Constitution of India: Art.285(1) and (2) – Exemption of property of Union from State Taxation – The Government of Bombay acquired certain land for Government of India prior to the year 1964 – Upon completion of the acquisition proceedings, the lands vested in the Government of India and it constructed godowns and silos on the acquired land for storage of food grains and when the FCI came into being in 1965, these godowns alongwith other godowns of the Government were transferred to FCI for the purpose of undertaking the purchase, storage, movement, transport, distribution and sale of food grains and other food stuff – Demand by Municipal Corporation for property tax from FCI in respect of these godowns – FCI claimed exemption from payment of property tax as per Art.285, the property being owned by the Central Government – High Court in the impugned judgment primarily relied on s.146 of the Mumbai Municipal Corporation Act, 1888 in rejecting the claim of exemption u/Art.285 – Hence the instant appeal – Held: The law is clear that exemption from payment of taxes on the properties of Central Government as available under clause (1) of Art.285 can be denied only when the property in question was exigible to the Municipal Tax prior to the commencement of the Constitution or any Parliamentary law provides for properties to be exigible to pay tax to the Municipality – For the applicability of clause (2) of Art.285, the property on which tax is sought to be proposed ought to have been subject to property tax before the commencement of the Constitution – In the instant case, the constructions on which the property tax is sought to be imposed by Municipal Corporation came into existence only after 1964 and were not subject to property tax prior to the commencement of the Constitution, hence condition for applicability of Art.285(2) is not satisfied – Resultantly, the Municipal Corporation is not competent to impose property tax denying the exemption u/Art.285(1) of the Constitution – Plea of Municipal Corporation that appellant being occupier is liable to pay property tax in view of s.146 of the 1888 Act is not tenable – The heading of s.146 is “Primary responsibility for property taxes on whom to rest” – When there is a claim of exemption from payment of property tax with regard to property owned by the Government of India, the question of primary responsibility or secondary responsibility loses its importance – The statutory provision, may it be s.146 of 1888 Act, cannot be read in a manner so as to run contrary to a Constitutional provision – In the event the claim of Municipality/Corporation to levy property tax is not covered by sub-clause (2) of Art.285, it cannot be allowed to take recourse to any statutory provision or device to make exemption u/Art.285(1) nugatory – Both the premises and building therein were entitled for exemption from payment of property tax u/Art.285(1) – Mumbai Municipal Corporation Act, 1888 – s.146 – Government of India Act, 1935.
Constitution of India: Art.285(2) – Levy of tax on any property of Union – Object of Art.285(2) – Held: Object of Art.285(2) is to continue the levy of the such tax which local authority was enjoying prior to the commencement of the Constitution so as to maintain the status quo regarding the financial resources of Municipal Corporation to avoid the complete exemption from property of Central Government as provided under Art.285(1) – Tax/Taxation.
Allowing the appeals, the Court
HELD: 1. The Government of India Act, 1935 for the first time provided for exemption of certain public property from taxation. Section 154 of the Act, 1935 provided for exemption from all taxes imposed by, or by any authority within, a Province or Federated State all the properties vested in His Majesty whereas Section 155 contained exemption of Provincial Governments and Rulers of Federated States in respect of Federal taxation. The main provision of Section 154 although exempted properties vested in His Majesty from all taxes imposed by a Province or Federated State or any authority within but proviso contains an exception to the main provision, which provided that any property so vested which was immediately before the commencement of Part III of the Government of India Act, 1935 was liable, or treated as liable, to any such tax, shall continue to be liable, or to be treated as liable, thereto so long as that tax continues. The commencement of the Part III of the Government of India Act, 1935 was w.e.f. 01.04.1937. The Constitution of India continued the exemption of taxation of the properties of Central Government from the taxation by State or any authority as well as the State property from Central taxation under Article 285 and Article 289. The proviso to Section 154 was retained as sub-article (2) of Article 285. [Paras 10, 11] [1088-F-G; 1089-G-H; 1090-A-B]
2. The law is clear that exemption from payment of taxes on the properties of Central Government as available under clause (1) of Article 285 can be denied only when the property in question was exigible to the Municipal Tax prior to the commencement of the Constitution or any Parliamentary law provides for properties to be exigible to pay tax to the Municipality. For the applicability of clause (2) of Article 285, the property on which tax is sought to be proposed ought to have been subject to property tax before the commencement of the Constitution. In the present case the constructions on which the property tax is sought to be imposed by Municipal Corporation came into existence only after 1964 and were not subject to property tax prior to the commencement of the Constitution, hence condition for applicability of Article 285(2) is not satisfied. Resultantly the Municipal Corporation is not competent to impose property tax denying the exemption under Article 285(1) of the Constitution. [Paras 27, 31] [1100-G-H; 1103-C-E]
3. Article 285 does not apply when the property that is to be taxed is not of the Union of India but a distinct and separate legal entity. The heading of Section 146 is “Primary responsibility for property taxes from whom to rest”. When there is a claim of exemption from payment of property tax with regard to property owned by the Government of India, the question of primary responsibility or secondary responsibility loses its importance. When payment of property tax is exempt under Article 285(1) to tax the occupier runs counter to the very claim of exemption as delineated by Article 285. Section 146 of 1888 Act as it exists now has to be construed in a manner so as to give effect to the meaning and purpose of Constitutional protection granted under Article 285. The statutory provision, may it be Section 146 of 1888 Act, cannot be read in a manner so as to run contrary to a Constitutional provision. [Paras 34, 36] [1104-F; 1105-C-E]
4. In the event the claim of Municipality/Corporation to levy property tax is not covered by sub-clause (2) of Article 285, it cannot be allowed to take recourse to any statutory provision or device to make exemption under Article 285(1) nugatory. Thus, submission that since the appellant is occupier of premises owned by Union of India, is liable to pay property tax under Section 146(1) of 1888 Act, in not tenable. Both the premises and building therein are entitled for exemption from payment of property tax under Article 285(1). At this stage, it is required to be noted that the FCI is not in occupation of the godowns owned by the Government of India as a lessee. Nothing is on record and it is also not the case on behalf of the Corporation that any rent/lease amount is being recovered from the FCI. [Para 37] [1105-F-G]
5. The appellant has not denied its liability to pay services charges and direction was sought to respondents to conduct an enquiry in accordance with the provisions of the Mumbai Municipal Corporation Act, 1888 and decide the ratable value of the properties on which taxes were to be paid. Even though appellant is exempted from payment of property tax by virtue of Article 285 of the Constitution then liability to pay services charges for services rendered by the Corporation cannot be denied. [Paras 45, 47] [1110-C; 111-E-F]
Food Corporation of India v. Municipal Committee, Jalalabad and Another (1999) 6 SCC 74 ; Electronics Corporation of India Ltd. and Others v. Secretary Revenue Department, Govt. of Andhra Pradesh and Others (1999) 4 SCC 458 : [1999] 2 SCR 1078 ; F.C.I. v. Gandhidham Municipality (2002) 43(2) GLR 1845 – held inapplicable.
Governor-General of India in Council v. Corporation of Calcutta AIR (1948) Cal. 117 ; The Corporation of Calcutta v. The Governors of St. Thomas School, Calcutta AIR 1949 F.C. 121 ; The Corporation of Calcutta v. Union of India AIR 1957 Calcutta 548 ; Union of India owner of the Eastern Railway v. The Commissioner of Sahibganj Municipality (1973) 1 SCC
676 ; Union of India v. City Municipal Council, Bellary (1979) 2 SCC 1 : [1979] 1 SCR 573 ; GovernorGeneral of India in Council v. Corporation of Calcutta AIR (1948) Cal 116(2) ; Ahmedabad Aviation & Aeronautics Limited v. Govt. of Gujarat 2014 SCC online Guj 15505 ; Union of India and Others v. State of Uttar Pradesh and Others (2007) 11 SCC 324 : [2007] 11 SCR 792 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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