FOOD CORPORATION OF INDIA versus BRIHANMUMBAI MAHANAGAR PALIKA & ORS.
[2020] 4 S.C.R. 1075, Supreme Court of India, 2020
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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FOOD CORPORATION OF INDIA
v.
BRIHANMUMBAI MAHANAGAR PALIKA & ORS.
(Civil Appeal Nos. 9350-9351 of 2019)
MARCH 19, 2020
[ASHOK BHUSHAN AND M. R. SHAH, JJ.]
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
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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
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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
FOOD CORPORATION OF INDIA v.
BRIHANMUMBAI MAHANAGAR PALIKA
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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
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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 ; Governor-
General 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.
Case Law Reference
(1999) 6 SCC 74
held inapplicable
Para 2.6
(1973) 1 SCC 676
referred to
Para 24
[1979] 1 SCR 573
referred to
Para 28
(1999) 6 SCC 74
referred to
Para 32
[1999] 2 SCR 1078
held inapplicable
Para 33
[2007] 11 SCR 792
referred to
Para 46
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.  9350-
9351 of 2019.
From the Judgment and Order dated 05.05.2016 and 11.09.2018
of the High Court of Judicature at Bombay in Writ Petition No. 2672
of 2002 and in Review Petition No. 37 of 2016 respectively.
Neeraj Kishan Kaul, Sr. Adv., Ajit Pudussery, Vijayan K., Ajeet
Singh Verma, Ramchandra Madan and Divyanshu Srivastava, Advs.
for the Appellant.
Pallav Shishodia, Sr. Adv., Ms. Asha Gopalan Nair, Ms. Aruna
S., Ms. Priti Purandare and Ms. Nivedita Nair, Advs. for the
Respondents.
The Judgment of the Court was delivered by
ASHOK BHUSHAN, J.
1. This appeal has been filed by the Food Corporation of India
challenging the
judgment dated 05.05.2016 of Division Bench of Bombay
High Court in Writ Petition No. 2672 of 2001 by which judgment the
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA
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writ petition filed by the Food Corporation of India (hereinafter referred
to as “FCI”) challenging the demand made by Municipal Corporation
of Greater Mumbai of property tax has been dismissed.
2. The brief facts necessary to be noted for deciding this appeal
are: -
2.1 The Government of Bombay acquired land at Village Poisar
and at Village Magathane, Borivali for Government of India prior to
the year 1964.  Upon completion of the acquisition proceedings, the
lands vested in the Government of India and the Government of India
constructed the godowns and silos on the acquired land for storage of
food grains.
2.2 FCI was set up under the Food Corporations Act, 1964 with
the purpose of undertaking the purchase, storage, movement, transport,
distribution and sale of food grains and other food stuff.
2.3 On 28.10.1988, a notice demanding non-agricultural tax was
issued to the FCI and the FCI protested against the levy of non-
agricultural tax and filed a writ petition, which was dismissed by learned
Single Judge on 10.11.1988. A Letter Patent Appeal No.259 of 1989
was filed by the FCI, which was allowed by the Division Bench vide
its judgment dated 03.12.1992 holding that land vested in Central
Government on which godowns were constructed, hence, Central
Government was not liable to pay taxes for non-agricultural use of land
as per Article 285 of the Constitution of India.
2.4 The Government of India wrote a letter dated
17.02.1992 to
FCI, New Delhi stating that the land for godowns was acquired by the
erstwhile Government of Bombay for Government of India on which
godowns were constructed by the Government of India and when the
FCI came into being in 1965, these godowns alongwith other godowns
of the Government were transferred to FCI during the period from 1966
to 1969. The Government of India, however, has not executed any
conveyance deeds for these godowns with the FCI and legal ownership
of these godowns still vests in the Government, the Status of FCI,
therefore, is that of an occupier.
2.5 Letters and demands were issued by Municipal Corporation
of Greater Bombay (hereinafter referred to as “Corporation”)
demanding property tax in respect of property situate in Dattapada Road,
Borivali owned by FCI. A demand notice dated 04.09.2001 was issued
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by the Corporation asking to make payment for the period from
01.03.1969 to 31.03.1997 and taxes from 01.04.1997 onwards.  The
FCI protested the demand claiming exemption from payment of property
tax as per Article 285 of the Constitution of India, the property being
owned by the Central Government.  The plea of the appellant was not
accepted and a further notice dated 24.09.2001 was issued asking for
payment of property tax. The properties were also attached.
2.6 A Writ Petition No. 2672 of 2001 was filed by the FCI, in
which FCI has prayed to declare the demand for payment of property
tax as illegal. Prayer was also made to issue a writ of prohibition
prohibiting the respondents, their servants and agents in pursuance of
letter dated 04.09.2001 and 24.09.2001. The Corporation decided the
claim of the FCI. A Division Bench of the Bombay High Court relying
on the judgment of this Court in Food Corporation of India Vs.
Municipal Committee, Jalalabad and Another, (1999) 6 SCC 74
dismissed the writ petition vide judgment dated 02.02.2002.  A review
petition was filed by FCI to review the judgment, which too was
dismissed on 04.10.2002.  The FCI filed a special leave petition against
the judgment dated 02.02.2002 as well as against the order dated
04.10.2002 in review petition.  It was contended before this Court that
High Court erred in relying on the judgment of the Court in Food
Corporation of India Vs. Municipal Committee, Jalalabad (supra)
without
referring to the earlier Division Bench judgment of Bombay
High Court in Civil Appeal No. 259 of 1999 dated 03.10.1992 wherein
the Division Bench had held that properties in dispute in the present
case is owned by the Central Government and not by FCI. This Court
after noticing the submissions of both the parties allowed the appeals,
set aside the impugned judgment of the High Court observing that since
the High Court has not gone into these questions, the matter is remitted
back to the High Court for fresh decision in accordance with law.  All
the contentions were left open.
2.7 After the above judgment of this Court dated 26.07.2006, the
Division Bench of the Bombay High Court by judgment dated
05.05.2016 again dismissed the Writ Petition No.2672 of 2001.  Special
Leave Petition No. 24251 of 2016 was filed questioning the judgment
dated 05.05.2016.  This Court noticed the submissions made by FCI
and by order dated 26.08.2016 observed that it would be more
appropriate for the petitioner (FCI) to approach the High Court by filing
a review petition. After the judgment of this Court dated 26.08.2016,
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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review petition was filed, which too was dismissed by non-speaking
order dated 11.09.2018 by the Division Bench of the Bombay High
Court.
2.8 These appeals have been filed against the Division Bench
judgment dated 05.05.2016 dismissing the writ petition and order dated
11.09.2018 dismissing the review petition.
3. We have heard Shri Neeraj Kishan Kaul, learned senior
counsel appearing for the appellant and Shri Pallav Shishodia, learned
senior counsel appearing for the Corporation.
4. Shri Neeraj Kishan Kaul, learned senior counsel submits that
demand of property tax is exempted by virtue of Article 285 of the
Constitution of India.  It is submitted that the property (godowns) with
regard to which property tax has been demanded is owned by Central
Government, hence, the payment of tax is exempted.  It is submitted
that a Division Bench of the Bombay High Court in its judgment dated
03.12.1992 by quashing the demand of non-agricultural assessment tax
by the State Government has categorically held that the property is
owned by the Central Government.  The Division Bench in the
impugned judgment has not considered the effect of the Division Bench
judgment dated 03.12.1992.  It is further submitted that even when this
Court granted liberty to the appellant to file a review petition against
the judgment dated 05.05.2016, after noticing the submissions of the
appellant, the review petition too was dismissed by non-speaking
order
without considering any of the submissions of the appellant.  It is
submitted that to be entitled to levy tax under Article 285(2), the
Corporation must establish three things, firstly that the property in
question is liable to tax prior to commencement of the constitution;
secondly, that the tax has been continuously collected by the State on
that property; and thirdly that the State in which the authority collected
the tax was collecting the same pre and post Constitution.  It is
submitted that property tax was never levied by the Corporation prior
to the commencement of the Constitution of India and it was only after
decision dated 17.01.1997 of the arbitrator appointed under Section
144(2) of Mumbai Municipal Corporation Act, 1888 that the properties
belong to the FCI, the Corporation started demanding property tax from
the appellant.  It is submitted that jurisdiction of the arbitrator appointed
under Section 144(2) is limited to fixing the rateable value of Government
owned properties and he had no jurisdiction to decide the question
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whether the properties were to be excluded from the Government list.
Learned senior counsel further submits that Corporation has erroneously
relied on judgment of this Court in the case of Food Corporation of
India Vs. Municipal Committee, Jalalabad (supra), which was a
case dealing with the properties owned by the FCI and has no
application in the facts of the present case.  It is submitted that property
being property of Central Government was clearly exempted from
payment of property tax.
5. Shri PallavShishodia, learned senior counsel appearing for the
respondents refuting the submissions of the learned senior counsel for
the appellant contends that the appellant is liable to pay property tax.
He submits that as per Section 146 of the Mumbai Municipal
Corporation Act [Bom. III of 1888], the levy is on actual occupier and
the appellant being actual occupier of the premises is, thus, clearly liable
to pay the property tax.  For the purpose of liability to pay the property
taxes what is required is that the concerned person who holds the
property immediately from the Government is in occupation and use of
the property in question.  It is immaterial in what capacity such person
is in occupation of the property exigible to taxes.  It is submitted that
the appellant cannot claim exemption from taxes under Article 285 as
the FCI is distinct entity from Central Government and the so-called
ownership of Central Government with respect to the property in
question occupied by FCI is of no consequence as far as the tax liability
is concerned.  Section 143(1)(b) of the Act, 1888 is not attracted.  The
levy under Act, 1888 is a pre-Constitution levy and, therefore, Article
285(2) of the Constitution of India applies.  Article 285(2) carves out
an exception to clause (1) and saves the levy which any authority within
the State was levying on the property of the Union to which such
property immediately before the commencement of the Constitution was
liable.  Under the Act, 1888, the premises vesting in the Central
Government were liable for property tax on the date of commencement
of the Constitution.  There is no law enacted by the Parliament after
coming into force of the Constitution, which prevent the respondent –
Municipal Corporation from levying the tax on the premises vesting in
the Government.
6. Shri Kaul in rejoinder submits that ownership still vests in the
Central Government when the owner is not liable, occupier cannot be
held to be liable to pay property taxes.  The judgment of this Court in
Food Corporation of India Vs. Municipal Committee, Jalalabad
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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(supra) was a case where FCI was the owner of the property, hence
the said case has no applicability in the facts of the present case.  The
arbitrator appointed under Section 144(2) went wrong in holding that
FCI owns the property.  His jurisdiction was only to determine the
rateable value insofar as services rendered by the Corporation namely
water charges etc., which the appellant is willing to pay.  He further
submits that the appellant is also willing to pay the amount in lieu of
general tax to be determined in accordance with Section 144 of Act,
1888.
7. We have considered the submissions of the learned counsel
for the parties and have perused the records.
8. The main question to be determined in this appeal is as to
whether the property in question is exempted from payment of property
tax by virtue of Article 285 of the Constitution of India.  The High Court
in the impugned judgment has primarily relied on Section 146 of the
Act, 1888 in rejecting the claim of exemption under Article 285 of the
Constitution of India.  According to the High Court, the appellant being
occupier of the godowns will be primarily liable to pay the property taxes.
The main reasons of the High Court in rejecting the claim of the
appellant are contained in paragraphs 12 and 15, which are as follows:-
“12. The contention of the petitioner is that in view of clause 1
of Article 285, since the lands and godowns in respect of which
property
taxes are levied are the properties of the Government
of India, the same are exempted from taxes imposed by a State
or any other Authority within the State. Clause 2 of Article 285
carves out an exception to clause 1. If any Authority within the
State was levying any taxes on the property of the Union of India
to which such property was immediately before the
commencement of the Constitution of India liable or treated as
liable, the taxes can continue to be levied till the Parliament by a
law otherwise provides. Under the said Act of 1888, the premises
vesting in the Government of India were liable for property taxes
on the date of commencement of the Constitution of India. The
words “Government” appearing in sub-section 1 of section 146
was substituted for the words “the Crown” by the Adaptation
of Indian Laws Order in Council. Thus, as per the provisions of
the said Act of 1888, the property of the Union of India within
the jurisdiction of the said Corporation was liable for levy of
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property taxes immediately before the commencement of the
Constitution of India. There is no law enacted by the Parliament
after coming into force the Constitution of India which prevents
the said Municipal Corporation from levying the taxes on the
premises vesting in the Government. Therefore, Article 285 is
of no help to the petitioner in view of applicability of clause 2 of
Article 285 of the Constitution of India.
15. In view of the provisions of the said Act of 1888, the petitioner
will not be entitled to the benefit of clause 1 of Article 285 and
in view of sub-section (1) of section 146 of the said Act of 1888,
the petitioner being the occupier of the godowns will be primarily
liable to pay property taxes.”
9. For considering the respective submissions of counsel for the
parties, we first need to look into the statutory provisions pertaining to
the assessment of property tax as well as the provisions of exemption
from payment of tax on the property belonging to Central Government.
Chapter VIII of the Act, 1888 deals with “Municipal Taxation”.  Section
139 provides that “for the purposes of this Act, taxations to be imposed
shall consist property taxes and other taxes.  Sections 143, 144 and
146, which are relevant for the present case are as follows:-
“143.  General tax on what premises to be levied.
(1) The general tax shall be levied in respect of all buildings and
lands in Brihan Mumbai except—
(a) buildings and lands or portions thereof
exclusively
occupied for public worship or for charitable purposes;
(b) buildings and lands vesting in Brihan Mumbai used solely
for public purposes and not used or intended to be used
for purposes of profit or in the Corporation, in respect
of which the said tax, if levied, would under the
provisions hereinafter contained be primarily leviable
from the Government or, the corporation respectively;
(c) such buildings and lands vesting in, or in the occupation
of, any consul de carriers, whether called as a consul
general, consul, vice-consul, consular agent, pro-consul
or by any other name of a foreign State recognised as
such by the Government of India, or of any members
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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(not being citizens of India) of staff of such officials,
and such buildings and lands or parts thereof which are
used or intended to be used for any purpose other than
for the purpose of profit.
(2) The following buildings and lands or portions thereof shall not
be deemed to be exclusively occupied for public worship or for
charitable purposes within the meaning of clause (a), namely: —
(c) those in which any trade or business is carried on; and
(d) those in respect of which rent is derived whether such
rent is or is not applied exclusively to religious or
charitable purposes.
(3) Where any portion of any building or land is exempt from
the general tax by reason of its being exclusively occupied for
public worship or for charitable purpose, such portion shall be
deemed to be a separate property for the purpose of municipal
taxation.
144. Payment to be made to the Corporation in lieu of the
general tax by the Central Government or the State
Government as the case may be.
(1) The Central Government or the State Government, as
the case may be, shall pay to the corporation annually,
in lieu of the general tax from which buildings and lands
vesting in Government are exempted by clause (b) of
section 143, a sum ascertained in the manner provided
in sub-sections (2) and (3).
(2) The rateable value of the buildings and lands in Brihan
Mumbai vesting in Government and beneficially
occupied, in respect of which but for the
said exemption,
general tax would be leviable from the Central
Government or the State Government, as the case may
be, shall be fixed by a person from time to time appointed
in this behalf by the State Government with the
concurrence of the corporation. The said value shall be
fixed by the said person, with ageneral regard to the
provisions hereinafter contained concerning the
valuation of property assessable to property-taxes, at
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such amount as he shall deem to be fair reasonable. The
decision of the person so appointed shall hold good for
a term of five years, subject only to proportionate
variation, if in the meantime the number or extent of the
building and lands vesting in Government in Brihan
Mumbai materially increases or decreases.
(2A) Where the Corporation has adopted the levy of property
tax on capital value of buildings and lands, the capital value of
buildings and lands in Brihan Mumbai vesting in Government and
beneficially occupied, in respect of which but for the said
exemption, general tax would be leviable from the Central
Government or the State Government, as the case may be, shall
be the book value of such buildings or lands in Government
records and such capital value shall hold good for a term of five
years, subject only to proportionate variation, if in the meantime
the number or extent of the buildings and lands vesting in
Government in Brihan Mumbai materially increases or decreases.
(3) The sum to be paid annually to the corporation by the Central
Government or the State Government, as the case may be, shall
be eight-tenth of the amount which would be payable by an
ordinary owner or buildings or lands in Brihan Mumbai, on
account of the general tax, on a rateable value or on capital
value, as the case may be, of the same amount as that fixed under
sub-section (2), or sub-section (2A), as the case may be.
146.  Primary responsibility for property taxes on
whom
to rest.
(1) Property-taxes shall be leviable primarily from the actual
occupier of the premises upon which the said taxes are assessed,
if such occupier holds the said premises immediately from the
Government or from the corporation or from a fazendar.
Provided that the property-taxes due in respect of any premises
owned by or vested in the Government and occupied by a
Government servant or any other person on behalf of the
Government for residential purposes shall be leviable primarily
from the Government and not the occupier thereof.
(2) Otherwise the said taxes shall be primarily leviable as follows,
namely:—
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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(a) if the premises are let, from the lessor;
(b) if the premises are sub-let, from the superior lessor;
(c) if the premises are unlet, from the person in whom the
right to let the same vests;
(d) if the premises are held or occupied by a person who is
not the owner and the whereabouts of the owner of the
premises cannot be ascertained, from the holder or
occupier; and
(e) if the premises are held or developed by a developer or
an attorney or any person in whatever capacity, such
person may be holding the premises and in each of whom
the right to sell the same exists or is acquired, from such
holder, developer, attorney or person, as the case may
be:
Provided that, such holder, developer, attorney or person shall be
liable until actual sale is effected.
(3) But if any land has been let for any term exceeding one year
to a tenant, and such tenant or any person deriving title
howsoever from such tenant has built upon the land, the property
taxes assessed upon the said land and upon the building erected
thereon shall be leviable primarily from the said tenant or such
person, whether or not the premises be in the occupation of the
said tenant or such person.”
10. In British India, prior to the passing of the Government of
India Act, 1935, the question of exemption of Crown property from
taxation was not definitely settled.  Different High Courts have
expressed divergent views.  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.  Sections 154 and 155 are as
follows:-
“154.Exemption of certain public property from taxation.-
Property vested in His Majesty for purposes of the government
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of the Federation shall, save in so far as any Federal law may
otherwise provide, be exempt from all taxes imposed by, or by
any authority within, a Province or Federated State:
Provided that, until any Federal law otherwise provides, any
property so vested which was immediately before the
commencement of Part III of this Act liable, or treated as liable,
to any such tax, shall, so long as that tax continues, continue to
be liable, or to be treated as liable, thereto.
155. Exemption of Provincial Governments and Rulers of
Federated States in respect of Federal taxation-(1) Subject
as hereinafter provided, the Government of a Province and the
Ruler of a Federated State shall not be liable to Federal taxation
in respect of lands or buildings situate in British India or income
accruing, arising or received in British India;
Provided that-
(a) where a trade or business of any kind is carried on by
or on behalf of the Government of a Province in any
part of British India outside that Province or by a Ruler
in any part of British India, nothing in this subsection
shall exempt that Government or Ruler from any
Federal taxation in respect of that trade or business, or
any operations connected therewith, or any income
arising in connection therewith, or any property occupied
for the purposes thereof;
(b) nothing in this subsection shall exempt a Ruler from any
Federal taxation in respect of any lands, buildings or
income being his personal property or personal
income.
(2) Nothing in this Act affects any exemption from taxation
enjoyed as of right at the passing of this Act by the Ruler of an
Indian State in respect of any Indian Government securities issued
before that date.”
11. 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
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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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.  Article 285 and Article 289 of the
Constitution are as follows:-
“285.  Exemption of property of the Union from State
taxation.— (1) The property of the Union shall, save in so far
as Parliament may by law otherwise provide, be exempt from
all taxes imposed by a State or by any authority within a State.
(2) Nothing in clause (1) shall, until Parliament by law otherwise
provides, prevent any authority within a State from levying any
tax on any property of the Union to which such property was
immediately before the commencement of this Constitution liable
or treated as liable, so long as that tax continues to be levied in
that State.
289.Exemption of property and income of a State from
Union taxation.—(1) The property and income of a State shall
be exempt from Union taxation.
(2) Nothing in clause (1) shall prevent the Union from
imposing, or
authorising the imposition of, any tax to such
extent, if any, as Parliament may by law provide in
respect of a trade or business of any kind carried on
by, or on behalf of, the Government of a State, or any
operations connected therewith, or any property used
or occupied for the purposes of such trade or business,
or any income accruing or arising in connection
therewith.
(3) Nothing in clause (2) shall apply to any trade or
business, or to any class of trade or business, which
Parliament may by law declare to be incidental to the
ordinary functions of Government.”
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12. The provisions of Articles 285 and 289 are complimentary
to each other.  Section 154 of Government of India Act, 1935 came
for consideration before Calcutta High Court in Governor-General
of India in Council Vs. Corporation of Calcutta, AIR (1948) Cal.
117.  Justice B.K. Mukherjea (as he then was) allowed the appeal of
Governor-General in Council holding that the property in question was
exempted from municipal taxes, with which opinion, Ormond, J. while
writing a separate opinion agreed.  In the above case, the Calcutta
Corporation assessed the premises in the year 1937 on account of
substantial additions to and alteration of the premises in the year 1941
and 1942.  Objection was taken to the valuation by the Governor General
of India in Council on the ground that under Section 154 of Government
of India Act, all buildings which were not in existence prior to 01.04.1937
when Part III of Government of India Act, 1935 came into operation,
and which were consequently not subjected to any assessment before
April, 1937 were exempted from all taxes, and could not be assessed
to municipal rates. The contention was not accepted by the Executive
Officer of the Calcutta Corporation and an appeal was filed by the
appellant to the Small Cause Court Judge, which was also dismissed.
An appeal was filed in the High Court against the above judgment.
Justice B.K. Mukherjea while interpreting Section 154 laid down
following in paragraphs 10 and 13:-
“10.
……………Whatever is property for purposes of taxation
under a particular statute and is vested in His Majesty for
purposes of Federation would be exempted from taxation under
Section 154, Government of India Act, unless it was liable to tax
on 31-3-1937, and ex hypothesi, a property which was not in
existence on 31-3-1937, cannot be said to be liable to tax on that
date……………………”
13. Our conclusion therefore is that the additional buildings raised
on premises No. 7, Gun Foundry Road after 31-3-1937 are
exempted from payment of consolidated rates under the Calcutta
Municipal Act and the present assessment is to be made on the
basis of the land and buildings as they existed on 31-3-1937,
excluding all additions made subsequent to that date.”
13. Ormand, J. in paragraphs 28 and 29 laid down following:-
“28. The sole question in this appeal is the narrow one whether,
firstly, new buildings on the same land and secondly, alterations,
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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additions and improvements made in a building which existed
before 1-4-1937, are properties which were “immediately before
1-4-1937 liable or treated as liable to the tax.” Now for property
to have been liable to the tax before 1-4-1937, it is self-evident
that that property must have been in existence before 1-4-1937.
Equally, I think, this must be so for property “treated as liable”
to the tax. There could have been no liability attached to a non-
existent thing; nor could there have been any treatment of a non-
existent thing. It is outside the power of comprehension to
conceive of any property which could have been “treated as liable
to tax” if that property was not in a state of physical existence
at the time.
29. This being so, it follows that the only taxable property brought
within the exception contained in the proviso is property which
was in physical existence before 1-4-1937. The four conditions
which it would be necessary for the Corporation to establish to
bring the property within the proviso would be : (1) Physical
existence of the property before 1-4-1937, (2) Liability of that
property to the tax then, (3) Physical existence of the same
property now, that is to say, for the current period for which tax
is sought to be levied and (4) Liability of the property (if it were
not Crown property) to the tax now. The contention relied upon
on behalf of the Corporation, if analysed must come to this, that
though a thing in itself was not in existence before 1-4-1937, yet
if it is now in existence in a situation resting on, or attached to,
or forming part of, some particular area of land or building, which
formed the taxable unit before 1-4-1937, then that thing is itself
taxable. It is said that what is being taxed is the unit of property
and that that unit of property can now be taxed in its new form;
that is to say, inclusive of the new thing on it, which did not
previously exist: for the reason that the same unit of property
had existed before 1-4-1937 in an old form without that new
thing.”
14. The Calcutta High Court in the above judgment while
interpreting Section 154 has held that proviso to Section 154 shall be
applicable for taxing property owned by His Majesty only when such
property was subject to tax on 31.03.1937 or earlier.  The property which
came into existence subsequent to 01.04.1937 is not to be covered by
proviso and held covered by the main provision of Section 154 and not
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exigible to property tax.  The above judgment of the Calcutta High Court
was noticed with approval by Federal Court in The Corporation of
Calcutta Vs. The Governors of St. Thomas School, Calcutta, AIR
1949 F.C. 121.  In the case before Federal Court, the premises
containing land and building were owned by St. Thomas School, which
buildings were constructed before April, 1942.  In April, 1942, the
premises were requisitioned under the Defence of India Act for the
purposes of the Government of the Federation.  Several buildings were
constructed by the Central Government.  In the assessment made in
the last quarter of 1944-45, the cost of all the additional structures
erected by the Central Government were taken into account while fixing
the annual value. The respondents objected to the assessment andthe
contention that the value of the buildings put up by the Central
Government should be excluded in the revaluation was rejected by
Deputy Executive Officer, against whose decision an appeal was filed
in the Court of Small Causes.  The Court of Small Causes accepted
the contention of the respondent and held that the structures put up by
the Central Government were exempt from municipal taxes and
therefore should not be included in the valuation. The Judge, Small
Causes Court relied on judgment of the Calcutta High Court in
Governor-General of India in Council Vs. Corporation of Calcutta
(supra) and dismissed the appeal of the Corporation.  The Corporation
filed the appeal before the High Court.  While dismissing, Federal Court
laid down following in paragraph 12:-
“12. This reasoning also leads to the rejection of the second
contention of the appellants. The contention is that as the unit of
taxation is the area mentioned in the schedule to the agreement
and as that unit was subject to taxation before April 1937, the
exemption in favour of the Crown given in Section 154 could not
be availed of. Whether any particular property falls within the
exemption provided in Section 154, Government of India Act, must
depend on what is “property” within the meaning of that section
and not on what is regarded as a unit for purposes of assessment
under a local Municipal Act. The question in whether what is
sought to be taxed is property and, if so, whether the same is
vested in the Government. If the answer to both these is in the
affirmative, the question is whether that property was liable to
tax before April 1937. In the present case the answer is clearly
in the negative because the additional structures were all put up
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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after 1942 and therefore were not subject to the municipal tax
before April 1937. The result is that all the contentions’ of the
appellants urged before us are rejected. The appeal, therefore,
fails and is dismissed with costs.”
15. The Division Bench of the Calcutta High Court in The
Corporation of Calcutta Vs. Union of India, AIR 1957 Calcutta
548 had occasion to consider Article 285(2) of the Constitution.  The
Division Bench referred to and relied on the earlier judgment of Calcutta
High Court in Governor-General of India in Council Vs.
Corporation of Calcutta (supra).  The Division Bench noticed the
Scheme of exemption as contained in the Section 154 of the
Government of India Act, 1935 and has extensively referred to Division
Bench judgment in Governor-General of India in Council Vs.
Corporation of Calcutta (supra) and laid down following in paragraph
11:-
“11. The Constitution retained and re-employed the same phrase
which, as the above observations show, had already been
judicially interpreted in the same manner as we have done on
the present occasion. That is a strong pointer to the legislative
intent and amply supports our construction of the words ‘treated
as liable’ as used in Article 285(2) of the Constitution and, if that
construction is correct, there can possibly be no doubt, in the facts
of the two instant cases, that the present disputed assessments
are valid. The safeguard, so far as Union
properties are
concerned, is contained in the reservation in the very clause in
question, reserving power to the Parliament to provide otherwise.
Until, however, Parliament does so provide, Union properties
which were treated as liable to a particular local tax immediately
before the coming into force of the Constitution would remain
liable for the same. Admittedly the disputed premises (as
belonging to the Central Government and owned by it) were
actually assessed to Municipal tax, and such tax was being paid
and realised also, immediately before the, commencement of the
Constitution. The premises, therefore, on the above construction
of the Article, were ‘treated as liable’ to such tax on that date.
Admittedly also. Parliament has not, so far, by law, otherwise
provided, as it has undoubtedly the power to do under Article
285(2) of the Constitution.”
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16. We had noticed above the fact that godowns in questions
were constructed by the Central Government after completion of the
acquisition in the year 1964.  The submission which has been pressed
by Shri Kaul is that the buildings in question being not liable or treated
to be liable for property tax immediately before the commencement of
the Constitution, the respondents cannot claim the benefit of Article
285(2).  Although, it is not disputed by the respondents that the godowns
in question were not subject to property tax immediately before the
commencement of the Constitution but submission, which has been
pressed by Shri Shishodia is that under Act, 1888, the property of Central
Government was exigible to tax immediately before commencement of
the Constitution, hence, the conditions of Article 285(2) are fulfilled and
Corporation is fully entitled to levy property tax on the appellant.
17. Before proceeding further, we may notice the factum of
ownership of the property including the godowns thereon.  As noticed
above, the land was acquired by the State of Bombay for the Central
Government and it was the Central Government, which constructed the
godowns thereon.  The earlier Division Bench judgment of Bombay
High Court dated 03.12.1992 in Civil Appeal No. 259 of 1989 has been
referred to and relied by the appellant, by which judgment, the Division
Bench has set aside the levy of non-agricultural assessments as imposed
on the appellant.  The Division
Bench in the above judgment has also
accepted the case of the appellant that legal ownership of the land and
the structures vests with the Government.  In paragraph 33 of the
judgment, following was laid down:-
“(3).  Shri Saraf, learned counsel appearing on behalf of the
Government of Maharashtra, submitted that the Corporation is
occupier of the lands and as occupant is liable to pay non-
agricultural assessment.  The submission overlooks that the right
to recover assessment from the occupier is an enabling provision
but cannot be imported when the original owner is not liable to
pay taxes.  The power to recover assessment from the occupier
is available provided the original owner is not available but is
liable to pay the taxes.  In view of the return filed on behalf of
Government of India, it is clear that the land still vests in
Government of India and consequently, the owner is not liable
to pay any assessment.  As the Central Government is not liable
to pay assessment, it is not open for the State Government to
recover the same from the Food Corporation of India who is
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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merely occupier of the lands and holder of the godowns on behalf
of the Government of India.  In our judgment, the claim of the
State Government for recovery of NA assessment and service
of notices cannot be sustained.”
18. The above status of the ownership of the property as noticed
by the Division Bench in its judgment dated 03.12.1992 has not been
questioned before us.  We, thus, proceed to consider the submissions
of the parties accepting the property including the construction thereon
to be owned by the Government of India.
19. What is the content and meaning of the expression as
occurring in sub-article (2) of Article 285,”prevent any authority within
a State from levying any tax on any property of the Union to which
such property was immediately before the commencement of this
Constitution liable or treated as liable so long as that tax continue to be
levelled in that tax.”  Whether Constitution framers intended to clothe
any authority within the State from levying any tax on any property,
which property was liable or treated to be liable to tax or whether mere
power to tax the property of Union prior to the commencement of the
Constitution is sufficient to continue such power after the enforcement
of the Constitution irrespective of as to whether a property was subject
to tax in the State or not.  The Constituent Assembly Debate in the
above context throws a considerable light on the intention of the
Constitution framers on the content and meaning of Article 285 as now
contained in the Constitution of India.
20. Draft Article 264 which came for consideration before the
Constituent Assembly on 9th September, 1949 was to the following
effect:
“Article 264
The Honourable Dr. B.R. Ambedkar
(Bombay: General): Sir, I move:
“That for article 264, the following article be substituted :-
Exemption of property of the 
Union from State Taxation. 
“264.(1) The   property ofthe Union shall be 
exempt  from  all  taxes  imposedby  a   State  
or by anyauthority within a State
(2) Nothing in clause (1) of this article shall, until Parliament by
law otherwise provides, prevent any local authority within a State
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from imposing any tax on any property of the Union to which
such property was immediately before the commencement of this
Constitution liable or treated as liable so long as that tax continues
to be levied in that State.”
I will speak after the amendments have been moved, if there is
any debate.”
21. Amendments were moved to the Draft Article. Several
members in the Constituent Assembly spoke in favour of making the
property of the Union subject to all taxes imposed by a local authority
within the State, save insofar as the Parliament may by law otherwise
provide. Shri R.K. Sidhwa in his speech stated that in the event Article
264 as proposed is passed the local authorities shall lose substantial
amount of Revenue which they are getting from taxes realise from
properties of the Central Government.
22. Dr. B.R. Ambedkar replying the debate has dealt with clause
(2) of proposed Article 264. Dr. B.R. Ambedkar in his reply stated that
intention of clause (2) of Article 264 is to maintain the status quo, that
is those municipalities which are levying any particular tax on the
properties of the Union immediately before the commencement of the
Constitution will continue to levy those taxes. Following is the reply
made by Dr. B.R. Ambedkar:
“The Honourable Dr. B.R. Ambedkar: Sir, I will first refer
to the provisions contained in clause (2) of the proposed article
264. I think it would be agreed that the intention of this clause
(2) is to maintain the status quo.
Consequently under the
provisions of clause (2) those municipalities which are levying
any particular tax on the properties of the Union immediately
before the commencement of the Constitution or on such property
as is liable or treated as liable for the levy of these taxes, will
continue to levy those taxes. All that clause (2) does is that
Parliament should have the authority to examine the nature of
the taxes that are being imposed at present. There is nothing more
in clause (2), except the saving clause, viz., “until Parliament by
law otherwise provides”. Until Parliament otherwise provides the
existing local authorities, whether they are municipalities or local
boards, will continue to levy the taxes on the properties of the
Centre. Therefore, so far as the status quo is concerned, there
can be no quarrel with the provisions contained in article 264.
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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The only question that can arise is whether the right given by
clause (2) should be absolute or should be subject to the proviso
contained therein, until Parliament otherwise provides. In another
place where the matter was discussed I submitted certain
arguments for the consideration of the House.”
23. The Constituent Assembly adopted Article 264 as proposed
by one addition in clause (1) by adding the words “save insofar as the
Parliament may by law otherwise provide”.
24. This Court has occasion to consider the provisions of Article
285 clause (2) of the Constitution in Union of India owner of the
Eastern Railway vs. The Commissioner of Sahibganj
Municipality, (1973) 1 SCC 676. The question which came for
consideration before this Court has been noted in paragraph 1 which is
to the following effect:
“The only question which falls for determination in these two
appeals by certificate is whether the respondent Municipality is
entitled to levy and collect taxes on 32 blocks of buildings some
constructed after March 31, 1937 and some after January 25,
1950.”
25. In paragraphs 13 to 16, this Court observed that 32 blocks
of buildings were vested in the Union after April 1, 1937, and some of
them after Constitution came into existence, these properties could be
made liable to pay tax to the Municipality only if Parliament by law
provided to that effect. Paragraphs 13 to 16 are as follows:
“13. The 32 blocks of buildings
were not in existence before
April 1, 1937. These 32 blocks of buildings were
therefore not vested for purposes of the Government
of the Federation before the commencement of Part III
of the 1935 Act. The 32 blocks of buildings were thus
exempt from all taxes imposed by any authority within
a province until a Federal law otherwise provided.
Section 4 of the 1941 Act did not provide for payment
of taxes in respect of Railway property. Section 3 of
the 1941 Act stated that a Railway Administration shall
be liable to pay any tax in aid of the funds of any local
authority if the Central Government by notification in the
Official Gazette declares it to be so liable. It is an
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admitted feature in these appeals that there was no
notification under Section 3 of the 1941 Act declaring
the Railway properties to be liable to pay any tax in aid
of the funds of any local authority.
14. Under Article 285 of the Constitution property of the
Union was exempt from all taxes until Parliament by
law otherwise provides. There is no such law providing
for taxation of Railway property.
15. Clause (2) of Article 285 speaks of liability of Railway
property to pay taxes where such property was
immediately before the commencement of the
Constitution liable or treated as liable to pay any tax
levied by any authority within a State. These 32 blocks
of buildings were not liable to pay any tax because they
were not in existence before April 1, 1937 or before the
commencement of the Constitution.
16. The High Court was in error in construing the notification
issued in 1911 under the 1890 Act to continue by virtue
of the provisions contained in Section 4 of the 1941 Act.
These 32 blocks of buildings vested in the Union some
of them after April 1, 1937 and some after the
Constitution came into existence. These properties could
be made liable to pay tax to the Municipality only if
Parliament by law provided to that effect.”
26. This Court also in the above judgment has approved the
Federal Court judgment in Corporation of Calcutta vs. Governors
of St. Thomas’ School, Calcutta, AIR 1949 FC 121. Following was
laid down in paragraphs 17 and 18:
“17. The
High Court referred to the decision of this (sic)
Court in Corporation of Calcutta v. Governors of St.
Thomas’ School, Calcutta and held that the ruling in
that decision did not apply to the facts in the present
appeals by reason of Section 4 of the 1941 Act
rendering the properties liable to tax. The High Court
misconstrued the provisions of Section 4 of the 1941
Act. The decision of this (sic) Court in St. Thomas’
School case1 directly applies to these appeals. St.
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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Thomas’ School was situated at 4, Diamond Harbour
Road, Calcutta. The buildings were constructed before
April 1942. The premises were assessed to consolidated
rates under the Calcutta Municipal Act. In April 1942,
the premises. were requisitioned for the purposes of the
Central Government. After the requisition the Central
Government erected several structures on the premises.
In 1944-45, there was a general revaluation by the
Corporation of Calcutta. The cost of the Additional
structures erected by the Central Government was taken
into account in determining the annual value of the
premises. The Governors of St. Thomas’ School objected
to the valuation and claimed that the value of the
buildings put up by the Government should be excluded
in the revaluation. The Calcutta High Court held that
Section 154 of the Government of India Act, 1935 applied
to the buildings constructed by the Central Government
and the proviso to Section 154 of the 1935 Act was not
applicable. This Court held that the buildings constructed
by the Central Government were vested in the
Government. In view of the fact that the Additional
structures were put up by the Central Government after
1942, it was held that these were not subject to municipal
tax before April 1937.
18. The 32 blocks of buildings in the present appeals were
not in existence before April 1, 1937 and January 26,
1950. The notification under the 1890 Act did not apply
to
these 32 blocks of buildings. There is no law declaring
these 32 blocks of buildings to be liable to payment of
municipal tax as claimed by the respondent
Municipality.”
27. The above Constitution Bench judgment of this Court clearly
lays down 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.
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28. Article 285 clause (2) again came for consideration before
the Constitution Bench of this Court in Union of India vs. City
Municipal Council, Bellary, (1979) 2 SCC 1, explaining the content
of clause (2) of Article 285. Following was laid down in paragraph 7:-
“7……The property of the Union is exempt from all taxes
imposed by a State or by any authority within a State. But
Parliament may by law provide otherwise and then any tax on
the property of the Union can be imposed and levied in
accordance with the said law. But then an exception has been
carved out in clause (2). The exception is not meant for levying
any tax on such property by any State; but it is merely for the
benefit of any authority including the local authority like the
Municipal Council in question. Clause (1) cannot prevent such
authority from levying any tax on any property of the Union if
such property was exigible to such tax immediately before the
commencement of the Constitution. The local authority, however,
can reap advantage of this exception only under two conditions
namely, (1) that it is “that tax” which is being continued to be
levied and no other; (2) that the local authority in “that State” is
claiming to continue the levy of the tax. In other words, the
nature, type and the property on which the tax was being levied
prior to the commencement of the Constitution must be the same
as also the local authority must be the local authority of the same
State to which it
belonged before the commencement of the
Constitution. On fulfilment of these two conditions it is authorised
to levy the tax on the Union property under clause (2). As in the
case of clause (1) it lies within the power of Parliament to make
a law withdrawing the exemption of the imposition of the tax on
the property of the Union, so in the case of clause (2) it is open
to Parliament to enact a law and finish the right of the local
authority within a State to claim any tax on any property of the
Union, a right it derived under clause (2). That is to say, in both
the cases the ultimate power lies with Parliament.”
29. The Constitution Bench has also approved the Calcutta High
Court judgment in Governor-General of India in Council vs.
Corporation of Calcutta, AIR (1948) Cal 116(2).
30. Durga Das Basu in Commentary on Constitution of India
while commenting on Article 285, Clause (2), has also said that the
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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property must have been in physical existence immediately before the
commencement of the Constitution. In 8th Edition under the heading
“Article 285, Clause (2): Power of Local Authorities to Tax Union
Property” following has been stated:
“ARTICLE 285, CLAUSE (2): POWER OF LOCAL
       AUTHORITIES TO TAX UNION PROPERTY
Saving of existing taxation
This clause is in the nature of a Proviso upon cl.(1). But it
empowers Parliament to cut down the exception introduced by
cl.(2). Any local tax on Union property which is saved by cl.(2)
shall cease to be valid as soon as Parliament by law provides to
that effect.
While cl.(1) enumerates that property of the Union shall be
exempted from any State or local taxation, cl.(2) saves the
existing power of local bodies to tax Union property so long as
Parliament does not legislate otherwise. Thus, the status quo as
to local taxation is maintained, but Parliament is given the power
to control such taxation.
Article 285(2) does not permit levy of any tax by a State; it only
benefits “the authority within the State”, such as the municipal
body.
“Liable or treated as liable”
These words mean that in order to come within the Proviso, the
property must have been in physical existence immediately before
the commencement of the Constitution. There could have been
no liability attached to a non-existent thing; nor could there have
been any treatment of a non-existent thin. New buildings and
structures erected on the land after the aforesaid date, are
therefore, exempt from tax though the land on which they have
ben erected may be liable to tax under cl.(2).
The conditions necessary to bring a property within cl.(2) in order
to make it liable to taxation are:
(a) Physical existence of the property immediately before
the commencement of the Constitution.
(b) Liability of the property to the tax on that date;
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(c) Physical existence of the property now, i.e., at the time
when the tax is sought to be levied;
(d) Liability of the property to tax now;
(e) The tax in question must be the ‘same tax’ as that which
was levied or leviable at the commencement of the
Constitution;
(f) The local authority seeking to levy the tax must be in
the same State to which the pre-Constitution authority
belonged;”
31. From the above discussion we arrive at the conclusion that
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. Since, object of the
Article 285(2) of the Constitution was 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 Article 285(1).
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.
32. Shri
Shishodia has placed reliance on the judgment of this
Court in Food Corporation of India vs. Municipal Committee,
Jalalabad and another, (1999) 6 SCC 74. Shri Shishodia submits that
this Court in the above case has held that Food Corporation of India is
not exempt from taxation under Article 285. The question which came
for consideration before this Court has been noticed in paragraph 7
which is to the following effect:
“7. The question that arises before us is: If the property of the
Corporation is the property of the Union of India and, thus,
exempt from taxation imposed by the State or any authority within
a State. Authority in the present case would include local authority.
A Constitution Bench of this Court in Electronics Corpn. of
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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India Ltd. v. Secy., Revenue Deptt., Govt. of A.P.,(1999)4 SCC
458, has held that a government company is distinct from the
Central Government and cannot claim exemption from taxation
under Article 285 of the Constitution. The case of the Corporation
cannot be any different. The Act under which it is constituted
specifically makes the Corporation a body corporate having the
attributes of a company.”
33. This Court in the above case relying on Constitution Bench
judgment in Electronics Corporation of India Ltd. and others Vs.
Secretary Revenue Department, Govt. of Andhra Pradesh and
others, (1999) 4 SCC 458, held that the Corporation is a distinct entity
from the Union of India and is not exempt from taxation under Article
285. The Constitution Bench in Electronics Corporation of India
Ltd. (supra) held that Article 285 is not applicable where assessee is
an entity, separate and different from Union Government. The
Constitution Bench in paragraph 22 laid down following:
“22……Article 285 does not apply when the property that is to
be taxed is not of the Union of India but of distinct and separate
legal entity. Each of the appellants being companies registered
under the Companies Act, they are entities other than the Union
of India.”
34. There cannot be any dispute to the proposition laid down by
this Court in Food Corporation of India vs. Municipal Committee,
Jalalabad (supra) and by the Constitution Bench in
Electronics
Corporation of India Ltd. (supra) 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. Had the property in question which is sought
to be taxed belonged to the Food Corporation of India, in the present
case, the judgment of this Court in Municipal Committee, Jalalabad
(supra) as well as Electronics Corporation of India Ltd. (supra)
would have applied in full force, but in the present case the property
being that of the Central Government, both the above judgments are
not applicable.
35. The submission which has been made by Shri Shishodia to
support the levy of property tax on the appellant is that the appellant
being occupier is liable to pay property tax in view of Section 146 of
the 1888 Act. He submits that the primary responsibility for property
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tax being on occupier as per Section 146(1) of 1888 Act, the Corporation
cannot escape from its responsibility to pay property tax. Sub-section
(1) of Section 146 uses the expression “if such occupier holds the said
premises immediately from the Government…….”, the key words in
the expression are “such occupier holds the said premises”. The word
‘holds’ has various shades of meaning. Whether sub-section (1) of
Section 146 will hold the occupier that is the appellant to pay the
property tax even though the owner of the property Central Government
is exempt from paying property tax under Article 285(1) is the question
to be answered.
36. 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.
37. 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. We are, thus, not persuaded
to accept the submission of Shri Shishodia 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. 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. It appears that FCI is permitted to occupy and use the godowns
owned by the Government of India for the purpose of storage of the
goods which are required to be transported to the different Fair Price
Shops under the public distribution system.
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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38. We may notice some of the decisions which have been relied
by Shri Shishodia in support of his claim. Shri Shishodia has relied on
Division Bench judgment of Gujarat High Court in F.C.I. vs.
Gandhidham Municipality, (2002) 43 (2) GLR 1845. The submission
which was pressed before the Division Bench of the High Court was
that the Food Corporation of India, being an instrumentality of the State
Government, is not liable to pay municipal taxes in view of Article 285
of the Constitution. From paragraph 2 of the judgment it is clear that
land was originally owned by the Government of India and the said land
was given to the appellant-Corporation for the purpose of construction
of godowns. The Corporation made construction of godowns in the
property. The contention which was raised by the Corporation has been
mentioned in paragraph 2 of the judgment which is to the following
effect:
“2. On behalf of the appellant-Corporation Mr. N. K. Pahwa for
Mr. Mr. P. M. Thakkar raised the contention that the Food
Corporation of India, being an instrumentality of the State
Government, is not liable to pay municipal taxes in view of Article
285 of the Constitution. This contention, in substance, is that the
land was originally owned by Government of India and the said
land is given to the appellant-Corporation for the purpose of
construction of godowns and the appellant-Corporation is a
statutory corporation, no doubt, is owned by
Government of India
and therefore in view of Section 99 of the Gujarat Municipalities
Act read with Article 285 of the Constitution no tax can be levied
upon the property constructed by the appellant-Corporation.”
39. The Gujarat High Court held that the question involved in
the appeal is settled by this Court in the judgment in Food Corporation
of India vs. Municipal Committee, Jalalabad (supra). In
paragraphs 4 to 6 Gujarat High Court held:
“4. We have considered the submissions made by both the sides
and also gone through the order passed by the learned single
Judge. It will not be out of place to mention that the substantial
question involved in this appeal is now settled by the Honourable
Supreme Court in the case of FOOD CORPORATION OF
INDIA. vs MUNICIPAL COMMITTEE, JALALABAD
reported in (1999) 6 SSC 74, wherein the Honourable Supreme
Court had considered the identical question and in para 7 of its
judgment it was held as under:
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“The question that arises before us is: If the property of the
Corporation is property of the Union of India and, thus, exempt
from taxation, imposed by the State or any authority within a
State. Authority in the present case would include local
authority. A Constitution Bench of this court in Electronics
Corporation of India Ltd vs Secretary, Revenue Department,
Govt. of Andhra Pradesh (1999) 4 SCC 458 has held that a
Government company is distinct from the Central Government
and can not claim exemption from taxation under Article 285
of the Constitution. The case of the Corporation can not be
any different. The Act under which is constituted specifically
makes the Corporation a body corporate having the attributes
of a company.”
5. Further in para 11 of its judgment the Honourable Supreme
Court has observed as under:
“even if the Corporation is an agency or instrumentality of
the Central Government, that did not lead to the inference that
the Corporation is a Government department. The reason is
that Act has given the Corporation an individuality apart from
that of the Government.”
6. In the above view of the matter, the law on the question is
already settled by the Honourable Supreme Court and, therefore,
the first contention of Mr. Pahwa that in view of Article 285 of
the Constitution the Municipality cannot levy or collect taxes on
the property of the Corporation has got to be rejected.”
40. No exception can be taken to the above judgment of Gujarat
High Court which has correctly relied on this Court’s judgment in Food
Corporation of India vs. Municipal Committee, Jalalabad (supra)
and Electronics Corporation of India Ltd. (supra) when the
property belonged to Corporation who has constructed the godowns, it
was liable to pay municipal taxes and the Division Bench has rightly
dismissed the appeal. The above judgment does not help the respondent,
since, in the present case the construction was made by the Government
of India and ownership of the Government of India of the premises
including the construction in the present case has not been questioned.
41. The next judgment relied by Shri Shishodia is Ahmedabad
Aviation & Aeronautics Limited vs. Govt. of Gujarat, 2014 SCC
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
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online Guj 15505. In the above case Ahmedabad Aviation &
Aeronautics Ltd., a public Limited Company had filed the writ petition
for declaring that the Gujarat Municipalities Act, 1963 is not applicable
to the petitioners with further prayer for direction to prohibit the
respondent-Municipality from taking any coercive measures for
recovering the municipal tax from the petitioner-Company. The Division
Bench of the Gujarat High Court dismissed the writ petition. The
petitioner was in occupation/possession and in use of Airfield which was
given by the Government of Gujarat with regard to which right of user
was granted by the Government of Gujarat through Department of Civil
Aviation. There was Memorandum of Understanding between the
Company and the Government. The Gujarat High Court in the above
background held the petitioner liable to pay municipal tax. The case of
the petitioner that it cannot be said that the petitioner is not in exclusive
occupation, possession and in use of the entire Airfield nor they can be
said to be lessee, was rejected. The Gujarat High Court relying on
Section 113(2) of the Gujarat Municipalities Act held the petitioner liable
to pay tax. The Division Bench had also relied on the earlier judgment
of the Gujarat High Court in FCI v. Gandhidham Municipality
(supra). In paragraph 7.3 following was laid down:
“7.3 It is the case on behalf of the petitioners that as the
petitioners cannot be said
to be in exclusive occupation,
possession and in use of the Airfield, Mehsana and they are
permitted to use the Airfield / Airstrip on payment of user charges
they cannot be said to be lessee and the MOU cannot be said
to be a lease deed and, therefore, considering Section 113 of the
Gujarat Municipalities Act the primary liability to pay the municipal
tax would be upon the owner-Collector, Mehsana and not upon
the petitioners as the petitioners cannot be said to be the lessee.
The aforesaid seems to be attractive but has no substance. For
the purpose of liability to pay the municipal tax, what is required
to be considered is, whether the concerned person is in
occupation and use of the property in question or not and it is
immaterial whether he is in occupation as lessee or not. In the
case of FCI Vs. Gandhidham Municipality (Supra) considering
Section 113(2) of the Act the Division Bench of this Court has
specifically observed and held that it is the occupier of the
property, who is using the property and for the said purpose the
occupier cannot get away from the liability to pay the tax of the
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local authority since the taxes are for the purpose of providing
services to the residents or occupiers of the property.”
42. The above judgment of the Gujarat High Court was on its
own facts and was based on liability to pay municipal tax under Section
113(2) of the Gujarat Municipalities Act. In the above case there was
no question pertaining to claim of any exemption from payment of tax
from property of the Union. Thus, the above judgment in no manner
helps the respondent in the present case.
43. The Division Bench of the High Court in the impugned
judgment relying only on sub-section (1) of Section 146 held the appellant
liable to pay property tax without giving any reason as to why the
appellant is not entitled to exemption from payment of property tax under
Article 285. The High Court has also not come to any conclusion that
the Corporation is entitled to levy property tax on the strength of Article
285 clause (2). The judgment of the Division Bench, thus, cannot be
sustained.
44. As noted above, learned counsel for the appellant during his
submission has not disputed the liability of the Corporation to pay charges
for services rendered by the Corporation including water charges. He
has further stated that the Corporation is willing to pay amount in lieu
of the general taxes as contemplated by Section 144 of 1888 Act. In
paragraph 6 of Writ Petition No.2672 of 2001 filed by the appellant,
liability to make payment of services charges or other
services provided
by the Corporation was not denied. We may further notice that in the
Review Petition No.37 of 2016 which was filed by the appellant to
review the judgment dated 05.05.2016 of the Division Bench of the
Bombay High Court, in paragraph 20 following prayers were made:
“20. Petitioner therefore pray that:-
(a) This Hon’ble Court may be pleased to call for the
Records and Proceedings in Writ Petition No.2672 of
2001 and after going through the legality, validity and
propriety thereof, review and/or revoke the Order of this
Hon’ble Court dated 05.05.2016 therein;
(b) this Hon’ble Court may be pleased to direct the
Respondent Nos.1 and 2 to conduct an enquiry in
accordance with the provisions of Sections 143 and 144
of The Mumbai Municipal Corporation Act, 1888 and
decide the ratable value of the properties on which taxes
were to be paid;
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]
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(c) pending the hearing and final disposal of the Review
Petition, the Respondent Nos. 1 and 2 may please be
restrained from either demanding the Property Tax and/
or issuing any fresh tax bill and/or adopting any coercive
steps for recovery of any property tax against the
Petitioner;
(d) cost of the Petition may please be provided for;
(e) for such further and other reliefs as nature of the case
may require.”
45. From the above, it is clear that the appellant is not denying
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.
46. At this stage, we may also notice the judgment of this Court
in Union of India and others vs. State of Uttar Pradesh and others,
(2007) 11 SCC 324, wherein it is held that water charges and
sewerage charges levied by the Jal Sansthan against the Railways for
the services rendered by Sansthan were termed as taxes, charges were
not taxes but fees for the services rendered by the Jal Sansthan which
are not precluded by Article 285. This Court in paragraphs 11 and 23
laid down following:
“11. The distinction has to be kept in mind between a tax and a
fee. Exemption under Article 285 is on the levy of any tax on
the property of the Union by the State, and exemption is not for
charges for the
services rendered by the State or its
instrumentality which in reality amounts to a fee. In this
connection, a reference was made to the decision of this Court
in Sea Customs Act (1878), S. 20(2), In re3. This was a case
in which a reference was made by the President of India with
regard to levy of customs and excise duties on the State under
Article 289 of the Constitution of India wherein Sinha, C.J.,
Gajendragadkar, Wanchoo and Shah, JJ. answered the question
at para 31 as follows: (AIR p. 1777)
“31. For the reasons given above, it must be held that the
immunity granted to the States in respect of Union taxation
does not extend to duties of customs including export duties
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or duties of excise. The answer to the three questions referred
to us must, therefore, be in the negative.”
23. In this case what is being charged is for service rendered
by the Jal Sansthan i.e. an instrumentality of the State under the
Act of 1975. Section 52 of the Act states that the Jal Sansthan
can levy tax, fee and charge for water supply and for sewerage
services rendered by it as water tax and sewerage tax at the
rates mentioned therein. Though the charge was loosely termed
as “tax” but as already mentioned before, nomenclature is not
important. In substance what is being charged is fee for the supply
of water as well as maintenance of the sewerage system.
Therefore, in our opinion, such service charges are a fee and
cannot be said to be hit by Article 285 of the Constitution. In
this context it is to be made clear that what is exempted by Article
285 is a tax on the property of the Union of India but not a charge
for services which are being rendered in the nature of water
supply, for maintenance of sewerage system. Therefore, in our
opinion, the view taken by the Division Bench of the Allahabad
High Court is correct that the charge is a fee, being service
charges for supply of water and maintenance of sewerage
system, which cannot be said to be tax on the property of the
Union. Hence it is not violative of the provisions of Article 285
of the Constitution.”
47. We, thus, clarify that 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 and learned counsel appearing for the
appellant has very fairly stated so. In the result, we allow these appeals
set aside the judgment of the High Court and held that the appellant is
exempted and not liable to pay property tax under 1888 Act. However,
the appellant is liable to pay services charges for the services rendered
by the Corporation and it shall be open for the respondents to conduct
an enquiry in accordance with provision of Section 144 of 1888 Act to
decide the rateable value of the property. Ordered accordingly. Parties
shall bear their own costs.
Devika Gujral
Appeals allowed.
FOOD CORPORATION OF INDIA v. BRIHANMUMBAI
MAHANAGAR PALIKA [ASHOK BHUSHAN, J.]