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2019 (12) TMI 100

..... ancial assistance from the Government, they are denied the benefit of the exemption granted under the Acts - whether the exemption provision under the Acts is discriminatory in its grant of exemption to only such buildings that are used for educational purposes and under the ownership of educational institutions owned by the Government or aided or functioning with the financial assistance from the Government? HELD THAT:- Applying the principles discernible therefrom to the facts in the instant cases, it can be seen that the tax concessions envisaged under the Acts are intended to provide a level playing field for Government/aided educational institutions on the one hand and the self-financing educational institutions on the other. Tax concessions have been granted to the former category, keeping in mind the role played by them in discharging the sovereign obligation of the State to provide education, despite the economic limitations faced by them. It is trite that Government and Government Aided Educational institutions are subjected to a different system of control when compared to Unaided Educational institutions that do not function under the restrictions imposed on the former c .....

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..... Acts']. It is stated that as per the said provision, there is a levy of tax contemplated in respect of all buildings, save those that are exempted from the levy of tax under Section 207/Section 235 of the respective Acts. Section 207/Section 235 enumerates the classes of buildings that are exempted from the levy. In these writ petitions, the exemption clause that is challenged as discriminatory is Section 207(b)/Section 235(b) of the Acts, which reads as under: Exemption from Tax, Cess etc.- (1) The following buildings and lands shall be exempted from property tax as may be levied under S.203/S.233 and service cess as may be levied under sub-section (2) of Section 200/sub-section (4) of S.230, namely: (a) ….................................................................. (b) building exclusively used for educational purposes or allied purposes under the ownership of educational institutions owned by the Government, aided or functioning with the financial assistance of the Government and the hostel buildings wherein the students of the said institutions reside; 3. It is the case of the petitioners that inasmuch as their educational institutions are not housed in building .....

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..... ned by private management cannot be granted exemption from property tax. 9. It is submitted that the tax is on the 'property' that is put to use for educational purposes. It involves both 'use' and ownership. The term 'use' needs to be considered in a larger perspective as it includes purpose and objective as well. The properties of the educational institutions in the private/self financing sector cannot be held to be exempted from the tax which adds to revenue of the Local Self Government Institutions. As outlined in Section 207(1)(b) & Section 235(b), those are the buildings owned by the Government, aided or functioning with the financial assistance of the Government which are exempted. It is submitted that those are supported by the Government and their exemption from the payment of property tax cannot be held to be invalid. 10. It is submitted that it can be said that buildings and hostel constructed and maintained by using public money are exempted from payment of property tax and the people as a whole are the beneficiary of this exemption. If property tax is imposed on buildings and hostels owned by the Government, that amount also will be met from .....

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..... ings of which the owner is under poverty line etc. also are exempted from property tax. 5. The main issue to be considered in these writ petitions is whether the exemption provision under the Acts is discriminatory in its grant of exemption to only such buildings that are used for educational purposes and under the ownership of educational institutions owned by the Government or aided or functioning with the financial assistance from the Government. To answer the said issue, it would be apposite to go through the decided case laws to understand the principles that are applied by courts while examining a challenge to a statutory provision on the ground of discrimination. In the decision in Ram Krishna Dalmia v. Justice S.R. Tendolkar [1959 SCR 279], the Court enumerated the principles thus: … The principle enunciated above has been consistently adopted and applied in subsequent cases. The decisions of this Court further establish - (a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself; .....

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..... erently, it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine : vide Purshottam Govindji v. B. N. Desai, 1955-2 SCR 887: ( (S) AIR 1956 SC 20) and K.T. Moopil Nair v. State of Kerala, 1961- 3 SCR 77 : (AIR 1961 SC 552). But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse element, permit a larger discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of "wide range and flexibility" so that it can adjust its system of taxation in all proper and reasonable ways. (8) ….............................. …........................... …............................ (9) &h .....

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..... the anvil of Article 14 of the Constitution. The observations of the Court are at paragraphs 53 to 56, 66, 67 and 71, and are as follows: 53. The equal protection of the laws is a pledge of the protection of equal laws. But laws may classify. And the very idea of classification is that of inequality. In tackling this paradox the Court has neither abandoned the demand for equality nor denied the legislative right to classify. It has taken a middle course. It has resolved the contradictory demands of legislative specialization and constitutional generality by a doctrine of reasonable classification. [See Joseph Tussman and Jacobusten Brook The Equal Protection of the Law, 37 California Rev 341] . 54. A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase similarly situated mean? The answer to the question is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons who are similarly situated with respect to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement .....

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..... relating to economic and tax matters? Should it, by its judgment, force the legislature to choose between inaction or perfection? xxx xxx xxx 66. That the legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry, that exact wisdom and nice adaption of remedies cannot be required, that judgment is largely a prophecy based on meagre and uninterpreted experience, should stand as reminder that in this area the Court does not take the equal protection requirement in a pedagogic manner [ See General Theory of Law and State , p. 161] . 67. In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the numbe .....

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..... of the times and all other facts which may be existing at the time of the legislation. Similarly, it cannot be presumed that the administration of a particular law would be done with an evil eye and an unequal hand . Finally, any person invoking Article 14 of the Constitution must show that there has been discrimination against a person who is similarly situate or equally circumstanced. In the case of State of U.P. v. Deoman Upadhyaya [AIR 1960 SC 1125 : 1961 (1) SCR 14 : 1961 (2) SCJ 334] Subba Rao, J., observed as follows: No discrimination can be made either in the privileges conferred or in the liabilities imposed. But these propositions conceived in the interests of the public, if logically stretched too far, may not achieve the high purpose behind them. In a society of unequal basic structure, it is well-nigh impossible to make laws suitable in their application to all the persons alike. So, a reasonable classification is not only permitted but is necessary if society should progress. 9. In Venkateshwara Theatre v. State of A.P. [(1993) 3 SCC 677], where the legislature concerned had prescribed different rates of tax by classifying theatres into different classes, namely, ai .....

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..... t the same consequence as in a case where the law makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law. 10. In Union of India and Others v. N.S. Rathnam and Sons - [(2015) 10 SCC 681], while upholding the decision of a Division Bench of the High Court, which held that when the benefit of a concessional rate under the Customs Act is restored by a notification, there cannot be any discriminatory treatment to some persons who fall in the same category, it was observed as follows at paragraphs 13 and 14 of the said judgment: 13. It is, thus, beyond any pale of doubt that the justiciability of particular Notification can be tested on the touchstone of Article 14 of the Constitution. Article 14, which is treated as basic feature of the Constitution, ensures equality before the law or equal protection of laws. Equal protection means the right to equal treatment in similar circumstances, both in the privileges conferred and in the liabilities imposed. Therefore, if the two pers .....

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..... an intelligible differentia which distinguishes them from other operational creditors, nor is it possible to say that such classification is palpably arbitrary having no rational relation to the objects of the Code. It was vehemently argued by learned counsel on behalf of the Petitioners that if at all real estate developers were to be brought within the clutches of the Code, being like operational debtors, at best they could have been brought in under this rubric and not as financial debtors. Here again, what is unique to real estate developers vis-à-vis operational debts, is the fact that, in operational debts generally, when a person supplies goods and services, such person is the creditor and the person who has to pay for such goods and services is the debtor. In the case of real estate developers, the developer who is the supplier of the flat/apartment is the debtor inasmuch as the home buyer/allottee funds his own apartment by paying amounts in advance to the developer for construction of the building in which his apartment is to be found. Another vital difference between operational debts and allottees of real estate projects is that an operational creditor has no in .....

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..... o trigger the Code on the real estate developer s own information given on its webpage as to delay in construction, etc. It is these fundamental differences between the real estate developer and the supplier of goods and services that the legislature has focused upon and included real estate developers as financial debtors. This being the case, it is clear that there cannot be said to be any infraction of equal protection of the laws. 12. On an analysis of the precedents referred above, and applying the principles discernible therefrom to the facts in the instant cases, it can be seen that the tax concessions envisaged under the Acts are intended to provide a level playing field for Government/aided educational institutions on the one hand and the self-financing educational institutions on the other. Tax concessions have been granted to the former category, keeping in mind the role played by them in discharging the sovereign obligation of the State to provide education, despite the economic limitations faced by them. It is trite that Government and Government Aided Educational institutions are subjected to a different system of control when compared to Unaided Educational instituti .....

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..... he public money and it can be said that buildings and hostels constructed and maintained by using public money is exempted from payment of property tax and the people, as a whole, is the beneficiary of this exemption. If property tax is imposed on buildings and hostels owned by the Government, that amount also will be taken from the public fund. More importantly, exemption is given to the institutions, functioning under the administrative control of the Government and to which Governmental auditing of funds and expenditure is made compulsory, whereas, the case of self-financing institutions, such control and auditing of funds are absent. 9. Secondly, the expression 'self financing' itself shows that such institutions are having their own fee structure, which cannot be compared with fees of a Government College. Though, it is regulated and controlled by the above referred Statute, it is much higher than that of Government Colleges, wherein a nominal fee alone is collected from the students and certain rooms are reserved for students from socially and economically backward classes, in the hostels owned by the Government. In my view, this classification on the aforesaid basis .....

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..... exemption granted to the institutions owned or aided and administered by the Government. 14. I am in complete agreement with the aforesaid findings of the learned Single Judge as regards the absence of discrimination and hence, for the reasons stated in the said judgment, read together with the reasons given in this judgment, I dismiss the writ petitions in their challenge against the constitutional validity of Section 207(b) of the Kerala Panchayath Raj Act/Section 235(b) of the Kerala Municipality Act. While with the above declaration, the challenge to the assessment orders, demand notices and revenue recovery notices would also have to be dismissed, I note that there could be cases where assessees want to prefer statutory appeals against the quantification of their tax liability. I therefore quash the assessment orders, demand notices and revenue recovery notices impugned in these writ petitions only for the limited purpose of enabling the respondent Panchayats/Municipalities to issue fresh assessment orders and demand notices to the petitioners showing the basis of computation of tax and interest therein. On receiving fresh assessment order and demand notices, the petitioners m .....

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