AI Structured Summary
Not yet generated for this judgment
Judgment
Sathiadev, J.—Petitioners in these writ petitions conduct chit funds on securing registration under S. 3 of the Tamil Nadu Chit Funds Act,
1961 (T.N. Act 24 of 1961)"". (hereinafter referred to as the Act). They seek for a declaration that the amendments effected to Art. 1 and
insertion of Art. 8A to Appendix II of the Tamil Nadu Chit Funds Rules, 1964 (hereinafter referred to as the Rules) are unconstitutional and illegal.
The amendments were made in exercise of the powers conferred under S. 63 of the Act. These amendments came into force with effect from 21st
November, 1981, consequent to its publication in the Fort St. George Gazette of G.O. Ms. No. 1075. Commercial Taxes and Religious
Endowments dated 23rd September, 1981. The amendments are to the following effect:
Annexure: Notification
In exercise of the powers conferred by S. 63 of the Tamil Nadu Chit Funds Act, 1961 (Tamil Nadu Act 24 of 1961), the Governor of Tamil
Nadu hereby makes the following amendments to the Tamil Nadu Chit Funds Rules, 1964.
Amendment:
In the said Rules in Appendix II, in the Table of Fees (1) for Art. 1 and the entries relating thereto, the following Article and entries shall be
substituted, namely�
For the Registration of under S. Rate of fees
by-laws of a chit
(a) for chits for a term of less than Re. 1 per subscriber or instalment
one year Re. 1. whichever is higher subject to a
minimum of Rs. 50.
(b) for chits for a term of tone year Per subscriber or instalment
and above Rs. 2.50. whichever is higher subject to a
minimum of Rs. 50.
(c) (i) chit amount of value upto Rs. Per subscriber or instalment
5,000 ...Rs. 5. whichever is higher subject to a
minimum of Rs. 50.
(ii) for chit amount of value betweenPer subscriber or instalment
Rs. 5,001 and Rs. 10,000. ...Rs. 5. whichever is higher subject to a
minimum of Rs. 50.
(iii) chit fund of value between Rs. Per subscriber or instalment
10,001 and Rs. 20,000 ...Rs. 5. whichever is higher subject to a
minimum of Rs. 50,
(iv) for chit amount of value betweenPer subscriber or instalment
Rs. 20,001 and Rs. 30,000 ...Rs. whichever is higher subject to a
minimum of Rs. 50.
(v) for chit amount of value betweenPer subscriber or instalment
Rs. 30,001 and Rs. 40,000. ...Rs. whichever is higher subject to a
minimum of Rs.50.
(vi) for chit amount of value betweenPer subscriber or instalment
Rs. 40,001 and Rs. 50,000 ...Rs. whichever is higher subject to a
minimum of Rs. 50.
(vii) for chit amount of value of Per subscriber or instalment
exceeding Rs. 50,000 ...Rs. 20. whichever is higher subject to a
minimum of Rs. 50.
(2) In Art. 8, in Cl. (b) for the letters and figures Rs. 50 occurring in two places, the letters and figures Rs. 250 shall be substituted;
After Art. 8, as so amended, the following Article and entries shall be inserted, namely�
''8A. For filing balance sheets audited and certified by Chartered Accountants;
(a) when the chit amount does not exceed Rs. 500� Rs. 10
(b) when the chit amount exceeded Rs. 500�for the first Rs. 500 as under sub-clause (a) and for every Rs. 500 or part thereof in excess of Rs.
500 subject to the maximum of Rs. 250. The fee leviable under this clause shall not exceed Rs.250.
The petitioners state that to start or conduct any chit, under S. 3, they will have to apply to the Registrar for registration of the by-laws of the chit
and as per R. 4, such application for registration has to be made by the Foreman under Form No. II and it shall be accompanied by the fees set
out in Appendix II. S. 53(a) provides that Government may from time to time prescribe the fee that shall be paid to the Registrar for the
registration of the by-laws of the chit under S. 3. Rule 42 states that fees payable to the Registrar for matters specified in S. 53 shall be as set out
in the Appendix II and shall be paid in cash. Article No. 1 in Appendix II as originally framed provided only Rs. 25 for the registration of the by-
laws, and an amendment was made on 2nd November, 1979, revising the rates of registration as follows :
Chit amount Fees levied
Upto Rs. 5,000 Rs. 150
Above Rs. 5,000 and upto Rs. Rs. 100
10,000
Above Rs. 10,000 and upto Rs. Rs. 150
20,000
Above Rs. 20,000 Rs. 200
It is by virtue of the amendment made in G.O. Ms. No. 1075, Commercial Taxes and Religious Endowments, dated 23rd September, 1981
(hereinafter referred to as the ""G.O."", the fees payable are charged on the basis of number of subscribers or instalments of the chit, whichever is
higher. This imposition being disproportionate to the services rendered and having no nexus to the object of regulating the chits, it is illegal,
unconstitutional and ultra vires of the provisions of the Act.
For the first time, for balance sheets audited by a Chartered Accountant a fee is imposed under Art. 8-A. The rate of fee is the same fee which
is charged when audited by chit auditors, having no nexus to the extent of service rendered by the Department. As for the increase made under
Art. 8, it is not challenged in these petitions. As S. 53 does not authorise imposition of fees for balance sheets filed under S. 16 of the Act, and S.
63 alone having been invoked in carrying out the amendments, it is ultra vires of the Act. No service is rendered by the Registrar on receiving the
balance sheets and preserving them. The essential element of quid pro quo in the imposition of these fees is absent. So far as the Foremen are
concerned, the Registrars do not render any special service in furtherance of his business and the fee collected has no correlation to the expenses
incurred in rendering service if any. The only ground relied upon in the impugned G.O. is that, to bring about rationalisation in rates the fee for
registration has been revised, taking into account the number of subscribers or the instalments whichever is higher, instead of the slab system which
was prevailing prior to 21st October, 1981. If whatever done by the Registrar at the time of registration are looked into, the basis now adopted is
highly irrational and unreasonable, and the imposition is disproportionate and not at all commensurate to the nature of service claimed to be
rendered. Merely because in the neighboring State of Kerala, a higher levy is imposed, the respondents have chosen to rely upon it to argument the
general revenues of the State, and, hence, it is not a fee but a tax, which is not authorised under the Act.
On behalf of the respondents, in the counter-affidavit filed in W.P. Nos. 10552 duration and of 1981 and 1333 of 1982, it is contended that the
levy of fees formerly prescribed had no relation to the duration of chits and in respect of chits of longer duration and larger number of instalments,
greater amount of services had to be rendered, in that, more minutes were filed and, hence, it is equitable and fair to fix the rate for registration of
by-laws taking into account the number of instalments or duration of a chit whichever is higher. While revising rates, these facts were taken into
consideration. The Registrar of Chits has to check up whether the Foremen have taken proper surety for future payments of subscriptions from the
prized subscribers; whether the proper receipts were obtained by due dates and whether the prized amounts have been deposited into the bank,
etc. The extracts filed in respect of removal, substitution and assignment, etc, have to be verified and when chits are for longer duration, the
transactions will be more, and therefore, the verification process will impose greater responsibility on the Registrar of Chits. Considerable time is
taken in watching the filing of various documents by the Foremen on due dates in proper form. The balance sheet under S. 16 when filed requires
to be verified for its correctness, with relevant records, such as by-laws, chit agreements, commencement certificates, minutes, etc. It is only on
being fully satisfied that the procedures prescribed under the Act and the Rules have been complied with, the Chit Registrar will be in a position to
release security to the Foreman. All these are done not only in the interests of the subscribers but also in the interests of the Foremen as well, and if
these requirements have not been complied with, he would be liable to be punished by being prosecuted as provided under Chapter XI of the Act,
which would disentitle him from securing registration of other chits. All these scrutinies are to benefit him to continue to be foreman for chits
registered by him under the Act. The cost incurred in extending services to the Foremen and subscribers being commensurate as furnished in the
counter-affidavit, there is an element of quid pro quo as enunciated in more than one Supreme Court decision.
S. 16 directs every Foreman to prepare and file with the Registrar a balance sheet regarding every chit Rule 26 prescribes the form of balance
sheet which should be in Form X, and rule 27 contemplates that it should be filed once in a year and also at the expiry of the period of the
termination of chits. The fees levied are approximately equal to the amount spent for the services rendered. The staff who are engaged is disclosed
in para 8 of the counter affidavit in W.P. 1333 of 1982, and the receipts and expenditure during the years mentioned therein would only show that
it was not does to augment the revenue. The State had to provide at considerable expense, receptacles and iron safe for the preservation of
records and securities, and this revision has taken place nearly after two decades, and intended to cover the reasonable expenses incurred for
rendering services.
Under S. 16, a balance sheet can be duly audited either by auditors duly qualified to act as auditors or companies under the Companies Act,
1956 or by a chit auditor appointed under S. 51 (2). Merely because a balance sheet is prepared by a Chartered Accountant, it does not mean
that the Registrar is bound to act upon it as a conclusive document and that there is no need for him to verify the correctness of the balance sheet
with other documents. A balance sheet is a very important document to find out whether the Foremen have conducted the chit according to the
rules and whether the prized winners have been paid the amounts and other relevant details have to be looked into to know the financial stability
and credibility of the Company. Hence, the Registrar has to scrutinise it with connected records to find out the correctness of the balance sheet
prepared by a Chartered Accountant. If any deviations are disclosed in the balance sheet, then the Chit Register has to take further action. Before
ordering release of security deposits to Foremen, the Registrar has to satisfy himself that the requirements of S. 12(3)(i) to (iii) are complied with.
The whole matter has got to be thoroughly examined to see whether a particular year''s transactions fully reflect the scope of such chit and whether
the collections and disbursements including the commission retained by the Foreman have all been done in conformity with the Act and she Rules.
Therefore it cannot be contended by petitioners that the Registrar does not extend any service commensurate to the fee imposed when audited
balance sheets are filed. Hence, the enhancement of fees in respect of two items which are challenged in these writ petitions, is commensurate with
the services extended, and not intended to augment the general revenues of the State. In spite of Chit Funds Act, 1982 (Central Act 40 of 1982),
coming into force in so far as Tamil Nadu is concerned on 13th April, 1984, the provisions of Tamil Nadu Act 24 of 1961 and the Rules framed
thereunder continue to apply to the chits in operation on the commencement of the Act and hence, the levy of fees for balance sheets filed
subsequent to 13th April, 1984 for chits already registered is valid. Hence, none of the contentions raised by the petitioners could invalidate the
imposition and collection of fees on the basis of revised rates.
A reply affidavit is filed stating that the shift from slab basis to number of subscribers or instalments whichever is higher basis is irrational,
because it does not increase the service rendered to Foremen and in no manner increases the work of Chit Registrar at the time of registration,
because thereafter fees are levied for each and every stage of the conduct of the chits. Petitioners are only aggrieved regarding the increase in fees
for registration of the by-laws and for balance sheets on ad valorem basis when filed with the certificate of a Chartered Accountant. The expenses
incurred and the amount collected as disclosed in the counter affidavit only shows that the revisions were made to augment the revenue of the
State.
When minutes for every instalment are being filed, they disclose the required particulars. What is looked at in balance sheets is to find out the
total amount collected and the commission received and no other. They do not refer to all the receipts and expenditures of each chit.
It is like insisting the Banking Company to file a balance sheet for each account, which is an impossibility of performance. From the balance sheet,
Registrar cannot ascertain the expenditure for each chit, as the firm engages and spends for the whole work of all the chits. In practice, Registrar
does not insist all the columns to be filled in the balance sheet and they relate only to the amount collected in one year and the amount of
commission deducted. Even the Chit Auditor does only these things. As for other particulars, they are to be culled out from the minutes filed for
every instalment, for which separate fees are collected. The present basis adopted results in highly disproportionate amounts being collected as
indicated in para 5 of the reply affidavit which is incommensurate with the services rendered by the Registrar. In the absence of break up figures for
the amounts claimed to be spent, it would not be safe to act upon them, when Sub Registrar does all the functions of Chit Registrar in some places.
As for providing iron safe and receptacles, they cannot form part of any services rendered for the benefit of Foreman from whom the fee is
collected. Hence, as claimed, they are entitled to the writ of declaration.
By the time these petitions have been argued out, advocates appearing for the petitioners and learned Additional Government Pleader, have
adverted to the undermentioned decisions for comprehending as to whether the impugned levy is a fee or not.
In AIR 1954 volume there are three decisions reported at pages 282, 388 and 400. In the first one known as Shirur Mutt case Commissioner
of H.R.E. v. Lakshmindra Thtriha Swamiar of Shirur Mutt 1954 S.C. 282=67 L.W. 1220 (S.C.), it was held that a fee is generally defined to be a
charge for a special service rendered to individuals by some governmental agency and that the fee so imposed would ordinarily be uniform and no
account is taken of the varying abilities of different recipients to pay. It was further held that it is not possible in formulate a definition that would be
applicable to all cases, and that the element of compulsion or coerciveness is present in all kinds of imposition and that fee is no exception, and the
primary distinction between a tax and a fee is that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or
privilege, and that public interest is the basis of all impositions, but in a fee it is some special benefit which the individual receives. Hence, it was
held that a fee is regarded as a tort of return or consideration for services rendered, and it is absolutely necessary that there must be correlation to
the expenses incurred by the Government in rendering the Said services One more factor taken into account was that, if the money, so collected is
appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, then it
would be counted as fees and not a tax.
In the second case known as Ratilal Panachand Gandhi Vs. The State of Bombay and Others, analysing the provisions of the Bombay Public
Trusts Act, reported at page 388, it was pointed out that though primarily fee is imposed in public interest, it is for some special service rendered
or some special work done for the benefit of those from whom the payments are demanded and that quid pro quo is always an element which is
present in fees, but absent when tax is imposed. It was further held that there are two essential elements to find out whether the payment is a fee or
not, they being:-
(1) It must be in consideration of certain services which the individuals accepted either willingly or unwillingly,
(2) It must be earmarked to meet the expenses of rendering such services and shall not go to the general revenues of the State to be spent for
general public purpose.
In the third decisions reported at page 400 Mahant Sri Jagannath Ramanuj Das and Another Vs. The State of Orissa and Another, the same
principles have been reiterated.
I The Hingir-rampur Coal Co. Ltd. and Others Vs. The State of Orissa and Others, four out of five learned judges of the supreme Court have
laid down the following essential features between a tax and a fee:�
(1) Tax and fee are compulsory exactions of money by public authorities and there is no generic difference between them.
(2) A fee levied is 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.
(3) Services rendered may be to a specific area or to a specific class of person or trade or business in any local area and as a condition precedent
for the same, a fee could be collected.
(4) Fee so collected is earmarked and set apart for the purposes of services for which it is levied and does not become a part of the consolidated
fund. When a fee is imposed for services rendered, the payer has no right to opt out of it.
(5) In the absence of co-relation between the fees collected and the services extended, it loses the characteristics of fees.
(6) Whether the demand made is a fee or a tax is always a question of fact to be determined in the circumstances of each case.
(7) In extending services to a specified class, if indirectly their members of the public are also benefitted, it would not detract from the character of
the levy as a fee.
(8) The true test in determining its character is to find out, what is the primary object of levy and the essential purpose which it is intended to
achieve.
It is in Corporation of Calcutta and Another Vs. Liberty Cinema, three of the five learned Judges of the Supreme Court, held that what was
levied as license fee under Calcutta Municipal Act was only a tax Learned counsel for the petitioners relied upon it to contend that unless the State
is able to justify that the levy is for services rendered and intended to confer a special benefit on the person on whom it is imposed, and that in the
instant case the Foreman does not derive any of the benefits under the impugned levy and therefore, the demand is illegal.
Learned Additional Government Pleader would refer to para 6 of the judgment in Corporation of Calcutta and Another Vs. Liberty Cinema,
wherein it is stated that Corporation of Calcutta itself contended that the levy was only a tax and not a fee, and further did not dispute that if the
levy was a fee in the sense mentioned, then it would be invalid. The concluding sentence in the said paragraph is to the following effect:
....A discussion of these aspects of fees will be unprofitable and will only cloud the point really in issue.
Hence, his submission is that, whatever had been discussed in the judgment as to what could be a fee cannot be understood as at variance with
what had been held in The Hingir-rampur Coal Co. Ltd. and Others Vs. The State of Orissa and Others, . In the light of the subsequent decisions
of the Supreme Court, his further submission is that the services rendered by the State need not be confined only to the persons on whom it is
imposed, but when the primary object and the essential purposes have to be looked in to, it would take within its fold the benefits derived by
subscribers as well.
On what is a fee, it was held in Corporation of Calcutta and Another Vs. Liberty Cinema, that:�
nothing turns on the actual word used as there is no rigid technical meaning in English language for ''fee'' indicating that levy is only in return for
service.
Arts.110 (2) and 199 (2) of the Constitution of India go to show that fee for licence and fee for services rendered are different kinds of levy and
that the former is not intended to be a fee for services rendered.
The provisions of the Act must be looked into to determine the correct character of the imposition.
It must confer a special benefit on the person on whom it is imposed.
In D.C., and G. Mills Co. v. Chief Commissioner, Delhi AIR 1971 S.C. 1344=91 L.W. 23, the factors taken into account, to ascertain the
nature of levy of fees area:-
(i) The entire scheme of the Act, obligation and nature of work done by authorities are to be looked into.
(ii) The expenses incurred for maintaining the personal for supervising, controlling and regulation of the trade can be taken into account, to find out
the reasonable relationship between the levy and the expenses incurred for rendering such services.
It was a case wherein the statistics furnished disclosed that 60% of the amount of licence fee collected was being actually spent on services
rendered to factory owners and this was considered to be a sufficient co-relation to uphold the levy as a fee.
In dealing with the payment of court-fees in The Secretary, Government of Madras, Home Department and Another Vs. Zenith Lamp and
Electrical Ltd., the two factors that were taken into account are:-
(1) Whether there is broad co-relationship, and that
(2) each case has to be considered on a reasonsable and practical view point rather than on a pedantic approach.
In dealing with the levy of permission fee for construction of buildings under Andhra Pradesh Gram Panchayats Act, the Supreme Court after
referring to Shirur Mutt case The Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt.,
points out that, if there is total absence of any date regarding the essential features of co-relationship, then the levy is illegal; and that the expenses
incurred in discharging the obligatory functions under the Act have to be met from and out of the taxes collected and that the fees collected would
be only with reference to the services rendered by or intended to be rendered to particular persons from whom the fee is collected.
In Kewal Krishan Puri and Others Vs. State of Punjab and Another, decided by five learned Judges of the Supreme Court seven salient tests
have been laid down to ascertain as to whether the demand is a fee or not:
(1) A good and substantial portion of the amount collected must be expended for the purpose for which it is collected.
(2) The services rendered by the authorities to the licensee must be in relation to the activity carried on by him.
(3) It is not necessary to confer the whole of the benefit on the licencee alone, but it would suffice if some benefits are conferred on them and
which have a direct, close and reasonable correlation between the licensee and the transactions.
(4) In considering the special benefits on the licensees it could take within its fold services rendered by the authority in the general interest of all
concerned with the transactions in question.
(5) Any direct and remote benefits cannot in any sense be a special benefit to the licencee.
(6) Quid-pro-quo with arithmetical exactitude is not required and authorities must broadly establish that a reasonable amount is spent for rendering
services to those on whom falls the burden of paying fees.
(7) At least a good and substantial portion of the amount collected on account of fees, may be in the neighbourhood of two thirds or three fourths,
must be shown with reasonable certainty as being spent for rendering services.
Immediately following this pronouncement, four of the five learned Judges of the Supreme Court in H.H. Shri Swamiji of Shri Amar Mutt and
Others Vs. Commissioner, Hindu Religious and Charitable Endowments Department and Others, have stated that the necessity for establishing
quid pro qua between the fee and the cost of services rendered is a matter which is no longer in doubt or to be debated in view of the principles
enunciated in the decisions rendered by the Supreme Court from Shirur Mutt case The Commissioner, Hindu Religious Endowments, Madras Vs.
Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt., upto Kewal Krishan Puri and Others Vs. State of Punjab and Another, .
As to what has been laid down in Kewal Krishan Puri and Others Vs. State of Punjab and Another, in Southern Pharmaceuticals and
Chemicals, Trichur and Others Vs. State of Kerala and Others, , it was held that the observations contained therein pertaining to quid pro quo are
not intended and meant as laying down a rule of universal application and that this concept is undergoing a transformation. It was further observed
that the element of quid pro quo stricto sensu is not always a sine qua non of a fee. The Constitution of India did not contemplate crediting it to a
separate fund and not to the consolidated fund. Art. 266 of the Constitution of India was relied upon to show that unnecessary exaggeration need
not be applied to the aspect of how the collections made had been credited. The levy of fee may be in consideration for a privilege, licence or for
service. To secure the privilege, the licensee has to comply with certain prescribed conditions. When supervision is contemplated under the
provisions of the Act, there could be no denying the fact that the licencee receives services from the authority. If a broad correlation between the
fee collected and the expenses on establishment is disclosed, it would be valid, because the personnel of the establishment extend services to the
licencee in complying with the provisions of the Act.
Even if the benefit of advantage derived by the payer of the fee is secondary, if it be shown that the primary motive of regulation was in public
interest, then the imposition of fee is valid, is the view expressed in Municipal Corporation of Delhi and Others Vs. Mohd. Yasin, . The Court
further held that in finding out correlations, the court should not assume the role of a Cost Accountant, as quid pro quo is not in the strict sense the
one and the only true index to find out whether it is a fee or not. By referring to Art. 110 of the Constitution of India, it was held that there are two
classes of cases where fee could be imposed:
Where the Government simply granted a permission or privilege to a person to do something which otherwise that person would not be
competent to do and extracted from him in return, for heavy or moderate fees.
Where the Government did some positive work for the benefit of the person and money was taken as a return for the work done and services
rendered, such money not being merged in the public revenues for the benefit of general public.
As to what is meant by the phrase ''payers of the fee'' used in the earlier decisions, is explained in Sreenivasa General Traders and Others Vs.
State of Andhra Pradesh and Others, as follows:-
it is obvious that the phrase ''payer of the fee'' used by this court in the authorities referred to above represents collectively the class of persons to
whom the benefit is directly intended by the establishment of a regulated market in notified agricultural produce, livestock and not the actual
individual who belongs to that class, i.e., the trader....
it was then held that what was stated in Kewal Krishan Puri and Others Vs. State of Punjab and Another, must be understood as meaning services
to the users of the market as well. As for the view in Kewal Krishna''s case about two thirds or three fourths of collections being spent on payers
of fees, it was also held that it does not lay down a rule of universal application and it was a decision confined to the special facts of that case and
that it was an obiter.
As pointed out in these decisions, as to whether a particular levy is a fee or a tax, it is a question of fact to be determined in the circumstances
of each case by reference to the entire scheme of the Act. The duties, obligations and nature of work done by the authority to those connected
with the transaction which is subjected to the imposition of fee and ear-marking the funds collected for that specific purpose, and several factors as
indicated in the aforesaid judgments, are to be taken into account and if the State justifies the levy as a fee based on such tests, then alone it will be
valid.
The first point taken by petitioners is that there is no power in the State to increase the fees. Amendments were issued by invoking S. 63 of the
Act. Learned counsel for the petitioners submits that, when S. 53 specifically provides as to when and under what circumstances fees could be
levied, and S. 16 which deals with balance sheets not being enumerated therein, the demand of fees on balance sheets is ultra vires of the Act. On
behalf of the State, it is stated that though S. 63 is mistakenly mentioned in the notification, the power exercised falls within S. 53 (1) (a) and (g). S.
53 enables the Government to prescribe fees in respect of such of those categories listed in clauses (a) to (f) and other matters as may appear
necessary to give effect to the purposes of the Act. Clause (a) deals with the registration of the by-laws of a chit under S. 3. Hence, the
enhancement of the rate of fees or revised basis that could be adopted for imposition of registration fee, could be done by invoking S. 53 (1) (a).
As for balance sheets, S. 16 is not one of the sections mentioned in S. 53 (1) (a) to (f). But clause (g) states:�
Such other matters as may appear necessary to give effect to the purposes of this Act.
The Act is made to provide for the regulation of Chit funds in the State of Tamil Nadu. S. 16(2) refers to what a balance sheet should contain, R.
26 says that it shall be in form No. X. When such balance sheets are filed in the prescribed form, it calls for scrutiny, so that the interests of the
subscribers may be safeguarded. This being one of the essential purposes envisaged under the Act, merely because S. 16 is not enumerated in Cl.
(a) to (f), it cannot be held that the fee now imposed relating to balance sheets would not come within the aforesaid Cl. (g). Such a power being
available under S. 53 (1) (g) inclusion of balance sheets as one of the items in Appendix II is within the ambit of the enabling power under S. 53.
As stipulated under S. 53 (2), it has teen duly published though S. 63 is mentioned S. 53 (1)(a) and (g) would have been the proper section to be
mentioned therein. Once the power is traceable, an erroneous indication of section would not invalidate the valid exercise of power. Such mistakes
are avoidable, if proper care is taken.
The next point taken is that the object stated in the impugned G.O. is totally irrelevant to the purposes of the Act. After referring to the then
existing rates of registration fee which was on slab basis, the Director of Chits had stated that the said levy has no relation to the duration of the chit
or the number of subscribers benefited and, therefore, it will be equitable and fair to fix the fees by taking into account the number of instalments or
duration as well as the number of subscribers benefited under the chit. Hence, taking these into consideration, and in order to rationalise rates, he
had proposed an amendment to the rules. Accepting this claim made by him, the impugned G.O. was passed. As to what was the rationalisation
claimed at, in paragraph 4 of the counter affidavit in W.P. No. 1333 of 1982, it is stated as hereunder�
...Considering that in respect of chits of longer duration and larger number of instalments, greater amount of service had to be rendered in that,
more minutes etc., were filed, it is equitable and fair to fix the fees for registration of by-laws with regard to number of instalments or duration of
chits. The fees were revised taking these facts into consideration. It has also to be verified whether the foreman has taken proper security for future
payment of subscriptions from the prized subscriber, whether proper receipts were obtained for the payment of prize moneys and on due dates, if
not whether the prize amount has been deposited in a Bank as required by the Act by verifying receipts of deposits, etc....The extracts filed in
respect of removal, substitution and assignment, etc., have also to be verified and in respect of higher chit amounts in long term chits for longer
duration these transactions will be more and they impose greater responsibility on the Chit Registrar. The work connected with watching the filing
of various documents by the Foreman on the due dates and in proper form also takes considerable time...
The rest of the portion in paragraph 4 deals with its justification regarding fees for filing a balance sheet. At the time when an application is made
for registration under S. 3, none of those factors mentioned therein require to be done by the Registrar. In paragraph 20 it is stated ""I submit that
registration fee has nothing to do with the fee levied for filing of the balance sheet. They operate in different fields."" When more minutes are filed in
respect of chits of longer duration and larger number of instalments, separate fees are collected for each minute. S. 10 states that minutes of the
proceedings on every drawing shall be drawn up and entered in a book kept for that purpose. It must contain the particulars mentioned in S.
10(2). Under S. 11, every Foreman shall within 15 days of the succeeding month in which one or more instalment of the same chit or one or more
instalments of any other chit is drawn, file with Registrar a copy of the minutes. R. 14 stipulates some more particulars apart from what are
contained in S. 10(2) to be included in the minutes. S. 53(1)(c) authorises the Government to prescribe fees for filing all minutes. Art. 4 in
Appendix II stipulates the fees for filing a copy of the minutes of proceedings referred to in S. 10 and under S. 11 at Rs. 2. For each minute filed,
fee being collected, at the time of registration, as to whether the longer duration or larger number of instalments calls for increase in services to be
rendered, than what was done when the slab system was in force, is not explained at all. As for the expression etc. ...'' no particulars ate
forthcoming. All other aspects referred to are more or less covered separately under S. 53(1)(c) to (f). The impugned G.O., except to are point
out that the Director of Chits felt that the adopt on of a different basis would bring about rationalisation of rates, the respondent State had not
placed before Court either in the form of an affidavit or by producing records as to what were the equitable factors which were taken into account
for change of basis or in imposing higher rate.
When a Foreman starts a chit, under S. 3 he has to apply for registration of the by-laws. It is only thereafter, he can approach the subscriber
and get the chit agreements as prescribed under S. 5 executed, and file them under S. 6. He cannot commence he business till be secures the
certificate under S. 7(3). Therefore, when an application is made for registration of by-laws, at that stage, S. 3(3) authorises the Registrar to find
out as to whether the by-laws are in accord with the provisions of the Act or the rules made thereunder. As to what the by-laws should provide,
R.3 enumerates them. An application for registration is to be in Form No. 1 accompanied by fees set out in Appendix II. Hence, the number of the
subscribers or the instalments, have no nexus with what are required to be done under S. 3(3) by the Registrar. Whether they are more or less, it
was only a question of furnishing particulars and recording them and no more. If for the entire period of the chit except the registration fee, no other
fee is demanded and the entire services rendered are covered by this demand alone, then the correlation claimed could be available. S. 53 enables
imposition of fees in respect of almost each one of the subsequent stages of the conduct of the chit whenever the authorities are to be approached
or they are to exercise their powers. In the context of such provisions having been made in the Act, the registration fee claimed has to be restricted
to what are required to be done under S. 3(3). Realising this predicament, the State has not placed before Court as to how and in what manner,
the revision effected has brought about rationalisation. As to how and to what extent a chit with a longer duration or instalment could call for
increased services to be rendered compared with another of lesser duration or instalment, for the purposes mentioned under S. 3, is not
exemplified. The only attempt made is to show that later on during the conduct of the chit, it would call for increased services, but this has no
relevance in a case of this nature where for each and every subsequent step taken, a chit operator has to pay out fees enumerated in Appendix II.
The limited justification spelt out in para 4 of the counter affidavit being practically no justification at all and the so called rationalisation having no
nexus with what requires to be done at the stage of registration, the adoption of a revised basis in the impugned G.O. is illegal.
Learned Additional Government Pleader would then submit that when it is a registration fee, the test of quid pro quo need not be satisfied as it
is a regulatory measure, and hence, the extent of services at the stage of registration whether existing or not, cannot be highlighted.
In Kewal Krishan Puri and Others Vs. State of Punjab and Another, on referring to the The Chief Commissioner, Delhi and Another Vs. The
Delhi Cloth and General Mills Co. Ltd. and Others, it is stated as follows:�
Rendering some service, however remote the service may be, cannot strictly speaking satisfy the element of quid pro quo required to be
established in cases of the impost of fee. But then, as pointed out, in some of the cases noticed earlier the registration fee has been taken to stand
on a different footing altogether. In the case of such a fee the lest of quid pro quo is not to be satisfied with such direct, close or proximate
correlationship as in the case of many other kinds of fees. By and large registration fee is charged as a result of regulatory measure.
It is not held that the aspect of services to be rendered is absolved from consideration when registration fee is charged, and what has been pointed
out is that the same close or proximate correlationship will have to be established for other categories of fees may not be required when
justification is put forth regarding registration fee. In the reply affidavit the petitioners have shown that there is a highly disproportionate and
irrational increase in registration fees. In spite of the maximum amount of Rs. 200 which was prevailing for a chit of value exceeding Rs. 50,000
and for a term of one year and above, it will be Rs. 1000 which means five fold increase. Merely because it is held that registration fee is a
regulatory measure, it would not mean that any rate can be fixed having no nexus to what services are contemplated for that purpose under the
Act. Furthermore, the increased levy is not due to any amendment effected relating to registration of by-laws calling for nature of services to be
extended than what were obtaining prior to the G.O. When the nature and extent of services envisaged under S. 3(3) having remained the same,
unless it be shown that for extending the same services, the expenses had increased, the demand made partakes the character of a tax. It is claimed
by State that the revision has been made only after two decades. In 1964, it was Rs. 25 for registration of by-laws. It was enhanced in 1969 on
slab system which was a minimum of Rs. 50 and the maximum at Rs. 200. Hence, it would not be correct on the part of the State to claim that for
two decades there had been no revision. Hardly within two years of 1979, the rates having been revised, it is the bounden duty of the State to
disclose as to how within a period of two years, the expenditure had increased to such an extent as to result in such high rates being fixed. As to
what are the expenditures incurred and collections made will be dealt with later on. The figures furnished by the State go to show that during the
relevant years, the income derived is nearly double and more.
As for Art. 8-A in Appendix II relating to filing of balance sheets audited and certified by Chartered Accountants are concerned, it is submitted
by petitioners that there is a hostile discrimination and it acts as an unreasonable restriction on their trade and it is violative of Arts. 14, 19(1) (g)
and 301 of the Constitution, S. 16 (1) prescribes that every Foreman shall prepare and file with the Registrar a balance sheet duly audited either by
auditors duly qualified to act as auditors of companies under the Companies Act, 1956 or by a chit auditor appointed under S. 51 (2) of the Act,
and that it shall contain a summary of the assets and liabilities of the chit and furnish such other particulars as will disclose the nature of the assets
and liabilities and how the value of the assets has been arrived at R. 26 states that a balance sheet shall be in form No. X. R. 27 stipulates that it
shall be prepared by the Foreman when the duration of the chit does not exceed one year on the termination of the chit and if it exceeds one year,
then on the expiry of every period of 12 months and also on the termination of the chits, it should be filed within two months from the date of the
said period. Form No. X catalogues the particulars to be furnished relating to (1) receipts and expenditure, (2) statement of assets and liabilities,
(3) Details of Investment, (4) Assessment of value of investment, and (5) profit and loss account. The Foreman has to certify regarding the
correctness and also the auditor to certify that the balance sheet is drawn up in conformity with the provisions of the Act and the Rules framed
thereunder. An option is given to a Foreman either to file the balance sheet audited by a Chartered Accountant or by a Chit auditor. Under S.
51(2), a Chit auditor is appointed by the Director of Chits. It is stated by the learned Additional Government Pleader that the Chit Auditors belong
to the department who are not qualified Chartered Accountants, but they are trained to scrutinise chit accounts. The fee charged when a Chit
auditor is approached is the same as charged when a balance sheet certified by a Chartered Accountant is filed. It is strenuously pleaded by the
petitioners that when distinctly different services are contemplated as between them, the imposition of the same rate of levy of fees is a hostile
discrimination and an unreasonable restriction on the petitioners trade. As to what requites to be done by a Chit Auditor calls for consideration vis-
a-vis what is done when a balance sheet certified by a Chartered Accountant is filed before the Registrar. R. 28 deals with what requires to be
done when a Chit auditor is approached for deifying balance sheet and profit and loss account. If a Foreman desires to have the balance sheet and
profit and loss account audited by a Chit and for, after the preparation of the balance sheet, he must make an application under R. 28(1) to the
Registrar for such audit to be done specifying whether it shall be at the premises of the Foreman or not and the application is to be accompanied
by fees prescribed under Art. 8 of Appendix II. Thereafter, the Registrar will forward the application to the Inspecting Officer, who shall cause the
balance sheet and profit and loss account to be audited by the Chit auditor and in turn, he would send it to the Chit auditor, who shall thereupon
require the Foreman to produce the chit records on such date, time and place as he may fix and it would then be the duty of the Foreman to
produce ""all registers, books of accounts and other records relating to the chit accordingly and furnish such information and give such facilities as
may be necessary or required for the proper audit of the balance sheet and profit and loss account at the time and place fixed by the Chit Auditor.
A notice of not less than seven days shall be given to the Foreman as to the date of audit at the premises of the Foreman or for the production of
registers, books of accounts and other records relating to the chit as the case may be. After scrutiny of all these documents under R. 29, the Chit
Auditor will prepare his report and issue the certificate in quadruple and send one copy to the Foreman, the second to the Registrar and third to
the Inspecting officer and keep the last copy for his own file. R. 30(1) enjoins upon the Foreman to file with the Registrar a copy of the balance-
sheet and profit and loss account together with the audit certificate and the auditor''s report within one month from the date of receipt from the Chit
Auditor or within four months from the last date of the period covered by the balance sheet whichever is earlier. Whereas, when a certificate is
secured from a Chartered Accountant, R. 30(2) directs the Foreman ''to file'' with the Registrar the documents which at referred to in sub-R (1) of
R. 30 within three months of the expiry of the period with reference to which, the balance sheet is prepared under R. 27.
Hence, when a balance sheet certified by a Chartered Accountant is produced, the Registrar would be concerning himself only with regard to
the particulars incorporated in the balance sheet, profit and loss account, the auditor''s certificate and the report of the auditor. Under the rules as
framed, there is no need to at all for the Foreman to produce before the Registrar all registers, books of accounts and other records relating to the
chit accordingly and furnish such information and give such facilities as may be necessary or required......"" for verifying the correctness of the
certificate issued by the Chartered Accountant. The respondents submit that even when a balance such prepared by a Chartered Accountant is
filed it has to be scrutinised by the department along with all records and that the expenditure incurred is equal to the amount spent for the services
rendered when a Chit Auditor does it. While scrutinising, if the Registrar finds that it is not in accordance with the provisions of the Act and the
Rules framed thereunder, he would have to take suitable action and in appropriate cases before ordering release of the security, they will have to
be scrutinised. In conclusion, it is stated as follows:�
I submit that pursuant to the filing of the balance sheet, records have to be verified. The balance sheet has also got to be examined in detail to find
out whether it is in conformity with the object of the chit and also whether the figures tally with regard to the collections and payments of prize
amounts and whether the prize amount also correctly reflects the scope of each chit and whether the commission of the foreman has been correctly
worked out. In short, the whole matter has got to be thoroughly examined to see whether that particular years'' transaction fully reflects the scope
of each chit and whether the collections and disbursements including the commission retained by the Foreman have all been done in conformity
with the Act and the Rules since it is the subscriber''s interest which is paramount. I submit that all these involve the services of the staff of the office
of the Registrar.
This claim made is not in accord with what is found in R. 30(2) Under the rules only when a Chit auditor prepares a balance sheet, registers, books
of account and other records and other information have to be furnished, under R. 30(2), they are not required to be submitted. When a Chartered
Accountant''s certificate is filed, it cannot be said that in all these cases where such certificates are filed, once over the same work done by a Chit
Auditor is carried out justifying the same rate of fee being charged. It may be that whenever any irregularities are found, it may call for a fresh
clarification from the Foreman, but that would not mean that for all the chits without exception the Registrar discharges the same kind of services as
done when a Chit Auditor is requisitioned. It must be pointed out that when fee is collected under Art. 8, it includes the services rendered by the
Chit Auditor and also the services of scrutiny by the Registrar, who acts upon such certificates whereas for the same fee paid when a Chit
Auditor''s certificate is filed, it results only in scrutiny by the Registrar and nothing more. Hence, to treat unlike situations as one and the same and
impose same rate of fees, is arbitrary and illegal. When rules themselves do not contemplate production of registers, books of accounts and other
records, the claim made that pursuant to the filing of the balance sheet, records have to be verified and that the whole matter has got to be
thoroughly examined is unacceptable. In such of those matters where irregularities are noticed, the Registrar can call for all the records and
scrutinise them and thereafter initiate prosecution or take such other action. Such instances would arise in both categories. Hence when the rules
themselves contemplate a different type services to be rendered when Chartered Accountants'' certificates are filed, the fee imposable under Art.
8A cannot be the same as in Art. 8 which contemplates more comprehensive services to be rendered. Therefore, as rightly pleaded by the
petitioners, the necessary element of quid-pro-quo is not existing, and furthermore, this is an unreasonable restriction on the right of trade and the
rate fixed is aimed at increasing general revenues. It is of pointed interest to note that right from the inception of the Act, such a fee was never
contemplated and that the Director of Chits, drew inspiration from what is obtaining in Kerala and his proposals have been just accepted by the
Government without any analysis being made of what rates would be fixed on conditions prevailing in Tamil Nadu. As to what are the provisions
governing the Act in force in Kerala and what nature of services rendered by those authorities are not spelt out. These conclusions arrived at are
not to be understood that the State is disentitled from imposing fee for filing of such balance sheets under Art. 8A. A rate which would be
commensurate to the nature of services extended by the departmental personnel could be fixed, but what is now charged being identical to by the
fee imposed under Art. 8, it is an illegal imposition.
Lastly, on behalf of the State it is pleaded that when fee is imposed under an enactment, the entirety of the collections made under different
heads must be taken into account as a whole for totality of services rendered, and in the light of the decisions of the Supreme Court if it be
disclosed that a good and substantial portion of the amounts recovered, is spent towards all the specific purposes services contemplated under the
Act, then the impugned levies are only fees and not otherwise. By referring to the decision in Kewal Krishan Puri and Others Vs. State of Punjab
and Another, , it is pointed out that if the demand made is of a regulatory nature, there is no need to look for quid-pro-quo regarding registration
fee and it can be any rate as State may choose to fix. As for the nature of service extended, as held in Kewal Krishan Puri and Others Vs. State of
Punjab and Another, Southern Pharmaceuticals and Chemicals, Trichur and Others Vs. State of Kerala and Others, and Sreenivasa General
Traders v. State of A.P. AIR 1983 S.C. 1245=96 L.W. (S.C.) 159 (S.N.) the benefit accruing to the payer alone cannot be taken into account
and that benefits accruing to those connected and interwoven with the activities of the payer and who would be benefited by supervisions made
over the payer would also be relevant. The rights of subscribers have to be safeguarded because they are the active participants in the chits, which
got registered through the Foreman. Provisions having been made in the Act for penalties to be imposed, etc., to safeguard the rights of subscribers
the expenditure incurred in supervision, control and regulation by the constituted authorities under the Act, forms part of the expenditure incurred in
extending the special benefits to all of them. In dealing with what benefits accrue to subscribers as well under this Act, in Tuticorin T. and C.
Corporation P. Ltd. v. State of Madras 1966 1 M.L.J. 313 it was pointed out that the Act is intended to provide a measure of safety to
subscribers. A similar Act enacted for Pondicherry was also held to benefit subscribers Chockanathan Chit Fund and Finance (P) Ltd.,
Pondicherry and Others Vs. Union Territory of Pondicherry and Others, . Hence, the concept of levy in relation to payer of fees spelt out in
Corporation of Calcutta and Another Vs. Liberty Cinema, and The Government of Andhra Pradesh and Another Vs. Hindustan Machine Tools
Ltd., cannot assist the petitioner because the traditional concept of quid pro quo is undergoing a sea of transformation as pointed out in Southern
Pharmaeuticals and Chemicals v. State of Kerala A.I R. 1983 S.C. 1245=96 L.W. (S.C.) 159 (S.N.).
Resting on these contentions, the statement of receipts and expenditure for the period from 1976�1977 to 1983�84 as found on page 6
of the counter-affidavit in W.P. 1333 of 1982, and the supplemental statement filed later on are relied upon to plead that quid pro quo is
established to a broad and reasonable extent:
Receipts Rs. Expenditure Rs.
1976�77 4,34,137 6,54,759 �1,20,372
1977�78 4,05,598 7,32,548 �2,91,950
1978�79 4,03,675 8,27,706 �4,24,071
1979-80 7,99,308 9,14,452 �1,20,144
1980�81 14,45,161. 9,14,452. 45�1,15,143.
75 95
1981-82 22,24,060. 14,88,541.45+ 7,95,519. 03
50
1982�83 34,12,574.7514,88,852.51+
19,23,722.24
1983�84 37,65,495.4816,82,946.60+
20,76,548.90
It is claimed that special staff is employed for discharging the functions and duties under the Act. The hierarchy in the services are furnished in
para 8 of the counter affidavit. Apart from the expenses incurred on them, the Government has spent on receptacles and iron safes for the
preservation of records and securities. It has been repeatedly pointed out by the Supreme Court that it is unnecessary for the State to prove with
arithmetical exactitude, and that court need not be called upon to function like a Chartered Accountant and what is required is to find out whether a
broad and reasonable relationship exists between the levy imposed and the services extended.
In The Delhi Cloth and General Mills Co. Ltd. Vs. The Chief Commissioner, Delhi and Others, it was indicated that if 60% of the amount is
spent on the specific purpose, it should be a satisfactory proof. In Kewal Krishna Puri v. State of Punjab AIR 1983 S.C. 1245=96 L.W. (S.C.)
159 (S.N.) one of the seven tests is that at least a good and substantial portion of the amount collected which may be in the neighbourhood of two
thirds and three fourths must be shown as being spent for the earmarked specific purposes and then it can be taken as a reasonable percentage
spent for rendering the services of the kind relied upon by the State. But learned Government Pleader refers to Sreenivasa General Traders v.
State of A.P. AIR 1983 S.C. 1245=96 L.W. (S.C.) 159 (S.N.) and Southern Pharmaceuticals and Chemicals, Trichur and Others Vs. State of
Kerala and Others, to contended that the sixth and seventh tests in Kewal Krishan Puri and Others Vs. State of Punjab and Another, cannot be
understood as laying down rules of universal application and must be confined to the facts of that case.
Percentages indicated cannot be relevant indicia, but the aspect of quid pro quo is a relevant test to be applied to find out whether there is a
broad relationship between the funds recovered and the amounts expended for carrying out the special services contemplated under the Act. As
pointed out in H.H. Shri Swamiji of Shri Amar Mutt and Others Vs. Commissioner, Hindu Religious and Charitable Endowments Department and
Others, , whether there is fair correspondence of proximation to justify the demand has to be proved by State. In this perspective, even taking into
account the totality of income and expenditure for all services rendered under the Act, it transpires that after the increased fee was imposed in
1980�81 in spite of the deficit which was experienced in the earlier years, the excess collected in 1981�82, itself was Rs. 7,95,519-03. This
is nearly 70% more than expenditure. Subsequent years figures go to show that surplus on hand was more than the amount spent. In the following
year also, the same has happened. Now that the Central Act has come into force on 13th April, 1984, these figures are opposite. The learned
Additional Government Pleader contends that the recoveries hitherto made immediately after the impugned levies cannot alone be taken into
account, because in future the situation may change. Since the Act has come to an end, this plea is without substance. As and when the expenditure
increases for the services rendered, nothing precludes the State from periodically increasing the fees, so as to be commensurate with the services
extended. The totality of recoveries made over a reasonable period of years could certainly be looked in to find out whether the increase is justified
or not. Loss was incurred preceding the impugned G.O. is made out. It called for a revision, but that by itself would not justify a disproportionate
increase unrelated to anticipated expenditure, how that the period is circumscribed, the amounts recovered during relevant years subsequent to the
impugned levies can be looked in to find out whether the tests laid down by the Supreme Court are satisfied or not. The income derived by the
State, subsequent to the enforcement of the Central Act is not taken into account. Thus it is quite apparent on particulars furnished by State that the
rates fixed were disproportionately high having no nexus to nature of services rendered, and is intended to augment revenues partaking the
character of tax. Hence the impugned levies suffer from the vice of arbitrariness, hostile discrimination and unreasonable restriction on trade. For all
the reasons above stated, Arts. 1 and 8-A in Appendix II to the Tamil Nadu Chit Funds Rules, 1964 are struck down and as invalid resulting in
the writ petitions being allowed with costs. Counsel fee Rs. 250 in each petition.