A CASE STUDY ON R.M.D.C (Mysore) private Ltd v.

State of Mysore 1962 AIR SC 594

Submitted By:
RANDALL WILLIAMS
Contents
1. Abbreviations .............................................................................................. ii 2. Introduction ................................................................................................. 1

3. R.M.D.C (Mysore) pvt. Ltd. v. State of Mysore : A Case Study ............... 2 3.1. The powers of state as per taxation ..................................................... 3 3.2. Effect of Repugnancy .......................................................................... 6 4. The doctrine of colorable legislation: ......................................................... 8 4.1. Application of the doctrine of Colorable legislation to taxation: ........ 8 5. Conclusion ................................................................................................ 10

ABBREVIATIONS
& .................................................................................................................................................. and A.P ........................................................................................................................... Andhra Pradesh AC ................................................................................................................................ Appeal Cases AIR ....................................................................................................................... All India Reporter All ER ............................................................................................................. All England Reporter Art .......................................................................................................................................... Article CWN .............................................................................................................Calcutta News Weekly F.C.R .............................................................................................................. Federal Court Reports F.R .................................................................................................................. Federal Court Reports FB .................................................................................................................................... Full Bench i.e.............................................................................................................................................. that is Kant ................................................................................................................................... Karnataka Ltd ......................................................................................................................................... Limited p.................................................................................................................................................. page para .................................................................................................................................... Paragraph Pvt .......................................................................................................................................... Private R.M.D.C ................................................................................................. R. M. D. Chamarbaugwala SC.............................................................................................................................. Supreme Court U.P ............................................................................................................................... Uttar Pradesh

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u/a.................................................................................................................................. under article UOI ............................................................................................................................ Union of India v.............................................................................................................................................. Versus Viz ....................................................................................................................................... Videlicet Vol.........................................................................................................................................Volume

ARTICLE REFERRED
Article 249: Power of Parliament to legislate with respect to a matter in the State List in the national interest (1) Notwithstanding anything in the foregoing provisions of this Chapter, if the Council of States has declared by resolution supported by not less than two thirds of the members present and voting that it is necessary or expedient in national interest that Parliament should make laws with respect to any matter enumerated in the State List specified in the resolution, it shall be lawful for Parliament to make laws for the whole or any part of the territory of India with respect to that matter while the resolution remains in force (2) A resolution passed under clause ( 1 ) shall remain in force for such period not exceeding one year as may be specified therein: Provided that, if and so often as a resolution approving the continuance in force of any such resolution is passed in the manner provided in clause ( 1 ), such resolution shall continue in force for a further period of one year from the date on which under this clause it would otherwise have ceased to be in force (3) A law made by Parliament which Parliament would not but for the passing of a resolution under clause ( 1 ) have been competent to make shall, to the extent of the incompetency, cease to have effect on the expiration of a period of six months after the resolution has ceased to be in force, except as respects things done or omitted to be done before the expiration of the said period Article 252: Power of Parliament to legislate for two or more States by consent and adoption of such legislation by any other State

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(1). if it appears to the Legislatures of two or more States to be desirable that any of the matters with respect to which Parliament has no power to make laws for the States except as provided in Articles 249 and 250 should be regulated in such States by Parliament by law, and if resolutions to that effect are passed by all the House of the Legislatures of those States, it shall be lawful for Parliament to pass an Act for regulating that matter accordingly, and any Act so passed shall apply to such States and to any other State by which it is adopted afterwards by resolution passed in that behalf by the House or, where there are two Houses, by each of the Houses of the Legislature of that State (2). Any Act so passed by Parliament may be amended or repealed by an Act of Parliament passed or adopted in like manner but shall not, as respects any State to which it applies, be amended or repealed by an Act of the Legislature of that State Article 254: Inconsistency between laws made by Parliament and laws made by the Legislatures of States (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause ( 2 ), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State: Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State Article 255: Requirements as to recommendations and previous sanctions to be regarded as matters of procedure only No Act of Parliament or of the legislature of a State and no provision in any such Act, shall be invalid by reason only that some recommendation or previous sanction required by this Constitution was not given, if assent to that Act was given

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(a) where the recommendation required was that of the Governor, either by the Governor or by the President; (b) where the recommendation required was that of the Rajpramukh, either by the Rajpramukh or by the President; (c) where the recommendation or previous sanction required was that of the President, by the President. BOOKS REFERRED 1. D.D. Basu, Commentary on the Constitution of India, vol 8,lexisnexis butterworths wadhwa nagpur, 2011 2. D.D.Basu, The Shorter Constitution Of India,13ed., Wadhwa and company law publishers, 2004 CASES Indian Cases 1. Birajananda das v. Competent Authority, AIR 1986 Cal 8 2. Deep Chand v. state of U.P, AIR 1959 SC 648 3. Gajapati v. State of Gujarat, AIR 2002 SC 1130. 4. Hoechst v. State of Bihar, AIR 1983 SC 1019 5. Jagannath baksh Singh v. state of U.p, AIR 1962 SC 1563 6. Krishna Sugar Mills v. Union of India, AIR 1959 SC 11247. Kunnathat v. state of Kerela, AIR 1961 SC 552 8. Megh Raj v. Alla rakhia, (1942) 46 CWN (F.R) 61 (65). 9. R.M.D.C v. State of Mysore 1962 AIR 549 10. Ralla Ram v. Prov. Of East Punjab, (1948) FCR 207 11. Rangayya v. state, AIR 1978 AP 106 (FB) 12. Srikant Lal v. State Of Bihar, AIR 1958 SC 496 13. State of Bihar v. Kameshwar, AIR 1952 SC 252 14. T. Khande Rao v. state of karnataka, AIR 1979 Kant 71 15. Tumati Rangayya v. state of A.P. AIR 1978 AP 106 16. UOI v. Basavaiah, AIR 1972 SC 1415

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Foreign Cases 1. A.G v. Antigua Times, (1975) 3 All ER 81 (PC). 2. Att. Gen. for Ontario v. Reciprocal Insurers, (1924) AC 328

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INTRODUCTION
In India there have been plethora of cases in which the Supreme Court has adjudicated on the matter relating to taxation. In India the Constitution distinguished taxing power from the general legislative power relating to a subject.1 Taxation is considered as a distinct matter,2 for purposes of legislative competence. R.M.D.C (Mysore) pvt. Ltd. v. State of Mysore is one of the cases in which the Supreme Court has cogently discussed the extension of taxing statute and its colorable use. The doctrine of colorable legislation as explained by the supreme court in Krishna Sugar Mills v. Union of India3..The whole doctrine of colorable legislation revolves itself into the question of competency of a particular legislature to enact a particular law. The general doctrine of colorable legislation is that neither the Federal nor a Provincial or State Legislature can, in the exercise of its own powers, carry out an object which is beyond its powers and trespass on the exclusive powers of the other,4 that the same limitation should apply with respect to the taxing powers of Federal and State Legislatures in a Federal system. Therefore, question in this case is if the state accepts a parliament law u/a 2525, does it then surrender all its powers to the parliament ancillary to that law.

1 2

A.G v. Antigua Times, (1975) 3 All ER 81 (PC). Hoechst v. State of Bihar, AIR 1983 SC 1019 para.76 3 AIR 1959 SC 1124 4 Att. Gen. for Ontario v. Reciprocal Insurers, (1924) AC 328. 5 ARTICLE 252: Power of Parliament to legislate for two or more States by consent and adoption of such legislation by any other State (1) If it appears to the Legislatures of two or more States to be desirable that any of the matters with respect to which Parliament has no power to make laws for the States except as

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Case Study

R.M.D.C (Mysore) pvt. Ltd. v. State of Mysore: A Case Study

The applicants had been conducting prize competitions since the month of august 1948, in the state of Mysore. An act called Mysore Lotteries & Prize Competitions Control & Tax act, 1951 was passed on June 21st, 1951. A similar act called the Bombay Lotteries and Prize Competitions Control and Tax Act, 1948, which was amended in November by the Bombay Act, 1952. A petition was filled in the Bombay High Court under article 226 of the Constitution of India, challenging the constitutionality of the act. The High Court held that though prize competitions could be controlled by states within their respective borders, their ramifications beyond those borders could only be dealt with by action under Article 252(1) of the Constitution. Therefore, the states of Andhra Pradesh, Bombay Madras, U.P, Hyderabad, Madhya Bharat, Pepsu and Saurashtra passed resolutions u/a 252(1) authorizing parliament to legislate for the control and regulation of prize competitions. On February 24, 1956 the Mysore legislation also accepted the act. On April 7, 1956 the appellants filled a petition u/a 32 in the Supreme Court challenging the constitutional validity of the central act, which was dismissed. Meanwhile, an appeal against the Bombay High Court -

Footnote no 5 conti.. provided in Articles 249 and 250 should be regulated in such States by Parliament by law, and if resolutions to that effect are passed by all the House of the Legislatures of those States, it shall be lawful for Parliament to pass an Act for regulating that matter accordingly, and any Act so passed shall apply to such States and to any other State by which it is adopted afterwards by resolution passed in that behalf by the House or, where there are two Houses, by each of the Houses of the Legislature of that State (2) Any Act so passed by Parliament may be amended or repealed by an Act of Parliament passed or adopted in like manner but shall not, as respects any State to which it applies, be amended or repealed by an Act of the Legislature of that State

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judgment was brought before the Supreme Court and was allowed. During the pendency of the petition before the Supreme Court, the applicants applied for stay of the operation of the Central Act on April 16, 1956, which was granted. The Supreme Court gave its judgment on April 9. 1957 on the Bombay case. On August 31st, 1957 the Mysore Lotteries & prize Competitions Control & Tax (Amendment) ordinance was issued. A provision under section 15 was added of the Mysore Lotteries & Prize Competitions Control & Tax Act, i.e. all prize competitions conducted from March 31st, 1956 to August 31, 1957 were brought within the preview of the amendment act. Because of the provision the business carried out by the appellants had become taxable under the Mysore act. The Mysore act was challenged in the High Court u/a 226, which was dismissed on November 20, 1958 and against that judgment and order this appeal has been brought pursuant to a certificate of the High Court under Article 132(1)6 of the constitution.

The Powers of State as Per Taxation:

In the present case the argued point was that if a resolution had been passed under article 252(1) of the constitution of India then the state legislature had further no power to amend any law.

The quest then here arises do the resolutions as passed and particularly the words control and regulation of prize puzzle competitions and all other matters ancillary thereto surrender the whole subject of prize competitions to the central government, i.e. every matter connected to it including the power to tax. The argument raised was that the language of
6

ARTICLE132: Appellate jurisdiction of Supreme Court in appeals from High Courts in certain cases ( 1 ) An appeal shall lie to the Supreme Court from any judgment, decree or final order of a High Court in the territory of India, whether in a civil, criminal or other proceeding, if the High Court certifies under Article 134A that the case involves a substantial question of law as t the interpretation of this Constitution

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the resolutions was wide enough to comprise the legislative power under the entries 34 and 62 of List II of the Constitution of India. Under entries 34 and 62 of List II- betting and gambling are included; the power to impose taxes on betting and gambling is included in Entry 62. They are two separate powers, so that by surrounding its power to regulate prize competitions, under Art.252 (1), a State legislature does not lose its power to impose a tax on such competitions.7 Hence, when parliament passes a law under this article, it cannot be contended that it is a colorable exercise of power. The contention of the applicants was rejected on the ground that colorable legislation was a cover for lack of legislative power. When the state legislature has power to pass law under List II, it can also pass a resolution, on the basis of which Parliament can pass a law on that topic.8 Conflict between Central Act passed under Article 252 and State Act Through, Art. 255 may not be attracted, in terms, to a law made by parliament under Art. 252, it has been held that the same principle should apply, by reason of the words and any such Acts passed shall apply to such State. In case of conflict between a law made by parliament under Art. 252 and the Legislature of any state to which such Central act applies, the latter shall prevail.9 Thus, by passing a resolution, the topic goes out of State list. Hence, the court has held that any act of State Legislature will be subject to the rule of repugnancy, even though in terms Art. 254 will not apply. Further, if
7

R.M.D.C v. State of Mysore 1962 AIR 549; D.D.Basu, The Shorter Constitution Of India,13ed., Wadhwa and company law publishers, 2004,pg.3481. 8 R.M.D.C v. State of Mysore 1962 AIR 549; D.D. Basu, Commentary on the Constitution of India, vol 8,lexisnexis butterworths wadhwa nagpur, 2011,8689. 9 Rangayya v. state, AIR 1978 AP 106 (FB)

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any state, relating to the same manner occupying the same field, as the law made by the parliament under cl. (1) of Art. 252 is found to be repugnant, it will be rendered inoperative to the extent of repugnancy.10 But in case of repugnancy, the doctrine of severability shall apply and not only shall that portion of the state law give way, which is repugnant. A taxing statute is not protected if it is a colorable exercise of legislative power or is a fraud on the constitution and is confiscatory.11 It has already been noticed that even as regards matters included in the exclusive state list (II) , the constitution itself provides for national legislation, if it appears that the federal legislation is necessary in order to meet the national magnitude of the problem, by resorting to the procedure under Art. 249, or, when the States or some of them voluntary consent to legislation by the Union Legislature on that State subject, so far as the consenting state legislates desire, in accordance with the procedure laid down in Art. 252.12 INDIA- As pointed out by the Supreme Court13, the question is ultimately one of legislative power. Thus, if a legislature is competent to regulate a subject as well as to impose tax upon it, it is immaterial whether a tax is imposed upon it for the purpose of regulation because motive of the Legislature is irrelevant upon the question of its competency. If, on the other hand, it has no power to regulate a subject, it cannot exercise its taxing power to regulate that subject, because that would be exercise of colorable legislation.
10

Tumati Rangayya v. state of A.P. AIR 1978 AP 106; T. Khande Rao v. state of karnataka, AIR 1979 Kant 71; Birajananda das v. Competent Authority, AIR 1986 Cal 8; R.M.D.C (Mysore) Private Ltd. v. state of Mysore, AIR 1962 SC 594. 11 Jagannath baksh Singh v. state of U.p., AIR 1962 SC 1563; AIR 1962 SC 594. 12 UOI v. Basavaiah, AIR 1972 SC 1415; R.M.D.C (Mysore) Private Ltd. v. state of Mysore, AIR 1962 SC 594. 13 R.M.D.C (Mysore) pvt. Ltd v. State of Mysore, AIR 1962 SC 594.

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Effect of Repugnancy
The Patna high court14 has interpreted the word void in the sense of inoperative. This interpretation rests on the view that Art. 254(1) does not take away the power of the state legislature to legislate with respect to a subject in the concurrent list, but simply invalidates the law insofar as it is repugnant to a Central law relating to the same subject. Hence, when the repugnancy arises, the state law remains in abeyance but if at any subsequent time, the repugnancy is removed for any reason, the state law is To the Extent of the revived. repugnancy-

when a state act is repugnant to central law within the meaning of this clause, what becomes void is not the entire act but only insofar as it is repugnant to the central act.15 Thus in case where they occupy the same field, the identity of the field may relate to the pith and substance of the subject-matter and also the period of its operation. When both coincide, the repugnancy is complete and the whole Act becomes void. 16 On the other hand, the operation of the Union law may be entirely prospective leaving the state law to be effective in regard to things already done. Any existing state law relating to the subject matter of the resolution becomes void to the extent of its repugnancy of the act of parliament made in pursuance of the resolution. But by passing such resolution a state legislature shall be deemed to surrender its legislative power only with respect to the particular matter which is the subject of the resolution. Thus, where the resolution enables parliament to make a law for the control and regulation of prize
14 15

Srikant Lal v. State Of Bihar, AIR 1958 SC 496. Deep Chand v. state of U.P., AIR 1959 SC 648 16 Infra

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competitions the power that is surrendered is one under Entry 34 of list II dealing with betting and gambling. It does not constitute a surrender of a separate power, viz., to impose a tax on betting and gambling which is included in a separate entry, i.e., Entry 62 of list II. Thus, in R.M.D.C(Mysore) Pvt. Ltd v. State of Mysore, the court held that the surrender by the state legislature of their power to legislate on betting and gambling does not involve a surrender of right to levy a tax in respect of it, since power to tax is a distinct and separate power.

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The Doctrine of Colorable Legislation:

The doctrine of colorable legislation has been applied under the Government of India Act, 1935,17 as well as under the Constitution.18 This doctrine means that though a legislature is not fettered in the exercise of its exclusive powers, by any consideration of the possible effects of the exercise of such powers upon the powers allotted to some other Legislature, it cannotUnder the guise, or the pretence; or in the form of an exercise of its own powers, carry out an object which is beyond its powers and a trespass on the exclusive powers of the other.19 The doctrine of colorable legislation is based on the principle the no legislation can violate constitutional prohibitions by employing an impermissible method. In other words, a constitutional power cannot be exercised to attain an unconstitutional goal. Legislation cannot be allowed to do which it cannot do directly.20

Application of The Doctrine Of Colorable Legislation To Taxation:

The doctrine is equally applicable to taxing legislation as in the case of other legislation. Thus, in Ralla Ram v. Prov. Of East Punjab,21our Federal Court observed-

17 18

Megh Raj v. Alla rakhia, (1942) 46 CWN (F.R) 61 (65). State of Bihar v. Kameshwar, AIR 1952 SC 252; Gajapati v. State of Gujarat, AIR 2002 SC 1130. 19 A.G.Alberta v. A.G. for Canada, AIR 1939 PC 53. 20 D.D. Basu, Commentary on the Constitution of India , vol 8,lexisnexis butterworths wadhwa nagpur, 2011, p. 8683. 21 (1948) FCR 207.

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it is true that we must look not to the mere form but to the substance of the levy, and the tax must be hold to be invalid, if in the guise of a property tax is really a tax on income.22 Similarly, though the validity of a taxing statute cannot be challenged merely on the ground that it imposes an unreasonable heavy burden,23 it can be challenged on the ground that it constitutes a colorable exercise of or a fraud upon, the legislative power, e.g., that it is a mere cloak to confiscate 24 the property of the citizen taxed,25 or to control and regulate and not to raise revenue.26 Hence, the Supreme Court held that the Mysore Legislature had the power of taxation, and it had not surrendered the same to the Parliament, and so it cannot be said that the imposition of the tax is a piece of colorable legislation and is on that ground unconstitutional.

22 23

Jagannath v. state of U.P., AIR 1962 SC 1563 D.D. Basu, Commentary on the Constitution of India, vol 8, LexisNexis butterworths wadhwa Nagpur, 2011, p. 8689. 24 Jagannath v. state of U.P., AIR 1962 SC 1563 25 Kunnathat v. state of Kerela, AIR 1961 SC 552.. 26 R.M.D.C (Mysore) pvt. Ltd v. State of Mysore, AIR 1962 SC 594.

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CONCLUSION

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A Comprehensive reading of the articles 252 & 254 clearly states that the languages of these two sections are of no two interpretations. When a state surrenders its powers in particular to a legislation to the parliament, it is only to be considered till the extent to where the resolution of such surrender was brought. The court in the present case held that the state legislature had the power to impose tax and it was not surrendered to the parliament. The extent of the new law made by the parliament was only to the extent of betting and gambling. The Supreme Courts findings can be summed up as follows: 1. By passing the resolutions as to control and regulation the power to tax had not been surrendered to parliament. 2. The amending Act was not a new method of controlling prize competitions nor was it a piece of colorable legislation. 3. There was no amending of an act which stood repealed nor was the retroactive operation of the Amending Act affected by article 254(1) of the Constitution. Thus, the Mysore legislature was fully competent to impose tax and it was not a piece of colorable legislation.

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