P. Mathurai Pillai and Others vs State of Madras

Rajamannar, C.J.—These petitions filed under Article 226 of the Constitution pray for the issue of writs of mandamus or other appropriate

writs, directions or orders directing the respondent, the State of Madras, to forbear from enforcing any of the provisions of the Madras Motor

Vehicles (Taxation of Passengers and Goods) Act, 1952 (Act 16 of 1952) or the rules framed thereunder against the several petitioners. A

common question of law arises in all these petitions concerning the legality and constitutional validity of the said Act. (which will be hereafter

referred to as the Act). The petitioners carry on the business o� motor transport in different areas in the State. They are governed by the

provisions of the Motor Vehicles Act, 1939.

In respect of the motor vehicles employed in the business of the petitioners and which ply for hire they are subject to the tax levied under the

Madras Motor Vehicles Taxation Act (Madras Act III of 1931). The vehicles run under permits issued under the Motor Vehicles Act, 1939,

subject to the conditions imposed under the licences and by the other provisions of the Motor Vehicles Act. Section 43-1-(ii) empowers the

Government of the Slate to fix minimum or maximum fares or freights for stage carriages and public carriers to be applicable throughout the State

or within any area or on any route within the State. It is common ground that the Government of Madras have fixed the maximum, fares in respect

of the areas in which the several petitioners carry on the business of motor transport. The raters vary between urban areas and rural areas,

between ghat roads and roads on the plains. We are not concerned however with these fares in these petitions.

The material provisions of the impugned. Act (Madras Act 16 of 1952) are as follows: Section 3 which is the charging section runs thus :

''Levy of tax on passengers and goods'' --From and after the commencement of this Act, there shall be levied and paid to the Government, a tax

on all passengers, luggage and goods carried by stage carriages, and on all goods transported by public carrier vehicles, at the rate of nine pies in

the rupee on the fares and ireights payable to the operators of such stage carriages and at the rate of six pies in the rupee on the freights payabls to

the operators of such public carrier vehicles;

Provided that the fare charged by an operator inclusive of the tax leviable under this section, shall not exceed the maximum fare prescribed by the

Government under the Motor Vehicles Act, 1933, and in force at the commencement of this Act;

Provided further that no tax shall be levied on any passenger, luggage or goods carried in a stage carriage, the total permitted daily mileage of

which does not exceed fifty miles."" Section 4 provides for composition of the tax en-application by the operator. Section 5 makes it incumbent on

the operator to submit returns in the prescribed form, and Section 7 prescribes the procedure to be followed where no returns have been

submitted, or the returns submitted are found to be incorrect or incomplete. Section 8 deals with fares and freights which have escaped

assessment. Section 9 prescribes the penalties for non-payment of tax, and Section 10 lays down the mode of recovery of the tax. Section 16

confers, power on the Government to make rules to carry out the purposes of the Act, and, in particular, to provide for the matters specified in

Clauses (a) to (g) of Sub-section (2) of the section. The other provisions of the Act are not material.

The two main grounds on which the validity of the Act is assailed are (1) that it is beyond the legislative competence of the Madras-State

Legislature and (2) that it infringes the-fundamental rights conferred on every citizen under Article 19(1)(g) of the Constitution.

Mr. M. K. Nambiar who addressed to us the leading arguments developed the first ground by characterising the impugned Act as a colourable

piece of legislation in the sense that by the Act the State Legislature was really taxing the income of the operator under the guise of taxing goods

and passengers. Taxes on income other than agricultural income fall in the Union List (item 82). In the State List item 56 is ""Taxes on goods and

passengers carried by road or on inland waterways"". Learned counsel also drew our attention to item 89 of the Union list, namely,

Terminal taxes on goods or passengers carried by railway, sea or air; taxes on railway fares and freights

and pointed out that there was no entry corresponding- to the latter part of item 89 of the Union list in item 56 in the State List. He also referred us

to items 57 and 58 which includes taxes on vehicles suitable for use on roads and taxes on animals and boats respectively. The contention of Mr.

Nambiar was that though the Act, ostensibly purports to provide for the levy of a tax on passengers and goods carried in stage carriages and

public carrier vehicles in the State of Madras as declared in the preamble yet, in effect tho Act proceeds to tax the income of the operator and is

thus colourable. What is colourable legislation has been recently explained by the Supreme Court in -- K.C. Gajapati Narayan Deo and Others

Vs. The State of Orissa, as follows :

If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked

out by specific legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to

whether the legislature in a particular case has or has not, in respect to the subject-matter of the statute or in the method of enacting it, transgressed

the limits of its constitutional powers. Such transgression may be patent, manifest or direct, but it may also be disguised, covert and indirect and it is

to this latter class of cases that the expression ""colourable legislation"" has been applied in certain judicial pronouncements. The idea conveyed by

the expression is that although apparently a legislature in passing a statute purported to act within the limits of its powers, yet in substance and in

reality it transgressed these powers, the transgression being veiled by what appears, on proper examination, to be a mere pretence or disguise.

To ascertain whether a particular enactment is a colourable legislation or not, it is the substance of the Act that is material and not merely its form

or language. The substantial question is, does the subject-matter of the Act fall within the powers of the legislature which enacted it? What facts

and circumstances can be taken into account and what cannot be in arriving at a conclusion in this matter are discussed by the Judicial Committee

of the Privy Council in -- ''Attorney General for Alberta v. Attorney General for Canada'', AIR 1939 PC 53 (B). One of such facts would be the

effect of the legislation as to which the Court might take into account and any public general knowledge of which the Court would take judicial

notice. The object or purpose of the Act in question should also be considered. One other important principle laid down by the Lord Chancellor in

that decision is thus expressed :

It must be remembered that the object or purpose of the Act, in so far as it does not plainly appear from its terms and its probable effect, is that of

an incorporal entity, namely, the legislature, and, generally speaking, the speeches of individuals would have little evidential weight.

Learned Counsel for the petitioners drew our attention to some of the speeches in the debate in the legislative bodies, but we have completely

excluded them in arriving at a conclusion in this case. Mr. Nambiar also invited our attention to the provisions of the Bill as originally drafted and its

provisions as changed by the Select Committee which were subsequently accepted by the Legislature. The Bill was first published in the Pert St.

George Gaaette (Part IV-A Extraordinary) on 30-6-1952 as L. A. Bill No. 4 Of 1952. The preamble to ths Bill ran as follows :

Whereas it is expedient to provide for the levy of a tax by way of surcharge on fares paid for being carried in stage carriages in the State of

Madras.

The charging section (Section 3) was as follows :

''Levy of a surcharge on passengers carried in stage carriages''-- On every passenger carried for hire or reward in any stage carriage, a tax

(hereinafter referred to as the ""surcharge"") shall be collected and paid to the Government at tho rates and in the manner hereinafter provided in this

Act :

Provided that the Government may, by notification, exempt stage carriages plying exclusively in the areas specified therein from the payment of the

surcharge.

Section 4 provided for the rates of surcharge. u/s 5 the operator was made the agent of the Government for collecting the surcharge. The other

provisions are not relevant. Mr. Nambiar emphasises on the radical difference between the scheme of the original Bill and the scheme of the Act as

passed by the Legislature. In the original Bill the tax was really a surcharge on the fares paid by the passenger and the operator was merely a

collecting agent of the Government. In essence the tax was on the passengers and goods. But in the Act as finally passed the tax is levied against

the operator himself; he is the assessee and the entire burden falls on him. It is the operator who can compound the tax. in essence and effect,

therefore, Mr. Nambiar contended that the Act imposed a tax on the income of the operator which he derived from the fares and freights. Item 56,

he submitted, can only justify a tax on goods and passenger and cannot support a tax on the carrier. Mr. Nambiar posed the following alternatives

as regards the nature of the tax, namely whether the tax is really a tax on the passenger or on the fare or on the operator or on the income of the

operator or on the vehicle, and he said it was really a tax on the income of the operator.

The argument which he strongly pressed in support of his contention was founded on the terms of the first proviso to Section 3 of the Act.

Under that proviso, in cases where already the maximum prescribed by the Government under the Motor Vehicles Act is being charged by the

operator the fare shall not be increased in spite of the imposition of the new passenger and goods tax. The operator cannot in such cases pass on

to the passenger or owner or consignor of the goods the tax which the operator is under an obligation to pay himself. The result is that his income is

considerably diminished. The new tax therefore virtually amounts to a tax on the income of the operator. This proviso was attacked on another

ground also which would be dealt with later. We may confess that it is this proviso which has given us considerable difficulty, and the learned

Advocate-General also admitted that it was difficult to support it. He however argued that the Act itself was not beyond the competence of the

State Legislature and the tax imposed by it did fall within item 56 of the State List.

His contention was that the item itself does not indicate that the incidence of the tax should fall in the first instance on goods or passengers. The

subject-matter of most of the items in the lists which relate to taxes is either property or an event or transaction or activity. For example there are

taxes on lands, buildings, income and mineral rights. There are taxes on the sale or purchase and on the entry of goods. And there are taxes on

professions, trades, callings and on the consumption of electricity. But obviously any tax can actually bo assessed only on a person and collected

from him or from property in his hands. It is rarely that we find an item which provides expressly for a tax on persons. As the item itself does not

specify who the assessee should be, there is nothing illegal in the carrier, that is, the operator, being made the assessee. The real question is

whether, truly and substantially the tax is or is not on goods and passengers.

We agree with the learned Advocate-General that this question must be answered in the affirmative. The charging section, that is, Section 3 is

unequivocal in its imposition of the tax on:

all passengers, luggage and goods carried by stage carriages, and on all goods transported by public carrier vehicles.

It was not disputed by Mr. Nambiar that the mere fact that the tax was calculated at some proportion of the amount of fares and freights would not

by itself make the tax anytheless a tax on passengers and goods. It is true that u/s 5 of the Act, it is the operator who has to submit returns and

who has to pay the tax u/s 6. The tax nevertheless remains a tax on passengers and goods. It is in no sense a tax on income. It may be that a

particular operator may not make any profit or gain, in a particular year. But all the same he would be liable to pay this tax. If it were a tax on

income, he would not have been liable for that year. On our opinion, this one circumstance conclusively demonstrates the nature of the tax. The

decision of the Federal Court in -- AIR 1949 81 (Federal Court) is very instructive in this connection. In that case the Punjab Urban Immovable

Property Tax Act was impugned as ultra vires the Punjab Legislature. Section 3 thereof levied a tax on buildings and lands at such rate not

exceeding 20 per cent of the annual value of such buildings and lands as the Provincial Government may direct. The tax was payable by the owner

of the buildings and lands.

Section 5 of the Act provided that the annual value of any land or building shall be ascertained by estimating the gross annual rent which such land

or building might reasonably be expected to get from year to year less certain allowances. The Act was impugned on the ground that it was really a

tax on income falling within item 54 of the Federal List and not a tax contemplated by item 42 of the Provincial List, namely, a tax on lands and

buildings, berths and windows. It was held by the Federal Court that in pith and substance the tax levied by the Act was a tax on lands and

buildings covered by item 42 of the Provincial List and it was not a tax on income within the meaning of item 54 of the Federal List, even though it

was based on the annual value of the land or building. Fazl Ali J. who delivered the judgment of the court cited the following observation of Lord

Thankerton in --''In re a reference under the Government of Ireland Act 1920'', 1936 AC 352 (D),

It is the essential character of the particular tax charged, that is to be regarded, and the nature of the machinery, -- often complicated --by which

the tax is to be assessed is not of assistance, except in so far as it may throw light on the general character of the tax.

The learned Judge then pointed out the real distinction between the Income Tax Act and the impugned Act thus :

the real distinction between these two Acts seems to be that whereas the Income Tax Act purports to get at the true income, there is no such

pretence in the impugned Act which uses the annual value merely for the purpose of determining the importance or the value of the property to be

taxed.

His conclusion is summed up as follows :

In the first place, we have to look into the charging section of the statute, because as was pointed out in -- ''Alberta Provincial Treasurer v. C. E.

Kerr'', 1933 AC 710 (E), ''the identification of the subject matter of the tax is only to be found in that section.'' The charging section in the present

case is Section 3, which in clear terms levies not a tax on income but a tax on buildings and lands. It is true that we must look not to the mere form

but to the substance of the levy, and the tax must be held to be invalid, if in the guise of a property tax it is really a tax on income. There is however

nothing in the impugned Act to show that there was any intention on the part of the Legislature to get at or tax the income of the owner from the

building.

The following passage from the judgment of Higgins J. in -- ''Attorney General of New South Wales v. Collector of Customs for New South

Wales'', 5 CLR 818 (F), cited by Quick in his book ""The Legislative Powers of the Commonwealth and the States of Australia"" throws some light

on the point :

But is a customs tax a tax on property as such? The Customs Tariff 1902 speaks of ''duties ..... on .... goods'' and the expression is roughly

accurate although probably if fully expressed it would be a tax on persons in respect of the importation of goods; just as a property tax is usually,

though not necessarily, a tax on persons in respect of their property. The customs tax is a tax not on property as such, but on persons in respect of

and on account of the movement of commerce known as the act of importation. There is a fundamental difference between taxing men for having

property and in particular for moving property into a country from overseas. When the Commonwealth imposes a customs duty the duty is not

payable unless it be attempted to move the goods from London to Australia.

The learned Advocate General relied on the word ""carried"" which occurs in item 56 as supporting his contention that the carrier is contemplated as

the object of taxation. Ingenious as the suggestion is, we do not think it safe to base our conclusion on this fact.

An Act of the Bihar Legislature very similar to the Act now impugned was held to be nob beyond the legislative competence of the State

Legislature by a Special Bench of the Patna High Court in -- Atma Ram Budhia Vs. State of Bihar, . Section 12 of the Bihar Finance Act, 1950 is

the material provision, and it runs thus :

12(1) Prom and after the commencement of this Act, there shall be charged, levied and paid to the State Government, a tax on all passengers

carried by motor cabs, stage carriages and contract carriages and on all goods transported by public carriers at the rate of two annas in the rupee

on all fares and freights payable to owners of such motor cabs, stage carriages, contract carriages or public carriers.

(2) Where any fare or freight charged is a lump sum paid by a person as a subscription or contribution for a season ticket or for any privilege, right

or facility which is combined with the right of such person being carried or his goods transported by motor cabs, stage carriages, contract carriages

or public carriers, as the case may be, without any further payment or at a reduced charge the tax shall be levied on the amount of such lump sum

or on such amount as appears to the prescribed authority to be fair and equitable having regard to the rate or rates of fares or freights fixed by a

competent authority under the Motor Vehicles Act, 1939.

(3) Every owner shall, in the prescribed manner, pay into a Government treasury the full amount of the tax due from him under Sub-see. (1) or

Sub-section (2), as the case may be, at such intervals as may be prescribed and shall furnish such returns, by such dates and to such authority as

may be prescribed.

Section 14 of that Act provides for a composition of the tax. Rule 9 of the Bihar Passengers and Goods Transport Tax Rules, 1950 provides that

a ticket for the carriage of a passenger and his luggage shall contain among other particulars the ""fare and tax, if any"", garjoo Prosad J. pointed out

that the fact that the tax is to be measured in proportion to the fares and freights realised does not alter the nature of the tax or affect its intrinsic

character which is actually a tax upon the goods and passengers carried on motor vehicles, and this fact cannot convert the tax into a tax on the

income of the owners.

It was held in the above Patna case that although the statute did not expressly authorise the carriers to collect the tax from the passengers and

consignors of goods, yet the statute must be construed to have implicitly granted this right to them. Both the main provision as well as the first

proviso of Section 3 of the Madras Act also appear to indicate that the tax can be passed on to the passenger or consignor of goods, though there

is no express provision to that effect. If the tax leviable under the section is not contemplated as one which would be eventually collect ed from the

passenger or consignor, the proviso becomes unintelligible, because it speaks of the fare charged by an operator inclusive of the tax leviable under

the section.

If the tax was never intended to be recovered from the passenger, there is no question of the fare including the tax. This circumstance also

demolishes the argument on behalf of the petitioners that the tax is a tax on the income of the operators. It is true that the original Bill in terms made

the operator the agent of the Government for collection of the tax, but evidently it was thought that it would be more convenient to make the

operator himself the assessee, leaving him to collect the tax from the passenger and consignor in turn. We have no hesitation in holding that the Act

does not impose a tax on Income and that the tax imposed by it is a tax on passengers and goods and falls within item 56 of the State List.

The next ground of challenge is based, upon the fundamental right guaranteed to every citieen to carry on any trade or business. The argument, if

we understand it aright, is that the tax unreasonably restricts the exercise of this right, and as the first step in the argument authorities were cited in

support of the proposition that even a taxing statute is subject to the provisions of Part III of the Constitution'' and will be covered by Article 13

which declares that the State shall not make any law which takes away or abridges the rights conferred by that Part -and any law made in

contravention of this Article shall to the extent of the contravention be void. Reliance was placed on the observations made by us in -- S.

Ananthakrishnan Vs. The State of Madras, and -- Rajah Sri Ravu Sweta, Chelapathi Ramakrishna Ranga Rao Bahadur, Rajah of Bobbili Vs. The

State of Madras, . Reference was also made to decisions of the Supreme Court of the United States which struck down railway rates which were

unreasonable and made it practically impossible to run the railways with profit, via., -- ''Smith v.Ames'', (1898) 42 Law Ed 819 (J); -- ''Northern

Pacific Rly. Co. v. North Dakota ex. rel. inc. cue'', (1915) 59 Law Ed 735 (K) and -- ''Baltimore and Ohio Railroad Co. v. United States''.

(1936) 80 Law Ed 1209 (L).

Similar decisions of the American Supreme Court were discussed by this court in Rajah Sri Ravu Sweta, Chelapathi Ramakrishna Ranga Rao

Bahadur, Rajah of Bobbili Vs. The State of Madras, , decisions in which it had been laid down that the court had the -power to enquire whether

any legislative provision was so unjust and unreasonable as to work a practical destruction to rights of property. But we fail to see how the Act by

itself affects adversely the exercise of any fundamental right guaranteed to the petitioners. IE the tax imposed on operators like the petitioners can

be passed on to the passengers and consignors, there can be no interference with their substantive rights. All that can be said is that the petitioners

may be put to the inconvenience of submitting returns and paying the tax in the first instance. But that, we cannot hold, is an unreasonable

restriction on the exercise of their right to carry on their business. Indeed, Mr. Nambiar. conceded that in that case there can be grievance only so

far as those operators are concerned who were already charging fares at the maximum rate prescribed by the Government under the provisions of

the Motor Vehicles Act at the commencement of Act 16 of 1952.

So far as the petitioners in W. P. nOR. 69, 70, 262, 58, 52, 139, 409, 411, 427, 428 and 147 Of 1953 are concerned, the maximum rate

appears to have been in force. Now the petitioners in these cases will undoubtedly be hit by the first proviso to Section 3. They will be bound to

pay the tax, but they will not be entitled to pass on the tax to the passengers or consignor because the proviso expressly says that the fare inclusive

of the tax leviable u/s 3 shall not exceed the maximum fare prescribed by the Government and in force at the commencement of the Act. In our

opinion the proviso does injuriously affect the exercise of the petitioners'' right to carry on their business. It diminishes their income without any

justification. So long as they have been charging the maximum fare prescribed by the Government they are well within their rights. Now, Act 16 of

1952 imposes a burden which they have to discharge. The effect of the proviso is that they have got to discharge this from their own pocket.

The proviso appears to offend not only Article 19 but also Article 14 because of the discrimination made between operators who were charging

the maximum rare at the commencement of the Act and those who were not. There appears to be no reasonable basis for such a classification.

Presumably the maximum fare was fixed having regard to the circumstances vitally bearing on the expenditure necessary to work the transport

service efficiently. To take away a portion of the gross income of the operators amounts certainly to a curtailment of the rights to which they were

entitled at the commencement of the Act. The learned Advocate-General was unable to defend the provision. As the proviso stands, it looks as

though the operator cannot include the tax in the fare even if subsequent to the commencement of the Act the maximum fare prescribed by the

Government is enhanced. That also appears to us to be very unreasonable. We therefore hold that the first proviso to Section 3 of the Act is bad

and should be struck down.

Mr. Kumaramangalam appearing for the petitioners in one of the cases contended that if the proviso was invalid the entire Act should go,

applying the rule, relating to the severability of statutes. He contended that the legislator might not have passed the Act without the proviso. We

had occasion to deal with this topic recently in -- A.R.V. Achar Vs. Madras State and Another, . We have there held that it is not desirable to

speculate as to what the Legislature would or would not have done. The proper rule to apply is to find out if the residue of the Act would stand

after deleting the offending provision. We are clearly of opinion that it will.

We therefore hold that Madras Act 16 of 1952 except for the first proviso to Section 3 thereof is constitutional and valid. The only relief to

which the petitioners will be entitled is a direction to the respondent to forbear from enforcing the provision in the said proviso. Otherwise the

petitions will stand dismissed. There will be no order as to costs.