Lawyers’ office not a commercial activity
For quite some time the
discussions entailed about whether a lawyer’s office shall be deemed to be a
commercial establishment or by virtue of its nature of rendering services to
society it should not be treated as commercial establishment, Whether
profession of lawyer could be treated as any other business so as to attract
property tax imposed by a municipal corporation, as applicable to a commercial
establishment and to that extent remained a bone of contention. The Delhi High
Court in W.P. (C) 60/2014 has categorically
held that services rendered by
advocates are professional activities and cannot be classified/ categorized or
be subject to tax under the category of business establishment or professional
establishment. Merely, because, a lawyer uses his residence for
working as a lawyer, that shall not imply that the same should be treated as
commercial establishment. The said judgment was challenged by South Delhi
Municipal Corporation before the hon’ble Division Bench and now the hon’ble
Division bench in LPA No. 564/2015 and in a matter captioned as SOUTH DELHI MUNICIPAL CORPORATION (SDMC) versus B N MAGON has
upheld the judgment passed by the ld Single judge, thus settling the dust
again.
At the outset it may
be worthwhile to pinpoint the operative part of judgment rendered by ld Single
Judge in B N MAGON
W.P. (C) 60/2014 (Supra) . The same is as
under:
“67. For
the aforesaid reasons, this Court is of the view that if MPD 2021, DMC Act,
1957 and Bye-Laws, 2004 are read harmoniously, it would be apparent that where
a professional activity is carried out by a professional belonging to a
category and within the parameters mentioned in Clause 15.8 of MPD 2021, then
the user of premises remains predominantly residential and the said property
cannot be assessed to property tax
as a „business building‟.
“68.
Consequently, present petition is allowed and the impugned Assessment Order
under Section 123D of DMC Act, 1957 passed on 22nd November, 2013 and issued on
11th December, 2013 bearing no. TAX/A&C/ SZ/2013/1139/10860 passed by Jt. Assessor
& Collector, South Zone, R.K. Puram fixing value at Rs.60,000/- w.e.f. 1st
April, 2004 as well as the demand, if any computed on the said basis along with
levy for Assessment Years2004-05 to 2012-13 in respect of property bearing no.
E-403, Greater Kailash-II, New Delhi-48 are quashed. The pending application also stands disposed of.”
The
SDMC had contended that clause 15.8 of
MPD 2021 apropos professional activity does not in any way circumscribe the
powers of the Corporation under sections 115 and 115A of the Delhi Municipal
Corporation Act, 1957 (DMC Act‟)
which read as under:
“115. Exemption of vacant lands and buildings from property tax.
(1) Save
as otherwise provided in this Act, property tax shall be levied on all vacant
lands and buildings in Delhi except (i) vacant lands and buildings (other than
dwelling houses) exclusively used for agricultural purposes in accordance with
the guidelines prescribed in the bye-laws;
(ii) any
vacant land or building included in any village abadi, which is occupied for
residential purpose by any original owner or his legal heir, subject to a
maximum of one hundred square metres of covered space;
(iii)
vacant lands or buildings or portions thereof exclusively used for the purpose
of public worship;
(iv)
vacant land or buildings or portions thereof, exclusively occupied and used,
with the approval of[the Corporation]], for the purpose of public charity as
may be specified in the bye-laws or for the purpose of medical relief to, or
education of, the poor, free of charge;
(v)
vacant lands or buildings exclusively used for the purpose of public burial or
as cremation ground, or any other place used for the disposal of the dead, duly
registered under this Act;
(vi) such
heritage lands or buildings as are specifically notified for exemption by the
Corporation as also such premises as are so specified by the Archeological
Survey of India;
(vii)
vacant lands and buildings owned exclusively by war widows, gallantry award
winners in Defence Forces, Police and Paramilitary Forces as also civilians who
have received bravery awards of the highest order from the Government including
Annual Bravery Awards given by the President:
Provided
that the exemption shall be subject to the condition that
(a) The
premises in question is in self-occupation for residential use and no portion
thereof is let out for any purpose, whatsoever;
(b) In
case the person concerned has more than one property in Delhi, the exemption
shall be applicable to only one property which is permanently used for self-residence;
(c) The
benefit of exemption shall be limited to the life time of the person concerned,
except where the award has been granted posthumously, in which case the exemption
will be granted to the widow of the gallantry award winner;
(viii)
vacant lands and buildings owned by, or vested in, the Corporation but not
leased out or rented out, and in respect of which the property tax, if levied, would,
under the provisions of this Act, be leviable primarily on the Corporation.
[115A. Unit of assessment.—
(1) Every building and every vacant land
shall be assessed as a single unit:
Provided
that where portions of any building or vacant land are separately owned so as
to be entirely independent and capable of separate enjoyment, notwithstanding
the fact that access to such separate portions is made through a common passage
or a common stair case, as the case may be, such separately owned portions may
be assessed separately.
(2) All
buildings, to the extent they are contiguous or are within the same cartilage
or are on the same foundation and are owned by the same owner or co-owners as
an undivided property, shall be treated as one unit for the purpose of assessment
under this Act:
Provided
that if any such building is sub-divided into separate shares which are not
entirely independent and capable of separate enjoyment, the Commissioner may,
on application from the owners or the co-owners, apportion the valuation and
assessment of such building among the co-owners according to the value of their
respective shares, treating the entire building as a single unit.
(3) Each
residential unit with its percentage of the undivided interest in the common
areas and facilities, constructed or purchased and owned by, or under the
control of, any housing co-operative society registered under any law regulating
co-operative housing for the time being in force, shall be assessed separately.
(4) Each
apartment and its percentage of the undivided interest in the common areas and
facilities in a building within the meaning of any law regulating apartment ownership
for the time being in force, shall be assessed separately.
(5) If
the ownership of any vacant land or building or any portion thereof is
sub-divided into separate shares, or if more than one adjoining vacant land or
building or portion thereof comes under one ownership by amalgamation, the Commissioner
may, on an application from the owner or the co-owners, as the case may be,
separate, or amalgamate, as the case may be, such vacant land or building or
portion thereof so as to ensure conformity with the provisions of this section.
(6)
Notwithstanding any assessment made in respect of any vacant lands or buildings
before the commencement of the Delhi Municipal Corporation (Amendment) Act,
2003, the Commissioner may, on his own or otherwise, amalgamate, or separate,
or continue to assess, such vacant lands or buildings or portions thereof so as
to ensure conformity with the provisions of this section.
(7) The
Commissioner shall, upon an application made in this behalf by an owner,
lessee, sub-lessee, or occupier of any vacant land or building and upon payment
of such fee as may be prescribed in the byelaws, furnish to such owner, lessee,
sub-lessee, or occupier, as the case may be, information regarding the apportionment
of the property tax on such vacant land or building among the several occupiers
of such vacant land or building for the current period of assessment or for any
preceding period of assessment:
Provided
that nothing in this sub-section shall prevent the Corporation from recovering
the arrear dues on account of property tax from any such person, jointly or severally.”
According to SDMC, the
corporation has powers to levy property tax on all lands
and buildings under its jurisdiction and unless specifically excluded, all the
activities in any building shall be put to tax. Further as per MPD clause 15.8,
clearly contains that user of professional activity would have to be in less
than 50% of the sanctioned FAR
The
said MPD clause reads as under:
“15.8 PROFESSIONAL
ACTIVITY
Subject to the general terms and conditions specified in para 15.4,
professional activity is permissible in plotted development and group housing
under the following specific conditions:
xxx
In group housing, and plotted development with multiple dwelling
units, professional activity shall be permitted on any floor subject to maximum
of 50% of
the permissible or sanctioned FAR, whichever is less, of each
dwelling unit.
iii. In the case of plotted development with single dwelling
unit, professional activity shall be permissible on any one floor only, but
restricted to less than 50%
of the permissible or sanctioned FAR whichever is less on that
plot.
It is held by the hon’ble Delhi High Court
that MPD, 2021 clearly permits professional activity in residential buildings,
subject to certain conditions. However, what is to be noted is that the said
provision of MPD, does not empower the Corporation to levy tax for professional
activity being carried out from residential buildings .Section 115 and 115A of
the DMC Act, as quoted hereinabove, empowers the MCD to levy taxes but only in
terms of and to the extent specified in the statute. Categories of buildings,
user-wise, have been defined under clause 9 (a) and (b) (i) and (ii) of the DMC
(Property Tax) Bye-laws, 2004, as under:
“....
9. Definitions of use-wise categories of
buildings. -For the purposes of clause (f) of
sub-section (1) of section 116 A, the usewise
(a)
"residential building" shall mean any building used for dwelling
purposes by a family/families/individual but excludes any premises for commercial
use including lodging, guest house, hotel or similar purposes:
(b)
"business building" shall mean any building or part thereof used for
transaction of business or for keeping of accounts and records or for similar
other purposes, and such buildings shall include:
(i) offices (other than
offices of Central Government, State Government and local bodies), banks,
professional establishments, court houses, and libraries for the principal function
of transaction of public business and keeping of books and records;
(ii) office buildings (premises) solely or
principally used as office or for office purpose;
and...”
THE
CONTENTIONS OF MCD
As
per the SDMC as regards i) a building or a part thereof is used for transaction
of business or for keeping of books, accounts and records, it shall be
considered as a “business building” and
therefore subject to levy of property tax;
AND
that a lawyer's services fall within the sphere of professional activity and,
that part of a building which is used for professional activity, would fall
within the definition of a 'business building' as per clause 9(b)(i) of the
Bye-laws; iii) that clause 9(b)(ii) categorically includes office buildings
premises solely or principally used as office or for office purposes; that the
definition of 'business building' or 'mercantile building' contained in other
statutes were extraneous to the determination of the annual value under the
Unit Area System of Property Tax;
AND
the ambit of that 'business building' was wide as well as inclusive under the
Delhi Municipal Corporation Act, 1957
AND
that activities being carried out by advocates/professionals are commercial and
non-domestic in nature, therefore the same are subject to tax and simply because
such activity is carried out from residential premises, as per permitted user
under MPD 2021, the activity would not become residential.
THE VIEWS OF
COURTS
The
hon’ble High Court has rejected the contention of SDMC (Now MCD) as it is held
to be ex facie untenable. It is so, because, there is no
such deeming provision in law, for taxation. As noted hereinabove taxation powers
have to be specifically mentioned and categories of taxable activity have to be
defined.
A Division Bench of the Bombay High Court in Sakharam Narayan Kherdekar v. City of
Nagpur Corporation and others AIR 1964 Bombay 200 wherein it has been held
that an office of an advocate is not covered under the expression „commercial
establishment‟ under the Bombay Shops and Establishments Act, 1948. The relevant portion of
the said judgment is reproduced hereinbelow:-
“26.
Thus, the very concept of any activity which can justly be called a commercial activity, must imply some investment
of capital and the activity, must run the risk of profit or loss. Understood in
this sense, therefore, we are inclined to hold that it is not every
establishment in the sense of premises or buildings where business, trade or profession
is carried on that is intended to be governed by the Act, but only those
premises though carrying on one or other of these kinds of activities which are
of a commercial nature……. There is no
precise definition of what a profession is,
but it is possible to gather what is meant by professional activities from
other pronouncements... ... ...
35. In
our opinion, enough has been stated above to indicate how the profession of an
Advocate is of a class apart, not only from other professions but also from any
other commercial activity in which a person may be employed. It is possible to
conceive of any commercial activities where services of a professional man like
engineer, or architect or draftsman may be utilised, but we cannot conceive of
commercial venture where services of a lawyer, not for his own benefit but as a
means of providing advice and legal aid to others on behalf of a corporation or
an organised body may be made available as part of their commercial activity.
The relations between a counsel and his client are not analogous to those of a
trader and his customer. The client is not his customer; there is a certain
fiduciary relation between them, when the counsel accepts a brief”.
It is thus held
further that a lawyer’s obligations do not end with the disposal of the case; they
continue so far as the lawyer is concerned. He has obligations not only to the
client but also to the Court, and generally to the administration of justice,
in which he performs a healthy and necessary function. It was thus observed
that the profession of a lawyer cannot be possibly carried out as a commercial
venture in any sense of the term. Moreover, part a lawyer plays in the administration
of justice partakes to some extent, of participation in discharging sovereign
or regal functions of the State. In this task the lawyer plays a vital and
important role. The court therefore rejected the contention of corporation that a lawyer's profession
is a kind of profession which can be said to be carried on as profession of
commercial nature. It is inherently improbable in the nature of things that the
profession of a lawyer could be viewed as a commercial venture. In. fact, the
commercial character of business, which is an essential condition of a
commercial activity is absent in the lawyer's profession.
The Delhi High
Court has further held that whether a lawyer works in his office or appears in Court,
it cannot be said that he is carrying on his profession in any of these places
where the activity can be said to be of a commercial nature. It is not a
commercial activity and the very nature of the work is such that it is
incapable of being of a commercial nature.
The Supreme Court in M.P.
Electricity Board and Others v. Shiv Narayan and Another (2005) 7 SCC 283,
wherein it has been held under:-
The expression
―commerce or ―commercial necessarily has a concept of a trading activity.
Trading activity may involve any kind of activity, be it a transport or supply
of goods. Generic term for almost all aspects is buying and selling. But in
legal profession, there is no such kind of buying or selling nor any trading of
any kind whatsoever. Therefore, to compare legal profession with that of trade and
business is a far from correct approach and it will totally
be misplaced.”
The Supreme Court has held that the “power to tax must be
express, else no power to tax”1. Under
the DMC Act there is no power to tax “professional activities” carried out
from residential buildings. Professional activities are permitted under MPD
2010, under certain conditions. The Master Plan has force of law2. The language
of section 116 A (1) of the DMC Act, 1957 does not include tax on professional activities.
Interestingly, clause 9 (b) (i) and (ii) of the Bye-laws refer only to „professional
establishment‟ but does not define the
expressions “professional‟ or “establishment‟.
The Supreme Court
in The Bangalore Turf Club Ltd. Vs. Regional Director, Employees State
Insurance Corporation (2014) 9 SCC 657 while holding that a
„race-club‟
is an establishment
for the purposes of ESI Act referred to words and phrases as well as Corpus
Juris Secundum and Dictionary meaning of the word „Establishment‟. The relevant
portion of the said judgment is reproduced hereinbelow:
“35.
Therefore, it can be simply stated that an “establishment” is a term
which can have a wide meaning. It would be any place where business is
conducted, or in other words, it would be any place of business.......”
Consequently, the expression “establishment‟ refers to those buildings which have a separate identifiable
existence and where business is conducted.
The Allahabad
High Court in Satya Prakash Singh and
Anr. vs. State of U.P. & Ors. Writ Petition No.16843/2011 also
set aside the assessment of the ground floor
portion as
commercial despite the fact that a Doctor was running a clinic therein. The
Allahabad High Court held that the work of a Doctor, Chartered Accountant or a
Lawyer or any Consultant, is a profession which is distinct from any trade or
business. The Allahabad High Court further held that running a clinic/dispensary/laboratory
from a residential area would not be covered by the expression “commercial
establishment‟ or a “shop‟ within the meaning of Sub-section (4)
and 16 of Section 2 of the Adhiniyam and its market value was not determinable
as a commercial building as provided under Rule 2(d) of the Rules.
In K. Kanagasabai vs. The Superintending Engineer, W.P.(C)
21731/2003 the Madras
High Court made a distinction between the office of a lawyer in a residence and
an office of a lawyer in a commercial place.
“52.
The distinction between “professional activity” and “professional establishment‟ can be illustrated by the
following example.
A “professional‟s
office‟ would be a “professional establishment‟
when the usage of
the office space is in excess of the conditions stipulated in Clause 15.8 of
the MPD 2021 or if the said office is situated in a building designated as
commercial or business in the MPD 2021 and Zonal Plan. In the opinion of this
Court, a premise would not become business premise just because a lawyer read
his office file or did some official work at his residence”.
The
Professional activity‟ as defined and permitted by the MPD 2021 has not been diluted or subject to tax
by Bye-law 9(b). After all, the intent the authorities could not have been to
take back the concession given by the MPD 2021 in Clause 15.8 in the form of permissible
activity by levying property tax!”
As
regards the professional activity and professional services rendered by advocates,
a Division Bench of the Bombay High Court has in Sakharam Narayan Kherdekar v. City of Nagpur
Corporation & Ors., AIR
1964 Bombay 200, has held
that the discharge of professional activities by advocates
would not be covered under the expression “business” nor would it be
professional establishment because the word “establishment” would only refer to as “shops‟ as defined in the Bombay Shops and Establishment Act, 1948.
It
was thus held that no tax can be levied in the absence of a statutory empowerment.
The MCD‟s powers to levy property tax are embodied in Section 115 and
115-A of the DMC Act. The Byelaws have been enacted under Sections 481 and 483
of the Act. Clause 9 of the Bye-laws, as noted hereinabove, defines the
categories under which property tax can be levied. Rate of taxation is another
issue but for taxation to extend to a class of activity, such activity must be
specified, defined and included in that class/category. Neither the Act nor the
Byelaws define “professional activity” carried out
by advocates, architects and doctors, etc.
A
Constitution Bench of the Supreme Court in Commissioner of
Customs and Others vs. Dilip Kumar and Company and others (2018)
9 SCC 1, has held that:
i)
when the language of the statute is plain and
unambiguous, court has to seal and understand the plain language as such, and
there is no scope of interpretation,
ii)
all cases of literal interpretation would
involve strict rule of interpretation, but strict rule may not necessarily
involve the former, especially in the area of taxation, thus, strict
interpretation does not encompass strict literalism into its fold;
iii)
every taxing statute including charging,
computation and exemption clause (at the threshold stage) should be interpreted
strictly;
iv)
in a taxation statute there is no room for
any intendment;
v)
in
taxation statutes contextual or purposive interpretation cannot be applied, nor
can any resort be made to look to other supporting material. Equity has no
place in interpreting a tax statute.
What needs to be seen is whether “professional activity” by
lawyers would be classified under clause 9 (a) (b) (i) and (ii) of the Delhi
Municipal Corporation (Property Taxes) Bye-laws, 2004. The DMC Act does not define
“professional activity”.
What it defines has been discussed hereinabove. Also in V. Sasidharan v. M/s. Peter and Karunakar and others
AIR 1984 SC 1700 the Supreme Court has held that “professional
activity” of lawyers does not fall within the category of “commercial establishment‟ or
“business activity‟ and the firm of lawyers is not a “commercial establishment‟.
Relevant portion of the said judgment is reproduced as under:
“10.
Learned counsel for the appellant argues that a lawyer's office is a commercial
establishment because, persons who are employed in that office are mainly
engaged in office work. This argument overlooks that, under the second clause
of the definition in Section 2(4), “commercial establishment‟ means “an
establishment or administrative service in which the persons employed are
mainly engaged in office work”. Partly, we go back to the same question as to whether a
lawyer's office is an “establishment‟
within the meaning of the Act. The other aspect
which this argument fails to take note of is that a lawyer's office is not an “administrative
service‟. It seems to us doing violence to the language of the second
clause of Section 2(4) to hold that a lawyer's office is an “administrative
service‟.
REMARK
The hon’ble High
Court has thus held that office of a lawyer or of a firm of lawyers is not a “commercial
establishment‟ within the
meaning of the Act. This conclusion is strengthened by the other
provisions of the Act. The division bench thus concurred with the reasoning of
ld single judge and held that the office of a lawyer or of a firm of lawyers is not a “commercial establishment‟ within the meaning of Section 2(4) of the
Act.” The rule of strict interpretation of
taxation statute has to be applied. There is no scope of reading any derivative
meaning or of reading any intendment of the statute. Insofar as the statute has
not included “professional activity” of
lawyers as “commercial activity” the former cannot be put to tax on that premise. It is held that the
aforesaid Bye-laws cannot seek to over-reach the statute itself. It is further
held in the light of above that the assessment order issued by the MCD under
section 123 D of the DMC Act, 1957 along with any demand, were rightly quashed.
----------
Anil
K Khaware
Founder
& Senior Associate
Societylawandjustice.com
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