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Electronics Corporat... v. The Secretary, Reven...

Andhra Pradesh High Court

Jul 13, 1982

Judgment

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Opinion Summary — Jeevan Reddy, J.

Factual and Procedural Background

This matter concerns a challenge to demands for non-agricultural assessment issued under the Andhra Pradesh Non-Agricultural Lands Assessment Act, 1963 (as amended by Andhra Pradesh Act No. XXVIII of 1974). The Act, as amended, altered the definition of "owner" (sec. 2(j)) and other provisions; the charging provision is sec. 3.

The petitioner is Electronics Corporation of India Ltd., Moula Ali, Hyderabad. A demand notice was served on the petitioner for Rs. 11,98,826.32 for the years 1974-75 to 1978-79 and Rs. 1,91,189.68 for the years 1970-71 to 1973-74, said to be on account of the non-agricultural tax under the Act. The petitioner filed the present writ petition challenging those demands.

The petitioner states it is a lessee of land that originally belonged to the State Government and was granted to the Department of Atomic Energy (Union of India), and that the Department in turn leased an extent of land (280.25 acres) to the petitioner for establishing plant and machinery. The lease is admitted in the respondents' counter-affidavit and therefore treated as an admitted fact by the Court.

The core procedural posture is a writ petition seeking to quash the demand; respondents filed a counter-affidavit admitting the lease but defending the tax demand. The court considered the constitutional issue raised under Article 285 and the statutory scheme of the Andhra Pradesh Act and gave directions about filing an appeal to the appellate authority and stayed the demand pending that appeal.

Legal Issues Presented

Whether the Andhra Pradesh Non-Agricultural Lands Assessment Act, 1963 (as amended) can be applied to land owned by the Union of India but leased to a private lessee (i.e., whether Article 285 bars the State from levying the non-agricultural tax in such circumstances).
Whether the levy under section 3(1) of the Act is a tax upon the property of the Union or upon the interest of the lessee/occupier (in light of the inclusive definition of "owner" in section 2(j)).
Whether the non-agricultural assessment can be levied only on that portion of land actually used for industrial, commercial or other non-agricultural purposes (i.e., the scope of "user" as the basis for assessment).

Arguments of the Parties

Writ Petitioner (Electronics Corporation of India Ltd.)

The petitioner is a lessee of land which belongs to the Union of India (granted to the Department of Atomic Energy by the State and leased by the Department to the petitioner).
The petitioner's primary contention is that property of the Union cannot be taxed by a State legislature under Article 285 of the Constitution; therefore the Andhra Pradesh Act cannot be applied so as to make a demand on the petitioner in respect of Union-owned land.
The petitioner described the physical use of the demised land (areas covered by buildings, roads, land for future expansion and some land used for agriculture) to contest the extent and nature of the land subject to assessment.

Respondents / State Government

The respondents (through the Government Pleader) accepted the factual position of grant to the Union and the lease to the petitioner but argued the statutory scheme treats certain lessees as "owner" for purposes of assessment (sec. 2(j)).
They contended the levy is not upon the property of the Union but upon the interest of the lessee/occupier in the land; therefore Article 285 does not bar the State from levying the assessment under sec. 3(1).
Implicitly, respondents relied on the statutory language that assessment is attracted by the user of the land for industrial, commercial or other non-agricultural purposes (i.e., the tax attaches to the user/interest and not the underlying fee of the Union).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Smith v. Vermilion Hills Rural Council, (1916) 2 A.C. 569 (Privy Council)	Where a taxing statute defines "owner" or "land" so as to include persons holding an interest by lease, the statute can be read as applying to the lessee's interest and not as a tax on Crown property; statutes should be construed so as not to nullify constitutional protections for Crown property.	The Court relied on this decision to support the view that the Andhra Pradesh Act's inclusive definition of "owner" permits taxation of the lessee's interest rather than the Union's fee simple; thus Article 285 is not attracted when assessment is imposed on the lessee's interest.
City of Montreal v. Attorney General for Canada, (1923) A.C. 136 (Privy Council)	Taxation directed at occupants/lessees "as if they were the actual owners" can be valid provided it is an assessment on the occupier's interest during occupancy and does not legally alter incidence to become a tax on Crown property; the essential test is whether the tax is imposed on the occupier's interest.	The Court adopted this reasoning to conclude that the non-agricultural assessment under sec. 3(1) is on the lessee's interest (deemed "owner" by sec. 2(j)) so long as the occupancy/lease continues for commercial/industrial or other specified non-agricultural purposes.
Calgary and Edmonton Land Co. v. Attorney-General of Alberta, (45 Can. S.C.R. 170) (referred in Privy Council decisions)	Analogous principle that provincial/municipal taxing statutes should be construed as applying to interests acquired by private persons under lease from the Crown rather than to Crown's immovable property itself.	The decision was cited (through the Privy Council's discussion) as supportive authority for construing taxing statutes to reach the lessee's interest; the Court relied on the chain of authority endorsing that approach.
W.P. 3494 of 1978 and batch (decided 10-6-1982; reported AIR 1983 Andhra Pradesh 234)	Principle that non-agricultural tax can be levied only upon that land which is actually used for the specified purposes (industrial, commercial or other non-agricultural purposes including residential purpose).	The Court followed this precedent to direct that the actual extent of land used for specified purposes and the appropriate rate must be determined by assessing authorities or in an appeal; it directed that the petitioner may file an appeal and that the demand remain stayed pending disposal.

Court's Reasoning and Analysis

The Court's reasoning proceeds from statutory text, definition and constitutionality to application:

The Court examined the amended Act's language, notably the inclusive definition of "owner" in section 2(j) which expressly includes a lessee of land owned by the central government where the lease is for a commercial, industrial or other non-agricultural purpose. The Court treated that as a statutory deeming provision making the lessee the "owner" for purposes of the assessment provisions.
The charging section, section 3(1), levies assessment in respect of non-agricultural land that is used for industrial, commercial or other specified non-agricultural purposes and declares that the assessment shall be collected "from the owner of such land." The Court emphasized that the assessment is attracted by the user — i.e., the use of land for specified purposes — not by the mere fact of ownership of the underlying fee.
Construing those provisions together, and applying the inclusive statutory definition, the Court concluded that where the central government has leased land for industrial/commercial or other non-agricultural purposes, the levy under section 3(1) operates on the lessee's interest (the interest that attracts the assessment) rather than on the property of the Union. Thus Article 285's bar on taxing Union property is not engaged because the tax is not directed at the Union's property as such.
To support that statutory construction and its constitutional conclusion, the Court relied on Privy Council authorities (Smith and City of Montreal) that held municipal/provincial taxing statutes may validly apply to a lessee's interest when the statute's scheme and definitions indicate taxation of the occupant's interest rather than of Crown-owned land itself. The Court expressly said it was inclined to agree with the respondents' reading and adopted the reasoning of those decisions.
The Court further clarified (following its own prior decision in W.P. 3494 and batch) that the non-agricultural tax is leviable only on that portion of the land actually used for the specified non-agricultural purposes. Determination of the extent of land so used and the applicable rate(s) is a matter for the assessing authorities (or appellate authority on appeal).
Based on the admitted facts and the legal analysis, the Court directed a remedial and procedural course: if the petitioner files an appeal within one month before the appellate authority against the impugned demand, the appellate authority shall entertain and decide the appeal on merits; pending disposal of such appeal, the impugned demand shall remain stayed.

Holding and Implications

Holding:

The Court's core ruling is that the State may levy and collect the non-agricultural assessment under section 3(1) of the Andhra Pradesh Act from the petitioner in its capacity as lessee, because the Act's inclusive definition of "owner" treats a lessee of Central Government land (where the lease is for commercial, industrial or other non-agricultural purpose) as the "owner" for assessment purposes. Consequently, Article 285 of the Constitution does not prevent the levy in such circumstances, since the assessment operates on the lessee's interest and not on the property of the Union per se.

Direct effects and procedural disposition:

The Court directed that if the petitioner files an appeal within one month before the appellate authority, the appellate authority shall entertain and decide the appeal on merits.
Pending disposal of that appeal, the impugned demand is ordered to remain stayed.
The writ petition is dismissed subject to the above directions.
No order as to costs was made; the Court recorded Government Pleader's fee as Rs. 500.00.

Broader implications:

The decision applies established principles (as reflected in cited Privy Council authority and the Court's earlier ruling) that a State's taxing statute can validly operate against a lessee's interest in Crown/Union land when the statute's language treats such lessees as owners for taxation purposes and when the assessment is in truth directed at the tenant's interest arising from user for specified purposes. The Court did not purport to lay down a novel precedent that departs from those authorities; it followed earlier decisions and clarified that assessment is limited to the extent of land actually used for the specified non-agricultural purposes.

Order accordingly.

Show all summary ...

Jeevan Reddy, J.:-

(1) Andhra pradesh non - agricultural lands assessment act. 1963 was enacted by the state of andhra pradesh to provide for the levy of assessment on lands used for non - agricultural purposes. It has been amended by the andhra pradesh act (no. Xxviii) to 1974, which amendment act came into force on 1 - 7 - 1974 the amendment act amended the definition of owner" in cl. (j) of sec. 2 along with certain other provisions of the act. The definition of "owner" reads as follows: -

"owner includes any person for the time being receiving or entitled to receive whether on his own account or as agent trustee guardian manager, or receiver for another person or for any religious educational or charitable purpose rent or profits for the nonagricultural land or for the structure constructed on such land in respect of which the word is used and also includes in respect of the land owned by the state government or the central government. (i) a lessee. If the land has been leased out by the government for any commercial industrial or other non - agricultural purpose; and (ii) a local authority, if the land is vested in the local authority and used for any commercial industrial or other non - agricultural purpose deriving income therefrom"

We may also notice the definition of occupier and non - agricultural land continued in cls. (i) and (g) respectively of sec. 2: -

"occupier includes - (1) any person for the time being paying or liable to pay to the owner rent or any portion of the rent for the non - agricultural land or for the structure constructed on such land or part of such land or structure. In respect of which the word is used or damages on account of the occupation of such land structure or part : and (ii) a rent - free occupant"

"non - agricultural land" menas land other than the land used exclusively for the purpose of agriculture but does not include the land was exclusively for include the land used exclusively for - (i) cattle sheads; (ii) hay - ricks". Section 3 if the charging section it reads to the following effect: -

"3. Levy of assessment of non - agricultural lands. (i) in the case of non - agricultural land in the local area with the population specified in col. (1) of the schedule there shall be levied and collected by the government for each fasli year commencing on the first day of july, from the owner of such land an assessment at the rate specified in col (2) where the land is used for any industrial purpose. At the rate specified against it in col. (3) where the land is used for any commercial purpose and at the rate specified against it in col. (4) where the land is used for any other non - agricultural purpose including residential purpose; provided that where assessment is levied and collected in respect of such land under this act no land revenue shall be payable in respect of that land and nothing contained in any enactment, regulation, order bye - law. Rule, scheme notification. Or other instrument having the force of law, in operation immediately before the commencement of this act relating to the assessment levy and collection of land revenue on non - agricultural land shall apply in respect of that land. Except as respect things done or omitted to be done before the commencement of the act. Provided further that any amount payable on such land at the commencement of this act towards the arrears of land revenue may be recovered under the provision of the andhra pradesh revenue recovery act 1864. Explanation: - where the land is used for any industrial of commercial purpose and also for any other nonagricultural purpose such land shall be assessed at the rates specified in col. (2) or col (3) of the schedule as if it were used solely for any industrial or commercial purpose as the case may be. (2) notwithstanding anything contained in sub - sec. (1) where the assessment leviable on any non - agricultural land under this act is less than the land revenue alone shall be payable on that land"

(2) The land of levy is provided in the schedule to the act and sec. 6 8 empowers the state government to amend the same from time to time. Indeed the schedule was also amended by the aforesaid amendment act.

(3) The writ petitioner herein is the electronics corporation of india ltd. , moulali, hyderabad. A notice of demand was served upon by the petitioner calling upon it to pay a sum of rupees 11,98,826 - 32 ps. Towards the years 1974 - 75 to 1978 - 79, and a further sum of rupees 1, 91. 189 - 68 ps. For the years 1970 - 71 to 1973 - 74, on account of the nonagricultural tax due under the act. The present writ petition is filed questioning the said demand.

(4) The contention of the writ petitioner is that it is a lessee of the land which belongs to the union of india and since the property of the union of india cannot be taxed by a state legislature the andhra pradesh non - agricultural lands assessment act. 1963 cannot apply to the property owned by the union of india and accordingly no demand can be made upon the petitioner, which is a lessee of the union of india. It is stated that an area of approximately 1000 acres was granted by the state government to the department of atomic energy government of india and the department of atomic energy in turn leased out an extent of 280 - 25 acres to the petitioner - corporation for establishing its plant and machinery. It is further contended, that out of the extent granted to the petitioner an extent of 29 acres is covered by buildings; an extent of 12 acres is covered by buildings; an extent of 12 acres by roads and the rest of the area is meant for future expansion it is also submitted that an extent of 14. 25 acres is being used for agricultural purposes.

(5) In the counter - affidavit filed by the respondents the fact of grant to the union of india, atomic energy department and the lease by the atomic energy department to the writ petitioner, have not been denied. We shall therefore have to take the said facts as true and proceed on that basis.

(6) Article 285 of the constitution reads as follows: -

"285. (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 cl. (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"

This article corresponds to sec. 154 of the government of india act, 1935. Cl. (1) of art. 285 declares that the property of the union shall be exempt from all taxes imposed by a state except in so far as the parliament may be law provide otherwise the contention of sr. P. R. Ramachandra rao, the learned counsel for the writ petitioner, is that inasmuch as the property upon which the non - agricultural tax is being levied is the property of the union the state legislature is not competent to levy and tax thereon. The is disputed by sri n. Subba reddy, the learned government pleader with reference to the language of sec. 3 read with the definition of owner in the act his contention is that the levy is not upon the property of the union, but is upon the interest of the lessee/occupier and that therefore the bar in art. 285 has no application. We are inclined to agree with mr. Subba reddy.

(7) The definition of the expression "owner" in cl. (j) of sec. 2 is an inclusive definition. It includes (j) any person for the time being receiving or entitled to receive whether on his own account or as agent. Trustee guardian manager or receiver. For another person or for any religious educational. Or charitable purpose rent or profits for the non - agricultural land or for the structure constructed on such land in respect of which the word is used: (ii) a lessee of the land owned by the state government or the central government. Provided the lease has been granted for any commercial, industrial or other non - agricultural purpose; and (iii) a local authority. If the land is vested in the local authority and is used for any commercial industrial or other nonagricultural purpose deriving income therefrom.

(8) Now coming to the charging section sec. 3 91) levies the assessment on the land used for industrial commercial or other non - agricultural purpose, including residential purpose, and declares that it shall be collected from the owner of such land. It is significant to notice that the assessment is not levied on the non - agricultural land as such but only on such non - agricultural land as is used for industrial commercial or other non - agricultural purpose, including residential purpose. What attracts the assessment is the user for specified purposes. The expression owner occurring in section 3 (1) must be understood it would follow that in clause of lands owned by the central government the levy is upon the lessees interest, provided the land has been leased out by the central government for any commercial, industrial or other non - agricultural purpose and to the extent it is used for any of those purposes. Looked at from this angle the tax or assessment as the case may be, is not levied upon the property owned by the central government but upon the interest of the lessee in such land. The two privy council decisions which we shall presently refer to deal with almost a similar situation and as we shall point out presently, the principle of those decisions clearly governs the present case.

(9) The first decision is in smith v. Vermillion hills rural council (1916) 2 ac 569. Sec. 125 of the british north american act, 1867 provided that "no lands or property belonging to canada or any province shall be liable to taxation". The appellant was granted a lease by the crown in respect of certain lands for grazing purposes. The lands leased were situated within a local improvement district, which was subsequently organized as a municipality. Under a statute of the province the municipality levied a tax upon "every owner or occupant in the district for land owned or occupied by him" owner was defined to include any person who has any right title or estate whatsoever or any interest other than that of a mere occupant in any land "occupant" was defined to include the inhabitant occupier of any land or, if there be no inhabitant occupier, the person entitled to the possession thereof, and the lease holder or holder under agreement for sale. And any person having or enjoying in any way or for any purpose whatsoever, the use of the land "land" was defined to include, inter alia any estate or interest therein. The appellant questioned the levy on the ground that if amounts to a levy on the ground that if amounts to a levy upon the land owned by the dominion of canada and was therefore violative of s. 125 of the british north - america act, 1867 (constitution of canada). The specific contention of the appellant was that the tax was levied upon the land itself which belongs to the crown and not on any individual who has interest in it while the contention of the municipality was that the tax was levied upon the interest of the appellant as a lessee of the land, and not on the land itself a sowned by the crown. The principle of the decision of the privy council is to be found in the following observations:

"following their decision in the analogous case from alberta of calgry and edmonton land co. V, attorney general of alberta (45 can scr 170) , where the scheme and definitions in the local improvement act of that province were substantially the same as those in the present case, the supreme court of canada held that the taxing statute of baskatchawan must be read in accordance with a well known principle as not applying to the crown or its lands. But they thought that there was no reason why it should not be treated as applying to an interest acquired by a private person under a lease from the crown. The definitions of land owner and occupant make it easy to interpret the expression land as excluding any interest which still remains in the crown. Their lordships agree with this reasoning. They are of opinion that all though the appellant is sought to be taxed in respect of his occupation of land the fee of which is in the crown. The operation of the statute imposing the tax is limited to the appellants own interest. It appears to them that not only can the statutes be read as meaning this and no more than this when they use the word "land" but that they ought to be so read in order to make them consistent with s. 125 of the british north america act 1867 and not a nullity. "

(10) A similar case again arose in city of montreal v. Attorney general for canada (1923) ac 136 again from canada the facts of which case are very much similar to the case before us. Art. 362 - a of the city of montreal charter. Provided that persons occupying for commercial or industrial purposes buildings or lands belonging to his majestry or to the federal and provincial government or to the board of harbour commissioner. Shall be taxed as if they were the actual owners of such immovables and shall be held to pay the annual and special assessments. Taxes and other municipal dues

". In that case the minister of railways and canals for canada representing the crow granted a lease in respect of certain crown lands in the city of montreal to one andhrew baile, for a period of five years. This property was subjected to the tax aforesaid and the same was demanded. When the taxes demanded were not paid an action was laid which though not defended by the lessee, was contested by the attorney general for canada who contended that art 362 - a was ultra virus the quebec legislature and is unconstitutional in so far as it applied to the occupants of lands belonging to the crown which are exempt by virtue of s. 125 of the british north america act. When the matter ultimately came up before the privy council. It referred in the first instance to the relevant provisions of the charter of the city of montreal and then noted that art. 361 enacts that all immovable property situated within the limits of the city shall be liable to taxation and assessment, exempt therefrom. Admittedly there was no exemption in the act in favour of the crown lands leased out to the subjects. The contention of the attorney general for canada however was that the municipality is in effect seeking to tax the property of the crown indirectly by levying a tax upon the occupants/lessees and that such taxation is ultra virus its power the attorney general however agreed that if the tax is imposed in such a form that it is in reality a taxation on the interest of the tenant or occupant and not on the property of the crown such a law would not be ultra virus the provincial legislature; in view of the earlier decision of the privy council in smiths case (1916 - 2 ac 569) (supra) the following passage in the judgment brings out the essence of the decision: the question raised in this appeal, is, however, in the main dependent on the further enactment that the occupants shall be taxed as if they were the actual owners of immovables and shall be held to pay the annual and special assessments the taxes and other municipal dues. The effect of this is that the occupants are made liable to pay on an annual assessment, not to exceed 1 per cent of the capitalized value of the occupied property. The method of assessment determines the amount for which an occupier is liable during his occupancy, but does not alter the incidence of the taxation or transfer the incidence from the occupant to the owner. The ultimate incidence of taxation imposed on tenants, as the occupants of lands is a matter on which economic experts have expressed different opinions. If however municipal taxation is to be regarded as ultra virus on the ground that the ultimate incidence of taxation or some portion of it, may or will fall on the owner it is difficult to see in what from such taxation could be validly imposed. The question to be determined is simpler one whether the taxation which is impeached, is assessed on the interest of the occupant and imposed on that interest. In the opinion of their lordships the interest of an occupants consists in the benefit of the occupation to him during the period of his occupancy and does not depend on the length of his yenure. The annual assessment to which objection is taken is an assessment for which the tenant is only liable so long as his occupancy continues and which ceases so soon as his occupancy is determined if on the cessation of his tenancy the crown chooses to leave the land unoccupied or to occupy the land by an official acting in his official capacity, there would be no further liability to taxation under art. 362 - a of the charter affecting either the land or the crow."

we respectfully agree with the above reasoning. The assessment of nonagricultural land tax under s. 3 (1) is made in this case not upon the property of union of india. (central government being the owner of the property) but upon the interest of the lessee under the central government as per the definition of the word owner under s. 2 (j) of the a. P. Non - agricultural land assessment act 1963 lessee under the central government is deemed to be the owner for the purpose of assessment of tax. Art. 285 is therefore not attracted in such a case. The state government can levy and collect the tax from the petitioner under s. 3 (1) of the said act only so long as he continues as lessee of the central government property. We make it clear that the tax can be levied only if the lease for any commercial industrial or other non - agricultural purpose. Of course in this case, there is no dispute that the lease is for an industrial purpose.

(11) We must further make it clear, following our decision in w. P. 3494 of 1978 and batch disposed of on 10 - 6 - 1982: (reported in air 1983 andh pra 234) that the non - agricultural tax can be levied only upon that land which is, actually used for any of the specified purposes. Viz commercial industrial or any other non - agricultural purpose including residential purpose. What extent of land is so used, and which is the appropriate rate applicable to the petitioner, is a matter for the assessing authorities to decide. Having regard to the facts of this case, and following the similar directions given by us in the aforesaid batch of writ petitions, we direct that if the petitioner herein files an appeal within a period of one month from today before the appellate authority against the demand impugned herein the appellate authority shall entertain the same and shall dispose of the same on merits in such an appeal it shall be open to the appellants to establish the actual extent of the land used for the aforesaid purposes. Which rate or rates mentioned in the schedule to the act are applicable can also be gone into and decided in such an appeal pending disposal of the appeal, we direct that the demand impugned herein shall remain stayed.

(12) Subject to the above directions, the writ petition is dismissed; but, in the circumstances, we make no order as to costs. Government pleaders fee rs. 500. 00 only.

(13) Order accordingly.