Tarkunde, J. - (1.) These two writ petitions and three first appeals were argued together as they involved a common question relating to the validity of Maharashtra Act No. III of 1966 entitled "The Borough Municipalities (Validation of Certain Taxes on Buildings and Lands) Act 1965."
(2.) In order to appreciate the contentions of the parties it would be useful to start with the facts leading to Special Civil Application No. 1476 of 1966. That petition has been filed by the Lokmanya Mills of Barsi against the Barsi Municipality and the State of Maharashtra for an appropriate writ or order under Article 226 of the Constitution declaring the said Maharashtra Act No. III of 1966 (hereinafter referred to as the 'impugned Act') unconstitutional, invalid and inoperative and requiring the Barsi Municipality not to take any steps in pursuance of the impugned Act. The petitioner, the Lokmanya Mills, has its spinning Mill in Barsi and the premises of the mill consist of a factory building, offices, bungalows, warehouses, out-houses, etc. Till 1947, the Barsi Municipality used to levy and recover a house tax on the buildings of the petitioner which was assessed on the basis of their annual letting value. Till that year the annual letting value of the petitioner's buildings was ascertained in the normal way, i.e. by ascertaining the amoung at which the buildings might reasonably be expected to let from year to year. In 1947 the Municipality made fresh rules regarding the levy of house tax and rule 2(c) of the new rules ran as follows:- "2(c) In the case of Mills and factories and buildings connected therewith, house tax on buildings shall be levied at the usual rate on the Annual Rental value fixed at Rs. 40 for every 100 square feet or portions thereof for each storey, floor or celler. Explanation : The expression "Building connected therewith means and includes warehouses, godowns, mill shops, etc. which are within the compound of mill premises but does include residential buildings, such as bungalows outhouses. Note. - Buildings which are not taxed under Rule 2(c) shall be taxed under the ordinary Rules." It will be noticed that under this rule the annual rental value of all the buildings of mills and factories other than residential buildings was fixed at a uniform rate of Rs. 40 for every 100 square feet of floor area irrespective of the actual rental value of its premises. The petitioner protested against this method of taxation on the ground that it was arbitrary and capricious, but paid under protest the taxes levied upon its buildings. Then in the years 1948 and 1949 the petitioner filed five suits to recover from the Municipality the excess amount which had been paid by the petitioner under the new rules over and above the amount which used to be paid in accordance with the assessment made under the old rules. The petitioner claimed refund of the excess amount in these suits on the ground that rule 2(c) was invalid. The suits had a chequered history, but they were eventually decreed by the Supreme Court. The Supreme Court held that rule 2(c) was ultra vires the powers of the Municipality under the relevant provisions of the Bombay Municipality Boroughs Act of 1925 by which the Municipality was governed (vide Lokmanya Mills Barsi Ltd. v. Barsi Borough Municipality, AIR 1961 SC 1358). After referring to section 78 and the Explanation to section 75 of this Act (hereinafter referred to as the Boroughs Act), the Supreme Court pointed out that the Municipality could levy a rate on lands and buildings assessed on valuation based on capital or the annual letting value, and that in framing rule 2(c) the Municipality had ignored both the methods of valuation and had adopted a method not sanctioned by the Act. The Supreme Court observed: "By prescribing valuation computed on the area of the factory building, the Municipality not only fixed arbitrarily the annual letting value which bore no relation to the rental which a tenant may reasonably pay, but rendered the statutory right of the taxpayer to challenge the valuation illusory." The Supreme Court further observed: "The vice of the rule (rule 2(c) lies in an assumed uniformity of return per square foot with structures of different classes, which are in their nature not similar, may reasonably fetch if let out to tenants and in the virtual deprivation to the rate-payer of his statutory right to object to the valuation." Accordingly the Supreme Court allowed the appeals and decreed the petitioner's suits. Under these decrees the petitioner became entitled to recover about Rs. 12,000 from the Municipality. During the pendency of these suits the petitioner adopted other proceedings in respect of the levy and collection of the house tax for subsequent years and these proceedings are still pending.
(3.) It appears that a rule similar to rule 2(c) of the Barsi Municipality had been made by five or six other municipalities in Maharashtra. The effect of the above decision of the Supreme Court was to render invalid the levy and collection of house taxes by these municipalities from the owners or occupiers of mills and factories. One of the objects of the impugned Act was to validate the levy and collection of these taxes with retrospective effect. The impugned Act, however, had another purpose also. In Gordhandas Hargovindas v. Municipal Commr. of Ahmedabad, AIR 1963 SC 1742, the Supreme Court held that a rule framed by the Municipal Corporation of Ahemedabad by which a rate on open lands was levied at a certain percentage of their capital value was ultra vires the provisions of the Boroughs Act. Section 73 (1) of the Borough Act authorised municipalities to impose " a rate on buildings and lands" and the Supreme Court held that the word "rate" had acquired a special meaning in legislative history and that it meant a tax for local purposes imposed by local authorities on the basis of the annual value of lands or buildings. The Supreme Court observed that a municipality which is authorised to impose a rate on lands and buildings may use their capital value for ascertaining their annual letting value, but cannot impose the tax on the basis of the capital value itself. Rules similar to the rule of the Ahmedabad Municipality had been made by some municipalities in Maharashtra and the second purpose of the impugned Act was to validate the levy and collection of taxes by those municipalities under such rules.;