FOOD CORPORATION OF INDIA versus BRIHANMUMBAI MAHANAGAR PALIKA & ORS. on 19 March 2020

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 ofproperty of Union from State Taxation – The Government ofBombay acquired certain land for Government of India prior tothe year 1964 – Upon completion of the acquisition proceedings,the lands vested in the Government of India and it constructedgodowns and silos on the acquired land for storage of food grainsand when the FCI came into being in 1965, these godownsalongwith other godowns of the Government were transferred toFCI for the purpose of undertaking the purchase, storage,movement, transport, distribution and sale of food grains and otherfood stuff – Demand by Municipal Corporation for property taxfrom FCI in respect of these godowns – FCI claimed exemption frompayment of property tax as per Art.285, the property being ownedby the Central Government – High Court in the impugned judgmentprimarily relied on s.146 of the Mumbai Municipal CorporationAct, 1888 in rejecting the claim of exemption u/Art.285 – Hencethe instant appeal – Held: The law is clear that exemption frompayment of taxes on the properties of Central Government asavailable under clause (1) of Art.285 can be denied only whenthe property in question was exigible to the Municipal Tax priorto the commencement of the Constitution or any Parliamentary lawprovides for properties to be exigible to pay tax to the Municipality– For the applicability of clause (2) of Art.285, the property onwhich tax is sought to be proposed ought to have been subject toproperty tax before the commencement of the Constitution – In theinstant case, the constructions on which the property tax is soughtto be imposed by Municipal Corporation came into existence onlyafter 1964 and were not subject to property tax prior to thecommencement of the Constitution, hence condition for applicabilityof Art.285(2) is not satisfied – Resultantly, the MunicipalCorporation is not competent to impose property tax denying the

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Aexemption u/Art.285(1) of the Constitution – Plea of MunicipalCorporation that appellant being occupier is liable to pay propertytax in view of s.146 of the 1888 Act is not tenable – The headingof s.146 is “Primary responsibility for property taxes on whom torest” – When there is a claim of exemption from payment ofproperty tax with regard to property owned by the Government ofBIndia, the question of primary responsibility or secondaryresponsibility loses its importance – The statutory provision, mayit be s.146 of 1888 Act, cannot be read in a manner so as to runcontrary to a Constitutional provision – In the event the claim ofMunicipality/Corporation to levy property tax is not covered byCsub-clause (2) of Art.285, it cannot be allowed to take recourseto any statutory provision or device to make exemption u/Art.285(1)nugatory – Both the premises and building therein were entitledfor exemption from payment of property tax u/Art.285(1) – MumbaiMunicipal Corporation Act, 1888 – s.146 – Government of IndiaAct, 1935.D

Constitution of India: Art.285(2) – Levy of tax on anyproperty of Union – Object of Art.285(2) – Held: Object ofArt.285(2) is to continue the levy of the such tax which localauthority was enjoying prior to the commencement of theConstitution so as to maintain the status quo regarding the financialEresources of Municipal Corporation to avoid the completeexemption from property of Central Government as provided underArt.285(1) – Tax/Taxation.

Allowing the appeals, the CourtFHELD: 1. The Government of India Act, 1935 for the firsttime provided for exemption of certain public property fromtaxation. Section 154 of the Act, 1935 provided for exemptionfrom all taxes imposed by, or by any authority within, a Provinceor Federated State all the properties vested in His Majestywhereas Section 155 contained exemption of ProvincialGGovernments and Rulers of Federated States in respect ofFederal taxation. The main provision of Section 154 althoughexempted properties vested in His Majesty from all taxesimposed by a Province or Federated State or any authority withinbut proviso contains an exception to the main provision, whichHprovided that any property so vested which was immediately before the commencement of Part III of the Government of IndiaAct, 1935 was liable, or treated as liable, to any such tax, shallcontinue to be liable, or to be treated as liable, thereto so longas that tax continues. The commencement of the Part III of theGovernment of India Act, 1935 was w.e.f. 01.04.1937. TheConstitution of India continued the exemption of taxation of theproperties of Central Government from the taxation by State orany authority as well as the State property from Central taxationunder Article 285 and Article 289. The proviso to Section 154was 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 taxeson the properties of Central Government as available underclause (1) of Article 285 can be denied only when the propertyin question was exigible to the Municipal Tax prior to thecommencement of the Constitution or any Parliamentary lawprovides for properties to be exigible to pay tax to theMunicipality. For the applicability of clause (2) of Article 285,the property on which tax is sought to be proposed ought to havebeen subject to property tax before the commencement of theConstitution. In the present case the constructions on which theproperty tax is sought to be imposed by Municipal Corporationcame into existence only after 1964 and were not subject toproperty 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 toimpose 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 tobe taxed is not of the Union of India but a distinct and separatelegal entity. The heading of Section 146 is “Primary responsibilityfor property taxes from whom to rest”. When there is a claim ofexemption from payment of property tax with regard to propertyowned by the Government of India, the question of primaryresponsibility 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 exemptionas delineated by Article 285. Section 146 of 1888 Act as it existsnow has to be construed in a manner so as to give effect to the AB

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Ameaning and purpose of Constitutional protection granted underArticle 285. The statutory provision, may it be Section 146 of1888 Act, cannot be read in a manner so as to run contrary to aConstitutional provision. [Paras 34, 36] [1104-F; 1105-C-E]

4. In the event the claim of Municipality/Corporation toBlevy property tax is not covered by sub-clause (2) of Article 285,it cannot be allowed to take recourse to any statutory provisionor device to make exemption under Article 285(1) nugatory.Thus, submission that since the appellant is occupier of premisesowned by Union of India, is liable to pay property tax underSection 146(1) of 1888 Act, in not tenable. Both the premisesCand building therein are entitled for exemption from paymentof property tax under Article 285(1). At this stage, it is requiredto be noted that the FCI is not in occupation of the godownsowned by the Government of India as a lessee. Nothing is onrecord and it is also not the case on behalf of the CorporationDthat 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 servicescharges and direction was sought to respondents to conduct anenquiry in accordance with the provisions of the MumbaiEMunicipal Corporation Act, 1888 and decide the ratable valueof the properties on which taxes were to be paid. Even thoughappellant is exempted from payment of property tax by virtueof Article 285 of the Constitution then liability to pay servicescharges for services rendered by the Corporation cannot bedenied. [Paras 45, 47] [1110-C; 111-E-F]F

Food Corporation of India v. Municipal Committee,Jalalabad and Another (1999) 6 SCC 74 ; ElectronicsCorporation of India Ltd. and Others v. SecretaryRevenue Department, Govt. of Andhra Pradesh andOthers (1999) 4 SCC 458 : [1999] 2 SCR 1078 ; F.C.I.Gv. Gandhidham Municipality (2002) 43(2) GLR 1845– held inapplicable.

Governor-General of India in Council v. Corporationof Calcutta AIR (1948) Cal. 117 ; The Corporation ofCalcutta v. The Governors of St. Thomas School,HCalcutta AIR 1949 F.C. 121 ; The Corporation of FOOD CORPORATION OF INDIA v. BRIHANMUMBAIMAHANAGAR PALIKA

Calcutta v. Union of India AIR 1957 Calcutta 548 ;Union of India owner of the Eastern Railway v. TheCommissioner of Sahibganj Municipality (1973) 1 SCC676 ; 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 CalcuttaAIR (1948) Cal 116(2) ; Ahmedabad Aviation &Aeronautics Limited v. Govt. of Gujarat 2014 SCConline Guj 15505 ; Union of India and Others v. Stateof Uttar Pradesh and Others (2007) 11 SCC 324 :[2007] 11 SCR 792 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 9350-9351 of 2019.

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From the Judgment and Order dated 05.05.2016 and 11.09.2018of the High Court of Judicature at Bombay in Writ Petition No. 2672of 2002 and in Review Petition No. 37 of 2016 respectively.

Neeraj Kishan Kaul, Sr. Adv., Ajit Pudussery, Vijayan K., AjeetSingh Verma, Ramchandra Madan and Divyanshu Srivastava, Advs.for the Appellant.

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Pallav Shishodia, Sr. Adv., Ms. Asha Gopalan Nair, Ms. ArunaS., Ms. Priti Purandare and Ms. Nivedita Nair, Advs. for theRespondents.

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The Judgment of the Court was delivered by ASHOK BHUSHAN, J.

1. This appeal has been filed by the Food Corporation of Indiachallenging the judgment dated 05.05.2016 of Division Bench of BombayHigh Court in Writ Petition No. 2672 of 2001 by which judgment the H

Awrit petition filed by the Food Corporation of India (hereinafter referredto as “FCI”) challenging the demand made by Municipal Corporationof Greater Mumbai of property tax has been dismissed.

2. The brief facts necessary to be noted for deciding this appealare: - B

2.1 The Government of Bombay acquired land at Village Poisarand at Village Magathane, Borivali for Government of India prior tothe year 1964. Upon completion of the acquisition proceedings, thelands vested in the Government of India and the Government of Indiaconstructed the godowns and silos on the acquired land for storage ofCfood grains.

2.2 FCI was set up under the Food Corporations Act, 1964 withthe 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 wasDissued to the FCI and the FCI protested against the levy of non-agricultural tax and filed a writ petition, which was dismissed by learnedSingle Judge on 10.11.1988. A Letter Patent Appeal No.259 of 1989was filed by the FCI, which was allowed by the Division Bench videits judgment dated 03.12.1992 holding that land vested in CentralEGovernment on which godowns were constructed, hence, CentralGovernment was not liable to pay taxes for non-agricultural use of landas per Article 285 of the Constitution of India.

2.4 The Government of India wrote a letter dated 17.02.1992 toFCI, New Delhi stating that the land for godowns was acquired by theerstwhile Government of Bombay for Government of India on whichFgodowns were constructed by the Government of India and when theFCI came into being in 1965, these godowns alongwith other godownsof the Government were transferred to FCI during the period from 1966to 1969. The Government of India, however, has not executed anyconveyance deeds for these godowns with the FCI and legal ownershipGof 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 Corporationof Greater Bombay (hereinafter referred to as “Corporation”)demanding property tax in respect of property situate in Dattapada Road,HBorivali owned by FCI. A demand notice dated 04.09.2001 was issued by the Corporation asking to make payment for the period from01.03.1969 to 31.03.1997 and taxes from 01.04.1997 onwards. TheFCI protested the demand claiming exemption from payment of propertytax as per Article 285 of the Constitution of India, the property beingowned by the Central Government. The plea of the appellant was notaccepted and a further notice dated 24.09.2001 was issued asking forpayment of property tax. The properties were also attached.

2.6 A Writ Petition No. 2672 of 2001 was filed by the FCI, inwhich FCI has prayed to declare the demand for payment of propertytax as illegal. Prayer was also made to issue a writ of prohibitionprohibiting the respondents, their servants and agents in pursuance ofletter dated 04.09.2001 and 24.09.2001. The Corporation decided theclaim of the FCI. A Division Bench of the Bombay High Court relyingon the judgment of this Court in Food Corporation of India Vs.Municipal Committee, Jalalabad and Another, (1999) 6 SCC 74dismissed the writ petition vide judgment dated 02.02.2002. A reviewpetition was filed by FCI to review the judgment, which too wasdismissed on 04.10.2002. The FCI filed a special leave petition againstthe judgment dated 02.02.2002 as well as against the order dated04.10.2002 in review petition. It was contended before this Court thatHigh Court erred in relying on the judgment of the Court in FoodCorporation of India Vs. Municipal Committee, Jalalabad (supra)without referring to the earlier Division Bench judgment of BombayHigh Court in Civil Appeal No. 259 of 1999 dated 03.10.1992 whereinthe Division Bench had held that properties in dispute in the presentcase is owned by the Central Government and not by FCI. This Courtafter noticing the submissions of both the parties allowed the appeals,set aside the impugned judgment of the High Court observing that sincethe High Court has not gone into these questions, the matter is remittedback to the High Court for fresh decision in accordance with law. Allthe contentions were left open.

2.7 After the above judgment of this Court dated 26.07.2006, theDivision Bench of the Bombay High Court by judgment dated05.05.2016 again dismissed the Writ Petition No.2672 of 2001. SpecialLeave Petition No. 24251 of 2016 was filed questioning the judgmentdated 05.05.2016. This Court noticed the submissions made by FCIand by order dated 26.08.2016 observed that it would be moreappropriate for the petitioner (FCI) to approach the High Court by filinga review petition. After the judgment of this Court dated 26.08.2016, AB

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Areview petition was filed, which too was dismissed by non-speakingorder dated 11.09.2018 by the Division Bench of the Bombay HighCourt.

2.8 These appeals have been filed against the Division Benchjudgment dated 05.05.2016 dismissing the writ petition and order datedB11.09.2018 dismissing the review petition.

3. We have heard Shri Neeraj Kishan Kaul, learned seniorcounsel appearing for the appellant and Shri Pallav Shishodia, learnedsenior counsel appearing for the Corporation.

4. Shri Neeraj Kishan Kaul, learned senior counsel submits thatCdemand of property tax is exempted by virtue of Article 285 of theConstitution of India. It is submitted that the property (godowns) withregard to which property tax has been demanded is owned by CentralGovernment, hence, the payment of tax is exempted. It is submittedthat a Division Bench of the Bombay High Court in its judgment datedD03.12.1992 by quashing the demand of non-agricultural assessment taxby the State Government has categorically held that the property isowned by the Central Government. The Division Bench in theimpugned judgment has not considered the effect of the Division Benchjudgment dated 03.12.1992. It is further submitted that even when thisCourt granted liberty to the appellant to file a review petition againstEthe judgment dated 05.05.2016, after noticing the submissions of theappellant, the review petition too was dismissed by non-speaking orderwithout considering any of the submissions of the appellant. It issubmitted that to be entitled to levy tax under Article 285(2), theCorporation must establish three things, firstly that the property inFquestion is liable to tax prior to commencement of the constitution;secondly, that the tax has been continuously collected by the State onthat property; and thirdly that the State in which the authority collectedthe tax was collecting the same pre and post Constitution. It issubmitted that property tax was never levied by the Corporation priorto the commencement of the Constitution of India and it was only afterGdecision dated 17.01.1997 of the arbitrator appointed under Section144(2) of Mumbai Municipal Corporation Act, 1888 that the propertiesbelong to the FCI, the Corporation started demanding property tax fromthe appellant. It is submitted that jurisdiction of the arbitrator appointedunder Section 144(2) is limited to fixing the rateable value of GovernmentHowned properties and he had no jurisdiction to decide the question whether the properties were to be excluded from the Government list.Learned senior counsel further submits that Corporation has erroneouslyrelied on judgment of this Court in the case of Food Corporation ofIndia Vs. Municipal Committee, Jalalabad (supra), which was acase dealing with the properties owned by the FCI and has noapplication in the facts of the present case. It is submitted that propertybeing property of Central Government was clearly exempted frompayment of property tax.

5. Shri PallavShishodia, learned senior counsel appearing for therespondents refuting the submissions of the learned senior counsel forthe appellant contends that the appellant is liable to pay property tax.He submits that as per Section 146 of the Mumbai MunicipalCorporation Act [Bom. III of 1888], the levy is on actual occupier andthe appellant being actual occupier of the premises is, thus, clearly liableto pay the property tax. For the purpose of liability to pay the propertytaxes what is required is that the concerned person who holds theproperty immediately from the Government is in occupation and use ofthe property in question. It is immaterial in what capacity such personis in occupation of the property exigible to taxes. It is submitted thatthe appellant cannot claim exemption from taxes under Article 285 asthe FCI is distinct entity from Central Government and the so-calledownership of Central Government with respect to the property inquestion occupied by FCI is of no consequence as far as the tax liabilityis concerned. Section 143(1)(b) of the Act, 1888 is not attracted. Thelevy under Act, 1888 is a pre-Constitution levy and, therefore, Article285(2) of the Constitution of India applies. Article 285(2) carves outan exception to clause (1) and saves the levy which any authority withinthe State was levying on the property of the Union to which suchproperty immediately before the commencement of the Constitution wasliable. Under the Act, 1888, the premises vesting in the CentralGovernment were liable for property tax on the date of commencementof the Constitution. There is no law enacted by the Parliament aftercoming into force of the Constitution, which prevent the respondent –Municipal Corporation from levying the tax on the premises vesting inthe Government.

6. Shri Kaul in rejoinder submits that ownership still vests in theCentral Government when the owner is not liable, occupier cannot beheld to be liable to pay property taxes. The judgment of this Court inFood Corporation of India Vs. Municipal Committee, Jalalabad AB

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A(supra) was a case where FCI was the owner of the property, hencethe said case has no applicability in the facts of the present case. Thearbitrator appointed under Section 144(2) went wrong in holding thatFCI owns the property. His jurisdiction was only to determine therateable value insofar as services rendered by the Corporation namelywater charges etc., which the appellant is willing to pay. He furtherBsubmits that the appellant is also willing to pay the amount in lieu ofgeneral tax to be determined in accordance with Section 144 of Act,1888.

7. We have considered the submissions of the learned counselfor the parties and have perused the records.C

8. The main question to be determined in this appeal is as towhether the property in question is exempted from payment of propertytax by virtue of Article 285 of the Constitution of India. The High Courtin the impugned judgment has primarily relied on Section 146 of theAct, 1888 in rejecting the claim of exemption under Article 285 of theDConstitution of India. According to the High Court, the appellant beingoccupier of the godowns will be primarily liable to pay the property taxes.The main reasons of the High Court in rejecting the claim of theappellant are contained in paragraphs 12 and 15, which are as follows:-

“12. The contention of the petitioner is that in view of clause 1Eof Article 285, since the lands and godowns in respect of whichproperty taxes are levied are the properties of the Governmentof India, the same are exempted from taxes imposed by a Stateor any other Authority within the State. Clause 2 of Article 285carves out an exception to clause 1. If any Authority within theFState was levying any taxes on the property of the Union of Indiato which such property was immediately before thecommencement of the Constitution of India liable or treated asliable, the taxes can continue to be levied till the Parliament by alaw otherwise provides. Under the said Act of 1888, the premisesvesting in the Government of India were liable for property taxesGon the date of commencement of the Constitution of India. Thewords “Government” appearing in sub-section 1 of section 146was substituted for the words “the Crown” by the Adaptationof Indian Laws Order in Council. Thus, as per the provisions ofthe said Act of 1888, the property of the Union of India withinHthe jurisdiction of the said Corporation was liable for levy of property taxes immediately before the commencement of theConstitution of India. There is no law enacted by the Parliamentafter coming into force the Constitution of India which preventsthe said Municipal Corporation from levying the taxes on thepremises vesting in the Government. Therefore, Article 285 isof no help to the petitioner in view of applicability of clause 2 ofArticle 285 of the Constitution of India.

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15. In view of the provisions of the said Act of 1888, the petitionerwill not be entitled to the benefit of clause 1 of Article 285 andin view of sub-section (1) of section 146 of the said Act of 1888,the petitioner being the occupier of the godowns will be primarilyliable to pay property taxes.”

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9. For considering the respective submissions of counsel for theparties, we first need to look into the statutory provisions pertaining tothe assessment of property tax as well as the provisions of exemptionfrom payment of tax on the property belonging to Central Government.Chapter VIII of the Act, 1888 deals with “Municipal Taxation”. Section139 provides that “for the purposes of this Act, taxations to be imposedshall consist property taxes and other taxes. Sections 143, 144 and146, which are relevant for the present case are as follows:- D

“143. General tax on what premises to be levied.

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(1) The general tax shall be levied in respect of all buildings andlands in Brihan Mumbai except—

(a) buildings and lands or portions thereof exclusivelyoccupied for public worship or for charitable purposes; F

(b) buildings and lands vesting in Brihan Mumbai used solelyfor public purposes and not used or intended to be usedfor purposes of profit or in the Corporation, in respectof which the said tax, if levied, would under theprovisions hereinafter contained be primarily leviablefrom the Government or, the corporation respectively;G

(c) such buildings and lands vesting in, or in the occupationof, any consul de carriers, whether called as a consulgeneral, consul, vice-consul, consular agent, pro-consulor by any other name of a foreign State recognised assuch by the Government of India, or of any membersH

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(not being citizens of India) of staff of such officials,and such buildings and lands or parts thereof which areused or intended to be used for any purpose other thanfor the purpose of profit.

(2) The following buildings and lands or portions thereof shall notbe deemed to be exclusively occupied for public worship or forcharitable 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 suchrent is or is not applied exclusively to religious orcharitable purposes.

(3) Where any portion of any building or land is exempt fromthe general tax by reason of its being exclusively occupied forpublic worship or for charitable purpose, such portion shall bedeemed to be a separate property for the purpose of municipaltaxation.

144. Payment to be made to the Corporation in lieu of thegeneral tax by the Central Government or the StateGovernment as the case may be.

(1) The Central Government or the State Government, asthe case may be, shall pay to the corporation annually,in lieu of the general tax from which buildings and landsvesting in Government are exempted by clause (b) ofsection 143, a sum ascertained in the manner providedin sub-sections (2) and (3).

(2) The rateable value of the buildings and lands in BrihanMumbai vesting in Government and beneficiallyoccupied, in respect of which but for the said exemption,general tax would be leviable from the CentralGovernment or the State Government, as the case maybe, shall be fixed by a person from time to time appointedin this behalf by the State Government with theconcurrence of the corporation. The said value shall befixed by the said person, with ageneral regard to theprovisions hereinafter contained concerning thevaluation of property assessable to property-taxes, at such amount as he shall deem to be fair reasonable. Thedecision of the person so appointed shall hold good fora term of five years, subject only to proportionatevariation, if in the meantime the number or extent of thebuilding and lands vesting in Government in BrihanMumbai materially increases or decreases.

(2A) Where the Corporation has adopted the levy of propertytax on capital value of buildings and lands, the capital value ofbuildings and lands in Brihan Mumbai vesting in Government andbeneficially occupied, in respect of which but for the saidexemption, general tax would be leviable from the CentralGovernment or the State Government, as the case may be, shallbe the book value of such buildings or lands in Governmentrecords and such capital value shall hold good for a term of fiveyears, subject only to proportionate variation, if in the meantimethe number or extent of the buildings and lands vesting inGovernment in Brihan Mumbai materially increases or decreases.

(3) The sum to be paid annually to the corporation by the CentralGovernment or the State Government, as the case may be, shallbe eight-tenth of the amount which would be payable by anordinary owner or buildings or lands in Brihan Mumbai, onaccount of the general tax, on a rateable value or on capitalvalue, as the case may be, of the same amount as that fixed undersub-section (2), or sub-section (2A), as the case may be.

146. Primary responsibility for property taxes on whomto rest.

(1) Property-taxes shall be leviable primarily from the actualoccupier of the premises upon which the said taxes are assessed,if such occupier holds the said premises immediately from theGovernment or from the corporation or from a fazendar.

Provided that the property-taxes due in respect of any premisesowned by or vested in the Government and occupied by aGovernment servant or any other person on behalf of theGovernment for residential purposes shall be leviable primarilyfrom the Government and not the occupier thereof.

(2) Otherwise the said taxes shall be primarily leviable as follows,namely:—

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A(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 theright to let the same vests;

(d) if the premises are held or occupied by a person who isnot the owner and the whereabouts of the owner of thepremises cannot be ascertained, from the holder oroccupier; and B

(e) if the premises are held or developed by a developer oran attorney or any person in whatever capacity, suchperson may be holding the premises and in each of whomthe right to sell the same exists or is acquired, from suchholder, developer, attorney or person, as the case maybe:

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DProvided that, such holder, developer, attorney or person shall beliable until actual sale is effected.

(3) But if any land has been let for any term exceeding one yearto a tenant, and such tenant or any person deriving titlehowsoever from such tenant has built upon the land, the propertytaxes assessed upon the said land and upon the building erectedEthereon shall be leviable primarily from the said tenant or suchperson, whether or not the premises be in the occupation of thesaid tenant or such person.”

10. In British India, prior to the passing of the Government ofIndia Act, 1935, the question of exemption of Crown property fromFtaxation was not definitely settled. Different High Courts haveexpressed divergent views. The Government of India Act, 1935 forthe first time provided for exemption of certain public property fromtaxation. Section 154 of the Act, 1935 provided for exemption from alltaxes imposed by, or by any authority within, a Province or FederatedGState all the properties vested in His Majesty whereas Section 155contained exemption of Provincial Governments and Rulers of FederatedStates in respect of Federal taxation. Sections 154 and 155 are asfollows:- “154.Exemption of certain public property from taxation.-HProperty vested in His Majesty for purposes of the government of the Federation shall, save in so far as any Federal law mayotherwise provide, be exempt from all taxes imposed by, or byany authority within, a Province or Federated State:

Provided that, until any Federal law otherwise provides, anyproperty so vested which was immediately before thecommencement of Part III of this Act liable, or treated as liable,to any such tax, shall, so long as that tax continues, continue tobe liable, or to be treated as liable, thereto.

155. Exemption of Provincial Governments and Rulers ofFederated States in respect of Federal taxation-(1) Subjectas hereinafter provided, the Government of a Province and theRuler of a Federated State shall not be liable to Federal taxationin respect of lands or buildings situate in British India or incomeaccruing, arising or received in British India; Provided that- (a) where a trade or business of any kind is carried on byor on behalf of the Government of a Province in anypart of British India outside that Province or by a Rulerin any part of British India, nothing in this subsectionshall exempt that Government or Ruler from anyFederal taxation in respect of that trade or business, orany operations connected therewith, or any incomearising in connection therewith, or any property occupiedfor the purposes thereof; (b) nothing in this subsection shall exempt a Ruler from anyFederal taxation in respect of any lands, buildings orincome being his personal property or personal income.

(2) Nothing in this Act affects any exemption from taxationenjoyed as of right at the passing of this Act by the Ruler of anIndian State in respect of any Indian Government securities issuedbefore that date.”

11. The main provision of Section 154 although exemptedproperties vested in His Majesty from all taxes imposed by a Provinceor Federated State or any authority within but proviso contains anexception to the main provision, which provided that any property sovested which was immediately before the commencement of Part III

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Aof 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 PartIII of the Government of India Act, 1935 was w.e.f. 01.04.1937. TheConstitution of India continued the exemption of taxation of theproperties of Central Government from the taxation by State or anyBauthority as well as the State property from Central taxation underArticle 285 and Article 289. The proviso to Section 154 was retainedas sub-article(2) of Article 285. Article 285 and Article 289 of theConstitution are as follows:- “285. Exemption of property of the Union from StateCtaxation.— (1) The property of the Union shall, save in so faras Parliament may by law otherwise provide, be exempt fromall taxes imposed by a State or by any authority within a State.

(2) Nothing in clause (1) shall, until Parliament by law otherwiseDprovides, prevent any authority within a State from levying anytax on any property of the Union to which such property wasimmediately before the commencement of this Constitution liableor treated as liable, so long as that tax continues to be levied inthat State.

E289.Exemption of property and income of a State fromUnion taxation.—(1) The property and income of a State shallbe exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union fromimposing, or authorising the imposition of, any tax to suchFextent, if any, as Parliament may by law provide inrespect of a trade or business of any kind carried onby, or on behalf of, the Government of a State, or anyoperations connected therewith, or any property usedor occupied for the purposes of such trade or business,Gor any income accruing or arising in connectiontherewith.

(3) Nothing in clause (2) shall apply to any trade orbusiness, or to any class of trade or business, whichParliament may by law declare to be incidental to theHordinary functions of Government.”

12. The provisions of Articles 285 and 289 are complimentaryto each other. Section 154 of Government of India Act, 1935 camefor consideration before Calcutta High Court in Governor-Generalof India in Council Vs. Corporation of Calcutta, AIR (1948) Cal.117. Justice B.K. Mukherjea (as he then was) allowed the appeal ofGovernor-General in Council holding that the property in question wasexempted from municipal taxes, with which opinion, Ormond, J. whilewriting a separate opinion agreed. In the above case, the CalcuttaCorporation assessed the premises in the year 1937 on account ofsubstantial additions to and alteration of the premises in the year 1941and 1942. Objection was taken to the valuation by the Governor Generalof India in Council on the ground that under Section 154 of Governmentof India Act, all buildings which were not in existence prior to 01.04.1937when Part III of Government of India Act, 1935 came into operation,and which were consequently not subjected to any assessment beforeApril, 1937 were exempted from all taxes, and could not be assessedto municipal rates. The contention was not accepted by the ExecutiveOfficer of the Calcutta Corporation and an appeal was filed by theappellant 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 downfollowing in paragraphs 10 and 13:-

“10. ……………Whatever is property for purposes of taxationunder a particular statute and is vested in His Majesty forpurposes of Federation would be exempted from taxation underSection 154, Government of India Act, unless it was liable to taxon 31-3-1937, and ex hypothesi, a property which was not inexistence on 31-3-1937, cannot be said to be liable to tax on thatdate……………………”

13. Our conclusion therefore is that the additional buildings raisedon premises No. 7, Gun Foundry Road after 31-3-1937 areexempted from payment of consolidated rates under the CalcuttaMunicipal Act and the present assessment is to be made on thebasis 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, AB

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Aadditions and improvements made in a building which existedbefore 1-4-1937, are properties which were “immediately before1-4-1937 liable or treated as liable to the tax.” Now for propertyto have been liable to the tax before 1-4-1937, it is self-evidentthat that property must have been in existence before 1-4-1937.Equally, I think, this must be so for property “treated as liable”Bto 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 toconceive of any property which could have been “treated as liableto tax” if that property was not in a state of physical existenceCat the time.

29. This being so, it follows that the only taxable property broughtwithin the exception contained in the proviso is property whichwas in physical existence before 1-4-1937. The four conditionswhich it would be necessary for the Corporation to establish toDbring the property within the proviso would be : (1) Physicalexistence of the property before 1-4-1937, (2) Liability of thatproperty to the tax then, (3) Physical existence of the sameproperty now, that is to say, for the current period for which taxis sought to be levied and (4) Liability of the property (if it werenot Crown property) to the tax now. The contention relied uponEon behalf of the Corporation, if analysed must come to this, thatthough a thing in itself was not in existence before 1-4-1937, yetif it is now in existence in a situation resting on, or attached to,or forming part of, some particular area of land or building, whichformed the taxable unit before 1-4-1937, then that thing is itselfFtaxable. It is said that what is being taxed is the unit of propertyand 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 notpreviously exist: for the reason that the same unit of propertyhad existed before 1-4-1937 in an old form without that newthing.”

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14. The Calcutta High Court in the above judgment whileinterpreting Section 154 has held that proviso to Section 154 shall beapplicable for taxing property owned by His Majesty only when suchproperty was subject to tax on 31.03.1937 or earlier. The property whichcame into existence subsequent to 01.04.1937 is not to be covered byHproviso and held covered by the main provision of Section 154 and not

exigible to property tax. The above judgment of the Calcutta High Courtwas noticed with approval by Federal Court in The Corporation ofCalcutta Vs. The Governors of St. Thomas School, Calcutta, AIR1949 F.C. 121. In the case before Federal Court, the premisescontaining land and building were owned by St. Thomas School, whichbuildings were constructed before April, 1942. In April, 1942, thepremises were requisitioned under the Defence of India Act for thepurposes of the Government of the Federation. Several buildings wereconstructed by the Central Government. In the assessment made inthe last quarter of 1944-45, the cost of all the additional structureserected by the Central Government were taken into account while fixingthe annual value. The respondents objected to the assessment andthecontention that the value of the buildings put up by the CentralGovernment should be excluded in the revaluation was rejected byDeputy Executive Officer, against whose decision an appeal was filedin the Court of Small Causes. The Court of Small Causes acceptedthe contention of the respondent and held that the structures put up bythe Central Government were exempt from municipal taxes andtherefore should not be included in the valuation. The Judge, SmallCauses Court relied on judgment of the Calcutta High Court inGovernor-General of India in Council Vs. Corporation of Calcutta(supra) and dismissed the appeal of the Corporation. The Corporationfiled the appeal before the High Court. While dismissing, Federal Courtlaid down following in paragraph 12:- “12. This reasoning also leads to the rejection of the secondcontention of the appellants. The contention is that as the unit oftaxation is the area mentioned in the schedule to the agreementand as that unit was subject to taxation before April 1937, theexemption in favour of the Crown given in Section 154 could notbe availed of. Whether any particular property falls within theexemption provided in Section 154, Government of India Act, mustdepend on what is “property” within the meaning of that sectionand not on what is regarded as a unit for purposes of assessmentunder a local Municipal Act. The question in whether what issought to be taxed is property and, if so, whether the same isvested in the Government. If the answer to both these is in theaffirmative, the question is whether that property was liable totax before April 1937. In the present case the answer is clearlyin the negative because the additional structures were all put up A

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Aafter 1942 and therefore were not subject to the municipal taxbefore April 1937. The result is that all the contentions’ of theappellants urged before us are rejected. The appeal, therefore,fails and is dismissed with costs.”

15. The Division Bench of the Calcutta High Court in TheBCorporation of Calcutta Vs. Union of India, AIR 1957 Calcutta548 had occasion to consider Article 285(2) of the Constitution. TheDivision Bench referred to and relied on the earlier judgment of CalcuttaHigh Court in Governor-General of India in Council Vs.Corporation of Calcutta (supra). The Division Bench noticed theScheme of exemption as contained in the Section 154 of theCGovernment of India Act, 1935 and has extensively referred to DivisionBench judgment in Governor-General of India in Council Vs.Corporation of Calcutta (supra) and laid down following in paragraph11:-

D“11. The Constitution retained and re-employed the same phrasewhich, as the above observations show, had already beenjudicially interpreted in the same manner as we have done onthe present occasion. That is a strong pointer to the legislativeintent and amply supports our construction of the words ‘treatedas liable’ as used in Article 285(2) of the Constitution and, if thatEconstruction is correct, there can possibly be no doubt, in the factsof the two instant cases, that the present disputed assessmentsare valid. The safeguard, so far as Union properties areconcerned, is contained in the reservation in the very clause inquestion, reserving power to the Parliament to provide otherwise.FUntil, however, Parliament does so provide, Union propertieswhich were treated as liable to a particular local tax immediatelybefore the coming into force of the Constitution would remainliable for the same. Admittedly the disputed premises (asbelonging to the Central Government and owned by it) wereactually assessed to Municipal tax, and such tax was being paidGand realised also, immediately before the, commencement of theConstitution. The premises, therefore, on the above constructionof the Article, were ‘treated as liable’ to such tax on that date.Admittedly also. Parliament has not, so far, by law, otherwiseprovided, as it has undoubtedly the power to do under ArticleH285(2) of the Constitution.”

16. We had noticed above the fact that godowns in questionswere constructed by the Central Government after completion of theacquisition in the year 1964. The submission which has been pressedby Shri Kaul is that the buildings in question being not liable or treatedto be liable for property tax immediately before the commencement ofthe Constitution, the respondents cannot claim the benefit of Article285(2). Although, it is not disputed by the respondents that the godownsin question were not subject to property tax immediately before thecommencement of the Constitution but submission, which has beenpressed by Shri Shishodia is that under Act, 1888, the property of CentralGovernment was exigible to tax immediately before commencement ofthe Constitution, hence, the conditions of Article 285(2) are fulfilled andCorporation is fully entitled to levy property tax on the appellant.

17. Before proceeding further, we may notice the factum ofownership of the property including the godowns thereon. As noticedabove, the land was acquired by the State of Bombay for the CentralGovernment and it was the Central Government, which constructed thegodowns thereon. The earlier Division Bench judgment of BombayHigh Court dated 03.12.1992 in Civil Appeal No. 259 of 1989 has beenreferred to and relied by the appellant, by which judgment, the DivisionBench has set aside the levy of non-agricultural assessments as imposedon the appellant. The Division Bench in the above judgment has alsoaccepted the case of the appellant that legal ownership of the land andthe structures vests with the Government. In paragraph 33 of thejudgment, following was laid down:- “(3). Shri Saraf, learned counsel appearing on behalf of theGovernment of Maharashtra, submitted that the Corporation isoccupier of the lands and as occupant is liable to pay non-agricultural assessment. The submission overlooks that the rightto recover assessment from the occupier is an enabling provisionbut cannot be imported when the original owner is not liable topay taxes. The power to recover assessment from the occupieris available provided the original owner is not available but isliable to pay the taxes. In view of the return filed on behalf ofGovernment of India, it is clear that the land still vests inGovernment of India and consequently, the owner is not liableto pay any assessment. As the Central Government is not liableto pay assessment, it is not open for the State Government torecover the same from the Food Corporation of India who is AB

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Amerely occupier of the lands and holder of the godowns on behalfof the Government of India. In our judgment, the claim of theState Government for recovery of NA assessment and serviceof notices cannot be sustained.”

18. The above status of the ownership of the property as noticedBby the Division Bench in its judgment dated 03.12.1992 has not beenquestioned before us. We, thus, proceed to consider the submissionsof the parties accepting the property including the construction thereonto be owned by the Government of India.

19. What is the content and meaning of the expression asCoccurring in sub-article (2) of Article 285,”prevent any authority withina State from levying any tax on any property of the Union to whichsuch property was immediately before the commencement of thisConstitution liable or treated as liable so long as that tax continue to belevelled in that tax.” Whether Constitution framers intended to clotheany authority within the State from levying any tax on any property,Dwhich property was liable or treated to be liable to tax or whether merepower to tax the property of Union prior to the commencement of theConstitution is sufficient to continue such power after the enforcementof the Constitution irrespective of as to whether a property was subjectto tax in the State or not. The Constituent Assembly Debate in theabove context throws a considerable light on the intention of theEConstitution framers on the content and meaning of Article 285 as nowcontained in the Constitution of India.

20. Draft Article 264 which came for consideration before theConstituent Assembly on 9[th] September, 1949 was to the followingeffect:F

“Article 264

The Honourable Dr. B.R. Ambedkar

(Bombay: General): Sir, I move:

G“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 byHlaw otherwise provides, prevent any local authority within a State FOOD CORPORATION OF INDIA v. BRIHANMUMBAIMAHANAGAR PALIKA [ASHOK BHUSHAN, J.]

from imposing any tax on any property of the Union to whichsuch property was immediately before the commencement of thisConstitution liable or treated as liable so long as that tax continuesto be levied in that State.”

I will speak after the amendments have been moved, if there isany debate.”

21. Amendments were moved to the Draft Article. Severalmembers in the Constituent Assembly spoke in favour of making theproperty of the Union subject to all taxes imposed by a local authoritywithin the State, save insofar as the Parliament may by law otherwiseprovide. Shri R.K. Sidhwa in his speech stated that in the event Article264 as proposed is passed the local authorities shall lose substantialamount of Revenue which they are getting from taxes realise fromproperties 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 thatintention of clause (2) of Article 264 is to maintain the status quo, thatis those municipalities which are levying any particular tax on theproperties of the Union immediately before the commencement of theConstitution will continue to levy those taxes. Following is the replymade by Dr. B.R. Ambedkar:

“The Honourable Dr. B.R. Ambedkar: Sir, I will first referto the provisions contained in clause (2) of the proposed article264. I think it would be agreed that the intention of this clause(2) is to maintain the status quo. Consequently under theprovisions of clause (2) those municipalities which are levyingany particular tax on the properties of the Union immediatelybefore the commencement of the Constitution or on such propertyas is liable or treated as liable for the levy of these taxes, willcontinue to levy those taxes. All that clause (2) does is thatParliament should have the authority to examine the nature ofthe taxes that are being imposed at present. There is nothing morein clause (2), except the saving clause, viz., “until Parliament bylaw otherwise provides”. Until Parliament otherwise provides theexisting local authorities, whether they are municipalities or localboards, will continue to levy the taxes on the properties of theCentre. Therefore, so far as the status quo is concerned, therecan be no quarrel with the provisions contained in article 264.

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AThe only question that can arise is whether the right given byclause (2) should be absolute or should be subject to the provisocontained therein, until Parliament otherwise provides. In anotherplace where the matter was discussed I submitted certainarguments for the consideration of the House.”

B23. The Constituent Assembly adopted Article 264 as proposedby one addition in clause (1) by adding the words “save insofar as theParliament may by law otherwise provide”.

24. This Court has occasion to consider the provisions of Article285 clause (2) of the Constitution in Union of India owner of theCEastern Railway vs. The Commissioner of SahibganjMunicipality, (1973) 1 SCC 676. The question which came forconsideration before this Court has been noted in paragraph 1 which isto the following effect:

“The only question which falls for determination in these twoDappeals by certificate is whether the respondent Municipality isentitled to levy and collect taxes on 32 blocks of buildings someconstructed after March 31, 1937 and some after January 25,1950.”

25. In paragraphs 13 to 16, this Court observed that 32 blocksEof buildings were vested in the Union after April 1, 1937, and some ofthem after Constitution came into existence, these properties could bemade liable to pay tax to the Municipality only if Parliament by lawprovided to that effect. Paragraphs 13 to 16 are as follows:

“13. The 32 blocks of buildings were not in existence beforeFApril 1, 1937. These 32 blocks of buildings weretherefore not vested for purposes of the Governmentof the Federation before the commencement of Part IIIof the 1935 Act. The 32 blocks of buildings were thusexempt from all taxes imposed by any authority withina province until a Federal law otherwise provided.GSection 4 of the 1941 Act did not provide for paymentof taxes in respect of Railway property. Section 3 ofthe 1941 Act stated that a Railway Administration shallbe liable to pay any tax in aid of the funds of any localauthority if the Central Government by notification in theHOfficial Gazette declares it to be so liable. It is an FOOD CORPORATION OF INDIA v. BRIHANMUMBAIMAHANAGAR PALIKA [ASHOK BHUSHAN, J.]

admitted feature in these appeals that there was nonotification under Section 3 of the 1941 Act declaringthe Railway properties to be liable to pay any tax in aidof the funds of any local authority.

14. Under Article 285 of the Constitution property of theUnion was exempt from all taxes until Parliament bylaw otherwise provides. There is no such law providingfor taxation of Railway property.

15. Clause (2) of Article 285 speaks of liability of Railwayproperty to pay taxes where such property wasimmediately before the commencement of theConstitution liable or treated as liable to pay any taxlevied by any authority within a State. These 32 blocksof buildings were not liable to pay any tax because theywere not in existence before April 1, 1937 or before thecommencement of the Constitution.

16. The High Court was in error in construing the notificationissued in 1911 under the 1890 Act to continue by virtueof the provisions contained in Section 4 of the 1941 Act.These 32 blocks of buildings vested in the Union someof them after April 1, 1937 and some after theConstitution came into existence. These properties couldbe made liable to pay tax to the Municipality only ifParliament by law provided to that effect.”

26. This Court also in the above judgment has approved theFederal Court judgment in Corporation of Calcutta vs. Governorsof St. Thomas’ School, Calcutta, AIR 1949 FC 121. Following waslaid 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 inthat decision did not apply to the facts in the presentappeals by reason of Section 4 of the 1941 Actrendering the properties liable to tax. The High Courtmisconstrued the provisions of Section 4 of the 1941Act. The decision of this (sic) Court in St. Thomas’School case[1]directly applies to these appeals. St.

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AThomas’ School was situated at 4, Diamond HarbourRoad, Calcutta. The buildings were constructed beforeApril 1942. The premises were assessed to consolidatedrates under the Calcutta Municipal Act. In April 1942,the premises. were requisitioned for the purposes of theCentral Government. After the requisition the CentralBGovernment erected several structures on the premises.In 1944-45, there was a general revaluation by theCorporation of Calcutta. The cost of the Additionalstructures erected by the Central Government was takeninto account in determining the annual value of theCpremises. The Governors of St. Thomas’ School objectedto the valuation and claimed that the value of thebuildings put up by the Government should be excludedin the revaluation. The Calcutta High Court held thatSection 154 of the Government of India Act, 1935 appliedto the buildings constructed by the Central GovernmentDand the proviso to Section 154 of the 1935 Act was notapplicable. This Court held that the buildings constructedby the Central Government were vested in theGovernment. In view of the fact that the Additionalstructures were put up by the Central Government afterE1942, it was held that these were not subject to municipaltax before April 1937.

18. The 32 blocks of buildings in the present appeals werenot in existence before April 1, 1937 and January 26,1950. The notification under the 1890 Act did not applyFto these 32 blocks of buildings. There is no law declaringthese 32 blocks of buildings to be liable to payment ofmunicipal tax as claimed by the respondentMunicipality.”

27. The above Constitution Bench judgment of this Court clearlyGlays down that exemption from payment of taxes on the properties ofCentral Government as available under clause (1) of Article 285 canbe denied only when the property in question was exigible to theMunicipal Tax prior to the commencement of the Constitution or anyParliamentary law provides for properties to be exigible to pay tax toHthe Municipality.

28. Article 285 clause (2) again came for consideration beforethe Constitution Bench of this Court in Union of India vs. CityMunicipal Council, Bellary, (1979) 2 SCC 1, explaining the contentof clause (2) of Article 285. Following was laid down in paragraph 7:- “7……The property of the Union is exempt from all taxesimposed by a State or by any authority within a State. ButParliament may by law provide otherwise and then any tax onthe property of the Union can be imposed and levied inaccordance with the said law. But then an exception has beencarved out in clause (2). The exception is not meant for levyingany tax on such property by any State; but it is merely for thebenefit of any authority including the local authority like theMunicipal Council in question. Clause (1) cannot prevent suchauthority from levying any tax on any property of the Union ifsuch property was exigible to such tax immediately before thecommencement of the Constitution. The local authority, however,can reap advantage of this exception only under two conditionsnamely, (1) that it is “that tax” which is being continued to belevied and no other; (2) that the local authority in “that State” isclaiming to continue the levy of the tax. In other words, thenature, type and the property on which the tax was being leviedprior to the commencement of the Constitution must be the sameas also the local authority must be the local authority of the sameState to which it belonged before the commencement of theConstitution. On fulfilment of these two conditions it is authorisedto levy the tax on the Union property under clause (2). As in thecase of clause (1) it lies within the power of Parliament to makea law withdrawing the exemption of the imposition of the tax onthe property of the Union, so in the case of clause (2) it is opento Parliament to enact a law and finish the right of the localauthority within a State to claim any tax on any property of theUnion, a right it derived under clause (2). That is to say, in boththe cases the ultimate power lies with Parliament.”

29. The Constitution Bench has also approved the Calcutta HighCourt 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 Indiawhile commenting on Article 285, Clause (2), has also said that the A

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Aproperty must have been in physical existence immediately before thecommencement of the Constitution. In 8[th] Edition under the heading“Article 285, Clause (2): Power of Local Authorities to Tax UnionProperty” following has been stated:

“ARTICLE 285, CLAUSE (2): POWER OF LOCALB AUTHORITIES TO TAX UNION PROPERTY

Saving of existing taxation

This clause is in the nature of a Proviso upon cl.(1). But itempowers Parliament to cut down the exception introduced bycl.(2). Any local tax on Union property which is saved by cl.(2)Cshall cease to be valid as soon as Parliament by law provides tothat effect.

While cl.(1) enumerates that property of the Union shall beexempted from any State or local taxation, cl.(2) saves theexisting power of local bodies to tax Union property so long asDParliament does not legislate otherwise. Thus, the status quo asto local taxation is maintained, but Parliament is given the powerto control such taxation.

Article 285(2) does not permit levy of any tax by a State; it onlybenefits “the authority within the State”, such as the municipalEbody.

“Liable or treated as liable”

These words mean that in order to come within the Proviso, theproperty must have been in physical existence immediately beforethe commencement of the Constitution. There could have beenFno liability attached to a non-existent thing; nor could there havebeen any treatment of a non-existent thin. New buildings andstructures erected on the land after the aforesaid date, aretherefore, exempt from tax though the land on which they haveben erected may be liable to tax under cl.(2).

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(a) Physical existence of the property immediately beforethe commencement of the Constitution.

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(b) Liability of the property to the tax on that date;

(c) Physical existence of the property now, i.e., at the timeAwhen 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 whichwas levied or leviable at the commencement of theConstitution; B

(f) The local authority seeking to levy the tax must be inthe same State to which the pre-Constitution authoritybelonged;”

31. From the above discussion we arrive at the conclusion thatfor the applicability of clause (2) of Article 285, the property on whichtax is sought to be proposed ought to have been subject to propertytax before the commencement of the Constitution. Since, object of theArticle 285(2) of the Constitution was to continue the levy of the suchtax which local authority was enjoying prior to the commencement ofthe Constitution so as to maintain the status quo regarding the financialresources of Municipal Corporation to avoid the complete exemptionfrom property of Central Government as provided under Article 285(1).In the present case the constructions on which the property tax is soughtto be imposed by Municipal Corporation came into existence only after1964 and were not subject to property tax prior to the commencementof the Constitution, hence condition for applicability of Article 285(2) isnot satisfied. Resultantly the Municipal Corporation is not competentto impose property tax denying the exemption under Article 285(1) ofthe Constitution.

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32. Shri Shishodia has placed reliance on the judgment of thisCourt in Food Corporation of India vs. Municipal Committee,Jalalabad and another, (1999) 6 SCC 74. Shri Shishodia submits thatthis Court in the above case has held that Food Corporation of India isnot exempt from taxation under Article 285. The question which camefor consideration before this Court has been noticed in paragraph 7which is to the following effect:

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“7. The question that arises before us is: If the property of theCorporation is the property of the Union of India and, thus,exempt from taxation imposed by the State or any authority withina State. Authority in the present case would include local authority.A Constitution Bench of this Court in Electronics Corpn. of H

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AIndia Ltd. v. Secy., Revenue Deptt., Govt. of A.P.,(1999)4 SCC458, has held that a government company is distinct from theCentral Government and cannot claim exemption from taxationunder Article 285 of the Constitution. The case of the Corporationcannot be any different. The Act under which it is constitutedspecifically makes the Corporation a body corporate having theBattributes of a company.”

33. This Court in the above case relying on Constitution Benchjudgment in Electronics Corporation of India Ltd. and others Vs.Secretary Revenue Department, Govt. of Andhra Pradesh andothers, (1999) 4 SCC 458, held that the Corporation is a distinct entityCfrom the Union of India and is not exempt from taxation under Article285. The Constitution Bench in Electronics Corporation of IndiaLtd. (supra) held that Article 285 is not applicable where assessee isan entity, separate and different from Union Government. TheConstitution Bench in paragraph 22 laid down following:D

“22……Article 285 does not apply when the property that is tobe taxed is not of the Union of India but of distinct and separatelegal entity. Each of the appellants being companies registeredunder the Companies Act, they are entities other than the Unionof India.”E

34. There cannot be any dispute to the proposition laid down bythis Court in Food Corporation of India vs. Municipal Committee,Jalalabad (supra) and by the Constitution Bench in ElectronicsCorporation of India Ltd. (supra) Article 285 does not apply whenthe property that is to be taxed is not of the Union of India but a distinctFand separate legal entity. Had the property in question which is soughtto be taxed belonged to the Food Corporation of India, in the presentcase, 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 propertyGbeing that of the Central Government, both the above judgments arenot applicable.

35. The submission which has been made by Shri Shishodia tosupport the levy of property tax on the appellant is that the appellantbeing occupier is liable to pay property tax in view of Section 146 ofHthe 1888 Act. He submits that the primary responsibility for property tax being on occupier as per Section 146(1) of 1888 Act, the Corporationcannot escape from its responsibility to pay property tax. Sub-section(1) of Section 146 uses the expression “if such occupier holds the saidpremises immediately from the Government…….”, the key words inthe expression are “such occupier holds the said premises”. The word‘holds’ has various shades of meaning. Whether sub-section (1) ofSection 146 will hold the occupier that is the appellant to pay theproperty tax even though the owner of the property Central Governmentis exempt from paying property tax under Article 285(1) is the questionto be answered.

36. The heading of Section 146 is “Primary responsibility forproperty taxes from whom to rest”. When there is a claim of exemptionfrom payment of property tax with regard to property owned by theGovernment of India, the question of primary responsibility or secondaryresponsibility loses its importance. When payment of property tax isexempt under Article 285(1) to tax the occupier runs counter to thevery claim of exemption as delineated by Article 285. Section 146 of1888 Act as it exists now has to be construed in a manner so as togive effect to the meaning and purpose of Constitutional protectiongranted under Article 285. The statutory provision, may it be Section146 of 1888 Act, cannot be read in a manner so as to run contrary toa Constitutional provision.

37. In the event the claim of Municipality/Corporation to levyproperty tax is not covered by sub-clause (2) of Article 285, it cannotbe allowed to take recourse to any statutory provision or device to makeexemption under Article 285(1) nugatory. We are, thus, not persuadedto accept the submission of Shri Shishodia that since the appellant isoccupier of premises owned by Union of India, is liable to pay propertytax under Section 146(1) of 1888 Act. Both the premises and buildingtherein are entitled for exemption from payment of property tax underArticle 285(1). At this stage, it is required to be noted that the FCI isnot in occupation of the godowns owned by the Government of Indiaas a lessee. Nothing is on record and it is also not the case on behalfof the Corporation that any rent/lease amount is being recovered fromthe FCI. It appears that FCI is permitted to occupy and use the godownsowned by the Government of India for the purpose of storage of thegoods which are required to be transported to the different Fair PriceShops under the public distribution system.

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A38. We may notice some of the decisions which have been reliedby Shri Shishodia in support of his claim. Shri Shishodia has relied onDivision Bench judgment of Gujarat High Court in F.C.I. vs.Gandhidham Municipality, (2002) 43 (2) GLR 1845. The submissionwhich was pressed before the Division Bench of the High Court wasthat the Food Corporation of India, being an instrumentality of the StateBGovernment, is not liable to pay municipal taxes in view of Article 285of the Constitution. From paragraph 2 of the judgment it is clear thatland was originally owned by the Government of India and the said landwas given to the appellant-Corporation for the purpose of constructionof godowns. The Corporation made construction of godowns in theCproperty. The contention which was raised by the Corporation has beenmentioned in paragraph 2 of the judgment which is to the followingeffect:

“2. On behalf of the appellant-Corporation Mr. N. K. Pahwa forMr. Mr. P. M. Thakkar raised the contention that the FoodDCorporation of India, being an instrumentality of the StateGovernment, is not liable to pay municipal taxes in view of Article285 of the Constitution. This contention, in substance, is that theland was originally owned by Government of India and the saidland is given to the appellant-Corporation for the purpose ofconstruction of godowns and the appellant-Corporation is aEstatutory corporation, no doubt, is owned by Government of Indiaand therefore in view of Section 99 of the Gujarat MunicipalitiesAct read with Article 285 of the Constitution no tax can be leviedupon the property constructed by the appellant-Corporation.”

39. The Gujarat High Court held that the question involved inFthe appeal is settled by this Court in the judgment in Food Corporationof India vs. Municipal Committee, Jalalabad (supra). Inparagraphs 4 to 6 Gujarat High Court held:

“4. We have considered the submissions made by both the sidesand also gone through the order passed by the learned singleGJudge. It will not be out of place to mention that the substantialquestion involved in this appeal is now settled by the HonourableSupreme Court in the case of FOOD CORPORATION OFINDIA. vs MUNICIPAL COMMITTEE, JALALABADreported in (1999) 6 SSC 74, wherein the Honourable SupremeCourt had considered the identical question and in para 7 of itsHjudgment it was held as under:

“The question that arises before us is: If the property of theCorporation is property of the Union of India and, thus, exemptfrom taxation, imposed by the State or any authority within aState. Authority in the present case would include localauthority. A Constitution Bench of this court in ElectronicsCorporation of India Ltd vs Secretary, Revenue Department,Govt. of Andhra Pradesh (1999) 4 SCC 458 has held that aGovernment company is distinct from the Central Governmentand can not claim exemption from taxation under Article 285of the Constitution. The case of the Corporation can not beany different. The Act under which is constituted specificallymakes the Corporation a body corporate having the attributesof a company.”

5. Further in para 11 of its judgment the Honourable SupremeCourt has observed as under:

“even if the Corporation is an agency or instrumentality ofthe Central Government, that did not lead to the inference that the Corporation is a Government department. The reason isthat Act has given the Corporation an individuality apart fromthat of the Government.”

6. In the above view of the matter, the law on the question isalready settled by the Honourable Supreme Court and, therefore,the first contention of Mr. Pahwa that in view of Article 285 ofthe Constitution the Municipality cannot levy or collect taxes onthe property of the Corporation has got to be rejected.”

40. No exception can be taken to the above judgment of GujaratHigh Court which has correctly relied on this Court’s judgment in FoodCorporation of India vs. Municipal Committee, Jalalabad (supra)and Electronics Corporation of India Ltd. (supra) when theproperty belonged to Corporation who has constructed the godowns, itwas liable to pay municipal taxes and the Division Bench has rightlydismissed the appeal. The above judgment does not help the respondent,since, in the present case the construction was made by the Governmentof India and ownership of the Government of India of the premisesincluding the construction in the present case has not been questioned.

41. The next judgment relied by Shri Shishodia is AhmedabadAviation & Aeronautics Limited vs. Govt. of Gujarat, 2014 SCC

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Aonline Guj 15505. In the above case Ahmedabad Aviation &Aeronautics Ltd., a public Limited Company had filed the writ petitionfor declaring that the Gujarat Municipalities Act, 1963 is not applicableto the petitioners with further prayer for direction to prohibit therespondent-Municipality from taking any coercive measures forrecovering the municipal tax from the petitioner-Company. The DivisionBBench of the Gujarat High Court dismissed the writ petition. Thepetitioner was in occupation/possession and in use of Airfield which wasgiven by the Government of Gujarat with regard to which right of userwas granted by the Government of Gujarat through Department of CivilAviation. There was Memorandum of Understanding between theCCompany and the Government. The Gujarat High Court in the abovebackground held the petitioner liable to pay municipal tax. The case ofthe petitioner that it cannot be said that the petitioner is not in exclusiveoccupation, possession and in use of the entire Airfield nor they can besaid to be lessee, was rejected. The Gujarat High Court relying onDSection 113(2) of the Gujarat Municipalities Act held the petitioner liableto pay tax. The Division Bench had also relied on the earlier judgmentof 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 thepetitioners cannot be said to be in exclusive occupation,Epossession and in use of the Airfield, Mehsana and they arepermitted to use the Airfield / Airstrip on payment of user chargesthey cannot be said to be lessee and the MOU cannot be saidto be a lease deed and, therefore, considering Section 113 of theGujarat Municipalities Act the primary liability to pay the municipalFtax would be upon the owner-Collector, Mehsana and not uponthe petitioners as the petitioners cannot be said to be the lessee.The aforesaid seems to be attractive but has no substance. Forthe purpose of liability to pay the municipal tax, what is requiredto be considered is, whether the concerned person is inoccupation and use of the property in question or not and it isGimmaterial whether he is in occupation as lessee or not. In thecase of FCI Vs. Gandhidham Municipality (Supra) consideringSection 113(2) of the Act the Division Bench of this Court hasspecifically observed and held that it is the occupier of theproperty, who is using the property and for the said purpose theHoccupier cannot get away from the liability to pay the tax of the local authority since the taxes are for the purpose of providingservices to the residents or occupiers of the property.”

42. The above judgment of the Gujarat High Court was on itsown facts and was based on liability to pay municipal tax under Section113(2) of the Gujarat Municipalities Act. In the above case there wasno question pertaining to claim of any exemption from payment of taxfrom property of the Union. Thus, the above judgment in no mannerhelps the respondent in the present case.

43. The Division Bench of the High Court in the impugnedjudgment relying only on sub-section (1) of Section 146 held the appellantliable to pay property tax without giving any reason as to why theappellant is not entitled to exemption from payment of property tax underArticle 285. The High Court has also not come to any conclusion thatthe Corporation is entitled to levy property tax on the strength of Article285 clause (2). The judgment of the Division Bench, thus, cannot besustained.

44. As noted above, learned counsel for the appellant during hissubmission has not disputed the liability of the Corporation to pay chargesfor services rendered by the Corporation including water charges. Hehas further stated that the Corporation is willing to pay amount in lieuof the general taxes as contemplated by Section 144 of 1888 Act. Inparagraph 6 of Writ Petition No.2672 of 2001 filed by the appellant,liability to make payment of services charges or other services providedby the Corporation was not denied. We may further notice that in theReview Petition No.37 of 2016 which was filed by the appellant toreview the judgment dated 05.05.2016 of the Division Bench of theBombay 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 theRecords and Proceedings in Writ Petition No.2672 of2001 and after going through the legality, validity andpropriety thereof, review and/or revoke the Order of thisHon’ble Court dated 05.05.2016 therein; (b) this Hon’ble Court may be pleased to direct theRespondent Nos.1 and 2 to conduct an enquiry inaccordance with the provisions of Sections 143 and 144of The Mumbai Municipal Corporation Act, 1888 anddecide the ratable value of the properties on which taxeswere to be paid; A

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(c) pending the hearing and final disposal of the ReviewPetition, the Respondent Nos. 1 and 2 may please berestrained from either demanding the Property Tax and/or issuing any fresh tax bill and/or adopting any coercivesteps for recovery of any property tax against thePetitioner; B

(d) cost of the Petition may please be provided for; (e) for such further and other reliefs as nature of the casemay require.”

45. From the above, it is clear that the appellant is not denyingCits liability to pay services charges and direction was sought torespondents to conduct an enquiry in accordance with the provisionsof The Mumbai Municipal Corporation Act, 1888 and decide the ratablevalue of the properties on which taxes were to be paid.

46. At this stage, we may also notice the judgment of this CourtDin Union of India and others vs. State of Uttar Pradesh and others,(2007) 11 SCC 324, wherein it is held that water charges andsewerage charges levied by the Jal Sansthan against the Railways forthe services rendered by Sansthan were termed as taxes, charges werenot taxes but fees for the services rendered by the Jal Sansthan whichEare not precluded by Article 285. This Court in paragraphs 11 and 23laid down following:

“11. The distinction has to be kept in mind between a tax and afee. Exemption under Article 285 is on the levy of any tax onthe property of the Union by the State, and exemption is not forcharges for the services rendered by the State or itsFinstrumentality which in reality amounts to a fee. In thisconnection, a reference was made to the decision of this Courtin Sea Customs Act (1878), S. 20(2), In re[3]. This was a casein which a reference was made by the President of India withregard to levy of customs and excise duties on the State underGArticle 289 of the Constitution of India wherein Sinha, C.J.,Gajendragadkar, Wanchoo and Shah, JJ. answered the questionat para 31 as follows: (AIR p. 1777)

“31. For the reasons given above, it must be held that theimmunity granted to the States in respect of Union taxationHdoes not extend to duties of customs including export duties or duties of excise. The answer to the three questions referredto us must, therefore, be in the negative.”

23. In this case what is being charged is for service renderedby the Jal Sansthan i.e. an instrumentality of the State under theAct of 1975. Section 52 of the Act states that the Jal Sansthancan levy tax, fee and charge for water supply and for sewerageservices rendered by it as water tax and sewerage tax at therates mentioned therein. Though the charge was loosely termedas “tax” but as already mentioned before, nomenclature is notimportant. In substance what is being charged is fee for the supplyof water as well as maintenance of the sewerage system.Therefore, in our opinion, such service charges are a fee andcannot be said to be hit by Article 285 of the Constitution. Inthis context it is to be made clear that what is exempted by Article285 is a tax on the property of the Union of India but not a chargefor services which are being rendered in the nature of watersupply, for maintenance of sewerage system. Therefore, in ouropinion, the view taken by the Division Bench of the AllahabadHigh Court is correct that the charge is a fee, being servicecharges for supply of water and maintenance of seweragesystem, which cannot be said to be tax on the property of theUnion. Hence it is not violative of the provisions of Article 285of the Constitution.”

47. We, thus, clarify that even though appellant is exempted frompayment of property tax by virtue of Article 285 of the Constitutionthen liability to pay services charges for services rendered by theCorporation cannot be denied and learned counsel appearing for theappellant has very fairly stated so. In the result, we allow these appealsset aside the judgment of the High Court and held that the appellant isexempted and not liable to pay property tax under 1888 Act. However,the appellant is liable to pay services charges for the services renderedby the Corporation and it shall be open for the respondents to conductan enquiry in accordance with provision of Section 144 of 1888 Act todecide the rateable value of the property. Ordered accordingly. Partiesshall bear their own costs.

Devika Gujral

Appeals allowed.

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