JUDICATURE AT MADRAS

DATED: 20.06.2022

CORAM

THE HONOURABLE DR. JUSTICE ANITA SUMANTH

W.P.No.34104 of 2019, 932, 936, 1978, 1980, 2559, 2564, 3060, 3072,

3068, 3408, 3637, 3815, 3819, 5200, 6023, 7023, 7029, 12765, 8690 & 15849 of 2020,  23764, 6141 & 22017 of 2021 and

WMP.Nos.34707 & 34709 of 2019, 34707, 34709, 1121, 1114, 1117, 1123,

2310, 2311, 2313, 2315, 1967, 2968, 2970, 2973, 3586, 3588, 3606, 3601,

3594, 3596, 3974, 3975, 3976, 4274, 4276, 4521, 4524, 4528, 4531, 6140,

7072, 7074, 8378, 8379, 8383, 8384, 15772, 15774, 19702 & 19703 of

2020, 25018, 25019, 6758, 6759 & 23240 of 2021 W.P.No.34104 of 2019:

Good Shepherd Matriculation Higher Secondary School

Rep. by the Correspondent,

65(32), College Road, Nungambakkam,

Chennai – 600 006. Vs 1.The Secretary, Department of Municipal Administration and Water Supply Department, The Government Secretariat, Fort St.George,    Chennai – 600 009. 2.The Commissioner, Chennai Municipal Corporation, Rippon Buildings, Chennai – 600 003. 3.The Assistant Revenue Officer, Zone-IX, Corporation of Chennai, No.1, Lake Area, 4th Cross Street,	… Petitioner
Nungambakkam, Chennai – 600 034.	… Respondents

Prayer: Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, calling for the records, pertaining to the impugned resolution, dated 10.04.2018 in resolution No.292/2018, on the file of the 2^nd respondent and the assessment order, dated 29.05.2018, in Order No.N/09/111/18-19/2546, and the current demand and arrears demand, dated nil, in No.0911112266000, on the file of the 3^rd respondent, insofar as it imposes 60% of educational institution surcharge, in respect of the petitioner school, and quash the same.

For Petitioner	: Dr.Father Xavier Arulraj, Senior Counsel
	for M/s.Father Xavier Associates
For Respondents	: Mr.Haja Nazrudeen, Additional Advocate General assisted by Mr.P.Haribabu, Govt. Advocate

Mrs.C.Sangamithirai,

Special Government Pleader – R1

Ms.S.Vaitheeswari

Standing Counsel – R2 & R3

C O M M O N  O R D E R

Nineteen schools in the city of Chennai and one in the district of

Coimbatore are before me in this batch of Writ Petitions.

2.The legal issue that arises for consideration is as to whether the

Chennai City Municipal Corporation and Coimbatore City Municipal Corporation have the authority to levy surcharge of 60% of the tax payable on the buildings used by the petitioner schools for educational purposes.

3.The levy of property tax on educational institutions has itself had a checkered career. While educational institutions were exempted from the levy of property tax by virtue of Section 101(c) of the Chennai City Municipal Corporation Act, 1919 (in short ‘Act’), an amendment was brought to clause (c) thereof, by virtue of which unaided schools were removed from the purview of exemption that continued only in the cases of Government and aided schools.

4.The exclusion from exemption came to be challenged by unaided city schools in a batch of Writ Petitions, and came to be repelled by a decision of this Court dated 13.09.2019 in W.P.No.18008 of 2019. While rejecting the challenge, the Division Bench preserved the liberty of the petitioners to challenge the demand notices in accordance with law.

5.The demand notices levied general tax, educational tax, library cess and surcharge. The challenge in this batch is restricted to the levy of surcharge alone. W.P.No.34104 of 2019 is referred to for ease and convenience in referring to the supporting documents. The submissions of the learned counsel for the petitioners led by Mr.Father Xavier, learned Senior Counsel are as follows:

• All petitioners are unaided educational institutions situated in

Chennai and one in Coimbatore and are compliant in the payment of property tax.

• The petitioners draw my attention to an assessment made upon the school, and reiterate their readiness and promptness in remitting the half-yearly tax, as computed, though not surcharge, levied at the rate of 60%.
• The enactment does not provide for the levy of surcharge and hence, there is no statutory authority from which the respondents may draw power to levy the surcharge. In this regard, reference is made to Section 99 of the Act. The proviso to Section 99(2) fixes a ceiling of 25% of the annual value of buildings and lands for the levy of the taxes. In the present case, the totality of the taxes and surcharge which would be as follows, viz., general tax + educational tax + library cess + surcharge, is in excess of 25% of the annual value of buildings.
• However, if the levy were to be restricted to general tax (9%) + educational tax (2.5%) + library cess (0.90%), it will amount to a total of 12.40% for a half year and 24.8% for the entirety of the year, which would be within the ceiling imposed. Thus, the imposition of the surcharge would vitiate the statutory pecuniary ceiling that has been imposed.
• Reliance is placed upon the judgements in Zilla Parishad, Muzaffarnagar and Another Vs. Jugal Kishore Ram Swarup and Another [(1968) SCC Online ALL 117] and the State of Kerala and Others Vs. K.P.Govindan, Tapioca Exporter, [(1975) 1 SCC 281] in support of the aforesaid submission.
• The impugned notification is based upon a draft notification which refers to the provisions of Section 172(1) of the Tamil Nadu Panchayats Act, 1994 (in short ‘Panchayats Act’). In fact, the statutory provision under the Panchayats Act providing for levy of surcharge has since been deleted and this has been noted by a learned Single Judge of this Court in the case of Vivekanandha College of Engineering for Women and Others Vs. Government of Tamil Nadu and others in W.P.Nos.41534 to 41540 of 2016 and the levy of surcharge has been struck down by order dated 25.11.2016. It is to be noted that those colleges were covered under the ambit of the Panchayats Act.

6.The other learned counsels for the petitioners adopt the aforesaid submissions of learned Senior Counsel. In addition, Ms.Hema Murali Krishnan, learned counsel, would point out yet another flaw in Resolution dated 07.03.2018, in so far as it proposes to levy surcharge for the second half of assessment period 2017-18. She is right in that, though tax for the second half commencing 01.10.2017, may be paid on or before 15^th of October of the respective periods, any levy that would impact the quantification of the remittance for that period, must be imposed prior to 01.10.2017.

7.The submissions of learned counsels for the respondents are summarized as follows:

• The Act is a comprehensive enactment which deals with the imposition of taxes on properties.
• Chapter V of the Act, which deals with taxation, envisages the levy of tax, cess and surcharge. As far as the ceiling imposed under the provisions of Section 99(2) is concerned, such percentage only applies to the tax component and therefore, the State is free to impose any levy by way of cess, duty or surcharge unhindered by the ceiling imposed.
• They rely on a judgment of the Supreme Court in the case of Sai Bhaskar Iron Ltd. Vs. A.P.Electricity Regulatory Commission and others [2016 (9) SCC 134] to bring home the fact that the surcharge is a super-added charge over and above the current dues. This is to support their submission that the component of 60% surcharge must be computed outside of the 20% restriction that has been imposed.

8. I have heard learned counsels and devoted anxious consideration to the rival contentions advanced. I have also had the benefit of the cases cited by them.
9. There is no dispute in regard to the position that all the educational institutions before me are liable to property tax under the respective enactments, be it in Chennai City or Coimbatore. As regards the levy of surcharge, the enactment under which it is sought to be levied must contain a specific provision in this regard.
10. I have perused in detail the contents of Chapter V of the Act, falling under Part-III titled as ‘Taxation and Finance’. The enumeration of taxes and duties has been set out under Section 98 being a tax on property, companies, profession, carriages and animals, carts, timber brought into the city and a duty on certain transfers of property in the shape of additional stamp duty.
11. Section 98-A deals with the powers of, and control imposed by the State Government and provides that the Government may pass any resolution imposing tax or duty for the first time after calling for objections from the public. Much is made of this provision by learned counsel for the respondents who state that the draft resolution was, in fact, placed in public domain and objections called for. It is only after objections were received and considered, that the impugned resolution came to be passed.
12. They also argue that the present arguments, to the effect that the State does not have the power to levy a surcharge, were not raised at the first instance and hence, they are not liable to be taken into account now. That may well be so. However, the issue raised is a legal one and thus, the fact that it has been raised only in the writ petition for the first time, is my view, is in order.
13. I find that Gazette Notification dated 07.03.2018 does make reference to Section 172 of the Panchayats Act which, in my considered view, is misplaced. Section 172 falls under Chapter IX of the Tamil Nadu Panchayats Act, 1994 that deals with ‘taxation and finance’. It provides for the levy of a house tax on every house in every panchayat / village and does not refer to surcharge per se. However, it refers to the rates that are specified in Schedule – I, on the basis of which, the taxes are to be levied.
14. This takes us to Schedule – I that classifies properties into concrete houses, tiled houses, attached houses above 20 Sq.mts and attached houses below 20 Sq.mts. There are two explanations below. The first explanation is irrelevant for the purposes of this Writ Petition. The second explanation classifies properties as purely residential, simple commercial like petty shops and other small commercial establishments and large commercial, such as industrial and business establishments, cinema theaters, hostels, lodges etc. The third limb of this explanation talks of a surcharge of 60%.
15. Evidently, this is what has been borrowed in the draft Gazette

Notification, though dropped in the final notification. In so far as the final notification does not refer to the Panchayats Act, there is no necessity to dwell any further on this aspect. Perhaps the reason for omission is that the provision under which surcharge was contemplated, Section 168, was itself deleted with effect from 06.08.2009 and thus, the sustenance sought to be drawn from the aforesaid provision, loses all force.

16. That apart, incidentally, I have my own doubts as to whether an educational establishment would come under the description of commercial, industrial and business establishments, Cinema theaters, Hostels, Lodges, etc., of the Panchayats Act. Be that as it may, the fact remains that the Act does not have any provision enabling or contemplating the levy of surcharge and there is no reference to surcharge anywhere in the Act.
17. The foundation upon which any levy rests is the authority under which it has been imposed. The proposition that the levy of interest has to be supported by a substantive position in the statute, has been settled by the Constitution Bench of the Hon’ble Supreme Court in the case of K.Synthetics Ltd. Vs. Commercial Taxes Officer [1994 (94) STC 422 (SC)]. The ratio decidendi has been reiterated in India Carbon Ltd. Vs. State of Assam [106 STC 460].
18. In that case, the issue related to the charging of interest on delayedpayment of Central Sales Tax in terms of the Sales Tax Act, 1956. However, the Bench repelled the levy accepting the contention that while Section 9(2-A) of the Central Sales Tax Act, 1956 enabled the framing of assessment, reassessment, collection and enforcement of demand of Central sales tax as well as penalty, a statutory provision enabling the levy of interest on delayed payments was conspicuous by its absence.
19. There has to be, the Bench reiterated, a substantive provision that would oblige the assessee to comply with the mandate therein. In the absence of such a provision in the Central Sales Tax Act obliging the assessee to remit interest on delayed payment of interest, such a levy could not be countenanced.

The relevant paragraphs are extracted below:

“….

12. Section 9(2-A) makes applicable to the assessment, reassessment, collection and enforcement of Central sales tax the provisions relating to offences and penalties contained in the State Acts as if the Central sales tax was a State sales tax. But Section 9(2-A) makes no reference to interest.
13. There is no substantive provision in the Central Act requiring the payment of interest on Central sales tax. There is, therefore, no substantive provision in the Central Act which obliges the assessee to pay interest on delayed payments of Central sales tax.
14. Now, the words “charging or payment or interest” in Section 9(2) occur in what may be called the letter part thereof. Section 9(2) authorises the sales tax authorities of a State to assess, reassess, collect and enforce payment of the Central sales tax payable by a dealer as if it was payable under the State Act; this is the first part of Section 9(2). By the second part thereof, these authorities are empowered to exercise the powers they have under the State Act and the provisions of the State Act, including provisions relating to charging and payment of interest, apply accordingly. Having regard to what has been said in the case of Khemka & Co., it must be held that the substantive law that the States’ sales tax authorities must apply is the Central Act. In such application, for procedural purposes alone, the provisions of the State Act are available. The provision relating to interest in the latter part of Section 9(2) can be employed by the States’ sales tax authorities only if the Central Act makes a substantive provision for the levy and charge of interest on Central sales tax and only to that extent. There being no substantive provision in the Central Act requiring the payment of interest on Central sales tax the States’ sales tax authorities cannot, for the purpose of collecting and enforcing payment of Central sales tax, charge interest thereon.”

As the levy of surcharge in the present is, admittedly without any statutory backing or authority, I quash the same.

20. My conclusion is also supported by the methodology in

computation. The argument advanced by the respondents is that the ceiling of 25% referred to in Section 99(2) proviso must be restricted to taxes alone, as ‘surcharge’ is a super addition to tax, over and above the 25%. This argument is only stated to be rejected.

21. Section 99 reads thus:

“99. Description and class of property tax.-

(1) If the council by a resolution determines that a property tax shall be levied, such tax shall be levied on all buildings and lands within the city save those exempted under this Act or any other law.

The property tax may comprise (a) a tax for general purposes;

• a drainage tax for the purpose of defraying the expenses

      connected with the drainage system of the city;

• a lighting tax for the purpose of defraying the expenses connected with the lighting of the city;

Provided that where the drainage tax is levied, the council shall declare what proportion of the tax is levied in respect of drainage works and the proportion so declared shall also be specified in the notice published under sub-section (2) of section 98-A.

• Save as otherwise provided in this Act, these taxes shall be levied at such percentages of the annual value of buildings and lands as may be fixed by the council :

Provided that the aggregate of the percentage so fixed shall not, in the case of any land or building, be less than 15.5 percent, or greater than 25 percent of its annual value.

• For the purpose of assessing the property tax, the annual value of any building or land shall be determined by the commissioner:

Provided that the annual value of any building or land the tax for which is payable by the commissioner shall be determined by the Mayor.”

22.The provision only provides for a levy of tax. In fact, it does not even provide for the levy of any other duties or cess. Seen in that light, the imposition of a library cess is  also sans authority. However, as that is not the subject matter of challenge before me, I leave that at that.

23. As rightly pointed out, the sum total of ‘general tax + educational tax + library cess’ amounts to 24.8% of the annual value of buildings which is within the permissible limit whereas the addition of surcharge would carry the amount over and above the permissible limit.
24. For the aforesaid reasons, the impugned resolution, to the extent to which it levies surcharge, is found contrary to the provisions of the respective enactments and such levies are quashed. These Writ Petitions are allowed. No costs. Consequently, connected Miscellaneous Petitions are closed.

kbs     20.06.2022

Index     : Yes

Speaking Order

To

1.The Secretary,

Department of Municipal Administration and

Water Supply Department,

The Government Secretariat, Fort St.George,    Chennai – 600 009. 2.The Commissioner,

Chennai Municipal Corporation,    Rippon Buildings, Chennai – 600 003.

3.The Assistant Revenue Officer,

Zone-IX, Corporation of Chennai,

No.1, Lake Area, 4th Cross Street,

Nungambakkam, Chennai – 600 034.

DR.ANITA SUMANTH, J. kbs

W.P.No.34104 of 2019, 932, 936, 1978, 1980, 2559, 2564, 3060, 3072, 3068, 3408,

3637, 3815, 3819, 5200, 6023, 7023, 7029,

12765, 8690 & 15849 of 2020, 23764,

6141 & 22017 of 2021 and WMP.Nos.34707 & 34709 of 2019, 34707,

34709, 1121, 1114, 1117, 1123,  2310, 2311,

2313, 2315, 1967, 2968, 2970, 2973, 3586,

3588, 3606, 3601, 3594, 3596, 3974, 3975,

3976, 4274, 4276, 4521, 4524, 4528, 4531,

6140, 7072, 7074, 8378, 8379, 8383, 8384,

15772, 15774, 19702 & 19703 of 2020,

25018, 25019, 6758, 6759 & 23240 of 2021

20.06.2022