The Municipality of Anand vs State of Bombay

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 211 of 1956

Decision Date: 21 December, 1961

Coram: A.K. Sarkar, Bhuvneshwar P. Sinha, K.C. Das Gupta, N. Rajagopala Ayyangar, J.R. Mudholkar

The case titled The Municipality of Anand versus the State of Bombay was decided on 21 December 1961 by the Supreme Court of India. The bench comprised Justice A. K. Sarkar, Justice Bhuvneshwar P. Sinha, Justice K. C. Das Gupta, Justice N. Rajagopala Ayyangar and Justice J. R. Mudholkar. The petition was filed by the Municipality of Anand and the respondent was the State of Bombay. The judgment appears in the 1962 volume of the All India Reporter at page 988 and in the Supreme Court Reports (Supplement) (2) at page 355, and it is also reported in the Supreme Court Cases at reference R 1990 SC 548 (12). The matter involved the validity of an octroi tax on milk imposed under the Bombay District Municipal Act, 1901, particularly section 59, and the power of the State Government to issue orders prohibiting such tax in accordance with the Act and the Constitution of India, article 14.

The Court observed that the municipality had followed the procedure prescribed by the Bombay District Municipal Act, 1901, and had obtained the necessary government sanction before imposing an octroi tax of one‑quarter annas per Bengali maund on milk brought within its limits for consumption, use or sale. Shortly thereafter, the Government of Bombay issued an order, numbered 367, directing that the octroi tax could not be levied by the municipality. The municipality contended that once the tax had been validly imposed, the Government lacked authority to control its levy. The Court held that the Government was competent under section 59 of the Act to pass the order, because the word “impose” in that provision denotes the actual levy of the tax after authority to do so has been acquired by duly made and sanctioned rules, and such imposition remains subject to any general or special orders of the Government. The Court further ruled that the general and special orders contemplated by section 59 were not limited to those issued under section 73, which only permitted suspension of the tax in certain cases, and that the order was not discriminatory. Subsequently, the Government prohibited all municipalities from levying octroi tax on milk, eliminating any possibility of bad‑faith or mala‑fides considerations. Justice Ayyangar, speaking for himself, explained that the power to tax is a continuing authority derived from the power to impose, and that the Government’s power to issue special or general orders under section 59 does not cease after the tax is imposed. Although sections 47, 73 and 74 address other contingencies, only the opening words of section 59 expressly empower the Government to direct a municipality to desist from imposing a tax. The judgment arose from Civil Appeal No. 211 of 1956, an appeal against the Bombay High Court’s order dated 19 July 1955 in Special Civil Application No. 976 of 1955.

The representation of the appellant was undertaken by V. Viswanatha Sastri, S. N. Andley, Rameshwar Nath and P. L. Vohra. Respondent No 1 was represented by M. C. Setalvad in his capacity as Attorney‑General for India together with C. K. Daphtary, Solicitor‑General of India, and B. Sen. Respondent No 2 was instructed by Vithlbhai B. Patel and I. N. Shroff. The judgment was dated 21 December 1961. The decision of the Supreme Court was delivered by Justices Sinha C. J., Sarkar, Das Gupta and Mudholkar, with the opinion of Justice Sarkar forming the majority judgment. A separate opinion was issued by Justice Ayyangar. Justice Sarkar began his analysis by stating that the appellant was a City Municipality defined under the Bombay District Municipal Act of 1901 and that it operated according to the provisions of that Act. The municipality had, by a duly passed resolution, formulated a rule pursuant to section 60 of the Act fixing a rate of four annas per Bengali maund for an octroi tax on milk brought within its octroi limits for consumption, use or sale. On 29 November 1954 the Government of Bombay granted its sanction to this rule under section 61, after which the municipality published both the rule and the sanction in accordance with section 62, thereby bringing the tax into operation effective 1 January 1955. Subsequently, on 4 April 1955, the Government of Bombay issued an order directing that the octroi tax should no longer be levied by the appellant municipality. This governmental order gave rise to the present litigation.

The municipality challenged the validity of the government’s order by filing a petition under article 226 of the Constitution in the High Court at Bombay. The High Court dismissed the petition, and the municipality appealed that decision to this Court. The Court indicated that the issues for determination would be outlined after a brief discussion of the relevant statutory provisions. Chapter VII of the Act, which governs municipal taxation, was identified as the primary source of authority, with particular reference to sections 59, 60, 61 and 62, all of which pertain to the imposition of taxes by municipalities. In addition, section 46 was noted as relevant because it authorises a municipality to make rules for various purposes, including, under clause (i), the prescription of taxes subject to the provisions of Chapter VII. The Court then reproduced the essential portion of section 59, which provides that, subject to any general or special orders the State Government may issue, any municipality—after complying with the preliminary procedure of section 60 and obtaining the sanction of the State Government where required for City municipalities—may, with such sanction, impose any of the taxes enumerated in the section, subject to any modifications or conditions prescribed under section 61. The Court emphasized that this provision was central to resolving the dispute.

Section 59 enumerates the taxes that a municipality may levy, including, for example, an octroi on animals or goods, or both, brought within the octroi limits for consumption, use or sale therein. Section 60 prescribes the preliminary procedure that a municipality must follow before a tax can be imposed lawfully. First, the municipal council must pass a resolution at a meeting selecting the tax and framing rules in accordance with clause (i) of section 46, which authorises the prescription of taxes. Subsequently, the resolution must be published together with a notice in a prescribed form inviting all inhabitants of the municipal area to lodge any objections within one month. When objections are received, a municipal committee examines them and, unless the committee’s report recommends abandoning the tax, the municipality must forward the objections and its own opinion to the State Government. It must also transmit any modifications it wishes to make and the rules that prescribe the tax thereunder. Section 61 provides that upon receipt of these rules and accompanying materials, the Government may refuse to sanction them. Alternatively, the Government may return the rules for further consideration or may sanction them with or without modifications, and may impose conditions it deems appropriate. According to Section 62, once the Government has sanctioned the rules, the municipality must publish them and the tax becomes enforceable from the date specified in the publishing notice. The Court noted that there is no dispute that, in the present case, the municipality had complied with all the procedural requirements laid down in Sections 60 to 62. The State Government asserted that its order was valid because it was made under the authority of Section 59, which permits a municipality to levy a tax only pursuant to that provision. The municipality did not deny that a tax could be imposed only under Section 59 according to the statutory scheme. It argued that the general or special orders mentioned in that provision were orders that existed before the rule prescribing the tax was drafted. The dispute therefore turned on the construction of Section 59, but the Court observed that interpretation must also take into account Sections 60, 61 and 62. The Court found that the State Government’s position was well founded because the municipality’s taxing power originates solely from Section 59 and remains subject to any general or special orders issued by the Government. Consequently, the municipality could succeed in its appeal only if the word ‘impose’ in Section 59 were interpreted to mean the acquisition of the power to tax after the rule had been framed. The Court rejected that interpretation, holding that ‘impose’ referred to the actual levying of the tax after the rule had received the Government’s sanction.

In the judgment the Court explained that the expression “impose” referred to the acquisition of the authority to levy a tax only after the procedure prescribed in sections 60, 61 and 62 had been complied with. Consequently, the appeal of the Municipality would have to fail if it could not demonstrate that the term “impose” had the meaning attributed to it by the Municipality. The Court observed that the word “impose” as used in section 59 did not carry the meaning advanced by the appellant. It pointed out that, under section 59, a municipal authority was permitted to impose a tax exclusively after it had framed a rule under section 60 that set out the tax to be levied and after the State Government had granted its sanction to that rule under section 61. The Court emphasized that the imposition referred to in section 59 was expressly made “subject to any general or special orders which the State Government may make in this behalf.” Accordingly, the Court held that it was the act of imposing the tax after the rule authorising it had been made that fell within the scope of the Government’s orders, and not the act of making the rule itself, which merely authorised the tax. The Court further noted that section 59 made it clear that the control exercised over a municipality’s power to tax by requiring the Government’s sanction of the rule (as provided in section 61) was a different form of control from that contemplated by the general or special orders mentioned in the same section. The Court reasoned that, if the two controls were identical, there would have been no need to provide separately for general or special orders that could regulate the imposition of the tax in section 59. This observation formed the first reason why the Court found the Municipality’s contention untenable. The Court then turned to the second reason, observing that the imposition contemplated by section 59 could not be equated with the passage of resolutions under section 60 that selected a tax and made the rule prescribing the tax to be levied pursuant to section 46(i). The language of subsection 1(a) of section 59 expressly required that the imposition occur only after compliance with the procedures of section 60, which, in the Court’s view, constituted a further ground for rejecting the Municipality’s argument. The third reason was derived from section 62. The Court recalled that section 62 stipulated that a tax would be imposed from the date specified in the notice publishing the sanctioned rule. The Court stressed that the selection of that date was a matter for the municipal authority and not for the Government. It explained that the municipal authority acquired the power to levy the tax when the Government sanctioned the rule that prescribed the tax, and thereafter the municipality could, of its own choosing, fix the date from which it would commence collection. Accordingly, the Court held that the word “impose” in section 62 did not denote the acquisition of the power to levy a tax by making the rule, but rather referred to the actual levy of the tax under the power already acquired. Finally, the Court observed that section 46(i) used the term “make … rules … prescribing … the taxes to be levied,” and that the statute employed the word “levied” in connection with the making of the rules, whereas it used the term “imposed” in relation to the actual levy of the tax. This distinction further supported the Court’s interpretation of the term “impose” in the relevant provisions.

In regard to section 62, the Court concluded that it was appropriate to interpret the term “impose” appearing in section 59 in the same manner that the term is employed in the related provision, namely section 62. Accordingly, the Court held that “impose” in section 59 signifies the actual collection of the tax after the municipal authority has first obtained the power to levy the tax through rules that have been duly formulated and sanctioned. The Court further explained that such actual imposition of the tax is subject to any general or special orders issued by the Government, and therefore the Government retains the power to stop the imposition of the tax at any time by issuing an appropriate order.

The appellant’s counsel, Mr. Sastri, argued that the phrase “general or special orders” in section 59 should be read as referring only to orders that may be made under section 73. He pointed out that the order now under review had plainly not been made pursuant to section 73. The Court observed that section 73 does not authorize an order that entirely prohibits the imposition of a tax, as the present order does. Rather, section 73 merely empowers the Government to suspend the levy of a tax that has already been authorised, and such suspension may continue until the objections to the tax, which the Government has required to be removed, are finally resolved. Because section 73 only provides a power to suspend, the Court found no basis for limiting the reference to “general or special orders” in section 59 to the kind of orders contemplated by section 73. Consequently, section 73 could not be used to interpret the expression “general or special orders” in section 59.

The third ground of challenge asserted that the order was discriminatory because no other municipality had been barred from levying a similar tax that it was authorised to collect under its own rules. The Court noted an ancillary point raised by the learned Attorney General, namely whether the municipality, being a local authority, could be regarded as a State and therefore be excluded from the protection of Article 14. The Court found it unnecessary to express any view on that doctrinal question. On the facts, however, the Court was satisfied that there was no discrimination. It observed that the Government had, without dispute, prohibited all municipalities from imposing any octroi tax on milk, and that no evidence was presented to show that every municipality stood in the same position with respect to milk taxation.

The final objection was that the order had been made mala fide. The Court rejected this allegation as entirely unfounded. It recalled that the Government had earlier urged the appellant municipality to abandon the milk tax on the ground that milk was being purchased for Government use and therefore the Government should not be subject to municipal tax. While the Court acknowledged that this justification might not have been supported by the facts, it declined to pass any finding on that issue. Moreover, the Court stressed that even if the Government’s reasoning were untenable, it did not follow that the order was issued with malicious intention. The Government’s claim that the order was intended to favour respondent No. 2, a cooperative union dealing in milk, was likewise dismissed as unsubstantiated.

In the present case the Court observed that the allegation of bad faith was wholly unsupported by any factual material. It further noted that orders of the same character had subsequently been issued with respect to every municipality in the State, and therefore a claim that the order dated 4 April 1955 had been made mala fide could not arise. The Court concluded that the challenge to that order was without any foundation and held that the order was perfectly lawful and therefore had to be affirmed. Consequently, the appeal was dismissed and costs were awarded. Justice Ayyangar, having read the judgment delivered earlier, expressed his agreement with the order that had been passed. He pointed out that the factual background and the statutory provisions relevant to the issues raised on appeal had already been detailed by Justice Sarkar, and there was no need to repeat them. He affirmed that there was no dispute that the municipality’s levy, which commenced on 1 January 1955, was valid because the requirements of sections 59, 60, 61 and 62 of the Act had been satisfied at the time the levy was imposed. No general or special order issued by the State Government had stood in the way of the municipality’s imposition of that particular levy, and the municipality had obtained the sanction required under section 59(1)(b). Moreover, the applicable rules had been observed and all procedural and other conditions prescribed in those sections had been complied with. The Court, however, reminded that the municipality’s power to levy a tax was not absolute; it was subject, apart from other provisions, to any general or special orders that the State Government might issue under the opening words of section 59 of the Act. Counsel for the respondent, Mr Visvanatha Sastri, advanced a vigorous argument that the Government unquestionably possessed the power to prescribe and control, by general or special orders, the right of a municipality to levy a tax. He further contended that such orders could be varied from time to time to meet changing circumstances or the interests affected by the tax, but that once a municipality imposed a levy in conformity with the orders then in force under section 62, the power to modify or impose conditions was exhausted. The Court found this construction of the opening words of section 59(1) unpersuasive. It held that the language of the provision did not indicate that the power of the State Government ceased once a municipality complied with an existing order at a particular date. Accordingly, any limitation on the State Government’s supervisory power must be inferred either from the series of sections ending with section 62 that lead to the imposition of a levy, or from other provisions of the Act. The Court also referred to another relevant provision, section 73, which reads: “If it shall at any time appear to the Provincial Government, on complaint made or otherwise, that any tax, leviable by a Municipality, is unfair”.

Section 73 provides that if, at any time, the Provincial Government is of the opinion—whether on the basis of a complaint or otherwise—that a municipal tax, any part of it, or the manner of its levy is unfair in its incidence or is detrimental to the public interest, the Government may direct the municipality to remove the objection within a period it determines. If the municipality fails to satisfy the Government’s requirement within that period, the Government may, by publishing a notice in the official Gazette, suspend the levy of the whole tax or the contested part until the objection is removed. The Government retains the power to rescind any such suspension at any time by a similar Gazette notification. The Court observed that this provision operates only within the narrow field it addresses. It merely preserves the continued collection of the tax while seeking to remedy specific anomalies or hardships in its assessment or administration. The existence of Section 73 does not, in the Court’s view, eliminate the State’s authority to prohibit the ongoing imposition of a tax altogether, as occurred in the present matter. Consequently, Section 73 cannot be read as implicitly negating the State’s power under section 59, because it deals with a completely separate subject matter.

The Court then turned to the argument concerning sections 59 to 62, which was presented on the basis that “general or special orders” could only restrict a municipality’s power to impose a tax and that, under the scheme of those sections, a tax is “imposed” just once. The argument continued that, once a tax has been imposed, the State Government could no longer issue any special order affecting that tax, since the power to prescribe conditions or restrictions was presumed to relate only to the initial imposition. The Court found this construction unacceptable. The reasoning relied on denying that the power to impose a tax is a continuing power. In the Court’s judgment, the imposition of a tax is a continuing power because, for as long as the tax remains in force, the authority’s power to impose it remains operative and gives vitality to the tax. When a municipality quantifies the tax against a specific person, thereby creating a statutory debt payable by the taxpayer, it is exercising the power to impose. The ongoing existence of that imposition provides the legal foundation for each subsequent levy. If the authority withdraws the power to impose, the imposition consequently ceases.

The Court observed that the saving provisions in the legislation enable taxes to be levied and collected even after the authority’s future power to impose such taxes has been removed. In this respect, the Court held that there is no exhaustion of the State’s power under the opening words of section 59(1). In arriving at this construction, the Court considered the overall scheme of the Act and the extensive powers conferred on the State Government to control and supervise the powers of municipalities. Those powers are intended to ensure that, subject to express statutory provision, municipal administration is coordinated to protect the vital interests of the general public. In this connection, the Court referred to section 74 of the Act, which provides that whenever the Provincial Government is of the opinion that a municipality’s fund balance is insufficient to meet expenditures under section 175 or to perform any duties declared under section 178 where the municipality has defaulted, the Provincial Government may issue a notification requiring the municipality to impose, within the municipal district, any tax specified in the notification as may be imposed under section 59 if no such tax is then imposed, or to enhance any existing tax in such manner or to such extent as the Provincial Government deems fit. The municipality must then promptly impose or enhance the tax in accordance with the requisition as if a municipal resolution under section 60 had been passed, provided that (a) the Provincial Government shall consider any objection raised by the municipality or any inhabitant of the municipal district against the imposition or enhancement, (b) it shall not be lawful for the municipality to abandon, modify, or abolish the tax once imposed, and (c) the Provincial Government may at any time cancel or modify any requisition, causing the levy or enhancement, except as to arrears already accrued, to cease or be modified accordingly. Thus, the Government is empowered both to direct the municipality to impose a tax when it deems such action necessary for municipal finance and administration, and to order the municipality to discontinue the imposition when the necessity no longer exists. The Court further noted that where a tax is imposed by the municipality under sections 59‑62, the municipality itself may revoke the tax if the rules so provide, for section 47 declares that, subject to the proviso to section 46(a), every municipality may, except as otherwise provided in the proviso to section 74(b), at any time for any sufficient reason, suspend, reduce, or abolish any existing tax by suspending, altering, or rescinding any rule prescribing such tax. The Court concluded that, apart from the opening words of section 59(1), there is no specific provision in the Act granting the Government the power to intervene when the continued levy of a tax is contrary to public interest. Nevertheless, the Court held that the opening words of section 59(1) are apt and sufficient to vest the Government with the authority, by special order, to direct a municipality to cease imposing a tax when the public interest so requires.

The Court explained that the description of the tax fell under clause (1) and the first clause of the proviso to section 46, and that the provisions of Chapter VII dealing with the imposition of taxes were to be read, as far as possible, as also governing the suspension, reduction or abolition of any tax and the suspension, alteration or rescission of any rule that prescribed a tax. The Court observed, however, that apart from the opening words of section 59(1), the Act contained no specific provision that gave the Government authority to step in when the continued levy of a tax was contrary to public interest. The Court held that this apparent gap was not intended by the legislature. In its judgment, the Court found that the opening words of section 59(1) were both appropriate and sufficient to equip the Government with the power to issue a “special order” directing a municipality to stop imposing a tax whenever the Government was satisfied that the public interest required such a cessation. The Court considered the arguments raised concerning discrimination and mala‑fides and concluded that those submissions lacked substance, referring to the reasons previously set out by Justice Sarkar. Consequently, the Court rejected those arguments, declared that the appeal failed, and ordered that it be dismissed with costs. The Court further noted that the writ petition, which raised the same points as the appeal, would also be dismissed, but without any order as to costs. In summary, the Court dismissed the appeal and the related writ petition, granting costs against the appellant only.