'Enemy Property' Not Exempt From Municipal Taxes As It Is Not Vested With Union Govt : Supreme Court

The Supreme Court held that the 'enemy property' vested in the possession of the Union Government-appointed 'custodian', as per the Enemy Property Act, 1968, cannot be considered a property of the Union Government to claim the exemption from the municipal taxes under Article 285 (1) of the Constitution of India.

“Union of India cannot assume ownership of the enemy properties once the said property is vested in the Custodian. This is because, there is no transfer of ownership from the owner of the enemy property to the Custodian and consequently, there is no ownership rights transferred to the Union of India. Therefore, the enemy properties which vest in the Custodian are not Union properties.”, observed Supreme Court Bench Comprising Justices B.V. Nagarathna and Ujjal Bhuyan.

The bench stated that the 'enemy property' is not entitled to claim the exemption availalbe for the properties of the Union Government from State taxes as per Article 285.

“As the enemy properties are not Union properties, clause (1) of Article 285 does not apply to enemy properties. Clause (2) of Article 285 is an exception to clause (1) and would apply only if the enemy properties are Union properties and not otherwise.”, the Judgment authored by Nagarathna J. noted while allowing the municipal corporation to levy taxes on the enemy property.

The subject property is an Enemy Property within the meaning of the Act, owned by the Raja of Mahmudabad, who migrated to Pakistan in the year 1947. A portion of the property is currently occupied and utilized for profit-generating purposes by the respondent-assessee, in this case.

The gist of the dispute was that the municipal tax demand notices were issued to the custodian of the 'enemy property' who contested the said notices by contending that since custodian being appointed by the Union Government therefore, the ownership of the enemy property vests with the Union Government, and hence no municipal taxes could be levied by the municipal corporation because the property owned by Union is entitled to exemption from payment of property or other local taxes to Municipal Corporation under Article 285 (1) of the Constitution of India.

Against the municipal tax demand notices the respondent custodian approached the High Court while filing a Writ Petition which came to be allowed.

Aggrieved by the High Court's decision, the Lucknow Nagar Nigam (Lucknow Municipal Corporation) preferred a civil appeal before the Supreme Court.

The crucial question framed by the Supreme Court was whether the enemy property managed by the Union government-appointed custodian would grant an ownership right to the Union Government over the enemy property to claim exemption from municipal taxes under Article 285 (1) of the Constitution.

Answering negatively, the Supreme Court held that the enemy property vested in the government-appointed custodian cannot be construed as the owner of the enemy property as no ownership rights are conferred on the custodian as it acts merely as a trustee of the enemy property.

“Such being the position of a Custodian, who under the Act, acts as the trustee for the enemy property under the Act and not as the owner of the property, but as a protector of the property vested in him, the Custodian can never be an owner or having any right, title or interest in the enemy property as owner.”

“If the Custodian himself cannot be construed to be the owner of the enemy property, then much less the Central Government or Union can be considered to be the owner of such property. In our view, the Union or the Central Government cannot usurp rights of ownership and exercise all such rights of ownership vis-à-vis enemy property. In the absence of any provision conferring such ownership on the Custodian, the Central Government, which appoints the Custodian of Enemy Property in India by issuance of a notification in the Official Gazette to carry on his functions under the provisions of the Act, cannot assume ownership rights over such property.”, the Supreme Court added.

The court clarified that the ownership of the enemy property continues to remain with the enemy itself, and mere vesting of enemy property in the Custodian does not transfer ownership of the same from the enemy to the Union or the Central Government.

“We emphasise again that mere vesting of enemy property in the Custodian does not transfer ownership of the same from the enemy to the Union or to the Central Government; the ownership remains with the enemy but the Custodian only protects and manages the enemy property and in discharging his duties as the Custodian or the protector of enemy property he acts in accordance with the provision of the Act and on the instructions or guidance of the Central Government.”

Enemy Property Managed By Custodian Wouldn't Be Exempted From State Taxes Levied Under Article 285 (1)

After holding that mere vesting of enemy property in the possession of the custodian would not transfer the ownership to the custodian and in turn to the Union Government, therefore, the enemy property would be subjected to municipal taxes levied in the State, and the custodian cannot claim exemption from paying the municipal taxes under the guise of Article 285 (1).

For the sake of convenience, Article 285(1) states that the property of the Union shall be exempted from all taxes imposed by the State or by any authority within a State unless so provided for by the Parliament by law.

“we have held that enemy property is not the property of the Union although it may vest with the Custodian for Enemy Property in India who is a person appointed by the Central Government. If the enemy property is not the Union property in terms of clause (1) of Article 285 of the Constitution then such property cannot be exempt from the taxes imposed by the State or by any authority within the State unless otherwise provided by the Parliament.”, the Supreme Court observed.

“It is reiterated that the Custodian who is appointed under the provisions of the Act by the Central Government discharges his duties and carries out his functions under the provisions of the Act in terms of the directions of the Central Government. This is because the Act is a piece of Parliamentary legislation and in order to achieve a uniform policy vis-à-vis management and administration of enemy properties throughout the length and breadth of the country. It, therefore, cannot be held that the properties vest with the Union within the meaning of Article 285 of the Constitution. In our view, the said Article has no application to enemy properties.”, the Supreme Court added.

Article 300-A Not Only Covers Legal or Juristic Person But Also Non-Citizens

The Supreme Court stated that the Parliament had legislated the Enemy Property Act, 1968 in order to have uniformity vis-à-vis all enemy properties throughout the length and breadth of the country in that the same are protected, managed, and dealt with uniformly in accordance with the provisions of the Act.

Taking note of the objects and purpose of the Act, the Supreme Court noted that Article 300-A of the Constitutional being a constitutional right to hold property not only extends to Legal or juristic person but also to persons who are not a citizen of India.

“The expression person in Article 300-A covers not only a legal or juristic person but also a person who is not a citizen of India. The expression property is also of a wide scope and includes not only tangible or intangible property but also all rights, title and interest in a property.”

The Supreme Court expressed concerned that if the ownership of the property gets transferred from the enemy to the Custodian who takes possession of the property and administers it or manages it and thereby the ownership would then be that of the Union, in that event, it would be a deprivation of the property of the true owner who may be an enemy or an enemy subject or enemy firm but such deprivation of property cannot be without payment of compensation.

“Having regard to the salutary principles of Article 300-A of the Act, we cannot construe the taking possession of the enemy property for the purpose of administration of the same by the Custodian, as an instance of transfer of ownership from the true owner to the Custodian and thereby to the Union.”

Conclusion

In light of the aforementioned observations, the Supreme Court held that the High Court was not right in holding that the respondent-custodian as occupier of the subject property, is not liable to pay any property tax or other local taxes to the appellant-Lucknow Municipal Corporation.

Accordingly, while allowing the appeal, the Supreme Court noted that the appellant-Lucknow Municipal Corporation shall be entitled to levy and collect the property tax as well as water tax and sewerage charges and any other local taxes in accordance with law.

Counsels For Appellant(s) Mr. Kavin Gulati, Sr. Adv. Mr. Mukesh Verma, Adv. Mr. Kamal Kumar Pandey, Adv. Mr. Pankaj Kumar Singh, Adv. Mr. Dushyant Sharma, Adv. Mr. Mohit Shivkumar, Adv. Mr. Yash Pal Dhingra, AOR

Counsels For Respondent(s) Mr. S. Gurukrishna Kumar, Sr. Adv. Mr. Sunil Kumar Jain, AOR Mr. Ashwin, Adv. Mr. Rajan Kumar Chourasia, Adv. Ms. Aakanksha Kaul, Adv. Ms. Suhasini Sen, Adv. Ms. Gargi Khanna, Adv. Mr. Rupesh Kumar, Adv. Mr. Bhuvan Kapoor, Adv. Mr. Arvind Kumar Sharma, AOR Mr. Rana Mukherjee, Sr. Adv. Dr. Vijendra Singh, AOR Mr. Deepak Goel, Adv. Ms. Apurva Singh, Adv. Mr. Divyakshi, Adv. Mr. Abhinav Rathi, Adv.

Case Details: LUCKNOW NAGAR NIGAM & OTHERS VERSUS KOHLI BROTHERS COLOUR LAB. PVT. LTD. & OTHERS, Civil Appeal No. 2878 of 2024

Citation : 2024 LiveLaw (SC) 156

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