2019 (12) TMI 100 - HC - Indian Laws

Levy of property tax - It is the case of the petitioners that inasmuch as their educational institutions are not housed in buildings owned by the Government or aided or functioning under the financial assistance from the Government, they are denied the benefit of the exemption granted under the Acts - whether the exemption provision under the Acts is discriminatory in its grant of exemption to only such buildings that are used for educational purposes and under the ownership of educational institutions owned by the Government or aided or functioning with the financial assistance from the Government? HELD THAT - Applying the principles discernible therefrom to the facts in the instant cases, it can be seen that the tax concessions envisaged under the Acts are intended to provide a level playing field for Government/aided educational institutions on the one hand and the self-financing educational institutions on the other. Tax concessions have been granted to the former category, keeping in mind the role played by them in discharging the sovereign obligation of the State to provide education, despite the economic limitations faced by them. It is trite that Government and Government Aided Educational institutions are subjected to a different system of control when compared to Unaided Educational institutions that do not function under the restrictions imposed on the former category in respect of collection of fees and payment of salaries/wages to teaching and non-teaching staff. The classification brought about is between unequals, and when viewed against the objective of the provision granting exemption, which is to provide relief from the financial burden imposed through taxation, it cannot be said that the classification effected has no nexus with the object sought to be achieved by the legislature through the exemption provision. The challenge to the assessment orders, demand notices and revenue recovery notices would also have to be dismissed, there could be cases where assessees want to prefer statutory appeals against the quantification of their tax liability - the assessment orders, demand notices and revenue recovery notices impugned in these writ petitions are quashed only for the limited purpose of enabling the respondent Panchayats/Municipalities to issue fresh assessment orders and demand notices to the petitioners showing the basis of computation of tax and interest therein.

Summary

Issues Involved:
1. Constitutional validity of Section 207(b) of the Kerala Panchayath Raj Act and Section 235(b) of the Kerala Municipality Act.
2. Alleged discrimination between Government/aided educational institutions and unaided educational institutions regarding property tax exemption.
3. Justification for the classification and exemption provided under the Acts.

Detailed Analysis:

1. Constitutional Validity of Section 207(b) and Section 235(b):
The petitioners, self-financing educational institutions, challenged the demand for property tax under Section 203 of the Kerala Panchayat Raj Act and Section 233 of the Kerala Municipality Act. They argued that the exemption provision under Section 207(b) and Section 235(b) discriminates against unaided educational institutions. The court emphasized that exemption provisions in a taxing statute are interpreted strictly in favor of the revenue and against the assessee. The court also noted that a heavy burden lies on those who challenge the constitutional validity of an exemption provision in a fiscal statute.

2. Alleged Discrimination:
The petitioners contended that the exemption discriminates between Government/aided educational institutions and unaided institutions. They highlighted that unaided institutions were exempt from property tax until an amendment on 7.10.2009. The State Government justified the classification by stating that education is primarily the responsibility of the State, and Government/aided institutions play a crucial role in social development without monetary benefits. In contrast, private institutions often operate for profit. The court referred to various precedents to determine whether the classification was discriminatory.

3. Justification for Classification and Exemption:
The court analyzed several precedents, including Ram Krishna Dalmia v. Justice S.R. Tendolkar, Khandige Sham Bhat v. Agricultural I.T.O., and State of Gujarat v. Shri Ambica Mills Ltd., to understand the principles of reasonable classification. It concluded that the tax concessions aimed to provide a level playing field for Government/aided institutions, considering their role in fulfilling the State's sovereign obligation to provide education. The court found that Government and Government-aided institutions are subject to different controls compared to unaided institutions, which do not face the same restrictions on fee collection and staff salaries.

The court also referred to a previous judgment in Sreenarayana Gurukulam College of Engineering, Kolenchery v. State of Kerala, which upheld the same exemption provision. The classification was deemed rational, as public money is used for constructing and maintaining Government-owned buildings, unlike private institutions. The court agreed with the previous judgment that the classification was based on intelligible differentia and had a rational nexus with the objective of providing financial relief through tax exemption.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of Section 207(b) of the Kerala Panchayath Raj Act and Section 235(b) of the Kerala Municipality Act. The court found no discrimination in the exemption provision and justified the classification between Government/aided and unaided educational institutions. However, the court allowed for the possibility of statutory appeals against the quantification of tax liability by quashing the assessment orders, demand notices, and revenue recovery notices for the limited purpose of issuing fresh assessment orders and demand notices. The petitioners were given the option to approach appellate authorities if aggrieved by the computation of tax.