1987 (1) TMI 80 - SC - Income Tax

Is the Municipal Corporation of Hyderabad prohibited from levying municipal taxes from persons inducted by it in the property of its own ownership under the hire purchase agreement ? Held that - The learned single judge was right in taking the view that the buildings and lands vesting unto the Corporation not only in title but also in possession (as polarized from those vesting in title only but not in possession) were exempted from the obligation imposed by the Legislature to levy property taxes. Buildings and lands which were merely owned by the Corporation but were in actual possession or under the actual use and occupation of someone else, that is to say, persons or bodies other than the Corporation itself are not exempted. In order to attract section 202(1)(c), it must be established that the property must satisfy a dual test. The property must not only be owned by the Corporation, it must also be in the occupation of the Corporation itself. It is in this sense that the word vesting has been used. And the proposition that the expression vest is capable of being used in this sense, depending on the context in which it is employed. We, therefore, allow this appeal

Summary

Issues:
Validity of levy of municipal taxes on allottees under a low-income housing scheme by the Municipal Corporation of Hyderabad.

Detailed Analysis:
The judgment revolves around the question of whether the Municipal Corporation of Hyderabad can levy municipal taxes on persons inducted by it in the property of its own ownership under a hire purchase agreement. The case stemmed from a dispute where 72 allottees under the Low Income Housing Scheme in Hyderabad challenged the levy of municipal taxes by the Corporation. The allottees had executed agreements with the Corporation, agreeing to pay the sale price in instalments, with the houses remaining the property of the Corporation until full payment. The Corporation demanded house taxes from the allottees, leading to the writ petition and subsequent appeal.

The key legal provisions under scrutiny were Sections 197(1)(i), 199(1), 202(1), and 204(1) of the Hyderabad Municipal Corporation Act. Section 202(1) exempts the Corporation from levying general tax on buildings and lands vested in the Corporation. The judgment delves into the rationale behind these exemptions, emphasizing the exemption of properties used for public purposes or community welfare. The analysis highlights the pragmatic approach behind exempting buildings and lands owned by the Corporation and used for its own purposes from tax liability to avoid redundant financial transactions and administrative burden.

The court interpreted the term "vesting" in Section 202(1)(c) to require both title and possession to exempt properties from tax liability. Drawing on legal precedents, the judgment underscores that the word "vest" can encompass possession, not just title. The court rejected the argument that tenants inducted by the Corporation should be exempt from property taxes, emphasizing that tenants in buildings owned by the Corporation must pay taxes as per the agreement terms. The judgment concluded that the learned single judge's decision upholding the levy of taxes was correct, overturning the Division Bench's decision. The appeal was allowed, the Division Bench's order was set aside, and the single judge's order dismissing the writ petition was restored, with no costs awarded.

In essence, the judgment clarifies the legal provisions governing the levy of municipal taxes by the Municipal Corporation of Hyderabad on allottees under a low-income housing scheme, emphasizing the exemption of Corporation-owned properties used for its purposes from tax liability and the requirement of both title and possession for such exemption.