Kerala Municipality Act | No U/S 235 property tax exemption for construction given on rent simply because rent is used for charity: High Court

The Kerala High Court has recently ruled that a rented property will not be exempt from property tax under Section 235 of the Kerala Municipality Act simply because the rent received is used for charities.

After going through the layout, Judge Shaji P. Chaly observed that the property tax exemptions applied only to buildings used for the specified proposals, while pointing out that what is exempt under them was the building and not the rent received for the building, even if used for charitable purposes.

“It can be seen that the exemption can only be granted to buildings which are used for the purposes mentioned, under section 235 of the 1994 Act. In other words, no other building is entitled furthermore, the explanation of section 235 quoted above, makes it clear that the exemption granted under this section does not extend to buildings whose rent is paid by the landlords and to dwelling houses not being attached to educational establishments and to dwelling houses attached to libraries.”

The Court added that the mere fact that a trust owns a building in itself is not sufficient grounds to obtain a property tax exemption under section 235.

“The mere fact that a trust is the owner of the building is not in itself a circumstance enabling the trust to obtain an exemption from property tax under section 235 of the 1994 Act, even if it undertakes a charitable work from the income generated by the building or buildings it owns.

The petitioner was a trust and the owner of certain buildings within the boundaries of the Kochi Corporation. According to the petitioner, one of these buildings was exempted from the payment of property tax by the company from 24.8.1990.

The case projected by the petitioner was that the trust works for the betterment of the lower strata of society and it was in consideration of this aspect that the exemption from payment of property tax on the building was granted to the trust. .

The petitioner’s grievance was that the trust had received a formal notice from the Corporation obliging it to pay the property tax of the said building. Contesting this formal notice, the applicant seized the High Court.

Lawyer Sajan Mannali appeared for the applicant and submitted that the formal notices cannot be upheld under the law, in view of the fact that the applicant was granted exemption from the payment of property tax, as provided for in the 235.

Permanent Council DG Vipin appeared for the respondents and argued that the Company conducted an inspection on the basis of a complaint received and found that the building was used as a hall and received rent. As a result, the tax exemption granted to said building was cancelled.

The Court found that, as acknowledged in the Responding Affidavit, the Claimant was collecting rent on the buildings, the entirety of which was apparently used for charitable purposes. However, Judge Chaly held that the construction of the trust did not qualify for an exemption because it was not used for charitable purposes and therefore did not fall under any of the categories mentioned in section 235.

The Court further added that the granting of the exemption from the payment of property tax is not an empty formality.

“Such an exemption can only be granted to the owner of the building establishing before the authority that the building is wholly used for charitable or other purposes in accordance with the law prescribed by the 1994 Act.”

Thus, the judge concluded that even if an exemption were granted to the building, it would not prevent the Company from canceling it if the truth is otherwise discovered.

Accordingly, the motion was dismissed.

Case title: Panayppilly Sree Narayana Guruswami Trust c. Corporation of Kochi & Ors.

Quote: 2022 LiveLaw (Ker) 415

Click here to read/download the order

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