Holding

A property must satisfy a dual test of both title and possession to fall within the exemption of Section 202(1)(c); since the allottees occupied the houses, the exemption does not apply and the corporation may levy tax.

Summary

The Hyderabad Municipal Corporation built houses under its Low Income Housing Scheme and allotted them on hire‑purchase, with the agreement stipulating that title would remain with the corporation until full payment and that all municipal taxes would be borne by the allottees. The corporation served house‑tax notices to the allottees before the instalments were fully paid. The allottees contended that Section 202(1)(c) of the Hyderabad Municipal Corporation Act exempted the houses from tax because the property vested in the corporation, and therefore the tax demand was unlawful. A Single Judge upheld the levy, but a Division Bench reversed that decision, prompting the corporation to appeal. The Supreme Court held that for the exemption under Section 202(1)(c) a property must vest both in title and in possession; since the allottees were in actual occupation, the exemption did not apply and the corporation was entitled to levy tax. Consequently, the appeal was allowed, restoring the Single Judge’s order dismissing the writ petition.

Issues considered

Whether Section 202(1)(c) of the Hyderabad Municipal Corporation Act bars the levy of property tax on houses allotted under a hire‑purchase scheme where title remains with the corporation but the premises are occupied by the allottees.
How the term ‘vest’ should be interpreted in the context of Section 202(1)(c) – whether it requires both title and possession.
Whether Section 204(1) obliges the corporation to levy tax on the actual occupier even when the property is owned by the corporation.

Legislation cited

Hyderabad Municipal Corporation Act, 1955s. 197, s. 199, s. 202, s. 204

Subjects

municipal taxproperty taxvestinghire purchaselow income housingexemptionmunicipal corporation actSection 202Section 204occupancypossession

Judgment

MUNICIPAL CORPORATION OF HYDERABAD
A
v.
P.N. MURTHY & ORS.

JANUARY 30, 1987

[M.P. THAKKAR AND B.C. RAY, JJ.] B

Hyderabad Municipal Corporation Act, 1955 Section 197, 199,
202 & 204--Municipal Corporation allotting building under 'Low
Income Housing Scheme'-Corporation whether prohibited from
levying and collecting 'property tax' from allottees.

The appellant-Municipal Corporation of Hyderabad constructed c
houses under "Low Income Housing Scheme" and allotted them to the
respondents on hire purchase. The agreements executed by the respon-
··.(
dents in favour of the appellant provided (1) that the houses would
remain, till the payment of the last instalment and execution of a con-
veyance in favour of the respondents, as the property of the Corpora- D
tion; and (ii) that all Municipal taxes, water taxes and electricity
charges would be borne by the allottees.

The appellant served demand notices on the respondents to pay
house tax in respect of their houses. By that time, the instalments had
not been fully paid. The respondents challenged the lery of tax on the E
ground that s.202( 1) of the Hyderabad Municipal Corporation Act pro-
hibits the levy of general tax in respect of the aforesaid honses, since
they had not yet vested unto the allottees nnder the hire purchase agree-
ment. A Single Judge negatived the plea of the respondents-allottees
and upheld the validity of tax but the Division Bench in a Letters Patent
Appeal took a contrary view. Hence this appeal by special leave. F

Allowing the appeal,

HELD: (1) In order to attract s.202( l)(c) of the Hyderabad
Municipal Corporation Act, a property must satisfy a dual test. The
property must not only owned by the Corporation, it must also be in the G
occupation of the Corporation itself. It is in this sense that the word
'vesting' has been used. The expression 'vest' employed in s.202( l)(c)
under the circumstances must of necessity be construed as vesting both
in title as well as in possession. UJG-H]

Fruit & Vegetable Merchants Union v. Delhi Improvement Trust, H

107
108 SUPREME COURT REPORTS [1987] 2 S.C.R.

A AJ.R. 1954 S.C. p. 344 and Richardson v. Robertson, [ 1862] 6 L.T. p. ·i,
;.;,.. .
75, relied upon.

(2) The scheme underlying ss. 197, 199, 200 and 204 of the Act has
to be read and construed in a meaningful, purposeful and rational
manner. Section l97(l)('i) casts a legal obligation on the Municipal
B Corporation to levy taxes on lands and buildings. Section 199( 1) makes
it obligatory subject to the exceptions, limitations and conditions to levy
a general tax, water tax, drainage tax, lighting tax/conservancy tax on
the buildings and lands in the City of Hyderabad. Whilst the legislature
makes it obligatory on the Corporation to levy the aforesaid taxes, in so
far as general tax is concerned an exception is carved out under s.202( I)
C and the Municipal Corporation is relieved from the obligation of impos-
ing taxes in respect of buildings which are specified in clauses( a) to (d).
The exception is made on policy and principle. Not arbitrarily. Essen-
tially the properties which are used for public purposes or for purposes
of the community are exempted. Clause(d) makes it abundantly clear
that the exemption will not be extended to properties belonging to the
D Central Government and State Government if the same are used for
purposes of profit and not a public purpose. The user for the purposes
of the community is the rationale of the thread of principle which runs
through all these three clauses viz. clauses (a), (b) and (d) for granting
exemption. So far as clause(c), which has given rise to the present
controversy is concerned, a different principle is at the bottom, diffe-
E rent but no less rational. The philosophy underlying the exemption is ~-

rooted in pragmatism. In so far as buildings and lands which are the
properties of the Corporation and are used for its own purposes it
would be an exercise 'in futility to collect taxes from itself in order to
augment its own resources. Surely the resources would not stand
augmented when the Municipal Corporation collects the taxes from
F itself. [IUD; 112A-F]

3. Section 204( 1) which is a part of the packet of sections relating
to this subject-matter clinches the issue in favour of the Municipal
Corporation of Hyderabad. It, in terms, provides that property taxes
shall be leviable primarily from the actual occupier of the premises
G upon which the said taxes are assessed, if such occupier holds the said
premises immediately from the Government or from the Corporation.
If the property taxes were not to be levied in respect of the property
belonging to the Corporation which is used and occupied by allottees or
other occupiers, there would be no point or purpose in making the
provision in the aforesaid manner. The provision in terms applies to a
H situation where the buildings or the· premises are in actual occupation of
MUNICIPAL CORPN. v. P.N. MURTHY [THAKKAR, J.] 109

a person or body other than the Municipal Corporation itself. In such A
an event, the property taxes would be leviable primarily from the said
occupier as if the said occupier holds the property from the Corporation
itself. This leaves no room for doubt that the Corporation is entitled to
impose taxes on the buildings which may be owned by itself but which
may be in occupation of others. Otherwise, the provision contained in
s.204( l) would be rendered aimless and otiose. 1113B-F] B

CIVIL APPELLATE JURISDICTION: Civil Appeal No.
123(N) of 1973.

From the Judgment and Order dated 26.10.1972 of tlie Andhra
Pradesh High Court in Writ Appeal No. 444 of 1968. c
B. Parthasarthy and G .N. Rao for the Appellant.

B. Kanta Rao for the Respondents.

The Judgment of the Court was delivered by D

THAKKAR, J. Is the Municipal Corporation of Hyderabad pro-
hibited from levying Municipal taxes from persons inducted by it in the
property of its own ownership under the hire purchase agreement?
The validity of levy of Municipal taxes by the Municipal Corporation
of Hyderabad from allottees to whom the Municipal Corporation had E
allotted buildings constructed under "Low Income Housing Scheme"
launched by it was questioned by the allottees. The learned Single
Judge upheld the validity but the Division Bench in appeal, Under
Clause 15 of the Letters Patent. took a contrary view. The Municipal
Corporation has preferred the present appeal, Appeal by Special
Leave and has contended that the learned Single Judge was right in F
upholding the levy and the Division Bench was wrong in holding it
invalid.

The facts giving rise to the writ petition instituted by the 72
allottees to whom the houses were allotted need to be stated briefly:-
G
The Hyderabad Municipal Corporation started a scheme
called Low Income Housing Scheme in 1957. In pursuance
of that scheme, the Corporation constructed several houses
in various parts of the Hderabad City including the locality
of Malakpet. After the houses at Malakpet were comple-
ted, applications were invited from persons belonging to H
110 SUPREME COURT REPORTS [1987] 2 S.C.R.

that group for the purpose of allotting these houses. The
A
writ petitioners applied and the Corporation allotted the
houses to them. They are occupying the houses since 1959.
The writ petitioners executed agreements in favour of the
Corporation. Accordling to the terms of the agreement, the
allottees were put in possession of the houses allotted to
B them. The allottees were to pay 20% of the sale price as the
first instalment and they were required to pay the balance
in monthly instalments. The agreement specifically pm-
vides that the houses would remain, till the payment of the
last instalment and execution of a conveyance in favour of
the writ petitioners, as the property of the Corporation.
The allottee has been strictly prohibited from selling or
c mortgaging or otherwise disposing of the house or even to
sublet or part with possession of the same. Even after the
writ petitioners become owners of the houses, they are
precluded from selling the same within five years of such
date. The agreement further provides that all municipal
D taxes and water taxe:s and electricity charges would be
borne by the allottees. The writ petitioners were served
with a demand notice on 31-12-1964 asking them to pay
house taxes from 1-4-1961 onwards. The demand notice,
which the writ petitioners received on 16-4-1965, required
the writ petitioners to file objections, if any before 15 days
E of the receipt of the notice. The writ petitioners accordingly
filed thei: objections on 29-4-1965. The principal conten-
tion of the petitioners was that the houses are not liable to
--
be taxed as they vest in the Municipal Corporation, and as
the writ petitioners are not the owners of the houses, -1'1'
Negativing this contention, the Municipal Corporation I
F served a notice dated 19-6-1966 demanding from the peti-
tioners taxes for the period commencing from 1st April,
1961to3 !st March, 1965. It is this demand notice which has
given rise to the writ petition, giving rise to the present
appeal.

G The challenge to the levy of taxes is built on the argument that
inasmuch the houses under the hire purchase agreement have not yet
vested unto the allottees, the ]property vests unto the Munieipal
Corporation and under the circumstances Section 202(1) of the
Hyderabad Municipal Corporation Act (Act) prohibits the levy of the
general tax in respect of these houses.
H
MUNICIPAL CORPN. v. P.N. MURTHY [THAKKAR, J.J 111

In order to deal with the plea of the allottees which was nega-
A
tived by the learned Single Judge but sustained by the learned Judges
of the Division Bench, the relevant provisions of the Act require to be
noticed. They are:- -

Sections 197(1)(i), 199(1), 202(1) and 204(1) 1
B
It is no doubt true that until all the instalments under the hire
purchase agreement were paid, the allottees would not become the
owners of the houses for the title would vest unto them only upon the
payment of all the instalments as per the stipulation contained in the
agreement. At the relevant point of time the instalments had not yet
been fully paid. The title in regard to the houses therefore continued
to vest unto the Municipal Corporation at the relevant time. The ques-
c
tion then is whether Section 202(1)(c) makes it unlawful to levy
general tax from the allottees of these buildings. The scheme underly-
ing the aforesaid packet of provisions embodied in the Act deserves to
be analysed in this context. Section 197(1)(i) casts a legal obligation on
the Municipal Corporation to levy taxes on lands and buildings. Sec- D
tion 199(1) makes it obligatory subject to the exceptions, limitations
L "Section 197(1)(i): For the purposes of this Act, the Corporation shall impose the
following taxes namely: (a) taxes on lands and buildings; XX XX"

'' 199(1): The following taxes shall subject to exceptions, limitations and conditions
herein provided be levied on buildings and lands in the City and shall hereinafter be E

- referred to as property taxes, namely:- (a) a general tax; {b) a water tax; (c) a
drainage tax; (d) a lighting tax; (e) a conservancy tax;"

"202(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; F
(b) buildings and lands or portions thereof solely occupied and used for public
worship or for a charitable or educational purpose;
(c) buildings and lands vesting in the corporation;
(d) buildings and lands vesting in the Central Government or state Government
used solely for public purposes and not used or intended to be used for purposes of G
profit in respect of which the said tax, if levied, would under the provisions hereinaf-
ter contained be primarily leviable from the Central Government or State Govern-
ment as the case may be."

"204(1): Property taxes shall be leviable primarily from the actual occupier of the
premises upon which the said taxes are assessed if such occupier holds the said
premises immediately from the Government or from the Corporation." H
112 SUPREME COURT REPORTS [1987] 2 S.C.R.

and conditions embodied in the relevant provisions, to levy a general
A tax, water tax, drainage tax, lighting tax and conservancy tax on the
buildings and lands in the City of Hyderabad. Whilst the legislature
makes it obligatory on the Corporation to levy the aforesaid taxes, in
so far as general tax is concerned an exception is carved out under
Section 202(1) and the .Municipal Corporation is relieved from the
B obligation of imposing taxes in respect of buildings which are specified
in clauses (a) to (d). Evidently the exception is made on policy and
principle. Not arbitrarily. Essentially the properties which are used for
public purposes or for purposes of the community are exempted. For
instance by clause (a) buildings and lands which are used for purposes
connected with the disposal of the dead are exempted inasmuch as the
entire community is interested in such a user. The same principle is
C discernible in regard to clause (b) which provides for exemption in
regard to lands or buildings solely occupied for public worship or for
charitable or educational purpose. The same philosophy is discernible
in the exemption accorded under clause (d) to properties belonging to
Central or State Government which are used solely for a public pur-
D pose. Be it rea'.ized that clause (d) makes it abundantly clear that the
exemption will not be extended to properties belonging to the Central
Government and State Government if the same are used for purposes
of profit and not for a public purpose. The user for the purposes of the
community is the rationale of the thread of principle which runs
through all these three clauses (viz. clauses (a), (b) and (d) for graat-
E ing exemption. So far as clause (c) which has given rise to the present
controversy is concerned, a different principle is at the bottom: diffe-
rent but no less rational. 1be philosophy underlying the exemption is
rooted in pragmatism. In so far as buildings and lands which are the
-
properties of the Corporation and are used for its own purposes, it
would be an exercise in futility to collect taxes from itself in order to
F augment its own resources. Surely the resources would not stand
augmented when the Municipal Corporation collects the taxes from
itself. How would one benefit by taking money from one pocket and
putting it in another pocket of oneself? By transfering from one
drawer of one's own cash box into another. drawer of the same cash
box? The whole purpose of levying tax is to augment its resources and
G not merely to engage in an e:xercise in accountancy, by crediting in one
account and debiting in another, which does not result in its resources
being augmented in reality. In fact a sizable staff would have to be
employed for making the valuation of the properties, for making as-
sessment of the properties, and for making credit and debit entries in
the relevant accounts. That is the obvious reason why buildings and
H lands which vest in the Corporation and which are in its own use and
MUNICIPAL CORPN. v. P.N. MURTHY [THAKKAR, J.] 113

occupation are sought to be exempted from the levy. Of course clause
A
(c) which provides for exemptions in respect of "buildings and lands
l vesting in the Corporation" is not very happily or perfectly worded.
Had it been drafted with the care and precision to be expected from a
perfect draftsman (who exists only in theory and not in practice), there
would have been no scope for the controversy. But then if the entire
scheme is viewed in a common sense manner, so that the scheme B
makes sense, the matter cannot present any serious problem. Section
• 1 204(1) which is a part of the packet of sections relating to this subject·
matter clinches the issue in favour of the Municipal Corporation of
Hyderabad, the appellant herein. It in terms provides that property
~r~ taxes shall be leviable primarily from the actual occupier of the pre·
mises upon which the said taxes are assessed, if such occupier holds the
said premises immediately from the Government or from the Corpora-
c
tion. If the property taxes were not to be levied in respect of the
..., property belonging to the Corporation which is used and occupied by
allottees or other occupiers there would be no point or purpose in
making the provision in the aforesaid manner. The provision in terms
applies to a situation where the buildings or the premises are in actual D
occupation of a person or body other than the Municipal Corporation
itself. In such an event the property taxes would be leviable primarily
from the said occupier as if the said occupier holds the property from
the Corporation itself. This leaves no room for doubt that the Car·
·' poration is entitled to impose taxes on the buildings which may be

-
owned by itself but which may be in occupation of others. Otherwise, E
the provision contained in Section 204(1) would be rendered aimless
and otiose. Surely the legislature was enacting a purposeful provision
and not a purposeless provision without aim or object.

') For the aforesaid reasons we are of the opinion that the learned
Single Judge was right in taking the view that the buildings and lands F
vesting unto the Corporation not only in title but also in possession (as
polarized from those vesting in title only but not in possession) were
exempted from the obligation imposed by the legislature to levy the
property taxes. Buildings ~nd lands which were merely owned by the
Corporation but were in actual possession or under the actual use and
occupation of some ohe else, that is to say persons or bodies other than G
the Corporation itself are not exempted. In order to attract Section
,..\ 202(1)(c) a property must satisfy a dual test. The property must not
only be owned by the Corporation, it must also be in the occupation of
the Corporation itself. It is in this sense that the word 'vesting' has
been used. And the proposition that the expression 'vest' is capable of
being used in this sense, depending on the context in which it is emp· H
114 SUPREME COURT REPORTS [1987] 2 S.C.R.

A loyed, is supported by the observations made by this Court in Fruit &
Vegetable Merchants Union v. Delhi Improvement Trust, A.LR. 1954
S.C. p. 344. It has been observed therein that the word vest:

"is a word of variable import and a property must vest in
title or may vest in possession or it may vest in a limited
B
sense, as indicated in the context. .... " ~
~;,:

Reliance has been placed in this context on a passage from Richardson
v. Robertson, [1862] 6 L.T. p. 75 wherein it is stressed that the 'vesting' +
~-
often means 'vesting' in possession.

c The scheme of the relevant sections has to be read and construed
in a meaningful, purposeful and rational manner. The expression 'vest'
employed in Section 202(1)(c), under the circumstances must of neces-
sity be construed as vesting both in title as well as in possession. Be it
realized that there can be no principle in exempting the tenants in-
ducted by the Municipal Corporation in its property from payment of
D
taxes if the terms of the lease so provide. Just as the tenants who
occupy the properties belonging to private citizens have to pay pm-
perty taxes if the terms of the agreement so provide, the tenants in-
ducted by the Municipal Corporation in buildings owned by itself have
to pay the property taxes if the agreement so provides. There can be
no rational basis for exempting the tenants or persons inducted by the
E
Municipal Corporation in its own buildings from payment of such
taxes. The c.oncerned provision therefore cannot be read in the man-
ner suggested by the respondents. The learned Single Judge was
perfectly justified in negativing their contentions and in dismissing
their writ petition. The learned Judges of the Division Bench were in
error in reversing the learned Single Judge. We, therefore, allow this
F
appeal, set aside the order passed by the Division Bench, and restore
the order passed by the learned Single Judge dismissing the writ peti-
tion. There will be no order as to costs.

M.L.A. Appeal allowed.