H. R. S. Murthy vs Collector Of Chittoor And Another

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

Court: supreme-court

Case Number: Civil Appeals Nos. 316-A and 316-B of 1962

Decision Date: 4 February 1964

Coram: N. Rajagopala Ayyangar, P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah

In the matter styled H. R. S. Murthy versus Collector of Chittoor and Another, the Supreme Court pronounced its judgment on 4 February 1964. The judgment was reported by N. Rajagopala Ayyangar and the bench was composed of Justice N. Rajagopala Ayyangar, Chief Justice P. B. Gajendragadkar, Justice K. N. Wanchoo, Justice K. C. Das Gupta and Justice J. C. Shah. The petitioner was H. R. S. Murthy and the respondents were the Collector of Chittoor together with another respondent. The decision is cited as 1965 AIR 177 and 1964 SCR (6) 666 and has been referred to in a number of later reports.

The dispute centered on the legality of a notice demanding payment of land cess under sections 78 and 79 of the Madras District Boards Act, 1920, in relation to a mining lease. Under the terms of that lease the lessee was obliged to pay a dead rent for the use of the land, a royalty on any iron ore extracted, and a surface rent for the portion of the surface occupied. The lessee worked the mines, extracted iron ore from a tract of land in a village of Chittoor district and marketed the ore. After the re‑organisation of states in 1953 the district of Chittoor became part of the newly created Andhra State.

In 1955 the government issued a demand for land cess calculated pursuant to sections 78 and 79 of the Madras District Boards Act. The calculation incorporated, within the “annual rent value”, the amounts payable each year under the mining lease both as surface rent and as royalty. The lessee challenged the notice before the High Court, which set aside the demand. That High Court judgment is reported in [1958] SCR 1355. Subsequent to that decision the lessee died, but on 10 March 1955 two additional notices were served on the appellant. The first notice sought payment of cess for the years 1952‑1954 and the second sought payment for the years 1955‑1957, each warning that coercive proceedings would be instituted if the amounts were not discharged.

The appellant disputed the validity of those earlier notices by filing a writ petition in the High Court, and also filed a separate petition attacking the later notice. While those petitions were pending, a further notice dated 29 August 1960 demanded payment of land cess for the years 1958‑1959. To obtain relief from that notice and from the recovery proceedings, the appellant instituted a writ petition in this Court. In that petition the appellant contended, among other points, that…

In this case the petitioner advanced four principal submissions. First, it was argued that the expression “royalty” in section 79(1) of the Act should not be given its ordinary meaning but should be limited to the rent payable for the beneficial use of the surface of the land. Second, the petitioner contended that assuming “royalty” in the sense described in the first submission falls within sections 78 and 79 of the Act, the provision that imposes a land cess on royalty under mining leases must be regarded as repealed by the Central Acts of 1948 and 1957. Third, the petitioner asked whether the land cess demanded by the notices dated 10 March 1958 and 29 August 1960 could be treated as arrears of land revenue under the law. Fourth, it was submitted that section 221 of the Act, which originally authorised the recovery of sums due as taxes, had, by reason of changes effected in the rules, ceased to apply to the recovery of land cess under section 78. The Court held that where land is held on lease, as in the present dispute, the lease amount is expressly referred to in section 79 of the Act as one of the components for computing the annual rent value. Consequently, the term “royalty” that follows the expression “lease amount” cannot be understood as a mere return to the lessor for the use of the land surface; instead it must be interpreted in its ordinary sense as the payment made for the extraction of minerals or other materials from the land. The Court further observed that there is no connection between the regulation and development of mines and minerals dealt with in the Central Acts of 1948 and 1957 and the levy and collection of land cess under sections 78 and 79 of the Act. Because of this lack of relationship, the two statutes have nothing in common that would require a detailed examination for overlapping provisions, and the decisions in Hingir Rampur Coal Co. v. State of Orissa, [1961] 2 S.C.R. 537 and State of Orissa v. M. A. Tullock, A.I.R. 1964 S.C. 1284 were therefore distinguished. In the context of sections 78 and 79 and the scheme of those provisions, the Court explained that the land cess is, in truth, a tax on lands falling within entry 49 of the State List. When the land is held under a lease, the lease amount forms the basis for the cess; when land is held under a mining lease, the amount that the occupier is willing to pay is treated as the “annual rent value” of the property, and that value necessarily includes not only surface rent but also dead rent and the royalty payable by the licencee, lessee or occupier for using the property. Finally, the Court held that the cess imposed under section 78 qualifies as “a cess lawfully imposed upon land” under section 52 of the Madras Revenue Recovery Act and is therefore covered by its terms, making the procedural steps proposed by the respondents for recovering the sums unable to be successfully challenged. JUDGMENT: CIVIL APPELLATE

The Court noted that the matter before it consisted of two civil appeals, numbered 316‑A and 316‑B of 1962, which had been taken on special leave and by certificate from a judgment and order dated 25 March 1960 delivered by the Andhra Pradesh High Court in Writ Petitions numbered 534 and 535 of 1958, together with a separate writ petition numbered 302 of 1960 filed under Article 32 of the Constitution of India for the enforcement of fundamental rights. The appellant was represented by counsel identified as P Ram Reddy, who appeared both for the appellant in the civil appeals and for the petitioner in the writ petition, while the respondents were represented by counsel identified as T V R Tatachari and B R G K Achar. The judgment was pronounced on 4 February 1964 and delivered by Justice Ayyangar. The Court explained that the two civil appeals and the constitutional petition were heard together because they raised a common legal question concerning the validity of notices that demanded payment of a land cess under the Madras District Boards Act, also known as Madras Act XIV of 1920, and the legality of the procedure used for recovering the amount of that cess. The notices also demanded an education cess, but the Court observed that the education cess was merely a proportion of the land cess and that the legality of the entire demand depended on the validity of the land‑cess demand, so the challenge could be confined to the land‑cess issue. The factual background revealed that the appellant’s father had obtained a mining lease from the Government of Madras dated 15 September 1953, which authorized him to work and extract iron ore on a tract of land situated in a village of Chittoor district. Under the terms of that lease the lessee was bound to pay a dead rent of Rs 1,140½ per year if the land was used for iron‑ore extraction, with a higher amount applicable for other uses. In addition, the lessee was required to pay a royalty of eight annas per ton of iron ore extracted for the purpose of iron production, and a rate of Re 1 per ton if the ore was sold in its raw form. The lease also stipulated a surface rent of Rs 1‑8‑3 per acre per year for the surface area occupied. The lessee proceeded to work the mines, extracted the ore, and marketed it. The Court further explained that the district boards levied several taxes to finance local administration, and that Section 78 of the Act imposed a land cess on lands in the district, stating: “The land‑cess shall be levied on the annual rent value of all occupied lands on whatever tenure held and shall consist of a tax of two annas.”

The provision stipulated that the land‑cess would be levied at a rate of two annas per rupee of the annual rent value of every land in the district. For the purpose of computing that annual rent value, the Act referred to Section 79, which set out the method of calculation. Section 79 declared that the annual rent value, for the purposes of Section 78, shall be determined as follows. First, where land is held directly from the Government under ryotwari tenure, or is held by lease or licence, the amount of assessment, the lease payment, the royalty or any other sum payable to the Government for the land, together with any water‑rate that may be payable for its irrigation, shall be taken as the annual rent value. Second, where land is an inam or is wholly or partially exempt from assessment, the full assessment that such land would bear if it were not an inam, together with any water‑rate payable for its irrigation, shall constitute the annual rent value; the district collector, acting under the general orders of the Board of Revenue, shall determine that full assessment and water‑rate. Third, where land is held under any other tenure, the annual rent payable to the landholder, sub‑landholder or any other intermediate landlord—whether the rent arises from an under‑tenure created, continued or recognised by a landlord or sub‑landlord and collected from his tenants—together with any water‑rate payable for irrigation, shall be taken as the annual rent value. If such land is occupied by the owner himself or by a person holding it from him free of rent or at a favourable rent, the annual rent value shall be calculated according to the rates of rent normally paid for ryotwari lands in the neighbourhood having similar advantages, along with any applicable water‑rate. Fourth, where the rent assessment of land is paid in kind, the annual rent value shall be calculated using the rates of rent established for neighboring lands of similar description and quality, together with any water‑rate payable for irrigation of the lands first mentioned; if this method is impracticable in a particular case, the Board of Revenue may approve any other method it considers appropriate. The provision further provided that, where a landholder or sub‑landholder has obtained, under sections 30(iii) and 33 of the Madras Estates Land Act, 1908, a decree allowing an increase in rent because of additional water‑rate payments made to the Government, the annual rent value shall be the balance remaining after deducting from the computed sum the increase of rent up to the amount of the water‑rate. When the State of Andhra was separated…

In October 1953 the district of Chittoor was transferred from Madras to the State of Andhra. Two years later, in 1955, a demand was served on the appellant’s father for payment of land cess that was to be calculated pursuant to sections 76 and 79 of the relevant Act and that was to be included in the computation of the “annual rent value,” together with the amounts payable each year to the Government under a mining lease as surface rent and as royalty. The father challenged the validity of that notice on grounds that have since become irrelevant, and his objections were upheld. Consequently, the notices were set aside by writ petitions that the father filed in the High Court of Andhra Pradesh. After the High Court ruled in his favour, the father died.

On 10 March 1958 two new notices were addressed to the appellant, requiring payment of sums described as the dues for the periods 1952‑1954 and 1955‑1957, and warning that coercive proceedings would follow if the demands were not met. The appellant contested the first notice by filing writ petition 534 of 1958 in the High Court of Andhra Pradesh, and he filed a similar petition, No. 535 of 1958, against the second notice. While these petitions were pending, another notice was served in August 1960 demanding cess for the years 1958 and 1959. To obtain relief from that notice and the associated recovery proceedings, the appellant filed writ petition 302 of 1960 in this Court.

The High Court dismissed both writ petitions 534 and 535 of 1958. When the appellant later sought certificates of fitness, the judges granted a certificate in relation to the judgment in petition 535 of 1958 on the basis that the claim against the appellant exceeded Rs 20,000, but they refused a similar certificate for petition 534 of 1958 because the amount claimed was slightly below that threshold, being about Rs 15,000. The appellant then applied to this Court for special leave to challenge the dismissal of his writ petition 534 of 1958; the special leave was granted and the three matters were heard together. The controversy before the Court is narrowly confined. Counsel for the appellant raised three points: (1) the interpretation of the term “royalty” in section 79(1) of the Act and whether it includes royalty payable under a mining lease on the ore extracted by the lessee; (2) assuming such royalty falls within the meaning of section 79, the consequent implications; and (3) whether the land cess demanded by the notices dated 10 March 1958 and 29 August 1960 can be recovered as arrears of land revenue under the law.

The Court observed that the provisions of sections 78 and 79 of the Act which imposed a land cess in respect of royalty under mining leases must be regarded as repealed by the Mines and Minerals (Regulation and Development) Act, 1948 (Central Act Llll of 1948), and in any event by the Mines and Minerals (Regulation and Development) Act, 1957 (Central Act LXVII of 1957). Consequently, after the date on which these central enactments became operative, any land cess that could be levied under section 78 had to be calculated without including the royalty payable under a mining lease. The appellant also questioned whether the land cess demanded by the impugned notices dated March 10, 1958 and August 29, 1960 could be recovered as arrears of land revenue under the applicable law. The Court stated that it would consider these submissions sequentially.

Regarding the first contention, the appellant argued that the term “royalty” in section 79(1) did not refer to royalty in its ordinary sense but was limited to the rent payable for the beneficial use of the land surface. The Court found this argument lacking merit. It noted that where land is held under a lease, as in the present case, the lease amount is expressly mentioned in section 79 as one of the components for computing the annual rent value. Therefore, the word “royalty” that follows the expression “lease amount” must be understood as something distinct from the payment made to the lessor for the use of the land surface; rather, it normally denotes the payment for the minerals or materials extracted from the land. The Court concluded that the appellant’s argument was without substance and rejected it.

The Court then turned to the second point raised by the appellant. It observed that the entire argument on this issue relied on two earlier decisions of this Court concerning the continued operation of the Orissa Mining Areas (Development Fund) Act, Act XXVII of 1952. The decisions cited were Hingir Rampur Coal Co. Ltd. and Others v. The State of Orissa and Others (1) and State of Orissa v. M. A. Tullock & Co. (1). The Court noted that the present appellant had intervened in the latter case and that a direction had been issued that the present appeals and petition would be heard after the judgment in the Orissa appeals was pronounced. Nevertheless, the Court expressed the clear opinion that neither of those two decisions, nor the later one following the earlier, provided any assistance to the appellant in the present appeals. In the Hingir‑Rampur Coal Co. case, the Court had dealt with writ petitions under Article 32 of the Constitution challenging the validity of the Orissa Mining Areas (Development Fund) Act, where a cess had been imposed. The Court found that the earlier authorities did not support the appellant’s position and therefore did not merit further consideration.

In the earlier decision, the Court remarked that the coming into force of the Regulation and Development Act, 1948 (Central Act LIII of 1948) effectively repealed the Orissa Act, and therefore the cess that could be levied under the latter could no longer be enforced, making any demand for that cess untenable. The Court undertook a detailed comparison of the provisions of the Orissa Act with those of the Central Act of 1948 and concluded that the Central legislation occupied the same field as the State enactment. An examination of the scheme of the Orissa Act revealed that it had been enacted to develop “mining areas” within the State by designating such areas and by providing for their development through the construction of roads, means of transport, water supply, electricity, sanitation facilities and education for the labour force in order to attract workers. The cess that was challenged in the writ petition had been levied and collected to meet the cost of this development of the mining areas. The Court further observed that the Central Act, which was also passed to provide for the conservation of minerals, covered the same field as the Orissa Act. The State legislation had been enacted under Entry 23 of the State List in the Seventh Schedule, which reads: “Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union.” The corresponding provision in List I is Entry 54 in the Union List, which states: “Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by law made by Parliament to be expedient in public interest.” The State argued that although the Central Act of 1948 contained a declaration that regulation and development of mines and minerals was expedient in the public interest, that declaration was made by the Dominion Legislature rather than by Parliament as required by Entry 54, and therefore could not, under Item 23 of List II, affect the State’s legislative competence. The Court accepted this argument and held that the Orissa Act had been validly enacted and remained unaffected by the Central legislation. The same Orissa enactment was later considered in State of Orissa v. M. A. Tullock & Co. (1). By the time of that decision, Parliament had enacted Central Act LXVII of 1957, which contained broader provisions for the regulation and development of mines and minerals throughout the country, and also declared that it was expedient in the public interest for the Union to assume control over such regulation and development to the extent provided therein. The Court noted that, given the comprehensive nature of the provisions contained in the Central Act, “the extent provided” encompassed the matters covered by the Orissa State Act, which was limited to the regulation and development of mining areas within the State. Consequently, the Court held that the Orissa Act was impliedly repealed and rendered ineffective by the Central Act. The Court further observed that there is no similarity between the provisions of the Orissa Act examined in those earlier decisions and the provisions for the levy of a land cess contained in sections 78 and 79 of the present Act, which are the subject of the present contention. Sections 78 and 79 do not pertain to the development or regulation of mines and minerals. Under section 92 of the Act, the proceeds of the land cess are to be credited to the District Fund.

The Court observed that the Central legislation declared that the Union should control the regulation of mines and the development of minerals to the extent provided in the Act. It held that, in view of the comprehensive provisions spread across the various sections of that Act, the phrase “the extent provided” necessarily covered matters that fell within the scope of the State Act of Orissa, which, as earlier noted, dealt with the regulation and development of mining areas inside the State. Consequently, the Court concluded that the Orissa Act must be regarded as having been impliedly repealed and rendered ineffective by the Central Act. The Court further pointed out that there is absolutely no similarity between the provisions of the Orissa Act examined in the two earlier decisions and the provisions concerning the levy of the land‑cess contained in sections 78 and 79 of the present Act. Sections 78 and 79 are unrelated to the development of mines or minerals and do not concern their regulation. Under section 92, the revenue from the land‑cess is to be credited to the District Fund, and the Finance Rules in Schedule V to the Act require that the land‑cess together with various other taxes, fees and receipts be placed in that fund. Chapter VII of the Act, beginning with section 112, directs that the District Fund may be used “for everything necessary for or conducive to the safety, health, convenience or education of the inhabitants or the amenities of the local area concerned and everything incidental to the administration,” and specifically includes the matters listed in the relevant sections. Accordingly, the Court found no connection between the regulation and development of mines and minerals dealt with in the Central Acts and the levy and collection of the land‑cess provided for by sections 78 and 79. Hence, there is no basis for the argument that any element of the present Act overlaps with the Central Acts of 1948 and 1957, and no detailed comparative analysis of those enactments is required. The petitioners then contended that the land‑cess amounted to a tax on mineral rights falling within Entry 50 of the State List, which reads “Taxes on mineral rights subject to any limitation imposed by Parliament by law relating to mineral development,” and submitted that the Central Acts, which also authorized taxes and fees, invoked the latter part of that entry, thereby removing the State’s power to impose such a tax after the Central Acts came into force. In support of this contention, counsel highlighted that the disputed land‑cess becomes payable only when a mining lessee actually obtains the mineral and pays the royalty, and not when no minerals are extracted; therefore, it operates in effect as a tax on the minerals that have been won.

The Court rejected the contention that the land‑cess constituted a tax on mineral rights. It observed that when the precise source of legislative authority for a taxing law is in question, the inquiry must focus on the true substance of the tax. While the tax bore a remote connection to mining activities and to minerals obtained under a royalty contract, the Court held that such a remote link did not transform the levy into a tax on the act of extracting minerals or on the underlying mineral right. The Court noted that it was unnecessary to define what exactly constitutes a tax on mineral rights, because such a tax could be imposed only by a State and was limited only by the requirement that it not conflict with any parliamentary law relating to mineral development. No parliamentary statute had been presented for consideration. Examining sections 78 and 79 of the Act and the overall scheme of those provisions, the Court concluded that the land‑cess was in reality a “tax on lands” falling within Entry 49 of the State List. Under section 78, the cess is levied on occupied land regardless of the tenure held, the liability being calculated on the basis of the “annual rent value,” meaning the value of the beneficial enjoyment of the property. Section 79 then prescribes the method for determining that annual rent value, namely the amount for which the land could reasonably be let, representing the ratable value or annual rent. For ryotwari lands, the assessment payable to the Government serves as the rental value, reflecting the benefit accruing to the State. Where land is held under a lease, the lease payment is the basis, and where the land is held under a mining lease, the amount the occupier is prepared to pay is treated as the annual rent value. Consequently, this rent value necessarily includes not only surface rent but also dead rent and any royalty payable by the licensee, lessee, or occupier for use of the property. Thus, the rent that a tenant is expected to pay for the property, in the case of lease‑hold interests, is deemed the statutory “annual rent value.” As a result, the Court found it untenable to accept the argument that the lessee’s or licensee’s payment of royalty on extracted minerals, which exceeds what would be payable if the right were limited to surface use, places the cess in a different category from other land‑use situations. The test remains the rent actually paid for the land, indicating that the land‑cess functions solely as a land tax.

In this case the Court explained that a lessee who merely uses the surface of the land belongs to a different category from a lessee who also extracts minerals, and that distinction affected the characterization of the levy. The Court held that the proper test for determining the nature of the levy was the amount of rent that the lessee or licensee actually paid for the land; using that test, the Court observed that the land‑cess could be described as nothing other than a land tax. Counsel for the respondent pointed out that, with respect to inam lands and other lands referred to in clauses (ii), (iii) and (iv) of section 79, the royalty payable by the lessee or licensee was excluded from the calculation of the annual rent value. The Court considered that observation to be wholly irrelevant to the question before it, because the issue was whether, under sub‑clause (i), the land‑cess was in truth a tax on land. The last point raised by counsel concerned the Government’s threat to recover the challenged demands as arrears of land revenue. Counsel further argued that section 221 of the Act, which authorised the recovery of sums due as taxes, had, by reason of amendments made to the rules, ceased to apply to the recovery of land‑cess under section 78. The High Court judges had accepted this submission, and the Court agreed with that finding, but noted that the decision did not assist the appellant because of the operation of section 52 of the Madras Revenue Recovery Act. Section 52 provides that all arrears of revenue other than land‑revenue, all advances made by the State Government for cultivation or other purposes connected with revenue, all fees or dues payable to village servants employed in revenue or police duties, and all cesses lawfully imposed upon land, together with any sums due to the State Government—including compensation for loss or damage resulting from a breach of contract—may be recovered in the same manner as arrears of land‑revenue, unless a special provision is made otherwise. It was uncontested that the cess imposed under section 78 qualified as “a cess lawfully imposed upon land” and therefore fell within the scope of section 52. Consequently, the Court concluded that the procedure proposed by the respondents for recovering the amounts could not be successfully challenged. Accordingly, the appeals and the writ petition were dismissed, and costs of a hearing fee were imposed on the appellants.