Legal Opinion

Legal Methods
Pranvika Bedi
Roll No. 214020

Word Count exclusive of footnotes and statement of facts= 2060

To: Major General Faizal Khan and Mr. J.P. Singh

From: Anurag Basu
Re: Exemption from tax payable on property-claim
Date: 22nd September
Questions Presented
Whether the land owned by the Indian Army, Department of Defence can be considered
government property so as to be exempted from property tax levied by the municipality,
under article 285 of the Indian Constitution. Also, can the Diphu Test Range, a land owned
BADL(Bharat Aeronautical Development Limited) face exemption from property tax levied
by the municipality, on account of the being property of the union under article 285?
Brief Answer
Yes, Karbi Anglong Area(Indian army) an area, owned by the Ministry Of Defence can be
exempted from paying tax on property in accordance with article 285 of the Constitution Of
India. The Ministry Of Defence is run under the auspices of the Government of India and the
land owned by the Defence Ministry automatically becomes the land owned by the
government.
No, Diphu Test Range, BADL, a company floated by the government of India cant be
exempted from paying the property tax under article 285 of the constitution of India. The
government company as a corporation is a different legal entity with an individual corporate
responsibility and autonomy. It cant be equated with the Central Government of India and
the land doesnt belong to the Government.
Statement of Facts
The State Government of Karbi Anglong, a newly created State, through an executive
notification created 6 Municipalities for the 6 major towns in the new state. The State
Government also issued a notification on the same day providing that all the municipalities
will thereby be subjected to exact property tax from the immovable properties situated in
their respective jurisdictions. The newly constituted Municipality of Diphu sent a notice to
the Office of the General Officer Commanding, Karbi Anglong Area, Indian Army, claiming
Property Tax on the land owned by the Ministry of Defence through the Indian Army in
Diphu town. An identical notice was served to the Director, Diphu Test Range, Bharat
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Aeronautical Development Limited (BADL), a government company floated by the Ministry

of Defence for carrying out research in military aeronautics and armament development. The
Government of India owned 74% of the share capital in BADL and the Secretary, Ministry of
Defence functioned as the Chairman of the Board of Directors BADL. Major General Faizal
Khan, GOC, Karbi Anglong Area, Indian Army and Mr. JP Singh, Director, Diphu Test
Range, BADL want to know whether the municipality of Diphu can impose tax on property
owned by the Indian Army and BADL.
Statement of Issues
A. Whether the municipality of Diphu town can impose tax on the property owned by the
Indian Army (Ministry of Defence) in consonance with article 285 of the Indian
Constitution.
A.1. Whether ownership of the Karbi Anglong Area, owned by the Ministry of
defence vests with the Government of India.
B. Whether the municipality of Diphu town can impose tax on the property owned by
BADL in consonance with article 285 of the Indian Constitution.
B.1. Whether the ownership of the property of Bharat Aeronautical
Development Limited vests with the government of India.
Discussion
A. Karbi Anglong Area, Indian Army(Ministry Of Defence)
The taxes on lands and buildings fall in the State List of the Constitution of India. Entry 49
of the Seventh Schedule (List II) of the Constitution of India authorizes the state legislature to
levy taxes on lands and buildings.1 The State legislatures devolve power and further assign
the taxing power to the municipal governments within their jurisdiction2
Article 243X (a) stipulates that subject to provisions of the constitution, the legislature of the
state may, by law, authorize the municipalities with powers to levy, collect and appropriate
taxes.3
The municipality of the Diphu town has the power to impose tax on the area owned by the
ministry of defence in pursuance of the notice sent to it in conjunction with article 243X (a)
1 Schedule 7, the Constitution of India.
2 Durga Das Basu, Shorter Constitution Of India, 2389 (14th Ed, 2009).
3 Durga Das Basu, Commentary On The Constitution Of India, 8606 (8th ed., 2011).
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of the constitution of India. By any authority within the state implies that exemption
relates not only to taxes imposed by the State itself, but by subordinate bodies
like municipalities and other local authorities4

Accordingly, the Diphu municipality sought property tax from the Karbi Anglong Area,
Indian Army (Ministry Of Defence). The issue here is whether or not the property mentioned
above belongs to the Government of India and whether tax can be imposed on it.
Tax exemptions vary from state to state and from one municipality to another.5 One of the
exemptions universal to almost all municipality acts is exemption form property owned by
the central governments. Article 285 of the Indian Constitution provides exemption from
property tax to all properties belonging to the union. Article 285(1) debars a state or any
authority within the state from taxing property of a union;6 property used in general sense
meaning all kinds of property movable, immovable, tangible and intangible.7 The exemption
of tax on property enjoyed by the government of India is unqualified. The article exempts
property of the union from all taxes levied by state or any authority within the state8
State of Punjab v. Raja Ram9 held that a Government department has to be an organisation
which is not only completely controlled and financed by the Government, but has also no
identity of its own. The money earned by such a department goes to the exchequer of the
Government, and losses incurred by the department are losses of the Government. The
Ministry Of Defence is indistinguishable from the government of India. The property being
discussed, i.e. the Karbi Anglong Area, the bastion of the Indian Army is owned by The
Ministry of Defence.10 It works directly under the auspices of the Central Government.11 The
4 Governor General In Council V. Corporation Of Calcutta AIR 1948 Cal 116 (122).
5 Property Tax System in India: Problems and Prospects of Reform, National Institute of Public
Finance and Policy, available at http://www.nipfp.org.in, last seen on 21/09/2014.
6 Article 285, the Constitution of India.
7 Mamata Rao, Constitutional Law, 655(1st ed., 2013).
8 Dr. Subhash C. Kashyap, Constitutional Law Of India, 1925( 2nd ed., 2008).
9 AIR 1981 SC 1694 (Herein After Raja Ram)
10 Denel(Propriety) Limited V. Bharat Electronics Ltd And Another (2010) 6 SCC 394
11 Ministry Of Defence, Government Of India, available at http://mod.nic.in/, last seen on 21/09/2014
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Ministry of Defence is an enterprise of the government of India12 It is charged with coordinating and supervising all agencies and functions of the government relating directly
to national security. The Indian Armed Forces (including Indian Army, Indian Air Force and
the Indian Navy) is under the supervision of the Defence Ministry.
Therefore, the Karbi Anglong Area, Indian Army, owned by the Department of Defence is
considered to be a Property of the union, on account of the department being an enterprise,
an undertaking and a department under the Government of India.
In Union of India v the City Municipal Council,13 it was held that the property of the union
was exempt from all taxes imposed by the state or by any authority within the state under Art.
285 (1).14 In consonance with the above mentioned facts and article 285 of the Indian
Constitution, the property is exempt from the taxes.
In Corporation of Calcutta v. St. Thomas School15, the scope of immunity from taxation was
determined by two questions
a. Whether tax is claimed in respect of property?
b. Whether such property is vested in the Union Government16?
Both these questions are answered in the affirmative. The tax being considered is imposed
over the Karbi Anglong area whose ownership is vested with the Ministry of Defence,
Government of India. The immunity from exemption as per these requisites is fulfilled. The
Municipality will fail to exact property tax on Karbi Anglong Area owned by the MOD,
Government of India.
The functioning of the Ministry of Defence is synonymous with the functioning of the
Government of India. Therefore land owned by the Ministry of Defence is indirectly owned
by the government of India.

12Denel (Propriety) Limited V. Bharat Electronics Ltd And Another(2010) 6 SCC 394.
13 (1979) 2 SCC 1.
14 DD Basu, Commentary On The Constitution Of India, 9341 (8th ed., 2011).
15 AIR 1948 Cal 116 (119).
16 Corporation of Calcutta v. St. Thomas School, AIR 1948 Cal 116 (119).
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The above discussion alludes to the fact that Karbi Anglong Area is exempted from property
tax in lieu of article 285 of the constitution. The property belongs to the Union and the
municipality will fail to impose taxes.

B. Diphu Test Range, BADL (Bharat Electronics Development Limited)

BADL is a government company floated by the Ministry Of Defence for carrying out
research in military aeronautics and armament development. The government of India owns
74% of the share capital in BADL. The secretary, Ministry of Defence served as the
Chairman of the Board of directors BADL.
According to section 2(45) of the Companies Act 2013, a government company means any
company in which not less than fifty-one per cent of the paid-up share capital is held by the
Central Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments and includes a company which is
a subsidiary of a Government company as thus defined.17
BADL is, therefore, a government company incorporated under the Companies Act 2013. To
claim exemption from property tax, the area owned by BADL should deemed a property of
the union under article 285 of the Indian Constitution.
The immunity from state taxation applies to the central government and its departments but
not to incorporated companies 18 even though financed entirely by the government for
commercial activities. It was held in Food Corporation of India v. Angamali Municipality,19
that Food Corporation, though a statutory corporation is distinct and different from the Union
Government, its affairs, funds and properties are managed by on its own. Hence, the property
is not exempt from taxation under article 285(1) of the constitution.20

17 S.2 (45), The Companies Act 2013.

18 Western Coalfields Ltd. V. Area development Authority (1982) I SCC125.
19 AIR 1995 Ker 94.
20 see also Paradip Port Trust V. Notified Area Council AIR 1990 Ori 145; International Airport
Authority Of India V. Municipal Corporation AIR 1991 Del 302.
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Since the immunity from property tax is confined to property vested in the union 21, it follows
that immunity under this article cannot be claimed by the property owned by BADL, which is
a separate legal entity. Properties of government companies is subject to state taxation, except
when such a company is agent of the government 22BADL is an independent enterprise which
is not synonymous with being an agent of the government of India.
In Raja Ram, Supreme Court held that the Corporation was not a Government department.
A Government department has no identity of its own. It is indistinguishable from the
Government of India. The Corporation on the other hand is an autonomous body capable of
acquiring, holding and disposing of property, and having the power to contract. It may also
sue and sued in its own name and the Government does not figure in any litigation to which it
is a party. It is true that its original share capital is provided by the Central Government and
that many of the members of its Board of Directors are appointed by that Government. But
the Corporation is an individual: is apart from the Government, so that it cannot be equated
with the Central Government.
Taking cue from Raja Ram, we can positively conclude that BADL as a government
company is synonymous with a corporation which is not bounden to the central government
and enjoys a distinct character of its own. This case also exemplifies that even though the
secretary, Ministry of defence served as the chairman of board of directors of BADL; it
doesnt take away form BADL its individuality as a juristic person and still relegates the
government of India as only a shareholder and not the controller of this company.
Lord Denning held in Tamlin v. Hanna ford,23
A government corporation is, of course, a public authority and its purposes, no doubt are
public purposes, but it is not a Government department nor do its powers fall within the
province of Government,"24 BADL as a corporation can be seen through the prism of this
statement and therefore it is distinguishable from the Government of India.

21 Supra 11.
22 Food Corporation. Of India v. Municipal Committee, Jalabad, (1999) 6 SCC 74; see also Dum
Dum Municipality v. Indian Tourism Development Corporation, (1995) 5 SCC 251.
23 (1950) 1 KB 18.
24 Food Corporation of India v. Angamali Municipality, AIR 1995 Ker 94.
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Merely because a substantial share capital (74%) in BADL was owned by the government of
India, doesnt entitle the government the ownership of the company. BADL (a Government
Company registered under the Companies Act is) has a distinct legal entity from the
Government of India (a shareholder) and the lands and buildings were vested in and owned
by BADL whereas the Government only owned the share capital.25Property of the company is
not the property of its shareholders.26
In Heavy Engineering Mazdoor Union vs. State of Bihar,27 it was held that an incorporated
company has a separate existence and the law recognises it as a juristic person, separate and
distinct from its members. In the eyes of law, a company registered under Companies Act
2013 is a different juristic person and an entity, owning its own properties, capable of
borrowing and lending monies and entering into contracts like any other corporation. In such
cases, the corporation registered under the Companies Act cannot invoke immunity under
article 285 and the local government can definitely levy taxes on them.28
Here, BADL, a government company, is a corporation with its own individuality and
autonomy. The company is liable to be held and dealt with in by the corporation without
reference to the central government at all.
Property owned by a Govt. company or a statutory corporation, having a corporate
responsibility of its own, cant be said to be a property of the union and may therefore be
liable to municipal taxation. 29
The property owned by BADL is not exempted from taxes in lieu of the above mentioned
facts and cases. Also the ownership of the Diphu test range is vested in BADL and not the
Government of India.
Conclusion:
25 Electronics Corporation Of India Ltd. V, Secretary, Revenue Department Government Of Andhra
Pradesh, (1999) 4 SCC 458.
26 Rustom Cavasjee Cooper vs. Union of India, 1970(1) SCC 248.
27 1969(1) SCC 765.
28 Dum Dum Municipality v. Indian Tourism Development Corporation, (1995) 5 SCC251.
29 I.A.A.I. v. Municipal Court, AIR 1991 Del 302, See also Hotel Corpn. Of India v. State of J&K, AIR 2001
J&K 36.

Based on these facts, the land owned by the Ministry Of Defence, an undertaking of the
Government of India will be exempted from paying tax on property, in lieu of article 285 of
the Indian constitution. The Ministry is equated with the government of India and remains
same for all practical purposes. Therefore, property owned by the Defence ministry becomes
property owned by the government.Whereas the test range owned by a government company
called BADL will not be barred from taxation by the municipality of Diphu town. Article 285
will not come to the rescue of BADL, an independent legal body. The property is vested in
BADL, a government company and not in its shareholder: the government of India.