Madras High Court Sets Aside Property Tax Demand On Railway-Leased Building | Holds Title Vests With Union Under Article 285
Safiya Malik
The High Court of Madras at Madura, Division Bench of Justice G.R. Swaminathan and Justice M. Jothiraman held that property of the Union, including railway buildings constructed on railway land, is exempt from taxation by local authorities under Article 285(1) of the Constitution. The court set aside the property tax demand issued by the local municipal body and allowed the appeal, quashing the impugned demand notice. The court further clarified that the Union's immunity from state taxation remains absolute unless Parliament legislates otherwise and found that the building in question belongs to the Railways despite being constructed and occupied by a private sub-lessee.
The matter concerned a property tax demand raised by the Madurai Corporation on a building constructed within the Madurai Railway Station premises. The land, owned by the Indian Railways, was leased to Ircon Infrastructure & Services Limited (Ircon), a government company, which then sub-leased it to Madurai Multi-Functional Complex Private Limited for commercial development.
The appellant challenged the Madurai Corporation's demand for a half-yearly property tax amounting to Rs.10,07,623/- dated 03.03.2018. The demand was made under Sections 120 and 121 of the Madurai City Municipal Corporation Act, 1971. The appellant contended that the levy of property tax was unconstitutional under Article 285(1) of the Constitution, which prohibits taxation of Union property by state authorities unless Parliament provides otherwise.
The Corporation argued that the demand was valid as the building was put to commercial use and was in the occupation of a private company. The learned Single Judge dismissed the appellant’s writ petition on 06.05.2020, holding that the building was liable to be assessed for property tax, prompting the intra-court appeal.
The land in question was developed under the provisions of the Railways Act, 1989. The Railway Land Development Authority (RLDA) was constituted under Section 4A of the Act to manage commercial development of railway land. RLDA, which lacks separate juristic personality, had entered into a lease agreement with Ircon Infrastructure & Services Limited. Ircon then sub-leased the building to the appellant.
As per the lease and sub-lease agreements, title over both the land and the building remained with RLDA and, by extension, the Indian Railways. The agreements expressly provided that the possession alone was handed over, and no ownership rights were transferred to Ircon or the appellant. The agreements required all buildings and assets developed on the site to be returned to RLDA free from encumbrances upon expiry of the lease.
The petitioner contended that since the land and building both belonged to the Union of India and no title was transferred to any private party, Article 285(1) granted immunity from property tax. The appellant relied on constitutional and statutory provisions including Article 285, Section 184 of the Railways Act, and prior Supreme Court decisions.
The Corporation argued that since the premises were being used commercially by a private entity, the exemption under Article 285(1) was not applicable. They referred to Sections 120 and 121 of the Madurai City Municipal Corporation Act which empowered the Corporation to assess property tax on lands and buildings, including railway properties not used exclusively for agricultural purposes.
However, the appellant argued that these provisions could not override the immunity conferred under Article 285(1) and the specific bar under Section 184(1) of the Railways Act which prohibits taxation by local authorities unless notified by the Central Government.
The Division Bench stated: "The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State."
The court recorded: "If the case on hand is brought within the scope of Article 285(1) of the Constitution of India, then, levy of property tax is clearly illegal."
Addressing the constitutional provisions, the court noted: "Admittedly, in the instant case, the petition mentioned building was put up only in the year 2016 and therefore, it falls outside the purview of Article 285(2)."
The court also quoted a Constitution Bench decision in Union of India v. City Municipal Council, Bellary, stating: "The property of the Union is exempt from all taxes imposed by a State or by any authority within a State. But Parliament may by law provide otherwise..."
Regarding the ownership of the building, the Bench held: "If the building belongs to the petitioner or even Ircon Infrastructure Services Pvt Ltd., the local body will be justified in levying property tax." However, they concluded that "the title over the building vests with the Railways."
They referred to lease agreement clauses between RLDA and Ircon, noting: "The Parties expressly agree that the ownership of the Project assets so created... shall vest with RLDA and IRCON shall not at any time during and after the term assert any ownership right over the assets developed on the sites."
The judgment further stated: "The assessment and levy of property tax is not on the person or the individual. It is on the land and building."
On legislative repugnancy, the court observed: "In view of Section 184 of the subsequently enacted Central Act, namely, Railways Act, 1989, the aforesaid provisions of the State-law will have to give way and are of no legal consequence in view of their repugnancy with the Central enactments."
The court observed: "Merely because the property in question has been put to commercial use, that would not make any difference. The plain language of Article 285(1)... indicates that the property of the Union shall be exempt from all taxes imposed by a State or by any authority within a State."
Referring to the legal doctrine of vesting, the Bench stated: "The expression 'vesting' has a technical meaning... obtaining an absolute and indefeasible right." They found that "There was no transfer of title in favour of Ircon either in respect of the site or the buildings to be put up thereon."
The court relied on earlier judgements including NDMC v. Association of Concerned Citizens of New Delhi, and Food Corporation of India v. Brihanmumbai Mahanagar Palika, confirming that property of the Union remains immune from state-imposed taxation.
The court held that the levy of property tax over the petition mentioned building would fall foul of Article 285(1) of the Constitution of India. Accordingly, the order passed by the learned Single Judge dated 06.05.2020 in WP(MD) No.18477 of 2018 was set aside.
The Division Bench explicitly stated: "The demand notice impugned in the writ petition is set aside."
It further directed: "Since the petitioner is enjoying certain facilities offered by the Madurai Corporation, it is open to the Madurai Corporation to enter into a special agreement with the petitioner so as to enable the petitioner to continue to enjoy those facilities."
The court added: "Since the petition mentioned building forms a class by itself, it is open to the Madurai Corporation to charge a higher drainage tax."
Additionally, the court directed: "The local body ie., Madurai Corporation will issue notice to the petitioner and other occupiers of the building to come for negotiation and enter into an appropriate agreement in this regard."
The writ appeal was allowed, and the connected miscellaneous petition was closed.
Advocates Representing the Parties:
For the Petitioners: Mr. R. Srinivas, Senior Counsel for Mr. N. Dilip Kumar
For the Respondents: Mr. S. Vinayak, Standing Counsel; Mr. Ragatheesh Kumar for M/s. Isaac Chambers; Mr. K.R. Laxman for R4; Mr. T. Lajapathi Roy, Senior Counsel for Mr. S. Rajasekar
Case Title: Madurai Multi-Functional Complex Private Limited v. The Madurai Corporation & Others
Case Number: W.A.(MD) No.484 of 2020
Bench: Justice G.R. Swaminathan and Justice M. Jothiraman
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