Hiralal Tulsidas Morarji Properties and Investments Vs Calcutta Municipal Corporation

Mukul Gopal Mukherji, J.@mdashIn the present writ application the Petitioner as the owners of premises 40 Ezra Street, Calcutta, have not only impugned the notice of demand dated July 10, 1990, issued by the Collector of the Calcutta Municipal Corporation towards the arrears of consolidated rates and taxes as also supplementary consolidated rates but have impugned as well the decision of Calcutta Municipal Corporation regarding proclamation of sale and the notice u/s 221A(2) of the Calcutta Municipal Corporation Act inserted in the daily newspaper for sale of the attached property by public auction for arrears of outstanding taxes, penalty and interest including the demand notice fees and distress warrant totaling Rs. 14,82,180-13 P. The Respondent No. 5, State Bank of India, Ezra Street Branch, is a lessee in respect of a portion of premises No. 40 Ezra Street and admittedly under a contract with the landlord, the writ Petitioners, the Bank is duty-bound to pay a certain proportion of the occupier''s shares of taxes and commercial surcharges in respect of that portion of the building which is actually held by the Slate Bank of India as a lessee. In the writ application there was a prayer to realize the outstanding arrears of taxes from the State Bank of India with liberty to the Bank to adjust the amount towards the pending bills of the writ Petitioners amounting to Rs. 8,83,919-43 P. for consolidated rates and commercial surcharges and thereafter to adjust the balance amount of payments made to the Calcutta Municipal Corporation, if any, against the future outstanding tax liability for the remaining portion of the premises by easy monthly instalments.

2. This Court after having heard the learned Advocate representing the State Bank of India directed the State Bank to pay to the Collector of Calcutta Municipal Corporation a sum of Rs. 8,83,919-43 P. as a payment in compliance with the lessee Bank''s obligation towards payment of such occupier''s share of taxes and commercial surcharges to the lesser landlords.

3. It was urged by the writ Petitioners that assessment of the annual valuation for the different periods were kept pending by the Calcutta Municipal Corporation for an inordinately long period. Objections were preferred by the writ Petitioners from time to time with regard to proposed increase in the assessments, but the hearing of objections was not made by the Hearing Officer for an inordinately long period. As and when assessments were finally made after hearing by way of disposal of objections, the writ Petitioners all of a sudden were saddled with a heavy liability of clearing off huge accumulations by way of municipal rates and taxes by virtue of pulling into effect the new valuation for the respective periods with retrospective operation. Mr. Mishra appearing on behalf of writ Petitioners contended in the first place that the right of appeal before the Appellate forum was thus rendered nugatory since as per the provisions in the statute, no appeal was liable to be entertained unless the consolidated rates in respect of the land or the building for the period ending with the dale of presentation of the appeal On the valuation determined u/s 188 has been deposited and the appeal is liable to abate unless such consolidated rate is continued to be deposited till the appeal is finally disposed of. The writ Petitioners never deny the receipt of proper communication regarding the new valuation fixed after determination of the objection, but their objections and presentation of bills for arrear demands on this amount all at a time. The point has sufficiently been decided in all finality in M/s. Jogodia Estate Pvt. Ltd. v. Corporation of Calcutta and Ors. 87 C.W.N. 391 where it was held that the right of appeal being a creature of the statute, its scope must be determined by reference to the provisions of statute conferring such right. Both in this decision as well as in Chatter Singh Baid and Others Vs. Corporation of Calcutta and Others, it was decided that the provision relating to the bar in presenting the appeal unless all outstanding arrears at current revised rates have been paid and the provision relating to abatement of appeal unless there be payment of the current rates on the basis of fresh assessment during the continuance of the appeal, did not infringe Article 14 of the Constitution of India and those provisions are not inconsistent with the other provisions for payment and recovery of consolidated rates contained in the statute. The right of appeal also was not made nugatory or illusory by the imposition of such stringent provisions in the statute by making the clearance of all arrears due as a condition precedent prior to preferring of the appeal. This Court is therefore helpless to accede to the prayers made by the Petitioners in this regard.

4. As the building was erected by stages and different portions came under the occupation of the Bank from time to lime, the proportionate share of liability percentage-wise in occupation of the Bank also varied from period to period. Ultimately, it is found that 71,05% of the entire premises is now in occupation of the Bank and the Bank cannot evade its responsibility to bear the extent of 71.05.% of the total quantum of occupier''s shares of the consolidated rates and taxes including the commercial surcharges.

5. u/s 193 of the Calcutta Municipal, Corporation Act, 1980, the primary liability regarding payment of lax is upon the owner of the land and the building. Still then the Bank cannot evade accountability for 71.05% of the consolidated rales and commercial surcharges. It would be relevant in this context to refer to the decision in Satish Chandra Agarwalla v. State Bank of India and Anr. 1988 (1) C.L.J. 536 as the guiding principle regarding the relevant legal position on the point. It was, however, decided in the said case that the owner and occupier may enter into an agreement to make an apportionment of the taxes if they so desire, but if the agreement does not specially provide as to who shall pay the tax whether the occupier or the tenant who uses the premises for commercial or non-residential purpose, the owner will bear it. In the facts of that case, the agreement by and between the State Bank of India and the erstwhile owner of the premises did not provide as to who shall bear the liability for the ''surcharge'' and since the State Bank of India has been using the premises occupied by it for commercial purpose, the State Bank of India was called upon to pay and bear the ''surcharge'' for using the premises for commercial purpose. However, it was decided that in the absence of any indication to the contrary in any agreement, Section 193, Calcutta Municipal Corporation Act, 1980, operates and the landlord is primarily liable to pay the consolidated rates and taxes including the surcharge. This provision has been made as a matter of convenience so that the Calcutta Municipal Corporation is not compelled to run after the various occupiers or tenants for collection of occupier''s share of tax, and thus the primary liability remains on the owner. However, it must be borne in mind that it was specifically indicated in this case that if under any agreement by and between the owner or the landlord and the tenant, the lax is payable by the owner or the landlord, it remains payable by him, and otherwise, if there be any specific agreement that the tenant will bear its proportionate liability for the portion in its occupation, it should be borne by the tenant.

6. I find that the writ Petitioners have already kept a total amount of Rs. 9,90,761.43 P. in the Suspense Account towards their outstanding liability regarding payment of its total liabilities. On May 24, 1988, the balance lying at their credit in the Suspense Account after adjustment was Rs. 6,848. Pursuant to Court''s order dated November 11, 1990, they deposited a sum of Rs. 1,00,000 on May 25, 1991. As per the Court''s order a sum of Rs. 8,83,913.43 P. was deposited by the Bank towards liquidation of the total dues payable by the writ Petitioners, the total being made upto Rs. 9,90,761.43 P.

7. The principle is well known as was decided in Associated Cement Company Limited Vs. Commercial Tax Officer, Kota and Others, that unless there be any mala fide default, there should be no imposition of penalty. As was succinctly put in the said decision, tax, interest and penalty are three different concepts. Tax becomes payable by an Assessee by virtue of the charging provision in a taxing statute. "Penalty" ordinarily becomes payable when it is found that an Assessee has willfully violated any of the provisions of the taxing statute. "Interest" is ordinarily claimed from an Assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal. Hence even if the Calcutta Municipal Corporation makes a demand for penalty, I would direct the Commissioner to waive or relieve "penalty" on this score.

8. Mr. Misra cited a Single Bench judgment of our Court in Official Liquidator, High Court Vs. Income Tax Officer, "K" Ward and Others, for the proposition that in an appropriate case even under the Income Tax Act, 1961, if the Court is satisfied that the claim of statutory interest causes hardship and miscarriage of justice, the Court can disallow the Department''s claim for interest. Unfortunately in this Municipal statute, there is no such enabling provision as is there u/s 220(2) of the Income Tax Act, 1961, on arrears of Income Tax. In COMMISSIONER OF Income Tax, DELHI-I Vs. RAUNAQ and CO. (P.) LTD., a Division Bench of Delhi High Court presided over by S. Ranganathan and Leila Seth, JJ. held that the imposition of penalty cannot be an automatic consequence of default and Court is to decide on a question of fact whether sufficient reasons existed for non-levy of penalty.

9. As regards the liability to pay interest is concerned, Section 217(3) of the Calcutta Municipal Corporation Act, 1980, empowers the State Government to determine the rate of interest. The State Government by its order being No. 853/C-5/CC/3R-8/84 dated June 2, 1934, intimated to the Corporation that the rate of interest was determined as 12 % simple interest. Interest can thus lawfully be charged from the date of presentation of the bills and not from the period for which the taxes are in arrears.

10. This Court finds that the writ Petitioners were making frantic efforts to let the Calcutta Municipal Corporation know as to what should be the proportionate share of tax liability to be borne by the Bank for the portion in its occupation. The Calcutta Municipal Corporation finally by its letter dated January 21, 1990, communicated to the writ Petitioners on February 9, 1990, that the Bank''s share would be 71.05%. At least till this date the Calcutta Municipal Corporation is not entitled to claim any "penalty".

11. In the result, the Calcutta Municipal Corporation is directed to take cognizance of all payments to the tune of, Rs. 9,90,761.43 P. and adjust the total tax liability by waving and remitting penalty at the rate of 15% of the outstanding amount, taking into consideration the fact that it was only on January 21, 1990, that the Calcutta Municipal Corporation apprised the writ Petitioners about the share of the proportionate liability to the extent of 71.05% on the Bank, without which the Petitioners could not pass on their liability with regard to this extent of the consolidated rates and taxes and commercial surcharges to the Bank. If at all any penalty is due, it should not be enforced till this stage of final communication on February 9, 1990. The entire calculation of outstanding dues should be done within a period of three months and the writ Petitioners should be given the liberty to liquidate the total outstanding dues in 11 monthly installments. The order for proclamation and sale of the property by public auction thus stands set aside, with liberty to resort to such proceeding, if the entire outstanding amounts are not liquidated by the Petitioners and the State Bank of India jointly and/or severally (the latter to the extent of 71.05% share of the total) within this period of 12 months.

12. The writ petition stands disposed of accordingly. There will be no order as to costs.

13. Parties will be at liberty to act on a signed copy of the operative part of this judgment on the usual undertaking.