Plaintiffs, we have seen are running a school and it is in respect of this school that exemption is sought by the trust. Supreme Court even observed that even if a school charges fees that would be irrelevant and trust would continue to be a charitable trust, as long as it applies the profits received, for the charitable purpose, and does not divide it or pay it to the members. Plaintiffs have placed on record the accounts of the Audited Reports for the year ending 31/03/1992, 31/03/1993 and 31/03/1995. Those audited accounts certainly go to show that any surplus of that particular year was transferred to the trust fund. Exh.49 the audited account shows so. It is thus clear that three conditions as laid down in para 12 are certainly fulfilled. Similarly the bye laws do not permit the profits to be applied to private purpose or to pay the dividend. In the circumstances it must be held that plaintiff is a charitable trust covered by Section 132(1)(b).{para 10}
12. The illustration as given by the Division Bench would make it clear that the premises which are to be taxed must fetch income to the trust. We have seen that the premises are not let out by defendant No.1 to defendant No.2 or to any third party. The plaintiff cannot therefore be said to be deriving an income from the premises. Building in question is, therefore, exempt from the property tax.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY(NAGPUR BENCH)
C.L. PANGARKAR, J.
Sant Kanwarram Education & Social Welfare Society & Ors.Vs.Municipal Corporation Of City Of Amravati
Second Appeal No.203 of 2008
15th October, 2008
Citation: 2008(6) ALL MR 384
JUDGMENT :- This Second Appeal is being heard finally with the consent of the parties.
2. Original plaintiff has preferred this Second Appeal since the first appellate Court had set aside the judgment and decree passed in favour of the present appellants/plaintiffs.
3. Facts giving rise to the appeal are as follows :
Plaintiff is a Public Charitable Trust. The main object of the said Trust is to impart education and to protect the interest of the minority community. Plaintiff submits that the activities of the plaintiff No.1 are educational and charitable, on no profit no loss basis. Plaintiffs No.3 to 14 are the trustees. The plaintiff No.1 owns the suit premises. The plaintiff No.1 runs a school known as Sant Kanwarram Vidyalaya in the said premises. The plaintiff No.1 submits that being a charitable trust it has obtained a certificate for exemption from payment of the income tax. Plaintiffs further contend that since the plaintiffs is a charitable trust and the premises are being used by the plaintiffs for running a school they should be exempt from payment of property tax under Section 132(1)(b) of Bombay Provincial Municipal Corporations Act. Plaintiffs had submitted a representation to the Municipal Corporation for granting such exemption but the same came to be rejected. Hence this suit for declaration that the plaintiff is exempted from payment of property tax under Section 132(1)(b).
4. Defendant Municipal Corporation resisted the claim of the plaintiffs and contended that in view of the provisions contained in Section 406 this suit is not maintainable. The main contention of the defendant is that plaintiff is receiving Rs.4,400/- P. M. as rent from the Government on the basis of the certificate issued by the P.W.D. Department and the plaintiff is also charging fees from the students, as such it is not entitled to exemption under Section 132(1)(b).
5. The learned Judge of the trial Court framed issues and found that the plaintiffs were entitled to exemption under Section 132(1)(b) and the case did not fall under Section 132(2)(b). Holding so learned Judge of the trial Court decreed the suit. The defendant Municipal Corporation preferred an appeal before the District Judge. Adhoc Additional District judge however found that the plaintiff was not entitled to any exemption at all and therefore allowed the appeal and dismissed the suit. Being aggrieved by that this appeal has been preferred.
6. Upon submissions made by the learned counsel for the appellant as well as respondent the following substantial question of law is raised :
"Whether the plaintiff-trust is exempted under Section 132(1)(b) of Bombay Provincial Municipal Corporation Act from payment of property tax or is it liable under Section 132(2)(b) to pay the tax ?"
7. I have heard the learned counsel for the appellants and the respondent.
8. We have seen that the learned Judge of the trial Court has found that plaintiff is a charitable trust which is governed by Section 132(1)(b) and is therefore exempt from payment of property tax, while the learned Additional District Judge holds that the plaintiff is covered by Section 132(2)(b) and therefore not entitled to any exemption.
9. Learned counsel for the respondents seeks to justify the view taken by the first appellate Court on the ground that plaintiff No.2-school receives rent from the Government and that rent is transferred to the account of the plaintiff No.1 Trust. He submits that therefore it can certainly be said that plaintiff derives rent in respect of the suit premises. Before dilating further it could be necessary to reproduce the concerned Section here. Section 132 of Bombay Provincial Municipal Corporations Act reads thus :
"132.(1) The general tax shall be levied in respect of all buildings and lands in the City except-
[a] buildings and lands solely used for purposes connected with the disposal of the dead;
[b] buildings and lands or portions thereof solely occupied and used for public worship or for a public charitable purpose;
[c] buildings and lands vesting in the [Government] used solely for public purposes and not used or intended to be used for purposes of trade or profit or vesting in the Corporation, in respect of which the said tax, if levied, would under the provisions hereinafter contained be primarily leviable from the [Government] or the Corporation, respectively.
(2) The following buildings and lands or portions thereof shall not be deemed to be solely occupied and used for public worship or for a public charitable purpose within the meaning of clause (b) of sub-section (1), namely :-
[a] buildings or lands or portions thereof in which any trade or business is carried on; and
[b] buildings or lands or portions thereof in respect of which rent is derived whether such rent is or is not applied solely to religious or charitable purposes.
(3) Where any portion of any building or land is exempt from the general tax by reasons of its being solely occupied and used for public worship or for a public charitable purpose such portion shall be deemed to be a separate property for the purpose of municipal taxation."
In fact there cannot be any doubt that the plaintiff is covered by Section 132(1)(b). In fact to my mind every charitable institution or trust would be covered by Section 132(1)(b). The question is whether certain property of charitable trust falls out of the exemption clause. If it does not fall under Section 132(2)(b) it is certainly exempt.
10. Plaintiff is a public charitable trust and runs a school. Supreme Court in the decision reported in Municipal Corporation of Delhi Vs. Children Book Trust With Safdarjung Enclave Education Society Vs. Municipal Corporation of Delhi, (1992)3 Supreme Court Cases 390, dealing with similar question has observed as follows :
"12. Education per se is a charitable purpose. Therefore, even if the school charges a fee, that would be irrelevant. The society must satisfy the following conditions:
(i) That is supported by voluntary contributions;
(ii) applies its own income to promote its objects; and
(iii) it does not pay dividend to any other members.
Two classes or societies could be thought of :
(i) Where members receive full value for their contribution.
(ii) Society for private gain.
For the application of Section 115(4) two tests are :
(i) In relation to explanation education per se charity.
(ii) In relation to the proviso, distributive in nature.
25. Where the bye-laws of a society permit application of profits for private purpose or payment of dividend to its members that undoubtedly would be disqualified from claiming exemption. As laid down in Girls' Public Day School Trust Ltd. V. Minister of Town and Country the object of the proviso when it insists on support by voluntary contribution wholly or in part, is to disqualify mutual benefit societies. Voluntary contributions would, therefore, mean contributions other than those made by beneficiaries of the services. Reliance is placed on Overseers of the Proof and Chapelwarden of the Royal Precinct of the Savoy in the County of London V. Art Union of London and Institution of Mechanical Engineers V. Cane (Valuation Officer) The last submission of the learned counsel is, the expression 'support' does not, in any manner, connote sustenance otherwise it would not make even partial support qualify for exemption. The word "support", therefore, must mean which enriches the society itself or relieves it of a burden or furthers its objects or powers as laid down in Cane (Valuation Officer) V. Royal College of Music. Thus it is submitted that the approach of the high Court is incorrect and warrants interference.
32. The argument, that the transfer of funds to the society by the school can be regarded as voluntary contribution received by the society, is wrong. The Delhi School Education Act does not create the school into a specific juristic entity different from the society. The Act only males regulations in the matter of running the school and the service conditions of the employees. Indeed, the Act itself imposes a condition that the school must be run by a society or a body under Rule 50. Further the Managing Committee of the school shall act under the control and supervision of the society which runs the school. Consequently, if the funds of the school were transferred to the society, it would only amount to transfer of funds from one account to another, both under the control of the same society."
Plaintiffs, we have seen are running a school and it is in respect of this school that exemption is sought by the trust. Supreme Court even observed that even if a school charges fees that would be irrelevant and trust would continue to be a charitable trust, as long as it applies the profits received, for the charitable purpose, and does not divide it or pay it to the members. Plaintiffs have placed on record the accounts of the Audited Reports for the year ending 31/03/1992, 31/03/1993 and 31/03/1995. Those audited accounts certainly go to show that any surplus of that particular year was transferred to the trust fund. Exh.49 the audited account shows so. It is thus clear that three conditions as laid down in para 12 are certainly fulfilled. Similarly the bye laws do not permit the profits to be applied to private purpose or to pay the dividend. In the circumstances it must be held that plaintiff is a charitable trust covered by Section 132(1)(b).
11. This takes me to consider now if the school building as such is a building covered by Section 133(2)(b). According to Mr. Pathan learned counsel for the respondent, school is receiving the grant-in-aid as well as rent from the Government which is transferred to the trust fund. He submits that school building is therefore a building which derives income and therefore falls under Section 132(2)(b). P.W.1 does admit that the Government pays some amount towards rent to the school along with grant-in-aid. This amount which is paid by Government cannot be treated as a rent in the strict sense and also for the purpose of the Act. The premises are not let out to Government and Government is not paying that amount as a premium, to the school or the Society. Government providing a sum of Rs.4,000/- towards rent is nothing but an aid to a grant-in-aid school. Whenever a school receives a grant as such, it cannot be treated as a source of income as such said grant is given for the proper upkeep of the building and nothing more than that. Any building owned by the charitable trust would fall under Section 132(2)(b) only if the charitable trust lets out that part of the building to a third person and receives rent as a premium for such letting out of the premises. A bare reading of Section 132(2)(b) would make it clear that the trust must derive the rent as an income from such letting. There is no letting of the building by plaintiff No.1 to plaintiff No.2 nor there is such a letting to a third person and the amount that is received by the plaintiff No.2 is not by way of premium for letting out. This Court had an occasion to interpret Sections 132(1)(b) and 132(2)(b). This Court in Balkrishna Vora (Plaintiff) Vs. Poona Municipal Corporation (Defendant), 1963 Maharashtra Law Journal 325, observed as follows :
"5. It is argued that the plaintiffs recover rent from the occupants of the Sanatorium, and, therefore, a general tax must be levied under section 132 of the Act. The actual words used in the section, therefore, fall to be considered. The section is as follows :-
"(1) The general tax shall be levied in respect of all buildings and lands in the City except-
(b) buildings and lands or portions thereof solely occupied and used for public worship or for a public charitable purpose;
(2) The following buildings and lands or portions thereof shall not be deemed to be solely occupied and used for public worship or for a public charitable purpose, namely-
(b) buildings or lands or portions thereof in respect of which rent is derived, whether such rent is or is not applied solely to religious or charitable purposes."
The real dispute centres round sub-clause (b) of sub-section (2) and the question is whether the properties fall within the category of those for which "rent is derived, whether such rent is or is not applied solely to religious or charitable purposes". The intention of the Legislature is to distinguish between two kinds of properties even though it might appear that the properties are being applied to charitable purposes. Clause (b) of sub-section 1 exempts buildings or lands which are solely occupied for the purpose, and an exemption is created to that clause by sub-clause (b) of sub-section (2) in cases where rent is recovered but which rent is used for the purposes of some charitable purpose, the difference being that in the first case the land or building is directly applied for a charitable purpose or for worship, while in the second case the property is indirectly applied for the worship or charitable purposes. This can be well illustrated by taking one or two concrete examples. In the case of the temple which is used for public worship and for housing the deity, the temple is clearly used directly for the public purposes. Supposing, however, that some shops are attached to the temple which are given to shop-keepers who pay rent and such rent is applied for the use of the temple. The shops, in such a case, the income of which is used for the religious purpose, would fall within clause (b) of sub-section (2) and would be liable to tax. But if instead of the premises being shops, if they are Dharamshala rooms were visitors are given shelter without any charges, or such nominal charges as are necessary for the up keep of the buildings, then they would fall within clause (b) of sub-section (1) and would not be liable to tax. To take another case, suppose an educational institution has got some property under its control which is being rented and the income derived from the rents is utilised for its purposes. In this case again, the property is not directly applied to the public purpose but only its income, that is, the property is indirectly applied for the public purpose, and, therefore, will fall within clause (b) of sub-section (2). The question, therefore, in each case that must be considered is whether the lands or buildings are directly applied for worship or for charitable purpose. It is to this question, therefore, that we must address ourselves."
12. The illustration as given by the Division Bench would make it clear that the premises which are to be taxed must fetch income to the trust. We have seen that the premises are not let out by defendant No.1 to defendant No.2 or to any third party. The plaintiff cannot therefore be said to be deriving an income from the premises. Building in question is, therefore, exempt from the property tax. I would, therefore, concur with the findings recorded by the Judge of the trial Court and set aside the findings recorded by the first appellate Court. The appeal is, therefore, allowed. Judgment and decree of the first appellate Court is set aside and that of the trial Court restored. No order as to costs.
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