Contractual liability for municipal outgoings prevailed, while constitutional tax exemption had to be established before avoiding payment.

Express contractual covenants required the defendants in possession of the premises to pay municipal taxes, cess and allied charges, and that obligation was not displaced by the plaintiff not first conceding their lease status. The plea under Order II Rule 2 CPC was not treated as an immediate bar to the limited relief sought. On the Article 285 exemption claim, the Court noted that Union property is protected from State taxation, but the exemption issue could not be conclusively decided without the Municipal Corporation. The defendants were given time to seek an exemption declaration, failing which they had to clear accumulated dues and continue paying municipal outgoings as they fell due.

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Issues: Whether the defendants, who were in possession of the suit premises, could be directed to pay the outstanding municipal dues and continue to bear future municipal taxes and charges in view of the lease covenants and their plea of exemption under Article 285 of the Constitution of India.

Analysis: The liability to pay municipal taxes, cess and allied charges was expressly undertaken under the sub-lease and the later modification deed. The Court held that this contractual obligation did not depend on the plaintiff first conceding the defendants' status as lessees. The plea based on Order II Rule 2 of the Code of Civil Procedure, 1908 was treated as not a present impediment to the limited relief sought in the motion. On the exemption plea, the Court noted that Article 285 of the Constitution of India protects property of the Union from State taxation, but the question whether the leasehold interest acquired by the Union in the suit premises actually attracted that exemption could not be finally determined in the absence of the Municipal Corporation. The Court therefore balanced the competing positions by allowing the defendants time to pursue an exemption declaration from the Corporation, while safeguarding the plaintiff and municipal dues in the meantime.

Conclusion: The defendants were held liable to pursue the exemption claim within the stipulated period and, failing such exemption, to pay the accumulated municipal dues and continue paying municipal taxes and charges as they fall due.

Final Conclusion: The motion was allowed only to the extent of securing payment of municipal dues subject to the defendants' attempt to obtain an exemption from the Municipal Corporation, and the remaining reliefs were declined.

Ratio Decidendi: A party in possession of premises remains bound by an express covenant to pay municipal outgoings, and a claim of constitutional tax exemption cannot be used to avoid that liability unless the exemption is established before the competent authority.

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