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A property of Central Government is not liable to property tax in view of Art 285 unless it is charged to tax prior to commencement of the constitution; SC.

Supreme Court of India

Justice ASHOK BHUSHAN & Justice M.R. SHAH

The SC on March 19, 2020 {FOOD CORPORATION OF INDIA v. BRIHANMUMBAI MAHANAGAR PALIKA & ORS} held that for the applicability of clause (2) of Article 285, the property on which tax is sought to be proposed ought to have been subject to property tax before the commencement of the Constitution. It was held that object of the Article 285(2) of the Constitution was to continue the levy of the such tax which local authority was enjoying prior to the commencement of the Constitution so as to maintain the status quo regarding the financial resources of Municipal Corporation to avoid the complete exemption from property of Central Government as provided under Article 285(1).

It was held that in the present case the constructions on which the property tax is sought to be imposed by Municipal Corporation came into existence only after 1964 and were not subject to property tax prior to the commencement of the Constitution, hence condition for applicability of Article 285(2) is not satisfied. It was held that resultantly the Municipal Corporation is not competent to impose property tax denying the exemption under Article 285(1) of the Constitution - on the property subject matter of present lis.

It was held that exemption from payment of taxes on the properties of Central Government as available under clause (1) of Article 285 can be denied only when the property in question was exigible to the Municipal Tax prior to the commencement of the Constitution or any Parliamentary law provides for properties to be exigible to pay tax to the Municipality.  

It was held in present case, both the premises and building therein are entitled for exemption from payment of property tax under Article 285(1). It was further held that the FCI is not in occupation of the godowns owned by the Government of India as a lessee. It was also held that it is also not the case on behalf of the Corporation that any rent/lease amount is being recovered from the FCI. It was held that it appears that FCI is permitted to occupy and use the godowns owned by the Government of India for the purpose of storage of the goods which are required to be transported to the different Fair Price Shops under the public distribution system.

The main question to be determined in the present appeal before the SC is as to whether the property in question is exempted from payment of property tax by virtue of Article 285 of the Constitution of India. The same was answered in affirmative by the SC.

In the present case, the Division Bench of the High Court in the impugned judgment relying only on sub-section (1) of Section 146 held that the appellant is liable to pay property tax without giving any reason as to why the appellant is not entitled to exemption from payment of property tax under Article 285. The High Court has also not come to any conclusion that the Corporation is entitled to levy property tax on the strength of Article 285 clause (2). The judgment of the Division Bench, thus, was set aside by the SC.

The SC set aside the judgment of the High Court and held that the appellant is exempted and not liable to pay property tax under 1888 Act. However, it was held that the appellant is liable to pay services charges for the services rendered by the Corporation

In the present case, the appeal was filed by the Food Corporation of India challenging the judgment of Division Bench of Bombay High Court in Writ Petition by which judgment the writ petition filed by the Food Corporation of India (referred to as “FCI”) challenging the demand made by Municipal Corporation of Greater Mumbai of property tax has been dismissed. The appeal was allowed by the SC.

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