Broadway Complex vs Administrator, Corporation of the City of Bangalore and others

Ramajois, J.—These two writ appeals are presented against the order of the learned single judge (See Hotel Broadway Complex Vs. Administrator, Corporation of the City of Bangalore and others, dismissing the two writ petitions presented by the appellant (common appellant in both the writ appeals) in which the appellant had challenged the legality of the demand of property tax by the Corporation of the City of Bangalore from the appellant in respect of the properties in which the appellant was only a lessee.

The facts of the case, in brief, are these : The main contention of the petitioner/appellant is that, in respect of the properties in respect of which taxes are demanded from the appellant, he was only a lessee and, therefore, in view of section 112 of the Karnataka Municipal Corporations Act, 1976 (in short "the Act"), the primary liability to pay tax was on the lessor and, therefore, the demand of property tax from the appellant was without authority of law. The above contentions was negatived by the learned judge who dismissed the writ petitions, Aggrieved by the said order, the petitioner/appellant has presented these two appeals.

In order to appreciate the question of law arising for consideration, it is necessary to set out the basic facts. There existed a bungalow and a vacant site in Kempegowda Road, Bangalore. The bungalow was titled "MANORAMA" bearing Municipal Corporation No. 12. Apart from the bungalow, there was also vacant land on which the owners were running a petrol bunk. The land around and including the building "MANORAMA" as also the land on which the petrol bunk was situate were leased by its owners in favour of the appellant by a lease deed dated June 1, 1959 (annexure "A"). The bungalow was described in Schedule "A" of the lease deed and the land on which the petrol bunk was situate was described in Schedule "B" thereof. The relevant clauses of the agreement are these :

"Clause (3) : The period of the lease shall be a period of 20 years certain from the date of these presents....

"Clause (5) : The lessors agree to pay the corporation tax payable on the building as it exists now, i.e., as on a monthly rent of Rs. 1,801 (Rupees one thousand eight hundred and one) and all other charges and taxes payable to the State Corporation, local bodies or otherwise, or towards power, lighting, water licence charges or any enhanced corporation tax shall be paid by the lessee themselves.

"Clause (6) : The lessors further agree that the lessees shall be at liberty during the subsistence of this lease to make such alterations, additions, changes or other structures (without in any way impairing the safety of the premises as may be necessary for the purposes of using the premises as a boarding and lodging establishment and shall also be at liberty to put up such structure as they may deemed profitable in the portion mentioned as schedule "B" hereinbelow....

Clause (12) : The lessees shall be at perfect liberty during the period of the subsistence of the lease to continue to do their business of boarding and lodging establishments in the premises but the lessees shall not, without the consent in writing of the lessors, sub-lease in full the whole of the property hereby demised or assign their rights under the lease deed to any other person or persons."

As can be seen from the above clauses, the lease was for a period of 20 years in the first instance. According to clause (5), the lessors agreed to pay corporation tax payable on the building as it existed at the time of lease. According to clause (6), the appellant/lessee was permitted to put up constructions. According to clause (12), the appellant was also at liberty to sub-lease the property with the consent of the lessors.

It is common ground that the period of lease had been extended for another period of 15 years. during the currency of the lease, the appellant put up constructions on the vacant land (schedule "B" property) and sub-leased those premises in favour of three persons. It is not disputed that the sub-lease in favour of three sub-leases was for a period of more than one year. The Competent Authority of the corporation made assessment of tax on the three sub-leased properties on the basis of the annual rental value. Aggrieved by the said assessment, the appellant took the matter in appeal before the Standing Committee of the corporation in the year 1981. As at the relevant point of time, the corporation council had been superseded and an administrator was put in charge of the corporation, he was exercising the powers of the standing committee. The appeal was taken up by him for disposal. The two contentions urged before the administrator was (1) that the annual rental value had not been correctly fixed, and (2) that the revision of assessment was excessive. The administrator heard counsel for the appellant who appeared before him and he made the following order :

"PROCEEDINGS OF THE ADMINISTRATOR DATED 23-12-1981 EXERCISING THE POWERS OF TAXATION AND RI APPEALS COMMITTEE :

Subject No. TAC 233/80-81 : Messrs. Chidambaram and Bros. No. 19/3, Broadway Complex, Kempegowda Road, Bangalore-9.

Heard counsel for the appellant.

His main contention is that as he is not getting the rent on the basis of which the annual rental value is fixed, from his sub-lessees, he is not in a position to pay the taxes himself and he will have to collect extra taxes over and above the rent on which he has leased it out, from his sub-lessees as per section 112(6) of the Karnataka Municipal Corporation Act, 1976. He has also requested that a detailed order may be given so that on that basis he could approach his sub-lessees for giving him the difference. The annual rental value has been fixed on the basis of the actual rents received from sub-lessees as per the tenant declaration as follows :

Rs. P. 1. Messrs. Mahtani''s Department Stores .... 4,175.25 2. Messrs. Mysore Saree Emporium .... 1,000.00 3. Messrs. Jevan Cellar .... 4,000.00 -------- Total .... 9,175.25 -------- The other point made out was that the revision of assessment cannot be brought into effect retrospectively. This is supported by the Act and hence the revision of assessment on the basis of the new annual rental value is to be brought into effect from April 1, 1980."

Thereafter, the appellant has presented two writ petitions before this court.

In support of the contention that the appellant was not primarily liable to pay the tax, learned counsel for the appellant rules on the judgment of the Supreme Court in National and Grindlays Bank Ltd. Vs. The Municipal Corporation of Greater, Bombay, . Learned counsel submits that section 146 of the Bombay Municipal Corporation Act was submits that section 146 of the Bombay Municipal Corporation Act was pari materia with section 112 of the Act and and in the said case, the Supreme Court held that when premises had been leased and the lessee had constructed a building at his own cost, in respect of the corporation tax on the property so leased, the primary liability to pay the tax was on the lessor. The contention of the lessor (owners) of the property that the primary liability was on the lessee was rejected. Learned counsel submitted that, in view of the ratio of the said decision, it should be held in the present case also that the primary liability to pay the tax is on the lessor and not on the appellant who is lessee.

In our opinion, the case on hand is clearly distinguishable from the case considered by the Supreme Court as this case falls squarely under sub-section (2) of section 112 of the Act.

Section 112 of the Act reads :

"Section 112 : Property tax from whom and when payable.-

(1) Subject to the provisions of sub-section(2), the property tax shall be primarily payable as follows, namely :-

(a) if the premises are held immediately from the Government or the Corporation, from the actual occupier thereof :

Provided that the property tax due in respect of premises owned by the Government and occupied by any person on payment of rent, shall be payable by the Government :

Provided further that no property shall be payable in respect of premises owned by the Corporation and occupied by any person on payment of rent;

(b) if the premises are not so held-

(i) from the lessor if the premises are let;

(ii) from the superior lessor if the premises are sub-let;

(iii) from the person in whom the right to let the premises vests, if they are unlet.

(2) If any land has been let for any term exceeding one year to a tenant and such tenant or any person deriving title howsoever from such tenant has built upon the the land the property tax assessed upon the said land and upon the building erected thereon shall be primarily payable by the said tenant or such person whether or not the premises be in the occupation of the said tenant or the person.

(3) The property tax shall be paid by the person primarily liable within sixty days after the commencement of every half-year."

According to section 112(1)(a) of the Act, the primary liability to pay the tax in respect of a building belonging to the Government or corporation is that of the occupier, but in respect of a premises held by any person other than the Government or corporation, according to clause (b) of section 112, the primary liability to pay the tax on the property would be on the lessor if the premises are let and from the superior lessor if the premises are sub-let or from the person in whom the right to let the premises vests, if they are unlet. Therefore, if the appellant had taken a building on lease and had sub-let the said building in favour of another person, there would have been force in the contention of the appellant that he would not be primarily liable to pay the tax and that such liability would be that of the lessor.

The undisputed facts of this case as stated earlier are that two properties were taken on lease under a lease dated June 1, 1959, and out of them. Schedule "A" property consisted of a building whereas Schedule "B" property consisted of a vacant land on which a petrol bunk and some structures were in existence. According to a clause (6) of the lease deed, the lessor undertook the liability to pay corporation tax on buildings existing on the land on the date of lease only so long as the buildings remained as they were. As far as Schedule "B" was concerned, in the lease deed, the appellant had acquired a right to put up new structures. Accordingly, three buildings which are the subject-matter of property tax in this case were constructed by the appellant and he had sub-let those premises to one person and the said sub-lessee in turn further sub-let the premises in favour of three persons. In our opinion, in a case like this, the provisions of sub-section (2) of section 112 get attracted. According to the said provision, if any land has been let or any term exceeding one year to a tenant and such tenant or any person deriving title howsoever from such tenant has built upon the land, the property tax assessed upon the said land and upon the building erected thereon shall be primarily payable by the said tenant or such person whether or not the premises be in the occupation of the sid tenant or such other person. It is not disputed that it is the appellant who has put up the construction on "schedule ''B'' property". Therefore, in view of sub-section (2) of section 112, the primary liability to pay tax is on the appellant who had put up the sid construction. It is true that sub-section (3) of section 146of the Bombay Municipal Corporation Act is in pari materia with section 112(2) of the Act, but, as could be seen from paragraph 4 of the judgment of the Supreme Court in National and Grindlays Bank Ltd. Vs. The Municipal Corporation of Greater, Bombay, , the Supreme Court observed that "it is specifically stated that, admittedly, the present case does not fall u/s 146(3) " and, therefore, the primary liability was placed upon the lessor. The present case, however, squarely falls under sub-section (2) of section 112 of the Act, and, therefore, the primary liability to pay the property tax on the building in question is upon the appellant.

Learned counsel for the appellant submitted that, if it were to be held that the primary liability to pay the property tax on the building in question is on the appellant as he was receiving only a smaller amount of rent that the actual rent which the sub-lessee is receiving from those to whom he has further sub-let the premises, the appellant would be entitled to reimbursement as provided under sub-section (6) of section 112 of the Act.

We do not express any opinion on the said question. That is a separate right which the appellant, according to him, is entitled to exercise, under sub-section (6) of section 112 of the Act in separate proceedings.

In the result, we make the following order :

The appeals are dismissed without expressing any opinion on the right of the appellant to reimbursement under sub-section (6) of section 112 of the Act.