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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NOS.9350-9351 OF 2019   

(arising out of SLP (C)NOS.29261-29262 OF 2019)  

FOOD CORPORATION OF INDIA         ...APPELLANT(S)   

VERSUS  

BRIHANMUMBAI MAHANAGAR PALIKA & ORS. ...RESPONDENT(S)   

J U D G M E N T  

ASHOK BHUSHAN,J.  

This appeal has been filed by the Food Corporation  

of India challenging the judgment dated 05.05.2016 of  

Division Bench of Bombay High Court in Writ Petition  

No. 2672 of 2001 by which judgment the writ petition  

filed by the Food Corporation of India (hereinafter  

referred to as “FCI”) challenging the demand made by  

Municipal Corporation of Greater Mumbai of property tax  

has been dismissed.    

2. The brief facts necessary to be noted for deciding  

this appeal are: -

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2.1 The Government of Bombay acquired land at  

Village Poisar and at Village Magathane,  

Borivali for Government of India prior to the  

year 1964.  Upon completion of the acquisition  

proceedings, the lands vested in the  

Government of India and the Government of  

India constructed the godowns and silos on  

the acquired land for storage of food grains.   

2.2 FCI was set up under the Food Corporations  

Act, 1964 with the purpose of undertaking the  

purchase, storage, movement, transport,  

distribution and sale of food grains and other  

food stuff.    

2.3 on 28.10.1988, a notice demanding non-

agricultural tax was issued to the FCI and  

the FCI protested against the levy of non-

agricultural tax and filed a writ petition,  

which was dismissed by learned Single Judge  

on 10.11.1988.  A Letter Patent Appeal No.259  

of 1989 was filed by the FCI, which was  

allowed by the Division Bench vide its

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judgment dated 03.12.1992 holding that land  

vested in Central Government on which godowns  

were constructed, hence, Central Government  

was not liable to pay taxes for non-

agricultural use of land as per Article 285  

of the Constitution of India.       

2.4 The Government of India wrote a letter dated  

17.02.1992 to FCI, New Delhi stating that the  

land for godowns was acquired by the erstwhile  

Government of Bombay for Government of India  

on which godowns were constructed by the  

Government of India and when the FCI came into  

being in 1965, these godowns alongwith other  

godowns of the Government were transferred to  

FCI during the period from 1966 to 1969.  The  

Government of India, however, has not  

executed any conveyance deeds for these  

godowns with the FCI and legal ownership of  

these godowns still vests in the Government,  

the Status of FCI, therefore, is that of an  

occupier.

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2.5 Letters and demands were issued by Municipal  

Corporation of Greater Bombay (hereinafter  

referred to as “Corporation”) demanding  

property tax in respect of property situate  

in Dattapada Road, Borivali owned by FCI.  A  

demand notice dated 04.09.2001 was issued by  

the Corporation asking to make payment for  

the period from 01.03.1969 to 31.03.1997 and  

taxes from 01.04.1997 onwards.  The FCI  

protested the demand claiming exemption from  

payment of property tax as per Article 285 of  

the Constitution of India, the property being  

owned by the Central Government.  The plea of  

the appellant was not accepted and a further  

notice dated 24.09.2001 was issued asking for  

payment of property tax.  The properties were  

also attached.    

2.6 A Writ Petition No. 2672 of 2001 was filed by  

the FCI, in which FCI has prayed to declare  

the demand for payment of property tax as  

illegal.  Prayer was also made to issue a writ  

of prohibition prohibiting the respondents,

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their servants and agents in pursuance of  

letter dated 04.09.2001 and 24.09.2001. The  

Corporation decided the claim of the FCI.  A  

Division Bench of the Bombay High Court  

relying on the judgment of this Court in Food  

Corporation of India Vs. Municipal Committee,  

Jalalabad and Another, (1999) 6 SCC 74  

dismissed the writ petition vide judgment  

dated 02.02.2002.  A review petition was filed  

by FCI to review the judgment, which too was  

dismissed on 04.10.2002.  The FCI filed a  

special leave petition against the judgment  

dated 02.02.2002 as well as against the order  

dated 04.10.2002 in review petition.  It was  

contended before this Court that High Court  

erred in relying on the judgment of the Court  

in Food Corporation of India Vs. Municipal  

Committee, Jalalabad (supra) without  

referring to the earlier Division Bench  

judgment of Bombay High Court in Civil Appeal  

No. 259 of 1999 dated 03.10.1992 wherein the  

Division Bench had held that properties in  

dispute in the present case is owned by the

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Central Government and not by FCI.  This Court  

after noticing the submissions of both the  

parties allowed the appeals, set aside the  

impugned judgment of the High Court observing  

that since the High Court has not gone into  

these questions, the matter is remitted back  

to the High Court for fresh decision in  

accordance with law.  All the contentions were  

left open.    

2.7 After the above judgment of this Court dated  

26.07.2006, the Division Bench of the Bombay  

High Court by judgment dated 05.05.2016 again  

dismissed the Writ Petition No.2672 of 2001.   

Special Leave Petition No. 24251 of 2016 was  

filed questioning the judgment dated  

05.05.2016.  This Court noticed the  

submissions made by FCI and by order dated  

26.08.2016 observed that it would be more  

appropriate for the petitioner (FCI) to  

approach the High Court by filing a review  

petition.  After the judgment of this Court  

dated 26.08.2016, review petition was filed,

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which too was dismissed by non-speaking order  

dated 11.09.2018 by the Division Bench of the  

Bombay High Court.   

2.8 These appeals have been filed against the  

Division Bench judgment dated 05.05.2016  

dismissing the writ petition and order dated  

11.09.2018 dismissing the review petition.  

3. We have heard Shri Neeraj Kishan Kaul, learned  

senior counsel appearing for the appellant and Shri  

Pallav Shishodia, learned senior counsel appearing for  

the Corporation.    

4. Shri Neeraj Kishan Kaul, learned senior counsel  

submits that demand of property tax is exempted by  

virtue of Article 285 of the Constitution of India.  It  

is submitted that the property (godowns) with regard  

to which property tax has been demanded is owned by  

Central Government, hence, the payment of tax is  

exempted.  It is submitted that a Division Bench of the  

Bombay High Court in its judgment dated 03.12.1992 by  

quashing the demand of non-agricultural assessment tax

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by the State Government has categorically held that the  

property is owned by the Central Government.  The  

Division Bench in the impugned judgment has not  

considered the effect of the Division Bench judgment  

dated 03.12.1992.  It is further submitted that even  

when this Court granted liberty to the appellant to  

file a review petition against the judgment dated  

05.05.2016, after noticing the submissions of the  

appellant, the review petition too was dismissed by  

non-speaking order without considering any of the  

submissions of the appellant.  It is submitted that to  

be entitled to levy tax under Article 285(2), the  

Corporation must establish three things, firstly that  

the property in question is liable to tax prior to  

commencement of the constitution; secondly, that the  

tax has been continuously collected by the State on  

that property; and thirdly that the State in which the  

authority collected the tax was collecting the same pre  

and post Constitution.  It is submitted that property  

tax was never levied by the Corporation prior to the  

commencement of the Constitution of India and it was  

only after decision dated 17.01.1997 of the arbitrator  

appointed under Section 144(2) of Mumbai Municipal

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Corporation Act, 1888 that the properties belong to the  

FCI, the Corporation started demanding property tax  

from the appellant.  It is submitted that jurisdiction  

of the arbitrator appointed under Section 144(2) is  

limited to fixing the rateable value of Government  

owned properties and he had no jurisdiction to decide  

the question whether the properties were to be excluded  

from the Government list.  Learned senior counsel  

further submits that Corporation has erroneously relied  

on judgment of this Court in the case of Food  

Corporation of India Vs. Municipal Committee, Jalalabad  

(supra), which was a case dealing with the properties  

owned by the FCI and has no application in the facts  

of the present case.  It is submitted that property  

being property of Central Government was clearly  

exempted from payment of property tax.   

5. Shri Pallav Shishodia, learned senior counsel  

appearing for the respondents refuting the submissions  

of the learned senior counsel for the appellant  

contends that the appellant is liable to pay property  

tax.  He submits that as per Section 146 of the Mumbai  

Municipal Corporation Act [Bom. III of 1888], the levy

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is on actual occupier and the appellant being actual  

occupier of the premises is, thus, clearly liable to  

pay the property tax.  For the purpose of liability to  

pay the property taxes what is required is that the  

concerned person who holds the property immediately  

from the Government is in occupation and use of the  

property in question.  It is immaterial in what  

capacity such person is in occupation of the property  

exigible to taxes.  It is submitted that the appellant  

cannot claim exemption from taxes under Article 285 as  

the FCI is distinct entity from Central Government and  

the so-called ownership of Central Government with  

respect to the property in question occupied by FCI is  

of no consequence as far as the tax liability is  

concerned.  Section 143(1)(b) of the Act, 1888 is not  

attracted.  The levy under Act, 1888 is a pre-

Constitution levy and, therefore, Article 285(2) of the  

Constitution of India applies.  Article 285(2) carves  

out an exception to clause (1) and saves the levy which  

any authority within the State was levying on the  

property of the Union to which such property  

immediately before the commencement of the Constitution  

was liable.  Under the Act, 1888, the premises vesting

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in the Central Government were liable for property tax  

on the date of commencement of the Constitution.  There  

is no law enacted by the Parliament after coming into  

force of the Constitution, which prevent the respondent  

– Municipal Corporation from levying the tax on the  

premises vesting in the Government.    

6. Shri Kaul in rejoinder submits that ownership still  

vests in the Central Government when the owner is not  

liable, occupier cannot be held to be liable to pay  

property taxes.  The judgment of this Court in Food  

Corporation of India Vs. Municipal Committee, Jalalabad  

(supra) was a case where FCI was the owner of the  

property, hence the said case has no applicability in  

the facts of the present case.  The arbitrator  

appointed under Section 144(2) went wrong in holding  

that FCI owns the property.  His jurisdiction was only  

to determine the rateable value insofar as services  

rendered by the Corporation namely water charges etc.,  

which the appellant is willing to pay.  He further  

submits that the appellant is also willing to pay the  

amount in lieu of general tax to be determined in  

accordance with Section 144 of Act, 1888.   

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7. We have considered the submissions of the learned  

counsel for the parties and have perused the records.   

8. The main question to be determined in this appeal  

is as to whether the property in question is exempted  

from payment of property tax by virtue of Article 285  

of the Constitution of India.  The High Court in the  

impugned judgment has primarily relied on Section 146  

of the Act, 1888 in rejecting the claim of exemption  

under Article 285 of the Constitution of India.   

According to the High Court, the appellant being  

occupier of the godowns will be primarily liable to pay  

the property taxes.  The main reasons of the High Court  

in rejecting the claim of the appellant are contained  

in paragraphs 12 and 15, which are as follows:-  

“12. The contention of the petitioner is  

that in view of clause 1 of Article 285,  

since the lands and godowns in respect of  

which property taxes are levied are the  

properties of the Government of India, the  

same are exempted from taxes imposed by a  

State or any other Authority within the  

State. Clause 2 of Article 285 carves out  

an exception to clause 1. If any Authority  

within the State was levying any taxes on  

the property of the Union of India to which  

such property was immediately before the  

commencement of the Constitution of India  

liable or treated as liable, the taxes can  

continue to be levied till the Parliament  

by a law otherwise provides. Under the said

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Act of 1888, the premises vesting in the  

Government of India were liable for  

property taxes on the date of commencement  

of the Constitution of India. The words  

"Government" appearing in sub-section 1 of  

section 146 was substituted for the words  

"the Crown" by the Adaptation of Indian  

Laws Order in Council. Thus, as per the  

provisions of the said Act of 1888, the  

property of the Union of India within the  

jurisdiction of the said Corporation was  

liable for levy of property taxes  

immediately before the commencement of the  

Constitution of India. There is no law  

enacted by the Parliament after coming into  

force the Constitution of India which  

prevents the said Municipal Corporation  

from levying the taxes on the premises  

vesting in the Government. Therefore,  

Article 285 is of no help to the petitioner  

in view of applicability of clause 2 of  

Article 285 of the Constitution of India.  

15. In view of the provisions of the said  

Act of 1888, the petitioner will not be  

entitled to the benefit of clause 1 of  

Article 285 and in view of sub-section (1)  

of section 146 of the said Act of 1888, the  

petitioner being the occupier of the  

godowns will be primarily liable to pay  

property taxes.”  

9. For considering the respective submissions of  

counsel for the parties, we first need to look into the  

statutory provisions pertaining to the assessment of  

property tax as well as the provisions of exemption  

from payment of tax on the property belonging to  

Central Government.  Chapter VIII of the Act, 1888  

deals with “Municipal Taxation”.  Section 139 provides

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that “for the purposes of this Act, taxations to be  

imposed shall consist property taxes and other taxes.   

Sections 143, 144 and 146, which are relevant for the  

present case are as follows:-  

“143.  General tax on what premises to be  

levied.   

(1) The general tax shall be levied in  

respect of all buildings and lands in  

Brihan Mumbai except—   

(a) buildings and lands or  

portions thereof exclusively  

occupied for public worship or for  

charitable purposes;  

(b) buildings and lands vesting  

in Brihan Mumbai used solely for  

public purposes and not used or  

intended to be used for purposes of  

profit or in the Corporation, in  

respect of which the said tax, if  

levied, would under the provisions  

hereinafter contained be primarily  

leviable from the Government or, the  

corporation respectively;  

(c) such buildings and lands  

vesting in, or in the occupation of,  

any consul de carriers, whether  

called as a consul general, consul,  

vice-consul, consular agent, pro-

consul or by any other name of a  

foreign State recognised as such by  

the Government of India, or of any  

members (not being citizens of  

India) of staff of such officials,  

and such buildings and lands or  

parts thereof which are used or  

intended to be used for any purpose  

other than for the purpose of  

profit.  

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(2) The following buildings and lands  

or portions thereof shall not be deemed to  

be exclusively occupied for public worship  

or for charitable purposes within the  

meaning of clause (a), namely: —   

(c) those in which any trade or  

business is carried on; and   

(d) those in respect of which  

rent is derived whether such rent is  

or is not applied exclusively to  

religious or charitable purposes.   

(3) Where any portion of any building  

or land is exempt from the general tax by  

reason of its being exclusively occupied  

for public worship or for charitable  

purpose, such portion shall be deemed to be  

a separate property for the purpose of  

municipal taxation.  

144. Payment to be made to the Corporation  

in lieu of the general tax by the Central  

Government or the State Government as the  

case may be.  

(1) The Central Government or the State  

Government, as the case may be, shall pay  

to the corporation annually, in lieu of the  

general tax from which buildings and lands  

vesting in Government are exempted by  

clause (b) of section 143, a sum  

ascertained in the manner provided in sub-

sections (2) and (3).   

(2) The rateable value of the buildings  

and lands in Brihan Mumbai vesting in  

Government and beneficially occupied, in  

respect of which but for the said  

exemption, general tax would be leviable  

from the Central Government or the State  

Government, as the case may be, shall be  

fixed by a person from time to time  

appointed in this behalf by the State  

Government with the concurrence of the

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corporation. The said value shall be fixed  

by the said person, with a general regard  

to the provisions hereinafter contained  

concerning the valuation of property  

assessable to property-taxes, at such  

amount as he shall deem to be fair  

reasonable. The decision of the person so  

appointed shall hold good for a term of  

five years, subject only to proportionate  

variation, if in the meantime the number or  

extent of the building and lands vesting in  

Government in Brihan Mumbai materially  

increases or decreases.   

(2A) Where the Corporation has adopted  

the levy of property tax on capital value  

of buildings and lands, the capital value  

of buildings and lands in Brihan Mumbai  

vesting in Government and beneficially  

occupied, in respect of which but for the  

said exemption, general tax would be  

leviable from the Central Government or the  

State Government, as the case may be, shall  

be the book value of such buildings or lands  

in Government records and such capital  

value shall hold good for a term of five  

years, subject only to proportionate  

variation, if in the meantime the number or  

extent of the buildings and lands vesting  

in Government in Brihan Mumbai materially  

increases or decreases.   

(3) The sum to be paid annually to the  

corporation by the Central Government or  

the State Government, as the case may be,  

shall be eight-tenth of the amount which  

would be payable by an ordinary owner or  

buildings or lands in Brihan Mumbai, on  

account of the general tax, on a rateable  

value or on capital value, as the case may  

be, of the same amount as that fixed under  

sub-section (2), or sub-section (2A), as  

the case may be.  

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146.  Primary responsibility for property  

taxes on whom to rest.   

(1) Property-taxes shall be leviable  

primarily from the actual occupier of the  

premises upon which the said taxes are  

assessed, if such occupier holds the said  

premises immediately from the Government or  

from the corporation or from a fazendar.   

Provided that the property-taxes due in  

respect of any premises owned by or vested  

in the Government and occupied by a  

Government servant or any other person on  

behalf of the Government for residential  

purposes shall be leviable primarily from  

the Government and not the occupier  

thereof.  

(2) Otherwise the said taxes shall be  

primarily leviable as follows, namely:—   

(a) if the premises are let, from  

the lessor;   

(b) if the premises are sub-let,  

from the superior lessor;  

(c) if the premises are unlet,  

from the person in whom the right to  

let the same vests;   

(d) if the premises are held or  

occupied by a person who is not the  

owner and the whereabouts of the  

owner of the premises cannot be  

ascertained, from the holder or  

occupier; and   

(e) if the premises are held or  

developed by a developer or an  

attorney or any person in whatever  

capacity, such person may be holding  

the premises and in each of whom the  

right to sell the same exists or is  

acquired, from such holder,

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developer, attorney or person, as  

the case may be:   

Provided that, such holder,  

developer, attorney or person shall  

be liable until actual sale is  

effected.   

(3) But 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 land, the property taxes assessed upon  

the said land and upon the building erected  

thereon shall be leviable primarily from  

the said tenant or such person, whether or  

not the premises be in the occupation of  

the said tenant or such person.”  

10. In British India, prior to the passing of the  

Government of India Act, 1935, the question of  

exemption of Crown property from taxation was not  

definitely settled.  Different High Courts have  

expressed divergent views.  The Government of India  

Act, 1935 for the first time provided for exemption of  

certain public property from taxation. Section 154 of  

the Act, 1935 provided for exemption from all taxes  

imposed by, or by any authority within, a Province or  

Federated State all the properties vested in His  

Majesty whereas Section 155 contained exemption of  

Provincial Governments and Rulers of Federated States

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in respect of Federal taxation.  Sections 154 and 155  

are as follows:-  

“154. Exemption of certain public property  

from taxation.-  Property vested in His  

Majesty for purposes of the government of  

the Federation shall, save in so far as any  

Federal law may otherwise provide, be  

exempt from all taxes imposed by, or by any  

authority within, a Province or Federated  

State:   

Provided that, until any Federal law  

otherwise provides, any property so vested  

which was immediately before the  

commencement of Part III of this Act  

liable, or treated as liable, to any such  

tax, shall, so long as that tax continues,  

continue to be liable, or to be treated as  

liable, thereto.   

155.Exemption of Provincial Governments and  

Rulers of Federated States in respect of  

Federal taxation-(1) Subject as hereinafter  

provided, the Government of a Province and  

the Ruler of a Federated State shall not be  

liable to Federal taxation in respect of  

lands or buildings situate in British India  

or income accruing, arising or received in  

British India;  

  Provided that-   

(a) where a trade or business of  

any kind is carried on by or on  

behalf of the Government of a  

Province in any part of British  

India outside that Province or by a  

Ruler in any part of British India,  

nothing in this subsection shall  

exempt that Government or Ruler from  

any Federal taxation in respect of  

that trade or business, or any  

operations connected therewith, or  

any income arising in connection

20    

therewith, or any property occupied  

for the purposes thereof;   

(b) nothing in this subsection  

shall exempt a Ruler from any  

Federal taxation in respect of any  

lands, buildings or income being his  

personal property or personal  

income.   

(2) Nothing in this Act affects any  

exemption from taxation enjoyed as of right  

at the passing of this Act by the Ruler of  

an Indian State in respect of any Indian  

Government securities issued before that  

date.”  

11. The main provision of Section 154 although exempted  

properties vested in His Majesty from all taxes imposed  

by a Province or Federated State or any authority  

within but proviso contains an exception to the main  

provision, which provided that any property so vested  

which was immediately before the commencement of Part  

III of the Government of India Act, 1935 was liable,  

or treated as liable, to any such tax, shall continue  

to be liable, or to be treated as liable, thereto so  

long as that tax continues.  The commencement of the  

Part III of the Government of India Act, 1935 was w.e.f.  

01.04.1937. The Constitution of India continued the  

exemption of taxation of the properties of Central  

Government from the taxation by State or any authority

21    

as well as the State property from Central taxation  

under Article 285 and Article 289.  The proviso to  

Section 154 was retained as sub-article(2) of Article  

285.  Article 285 and Article 289 of the Constitution  

are as follows:-  

“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 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.  

289. Exemption of property and income of a  

State from Union taxation.-- (1) The  

property and income of a State shall be  

exempt from Union taxation.   

(2) Nothing in clause (1) shall prevent  

the Union from imposing, or authorising the  

imposition of, any tax to such extent, if  

any, as Parliament may by law provide in  

respect of a trade or business of any kind  

carried on by, or on behalf of, the  

Government of a State, or any operations  

connected therewith, or any property used  

or occupied for the purposes of such trade  

or business, or any income accruing or  

arising in connection therewith.   

(3) Nothing in clause (2) shall apply  

to any trade or business, or to any class

22    

of trade or business, which Parliament may  

by law declare to be incidental to the  

ordinary functions of Government.”  

12. The provisions of Articles 285 and 289 are  

complimentary to each other.  Section 154 of Government  

of India Act, 1935 came for consideration before  

Calcutta High Court in Governor-General of India in  

Council Vs. Corporation of Calcutta, AIR (1948) Cal.  

117.  Justice B.K. Mukherjea (as he then was) allowed  

the appeal of Governor-General in Council holding that  

the property in question was exempted from municipal  

taxes, with which opinion, Ormond, J. while writing a  

separate opinion agreed.  In the above case, the  

Calcutta Corporation assessed the premises in the year  

1937 on account of substantial additions to and  

alteration of the premises in the year 1941 and 1942.   

Objection was taken to the valuation by the Governor  

General of India in Council on the ground that under  

Section 154 of Government of India Act, all buildings  

which were not in existence prior to 01.04.1937 when  

Part III of Government of India Act, 1935 came into  

operation, and which were consequently not subjected  

to any assessment before April, 1937 were exempted from  

all taxes, and could not be assessed to municipal

23    

rates. The contention was not accepted by the Executive  

Officer of the Calcutta Corporation and an appeal was  

filed by the appellant to the Small Cause Court Judge,  

which was also dismissed. An appeal was filed in the  

High Court against the above judgment.  Justice B.K.  

Mukherjea while interpreting Section 154 laid down  

following in paragraphs 10 and 13:-  

“10. ……………Whatever is property for purposes  

of taxation under a particular statute and  

is vested in His Majesty for purposes of  

Federation would be exempted from taxation  

under Section 154, Government of India Act,  

unless it was liable to tax on 31-3-1937,  

and ex hypothesi, a property which was not  

in existence on 31-3-1937, cannot be said  

to be liable to tax on that date……………………”  

13. Our conclusion therefore is that the  

additional buildings raised on premises No.  

7, Gun Foundry Road after 31-3-1937 are  

exempted from payment of consolidated rates  

under the Calcutta Municipal Act and the  

present assessment is to be made on the  

basis of the land and buildings as they  

existed on 31-3-1937, excluding all  

additions made subsequent to that date.”  

13. Ormand, J. in paragraphs 28 and 29 laid down  

following:-  

“28. The sole question in this appeal is  

the narrow one whether, firstly, new  

buildings on the same land and secondly,  

alterations, additions and improvements  

made in a building which existed before 1-

4-1937, are properties which were  

"immediately before 1-4-1937 liable or

24    

treated as liable to the tax." Now for  

property to have been liable to the tax  

before 1-4-1937, it is self-evident that  

that property must have been in existence  

before 1-4-1937. Equally, I think, this  

must be so for property "treated as liable"  

to the tax. There could have been no  

liability attached to a non-existent thing;  

nor could there have been any treatment of  

a non-existent thing. It is outside the  

power of comprehension to conceive of any  

property which could have been "treated as  

liable to tax" if that property was not in  

a state of physical existence at the time.  

29. This being so, it follows that the only  

taxable property brought within the  

exception contained in the proviso is  

property which was in physical existence  

before 1-4-1937. The four conditions which  

it would be necessary for the Corporation  

to establish to bring the property within  

the proviso would be:(1) Physical existence  

of the property before 1-4-1937, (2)  

Liability of that property to the tax then,  

(3) Physical existence of the same property  

now, that is to say, for the current period  

for which tax is sought to be levied and  

(4) Liability of the property (if it were  

not Crown property) to the tax now. The  

contention relied upon on behalf of the  

Corporation, if analysed must come to this,  

that though a thing in itself was not in  

existence before 1-4-1937, yet if it is now  

in existence in a situation resting on, or  

attached to, or forming part of, some  

particular area of land or building, which  

formed the taxable unit before 1-4-1937,  

then that thing is itself taxable. It is  

said that what is being taxed is the unit  

of property and that that unit of property  

can now be taxed in its new form; that is  

to say, inclusive of the new thing on it,  

which did not previously exist: for the  

reason that the same unit of property had

25    

existed before 1-4-1937 in an old form  

without that new thing.”  

14. The Calcutta High Court in the above judgment while  

interpreting Section 154 has held that proviso to  

Section 154 shall be applicable for taxing property  

owned by His Majesty only when such property was  

subject to tax on 31.03.1937 or earlier.  The property  

which came into existence subsequent to 01.04.1937 is  

not to be covered by proviso and held covered by the  

main provision of Section 154 and not exigible to  

property tax.  The above judgment of the Calcutta High  

Court was noticed with approval by Federal Court in The  

Corporation of Calcutta Vs. The Governors of St. Thomas  

School, Calcutta, AIR 1949 F.C. 121.  In the case before  

Federal Court, the premises containing land and  

building were owned by St. Thomas School, which  

buildings were constructed before April, 1942.  In  

April, 1942, the premises were requisitioned under the  

Defence of India Act for the purposes of the Government  

of the Federation.  Several buildings were constructed  

by the Central Government.  In the assessment made in  

the last quarter of 1944-45, the cost of all the  

additional structures erected by the Central Government

26    

were taken into account while fixing the annual value.  

The respondents objected to the assessment and the  

contention that the value of the buildings put up by  

the Central Government should be excluded in the  

revaluation was rejected by Deputy Executive Officer,  

against whose decision an appeal was filed in the Court  

of Small Causes.  The Court of Small Causes accepted  

the contention of the respondent and held that the  

structures put up by the Central Government were exempt  

from municipal taxes and therefore should not be  

included in the valuation. The Judge, Small Causes  

Court relied on judgment of the Calcutta High Court in  

Governor-General of India in Council Vs. Corporation  

of Calcutta (supra) and dismissed the appeal of the  

Corporation.  The Corporation filed the appeal before  

the High Court.  While dismissing, Federal Court laid  

down following in paragraph 12:-  

“12. This reasoning also leads to the  

rejection of the second contention of the  

appellants. The contention is that as the  

unit of taxation is the area mentioned in  

the schedule to the agreement and as that  

unit was subject to taxation before April  

1937, the exemption in favour of the Crown  

given in Section 154 could not be availed  

of. Whether any particular property falls  

within the exemption provided in Section  

154, Government of India Act, must depend  

on what is "property" within the meaning of

27    

that section and not on what is regarded as  

a unit for purposes of assessment under a  

local Municipal Act. The question in  

whether what is sought to be taxed is  

property and, if so, whether the same is  

vested in the Government. If the answer to  

both these is in the affirmative, the  

question is whether that property was  

liable to tax before April 1937. In the  

present case the answer is clearly in the  

negative because the additional structures  

were all put up after 1942 and therefore  

were not subject to the municipal tax  

before April 1937. The result is that all  

the contentions' of the appellants urged  

before us are rejected. The appeal,  

therefore, fails and is dismissed with  

costs.”  

15. The Division Bench of the Calcutta High Court in  

The Corporation of Calcutta Vs. Union of India, AIR  

1957 Calcutta 548 had occasion to consider Article  

285(2) of the Constitution.  The Division Bench  

referred to and relied on the earlier judgment of  

Calcutta High Court in Governor-General of India in  

Council Vs. Corporation of Calcutta (supra).  The  

Division Bench noticed the Scheme of exemption as  

contained in the Section 154 of the Government of India  

Act, 1935 and has extensively referred to Division  

Bench judgment in Governor-General of India in Council  

Vs. Corporation of Calcutta (supra) and laid down  

following in paragraph 11:-

28    

“11. The Constitution retained and re-

employed the same phrase which, as the  

above observations show, had already been  

judicially interpreted in the same manner  

as we have done on the present occasion.  

That is a strong pointer to the legislative  

intent and amply supports our construction  

of the words 'treated as liable' as used in  

Article 285(2) of the Constitution and, if  

that construction is correct, there can  

possibly be no doubt, in the facts of the  

two instant cases, that the present  

disputed assessments are valid. The  

safeguard, so far as Union properties are  

concerned, is contained in the reservation  

in the very clause in question, reserving  

power to the Parliament to provide  

otherwise. Until, however, Parliament does  

so provide, Union properties which were  

treated as liable to a particular local tax  

immediately before the coming into force of  

the Constitution would remain liable for  

the same. Admittedly the disputed premises  

(as belonging to the Central Government and  

owned by it) were actually assessed to  

Municipal tax, and such tax was being paid  

and realised also, immediately before the,  

commencement of the Constitution. The  

premises, therefore, on the above  

construction of the Article, were 'treated  

as liable' to such tax on that date.  

Admittedly also. Parliament has not, so  

far, by law, otherwise provided, as it has  

undoubtedly the power to do under Article  

285(2) of the Constitution.”  

16. We had noticed above the fact that godowns in  

questions were constructed by the Central Government  

after completion of the acquisition in the year 1964.   

The submission which has been pressed by Shri Kaul is  

that the buildings in question being not liable or

29    

treated to be liable for property tax immediately  

before the commencement of the Constitution, the  

respondents cannot claim the benefit of Article 285(2).   

Although, it is not disputed by the respondents that  

the godowns in question were not subject to property  

tax immediately before the commencement of the  

Constitution but submission, which has been pressed by  

Shri Shishodia is that under Act, 1888, the property  

of Central Government was exigible to tax immediately  

before commencement of the Constitution, hence, the  

conditions of Article 285(2) are fulfilled and  

Corporation is fully entitled to levy property tax on  

the appellant.    

17. Before proceeding further, we may notice the factum  

of ownership of the property including the godowns  

thereon.  As noticed above, the land was acquired by  

the State of Bombay for the Central Government and it  

was the Central Government, which constructed the  

godowns thereon.  The earlier Division Bench judgment  

of Bombay High Court dated 03.12.1992 in Civil Appeal  

No. 259 of 1989 has been referred to and relied by the  

appellant, by which judgment, the Division Bench has

30    

set aside the levy of non-agricultural assessments as  

imposed on the appellant.  The Division Bench in the  

above judgment has also accepted the case of the  

appellant that legal ownership of the land and the  

structures vests with the Government.  In paragraph 33  

of the judgment, following was laid down:-  

“(3).  Shri Saraf, learned counsel  

appearing on behalf of the Government of  

Maharashtra, submitted that the Corporation  

is occupier of the lands and as occupant is  

liable to pay non-agricultural assessment.   

The submission overlooks that the right to  

recover assessment from the occupier is an  

enabling provision but cannot be imported  

when the original owner is not liable to  

pay taxes.  The power to recover assessment  

from the occupier is available provided the  

original owner is not available but is  

liable to pay the taxes.  In view of the  

return filed on behalf of Government of  

India, it is clear that the land still vests  

in Government of India and consequently,  

the owner is not liable to pay any  

assessment.  As the Central Government is  

not liable to pay assessment, it is not  

open for the State Government to recover  

the same from the Food Corporation of India  

who is merely occupier of the lands and  

holder of the godowns on behalf of the  

Government of India.  In our judgment, the  

claim of the State Government for recovery  

of NA assessment and service of notices  

cannot be sustained.”  

18. The above status of the ownership of the property  

as noticed by the Division Bench in its judgment dated

31    

03.12.1992 has not been questioned before us.  We,  

thus, proceed to consider the submissions of the  

parties accepting the property including the  

construction thereon to be owned by the Government of  

India.    

19. What is the content and meaning of the expression  

as occurring in sub-article (2) of Article 285,  

“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 continue to be levelled in that tax.”  Whether  

Constitution framers intended to clothe any authority  

within the State from levying any tax on any property,  

which property was liable or treated to be liable to  

tax or whether mere power to tax the property of Union  

prior to the commencement of the Constitution is  

sufficient to continue such power after the enforcement  

of the Constitution irrespective of as to whether a  

property was subject to tax in the State or not.  The  

Constituent Assembly Debate in the above context throws  

a considerable light on the intention of the

32    

Constitution framers on the content and meaning of  

Article 285 as now contained in the Constitution of  

India.  

20.   Draft Article 264 which came for consideration  

before the Constituent Assembly on 9th September, 1949  

was to the following effect:  

“Article 264  

The Honourable Dr. B.R. Ambedkar  

(Bombay: General): Sir, I move:  

“That for article 264, the following  

article be substituted :-  

Exemption of  

property of the  

Union from  

State Taxation.  

“264.(1) The           

property of the Union  

shall be exempt   from   

all  taxes  imposed by   

a   State  or by any  

authority within a  

State  

(2) Nothing in clause (1) of this article  

shall, until Parliament by law otherwise  

provides, prevent any local authority  

within a State from imposing 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.”  

I will speak after the amendments have  

been moved, if there is any debate.”  

33    

21. Amendments were moved to the Draft Article. Several  

members in the Constituent Assembly spoke in favour of  

making the property of the Union subject to all taxes  

imposed by a local authority within the State, save  

insofar as the Parliament may by law otherwise provide.  

Shri R.K. Sidhwa in his speech stated that in the event  

Article 264 as proposed is passed the local authorities  

shall lose substantial amount of Revenue which they are  

getting from taxes realise from properties of the  

Central Government.   

22. Dr. B.R. Ambedkar replying the debate has dealt  

with clause (2) of proposed Article 264. Dr. B.R.  

Ambedkar in his reply stated that intention of clause  

(2) of Article 264 is to maintain the status quo, that  

is those municipalities which are levying any  

particular tax on the properties of the Union  

immediately before the commencement of the Constitution  

will continue to levy those taxes. Following is the  

reply made by Dr. B.R. Ambedkar:  

“The Honourable Dr. B.R. Ambedkar: Sir,  

I will first refer to the provisions  

contained in clause (2) of the proposed  

article 264. I think it would be agreed  

that the intention of this clause (2) is to  

maintain the status quo. Consequently under

34    

the provisions of clause (2) those  

municipalities which are levying any  

particular tax on the properties of the  

Union immediately before the commencement  

of the Constitution or on such property as  

is liable or treated as liable for the levy  

of these taxes, will continue to levy those  

taxes. All that clause (2) does is that  

Parliament should have the authority to  

examine the nature of the taxes that are  

being imposed at present. There is nothing  

more in clause (2), except the saving  

clause, viz., “until Parliament by law  

otherwise provides”. Until Parliament  

otherwise provides the existing local  

authorities, whether they are  

municipalities or local boards, will  

continue to levy the taxes on the  

properties of the Centre. Therefore, so far  

as the status quo is concerned, there can  

be no quarrel with the provisions contained  

in article 264.  

The only question that can arise is  

whether the right given by clause (2)  

should be absolute or should be subject to  

the proviso contained therein, until  

Parliament otherwise provides. In another  

place where the matter was discussed I  

submitted certain arguments for the  

consideration of the House.”  

23. The Constituent Assembly adopted Article 264 as  

proposed by one addition in clause (1) by adding the  

words “save insofar as the Parliament may by law  

otherwise provide”.   

24. This Court has occasion to consider the provisions  

of Article 285 clause (2) of the Constitution in Union

35    

of India owner of the Eastern Railway vs. The  

Commissioner of Sahibganj Municipality, (1973) 1 SCC  

676. The question which came for consideration before  

this Court has been noted in paragraph 1 which is to  

the following effect:  

“The only question which falls for  

determination in these two appeals by  

certificate is whether the respondent  

Municipality is entitled to levy and  

collect taxes on 32 blocks of buildings  

some constructed after March 31, 1937 and  

some after January 25, 1950.”  

25. In paragraphs 13 to 16, this Court observed that  

32 blocks of buildings were vested in the Union after  

April 1, 1937, and some of them after Constitution came  

into existence, these properties could be made liable  

to pay tax to the Municipality only if Parliament by  

law provided to that effect. Paragraphs 13 to 16 are  

as follows:  

“13. The 32 blocks of buildings were not in  

existence before April 1, 1937. These 32  

blocks of buildings were therefore not  

vested for purposes of the Government of  

the Federation before the commencement of  

Part III of the 1935 Act. The 32 blocks of  

buildings were thus exempt from all taxes  

imposed by any authority within a province  

until a Federal law otherwise provided.  

Section 4 of the 1941 Act did not provide  

for payment of taxes in respect of Railway  

property. Section 3 of the 1941 Act stated  

that a Railway Administration shall be

36    

liable to pay any tax in aid of the funds  

of any local authority if the Central  

Government by notification in the Official  

Gazette declares it to be so liable. It is  

an admitted feature in these appeals that  

there was no notification under Section 3  

of the 1941 Act declaring the Railway  

properties to be liable to pay any tax in  

aid of the funds of any local authority.  

14. Under Article 285 of the Constitution  

property of the Union was exempt from all  

taxes until Parliament by law otherwise  

provides. There is no such law providing  

for taxation of Railway property.  

15. Clause (2) of Article 285 speaks of  

liability of Railway property to pay taxes  

where such property was immediately before  

the commencement of the Constitution liable  

or treated as liable to pay any tax levied  

by any authority within a State. These 32  

blocks of buildings were not liable to pay  

any tax because they were not in existence  

before April 1, 1937 or before the  

commencement of the Constitution.  

16. The High Court was in error in  

construing the notification issued in 1911  

under the 1890 Act to continue by virtue of  

the provisions contained in Section 4 of  

the 1941 Act. These 32 blocks of buildings  

vested in the Union some of them after April  

1, 1937 and some after the Constitution  

came into existence. These properties could  

be made liable to pay tax to the  

Municipality only if Parliament by law  

provided to that effect.”  

26. This Court also in the above judgment has approved  

the Federal Court judgment in Corporation of Calcutta  

vs. Governors of St. Thomas’ School, Calcutta, AIR 1949

37    

FC 121. Following was laid down in paragraphs 17 and  

18:  

“17. The High Court referred to the  

decision of this (sic) Court in Corporation  

of Calcutta v. Governors of St. Thomas’  

School, Calcutta and held that the ruling  

in that decision did not apply to the facts  

in the present appeals by reason of Section  

4 of the 1941 Act rendering the properties  

liable to tax. The High Court misconstrued  

the provisions of Section 4 of the 1941  

Act. The decision of this (sic) Court in  

St. Thomas’ School case1 directly applies  

to these appeals. St. Thomas’ School was  

situated at 4, Diamond Harbour Road,  

Calcutta. The buildings were constructed  

before April 1942. The premises were  

assessed to consolidated rates under the  

Calcutta Municipal Act. In April 1942, the  

premises. were requisitioned for the  

purposes of the Central Government. After  

the requisition the Central Government  

erected several structures on the premises.  

In 1944-45, there was a general revaluation  

by the Corporation of Calcutta. The cost of  

the Additional structures erected by the  

Central Government was taken into account  

in determining the annual value of the  

premises. The Governors of St. Thomas’  

School objected to the valuation and  

claimed that the value of the buildings put  

up by the Government should be excluded in  

the revaluation. The Calcutta High Court  

held that Section 154 of the Government of  

India Act, 1935 applied to the buildings  

constructed by the Central Government and  

the proviso to Section 154 of the 1935 Act  

was not applicable. This Court held that  

the buildings constructed by the Central  

Government were vested in the Government.  

In view of the fact that the Additional  

structures were put up by the Central  

Government after 1942, it was held that

38    

these were not subject to municipal tax  

before April 1937.  

18. The 32 blocks of buildings in the  

present appeals were not in existence  

before April 1, 1937 and January 26, 1950.  

The notification under the 1890 Act did not  

apply to these 32 blocks of buildings.  

There is no law declaring these 32 blocks  

of buildings to be liable to payment of  

municipal tax as claimed by the respondent  

Municipality.”  

27. The above Constitution Bench judgment of this Court  

clearly lays down that exemption from payment of taxes  

on the properties of Central Government as available  

under clause (1) of Article 285 can be denied only when  

the property in question was exigible to the Municipal  

Tax prior to the commencement of the Constitution or  

any Parliamentary law provides for properties to be  

exigible to pay tax to the Municipality.   

28. Article 285 clause (2) again came for consideration  

before the Constitution Bench of this Court in Union  

of India vs. City Municipal Council, Bellary, (1979) 2  

SCC 1, explaining the content of clause (2) of Article  

285. Following was laid down in paragraph 7:-   

“7……The property of the Union is exempt  

from all taxes imposed by a State or by any  

authority within a State. But Parliament  

may by law provide otherwise and then any

39    

tax on the property of the Union can be  

imposed and levied in accordance with the  

said law. But then an exception has been  

carved out in clause (2). The exception is  

not meant for levying any tax on such  

property by any State; but it is merely for  

the benefit of any authority including the  

local authority like the Municipal Council  

in question. Clause (1) cannot prevent such  

authority from levying any tax on any  

property of the Union if such property was  

exigible to such tax immediately before the  

commencement of the Constitution. The local  

authority, however, can reap advantage of  

this exception only under two conditions  

namely, (1) that it is “that tax” which is  

being continued to be levied and no other;  

(2) that the local authority in “that  

State” is claiming to continue the levy of  

the tax. In other words, the nature, type  

and the property on which the tax was being  

levied prior to the commencement of the  

Constitution must be the same as also the  

local authority must be the local authority  

of the same State to which it belonged  

before the commencement of the  

Constitution. On fulfilment of these two  

conditions it is authorised to levy the tax  

on the Union property under clause (2). As  

in the case of clause (1) it lies within  

the power of Parliament to make a law  

withdrawing the exemption of the imposition  

of the tax on the property of the Union, so  

in the case of clause (2) it is open to  

Parliament to enact a law and finish the  

right of the local authority within a State  

to claim any tax on any property of the  

Union, a right it derived under clause (2).  

That is to say, in both the cases the  

ultimate power lies with Parliament.”  

29. The Constitution Bench has also approved the  

Calcutta High Court judgment in Governor-General of

40    

India in Council vs. Corporation of Calcutta, AIR  

(1948) Cal 116(2).  

30. Durga Das Basu in Commentary on Constitution of  

India while commenting on Article 285, Clause (2), has  

also said that the property must have been in physical  

existence immediately before the commencement of the  

Constitution. In 8th Edition under the heading “Article  

285, Clause (2): Power of Local Authorities to Tax  

Union Property” following has been stated:  

“ARTICLE 285, CLAUSE (2): POWER OF LOCAL   

      AUTHORITIES TO TAX UNION PROPERTY  

Saving of existing taxation  

This clause is in the nature of a  

Proviso upon cl.(1). But it empowers  

Parliament to cut down the exception  

introduced by cl.(2). Any local tax on  

Union property which is saved by cl.(2)  

shall cease to be valid as soon as  

Parliament by law provides to that effect.  

While cl.(1) enumerates that property  

of the Union shall be exempted from any  

State or local taxation, cl.(2) saves the  

existing power of local bodies to tax Union  

property so long as Parliament does not  

legislate otherwise. Thus, the status quo  

as to local taxation is maintained, but  

Parliament is given the power to control  

such taxation.  

Article 285(2) does not permit levy of  

any tax by a State; it only benefits “the

41    

authority within the State”, such as the  

municipal body.  

“Liable or treated as liable”  

These words mean that in order to come  

within the Proviso, the property must have  

been in physical existence immediately  

before the commencement of the  

Constitution. There could have been no  

liability attached to a non-existent thing;  

nor could there have been any treatment of  

a non-existent thin. New buildings and  

structures erected on the land after the  

aforesaid date, are therefore, exempt from  

tax though the land on which they have ben  

erected may be liable to tax under cl.(2).  

The conditions necessary to bring a  

property within cl.(2) in order to make it  

liable to taxation are:  

(a) Physical existence of the property  immediately before the  

commencement of the Constitution.  

(b) Liability of the property to the  tax on that date;  

(c) Physical existence of the property  now, i.e., at the time when the tax  

is sought to be levied;  

(d) Liability of the property to tax  now;  

(e) The tax in question must be the  ‘same tax’ as that which was levied  

or leviable at the commencement of  

the Constitution;  

(f) The local authority seeking to  levy the tax must be in the same  

State to which the pre-

Constitution authority belonged;”  

42    

31. From the above discussion we arrive at the  

conclusion that for the applicability of clause (2) of  

Article 285, the property on which tax is sought to be  

proposed ought to have been subject to property tax  

before the commencement of the Constitution. Since,  

object of the Article 285(2) of the Constitution was  

to continue the levy of the such tax which local  

authority was enjoying prior to the commencement of the  

Constitution so as to maintain the status quo regarding  

the financial resources of Municipal Corporation to  

avoid the complete exemption from property of Central  

Government as provided under Article 285(1). In the  

present case the constructions on which the property  

tax is sought to be imposed by Municipal Corporation  

came into existence only after 1964 and were not  

subject to property tax prior to the commencement of  

the Constitution, hence condition for applicability of  

Article 285(2) is not satisfied. Resultantly the  

Municipal Corporation is not competent to impose  

property tax denying the exemption under Article 285(1)  

of the Constitution.   

43    

32. Shri Shishodia has placed reliance on the judgment  

of this Court in Food Corporation of India vs.  

Municipal Committee, Jalalabad and another, (1999) 6  

SCC 74. Shri Shishodia submits that this Court in the  

above case has held that Food Corporation of India is  

not exempt from taxation under Article 285. The  

question which came for consideration before this Court  

has been noticed in paragraph 7 which is to the  

following effect:  

“7. 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.,(1999)4 SCC 458, 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.”  

33. This Court in the above case relying on  

Constitution Bench judgment in Electronics Corporation  

of India Ltd. and others Vs. Secretary Revenue

44    

Department, Govt. of Andhra Pradesh and others, (1999)4  

SCC 458, held that the Corporation is a distinct entity  

from the Union of India and is not exempt from taxation  

under Article 285. The Constitution Bench in  

Electronics Corporation of India Ltd. (supra) held that  

Article 285 is not applicable where assessee is an  

entity, separate and different from Union Government.   

The Constitution Bench in paragraph 22 laid down  

following:  

“22……Article 285 does not apply when the  

property that is to be taxed is not of the  

Union of India but of distinct and separate  

legal entity. Each of the appellants being  

companies registered under the Companies  

Act, they are entities other than the Union  

of India.”  

34. There cannot be any dispute to the proposition laid  

down by this Court in Food Corporation of India vs.  

Municipal Committee, Jalalabad (supra) and by the  

Constitution Bench in Electronics Corporation of India  

Ltd. (supra) Article 285 does not apply when the  

property that is to be taxed is not of the Union of  

India but a distinct and separate legal entity. Had the  

property in question which is sought to be taxed  

belonged to the Food Corporation of India, in the  

present case, the judgment of this Court in Municipal

45    

Committee, Jalalabad (supra) as well as Electronics  

Corporation of India Ltd. (supra) would have applied  

in full force, but in the present case the property  

being that of the Central Government, both the above  

judgments are not applicable.   

35. The submission which has been made by Shri  

Shishodia to support the levy of property tax on the  

appellant is that the appellant being occupier is  

liable to pay property tax in view of Section 146 of  

the 1888 Act. He submits that the primary  

responsibility for property tax being on occupier as  

per Section 146(1) of 1888 Act, the Corporation cannot  

escape from its responsibility to pay property tax.  

Sub-section (1) of Section 146 uses the expression “if  

such occupier holds the said premises immediately from  

the Government…….”, the key words in the expression are  

“such occupier holds the said premises”. The word  

‘holds’ has various shades of meaning. Whether sub-

section (1) of Section 146 will hold the occupier that  

is the appellant to pay the property tax even though  

the owner of the property Central Government is exempt

46    

from paying property tax under Article 285(1) is the  

question to be answered.  

36. The heading of Section 146 is “Primary  

responsibility for property taxes from whom to rest”.  

When there is a claim of exemption from payment of  

property tax with regard to property owned by the  

Government of India, the question of primary  

responsibility or secondary responsibility loses its  

importance. When payment of property tax is exempt  

under Article 285(1) to tax the occupier runs counter  

to the very claim of exemption as delineated by Article  

285. Section 146 of 1888 Act as it exists now has to  

be construed in a manner so as to give effect to the  

meaning and purpose of Constitutional protection  

granted under Article 285. The statutory provision, may  

it be Section 146 of 1888 Act, cannot be read in a  

manner so as to run contrary to a Constitutional  

provision.   

37. In the event the claim of Municipality/Corporation  

to levy property tax is not covered by sub-clause (2)  

of Article 285, it cannot be allowed to take recourse

47    

to any statutory provision or device to make exemption  

under Article 285(1) nugatory. We are, thus, not  

persuaded to accept the submission of Shri Shishodia  

that since the appellant is occupier of premises owned  

by Union of India, is liable to pay property tax under  

Section 146(1) of 1888 Act. Both the premises and  

building therein are entitled for exemption from  

payment of property tax under Article 285(1). At this  

stage, it is required to be noted that the FCI is not  

in occupation of the godowns owned by the Government  

of India as a lessee. Nothing is on record and it is  

also not the case on behalf of the Corporation that any  

rent/lease amount is being recovered from the FCI. It  

appears that FCI is permitted to occupy and use the  

godowns owned by the Government of India for the  

purpose of storage of the goods which are required to  

be transported to the different Fair Price Shops under  

the public distribution system.  

38. We may notice some of the decisions which have been  

relied by Shri Shishodia in support of his claim. Shri  

Shishodia has relied on Division Bench judgment of  

Gujarat High Court in F.C.I. vs. Gandhidham

48    

Municipality, (2002)43(2) GLR 1845. The submission  

which was pressed before the Division Bench of the High  

Court was that the Food Corporation of India, being an  

instrumentality of the State Government, is not liable  

to pay municipal taxes in view of Article 285 of the  

Constitution. From paragraph 2 of the judgment it is  

clear that land was originally owned by the Government  

of India and the said land was given to the appellant-

Corporation for the purpose of construction of godowns.  

The Corporation made construction of godowns in the  

property. The contention which was raised by the  

Corporation has been mentioned in paragraph 2 of the  

judgment which is to the following effect:  

“2. On behalf of the appellant-Corporation  

Mr.N.K.Pahwa for Mr.Mr.P.M.Thakkar raised  

the contention that the Food Corporation of  

India, being an instrumentality of the  

State Government, is not liable to pay  

municipal taxes in view of Article 285 of  

the Constitution. This contention, in  

substance, is that the land was originally  

owned by Government of India and the said  

land is given to the appellant-Corporation  

for the purpose of construction of godowns  

and the appellant-Corporation is a  

statutory corporation, no doubt, is owned  

by Government of India and therefore in  

view of Section 99 of the Gujarat  

Municipalities Act read with Article 285 of  

the Constitution no tax can be levied upon  

the property constructed by the appellant-

Corporation.”  

49    

39. The Gujarat High Court held that the question  

involved in the appeal is settled by this Court in the  

judgment in Food Corporation of India vs. Municipal  

Committee, Jalalabad (supra). In paragraphs 4 to 6  

Gujarat High Court held:  

“4. We have considered the submissions  

made by both the sides and also gone through  

the order passed by the learned single  

Judge. It will not be out of place to  

mention that the substantial question  

involved in this appeal is now settled by  

the Honourable Supreme Court in the case of  

FOOD CORPORATION OF INDIA. vs MUNICIPAL  

COMMITTEE, JALALABAD reported in (1999) 6  

SSC 74, wherein the Honourable Supreme  

Court had considered the identical question  

and in para 7 of its judgment it was held  

as under:   

"The question that arises before us  

is: If the property of the  

Corporation is 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 Corporation of India Ltd  

vs Secretary, Revenue Department,  

Govt. of Andhra Pradesh (1999) 4 SCC  

458 has held that a Government  

company is distinct from the Central  

Government and can not claim  

exemption from taxation under  

Article 285 of the Constitution. The  

case of the Corporation can not be  

any different. The Act under which  

is constituted specifically makes  

the Corporation a body corporate  

having the attributes of a company."

50    

5.  Further in para 11 of its judgment  

the Honourable Supreme Court has observed  

as under:  

"even if the Corporation is an  

agency or instrumentality of the  

Central Government, that did not  

lead to the inference that the  

Corporation is a Government  

department. The reason is that Act  

has given the Corporation an  

individuality apart from that of the  

Government."   

6. In the above view of the matter, the law  

on the question is already settled by the  

Honourable Supreme Court and, therefore,  

the first contention of Mr.Pahwa that in  

view of Article 285 of the Constitution the  

Municipality cannot levy or collect taxes  

on the property of the Corporation has got  

to be rejected.”  

40. No exception can be taken to the above judgment of  

Gujarat High Court which has correctly relied on this  

Court’s judgment in Food Corporation of India vs.  

Municipal Committee, Jalalabad (supra) and Electronics  

Corporation of India Ltd. (supra) when the property  

belonged to Corporation who has constructed the  

godowns, it was liable to pay municipal taxes and the  

Division Bench has rightly dismissed the appeal. The  

above judgment does not help the respondent, since, in  

the present case the construction was made by the  

Government of India and ownership of the Government of

51    

India of the premises including the construction in the  

present case has not been questioned.   

41. The next judgment relied by Shri Shishodia is  

Ahmedabad Aviation & Aeronautics Limited vs. Govt. of  

Gujarat, 2014 SCC online Guj 15505. In the above case  

Ahmedabad Aviation & Aeronautics Ltd., a public Limited  

Company had filed the writ petition for declaring that  

the Gujarat Municipalities Act, 1963 is not applicable  

to the petitioners with further prayer for direction  

to prohibit the respondent-Municipality from taking any  

coercive measures for recovering the municipal tax from  

the petitioner-Company. The Division Bench of the  

Gujarat High Court dismissed the writ petition. The  

petitioner was in occupation/possession and in use of  

Airfield which was given by the Government of Gujarat  

with regard to which right of user was granted by the  

Government of Gujarat through Department of Civil  

Aviation. There was Memorandum of Understanding between  

the Company and the Government. The Gujarat High Court  

in the above background held the petitioner liable to  

pay municipal tax. The case of the petitioner that it  

cannot be said that the petitioner is not in exclusive

52    

occupation, possession and in use of the entire  

Airfield nor they can be said to be lessee, was  

rejected. The Gujarat High Court relying on Section  

113(2) of the Gujarat Municipalities Act held the  

petitioner liable to pay tax. The Division Bench had  

also relied on the earlier judgment of the Gujarat High  

Court in FCI v. Gandhidham Municipality (supra). In  

paragraph 7.3 following was laid down:  

“7.3 It is the case on behalf of the  

petitioners that as the petitioners cannot  

be said to be in exclusive occupation,  

possession and in use of the Airfield,  

Mehsana and they are permitted to use the  

Airfield / Airstrip on payment of user  

charges they cannot be said to be lessee  

and the MOU cannot be said to be a lease  

deed and, therefore, considering Section  

113 of the Gujarat Municipalities Act the  

primary liability to pay the municipal tax  

would be upon the owner-Collector, Mehsana  

and not upon the petitioners as the  

petitioners cannot be said to be the  

lessee. The aforesaid seems to be  

attractive but has no substance. For the  

purpose of liability to pay the municipal  

tax, what is required to be considered is,  

whether the concerned person is in  

occupation and use of the property in  

question or not and it is immaterial  

whether he is in occupation as lessee or  

not. In the case of FCI Vs. Gandhidham  

Municipality (Supra) considering Section  

113(2) of the Act the Division Bench of  

this Court has specifically observed and  

held that it is the occupier of the  

property, who is using the property and for  

the said purpose the occupier cannot get  

away from the liability to pay the tax of

53    

the local authority since the taxes are for  

the purpose of providing services to the  

residents or occupiers of the property.”  

42. The above judgment of the Gujarat High Court was  

on its own facts and was based on liability to pay  

municipal tax under Section 113(2) of the Gujarat  

Municipalities Act. In the above case there was no  

question pertaining to claim of any exemption from  

payment of tax from property of the Union. Thus, the  

above judgment in no manner helps the respondent in the  

present case.  

43. The Division Bench of the High Court in the  

impugned judgment relying only on sub-section (1) of  

Section 146 held the appellant liable to pay property  

tax without giving any reason as to why the appellant  

is not entitled to exemption from payment of property  

tax under Article 285. The High Court has also not come  

to any conclusion that the Corporation is entitled to  

levy property tax on the strength of Article 285 clause  

(2). The judgment of the Division Bench, thus, cannot  

be sustained.  

54    

44. As noted above, learned counsel for the appellant  

during his submission has not disputed the liability  

of the Corporation to pay charges for services rendered  

by the Corporation including water charges. He has  

further stated that the Corporation is willing to pay  

amount in lieu of the general taxes as contemplated by  

Section 144 of 1888 Act. In paragraph 6 of Writ Petition  

No.2672 of 2001 filed by the appellant, liability to  

make payment of services charges or other services  

provided by the Corporation was not denied. We may  

further notice that in the Review Petition No.37 of  

2016 which was filed by the appellant to review the  

judgment dated 05.05.2016 of the Division Bench of the  

Bombay High Court, in paragraph 20 following prayers  

were made:  

“20. Petitioner therefore pray that:-  

(a) This Hon’ble Court may be pleased  to call for the Records and  

Proceedings in Writ Petition  

No.2672 of 2001 and after going  

through the legality, validity and  

propriety thereof, review and/or  

revoke the Order of this Hon’ble  

Court dated 05.05.2016 therein;  

(b) this Hon’ble Court may be pleased  to direct the Respondent Nos.1 and  

2 to conduct an enquiry in  

accordance with the provisions of  

Sections 143 and 144 of The Mumbai

55    

Municipal Corporation Act, 1888 and  

decide the ratable value of the  

properties on which taxes were to  

be paid;  

(c) pending the hearing and final  disposal of the Review Petition,  

the Respondent Nos. 1 and 2 may  

please be restrained from either  

demanding the Property Tax and/or  

issuing any fresh tax bill and/or  

adopting any coercive steps for  

recovery of any property tax  

against the Petitioner;  

(d) cost of the Petition may please be  provided for;  

(e) for such further and other reliefs  as nature of the case may require.”  

45. From the above, it is clear that the appellant is  

not denying its liability to pay services charges and  

direction was sought to respondents to conduct an  

enquiry in accordance with the provisions of The Mumbai  

Municipal Corporation Act, 1888 and decide the ratable  

value of the properties on which taxes were to be paid.  

46. At this stage, we may also notice the judgment of  

this Court in Union of India and others vs. State of  

Uttar Pradesh and others, (2007) 11 SCC 324, wherein  

it is held that water charges and sewerage charges  

levied by the Jal Sansthan against the Railways for the

56    

services rendered by Sansthan were termed as taxes,  

charges were not taxes but fees for the services  

rendered by the Jal Sansthan which are not precluded  

by Article 285. This Court in paragraphs 11 and 23 laid  

down following:  

“11. The distinction has to be kept in  

mind between a tax and a fee. Exemption  

under Article 285 is on the levy of any tax  

on the property of the Union by the State,  

and exemption is not for charges for the  

services rendered by the State or its  

instrumentality which in reality amounts to  

a fee. In this connection, a reference was  

made to the decision of this Court in Sea  

Customs Act (1878), S. 20(2), In re3. This  

was a case in which a reference was made by  

the President of India with regard to levy  

of customs and excise duties on the State  

under Article 289 of the Constitution of  

India wherein Sinha, C.J., Gajendragadkar,  

Wanchoo and Shah, JJ. answered the question  

at para 31 as follows: (AIR p. 1777)  

“31. For the reasons given above,  

it must be held that the immunity  

granted to the States in respect of  

Union taxation does not extend to  

duties of customs including  

export duties or duties of excise.  

The answer to the three questions  

referred to us must, therefore, be  

in the negative.”  

23. In this case what is being charged is  

for service rendered by the Jal Sansthan  

i.e. an instrumentality of the State under  

the Act of 1975. Section 52 of the Act  

states that the Jal Sansthan can levy tax,  

fee and charge for water supply and for  

sewerage services rendered by it as water  

tax and sewerage tax at the rates mentioned

57    

therein. Though the charge was loosely  

termed as “tax” but as already mentioned  

before, nomenclature is not important. In  

substance what is being charged is fee for  

the supply of water as well as maintenance  

of the sewerage system. Therefore, in our  

opinion, such service charges are a fee and  

cannot be said to be hit by Article 285 of  

the Constitution. In this context it is to  

be made clear that what is exempted by  

Article 285 is a tax on the property of the  

Union of India but not a charge for services  

which are being rendered in the nature of  

water supply, for maintenance of sewerage  

system. Therefore, in our opinion, the view  

taken by the Division Bench of the  

Allahabad High Court is correct that the  

charge is a fee, being service charges for  

supply of water and maintenance of sewerage  

system, which cannot be said to be tax on  

the property of the Union. Hence it is not  

violative of the provisions of Article 285  

of the Constitution.”  

47. We, thus, clarify that even though appellant is  

exempted from payment of property tax by virtue of  

Article 285 of the Constitution then liability to pay  

services charges for services rendered by the  

Corporation cannot be denied and learned counsel  

appearing for the appellant has very fairly stated so.  

In the result, we allow these appeals set aside the  

judgment of the High Court and held that the appellant  

is exempted and not liable to pay property tax under  

1888 Act. However, the appellant is liable to pay  

services charges for the services rendered by the

58    

Corporation and it shall be open for the respondents  

to conduct an enquiry in accordance with provision of  

Section 144 of 1888 Act to decide the rateable value  

of the property. Ordered accordingly. Parties shall  

bear their own costs.  

......................J.  

                                 ( ASHOK BHUSHAN )  

......................J.  

                                 ( M.R. SHAH )  

New Delhi,  

March 19, 2020.