Union Properties Exempted from State Taxes Irrespective of its Use: Madras HC overturns Single bench’s Decision [Read Order]
Since the property in question was constructed post-1950, the exception under Article 285(2) did not apply, observed the court.
![Union Properties Exempted from State Taxes Irrespective of its Use: Madras HC overturns Single bench’s Decision [Read Order]](https://images.taxscan.in/h-upload/2025/06/24/2053888-madras-hc-union-properties-exempted-single-benchs-taxscan.webp "Union Properties Exempted from State Taxes Irrespective of its Use: Madras HC overturns Single bench’s Decision [Read Order]")
With regards to the constitutional immunity granted to Union properties, the Madurai bench of Madras High Court has ruled that properties belonging to the Union of India are exempt from State-imposed taxes under Article 285(1) of the Constitution, irrespective of whether such properties are used for public interest or commercial purposes.
The Division Bench, comprising Justices G.R. Swaminathan and M. Jothiraman, set aside a previous order of a single judge, thereby quashing the property tax demand raised by the Madurai Corporation against a commercial complex situated on railway land.
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The dispute started when the Madurai Corporation assessed ₹10,07,623 in property tax on the Madurai Multi Functional Complex (MMFC), a building constructed on the grounds of the Madurai Railway Station. The demand was initially upheld by a single judge on the ground that the building was used for commercial purposes and was held by a private company under a sub-lease.
The Division Bench, however, found this view unsustainable. Citing the unqualified language of Article 285(1), the Court held that the exemption applies to all Union properties, whether vacant or constructed, and regardless of use. “Article 285(1) stands as an iron dome which cannot be breached,” the Court observed, adding that the term "property" must be interpreted in its broadest and absolute sense.
The Court stated that the title of both the land and the building in question remained with the Railways, despite the fact that a sub-lessee was permitted to operate from the premises.
The Court relied heavily on the lease and sub-lease agreements, which explicitly stated that the ownership of project assets, including the constructed building, remained with the Rail Land Development Authority (RLDA), an entity functioning as an alter ego of the Indian Railways.
Rejecting the applicability of earlier Supreme Court rulings on corporate or statutory entities like ECIL and ITDC (which were found liable to taxation due to their separate juristic personalities), the Court distinguished RLDA as not having independent juristic personality. Therefore, it could not be treated as a separate taxable entity.
The Bench further held that since the property in question was constructed post-1950, the exception under Article 285(2) did not apply. Additionally, the Court invoked Section 184 of the Railways Act, 1989, which prevents imposition of local taxes on railway properties unless specifically permitted by a Central Government notification which was absent in this case.
While granting full exemption from property tax, the Court acknowledged that the petitioner (MMFC Pvt. Ltd.) availed municipal services. It therefore allowed the Madurai Corporation to explore the option of entering into a special service-based agreement for recovery of user charges like drainage tax.
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