2015 (7) TMI 374 - SC - Indian Laws

Supreme Court: Luxury tax on apartments based on individual plinth area. Clarifies key tax aspects.

State of Kerala & Ors. Versus A.P. Mammikutty

The Supreme Court ruled in a case concerning luxury tax imposition on a building with multiple residential apartments. It held that luxury tax should be ... Demand of luxury tax imposed on a building that consists of 13 residential apartments - clubbing of plinth area of more than one residential unit of single owner - Kerala Building Tax Act, 1975 - Held that:- The learned Single Judge, as we have reproduced a paragraph hereinbefore, has opined that when the plinth area of any residential apartment is above 278.7 sq. mts., then the authority can demand luxury tax for such apartment or flat. Be it noted, the learned Single Judge has held that even if the person is the owner of the entire building the computation would be apartment-wise. The said analysis is also incorrect. We have given purposive interpretation to Explanation II as it has to be read with Section 5A of the Act. When the owner parts with the building each apartment will be segregable for the purpose of luxury tax. If he remains the owner for the whole or part then he will be liable to pay for the plinth area in respect of the flats or apartments that is retained by him subject to the cap as envisaged under Section 5A of the Act. If he sells away the entire building then it has to be flat/apartment-wise calculation/computation, for every apartment owner is different than the others. Thus, the plinth area would be different. To clarify further, if a singular person purchases three flats, he will be liable on the basis of aggregate plinth area subject to the cap envisaged under Section 5A of the Act. Issues Involved:1. Legality of luxury tax imposition on a building with multiple residential apartments.2. Interpretation of 'plinth area' for luxury tax purposes.3. Applicability of Explanation II to Section 2(e) of the Kerala Building Tax Act.4. Distinction between 'residential building' and 'building' under the Act.5. Determination of tax liability based on ownership and construction cost sharing.Detailed Analysis:1. Legality of Luxury Tax Imposition on a Building with Multiple Residential Apartments:The respondent challenged the luxury tax demand imposed on a building with 13 residential apartments. The competent authority under the Kerala Building Tax Act, 1975, had measured the plinth area of all apartments and computed the tax as a single building. The Single Judge ruled that luxury tax should be levied on each residential apartment individually if its plinth area exceeds the limit set under Section 5A of the Act. The Division Bench upheld this, stating that each apartment should be treated separately for tax purposes if they can function independently.2. Interpretation of 'Plinth Area' for Luxury Tax Purposes:Section 2(k) of the Act defines 'plinth area' as the area included in the floor of a building, and if the building has more than one floor, the aggregate area of all floors. The proviso to Section 2(k) states that in buildings referred to in Explanation II to Section 2(e), the plinth area should be calculated separately. The Supreme Court held that the plinth area of a multi-storied building owned by a single owner must be aggregated for luxury tax purposes.3. Applicability of Explanation II to Section 2(e) of the Kerala Building Tax Act:Explanation II to Section 2(e) states that if a building consists of different apartments owned by different persons who jointly met the construction cost, each apartment is deemed a separate building. The Supreme Court emphasized that this provision applies to cases where ownership and construction costs are shared. The Court clarified that this explanation should not be narrowly construed to exclude situations where apartments are sold after construction.4. Distinction Between 'Residential Building' and 'Building' Under the Act:Section 2(l) defines 'residential building' as a structure built exclusively for residential purposes, excluding hotels and similar establishments. The Supreme Court noted that the term 'residential building' must be interpreted in conjunction with 'building' as defined in Section 2(e) and the plinth area definition in Section 2(k). The Court concluded that luxury tax applies to residential buildings with a plinth area of 278.7 sq.mts. or more, regardless of whether the building consists of multiple apartments.5. Determination of Tax Liability Based on Ownership and Construction Cost Sharing:The Supreme Court held that if a single owner retains ownership of multiple apartments, the plinth area for tax purposes should be aggregated. However, if the owner sells the apartments, each unit should be treated separately for luxury tax calculation. The Court emphasized a purposive interpretation of the Act, ensuring that the legislative intent is fulfilled without leading to absurd results.Conclusion:The Supreme Court allowed the appeal, setting aside the orders of the revenue authority and the High Court. The matter was remanded to the revenue authority to compute the luxury tax in accordance with the Court's interpretation. The Court clarified that luxury tax should be calculated based on the aggregated plinth area for single ownership and separately for individual apartment owners.