By TIOL News Service

CHENNAI, SEPT 23, 2016: THE issue is - Whether the Commissioner of a City Municipal Corporation can demand property tax for the buildings used by the Income Tax Department for official as well as residential purpose, which is actually owned by the Union of India. NO IS THE ANSWER.

Facts of the case:

The Chennai Corporation, is the respondent which had been demanding payment of property tax from the revenue department in respect of certain premises used by them for residence and offiicial purposes. During 2007-08, the revenue department relying on certain circulars, remitted some amounts to the respondent, who in turn treated those amounts as payment of property tax and also issued receipts to such effect. The Revenue thereafter addressed the respondent by a letter stating that the I-T Department had paid Service Charges to the Corporation of Chennai, in respect of the office buildings and the quarters owned by the Govt. It was conveyed in the letter that as per the decision of the Supreme Court in the case of Municipal Corporation, Amritsar v. The Senior Superintendent of Post Offices, Amritsar Division, the Pay and Accounts Office had raised an objection and therefore, the Revenue requested that no demand need be raised in respect of the aforesaid building. In response, a communication was sent to the Revenue stating that they had collected the amount as Service Charges [wrongly mentioned as Service Tax].

The Revenue Department therefore preferred the present petition challenging the order passed by the Commissioner Corporation which infact was an intimation to the Department intimating that they have been collecting money as Service Tax per half year which was based upon the annual value in respect of three of the buildings. The counsel for Revenue argued that receipts issued towards such collection were property tax collection receipts and they have been collected as property tax and only for the purpose of giving a colour as if it is Service charges, in the impugned communication it has been stated so. On the other hand, the argument of the counsel for the respondent was that, what was collected from the revenue department was only service charges and the receipts were issued from the property tax receipt book.

After hearing the parties, the High Court had held that,

1. In terms of Article 285 of the Constitution, the property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State. Thus, in the light of the constitutional embargo, the State of Tamil Nadu or an authority of the State namely, the Corporation cannot impose any tax on the properties owned by the Union. It is further brought to the notice of this Court that identical issue came up for consideration before this Court when the Corporation of Chennai called upon the Principal Accountant General to pay the property tax for the building owned by the Union of India which was challenged by the Principal Accountant General, Chennai and the said writ petition was allowed and it was held therein that the Corporation of Chennai has to refund the property tax collected from the Principal Accountant General. In the light of the constitutional provision and thereby a clear exemption being granted, the levy or collection of property tax by the respondent Corporation on the buildings owned by the Union of India is unauthorised and illegal. Therefore, if any such tax have been collected, the same requires to be refunded. So far as the service charges are concerned, it seems that the Union of India had already agreed before the Supreme Court as recorded in the judgment in the case of Rajkot Municipal Corporation. Thus, it goes without saying that the Union of India will be bound by the said undertaking.

2. During the course of the argument, a question was posed by this Court to the counsel for Department as to how these service charges have been quantified as the Department has stated in the affidavit that they have been paying service charges. The counsel replied by stating that there is no dispute to the said fact and the Department themselves have stated so in their letter stating that they are paying service charges to the Corporation of Chennai, half yearly, based on 33 1/3% of the property tax. Therefore, this submission is taken on record to state that there is no default on the part of the Department in remitting the service charges. In the light of the above stated legal position, the writ petition is disposed of by holding that the respondent Corporation are not entitled to levy and collect property tax for the buildings owned by the Union of India and if any property tax had already been collected, the same shall be refunded within a reasonable time. However, in terms of the agreement arrived at, as recorded by the Supreme Court in Rajkot Municipal Corporation, the Department is bound to remit the service charges to the Corporation.

(See 2016-TIOL-2214-HC-MAD-MISC)