Hotel Corporation of India vs State of Jammu and Kashmir and Others

B.P. Saraf, C.J.—By these three writ petitions, the petitioners, Hotel Corporation of India Limited, seek to challenge the assessments made

under the Jammu and Kashmir Urban Immovable Property Act,1962 (Act XXII of 1962) ( hereinafter referred to as ""the Act""), in respect of

Hotel Centaur by the Respondent-3, Assessing Authority, Urban Immovable Property Tax, Srinagar. The assessments have been challenged on

various grounds. One of the main grounds of challenge is that Hotel Corporation of India being a Government of India undertaking, no tax can be

levied on its properties in view of the prohibition contained in Article 285 of the Constitution of India and section 4(1) of the Act. The annual value

ascertained by the Assessing Authority and the method of ascertaining the same are also subject-matter of challenge. All the three writ petitions

were admitted and recovery of the tax levied by the Assessing Authority stayed by this court by different orders passed from time to time. These

three writ petitions are, therefore, taken up together for hearing and disposal.

We have heard Mr. B. A. Bashir, learned counsel for the petitioners, who submits that the Hotel Corporation of India being the subsidiary of

Air India which is a body corporate established by an Act of Parliament, the Air Corporations Act 1953, and wholly owned by the Government of

India , its properties are exempt from levy of tax by the State by virtue of Article 285 of the Constitution of India . According to Mr Bashir,

property of the petitioners is also exempt from levy of tax in view of the provision contained in sub-section (1) of section 4 of the Act which

provides that tax shall not be leviable in respect of any building and lands vested in the Central Government. The learned counsel submits that the

land and buildings owned by the Hotel Corporation of India vest in the Central Government in view of the fact that it is a subsidiary of a

Government of India undertaking which is wholly owned by the Government of India. He, therefore, submits that levy of tax on the buildings and

land of the petitioner-corporation is ultra vires Article 285 of the Constitution of India. He further submits that the petitioners have also challenged

the annual value of the property ascertained by the assessing authority and the method adopted therefor. He also submits that no proper

opportunity was afforded to the petitioners to satisfy the Assessing Authority about the real annual value of the property, which has resulted in

fixation of very high annual value and levy of excessive tax. He submits that in any event, the respondents should be directed to give proper hearing

to the petitioners and determine the annual value and the amount of tax payable afresh by a reasoned order. He further submits that u/s 4 of the

Act, if the property is jointly owned by the petitioners, the Hotel Corporation of India and the State Government, the liability to pay the tax would

be joint and for that purpose the State Government also should be made a party and directed to pay tax at least to the extent of its share. He

stated that the Hotel Corporation of India was not the sole owner of the property in respect of which the assessment has been made. The said

property, according to him, is jointly, owned by the Hotel Corporation of India and the State Government.

We have also heard the learned Advocate General Mr. Goni who submits that Article 285 of the Constitution has no application to the property

of a statutory Corporation. He also submits that there is no infirmity in the assessments, which might justify interference of this Court in exercise of

powers under Article 226 of the Constitution. He further submits that if the petitioners are aggrieved by the amount of annual value assessed and

the tax levied, they should avail of the statutory remedy available to them under the Act by way of appeal.

We have carefully considered the rival submissions of the learned counsel for the parties. The Jammu and Kashmir Urban Immovable Property

Tax Act, 1962 was enacted to provide for the levy of tax on urban immovable property. Section 3 of the Act, which is the charging section,

provides that tax shall be payable by an owner in respect of annual value of property at the rates specified therein. It reads:

Levy of tax.- (1) Subject to the provisions of this Act, the tax shall be payable by an owner in respect of annual value of property or aggregate

annual value of properties owned by him in a rating area at such rate not exceeding 25 per centum of the annual value as the Government may, by

notification in the Government Gazette from time to time, direct in respect of a rating area. If a unit of property is owned by two or more persons

as joint owners, tax shall be payable by the owners in respect of such property as a unit and they shall be jointly and severally liable for the

payment of tax and any other sum payable under the Act.

Provided that where the tax calculated on the annual value exceeds the difference between the said annual value and exemption limit, as referred to

in clause (C) of sub-section (1), or as fixed by the Government under sub-section (2), of section 4, the tax leviable shall be equal to the said

difference.

Provided further that the Government may fix graduated rates of tax on different slabs of annual value of such lands and buildings subject to

maximum specified in this section.

(2) ... ... (Omitted)

(3) If the property, in respect of which tax is payable, is transferred to any other person, whether by sale, gift, exchange, mortgage, inheritance or

otherwise, the transferee shall be liable to pay tax or any other sum payable under this Act in respect of the property so transferred for the period

prior to the date of transfer and the notice of demand, if any, issued to the transferor shall be deemed to have been issued to transferee; provided

that a duplicate copy of such notice of demand shall be served on the transferee.

Explanation:- For the removal of doubt it is hereby clarified that if a property is owned by two or more persons in definite and specific portions as

co-owners, the tax shall be payable by each co-owner in respect of the annual value of the portion owned by him.

Section 5 of the Act deals with the ascertainment of annual value.

Section 4 of the Act exempts certain properties from levy of tax under the Act. It reads :

4.Exemptions - (1) The tax shall not be leviable in respect of the following properties, namely :

(a) buildings and lands vesting in the Central Government;

(b) any property vesting in or owned by the Government or a local authority;

(c) any property unit or properties in a rating area owned by a person, the annual value or the aggregate annual value whereof does not exceed

Rs.3000 ;

(d) property held in trust wholly for charitable or religious purposes ; provided that the income derived therefrom is exclusively applied to such

purposes;

(e) (a) property held in trust wholly for charitable or religious purposes and the property owned by a charitable or religious institution or place at

the disposal of any such institution for charitable or religious purposes free of rent or any other consideration in lieu thereof ; or

(b) in respect of which rent or any other income is derived and such rent or income is exclusively applied for religious or charitable purposes or

given away as donations to such public charitable purposes or religious institutions as may be prescribed;

(ee) Nothing in clauses (d) and (e) shall apply to the property which is used as premises of educational, medical or any other institutions carrying

on an activity for any income which is not exclusively applied to religious or charitable purposes;

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(f) such buildings and lands used for the purpose of a factory as may be prescribed; and ;

(g) buildings valuing less than rupees one lakh which are exclusively used for residential purposes by the owner or any member of his family.

(2) The Government may , by a notification in the Government Gazette, exempt in whole or in part from payment of the tax any person or class of

persons or any property or description of property for such period as it may think fit, and may renew such exemption as often as it may consider to

be necessary.

From a plain reading of the above section it is clear that buildings and lands vesting in the Central Government are exempt from the levy of

property tax under the Act. Obviously, this provision has been made in view of the prohibition contained in Article 285 of the Constitution of India

on the power of the State to levy tax on the property of the Union. Article 285 of the Constitution of India reads :

285.Exemption of property of the Union from State taxation.- (1) The property of the Union shall, save in so far as Parliament may by law

otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State..

(2) Nothing in Clause (1) shall, until Parliament by law otherwise by law provides, prevent any authority within a State from levying any tax on any

property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as

that tax continues to be levied in that State.

There is no dispute before us about the fact that no tax can be levied by the State Government on the property of the Union ; and the State

Legislature, by exempting the properties vesting in the Central Government from the purview of taxation under the Act , has fully complied with the

requirements of Article 285 of the Constitution. The real controversy in this case is whether the property of the Hotel Corporation of India, which

is a statutory Corporation, wholly owned by the Central Government, can be treated as the property of the Union or property vesting in the

Central Government.

Mr. M. A. Goni, learned Advocate General, submits that the Hotel Corporation of India is distinct from the Central Government and is

,therefore, not entitled to claim exemption from taxation under the Act . His submission, in other words , is that Article 285 of the Constitution of

India has no application in the present case. He also submits that the property of the Hotel Corporation of India is not property vesting in the

Central Government and hence the benefit of section 4(1) of the Act is also not available in respect thereof. Reliance is placed in support of this

contention on the decisions of the Supreme Court in M/S. Electronics Corporation of India Ltd. Etc. Etc. Vs. Secretary, Revenue Department

Govt. of Andhra Pradesh and Others Etc. Etc., and the Food Corporation of India Vs. The Sub-Collector, Narsapur and others, .

We have carefully considered the rival submissions in regard to the applicability of Article 285 of the Constitution of India and section 4(1) of

the Act to the property of the Hotel Corporation of India. As stated above, there is no dispute about the fact that Article 285 of the Constitution of

India imposes a ban on levy of tax by a State or any authority within a State on the property of the Union. The real question that arises for

consideration is whether the property of the Hotel Corporation of India can be said to be the property of the Union of India. This controversy is no

more res integra in view of a catena of decisions of the Supreme Court on the point.

In M/S Electronics Corporation of India Ltd. v Secretary, Revenue Department, Government of Andhra Pradesh (supra), it was contended

before the Constitution Bench of the Supreme Court that the property of the Electronics Corporation of India Ltd. was the property of the Union

of India in as much as the said Company was a Government Company, its shares being wholly owned by the Union of India and, that being so, the

State Legislature was barred from imposing any tax on its property. The Supreme Court repelled this contention and observed:

A clear distinction must be drawn between a Company and its share holder, even though that share holder may be only one and that the Central

or a State Government. In the eye of the law, a Company registered under the Companies Act is a distinct legal entity other than the legal entity or

entities that hold its shares.

The Supreme Court, therefore, held that the State Government was, entitled to levy tax upon the lands held by the Electronics Corporation of India

Ltd.

Reference may also be made to the decision of the Supreme Court in Western Coalfields Limited Vs. Special Area Development Authority,

Korba and Another, . In that case, the Supreme Court held that even though the entire share capital of the Companies has been subscribed by the

Government of India, it cannot be predicated that the Companies themselves are owned by the Government of India. It was observed that

Companies which are incorporated under the Companies Act have a corporate personality of their own, distinct from that of Government of India.

The lands and buildings are vested in and owned by the Companies and not by the Government of India. The Government of India only owns the

share capital.

To the same effect is the decision of the Supreme Court in Rustom Cavasjee Cooper Vs. Union of India (UOI), wherein also it was held that

the property of the Company is not the property of the shareholders.

In Food Corporation of India Vs. Municipal Committee, Jalalabad and Another, , it was contended before the Supreme Court that for all

intents and purposes the Food Corporation of India was nothing but an extended arm of the Central Government and it was thus exempted from

taxation under Article 285 of the Constitution of India. The Supreme Court referred to its earlier Constitution Bench decision in M/S Electronics

Corporation of India Ltd. v Secretary, Revenue Department, Government of Andra Pradesh (supra) and held that the Food Corporation of India

cannot claim exemption from taxation under Article 285 of the Constitution . It was observed :

The question that arises before us is: If the property of the Corporation is the property of the Union of India, and, thus, exempt from taxation

imposed by the State or any authority within a State. Authority in the present case would include local authority. A Constitution Bench of this Court

in Electronics Corpn. Of India Ltd. v. Secy. Revenue Deptt., Govt. of A. P. has held that a government company is distinct from the Central

Government and cannot claim exemption from taxation under Article 285 of the Constitution. The case of the Corporation cannot be any different.

The Act under which it is constituted specifically makes the Corporation a body corporate having the attributes of a company.

In The Board of Trustees for the Visakhapatnam Port Trust Vs. The State of Andhra Pradesh and Others, , the question of law for

consideration before the Supreme was whether the Board of Trustees of Visakhapatnam Trust was exempt from taxation under Article 285 of the

Constitution from levy of property tax by the Visakhapatnam Municipal Corporation constituted under Visakhapatnam Municipal Corporation

Act,1979.The contention of the Board before the Supreme Court was that the properties were not owned by the Board and the vesting of the

properties in the Port Trust was only for the purpose of administering them and they in fact remained the properties owned by the Union of India

and thus exempt from taxation under Article 285 of the Constitution of India. The Supreme repelled this contention and held that the Board was

not exempt from taxation under Article 285 of the Constitution of India.

In Municipal Commissioner of Dum Dum Municipality and Others Vs. Indian Tourism Development Corporation and Others, , the Supreme

was called upon to consider whether the International Airport Authority , which is constituted under the International Airport Authority Act,1970,

can claim exemption from taxation under Article 285 of the Constitution. The Supreme Court held that the International Airport Authority of India

was a statutory corporation distinct from the Central Government and that the properties vested in it cannot be said to have been vested only for

proper management. The Supreme Court observed:

The vesting of the said. properties in the Authority is with the object of ensuring better management and more efficient operation of the airports

covered by the Act. Indeed that is the object behind the very creation of the Authority. But that does not mean that it is a case of limited vesting for

the purpose of better management. The Authority cannot, therefore, invoke the immunity created by Article 285(1) of the Constitution . The levy of

property taxes by the relevant municipal bodies is unexceptionable.

The ratio of the above decisions squarely applies to the present case. The Hotel Corporation of India, which is a subsidiary of Air India, a

statutory Corporation, is a legal entity distinct and separate from Government of India. It has a corporate personality of its own, distinct from the

Government of India. The lands and buildings in respect of which tax has been levied under the Jammu and Kashmir Urban Immovable Property

Tax Act, 1962 are owned by the Corporation and not by the Government of India. The Hotel Corporation of India, therefore, cannot claim

exemption from taxation under Article 285 of the Constitution and section 4(1) of the Act. The first ground of challenge therefore fails.

So far as the other grounds of challenge to the assessments of property tax made by the assessing authority is concerned, we find that the

controversy raised therein purely factual which it is difficult for this court to decide in exercise of extraordinary jurisdiction under Article 226 of the

Constitution of India and section 103 of the Constitution of Jammu and Kashmir. On hearing the learned counsel for the petitioners and the learned

Advocate General for the respondents in this regard, we are of the opinion that these factual controversies should be decided by the assessing

authority itself. The learned counsel for the petitioners Mr. Bashir contended that the impugned orders were passed without affording proper

opportunity to the petitioners. He submits that the petitioners are prepared to go before the assessing authority and place all relevant material in

support of their contention that the annual value should be much less than what has been determined by the impugned orders and that the property

is jointly owned by the petitioner â€"Corporation and the State Government. The learned Advocate General Mr. Goni stated that the respondents

would have no objection in deciding the factual part of the controversy raised by the petitioners afresh provided they undertake to deposit all

outstanding demands made by the Assessing Authority against them which are pending since 1989. He also assures the Court that if as a result of

re-assessment, it is found that any amount is refundable, the same shall be refunded within two months of the fresh determination of the amount of

tax payable.

We have considered the rival submissions of the learned counsel of both the parties. We find merit in the submission of Mr. Bashir, learned

counsel for the petitioners, that if sufficient opportunity of hearing would have been afforded to the petitioners to satisfy the assessing authority

about the correct annual value of the property and also about the ownership thereof before the impugned orders were passed, there would have

been no dispute in this regard. He submits that the matter may be remanded to the assessing authority with a direction to re-determine the annual

value and to decide the dispute about joint ownership. So far as the question of payment of all outstanding demands is concerned, Mr. Bashir

submits that the financial condition of the petitioners is very bad and they should not be directed to do so. We appreciate the fair stance of the

learned Advocate General, who says that the assessing authority would have no objection to re-assess the annual value in the light of materials, if

any, placed before it by the petitioners.

In view of the above, we dispose of these writ petitions with the following directions :

i) The petitioners shall place before the assessing authority within two months from today whatever material they want to place in respect of their

contention that the annual value should have been lesser than what has been determined by the assessing authority and also in support of their

contention about the joint ownership of the property by the petitioners-Corporation and the State Government.

ii) If the requisite material is submitted to the assessing authority within two months from today, the assessing authority shall give a personal hearing

to the petitioners, and also give due consideration to the materials placed on record by the petitioners, and if it is satisfied that the determination

made by it by the impugned orders is on the higher side and requires treduction, it would reduce the same. If even on the basis of those materials

the assessing authority finds that the determination made by it earlier is just and proper, then also he should pass fresh reasoned orders. This should

be done within four months from today.

iii) The petitioners shall deposit 1/3rd of the outstanding demand within two month from today. The time of two months has been given on the

request of Mr. Bashir. It is made clear that no further time would be given for depositing the amount.

iv) If the demand is more than the amount already deposited by the petitioners ,the respondents shall be at liberty to recover any amount due over

and above the amount deposited in accordance with law. Similarly, they shall also refund any amount found refundable within two months of the

fresh order.

With these directions, these writ petitions are disposed of.