2015 (11) TMI 1794 - HC - Indian Laws

Grant of exemption from property tax - Vires of Article 14 of Constitution of India - whether the grant of exemption from property tax under Sec.207 of the Kerala Panchayat Raj Act 1994 to the buildings used for educational purpose or allied purpose and its hostel buildings owned by the Government aided or functioning with the financial assistance of the Government alone in exclusion of similar buildings and hostels owned by other private management of self-financing Educational Institutions is discriminatory and violative of Art.14 of the Constitution of India? HELD THAT - The matter in issue involved in the instant case falls exclusively in the domain of taxation and has no connection with the academic affairs. Therefore the extent of enquiry is confined to the fiscal status of institutions only. What is the basis of the classification? This classification is made by granting exemption to the buildings owned or financed by the Government on the basis that public money is utilised for the construction and maintenance of such buildings; whereas in the case of the buildings and hostels owned and maintained by private management of self-financing institutions the public money has not been involved. Put it differently this exemption is a privilege granted to the public money and it can be said that buildings and hostels constructed and maintained by using public money is exempted from payment of property tax and the people as a whole is the beneficiary of this exemption. If property tax is imposed on buildings and hostels owned by the Government that amount also will be taken from the public fund. More importantly exemption is given to the institutions functioning under the administrative control of the Government and to which Governmental auditing of funds and expenditure is made compulsory; whereas the case of self-financing institutions such control and auditing of funds are absent. Secondly the expression self financing itself shows that such institutions are having their own fee structure which cannot be compared with fees of a Government College. Though it is regulated and controlled by the above referred statute it is much higher than that of Government Colleges wherein a nominal fee alone is collected from the students and certain rooms are reserved for students from socially and economically backward classes in the hostels owned by the Government - Self-financing Educational Institutions form a separate class different from the Educational Institutions owned and financed or aided by the Government and the discrimination made under Sec.207(b) of the Panchayat Raj Act is marked by intelligible differentia. Thirdly it is the case of the petitioner that the petitioner s institution is also governed and regulated by the the Kerala Professional Colleges or Institutions (Prohibition of Capitation Fees Regulation of Admission Fixation of Non-exploitative fee and other measures to ensure equity and excellence in professional Education) Act 2006 - The petitioner institution is not the creation of a statute; but the functioning of the institute alone is regulated by several statutes covering different field of activity and the Kerala Professional Colleges or Institutions (Prohibition of Capitation Fees Regulation of Admission Fixation of Non-exploitative fee and other measures to ensure equity and excellence in professional Education) Act 2006 is one among various such statutes and on that reason the self-financing Educational Institutions cannot be equated with the Educational Institutions owned and administered by the Government having the privilege under Sec.207 of the Kerala Panchayat Raj Act 1994. The concept of sovereign immunity is the basis of this privilege of tax exemption granted to the institutions owned or aided and administered by the Government. The case put forward by the petitioner fails in the test proposed by the petitioner himself - Petition dismissed.

Summary

Issues:
1. Whether the grant of exemption from property tax under Sec.207 of the Kerala Panchayat Raj Act, 1994, to government-owned buildings used for educational purposes, excluding similar buildings owned by private management of self-financing educational institutions, is discriminatory and violative of Art.14 of the Constitution of India.

Analysis:
1. The primary issue in this case is whether the differential treatment in granting property tax exemption to government-owned educational buildings, as opposed to those owned by private self-financing educational institutions, violates the equality principle under Art.14 of the Constitution of India. The petitioner, a self-financing engineering college, argued that such discrimination is unjust as their buildings are not government-owned or financially aided, but are regulated by specific statutes governing admission and fees.

2. The court delved into the constitutional requirements under Art.14, emphasizing the principle of equality before the law. It cited various landmark judgments, including T. Devadasan v. Union of India and Mohammed Shejat Ali v. State of A.P., to establish that reasonable classification is permissible as long as it is based on intelligible differentia and has a rational nexus to the statute's objective. The court highlighted that the doctrine of equal protection of laws mandates equal treatment for similarly situated individuals and permissible classification for valid laws.

3. The court examined whether the distinction between government-owned and private self-financing educational buildings is rational. It noted that the exemption for government-owned buildings is justified due to public funds being utilized for construction and maintenance, along with governmental auditing. In contrast, private institutions have their fee structures and lack governmental control over funds, justifying the differential treatment based on intelligible differentia.

4. Additionally, the court considered the petitioner's argument regarding regulation under the Kerala Professional Colleges or Institutions Act, 2006. It concluded that the self-financing institutions, despite being regulated, cannot be equated with government-owned institutions entitled to tax exemption. The court emphasized that the privilege of tax exemption is rooted in sovereign immunity, which government-owned institutions possess, unlike self-financing ones.

5. The court dismissed the petitioner's arguments by referencing several Supreme Court decisions, including Mediwell Hospital and Healthy Care Pvt. Ltd. v. Union of India and Deepak Sibal v. Punjab University. It found that the principle of intelligible differentia justifies the disparate treatment between government-owned and private self-financing educational buildings, thereby upholding the constitutionality of the tax exemption provision under Sec.207 of the Kerala Panchayat Raj Act, 1994.

6. Ultimately, the court deemed the writ petition devoid of merit and dismissed it, affirming the legality of granting property tax exemption to government-owned educational buildings while excluding similar structures owned by private self-financing educational institutions.

This detailed analysis elucidates the court's reasoning behind upholding the differential treatment in property tax exemption, emphasizing the constitutional principles of equality and reasonable classification under Art.14 of the Constitution of India.