Advocates' Office Run From Residence Not Subject To Property Tax As Business Building : Delhi High Court

Holding that the "professional activity" of lawyers cannot be seen as "commercial activity", the Delhi High Court held that an advocate's office run from a residential building is not subject to property tax under the Delhi Municipal Corporation Act as a "business building".

The division bench of Justice Najmi Waziri and Justice Sudhir Kumar Jain noted that the Master Plan for Delhi(MPD), 2021 permits professional activity in residential buildings, subject to certain conditions. However, the said provision of MPD, does not empower the Corporation to levy tax for professional activity being carried out from residential buildings. 

The division bench was dealing with an appeal filed by the South Delhi Municipal Corporation (SDMC) against the judgement of the Single Judge which held that services rendered by advocates are professional activities and hence they cannot be classified, categorised, or subject to tax under the category of business establishment. The issue arose in 2013, when the SDMC issued notice demanding property tax to a lawyer who was running his office in a portion of his residential premises. Allowing the lawyer's challenge against the SDMC action, the single bench had  observed : "In the opinion of this Court, a premise would not become business premise just because a lawyer read his office file or did some official work at his residence".

Arguments of MCD

The MCD has the power to levy property taxes on all lands and buildings under its jurisdiction. Therefore, unless consciously excluded, there cannot be any building, property, or activity that cannot be taxed.

If a building or a part of a building is used for the transaction of business or the keeping of books, accounts, and records, it shall be considered a "business building" and therefore subject to the levy of property tax. A lawyer's services fall within the sphere of professional activity, and a part of a building that is used for professional activity would fall within the definition of a 'business building'.

Activities being carried out by advocates/professionals are commercial and non-domestic in nature. Therefore, it is subject to tax. Simply because such activity is carried out on residential premises, as per permitted users under MPD 2021, the activity would not become residential. MPD 2021 apropos professional activity does not in any way circumscribe the powers of the Corporation under sections 115 and 115A of the Delhi Municipal Corporation Act, 1957 (DMC Act)

Respondent's arguments

The respondent contended that the "power to tax must be expressed; otherwise, there is no power to tax". Under the DMC Act, there is no power to tax "professional activities" carried out in residential buildings. 

Discharge of professional activities by advocates not 'business'

The court, while upholding the ruling of the single bench, held that the "professional activity" of lawyers does not fall within the category of "commercial establishment" or "business activity" and the firm of lawyers is not a "commercial establishment".

It referred to a judgment of a Division Bench of the Bombay High Court in Sakharam Narayan Kherdekar v. City of Nagpur Corporation & Ors., AIR 1964 Bombay 200, which  held that the discharge of professional activities by advocates would not be covered under the expression “business” nor would it be professional establishment because the word “establishment” would only refer to as "shops‟ as defined in the Bombay Shops and Establishment Act, 1948.

Reference was also made to the Supreme Court judgment in V. Sasidharan v. M/s. Peter and Karunakar and others AIR 1984 SC 1700, which held that “professional activity” of lawyers does not fall within the category of "commercial establishment‟ or "business activity‟ and the firm of lawyers is not a "commercial establishment‟. 

Taxation powers have to be specifically mentioned

Referring to Supreme Court precedents, the bench stated that taxation powers have to be specifically mentioned in the statute and they cannot be inferred or presumed. Hence, the argument of MCD that a lawyer's office should be construed as a "business establishment" was rejected as there is no such deeming provision in the law.

"Under the DMC Act there is no power to tax “professional activities” carried out from residential buildings. Professional activities are permitted under MPD 2010, under certain conditions. The Master Plan has force of law. The language of section 116 A (1) of the DMC Act, 1957 does not include tax on professional activities", it observed.

The Court held that “professional activity” by lawyers will not come under the ambit of clause 9 (a) (b) (i) and (ii) of the Delhi Municipal Corporation (Property Taxes) Bye-laws, 2004.

"The rule of strict interpretation of taxation statute has to be applied. There is no scope of reading any derivative meaning or of reading any intentment of the statute. Insofar as the statute has not included “professional activity” of lawyers as “commercial activity” the former cannot be put to tax. The aforesaid Bye-laws cannot seek to over-reach the statute itself", it observed while dismissing the appeal.

Also Read - Can Residential Premises Be Used For Advocates' Office?

Case Title: South Delhi Municipal Corporation Versus B N Magon

Citation: 2023 LiveLaw (Del) 535

Counsel For Petitioner: Sanjeev Sabharwal

Counsel For Respondent: Neeraj Gulati

Click here to read the judgment