Food Corporation of India Exempted from Property Tax: Supreme Court Overrules Bombay High Court

The Supreme Court of India, in a landmark ruling on March 19, 2020, ruled in favor of the Food Corporation of India (FCI), setting aside the Bombay High Court’s judgment that had upheld property tax levied by the Municipal Corporation of Greater Mumbai (MCGM). The Supreme Court held that FCI, being an entity of the Central Government, was exempted from property tax under Article 285(1) of the Constitution of India.

Background of the Case

The dispute originated when the Municipal Corporation of Greater Mumbai (MCGM) demanded property tax from FCI for its godowns and silos in Borivali, Mumbai. These properties were acquired and constructed by the Government of India before being transferred to FCI for food grain storage and distribution.

FCI contested the demand, arguing that the properties were owned by the Central Government and thus exempt from taxation under Article 285 of the Constitution. However, the Bombay High Court dismissed the writ petition filed by FCI, leading to an appeal before the Supreme Court.

Legal Proceedings

Food Corporation of India’s Arguments

• FCI argued that the properties in question were legally owned by the Central Government, and FCI was merely an occupier.
• It contended that Article 285(1) of the Constitution exempts Union Government properties from state and local taxation.
• FCI also pointed out that a previous Bombay High Court ruling in 1992 had already declared these properties as belonging to the Central Government.
• FCI maintained that Article 285(2), which allows for continued taxation of Union properties taxed before the Constitution came into force, was inapplicable since the properties were acquired and developed post-1964.

Municipal Corporation of Greater Mumbai’s Arguments

• The Corporation argued that FCI, being a statutory corporation, was not the same as the Central Government and thus could not claim exemption under Article 285.
• It contended that FCI, as an occupier, was liable to pay property tax under Section 146 of the Mumbai Municipal Corporation Act, 1888.
• MCGM claimed that Article 285(2) permitted the continuation of property taxation if it was imposed before the Constitution came into effect.
• The Corporation relied on the Supreme Court ruling in Food Corporation of India v. Municipal Committee, Jalalabad, where it was held that FCI, as a separate legal entity, was not entitled to tax exemption.

Supreme Court’s Observations

1. Ownership of the Property

The Supreme Court analyzed the ownership status of the properties and observed:

“The properties in question were acquired by the Central Government and remain in its ownership. FCI is merely an occupier.”

Thus, the Court rejected MCGM’s claim that the property was not owned by the Union.

2. Applicability of Article 285

The Court clarified that Article 285(1) grants immunity to Union-owned properties from taxation:

“There is no question of applying Article 285(2) since the properties were not subject to taxation before the commencement of the Constitution.”

3. Non-Applicability of Section 146 of the Mumbai Municipal Corporation Act

The Court rejected the argument that FCI, as an occupier, could be taxed:

“When the owner (Central Government) is not liable for property tax, the occupier cannot be held liable either.”

The Court emphasized that statutory provisions must be read in conformity with the constitutional mandate of Article 285.

4. Distinguishing from the Jalalabad Case

The Court clarified that the Jalalabad ruling was inapplicable:

“That case dealt with FCI-owned properties, whereas in this case, the ownership remains with the Central Government.”

Final Verdict

The Supreme Court allowed FCI’s appeal, ruling:

“FCI is exempted from property tax under Article 285(1). The Bombay High Court’s judgment is set aside.”

However, the Court clarified that FCI was liable to pay service charges for municipal services, such as water supply and sanitation.

Implications of the Judgment

• Reaffirms that Union-owned properties are exempt from local taxation under Article 285(1).
• Ensures that statutory corporations occupying Union properties are not taxed unless explicitly provided by law.
• Provides relief to central entities occupying Union Government-owned premises.
• Maintains that municipal corporations can levy service charges for amenities but not property tax.

Petitioner Name: Food Corporation of India.
Respondent Name: Municipal Corporation of Greater Mumbai & Ors..
Judgment By: Justice Ashok Bhushan, Justice M.R. Shah.
Place Of Incident: Mumbai, Maharashtra.
Judgment Date: 19-03-2020.

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