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PETITIONER:

CORPORATION OF CALCUTTA AND ANOTHER

Vs.

RESPONDENT:

LIBERTY CINEMA

DATE OF JUDGMENT:

14/12/1964

BENCH:

SARKAR, A.K.

BENCH:

SARKAR, A.K.

SUBBARAO, K.

DAYAL, RAGHUBAR

AYYANGAR, N. RAJAGOPALA

MUDHOLKAR, J.R.

CITATION:

1965 AIR 1107 1965 SCR (2) 477

CITATOR INFO :

R 1967 SC1040 (8)

RF 1967 SC1895 (10,11,12)

RF 1968 SC1232 (25,27,53,86,95,96)

RF 1971 SC 344 (5,6)

R 1971 SC1182 (9)

RF 1971 SC2100 (8,18,19,21)

RF 1973 SC1374 (6)

R 1974 SC1660 (9,21,32)

RF 1975 SC 846 (19)

R 1975 SC1007 (12)

D 1975 SC2193 (3,6,8,10)

E 1979 SC 321 (13,15,18,26,40)

RF 1979 SC1475 (20,22)

E 1980 SC1008 (15)

RF 1985 SC 218 (7)

R 1990 SC 560 (13)

ACT:

Calcutta Municipal Act (33 of 1951), ss. 413 and

548--License fee on cinema houses-whether tax or fee for

rendering service--Validity of

levy and s. 548.

HEADNOTE:

Under a. 413 of the Calcutta Municipal Act, 1951, no person

shall without a licence granted by the Corporation of

Calcutta, keep open any cinema house for public amusement in

Calcutta. Under s. 548(2), for every licence under the Act,

a fee may be charged at such rate as may from time to time

be fixed by the Corporation. In 1948, the appellant

(Corporation) fixed fees on the basis of annual valuation of

the cinema house. The respondent, who was the owner and

licensee of a cinema theatre, had been paying a licence fee

of Rs. 400 per year on that basis. In 1958, the appellant,

by a Resolution, changed the basis of assessment of the fee.

Under the new method the fee was to be assessed at rates

prescribed per show according to the sanctioned seating

capacity of the cinema house; and the respondent had to pay

a fee of Rs. 6,000 per year. The respondent, therefore

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moved the High Court for the issue of a writ quashing the

resolution and the application was allowed.

In the appeal to the Supreme Court the appellant contended

that (i) the levy was a tax and not a fee in return for

services and (ii) s. 548(2) does not suffer from the vice of

excessive delegation; while the respondent contended that

(i) the levy was a fee in return for services to be rendered

and not a tax, and as it was not commensurate with the costs

incurred by the Corporation in providing the services, the

levy was invalid; (ii) if s. 548 authorised the levy of a

tax, as distinct from a fee in return for service rendered,

it was invalid, as it amounted to an illegal delegation of

legislative functions to the appellant to fix the amount of

a tax without any guidance for the purpose and (iii) the

levy was invalid as violating Art. 19(1) (f) and (g) of the

Constitute.

HELD (per Sarkar, Raghubar Dayal and Mudholkar JJ) : (i) The

was not a fee but a tax. [490 F]

The Act does not intend to use the word "fee" as referring

only to a levy in return for services, for, the levies

authorised by some other sections of the Act are really

"taxes", though called "fees". Besides, the words used are

"fee for the licence" and these words do not necessarily

mean a "fee in return for services" as is apparent from

Arts. 110(2) and 199(2) of the Constitution, where both

expressions are used indicating that they are not the same.

[483 G-H]

The word "fee" in s. 548 must be read as referring to a tax

as any other reading would make the section invalid, and in

interpreting a statute, it ought to be made valid if

possible. [484 B-C]

The decisions of this Court establish that in order to make

a levy a fee for services rendered, the levy must confer

special benefit on the persons on whom it is imposed. The

levy under s. 548 (2) is not a "fee in return for services"

as the Act does not provide for any services of a special

kind being rendered, resulting in benefits to the person on

478

whom it is imposed. S. 527(43) permits by laws to be framed

for regulating the inspection, supervision and control,

among others, of cinema houses; but it is not obligatory to

make such by laws and therefore, there may be no services to

render. Even the by law made provides only for inspection,

and the work of inspection done by the appellant was only to

see that the terms of the licence were observed by the

licensee. It was not a service to him, and so, no question

arises of correlating the amount of levy to the costs of any

service. The levy therefore is not a fee and must be tax.

[485 B-C, F; 488 E; 490 E-F]

The Commissioner, Hindu Religious Endowments, Madras v. Shri

Lakshmindra Thirtha Swamiar of Sirur Mutt, [1954] S.C.R.

1005, H. H. Sudhindra Thirtha Swamiar v. Commissioner for

Hindu Religious and Charitable Endowments, [1963] Supp. 2

S.C.R. 302 and The Hingir Rampur Coal Co. Ltd. v. The State

of Orissa and Ors. [1961] 2 S.C.R. 537, referred to.

Whether a particular levy is a fee or a tax has to be

decided only by reference to the terms of the section. Its

position in the Act cannot determine its nature ; an

imposition which is by its terms a tax and not a fee, cannot

become a fee by reason of its having been placed in a

certain part of the Statute. [489 B]

It is not right to say that s. 443 does not impose any

duty on the appellant and that therefore, the licence fee

leviable under s. 548, should be fixed only with reference

to rendering of services. The Corporation has been set up

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only to perform municipal duties and its powers are for

enabling it to perform those duties. But, since there is no

provision for service being rendered, the levy cannot be a

fee and would indisputably be a tax. [490 B, C, D]

(ii) The fixing of the rate of a tax is not of the essence

of legislative power and the fixing of rates may be left to

a non legislative body. When it is so left to another body

the legislature must provide guidance for such fixation.

Since there is sufficient guidance in the Act as to how the

rate of the levy under s. 548 is to be fixed, the section is

valid. [492 D, F; 493 G-H; 497 B]

The appellant is an autonomous body. It has to perform

various statutory functions. It is given power to decide

when and in what manner the functions are to be performed.

For all this it needs money and its needs will vary from

time to time with the prevailing exigencies. Its power to

collect tax is necessarily limited by the expenses required

to discharge the functions. it has, therefore, where rates

have not been specified in the statute, to fix such rates as

may be necessary to meet its needs, and that would be

sufficient guidance to make the exercise of its power to fix

the rate, valid. [496 D-F]

Case law reviewed.

(iii) The challenge to the levy on the ground that it

amounts to expropriation is wholly unfounded.

No doubt the increase in the rate of fee was large but

considering the available seating capacity of the

respondent, it cannot be said to be unreasonably high. [482

E-F]

The contention of the appellant that even if no guidance for

taxation has been prescribed the section would still be

valid, because, the Act may be said to have been passed

under Entry 5 of List II of the Seventh Schedule to the

Constitution and that Entry authorises the passing of a law

concerning the powers of a municipal corporation and that

such powers must necessarily include the power to levy a

tax, was left open. [497 D-E, H]

479

per Subba Rao and Ayyangar, JJ (dissenting) (i) If on a

proper construction of the Act one reached the conclusion

that Part IV of the Act was not exhaustive of the range of

levies permitted by the Act, and the fees permitted to be

levied by s. 548(2) were also taxes, there would be nothing

in s. 127(3) or (4) to militate against that construction.

But, an examination of the provisions of the Act makes three

matters abundantly clear; (a) that the Act draws a sharp and

clear distinction between taxes properly so called and fees;

(b) that the division into Parts and Chapters is logical and

clear cut and no matter which properly falls under a subject

set out under a Part or Chanter heading, is dealt with in

any other; and (c) that taxes, by whatever designation they

might be called, are all comprehended and dealt with by Part

IV and by Part IV alone, and that what is permitted to be

imposed by s. 548(2) is only a fee as distinguished from a

tax. As admittedly there is no correlation between the fee

charged and the service rendered, the impugned levy was not

authorised and the High Court was right in granting relief

to the respondent. [525 B-C; 526 D-G]

To say that to enable a fee strictly so called to be levied,

an immediate advantage measurable in terms of money should

be conferred on the payer is to take too narrow a view of

the concept of a fee. The word "services" in the context

has to be understood in a wide sense, as including

supervision and control over the activities for the excess

of which the fee is charged. The judgements of this Court

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in the Shirur Mutt case, [1954] S.C.R. 1005, and the cases

following it, do not lay down that where an activity is

regulated by licenses, the imposition of charges for the

inspection, supervision and control of the activity to

ensure compliance with the regulation is not a benefit

conferred on the licensee, so as to render the amount

charged for such a licence not a fee in the real sense, but

a tax, whose constitutional validity could be sustained by

reference to the taxation entries in Lists I and II. [508 A;

515 F-G; 517 H; 518 A]

Case law considered.

Also, Art. 110(2) of the Constitution far from supporting

the appellant's contention, negatives it. If pure taxation

measures, employing the machinery of licences and fees,

would be money-bills, then the fees for licences which are

outside the definition, would be those fees which are

imposed to meet the cost of regulation and supervision of an

activity which is controlled by the requirements of a

licence and compliance with its terms. Besides, if the levy

of such licence fees on various activities which form the

subject of legislative control or regulation under the

various non-taxation entries in the Lists were treated as

tax, Entries 96 and 66 in the respective Lists would have to

be read as taxation entries, because, such a levy is

permitted only by those entries. This however would be con-

trary to the entire scheme on which the several entries in

the Lists are made, namely, setting out the exclusive

general legislative powers the enumeration of taxes which

could be imposed and finally the power to, impose fees in

respect of any of the matters in the List. [502 C; 519 B-C,

E, G]

(ii) Viewed as a tax the delegation in s. 548(2) is

unconstitutional, as essential legislative functions are

parted with to the municipality, a subordinate law making

body, and therefore the provision is unconstitutional. [546

B]

Essential legislative functions cannot be delegated but

where the law lays down the principles and affords guidance

to the subordinate lawmaking authority details may be left

for being filled up by the executive or by other authorities

vested with quasi-legislative power. The power

480

to fix a rate of tax is an essential legislative function

and therefore, unless the subordinate law-making authority

is afforded guidance by the policies being formulated,

principles enunciated and standards laid down, the

legislation will suffer from the vice of excessive

delegation and would be void as arbitrary and

unconstitutional. The _Provisions of the Act do not afford

any guidance to the Municipal Corporation to fix the rate of

levy. No doubt, the municipal government of Calcutta was

vested in the Corporation under s. 24 of the Act, but the

expression "government" does not gather within its fold all

powers necessary for administration nor does it create an

independent sovereign body entitled to legislate in any

manner it likes for the purpose of carrying on civic

government. The Corporation is still a subordinate body

which is the creation of the legislature and can only

function within the framework of the powers conferred upon

it by the Act. No assistance is derived in this regard from

the powers of supervision which the State Government has

over the municipal affairs under a. 42 and 47. If no

standards have been laid down by the Act for the Corporation

to afford it a guidance for the fixation of a rate, the fact

that supervisory power is conferred upon the executive would

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not obviate that objection, for the Government itself would

have no guidance from the legislature as to the policy to be

adopted in exercising the supervision. [541 E--G; 542 C-G;

545 A]

It cannot be said that as a result of as. 115, 117 and 126

no taxes could be raised except such as were needed for the

expenditure for which provision had been made in the budget

and the rate of tax was, therefore, determined by the needs

of the Corporation. If the amount of money which a

municipality needs for discharging its functions, affords

any guidance, then the need of a State or the Union ought to

afford sufficient guidance to sustain the validity of any

skeleton legislation. [545 A-C]

The Orissa Ceramic Industries Ltd. v. Executive Officer,

Jharsuguda Municipality A.l.R, 1963 Orissa 171 disapproved.

The quantum of power which a law could bestow upon an

institution or body of its creation is determined, first, by

the view of the legislature to what are necessary for

achieving the purposes for which the institution or body is

created and, secondly, by the overall limitations imposed by

the Constitution by the distribution of legislative power.

Nothing therefore turns on the use of the word "powers" in

Entry 5 of the List 11 which deals with the Constitution and

powers of municipal corporations for the purpose of local

self-government. The State Legislature cannot, therefore,

authorise a municipal body which it creates, even though, it

be for the purpose of local self-Govemment, to exercise a

power higher than what it itself possesses. Any legislative

practice prevailing before 1st April, 1937 when India was

under a unitary form of government or prevailing before the

Constitution, does not serve as a guide for interpreting the

Legislative entries in the Constitution and any such

legislative practise cannot prevail over the limitations

imposed by the distribution of Legislative power in respect

of post-Constitution legislation. [527 F-G;530 D, G; 532 F-G

; 533 E-F; 534 C]

The analogy of American decisions also cannot afford any

guidance for the application of a different rule as to what

constitutes excessive delegation in the case of legislation

creating municipal bodies. The rule to limits of delegation

by the legislatures constituted in India, by the Consti-

tution, has been the subject of elaborate consideration by

this Court and the decisions have not laid down that a

different rule applies when the delegation of legislative

power is in favour of a municipal corporation. [535 C-D, E]

Case law considered.

481

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 26 of 1961.

Appeal from the judgment and order dated July 26, 1961 of

the Calcutta High Court in Appeal from original Order No. 67

of 1959.

G. S. Pathak, A. N. Sinha and P. K. Mukherjee for the

appellants.

Niren De, Additional Solicitor-general N.C chatterjee

S.Ghosh, J. B. Dadachanji and O. C. Mathur for the

respondent.

D. N. Mukherjee, for the intervener No. 1. Naunit Lal, for

the intervener No. 2.

The Judgment of SARKAR, RAGHUBAR DAYAL and MUDHOLKAR JJ. was

delivered by SARKAR J. The dessenting Opinion of SUBBA RAO

and AYYANGAR JJ. was delivered by AYYANGAR J.

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Sarkar J. The appellant Corporation was constituted by the

Calcutta Municipal Act, 1951, an Act passed by the

Legislature of the State of West Bengal. The Act was

intended to consolidate and amend the law relating to the

Municipal affairs of Calcutta and it defined the duties,

powers and functions of the Corporation in whose charge

those affairs were placed. The respondent is a firm owning

a cinema house. and carrying on business of public cinema

shows.

Section 443 of the Act provides that no person shall without

a licence granted by the Corporation keep open any

cinemahouse for public amusement. It, however, does not say

that any fee is to be paid for the licence. But sub-s. (2)

of S. 548 says that for every licence under the Act, a fee

may, unless otherwise provided, be charged at such rate as

may from time to time be provided. In 1948 the Corporation

had fixed the scale of fees on the basis of the annual

valuation of the cinema-houses made by a method which does

not appear on the record. The respondent had under these

sections obtained a licence for its cinema house and had

been paying a licence fee calculated on the aforesaid basis.

The fee as calculated was Rs. 400 per year.

By a resolution passed on March 14, 1958 the Corporation

changed the basis of assessment of the licence fee with

effect from April 1, 1958. Under the new method the fee

was to be assessed at rates prescribed per show according

to the sanctioned seating capacity of the cinema houses.

The respondent's cinema house,had 551 seats and under the

changed method it became liable to a

482

fee of Rs. 5 per show. In the result it became liable to

pay a fee of Rs. 6,000 per year.

The respondent then moved the High Court at Calcutta under

Art. 226 of the Constitution for a writ quashing the

resolution. The application was first heard by Sinha J. who

allowed it. This order was confirmed by an appellate Bench

of the same Court consisting of Bose C. J. and C. K. Mitter

J. on appeal by the Corporation. Hence the present appeal.

In this Court the levy was challenged on three grounds the

first of which may be disposed of at once. That ground was

that the levy amounted to expropriation and was, therefore,

invalid as violating cls. (f) and (g) of sub-Art. (1) of

Art. 19. Sinha J. rejected this contention as on the

materials on the record it could not be said that the new

rate was so high as to make it impossible for the respondent

to carry on its business. The learned Judges of the

appellate Bench do not appear to have taken a different view

of the matter. It seems to us that a fee at the rate of Rs.

5 per show in a house with a seating capacity of 551 cannot

in any sense be said to be unreasonably high. With that

seating capacity the respondent would at a reasonable

estimate be collecting about Rs. 1,000 per show and paying

the sum of Rs. 5 per show. No doubt the increase in the

rate of fee from Rs. 400 to Rs. 6,000 per year was large.

But at the same time the circumstances obtaining in our

country had undergone an immense change between 1948 when

the fee was earlier fixed and 1958. The challenge to the

levy on the ground that it amounted to expropriation is

wholly unfounded and was rightly rejected in the High Court.

Substantially the same argument was advanced from a

different point of view. It was said that Art. 19(1), (f)

and (g) were violated in any case as S. 548 gave an

arbitrary power of taxation. This contention found favour

with the learned Judges of the High Court but, with respect

to them, we are unable to agree. In our view, for reasons

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to be later stated, no arbitrary power of taxation was

conferred by s. 548.

The second challenge to the levy was put in this way. The

levy authorised by ss. 443 and 548 was a fee in return for

services to be rendered and not a tax and it had therefore

to be commensurate with the costs incurred by the

Corporation in providing those services. The present levy

of Rs. 6,000 per year was far in excess of those costs and

was for that reason invalid. The Corporation's answer to

this contention is that the levy was a tax and not a fee

taken in return for services and no question of its

483

being proportionate to any costs for services arose. The

Corporation does not dispute that if the levy was a fee in

the sense mentioned, it would be invalid. The only question

on this part of the case, therefore, is, was the levy a fee

in return for services? Another subsidiary question is,

what is the nature of the services which makes a levy in

respect of them, a fee ? It is not disputed that a levy made

in return for services rendered would be a fee. It is,

therefore, unnecessary to consider what a fee is or the

tests by which it is to be determined. Nor is it necessary

to discuss whether in order that a levy may be a fee the

statute imposing it must intend primarily to confer the

benefits of the services on those who pay it and benefits

received from those services by the public at large, if any,

must be secondary. A discussion of these aspects of fees,

will be unprofitable and will only cloud the point really in

issue.

Now, on the first question, that is, whether the levy is in

return for services, it is said that it is so because s. 548

uses the word "fee". But, surely, nothing turns on words

used. The word "fee" cannot be said to have acquired a

rigid technical meaning in the English language indicating

only a levy in return for services. No authority for such a

meaning of the word was cited. However that may be, it is

conceded by the respondent that the Act uses the word "fee"

indiscriminately. It is admitted that some of the levies

authorised are taxes though called fees. Thus, for example,

as Mitter J. pointed out, the levies authorised by ss. 218,

222 and 229 are really taxes though called fees, for no

services are required to be rendered in respect of them.

The Act, therefore, did not intend to use the word fee as

referring only to a levy in return for services.

This contention is not really open to the respondent for s.

548 does not use the word "fee"; it uses the words "licence

fee" and those words do not necessarily mean a fee in return

for services. In fact in our Constitution fee for licence

and fee for services rendered are contemplated as different

kinds of levy. The former is not intended to be a fee for

services rendered. This is apparent from a consideration of

Art. 110(2) and Art. 199(2) where both the expressions are

used indicating thereby that they are not the same. In

Shannon v. Lower Mainland Dairy Products Board(1) it was

observed at pp. 721-722, "if licences are granted, it

appears to be no objection that fees should be charged in

order either to defray the costs of administering the local

regulation or to increase

(1) [1938] A. C. 708

484

the general funds of the Province or for both purposes It

cannot, as their Lordships think, be an objection to a

licence plus a fee that it is directed both to the

regulation of trade and to the provision of revenue." It

would, therefore, appear that a provision for the imposition

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of a licence fee does not necessarily lead to the conclusion

that the fee must be only for services rendered.

It may also be stated that a statute has to be read so as to

make it valid and, if possible, an interpretation leading to

a contrary position should be avoided; it has to be

construed ut res magis valeat quam pareat : see Broom's

Legal Maxims (10 ed.) p. 361, Craies on Statutes (6th ed.)

p. 95 and Maxwell on Statutes (11th ed.) p. 221. Therefore

again, the word "fee" in s. 548 should be read as meaning a

tax, for as we shall show later, it made no provision for

services to be rendered; any other reading would make the

section invalid. A construction producing that result has

to be avoided. We do not also think that by reading the

word as referring to a tax we would be doing any violence to

the language used.

If the word "fee" is not conclusive of the question that it

must be in return for services, as we think it is not, then

the question whether the fee contemplated in s. 548 is a fee

in return for services, can only be decided by reference to

the terms of the section and for this purpose we have to

consider that section along with s. 443. We have earlier

summarised the sections but now propose to set them out so

far as material :

S. 443. No person shall, without or

otherwise than in conformity with the terms of

a licence granted....

S. 548. (1) Every licence granted under this

Act shall

specify, ............................

(1) the tax or fee, if any, paid for the

licence

(2) Except when it isotherwise expressly

provided, for every such licencea fee may

be charged at such rate as may from time to

time be fixed by the

Corporation....................

The sections do not refer to the rendering of any service by

the Corporation. Looking at them we do not find anything to

lead to the conclusion that they make it incumbent on the

Corporation

485

to render any service in return for the fee imposed.

Stopping here, therefore, there is no reason for saying that

the levy is a fee in return for services.

But it was said that the services to be provided for the

levy of the fee are set out in the by-laws made under s.

527, item 43. Item 43 permits by-laws to be framed

regulating the inspection, supervision and control, among

others, of cinema houses. It does not however make it

obligatory on the Corporation to make any by-law. If the

by-laws are not made, there would, ex hypothesis be no

services to render. No doubt s. 443 contemplates that the

cinema shows shall be conducted in conformity with the terms

of the licence but it again seems to us that it is optional

for the Corporation to impose terms; it is not bound to do

so. In any case, those terms need not be for rendering of

services by the Corporation. They may, for example, provide

that the shows will not be continued after a certain hour in

the evening.

In fact, however, certain by-Laws, called Theatre By-laws,

were framed by the Corporation. Those by-laws were not

produced before us excepting one which states, "The Chairman

may cause all such premises to be inspected at least twice

yearly and if as the result of such inspection any defect or

disorder be noticed in such premises in connection with and

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relating to any of the matters or things referred to in

these by-laws, the Chairman may by written notice require

the owner or lessee of such premises to make good such

defects." It is quite clear that the words "the matters or

things referred to in these by-laws" occurring in the by-law

quoted, contemplate things to be done by the licensee and

not by the Corporation. Those matters or things cannot be

services which the Corporation is required to render. It

would, therefore, appear that even the by-laws the terms of

which might have been incorporated in the licence do not

contemplate the rendering of any service by the Corporation

to the licensee. It may be stated that the licence granted

to the respondent does not appear in the records of this

case.

It is however said that the by-law earlier quoted requires

inspection of the cinema houses by the Corporation and that

was the service that the Corporation had to render in return

for the licence fee. We are unable to accept this

contention. The inspection was not certainly a service to

the licensee; it was necessary only to make sure that he

carried out the conditions on which the licence had been

granted to him. It was something to

486

be done to control the licensee's activities and to make him

observe the conditions of the licence on pain of

cancellation of the licence. This is clear from sub-s. (3)

of S. 548 which states that "any licence granted under this

Act may at any time be suspended or revoked if any of its

restrictions or conditions is infringed or evaded by the

grantee." This non-observance of the conditions of the

licence would expose the licensee to penalty under S. 537 of

the Act. The inspection was therefore necessary also for

enforcing the conditions of the licence by penalising a

breach of them by the licensee. We cannot imagine that an

inspection by the Corporation for such purposes can at all

be said to be rendering of service to the licensee.

The nature of services to be rendered in return for a levy

so as to make it a fee has been considered by this Court in

several cases and in all of them it has been said that the

services must confer some benefit on the person paying the

fee. The earliest case on the subject appears to be The

Commissioner, Hindu Religious Endowments, Madras v. Sri

Lakshmindra Thirtha Swamiar of Sri Shirur Mutt(1), where it

was said at p. 1042, 'a fee is a payment for a special

benefit or privilege.... Public interest seems to be at the

basis of all impositions, but in a fee it is some special

benefit which the individual receives". It was again said

at p. 1043, that in the case of fees for services "the

Government does some positive work for the benefit of

persons and the money is taken as the return for the work

done or services rendered." This case was concerned with a

statute which imposed a levy on religious institutions

expressly said to be in return for services. The services

mentioned in the statute consisted among others in the

Government supervising the management of the institutions,

auditing their accounts and seeing that their income was

duly appropriated to the purposes for which they were

founded. Though it did not expressly say so. this Court was

presumably of the view that these were services to the

institutions making the levy a fee, for it declared the levy

invalid on the ground that it was not correlated to the

costs of those services and therefore was a tax which was

beyond the competence of the Madras Legislature which had

enacted the statute. It would appear that the services here

considered were not for controlling the institutions but for

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doing work which secured to them their funds and the proper

application of them. The statute might have involved a

check on the conduct of the

(1) [1954] S.C.R. 1005.

487

Mathadipatis who managed the institutions but that control

also was for the benefit of the institutions. It has to be

remembered as was said in another case to which we shall

presently refer, that the Mathadipatis were in the position

of trustees of the institutions. It would follow that

control of their wrongful activities must result in special

benefits to the institutions for their funds would not then

be frittered away.

After this judgment, the section imposing the levy was

amended but the amended section was also challenged on

similar grounds. The matter again came up to this Court in

the case of H. H. Sudhundra Thirtha Swamiar v. Commissioner

for Hindu Religious & Charitable Endowments, Mysore(").

This time the validity of the section was upheld. The

reasons for this decision are not relevant to the present

discussion. As to the nature of services however, this

Court reiterated the view stated in the earlier case. It

said at p. 323, "If with a view to provide a specific

service, levy is imposed by law and expenses for maintaining

the service are met out of the amounts collected there being

a reasonable relation between the levy and the expenses

incurred for rendering the service, the levy would be in the

nature of a fee and not in the nature of a tax." It was

further said, "A fee being a levy in consideration of

rendering service of a particular type, correlation between

the expenditure by the Government and the levy must

undoubtedly exist." The act was the same as the earlier one

in regard to the services to be rendered by the Government

and the view expressed in the earlier judgment as to the

nature of the services required by the statute to be

performed was endorsed in this judgment. It was said at p.

312, that the Mathadipati "is by virtue of his office under

an obligation to discharge the duties as a trustee and is

answerable as such". It would follow that a service

resulting in the control of the Mathadipati would confer

special benefit on the institution which alone paid the

levy.

Both these cases discussed other tests besides the require-

ment of the rendering of services for determining whether a

levy is a fee, but with these we are not concerned in the

present case. These cases also discussed the correlation of

the costs of the services to the levy but with that also we

are not concerned as it is not sought to uphold the present

levy on the ground of such correlation. We have referred to

these cases only for showing that to make a levy a fee the

services rendered in respect of it

(1) [1965] Supp. 2 S. C. R. 302

Supp./65-15

488

must benefit, or confer advantage on, the person who pays

the levy.

The other case to which we wish to refer in this connection

is The Hingir-Rampur Coal Co. Ltd. v. The State of Orissa

and ors.(1). There the imposition by a certain statute of a

levy on lessees of coal mines in a certain area and the

creation of a fund with it, was called in question. It was

held that the levy was a foe in return for services and was

valid. It was there said at p. 549, "If the special service

rendered is distinctly and primarily meant for the benefit

of a specified class or area, the fact that in benefitting

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the specified class or area the State as a whole may

ultimately and indirectly be benefitted would not detract

from the character of the levy as a fee." It may be

mentioned that the levy there went to meet expenditure

necessary or expedient for providing amenities like

communication, water supply and electricity for the better

development of the mining area and to meet the welfare of

the labour employed and other persons residing or working in

the area of the mines. Here again there is no element ,of

control but the services resulted in real benefit specially

accruing to the persons on whom the levy was imposed. These

decisions of this Court clearly establish that in order to

make a levy a fee for services rendered the levy must confer

special benefit on the persons on whom it is imposed. No

case has been brought to our notice in which it has been

held that a mere control exercised on the activities of the

persons on whom the levy is imposed so as to make these

activities more onerous, is ,service rendered to them making

the levy a fee.

It was also contended that the levy under S. 548 must be a

tee and not a tax, for all provisions as, to taxation are

contained in Part IV of the Act, while this section occurred

in Chapter XXXVI headed "Procedure" in Part VIII which was

without a heading. It was pointed out that Part V dealt

with "Public Health, Safety and Convenience" and s. 443

which was included in Chapter XXVI contained in this Part

was headed "Inspection and Regulation of Premises, and of

Factories, Trades and Places of Public Resort". A cinema

house, it is not disputed, is included in the words "Places

of public resort". It was, therefore, contended that a levy

outside Part IV could not be a tax and hence must be a fee

for services. This contention was sought to be supported by

the argument that s. 443 occurred in a Part concerning

public health, safety and convenience and therefore the

(1) [1961] 2 S. C. R. 537

489

intention was that the levy authorised by the section would

be in return for work done for securing public health,

safety and convenience and was hence a fee. We are wholly

unable to accept this contention. Whether a particular levy

is a fee or tax has to be decided only by reference to the

terms of the section as we have earlier stated. Its

position in the Act cannot determint; its nature; an

imposition which is by its terms a tax and not a fee, which

in our opinion the present imposition is, cannot become a

fee by reason of its having been placed in a certain part of

the statute. The reference to the heading of Part V can at

most indicate that the provisions in it were for conferring

benefit on the public at large. The cinema house owners

paying the levy would not as such owners be getting that

benefit. We are not concerned with the benefit, if any,

received by them as members of the public for that is not

special benefit meant for them. We are clear in our mind

that if looking at the terms of the provision authorising

the levy, it appears that it is not for special services

rendered to the person on whom the levy is imposed. it

cannot be a fee wherever it may be placed in the statute. A

consideration of where ss. 443 and 548 are placed in the Act

is irrelevant for determining whether the levy imposed by

them is a fee or a tax.

The last argument in this connection which we have to notice

was based on ss. 126 and 127 of the Act. Section 126 deals

with the preparation by the Chief Executive Officer of the

Corporation called Commissioner, of the annual budget. The

budget has to include an estimate of receipts from all

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sources. These receipts would obviously include taxes,

fees, licence fees and rents. Under s. 127(3) the

Corporation has to pass this budget and to determine,

subject to Part IV of the Act, the levy of consolidated

rates and taxes at such rates as are necessary to provide

for the purposes mentioned in sub-s. (4). Sub-section (4)

requires the Corporation to make adequate and suitable

provision for such services as may be required for the

fulfilment of the several duties imposed by the Act and for

certain other things to which it is not necessary to refer.

The first point made was that these sections showed that the

Act made a distinction between fees and taxes. It does not

seem to us that anything turns on this as the only question

now is whether the levy under s. 548 is a fee. The other

point was that cls. (3) and (4) of s. 127 showed that the

Corporation could fix the consolidated rates and taxes and

that the determination of rates for these had to be in

accordance with the needs for carrying out the Corporation's

duties under the Act.

490

It was said that as the licence fee leviable under S. 548

did not relate to any duty of the Corporation under the Act,

it being optional for the Corporation to impose terms for

grant of licences for cinema houses, the rate for that fee

was not to be fixed in reference to anything except

rendering of services. We are unable to accept this

argument and it is enough to say in regard to it that it is

not right that s. 443 does not impose a duty on the

Corporation. We think it does so, though in what manner and

when it will be exercised it is for the Corporation to

decide. It is impossible to call it a power, as the

respondent wants to do, for it is not given to the

Corporation for its own benefit. The Corporation has been

set up only to perform municipal duties and its powers are

for enabling it to perform those duties. Furthermore there

is no doubt that an estimate of the licence fee has to be

included in the budget and therefore the word "tax" in S.

127(3) must be deemed to include the levy under s. 548. The

words " subject to the provisions of Part IV" in S.

127(3)must be read with the addition of the words "where

applicable".If that levy cannot be a fee because there

is no provision forservice being rendered in respect of it,

it would indisputably be a tax. As such again, its rate can

be determined under s. 127(3) to provide for the discharge

of at least the other undisputed duties of the Corporation.

We would, therefore, reject this last argument also.

The conclusion to which we then arrive is that the levy

under S. 548 is not a fee as the Act does not provide for

any services of special kind being rendered resulting in

benefits to the person on whom it is imposed. The work of

inspection done by the Corporation which is only to see that

the terms of the licence are observed by the licensee is not

a service to him. No question here arises of correlating

the amount of the levy to the costs of any service. The

levy is a tax. It is not disputed, it may be stated, that

if the levy is not a fee, it must be a tax.

It was then said that if S. 548 authorised the levy of a tax

as distinct from a fee in return for services rendered, it

was invalid as it amounted to an illegal delegation of

legislative functions to the Corporation because it left it

entirely to the latter to fix the amount of the tax and

provided no guidance for that purpose. We wish to point out

here that the contention now is that the section is invalid

while the contention that we have just dealt with proceeded

on the basis that the section was valid as it provided for

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the levy of a fee in return for services and as this

necessarily implied a limit of the levy, namely, that it had

to be commensurate to the amount of the costs of the

services, no guidance for

491

fixing the amount of the fee to be levied was required to be

provided. That argument only challenged the resolution on

the ground that it fixed the amount of the fee at a figure

much in excess of the costs for the services rendered.

Here again there is no dispute that a delegation of

essential legislative power would be bad. It was so held by

this Court first in In re The Delhi Laws Act.(1) The

principle there laid down has been summarised by Bose J. in

Rajnarain Singh v. The Chairman, Patna Administration

Committee, Patna(2), in these terms: "In our opinion, the

majority view was that an executive authority can be

authorised to modify either existing or future laws but not

in any essential feature. Exactly what constitutes an

essential feature cannot be enunciated in general terms, and

there was some divergence of view about this in the former

case, but this much is clear from the opinions set out

above: it cannot include a change of policy."

On the basis that s. 548 is a piece of delegated

legislation, it has been contended on behalf of the

Corporation that the rate of a tax is not an essential

feature of legislation and the power to fix it was properly

delegated to the Corporation as sufficient guidance for that

purpose was given in the Act. It is not in controversy, and

this indeed has been held by this Court, that if that is so,

the section would be unexceptionable. The question first is

whether the power to fix the rate of a tax can be delegated

by the legislature to another authority; whether it is of

the essence of taxing legislation. The contention of the

Corporation that fixation of rates is not an essential part

of legislation would seem to be supported by several

judgments of this Court to some of which we now proceed to

refer.

First, there is Pandit Benarsi Das Bhanot v. The State of

Madhya Pradesh ( 3 ) . That case was concerned with a Sales

Tax Act which by s. 6(1) provided that no tax would be

payable on any sale of goods specified in a schedule to it.

Item 33 of that Schedule read, "goods sold to or by the

State Government". Section 6(2) of the Act authorised the

State Government to amend the schedule by a notification.

In exercise of this power the Government duly substituted by

a notification for item 33 the following: "Goods sold by the

State Government". The amendment of the schedule by the

notification was challenged on the round that s. 6(2) was

invalid as it was a delegation of the

(1) [1951] S. C. R. 747

(2) [1955] 1 S. C. R. 290,301.

(3) [1959] S. C. R. 427.

492

essential power of legislation to the State Government.

Venkatarama Aiyar J. delivering the judgment of the majority

of the Court sitting in a Constitution Bench, rejected this

contention and after having read what we have earlier set

out from the judgment of Bose J. in Rajnarain Singh's

case(1), observed at p. 435: "On these observations, the

point for determination is whether the impugned notification

relates to what may be said to be an essential feature of

the law, and whether it involves any change of policy. Now,

the authorities are clear that it is not unconstitutional

for the legislature to leave it to the executive to

determine details relating to the working of taxation laws,

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such as the selection of persons on whom the tax is to be

laid, the rates at which it is to be charged in respect of

different classes of goods, and the like." The Act was a

statute imposing taxes for revenue purposes. This case

would appear to be express authority for the proposition

that fixation of rates of taxes may be legitimately left by

a statute to a non-legislative authority, for we see no

distinction in principle between delegation of power to fix

rates simpliciter; if power to fix rates in some cases can

be delegated then equally the power to fix rates generally

can be delegated. No doubt Pandit Banarsi Das's case(1) was

not concerned with fixation of rates of taxes; it was a case

where the question was on what subject mater, and therefore

on what persons, the tax could be imposed. Between the two

we are unable to distinguish in principle, as to which is of

the essence of legislation; if the power to decide who is to

pay the tax is not an essential part of legislation, neither

would the power to decide the rate of tax be so. Therefore

we think that apart from the express observation made, this

case on principle supports the contention that fixing of the

rate of a tax is not of the essence of legislative power.

In regard to the observations in Pandit Benarsi Das's

case(1) earlier quoted, it has been said that the

authorities on which they appear to have been based do not

support it. It has been contended that as the observations

do not form part of the actual decision in the case, they

need not be given that weight which they would otherwise

have been entitled to. In the High Court this contention

appears to have been accepted. The acceptance of the

contention would result in by-passing a judgment of this

Court and that is something which cannot in any case be sup-

ported. We are furthermore of opinion that the authorities

to

(1) [1955] 1 S. C. R. 290.

(2) [1959] S. C. R. 427,

493

which Venkatarama Aiyar J. referred fully support his

observations. The first case relied upon by him was Powell

v. Appollo CandleCo. Ltd.(1). That case upheld the

validity of a statute passedby the legislature of New

South Wales which conferred power on the Governor of that

Province to impose duty on certain articles in the

circumstances prescribed. The Governor under this power

imposed the tax and this was challenged. The Judicial

Committee rejected the contention that the tax had not been,

imposed by the Legislature which alone could do it in the

view that "the duties levied under the Order in Council are

really levied by the authority of the Act" see p. 291.

Here, therefore, a power conferred on the Governor by the

Legislature to levy a tax was upheld. It would follow that

a power conferred to fix rates of taxes has equally to be

upheld. The next case was Syed Mohamed v. State of

Madras(2). There a power to an authority to determine who

shall pay the tax was upheld. On the same principle a power

to determine at what rate he will have to pay the tax has to

be upheld. The last case was Hampton Jr. & Co. v. United

States(3), in which the power conferred by a statute on the

President to make an increase or decrease in the rate of

customs duty was upheld. There it was said at p. 630, "It

is conceded by counsel that Congress may use executive

officers in the application and enforcement of a policy

declared in law by Congress and authorise such officers in

the application of the Congressional declaration to enforce

it by regulation equivalent to law. But it is said that

this never has been permitted to be done where Congress has

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exercised the power to levy taxes and fix customs duties.

The authorities make no such distinction. The same

principle that permits Congress to exercise its rate making

power in inter state commerce by declaring the rule which

shall prevail in the legislative fixing of rates, and

enables it to remit to a rate making body created in

accordance with its provisions the fixing of such rates,

justifies a similar provision for the fixing of customs

duties on imported merchandise." This therefore is clear

authority that the fixing of rates may be left to a non-

legislative body.

No doubt when the power to fix rates of taxes is left to

another body, the legislature must provide guidance for such

fixation. The question then is, was such guidance provided

in the Act ? We first wish to observe that the validity of

the guidance

1) 1 O. A. C. 282

(2) [1952] 3 S. T. C 367

(3) [1927] 72 L. ed. 624.

494

cannot be tested by a rigid uniform rule; that must depend

on the object of the Act giving power to fix the rate. It

is said that the delegation of power to fix rates of taxes

authorised for meeting the needs of the delegate to be

valid, must provide the maximum rate that can be fixed, or

lay down rules indicating that maximum. We are unable to

see how the specification of the maximum rate supplies any

guidance as to how the amount of the tax which no doubt has

to be below the maximum, is to be fixed. Provision for such

maximum only sets out a limit of the rate to be imposed and

a limit is only a limit and not a guidance.

It seems to us that there are various decisions of this

Court which support the proposition that for a statutory

provision for raising revenue for the purposes of the

delegate, as the section now under consideration is, the

needs of the taxing body for carrying out its functions

under the statute for which alone the taxing power was

conferred on it, may afford sufficient guidance to make the

power to fix the rate of tax valid. We proceed now to refer

to these cases.

The Western India Theatres Ltd. v. Municipal Corporation of

the City of Poona(1) was concerned with a statute under

which the respondent Corporation had been set up and which

gave that Corporation power to levy "any other tax". It was

contended that such a power amounted to abdication of

legislative function as there was no guidance provided.

This contention was rejected. One of the grounds for this

view was that the statute authorised the municipality to

impose , taxes therein mentioned for the purposes of the Act

and that this furnished sufficient guidance for the

imposition of the tax. Again, no doubt, this was not a case

dealing with rates of taxes, but if a power on the

Corporation to impose any tax it liked subject to the

guidance mentioned was valid, that would include in it the

power to fix the rates of the tax, subject of course to the

same guidance. Such a power has to be held to be good. It

is true, as was pointed out by learned advocate for the

respondent, that other ,,rounds were mentioned in support of

the view taken in the Western India Theatres case(1) but

that surely is irrelevant, for it cannot make the ground of

the decision there which we have earlier set out devoid of

all force.

Then there is Vasantlal Manganbhai Sanjanwala v. The State

of Bombay (2) . The provision of the statute there attacked

(1) [1959] Supp. 2 S. C. R. 71.

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(2) [1961] 1 S. C. R. 341.

49 5

gave the Government power to fix a lower rate of maximum

rent payable by the tenants. The validity of this provision

was upheld on the ground that the material provisions of the

Act including its preamble were intended to give relief to

tenants by fixing the maximum rent payable by them. It was

in the light of this policy of the Act that the validity of

the impugned provision was really upheld.

The last case which we wish to notice in this connection is

the Union of India v. Bhana Mal Gulzari Mal(1). Section 3

of the Essential Supplies (Temporary Powers) Act, 1946 came

up for consideration there. That section gave power to the

Government to make necessary orders for maintaining or

increasing supplies of any essential commodities or for

securing their equitable distribution and availability at

fair prices. In Harishankar Bagla v. The State of Madhya

Pradesh(1) the validity of the delegation of power contained

in that section had been upheld as it laid down the policy

as to how that power was to be exercised by the delegates,

that is, the Government. In Bhana Mal Gulzari Mal's case(3)

the validity of an order made under s. 3 reducing the price

at which steel could be sold was challenged. This challenge

was rejected on the ground that the order fixing the price

carried out the legislative objective prescribed in s. 3. It

was observed at p. 638, "It is not difficult to appreciate

how and why the Legislature must have thought that it would

be inexpedient either to define or describe in detail all

the relevant factors which have to be considered in fixing

the fair price of an essential commodity from time to time.

In prescribing a schedule of maximum prices the Controller

has to take into account the position in respect of

production of the commodities in question, the demand for

the said commodities, the availability of the said

commodities from foreign sources and the anticipated

increase or decrease in the said supply or demand. Foreign

prices for the said commodities may also be not irrelevant.

Having regard to the fact that the decision about the

maximum prices in respect of iron and steel would depend on

a rational evaluation from time to time of all these varied

factors the Legislature may well have thought that this

problem should be left to be tackled by the delegate with

enough freedom, the policy of the Legislature having been

clearly indicated by s. 3 in that behalf." Again it was said

at P. 640, "In deciding the nature and extent of the

guidance which should be given to the delegate Legislature

must inevitably

(1) [1960] 2 S. C. R. 627.

(2) [1955] 1 S C. R. 380.

496

take into account the special features of the object which

it intends to achieve by a particular statute...... Having

regard to the nature of the problem which the Legislature

wanted to attack it may have come to the conclusion that it

would be inexpedient to limit the discretion of the delegate

in fixing the maximum prices by reference to any basic

price."

The portions in the judgment in Bhana Mal Gulzari Mal's

case(1) quoted in the preceding paragraph will show that the

validity of the guidance required to make delegation of

power good cannot be judged by a stereotyped rule. With

respect, we entirely be held to be agree with this view.

The guidance furnished must good if it leads to the

achievement of the object of the statute which delegated the

power. The validity of the power to fix rates of taxes

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delegated to the Corporation by s. 548 of the Act must be

judged by the same standard. Now there is no dispute that

all taxes, including the one under this section, can be

collected and used by the Corporation only for discharging

its functions under the Act. The Corporation, subject to

certain controls with which we are not concerned, is an

autonomous body. It has to perform various statutory

functions. It is often given power to decide when and in

what manner the functions are to be performed. For all this

it needs money and its needs will vary from time to time

with the prevailing exigencies. Its power to collect tax,

however, is necessarily limited by the expenses required to

discharge those functions. It has, therefore, where rates

have not been specified in the statute, to fix such rates as

may be necessary to meet its needs. That, we think, would

be sufficient guidance to make the exercise of its power to

fix the rates valid. The case is as if the statute had

required the Corporation to perform duties A, B & C and

given power to levy taxes to meet the costs to be incurred

for the discharge of these duties and then said that,

"provided, however, that the rates of the taxes shall be

such is would bring into the Corporation's hands the amount

necessary to defray the costs of discharging the duties." We

should suppose, this would have been a valid guidance. We

think the Act in the present case impliedly provides the

same guidance see s. 127 (3) & (4). It would be

impracticable to insist on a more rigid guidance. In the

case of a self-governing body with taxing powers, a large

amount of flexibility in the guidance to be provided for the

exercise of that power must exist. It is hardly necessary

to point out that, as in the cases under Essential Supplies

(Temporary Powers) Act, 1946, so in the case of a big

(1)[1960] 2 S. C. R. 627.

497

municipality like that of Calcutta, its needs would depend

on various and changing circumstances. There are epidemics,

influx of refugees, labour strikes, new amenities to be

provided, for such as hospitals, schools and various other

such things may be mentioned which make it necessary for a

colossal Municipal Corporation like that of Calcutta to have

a large amount of flexibility in its taxing powers. These

considerations lead us to the view that s. 548 is valid

legislation. There is sufficient guidance in the Act as to

how the rate of the levy is to be fixed.

We may point out at the end that entry 62 in List II of the

Seventh Schedule to the Constitution gives power to the

State Legislatures to impose taxes on entertainment and

amusement and therefore on cinema shows. It was hence not

said if the question was relevant that the State Legislature

delegated a power to the Corporation which it itself did not

possess.

It remains now to notice an argument advanced by Mr. Pathak

on behalf of the Corporation. It is that even if it be

assumed that no guidance for the taxation has been

prescribed, the provision for taxation in the Act would be

valid. He said that the Act may be said to have been passed

under entry 5 of List 11 in the Seventh Schedule to our

Constitution. That entry authorises the passing of a law

concerning the constitution and powers of a municipal

corporation. Mr. Pathak contended that the powers of a

corporation contemplated in this entry must necessarily in-

clude power to levy tax, for no municipal corporation could

work without its own funds. He pointed out that this has

been the case with the municipal corporations created before

and after the Constitution. He, therefore, said that the

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present was not a case of delegation of taxing power which

might be bad if no guidance to the exercise of that power

had been furnished by the Act; it is a case where under the

Constitution independent power to tax had been conferred on

the Corporation. The conferment of such power did not

require any guidance for its exercise to make it valid. He

pointed out that delegation of power necessarily meant

delegation of the power of the delegator. On such

delegation the delegated power could only be exercised by

the delegates for the use of the delegator. That was not

the case of power conferred tinder entry 5. In such a case

the power of taxation conferred was for the purpose of the

corporation itself. The amount collected by taxation

belonged to the corporation. This is what had happened

here. As at present advised, we think that this contention

of Mr. Pathak deserves consideration. It is unnecessary,,

498

however, for us to pronounce finally on it, for in either

view the taxing power challenged must be held to be good.

In the result we would allow the appeal with costs through-

out.

Ayyangar, J. Section 443 of the Calcutta Municipal Act, 1951

(West Bengal Act XXXIII of 1951) which will hereafter be

referred to as the Act enacts :

"No person shall, without or otherwise than in

conformity with the terms of a licence granted

by the Commissioner in this behalf, keep open

any theatre, circus, cinema house, dancing

hall or other similar place of public resort,

recreation or amusement :

Provided that this section shall not apply to

private performances in any such place."

and s. 548 (2) :

"Except when it is in this Act or in any rule

or byelaw made thereunder otherwise expressly

provided, for every such licence or written

permission a fee may be charged at such rate

as may from time to time be fixed by the

Corporation and such fee shall be payable by

the person to whom the licence or written

permission is granted.

The respondent before us is the owner and licensee of a

cinema theatre known as the Liberty Cinema situated in

Calcutta within the Municipal limits of the city. Under the

provisions of the Calcutta Municipal Act 1923 which had been

repealed and reenacted with modifications by the Act of

1951, the respondent was paying for his theatre Rs. 800 per

annum as licence fee under provisions corresponding to ss.

443 and 548 (2) of the Act. While so, by a resolution of

the Municipal Council dated March 14, 1958, the licence fee

payable by theatres under s. 443 was raised with the result

that instead of Rs. 800 which the respondent was paying

previously he was required to pay a sum of Rs. 6,000 per

year. As the Corporation insisted upon the amount being

paid and threatened to cancel the licence and take appro-

priate penal action in the event of the demand not being

met, the respondent filed a petition before the High Court

under Art. 226 of the Constitution praying for appropriate

writs of certiorai, mandamus etc. to quash the said

resolution and to prevent the Corporation from enforcing the

said demand. It was stated in the petition that the

respondent had been paying besides the consoli-

499

dated rate for the property, a fee of Rs. 250 as profession

tax for carrying on the trade or calling of cinema exhibitor

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as well as other taxes and fees. He characterised the

licence fee which was. demanded from him as not in reality a

fee which alone the Municipal Corporation was entitled to

charge. Stating that it was out of all proportion to the

service rendered or the costs involved in ensuring the

observance of the conditions of the licence, he contended

that the fee demanded from him was really a tax which the

Corporation was not entitled to levy under the provisions

quoted and therefore sought the relief which he prayed for

in the petition.

The learned Single Judge who heard the petition in the first

instance held on an analysis of the provisions of the

Calcutta Municipal Act that what the Municipality was

entitled to levy under s. 548 (2) read with s. 443 was

really "a licence fee" and not a tax and that viewed as a

licence fee it did not pass the test of legality on account

of there being no correlation between the amount charged on

the theatre owners and the services rendered to them or the

expenses incurred by the Municipality in regard to the issue

of licences. Dealing with the alternative contention urged

before him by the Corporation that s. 548 (2) of the Act

authodsed' the Corporation to levy a tax, the learned Judge

held that the section would be unconstitutional as suffering

from the vice of excessive delegation in that it laid down

no principle, indicated no policy and afforded no guidance

for determining the basis or the rate on which the tax was

to be levied and was therefore void. In consequence he

allowed the petition saving however the right of the

Corporation to recover the fee at the rate in force prior to

March 14, 1958 on the ground that the levy at this rate was

saved by Art. 277 of the Constitution. The Corporation

preferred an appeal to a Division Bench and the learned

Judges on practically the same line of reasoning as the

learned Single Judge dismissed the appeal. Their

conclusions were as follows : The imposition permitted to be

made by s. 548 (2) read with s. 443 of the Act is charged

was only a fee as distinguished from a tax. Regarded as a

fee the levy was invalid as there was no quid pro quo. If,

however, it be held that the provisions quoted authorised

the levy of a tax, the provisions were unconstitutional

because they involved an improper delegation of legislative

power. They also held that the levy was not to any extent

saved by Art. 277 of the Constitution. The Corporation

desiring to prefer an appeal sought a certificate of fitness

from the learned Judges and the same having been granted,

the appeal is now before us.

500

As one of the questions involved in the appeal related to

the ,constitutional validity of the provisions of a State

enactment, notice of this appeal was served on the State.

Mr. Pathak learned Counsel for the appellant Corporation did

not contest the finding and decision of both the learned

Single Judge as well as the learned Judges in appeal, that

if what s. 548 (2) of the Act authorised was only a fee in

the technical sense, viz., a payment for service rendered as

distinguished from a tax, the impugned levy was invalid in

as much as there was admittedly no correlation between the

amount of the levy and the cost of the service, if any

rendered to the fee-payer. His submissions in support of

the validity of the impugned levy were : (1) An analysis of

the several provisions of the Act showed that the Act

employed the word "fee" and particularly in the context of a

fee for licences granted for carrying on an activity, in the

sense of a tax., (2) the fee permitted to be charged for

licences by s. 548 (2) of the Act was not a fee but a tax as

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it was not a quid pro quo for services which the Corporation

was required by or under the Act to render or did render to

the licensee., (3) A fee charged for a licence other than a

fee for services rendered is in reality a tax and no quid

pro quo is necessary to sustain its validity beyond the

grant of the licence and a permission to carry on the

activity which the licence authorises., (4) If what was

permitted to be charged by S. 548 (2) were a tax, the

provision is not unconstitutional for the reason that the

rate of the fee was not specified in the Act. The non-

specification in the Act of the rate of the licence fee to

be charged is not open to the objection of excessive

delegation of legislative power for two reasons : (1) For

considering whether there has been an excessive delegation,

regard must be had not merely to the section conferring the

power but to the other provisions of the Act as well which

might throw light upon the topic and from which sufficient

enunciation of principle or guidance could be gathered. In

the present case there was sufficient guidance available

and proper standards laid down in the other provisions of

the Act as to uphold the validity of the delegation., (2)

When a delegation of legislative power including legislative

power to impose a tax is conferred upon a Municipal

Corporation, no question of excessive delegation arises as

the Constitution itself permits and authorizes such

devolution ,of legislative power.

In view of these submissions it is necessary to consider and

ascertain principally 4 matters : (1) the precise nature of

a fee,

501

as distinguished from a tax., (2) Whether on an examination

of the several provisions of the Act the charge authorised

to be levied by s. 548 (2) read with s. 443 of the Act, is a

fee in that or is it a tax., (3) If what is permitted to be

levied by s. 548(2) is not a fee out a tax whether the

various provisions of the Act read independently or together

enunciate the principles, prescribe the standards, and

affords sufficient guidance to the Municipality to fix the

rate so as to render the conferment of the power free the

from the vice of excessive delegation; and (4) lastly,

whether the rule as to excessive delegation of legislative

power is inapplicable in those cases where the devolution or

conferment of power is on a municipal corporation, or, in

any event, whether the rule as to excessive delegation needs

substantial modification before the same is applied to a

case where the donee of the power is a municipal corporation

entrusted with local self government.

Weshall take up these questions in that order.

1.The Nature of a Fee as distinguished from a tax. Mr.

Pathakdid not dispute that the Constitution had drawn a

distinction between "fees" and "taxes", and that while

"fees" could be charged as incidental to the exercise of

legislative power on topics set up in the several entries in

the three legislative lists in Schedule VII, the power

taxation by the Union or by the State was confined to

particular species or types of taxes distinctively specified

as such in lists I or II respectively. In the context of

such a distinction the question necessarily arose as to what

were the ingredients or characteristics of a "fee" as

distinguished from a "tax". Mr. Pathak submitted that

"fees" as envisaged by the Constitution was the exaction of

compensation permitted by a statute to be imposed for a

special service rendered to the payer. In other words,

unless by or under an enactment it was obligatory on an

authority, be it a municipal authority or any other to

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render some special service to the payer of the fee as

distinguished from the benefit conferred on every member of

the general public by the performance of statutory duties,

and the levy is permitted to be made for meeting the cost of

such service, the charge imposed would not be a "fee". In

all other cases, where no special service is directed to be

or is rendered to a particular individual out of the

ordinary, the fee imposed for the licence or permission

granted for the carrying on of any activity is really in the

nature of a tax in regard to which no question of quid pro

quo arises.

502

It is common ground that the Constitution recognises a clear

distinction between a tax and a fee. The several entries in

the Lists in the Seventh Schedule which enumerate the

legislative powers and distribute them between Parliament

and the State Legislatures point to this distinction. The

scheme underlying the Lists may shortly be summarised thus.

Each of the Union and the State Lists which are Lists I and

II start by enumerating first the Entries conferring general

legislative powers as distinct from taxation powers. In

other words, the taxation entries, that is entries

conferring taxing power, are separately enumerated after

entries conferring general legislative power. Thus items 1

to 81 of List I deal with the exclusive general legislative

powers of Parliament while 82 to 92 enumerate the taxes

which Parliament may impose. Item 96 empowers Parliament to

legislate in respect of "fees in respect of any of the

matters in this List, but not including fees taken in any

Court." This would clearly demonstrate that while "fees" may

be levied in respect of or as incidental to legislation on

the topics set out in the other entries in the list, the

power to levy a tax is not to be taken as conferred by

entries conferring general legislative power. Thus though a

fee may be levied as incidental to legislation be it general

as in respect of entries 1 to 81 or the entries conferring

taxing powers entries 82 to 92, or in respect of the

miscellaneous matters enumerated by such an entry like 94,

no taxes may be imposed by virtue of the general legislative

power under entries 1 to 81. This matter has been the

subject of consideration by this Court though from a

slightly different angle in M.P.V. Sundararamier & Co. v.

The State of Andhra Pradesh.(1) Venkatarama Aiyar,

J.speaking for the Court said :-

"In List 1, Entries 1 to 81 mention the

several matters over which Parliament has

authority to legislate. Entries 82 to 92

enumerate the taxes which could be imposed by

a law of Parliament. An examination of these

two groups of Entries shows that while the

main subject of legislation figures in the

first group, a tax in relation thereto is

separately mentioned in the second. Thus,

Entry 22 in List I is "Railways", and Entry 89

is "Terminal taxes on goods or passengers,

carried by railway, sea or air; taxes on

railway fares and freights". If Entry 22 is

to be construed as involving taxes to be

imposed, then Entry 89 would be superfluous.

Entry 41 mentions "Trade and commerce with

foreign coun-

(1) [1958] S.C.R. 1422,1479-80.

503

tries; import and export across customs

frontiers". If these expressions are to be

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interpreted as including duties to be levied

in respect of that trade and commerce, then

Entry 83 which is "Duties of customs including

export duties" would be wholly redundant.

Entries 43 and 44 relate to incorporation,

regulation and winding up of corporations.

Entry 85 provides separately for Corporation

tax. Turning to List II, Entries 1 to 44 form

one group mentioning the subjects on which the

States could legislate. Entries 45 to 63 in

that List form another group, and they deal

with taxes. Entry 18, for example, is "Land"

and Entry 45 is "Land revenue". Entry 23 is

"Regulation of mines" and Entry 50 is "Taxes

of mineral rights". The above analysis and it

is not exhaustive of the Entries in the Lists

leads to the inference that taxation is not

intended to be comprised in the main subject

in which it might on an extended construction

be regarded as included, but is treated as a

distinct matter for purposes of legislative

competence. And this distinction is also

manifest in the language of Art. 248, Cls. (1)

and (2), and of Entry 97 in List I of the

Constitution."

The same pattern of classification and conferment of general

legislative as distinguished from taxing power is adopted in

the State List, List II. Entries 1 to 44 of this List deal

with general legislative power while items 45 to 63 deal

with specific taxes which might be imposed exclusively by

the State Legislatures. The last entry in this List is in

the same terms as Entry 96 of List 1 and reads "fees taken

in respect of any of the matters in this List but not

including fees taken in any Court". So far as the Con-

current List is concerned, it contains no entry conferring

the taxation power but by its last entry, Entry 47, it

enables the Legislatures to impose "fees in respect of any

of the matters in that List but not including fees taken in

any Court" and this is in terms identical with Entries 96 of

List 1 and 66 of List 11. It is, therefore, quite obvious

that the Constitution proceeds on a basis of clear line of

demarcation between the power to tax and the power to levy a

fee.

Before proceeding further, one other matter arising out of

this scheme might also be noticed. When entries 96 of List

1 or 66 of List 11 speak of "any of the matters in this

List" they necessarily include also the entries relating to

taxation. In other words, a fee may be levied even under an

enactment relating to the imposi-

3Sup./65-16

504

tion of a tax. Merely by way of illustration of this type

of fee we might refer to fees which are charged for licences

which are required to be taken by dealers under the Sales

Tax Act in the various States. The exact amount of the

licence fees to be charged is most often left to the

executive determination, the maximum being sometimes

prescribed by the relevant sales tax enactment and sometimes

even this maximum is not prescribed. These licences are

issued in order to ensure the orderly administration of tax

legislation and the proper collection of the tax imposed

thereby. The distinction between the tax imposed under Entry

54 of List 11 "taxes on the sale or purchase of goods" and

+the fees charged for the licences issued to dealers as a

condition of their being permitted to carry on business of

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buying and selling goods is too obvious to need explanation.

The significance of illustration of this kind and its impact

upon the submissions of Mr. Pathak as regards the nature of

a fee under the Constitution we shall reserve for

consideration later.

Recognising this well marked distinction which the

Constitution makes as between a fee and a tax, the

submission of Mr. Pathak was that "fees" in entry 66 of List

II were fees for services specially rendered to the payer,

and for this construction he relied on two separate lines of

reasoning (1) that this had been the sense in which this

Court had understood the content of the word "fee"; that

this construction was required or reinforced by Art. 110 (2)

[and the corresponding Article 199 (2)].

We shall first consider the decisions of this Court, which

it is stated have thus interpreted the term "fee" as used

in the Constitution. The first case referred to in this

connection was The Commissioner, Hindu Religious Endowments,

Madras v. Sri Lakshmindra Thirth Swamiar of Sri Shirur

Mutt(1) where this Court had to consider the constitutional

validity of certain provisions of the Madras Hindu Religious

and Charitable Endowments Act, 1951 in its application to

Mutts. Among the provisions considered in that context was

a. 76 of that enactment, which directed every religious

institution to "pay to the Government annually" such

contribution not exceeding 5% of its income as might be

prescribed. The validity of this provision was challenged

on the ground that what was authorised to be levied was not

a fee but a tax, and that as a tax it could not be brought

within any of the particular taxes enumerated in List 11

which the State Legislature was empowered to impose. This

Court agreed with this contention. and based its conclusion

on the following circums-

(1) [1954] S.C.R. 1005.

505

tances. It recognised that a clear distinction existed

between taxes and fees under the Constitution. As to what

was meant by a tax, Mukherjea, J., who delivered the

judgment of the Court adopted the definition of the term by

Latham, C.J., in Mathews v. Chicory Marketing Board(1) : "a

tax is a compulsory exaction of money by a public authority

for public purposes enforceable by law and is not payment

for services rendered". The learned Judge enumerated the

characteristic of a tax from other forms of compulsory

payments, and these were summarised thus :- (1) that taxes

were imposed by a statutory power without the tax-payer's

consent the payment being enforced by law, (2) that a tax is

an imposition made for public purpose without reference to

any special benefit to be conferred on the payer of the tax

(3) that a tax was levied for the purposes of general

revenue which when collected formed part of the public

revenues of the State. "As the object of a tax is not to

confer any special benefit upon any particular individual

there is no element of quid' pro quo between the tax-payer

and the public authority". On the other hand, a fee was

generally stated to be defined to be a charge for special

service rendered to individuals by some governmental agency.

"The amount of fee levied is supposed to be based on the

expenses incurred by the Government in rendering the service

though in many cases the costs are arbitrarily assessed".

The learned Judge then went on to observe "the distinction

between a tax and a fee lies primarily in the fact that a

tax is levied as a part of a common burden while a fee is a

payment for a special benefit or privilege. Fee confers a

special capacity although the special advantage as for

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example in the case of registration fees for documents or

marriage licences is secondary to the primary motive of

regulation in the public interest. Public interest seems to

be the basis of all impositions, but in a fee it is some

special benefit which the individual receives". In holding

that the contribution imposed by s. 76(1) was really a tax

and not a fee regard was also had to some other factors,

viz., (1) the percentage of contribution leviable was graded

according to the income derived by the institution,

and(2)the entire collections went into the Consolidated Fund

of the State and the expenses for the upkeep of the Board

which was a statutory corporation created for the

administration of religious endowments in the State was also

directed to be met out of the monies in the Consolidated

Fund. Reliance was also placed on similar observations of

this Court, in other cases of

(1)61) C.L.R. 263.

506

fees charged on religious endowments under other enactments

which were heard along with the Shirur Mutt case,(1) already

referred to, though in them the validity of the levy was

upheld. The validity of a contribution levied under the

Orissa Hindu Religious Endowments Act was considered by this

Court in Mahant Sri Jagannath Ramanuj Das and Anr. v. The

State of Orissa and Anr.(1) and of a similar levy under the

Bombay Public Trust Act (Ratial Panchand Gandhi v. The State

of Bombay and Ors.(2)). In these two cases, the validity of

the contribution levied under their respective charging

provisions was, as stated already, upheld. The ground on

which s. 76(1)of the Madras Act which was struck down in the

Shirur Mutt case was distinguished was, that under the other

two enactments, a special fund was created to which the

collections were to be credited and that the expenses of the

administration of the Act were directed to be met out of

this fund. Though the concept of a fee as a quid pro quo

for particular services rendered to the fee payer as

explained in the Shirur Mutt case are also repeated in these

two decisions, it is worth noticing that the service to be

rendered to the Religious Endowment or public trust by the

Orissa and the Bombay Acts were exactly similar to the

service which was by way of supervision, regulation and

control over the way in which the management by the trustees

was conducted under the Madras Act. This consideration is

highlighted when one examines the decision of this Court in

the Udipi Mutt case H. H. Sudhundra, Thirtha Swamiar v.

Commissioner for Hindu Religious and Charitable Endowments,

Mysore(1)which was a sequel to the Shirur Mutt case,(1).

After s. 76(1) was struck down by this Court in the Shirur

Mutt case(2) the Madras Legislature by Act 27 of 1954

effected certain amendments to that section with a view to

rendering it constitutional. Section 76 had been held to be

ultra vires of the legisture on the ground that what it

imposed was not a fee which was the only thing permitted by

Entry 66 but in reality of tax. This decision was based

upon several grounds of which the principal were : (1) that

no special service had been rendered to the Mutts and other

religious institutions so as to justify its being a fee for

services rendered,, (2) that it was graded according to the

capacity of the payer based upon the annual income derived

by the institution which rendered it somewhat like an income

tax, and (3) that it was paid to the Government and became

part of the Consolidated Fund of the State, the expenses

incurred in administering the Act being paid

(1) [1954] S.C.R. 1005.

(2) [1954] S.C.R. 1046.

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(3)[1963] 2 Supp. S.C.R. 302.

507

out of the General Revenues. Section 76 as amended by Act

27 of 1954 was held to be intra vires and sustained as a

fee. The changes that were effected by the Madras

Legislature were : (1) the graded system was abolished and

the maximum percentage of the contribution being fixed by

the statute, (2) the contributions payable were collected by

the Commissioner and not by the State, (3) that a separate

Fund was created into which these collections were credited

and moneys for meeting the expenditure for the

administration of the Act were drawn from this Fund. One

other point to be mentioned is that the services rendered to

the institution, as set out in s. 76 and the other relevant

provisions of the Act remained exactly the same. This Court

held the contribution to be a fee principally for the reason

that the moneys that were being paid into a separate Fund

were collected not by the Government and were being paid to

a different Fund. If one proceeded on the footing that

unless the service rendered was a specific service in the

sense of a benefit conferred specially upon the payer, the

charge levied would be a tax, the contribution levied under

s. 76 even after the amendment would have been held to be a

tax. No doubt, the fact that a separate Fund is segregated

from the Consolidated fund of the State and the moneys are

received not by the Government as such but by a public

authority might show that it is not a tax, still these are

not decisive, for as was held by the Privy Council in

Attorney-General for British Columbia v. E. & N. Railway

Co.(1) which has been approved by this Court in The Hingir

Rampur Coal Co. Ltd. and Ors. v. The State of Orissa and

ors. (2) to which we shall refer later the payments were

credited to a Fund known as the Authorised Protection Fund

to which advances were made from Consolidated revenues.

Lord Greene after saying that the levy had the

characteristics of taxation, observed :

"It is suggested, however, that there are two

circumstances which are sufficient to turn the

levy into what is called a 'service charge'.

They are, first, that the levy is on a defined

class of interested individuals and, secondly,

that the fund raised does not fall into the

general mass of the proceeds of taxation but

is applicable for a special and limited

purpose. Neither of these considerations

appears to their Lordships to have the weight

which it is desired to attach to them."

The segregation of the Fund, therefore, could not have been

a decisive factor for determining the nature of the levy.

This

(1) [1950] A.C. 87.

(2) [1961] 2 S.C.R. 537.

508

decision as well as the Orissa and the Bombay cases already

cited are, therefore, authority for the position that the

word 'services' in this context may have to be understood in

a wide sense as including supervision and control over the

activity for the exercise of which the fee is charged.

As contrasted with these three cases, Mr. Pathak submitted

that when fees were levied for licences they were taxes. In

support he referred to Cooverjee B. Bharucha v. The Excise

Commissioner & the Commissioner, Ajmer and others.(1) Under

the legislation before the Court viz. The Excise Regulation

Act 1950 licences were granted to regulate the trade in

liquor. The fee to be charged for the grant of the licence

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was not prescribed by the Act or the rules but the licence

was sold in public auction, the highest bidder being granted

the licence the amount of the licence fee thus being the

amount of the highest bid. This Court held that the fee

collected from the highest bidders to whom the licences were

granted was really in the nature of a tax though described

as a licence fee. It was held that the legislative power

for enacting this legislation was to be traced to the

Entries in the Seventh Schedule, List 11, of the Government

of India Act, 1935, "for making laws regarding intoxicating

liquors, i.e. the production, manufacture, possession,

transport, purchase and sale of intoxicating liquors, and

under the powers conferred for raising duties of excise on

alcoholic liquors for human consumption; and the pith and

substance of the regulation was that it raised excise

revenue by imposing duties on liquors". Dealing with the

contention that as it was described in the Excise Act as a

licence fee the same was invalid as excessive was repelled

in these terms : "The next contention that the charge of fee

by public auction is excessive and is not in the nature of a

fee but a tax ignores the fact that the licence fee

described as a licence fee is more in the nature of a tax

than a licence fee. One of the purpose of the Regulation is

to raise revenue .... The grantee is given a licence on

payment of the auction price. The Regulation specifically

authorizes this". We do not see how this decision helps the

appellant. The description of the levy as a fee does not of

course determine whether it is a fee or a tax. That taxes

may be imposed for effectuating other purposes than raising

revenue for protecting some activity which is not subject to

tax or to inhibit one which is so subject or to regulate

some activity cannot also be disputed. That fees for

licences may be by way of taxes does not, however, mean that

every fee for a licence is or must be a tax.

(1) [1954] S.C.R. 873.

509

Reference was next made to The Hingir-Rampur Coal Co. Ltd.

and others v. The State of Orissa and ors.(1) which consi-

dered the validity of a cess imposed on owners, among

others, of coal-mines by the Orissa Mining Areas Development

Fund Act, 1952. The amount of cess was to be determined by

the Government but it was not to exceed 5% of the value of

the minerals extracted at the pits-mouth which was to be

paid into a fund out of which was to be derived the monies

for providing the amenities to the mining areas. It was

contended for the petitioner coal company who moved this

Court under Art. 32 of the Constitution that this cess was

really a duty of excise on coal within Entry 84 of List I of

the Seventh Schedule. On the other hand, it was contended

by the State who opposed the petition that the cess was a

fee and not a duty of excise. This Court upheld the

validity of the cess on the ground that it was really a fee,

and in so holding observed "it is true that between a tax

and a fee there is no generic difference. Both are

compulsory exactions of money by public authorities; but

whereas a tax is imposed for public purposes and is not, and

need not, be supported by any consideration of service

rendered in return, a fee is levied essentially for services

rendered and as such there is an element of quid pro quo

between the person who pays the fee and the public authority

which imposes it. If specific services are rendered to a

specific area or to specific class of persons or trade or

persons in any local area and as a condition precedent for

such service cess is levied against the said area or the

said class of persons or trade or business the cess is

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distinguishable from a tax and is described as a fee. Tax

recovered by public authority invariably goes into the

consolidated fund which ultimately is utilised for all

public purposes,whereas cess levied by way of fees is

not intended to be, and doesnot become, a part of the

consolidated fund. It is earmarked andset apart for the

purpose of services for which it is lvied......In regard

to fees there is, and must always be, co-ordinaton between

the fee collected and the service intended to be

rendered..... The distinction between a tax and a fee is,

however, important and it is recognised by the Constitution.

Several Entries in the Three Lists empower the appropriate

Legislatures to levy taxes, but apart from the power to levy

taxes thus conferred each List specifically refers to the

power to levy "fees in respect of any of the matters covered

in the said List excluding of course fees taken in any

Court". Reference was then

(1)[1961] 2 S.C.R. 537.

510

made to the decisions in the Shirur Mutt case(1) the

Orissa(1) and the Bombay(2) cases to which we have already

adverted. Mr. Pathak placed considerable reliance on the

reference in the Hingir-Rampur Coal Co.(4) to the decision

of the Privy Council in Attorney-General for British

Columbia v. Esquimalt and Nanaimo Railway Co.(3) and to the

explanation of the rationale of those decisions of this

Court :- "It would thus appear that this decision proceeded

on the basis that what was claimed to be a special service

to the lands in question was in reality an item in public

service itself and so the element of quid pro quo was

absent. It is true that when the Legislature levies a fee

for rendering specific services to a specified area or to a

specified class of persons or trade or business, in the last

analysis such services may indirectly form part of services

to the public in general. If the special service rendered

is distinctly and primarily meant for the benefit of a

specific class or area the fact that in benefiting the

specified class or area the State as a whole may ultimately

and indirectly be benefited would not detract from the

character of the levy as a fee. Where, however, the

specific service is indistinguishable from public service

and in essence is directly a part of it different

considerations may arise".

These decisions according to the learned counsel established

(1) that a fee for a licence was prima facie a tax and was a

mode of raising revenue, (2) the fact that under the licence

the trade, business or other activity of the licensee is

controlled and regulated where such control and regulation

is imposed in the interest of the general public is not

sufficient to negative the licence fee being a tax; (3) it

was only in those cases where an impost was made either as

an ad hoc cess or a fee for the grant of a licence as a

charge for services rendered to the fee-payer that the

impost could be characterised technically as a fee which for

being valid would have to stand the test of correlation with

the costs entailed on the public body for rendering the

service. Besides the requirement as to special service to

the payer being required, the argument continued that on the

authorities cited any fee would be tax if there was no

segregation of its proceeds for the general revenues and a

requirement of the law that the collections should be used

only for the purpose of rendering the service. This last

requirement, however, the learned counsel did not press

seriously, seeing that even charges for services rendered,

for instance, charges for

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(1) [1954] S.C.R. 1005.

(2) [1954] S.C.R. 10.

(3) [1954] S.C.R. 1055.

(4) [1961] 2 S.C.R. 537.

(5) [1950] A.C. 87.

511

extra water supply also went into the general municipal fund

and figured in the consolidated annual budget prepared for

the Corporation.

Learned counsel is no doubt right in the submission that the

impost described as a "fee" does not decisively determine

that it is not a tax. He is also right in urging that the,

fact that the fee is imposed for the grant of a licence, is

equally not determinative of its true nature. It is common

knowledge that in the United Kingdom duties of excise are

often collected as licence fees and an illustration of a

similar practice in India is seen in the Ajmere Excise

Licence case.(1) As observed by Gwyer, C.J., in Re : Central

Provinces and Berar Act 14 of 1938 (2) "The licence fees

payable by persons who produced or sold excisable articles

also became known (in U.K.) as duties of excise". In the

context of the problem before us, however, the question is

whether in order to constitute a fee in the strict sense it

is not sufficient that it is imposed in order to raise funds

for ensuring due compliance with the activity which it is

the object of the licence, to place under supervision,

inspection and control. In this connection reference may be

made to paragraph 7 of the affidavit by the Corporation in

answer to the Writ Petition filed by the respondent. There

the appellant Corporation stated "the new scale of fees as

fixed by the Corporation is reasonable for effective

inspection, supervision and control of cinema houses in

Calcutta at present numbering 75 in accordance with the

provisions in the relative bye-law framed under the Calcutta

Municipal Act having regard to the public health, safety and

convenience...... I say that in order to effectively

discharge the statutory duties imposed on the Corporation in

regard to the inspection, regulation. supervision and

control of cinema houses in Calcutta it is necessary to pro-

vide for a more suitable machinery and establishment

involving employment of a much larger staff and consequently

very large additional expenses in order to exercise a

better, fuller and more effective control and supervision of

the cinema houses, having regard to the additional burden

imposed by the cinema business at present times and the ever

growing needs of precautions regarding the health, safety

and convenience of the public the new scale of fees is

reasonable to cover necessary expenses involved in the said

control and supervision of the cinema houses as hereinbefore

stated". Mr. Pathak urged that the point that be was

raising was one of law and therefore the appellant was not

confined to sup-

(1) [1954] S.C.R. 873.

(2) [1939] F.C.R. 18.

512

porting the levy as a fee in the strict sense. He is right

there, but we are drawing attention to this defence only for

the reason that this plea was taken because of the accepted

position as to the concept of a fee on the authorities to

which we shall refer presently and the elements of "service"

needed the rendering of which would constitute a quid pro

quo for the fee imposed. These authorities have taken the

view that where a licence is granted, the fee to be charged

for such a licence might bear a reasonable relation to the

cost of providing the inspection, supervision and control

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imposed on the licensee both in his own interest as well as

in the interest of the general public. In other words a fee

in the strict sense-as distinguished from a tax could be

charged, for the cost involved in (a) the machinery employed

for granting the licence, (b) the supervision, regulation

and control to which the licensee renders himself liable

under the licence, and subject to which he is granted the

licence. Thus in The Municipal Corporation of Rangoon v.

The Cooratee Bara Bazar Co. Ltd.(1) the validity of a

licence fee imposed for keeping a private market was

questioned by a suit filed on the original side of the High

Court. Section 178(3) of the City of the Rangoon Municipal

Act ran : "For every such licence or permission a fee may be

charged at such rate as shall from time to time be fixed by

the Corporation". Under this provision fees amounting to

substantial sums were charged for licences granted for these

private markets. This fee was challenged as unreasonable

and ultra vires. Cunliffe, J. who tried the suit observed

at pp. 219 and 220 :-

"A licence is merely a permission granted to a

particular person to do a particular thing at

a. fixed place during a determinate period.

The fee attached to such a permit is a

specific sum of money to be collected from the

licensee for the purpose of covering the

expenses of the licence, its registration,

inspection and supervision. Fees levied on

licenses of premises ought not to be greater

than a sum to cover the costs of the

regulation."

A Similar view was taken by the Division Bench

on appeal. They said at p. 228 :-

"Was it the intention to give the Corporation

power to impose on the owners of private

markets a charge for a licence which might

extend to any amount for which

(1) [1927] I.L.R. 5 Rangoon 212.

513

the sanction of the Local Government could be

obtained? Or was the intention merely to give

power to charge a fee which would save the

Corporation from being out of pocket by reason

of the duties and liabilities imposed on it by

the Act of the supervision and regulation of

private markets ?

As the amount charged bore no relationship to the expenses

involved in the inspection, supervision and control which

the Corporation might exercise over the licensed premises,

the fee was held to be ultra vires. This decision was

followed in Corporation of Madras v. Spencer & Co. (1). The

licence fee for storing spirits levied under the Madras City

Municipal Act was raised from Rs. 25 to 200 by a resolution

of the Corporation after observing the necessary

formalities. This was challenged as excessive because of

want of correlation between the cost of inspection,

supervision and control of holders of the licence and the

total amount recovered as fees. The pattern of the Madras

City Municipal Act was the same as the Act before us. The

contention,urged before the Court was the same as that now

urged viz. that what was permitted to be levied by s. 365(2)

of the Madras Act [corresponding to our s. 548(2)] was a tax

particularly seeing that what was being regulated and

controlled was a noxious or dangerous trade or activity.

The Court repelled it by pointing out that taxes were dealt

with in Part 3 while the power to levy fees for licences was

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conferred by a section occurring in a part headed

Miscellaneous and Procedure. Phillips J. observed at p. 57

:

"Beasley, I., has held that the fees are

leviable as compensation to the corporation

for the expenses incurred in the issue of

licenses and the general regulation of the

trades and other occupations which are

licenced and there must be some relation

between these expenses and the amount of fees

leviable. This was the view which was adopted

by the Rangoon High Court in Municipal

Corporation Rangoon v. Cooratee Barn Bazar Co.

Ltd. (A.I.R. 1927 Rangoon 183-5 Rangoon 212).

With all respect, I think this is a very

reasonable view to take and, although possibly

the above is not the sole consideration which

may be taken into account in fixing the amount

of fee, it is the main

(1) A.I.R. 1939 Mad. 55.

514

consideration. The license fees are in

respect of what are called dangerous and

offensive trades, that is to say, it is

necessary in the interests of the city that

the corporation shall know where such trades

are being carried on and shall be in a

position to see that they are carried on in a

proper manner without causing unnecessary

nuisance to other people or danger to the

public generally."

Reilly, J., the other learned Judge, added at

p. 59

"It is suggested that the fixing of fees for

those licenses may be used by the council as

method of taxation. Surely, if that was

intended, that power would have been provided

for in the part of the Act which deals with

taxation. What could be the reason for

bringing it in as a' mere matter of procedure

at the end of the Act ? .... If we accept the

proposition that the power of charging license

fees cannot be used for taxation, then we must

say that as a whole the fees charged by the

corporation must not be very much in excess of

what the duties cast upon them and their staff

in connexion with the licenses cost them.

There is the cost of issuing the licenses;

there is the cost of inspecting the premises

to see whether they are suitable for the

purpose proposed; and there is the subsequent

cost of inspecting the premises to see that

they are being used properly and that the

conditions and restrictions imposed by the

Commissioner are observed."

These decisions were followed in Municipal Council of Kumba-

konam v. Ralli Bros.(1) where a fee for a Municipal licence

granted for storing groundnut was increased and its validity

was questioned. Section 321 (2) of the Madras District

Municipalities Act was in terms identical with s. 548(2) of

the Act. Dealing with the nature of the fee permitted to be

charged under that provision Curgenvan, J. said :-

"The wording undoubtedly suggested that the

fee should be commensurate with the extra cost

entailed by granting the licence and

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exercising such supervision as is necessary to

see that its terms are complied with. It may

be that in order to promote the health, etc.,

of the public, with which this part of the act

specially

(1) A.I.R. 1931 Mad. 497.

515

deals, higher fees should be chargeable in the

case of dangerous or offensive occupations."

The High Court of Orissa(1) followed these decisions and

adopted the same construction of the fee permitted to be

levied by s. 321 of the Madras District Municipalities Act,

whose provisions were also applicable to parts of the State

of Orissa, besides decisions on the same lines by the High

Court of Allahabad in Lala Rai Kishore v. District Board of

Saharanpur(2).

We have, therefore, to consider whether there is anything in

the decisions of this Court referred to earlier and relied

on by the learned counsel which militates against holding

that the cost involved in the inspection, supervision and

control of an industry, trade or activity is not a quid pro

quo to the payer so as to constitute a fee levied for that

purpose as always a tax. Reference may here be made to the

terms of s. 431 of the Act with which Chapter XXVI, in which

s. 443 occus, opens.

" inspection and Regulation of Premises.

431. Subject to the provisions of this Act,

land and buildings shall respectively be

inspected, cleansed, secured, repaired,

drained or otherwise regulated in accordance

with the rules contained in Schedule XVII."

It is, therefore, not as if powers or duties are not cast on

the Corporation to be discharged for which the fee to be

charged under s. 548 (2) would be a quid pro quo.

The placing of an activity, industrial or commercial, under

regulation and control is no doubt done in furtherance of

public interest, but so are most of the activities of public

bodies. Nevertheless the supervision, inspection and

regulation is from a long term point of view considered to

be and is in the interest of the industry or the activity

itself. To say that to enable a fee strictly so called to

be levied, an immediate advantage measurable in terms of

money should be conferred on the payer, is to take too

narrow a view of the concept of a fee. We do not consider

that the decisions of this Court in the Endowment cases lay

down such a proposition or compel us to adopt this

construction. On the other hand the Orissa Endowments Act

and the Bombay Public Trusts Act cases, as also the Orissa

Mining Area Development Fund case support a broader view of

what constitutes service to the fee-payer.

(1) Sivaparvatamma v. Executive Officer, A.I.R. 1957

Orissa, 285.

(2) A.I.R. 1954 All. 675.

516

We are also satisfied that the narrow construction suggested

would not accord with the scheme of the entries in the lists

in Schedule VII to the Constitution. To illustrate the

point, we would refer to a legislation like the Industries

Development and Regulation Act, 1951 (Central Act 65 of

1951). It is an Act to provide for the Development and

Regulation of certain industries. Under the provisions of

s. 11 of that enactment no new industrial undertaking could

be established by any person or authority other than the

Central Government after the commencement of the Act "except

under and in accordance with the licence issued in that

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behalf by the Central Government". The inspection,

supervision and control to be exercised over the licenses is

provided for in detail by various sections of the enactment.

Under s. 30 (2) (j) the Central Government is empowered

under the rules made under the Act to determine the fees to

be levied in respect of licences and permissions issued

under the Act. Now, let us see the constitutional power to

empower the fee to be charged. Entry 52 of List I reads

"industries, the control of which by the Union is declared

by law to be expedient in the public interest", and s. 2 of

the enactment contains this declaration. Coming now to the

entries relating to taxation it will be found that none of

these entries, 82 to 92, would cover the fees charged for

licences issued under the enactment. It is obvious.

therefore, that the legislative power for charging fees is

to be derived from Entry 96 of List 1, "fees in respect of

any of the matters in this List". If the learned counsels

submission that the expression quid pro quo should be read

in the sense of a special and particular benefit conferred

upon particular licensees (benefit again in the sense

suggested) is correct ,he licence fees levied under the

rules made under s. 30 (2) (j) read with s. II would be

invalid as a fee and it could not be sustained as a tax

either, for the tax there levied could not be brought within

the rubric of any of the Entries, 82 to 92. It, therefore,

appears to us that the word quid pro quo should be read not

in the narrow and restricted sense submitted by the learned

counsel for the appellant but in a somewhat wider sense as

including cases where the function of the licence is to

impose control upon an activity the cost incurred for

effectuating that control, and this on the basis that the

industry or activity is placed under regulation and control

not merely in public interest but in the interest and for

the benefit of the licensees as a whole as well.

Coming nearer to the present case we might take another

instance. Take the case of a licensing of factories and

trades which are the other matters dealt with in the

fasciculus of sections

517

of the Act in which s. 443 is to be found. Section 436

runs, to quote the material words "no person shall, without

the previous written permission of the Commissioner

establish in any premises or materially alter, enlarge or

extend any factory, workshop or workplace in which it is

intended to employ some electricity, water or other

mechanical power [436(1)] and s. 437(1) reads : "No person

shall use or Permit or suffer to be used any premises for

any of the following purposes without or otherwise or in

conformity with the term, of the licence granted by the

Commissioner in this behalf, viz. (a) any of the purposes

specified in Schedule 18,(b) any purpose which is in the

opinion of the Corporation danger(us to health or property

or......... Schedule 18 contains a list of the purposes for

which premises may not be used without a licence and

contains a long list of goods or articles which could not be

packed, stored etc. in such premises. Under s. 548(2) a fee

might be charged both for a written permission as well is

for the grant of a licence. It must be assumed that if the

learned counsel is right in his submission as to what

constitutes a fee, the fee charged for a written permission

under s. 436 and for licence under s. 437 which we have

extracted above would in reality be taxes though called

fees. Now, lot us see whether there is any taxation entry

in List 11 which could support the validity of the impost.

The only Entry under which it could possibly be brought in

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if it all would be Entry 60, "taxes on professions, callings

and employments". It is hardly possible lo sustain this

interpretation because there is also Ch. 13 of Part IV

headed "taxes on professions, trades, callings and the exact

figure of the taxes which. might be imposed are laid down in

Schedule 4. It cannot of course be said to be a tax on land

buildings because it is not on the 'land or building that

the tax is levied but on the activity Pursued therein, and

besides "taxes on lands and buildings" are specially dealt

with under Ch. 11 of Part IV where the permissible

"consolidated rates" are laid down. The licence fee for the

written permission and licence fee under ss. 436-37 can only

be supported as referable to legislation under Entries 5--

constitution and powers of the municipal corporations" and

6public health and sanitation" and 24-"industries" read with

Entry 66 of the State List. We have taken these two

illustrative cases at random but an examination of the

entire body of statute law in India would bear this out. We

are not, therefore, disposed' to read the judgments of this

Court in the Shirur Mutt case(1) and the cases following as

laying down that where an activity is regulated by licences

the imposition of charges for the inspection,

(1) [1954] S.C.R. 1005.

518

supervision and control of the activity to ensure compliance

with the regulation is not a benefit conferred on the

licensee so as to render the amount charged for such a

licence not a fee in the real sense but a tax, whose

constitutional validity could be sustained only by reference

to the taxation entries in Lists I and II. Mr. Pathak

submitted that so far as the fee charged with reference to

entertainments in theaters under s. 443 of the Act might be

sustained with reference to Entry 62 of List 11, but that

would hardly be an answer, because we are examining the

entirety of the group of cases to which s. 548(2) of the Act

would apply.

It will now be convenient to consider the argument of

learned Counsel based on Art. 110(2) as supporting the

narrow construction of the word "fee" as used in the entries

in the legislative lists. Article 110(2) deals with the

definition, of Money Bills for the purposes of that Chapter.

Clause (1) defines in positive terms what shall be deemed to

be a money bill and cl. (2) negatively defines what shall

not be deemed to be a money bill. That provision reads

"110. (2) A Bill shall not be deemed to be a

Money Bill by reason only that it provides for

the imposition of fines or other pecuniary

penalties, or for the demand or payment of

fees for licences or fees for services

rendered, or by reason that it provides for

the imposition, abolition, remission,,

alteration or regulation of any tax by any

local authority or body for local purposes."

Learned Counsel pointed out that here a distinction was

drawn between a payment of fees for licences and fees for

services rendered, and so a payment for fees for licences

was treated differently from fees for services rendered.

The argument based upon it was that Entry 66 of List 11 and

the similar Entries in Lists I & III were confined to fees

for services rendered and that "a payment of fees for

licences" were really not fees within those Entries. Re-

ferring to the present case he urged that as no special

services for the benefit of the theatre owners had either

been required to be rendered by the Act or the bye-laws made

thereunder or had actually been rendered, it could not fall

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under the category of "fees for services rendered". The

Constitution, therefore, it was urged contemplated imposts

by way of fees for licences which were not for services

rendered and it was this category of impost that was per-

mitted to be charged by s. 548(2) of the Act. We ire unable

to agree in this construction of Art. 1 10(2).

In the first place, all municipal taxation is outside the

definition of a money bill, so that in regard to

municipalities and the imposts made for purposes of local

administration, no distinction is drawn

519

between taxes and fees. The "fees" therefore which are

specifically excluded from the definition are fees imposed

by the State Government or its administrative agencies other

than by instruments of Local Self-Government. The exclusion

from the definition is as regards two categories : (1) fees

for licences, and (2) fees for services rendered. It is

obvious that a tax which is collected as a licence fee such

as in the Ajmere Excise case considered earlier, would not

fall outside this definition of a money bill merely because

the tax was imposed and collected as a licence fee. If

therefore pure taxation measures would be money bills then,

it is obvious that the fees for licences which are outside

the definition would be those fees which are imposed to meet

the cost of regulation and supervision of an activity which

is controlled by the requirement of a licence and compliance

with its terms. Thus a contribution under s. 76(1) of the

Madras Religious Endowments Act as amended in 1954, would be

a fee for services rendered because there is no question of

licences being taken out in these cases and fees for

regulating an activity such as the fees payable for licences

under the Regulation of Industries Act, 1951 or for licences

for trading in essential commodities under the Essential

Commodities Act, 1955 would on the other hand fall tinder

the bead "payment of fees for licences". Thus we consider

that Art. 110(2) far from supporting Mr. Pathak, negatives

the construction for which he contends.

Any other construction of Art. 110(2) would hardly fit in

with the scheme of the Article itself or even with the lists

in Sch. VII. Thus if every fee for a licence were outside

the definition of a money bill, legislation for the levy of

excise duties which are very often collected by adopting the

machinery of licences and fees therefor, would not be money

bills, and seeing that "excise duties" are a taxation entry

in Lists I & II such a position cannot be reconciled.

Besides, as already pointed out, Entry 66 itself would have

to be read as a taxation entry in order to sustain the levy

of licence fees on various activities which might form the

subject of legislative control or regulation under the

various non-taxation entries in the lists. Such a

construction would be contrary to the entire scheme on which

the several entries in the lists are arranged and

differentiated. As additional illustrations of the anomaly

that would result if Mr. Pathak's construction of entry 66

of List 11 were accepted we would refer to other sections of

the Act which enable the issue of licences and the charging

of fees therefor. We have already referred to s. 436 and s.

437 of the Act. Under Section 449 the Commissioner is

empowered to license vendors in

Sup./65 17

520

municipal markets, under S. 451 he has power to license

private markets, slaughter houses and stock-yards, and under

s. 460-to license butchers and those who sell meat. We are

not making an exhaustive list but are merely pointing out

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that in order to sustain these levies as fees, because they

do not fall under any of the heads of taxation permitted to

the State, the word 'fee' has to be read as including fees

charged for supervision, control and regulation of an

activity which the legislature desires to control. On this

part of the case we are clearly of the opinion that the

legislative power as regards "fees" under Entry 66 as well

as the corresponding entries in the other Lists is really in

the nature of an incidental power to effectuate the main

head of legislation empowered to be enacted by the other

entries in the List. Item 66 is not an entry in relation to

taxes which, on the scheme of the Constitution as we have

analysed earlier, are grouped together serially in Lists I &

II. This construction is confirmed by the fact that in the

Concurrent List which contains only entries in relation to

legislative power as distinguished from entries conferring

taxing power, the last entry enables fees to be levied as

ancillary to the legislative power conferred by the other

entries in that list.

Even assuming that learned Counsel is right in his

submission regarding the manner in which the decisions of

this Court in the Religious Endowment group of cases have to

be understood, the appellant would be in no better position;

in fact, its position would be worse, for if a fee within

Entry 66 is confined to payments for particular and specific

services rendered to the fee payer, the constitutional

validity of s. 548(2) of the Act would be open to challenge

on the ground that it authorises the Municipal Corporation

to impose taxes which are not within the State's power to

impose for its own purposes. This would be an additional

reason for reading the word "fee" in Entry 66 in the sense

which we have indicated earlier and which is in consonance

with the uniform course of decisions already referred to

rendered on the meaning of that word.

(2)Is the fee permitted to be charged by s. 548 (2) a fee or

a tax ?

This brings us to a consideration of the provisions of the

Act for the purpose of determining whether the impost

permitted to be charged by S. 548(2) of the Act is a fee

understood in the sense in which we have explained earlier

as used in Entry 66 of List 11 or is it a tax. For this

purpose it is necessary to examine the scheme of the Act.

The Act contains 615 sections and these are

521

divided into 3 8 chapters each with a heading indicating the

subject dealt with in it. These several chapters are

themselves grouped under 8 Parts. Part 1 in which Ch. 1

alone occurs is preliminary and does not require mention.

Part 11 which comprises Chapters 11 to VI deal with the

constitution and government of the Municipal Corporation.

The several chapters of this Part enumerate and specify the

powers and functions of the several municipal authorities

and the manner in which the business of the Corporation has

to be transacted. This Part also is not relevant to the

matter on hand and may be passed over. Part III deals with

Finance and is made up of Chapters VII, VIII, IX and X. It

is sufficient to refer to the headings of the several

chapters which are Ch. VII. The Municipal Fund, Ch. VIII-

Budget Estimates, Ch. IX Loans and Ch. X Accounts. We

shall have to refer to some of the provisions of these

chapters in dealing with certain arguments of Mr. Pathak

relying on them for the purpose of showing that the

legislature had laid down the principles and afforded

sufficient guidance for determining the rate at which a fee

should be levied, on the basis that such a fee was a tax.

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To these, however, we shall revert later.

Part IV is headed 'Taxation' and Chapters XI to XVII are in

this Part and each of these chapters deal with separate

heads of taxes which the Corporation is authorised to levy

and collect.

Section 165 of the Act with which Ch. XI opens empowers the

Corporation to impose "a consolidated rate" on lands and

buildings situated within the municipal area. The section

prescribes the maximum percentages of the annual value at

which the tax may be levied and grades them into several

categories dependent on the total annual valuation. Section

166 prescribes the manner in which the particular percentage

to be charged is to be determined by the Corporation. The

percentages, subject to the maxima laid down in s. 165, have

to be fixed annually having regard to the requirements of

the Corporation with reference to the obligations imposed

upon it by the Act. Elaborate procedure is laid down by the

other sections of this Chapter ending with s. 207 for the

manner in which the annual value of lands and buildings on

which the specified percentages may be levied may be

determined, with appeals provided to Civil Courts for the

aggrieved tax-payer in the event of the annual value as

determined by the Corporation being disputed. The next

Chapter-Ch. XII comprising ss. 208 to 217 is headed 'Taxes

on Carriages and Animals'. When the tax leviable under this

chapter whose rate is prescribed by the Sch. VI of the Act,

is paid, a licence is issued to the owner of the Carriage or

522

Animal. Next, we get to Ch. XIII headed "Tax on

professions, trades and callings" and comprises ss. 218 to

221. Section 218 directs that "every person who exercises

or carries on in Calcutta any profession, trade or calling

indicated in Sch. IV shall annually take out a licence

before the 1 st July each year........ and pay for the same

such fee as is mentioned in that behalf in the said

Schedule. Schedule IV, it might be mentioned, contains the

rules as to the quantum of the profession etc. tax to be

charged by the ,Corporation. The persons to be taxed under

this head are divided into 10 classes depending upon the

amount of business carried on and in the case of companies,

their paid-up capital and in the case of individuals, of

their annual income and in respect of each class the fee to

be levied is specified. Chapter XIV headed "Scavenging Tax"

comprises ss. 222 and 223. This tax is to be levied on per-

sons who exercise a calling. specified in Part 1 of Sch.

VII and is dependent on either the average number of animals

kept by the persons for the exercise of such calling, or in

the case of the owner or occupier of a market, the average

quantity of offensive matter and rubbish removed daily. A

licence is to be taken by the person liable to pay the tax

and the rates to be charged are to be those specified in

Part 11 of Sch. VII. Next, we have a tax on carts under

Ch. XV. The tax is to be imposed for the registration and

the numbering of carts and by charging of a fee for such

registration. Section 225 prescribes the fee that might be

charged for the several varieties of vehicles which are

classified under that section. Section 229 which is the

first section in Ch. XVI provides for the imposition of a

licence fee for advertisements. It is the only provision

for taxation as regards which a rate is not specified or the

maxima laid down by the Act. Chapter XVII which is the last

chapter in this Part is concerned with making provision for

the recovery of the consolidated rate and the other taxes

and for certain supplementary provisions in relation to

taxes permitted to be levied under this Part.

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The next Part-Part V is headed the Public Health, Safety and

Convenience and Chapters XVIII to XXXI are included in this

Part. Chapter XVIII relates to water supply, XIX to drains,

privies and other receptacles for filth, Chapter XX to

licensed plumbers, XXI to Streets and Public places, XXII to

buildings, XXIII to Bustees, XXIV to demolition, alteration

and stopping of unlawful work, XXV to lighting and

scavenging, and regulation of public bathing and washing,

XXVI to inspection and regulation of premises, and of

factories, trades and places of public resort and this is

the chapter in which s. 443 finds a place. Chapter XXVII

523

deals with markets and slaughter places, Ch. XXVIII with

Food and Drugs, Ch. XXIX with milk-supply, Ch. XXX with

restraint of infection and Ch. XXXI with registration of

births and deaths and disposal of the dead. The next

chapter in this Part deals with acquisition, disposal and

general improvement of land and buildings and the last

oneCh. XXXIII with the special powers of the Corporation.

The next part-Part VII contains provisions for enabling the

Municipal Corporation to make bye-laws and rules. Part VIII

which is the last Part has four chapters-Ch. XXXV deals

with penalties to be imposed for ensuring compliance with

the provisions of the Act and the bye-laws made by the

Corporation, Ch. XXXVI is headed 'Procedure', and s. 548 is

the first section in this Chapter, and the other sections

deal with the incidental powers of the Corporation and with

procedure. The next two chapters are headed "Supplemental

provisions & Transitory provisions".

Mr. De for the respondent urged that the scheme of the Muni-

cipal Act proceeded on a clear demarcation between taxes and

fees, and that all the taxes which the Corporation was

empowered to impose were grouped together under various

heads in Part IV of the Act headed "Taxation". Section 443

occurs in the Chapter relating to the inspection of places

of entertainment and public resort and s. 548(2) in one

headed "Procedure" and that the framers of the Act,

therefore, could not, by these provisions, intend that the

fee to be levied would be a tax. In other words, the

argument was that all taxing power and the heads of taxation

were to be exclusively found in Part IV of the Act. This

argument deserves serious consideration, but before we

proceed to do so, we might notice and dispose of an

additional submission which was made to reinforce this

argument based on the terms of s. 127(3) read with s. 127(4)

of the Act. Section 127 occurs in Ch. VIII dealing with

Budget estimates. Section 126 requires the Commissioner to

prepare and submit to the Standing Finance Committee on or

before December 15 each year, "the annual estimates of

expenditure, receipts and balances and the statements of

proposed taxes". Section 127 is concerned with requiring

the Corporation to frame budget estimates of the year. Sub-

s. (3) on which he relied reads

"(3). The Budget Estimates prepared by the

Standing Finance Committee shall be laid

before the Corporation on the 15th February or

as soon as possible thereafter and the

Corporation shall consider the same. It may

refer the estimates back to the Standing

Finance Committee for further consideration

and resubmission within a specified time and

shall-

524

(a) .............................

(b)determine, subject to the provisions of

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Part IV the levy of the consolidated rate and

taxes for the said year at such rates as are

necessary to provide for the purposes

mentioned in sub-section

(4) ......................

and sub-s. (4) reads :

"(4). In the Budget Estimates the Corporation

shall among other things

(a)make adequate and suitable provisions

for such services as may be required for the

fulfilment of the several duties imposed by

this Act,

(aa) make adequate provisions for depreciation

of machinery belonging to the Corporation, as

far as may be possible,

(b)provide for the payment as they fall due

of all instalments of the principal and

interest for which the Corporation may be

liable in respect of loans contracted by it,

(c)allow for a cash balance at the end of

the year of not less than twelve lakhs of

rupees, and

(d)allot sums of money to each Borough

Committee to enable it to exercise and

discharge its powers, duties and functions."

The argument was that in the budget estimates in s. 127(3)

what is to be considered is the levy of the consolidated

rate and the taxes and these are subject to the provisions

of Part IV and the obligatory expenditure imposed by sub-s.

(4) is to be met out of the consolidated rates and taxes

which are to be determined subject to the provisions of Part

IV. It was, therefore, submitted that the rates and taxes

had to be determined subject to the provisions of Part IV

and as the expenditure under sub-s. (4) was to be correlated

to the receipt from the rates and taxes it was an indication

that all rates & taxes were only under Part IV. We consider

that this argument proceeds upon a misconstruction of these

provisions. Sub-s. (4) of s. 127, of course, deals with

obligatory expenditure but from this it does not follow that

expenditure which the Corporation could lawfully incur for

the optional amenities which it could provide for the

citizens would not find a place in the budget. Sub-s. (4),

it would be seen, opens with the words "shall among other

things, make Under s. 126 the budget

525

will cover all the expenditure which it is proposed to

incur-both that which is obligatory upon the Corporation

under s. 127(4) and those which it could lawfully incur. On

the receipt side would be included also fees and all

receipts from every other source. No doubt, s. 127(3) would

appear to suggest that so far as consolidated rates and

taxes are concerned, it would be subject to the provisions

of Part IV but that by its very nature can only apply to the

rates and taxes listed in Part IV. If on a proper construc-

tion of the Act one reached the conclusion that Part IV was

not exhaustive of the range of levies permitted by the Act

and that the fees permitted to be levied by s. 548(2) were

also taxes, there would be nothing in s. 127(3), either by

itself or read with s. 127(4), to militate against that

construction. We do not, therefore, consider that these

provisions advance the case of the respondent if on a

construction of the Act one reached a different conclusion.

We are thus left with the assistance afforded to us by the

scheme underlying the provisions of the Act for determining

whether the levy permitted by s. 548(2) is of the nature of

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a tax. The submission of Mr. Pathak was that Part IV, no

doubt, dealt with rates and taxes but merely on that account

one cannot draw the conclusion that taxes are not dealt with

or permitted to be imposed by other provisions of the Act.

No doubt, if a power to make a levy occurred in a part

outside Part IV and it clearly and unequivocally pointed to

the imposition being a tax its effectiveness could not be

denied merely because the provision did not appear in Part

IV. But on the scheme of the Act we have at least to start

with a presumption that Part IV is exhaustive of the taxes

which are permitted to be levied by the Corporation. In

this connection Mr. Pathak laid some stress on the fact that

the nomenclature employed to designate taxes in Part IV was

not uniform and that a tax was sometimes called a

consolidated rate (vide s. 165) and, though called a tax in

the case of taxes on carriages and animals under ss. 208 and

216, a licence was granted on the payment of a tax, it was

called a fee under s. 218 in the case of tax on professions,

trades and callings, and, similarly, in the case of

scavenging tax under s. 222, was designated as a fee and a

licence fee on advertisements by s. 229. In the face of

this difference in the terminology employed learned Counsel

stressed that the framers of the Act did not proceed on the

differentiation that every fee permitted to be imposed for

the grant of a licence was always not a tax. Learned

Counsel is, no doubt, right in the submission that Part IV

headed 'Taxes' uses the expression "fee" to designate taxes

to be imposed upon particular articles or activities but the

provisions of the Act and the way the relevant sections are

framed make

526

it clear that what is permitted to be charged by these

provisions in Part IV is really in the nature of a tax.

Besides, in the case of all these imposts, whether called a

tax or a fee, except in the case of a fee on advertisements

under s. 229 either the amount of the tax was prescribed or

criteria laid down on the basis of which the rate of the

levy was to be determined. In some cases, as the case of

profession tax, tax on carts etc., the tax to be imposed is

determined by the Act itself. In the case of others like

the Consolidated rate the maximum percentages are fixed and

what is left to be determined by the Municipal authorities

are the fixation of the percentages within the maxima

prescribed and the determination of the annual value of the

premises for fixing which elaborate procedure is laid down

which includes appeals to Courts where persons are aggrieved

by action of the municipal authorities. One exception to

this method of prescribing the tax or its permitted limits

is, as already pointed out, s. 229. It is called a licence

fee on advertisements but, in the context, gives no room for

controversy as to whether it is a tax or a fee. We are

satisfied that an examination of the provisions to which we

have referred makes three matters abundantly clear : (1)

that it draws a sharp and clear distinction between taxes

properly so called and fees, (2) the division into Parts and

chapters is logical and clear cut and no matter which

properly falls under a subject set out under a Part or

chapter heading is dealt with in any other. Mr. Pathak was

not able to point to any instance in which a subject which

fell under one Part or even chapter was included in and

dealt with in another, and (3) that taxes, by whatever

designation they might be called, are all comprehended and

dealt with by Part IV and by Part IV alone and that what is

permitted to be imposed by S. 548(2) is only a fee as

distinguished from a tax. If one has reference to the

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entries in the legislative list in Sch. VII, what is

permitted to be imposed under s. 548 (2) is a fee "in

respect of the matters in the list" viz., Entry 5, Entry 6-

Public Health and Sanitation, 16-Prevention of cattle

trespass, 24-Industries, 28-Markets and Fairs, 33Sports,

entertainments and amusements. In this view as admittedly

there is no correlation between the fee charged and the

service rendered in the sense discussed earlier, we must

hold that the impugned levy was not authorised and that the

learned Judges of the High Court were right in granting

relief to the respondent.

(3)Assuming s. 548 permits the levy of a far, is the

provision Constitutional ?

In this view no other question would arise. In view,

however, of the elaborate arguments addressed to us by Mr.

Pathak on the

527

other parts of the case and particularly since the learned

Judges of the High Court have devoted considerable parts of

their judgment to dealing with them we propose to examine

the submissions of learned Counsel under that head also. On

the footing that what was permitted to be levied by s.

548(2) was a tax the submission of learned Counsel was, as

already stated, two-fold : (1) that in the case of

devolution of legislative or quasi legislative power to a

Municipal Corporation a different criteria for determining

excessive delegation has to be adopted and that having

regard to the terms of Entry 5 of List II no conferment of a

power in favour of a municipality which is germane to

municipal administration or local self government can be

held to be beyond the legislative power of the State., and

(2) *,bat even if the above were not accepted, the Act

itself laid down in sufficiently definite terms the prin-

ciples upon which the rate of fee was to be determined and

afforded' sufficient guidance for its determination, that

the provision did not suffer from the vice of excessive

delegation.

We shall deal with them in that order. For the submission,

under the first head, Mr. Pathak relied on two lines of

reasoning, based respectively on the terms of Entry 5 of

List 11 of Sch. VII and on certain American decisions which

he said supported such a view.

Entry 5 reads

"Local government, that is to say, the

constitution and powers of municipal

corporations, improvement trusts, district

boards, mining settlement authorities and

other local authorities for the purpose of

local self-government or village

administration".

On the terms of this entry emphasis was laid on the words

"powers of municipal corporations" and "for the purpose of

local self-government" for which the municipal corporations

and other bodies specified were to be constituted. Relying

on the words underlined he urged: (1) that the Constitution

empowered the devolution on municipal corporations of all

powers which were needed for the purpose of local self-

government. If, therefore, a power of taxation was

conferred upon a municipal corporation, that devolution of

power was sanctioned by the Constitution and so was outside

the rule against excessive delegation of Legislative power.

The argument was even pitched higher and it was said that

the expression "powers" occurring in the entry enabled the

State Legislature to confer upon municipal corporations not

merely

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528

all the powers which the State Legislature itself could

exercise under the several legislative entries in Lists II

and 111, but even powers outside those Lists provided they

were necessary for the purposes of local self-government.

It was suggested that having regard to the great object of

decentralisation of power which was achieved by setting up

institutions for the purpose of local self-government the

Constitution had vested in the State Legislatures complete

and plenary powers necessary for effectuating the setting up

of such bodies and endowing them with the capacity to

achieve their object. If entry 5 was construed in this

manner the conferment of power to tax by s. 548 (2) of the

Act could not be challenged as unconstitutional.

To examine this argument closely it would be convenient to

split it up into two parts : (1) whether by reason of a

provision for legislation as regards the "power" of

municipal corporation,$ the rule as to unconstitutionality

arising from excessive delegation of legislative power

becomes inapplicable, and (2) whether the powers which were

permitted to be conferred on municipal corporations extend

beyond those open to the State Legislatures themselves to

exercise under the relevant entries in the Seventh Schedule.

We shall take up the second question first. Learned Counsel

was driven to put forward an argument in this form that

powers to be conferred upon municipal corporations need not

necessarily be confined to the legislative powers of the

State Legislatures under other entries, because of the

difficulty he experienced in sustaining the plea that every

fee for a written permission or for licence permitted by s.

548 (2) of the Act could be related to particular entries as

to taxation which alone are permitted to the States by the

distribution of legislative power under the Seventh

Schedule. For instance, it was pointed out during the

course of the argument that the purposes for which a written

permission was necessary and a licence was required to be

taken embraced a wide variety of subjects and if s. 548 (2)

were held to authorise the levy of a tax in respect of each

of those activities for which a permission was needed or a

licence was required to be taken, it would not be possible

to relate such a tax to any of the taxation entries in List

11, that is, entries 45 to 63. Thus S. 297 of the Act

provides that without the written permission of the

Commissioner no private streets shall be constructed and

under s. 548 (2) a fee may be charged for the granting of

the written permission. It is not possible to relate the

fee to be charged for this permission under any of the heads

of taxation in List 11. Of course, if it were a fee under

entry 66, it would fall under that entry read with entry

529

5, entry 6-public health and sanitation-as well as entry 13-

Communications, that is to say, roads, bridges etc. Very

many more illustrations of this sort to some of which we

have adverted earlier, were pointed out during the course of

the argument and learned Counsel suggested that some of them

might fall under the head of "lands and buildings". But the

regulation of an activity for carrying on a business in

certain premises and which are dealt with in Chapter XXVI of

the Act--"Inspection and Regulation of Premises, and of

Factories" cannot be equated with the subject-matter of a

tax on land and buildings which are specifically dealt with

by s. 165 which reads :

"A graduated consolidated rate on the annual

valuation determined under this Chapter may be

imposed by the Corporation upon all lands and

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buildings in Calcutta for the purpose of this

Act..........

Similarly, restrictions are imposed in the interest of

public health and sanitation on the carrying on of certain

trades which are specified in Schedule XVIII. The licence

fee levied to secure permission to carry on such an activity

could not, on the scheme of the Act, be called a tax on

professions, trades, callings and employments referred to in

entry 60 of List 11. It was by reason of these difficulties

that learned Counsel was forced to make this submission

relying on the words "powers" and "for the purpose of self-

government" in entry 5. We consider that this submission is

entirely without force. In the first place, it could not be

disputed, though learned counsel did so somewhat hesitantly

at one stage, that the legislature cannot confer larger

powers upon a body which it creates than what it itself

possesses. We should have considered that this was too

elementary for any elaborate exposition but for submission

of counsel in this case. The position is really

incontrovertible. In the Western India Theatres Ltd. v.

Municipal Corporationof the City of Poona(1) the learned

Chief Justice speaking for the court said :

"In the first place, the power of the

municipality cannot exceed the power of the

provincial legislature itself and the

municipality cannot impose any tax, e.g.

income tax which the provincial legislature

could not itself impose."

If the State Legislature cannot confer a power upon the

State Government it is not easy to see how it could confer a

wider power,

(1) [1959] Supp. 2 S.C.R. 71, 75.

530

which it could not otherwise exercise, upon a municipality.

Besides, it was not suggested that without a power being

conferred by the legislature in the Municipal Act, by the

mere constitution of a Municipality, the latter can lay

claim to any inherent power either of local self-government

or as incidental thereto of a power to levy taxes and fees.

If the powers of a municipality are derived from legislation

and if the legislature has not, under Art. 246 of the

Constitution read with the entries in the Legislative List

which are relevant, the authority to confer such a power it

appears to us to be self-evident that the State Legislature

can confer no higher powers on the municipality than it has

itself. If Mr. Pathak is right it would mean that though a

State cannot levy income tax or impose customs duties on

imports and exports for the purpose of augmenting State

Revenues, it can however confer power to levy these taxes on

a municipality for the "purpose of local self government".

The proposition has only to be stated to be rejected.

Nothing, therefore, in our opinion depends upon the use of

the " powers" in entry 5, as that expression can refer only

to (a) such powers as are actually conferred by the

enactment in question and (b) powers which the Legislature

can by law confer on the executive Government of the State

or on any other instrumentality of its creation.

The answer on behalf of the respondent to this submission

was based upon two grounds: (1) That s. 548(2) is really an

exercise of legislative power under entry 66 of List 11 and

that under the power so conferred what the Corporation has a

right to impose is not to impose a tax but to charge a fee

correlated to the expenses involved in the administration of

that law; (2) What the legislature can confer by a provision

of the type found in S. 548 (2) is merely a power to levy a

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fee and not a tax as otherwise, the tax itself which is

permitted to be levied would be beyond the competence of the

State Legislature. We consider this submission well-

founded. A stream can rise no higher than its source, and

this is so self-evident as not to need elaboration, it would

follow that the State legislature cannot authorise a muni-

cipal body which it creates even though it be for the

purpose of local self-government a power higher than what it

itself possesses. In this connection one cannot forget that

the government of the entire territory forming the State is

vested in the State and what the legislature cannot do for

the purpose of the government of that area cannot obviously

be done by conferring powers upon a municipal authority,

whose jurisdiction extends to defined limits in that

territory.

531

It was next urged that the terms of entry 5 were sufficient

to the State Legislature with authority to endow municipal

corporations at least with such powers as they possessed on

the late the Constitution came into force. We do not see

any legal basis for this argument. It would be noticed that

entry 5 in List 11 reproduces in terms entry 13 of List 11

of the Provincial legislative List in Schedule VII to the

Government of India Act, 1935. If the argument had any

validity it would follow that one should go back not merely

to the state of circumstances and the law as to distribution

of legislative power which prevailed under the Government of

India Act but to a period anterior thereto, namely before

the 1st of April, 1937 when the Government of India Act,

1935 itself came into force. At that time there was no

distribution of legislative power in the sense in which we

have under the Government of India Act and the Constitution.

India was then under a unitary form of Government;) the

legislatures were not confined to enumerated powers and the

distribution of legislative power between the provinces and

the centre was determined with a view to administrative

convenience and not on foot of an allocation of areas of

exclusive legislative competence. No legislation of a State

Government which trenched on a central subject was

unconstitutional (See proviso to s. 80A(3) introduced by the

Government of India Act, 1919). No assistance therefore can

be derived by reference to the powers exercised by local

authorities and municipal corporations at a time when there

was no distribution of legislative powers leading to

unconstitutionality.

It is precisely because the Government of India Act made a

change in this respect that a provision was inserted in s.

143(2) of that Act by which taxes, duties, cesses or fees

which immediately before the commencement of the Government

of India Act, 1935 were being lawfully levied by any

Provincial Government, municipality or other local authority

or body for the purposes of the province, municipality,

district or other local area etc. may notwithstanding that

those taxes, duties, cesses or fees mentioned in Federal

Legislative List continue to be levied and to be applied to

the same purposes until provision is made to the contrary by

the Federal Legislature". In other words, the framers of

the Government of India Act proceeded on the basis that the

powers of the Provincial Legislatures as regards taxation

were not the same and that it was, therefore, necessary for

making a provision for continued realisation of those taxes

subject to any central law on the topic and we have a

provision exactly on the same lines with practically the

same phraseology in Art. 277 of the Consti-

532

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tution. If the submission of the learned Counsel for the

appellant is right, there would have been no need in Art.

277, for a reference to taxation by Municipal and other

local bodies because or, the argument the State Legislature

could validly confer upon a municipal corporation all powers

which it had enjoyed before, including the power to impose

taxes, nothwithstanding that power is not in the State

Legislative List.

As "Power" could be conferred on a Municipal Corporation

only by law, we consider that the nature or quantum of power

that could be vested by a law of the State Legislature,

cannot transcend the limitations prescribed by the

Constitution on the State legislature. In the context

therefore of the law being one in relation to municipal

corporations, the State legislature can confer on the

corporation created only those powers which are within its

legislative power and relevant to the topic.

Pausing here, it would be convenient to refer to the submis-

sion of Mr. Naunit Lal appearing for the Intervenor who

addressed us in further support of the appellant's case.

His argument was that entry 5 was to be understood in the

light of the legislative practice which prevailed prior to

the Constitution and he placed before us the report of the

Local Finance Enquiry Committee published in 1951 in which

the history of taxation powers exercised by municipal and

other authorities from early times has been traced. He also

referred us to the provisions in several pre and post-

Constitution enactments in which provision had been made

enabling the municipal or other local authorities to levy

and collect taxes some of which, he stated, did not fall

within the State List or even within any of the three Lists.

It is not necessary to examine the details of the instances

referred to by learned Counsel. But assuming learned

Counsel is right in the illustration it would not help him

in the least. In the first place, so far as legislative

practice is concerned, it cannot prevail over the

limitations imposed by the distribution of legislative power

in respect of post-Constitution legislation such as the Act

before us. What the legislature cannot do directly by

legislating and conferring power upon the State Government

or the instruments which it creates, it cannot obviously

confer upon a municipal corporation merely because it has

authority to confer power upon a municipality in express

terms. The power to impose taxes which it cannot impose for

the augmentation of the revenues of the State it cannot

manifestly confer upon a municipality or other organ of a

local self-government. Besides, as pointed out by Lord

Tomlin in dealing with a contention as to the meaning of

53.3

the word "fisheries" in "Sea coast and inland fisheries" in

s. 91 of the British North America Act, 1867 in Attorney

General for Canada v. Attorney General for British Columbia

and ors(1):

"He (the appellant) supports his contention by referring to

fishery legislation prior to 1867 affecting territories now

part of the Dominion, pointing out that in this legislation

there are to be found numerous provisions relating to the

curing and marketing of fish, and he urges that the British

North America Act, 1867, must be construed in the light of

the earlier legislation, and that the word 'fisheries' must

be given such a meaning as is wide enough to include at any

rate the operations affected by the impugned sections.

Their Lordships are of opinion that the appellant's

contention in this respect is not well-founded. The fact

that in earlier fishery legislation raising no question of

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legislative competence matters are dealt with not strictly

within any ordinary definition of "fishery" affords no

ground for putting an unnatural construction upon the words

"Sea coast and inland fisheries".

Lastly, it may be pointed out that the territory of India

now embraces what were formerly the territory of ruling

princes in which there were no limitations on the powers

which might be vested in Municipal bodies. It is not,

therefore, possible to refer to an uniform legislative

practice prevailing before the Constitution to serve as a

guide for interpreting the legislative entries in the

Constitution. That is so far as reliance was placed on

legislative practice.

We do not, therefore, consider that anything material turns

on the use of the word "powers" in entry 5. Authority to

confer power on institutions or bodies created by

legislation, to enable them to fulfill their purposes and

achieve their objects is implicit in every entry conferring

legislative power. Thus, for instance under entry 47 of

List I reading "Insurance" Parliament has created the Life

Insurance Corporation under the Life Insurance Corporation

Act and has clothed it with sufficient powers to enable it

to function and carry out the purposes for which it was

created. Similarly, by legislation under the head 'Banking'

the Reserve Bank Act has been enacted and the Reserve, Bank

created with sufficient powers conferred upon it necessary

to regulate

(1)[1930] A.C. 111, 121.

534

the functioning of the Banking system in the country. By

legislation under the entry "Future markets" (entry 48 List

1) the Forward Markets Commission has been created and

powers and ,duties vested in it. From these examples it

would be clear that the authority to confer power upon the

bodies created by legislation is inherent in the power to

legislate on the topic. The express mention of an authority

to confer power on Municipal Corporations, therefore,

introduces no novel principle or rule of construction as

regards the conferment of powers. The quantum of the power

which a law could bestow upon an institution or body of its

creation is determined, firstly, by the view of the

legislature as to what are necessary for achieving the

purposes for which the institution or body is created and,

secondly, by the over-all limitations imposed by the

Constitution by the distribution of legislative power.

Nothing, therefore, turns on whether the authority to confer

"power" is express or is a necessary incident of legislative

power. If the very nature of a legislative power is such

that the legislature cannot delegate essential legislative

functions the fact that the authority to confer power is

express & not implicit makes no difference to the

application of the principle. In either event, as the law

conferring power even when expressly authorised is a law,

the rule against excessive delegation, applies to it as much

to cases where the authority to confer power is implicit.

The next head of argument on this point was based on

invoking the principles stated to have been laid down by

certain American decisions to which we were referred. The

principal authority on which reliance was placed was the

formulation of the law by Fuller C.J. in Soutenburgh v.

Hennick(1) Speaking for the majority of the Court he said:-

"It is a cardinal principle of our system of government,

that local affairs shall be managed by local authorities,

and general affairs by the central authority; and hence

while the rule is also fundamental that the power to make

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laws cannot be delegated, the creation of municipalities

exercising local self government has never been held to

trench upon that rule. Such legislation is not regarded as

a transfer of general legislative power, but rather as the

grant of the authority to prescribe local regulations,

according to immemorial practice, subject of course to the

interposition of the superior in cases of necessity".

(1) 129 U.S. 142=32 L.Ed. 637.

535

there are similar passages in judgments in other cases to

which also our attention was drawn. But we do not, however,

see the appositeness of the American rule to the

interpretation of the Indian Constitution, particularly in

the context of the criteria there indicated. Besides the

rule as to limits of delegation by the legislatures

constituted in India by the Constitution has been the

subject of elaborate consideration by this Court in the

Delhi Laws Act cam,(1) and in the later decisions in

Yasantlal Maganbhai Sanjanwala v. The State of Bombay and

others (2); Jyoti Pershad v. The Administrator For the Union

Territory of Delhi($) to mention a few and these decisions

bind this Court. These decisions have not laid down that a

different rule applies where the delegation of legislative

power is in favour of municipal corporation. We, therefore,

consider that the analogy of the American decisions affords

no guidance for the application of a different rule as to

what constitutes excessive delegation in the case of

legislation creating municipal bodies.

If then the same tests have to be applied to determine the

limits of permissible delegation of quasi legislative power

whether the same be in favour of Municipal bodies or in

favour of other administrative agencies, the question next

to be considered is whether the Act affords sufficient

guidance to the municipal authority for the levying of the

rate. The subject of the limits of the delegation of

legislative power has been the subject of consideration in

several decisions of this Court including the Delhi Laws

Case(1) mentioned above. It is, however, sufficient to

refer to a few of them. As regards the principle itself we

do not understand that there is any controversy. In Vasant

Lal Maganbhai Sanjanwala v. The State of Bombay and Ors.(2)

Subba Rao. J. though he dissented from the judgment of the

majority of the Court on the facts, summarised the decisions

of this Court on this topic, which Mr. Pathak did not

dispute correctly states the law. He said at pp. 356-357 of

the report :-

"The law on the subject may be briefly stated thus: The

Constitution confers a power and imposes a duty on the

legislature to make laws. The essential legislative

function is the determination of the legislative policy and

its formulation as a rule of conduct. Obviously it cannot

abdicate its functions in favour of another. But in view of

the multifarious activities of a welfare State, it cannot

presumably work out all the

(1) [1951] S.C.R. 747.

(2) [1961] 1 S.C.R. 341.

(3) [1962] 2 S.C.R. 125.

sup 65 - 18

536

details to suit the varying aspects of a complex situation.

It must necessarily delegate the working out of details to

the executive or any other agency. But there is a danger

inherent in such a process of delegation. An overburdened

legislature or one controlled by a powerful executive may

unduly overstep the limits of delegation. It may not lay

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 47 of 54

down any policy at all; it may declare its policy in vague

and general terms; it may not set down any standard for the

guidance of the executive; it may confer an arbitrary power

on the executive to change or modify the policy laid down by

it without reserving for itself any control over subordinate

legislation. This self effacement of legislative power in

favour of another agency either in whole or in part is

beyond the permissible limits of delegation. It is for a

court to hold on a fair, generous and liberal construction

of an impugned statute whether the legislature exceeded such

limits. But the said liberal construction should not be

carried by the courts to the extent of always trying to

discover a dormant or latent legislative policy to sustain

an arbitrary power conferred on executive authorities. It

is the duty of this Court to strike down without any

hesitation any arbitrary power conferred on the executive by

the legislature".

The same principle was expressed in slightly different

language in jyoti Pershad v. The Administrator for the Union

Territory of Delhi(',) at p. 145 :-

"In the context of modern conditions and the variety and

complexity of the situations which present themselves for

solutions, it is not possible for the Legislature to

envisage in detail every possibility and make provision for

them. The Legislature therefore is forced to leave the

authorities created by it an ample discretion limited,

however, by the guidance afforded by the Act. This is the

ratio of delegated legislation, and is a process which has

come to stay, and which one may be permitted to observe is

not without its advantages. So long therefore as the

Legislature indicates, in the operative provisions of the

statute with certainty, the policy and purpose of the

enactment, the mere fact

(1) [1962] 2 S.C.R. 125.

537

that the legislation is skeletal, or the fact that a dis-

cretion is left to those entrusted with administering the

law, affords no basis either for the contention that there

has been an excessive delegation of legislative power as to

amount to an abdication of its functions or that the

discretion vested is uncanalised and unguided as to amount

to a carte blanche to discriminates

The matter may possibly be stated more simply by adopting

the language of Bose, J. in Rajnarain Singh v. The Chairman,

Patna Administration Committee, Patna and another(1) 'is it

the delegation of essential legislative power", or

unessential details the principle being that if the

legislature lays down a policy, prescribes the standards and

affords sufficient guidance to the rule making or

subordinate legislative authority it is a proper delegation,

but not if the legislature confers on the subordinate law

making authority powers to determine its own policy without

any guidance in that regard. In the one case it would be a

canalised power and in the other uncanalised and would

amount, in effect, to transferring its basic power to

another body.

If the validity of s. 548(2) of the Act be judged by this

test the questions that arise are : (1) Whether the power to

determine the rate of a tax is an essential legislative,

function or is it merely a minor and incidental matter, (2).

Assuming it is an essential legislative function, whether

the Act has indicated with reasonable certainty the

principles upon which that power has to be exercised or laid

down the standards for the fixation of the rate. Now, on

the first point as to whether it is an essential legislative

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function or not, the submission of Mr. Pathak was that it

was not, and for this purpose he relied principally on three

decisions of this Court.The first one Banarsi Das v. The

State of Madhya Pradesh(1) was concerned with the

constitutional validity of a provision in the C.P. & Berar

Sales Tax Act, 1947 which conferred upon Government power to

withdraw certain exemptions from the tax as levied by the

Act. It was urged before the Court that the conferment of

this power to withdraw the exemption on the Executive was

unconstitutional as suffering from the vice of excessive

delegation. This argument was repelled by this Court for

more than one reason. The passage relied on in this

connection is at p. 435 :-

"The point for determination is whether the impugned

notification relates to what may be said to be

(1) [1955] 1 S.C.R. 290.

(2) [1959] S.C.R. 427.

538

an essential feature of the law, and whether it involves any

change of policy. The authorities are clear that it is not

unconstitutional for the legislature to leave it to the

executive to determine details relating to the working of

taxation laws, such as the selection of persons on whom the

tax is to be laid, the rates at which it is to be charged in

respect of different classes of goods, and the like".

As to the meaning of the words "such as .... the rates at

which it is to be charged in respect of different classes of

goods" there was controversy before us. Mr. Pathak

submitted that this was an explicit decision holding that

the determination of a rate at which a tax might be levied

was not an essential legislative function. On the other

hand, Mr. De urged that the emphasis in the passage was

really on "different classes of goods" -and not on the

determination of a rate simpliciter and in support pointed

out that the three decisions from which the principle

underlying the passage quoted above was extracted did not

support such a wide proposition. The three decisions relied

on for the proposition were one of the Privy Council, one of

this Court and one of the United States Supreme Court. In

all those cases the amount of the rate had been prescribed

by the legislature and the delegation to the external

authority the Government or the President in the United

Sates, was merely the determination of certain external

facts for rendering the tax applicable to the commodity.

Thus in Powell v. Apollo Candle Company, Limited(1) the rate

of the custom duty was laid down by an enactment of the New

South Wales Legislature. Section 133 of the Customs Act

enacted:

"Whenever any article possesses, in the opinion of the

collector, properties in the whole or in part which can be

used for a similar purpose as a dutiable article, the

Governor is authorised to levy a duty upon such article at a

rate to be fixed in proportion to the degree in which such

unknown article approximates in its qualities or uses to

such dutiable article".

Candles were expressly named in the Act as subject to the

rate of duty specified and on the application of the

Collector the Governor, by an order in Council notified

"stearine" as liable to a similar duty. It is in that

context that the Privy Council stated in a passage which is

extracted in the judgment of this Court

(1) 10 A.C. 282,

539

"But the duties levied under the Order in Council are really

levied by the authority of the Act under which the order is

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issued".

The two other decisions do not lay down a wider principle.

For this reason Mr. De submitted that the judgment of this

Court should be understood in the context in which it occurs

and with reference to the authorities cited in support and

if so read the rates referred to are in relation to those

"to be charged in respect of different classes of goods", as

in Powell's case. We see considerable force in this

argument and as we shall show by a reference to later

decisions of this Court, this passage has not been

understood in the sense in which Mr. Pathak desires us to

understand viz., that a legislation which leaves the rate of

taxation entirely to the executive does not suffer from the

vice of excessive delegation. If Mr. Pathak is right, in

order to impose an income tax, it would be sufficient for

the legislature to pass a single section empowering the

executive to levy the tax at such rates as they might

consider appropriate on the different classes of persons

whom they consider proper and with reference to such income

as they might choose to tax. This illustration of what his

argument would lead to was put to Mr. Pathak but his only

answer was that was not the case before us.

The second case that Mr. Pathak referred to was the Western

India Theatres Ltd. v. Municipal Corporation of the City of

Poona.(1) Section 59 of the Bombay District Municipalities

Act 1901 empowered municipalities to impose for the purpose

of the Act certain taxes. By the first ten entries in sub-

s. (1) particular taxes were specified and this was followed

by a general head reading "any other tax". The second sub-

section of s. 59 read :

"Nothing in this section shall authorise the imposition of

any tax which the State Legislature has no power to impose

in the State under the Constitution."

The Municipal Corporation of Poona imposed a tax, after

following the procedure prescribed by the Municipal Act on

theatres within the city, of Rs. 2 per day as a licence fee.

This tax was imposed from October 1, 1920 and there was

enhancement of this tax in 1941 and 1948. It was the

constitutional validity of this levy which came from pre-

Constitution times that was challenged by a civil suit filed

in the Bombay High Court by the appellant company. Several

points were urged in support of this conten-

(1) [1959] 2 Supp. S.C.R. 71.

supp/65-19

540

tion. The first was that the Provincial Legislature under

the Government of India Act, 1935 did not itself have the

power to levy the said tax; (2) that the residuary category

set forth in cl. 1 1 "any other tax" was unconstitutional,

the point urged being that thereby "the legislature had

completely abdicated its function and delegated essential

legislative power to the municipality to determine the

nature of the taxes to be imposed on the rate payers. Such

omnibus delegation could not, on the authorities, be

supported as constitutional". The grounds upon which this

second argument was rejected was the main point on which Mr.

Pathak relied in support of this case. These were: (1) that

the taxes authorised to be imposed were taxes "for the

purposes of the Act" i.e., taxes could be raised only for

implementing the purposes for which the municipality was

constituted and for no other purpose, (2) though strictly

speaking the rule as to ejusdem generis could not be

invoked, the kind and the nature of the tax which the

municipality was authorised to impose were indicated by the

specified items 1 to 10, (3) the taxing power of the

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municipality was made subject to the approval of the

Governor-in-Council which, at the date when the Act was

passed, viz. 1901, meant the Governor-inlegislative Council,

and (4) finally it was observed the impugned section did lay

down a principle and fix a standard which the municipalities

had to follow in imposing the tax and, in the circumstances,

the legislature was held not to have abdicated its powers.

No doubt, this decision does support learned counsel to some

extent but a question in the form in which it arises now was

not before the Court. The only point was whether there was

sufficient formulation of policy for determining the nature

of the tax which a municipality might impose. The answer

was in the affirmative, based principally on two grounds:

(1) that by sub-s. (2) of s. 59 as well on general

principles of law the power of the municipality to levy

taxes was confined to those on which Provincial Legislature

could legislate. In fact, from the arguments as reported it

would appear that one of the points urged by learned counsel

for the appellant was that under head II of s. 5 9 (1)

municipality might levy an income tax. It was this extreme

contention that was answered and rejected by the learned

Judges. This was, in a sense, negative as it merely

prevented the municipality from levying particular kinds of

taxes. Coming to the positive aspect, the learned Judges

held that the other specified items of taxes coupled with

the purposes for which tax was to be levied, indicated the

nature of the tax that was to be levied. We

541

are unable to agree that this case decides that the fixation

of a rate of tax is not an essential legislative function

but a mere matter of detail which could be delegated to a

subordinate law making body.

The last of the decisions relied on in this connection was

in Vasantlal v. The State of Bombay(1). It was not a case

regarding the determination of a rate at which tax could be

levied out of the rent which a tenant might be required to

pay under the Bombay Tenancy and Agricultural Land Act,

1948. Section 6(2) of that Act enacted :

"The Provincial Legislature may, by notification in the

official Gazette, fix a lower rate of maximum rent payable

by the tenants of lands situate in any particular area or

may fix such rate on any other suitable basis as it thinks

fit."

By a notification issued under that section the Government

of Bombay prescribed the rate of rent and this was much

lower than the one previously fixed. By petitions under

Art. 226 filed in the High Court of Bombay the appellants

who were landholders challenged the constitutionality of

this fixation on the ground that the legislature had

delegated its essential legislative function without laying

down policy or principles affording guidance to the

delegates for implementing the legislation. This Court, by

a majority, answered this question in the negative. The

decision proceeded on the basis that the fixation of rent

was an essential legislative function. It was, however,

held that the legislature had enunciated the principles

subject to which the delegates could exercise its subsidiary

powers. Gajendragadkar J. as he then was, observed :

"The extent to which delegation is permissible is also now

well settled. The legislature cannot delegate its essential

legislative function in any case. It must lay down the

legislative policy and principle and must afford guidance

for carrying out the legislative policy laid down before it

delegates its subsidiary power in that behalf."

The enunciation of the principle in this manner does not

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help Mr. Pathak. His contention, however, was that in s.

6(2) extracted earlier, no policy had been laid down but

that this Court had upheld the constitutional validity of

that delegation. A close I examination of the decision,

however, does not support this submission. The basic

reasoning on which that decision rests is that

(1)[1961] 1 S.C.R. 341.

542

for the fixation of a reasonable rent under s. 12 by the

Mamlatdar the necessary factors had all been specified and

on a construction of the Act the learned Judges of the

majority reached a conclusion that the exercise of powers

under s. 6(2) had to be effected on the same basis and with

reference to the same factors which were specified in s.

12(3) of the Act. It is precisely on this question of the

construction of the Act and the correlation between the

power to fix the rent conferred upon the State Government by

s. 6(2) and the power of fixation of fair rent, conferred on

the Mamlatdar by s. 12 that there was the difference of

opinion between the learned Judges. It would, therefore, be

seen that far from Vasantlal's case being an authority for

the position that the fixation of a rate of rent is not an

essential legislative function but a mere matter of detail

which could be left wholly to the executive or subordinate

law making authority the decision clearly lays down that it

is an essential legislative function and it could. not be

delegated without sufficient guidance.

There were a few other decisions which were referred to by

the learned counsel on the question of excessive delegation

but the principles laid down there are general ones and

related to the particular point about the fixation of rates.

We do not, therefore, consider it necessary to refer to or

to deal with them. The final result of this analysis of the

decisions as laying down the law so far as the Constitution

is concerned, may be thus summarised : (1) Essential

legislative functions cannot be delegated but where the law

lays down the principles and affords guidance to the sub-

ordinate law making authority details may be left for being

filled up by the executive or by other authorities vested

with quasi legislative power, (2) The power to fix a rate of

tax is an essential legislative function and therefore

unless the subordinate lawmaking authority is afforded

guidance by the policies being formulated, principles

enunciated and standards laid down the legislation will

suffer from the vice of excessive delegation and would be

void as arbitrary or unconstitutional.

This leads us to the last of the points urged by Mr. Pathak

that the Act itself affords sufficient guidance and fixes

standards by which it could determine the rate at which a

tax could be levied. It is not, and cannot be disputed that

the guidance could be afforded not merely by the provision

enabling the tax to be levied but by other provisions of the

Act including the preamble. But the question is whether

there are any such provisions in the Act which could serve

to determine the standard upon which the rate of tax to be

levied is to be determined. Mr. Pathak first

543

referred us to the preamble where it is recited that the Act

enacted was one relating to the municipal affairs of

Calcutta. We are unable to see how this affords any

assistance in this regard. He next referred us to s. 24

reading, to quote the material words

"Subject to the provisions of this Act and the rules, bye-

laws and regulations made thereunder the municipal

government of Calcutta shall vest in the Corporation."

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and to ss. 42 to 47 which deal with the supervision of the

State Government over the affairs and activities of the

Corporation. As regards s. 24, we are unable to see how

this helps learned counsel in the present argument. No

doubt, the municipal government of Calcutta is vested in the

Corporation but the question is what powers are vested in

that government. If by describing the powers of

administration of the city of Calcutta vested in the

Corporation, as "a government" every power necessary to

effectuate governmental functions was involved there would

have been no necessity at all for the other provisions of

the Act. It is not, therefore, as if the expression

'government' gathers within its fold all powers necessary

for administration or creates an independent sovereign body

entitled to legislate in any manner it likes provided the

same is necessary for the purpose of carrying on civic

government. It is obvious that is not the sense in which

the word 'government' is employed in s. 24. The Corporation

is still a subordinate body which is the creature of the

legislature and can only function within the framework of

the powers conferred upon it by the Municipal Act. Nor are

we able to appreciate bow any assistance is derived in this

regard from the powers of supervision which the State

Government has over municipal affairs under ss. 42 to 47.

The supervision is only by the Executive Government and the

question relating to the vice of excessive delegation is as

much applicable to powers exercisable by the Executive

Government as to the Corporation. If no standards have been

laid down by the Act for the Corporation to afford it a

guidance for the fixation of a rate the fact that

supervisory power is conferred upon the executive would not

obviate that objection for the Government itself would have

no guidance from the legislature as to the policy to be

adopted in exercising the supervision. As was pointed out

by this Court in Jyoti Pershad v. The Administrator for the

Union Territory of Delhi(1) though in a slightly different

context speaking of an appeal Provided against orders of an

authority where it was complained that an arbitrary power

had been vested in the original authority :

(1) [1962] 2 S.C.R. 125.

5 4 4

"If learned counsel is right in his submission that the

power of the 'competent authority' is unguided and that he

had an unfettered and arbitrary authority to exercise his

discretion 'at his sweet will and pleasure' the existence of

a provision for appeals might not impart validity to such

legislation. The reason for this is that the appellate

power would be subject to the same vice as the power of the

original authority and the imposition of one's I sweet will

and pleasure' over another of a lower authority, would not

prevent discrimination or render the restriction

reasonable".

Principal reliance, however, was placed by learned counsel

on ss. 115 and 117 of the Act as affording the requisite

guidance. These read :-

Section 115 : "There shall be one Municipal Fund held by the

Corporation in trust for the purposes of this Act to which

all moneys realised or realisable under this Act (other than

fine levied by Magistrates) and all moneys otherwise

received by the Corporation shall be credited".

Section 117 : "(1) The moneys from time to time credited to

the Municipal Fund shall be applied in payment of all sums,

charges and cost necessary for carrying out the purposes of

this Act, or of which the payment is duly directed or

sanctioned by or under any of the provisions of this Act.

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(2)Such moneys shall likewise be applied in payment of all

sums payable out of the Municipal Fund under any other

enactment for the time being in force."

Reference was also made in this connection to s. 126 under

which annual budget estimates have to be prepared for the

Corporation in which a statement of the proposals as to

taxation which would be necessary or expedient to impose in

the said year and the expenditure to be incurred would all

have to be set out. It was, therefore, submitted : (1) that

there was a municipal fund into which all collections were

deposited, & (2) the amount of the collection was determined

by the expenditure which it was either obligatory or

permissive for the Corporation to incur. Thus no taxes

could be raised except such as were needed for the expendi-

ture for which provision had been made in the budget and the

rate of tax was, therefore, determined by the needs of the

Corporation. In support of the submission that this was

sufficient

545

guidance learned Counsel referred us to the decision of the

High Court of Orissa in The Orissa Ceramic Industries Ltd.

v. Executive Officer, Jharsuguda Municipality(1) where

reference is made to these very provisions as affording

sufficient guidance to enable a power to fix the rate being

delegated to a municipal authority. We do not consider that

ss. 115 and 117 afford any guidance for the fixation of a

rate. If the amount of money which a municipality needs for

discharging its functions, affords any guidance it would

appear to follow that the needs of a State for the expendi-

ture which it has to incur for its manifold activities and

again of the Union for the activities which it might

undertake ought to afford sufficient guidance to sustain the

validity of a skeleton legislation of the type we have

indicated earlier. Thus, if learned Counsel is right in his

submission as regards ss. 115 and 117 read with s. 126 as

affording sufficient guidance a legislation by a State

Legislature or Parliament enacting that the State Government

might raise such taxes as it considers necessary and at such

rates as it might consider proper for meeting the

expenditure of Government could be constitutional and there

would be no need for a parliamentary scrutiny and

legislation as regards the rates of the several taxes to be

levied within the State or the Union, as the case may be.

As Mr. Pathak himself realised, this would be plainly

unsupportable. If this were so, merely because the area of

Government was restricted to a municipality we do not

consider how these provisions afford guidance to the

subordinate law making authority viz., the Municipal

Corporation to fix the rate of the levy. Pausing here,

learned Counsel said that even if a maxima were prescribed

still it left an amount of discretion to the Municipal

Corporation or the Executive, as the case may be, and that

even such a "guided" power could be attacked as ultra vires.

This, however, do Is not follow. The unconstitutionality

arises out of the discretion being %,holly uncanalised and

unguided. The argument on the other side is not that no

discretion could be left to the legislature to determine

within permissible limits the precise rate that would secure

the purposes which it seeks to achieve but rather that no

guidance is at all afforded and a blank cheque given to the

subordinate authority. Where a maxima is fixed and the

limit of discretion is thus controlled the legislature has

exercised its legislative power on that topic viz., the

particular tax. In the other case, where it merely

authorises the subordinate law making authority to levy the

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tax without indicating the essential legislative features of

such a tax it is not really legislation on the taxation

(1) A.I.R. 1963 Orissa 171.

546

entry but is merely authorising the subordinate legislature

to enact a law on that topic. If these provisions, referred

to earlier, do not afford any guidance to the Municipal

Corporation to fix the rate of the levy it was not suggested

that there were any others in the Act which performed that

function. Sections 443 and 548(2), it is admitted, do not

afford any help for this purpose. It has, therefore, to be

held that viewed as a tax, the delegation is unconstitu-

tional as the essential legislative functions are parted

with to the subordinate law making body and the provision

is, therefore, unconstitutional.

The result is, the appeal fails and is dismissed with costs.

ORDER

In accordance with the majority judgment, the appeal is

allowed with costs throughout.

L3Sup/65-2,500-13-12-65-GIPF.

547