The Supreme Court has held that property designated as 'enemy property,' under the Enemy Property Act, 1968, and under the care of a 'custodian' appointed by the Union Government, does not qualify as Union Government property eligible for exemption from municipal taxes under Article 285(1) of the Constitution of India.

In that context, the Bench of Justice BV Nagarathna and Justice Ujjal Bhuyan observed that the "mere vesting of enemy property in the Custodian does not transfer ownership of the same from the enemy to the Union or to the Central Government; the ownership remains with the enemy but the Custodian only protects and manages the enemy property and in discharging his duties as the Custodian or the protector of enemy property he acts in accordance with the provision of the Act and on the instructions or guidance of the Central Government."

Senior Counsel Kavin Gulati appeared for the appellants, while Senior Counsel Guru Krishna Kumar appeared for the respondents.

The subject property, once owned by the Raja of Mahmudabad who migrated to Pakistan in 1947, was deemed an Enemy Property under the relevant Act. The respondent-assessee occupied and utilized a part of this property for profit. A dispute arose when municipal tax notices were issued to the custodian of the enemy property.

The custodian argued that, being appointed by the Union Government, the property's ownership belonged to the Union, making it exempt from municipal taxes under Article 285(1) of the Constitution. The custodian's contention found favor with the High Court, resulting in the allowance of their Writ Petition. Dissatisfied with this decision, the Lucknow Nagar Nigam (Lucknow Municipal Corporation) appealed to the Supreme Court.

The Supreme Court arrived at the following conclusions:

1) That the Custodian for Enemy Property in India, in whom the enemy properties vest including the subject property, does not acquire ownership of the said properties. The enemy properties vest in the Custodian as a trustee only for the management and administration of such properties.

2) That the Central Government may, on a reference or complaint or on its own motion initiate a process of divestment of enemy property vested in the Custodian to the owner thereof or to such other person vide Rule 15 of the Rules. Hence, the vesting of the enemy property in the Custodian is only as a temporary measure and he acts as a trustee of the said properties.

3) That in view of the above conclusion, Union of India cannot assume ownership of the enemy properties once the said property is vested in the Custodian. This is because, there is no transfer of ownership from the owner of the enemy property to the Custodian and consequently, there is no ownership rights transferred to the Union of India. Therefore, the enemy properties which vest in the Custodian are not Union properties.

4) As the enemy properties are not Union properties, clause (1) of Article 285 does not apply to enemy properties. Clause (2) of Article 285 is an exception to clause (1) and would apply only if the enemy properties are Union properties and not otherwise.

5) In view of the above, the High Court was not right in holding that the respondent as occupier of the subject property, is not liable to pay any property tax or other local taxes to the appellant. In the result, the impugned order of the High Court dated 29.03.2017 passed in Misc. Bench No.2317 of 2012 is liable to be set aside and is accordingly set aside.

6) Consequently, any demand for payment of taxes under the Act of 1959 made and thereby paid by the respondent to the appellant-authority shall not be refunded. However, if no demand notices have been issued till date, the same shall not be issued but from the current fiscal year onwards (2024-2025), the appellant shall be entitled to levy and collect the property tax as well as water tax and sewerage charges and any other local taxes in accordance with law.

Resultantly, the appeal was allowed.


Appellants: Senior Counsel Kavin Gulati

Respondents: Senior Counsel Guru Krishna Kumar

Cause Title: Lucknow Nagar Nigam & Ors. vs Kohli Brothers Colour Lab Pvt Ltd & Ors.

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