Indian Red Cross Society Vs. New Delhi Municipal Committee and ors. - Court Judgment

Ruma Pal, J.

1. The appellant-Society is a charitable organisation. In1930, it was granted a permanent lease of premises No. 1, RedCross Road, New Delhi. Between 1975-77 the appellantconstructed a building on the premises. The building consistsof a basement ground floor and five floors above the groundfloor. A portion of the building is used by the appellant for thepurposes of its Headquarters and its various offices whichinclude a Blood Bank, St. John's, Ambulance (SIC)Maternity and Child Welfare Bureau and also the HindustaniNivaran Sangh. The balance portion of the building is rentedout by the appellant. It is the appellant's case that the rent isutilised wholly for charitable purposes. The appellant hasclaimed exemption from payment of house ta in respect of thebuilding for the years 1977-78 to the present day.

2. Prior to 1994, house tax in respect of properties in Delhiwas imposed under the Punjab Municipal Act, 1911. ThePunjab Act was repealed by the New Delhi Municipal CouncilAct, 1994 (briefly the NDMC Act) as far as New Delhi isconcerned with effect from the day that the respondent No. 1Council was established under Section 3 read with Section416(1) of the latter Act. According to the appellant it had tillthat time, paid some amounts of money towards the demandsraised by the respondent No. 1 on account of property tax andhad also applied to the respondents for grant of exemption.According to the appellants, there was no response to theappellants representation. The appellant filed a Writ Petitionbefore the High Court at Delhi specifically impugningtwo bills raised by the Municipal Corporation dated 20.7.90 and31.5.91 which were for the sums of Rs. 69,14,792.71 andRs. 6,13,492 respectively. Interim protection was given tot heappellant No. 1 by the High Court and the demands werestayed. The appellant then filed eight more writ petitions beforethe High Court questioning the subsequent demands onaccount of property tax raised by the respondent No. 1 inrespect of the appellant's building. The writ petitions wereheard and disposed of by the High Court by directing theappellant make a fresh representation to the Director (Tax) ofthe respondent No. 1 who was required to consider anddispose of the same. Liberty was also granted to the appellantto re-agitate the grounds on which the writ petitions were filed inthe event the decision of the Director (Tax) went against theappellant.

3. The appellant made a representation pursuant to theorder of the High Court. This was disposed of on 26.2.2001 bythe Assistant Secretary (Tax). The Assistant Secretary notedthat he was examining the claim for exemption only for theperiod 1991-92 to 2000-2001. The position under the PunjabMunicipal Act, 1911 was examined and it was found that theappellant had filed an application claiming exemption under thatAct only in respect of the self-occupied portion of the building.The Municipal Committee which was the competent authorityunder Section 70 of the Punjab Act had resolved to grantexemption from payment of property tax under the Punjab Actin respect of the self-occupied portion of the building. Theresolution of the Committee was approved by the StateGovernment. The exemption was granted upto the year 1990-91.The order also stated that there was no application forexemption by the appellant for 1991-92 to 1993-94 as such noresolutions had been taken by the Committee.

4. The Assistant Secretary then considered Sections 60, 61and 62 of the NDMC Act, 1994 and noted that exemption coldbe granted, if at all, under the provisions of the NDMC Act inrespect of that portion of the building occupied by the appellantand used for charitable purposes. Although the AssistantSecretary was of the view that even portion occupied bythe appellant did not qualify for exemption as the premiseswere not used exclusively for charitable purposes, neverthelessas the Committee under the Punjab Act had given exemption tothe self-occupied portion treating the same as used forcharitable purposes, 'the same intention is allowed to continue'.With respect to the appellant's claim for exemption in respect ofthe rented portion of the premises, the Assistant Secretary wasof the view that it was not permissible under Section 62(2) ofthe NDMC Act. It was said that 'the user of the income fromthe building is wholly irrelevant for the purposes of grant to abuilding'. The claim of the society was rejected because it wassaid that to accede to the claim would have far reachingconsequences. It was said that although the income may getexemption in income tax but in the Municipal Act, there is nosuch concept of granting exemption to the property justbecause that income is being utilised for charitable purposes'.Decisions of the Delhi High Court and of this Court wereconsidered in coming to the conclusion that no exemption forthe portion in occupation of the tenants is available as theportions were not used for charitable purposes. Anapprehension was expressed that if the interpretation sought tobe placed by the appellant society were accepted, then anysociety could claim exemption on the ground that rental incomewould be used for charitable purposes. This, according to theAssistant Secretary, was not the intention of the (SIC).According it was held that no exemption could be grantedunder Section 62(1)(a) read with Section 62(2) in respect of theportion of the building which had been rented out by theappellant. However, exemption was to be allowed for the self-occupiedportion if the appellant continued to be supportedthrough voluntary contributions and did not generate surplusesyear after year. On the basis of the statements made to thiseffect by the appellant the Assistant Secretary grantedexemption for the self-occupied portions for the period 1991-92to 2000-2001. It was also stated that the society would have toclaim exemption every year and satisfy the conditions requiredfor exemption every year.

5. The appellant then filed an application for reviving the writpetitions which had been disposed of earlier by the High Court.Although this application was allowed by the High Court, thewrit petitions were dismissed with the observation that theappellant was at liberty to discharge its liability to therespondent No. 1 by instalments. The appellant has preferredthis appeal by way of a Special Leave Petition.

6. The appellant relied on the decision of this Court inMunicipal Corporation of Delhi v. Children Book Trust : [1992]2SCR535 to contend that since it is a charitableorganisation and the entire building is used for charitablepurposes, it is not liable to pay property tax under Section 62 ofthe NDMC Act, 1994 in respect of the entire building includingthe rented portion at all. In the alternative it has beensubmitted that if the appellant is liable to pay property tax, thepower to grant exemption had not been properly exercised bythe respondent No. 1 under the provisions of Section 124 readwith Section 72(e) of the NDMC Act.

7. Learned counsel appearing for the respondentscontended that Section 62 of the NDMC Act explicitly madebuildings which were not self-occupied by a charitableorganisation subject to house tax. It was further submitted thatthe decision relied upon by the appellant was not applicable tothe appellant's case. As far as the alternative submission ofthe appellant is concerned, it is the respondents contention thatthere was no power under the NDMC Act to grant exemption inan individual case. Exemption could only be granted to a classof similarly situated bodies or persons.

8. The appellant has in the meanwhile cleared all theoutstanding demands of the respondents No. 1 and continued toapply for exemption from payment of property tax in respect ofthe entire building. Two of the applications dated 17th May2001 and 20th August 2001 have been brought on record. Anorder passed by the Advisor (Revenue) of the NDMC dated22nd March 2002 limited to the question of fixation of therateable value of the rented portion for the purposes of housetax has also been brought on record. The order records thatthe self-occupied portion of the building has been exemptedfrom payment of property tax. However, it is clear from thebody of the order, that it was not passed in response to theappellant's application for grant of exemption to the appellantunder the provisions either of the Punjab Act or the NDMC Act.

9. Under the Punjab Act, the tax on all property wasimposed under Section 61. The statute itself did not allow forany specific exemption in respect of any class of property andleft it to the discretion of the Committee or the StateGovernment to grant exemption in the circumstancesprescribed. The 'Committee' has been defined in Section 3(4)as the Municipal Council or a Nagar Panchayat, as the casemay be constituted under Section 12 of the Act. Section 70 ofthe Punjab Act provided for the 'Power of the Committee inregard to taxes'. Sub-section (2) of Section 70 provided:

'A Committee, by a resolution passed ata special meeting and confirmed by theState Government, may--

(a) provide that all or any personsmay be allowed to compound fortaxes imposed under Sub-clauses(c), (d) and (e) of Clause (1) andunder Clauses (2) and (3) ofSection 61;

(b) abolish, suspend or reduce inamount any tax imposed under theforegoing sections; or

(c) exempt in whole or in part from thepayment of any such tax, anyperson or class of persons or anyproperty or description ofproperty.'

10. Apart from the power of the Committee under theaforesaid provisions, the State Government was given powerunder Section 71 by order to:

'.....exempt in while or in part from thepayment of any such tax any person orclass of persons or any propertydescription of property.

If at any time it appears to theState Government on complaint madeor otherwise, that any tax imposedunder the foregoing sections is unfair inits incidence or that the levy thereof orof any part thereof is injurious to theinterests of the general public it mayrequire the committee to take within aspecified period measures to removethe objection and, if within that periodthe requirement is not complied with tothe satisfaction of the State Governmentthe State Government may bynotification suspend the levy of the taxor of such part thereof until the objectionhas been removed.'

11. As far as the NDMC Act is concerned, property tax isleviable on lands and buildings in New Delhi under Section60(1)(a) read with Section 61(1). Section 62 which has beenconstrued in the impugned order by the Assistant Secretary isquoted:

'62(1) Save as otherwise provided in thisAct, the property tax shall be levied in respectof all lands and buildings in New Delhiexcept:-

(a) lands and buildings or portions of landsand buildings exclusively occupied andused for public worship or by a societyor body for a charitable purpose:

Provided that such society or body issupported wholly or in part by voluntarycontributions, applies its profits, if any,or other income in promoting its objectsand does not pay any dividend or bonusto its members.

Explanation--'Charitable purpose'includes relief of the poor, educationand medical relief but does not include apurpose which relates exclusively to thereligious teaching.

(b) lands and buildings vested in theCouncil in respect of which the said tax,if levied, would under the provisions ofthis Act be leviable primarily on theCouncil;

(c) agricultural lands and buildings (otherthan dwelling houses).

(2) Lands and buildings or portion thereofshall not be deemed to be exclusivelyoccupied and used for public worship or for acharitable purpose within the meaning ofClause (a) of Sub-section (1) if any trade orbusiness is carried on in such lands andbuildings or portion thereof or if in respect ofsuch lands and buildings or portions thereof,any rent is derived.

(3) Where any portion of any land orbuilding is exempt from the property tax byreason of its being exclusively occupied andused for public worship or for a charitablepurpose such portion shall be deemed to bea separate property for the purpose ofmunicipal taxation.'

12. If one analyses the relevant clauses of Section 62(1),lands and buildings or portions of lands and building areexempt from property tax if they are:

(i) exclusively occupied by a society orbody for a charitable purpose;

(ii) such society or body is supportedwholly or in part by voluntarycontributions;

(iii) the said society applies its profits, if anyor other income in promoting its objectsand does not pay any dividend or bonusto its members.

13. It is clear that under Section 62(1) of the NDMC Act, ifthe appellant-society fulfils these three conditions it is entitledas a matter of right to be exempted from payment of propertytax. Where the Assistant Secretary erred, was in treating theright to exemption in respect of the self-occupied portions ofthe appellant's building as a matter of discretion. It is not, itis a matter of right provided of course of the conditions laiddown in Section 62(1) are fulfilled by the society.

14. Sub-section (2) of Section 62, however, carves out twoexceptions to this exemption, namely if (a) any trade iscarried out in such lands and buildings, or (b) in respect of anyportion of such land or building or portion thereof any rent isderived, in such a case, under Sub-section (3), the portion ofthe land or building exclusively occupied and used forcharitable purposes under Section 62(1) and the portion,which is expected under Sub-section (2) are deemed to beseparate properties for the purpose of municipal taxation.Thus the statutory exemption under Section 62(1) is notavailable to the society if the building is not self-occupied butis rented out. The section does not make any allowance evenif the rental income is used for charitable purposes. Thephrase for a 'charitable purpose' only qualifies self occupationunder Section 62(1)(a). The appellant's claim for the benefitof such statutory exemption under Section 62 of the Act inrespect of the rented portion of the building is, therefore,untenable and the Assistant Secretary had rightly rejected it.

15. The appellant's reliance on the decision of this Court inMunicipal Corporation of Delhi v. Children Book Trust andAnr. (supra) is misplaced although in that decision, this Courthad construed Section 115(4) (5) and (6) of the Delhi MunicipalCorporation Act, 1957 which are verbatim the same as Sections62(1), (2) and (3) of the NDMC Act. There the Court haddisposed of two appeals. The first appeal was filed by theCorporation against the Children Book Trust and the secondwas by the Safdarjung Enclave Education Society against theCorporation. As far as the appeal filed by the Children BookTrust was concerned, a portion of the premises occupied bythe Trust was rented out to a Press. The Municipal Corporationhad sought to levy property tax under the Delhi MunicipalCorporation Act, 1957 in respect of the entire premises. TheTrust filed a writ petition claiming total exemption from paymentof property tax under Section 115(4) of the 1957 Act before theHigh Court at Delhi. The writ petition was allowed by thelearned Single Judge who held that the Trust was entitled toclaim total exemption from payment of tax under Section 115(4)of the 1957 Act except in respect of that portion which wasrented out. However, the learned Judge held that even fromthe rental value, the Trust was entitled to claim exemption in theproportion of the income accruing to it from the publication ofchildren's book which was held to be a charitable purpose. TheDivision Bench partly allowed the Municipal Corporation'sappeal holding that in view of the mandatory provisions ofSection 115(4) of the New Delhi Corporation Act, exemptionfrom the payment of property tax could not be allowed inrespect of the area which was rented out or not occupied by theTrust itself for charitable purposes within the meaning of the1957 Act. The further appeal of the Municipal Corporationbefore the Court was dismissed. It is to be noted that the Courtwas only considering the Municipal Corporation's appeal inrespect of the portion of the premises which had not beenrented out by the Trust. As far as the rented portion wasconcerned, the Court noted 'Admittedly, no exemption could beclaimed concerning this portion. It is the other portions whichare otherwise relevant for the purpose of this case.'

16. In the appeal of the Education Society, the EducationSociety claimed an exemption in respect of premises owned byit where a school was being run. The Society had filed a writpetition challenging an assessment order of the MunicipalCorporation. The writ petition was dismissed by the High Court.The Education Society then preferred an appeal before thisCourt. The contention which was raised before this Court wasthat the Society was running the school which was inoccupation of the premises and that the giving of education wasa charitable purpose and, therefore, the society was entitled toexemption under the provisions of Section 115(4) of the Act.This Court held that the Society could not be said to beoccupying the building. 'The School being a separate entity,premises occupied by the school will belong to it and not to thesociety. Therefore, the society cannot claim to be in exclusiveoccupation and use of the land and building in question.' Itwas also held that although the imparting of education may bea charitable purpose, the Society would have to further showthat education was the primary objective and not the making ofprofit. It was also held that unless the society was supportedwholly or substantially by voluntary contributions, in view of theproviso to Section 115(4)(a), [Section 62(1)(a) of the NDMCAct] exemption from payment of property tax could not beclaimed. None of these findings are relevant for our presentpurpose. There is no dispute that the appellant-Society beforeus exclusively occupies a portion of the premises for acharitable purpose and otherwise fulfils the conditions requiredfor exemption from property tax in respect of such portion. Weare, in the appeal, unlike in the appeals in the Children BookTrust, only concerned with the balance portion of the buildingwhich has been rented out by the appellant. It is true that thisCourt in Children Book Trust made an observation that:

'.....if the profits or incomeof trade or business is devoted to acharitable purpose and no part thereof isdistributed among the members asdividends or bonus, then that trade orbusiness is a means to an end. It ischarity.

But, if there is a trade or businesscarried on in a land or building and itsprofits are not applied to a charitablepurpose, Sub-section (6) says that thatpart of the land or building where a tradeor business is carried on or from whichrent is derived, will be subject to tax.'

17. However, these observations were made in the context ofSection 115(4) [Section 62(1) of the NDMC Act)] whichenvisages societies occupying the subject premises, makingprofit or deriving income. The proviso to Sub-section 4, Clause(a) requires such profits or income to be utilised in promotingthe objects of the society and not to be paid by way of dividendor bonus to the members of the society. It was in thatconnection that the Court made the observation quoted above.The observation would not be relevant to a situation whereproperty is not in occupation of the Society at all but is rentedout.

18. Coming to the alternative case of the appellant viz., thegrant of exemption in respect of the tax leviable on the rentedportions, although the Assistant Secretary did not have anyother option but to consider the appellant's claim for exemptionin view of the direction of the High Court, no discretion isconferred under Section 62 of the NDMC Act on the AssistantSecretary for granting any exemption to the assessee from anyportion of the taxes leviable except to the extent the statuteitself provides.

19. Section 72(1)(e) on which the appellant has reliedprovides:

'72(1) The chairperson may, at anytime amend the assessment list--...........

(e) by making or cancelling any entryexempting any land or buildingfrom liability to property tax;'

20. This section also does not confer any discretion on theChairperson to exempt any property from payment of tax.All that it does is to empower the Chairperson to give effectto any exemption otherwise granted, by amending theAssessment List. The power and discretion to grantexemption under the NDMC Act has been conferred on theCouncil under Section 124.

Section 124 provides:

'The Council may, by resolution passedin this behalf, exempt either wholly or inpart from the payment of any tax leviedunder this Act any class of persons orany class of property or goods.'

21. The respondents are correct in their submission thatunder Section 124, as far as the present controversy isconcerned, the Council's power must be exercised, if at all, infavour of a class of persons or a class of property. Thispower may be contrasted with the Punjab Municipal Act whereexemption may have been allowed, even in respect of anindividual by the Committee under Section 70(2)(c) and theState Government under Section 71.

22. Therefore, while dismissing the appellant's appeal in sofar as it has claimed statutory exemption under Section 62 inrespect of the rented portion of the building, we grant theliberty to the appellant-Society to apply to the Council forexemption from payment of taxes leviable in respect of therented portion. It would be open to the Council to resolveunder the provisions of Section 124 to exempt all persons whoare similarly situated as the appellant-society on theapplication of the appellant. The Council will dispose of theappellant's representation after giving the appellants anopportunity of being heard.

23. There will be no order as to costs.