Property Tax By Municipality On Railway Land Unconstitutional; RLDA Not A Juristic Entity: Madras High Court
The Court stated that property tax could not be levied on railway land or buildings, as they are protected by Article 285(1), and the RLDA has no independent title to attract such a levy.
The Madras High Court has ruled that a building constructed on land owned by the Railways and developed through the Rail Land Development Authority (RLDA) cannot be subject to property tax by a municipal authority, as such a levy would contravene Article 285(1) of the Constitution of India. The Court further held that RLDA is not a juristic entity distinct from the Union Government and lacks independent ownership of the land or buildings developed on behalf of the Railways.
A Division Bench of Justice G.R. Swaminathan and Justice M. Jothiraman observed, “Property whether vacant or constructed or whether used for public interest or for commercial purpose would equally be entitled to the protective sweep and immunity conferred by Article 285(1). Article 285(1) stands as an Iron dome which cannot be breached.”
The Court added, “At no point of time, the title over the site was transferred from Railways to RLDA or from RLDA to IRCON or from IRCON to the petitioner. The land and the building belong to the Railways.”
Senior Advocate R. Srinivas appeared for the Appellant, while Standing Counsel S. Vinayak represented the Respondents.
Brief Facts
The Appellant challenged a demand notice dated March 3, 2018 issued by the Madurai Corporation under Sections 120 and 121 of the Madurai City Municipal Corporation Act, 1971, demanding Rs. 10,07,623/- as half-yearly property tax for a commercial building situated within the Madurai Railway Station premises. The writ petition against the demand was dismissed by a Single Judge.
The site in question was railway land. RLDA, Respondent no. 2, formed under the Railways Act, 1989, leased the land to Respondent No.3, Ircon Infrastructure & Services Ltd. to develop a Multi Functional Complex (MFC). Respondent No.3, in turn, sub-leased the premises to the Appellant. Respondent No.1 sought to levy property tax from the Appellant, arguing that the building was commercially used by a private party.
The Appellant contended that both the land and building were properties of the Union of India, and therefore, protected under Article 285(1) of the Constitution from any form of state or municipal taxation.
Reasoning of the Court
The Court framed the central issue as whether the Madurai Corporation could levy property tax on a building constructed on railway land and sub-leased to a private entity for commercial purposes, in light of the constitutional protection available under Article 285(1).
At the outset, the Court noted, “Property whether vacant or constructed or whether used for public interest or for commercial purpose would equally be entitled to the protective sweep and immunity conferred by Article 285(1). Article 285(1) stands as an Iron dome which cannot be breached.”
The Bench noted that RLDA had not acquired ownership over the land or the building, and that there had been no divestment of title at any stage. It observed, “At no point of time, the title over the site was transferred from Railways to RLDA or from RLDA to Ircon or from Ircon to the petitioner. The land and the building belong to the Railways.”
On the status of RLDA, the Court observed, “RLDA is not a juristic entity. It is not a corporation. It has no perpetual succession. It cannot sue or be sued. It has no common seal. It cannot enter into contracts in its own name. The property vests with the Railways. RLDA is only a facilitator.”
The Court noted that the agreement between RLDA and Respondent no.3 confirmed that the constructed building was to remain under the control of RLDA, and Respondent no. 3 had no right to transfer, sell, mortgage, lease, or sub-lease the property, and the appellant being the sub-lessee derived no ownership rights. “If the lessor retained title, the lessee could not have passed on a better title to the sub-lessee. The petitioner does not own the building”, the Court added.
The Bench referred to the decision of the Supreme Court in Union of India v. City Municipal Council, Bellary (1979), here it was held that even if Union property is used for commercial purpose, it is still immune from State taxation unless Parliament provides otherwise, which is the crux of Article 285(1).
The Court found no notification under Section 184 of the Railways Act, 1989, authorising local taxation on the premises, and noted, “The building in question having been constructed by a person claiming through RLDA on a railway land would therefore enjoy constitutional immunity under Article 285(1) of the Constitution of India.”
Responding to the argument that the Appellant enjoyed municipal amenities such as drainage services, the Court observed, “There can be a separate agreement under which the petitioner can undertake to pay for the services enjoyed by them. But they cannot be made liable to pay tax which has no legal foundation.”
The Court opined, “Just because an outsider is permitted to occupy a building constructed on railway land, Article 285(1) immunity will not vanish.”
The Court held that the building in question was located on land owned by the Railways, and that neither Ircon nor the appellant had acquired title to the property, and since the land and building continued to belong to the Union of India, the levy of property tax by the municipal corporation was barred by Article 285(1) of the Constitution of India.
The Court further held that RLDA, through whom the development had taken place, had no independent legal character or title.
Accordingly, the Court quashed the impugned demand notice, set aside the judgment of the Single Judge.
However, the Court clarified that the municipal corporation would be entitled to raise a claim for civic services rendered and suggested that the Appellant may enter into an appropriate agreement to ensure continued enjoyment of such amenities. The Corporation was directed to issue a notice to the appellant and other occupiers of the building in this regard.
Cause Title: Madurai Multi Functional Complex Private Ltd. v. The Madurai Corporation & Ors. (Neutral Citation: 2025:Mad:40735-DB)
Appearance:
Appellant: Senior Advocate R. Srinivas; Advocate N. Dilip Kumar
Respondents: Senior Advocate T. Lajapathi Roy; Standing Counsel S. Vinayak; Advocates Ragatheesh Kumar, K. R. Laxman, S. Rajasekar
