1978 (9) TMI 177 - SC - Indian Laws

Supreme Court rules Union property exempt from municipal taxes under constitution.

The Supreme Court held that the Bellary Municipal Council could not levy municipal taxes on Union property under the current constitutional framework. The ... - Issues Involved:1. Interpretation of Article 285 of the Constitution of India.2. Liability of the Union of India to pay municipal taxes to the City Municipal Council, Bellary.3. Applicability of the Madras District Municipalities Act, 1920, and the Mysore State Municipalities Act, 1933.4. Continuance of tax liability post-constitution under Article 372.5. Applicability of the Railways (Local Authorities Taxation) Act, 1941.Issue-wise Detailed Analysis:1. Interpretation of Article 285 of the Constitution of India:The central issue in this appeal concerns the interpretation of Article 285 of the Constitution of India. Article 285(1) states that the property of the Union shall be exempt from all taxes imposed by a State or any authority within a State unless Parliament provides otherwise by law. Article 285(2) provides an exception, allowing local authorities to continue levying taxes on Union property if such taxes were being levied immediately before the commencement of the Constitution, provided the tax continues to be levied in that State. The Court emphasized that for a local authority to claim the benefit of this exception, two conditions must be met: (1) the tax levied must be the same as before the Constitution, and (2) the local authority must belong to the same State as it did before the Constitution.2. Liability of the Union of India to pay municipal taxes to the City Municipal Council, Bellary:The City Municipal Council, Bellary, filed a suit against the Union of India for arrears of municipal taxes on properties owned by the Southern Railway within Bellary's municipal limits. The Union of India denied liability, citing Article 285. The High Court initially ruled in favor of the Municipal Council, interpreting clause (2) of Article 285 to allow the continuation of tax liability. However, the Supreme Court found that the Municipal Council could not claim the benefit of clause (2) of Article 285 because Bellary was part of the Madras State before the Constitution and later became part of Mysore State (now Karnataka).3. Applicability of the Madras District Municipalities Act, 1920, and the Mysore State Municipalities Act, 1933:The Municipal Council levied taxes under the Madras District Municipalities Act, 1920, until Bellary became part of Mysore State on October 1, 1953. Subsequently, the Mysore State Municipalities Act, 1933, was extended to Bellary. The Supreme Court held that the mere change in the statutory basis for levying the tax (from the Madras Act to the Mysore Act) did not alter the nature of the tax, and thus, it could still be considered 'that tax' under Article 285(2). However, the Court concluded that the Municipal Council could not benefit from Article 285(2) because it was no longer part of the same State.4. Continuance of tax liability post-constitution under Article 372:The Municipal Council argued that the Railways (Local Authorities Taxation) Act, 1941, continued in force under Article 372 of the Constitution, which preserves pre-constitution laws. The Court rejected this argument, stating that the 1941 Act was repugnant to Article 285(1) and not a law made by Parliament after the Constitution. Thus, it could not override the constitutional exemption provided by Article 285(1).5. Applicability of the Railways (Local Authorities Taxation) Act, 1941:The 1941 Act created the liability of the Railways to pay local taxes. However, the Supreme Court held that this Act could not be used to impose taxes on Union property post-constitution unless it was saved by Article 285(2). Since the Bellary Municipal Council was no longer part of the same State as before the Constitution, it could not claim the benefit of Article 285(2).Conclusion:The Supreme Court concluded that the Bellary Municipal Council could not levy municipal taxes on Union property under the current constitutional framework. The appeal was allowed, and the judgment and decree of the High Court were set aside, with each party bearing its own costs.