2024 (2) TMI 1184 - SC - Indian Laws

Exemption from payment of property tax under the provisions of the UP Municipal Corporation Adhiniyam, 1959 - Whether statutory vesting of property termed as enemy property under the provisions of the Enemy Property Act, 1968 amounts to expropriation which leads to the change of its status inasmuch as its ownership is transferred to the Union of India? HELD THAT - Following conclusion have been arrived at 1) That the Custodian for Enemy Property in India, in whom the enemy properties vest including the subject property, does not acquire ownership of the said properties. The enemy properties vest in the Custodian as a trustee only for the management and administration of such properties. 2) That the Central Government may, on a reference or complaint or on its own motion initiate a process of divestment of enemy property vested in the Custodian to the owner thereof or to such other person vide Rule 15 of the Rules. Hence, the vesting of the enemy property in the Custodian is only as a temporary measure and he acts as a trustee of the said properties. 3) That in view of the above conclusion, Union of India cannot assume ownership of the enemy properties once the said property is vested in the Custodian. This is because, there is no transfer of ownership from the owner of the enemy property to the Custodian and consequently, there is no ownership rights transferred to the Union of India. Therefore, the enemy properties which vest in the Custodian are not Union properties. 4) As the enemy properties are not Union properties, clause (1) of Article 285 does not apply to enemy properties. Clause (2) of Article 285 is an exception to clause (1) and would apply only if the enemy properties are Union properties and not otherwise. 5) In view of the above, the High Court was not right in holding that the respondent as occupier of the subject property, is not liable to pay any property tax or other local taxes to the appellant. In the result, the impugned order of the High Court dated 29.03.2017 passed in Misc. Bench No.2317 of 2012 is liable to be set aside and is accordingly set aside. 6) Consequently, any demand for payment of taxes under the Act of 1959 made and thereby paid by the respondent to the appellant-authority shall not be refunded. However, if no demand notices have been issued till date, the same shall not be issued but from the current fiscal year onwards (2024-2025), the appellant shall be entitled to levy and collect the property tax as well as water tax and sewerage charges and any other local taxes in accordance with law. Appeal allowed.

Issues Involved:

1. Whether statutory vesting of enemy property in the Custodian amounts to expropriation and transfer of ownership to the Custodian.
2. Whether such property becomes Union property within the meaning of Article 285 of the Constitution and thus exempt from local taxes.
3. Whether clause (2) of Article 285 enables the Municipal Corporation to impose property or local taxes on the lessee of the enemy property.
4. Whether the High Court was right in holding in favor of the respondent.

Summary:

1. Statutory Vesting and Ownership Transfer:
The Supreme Court examined whether the statutory vesting of enemy property in the Custodian under the Enemy Property Act, 1968, amounts to expropriation and transfer of ownership to the Custodian. The Court concluded that the Custodian acts as a trustee and not as the owner of the enemy property. The ownership remains with the enemy, and the Custodian only manages and protects the property. The vesting is for temporary management and does not transfer ownership to the Custodian or the Union.

2. Enemy Property as Union Property:
The Court analyzed whether enemy property vested in the Custodian becomes Union property under Article 285 of the Constitution, which exempts Union property from State taxation. It held that enemy property does not become Union property merely by vesting in the Custodian. The Custodian, appointed by the Central Government, manages the property but does not own it. Therefore, enemy property is not exempt from State taxation under Article 285.

3. Imposition of Local Taxes on Lessee:
The Court considered whether clause (2) of Article 285 allows the Municipal Corporation to impose property or local taxes on the lessee of the enemy property. It concluded that since enemy property is not Union property, Article 285 does not apply. The Custodian, acting as a trustee, is authorized to pay local taxes, including property tax, water tax, and sewerage charges, as per Section 8(2)(vi) of the Enemy Property Act.

4. High Court's Judgment:
The High Court had quashed the recovery notice for house tax and water tax, holding that the property in question is enemy property and thus exempt from local taxes. The Supreme Court set aside the High Court's judgment, stating that the enemy property is liable to local taxes. The Court directed that any taxes already paid by the respondent shall not be refunded, and from the fiscal year 2024-2025 onwards, the Municipal Corporation is entitled to levy and collect property tax and other local taxes on the enemy property.

Conclusion:
The Supreme Court held that the Custodian of Enemy Property does not acquire ownership of the enemy property, and such property does not become Union property. Therefore, enemy property is subject to local taxes, and the High Court's judgment exempting the property from such taxes was set aside. The Municipal Corporation can levy and collect local taxes from the fiscal year 2024-2025 onwards.

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