Municipal Council, Khurai And Another vs Kamal Kumar and Another on 18 December, 1964

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 974 of 1964

Decision Date: 18 December 1964

Coram: J.R. Mudholkar, A.K. Sarkar, M. Hidayatullah

In the case titled Municipal Council, Khurai and Another versus Kamal Kumar and Another, the judgment was delivered on 18 December 1964 by a bench of the Supreme Court of India consisting of Justice J. R. Mudholkar, Justice A. K. Sarkar and Justice M. Hidayatullah. The official citation of the decision is reported in 1965 AIR 1321 and 1965 SCR (2) 653, and it is also referenced in later citators such as R 1973 SC1041 (13) and RF 1992 SC2279 (34). The dispute concerned the application of the Madhya Pradesh Municipalities Act, 1961, specifically sections 78, 137 and 141, and involved questions about the delegation of powers to a sub‑committee, the validity of a revised assessment list, the opportunity afforded to assessors to object, and the necessity for a further amendment of the list. An assessment list of house and conservancy taxes had originally been prepared on the basis that a slab system of taxation would apply, and this list was published by the appellant under section 136 of the Act. The assessors filed objections to the list under section 138(2). Subsequently the appellant abandoned the slab system and returned to the old rate of assessment. A sub‑committee appointed by the appellant examined the objections, completed its revision, and the final list was published after authentication. Following complaints of partiality in the preparation of that list, the list was suspended. The appellant then chose to amend the list under section 141, served notices to certain assessors, heard their objections, and published a new authenticated list. The respondents appealed the new assessment list under the Act and also challenged it in a writ petition before the High Court, which allowed the petition. The matter then proceeded on appeal to the Supreme Court.

The Supreme Court held that the assessment list authenticated by the Chief Municipal Officer had not been prepared in accordance with the law, and consequently the provisions of section 141 were unavailable to the appellant. The Court explained that Article 265 of the Constitution requires strict compliance with the procedure for imposing a tax liability. In the present case, the objections filed by the assessors related to the list prepared under the slab system, not to the liability that would arise after reverting to the old rate; therefore the opportunity contemplated by section 137 of the Act was not given to the assessors as required. Assuming that section 78 allowed the council to delegate the power to hear objections under section 138(2) to its vice‑president or certain other officers, the Court stated that such power could not be delegated to a sub‑committee. The Court further observed that, although an aggrieved party may have an alternative remedy, the High Court possesses jurisdiction under Article 226 to grant relief to such a party in appropriate cases. Consequently, the assessment list was declared ineffective and subject to being set aside.

The appeal was taken from the judgment and order dated 10 September 1964 of the Madhya Pradesh High Court in Miscellaneous Petition No. 113 of 1964. Counsel M. C. Setalvad, S. L. Jain and M. S. Gupta appeared on behalf of the appellants, while A. V. Viswanatha Sastri, B. R. L. Iyengar, S. K. Mehta and K. L. Mehta represented respondent No. 1. The judgment of the Supreme Court was delivered by Justice Mudholkar. In this appeal the Court was asked to determine whether the assessment list of house tax and conservancy tax that had been confirmed by the Municipal Council of Khurai at a special meeting held on 24 February 1964 was valid, or whether it should be set aside on the ground that it had not been prepared in accordance with the provisions of the Madhya Pradesh Municipalities Act, 1961 (hereinafter “the Act”). The material facts underlying the dispute were not contested.

According to the record, on 28 December 1962 the Municipal Council passed a resolution appointing a Sub‑Committee composed of the Vice‑President and two other members. The Sub‑Committee was tasked, under section 138(2) of the Act, with hearing objections to the new assessment that the Chief Municipal Officer was to propose. Two days later, on 30 December 1962, the Chief Municipal Officer was instructed to prepare assessment lists for each of the eleven wards into which the municipal area was divided. Up to that time the tax had been levied at the rate of Rs 7‑12‑0 per cent on the annual letting value of house properties and building sites that were liable to tax.

On 3 March 1963 the Council evaluated a proposal to introduce a slab system for assessing those properties. During that discussion a council member, Smt Poonabai, proposed a modification of the original office proposal; her amendment was accepted by a majority of the council members. Accordingly, on 6 March 1963 the assessment list prepared by the Chief Municipal Officer in execution of the resolution was authenticated by him and was published on the same day under section 136 of the Act. The publication was accompanied by a call for objections from the assessees. Approximately 2,200 objections were filed, and the Sub‑Committee examined those objections between 7 April 1963 and 14 April 1963.

During the same period a suit was instituted by several assessees challenging the validity of the 3 March 1963 resolution that altered the rate of tax. The plaintiffs sought a permanent injunction to restrain the Committee from giving effect to the new assessment basis. It subsequently became apparent to the Committee that it could not vary the existing rates without first obtaining approval from the State Government. Consequently, in the written statement filed on its behalf, the Committee stated that an early meeting would be convened to decide whether the 3 March 1963 resolution should be implemented. That meeting was held on 28 April 1963, at which time the Council revoked the 3 March resolution and restored the previous rate of assessment. Numerous complaints were subsequently lodged regarding the conduct of the Sub‑Committee.

Assessees submitted complaints alleging that the Sub‑Committee had acted with bias in handling objections to the assessments and had favoured wealthy persons. The President of the Municipal Council investigated these complaints and concluded that they possessed merit. Meanwhile, the Sub‑Committee rendered a decision on 21 August 1963, after which the revised assessment list was certified by the Chief Municipal Officer in accordance with section 140 of the Municipalities Act and was published on 30 August 1963. Following this publication, demand notices were apparently issued to the assessees based on the revised list. The President, still concerned about the alleged partiality, wrote to the Collector indicating that the Sub‑Committee had shown favour to rich assessees and requested that the revised list be suspended using his supervisory authority. On 9 October 1963 the Collector exercised the powers delegated to him under section 323 of the Madhya Pradesh Municipalities Act, 1961, and issued an order suspending the execution of the Sub‑Committee’s decision dated 28‑December‑1962, which had been taken under section 71(v) of the same Act for the assessment of house tax and latrine tax. The Collector stated that the Sub‑Committee’s decision was not in conformity with the law, was detrimental to the Council’s interests, and was causing public annoyance, and directed that the suspension remain in effect until a fresh, proper revision of the assessment was made. He forwarded a copy of this order to the Government of Madhya Pradesh, seeking confirmation under section 323(2), and attached an endorsement addressed to the President of the Municipal Council. In that endorsement he noted that the copy had been sent for the President’s information and immediate action regarding the demand notices, observed that the assessment appeared improperly made, that no reasons had been given for rejecting the overseer’s valuation, and that rich persons seemed to have been favoured, constituting a failure by the Council to fulfil its statutory duty. Consequently, the President was instructed to show cause for this failure under section 327(1) within fifteen days. Upon receiving the Collector’s communication, the President issued a proclamation informing the assessees that the assessment list had been suspended and that taxes based on the revised list should not be paid. Acting on the Collector’s communication, the Government issued a notice to the Council on 2 December 1963 under section 323(2) requiring the Council to show cause why the Collector’s order should not be confirmed. The Government subsequently confirmed the Collector’s order. On 29 December 1963 the Council, at a special meeting, continued its proceedings regarding the assessment matters.

In this matter, the Municipal Council convened a special meeting and resolved that the assessment lists should be revised pursuant to section 141 of the Act. Accordingly, on 7 January 1964 the Council dispatched individual notices to three hundred persons directing each to show cause why the annual letting value of his or her property should not be increased. The Council conducted hearings of objections between 16 February 1964 and 20 February 1964 and thereafter revised the assessments of some or all of the individuals who had received notices. Subsequently, on 24 February 1964 the Council, through another special meeting, confirmed the revised assessment as effective from 1 April 1963. The resolution was authenticated on 4 March 1964 under section 140(1) by the Chief Municipal Officer, and the Council asserted that the assessment list thereby became final. Following these actions, a writ petition was filed before the High Court by a number of assessors, and the petition was supported on four grounds, which the High Court summarized as follows: first, that the Municipal Council lacked authority to appoint a Sub‑Committee to hear and determine objections to the assessment list; second, that the notice issued for filing objections did not comply with the provisions of the Act; third, that the Council acted unlawfully and without jurisdiction by adopting a slab system with varying rates, ignoring the original house‑tax rate of Rs 7/13 percent; and fourth, that when the execution of the Sub‑Committee’s decision dated 21 August 1963 was suspended and later revoked, the Council was not entitled to rely on section 141 to make limited amendments to the assessment list, but was required to prepare an entirely new assessment list in accordance with sections 137, 138 and 140 of the Act. The High Court deemed the first three grounds unnecessary to consider, holding that the fourth ground alone sufficed to grant relief to the assessors. It concluded that the assessment list confirmed by the Council on 24 February 1964 was invalid because the Council had served notice only to three hundred assessors and had heard objections only from them, leaving the remaining nineteen hundred assessors without an opportunity to be heard. Before the Supreme Court, counsel for the Council, identified as Mr Setalvad, argued that an appeal had already been lodged by the respondents against the assessment list, and consequently they were not entitled to relief under article 226 of the Constitution. He acknowledged that ordinarily the High Court would not entertain a petition under article 226 where an alternative remedy was available, but contended that the High Court possessed jurisdiction to grant relief if it deemed such relief appropriate.

In this case the Court observed that the High Court had exercised its discretion in favour of the respondents. The Court explained that it would not be appropriate to disturb that discretionary exercise unless there was a clear indication that the High Court’s action was arbitrary or unreasonable. After reviewing the material placed before it, the Court found no information that could lead to the conclusion that the High Court had acted arbitrarily in granting the writ that the respondents had sought. Consequently, the Court affirmed that the High Court’s decision should be left undisturbed, because the circumstances did not reveal any defect in the exercise of its discretion.

The Court then turned to the substantive questions presented by the parties. Counsel for the Municipal Council argued that the assessment list, having been authenticated by the Chief Municipal Officer in accordance with section 140, became a final list. Accordingly, the Council contended that the Council was empowered under section 141 of the Act to amend that final list. The Court noted that subsection (1) of section 141, without the proviso, is the only portion relevant for this purpose and it provides that “The Council may at any time amend the assessment list by the inclusion, omission or substitution of any matter.” Counsel for the respondents, however, maintained that the power conferred by section 141(1) could be used only for correcting arithmetic or similar clerical errors and not for revising the amount of tax payable. He further submitted that this provision applied solely to the amendment of a current list and that, because the assessment list had not become final under section 142, it could not be altered under section 141. On that basis, he argued that the proper authority for any amendment was section 146 of the Act. In a further submission, counsel for the respondents advanced a third argument, asserting that the assessment list had been suspended by an order of the Collector made under section 323 of the Act, and therefore the Council possessed no power to amend the list under section 141. The final argument advanced was that the authority to hear objections and to revise the list could not be delegated to the Sub‑Committee, and consequently the revised list was legally defective. The Court noted that it was not disputed that the procedures laid down in sections 134, 135 and 136 of the Act for assessing buildings and lands for tax were properly followed, and that a total of 2,200 objections had been filed with the Municipal Council. Those objections were investigated and dealt with by the Sub‑Committee appointed by the Council. Counsel for the Council therefore submitted that after complying with the statutory procedure, the next required step was the authentication of the assessment lists by the Chief Municipal Officer as mandated by section 140(1). The Court accepted that this step had indeed been carried out, making the assessment list final and granting the Council the authority to amend it under section 141(1). Counsel for the respondents, however, contended that the provisional assessment list prepared under section 134(1) and published under section 136 was based on the new rates of tax that the Municipal Council had imposed.

In this case, the Court observed that the resolution dated 3 March 1963 was revoked on 28 April 1963 and that the former tax rate of Rs 7/13 per cent was restored, which required the publication of a new assessment list based on the restored rate. The Court noted that the petitioner further argued that the objections to the assessment list should have been considered by the Municipal Council in its entirety rather than by the Sub‑Committee, and that because of these defects the list could not be deemed final merely through its authentication by the Chief Municipal Officer under section 140 of the Act. The petitioner's counsel asserted that these objections had not been raised before the High Court; however, the Court found that assertion to be inaccurate. It pointed out that the judgment of the High Court had already set out a summary of the grounds presented to it, and that the objections raised by the petitioner appeared in the first two of those grounds. Although the High Court chose not to address those two grounds because it resolved the matter on the basis of the fourth ground, the Court held that this omission did not prevent it from examining the first two grounds. In the Court’s view, both of those grounds were substantial and struck at the very core of the claimed finality of the assessment list that had supposedly been authenticated under section 140. The Court explained that, under section 136 of the Act, the assessment list that must be published is required to contain full and accurate particulars as prescribed in section 134(1), namely the valuation of the property on a capital or annual letting basis, the applicable tax rate, and the amount of tax assessed. Because the March 3, 1963 resolution on which the published list was based had been revoked, the tax rate and the resulting tax amount would necessarily differ from those that would have been calculated under the resolution of 28 April 1963. The Court further observed that Article 265 of the Constitution prohibits the levy or collection of tax except by authority of law, which implies that the procedure for imposing tax liability must be strictly adhered to; any deviation means that the liability cannot be said to be lawful. The Court noted that the objections filed by the assessors were made in response to the list published under section 136, rather than in accordance with the liability that would arise from the 28 April 1963 resolution. Consequently, the assessors were not afforded the opportunity contemplated by section 137 of the Act to lodge objections against the proper liability. Moreover, the petitioner’s counsel was not

The Court noted that counsel could not point to any provision of the Act or its rules, other than section 78, which permitted the Council to delegate its function of hearing and deciding objections to a Sub‑Committee. Section 78 was then set out in full: “Any powers or duties or executive functions which may be exercised or performed by or on behalf of the Council may, in accordance with the rules made under this Act, be delegated by the Council to the President or Vice‑President or to the Chairman of the Standing or other Committees, or to one or more stipendiary or honorary officers, but without prejudice to any powers that may have been conferred on the Chief Municipal Officer by or under section 92.” The Court held that, even if the provision were read to allow delegation of the Council’s power to hear objections, such delegation could only be made to the persons expressly named in section 78. Accordingly, the delegation could not be made to a Sub‑Committee or to a Committee as a whole. Although the Convenor of the Sub‑Committee appointed by the Council happened to be the Vice‑President, the delegation was made to the Sub‑Committee, not to the Vice‑President personally. The Court explained that these two situations were not identical, because in one case the authority to decide an objection would rest solely with the Vice‑President, whereas in the other case the authority would belong to the Sub‑Committee collectively. The Court observed that unanimity among the Sub‑Committee members would cause no prejudice, but if the Vice‑President held one view and the other two members held a different view, the Sub‑Committee’s decision could not be treated as the Vice‑President’s decision at all. For these reasons, the Court concluded that the assessment list authenticated by the Chief Municipal Officer had not been prepared in accordance with law, and that consequently the provisions of section 141 were unavailable to the Council. On this basis, the Court found it unnecessary to examine whether the reasoning of the High Court was correct. The appeal was therefore dismissed with costs, and the dismissal was affirmed.