State Of Kerala And Others v. A.P. Mammikutty .

Dipak Misra, J.— The respondent invoked the jurisdiction of the High Court of Kerala at Ernakulam under Article 226 of the Constitution assailing the demand of luxury tax imposed on a building that consists of 13 residential apartments. The Tahsildar who is the competent statutory authority under the Kerala Building Tax Act, 1975 (for brevity “the Act”) imposed luxury tax on the building on the base of Section 5-A of the Act vide order dated 1-10-2003 in Reference No. B4-6435 of 2003 whereby he had measured the plinth area of all the residential apartments and computed the tax treating the same as a singular building.

2. The learned Single Judge opined WP (C) No. 19582 of 2004 that the levy of luxury tax of the entire building on the owner was not permissible under the Act, for the scheme is to levy luxury tax for each residential apartment, plinth area of which is in excess of the limit provided under Section 5-A of the Act. It has been further ruled by the learned Single Judge that if the plinth area of each residential apartment was below 278.7 sq m, there was no scope of levying luxury tax. And if the Tahsildar concerned had found that the plinth area of the residential apartments in toto was above 278.7 sq m, luxury tax for such apartments could be demanded. The writ petition was disposed of with the direction that the Tahsildar would verify the plinth area of each residential apartment and levy luxury tax only for such of the residential apartment, plinth area of which was in excess of the limit provided under Section 5-A of the Act.

3. The relevant part of the opinion expressed by the learned Single Judge is reproduced below:

“Even though the petitioner is the owner of the entire building, luxury tax is leviable only if the plinth area of each residential apartment is in excess of the limit provided under Section 5-A of the Kerala Building Tax Act. The Tahsildar has demanded luxury tax by clubbing the plinth area of various residential apartments. This is not permissible under the Act and the scheme is to levy luxury tax for each residential apartment, plinth area of which is in excess of the limit provided under Section 5-A of the Act. If plinth area of each residential apartment is below 278.7 sq m then there is no scope for levying luxury tax. However, if the Tahsildar on inspection finds that the plinth area of any residential apartment is above 278.7 sq m, then he can demand luxury tax for such of the apartment or apartments.”

4. Being aggrieved by the aforesaid judgment and order passed by the learned Single Judge dated 12-6-2008 WP (C) No. 19582 of 2004 the State of Kerala and its functionaries preferred Writ Appeal No. 2150 of 2008. The Division Bench referred 2013 SCC OnLine Ker 20916 to Section 5-A of the Act, dictionary clause contained in Section 2, especially, Section 2(k) and Explanation 2 to clause (e) of Section 2 and came to hold that if there is one building having more than one floor and they are interconnected with each other and if one floor is of no use without the existence of another floor, then it has to be considered as one building. The Division Bench further proceeded to state that as there were 13 independent flats or apartments and each of the building could be used on its own without reference to the other apartment, the question of taking the measurement of another building to calculate the plinth area would not arise.

5. The conclusion recorded by the Division Bench reads as follows: (A.P. Mammikutty case 2013 SCC OnLine Ker 20916, SCC OnLine Ker para 5)

“5. … For the purpose of calculating the plinth area, if the intention of the legislature was to adopt the entire Explanation 2 to clause (e) even with reference to the proviso to Section 2(k) there was no need to mention the aggregate area where a building has more than one floor. The very reference to more than one floor of a building would explicitly mean, if read along with the proviso that whether the building is a single unit so far as functional use is concerned, or separate units, so far as functional utility of the building. If there is one building having more than one floor and they are interconnected with each other, in other words, if one floor is of no use without the existence of another floor, then it has to be considered as one building. Therefore, if there are 13 independent flats or apartments and if each of the building could be used on its own without reference to the other apartment, the question of taking the measurement of another building to calculate the plinth area would not arise.”

6. The singular question that emanates for consideration is whether under the provisions of the Act, the Revenue Authorities are entitled to levy the demand of luxury tax from the respondent by clubbing the plinth area of the apartments which are thirteen in number or the plinth area of the individual apartment should be taken into consideration for levy of the said impost.

7. Relying on Section 2(e) of the Act, it is contended by the learned counsel for the State that on a plain reading of Explanation 2, it is vivid that a building consisting of different apartments or flats can be deemed to be a separate building, if two conditions, namely, that the apartments or flats are owned by different persons; and the cost of construction of the building has been met by all such owners jointly, are satisfied. The submission of the learned counsel for the appellants is that the ownership of all the 13 apartments rests with the respondent himself and the cost of construction having been singularly borne by him, the twin conditions enshrined under Explanation 2 are not satisfied, and, therefore, it is impermissible to treat the individual apartments of the building as different buildings. The learned counsel would emphasise that the situation envisaged under Explanation 2 to Section 2(e) would arise in a situation where the apartments are pre-booked by the buyers and whole consideration is paid in advance to the builder thereby satisfying the condition of separate ownership and joint meeting of costs. Reliance has been placed on Section 5-A of the Act and other definitions under Section 2, and on that basis, it is urged that the plinth area as prescribed is far in excess of the same inasmuch as the residential portion of the building is 590.4 sq m.

8. The submission of the learned counsel for the respondent is that Explanation 2 to Section 2(e) has no application for the levy of luxury tax, for it is only applicable for the purpose of levy of building tax. It is argued by him that levy of luxury tax is only for a residential building and the reference to building in Explanation 2 in Section 2(e) does not apply to a residential building. The learned counsel has drawn distinction between “residential building” and a “building” by drawing our attention to Section 2(l) of the Act. It is propounded by him that none of the 13 apartments individually have the plinth area of more than 278.7 sq m and hence, the proviso to Section 5-A of the Act is not applicable to the present case. It is contended that demand has to be made for the residential apartments and not for the owner who is holding the whole unit. Elaborating the said stand, it is submitted that there cannot be clubbing of the residential apartments together for the purpose of imposition of luxury tax.

9. To appreciate the rival submissions, it is necessary to extract the relevant part of Section 2(e), which defines “building”. It is as under:

“2. (e) ‘building’ means a house, outhouse, garage or any other structure, or part thereof, whether of masonry, bricks, wood, metal or other material but does not include any portable shelter or any shed constructed principally of mud, bamboos, leaves, grass or thatch or a latrine which is not attached to the main structure.

Explanation 2.—Where a building consists of different apartments or flats owned by different persons and the cost of construction of the building was met by all such persons jointly, each such apartment or flat shall be deemed to be a separate building;”

(emphasis supplied)

10. Section 2(k) of the Act, which defines the “plinth area”, reads as follows:

“2. (k) ‘plinth area’ means the area included in the floor of a building and where a building has more than one floor the aggregate area included in all the floors together:

Provided that in the case of a building referred to in Explanation 2 to clause (e), the plinth area shall be calculated separately;”

(emphasis supplied)

11. Section 2(l) of the Act that defines “residential building”, is as follows:

“2. (l) ‘residential building’ means a building or any other structure or part thereof built exclusively for residential purpose including outhouses or garages appurtenant to the building for the more beneficial enjoyment of the main building but does not include hotels, boarding places, lodges and the like;”

12. Section 5-A stipulates charge of luxury tax. The said provision, being of significance, to deal with the controversy in hand, is reproduced below:

“5-A. Charge of luxury tax.—(1) Notwithstanding anything contained in this Act, there shall be charged a luxury tax of two thousand rupees annually on all residential buildings having a plinth area of 278.7 square metres or more and completed on or after the 1st day of April, 1999.”

13. As is evident, the aforesaid provision commences with a non obstante clause, and, therefore, has to be given primacy over the other provisions of the Act. It clearly provides that luxury tax of Rs 2000 is payable by the owners of all residential buildings constructed on or after 1-4-1999 having plinth area of 278.7 sq m or more. In the instant case, there is no cavil over the fact that the building in question consists of three storeys and has 13 apartments/flats. There is no dispute over the fact that the aggregate area is more than 278.7 sq m. The controversy that has emerged is what is meant by the term “residential building” and whether each of the 13 apartments constitute a separate building or is a singular building for the purpose of levy of luxury tax. There is no quarrel over the fact and it is also manifest that each of the residential apartments has the plinth area of less than 278.7 sq m, but when the entire plinth area of 13 apartments is taken by applying the method of clubbing or when the plinth area is aggregated, it exceeds 278.7 sq m. It is the admitted position that the building has been constructed after 1-4-1999, that is, the date provided in Section 5-A of the Act.

14. Section 2(k) of the Act defines the term “plinth area” and Section 2(l) of the Act defines the term “residential building”. We have already quoted the aforesaid provisions. As we notice, the term “plinth area” means the area included in the floor of a building and where a building consists of more than one floor, aggregate area of all the floors and hence, the plinth area can include the entire construction, that is, the floor area of a multi-storeyed building. The question would still arise whether different apartments owned by separate persons can be clubbed and aggregated in a multi-storeyed building. The proviso thereto states that the plinth area of an entire building can be separated. It is postulated therein that in case of a building when Explanation 2 to Section 2(e) is attracted, the plinth area should be calculated separately. The issue which requires examination and an apposite answer is whether Explanation 2 to Section 2(e) as an ameliorative and beneficial provision, restricts and debars calculation and computations of plinth area of each independent apartment by different owners in a multi-storeyed building.

15. Having dealt with the concept of plinth area and its applicability in the backdrop of the provision, we are required to scan the definition of “building”.

16. As noted earlier, “building” has been defined in Section 2(e) of the Act to mean a house, outhouse, garage or any other structure, or part thereof. The construction can be of masonry, bricks, wood, metal or other material. It does not include portable shelter or sheds including a latrine which is not attached to the main structure. Explanation 2 is the fulcrum that would determine the question that has emanated for consideration in this case. The said Explanation lays the stipulation that when a building consists of different apartments or flats owned by different persons and cost of the building has to be met by all such persons, each apartment or flat is deemed to be a separate building. On a dissection of the said provision, it appears that the said Explanation would apply when there is a building; that the building must consist of different flats or apartments; that each apartment or flat must be owned by different persons and cost of construction of the building must have been met jointly, and in such cases plinth area cannot be clubbed. The learned counsel for the appellant State has submitted that as there has been no contribution of funds at the time of construction, Explanation 2 to Section 2(e) would not be applicable and the respondent has to be treated as the sole owner. As we perceive, Explanation 2 to Section 2(e) takes care of a situation where the building is constructed and there are different owners who have paid the purchase price for their respective apartments. The Explanation should not be read as a negative provision, detrimental and fatal to cases where there are separate owners of the apartments, for that is not the basic object and purpose behind Explanation 2 to Section 2(e) of the Act. It is a benevolent and beneficial provision which has not been enacted to curtail and nullify what is logical and apparent to reason.

17. In this context, it is imperative to analyse what is meant by “residential building”. The definition in Section 2(l), means a building or any other structure or part thereof used for residential purpose and house or outhouse or garage appurtenant to a building for more beneficial enjoyment. It excludes hotels, boarding places, lodges and the like. Thus, the expression “residential building” cannot be interpreted without reference to the term “building” and Explanation 2 to Section 2(e) of the Act. Therefore, each residential building owned by a single owner would be subjected to luxury tax, if it has the plinth area which exceeds 278.7 sq m. It makes no difference whether the residential building consists of one floor or it is two-storeyed or three-storeyed or consists of multiple flats or apartments. The entire plinth area in the residential building owned by a singular owner is required to be aggregated.

18. It is noticeable that Section 5-A does not refer to aggregate plinth area of all the floors. The intention of the legislature is apparent that if a person is the owner of the plinth area of 278.7 sq m or more in one building, even if it consists of separate or distinct apartments, he would be liable to pay the luxury tax under Section 5-A of the Act. It also becomes further clear when the definition of “plinth area” in Section 2(k) is properly appreciated. It clearly postulates that “plinth area” means the area included in the floor of the building and where building has more than one floor, aggregate area included in all the floors is taken together. The proviso to the said definition lays down that in case of a building referred to in Explanation 2 to Section 2 clause (e), the “plinth area” shall be calculated separately. Thus, Section 2(k) has an insegregable nexus with the definition of “building”. Explanation 2 to Section 2(e) which defines “residential building” only conveys about the building meant for residential purpose and what it includes. Section 5-A is the charging section and as has been stated earlier, it commences with a non obstante clause. It determines the annual luxury tax on all residential buildings having a plinth area of 278.7 sq m or more. It provides a date for completion, that is, 1-4-1999. Though, it does not provide for aggregate, it refers to residential building, definition of which refers to a building. Section 2(k) defines “plinth area” of the building. Section 5-A also includes “plinth area”. Though the term “aggregate” is not mentioned but the words therein are buildings having plinth area and in that context one is required to scan and analyse the meaning of the terms “building” and “plinth area” as defined under Sections 2(e) and 2(k), respectively. “Plinth area” as defined clearly provides that when one building has more than one floor, the aggregate area includes all the floors. To give an example, a building consisting of four storeys belonging to a single owner, the aggregate of all the floors is to be included for calculation of the plinth area and thereby the computation of the luxury tax has to be determined as provided under Section 5-A. Be it noted, the proviso to Section 2(k) clearly stipulates that if a building as referred falls under Explanation 2 to Section 2(e), the plinth area shall be calculated separately.

19. Explanation 2 refers to different apartments or flats owned by different persons. It also states that the cost of the construction of the building is to be met by all such persons jointly. This Explanation, as noted before, is required to be appositely understood. The learned counsel for the State would submit that if there is initial booking and the persons have contributed for the construction, definitely there shall be separate computation. Explanation 2 has to be read with Section 5-A which starts with a non obstante clause. Section 5-A as has been mentioned before refers to “residential building” having plinth area 278.7 sq m or more and, therefore, the said provision also takes note of this definition.

20. In view of the above, the contention advanced by the learned counsel for the State is difficult to accept. The definitions have to be given a proper construction. There can be a case where the owner erects a multi-storeyed building consisting of 10 floors. He builds it at his own cost and thereafter he sells the apartments or flats to 10 persons and in that event he ceases to be the owner of the building. The 10 purchasers become the owners of flats and in such a situation it will lead to an absurdity because one single person who once owned the entire building or several apartments, though has ceased to be the owner in law yet is asked to pay the luxury tax solely on the ground that at the time of construction there was no contribution by the purchasers or to put it differently there had been no prior booking. This is not the intention. Explanation 2 to Section 2(e) has to be read harmoniously with the proviso to Section 2(k) and Section 5-A of the Act. The intention of the legislature as gatherable is that ownership of different flats and the cost of construction of building are met by all such persons. The meeting of the cost jointly is not to be narrowly construed to mean that there has to be an investment before the commencement of the construction of the building. The persons who purchase afterwards they really share the value of the construction cost apart from the profit margin due to the builder or the seller. Unless such an interpretation is placed, the original owner of flats when he ceases to be the owner of the building or the purchaser of a small apartment less then 278.7 sq m would still be liable to pay luxury tax. Such an interpretation would lead to absurdity.

21. In our considered opinion, the principle of purposive interpretation of the provision has to be adopted and when such a construction is placed, it serves the legislative intent. To elaborate, a person may have a three-storeyed building and he owns it, then there has to be different computation as per the main part of Section 2(k) and for that it has to be calculated as is done by the Revenue Authority. Once he ceases to be the owner, he will not be liable to pay the luxury tax. But as long as he continues to be the owner, as per Section 5-A, he will be liable to pay the luxury tax for all floors/apartments subject to the cap provided under Section 5-A of the Act.

22. In this context we may refer to the decision in State of T.N. v. Kodaikanal Motor Union (P) Ltd. (1986) 3 SCC 91 wherein this Court, after referring to K.P. Varghese v. ITO (1981) 4 SCC 173 and Luke v. IRC 1963 AC 557, (1963) 2 WLR 559, (1963) 1 All ER 655, (1964) 54 ITR 692 (HL), observed thus: [Kodaikanal Motor Union (P) Ltd. case (1986) 3 SCC 91]

“17. The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said (1949) 2 KB 481, (1949) 2 All ER 155 (CA) it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Learned Hand, J. said 148 F 2d 737 (1945), we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye ‘some’ violence to language is permissible.”

23. In Keshavji Ravji and Co. v. CIT (1990) 2 SCC 231 it has been held by this Court that when in a taxation statute where literal interpretation leads to a result that does not subserve the object of the legislation another construction in consonance with the object can be adopted.

24. In the case at hand, as is noticeable, the learned Single Judge had remanded the matter to the Revenue Authority and the Division Bench has declined to interfere. The Division Bench has applied the functional unit test. We do not accept the same. The learned Single Judge, as we have reproduced a paragraph hereinbefore, has opined that when the plinth area of any residential apartment is above 278.7 sq m, then the Authority can demand luxury tax for such apartment or flat. Be it noted, the learned Single Judge has held that even if the person is the owner of the entire building the computation would be apartment-wise. The said analysis is also incorrect. We have given purposive interpretation to Explanation 2 as it has to be read with Section 5-A of the Act. When the owner parts with the building each apartment will be segregable for the purpose of luxury tax. If he remains the owner of the whole or part then he will be liable to pay for the plinth area in respect of the flats or apartments that are retained by him subject to the cap as envisaged under Section 5-A of the Act. If he sells away the entire building then it has to be flat/apartment-wise calculation/computation, for every apartment owner is different than the others. Thus, the plinth area would be different. To clarify further, if a singular person purchases three flats, he will be liable on the basis of aggregate plinth area subject to the cap envisaged under Section 5-A of the Act.

25. In view of the aforesaid, we allow the appeal and set aside the order of the Revenue Authority and that of the High Court in the writ petition and the writ appeal, and remand the matter to the Revenue Authority to compute the luxury tax in the manner which we have clarified hereinabove. There shall be no order as to costs.