Article 285 of Constitution | Railway Property Will Be Exempt From All Taxes Imposed By State Even If Used For Commercial Purpose: Madras High Court

“Merely because the property in question has been put to commercial use, that would not make any difference. The plain language of Article 285(1) of the Constitution of India indicates that the property of the Union shall be exempt from all taxes imposed by a State or by any authority within a State,” the court observed.

The bench of Justice GR Swaminathan and Justice M Jothiraman noted that Article 285 of the Constitution did not specify the kind of property that was exempt, and thus, the expression would have to be understood in an absolute sense. The court thus observed that property would mean any property, whether vacant or constructed or used for public interest or for commercial purposes. The court thus highlighted that all kinds of property belonging to the Union Government would take shelter within the Article, which stood like an Iron dome.

“The expression “property” is not qualified. We, therefore, have to understand it in its absolute sense. Property whether vacant or constructed or whether used for public interest or for commercial purpose would equally be entitled to the protective sweep and immunity conferred by Article 285(1) of the Constitution. Article 285(1) stands as an Iron dome which cannot be breached. Property of the Union of all kinds and hues can take shelter within it,” the court said.

The court was hearing an appeal filed by Madurai Multi Functional Complex Private Limited, challenging the demand notice issued by the Madurai Corporation for payment of property tax and calling upon the appellant to pay half-yearly tax to the tune of Rs. 10,07,623. Though a writ petition was filed challenging the demand notice, the same was dismissed. Aggrieved, the present appeal was filed.

The land in question belonged to the Railways. In Railway Land Development Authority (RLDA) was constituted under the amended Section 4A of the Railways Act to develop vacant lands owned by the Railway. Later, a lease agreement was entered into between RLDA and Ircon Infrastructure & Services Limited for the development of railway lands throughout India. Ircon then entered into a sub-lease agreement with the appellant for 30 years with respect to the subject property and the multi-functional complex, which was actually constructed by Ircon was developed by the appellant.

The appellant argued that the Corporation had no right to demand property tax from the Railways as per Article 285(1), and thus the demand notice was illegal and liable to be quashed.

The Corporation, on the other hand, argued that the property tax was not sought from the Railways but from the appellants. It was submitted that the single judge's order was sound and did not warrant interference.

The court disagreed with the stand taken by the corporation. The court noted that the assessment and levy of property tax was not on a person or individual but on the land and building, which, in this case, belonged to the Railways.

The court noted that RLDA was established under the Railways Act and did not have any juristic status. The court also noted that though it was a statutory creation, RLDA did not have an entity distinct and separate from the Railways, did not have any perpetual succession or common seal, could not sue and be sued. The court noted that RLDA's only purpose was to develop the railway land for commercial use and enter into agreements for the said purpose.

Perusing the lease documents, the court also noted that RLDA had retained the title over the land as well as the buildings that may be constructed on the leased land. The court noted that only possession of the site alone was handed over and the buildings constructed at the project site would get transferred to RLDA after the lease period. Thus, the court concluded that the building belonged to the Railways and would be exempt from tax under Article 285.

Thus, holding that the levy of tax would be against Article 285(1), the court set aside the order of the single judge. However, noting that the appellants were enjoying certain facilities offered by the corporation, the court gave liberty to the corporation to enter into special agreement with the appellant to enable them to continue enjoying the facilities.

Counsel for the Appellate: Mr. R. Srinivas, Senior Counsel for Mr. N. Dilip Kumar

Counsel for the Respondent: Mr. S. Vinayak Standing Counsel, Mr. Ragatheesh Kumar for M/s. Isaac Chambers, Mr. K. R. Laxman, Mr. T. Lajapathi Roy, Senior Counsel for Mr.S. Rajasekar

Case Title: Madurai Multi Functional Complex Private Limited v. the Madurai Corporation

Citation: 2025 LiveLaw (Mad) 206