State Can't Levy Tax On Union's Property: Karnataka High Court Quashes Demand Notices Issued By Mangalore Municipal Corporation, Cites Article 285

A single judge bench of Justice M G S Kamal by its order dated November 8, 2022, quashed the notices issued by the corporation dated 04-06-2010 and 16-07-2011. However, since the amount was already paid to the corporation by the department, it directed the corporation to adjust the same towards payment of service tax for the amenities provided.

The Union government owns buildings in Mangalore City which are used for residential quarters for its employees. The corporation demanded property tax in respect of the building. The department inadvertently made the payment in an aggregate sum of Rs.4,42,675 to the corporation in compliance with the demand notices issued during the year 1994-95 to 31.03.2008.

Assistant Solicitor General H Shanthi Bhushan for the petitioners contended that demand made by the respondent No.-2 corporation with regard to payment of property tax was illegal and contrary to the provisions of Article 285 (1) of the Constitution of India. Accordingly, representations were made to the corporation.

In response the corporation relying upon the provision of Section 110(1)(j) of the Karnataka Municipal Corporation Act, 1976, rejected the claim of the petitioner No.3 (Deputy Director General Mines and Coastal Surveys Division) and demanded payment of the property tax. Following which it approached the court.

Findings:

The bench noted that in regards to the residential quarters the building licence has been issued on 26.04.1991 and building has been completed and occupancy certificate has been issued on 10.06.1994.

Referring to Article 285 of the Constitution the bench said “It is clear from reading of the clause (1) of Article 285 of the Constitution, that if a building belonging to Union of India was in existence prior to coming into effect of the Constitution and said building unless Parliament may by law otherwise be exempt from levy of tax by the State or any other authorities.”

Relying on the coordinate bench judgement in the case of Union of India and others vs. City Municipal Council, Rani Bennur and another reported in AIR 2000 Karnataka 104, wherein it held “Provisions of Article 289 exempt the property of the State and that of Article 285, provide exemption to property of the Union are complementary to each other with a view not to levy the tax by State Legislature on the property of the Union and also by the Parliament on the property of the State. Article 285 refers to the property of the Union. If the property belongs to the Union, then, irrespective of its use, no tax could be levied by the State Legislature or by Municipal Authorities. The concept of use is not provided under Article 285.”

Following which it quashed the demand notices.

Case Title: Union of India & others And State of Karnataka & others

Case No: WRIT PETITION No.33252 OF 2012

Citation: 2023 LiveLaw (kar) 22

Date of Order: 08-11-2022

Appearance: H. Shanthi Bhushan, ASST. Solicitor General of India for petitioners.

AGA M.C.Nagashree for R1.

Advocate Hareesh Bhandary T for R2 to R4.

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