Constitutional Exemption for Railway Property survives Leasing Out and Commercial Use, No Property Tax Leviable: Madras HC [Read Order]

The Division Bench comprising Justices G.R. Swaminathan and M. Jothiraman allowed a writ appeal filed by Madurai Multi Functional Complex Private Limited, thereby setting aside an earlier order passed by a single judge which had upheld the Madurai Corporation’s property tax demand of ₹10.07 lakh for the complex located at the Madurai Railway Station premises.

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The legal question addressed was whether a building constructed on railway land, but operated by a private lessee, could be subjected to property tax under Sections 120 and 121 of the Madurai City Municipal Corporation (MCMC) Act, 1971. The Court answered in the negative, invoking Article 285(1) of the Constitution which exempts Union property from all state and municipal taxes unless Parliament provides otherwise.

The land in question, owned by Indian Railways, was developed under a statutory framework involving the Rail Land Development Authority (RLDA) and its subsidiary, Ircon Infrastructure and Services Limited. The building was sub-leased to the appellant for commercial use, including leasing spaces to private tenants such as retail stores.

Despite the property's commercial exploitation, the Court emphasized that constitutional immunity under Article 285(1) remains intact. “The expression ‘property’ is not qualified,” the bench noted, asserting that the term covers all forms—whether vacant or constructed, public or commercial. Therefore, immunity applies uniformly so long as title rests with the Union.

It was noted that, “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) of the Constitution. Article 285(1) stands as an Iron dome which cannot be breached. Property of the Union of all kinds and hues can take shelter within it.”

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Crucially, the Court examined the chain of agreements and concluded that neither Ircon nor the appellant acquired ownership rights. RLDA, a statutory authority without separate juristic personality, merely acted as an agent of the Railways. Ircon, though permitted to construct the building, did so with the understanding that both land and structure would revert to RLDA after the lease period, thus preserving Union ownership throughout.

Citing Supreme Court precedents including Union of India v. City Municipal Council, Bellary and NDMC v. Association of Concerned Citizens of New Delhi, the Bench underscored that unless the Parliament enacts specific legislation enabling taxation of such properties, immunity under Article 285(1) is absolute.

The Bench also rejected reliance on earlier rulings involving government-owned corporations like the Electronics Corporation of India and the International Airport Authority, pointing out that those were distinct juristic entities capable of owning property independent of the Union. In contrast, the RLDA acts merely as an instrumentality of the Railways.

While quashing the property tax demand, the Court granted liberty to the Madurai Corporation to negotiate and enter into a special agreement with the appellant for continued municipal services. It noted that the building forms a unique class and may attract a higher drainage or user fee through such agreements, provided they do not amount to taxation in disguise.

The writ appeal was allowed with no order as to costs.

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