interest and to pay the costs of the suit.

The respondent appealed the decision, and the appellant filed cross‑objections. The High Court, by its judgment and decree dated 10 February 1953, set aside the trial court’s judgment, dismissed the appellant’s suit with costs throughout, and also dismissed the appellant’s cross‑objections. On 10 December 1953, the High Court granted the appellant leave to appeal to this Court against that judgment, thereby giving rise to the present final appeal challenging the validity of the impugned tax.

The appellant raised several points in support of the appeal. The first point alleged that the statute imposing the tax did not fall within entry 50 of List II of the Seventh Schedule to the Government of India Act, 1935, but rather constituted a tax on the appellant’s trade or calling covered by entry 46. Consequently, the appellant contended that, under section 142‑A of the Government of India Act, 1935, the tax could not exceed Rs 100 per annum. The Court noted that this point had already been considered in the appellant’s other appeal, No. 145 of 1955, and therefore would not be examined further in the present proceeding.

The second point asserted that section 59(1)(xi) of the relevant Act was unconstitutional because the legislature had entirely abdicated its legislative functions by delegating essential legislative power to the municipality to determine the nature of the tax to be imposed on rate‑payers. Counsel for the appellant argued that the delegation was unguided, un‑canalised and vagrant, as the Act contained no limitation preventing the municipality from imposing any tax it chose, even a tax resembling income tax. The appellant maintained that such an omnibus delegation could not be supported by authority as constitutional. The Court agreed with the High Court in rejecting this contention.

Finally, the appellant submitted a third point: that the municipal power could not exceed the power of the provincial legislature itself. The Court proceeded to address this argument in the following discussion.

The Court explained that the municipal authority could not levy any tax, such as an income tax, which the provincial legislature itself was not empowered to impose. Section 59, it held, authorises the municipality to impose only those taxes mentioned in that provision and only “for the purposes of this Act.” The duties and functions imposed on municipalities are enumerated in Chapter VII of the Act, and consequently a municipal tax may be raised only to give effect to those statutory purposes and for no other purpose. In other words, a municipality may levy a tax when the revenue is required to provide any of the amenities listed in the Act. To illustrate, the Court referred to Section 54, which sets out the municipal duties. The first duty requires the municipality to provide lighting for public streets, and consequently a lighting tax—identified as item (ix) in Section 59(1)—is permissible. Similarly, the municipality is obliged to arrange the supply of drinking water, and it may therefore charge a water rate, which corresponds to item (viii) in Section 59(1). The Court clarified that it was not suggesting that a municipality could impose a tax only when it was directly linked to a specific head of duty; rather, any tax must bear a reasonable connection to the duties imposed by the Act. Regarding the principle of ejusdem generis, the Court observed that it could not be applied here because items (i) through (x) do not strictly belong to the same class; nevertheless, those items nevertheless indicate the type and nature of taxes that municipalities are authorised to impose. Finally, the Court observed that the provincial legislature had not abdicated its authority in favour of the municipality, because the municipal taxing power was expressly subject to the approval of the Governor‑in‑Council. Under the Indian Councils Act, 1861 (24 and 25 Vic. c. 67), “Governor‑in‑Council” may refer either to the Governor sitting with his Executive Council or to the Governor sitting with his Legislative Council. If the reference in Section 59(1)(xi) is to the Governor’s Legislative Council, then there is no improper delegation, as the power remains under legislative control. The Legislative Council was composed of all members of the Governor’s Executive Council together with a few additional persons; thus, even if the reference were to the Governor’s Executive Council, practical control would still reside with the Legislative Council. The Court deemed it unnecessary to elaborate further on this point, concluding that on the first three grounds the alleged delegation of legislative authority, if any, was not excessive enough to render the exercise unconstitutional. In the Court’s view, the impugned provision nonetheless established a clear principle and a definitive standard that municipalities must observe when imposing a tax, and the legislature could not, under the circumstances, be said to have relinquished its essential authority.

In this case the Court observed that the legislature had not abandoned its authority, and therefore the delegation of power to the municipality to impose a tax was not beyond the permissible limits of legislative delegation. Consequently, the Court held that the delegation could not be invalidated for exceeding the scope of legislative functions.

The appellant’s counsel argued that, under clause (xi) of section 59(1), the municipality lacked authority to increase tax rates in 1941 and again in 1948 because the Bombay Municipal Boroughs Act of 1925 did not permit such enhancements. Relying on the judgment under appeal, the counsel asserted that the decision supporting the rate increases could not be justified under section 60 of that Act. Section 60(1) states that, “subject to the requirements of clause (a) of the proviso to section 58, a municipality may, except as otherwise provided in clause (b) of the proviso, suspend, reduce or abolish any existing tax…”, while subsection (2) provides that the provisions of Chapter VII relating to tax imposition also apply to the suspension, modification or abolition of any tax or to the alteration or rescission of any rule prescribing a tax. The counsel referred to the marginal note accompanying the section, which reads “power to suspend, reduce or abolish any existing tax”, and contended that the word “modify” appearing between “suspend” and “abolish” in the body of the provision should be interpreted as meaning reduction. He argued that the marginal note demonstrates a progressive diminution of the tax amount, that the root meaning of “modify” is to lessen, and that it does not encompass an increase. The counsel further maintained that a marginal note cannot alter the construction of clear and unambiguous statutory language, citing the decision in Commissioner of Income Tax, Bombay v. Ahmedbhai Umarbhai and Co. Moreover, he pointed out that section 67 of the earlier Bombay District Municipal Act of 1901 used the word “reduce” between “suspend” and “abolish”, and that when that section was reproduced in section 60 of the 1925 Act, the word “reduce” was omitted and replaced with “modify”. He suggested that the marginal note’s failure to replace “reduce” with “modify” was an inadvertent error, and that interpreting “modify” as “reduce” would render the legislative substitution purposeless, implying that the legislature intended a broader meaning.

In this case, the Court observed that the substitution of the word “reduce” with the term “modify” must have been made with a definite purpose, and that purpose could only have been to employ an expression of broader meaning so as to encompass not merely a reduction but also other forms of alteration. The Court noted that Section 76 of the same Act expressly refers to “modification not involving an increase in the amount to be imposed,” a formulation which clarifies the intended sense of the word “modify” in the legislation, namely that a modification may occur even where an increase is involved.

The Court further referred to the decision of the Court of Appeal in England in Stevens v. The General Steam Navigation Company, Ltd. (L.R. (1903) 1 K.B. 890), and quoted the judgment of Mr. Justice Collins, who at page 893 explained that “modification” implied an alteration and that the term was equally applicable whether the effect of the alteration was to narrow or to enlarge the provisions. In the Court’s opinion, the deliberate dropping of “reduce” and the introduction of “modify” in the body of section 60 of the Act clearly demonstrate the legislature’s intention to broaden the scope of that section, and the High Court’s construction of the provision was therefore correct.

The Court observed that no further point was raised in the appeal. Consequently, for the reasons set out above, the appeal was dismissed with costs, and the dismissal of the appeal was affirmed.