In Lucknow Nagar Nigam & Others v. Kohli Brothers Colour Lab Pvt Ltd & Others, the hon’ble Supreme Court of India (Supreme Court) resolved a contentious legal dispute regarding the exemption of property tax on enemy property.
The case centered around a property situated on Mahatma Gandhi Marg, Lucknow, designated as ‘enemy property’ under the Enemy Property Act, 1968. The property belonged to the Raja of Mahmudabad, who migrated to Pakistan in 1947. The respondents occupied a portion of this property for profit, leading to assessment by the Municipal Corporation in 1998-1999 and subsequent tax notices.
The legal dispute arose when tenants contested Municipal Corporation’s assessments, leading to a series of court battles ultimately reaching the Supreme Court. The key contention revolved around whether property designated as ‘enemy property’ and managed by a Custodian appointed by the Union Government qualifies as Union Government property, and thus exempt, from municipal taxes under Article 285(1) of the Constitution.
The Supreme Court, after careful consideration of relevant legal provisions and precedents, arrived at the following significant conclusions:
■ Ownership under Enemy Property Act: The custodian of enemy property in India does not acquire ownership of enemy properties but acts as a trustee for their management and administration.
■ Transfer of Ownership to Union of India: There is no transfer of ownership from the owner of enemy property to the custodian, and therefore, the enemy properties vested with the custodian are not Union properties.
■ Applicability of Article 285(1): Since enemy properties are not Union properties, Article 285(1) of the Constitution of India does not apply to them. The exemption from municipal taxes under this provision is only applicable to Union properties.
■ High Court Decision: The Supreme Court held that the High Court was incorrect in ruling in favor of the respondent, exempting them from property taxes. As a result, the impugned order of the High Court was set aside.
■ Tax Liability: The Court ruled that any demand for payment of taxes made and paid by the respondent to the appellant-authority shall not be refunded. However, the appellant would be entitled to levy and collect property tax, water tax, sewerage charges, and any other local taxes from the current fiscal year onwards.
This decision by the Supreme Court clarifies the legal status of enemy properties and reinforces the importance of property rights under the Constitution of India. It also establishes clear guidelines regarding the taxation of such properties, ensuring compliance with constitutional provisions while upholding the principles of fairness and justice.