Property tax on rental income requires deliberation: Punjab and Haryana High Court

Saurabh Malik

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Chandigarh, December 6

Eight years after the Punjab Government came out with a notification imposing among other things tax on rental income instead of land and building in case of a non-residential property under tenants’ occupation, the Punjab and Haryana High Court has made it clear that the issue requires detailed consideration and examination.

The Bench of Justice Tejinder Singh Dhindsa and Justice Sanjiv Berry also asserted it prima facie found the notification dated December 31, 2014, to be, on the face of it, incongruous. There was a clear overlap between clause (3) on imposing tax on rental income and two other clauses.

The assertions came on a petition by Euthoria Developers Pvt Ltd running a mall in Amritsar. The petitioner had assailed order dated October 3 passed by the Amritsar Municipal Corporation’s joint commissioner-cum-competent authority, property tax, whereby Rs 28, 63, 22,962 was determined as property tax.

Senior counsel Akshay Bhan submitted on the petitioner’s behalf that property tax determination by virtue of the impugned order was ostensibly in accordance with clause (3) of the notification. He argued that the clause was ultra vires of Article 246 of the Constitution as it imposed tax on rental income, instead of land and building. The same was not within the state legislature’s competence.

It was further argued that there was a specific and separate classification under the notification for imposing property tax on multiplex, malls etc. Clause (4) said the tax would be Rs 15 per square foot for multiplex, malls and “A” category towns.

Clause (5) stated that tax for part of a building that remained unoccupied and unproductive of rent throughout the year or part period would be Rs 7.50. It was contended that the petitioner’s commercial building would fall under the distinct classification of a ‘mall’, for which the applicable rate would be Rs 15 per square foot in accordance with Clause (4). Clause (3) would not be applicable.

The counsel for the competent authority Sandeep Khunger, on the other hand, submitted that the benefit of clause (4)/ (5) had already been accorded for lower basement 1, basement 2 and upper basement. But part of the commercial complex under occupation of tenants would be taxed in terms of Clause (3).

“We are of prima facie view that apart from other issues that may fall for consideration, there would be an issue as regards clause (3) falling within the competence of the state legislature as on the face of it, the rate of tax on a non-residential building under occupation of tenant(s) as per clause (3) is relatable to the annual rental that such property has fetched,” the Bench asserted, while directing against the initiation of coercive steps pursuant to the impugned order.