Facts of the Case

Richmond Uniforms, the petitioner, approached the High Court of Kerala being aggrieved by the non-renewal of its Trade Licence by the Corporation authorities.

The petitioner was carrying on its establishment as a tenant in a shopping complex. According to the petitioner, the 3rd respondent, namely the Health Supervisor of the Municipal Corporation of Thiruvananthapuram, issued an order directing the petitioner to close down its establishment on account of the non-production of the latest property tax receipt along with the applications for issuance of Shops and Establishment Licence.

The petitioner contended that payment of property tax was the responsibility of the landlord. Therefore, if the landlord failed to pay the property tax and produce the corresponding tax receipts, cancellation or non-renewal of the petitioner’s licence, or a direction requiring closure of the petitioner’s establishment, would cause serious hardship and loss to the petitioner.

The Corporation authorities contested the writ petition and denied the allegations raised by the petitioner. According to the respondents, at the petitioner’s request, one floor of the Shopping Complex had been apportioned into 16 units. The earlier methods of assessment of property tax, namely the Annual Rental Basis and Land Value method, had been changed, and the new method of property tax assessment was based on plinth area.

The respondents stated that the property had been assessed in accordance with law. However, the landlord had not remitted the revised property tax. Consequently, according to the Corporation, the Trade Licence issued to the petitioner could not be renewed.

When the writ petition initially came up for admission, the High Court passed an interim order directing the respondents not to take coercive proceedings pursuant to Ext.P15.

Issues Involved

The principal issues before the High Court were:

  1. Whether a tenant can be penalised through non-renewal of its Trade Licence merely because the landlord failed to pay property tax and produce the latest property tax receipt.
  2. Whether non-renewal of a tenant’s Trade Licence for an omission attributable to the landlord amounts to arbitrary action.
  3. Whether a tenant can be held liable for payment of arrears of property tax under Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011.
  4. Whether the petitioner’s application for renewal of Trade Licence could be considered after payment of the property tax arrears contemplated under the applicable Rules.

Petitioner’s Arguments

The petitioner submitted that:

  • The petitioner was only a tenant of the premises and was not the owner or landlord of the building.
  • Payment of property tax was the responsibility of the landlord.
  • The petitioner should not suffer cancellation or non-renewal of its Trade Licence merely because the landlord failed to pay property tax or produce the relevant tax receipts.
  • A direction to close down the establishment due to the landlord’s default would cause untold hardship and financial loss to the petitioner.
  • The omission of the landlord should not result in penal consequences against a tenant carrying on business from the premises.
  • When the Corporation relied upon Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011, the petitioner expressed readiness and willingness to pay the arrears of property tax as contemplated under the said Rules.

Respondents’ Arguments

The respondents opposed the writ petition and submitted that:

  • The allegations raised by the petitioner were denied.
  • At the petitioner’s request, one floor of the Shopping Complex had been apportioned into 16 separate units.
  • The earlier Annual Rental Basis and Land Value method of property tax assessment had been changed.
  • Under the revised system, property tax assessment was based on plinth area.
  • The property had been assessed in accordance with law.
  • The landlord had failed to remit the revised property tax.
  • Due to non-payment of the revised property tax, the Trade Licence issued to the petitioner could not be renewed.
  • The petitioner, though a tenant, was also liable for payment of arrears of property tax in view of Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011.

Court Order / Findings

The High Court found that if a petitioner who is only a tenant is penalised by non-renewal of Trade Licence merely because the landlord failed to pay property tax and produce the property tax receipt, such action would be arbitrary.

The Court clearly observed that a tenant of a building cannot be penalised for the omission of a landlord, as long as the building has been constructed in accordance with the Kerala Municipality Building Rules and under a valid Building Permit.

At the same time, the Corporation submitted before the Court that the writ petitioner, despite being a tenant, was also liable for payment of arrears of property tax in view of Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011.

The petitioner then submitted that it was ready and willing to pay the arrears of property tax as contemplated under the 2011 Rules.

Taking note of this submission, the High Court directed that the petitioner’s application for renewal of Trade Licence shall be considered once the petitioner remits the arrears of property tax.

Accordingly, the writ petition was disposed of.

Important Clarification

The judgment makes an important distinction between two legal aspects:

First, a municipal authority cannot arbitrarily penalise a tenant by refusing renewal of a Trade Licence merely because the landlord has failed to pay property tax and produce the tax receipt. The landlord’s omission cannot automatically be used to impose adverse consequences upon the tenant, provided the building has been constructed in accordance with the Kerala Municipality Building Rules and pursuant to a valid Building Permit.

Second, the judgment does not establish that a tenant can never have liability concerning property tax arrears. The Corporation specifically relied upon Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011 to contend that the tenant was also liable for the arrears. In the present case, the petitioner expressed readiness and willingness to pay the arrears contemplated under the Rules. Consequently, the Court directed consideration of the Trade Licence renewal application after such arrears were remitted.

Therefore, the ruling should not be interpreted as granting an unconditional exemption to every tenant from property tax-related liability. The precise legal position depends upon the applicable statutory and regulatory provisions, including Rule 18, and the facts of each case.

Sections / Rules / Legal Provisions Involved

Rule 18 of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011

The Corporation relied upon Rule 18 to contend that the petitioner, although a tenant, was also liable for payment of arrears of property tax. The petitioner expressed willingness to pay the arrears as contemplated under the Rules, following which the Court directed consideration of the Trade Licence renewal application once such arrears were remitted.

Kerala Municipality Building Rules

The High Court observed that a tenant cannot be penalised for the omission of the landlord as long as the building has been constructed in accordance with the Kerala Municipality Building Rules and under a valid Building Permit.

Valid Building Permit

The existence of construction in accordance with applicable building rules and a valid Building Permit was expressly recognised by the Court while stating the principle that a tenant should not be penalised for the landlord’s omission.

Link to download the order -https://mytaxexpert.co.in/uploads/1783414625_1357compressed.pdf

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