RLDA Not a Juristic Entity, Madras HC sets aside Property Tax by Municipality on Railway Land Being Unconstitutional [Read Order]

Madurai Multi Functional Complex Private Limited, the petitioner, filed the petition on a question that calls for consideration is whether the petitioned building is assessable to property tax under Sections 120 and 121 of the Madurai City Municipal Corporation Act, 1971.

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When the Madurai Corporation assessed the petition mentioned building to property tax and issued a demand notice dated 03.03.2018 calling upon the petitioner to pay half-yearly tax to the tune of Rs.10,07,623/-, the appellant herein filed WP.(MD)No.18477 of 2018 challenging the same. The writ petition was dismissed by the single Judge vide order dated 06.05.2020.

The appellant contended that the Madurai Corporation has no right to demand property tax from Railways in view of Article 285(1) of the Constitution of India and submitted that the demand notice issued by the first respondent is illegal and liable to be quashed. Per contra, the Standing Counsel for the Madurai Corporation contended that the impugned judgement of the Single Judge is well-reasoned and does not call for interference.

The land in question belongs to Railways. In order to develop the vacant lands owned by Railways, The Railways Act, 1989 was amended vide Act No.47 of 2005 and the Railway Land Development Authority (“RLDA”) was constituted under Section 4A of the Act. Section 4D(2)(ii) of the Act lays down development of the railway lands for commercial use as one of the functions of the Authority. The Ministry of Railways had also incorporated Ircon Infrastructure & Services Limited as their wholly owned subsidiary under the Companies Act, 1956.

Lease agreement dated 04.07.2013 was entered into between RLDA and Ircon Infrastructure & Services Limited. The said agreement envisaged development of the Railway lands throughout India. Subsequently, Ircon Infrastructure & Services Limited entered into a sub-lease agreement for a period of 30 years with the petitioner herein (Madurai Multi Functional Complex Private Limited) in respect of the subject property. The Multi Functional Complex was actually constructed by Ircon Infrastructure & Services Limited on the plot area of 2700 sqm within the premises of Railway Station in Madurai. The building in its present shape was developed by the petitioner herein.

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The question is whether, merely because the occupation of the building was handed over to the petitioner in their capacity as sub-lessee, Madurai Corporation will have the jurisdiction to levy property tax on the said building. The single Judge took such a view because the building was constructed by the third respondent (Ircon Infrastructure and Services Ltd) and then leased out to a private limited company (petitioner) and that the building was being put to commercial use.

The stand of the local body is that they are not calling upon the railways to cough up the funds towards property tax but that they are only demanding from the petitioner herein. This argument is not sound. The assessment and levy of property tax is not on the person or the individual. It is on the land and building. Admittedly, the land belongs to the Railways. It is thus the property of Union of India.

The court observed that Chapter II A of the Railways Act, 1989 inserted vide Act 7 of 2005 does not confer any juristic status on the said Authority. Though it is a statutory creation, it is not an entity distinct and separate from railways. There is no provision in the Railways Act that says it can sue and be sued in its own name. It does not have any perpetual succession or common seal. The usual features that are markers of a juristic personality are absent in the case of RLDA.

Its mandate was to develop railway land for commercial use and enter into agreements for this purpose. Pursuant to the aforesaid statutory mandate, RLDA entered into a lease agreement with Ircon on 04.07.2013. The agreement defines the term “assets” as meaning all fixed assets constructed by the lessee but not the site itself. Cl

A division bench of Justice G.R.Swaminathan and Justice M.Jothiraman observed that RLDA is not a separate entity at all. It is an alter-ego of Railways. RLDA cannot hold properties in its own name. 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 MMFC (the petitioner herein). Merely because Ircon was permitted to construct the building or the petitioner herein was permitted to develop it further would not result in vesting of the title over the building either in Ircon or in the petitioner. The expression “vesting” has a technical meaning.

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On the other hand, the land as well as the buildings were to be handed over to RLDA free of any encumbrance on the expiry of the lease period. The court held that the petition mentioned building belongs to Railways. The title over the building vests with the Railways.

It was further ruled that the levy of property tax over the petitioned building would fall foul of Article 285(1) of the Constitution of India and set aside the order passed by the single Judge.

Further held that “Since the petitioner is enjoying certain facilities offered by the Madurai Corporation, it is open to the Madurai Corporation to enter into a special agreement with the petitioner so as to enable the petitioner to continue to enjoy those facilities. Since the petition mentioned building forms a class by itself, it is open to the Madurai Corporation to charge a higher drainage tax. The local body ie., Madurai Corporation will issue notice to the petitioner and other occupiers of the building to come for negotiation and enter into an appropriate agreement in this regard.”

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