Advocates' Office Run From Residence Not Subject To Property Tax As Business Building: Supreme Court Refuses To Interfere With Delhi HC Ruling

The Supreme Court refused to interfere with the Delhi High Court judgment, holding 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."

While doing so, the Bench of Justices BV Nagarathna and Augustine George Masih affirmed 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."

"Having regard to the facts of this case and the observations made in paragraphs 15 and 16 of the impugned judgment in the context of “professional activity” of lawyers are concerned, we are not inclined to interfere in the matter. The Special Leave Petition is hence dismissed," the bench observed dismissing the SLP filed by the South Delhi Municipal Corporation. 

The Delhi High Court was dealing with an appeal filed by the South Delhi Municipal Corporation (SDMC) against the judgment of the Single Judge, which held that services rendered by advocates are professional activities and, hence, they cannot be classified, categorized, or subject to tax under the category of business establishment. The issue arose in 2013 when the SDMC issued a notice demanding property tax to a lawyer 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." The Corporation challenged the same before the Division bench of the High Court.

Therein, MCD, inter-alia, submitted that 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.'

Per contra, the respondent submitted that the "power to tax must be expressed; otherwise, there is no power to tax." Under the Delhi Municipal Corporation Act, 1957 (DMC Act), there is no power to tax "professional activities" carried out in residential buildings.

The High Court's Bench, comprising Justices Najmi Waziri and Sudhir Kumar Jain, held that insofar as the relevant statute has not included the “professional activity” of lawyers as “commercial activity,” the former cannot be put to tax.

The Court noted that the language of section 116 A (1) of the Delhi Municipal Corporation Act, 1957 does not include tax on professional activities.

Taking a cue from this, the High Court referred to the Bombay High Court judgment in Sakharam Narayan Kherdekar v. City of Nagpur Corporation & Ors., AIR 1964 Bombay 200. Therein, it was clearly held that advocates' discharge of professional activities would not be covered under the expression “business,” nor would it be professional establishment.

Thus, the Court opined that the rule of strict interpretation of taxation statute has to be applied. There is no scope of reading any derivative meaning or any intentment of the statute.

Case: MUNICIPAL CORPORATION OF DELHI v. B. N. MAGON., Diary No(s). 53916/2023

Citation : 2024 LiveLaw (SC) 72

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