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TMI Blog2024 (2) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act of 1959 is another question that has arisen in the present appeal. Further, despite becoming the property of the Union, whether, clause (2) of Article 285 enables the appellant herein to impose property or other local taxes on the respondent, which is the lessee of the subject property is the third question which arises in this appeal. Relevant Facts of the Case: 4. The subject property is an Enemy Property within the meaning of the Act bearing House No.31/28/04(31/59) located on Mahatma Gandhi Marg, Lucknow, owned by the Raja of Mahmudabad, who migrated to Pakistan in the year 1947. A portion of the property is currently occupied and utilized for profit-generating purposes by the respondent-assessee, in this case. 4.1 Historically, prior to the fiscal year 1998-1999, the appellant-Municipal Corporation imposed and collected taxes in accordance with Rule No.174 'ka' of the Act of 1959 from the assessee. However, in the fiscal year 1998-1999, it came to the Municipal Corporation s attention that the assessee was operating a commercial establishment within the premises. Consequently, the appellant-Municipal Corporation conducted an assessment based on Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal preferred by the Union of India and directed the Union of India to get the buildings (residence or offices) vacated from such officers and handover the possession to Raja Mohammed Amir Mohammad Khan within eight weeks. The Court further directed that the officers who are in occupation of buildings for their residences or for their offices shall immediately vacate and hand over the buildings or the properties to the Custodian to enable him to hand over the possession. 4.6 As a result of these orders, proceedings were initiated by various tenants, including respondent No.1. This Court, in SLP (Civil) No.14943 of 2006 vide order dated 08.09.2006, clarified its earlier judgment dated 21.10.2005 passed in Civil Appeal No.2501 of 2002. It was clarified by this Court that individuals who were allotted properties by the Custodian or who came into possession after 1965, i.e., following the declaration of Raja Mahmudabad's property as an enemy property and the appointment of the Custodian, were required to vacate these properties. However, persons claiming possession prior to the Custodian's appointment, based on valid tenancy agreements established by Raja Mahmudabad or his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, such as water and sewerage charges. 4.10 By virtue of the impugned judgment and order dated 29.03.2017, the High Court allowed the writ petition and quashed the recovery notice dated 28.05.2011 on the ground that this case pertained exclusively to taxes, namely House Tax and Water Tax, which are not applicable to the respondent No.1 since the property in question is an enemy property. The High Court further directed respondent No.1 to make representations for the recovery of any amounts previously paid to the appellants. Hence, the appellants have preferred this civil appeal. Respondent No.2 has filed his counter affidavit which we have perused. Submissions: Submissions of the appellants: 5. Sri Kavin Gulati, learned senior counsel appearing on behalf of the Municipal Corporation, at the outset, submitted that the High Court erroneously held that the House Tax and Water Tax levied herein are not leviable on the assessee respondent herein in respect of property which is admittedly an enemy property and not property of the Union or Central Government. Therefore, it was submitted: a) that the property is merely in the custody of the Custodian as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in whom there is vesting of enemy property, which is different from having ownership over the same. The fact that the Custodian can sell properties to third parties is akin to the powers available to a Receiver or a Liquidator who can exercise similar powers of sale [vide Delhi Administration vs. Madan Lal Nangia, (2003) 10 SCC 321 ( Madan Lal Nangia ) Paras 14,15; Lieutenant Governor of Delhi vs. Matwal Chand (Dead) through LRs, (2015) 15 SCC 576 ( Matwal Chand ), Para 14; Municipal Commissioner of Dum Dum Municipality vs. Indian Tourism Development Corporation, (1995) 5 SCC 251 ( Dum Dum Municipality ), Paras 14,18, 22 and 35 and State of Andhra Pradesh vs. V.Subba Rao, 2011 SCC OnLine AP 838 ( Subba Rao ), Paras 23-25]; e) that Article 285 (1) is not attracted to the present case as the bar under Article 285 (1) is only applicable to the properties of the Union . Even when the property is given on lease by the Union to a private party, then under Section 179 of the Act of 1959, tax is to be levied on the occupier . Reliance was placed on the judgment of the Constitution Bench of this Court in Electronics Corporation of India vs. Secretary, Revenue Department, Govt. of An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty of a private person i.e. respondent No.1 is not exempted from property taxes under Article 285 of the Constitution of India; k) that the Custodian under the Act is empowered to realize from occupants all taxes, fees and charges and pay to the local authority. In the present case, it is admitted by the Custodian-respondent No.2 that local taxes are payable to the local authority in respect of the enemy property in question vide Certificate dated 03.10.2002; l) that although the Municipal Commissioner granted a concession before the High Court, the said concession was due to a threat of summoning him to file a personal affidavit. In this regard, learned senior counsel argued that there can be no concession or estoppel against the statute. The power to levy tax is plenary. If the State is held to be bound by a concession made in one case, it would result in serious consequences for the State as such a concession is against public interest. That it was held in State of Uttar Pradesh vs. Uttar Pradesh Rajya Khanij Vikas Nigam Sangharsh Samiti, (2008) 12 SCC 675 that statement, assurance, or even an undertaking of any officer or counsel is irrelevant and that there can be no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion unequivocally belongs to the Central Government, specifically the Custodian; Enemy Property is thus property of the Union. The assessee is merely a tenant of the Custodian of the Enemy Property and therefore, no taxes can be levied on this property. d) that Article 285 of the Constitution provides exemption from State taxation in respect of properties of the Union of India. He buttressed his submission by stating that how the property sought to be taxed is being used is irrelevant consideration as far as the interpretation of Article 285 of the Constitution of India was concerned, vide NDMC vs. State of Punjab, (1997) 7 SCC 339 ( NDMC ). There is an absolute and emphatic ban on state taxation on the property of the Union and the use of such property is irrelevant. e) that apart from Article 285, Section 172 of the Act of 1959 specifically provides that the Corporation may impose taxes subject to the provisions of Article 285 of the Constitution. Likewise, Section 177 of the said Act provides exceptions in respect of the levy of tax amongst others to buildings and land vesting in the Union of India. However, Section 8(2)(vi) of the Act and/or Section 173 of the Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is vested in the Custodian of Enemy Property for India under the Act as amended by the Amendment Act, 2017 and is an undisputed enemy property; b) that the property belonging to the Union Government is exempted from state taxation under article 285(1) of the Constitution of India. However, there is no such exemption in respect of fee/service charges or other charges and this position has been conclusively decided by this Court in Union of India vs. State of Uttar Pradesh, (2007) 11 SCC 324. Further, this stand has been reiterated by this Court in Rajkot Municipal Corporation. Consequently, the Ministry of Urban Development, Government of India vide order No.11025/ 26/2003 UCD dated l7.l2.2009 issued a clarification/direction regarding the levy of taxes and service charges in light of the judgments passed by this Court. c) that the respondent No.2 Custodian vide his certificate dated 03.10.2002 has already clarified that it is under an obligation to pay house tax and other local taxes as respondent No.1 is running a private business for profit from the said premises and therefore, not similar to a Central Government enterprise and accordingly is liable for taxation by the loc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership of such enemy property is conferred on the Custodian for Enemy Property, whether such property becomes Union property within the meaning of Article 285 of the Constitution and therefore, it is exempt from payment of property or other local taxes to the appellant-Municipal Corporation under the provisions of the Act of 1959? 3. Whether despite such enemy property becoming property of the Union, clause (2) of Article 285 of the Constitution enables appellant herein to impose property or other local taxes on the respondent which is lessee of the subject property? 4. Whether the High Court was right in holding in favour of the respondent? 5. What order? Since these questions are inter-related, they shall be considered together. Preface : 9.1 Before we proceed further, we would like to preface the discussion with a historical perspective. 9.2 Jean-Jacques Rousseau in his treatise the Social Contract said that War is constituted by a relation between things, and not between persons War then is a relation, not between man and man, but between State and State The general aim of the administration of enemy property is to eliminate enemy influence from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The Parliament has enacted the said Act to provide for the continued vesting of enemy property vested in the Custodian of Enemy Property for India under the Defence of India Rules, 1962 and the Defence of India Rules, 1971 and for matters connected therewith. 10.1 Part IV of the Defence of India Rules, 1962 deals inter alia with restriction of movements and activities of persons. While Part XIV-A deals with control of trading with enemy, Part XIVB deals with control of enemy firms. Section 133-A defines the expression enemy inter alia to mean any individual resident in enemy territory. In Part XIV-B, the definition of enemy subject and enemy firm have been given and also the definition of enemy property. Under the said Rules, the Controllers, Deputy Controllers or Inspectors appointed by the Central Government had to carry out the supervision of firms suspected to be enemy firms and do all other ancillary and incidental acts as delineated under the said Rules. 10.2 Similarly, under the Defence of India Act, 1971, Part IV deals with restriction of movement and activities of person. Part XVI deals with control of trading with enemy and the definition of enemy is in Rule 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in the territories to which this Act extends, or dies in the territories to which the Act extends or dies in any territory outside India, any property which immediately before his death, belonged to or was held by him or was managed on his behalf, may, notwithstanding his death, continue to be regarded as enemy property for the purposes of this Act; 10.4 Section 3 of the Act deals with appointment of Custodian of Enemy Property for India and Deputy Custodian, while Section 4 deals with appointment of Inspectors of Enemy Property. Section 5 states that property vested in the Custodian of Enemy Property for India under the Defence of India Rules, 1962 to continue to vest in the Custodian. The said provisions read as under: 3. Appointment of Custodian of Enemy Property for India and Deputy Custodian, etc. The Central Government may, by notification in the Official Gazette, appoint a Custodian of Enemy Property for India and one or more Deputy Custodians and Assistant Custodians of Enemy Property for such local areas as may be specified in the notification: Provided that the Custodian of Enemy Property for India and any Deputy Custodian or Assistant Custodian of Enemy Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est in, or any benefit arising out of, such property vested in him under this Act. 10.5 Section 5A and Section 5B were inserted with retrospective effect from 07.01.2016 and 10.07.1968 by Act 3 of 2017. They read as under: 5A. Issue of certificate by Custodian. The Custodian may, after making such inquiry as he deems necessary, by order, declare that the property of the enemy or the enemy subject or the enemy firm described in the order, vests in him under this Act and issue a certificate to this effect and such certificate shall be the evidence of the facts stated therein. 5B. Law of succession or any custom or usage not to apply to enemy property. Nothing contained in any law for the time being in force relating to succession or any custom or usage governing succession of property shall apply in relation to the enemy property under this Act and no person (including his legal heir and successor) shall have any right and shall be deemed not to have any right (including all rights, titles and interests or any benefit arising out of such property) in relation to such enemy property. Explanation. For the purposes of this section, the expressions custom and usage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case may be, to the Custodian or such person as may be authorised by him in this behalf and shall be held by the Custodian or such person subject to the provisions of this Act. (2) In cases in which money would, but for the prohibition under the Defence of India Rules, 1962 or the Defence of India Rules, 1971, as the case may be, be payable in a foreign currency to or for the benefit of an enemy or an enemy subject or an enemy firm (other than cases in which money is payable under a contract in which provision is made for a specified rate of exchange), the payment shall be made to the Custodian in rupee currency at the middle official rate of exchange fixed by the Reserve Bank of India on the date on which the payment became due to that enemy, enemy subject or enemy firm. (3) The Custodian shall, subject to the provisions of section 8, deal with any money paid to him under the Defence of India Rules, 1962 or the Defence of India Rules, 1971 as the case may be or under this Act and any property vested in him under this Act in such manner as the Central Government may direct. 10.8 The powers of Custodian in respect of enemy property vested in him as amended are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which has been inserted with retrospective effect from 07.01.2016 while Section 10A deals with power to issue certificate of sale. The same are extracted as under: 8A. Sale of property by Custodian. (1) Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority or any law for the time being in force, the Custodian may, within such time as may be specified by the Central Government in this behalf, dispose of whether by sale or otherwise, as the case may be, with prior approval of the Central Government, by general or special order, enemy properties vested in him immediately before the date of commencement of the Enemy Property (Amendment and Validation) Act, 2017 in accordance with the provisions of this Act, as amended by the Enemy Property (Amendment and Validation) Act, 2017. (2) The Custodian may, for the purpose of disposal of enemy property under sub-section (1), make requisition of the services of any police officer to assist him and it shall be the duty of such officer to comply with such requisition. (3) The Custodian shall, on disposal of enemy property under sub-section (1) immediately deposit the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the registration in respect of enemy property for which such certificate of sale had been issued by the Custodian, shall not be refused on the ground of lack of original title deeds in respect of such property or for any such other reason. 10.10 Section 9 states that all enemy property vested in the Custodian under this Act shall be exempt from attachment, seizure or sale in execution of a decree of a civil court or orders of any other authority. The same is extracted as under: 9. Exemption from attachment, etc. - All enemy property vested in the Custodian under this Act shall be exempt from attachment, seizure or sale in execution of decree of a civil court or orders of any other authority. 10.11 Section 12 speaks of protection for complying with orders of Custodian and the same reads as under: 12. Protection for complying with orders of Custodian.- Where any order with respect to any money or property is addressed to any person by the Custodian and accompanied by a certificate of the Custodian that the money or property is money or property vested in him under this Act, the certificate shall be evidence of the facts stated therein and if that person comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment after taking into consideration the cost of direct management incurred by that Government, the cost of superior supervision and any risks that may be incurred by that Government in respect of the management: Provided further that the Central Government may, for reasons to be recorded in writing, reduce or remit the fees leviable under this sub-section in any special case or class of cases. Explanation. In this sub-section gross income of the enemy means income derived out of the properties of the enemy vested in the Custodian under this Act. (2) The value of any property for the purpose of assessing the fees shall be the price which, in the opinion of the Central Government or of an authority empowered in this behalf by the Central Government, such property would fetch if sold in the open market. (3) The fees in respect of property may be levied out of any proceeds of the sale or transfer thereof or out of any income accrued therefrom or out of any other property belonging to the same enemy and vested in the Custodian under this Act. (4) The fees levied under this section shall be credited to the Central Government. 10.14 Section 18 dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in force at all material times; (c) no suit or other proceedings shall, without prejudice to the generality of the foregoing provisions, be maintained or continued in any court or tribunal or authority for the enforcement of any decree or order or direction given by such court or tribunal or authority directing divestment of enemy property from the Custodian vested in him under section 5 of this Act, as it stood before the commencement of the Enemy Property (Amendment and Validation) Act, 2017, and such enemy property shall continue to vest in the Custodian under section 5 of this Act, as amended by the aforesaid Act, as the said section, as amended by the aforesaid Act was in force at all material times; (d) any transfer of any enemy property, vested in the Custodian, by virtue of any order of attachment, seizure or sale in execution of decree of a civil court or orders of any tribunal or other authority in respect of enemy property vested in the Custodian which is contrary to the provisions of this Act, as amended by the Enemy Property (Amendment and Validation) Act, 2017, shall be deemed to be null and void and notwithstanding such transfer, continue to vest in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if any party fails to appear on the date fixed for hearing, then a second and final notice shall be served through registered post and if he again fails to appear after the second notice, then the proceedings shall be heard ex parte: Provided further that the Chairperson shall record the reasons for such ex parte proceedings. (4) The notices shall be served on all concerned parties before each hearing. (5) The presenting officer who has been engaged for presentation of the case on behalf of the Central Government, shall examine such witnesses and documentary evidences in respect of the property as he thinks fit. (6) On completion of the proceedings, the details including depositions shall be furnished to the parties. (7) The Chairperson, after examining the evidence and calling for further reports and inquiry as may be necessary, shall pass such orders thereon as it thinks fit, and a copy of the said orders shall be sent to the parties. 11. Articles 285, 289, 296 and 300-A of the Constitution of India are relevant while interpreting the Act and read as under: 285. Exemption of property of the Union from State taxation. (1) The property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Uttar Pradesh Municipalities Act, 1916 (hereinafter referred to as Act of 1916 ) consolidates and amends the law relating to Municipalities in the erstwhile United Provinces and presently State of Uttar Pradesh. The city of Lucknow was a municipality and later was constituted as Nagar Nigam or Corporation under the Act of 1959 and till then the Act of 1916 was applicable. Hence, the relevant provisions of the Act of 1916 are extracted as under: 128. Taxes which may be imposed.- (1) Subject to any general rules or special order of the State Government in this behalf, the taxes which a Municipality may impose in the whole or part of a municipality are,- (i) a tax on the annual value of building or lands or of both; (ii) a tax on trades and callings carried on within the municipal limits and deriving special advantages from, or imposing special burdens on municipal services; (iii) a tax on trades, callings and vocations including all employments remunerated by salary or fees; (iii-a) a theatre tax which means a tax on amusements or entertainments; (iv) a tax on vehicles and other conveyances plying for hire or kept within the municipality or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the collection, removal and disposal of excrementious and polluted matter from privies, urinals, cesspools; (2) x x x (3) The municipal taxes shall be assessed and levied in accordance with the provisions of this Act and the rules and bye-laws framed thereunder. (4) Nothing in this section shall authorize the imposition of any tax which the State Legislature has no power to impose in the State under the Constitution: Provided that a Municipality which immediately before the commencement of the Constitution was lawfully levying any such tax under this section as then in force, may continue to levy that tax until provisions to the contrary is made by the Parliament. x x x 129-A. Levy of tax on annual value of buildings or lands or both.- The Tax on annual value of buildings or lands or both shall be levied in respect of all buildings and lands situated in the municipal limit except,- x x x (e) building and land vested in the Union of India, except where provisions of clause (2) of Article 285 of the Constitution of India, apply; 12.1 Section 140 of the said Act defines annual value. 13. The relevant provisions of the Act of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the building, less depreciation at a rate to be fixed by rules, to the estimated value of the land appurtenant thereto; and (b) in the case of a building or land not falling within the provisions of clause (a), the gross annual rent for which such building exclusive of furniture or machinery therein, or such land is actually let, or where the building or land is not let or in the opinion of the assessing authority is let for a sum less than its fair letting value, might reasonably be expected to be let from year to year. Provided that where the annual value of any building would, by reason of exceptional circumstances, in the opinion of the Corporation, be excessive if calculated in the aforesaid manner, the Corporation may fix the annual value at any less amount which appears to it equitable. Provided further that where the Corporation so resolves, the annual value in the case of owner occupied buildings and land shall for the purposes of assessment of property taxes be deemed to be 25 per cent less than the annual value otherwise determined under this Section. 175. Restrictions on imposition of water tax.-The imposition of a tax under clause (b) of sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72, from the tenant. (3) On failure to recover any sum due on account of such tax from the person primarily liable, the Mukhya Nagar Adhikari may recover from the occupier of any part of the buildings or lands in respect of which it is due that portion thereof which bears to the whole amount due the same ratio as the rent annually payable by such occupier bears to the aggregate amount of rent payable in respect of the whole of the said building or lands, or to the aggregate amount of the letting value thereof in the authenticated assessment list. (4) An occupier who makes any payment for which he is not primarily liable under the foregoing provisions shall, in the absence of any contract to the contrary, be entitled to be reimbursed by the person primarily liable. 180. Liability for payment of other such taxes. (1) A drainage tax, or a conservancy tax on the annual value of buildings or lands shall be levied from the actual occupier of the property upon which the taxes are assessed: Provided that, where such property is let to more occupiers than one, the Mukhya Nagar Adhikari may at his option levy the tax from the lessor instead of from the actual occupi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any right vested in him, is opposed to two other possible relations between a person and a right. In the first place, it is opposed to possession. A man has possessory right without owning it or secondly, he may own a right without possessing it. Thirdly, the ownership and possession may be united as they usually are, in the context of de jure and the de facto relation being co-existent or coincident. 14.2 In the first of the above, possession is a de facto relationship while the second is de jure ownership or relationship. In the second sense, the ownership of a right is opposed to the encumbrance of it. The owner of the right is he, in whom the right itself is vested, while the encumbrancer of it is he, in whom, is vested, not the right itself, but some adverse, dominant and limiting right in respect of it. In law, there are no separate names for every distinct kind of encumbrancer. However, an encumbrance is opposite to ownership; every encumbrancer is nevertheless himself the owner of the encumbrance, that is to say, he, in whom, an encumbrance stands in a definite relation, not merely to it, but also to the right encumbered by it. How is ownership acquired? : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyer that the seller has done no act whereby the property is encumbered or whereby he is hindered from transferring it. 14.4 Similarly, gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void. The donor is the person who gives. Any person who is sui juris can make a gift of his property. Therefore, it is only a person who is the owner of the property, can gift his property and according to the provisions of the Transfer of Property Act. 14.5 In the same vein, an exchange is when an exchange of immovable property takes place when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only. A transfer of property in completion of an exchange can be made only in a manner provided for the transfer of such property by sale. In the case of an exchange also, the person must have the ownership i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficiary and his is beneficial ownership. 14.10 The trustee s ownership of any property is a matter of form rather than a substance and nominal rather than real. A trustee is not effectively an owner at all but in essence a mere agent, upon whom the law has conferred the power and imposed the duty of administering the property of another person. The trustee is a person to whom the property, substantially that of someone else is technically attributed by the law on the footing that the rights and powers that it vests under him are to be used by him on behalf of the real owner. As between the trustee and beneficiary, the law recognises that the property belongs to the latter and not to the former. But as between the trustee and the third persons, the fiction prevails, inasmuch as the trustee is clothed with the rights of his beneficiary and personate or represent him in dealings with the world at large. This principle is actuated under various provisions of the Act including Section 8 thereof vis- -vis an enemy who is the owner of a property and the Custodian in whom the property vests under the provisions of the Act. This position becomes clear on a reading of the Rules und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession of the enemy property, in as much as, the enemy property vests with the Custodian under the provisions of the Act. What does this entail? 14.15 While discussing on the jurisprudential aspects of vesting or taking possession in the instant case as per the provisions of the Act, it is necessary to reiterate and bear in mind the following aspects: (i) That there are three possible situations: first, the possession usually exists both in law and in fact; secondly, the possession may exist in fact but not in law; thirdly, the possession may exist in law but not in fact. This is also called constructive possession . In the case of the Custodian for Enemy Property, possession exists in law under the provisions of the Act but may be in fact in the hands of a third party such as a tenant or a mortgagee of the owner of such property who is declared an enemy under the Act. (ii) Further, whatever may be owned may be possessed but whatever may be possessed may not be owned. This statement is however subject to important qualifications. For example, there can be possession of an interested person without ownership of any kind. Conversely, there are many rights, which can be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession are two in number, namely, taking and delivery. Taking is the acquisition of possession without the consent of the previous possessor such as in the case of the Custodian vis- -vis enemy property. Delivery, on the other hand is the acquisition of possession with the consent and co-operation of the previous possessor. Relation between Possession and Ownership : 14.16 According to Rudolf von Ihering, a jurist Possession is the objective realisation of ownership . It is in fact what ownership is in right. Ownership is the guarantee of the law, while the possession is the guarantee of the fact. Normally, ownership and possession co-exist but not always. This aspect of the case is crucial for answering the contentions raised by the respective parties. Analysis : Let us apply the aforesaid jurisprudential principles to the provisions of the Act under consideration. 15. Section 2 (c) of the Act defines enemy property to mean any property for the time being belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm: That even when an enemy subject dies in the territories to which the Act extends, or dies in any territory outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Custodian in the sense that the Custodian becomes the owner of the property; thereby there is a divesting of the ownership or a transfer of ownership of such property from the ownership of the enemy to the Custodian. 15.2 We do not think that such an interpretation can be given for the simple reason that clause (c) of Section 2 clearly states that enemy property means any property for the time being belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm being vested in the Custodian. Therefore, the provision of the Act recognises the ownership of the enemy vis- -vis the enemy property and the enemy property belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm being vested in the Custodian. What exactly is vested in the Custodian? The Explanations i.e. Explanation (2) of clause (c) of Section 2 as well as Explanation (2) to sub-section (3) of Section 5 of the Act, being identical state that all rights, titles, and interest in, or any benefit arising out of such enemy property vest in the Custodian. This means that only the rights etc. vis- -vis enemy property vest in the Custodian. By that, the Custodian does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any benefit arising out of such property. This Explanation gives meaning to the scope of the expressions belonging to, held or managed on behalf of an enemy, an enemy subject or enemy firm. 15.4 If a certificate is issued by the Custodian that the enemy property has vested in him under the Act, the same shall be evidence of the facts stated therein vide Section 5-A of the Act. Section 5-B of the Act begins with a non obstante clause which states that nothing contained in any law for the time being in force relating to succession or any custom or usage governing succession of property shall apply in relation to the enemy property under this Act and no person (including his legal heir and successor) shall have any right and shall be deemed not to have any right (including all rights, titles, and interests or any benefit arising out of such property) in relation to such enemy property. This provision regarding extinction of rights, titles or interests or any benefit arising out of the enemy property is deemed to have been lost is by operation of law and by a legal fiction only in so far as a heir or successor is concerned. If any property is vested in the Custodian as enemy propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the powers of the Custodian in respect of property vested in him? This is dealt with in Section 8 of the Act. The Custodian may take or authorise the taking of such measures as he considers necessary or expedient for preserving such property till it is disposed of in accordance with the provisions of the Act. Sub-section (2) of Section 8 speaks of eleven exigencies which a Custodian or such person as may be specifically authorised by him may take. The same are extracted above. A reading of the above clearly indicates that the Custodian or his authorised person can carry on the business of the enemy; fix and collect the rent etc. in respect of enemy property; take action for recovering any money due to the enemy; make any contract and execute any document in the name and on behalf of the enemy; institute or defend any legal proceeding; secure vacant possession of the enemy property; raise on the security of the property such loans as may be necessary; incur out of the property any expenditure including payment of any taxes, duties, cesses and rates to Government, or to any local authority, pay wages, salaries, pensions, etc. to or in respect of any employee of the enemy and repay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law. Then the following questions would arise: (i) Does vesting of enemy property in the Custodian imply that the Custodian assumes ownership rights vis- -vis enemy property vested in him? (ii) Secondly, whether the vesting of enemy property in the Custodian would imply that it becomes the property of the Union? These are the two crucial questions which are required to be answered in this case in order to decide the matter in all its perspectives. 16.1 The expression vest or vesting has no precise definition and it would depend upon the context in which the expression is used under a particular enactment. This Court has held that the expression vest is of fluid or flexible content and can, if the context so dictates, bear the limited sense of being in possession and enjoyment . (See: Maharaj Singh vs. State of Uttar Pradesh, (1977) 1 SCC 155) (Para 18)]. In Dr. M. Ismail Faruqui vs. Union of India, (1994) 6 SCC 360 : AIR 1995 SC 605, it was observed that the word vest has to be understood in the different contexts in which the word occurs. In the context of acquisition of certain area under the Ayodhya Act, 1993, it was observed that the vesting of the disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the requirements of vesting is not satisfied in terms of Section 10 of the Limitation Act. Under the Act under consideration, the vesting of the enemy property in the Custodian is not free from encumbrances but vesting is in accordance with the status of the property as held by the enemy, enemy subject or enemy firm prior to its vesting. Therefore, only when enemy property vests in the Custodian free from all encumbrances it will be a transfer of ownership from the owner of such property to the Custodian. This is because under the Act, Custodian holds or manages the property for and on behalf of the enemy, enemy subject or enemy firm only temporarily and there is no transfer of ownership to the Custodian or the Union of India. Hence, there is no necessity of payment of compensation to the owners of such properties. Under Section 5A of the Act under consideration, when property vests in the Custodian under the provision of the Act, he may issue a certificate to that effect and such certificate shall be evidence of the facts stated therein. Further, under Section 7 (1) of the Act, any sum payable by way of dividend, interest, share profits or otherwise to or for the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r approval of the Central Government may dispose of the enemy property for valid reasons. It could be for the reasons that there is no succession to the enemy property or the said property is in a dilapidated condition or, if for any reason, there is litigation or legal or other complications arising which would make it difficult for the Custodian as the trustee of such property to manage the same. In such circumstance, there could be alienation of the said property. On such alienation, the sale proceeds would have to be deposited in the Consolidated Fund of India, as the Custodian, being an officer appointed under the provisions of the Act by the Central Government, would be discharging his duties under the Act. But the power of sale of an enemy property as envisaged under Section 8A of the Act, in our view, would also not imply that the Custodian would be acting as the owner of the property but only as a Custodian of such property. This view is further supported by Section 9 of the Act, which states that all enemy property vested in the Custodian under the Act shall be exempt from attachment, seizure or sale in execution of a decree of a civil court or orders of any other authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons as may be imposed by the Custodian, if in the opinion of the Custodian, the person seeking inspection is interested in any particular enemy property as a creditor or otherwise. Such being the position of a Custodian, who under the Act, acts as the trustee for the enemy property under the Act and not as the owner of the property, but as a protector of the property vested in him, the Custodian can never be an owner or having any right, title or interest in the enemy property as owner. While Section 5-B states that any law related to succession or any custom or usage governing succession of property shall not apply in relation to enemy property under the Act as no person including a legal heir and successor of an enemy or enemy subject or enemy firm shall be deemed to have any right, title or interest or any benefit arising out of such property in relation to enemy property, this provision does not at the same time confer any right, title and interest or any benefit arising out of enemy property in the Custodian for Enemy Property. A Custodian is thus only a trustee of the enemy property. In the absence of any transfer of ownership or any benefit arising from enemy property bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty becomes Union property even though the same is vested in the Custodian who, in any case, is appointed by the Central Government. In order to buttress this submission, our attention was drawn to Section 8-A which begins with a non-obstante clause and which states that the Custodian may, with the approval of the Central Government, dispose of enemy property by sale or otherwise, as the case may be, the enemy property vested in him immediately before the date of commencement of the Amendment Act, 2017, in accordance with the provisions of the Act as amended by the Amendment Act, 2017. Further, the Custodian, on disposal of enemy property, has to deposit the sale proceeds into the Consolidated Fund of India immediately and intimate details thereof to the Central Government. Also, the Custodian has to submit a report of the enemy properties disposed of enclosing details of sale etc. The Central Government may also issue directions and guidelines to the Custodian in matters related to disposal of enemy property which are binding on the Custodian and the buyer. Moreover, the Central Government may deal with or utilise the enemy property in a manner as it may deem fit. On sale of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vendee or purchaser of the enemy property, a certificate of sale is issued in favour of such person by the Custodian and such certificate of sale is a valid instrument for seeking registration of the property in favour of the transferee. When the registration of the sale is made in favour of the transferee by the Custodian, the latter is acting as a trustee and not as the owner of the enemy property. Therefore, it cannot be accepted that the Custodian is acting as the owner of the property and by that logic the enemy property would become the property of the Union. 17.2 Further, since the Custodian is the trustee of the enemy property, if any monies are due to the enemy or if any order has been made with regard to enemy property vested in the Custodian which are paid or complied with by any person, as the case may be, and a certificate is issued in that regard by the Custodian, such a person, to whom the certificate is issued, shall not be liable to any suit or other legal proceeding, by reason only of such compliance. This aspect also indicates that payment made to the Custodian is payment to the enemy, enemy subject or enemy firm who accepts the same for and on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty of the Union is exempt from all taxes imposed by a State or by any authority within a State, save insofar as Parliament may by law otherwise provide. That in the instant case, Section 8(2)(vi) authorises the Custodian to make payments out of the enemy property any taxes, dues, cesses or rates to the State Government or to any local authority and therefore, the Parliament has by the said provision authorised the payment of taxes to the State Government or the local authority such as the appellant herein and hence, there is no exemption from payment of taxes in respect of enemy property which is by that reason Union property. In other words, the contention was premised on the fact that once the enemy property vests in the Custodian, it automatically becomes the property of the Union and having regard to the saving clause in Articles 285(1) of the Constitution, and bearing in mind Section 8(2)(vi) of the Act, there is no exemption from the payment of property tax in the instant case. 17.5 Thus, while both the appellant-Municipal Corporation or Nagar Nigam and the Union of India are at ad idem on the legal position that the property tax is liable to be paid to the appellant i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion i.e. the Act under consideration. Such discharge of duties and functions, including the payment of taxes vis- -vis enemy property vested in him would not also by the same logic imply that the Custodian is acting as if the property vested in him has become the Union property. We emphasise again that mere vesting of enemy property in the Custodian does not transfer ownership of the same from the enemy to the Union or to the Central Government; the ownership remains with the enemy but the Custodian only protects and manages the enemy property and in discharging his duties as the Custodian or the protector of enemy property he acts in accordance with the provision of the Act and on the instructions or guidance of the Central Government. The reason as to why the Central Government is empowered to issue guidelines or instructions to the Custodian is because the Custodian is appointed under the Act which is a Parliamentary legislation and the reason why the Parliament has passed the said law is in order to have a uniformity vis- -vis all enemy properties throughout the length and breadth of the country in that the same are protected, managed and dealt with uniformly in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said property. The State then possesses the power to take control of the property of the owner thereof for the benefit of the public and when the State so acts it is obliged to compensate the owner upon making just compensation as the owner of the property would lose all his rights vis- -vis the acquired land. 18.2 However, this position has to be distinguished vis- -vis the Custodian for Enemy Property under the Act, as he takes possession of the enemy property only for the purpose of managing the same as per the provisions of the Act and does not become the owner of the property inasmuch as the ownership of the property from the enemy or enemy subject or enemy firm does not get transferred to the Custodian. On the other hand, if it is to be recognised that ownership of the property gets transferred from the enemy to the Custodian who takes possession of the property and administers it or manages it and thereby the ownership would then be that of the Union, in that event, it would be a deprivation of the property of the true owner who may be an enemy or an enemy subject or enemy firm but such deprivation of property cannot be without payment of compensation. Having regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed in clause (2) which states that the income derived from a particular trade or business may still be immune from Union taxation if Parliament declares that the said trade or business is incidental to the ordinary functions of Government. This Article broadly corresponds to Section 155 of the Government of India Act, 1935 but has certain other conditions thereto. Articles 285 and 289 provide for the immunity of the property of the Union and the State from mutual taxation on the basis of the Federal principle. NDMC is a decision of nine-Judge Bench which dealt with a question whether the properties owned and occupied by various States within the National Capital Territory of Delhi are entitled to be exempted from the levy of taxes under the provision of Delhi Municipal Corporation Act, 1957 and New Delhi Municipal Council Act, 1994 by virtue of the provisions of Article 289(1) of the Constitution. The pertinent question was, whether, by virtue of Article 289(1), the States are entitled to exemption from the levy of taxes imposed by laws made by Parliament under Article 246(4) upon their properties situated within Union Territories. The Delhi High Court had taken the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipal Council Act, 1994 (both parliamentary enactments) constitute Union taxation within the meaning of Article 289(1). That by virtue of the exemption provided by clause (1), taxes are not leviable on State properties but clauses (1) and (2) of Article 289 go together, form part of one scheme and have to be read together. Therefore, Municipal Laws of Delhi are inapplicable to the properties of State Government to the extent such properties are governed and saved by clause (1) of Article 289 and that insofar as the properties used or occupied for the purpose of a trade or business carried on by the State Government, the ban in clause (1) does not avail to them and the taxes thereon must be held to be valid and effective. It was observed that the levy of the property taxes under the three enactments, namely, the Delhi Municipal Corporation Act, 1957; the New Delhi Municipal Council Act, 1994 and the Punjab Municipal Act, 1911 are valid to the extent the provisions related to land and building owned by State Government and used or occupied for the purposes of any trade or business carried on by the State Government. In other words, the levy is invalid and inapplicable only to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that State. Clause (2) of Article 285 is a clause which is transitional in nature and is in the nature of a saving clause intended to save all taxes levied on the property of the Union prior to the commencement of the Constitution so long as the taxes continues to be levied in that State. However, this saving clause is subject to any law that the Parliament may provide otherwise. 21.3 While applying clause (1) of Article 285, two considerations must be taken into account: firstly, whether the tax is claimed in respect of property, and secondly, whether such property is vested in the Union Government. The expression property must be given its widest meaning to include both tangible and intangible property as well as moveable and immovable property. The immunity conferred under clause (1) of the Article 285 is only in respect of a tax on property. The rationale for providing Articles 285 and 289 of the Constitution is based on the principle that one sovereign cannot tax another sovereign. Thus, under Article 285, all property of the Union is exempted from State taxes, while Article 289 exempts all incomes and property of a State from Union taxation; no distinction is made betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1978 SC 1803 ( City Municipal Council ), it was observed that the property of the Union is exempt from all taxes imposed by the State or by any authority within the State under Article 285(1), unless the claim can be supported and sustained within the parameters of Article 285 (2). The expression save in so far as Parliament may by law otherwise provide in clause (1) of Article 285 is to enable the Parliament to control Union property. Thus, the Parliament may by law permit a State or any authority or instrumentality within a State to impose tax on Union property. But if no such law is made by the Parliament the immunity would continue. Similarly, clause (2) of Article 285 which is in the nature of an exception to clause (1) thereof, has given an overriding power to Parliament to take away any existing taxation of a State or a local authority of Union property prior to the commencement of the Constitution and which has continued to be levied in the State even after the enforcement thereof. In City Municipal Council, question arose whether the Railway (Local Authorities Taxation) Act, 1941 which created a liability on the Railways to taxation by local authorities was contrary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter Article states that the continuance of the existing law would be subject to the other provisions of the Constitution . Hence, any law which is inconsistent with Article 285 cannot be continued by virtue of Article 372(1) of the Constitution. 21.9 The expression immediately before the commencement of this Constitution under clause (2) of Article 285 would mean that the property is liable or treated as liable to tax until the Union Parliament legislates to the contrary. One of the ways of interpreting this is that the property must have been liable to taxation even under the Government of India Act, 1935 in as much as if any property was not liable to be taxed under the said Act, in other words, if there was an immunity during the enforcement of the said Act then it would not have been taxed from the date of enforcement of the Constitution. It is also necessary to understand the meaning of expression that tax in clause (2) of Article 285 which would have a relation to its nature and character and not its quantum or rates. So long as the taxes remains the same, the State or local authority can always increase or reduce its rate, in accordance with law. The variation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government or from the Corporation, or on a building leased from any person. In any other case, tax shall be leviable as per sub-section (2) of Section 179 of the Act of 1959. The drainage taxes are assessed. Therefore, the levy of property taxes or other taxes on land and building is subject to Article 285 of the Constitution. 21.11 We have already discussed the scope and ambit of the two clauses of Article 285 of the Constitution. Applying the same to the present case and having regard to the reasoning given by us in the earlier part of this judgment, we have held that enemy property is not the property of the Union although it may vest with the Custodian for Enemy Property in India who is a person appointed by the Central Government. If the enemy property is not the Union property in terms of clause (1) of Article 285 of the Constitution then such property cannot be exempt from the taxes imposed by the State or by any authority within the State unless otherwise provided by the Parliament. 21.12 For the sake of completeness of the discussion assuming for a moment that the vesting of the enemy property with the Custodian becomes the property of the Union, then claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odian is thus only for the purpose of administration and management of such properties. In view of our discussion made above, there would be no transfer of ownership and such properties vest in the Custodian for their protection and management only. By such vesting, the Union cannot usurp ownership of such properties. In the same vein, when many persons who are resident in India left their properties and settled in enemy countries, the Custodian has taken possession of such properties which is only for the purpose of protection and maintenance and to be handed over as and when a conducive environment between the countries arises. We also observe that it was never the intention under the Defence of India Rules, 1962 and 1971 or under the provisions of the Act that enemy subjects would lose all their right, title and interest in the properties once the said properties vest in the Custodian and thereby become Union properties. In this regard, we also would like to emphasise that the expression vest in the Union is clearly mentioned in Article 296 of the Constitution. The said provision deals with properties which for want of a rightful owner or as bona vacantia would vest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be handed over to the respondent. The Union of India filed an appeal before this Court by way of a Special Leave. Dismissing the appeal, this Court held that the Act was enacted for the purpose of continued vesting of enemy property in the Custodian of Enemy Property for India under the Defence of India Rules, 1962 and the Defence of India Rules, 1971. 22.1 This Court observed that the respondent therein was the sole heir and successor of the late Raja and properties belonging to the late Raja was succeeded to by the respondent by way of succession and the properties in question could no longer be enemy property within the meaning of Section 2(c) of the Act. Therefore, the Custodian could not be permitted to continue in possession of such properties. During the pendency of the Writ Petition before it, the High Court directed the appellant therein to place on record a copy of the note put up for release of the property of the respondent's father and the decision taken thereon by the Cabinet. 22.2 The Union of India was directed by this Court to get the buildings (residence or offices) of the subject property vacated from such officers and hand over the possession to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the purposes of management, control and possession of the properties only. In the said case, Union of India had admitted that under the provision of the Act, title of the property of an enemy does not vest in the Custodian but the Custodian takes over the enemy property only for the purpose of possession, control and management. That an Indian citizen is excluded from the definition of an enemy or enemy subject under Section 2(b) of the Act. That on the death of the enemy subject, his successors and legal heirs being Indian citizens were entitled to succeed to the subject property as it ceased to be an enemy property. That even though a decision was taken to release only 25% of the property to the respondent therein, the same was also not implemented, for over three decades. Therefore, the direction was issued to the appellant-Union of India therein to get the buildings (residence or offices) vacated from such officers and hand over the possession to the respondent therein within eight weeks. The appeal of the Union of India was dismissed with costs of Rs.5 lakhs. This decision was rendered on 21.10.2005. 22.4 Thereafter, on 08.09.2006 in the case of Kohli Brothers vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent herein, the same shall not be refunded to them. But, if no other demand has been made till date, such demand shall not be made. However, 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. We have granted a relaxation to the respondent in view of the fact that the High Court by the impugned order dated 29.03.2017, had held in favour of the respondent herein and we are now reversing the said order. In view of the aforesaid discussion, we arrive at the following conclusions: 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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