2017 (11) TMI 1955 - HC - Indian Laws

Exemption from Property Tax - Demand notice issued without any notice nor any opportunity of personal hearing to the petitioners - claim of the petitioner for exemption of property tax not placed before the Corporation Council for its approval - competent authority to consider the claim of exemption regarding the property tax - violation of statutory principles - Whether the petitioners-hospitals are eligible to be exempted from paying the property taxes as demanded by the respondent - Corporation, or not? - HELD THAT - The impugned demand notices were issued by the respondent - Corporation in all these writ petitions claiming property tax from the petitioners - hospitals for various assessment years, but, however, the petitioners - hospitals contended that they, being hospitals, are purely exempted from paying property tax as per Section 122(e) of Madurai City Municipal Corporation Act, 1971 - The respondent - Corporation resisted the writ petitions disputing the character and status of the petitioners - hospitals as they are collecting exorbitant rent from the patients who were admitted and fees were also received for rendering service in the hospital and no service was rendered free of charge to whomsoever. The plea that they were collecting only a nominal charge from the poor, distressed, disabled and needy persons, based on their income was not true and no evidence was produced to that effect. Further, the exemption granted under Section 80-G of the Income Tax Act, would not, by itself, entitle the petitioners - hospitals to seek an exemption from the payment of property tax. When the respondent - Corporation relies upon not only the receipt of amount from the patients, but also the rent received towards Canteen and fees collected for parking the vehicles and other sources, whether those receipts would attract rent or not, has to be decided only by the assessing authority, at the instance of objection or revision by the owner of the building, even if they are charitable hospital and dispensaries. Without that process being resorted to, it may not be proper to quash the demand notice itself, assuming the receipt of the amount, by itself, would not amount to a rent. This Court holds that the benefit conferred under Section 122(e) of Madurai City Municipal Corporation Act, 1971, is not automatic, in view of the proviso to Section 122(e) of the Act and the only course available for the petitioners - hospitals is that on receipt of the demand notice, they are at liberty to either make an objection or file a revision enclosing the material to prove that they are entitled to exemption - Petition disposed off.

Issues Involved:
1. Whether the petitioners-hospitals are eligible for exemption from paying property taxes as demanded by the respondent-Corporation.

Detailed Analysis:

Issue 1: Eligibility for Exemption from Property Tax

Facts and Background:
The petitioners, Velammal Educational Trust and S.R. Trust, operate hospitals and sought exemption from property tax under Section 122(e) of the Madurai City Municipal Corporation Act, 1971. The respondent-Corporation issued demand notices for property tax, which the petitioners contested, claiming statutory exemption for charitable hospitals.

Petitioners' Arguments:
1. Violation of Statutory Principles: The petitioners argued that the demand notices were issued without prior notice or opportunity for a hearing, violating statutory principles.
2. Statutory Exemption: They cited Section 122(e) of the Act, which exempts charitable hospitals and dispensaries from property tax.
3. Non-Application of Mind: The respondents' act of levying property tax was claimed to be illegal and exhibited non-application of mind.
4. No Valid Resolution: The impugned notices were issued without any valid resolution passed by the Corporation Council.
5. Non-Jurisdiction: The respondents acted without jurisdiction in issuing the demand notices.
6. Payments Not Rent: Payments made by patients were argued not to be 'rent' under the Act, citing precedents such as S.N.R. Sons Charitable Trust v. The Commissioner, Coimbatore City Municipal Corporation.

Respondents' Arguments:
1. Non-Charitable Operations: The hospitals were not purely charitable as they collected charges from patients.
2. No Automatic Exemption: Exemption under Section 80-G of the Income Tax Act does not automatically entitle the hospitals to property tax exemption.
3. Lack of Evidence: No evidence was provided that the hospitals collected only nominal charges from poor and needy patients.
4. Commercial Activities: The hospitals rented out premises for canteens and collected parking fees, which disqualified them from exemption.

Court's Analysis:
1. Relevant Provisions: The court referred to Sections 120 and 122(e) of the Madurai City Municipal Corporation Act, 1971, which outline the description of property tax and general exemptions.
2. Precedents: The court considered various precedents, including S.N.R. Sons Charitable Trust, which held that payments by patients do not constitute rent, and Municipal Corporation of Coimbatore v. Govindasamy Naidu Hospital, which emphasized that exemption under the Income Tax Act does not automatically apply to property tax.
3. Proviso to Section 122(e): The court noted that the proviso to Section 122(e) clarifies that exemption is not automatic and must be substantiated by the petitioners.
4. Assessment Authority: The court emphasized that the assessing authority must determine whether the hospitals qualify for exemption based on the evidence provided.

Conclusion:
The court held that the benefit under Section 122(e) is not automatic and directed the petitioners to submit representations with relevant materials to the respondent-Corporation. The Corporation must then assess the claims and pass appropriate orders. The petitioners were also directed to pay one-third of the arrears pending the final decision.

Order:
1. The writ petitions were disposed of.
2. Petitioners were given six weeks to submit representations.
3. The respondent-Corporation was directed to pass orders after proper inspection and consideration.
4. Petitioners were directed to pay one-third of the arrears.
5. No order as to costs.
6. Connected writ miscellaneous petitions were closed.

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