Property Tax on Educational Institutions by Gram Panchayats. Karnataka High Court grants stay on property tax demand.

Indus Trust and Indus International School Private Limited vs State of Karnataka and another. Writ Petition 16323 of 2021. Order dated 7 September 2021. Writ Petition draft below:

MEMORANDUM OF WRIT PETITION UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA

The Petitioner above named humbly submits as follows:

1. In the present Writ Petition, the petitioner who has established an educational institution in the rural area challenges the action of the second respondent in imposing the property tax on the petitioner educational institution. The factual antecedents leading to the presentation of the Writ Petitions is stated as hereunder.

STATEMENT OF FACTS

2. The petitioner is a Trust registered under the Indian Trust Act. A true copy of the original and amended trust deeds of the petitioner dated 13:06:2001 and 25:08:2011 are produced herewith marked Annexure-A and Annexure-B respectively for the kind perusal of this Hon’ble court. The petitioner has established the following educational institutions in the rural area and outside the jurisdiction of the Bruhat Bangalore Mahanagara Palikein.
3. Permissions no objection certificate granted by the authorities concerned to establish the educational institutions dated 24:01:2003 and certificate dated 27:09:2018 issued by the government of Karnataka are produced herewith marked Annexure-C and Annexure-D respectively. It is submitted that the petitioner has established the educational institutions in the rural area with the intention of eradicating illiteracy in the rural areas of the State. The petitioner also provides free education / education at concessional fee to hundreds of children studying in the educational institutions run by the petitioner. Every year the Management Board of the educational institutions selects the students from economically weaker sections from its management quota and imparts education.
4. Under the Karnataka Municipal Corporations Act (hereinafter, KMC Act), the educational institutions are exempted from payment of property tax. Relevant portion of Section 110 of the KMC Act reads as here under.
5. General exemptions.- (1)1 The following buildings and lands shall be exempted from the property tax:-
   (i) building or lands exclusively used for,- (a) students hostels which are not established or conducted for profit; (b) educational purposes by recognised educational institutions;

(2) Notwithstanding the exemptions granted under this section it shall be open to the corporation to collect service charges for providing civic amenities and for general or special services rendered at such rates as may be prescribed.

5. The legislative intendment granting exemption is quite understandable. Imparting Education has always been treated as a religious obligation. It is considered as a charity. Even the judicial pronouncements have recognised and reiterated this facet. Much before the judgments of the Hon’ble Supreme Court in T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481and P.A. Inamdar v. State of Maharashtra, (2005) 6 SCC 537 this Hon’ble Court in BapujiEducational Association vs State of Karnataka recognized the fundamental right of the educational institutions to establish the institutions. The Hon’ble Court observed that “There can be no two opinions as to the yeoman service rendered by all those who have devoted their energy, mind and money with an intense desire to provide higher educational facilities mainly for the benefit of the needy students belonging to a specified backward region or caste or community and through it the society for whose benefit persons with higher technical education would be available.”
6. This Hon’ble Court in The Town Municipal Council, Mulki vs Vijay College, Mulki = Writ Petition 5381/1979 decided on 13:12:1985 considered the question as to whether the buildings which are exclusively used for education could be subjected to building tax under Section 94 of the Town Municipality Act. Answering the question in the negative, this Hon’ble Court held that levy of property tax by the Town Municipal Council on the buildings belonging to the education institution should be struck down and ordered accordingly. A true copy of the said judgment is produced herewith marked Annexure-E.
7. The Constitution bench of the Hon’ble Supreme Court in T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481,recognized the right to establish & run the educational institutions as a fundamental right under the Constitution of India. The Hon’ble Supreme Court held that the establishment and running of an educational institution where a large number of persons are employed as teachers or administrative staff, and an activity is carried on that results in the imparting of knowledge to the students, must necessarily be regarded as an occupation. Education, per se, fall under Article 19(1)(g) “Occupation”. Occupation is an activity of a person undertaken as a means of livelihood or a mission in life. The right to establish and maintain educational institutions is also sourced to Article 26(a), which grants, in positive terms, the right to every religious denomination or any section thereof to establish and maintain institutions for religious and charitable purposes. Education is a recognized head of charity. Therefore, religious denominations or sections thereof, which do not fall within the special categories carved out in Article 29(1) and 30(1), have the right to establish and maintain religious and educational institutions. This would allow members belonging to any religious denomination, including the majority religious community, to set up an educational institution. Given this, the phrase “private educational institution” would include not only those educational institutions set up by the secular persons or bodies, but also educational institutions set up by religious denominations. Education used to be charity or philanthropy in good old times and the tradition continues. Even now, imparting education has come to be a mission in life for some altruists. This declaration is followed by the Hon’ble Supreme Court in P.A. Inamdar v. State of Maharashtra, (2005) 6 SCC 537.
8. It is with laudable backdrop that the Legislative intendment has to be construed in exempting the educational institutions from the property tax considering the yeoman service being rendered by these institutions. This character has not changed and imparting education continues to be a charity. There is no changed scenario to make a departure from the legislative intendment to strip the holy garb from the educational institutions and treat them as commercial entities.
9. Referring to the Karnataka Panchayat Raj Act, Section 199 of the Act controls the levy of taxes, rate etc., by Gram Panchayats. Sub-section (1) states that the manner and subject to such exemptions, as may be prescribed, the Gram Panchayat could levy taxes not exceeding the maximum rate specified in Schedule IV, upon buildings and lands not subject to agricultural assessment within the limits of the Panchayat area. Schedule IV to the Act at Sl. No. 1 states that tax on building shall be at the maximum rate of 10% of the annual value (per annum) and the explanation states that the word ‘annual letting value’ means the annual rent for which any building or land, exclusive of furniture or machinery contained or situated therein or thereon, might reasonably be expected to be let from year to year.
10. It is submitted that the State Government, in exercise of the power conferred under Sections 199, 200 and 201 framed Taxation Rules’ which came into force in the year 1995. Rule 3 under Chapter II provides for procedure to levy tax on building and land. Sub-rule (1) states that every Gram Panchayat shall, before levying taxes on buildings and lands under Sub-section (1) of the Section 199, pass a resolution to levy the taxes; publish a notice of such resolution by affixing copies thereof on the notice board of the office of the Gram Panchayat and at other conspicuous places in the panchayat area, specifying therein, the rate of tax and the date not earlier than thirty days from the date of such publication, with effect from which, the said taxes shall be levied and also announce by beat of drum in the Panchayat area the fact of such publication. Sub-rule (2) provides that the taxes under Sub-rule (1) shall be levied for any year or part thereof and shall be paid for every quarter commencing from the 1st day of April, 1st day of July, 1st day of October, and 1st day of January of the year. Rule 5 provides for rate of tax to be levied on the building at 10% of the annual letting value of such building, per annum; while Rule 6 provides for exemptions.
11. Sub-rule (c) of Rule 6 provides exemption for buildings and lands used solely for charitable or public religious purposes and not let out for rent, under Sub-section (1) of Section 199.
12. It is the submission of the petitioner that the second respondent Gram Panchayat is not competent to levy any tax on buildings which are exclusively used for charitable purposes and in this case, education. The petitioners submit that this Hon’ble Court in Writ Petition 5381/1979 decided on 13th December 1985 held that education as a charitable purpose. This Hon’ble Court relied on the judgment of the Hon’ble Supreme Court in SidhrajbhaiSabbai v. State of Gujarat, (1963) 3 SCR 837 and AIR 1976 S.C. 10 The Sole Trustee Lokashikshana Trust vs The Commissioner of Income Tax, Mysore where the Hon’ble Supreme Court was dealing with the interpretation of ‘education’ occurring in Section 2(15) of the Income-Tax Act, 1961. Under that definition, ‘charitable purpose’ includes, relief to the poor, education, medical relief and the advancement of any other general public utility not involving the carrying of any activity. The Hon’ble Court held, that the term, ‘education’ as used in Section 2(15) of the Act has a wider and more comprehensive meaning than education through educational institutions, such as, universities, whose income is exempted from income-tax under Section 10 of the Act. The question that arose in that case was: whether the appellant-trust was entitled to exemption? The sole trustee, the appellant, before the Supreme Court, had claimed that the publication of a newspaper cannot be treated as solely an activity for profit, but the publication of news and the dissemination of the information should be construed as predominantly for educational purpose in its ordinary and usual sense.
13. This Hon’ble Court framed the following question for consideration;

a) Whether the buildings which are exclusively used by the respondent institution for education could be subjected to building tax under Section 94 of the Town Municipality Act?
This Hon’ble Court ultimately held that the levy of property tax by the Town Municipal Council, Mulki, on the buildings belonging to the respondent-institution should be struck down.

14. When the things stood thus, the second respondent Gram Panchayat issued a letter dated 01:03:2019 and a demand notice dated 07:03:2019. A true copies of the said letter dated 01:03:2019 and notice dated 07:03:2019 are produced herewith marked as Annexure-F and Annexure-G respectively. The petitioner submitted a reply on 07:03:2019 to the 2nd respondent seeking exemption from payment of property tax since the buildings are exclusively used for educational purposes. The petitioner institution replied to the demand notice by letter dated 22:03:2019 and paid a sum of Rs. 10,00,000/- (Rupees Ten Lakhs Only) under protest. A true copy of the letter dated 22:03:2021 is herewith marked and produced as Annexure- H.
15. The petitioner is aggrieved by the imposition of property tax on educational institutions run by the petitioner. The imposition of property tax on the educational institutions which are run on no-profit basis is highly illegal. In the absence of alternative, efficacious remedy left open for the redressal of their grievances, the petitioners have invoked the extraordinary jurisdiction of this Hon’ble Court under Article 226 of the Constitution of India. The following grounds are stated in support of the writ petition.

GROUNDS

16. That the 2nd Respondent has no power, competence or jurisdiction to impose the property tax on the educational institutions. This is so having regard to the judgment of this Hon’ble Court mentioned above. The Hon’ble Supreme Court in its latest judgment in Society for Unaided Private Schools of Rajasthan v. Union of India, (2012) 6 SCC 1, at page 28 held that an educational institution is charitable and that advancement of education is a recognized head of charity. Imparting education cannot be compared to any other commercial activity which attracts payment of tax. This is the main reason why a specific provision is made under the KMC Act.
17. It is settled that establishing and administering of an educational institution for imparting knowledge to students is an occupation, protected by Article 19(1)(g) and additionally by Article 26(a), if there is no element of profit generation. As of now, imparting education has come to be a means of livelihood for some professionals and a mission in life for some altruists. The submission is that education is a recognised head of charity. The object of establishing an educational institution is not to make profit. Imparting education is essentially charitable in nature. The charitable nature of the occupation of establishing and running an educational institution has been recognised in Pai Foundation. Therefore, all restrictions, which are permissible under Article 19(6) in case of other kinds of professions and occupations, cannot apply to educational activities. It is submitted that restrictions imposed should satisfy the requirements of Article 30 and not only of Article 19(6).
18. InT.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481 the Hon’ble Supreme Court held that article 19(1)(g) employs four expressions viz. profession, occupation, trade and business. Their fields may overlap, but each of them does have a content of its own. Education is per se regarded as an activity that is charitable in nature. Education has so far not been regarded as a trade or business where profit is the motive.
19. In view of the above settled legal position, the impugned demand of the second respondent is illegal, without jurisdiction and wholly unconstitutional and the same is liable to be quashed.
20. That the Petitioners have not approached this Hon’ble high Court earlier or any other forum challenging the impugned orders that is under challenge in the above Writ Petition.

GROUNDS IN SUPPORT OF INTERIM PRAYER

21. The statement of facts made above and the legal grounds urged demonstrate that the imposition of property tax under the impugned demand notice and the Circular is prima facie illegal and unconstitutional. The petitioners’ only source of revenue is the fee being collected from the students. The additional huge burden cannot be shifted on the students at this juncture. The 2nd respondent has threatened legal action against the petitioner if the demand is not complied with. If the respondents were to take coercive action against the petitioner, great hardship would be caused to the petitioner. Hence, it is just and proper that this Hon’ble Court be pleased to pass appropriate interim order as prayed for, in the interest of justice and equity.

P R A Y E R

The petitioners pray for appropriate writ order or direction;

i) Quashing the demands for property tax made on the petitioner by the 2ndrespondent by its letters dated 9:5:2017 and 13:9:2017 copies produced at Annexure-F and Annexure-G respectively;

ii) Quashing the Circular dated 19:11:2016 bearing no GraAaPa 939 Pra Pam Aa 2016(1) issued by the first respondent copy produced and marked Annexure-J in so far as it imposes property tax on the educational institutions falling within Gram Panchayat area AND

iii) Pass such and further relief/s as this Hon’ble Court may deem just and necessary in the facts and circumstances of the case in the interest of justice and equity.
 
INTERIM PRAYER
Pending the adjudication of the present writ petition, the Petitioners pray that this Hon’ble Court be pleased to stay

(i) the demands for property tax made on the petitioner by the 2nd respondent by its letters dated 01:03:2021 and 07:3:2019 copies produced at Annexure-F and Annexure-G respectively

(ii) Circular dated 19:11:2016 bearing no GraAaPa 939 Pra Pam Aa 2016(1) issued by the first respondent copy produced and marked Annexure-K in so far as it imposes property tax on the educational institutions falling within Gram Panchayat areain the interest of justice and equity.

BANGALORE
DATED ADVOCATE FOR PETITIONER