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Wednesday, November 9, 2016

“157. Powers of Government in regard to taxes-(1) The Government may by order exempt in whole or in part from the payment of any such tax any person or class of persons or any property or description of property.” = 2016 Dec. - M/S WELSPUN PROJECTS LTD. Vs. DIRECTOR, STATE TRANSPORT PUNJAB AND ANR ANIL R. DAVE, R.K. AGRAWAL, L. NAGESWARA RAO


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

1                CIVIL APPEAL NOs. 4944-4945 OF 2016

M/s Welspun Projects Ltd.
(Formerly known as M/s MSK Projects
India Ltd.)                                         .... Appellant(s)


Director, State Transport,
Punjab & Anr.                                            .... Respondent(s)


                               J U D G M E N T

R.K. Agrawal, J.

1)    Challenge in the  above  said  appeals  is  to  the  legality  of  the
impugned common judgment and order  dated  14.11.2011  rendered  by  learned
single Judge of the High Court  for  the  States  of  Punjab  &  Haryana  at
Chandigarh in F.A.O. Nos. 3372 and 3488  of  2011  whereby  the  High  Court
allowed the appeals filed by the respondent-State.
2)    Factual position in a nutshell is as follows:-
(a)   On 22.06.2005, a Concession Agreement was  entered  into  between  the
Government of Punjab (through Director, State  Transport,  Punjab)  and  M/s
Welspun Projects Ltd. (formerly known as M/s MSK  Projects  India  Ltd.)-the
appellant-Company  to design, finance, construct, operate and  maintain  the
Bus Terminal Project at Jalandhar on Build,  Operate  and  Transfer  (B.O.T)
basis and to determine, levy, demand, collect and  retain  the  fees  for  a
period of 8 years, 5 months and 21 days.
(b)   A similar Concession Agreement was entered into  between  the  parties
mentioned above for the Bus Terminal at Ludhiana on the  same  basis  for  a
period of 10 years and 3 months.
(c)   On 16.08.2005 and 25.10.2005, lease deeds were  entered  into  between
the parties for the project sites at Jalandhar  and  Ludhiana  respectively.
According to the said lease deeds, the  appellant-Company  was  required  to
pay only the annual rent of Re. 1 as lease rental.
(d)   On 26.11.2008, the  Commissioner,  Municipal  Corporation,  Jalandhar-
Respondent No. 2 herein issued a notice under  Section  103  of  the  Punjab
Municipal Corporation Act, 1976  (in  short  ‘the  Act’)  stating  that  the
premises in question  was  assessed  for  an  annual  rental  value  of  Rs.
3,98,73,600/- for the year 2008-09.
(e)   Similarly, on 08.02.2010,  the  appellant-Company  received  a  notice
from the Municipal Corporation, Ludhiana stating the  house  tax  assessment
for the year 2008-09 and 2009-10 had been carried out and the said  property
at Ludhiana was assessed at Rs.64,59,588.80/- for an annual rental value  of
the premises.
(f)   The appellant-Company informed Respondent No. 2  herein  that  it  was
handling the project on BOT basis and as such the actual owner is the  State
Transport Authorities.  However, when  the  contents  of  the  notices  were
brought to the knowledge of  the  State  Transport  Authorities,  the  State
Transport Authorities informed that  the  appellant-Company  is  the  actual
user, occupant and beneficiary of the properties of the  Bus  Terminals  and
as such is liable to pay all taxes including House Tax as per the terms  and
conditions of the Concession Agreements.
(g)    Being  aggrieved  by  the  demand  notices,   the   appellant-Company
approached the High Court. The  High  Court,  vide  order  dated  09.02.2010
directed the appellant-Company to approach Punjab Infrastructure  Regulatory
Authority (PIRA).  The appellant-Company preferred Petition Nos. 1 and 2  of
2010 before the PIRA against the State Transport Authorities  of  Jalanadhar
and Ludhiana respectively.
(h)   Vide orders dated 08.09.2010 and  15.12.2010,  the  PIRA  allowed  the
petitions filed by the appellant-Company.   Being  aggrieved  by  the  above
orders, the State Transport Authorities preferred F.A.O. Nos. 3372 and  3488
of 2011 before the High Court.
(i)   Learned single Judge of the  High  Court,  vide  common  judgment  and
order dated  14.11.2011,  allowed  the  appeals  filed  by  the  respondents
(j)   Aggrieved by the order dated  14.11.2011,  the  appellant-Company  has
preferred these petitions before this Court by way of special leave.

3)    We have  heard  learned  counsel  for  the  parties  and  perused  the

4)          Concession Agreement was entered into between the Government  of
Punjab through the Director Transport, Punjab and M/s MSK Projects Ltd.,  to
design, finance, construct, operate and maintain the Bus  Terminal  Projects
at Jalandhar and Ludhiana on B.O.T. basis and to  determine,  levy,  demand,
collect and retain the fees.  Lease deeds were  also  executed  between  the
parties. Municipal  Corporation  is  alleged  to  have  issued  notices  for
recovery of House Tax which led to the issue in  question.   The  appellant-
Company filed Petition No. 1 and Petition No. 2 before the  PIRA  which  was
allowed vide orders dated 08.09.2010 and  15.12.2010.   Being  aggrieved  by
the above said orders, the State Transport Authorities filed FAO  Nos.  3372
and 3488 of 2011 before the High Court.  Learned single Judge  of  the  High
Court allowed the same vide common order dated 14.11.2011.
5)    Learned  senior  counsel  for  the  appellant-Company  contended  that
fastening the liability on the appellant– Company  is  manifestly  erroneous
and is based on without complete and comprehensive appreciation of  relevant
aspects of the case in proper manner and is liable to be  set  aside.  There
is overwhelming material and also the case  in  Delhi  Golf  Club  Ltd.  and
Another vs. N.D.M.C., (2001) 2 SCC 633 is squarely applicable to  the  facts
of the present case and, therefore, the impugned order of the High Court  is
liable to be set aside.  Per contra learned Additional Advocate General  for
the respondent-State strenuously argued that in view of the various  clauses
in the Concession Agreement as well as the provisions of the Act,  the  High
Court was justified in fastening liability upon  the  appellant-Company  for
payment of the house tax for the period under consideration.
6)     Learned  senior  counsel  for   the   appellant-Company   strenuously
contended that it does not fall in the category of the  “owner”  as  defined
under Section 2(35) of the Act and is neither an owner nor a tenant  nor  is
entitled to receive rent etc. In a special  arrangement  determined  by  the
Concession  Agreements  and  the  Lease  Deeds,  the  appellant-Company   is
required to  pay  only  Re.  1/-  as  annual  rent  to  the  Director  State
Transport, Punjab and is entitled  to  collect  all  the  incomes  from  the
Project for a short and limited  period  so  as  to  enable  the  appellant-
Company to  recover  the  investments  made  in  the  Projects.  Though  the
buildings on the Project sites have been raised  by  the  appellant-Company,
it has been done for the respondent-State who owns the land as well  as  the
building. Therefore, under section 97 of the Act,  no  house  tax  could  be
levied on it. On the other hand, such a tax is  entirely  the  liability  of
the  Director,  State  Transport,  Punjab.  The  appellant-Company   further
referred to Clause 13(e) of the Lease Deed which  stipulates,  “that  except
the lease rental specified in Clause 6 of the Lease Deed, it (Lessor)  shall
not levy any fee, rental, tax or any other charge  on  the  lessee  for  the
demised premises”. It further stipulates  that  the  appellant-Company  will
only pay Re.1/- as annual lease rental.

7)    Undoubtedly, the inter-se relationship between  the  parties  and  all
the relative rights and obligations are entirely governed by the  Concession
Agreements and the Lease Deeds. It is thus to be seen first of all  that  if
these Agreements can provide any conclusive direction to settle  the  matter
in hand.
8)    For appreciating the  relevant  provisions  of  the  Lease  Deeds  and
Concession Agreements referred to above, it is to  be  mentioned  here  that
house tax is always assessed and paid in accordance with the  provisions  of
the Act. The definition of owner has been described  in  sub-Section  35  of
Section 2 which reads as under:
“2(35) “Owner” includes a person who for the time being is receiving  or  is
entitled to receive, the rent of any land or building  whether  on  his  own
account or on account of  himself  and  others  or  as  an  agent,  trustee,
guardian or receiver for any other person who should so receive the rent  or
be entitled to receive it if the land or building or part thereof  were  let
to a tenant;”

9)    Section 97(2) of the Act (as it stood at the relevant  time)  provides
with the incidence of tax on lands and buildings.  It reads as under:-

       “97(2) – Incidence of taxes on lands and buildings:-
If any land has been let for a term exceeding one year to a tenant and  such
tenant has built upon the land, the taxes on land and buildings assessed  in
respect of that land and the building erected  thereon  shall  be  primarily
leviable upon the said tenant, whether the land  and  building  are  in  the
occupation of such tenant or sub-tenant of such tenant.”

10)   Clause 6 and Clause 13(e) of the first  lease  deed  dated  16.08.2005
are reproduced below:-
“6. The Lessee shall pay unto the Lessor an annual rent of Re 1/-  as  lease
rental, which shall be paid as an advance lease rental in  single  lump  sum
payment of Rs. 15/-  (in  consideration  of  a  possible  extension  of  the
Concession Period) on  or  prior  to  the  date  upon  which  this  deed  is

13(e). That except the lease rental specified in Section 6 hereof, it  shall
not levy any fee, rental, tax or any other charge  on  the  Lessee  for  the
lease of the Demised Premises.”

11)   Another lease deed was executed on 25.10.2005.  Clause  6  and  Clause
13(e) of the said lease deed are reproduced below:-
“6.  The Lessee shall pay unto the Lessor an annual rent of Re 1/- as  lease
rental, which shall be paid as an advance lease rental in  single  lump  sum
payment of Rs. 15/-  (in  consideration  of  a  possible  extension  of  the
Concession Period) on  or  prior  to  the  date  upon  which  this  deed  is

13(1)(e). That except the lease rental specified in  Section  3  hereof,  it
shall not levy any fee, rental, tax or any other charge on  the  Lessee  for
the lease of the Demised Premises.”

12)   From a perusal of the aforesaid clauses, it is  clear  that  they  are
identical and no  change  has  been  made.   The  Concession  Agreement  was
executed on 22.06.2005.  Clause 24.1(a) of the Agreement, which is  relevant
and heavily relied upon by the respondents, is reproduced below:-
“24.1 Local Taxation:-
The concession period shall include  all  charges  towards  import  license,
toll, customs, duties, import  duties,  business  taxes  etc.  that  may  be
levied in accordance with the applicable laws as on the proposal  acceptance
date in India on the concessionaire’s equipment,  plant  and  Machinery  and
Materials (whether permanent, temporary  or  consumable)  acquired  for  the
purpose of this concession agreement and on the  services  to  be  performed
under this concession agreement. Nothing in this concession agreement  shall
relieve the concessionaire from its responsibility to pay any tax  that  may
be levied in India on profits made by  it  in  respect  of  this  concession

13)   It may be mentioned here that both the lease deeds  were  executed  by
the Director, State Transport, Punjab for and on behalf of the  Governor  of
the State of Punjab.  From a perusal of Clauses 6 and  13(e)  of  the  lease
deeds reproduced above, we are of the  opinion  that  the  appellant-Company
was required to pay rent of Re. 1 only  as  lease  rental  and  further  the
Government has specifically mentioned  that  except  the  lease  rental,  it
shall not levy any fees, rent, tax or any other charge  on  the  lessee  for
the lease of the demised premises.  We  find  that  even  though  under  the
provisions of Section 2(35) read with 97(2) of the Act, normally the  tenant
who has been given land on lease for  a  term  exceeding  1  (one)  year  is
primarily liable to pay taxes on lands and buildings  yet  in  view  of  the
provisions of Section 157(1) of the Act,  the  Government  is  empowered  to
exempt in whole or in part from the payment of any such tax  any  person  or
class of persons or any property or description of  property  which  in  the
present case has been done on behalf of the government when the lease  deeds
were  executed.   For  ready  reference,  Section  157(1)  of  the  Act   is
reproduced below:-
“157. Powers of Government in regard to  taxes-(1)  The  Government  may  by
order exempt in whole or in part from  the  payment  of  any  such  tax  any
person or class of persons or any property or description of property.”

14)   A reading of Concession Agreement dated 22.06.2005,  more  so,  Clause
24.1(a) which deals with the  local  taxation  states  that  the  concession
period shall include all charges  towards  import  license,  toll,  customs,
duties, import duties etc. which is to be payable by the  appellant-Company.
 In view of the specific exemption given  under  the  lease  deed  regarding
payment of any taxes on the demised premises,  in  our  considered  opinion,
the appellant-Company is not at all required to pay any municipal  taxes  on
the demised premises.  We may also mention  here  that  the  house  tax  was
being paid  by  the  transport  department  prior  to  the  signing  of  the
Concession Agreement and if it was  intended  that  this  burden  should  be
passed on to the appellant-Company, a clear clause interpreting  this  point
would have certainly been inserted in the Agreement itself.  Not only  this,
the Department continued to pay the house tax for 3 to 4  years  even  after
the date of the signing of the agreement.
15)   In view of the forgoing discussion, we are of the  considered  opinion
that the appellant-Company is not liable to pay any house tax under the  Act
and the demand and payment of  house  tax  from  the  appellant-Company  was
without the authority of law and the appellant-Company is  entitled  to  the
refund of the amount of house tax paid by it alongwith rate of  interest  at
the rate of 10% p.a. from the date of deposit.
16)   In view of the above, the impugned judgment  and  order  of  the  High
Court dated 14.11.2011 is set  aside  and,  consequently,  the  appeals  are

          (ANIL R. DAVE)



          (L. NAGESWARA RAO)

NOVEMBER 8, 2016.

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