Supreme Court exempts Food Corporation of India from property tax: Food Corporation of India vs. Brihanmumbai Mahanagar Palika (2020) INSC 239

Date of the Judgment: 19 March 2020

Citation: (2020) INSC 239

Judges: Ashok Bhushan, J., M.R. Shah, J.

Can a government entity be exempted from property tax if the property is owned by the Central Government but occupied by the entity? The Supreme Court of India addressed this question in a case involving the Food Corporation of India (FCI) and the Brihanmumbai Municipal Corporation. The core issue was whether the FCI, as an occupier of government-owned land, was liable to pay property tax to the municipal corporation. The Supreme Court, in this judgment, held that the FCI was exempt from paying property tax because the property was owned by the Central Government and not the FCI. The judgment was authored by Justice Ashok Bhushan, with Justice M.R. Shah concurring.

Case Background

The case revolves around land acquired by the Government of Bombay for the Union of India before 1964. The Central Government constructed godowns and silos on this land for storing food grains. The Food Corporation of India (FCI) was established in 1964 to handle the purchase, storage, and distribution of food grains. Between 1966 and 1969, these godowns were transferred to the FCI, although the legal ownership remained with the Central Government. The Municipal Corporation of Greater Mumbai (Corporation) issued demands for property tax to the FCI for these properties, which the FCI contested, claiming exemption under Article 285 of the Constitution of India, which exempts Central Government properties from state taxes. The Corporation argued that the FCI was liable as the occupier of the property.

Timeline:

Course of Proceedings

Initially, the FCI challenged the demand for non-agricultural tax, which was dismissed by a single judge of the Bombay High Court. However, a Division Bench of the High Court allowed the FCI’s appeal, holding that the Central Government was not liable to pay taxes for non-agricultural use of land as per Article 285 of the Constitution. Subsequently, the Corporation issued demands for property tax, which led to the FCI filing a writ petition. The High Court dismissed this petition, relying on a Supreme Court judgment that held the FCI liable for taxes. The Supreme Court, however, set aside the High Court’s judgment and remitted the matter back for fresh consideration. After the High Court again dismissed the writ petition, the Supreme Court directed the FCI to file a review petition, which was also dismissed by the High Court. The present appeal before the Supreme Court was against the dismissal of the writ petition and the review petition.

Legal Framework

The core legal provisions discussed in this case are:

• Article 285 of the Constitution of India: This article deals with the exemption of the property of the Union from State taxation. Clause (1) states that the property of the Union shall be exempt from all taxes imposed by a State or by any authority within a State, unless Parliament provides otherwise. Clause (2) provides an exception, stating that any authority within a State can levy taxes on Union property if such property was liable or treated as liable to such tax before the commencement of the Constitution, until Parliament provides otherwise.
• Section 143 of the Mumbai Municipal Corporation Act, 1888: This section specifies which properties are subject to the general tax. It exempts buildings and lands vesting in Brihan Mumbai used solely for public purposes and not used for profit.
• Section 144 of the Mumbai Municipal Corporation Act, 1888: This section deals with payments to be made to the Corporation in lieu of the general tax by the Central Government or the State Government. It outlines how the rateable value of government-owned properties should be determined.
• Section 146 of the Mumbai Municipal Corporation Act, 1888: This section specifies who is primarily responsible for paying property taxes. It states that property taxes are primarily leviable from the actual occupier of the premises if the occupier holds the premises immediately from the Government.

The Supreme Court also discussed the historical context of these provisions, including:

• Section 154 of the Government of India Act, 1935: This section exempted properties vested in His Majesty from taxes imposed by a Province or Federated State. It included a proviso that allowed for the continuation of taxes on properties that were liable to tax before the commencement of Part III of the Act (01.04.1937).

Arguments

Appellant (Food Corporation of India) Arguments:

• The FCI argued that the property (godowns) in question is owned by the Central Government and is therefore exempt from property tax under Article 285 of the Constitution.
• The FCI relied on a previous judgment of the Bombay High Court which had held that the property was owned by the Central Government.
• The FCI contended that for the Corporation to levy tax under Article 285(2), it must prove that the property was liable to tax before the Constitution, that the tax was continuously collected, and that the State was collecting the tax pre- and post-Constitution.
• The FCI argued that property tax was never levied before the Constitution and that the arbitrator appointed under Section 144(2) of the Mumbai Municipal Corporation Act had no jurisdiction to decide the ownership of the property.
• The FCI submitted that the Supreme Court’s judgment in Food Corporation of India Vs. Municipal Committee, Jalalabad was not applicable because that case dealt with properties owned by the FCI, whereas in the present case, the property is owned by the Central Government.
• The FCI argued that since the owner (Central Government) is not liable to pay taxes, the occupier (FCI) cannot be held liable.
• The FCI stated that it was willing to pay the amount in lieu of general tax to be determined in accordance with Section 144 of the Mumbai Municipal Corporation Act, 1888.

Respondent (Brihanmumbai Mahanagar Palika) Arguments:

• The Corporation argued that under Section 146 of the Mumbai Municipal Corporation Act, the levy is on the actual occupier, and the FCI, being the actual occupier, is liable to pay property tax.
• The Corporation submitted that the capacity in which the FCI occupies the property is immaterial for tax liability.
• The Corporation argued that the FCI cannot claim exemption under Article 285, as the FCI is a distinct entity from the Central Government and the ownership of the Central Government is irrelevant for tax liability.
• The Corporation contended that the levy under the Act of 1888 is a pre-Constitution levy, and therefore, Article 285(2) applies.
• The Corporation argued that premises vesting in the Central Government were liable for property tax on the date of commencement of the Constitution, and no law enacted by Parliament prevents the Corporation from levying tax.

Submissions of Parties

Issues Framed by the Supreme Court

The main issue framed by the Supreme Court was:

1. Whether the property in question is exempted from payment of property tax by virtue of Article 285 of the Constitution of India.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court approved the Calcutta High Court’s judgment in Governor-General of India in Council Vs. Corporation of Calcutta, AIR (1948) Cal. 117, which held that properties not in existence before 01.04.1937 were exempt from tax.
• The Court approved the Federal Court’s judgment in The Corporation of Calcutta Vs. The Governors of St. Thomas School, Calcutta, AIR 1949 F.C. 121, which held that additional structures built by the Central Government after 1942 were exempt from municipal tax.
• The Court relied upon the Calcutta High Court’s judgment in The Corporation of Calcutta Vs. Union of India, AIR 1957 Calcutta 548, which referred to the interpretation of Section 154 of the Government of India Act, 1935.
• The Court relied upon the Supreme Court’s judgment in Union of India owner of the Eastern Railway vs. The Commissioner of Sahibganj Municipality, (1973) 1 SCC 676, which held that properties vested in the Union after April 1, 1937, or after the Constitution came into existence, could be taxed only if Parliament provided for it.
• The Court relied upon the Supreme Court’s judgment in Union of India vs. City Municipal Council, Bellary, (1979) 2 SCC 1, which explained the content of Article 285(2).
• The Court distinguished the Supreme Court’s judgment in Food Corporation of India vs. Municipal Committee, Jalalabad and another, (1999) 6 SCC 74, noting that it dealt with properties owned by the FCI, not the Central Government.
• The Court relied upon the Supreme Court’s judgment in Electronics Corporation of India Ltd. and others Vs. Secretary Revenue Department, Govt. of Andhra Pradesh and others , (1999)4 SCC 458, which held that Article 285 does not apply when the property to be taxed is not of the Union of India but of a separate legal entity.
• The Court distinguished the Gujarat High Court’s judgment in F.C.I. vs. Gandhidham Municipality, (2002)43(2) GLR 1845, noting that it dealt with properties owned by the FCI, not the Central Government.
• The Court distinguished the Gujarat High Court’s judgment in Ahmedabad Aviation & Aeronautics Limited vs. Govt. of Gujarat, 2014 SCC online Guj 15505, noting that there was no question of exemption from tax on Union property.
• The Court relied upon the Supreme Court’s judgment in Union of India and others vs. State of Uttar Pradesh and others, (2007) 11 SCC 324, which held that charges for services rendered are fees, not taxes, and are not precluded by Article 285.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Ownership of the Property: The Court emphasized that the godowns were owned by the Central Government, not the FCI. This was crucial for applying Article 285(1), which exempts Union properties from state taxes.
• Interpretation of Article 285(2): The Court clarified that Article 285(2) applies only if the property was subject to tax before the commencement of the Constitution. Since the godowns were built after 1964, they did not meet this condition.
• Constitutional Mandate: The Court prioritized the constitutional protection granted under Article 285(1), ensuring that statutory provisions like Section 146 of the Mumbai Municipal Corporation Act did not override it.
• Distinction between Tax and Fee: The Court distinguished between property tax and service charges, clarifying that while the FCI was exempt from property tax, it was still liable to pay for services rendered by the Corporation.
• Historical Context: The Court considered the historical context of Section 154 of the Government of India Act, 1935, and its interpretation by various High Courts and the Federal Court.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

The court’s reasoning was heavily influenced by the legal interpretation of Article 285 of the Constitution and its historical context, which accounts for the higher percentage for legal considerations. The factual aspects, such as the ownership of the property and the timeline of construction, were also considered, but the legal points had a more significant bearing on the outcome.

Logical Reasoning:

The Court considered alternative interpretations, particularly the Corporation’s argument that Section 146 of the Mumbai Municipal Corporation Act made the FCI liable as the occupier. However, the Court rejected this interpretation, stating that it would negate the constitutional exemption under Article 285(1). The Court also considered the argument that the FCI was a distinct legal entity, but it held that ownership of the property was the determining factor, not the status of the occupier.

The final decision was reached by prioritizing the constitutional exemption under Article 285(1) and clarifying that the conditions for Article 285(2) were not met. The Court also emphasized that the FCI was liable to pay for services rendered by the Corporation, but not for property tax.

“The main question to be determined in this appeal is as to whether the property in question is exempted from payment of property tax by virtue of Article 285 of the Constitution of India.”

“For the applicability of clause (2) of Article 285, the property on which tax is sought to be proposed ought to have been subject to property tax before the commencement of the Constitution.”

“Both the premises and building therein are entitled for exemption from payment of property tax under Article 285(1).”

Key Takeaways

• Exemption for Union Properties: Properties owned by the Central Government are exempt from state taxes under Article 285(1) of the Constitution.
• Conditions for Article 285(2): For a state authority to levy taxes on Union property, the property must have been subject to tax before the commencement of the Constitution.
• Occupier Liability: Occupancy of Union property does not automatically make the occupier liable for property tax if the owner is exempt under Article 285(1).
• Tax vs. Fee: There is a distinction between property tax and service charges. While Union properties are exempt from tax, they are not exempt from fees for services rendered.
• Importance of Ownership: Ownership of the property is the key factor in determining tax liability under Article 285, not the status of the occupier.

Directions

The Supreme Court gave the following directions:

• The appeals were allowed, and the judgment of the Bombay High Court was set aside.
• The Court held that the Food Corporation of India (FCI) was exempt from paying property tax on the properties owned by the Central Government.
• The Court directed the Municipal Corporation to conduct an inquiry under Section 144 of the Mumbai Municipal Corporation Act, 1888, to determine the rateable value of the property for the purpose of calculating service charges.
• The Court clarified that the FCI was liable to pay for services rendered by the Corporation, such as water and sewerage, but not for property tax.