This article is written by Ishan Arun Mudbidri from Marathwada Mitra Mandal’s Shankarrao Chavan Law College, Pune. The keywords mentioned in this case are vesting, exempt, and taxes.
Table of Contents
Introduction
The allottees, to whom the Municipal Corporation of Hyderabad had allotted buildings constructed under the “Low-income housing scheme”, questioned the validity of the taxes levied on them by the Corporation in a writ appeal dated 26.6.1972. The Single Judge in this order upheld the validity but the Division Bench had a different view under Clause 15 of the Letters Patent. The Municipal Corporation in the present appeal has said that the Single Judge was right in holding the levying of taxes valid, and the Division Bench was wrong.
Date of Judgment
30th January 1987
Citation
Court
Supreme Court of India
Parties
Petitioner: Municipal Corporation of Hyderabad
Respondent: P.N. Murthy & Ors.
Facts of the case
The petitioner (Municipal Corporation of Hyderabad) started a “Low Income Housing Scheme” in 1957. Under this scheme, the Corporation allotted houses in various parts of Hyderabad City, by way of a hire purchase agreement (used for buying expensive goods by giving initial down payment and rest of the money is paid in balance plus interest in installments). The respondents were also allotted houses under this scheme. Under the agreement, the allottees were to pay 20% of the sale price as the initial payment and the remaining payment was in monthly instalments. One of the clauses in this agreement, specifically mentioned that the petitioners would remain, owners of the house until the last installment is paid. Further, the agreement also prohibited selling or mortgaging the house within five years of such date, even after becoming owners. It was further mentioned that the allottees shall have to pay all taxes, including water and electricity charges.
The allottees whose writ petition is being instituted, received a demand notice on 31-12-1964 to pay house taxes from 1-4-1961 onwards. They were served another demand notice in 1965, to file for objection within 15 days from the date of the receipt of the notice. The writ petitioners filed their objection before the 15 days period finished.
They argued that the taxes levied on them cannot be valid as they have not yet taken ownership of the house, and they vest in the Municipal Corporation. In response to this, the Corporation served another demand notice on 19-6-1966 demanding the allottees to pay taxes from the period running 1-4-1961 to 31-3-1965.
Hence, based on this contention, the present appeal has been filed.
Issues raised
- Whether the allottees are liable to pay the taxes levied on them?
Contentions
The only contention raised in this was by the writ petitioners who state that according to the hire purchase agreement, the allottees are not yet owners of the house so, the property vests in the Corporation. Hence, under Section 202(1) of the Hyderabad Municipal Corporation Act 1955, the Corporation should be liable to pay the taxes.
Observation of the Court
The Court while deciding the present case, looked into various provisions of the Hyderabad Corporation Act, which are as follows:-
- Section 197(1) states that the Corporation shall impose taxes on lands and buildings.
- Section 199(1) states that subject to limitations, the following taxes shall be levied on lands and buildings in the city, including general taxes, water taxes, lighting and drainage tax, and a conservancy tax.
- Section 202(1) which is the point of debate in this case, states that a general tax shall be levied on lands and buildings in the city, subject to exceptions, including
(a) a building or land used for the purpose of disposing of the dead,
(b)buildings and lands used for educational or charitable purposes,
(c) buildings and lands vested in the corporation,
(d) and buildings and lands vested by the Central or State government.
- Section 204(1) states that property taxes shall be levied on an actual occupier of the premises if such an occupier holds the premises immediately before the government or the corporation.
Hence, referring to these sections, the Court laid down the following observations:
- An exception under Section 202(1) relating to levying general taxes, holds that the Corporation is relieved from imposing taxes on those types of buildings mentioned from clause (a) to (d). The exception is based on policy and principle. Hence, these four clauses make it clear that the exemption won’t be given to those properties which are used for profit purposes rather than the public.
- The buildings and lands which are properties of the Corporation and used by the same will be a waste if they collect taxes from themselves. The main purpose of collecting taxes is to expand and bring better resources. So if one collects taxes from oneself, how will these resources augment? Hence, this is the reason why buildings and lands which are owned by the Corporation are exempted from paying taxes.
- The Court further emphasized on Section 204(1) of the Act. The Court observed that if the property owned by the Corporation but currently occupied by someone else, is not liable for property taxes, then there is no meaning to this particular Section. This Section states that the property taxes shall be levied on buildings or lands which are actually occupied by a person or a body other than the Corporation. Hence, this clearly means that the said occupier shall be liable to property taxes as if he/she are holding the property from the Corporation itself. Hence, this proves that the Corporation is entitled to levy taxes on those buildings which it owns but is occupied by someone else. Hence the Court agreed to the opinion of the Single Judge that, the buildings and lands which are vested unto the Corporation in the title as well as in possession are exempted from levying property taxes.
- However, those buildings which are vested unto the Corporation, but are currently occupied by a third party, are not exempted.
- Lastly, the Court observed that the buildings and lands must not only be owned by the Corporation but also be occupied by the Corporation itself, which shall satisfy the contentious Section 202(1). Hence, the term “vesting” has been used in this sense.
- The term “vesting” under Section 202(1)(c) must be seen as vesting in the title as well as vesting in possession. There is no provision in these sections to exempt the tenants inducted by the Corporation from paying the taxes. The tenants should be subject to property taxes. Hence, the Court concluded by saying that the provisions of the said Act, cannot be used according to how the respondents want.
Relevant cases
The Court, while talking about Section 202(1) of the said Act, referred to the case of Fruit & Vegetable Merchants Union v. Delhi Improvement Trust, (1954). In this case, the government had allotted certain lands to the Improvement Trust for the construction of a market. The Trust constructed the market with the help of government funds at interest. It was mentioned in the agreement that the Trust will pay a fixed sum of money by way of the revenue generated from the market. The income from the market had to be applied to the interest advanced by the government and the surplus had to be kept for the government. The contentions raised were that the market was vested in the Trust, and it cannot, just by transfer, vest in the Chief Commissioner. Hence, it was held that the word ‘vest’ has not got a fixed meaning, and it may vest in the title, in possession, and it may vest in a limited sense.
Another case referred by the Court was the case of Richardson v Robertson (1862), wherein it was held that vesting means vesting in possession.
Judgment
The Supreme Court while looking into Section 202(1) of the Hyderabad Corporation Act observed that there is no principle in the current provision exempting the allottees from paying the taxes. The said provision cannot be understood in a manner in which the respondents want. Hence, the Court held that the Single Judge was correct in upholding the writ petition whereas, the Division Bench had made an error. Hence the Court allowed the appeal to dismiss the order of the Single Judge and set aside the order of the Division Bench.
Analysis
Hence, the Court acknowledged the contentions of the writ petitioners by saying that the allottees would not become owners of the houses as all installments were not paid. The properties no doubt vest in the Corporation itself. But the Court further looked into the provisions of the Hyderabad Corporation Act and quite rightfully pointed out that the given provisions of the Act do not exempt the tenant from paying property taxes just because the property is not vested in them. Section 204(1) and Section 202(1)(c) of the Act were used by the Court to decide this. Further, the Delhi Improvement Trust case referred by the court clearly defines the meaning of the term “vesting”. This word had become a point of debate between the two parties, which the court precisely clarified.
Conclusion
The Court rightfully pointed out that the Division Bench had committed an error in allowing the writ petition of the allottees. They were not exempted from paying property taxes based solely on the argument that the property was not owned by them. This case shows that the courts derive their judgments only by the various and enactments that are laid down, and that there’s no sympathy or personal interests involved. The court could have shown sympathy towards the allottees and asked the Corporation to pay the taxes on behalf of them, but that did not happen.
References
- https://indiankanoon.org/doc/208856/
- Richardson v. Robertson, [1862] 6 L.T.p. 75
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