Kerala Municipality Act | No Property Tax Exemption U/S 235 For Building Given On Rent Merely Because Rent Is Utilised For Charity: High Court

The Kerala High Court recently ruled that a building given on rent will not be exempted from property tax under Section 235 of the Kerala Municipality Act merely because the rent received is utilised for charity purposes.

Upon going through the provision, Justice Shaji P. Chaly observed that property tax exemptions only applied to buildings utilised for the specified proposes while emphasising that what is exempted thereunder was the building and not the rent received to the building, even if it was utilised for charity.

"It can be seen that exemption can only be granted to those buildings which are utilised for the purposes mentioned, under section 235 of Act, 1994. To put it otherwise, no other buildings are entitled to get exemption from payment of property tax. That apart, the explanation to section 235 extracted above,clearly specifies that the exemption granted under this section shall not extend to buildings for which rent is realised by the owners and to residential houses not being hostels attached to educational institutions and to residential houses attached to libraries."

The Court added that the mere fact that a trust is the owner of a building by itself is not sufficient ground to secure exemption from property tax under Section 235. 

"Merely because a trust is the owner of the building, that by itself is not an enabling circumstance for the trust to secure exemption from property tax under section 235 of the Act, 1994, even if it is undertaking charity work from the income generated from the building or buildings owned by it." 

The petitioner was a trust and the owner of certain buildings within the limits of the Kochi Corporation. According to the petitioner, one of these buildings was given exemption from the payment of property tax by the Corporation from 24.8.1990 onwards.

The case projected by the petitioner was that the trust is working for the betterment of the lower strata of the society and it was taking into account the said aspect that exemption from payment of property tax to the building was given to the trust.

The grievance of the petitioner was that the trust was served with a demand notice from the Corporation requiring it to pay the property tax of the said building. Challenging this demand notice, the petitioner approached the High Court. 

Advocate Sajan Mannali appeared for the petitioner and contended that demand notices cannot be sustained under law, in view of the fact that the petitioner was granted exemption from payment of property tax as is contemplated under Section 235. 

Standing Counsel D.G Vipin appeared for the respondents and submitted that the Corporation conducted an inspection on the basis of a complaint received by it and found that the building was used as a hall and receiving rent. It was accordingly, that the tax exemption granted to the said building was cancelled. 

The Court found that as acknowledged in the reply affidavit, the petitioner was realising rent from the buildings, the entirety of which was apparently utilised for charity purposes. However, Justice Chaly opined that the building of the trust was not entitled to get an exemption since it was not being utilised for charity and thus did not come under any of the categories mentioned in Section 235.

The Court further added that the grant of exemption from the payment of property tax is not an empty formality.

"Such an exemption can be granted only on the owner of the building establishing before the authority that the building is used completely for charitable or such other purposes in contemplation of law prescribed under the Act 1994."

As such, the Judge held that even if an exemption was granted to the building, that will not detain the Corporation from cancelling the same if the truth otherwise is detected.

Therefore, the petition was dismissed. 

Case Title: Panayppilly Sree Narayana Guruswami Trust v. Corporation of Kochi & Ors. 

Citation: 2022 LiveLaw (Ker) 415

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