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Second Appeal No. 61 of 1960, decided on 2nd September 1963.
S. 96 (2) read with S. 34‑‑"Show Tax"‑Karachi Municipal Corporation not competent to impose taxes in area in which it was not capable of fluffing "purposes" of Act‑Words "impose"; "levy"; "assess" Meaning‑ Basic principles of taxation.
The Karachi Municipal Corporation could not impose taxes in an area in which they were not capable of fulfilling the purposes of the Act. If they did so, they would exclude that area from the benefits of such taxation.
It is contrary to the purposes of the Act that money be demanded as taxes from an area which could not at the time of its demand be included in any plan made for fulfilling the purposes of the Act in that area.
The word "impose" which occurs in section 96 (2) of the Act is comprehensive in its connotation. It includes levy, assessment, demand and collection of taxes which are steps in the imposition of taxes.
"To levy" means to determine that a tax be laid. "To assess" means to estimate the sum of the apportionment of a '., tax. After a tax is levied and assessed, its demand and recovery follow. Section 96 of the Act has made the fulfilment of the purposes of the Act to be a condition of all the Stages of taxation including demand' and 'collection' and not merely of their "levy", "assessment". This meaning of the provision excludes the contention, that taxes may be levied, assessed, demanded or collected first and the question as‑ to whether this was done for the purposes of the Act or not be left over .to be determined afterwards depending on the chances that adjust ments might be made in the subsequent budgets.
The condition or limitation on the power of the Karachi Municipal Corporation to impose taxes holds good with reference to all taxes including Show Tax though for purposes of the utilization of its income by the Karachi Municipal Corporation it is a general tax. This character of the tax thus does not exempt it from the limitation.
The above view of law is not inconsistent with the basic principles of taxation. There is no inconsistency between it and the proposition that no individual tax‑payer can refuse to pay a tax on the ground that a direct benefit to him from it cannot be pointed out. Their consistency can be explained by setting out a short explanation, which is that the foundation of the proposition is the essential theory of taxation that general taxes are imposed to secure to the tax‑payer the general benefits only of corporate administration including the promotion of schemes of welfare. They are not to be regarded as the price of or the charge for any special benefit to any particular person or property because they merely assure a public good by virtue of the certainty that such good follows upon the existence of an organised society. It is a corollary, to the element of public interest, that is implicit in taxation, that a tax‑payer cannot refuse to pay a tax, excepting that tax which constitutes the charge for a public utility service, on the ground that he is individually prepared to forego the benefit of the contemplated public good. But it is important to note that this priniciple carries with it an anticipation of public good including each tax‑payer. If there was no benefit whatsoever to the tax‑payer personally or as an inhabitant of the area which is taxed, the taxation would become extortion of money, except when a tax is imposed for the benefit and stability of the State as a whole which again serves indirectly .but definitely, for the advantage of each tax‑payer.
S. 100‑Second appeal- Evidence recorded or concurrent findings of fact by lower Courts- Cannot be departed from in second appeal.
Haji Mutiur Rahman for Appellant.
Fazle Haq for Respondent.
Dates of hearing : 13th, 15th and 27th August 1963.
This second appeal is directed against the judgment of the learned Additional District Judge, Karachi dated the 30th of April 1960, by which he reversed the judgment of the trial Court, dated the 22nd of December 1958, and dismissed the suit of the appellants.
2. It is necessary to state the history" of these proceedings in some detail so that the considerations involved and the conten tions raised by counsel for the parties may be easily intelligible. The appellants, who are running a picture house, had instituted the suit from which this appeal has arisen on the 26th of November 1956 for a declaration that the "demand, levy and imposition" of any tax "in nature of entertainment tax etc." by the respondents on the plaintiffs‑appellants, cinema business, which they carry on in Nazimabad, Karachi, as well as the demand of the respondents for submission of "Show Returns" by the plaintiffs‑appellants and orders of the prosecution of the plaintiffs‑appellants owing to their failure to submit those returns were "illegal, ultra viral, invalid, without jurisdiction and void ab initio"; and for a perpetual injunction against the respondents to restrain them from doing any of the said acts. Several pleas were raised by the plaintiffs‑appellants in their plaint, but those which are relevant to the arguments of counsel for the parties in this Court are as follows:
"4. (b) That without prejudice to the above contentions the plain tiffs (appellants) submit that the defendants (respondents) have not been yet handed over any control over the areas lying across the Lyari River by the Central or Provincial Governments, nor the defendants (respondents) have any control over the same, nor they have yet assumed any control over it by virtue of any trans fer which may be alleged and/or asserted by the defendants (respondents) and the whole areas known as Nazimabad, Lalukhet and Golimar are without the boundaries and territorial limits of the defendants (respondents) and the Central or the Provincial Governments have not yet decided to transfer or hand over any such control to the defendants (respondents).
(c) That without prejudice to the above contentions the plaintiffs further submit that the defendants (respondents) have never performed and/or discharged any of the duties and/or responsibilities which entitle them to demand, receive and/or recover the said tax and/or any tax whatsoever and they have not yet demanded, recovered and/or received any of the taxes provided for in the K. M. C. Act from the residents of the above‑named areas. "The defendants have continuously, on the contrary disowned their liability, to carry out any of the duties which are entrusted to them by the K.M.C. Act, and the defendants have never exercised any control over the said areas nor they have provided any facilities to the residents of the said areas . . . . . "
The reply to all the pleas contained in paragraph 4 of the Plaint was given by the respondents in paragraph 3 of their written state ment as follows :
"3. That para. 4 of the plaint is denied. It is further submitted that the place of business of the Plaintiff (Appellant) is within the Municipal Limits and the taxes in question have rightly been levied on it. The prosecutions lodged against the Plaintiff (Appellant) by the defendant' (respondent) are quite legal and the area in question is a resumed area and not a delimitized area. It is further submitted that the allotment of land by the Health Ministry to the Plaintiff (Appellant) does not improve the position of the Plaintiff (Appellant) and the Corporation's right to levy the taxes in question is quite legal and within its competence."
3. The trial Court framed the following issues on the pleadings of the parties (1) Is the Cinema Show Tax or any other tax by way of Entertainment Tax or its levy and imposition and or its recovery or its demand from the plaintiffs or their any of the partners or employees or demand for submission of returns and prosecution for non‑submission of the same legal
(2) Is the defendant Corporation competent to levy any Cinema Show Tax and recover the same and also, is the defendant competent to demand submission of returns and launch prosecutions for non‑submission of those returns
(3) 1s the Liberty Cinema or Nazimabad area within Municipal limits
(4) Has the Control or Administration .of Nazimabad Area ever been transferred to K.' M. C.; If so by whoa, Central or Provincial Governments and with what consequences
(5) Has the K. M. C. ever done any act which can be said to constitute its control over the said Area
(6) Has the Nazimabad Area been allotted by the Ministry of Works, Government of Pakistan, and continues to be ' controlled now by the said Ministry
(7) Is the Corporation competent to make rules regarding the Show Tax
(8) Are the plaintiffs entitled to the relief claimed by them in the plaint .
4. The parties did not lead any oral evidence but the plaintiffs‑appellants served a set of interrogatories on the defendants‑respondents. The interrogatories Nos. 2, 3, 4 and 6 were as follows :‑--
"(2) Does the Karachi Municipal Corporation levy and collect House Tax, Scavenging tax and other Municipal taxes from the residents of Nazimabad Area
(3) Has the Karachi Municipal Corporation any control over the management, scavenging, lighting, sanitation, etc. in the Nazimabad Area
(4) Is it not a fact that the management and control of the Nazimabad Area is exclusively in the hands of Ministry of Works, Government of Pakistan
(6) Has Nazimabad Area been resumed If so, when and under which Notification or Order Please quote the reference No. and date of the Notification or order."
The replies of the defendants‑respondents to the above questions were as follows :‑
"(2) That with regard to question No. 2, it is submitted that the K. M. C. is competent to collect property tax from the residents of Nazimabad but it has not started the said collection so far.
(3) That with regard to question No. 3, it is submitted that the Corporation has no control over the management, scaveng ing, lighting, sanitation, etc. of Nazimabad Area.
(4) That with regard to question No. 4, it is submitted that the disposal and development of plots of Nazimabad Area is exclusively in the hands of Ministry of Works of Pakistan but for all other purposes the K. M. C. laws do obtain there.
(6) That with regard to question No. 6, it is submitted that the Nazimabad Area has be. ‑n resumed and the resumption order is enclosed herewith and marked Annexure 'A'."
5. The above replies constitute the main evidence in the suit which was heard and decided in favour of the plaintiffs appellants. The learned trial Judge decided all the issues in favour of the plaintiffs‑appellants. He observed that:
"The main point for decision is whether the defendants (respondents) who admit to have no control over the manage ment, scavenging, lighting etc. in the area of Nazimabad can still claim to realise takes. Section 34 of the City of Karachi Municipal Act of 1933 provides for some obligatory duties and construction of drainage, water, closets, scavenging etc. are enumerated as its obligatory duties. Admittedly the Corporation is not performing these obligatory (duties) which admittedly are being done by the Ministry of Works of the Government of Pakistan. Under section 96 of the said Act it is laid down that the Corporation is entitled to levy and impose taxes for the purposes of this Act, which means that the Corporation can levy taxes for the performance of the obli gatory‑duties enumerated in section 34 of the Act. As it is admitted by the defendants (respondents) that they have no control or concern with the management, development, scavenging, lighting etc., in the area, it would be most unreason able to hold that the defendant Corporation is entitled to levy taxes for no service rendered by them to the residents of the locality."
6. The respondents went in appeal which was accepted as stated above, and the learned First Appellate Court observed as follows :‑----
"The contention‑of the learned counsel appearing for the defendants‑appellants (respondents in these proceedings) was that although Nazimabad had been resumed by the Central Government for purposes of developing the said area and rehabilitating the people, the area (has) remained within the limits of Karachi Municipal Corporation, and they had every right to levy such a tax in that area. The learned Advocate distinguished resumption' with 'delimitisation'.
By comparing two sections 57 and 272, there remains no doubt in my mind that when the Government resumes any area within the Municipal limits, it is not delimitised, and the area remains for all purposes within Karachi Municipal Cor poration, and all rules, orders, directions and powers in respect of that area as provided in the act continue to apply to that area . . . . . The fact that Government was vested with this area did not delimitise it, and the fact that Karachi Municipal Corporation was not exercising any control did not necessarily imply that the Karachi ‑Municipal Corporation had lost its right to levy taxes which otherwise it was entitled to levy."
No other decision of fact made by the trial Court was disturbed.
7. Mr. Haji Mutiur Rehman, Advocate, appearing for the appellants has conceded that the control of the area has been transferred to the respondents on the 13th of October 1958 but has criticised the judgment of the first appellate Court with respect to the demand made in the earlier period by pointing out that the respondents derived their authority from section 96 of the City of Karachi Municipal Act; 1933, to impose taxes but their actions could not conform to the terms of that provision because they had no control, over the area before that date. Subsection (2) of that section is relevant for the present purposes, and runs as follows:
"(2) In addition to the taxes mentioned in subsection (1), the Corporation may, for the purposes of this Act, impose any of the following taxes, namely
(a) a tax at rates not exceeding those specified in Schedule II on all vehicles and animals used for riding, draught or burden kept for habitual use within the city ;
(b) a terminal tax at rates prescribed by the Corporation with the approval of the Provincial Government on goods imported into or exported from the terminal tax limits.
(c) a, tart on dogs kept within the city ;
"(d) any other tax which the Provincial Legislature has power under the Government of India Act, 1935, to impose in the Province."
Show Tax, which alone is in dispute in these proceedings, according to counsel for the parties, falls under clause (d) of the above provision, but the words "for the purposes of this Act", which occur in the beginning of the above provision, leave no doubt that the respondents could not impose any tax except for those purposes. The purposes of the Act are many and most of them, which are mandatory, are set out in section 34 of the Act. This much is not disputed by counsel for the respondents. The relevant consideration according to Mr. lfaji Mutiur Rehman, therefore, is not as to whether Nazimabad was, at the relevant time, within the territorial limits of the respondents, as the first appellate Court has taken it to be, but as to whether the respon dents were in a position to fulfil the purposes of the Act at that time and were therefore able to impose taxes. In this connection counsel referred to the replies (reproduced above) of the respondents which they bad submitted in answer to the interrogatories (set out above), and contended that since the respondents had "no control over the management, scavenging, lighting, sanitation, etc." of the Nazimabad Area they were in no position to discharge any of the statutory obligations including the obligations which were imposed on them by section 34 of the Act. I may explain here that references have been made by counsel to section 34 of the Act because it contains the largest number of the purposes of the Act including scavenging, lighting and sanitation, but the argument was that the respondents were unable, owing to the absence of their control until 13‑10‑1958 over the area, to impose taxes because they could not fulfil the statutory purposes in it. The conclusion of the first appellate Court, according to counsel for the petitioners, that the respon dents could impose taxes merely because there was a distinction between "resumption of the area by the Government brought about for a public purpose, and its delimitisation" was therefore misconceived. Counsel contended that there could be no doubt as to the absence of their control in, view of the answers of the respondents, which have been reproduced above. He said that the appellants had no objection to the payment of Show Tax for the period beginning from the 13th of October 1958 ; but objected to its demand and recovery relating to the previous period.
8. Mr. Fazie Haq argued in reply that the respondents did not dispute the proposition that they could impose taxes for the purposes of the Act only. The purposes, according to the preamble of the Act, were "the Municipal Government" and the "duties and powers of the Municipal authorities" were set out in Chapter III of the Act in which section 34 was to be found. That section laid down as to what "matters were to be provided for by the" respondents. But, firstly, this according to him, did not mean that the functions detailed in section 34 of the Act were to be performed in the first instance and the taxes were to be imposed afterwards. A condition that certain amenities have to be provided before the imposition of conservancy and water taxes is to be found in sections 99 and 100 of the Act. No such condition has been imposed by the law with respect to Show Tax ; therefore, it would be erroneous to read that condi tion in section 96 (2) with reference to that tax. Sections 99 and 100 are, according to counsel, some of the exceptions to the general principle that amenities' may be provided by the respon dents after collecting the money for doing so. If the inhabitants of all areas demanded that the amenities and services contempla ted by the Act be provided to them before imposing any tax, then the respondents will be completely incapacitated for fulfilling the purposes of the Act. Secondly, he argued, the income received by the respondents from taxes is not necessarily to be spent on the area from which it is received, because the overall duty of the respondents is to provide services and furnish amenities for the entire, area over which its jurisdiction extends, which duty necessarily implies that the respondents have the discretion to adjust the expenditure of their income according to the overall needs of the entire area. In this view, according to counsel, it was irrelevant for the appellants to urge, in terms of subsection (2) of section 96 that the respondents could not demand and recover taxes merely because they were unable to fulfil the purposes of the Act within the area of Nazimabad., So long as the respondents intended to fulfil and used the income for fulfilling the purposes of the Act in any locality within their jurisdiction and were not misappropriating or misusing the income received from Nazimabad by spending it otherwise than for the purposes of the Act, they ought to be considered to be legally authorised to levy, assess, demand and recover taxes from the inhabitants of Nazimabad. Thirdly, he contended the Answers of the respondents which have been reproduced above were not meant to state that the respondents were doing nothing 'in the Nazimabad area for fulfilling the purposes of the Act. The Ministry of Works' Government of Pakistan, had undertaken to develop the area for rehabilitating displaced persons ; therefore, a good many of the purposes of the Act were being fulfilled by that Ministry, and it was futile for the respondents to undertake the duplication of that fulfilment. The respondents had been on their part doing in Nazimabad the work of the registration of births and deaths, public vaccination and prevention and checking of disease, which work constituted some of the purposes of the Act because it was the subject‑matter of clauses (8), (9) and (10) of section 34 of the Act.
9. The last contention of Mr. Fazle Haq was hotly disputed by Mr. Haji Motiur Rahman who pointed out that the respon dents had to be taken on their word, and that their above‑men tioned answers to the interrogatories left no doubt that they had no control whatsoever over the area. The word "etc." which occurs in their reply to the third interrogatory, is comprehensive and excludes the contention of Mr. Fazle Haq, which is not even supported by the record. I agree with Mr. Haji Motiur Rahman in this respect, and do not think that it is open to Mr. Fazle' Haq in this Second Appeal to either depart from the evidence orb from the concurrent findings of fact by the lower Courts fol'9 arguing that the respondents bad some control over the area or that they were doing anything in Nazimabad to fulfil the pur poses of the Act.
10. As to the first and second contentions of Mr. Fazle Haq, it is true that the law does not make it a condition prece dent, as sections 99 and 100 of the Act do with respect to Conservancy and Water Taxes, that Show Tax be imposed after providing any service or amenity. It is also eminently rational, that the respondents should have a latitude in spending the income of taxes received by them from one area, on providing the statutory amenities and services in other areas according to the need of the entire territory which is to be served by them, but these arguments do not lead the conclusion that they could impose taxes in an area in which they were not capable of fulfilling the purposes of the Act. If they did so, they would exclude that area from the benefits of such taxation.
11. Such a claim of the respondents needs to be examined from two aspects. Firstly, whether they were able to fulfil the purposes of the Act in that area at the time of the demand and secondly whether the chances of such fulfilment at a subsequent time could justify it. Their inability to fulfil the purposes of the Act in Nazimabad before the 13th of October, 1958 is clear, because there is no evidence that in 1956, when they demanded Show Tax and proceeded to recover it from that area, there was any certainty as to when they might be able to gain the control of that area (see paragraph 4 (b) of the plaint and (3) of the Written Statement at pp. 2 & 3 above) for fulfilling the purposes of the Act in it. As to the chances of subsequent fulfilment of the statutory purposes in that area, there is no evidence, nor even a suggestion, that the respondents bad any plan to use the income received from Nazimabad, for the purposes of the Act,. in that area at a subsequent time or to use it in other areas over which their legal jurisdiction extended, so as to confer any benefit on Nazimabad. The argument that a discretion to adjust expendi ture existed could justify the exercise of such discretion but it has no concrete foundation in this case as it is advanced without disclosing an actual exercise of such discretion or any adjustment of expenditure whatsoever. If the implication of the argument is that the taxes received from Nazimabad could be used for the time being for the exclusive benefit of the other areas and later on repaid to or used for the benefit of Nazimabad by making adjust ments in the income received from the other areas, then it should be noted that such an arrangement would be in the nature of borrowing money and the repaying it rather than taxation in its true sense.
12. One may at once concede that at least Show Tax may not necessarily be imposed after providing the services and amenities specified in the Act, but, as in view of sub3ection (2) of section 96 of the Act the purposes of the Act cannot be separated from the imposition of any tax, it was necessary that the reply of the respondents to the proof 'of their inability to fulfil the purposes of the Act be a definite one as to whether the tax was or was not so imposed, and could not be evaded by inviting the appellants to additionally prove misappropriation or by making an appeal to them that the sense of duty of the respondents as a public institution is to be trusted. These considerations are no answer to the contention of the appellants, which in effect is that on the whole it is contrary to the purpose of the Act that money be demanded as taxes from an area which could not at the time of its demand be included in any plan made for fulfilling the purposes of the Act in that area. The Ministry of works might have fulfilled the purposes of the Act in Nazimabad at the relevant time but if it is so then, it is a patent proof of the non‑fulfilment of these purposes by the respondents.
13. The word "impose" which occurs in section 95 (2) of the Act is important in the present context because it is compre hensive in its connotation. It includes levy, assessment, demand and collection of taxes which are steps in the imposition of taxes. One of the meanings of the word ". imposition" is given in the 5th Volume of a New English Dictionary (Oxford) as‑----
"The action of imposing or laying as a burden, duty, charge or task; the action of inflicting, levying, enjoining, or enforcing".
"To levy" means to determine that a tax be laid.
"To assess" means to estimate the sum of the apportionment of a tax. After a tax is levied and assessed, its demand and recovery follow. Section 96 of the Act has made the fulfilment of the purposes of the Act to be a condition of all the stages of taxation including demand' and collection' and not merely of their "levy", "assessment". This meaning of the provision excludes the contention, if that was the contention of Mr. Fazlel Haq, that taxes may be levied, assessed, demanded or collected first and the question as to whether this was done for the purposes of the Act or not be left over to be determined afterwards depending on the chances that adjustments might be made in the subsequent budgets.
14. The condition or limitation on the power of the respondents to impose taxes holds good with reference to all taxes including Show Tax though for purposes of the utilization of its income by the respondents it is a general tax. This character of the tax thus does not exempt it from the limitation.
15. The above view of law I may add, is not inconsistent with the basic principles of taxation. There is no inconsistency between it and the proposition that no individual tax‑payer can refuse to pay a tax on the ground that a direct benefit to him from it cannot be pointed out. Their consistency can be explained by setting out a short explanation, which is that the foundation of he proposition is the essential theory of taxation that general taxes are imposed to secure to the tax‑payer the general benefit only of corporate administration including the promotion of schemes of welfare : They are not to be regarded as the price of or the charge for any special benefit to any particular person or property because they merely assure a public good by virtue of the certainty that such good follows upon the existence of an organised society: It is a corollary to the element of public interest, that is implicit in taxation, that a tax‑payer cannot refuse to pay tax, 'excepting that tax which constitutes the charge for a pub lic utility service, on the ground that he is individually prepared to forgo the benefit of the contemplated public good : But it is important to note that this principle carries with it an anticipation of public good including each tax‑payer. If there was no benefit whatsoever to the tax‑payer personally or as an inhabitant of the area which is taxed, the taxation would become extortion of money, except when a tax is imposed for the benefit and stability of the State as a whole which again serves indirectly but definitely, for the advantage of each tax‑payer.
16. It is immaterial from the above point of view that Nazimabad was a part of the territory over which the jurisdiction of the respondents extended and that the present appel lants were "residents" of it because the appellants are not ques tioning the personal or territorial jurisdiction of the respondents to impose taxes but they are questioning the statutory authority of the respondents to do so, in the absence of all real prospects of the accrual of any of those benefits that were statutorily assured from the tax.
17. Mr. Fazle Haq stated with the satisfaction and confidence of having judice on his side that the respondents have not demanded any other tax except Show Tax from the inhabitants of Nazimabad for the disputed period, but expressed his extreme concern that the Corporate existence of the respondents might be rendered completely ineffective if this case was ultimately decided against them. I am unable to understand his concern in this case with respect to a small tax in Nazimabad particularly because the period in dispute was over a long time ago ; and with respect to the imposition of other taxes in other areas, I think that the respondents will not consider it proper to impose any tax relating to any period of time if its imposition cannot at all carry with it an expectation for the area concerned of the fulfilment of the purposes of the Act. This is a bare requirement of the law as well as of the principles of taxation and I can see no hardship in it.
18. In conclusion of all that has been said above, I set aside the judgment and decree of the learned Additional District Judge Karachi dated the 30th of April 1960 and in modification of the judgment and decree of the trial Court, decree the suit of the plaintiff‑appellants as prayed by them, subject to the condition that the declaration and injunction will be operative relating to the period ending on the 13th of October 1958. As the plaintiffs appellants have succeed partly, the parties are to bear their own costs throughout.
The above conclusion was announced in Court at the end of the arguments in the appeal, on the 27th of August 1963.
S. Q. Appeal partly accepted.
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