Karnataka High Court
Hotel Broadway Complex vs Administrator, Corporation Of The City ... on 19 January, 1990
Equivalent citations: ILR1990KAR629, [1990]183ITR569(KAR), [1990]183ITR569(KARN), 1990(1)KARLJ252
JUDGMENT S.R. Rajashekara Murthy, J.
1. In these writ petitions, the special notice issued under rule 9, Schedule III of the Taxation Rules framed under the Karnataka Municipal Corporations Act (annexure-C), the demand made by the Corporation pursuant to the revision (annexure-E) and the order passed by the Administrator dated December 23, 1981 (annexure-J), are challenged.
2. The petitioner, a partnership firm, is the lessee under a lease deed dated June 1, 1959, executed by on Smt. Kamala Krishna Iyengar and B. K.Govindaraj in respect of the property described in Schedules A and B to the said leases deed.
3. Schedule A refers to the premises bearing No. 12 "Manorama", Kempegowda Road, Bangalore City, consisting of the main building and outhouse along with adjoining vacant land. Schedule B is the portion of the main premises let out and on which there existed a petrol bunk and other structures.
4. The petitioners executed a deed of agreement on September 7, 1966, as per annexure-B, in favour of one Smt. T. N. Subhadramma under which a vacant site measuring 50 'x 50 ' which was a portion of the property let out under the lease deed, annexure-A was sub-let for the purpose of constructing buildings suitable for show rooms abutting Kempegowda Road. The period stipulated in the first lease was a period of 20 years. Sri Shivaram, learned counsel for the petitioners, submitted that the term was extended subsequently by a registered lease deed dated June 15, 1962, by another period of 15 years. The lease of the vacant plot under the agreement dated September 7, 1966, is co-terminous with the lease deed dated June 1, 1959, i.e., for a total period of 35 years from June 1, 1969.
5. On the vacant plot sub-let by the petitioners in favour of Smt. Subhadramma, shops were constructed by the petitioners. The Corporation determined the annual rental value of those buildings at Rs. 29,960 which was revised later to Rs. 51,750. The latest revision of the annual rental value of Rs. 91,750 is the subject-matter of these writ petitions.
6. The proceedings for the revision of the assessment started with a special notice issued under rule 9, Schedule III to the petitioners as per annexure-C dated September 6, 1980. The demand made as per annexure C and E was confirmed by the administrator who exercised the powers of the Taxation Appeal Committee with the only modification that the revision of assessment should be effective from April 1, 1980. There was no further appeal against the order of the administrator. The revised demand and the order of the administrator are challenged in these writ petitions
7. It is urged by Sri Shivaram, learned counsel for the petitioners, that the proceedings initiated against the petitioners who are tenants under the lease deed of June 1, 1959, are not maintainable in law and the recovery of the revised taxes cannot be enforced against them.
8. The next contention of the petitioners is that they being only tenants of the leased premises, they cannot be made liable to pay the tax in respect of the property sub-let by them and that the tax that is being demanded from them exceeds the rent that they are recovering from the sub-lessees.
9. The showrooms and other shop premises were put up by the sub-lessee under the agreement dated September 7, 1966, executed by the petitioner. The buildings put up on the vacant site by the petitioner were put in the possession of the sub-lessees as per the terms of the agreement.
10. The first assessment of this property as appears from the special notice, annexure-C, was on the rental value of Rs. 29,960 and later revised to Rs. 51,750. It is not the case of the petitioners that they, at no point of time, paid the tax in respect of this property prior to the latest revision made pursuant to the special notice dated September 6, 1980. But the provocation to file writ petitions was only the latest revision which was enforced with effect from April 1, 1980. The argument of Sri Shivaram is that the primary liability to pay the taxes on this buildings is on the owner of the property, namely, the lessors, who are referred to as the first party in the lease deed dated June 1, 1959.
11. The last ground on which the demand is resisted is, admitting for the sake of argument that section 112(2) of the Corporation Act is applicable to the facts of the case, that there was no lease of the "land" under the original lease deed dated June 1, 1959, and that it was a composite lease of both building and land.
12. Learned counsel has relied upon several provisions of the Corporation Act in support of his contentions and taken me through the relevant provisions.
13. Sri Shivaram has relied upon the decision of the Supreme Court in National and Grindlays bank Ltd. v. Municipal Corporation for Greater Bombay, , in support of his contention that, in cases of lease of vacant land, the owner alone is responsible and liable to pay the property tax on the buildings constructed on it.
14. Sri Castelino, learned counsel appearing for the Corporation, opposed the stand of the petitioners relying on the provisions of section 112(2) and has contended that the tenant becomes primarily liable to pay the tax on the buildings put-up on the land leased. He has also relied upon the Taxation Rules, and in particular rules 6 and 9 under which the liability is imposed on the occupier of the property along with the owner in case of revision of tax. This case, according to learned counsel, is covered by the special provisions of section 112(2) under which the tenant is made primarily likable to pay the tax. Learned counsel has also demonstrated that, under the scheme of the Act, the lessor of the premises, namely, the owner, is made primarily liable for tax assessed on the property leased and in cases of premises which are sub-let, the superior lessor is made liable to pay the tax.
15. I have considered the arguments of learned counsel for the petitioner and Sri Castelino for the Corporation. The main question that arises for decision in these cases is about the liability of the petitioner who is the lessee of the property under the lease deed dated June 1, 1959. It would be necessary to refer to the said lease deed and to the schedule thereto. Under the said lease deed, though the properties described under two schedules "A" and "B", the lease was in respect of premises bearing No. 12, known as "Manorama, Kempegowda Road, Bangalore City, forming one unit. Schedule "B" on which there existed a petrol bunk abutting the Kempegowda Road, which became vacant land later, formed part of the premises bearing No. 12.
16. Under the deed of agreement dated September 7, 1966, executed by the petitioners in favour of Smt. Subhadramma, the property sub-let was vacant land measuring 50 'x 50 ' abutting Kempegowda Road. The agreement between the parties was that the petitioner who were the lessees from the owners of the property had been permitted by the owners of the property to put up any buildings or structures on the vacant space in front of the existing building and abutting the Kempegowda Road. Though the second party, namely, the sub-lessee, was to advance monies towards the construction of the buildings, one of the stipulations of the agreement was to pay rent on the buildings let out to the second party. It was, therefore, a composite agreement of lease as well as an agreement for construction. As already stated, the duration of the lease of the buildings is co-terminous with the lease, namely, for a period of 35 years from June 1, 1959.
17. Therefore, the argument Sri Shivaram that it was not a case of any land having been let under the agreement dated June 1, 1959, and that it was a composite lease of both building and land cannot be accepted. On a proper construction of the terms of the lease deed, the lease was in respect of the entire premises bearing No. 12, Kempegowda Road, which included the buildings as well as the vacant land to the front of it. Pursuant to the agreement entered into by the petitioners with the sub-lessee, the petitioners built upon the vacant land, showrooms and other shops in respect of which rent was payable by the sub-lessee. In this context, the definition of "land" as defined in section 2(15) of the Act requires to be noticed:
"2(15): 'Land' includes land which is being build upon or is built upon or covered with water, benefits to arise out of land, things attached to the earth or permanently fastened to anything attached to the earth and rights created bylaw over any street;..."
18. "Premises" is defined under section 2(28) of the Act to include messuages, buildings and lands of any tenure whether open or enclosed whether built upon or not and whether public or private.
19. The argument of Sri Shivaram developed on a literal interpretation of section 112(2) that no land has been let in this case, cannot be accepted for the reasons stated above.
20. With this undisputed position as to the facts relating to the building put up by the petitioners, they become "superior lessors" of the premises under the Act. Indisputably, the consequence that flows from this is that, they become persons primarily liable to pay the property tax on the buildings erected by he them on the premises.
21. In the light of this inescapable position so far as their liability is concerned, the Taxation Rules contained in Para II of Schedule III of the Act become applicable to the case on hand. Under rule 7 of the Taxation Rules, a special notice may be served on the owner or occupier of the property whenever there is a general revision or enhancement of the assessment.
22. The owner or occupier may, on the serviced of such special notice, file objections to the proposed enhancement and an order may be made after hearing objections by the Commissioner which is required to be served on the owner or occupier. The other rules contained in Part III relating to collection of taxes also become applicable and a notice under rule 26 may be served either on the owner or occupier. The rules also provide for recovery of the amount due on account of any tax by taking coercive steps either on the owner of the property or on the occupier.
23. The decision of the Supreme Court in National and Grindlays Bank Ltd.'s case, , related to a lease of vacant land by the bank on monthly basis. It was, there, held by the Supreme Court that the owner of the land was liable to pay the tax on the structures constructed by the lessees. This decision, therefore, does not help the petitioners' case.
24. Next, learned counsel relied upon the decision of this court in Khan Sahib v. Corporation of Bangalore [1972] 1 Kar LJ 238, in support of his contention that the basis for the enhancement is not mentioned in the special notice served on the petitioner. The special notice served on the petitioner in Khan Sahib's case [1972] 1 Kar LJ 238 did not contain the basis for revision of the valuation, which was proposed to be made. The administrator had fixed the annual value on the basis of the profits determined by the Income-tax Officer. The impugned assessment order was, therefore, quashed by this court.
25. A statement of objections is filed on behalf of the Corporation in this case justifying the enhancement of the rental value from time to time. The annual rental value adopted as per the impugned notice is Rs. 91,750. This notice is sought to be justified on the ground that the enhancement was based on the actual rents realised from the property. It was also submitted by Sri Castelino that there was no further appeal against the order of the administrator made in exercise of the powers of the Taxation Appeal Committee. The Administrator confirmed the demand and directed that it should be enforced with effect from April 1, 1980, only. It was, therefore, argued by learned counsel that the petitioner having accepted the order of the administrator, it is open to him now to challenge the demand by way of a writ petition.
26. I agree with the contentions of Sri Castelino, both on the facts and law.
27. The petitioner has failed in his attempt to dispute his liability under the Act and also as to the basis for the enhancement. A further appeal is provided under the Taxation Rules to the District Judge. The writ petition is also liable to the dismissed on the ground of alternative remedy so far as the enhancement of the rental value is concerned.
28. The writ petitions are, therefore, dismissed.