TaxTMI 
TaxTMI 
2019 (12) TMI 100
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....y and it is only if it is impossible to do so that the provision is declared unconstitutional. The burden on those who assail the statutory provision is therefore quite heavy. 2. The petitioners in these writ petitions are self-financing educational institutions. They impugn the demand of property tax from them under Section 203 of the Kerala Panchayat Raj Act/Section 233 of the Kerala Municipality Act, 1994 [both Acts hereinafter together referred to as the 'Acts']. It is stated that as per the said provision, there is a levy of tax contemplated in respect of all buildings, save those that are exempted from the levy of tax under Section 207/Section 235 of the respective Acts. Section 207/Section 235 enumerates the classes of buildings that are exempted from the levy. In these writ petitions, the exemption clause that is challenged as discriminatory is Section 207(b)/Section 235(b) of the Acts, which reads as under: Exemption from Tax, Cess etc.-- (1) The following buildings and lands shall be exempted from property tax as may be levied under S.203/S.233 and service cess as may be levied under sub-section (2) of Section 200/sub-section (4) of S.230, namely: ....
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....from levying of property tax considering the fact that they contribute largely in the education sector without any monetary benefit with a sole aim of making students well educated. In the case of private schools, they function mostly as a profitable entrepreneurship than a non-profit institution. Buildings and hostels used for the purpose of education and stay owned or financed by Government and owned by private management of self financing educational institution cannot be treated alike. Hence those buildings owned by private management cannot be granted exemption from property tax. 9. It is submitted that the tax is on the 'property' that is put to use for educational purposes. It involves both 'use' and ownership. The term 'use' needs to be considered in a larger perspective as it includes purpose and objective as well. The properties of the educational institutions in the private/self financing sector cannot be held to be exempted from the tax which adds to revenue of the Local Self Government Institutions. As outlined in Section 207(1)(b) & Section 235(b), those are the buildings owned by the Government, aided or functioning with the financial....
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....1)(h) of the Kerala Municipality Act of 1994 and Kerala Panchayat Raj Act of 1994 respectively "................. building attached to the institutions handed over to Local Self Government Institutions by the Government" are exempted from property tax, cess etc. 15. It is pertinent to note that apart from the buildings belong to educational institutions, hospitals providing treatment for patients free of cost, buildings providing shelter to destitutes and orphans, libraries and reading rooms open to public, burial and burning grounds, small residential buildings of which the owner is under poverty line etc. also are exempted from property tax." 5. The main issue to be considered in these writ petitions is whether the exemption provision under the Acts is discriminatory in its grant of exemption to only such buildings that are used for educational purposes and under the ownership of educational institutions owned by the Government or aided or functioning with the financial assistance from the Government. To answer the said issue, it would be apposite to go through the decided case laws to understand the principles that are applied by courts while examining a challenge to....
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.... "(7) ................................. ........................... ............................. Though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinize the effect of the law carefully to ascertain its real impact on the persons or property similarly situated. Conversely, a law may treat persons who appears to be similarly situate differently; but on investigation they may be found not to be similarly situated. To state it differently, it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine : vide Purshottam Govindji v. B. N. Desai, 1955-2 SCR 887: ( (S) AIR 1956 SC 20) and....
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....but it would have also avoided the unjust treatment meted out to the in the rate of tax. Prima facie there appears to be some plausibility in this argument; but a closer examination discloses that though the method suggested may have been better than the method actually adopted, the hardship in individual cases cannot in any event be avoided." 7. In State of Gujarat & Another v. Shri Ambica Mills Ltd., Ahmedabad, etc. [(1974) 4 SCC 656], the Court dealt with classifications that are under-inclusive and held that in the context of economic legislations, a mere under-inclusion would not result in the death-knell of such laws on the anvil of Article 14 of the Constitution. The observations of the Court are at paragraphs 53 to 56, 66, 67 and 71, and are as follows: "53. The equal protection of the laws is a pledge of the protection of equal laws. But laws may classify. And the very idea of classification is that of inequality. In tackling this paradox the Court has neither abandoned the demand for equality nor denied the legislative right to classify. It has taken a middle course. It has resolved the contradictory demands of legislative specialization and constitutional gen....
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.... legislation attempts perennially to re-shape - and it has refused to strike down indiscriminately all legislation embodying classificatory inequality here under consideration. Mr. Justice Holmes, in urging tolerance of under-inclusive classifications, stated that such legislation should not be disturbed by the Court unless it can clearly see that there is no fair reason for the law which would not require with equal force its extension to those whom it leaves untouched. [Missouri, K&T Rly v. May [194 US 267, 269]] What, then, are the fair reasons for nonextension? What should a court do when it is faced with a law making an under-inclusive classification in areas relating to economic and tax matters? Should it, by its judgment, force the legislature to choose between inaction or perfection? xxx xxx xxx 66. That the legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry, that exact wisdom and nice adaption of remedies cannot be required, that j....
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....position to understand the needs and requirements of the people must be given sufficient latitude for making selection or differentiation and so long as such a selection is not arbitrary and has a rational basis having regard to the object of the Act, Article 14 would not be attracted. That is why this Court has laid down that presumption is always in favour of the constitutionality of an enactment and the onus lies upon the person who attacks the statute to show that there has been an infraction of the constitutional concept of equality. It has also been held that in order to sustain the presumption of constitutionality, the court is entitled to take into consideration matters of common knowledge, common report, the history of the times and all other facts which may be existing at the time of the legislation. Similarly, it cannot be presumed that the administration of a particular law would be done with an "evil eye and an unequal hand". Finally, any person invoking Article 14 of the Constitution must show that there has been discrimination against a person who is similarly situate or equally circumstanced. In the case of State of U.P. v. Deoman Upadhyaya [AIR 1960 SC 1125 : 1961 ....
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....o the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete. Classification would be justified if it is not palpably arbitrary. .............................. ......................................... ............................................. xxx xxx xxx 23. Just as a difference in the treatment of persons similarly situate leads to discrimination, so also discrimination can arise if persons who are unequals, i.e. differently placed, are treated similarly. In such a case failure on the part of the legislature to classify the persons who are dissimilar in separate categories and applying the same law, irrespective of the differences, brings about the same consequence as in a case where the law makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law." 10. In Union of India and Others v. N.S. Rathnam and Sons - [(2015) 10 SCC 681], while upholding the ....
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.... and a rational basis germane to the purpose, the classification has to be held as arbitrary and discriminatory...................................................................." 11. Applying these tests for reasonable classification, the Supreme Court, in a recent decision in Pioneer Urban Land and Infrastructure Limited v. Union of India - [JT 2019 (8) SC 429] = [(2019) 8 SCC 416], rejected the challenge to the provisions under the Insolvency and Bankruptcy Code that treated real estate developers as financial debtors. The contention that treating real estate developers as financial debtors was discriminatory inasmuch as unequals were treated as equals, was repelled through the following reasoning: "40. It is impossible to say that classifying real estate developers is not founded upon an intelligible differentia which distinguishes them from other operational creditors, nor is it possible to say that such classification is palpably arbitrary having no rational relation to the objects of the Code. It was vehemently argued by learned counsel on behalf of the Petitioners that if at all real estate developers were to be brought within the clutches of the Code, being li....
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....ich are co-terminus with phases of completion of the real estate project does not any the less make such payments as payments involving "exchange", i.e. advances paid only in order to obtain a flat/apartment. What is predominant, insofar as the real estate developer is concerned, is the fact that such instalment payments are used as a means of finance qua the real estate project. One other vital difference with operational debts is the fact that the documentary evidence for amounts being due and payable by the real estate developer is there in the form of the information provided by the real estate developer compulsorily under RERA. This information, like the information from information utilities under the Code, makes it easy for home buyers/allottees to approach the NCLT under Section 7 of the Code to trigger the Code on the real estate developer's own information given on its webpage as to delay in construction, etc. It is these fundamental differences between the real estate developer and the supplier of goods and services that the legislature has focused upon and included real estate developers as financial debtors. This being the case, it is clear that there cannot be said to....
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....h distinguishes the buildings owned by the Government and owned by private management of self-financing institutions. The matter in issue involved in the instant case falls exclusively in the domain of taxation and has no connection with the academic affairs. Therefore, the extent of enquiry is confined to the fiscal status of institutions only. What is the basis of the classification? In my view, this classification is made, by granting exemption to the building owned or financed by the Government, on the basis that public money is utilised for the construction and maintenance of such buildings; whereas in the case of the buildings and hostels owned and maintained by private management of self-financing institutions, the public money has not been involved. Put it differently, this exemption is a privilege granted to the public money and it can be said that buildings and hostels constructed and maintained by using public money is exempted from payment of property tax and the people, as a whole, is the beneficiary of this exemption. If property tax is imposed on buildings and hostels owned by the Government, that amount also will be taken from the public fund. More importantly, exem....
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....ntitled to get the privilege of the institution owned and administered by the Government. The petitioner institution is not the creation of a Statute; but the functioning of the institute alone is regulated by several Statutes, covering different field of activity and the Kerala Professional Colleges or Institutions (Prohibition of Capitation Fees, Regulation of Admission, Fixation of Nonexploitative fee and other measures to ensure equity and excellence in professional Education) Act, 2006 is one among various such Statutes and on that reason the self-financing Educational Institutions cannot be equated with the Educational Institutions owned and administered by the Government, having the privilege under Section 207 of the Kerala Panchayat Raj Act, 1994. The concept of 'sovereign immunity' is the basis of this privilege of tax exemption granted to the institutions owned or aided and administered by the Government." 14. I am in complete agreement with the aforesaid findings of the learned Single Judge as regards the absence of discrimination and hence, for the reasons stated in the said judgment, read together with the reasons given in this judgment, I dismiss the writ p....