Food Corporation Of India vs Brihanmumbai Mahanagar Palika on 19 March, 2020


Supreme Court of India

Food Corporation Of India vs Brihanmumbai Mahanagar Palika on 19 March, 2020

Author: Ashok Bhushan

Bench: R. Banumathi, Ashok Bhushan, A.S. Bopanna

                                                                  REPORTABLE

                                  IN THE SUPREME COURT OF INDIA
                                   CIVIL APPELLATE JURISDICTION

                               CIVIL APPEAL NOS.9350-9351 OF 2019
                         (arising out of SLP (C)NOS.29261-29262 OF 2019)


          FOOD CORPORATION OF INDIA                       ...APPELLANT(S)

                                             VERSUS

          BRIHANMUMBAI MAHANAGAR PALIKA & ORS. ...RESPONDENT(S)



                                        J U D G M E N T

ASHOK BHUSHAN,J.

This appeal has been filed by the Food Corporation

of India challenging the judgment dated 05.05.2016 of

Division Bench of Bombay High Court in Writ Petition

No. 2672 of 2001 by which judgment the writ petition

filed by the Food Corporation of India (hereinafter

referred to as “FCI”) challenging the demand made by

Municipal Corporation of Greater Mumbai of property tax

has been dismissed.

Signature Not Verified

Digitally signed by
MAHABIR SINGH
Date: 2020.03.20
15:04:58 IST
Reason:

2. The brief facts necessary to be noted for deciding

this appeal are: –

1
2.1 The Government of Bombay acquired land at

Village Poisar and at Village Magathane,

Borivali for Government of India prior to the

year 1964. Upon completion of the acquisition

proceedings, the lands vested in the

Government of India and the Government of

India constructed the godowns and silos on

the acquired land for storage of food grains.

2.2 FCI was set up under the Food Corporations

Act, 1964 with the purpose of undertaking the

purchase, storage, movement, transport,

distribution and sale of food grains and other

food stuff.

2.3 on 28.10.1988, a notice demanding non-

agricultural tax was issued to the FCI and

the FCI protested against the levy of non-

agricultural tax and filed a writ petition,

which was dismissed by learned Single Judge

on 10.11.1988. A Letter Patent Appeal No.259

of 1989 was filed by the FCI, which was

allowed by the Division Bench vide its

2
judgment dated 03.12.1992 holding that land

vested in Central Government on which godowns

were constructed, hence, Central Government

was not liable to pay taxes for non-

agricultural use of land as per Article 285

of the Constitution of India.

2.4 The Government of India wrote a letter dated

17.02.1992 to FCI, New Delhi stating that the

land for godowns was acquired by the erstwhile

Government of Bombay for Government of India

on which godowns were constructed by the

Government of India and when the FCI came into

being in 1965, these godowns alongwith other

godowns of the Government were transferred to

FCI during the period from 1966 to 1969. The

Government of India, however, has not

executed any conveyance deeds for these

godowns with the FCI and legal ownership of

these godowns still vests in the Government,

the Status of FCI, therefore, is that of an

occupier.

3
2.5 Letters and demands were issued by Municipal

Corporation of Greater Bombay (hereinafter

referred to as “Corporation”) demanding

property tax in respect of property situate

in Dattapada Road, Borivali owned by FCI. A

demand notice dated 04.09.2001 was issued by

the Corporation asking to make payment for

the period from 01.03.1969 to 31.03.1997 and

taxes from 01.04.1997 onwards. The FCI

protested the demand claiming exemption from

payment of property tax as per Article 285 of

the Constitution of India, the property being

owned by the Central Government. The plea of

the appellant was not accepted and a further

notice dated 24.09.2001 was issued asking for

payment of property tax. The properties were

also attached.

2.6 A Writ Petition No. 2672 of 2001 was filed by

the FCI, in which FCI has prayed to declare

the demand for payment of property tax as

illegal. Prayer was also made to issue a writ

of prohibition prohibiting the respondents,

4
their servants and agents in pursuance of

letter dated 04.09.2001 and 24.09.2001. The

Corporation decided the claim of the FCI. A

Division Bench of the Bombay High Court

relying on the judgment of this Court in Food

Corporation of India Vs. Municipal Committee,

Jalalabad and Another, (1999) 6 SCC 74

dismissed the writ petition vide judgment

dated 02.02.2002. A review petition was filed

by FCI to review the judgment, which too was

dismissed on 04.10.2002. The FCI filed a

special leave petition against the judgment

dated 02.02.2002 as well as against the order

dated 04.10.2002 in review petition. It was

contended before this Court that High Court

erred in relying on the judgment of the Court

in Food Corporation of India Vs. Municipal

Committee, Jalalabad (supra) without

referring to the earlier Division Bench

judgment of Bombay High Court in Civil Appeal

No. 259 of 1999 dated 03.10.1992 wherein the

Division Bench had held that properties in

dispute in the present case is owned by the

5
Central Government and not by FCI. This Court

after noticing the submissions of both the

parties allowed the appeals, set aside the

impugned judgment of the High Court observing

that since the High Court has not gone into

these questions, the matter is remitted back

to the High Court for fresh decision in

accordance with law. All the contentions were

left open.

2.7 After the above judgment of this Court dated

26.07.2006, the Division Bench of the Bombay

High Court by judgment dated 05.05.2016 again

dismissed the Writ Petition No.2672 of 2001.

Special Leave Petition No. 24251 of 2016 was

filed questioning the judgment dated

05.05.2016. This Court noticed the

submissions made by FCI and by order dated

26.08.2016 observed that it would be more

appropriate for the petitioner (FCI) to

approach the High Court by filing a review

petition. After the judgment of this Court

dated 26.08.2016, review petition was filed,

6
which too was dismissed by non-speaking order

dated 11.09.2018 by the Division Bench of the

Bombay High Court.

2.8 These appeals have been filed against the

Division Bench judgment dated 05.05.2016

dismissing the writ petition and order dated

11.09.2018 dismissing the review petition.

3. We have heard Shri Neeraj Kishan Kaul, learned

senior counsel appearing for the appellant and Shri

Pallav Shishodia, learned senior counsel appearing for

the Corporation.

4. Shri Neeraj Kishan Kaul, learned senior counsel

submits that demand of property tax is exempted by

virtue of Article 285 of the Constitution of India. It

is submitted that the property (godowns) with regard

to which property tax has been demanded is owned by

Central Government, hence, the payment of tax is

exempted. It is submitted that a Division Bench of the

Bombay High Court in its judgment dated 03.12.1992 by

quashing the demand of non-agricultural assessment tax

7
by the State Government has categorically held that the

property is owned by the Central Government. The

Division Bench in the impugned judgment has not

considered the effect of the Division Bench judgment

dated 03.12.1992. It is further submitted that even

when this Court granted liberty to the appellant to

file a review petition against the judgment dated

05.05.2016, after noticing the submissions of the

appellant, the review petition too was dismissed by

non-speaking order without considering any of the

submissions of the appellant. It is submitted that to

be entitled to levy tax under Article 285(2), the

Corporation must establish three things, firstly that

the property in question is liable to tax prior to

commencement of the constitution; secondly, that the

tax has been continuously collected by the State on

that property; and thirdly that the State in which the

authority collected the tax was collecting the same pre

and post Constitution. It is submitted that property

tax was never levied by the Corporation prior to the

commencement of the Constitution of India and it was

only after decision dated 17.01.1997 of the arbitrator

appointed under Section 144(2) of Mumbai Municipal

8
Corporation Act, 1888 that the properties belong to the

FCI, the Corporation started demanding property tax

from the appellant. It is submitted that jurisdiction

of the arbitrator appointed under Section 144(2) is

limited to fixing the rateable value of Government

owned properties and he had no jurisdiction to decide

the question whether the properties were to be excluded

from the Government list. Learned senior counsel

further submits that Corporation has erroneously relied

on judgment of this Court in the case of Food

Corporation of India Vs. Municipal Committee, Jalalabad

(supra), which was a case dealing with the properties

owned by the FCI and has no application in the facts

of the present case. It is submitted that property

being property of Central Government was clearly

exempted from payment of property tax.

5. Shri Pallav Shishodia, learned senior counsel

appearing for the respondents refuting the submissions

of the learned senior counsel for the appellant

contends that the appellant is liable to pay property

tax. He submits that as per Section 146 of the Mumbai

Municipal Corporation Act [Bom. III of 1888], the levy

9
is on actual occupier and the appellant being actual

occupier of the premises is, thus, clearly liable to

pay the property tax. For the purpose of liability to

pay the property taxes what is required is that the

concerned person who holds the property immediately

from the Government is in occupation and use of the

property in question. It is immaterial in what

capacity such person is in occupation of the property

exigible to taxes. It is submitted that the appellant

cannot claim exemption from taxes under Article 285 as

the FCI is distinct entity from Central Government and

the so-called ownership of Central Government with

respect to the property in question occupied by FCI is

of no consequence as far as the tax liability is

concerned. Section 143(1)(b) of the Act, 1888 is not

attracted. The levy under Act, 1888 is a pre-

Constitution levy and, therefore, Article 285(2) of the

Constitution of India applies. Article 285(2) carves

out an exception to clause (1) and saves the levy which

any authority within the State was levying on the

property of the Union to which such property

immediately before the commencement of the Constitution

was liable. Under the Act, 1888, the premises vesting

10
in the Central Government were liable for property tax

on the date of commencement of the Constitution. There

is no law enacted by the Parliament after coming into

force of the Constitution, which prevent the respondent

– Municipal Corporation from levying the tax on the

premises vesting in the Government.

6. Shri Kaul in rejoinder submits that ownership still

vests in the Central Government when the owner is not

liable, occupier cannot be held to be liable to pay

property taxes. The judgment of this Court in Food

Corporation of India Vs. Municipal Committee, Jalalabad

(supra) was a case where FCI was the owner of the

property, hence the said case has no applicability in

the facts of the present case. The arbitrator

appointed under Section 144(2) went wrong in holding

that FCI owns the property. His jurisdiction was only

to determine the rateable value insofar as services

rendered by the Corporation namely water charges etc.,

which the appellant is willing to pay. He further

submits that the appellant is also willing to pay the

amount in lieu of general tax to be determined in

accordance with Section 144 of Act, 1888.

11

7. We have considered the submissions of the learned

counsel for the parties and have perused the records.

8. The main question to be determined in this appeal

is as to whether the property in question is exempted

from payment of property tax by virtue of Article 285

of the Constitution of India. The High Court in the

impugned judgment has primarily relied on Section 146

of the Act, 1888 in rejecting the claim of exemption

under Article 285 of the Constitution of India.

According to the High Court, the appellant being

occupier of the godowns will be primarily liable to pay

the property taxes. The main reasons of the High Court

in rejecting the claim of the appellant are contained

in paragraphs 12 and 15, which are as follows:-

“12. The contention of the petitioner is
that in view of clause 1 of Article 285,
since the lands and godowns in respect of
which property taxes are levied are the
properties of the Government of India, the
same are exempted from taxes imposed by a
State or any other Authority within the
State. Clause 2 of Article 285 carves out
an exception to clause 1. If any Authority
within the State was levying any taxes on
the property of the Union of India to which
such property was immediately before the
commencement of the Constitution of India
liable or treated as liable, the taxes can
continue to be levied till the Parliament
by a law otherwise provides. Under the said

12
Act of 1888, the premises vesting in the
Government of India were liable for
property taxes on the date of commencement
of the Constitution of India. The words
“Government” appearing in sub-section 1 of
section 146 was substituted for the words
“the Crown” by the Adaptation of Indian
Laws Order in Council. Thus, as per the
provisions of the said Act of 1888, the
property of the Union of India within the
jurisdiction of the said Corporation was
liable for levy of property taxes
immediately before the commencement of the
Constitution of India. There is no law
enacted by the Parliament after coming into
force the Constitution of India which
prevents the said Municipal Corporation
from levying the taxes on the premises
vesting in the Government. Therefore,
Article 285 is of no help to the petitioner
in view of applicability of clause 2 of
Article 285 of the Constitution of India.

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

9. For considering the respective submissions of

counsel for the parties, we first need to look into the

statutory provisions pertaining to the assessment of

property tax as well as the provisions of exemption

from payment of tax on the property belonging to

Central Government. Chapter VIII of the Act, 1888

deals with “Municipal Taxation”. Section 139 provides
13
that “for the purposes of this Act, taxations to be

imposed shall consist property taxes and other taxes.

Sections 143, 144 and 146, which are relevant for the

present case are as follows:-

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

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

(a) buildings and lands or
portions thereof exclusively
occupied for public worship or for
charitable purposes;

(b) buildings and lands vesting
in Brihan Mumbai used solely for
public purposes and not used or
intended to be used for purposes of
profit or in the Corporation, in
respect of which the said tax, if
levied, would under the provisions
hereinafter contained be primarily
leviable from the Government or, the
corporation respectively;

(c) such buildings and lands
vesting in, or in the occupation of,
any consul de carriers, whether
called as a consul general, consul,
vice-consul, consular agent, pro-
consul or by any other name of a
foreign State recognised as such by
the Government of India, or of any
members (not being citizens of
India) of staff of such officials,
and such buildings and lands or
parts thereof which are used or
intended to be used for any purpose
other than for the purpose of
profit.

14

(2) The following buildings and lands
or portions thereof shall not be deemed to
be exclusively occupied for public worship
or for charitable purposes within the
meaning of clause (a), namely: —

(c) those in which any trade or
business is carried on; and

(d) those in respect of which
rent is derived whether such rent is
or is not applied exclusively to
religious or charitable purposes.

(3) Where any portion of any building
or land is exempt from the general tax by
reason of its being exclusively occupied
for public worship or for charitable
purpose, such portion shall be deemed to be
a separate property for the purpose of
municipal taxation.

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

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

(2) The rateable value of the buildings
and lands in Brihan Mumbai vesting in
Government and beneficially occupied, in
respect of which but for the said
exemption, general tax would be leviable
from the Central Government or the State
Government, as the case may be, shall be
fixed by a person from time to time
appointed in this behalf by the State
Government with the concurrence of the

15
corporation. The said value shall be fixed
by the said person, with a general regard
to the provisions hereinafter contained
concerning the valuation of property
assessable to property-taxes, at such
amount as he shall deem to be fair
reasonable. The decision of the person so
appointed shall hold good for a term of
five years, subject only to proportionate
variation, if in the meantime the number or
extent of the building and lands vesting in
Government in Brihan Mumbai materially
increases or decreases.

(2A) Where the Corporation has adopted
the levy of property tax on capital value
of buildings and lands, the capital value
of buildings and lands in Brihan Mumbai
vesting in Government and beneficially
occupied, in respect of which but for the
said exemption, general tax would be
leviable from the Central Government or the
State Government, as the case may be, shall
be the book value of such buildings or lands
in Government records and such capital
value shall hold good for a term of five
years, subject only to proportionate
variation, if in the meantime the number or
extent of the buildings and lands vesting
in Government in Brihan Mumbai materially
increases or decreases.

(3) The sum to be paid annually to the
corporation by the Central Government or
the State Government, as the case may be,
shall be eight-tenth of the amount which
would be payable by an ordinary owner or
buildings or lands in Brihan Mumbai, on
account of the general tax, on a rateable
value or on capital value, as the case may
be, of the same amount as that fixed under
sub-section (2), or sub-section (2A), as
the case may be.

16

146. Primary responsibility for property
taxes on whom to rest.

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

Provided that the property-taxes due in
respect of any premises owned by or vested
in the Government and occupied by a
Government servant or any other person on
behalf of the Government for residential
purposes shall be leviable primarily from
the Government and not the occupier
thereof.

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

(a) if the premises are let, from
the lessor;

(b) if the premises are sub-let,
from the superior lessor;

(c) if the premises are unlet,
from the person in whom the right to
let the same vests;

(d) if the premises are held or
occupied by a person who is not the
owner and the whereabouts of the
owner of the premises cannot be
ascertained, from the holder or
occupier; and

(e) if the premises are held or
developed by a developer or an
attorney or any person in whatever
capacity, such person may be holding
the premises and in each of whom the
right to sell the same exists or is
acquired, from such holder,

17
developer, attorney or person, as
the case may be:

Provided that, such holder,
developer, attorney or person shall
be liable until actual sale is
effected.

(3) But if any land has been let for any
term exceeding one year to a tenant, and
such tenant or any person deriving title
howsoever from such tenant has built upon
the land, the property taxes assessed upon
the said land and upon the building erected
thereon shall be leviable primarily from
the said tenant or such person, whether or
not the premises be in the occupation of
the said tenant or such person.”

10. In British India, prior to the passing of the

Government of India Act, 1935, the question of

exemption of Crown property from taxation was not

definitely settled. Different High Courts have

expressed divergent views. The Government of India

Act, 1935 for the first time provided for exemption of

certain public property from taxation. Section 154 of

the Act, 1935 provided for exemption from all taxes

imposed by, or by any authority within, a Province or

Federated State all the properties vested in His

Majesty whereas Section 155 contained exemption of

Provincial Governments and Rulers of Federated States

18
in respect of Federal taxation. Sections 154 and 155

are as follows:-

“154. Exemption of certain public property
from taxation.- Property vested in His
Majesty for purposes of the government of
the Federation shall, save in so far as any
Federal law may otherwise provide, be
exempt from all taxes imposed by, or by any
authority within, a Province or Federated
State:

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

155.Exemption of Provincial Governments and
Rulers of Federated States in respect of
Federal taxation-(1) Subject as hereinafter
provided, the Government of a Province and
the Ruler of a Federated State shall not be
liable to Federal taxation in respect of
lands or buildings situate in British India
or income accruing, arising or received in
British India;

Provided that-

(a) where a trade or business of
any kind is carried on by or on
behalf of the Government of a
Province in any part of British
India outside that Province or by a
Ruler in any part of British India,
nothing in this subsection shall
exempt that Government or Ruler from
any Federal taxation in respect of
that trade or business, or any
operations connected therewith, or
any income arising in connection

19
therewith, or any property occupied
for the purposes thereof;

(b) nothing in this subsection
shall exempt a Ruler from any
Federal taxation in respect of any
lands, buildings or income being his
personal property or personal
income.

(2) Nothing in this Act affects any
exemption from taxation enjoyed as of right
at the passing of this Act by the Ruler of
an Indian State in respect of any Indian
Government securities issued before that
date.”

11. The main provision of Section 154 although exempted

properties vested in His Majesty from all taxes imposed

by a Province or Federated State or any authority

within but proviso contains an exception to the main

provision, which provided that any property so vested

which was immediately before the commencement of Part

III of the Government of India Act, 1935 was liable,

or treated as liable, to any such tax, shall continue

to be liable, or to be treated as liable, thereto so

long as that tax continues. The commencement of the

Part III of the Government of India Act, 1935 was w.e.f.

01.04.1937. The Constitution of India continued the

exemption of taxation of the properties of Central

Government from the taxation by State or any authority

20
as well as the State property from Central taxation

under Article 285 and Article 289. The proviso to

Section 154 was retained as sub-article(2) of Article

285. Article 285 and Article 289 of the Constitution

are as follows:-

“285. Exemption of property of the Union
from State taxation.– (1) The property of
the Union shall, save in so far as
Parliament may by law otherwise provide, be
exempt from all taxes imposed by a State or
by any authority within a State.

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

289. Exemption of property and income of a
State from Union taxation.– (1) The
property and income of a State shall be
exempt from Union taxation.

(2) Nothing in clause (1) shall prevent
the Union from imposing, or authorising the
imposition of, any tax to such extent, if
any, as Parliament may by law provide in
respect of a trade or business of any kind
carried on by, or on behalf of, the
Government of a State, or any operations
connected therewith, or any property used
or occupied for the purposes of such trade
or business, or any income accruing or
arising in connection therewith.

(3) Nothing in clause (2) shall apply
to any trade or business, or to any class

21
of trade or business, which Parliament may
by law declare to be incidental to the
ordinary functions of Government.”

12. The provisions of Articles 285 and 289 are

complimentary to each other. Section 154 of Government

of India Act, 1935 came for consideration before

Calcutta High Court in Governor-General of India in

Council Vs. Corporation of Calcutta, AIR (1948) Cal.

117. Justice B.K. Mukherjea (as he then was) allowed

the appeal of Governor-General in Council holding that

the property in question was exempted from municipal

taxes, with which opinion, Ormond, J. while writing a

separate opinion agreed. In the above case, the

Calcutta Corporation assessed the premises in the year

1937 on account of substantial additions to and

alteration of the premises in the year 1941 and 1942.

Objection was taken to the valuation by the Governor

General of India in Council on the ground that under

Section 154 of Government of India Act, all buildings

which were not in existence prior to 01.04.1937 when

Part III of Government of India Act, 1935 came into

operation, and which were consequently not subjected

to any assessment before April, 1937 were exempted from

all taxes, and could not be assessed to municipal

22
rates. The contention was not accepted by the Executive

Officer of the Calcutta Corporation and an appeal was

filed by the appellant to the Small Cause Court Judge,

which was also dismissed. An appeal was filed in the

High Court against the above judgment. Justice B.K.

Mukherjea while interpreting Section 154 laid down

following in paragraphs 10 and 13:-

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

13. Our conclusion therefore is that the
additional buildings raised on premises No.
7, Gun Foundry Road after 31-3-1937 are
exempted from payment of consolidated rates
under the Calcutta Municipal Act and the
present assessment is to be made on the
basis of the land and buildings as they
existed on 31-3-1937, excluding all
additions made subsequent to that date.”

13. Ormand, J. in paragraphs 28 and 29 laid down

following:-

“28. The sole question in this appeal is
the narrow one whether, firstly, new
buildings on the same land and secondly,
alterations, additions and improvements
made in a building which existed before 1-

4-1937, are properties which were
“immediately before 1-4-1937 liable or

23
treated as liable to the tax.” Now for
property to have been liable to the tax
before 1-4-1937, it is self-evident that
that property must have been in existence
before 1-4-1937. Equally, I think, this
must be so for property “treated as liable”
to the tax. There could have been no
liability attached to a non-existent thing;
nor could there have been any treatment of
a non-existent thing. It is outside the
power of comprehension to conceive of any
property which could have been “treated as
liable to tax” if that property was not in
a state of physical existence at the time.

29. This being so, it follows that the only
taxable property brought within the
exception contained in the proviso is
property which was in physical existence
before 1-4-1937. The four conditions which
it would be necessary for the Corporation
to establish to bring the property within
the proviso would be:(1) Physical existence
of the property before 1-4-1937, (2)
Liability of that property to the tax then,
(3) Physical existence of the same property
now, that is to say, for the current period
for which tax is sought to be levied and
(4) Liability of the property (if it were
not Crown property) to the tax now. The
contention relied upon on behalf of the
Corporation, if analysed must come to this,
that though a thing in itself was not in
existence before 1-4-1937, yet if it is now
in existence in a situation resting on, or
attached to, or forming part of, some
particular area of land or building, which
formed the taxable unit before 1-4-1937,
then that thing is itself taxable. It is
said that what is being taxed is the unit
of property and that that unit of property
can now be taxed in its new form; that is
to say, inclusive of the new thing on it,
which did not previously exist: for the
reason that the same unit of property had

24
existed before 1-4-1937 in an old form
without that new thing.”

14. The Calcutta High Court in the above judgment while

interpreting Section 154 has held that proviso to

Section 154 shall be applicable for taxing property

owned by His Majesty only when such property was

subject to tax on 31.03.1937 or earlier. The property

which came into existence subsequent to 01.04.1937 is

not to be covered by proviso and held covered by the

main provision of Section 154 and not exigible to

property tax. The above judgment of the Calcutta High

Court was noticed with approval by Federal Court in The

Corporation of Calcutta Vs. The Governors of St. Thomas

School, Calcutta, AIR 1949 F.C. 121. In the case before

Federal Court, the premises containing land and

building were owned by St. Thomas School, which

buildings were constructed before April, 1942. In

April, 1942, the premises were requisitioned under the

Defence of India Act for the purposes of the Government

of the Federation. Several buildings were constructed

by the Central Government. In the assessment made in

the last quarter of 1944-45, the cost of all the

additional structures erected by the Central Government

25
were taken into account while fixing the annual value.

The respondents objected to the assessment and the

contention that the value of the buildings put up by

the Central Government should be excluded in the

revaluation was rejected by Deputy Executive Officer,

against whose decision an appeal was filed in the Court

of Small Causes. The Court of Small Causes accepted

the contention of the respondent and held that the

structures put up by the Central Government were exempt

from municipal taxes and therefore should not be

included in the valuation. The Judge, Small Causes

Court relied on judgment of the Calcutta High Court in

Governor-General of India in Council Vs. Corporation

of Calcutta (supra) and dismissed the appeal of the

Corporation. The Corporation filed the appeal before

the High Court. While dismissing, Federal Court laid

down following in paragraph 12:-

“12. This reasoning also leads to the
rejection of the second contention of the
appellants. The contention is that as the
unit of taxation is the area mentioned in
the schedule to the agreement and as that
unit was subject to taxation before April
1937, the exemption in favour of the Crown
given in Section 154 could not be availed
of. Whether any particular property falls
within the exemption provided in Section
154, Government of India Act, must depend
on what is “property” within the meaning of

26
that section and not on what is regarded as
a unit for purposes of assessment under a
local Municipal Act. The question in
whether what is sought to be taxed is
property and, if so, whether the same is
vested in the Government. If the answer to
both these is in the affirmative, the
question is whether that property was
liable to tax before April 1937. In the
present case the answer is clearly in the
negative because the additional structures
were all put up after 1942 and therefore
were not subject to the municipal tax
before April 1937. The result is that all
the contentions’ of the appellants urged
before us are rejected. The appeal,
therefore, fails and is dismissed with
costs.”

15. The Division Bench of the Calcutta High Court in

The Corporation of Calcutta Vs. Union of India, AIR

1957 Calcutta 548 had occasion to consider Article

285(2) of the Constitution. The Division Bench

referred to and relied on the earlier judgment of

Calcutta High Court in Governor-General of India in

Council Vs. Corporation of Calcutta (supra). The

Division Bench noticed the Scheme of exemption as

contained in the Section 154 of the Government of India

Act, 1935 and has extensively referred to Division

Bench judgment in Governor-General of India in Council

Vs. Corporation of Calcutta (supra) and laid down

following in paragraph 11:-

27
“11. The Constitution retained and re-

employed the same phrase which, as the
above observations show, had already been
judicially interpreted in the same manner
as we have done on the present occasion.
That is a strong pointer to the legislative
intent and amply supports our construction
of the words ‘treated as liable’ as used in
Article 285(2) of the Constitution and, if
that construction is correct, there can
possibly be no doubt, in the facts of the
two instant cases, that the present
disputed assessments are valid. The
safeguard, so far as Union properties are
concerned, is contained in the reservation
in the very clause in question, reserving
power to the Parliament to provide
otherwise. Until, however, Parliament does
so provide, Union properties which were
treated as liable to a particular local tax
immediately before the coming into force of
the Constitution would remain liable for
the same. Admittedly the disputed premises
(as belonging to the Central Government and
owned by it) were actually assessed to
Municipal tax, and such tax was being paid
and realised also, immediately before the,
commencement of the Constitution. The
premises, therefore, on the above
construction of the Article, were ‘treated
as liable’ to such tax on that date.
Admittedly also. Parliament has not, so
far, by law, otherwise provided, as it has
undoubtedly the power to do under Article
285(2)
of the Constitution.”

16. We had noticed above the fact that godowns in

questions were constructed by the Central Government

after completion of the acquisition in the year 1964.

The submission which has been pressed by Shri Kaul is

that the buildings in question being not liable or

28
treated to be liable for property tax immediately

before the commencement of the Constitution, the

respondents cannot claim the benefit of Article 285(2).

Although, it is not disputed by the respondents that

the godowns in question were not subject to property

tax immediately before the commencement of the

Constitution but submission, which has been pressed by

Shri Shishodia is that under Act, 1888, the property

of Central Government was exigible to tax immediately

before commencement of the Constitution, hence, the

conditions of Article 285(2) are fulfilled and

Corporation is fully entitled to levy property tax on

the appellant.

17. Before proceeding further, we may notice the factum

of ownership of the property including the godowns

thereon. As noticed above, the land was acquired by

the State of Bombay for the Central Government and it

was the Central Government, which constructed the

godowns thereon. The earlier Division Bench judgment

of Bombay High Court dated 03.12.1992 in Civil Appeal

No. 259 of 1989 has been referred to and relied by the

appellant, by which judgment, the Division Bench has

29
set aside the levy of non-agricultural assessments as

imposed on the appellant. The Division Bench in the

above judgment has also accepted the case of the

appellant that legal ownership of the land and the

structures vests with the Government. In paragraph 33

of the judgment, following was laid down:-

“(3). Shri Saraf, learned counsel
appearing on behalf of the Government of
Maharashtra, submitted that the Corporation
is occupier of the lands and as occupant is
liable to pay non-agricultural assessment.
The submission overlooks that the right to
recover assessment from the occupier is an
enabling provision but cannot be imported
when the original owner is not liable to
pay taxes. The power to recover assessment
from the occupier is available provided the
original owner is not available but is
liable to pay the taxes. In view of the
return filed on behalf of Government of
India, it is clear that the land still vests
in Government of India and consequently,
the owner is not liable to pay any
assessment. As the Central Government is
not liable to pay assessment, it is not
open for the State Government to recover
the same from the Food Corporation of India
who is merely occupier of the lands and
holder of the godowns on behalf of the
Government of India. In our judgment, the
claim of the State Government for recovery
of NA assessment and service of notices
cannot be sustained.”

18. The above status of the ownership of the property

as noticed by the Division Bench in its judgment dated
30
03.12.1992 has not been questioned before us. We,

thus, proceed to consider the submissions of the

parties accepting the property including the

construction thereon to be owned by the Government of

India.

19. What is the content and meaning of the expression

as occurring in sub-article (2) of Article 285,

“prevent any authority within a State from levying any

tax on any property of the Union to which such property

was immediately before the commencement of this

Constitution liable or treated as liable so long as

that tax continue to be levelled in that tax.” Whether

Constitution framers intended to clothe any authority

within the State from levying any tax on any property,

which property was liable or treated to be liable to

tax or whether mere power to tax the property of Union

prior to the commencement of the Constitution is

sufficient to continue such power after the enforcement

of the Constitution irrespective of as to whether a

property was subject to tax in the State or not. The

Constituent Assembly Debate in the above context throws

a considerable light on the intention of the

31
Constitution framers on the content and meaning of

Article 285 as now contained in the Constitution of

India.

20. Draft Article 264 which came for consideration

before the Constituent Assembly on 9th September, 1949

was to the following effect:

“Article 264

The Honourable Dr. B.R. Ambedkar
(Bombay: General): Sir, I move:

“That for article 264, the following
article be substituted :-

      Exemption    of       “264.(1)            The
      property of the       property of the Union
      Union      from
                            shall be exempt    from
      State Taxation.
                            all taxes imposed by
                            a    State  or by any
                            authority   within    a
                            State

(2) Nothing in clause (1) of this article
shall, until Parliament by law otherwise
provides, prevent any local authority
within a State from imposing any tax on
any property of the Union to which such
property was immediately before the
commencement of this Constitution
liable or treated as liable so long as
that tax continues to be levied in that
State.”

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

32

21. Amendments were moved to the Draft Article. Several

members in the Constituent Assembly spoke in favour of

making the property of the Union subject to all taxes

imposed by a local authority within the State, save

insofar as the Parliament may by law otherwise provide.

Shri R.K. Sidhwa in his speech stated that in the event

Article 264 as proposed is passed the local authorities

shall lose substantial amount of Revenue which they are

getting from taxes realise from properties of the

Central Government.

22. Dr. B.R. Ambedkar replying the debate has dealt

with clause (2) of proposed Article 264. Dr. B.R.

Ambedkar in his reply stated that intention of clause

(2) of Article 264 is to maintain the status quo, that

is those municipalities which are levying any

particular tax on the properties of the Union

immediately before the commencement of the Constitution

will continue to levy those taxes. Following is the

reply made by Dr. B.R. Ambedkar:

“The Honourable Dr. B.R. Ambedkar: Sir,
I will first refer to the provisions
contained in clause (2) of the proposed
article 264. I think it would be agreed
that the intention of this clause (2) is to
maintain the status quo. Consequently under

33
the provisions of clause (2) those
municipalities which are levying any
particular tax on the properties of the
Union immediately before the commencement
of the Constitution or on such property as
is liable or treated as liable for the levy
of these taxes, will continue to levy those
taxes. All that clause (2) does is that
Parliament should have the authority to
examine the nature of the taxes that are
being imposed at present. There is nothing
more in clause (2), except the saving
clause, viz., “until Parliament by law
otherwise provides”. Until Parliament
otherwise provides the existing local
authorities, whether they are
municipalities or local boards, will
continue to levy the taxes on the
properties of the Centre. Therefore, so far
as the status quo is concerned, there can
be no quarrel with the provisions contained
in article 264.

The only question that can arise is
whether the right given by clause (2)
should be absolute or should be subject to
the proviso contained therein, until
Parliament otherwise provides. In another
place where the matter was discussed I
submitted certain arguments for the
consideration of the House.”

23. The Constituent Assembly adopted Article 264 as

proposed by one addition in clause (1) by adding the

words “save insofar as the Parliament may by law

otherwise provide”.

24. This Court has occasion to consider the provisions

of Article 285 clause (2) of the Constitution in Union
34
of India owner of the Eastern Railway vs. The

Commissioner of Sahibganj Municipality, (1973) 1 SCC

676. The question which came for consideration before

this Court has been noted in paragraph 1 which is to

the following effect:

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

25. In paragraphs 13 to 16, this Court observed that

32 blocks of buildings were vested in the Union after

April 1, 1937, and some of them after Constitution came

into existence, these properties could be made liable

to pay tax to the Municipality only if Parliament by

law provided to that effect. Paragraphs 13 to 16 are

as follows:

“13. The 32 blocks of buildings were not in
existence before April 1, 1937. These 32
blocks of buildings were therefore not
vested for purposes of the Government of
the Federation before the commencement of
Part III of the 1935 Act. The 32 blocks of
buildings were thus exempt from all taxes
imposed by any authority within a province
until a Federal law otherwise provided.

Section 4 of the 1941 Act did not provide
for payment of taxes in respect of Railway
property. Section 3 of the 1941 Act stated
that a Railway Administration shall be
35
liable to pay any tax in aid of the funds
of any local authority if the Central
Government by notification in the Official
Gazette declares it to be so liable. It is
an admitted feature in these appeals that
there was no notification under Section 3
of the 1941 Act declaring the Railway
properties to be liable to pay any tax in
aid of the funds of any local authority.

14. Under Article 285 of the Constitution
property of the Union was exempt from all
taxes until Parliament by law otherwise
provides. There is no such law providing
for taxation of Railway property.

15. Clause (2) of Article 285 speaks of
liability of Railway property to pay taxes
where such property was immediately before
the commencement of the Constitution liable
or treated as liable to pay any tax levied
by any authority within a State. These 32
blocks of buildings were not liable to pay
any tax because they were not in existence
before April 1, 1937 or before the
commencement of the Constitution.

16. The High Court was in error in
construing the notification issued in 1911
under the 1890 Act to continue by virtue of
the provisions contained in Section 4 of
the 1941 Act. These 32 blocks of buildings
vested in the Union some of them after April
1, 1937 and some after the Constitution
came into existence. These properties could
be made liable to pay tax to the
Municipality only if Parliament by law
provided to that effect.”

26. This Court also in the above judgment has approved

the Federal Court judgment in Corporation of Calcutta

vs. Governors of St. Thomas’ School, Calcutta, AIR 1949

36
FC 121. Following was laid down in paragraphs 17 and

18:

“17. The High Court referred to the
decision of this (sic) Court in Corporation
of Calcutta v. Governors of St. Thomas

School, Calcutta and held that the ruling
in that decision did not apply to the facts
in the present appeals by reason of Section
4 of the 1941 Act rendering the properties
liable to tax. The High Court misconstrued
the provisions of Section 4 of the 1941
Act. The decision of this (sic) Court in
St. Thomas’ School case1 directly applies
to these appeals. St. Thomas’ School was
situated at 4, Diamond Harbour Road,
Calcutta. The buildings were constructed
before April 1942. The premises were
assessed to consolidated rates under the
Calcutta Municipal Act. In April 1942, the
premises. were requisitioned for the
purposes of the Central Government. After
the requisition the Central Government
erected several structures on the premises.
In 1944-45, there was a general revaluation
by the Corporation of Calcutta. The cost of
the Additional structures erected by the
Central Government was taken into account
in determining the annual value of the
premises. The Governors of St. Thomas’
School objected to the valuation and
claimed that the value of the buildings put
up by the Government should be excluded in
the revaluation. The Calcutta High Court
held that Section 154 of the Government of
India Act, 1935 applied to the buildings
constructed by the Central Government and
the proviso to Section 154 of the 1935 Act
was not applicable. This Court held that
the buildings constructed by the Central
Government were vested in the Government.

In view of the fact that the Additional
structures were put up by the Central
Government after 1942, it was held that

37
these were not subject to municipal tax
before April 1937.

18. The 32 blocks of buildings in the
present appeals were not in existence
before April 1, 1937 and January 26, 1950.
The notification under the 1890 Act did not
apply to these 32 blocks of buildings.
There is no law declaring these 32 blocks
of buildings to be liable to payment of
municipal tax as claimed by the respondent
Municipality.”

27. The above Constitution Bench judgment of this Court

clearly lays down that exemption from payment of taxes

on the properties of Central Government as available

under clause (1) of Article 285 can be denied only when

the property in question was exigible to the Municipal

Tax prior to the commencement of the Constitution or

any Parliamentary law provides for properties to be

exigible to pay tax to the Municipality.

28. Article 285 clause (2) again came for consideration

before the Constitution Bench of this Court in Union

of India vs. City Municipal Council, Bellary, (1979) 2

SCC 1, explaining the content of clause (2) of Article

285. Following was laid down in paragraph 7:-

“7……The property of the Union is exempt
from all taxes imposed by a State or by any
authority within a State. But Parliament
may by law provide otherwise and then any

38
tax on the property of the Union can be
imposed and levied in accordance with the
said law. But then an exception has been
carved out in clause (2). The exception is
not meant for levying any tax on such
property by any State; but it is merely for
the benefit of any authority including the
local authority like the Municipal Council
in question. Clause (1) cannot prevent such
authority from levying any tax on any
property of the Union if such property was
exigible to such tax immediately before the
commencement of the Constitution. The local
authority, however, can reap advantage of
this exception only under two conditions
namely, (1) that it is “that tax” which is
being continued to be levied and no other;
(2) that the local authority in “that
State” is claiming to continue the levy of
the tax. In other words, the nature, type
and the property on which the tax was being
levied prior to the commencement of the
Constitution must be the same as also the
local authority must be the local authority
of the same State to which it belonged
before the commencement of the
Constitution. On fulfilment of these two
conditions it is authorised to levy the tax
on the Union property under clause (2). As
in the case of clause (1) it lies within
the power of Parliament to make a law
withdrawing the exemption of the imposition
of the tax on the property of the Union, so
in the case of clause (2) it is open to
Parliament to enact a law and finish the
right of the local authority within a State
to claim any tax on any property of the
Union, a right it derived under clause (2).
That is to say, in both the cases the
ultimate power lies with Parliament.”

29. The Constitution Bench has also approved the

Calcutta High Court judgment in Governor-General of

39
India in Council vs. Corporation of Calcutta, AIR

(1948) Cal 116(2).

30. Durga Das Basu in Commentary on Constitution of

India while commenting on Article 285, Clause (2), has

also said that the property must have been in physical

existence immediately before the commencement of the

Constitution. In 8th Edition under the heading “Article

285, Clause (2): Power of Local Authorities to Tax

Union Property” following has been stated:

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

Saving of existing taxation

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

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

Article 285(2) does not permit levy of
any tax by a State; it only benefits “the

40
authority within the State”, such as the
municipal body.

“Liable or treated as liable”

These words mean that in order to come
within the Proviso, the property must have
been in physical existence immediately
before the commencement of the
Constitution. There could have been no
liability attached to a non-existent thing;
nor could there have been any treatment of
a non-existent thin. New buildings and
structures erected on the land after the
aforesaid date, are therefore, exempt from
tax though the land on which they have ben
erected may be liable to tax under cl.(2).

The conditions necessary to bring a
property within cl.(2) in order to make it
liable to taxation are:

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

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

(c) Physical existence of the property
now, i.e., at the time when the tax
is sought to be levied;

(d) Liability of the property to tax
now;

(e) The tax in question must be the
‘same tax’ as that which was levied
or leviable at the commencement of
the Constitution;

(f) The local authority seeking to
levy the tax must be in the same
State to which the pre-

Constitution authority belonged;”

41

31. From the above discussion we arrive at the

conclusion that for the applicability of clause (2) of

Article 285, the property on which tax is sought to be

proposed ought to have been subject to property tax

before the commencement of the Constitution. Since,

object of the Article 285(2) of the Constitution was

to continue the levy of the such tax which local

authority was enjoying prior to the commencement of the

Constitution so as to maintain the status quo regarding

the financial resources of Municipal Corporation to

avoid the complete exemption from property of Central

Government as provided under Article 285(1). In the

present case the constructions on which the property

tax is sought to be imposed by Municipal Corporation

came into existence only after 1964 and were not

subject to property tax prior to the commencement of

the Constitution, hence condition for applicability of

Article 285(2) is not satisfied. Resultantly the

Municipal Corporation is not competent to impose

property tax denying the exemption under Article 285(1)

of the Constitution.

42

32. Shri Shishodia has placed reliance on the judgment

of this Court in Food Corporation of India vs.

Municipal Committee, Jalalabad and another, (1999) 6

SCC 74. Shri Shishodia submits that this Court in the

above case has held that Food Corporation of India is

not exempt from taxation under Article 285. The

question which came for consideration before this Court

has been noticed in paragraph 7 which is to the

following effect:

“7. The question that arises before us is:
If the property of the Corporation is the
property of the Union of India and, thus,
exempt from taxation imposed by the State
or any authority within a State. Authority
in the present case would include local
authority. A Constitution Bench of this
Court in Electronics Corpn. of India Ltd.
v. Secy., Revenue Deptt., Govt. of
A.P
.,(1999)4 SCC 458, has held that a
government company is distinct from the
Central Government and cannot claim
exemption from taxation under Article 285
of the Constitution. The case of the
Corporation cannot be any different. The
Act under which it is constituted
specifically makes the Corporation a body
corporate having the attributes of a
company.”

33. This Court in the above case relying on

Constitution Bench judgment in Electronics Corporation

of India Ltd. and others Vs. Secretary Revenue

43
Department, Govt. of Andhra Pradesh and others, (1999)4

SCC 458, held that the Corporation is a distinct entity

from the Union of India and is not exempt from taxation

under Article 285. The Constitution Bench in

Electronics Corporation of India Ltd. (supra) held that

Article 285 is not applicable where assessee is an

entity, separate and different from Union Government.

The Constitution Bench in paragraph 22 laid down

following:

“22……Article 285 does not apply when the
property that is to be taxed is not of the
Union of India but of distinct and separate
legal entity. Each of the appellants being
companies registered under the Companies
Act
, they are entities other than the Union
of India.”

34. There cannot be any dispute to the proposition laid

down by this Court in Food Corporation of India vs.

Municipal Committee, Jalalabad (supra) and by the

Constitution Bench in Electronics Corporation of India

Ltd. (supra) Article 285 does not apply when the

property that is to be taxed is not of the Union of

India but a distinct and separate legal entity. Had the

property in question which is sought to be taxed

belonged to the Food Corporation of India, in the

present case, the judgment of this Court in Municipal
44
Committee, Jalalabad (supra) as well as Electronics

Corporation of India Ltd. (supra) would have applied

in full force, but in the present case the property

being that of the Central Government, both the above

judgments are not applicable.

35. The submission which has been made by Shri

Shishodia to support the levy of property tax on the

appellant is that the appellant being occupier is

liable to pay property tax in view of Section 146 of

the 1888 Act. He submits that the primary

responsibility for property tax being on occupier as

per Section 146(1) of 1888 Act, the Corporation cannot

escape from its responsibility to pay property tax.

Sub-section (1) of Section 146 uses the expression “if

such occupier holds the said premises immediately from

the Government…….”, the key words in the expression are

“such occupier holds the said premises”. The word

‘holds’ has various shades of meaning. Whether sub-

section (1) of Section 146 will hold the occupier that

is the appellant to pay the property tax even though

the owner of the property Central Government is exempt

45
from paying property tax under Article 285(1) is the

question to be answered.

36. The heading of Section 146 is “Primary

responsibility for property taxes from whom to rest”.

When there is a claim of exemption from payment of

property tax with regard to property owned by the

Government of India, the question of primary

responsibility or secondary responsibility loses its

importance. When payment of property tax is exempt

under Article 285(1) to tax the occupier runs counter

to the very claim of exemption as delineated by Article

285. Section 146 of 1888 Act as it exists now has to

be construed in a manner so as to give effect to the

meaning and purpose of Constitutional protection

granted under Article 285. The statutory provision, may

it be Section 146 of 1888 Act, cannot be read in a

manner so as to run contrary to a Constitutional

provision.

37. In the event the claim of Municipality/Corporation

to levy property tax is not covered by sub-clause (2)

of Article 285, it cannot be allowed to take recourse

46
to any statutory provision or device to make exemption

under Article 285(1) nugatory. We are, thus, not

persuaded to accept the submission of Shri Shishodia

that since the appellant is occupier of premises owned

by Union of India, is liable to pay property tax under

Section 146(1) of 1888 Act. Both the premises and

building therein are entitled for exemption from

payment of property tax under Article 285(1). At this

stage, it is required to be noted that the FCI is not

in occupation of the godowns owned by the Government

of India as a lessee. Nothing is on record and it is

also not the case on behalf of the Corporation that any

rent/lease amount is being recovered from the FCI. It

appears that FCI is permitted to occupy and use the

godowns owned by the Government of India for the

purpose of storage of the goods which are required to

be transported to the different Fair Price Shops under

the public distribution system.

38. We may notice some of the decisions which have been

relied by Shri Shishodia in support of his claim. Shri

Shishodia has relied on Division Bench judgment of

Gujarat High Court in F.C.I. vs. Gandhidham

47
Municipality, (2002)43(2) GLR 1845. The submission

which was pressed before the Division Bench of the High

Court was that the Food Corporation of India, being an

instrumentality of the State Government, is not liable

to pay municipal taxes in view of Article 285 of the

Constitution. From paragraph 2 of the judgment it is

clear that land was originally owned by the Government

of India and the said land was given to the appellant-

Corporation for the purpose of construction of godowns.

The Corporation made construction of godowns in the

property. The contention which was raised by the

Corporation has been mentioned in paragraph 2 of the

judgment which is to the following effect:

“2. On behalf of the appellant-Corporation
Mr.N.K.Pahwa for Mr.Mr.P.M.Thakkar raised
the contention that the Food Corporation of
India, being an instrumentality of the
State Government, is not liable to pay
municipal taxes in view of Article 285 of
the Constitution. This contention, in
substance, is that the land was originally
owned by Government of India and the said
land is given to the appellant-Corporation
for the purpose of construction of godowns
and the appellant-Corporation is a
statutory corporation, no doubt, is owned
by Government of India and therefore in
view of Section 99 of the Gujarat
Municipalities Act read with Article 285 of
the Constitution no tax can be levied upon
the property constructed by the appellant-
Corporation.”

48

39. The Gujarat High Court held that the question

involved in the appeal is settled by this Court in the

judgment in Food Corporation of India vs. Municipal

Committee, Jalalabad (supra). In paragraphs 4 to 6

Gujarat High Court held:

“4. We have considered the submissions
made by both the sides and also gone through
the order passed by the learned single
Judge. It will not be out of place to
mention that the substantial question
involved in this appeal is now settled by
the Honourable Supreme Court in the case of
FOOD CORPORATION OF INDIA. vs MUNICIPAL
COMMITTEE, JALALABAD reported in (1999) 6
SSC 74, wherein the Honourable Supreme
Court had considered the identical question
and in para 7 of its judgment it was held
as under:

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

49

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

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

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

40. No exception can be taken to the above judgment of

Gujarat High Court which has correctly relied on this

Court’s judgment in Food Corporation of India vs.

Municipal Committee, Jalalabad (supra) and Electronics

Corporation of India Ltd. (supra) when the property

belonged to Corporation who has constructed the

godowns, it was liable to pay municipal taxes and the

Division Bench has rightly dismissed the appeal. The

above judgment does not help the respondent, since, in

the present case the construction was made by the

Government of India and ownership of the Government of

50
India of the premises including the construction in the

present case has not been questioned.

41. The next judgment relied by Shri Shishodia is

Ahmedabad Aviation & Aeronautics Limited vs. Govt. of

Gujarat, 2014 SCC online Guj 15505. In the above case

Ahmedabad Aviation & Aeronautics Ltd., a public Limited

Company had filed the writ petition for declaring that

the Gujarat Municipalities Act, 1963 is not applicable

to the petitioners with further prayer for direction

to prohibit the respondent-Municipality from taking any

coercive measures for recovering the municipal tax from

the petitioner-Company. The Division Bench of the

Gujarat High Court dismissed the writ petition. The

petitioner was in occupation/possession and in use of

Airfield which was given by the Government of Gujarat

with regard to which right of user was granted by the

Government of Gujarat through Department of Civil

Aviation. There was Memorandum of Understanding between

the Company and the Government. The Gujarat High Court

in the above background held the petitioner liable to

pay municipal tax. The case of the petitioner that it

cannot be said that the petitioner is not in exclusive

51
occupation, possession and in use of the entire

Airfield nor they can be said to be lessee, was

rejected. The Gujarat High Court relying on Section

113(2) of the Gujarat Municipalities Act held the

petitioner liable to pay tax. The Division Bench had

also relied on the earlier judgment of the Gujarat High

Court in FCI v. Gandhidham Municipality (supra). In

paragraph 7.3 following was laid down:

“7.3 It is the case on behalf of the
petitioners that as the petitioners cannot
be said to be in exclusive occupation,
possession and in use of the Airfield,
Mehsana and they are permitted to use the
Airfield / Airstrip on payment of user
charges they cannot be said to be lessee
and the MOU cannot be said to be a lease
deed and, therefore, considering Section
113 of the Gujarat Municipalities Act the
primary liability to pay the municipal tax
would be upon the owner-Collector, Mehsana
and not upon the petitioners as the
petitioners cannot be said to be the
lessee. The aforesaid seems to be
attractive but has no substance. For the
purpose of liability to pay the municipal
tax, what is required to be considered is,
whether the concerned person is in
occupation and use of the property in
question or not and it is immaterial
whether he is in occupation as lessee or
not. In the case of FCI Vs. Gandhidham
Municipality (Supra) considering Section
113(2) of the Act the Division Bench of
this Court has specifically observed and
held that it is the occupier of the
property, who is using the property and for
the said purpose the occupier cannot get
away from the liability to pay the tax of

52
the local authority since the taxes are for
the purpose of providing services to the
residents or occupiers of the property.”

42. The above judgment of the Gujarat High Court was

on its own facts and was based on liability to pay

municipal tax under Section 113(2) of the Gujarat

Municipalities Act. In the above case there was no

question pertaining to claim of any exemption from

payment of tax from property of the Union. Thus, the

above judgment in no manner helps the respondent in the

present case.

43. The Division Bench of the High Court in the

impugned judgment relying only on sub-section (1) of

Section 146 held the appellant liable to pay property

tax without giving any reason as to why the appellant

is not entitled to exemption from payment of property

tax under Article 285. The High Court has also not come

to any conclusion that the Corporation is entitled to

levy property tax on the strength of Article 285 clause

(2). The judgment of the Division Bench, thus, cannot

be sustained.

53

44. As noted above, learned counsel for the appellant

during his submission has not disputed the liability

of the Corporation to pay charges for services rendered

by the Corporation including water charges. He has

further stated that the Corporation is willing to pay

amount in lieu of the general taxes as contemplated by

Section 144 of 1888 Act. In paragraph 6 of Writ Petition

No.2672 of 2001 filed by the appellant, liability to

make payment of services charges or other services

provided by the Corporation was not denied. We may

further notice that in the Review Petition No.37 of

2016 which was filed by the appellant to review the

judgment dated 05.05.2016 of the Division Bench of the

Bombay High Court, in paragraph 20 following prayers

were made:

“20. Petitioner therefore pray that:-

(a) This Hon’ble Court may be pleased
to call for the Records and
Proceedings in Writ Petition
No.2672 of 2001 and after going
through the legality, validity and
propriety thereof, review and/or
revoke the Order of this Hon’ble
Court dated 05.05.2016 therein;

(b) this Hon’ble Court may be pleased
to direct the Respondent Nos.1 and
2 to conduct an enquiry in
accordance with the provisions of
Sections 143 and 144 of The Mumbai

54
Municipal Corporation Act, 1888 and
decide the ratable value of the
properties on which taxes were to
be paid;

(c) pending the hearing and final
disposal of the Review Petition,
the Respondent Nos. 1 and 2 may
please be restrained from either
demanding the Property Tax and/or
issuing any fresh tax bill and/or
adopting any coercive steps for
recovery of any property tax
against the Petitioner;

(d) cost of the Petition may please be
provided for;

(e) for such further and other reliefs
as nature of the case may require.”

45. From the above, it is clear that the appellant is

not denying its liability to pay services charges and

direction was sought to respondents to conduct an

enquiry in accordance with the provisions of The Mumbai

Municipal Corporation Act, 1888 and decide the ratable

value of the properties on which taxes were to be paid.

46. At this stage, we may also notice the judgment of

this Court in Union of India and others vs. State of

Uttar Pradesh and others, (2007) 11 SCC 324, wherein

it is held that water charges and sewerage charges

levied by the Jal Sansthan against the Railways for the

55
services rendered by Sansthan were termed as taxes,

charges were not taxes but fees for the services

rendered by the Jal Sansthan which are not precluded

by Article 285. This Court in paragraphs 11 and 23 laid

down following:

“11. The distinction has to be kept in
mind between a tax and a fee. Exemption
under Article 285 is on the levy of any tax
on the property of the Union by the State,
and exemption is not for charges for the
services rendered by the State or its
instrumentality which in reality amounts to
a fee. In this connection, a reference was
made to the decision of this Court in Sea
Customs Act (1878), S. 20(2), In re3. This
was a case in which a reference was made by
the President of India with regard to levy
of customs and excise duties on the State
under Article 289 of the Constitution of
India wherein Sinha, C.J., Gajendragadkar,
Wanchoo and Shah, JJ. answered the question
at para 31 as follows: (AIR p. 1777)

“31. For the reasons given above,
it must be held that the immunity
granted to the States in respect of
Union taxation does not extend to
duties of customs including
export duties or duties of excise.

The answer to the three questions
referred to us must, therefore, be
in the negative.”

23. In this case what is being charged is
for service rendered by the Jal Sansthan
i.e. an instrumentality of the State under
the Act of 1975. Section 52 of the Act
states that the Jal Sansthan can levy tax,
fee and charge for water supply and for
sewerage services rendered by it as water
tax and sewerage tax at the rates mentioned
56
therein. Though the charge was loosely
termed as “tax” but as already mentioned
before, nomenclature is not important. In
substance what is being charged is fee for
the supply of water as well as maintenance
of the sewerage system. Therefore, in our
opinion, such service charges are a fee and
cannot be said to be hit by Article 285 of
the Constitution. In this context it is to
be made clear that what is exempted by
Article 285 is a tax on the property of the
Union of India but not a charge for services
which are being rendered in the nature of
water supply, for maintenance of sewerage
system. Therefore, in our opinion, the view
taken by the Division Bench of the
Allahabad High Court is correct that the
charge is a fee, being service charges for
supply of water and maintenance of sewerage
system, which cannot be said to be tax on
the property of the Union. Hence it is not
violative of the provisions of Article 285
of the Constitution.”

47. We, thus, clarify that even though appellant is

exempted from payment of property tax by virtue of

Article 285 of the Constitution then liability to pay

services charges for services rendered by the

Corporation cannot be denied and learned counsel

appearing for the appellant has very fairly stated so.

In the result, we allow these appeals set aside the

judgment of the High Court and held that the appellant

is exempted and not liable to pay property tax under

1888 Act. However, the appellant is liable to pay

services charges for the services rendered by the

57
Corporation and it shall be open for the respondents

to conduct an enquiry in accordance with provision of

Section 144 of 1888 Act to decide the rateable value

of the property. Ordered accordingly. Parties shall

bear their own costs.

………………….J.

( ASHOK BHUSHAN )

………………….J.

( M.R. SHAH )
New Delhi,
March 19, 2020.

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