AZZ Builder Pvt. Ltd. and Others v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE ALEXANDER THOMAS** **MONDAY, THE 06TH DAY OF JANUARY 2020 / 16TH POUSHA, 1941** ## **WP(C).No.35740 OF 2019(N)** ## **PETITIONER/S:** - **1 AZZ BUILDER PVT.LTD., P.T.USHA ROAD, ERNAKULAM, REPRESENTED BY ITS DIRECTOR E.S.JOSE, AGED 61, S/O.MR.SOLAMAN, ERASSERIYIL HOUSE, KATHRIKKADAVU, KALOOR, COCHIN-682017.** - **2 E.S.JOSE AGED 61 YEARS S/O.MR.SOLAMAN, ERASSERIYIL HOUSE, KATHRIKKADAVU, KALOOR, COCHIN-682017.** - **3 SMT.SOONAM JOSE AGED 59 YEARS W/O.MR.E.S.JOSE, ERASSERIYIL HOUSE, KATHRIKKADAVU, KALOOR, COCHIN-682017.** **BY ADVS. SRI.T.K.RADHAKRISHNAN SMT.S.SREEDEVI(ALP)** ## **RESPONDENT/S:** - **1 STATE OF KERALA, DEPARTMENT OF REVENUE, REPRESENTED BY SECRETARY, THIRUVANANTHAPURAM-695001.** - **2 REVENUE DIVISIONAL OFFICER, OFFICE OF THE REVENUE DIVISIONAL OFFICE, FORTKOCHI, KOCHI-682001.** - **3 THE TAHZILDAR, KANAYANNUR TALUK, ERNAKULAM, KOCHI-682011.** ## **OTHER PRESENT:** ## **SRI.SAIGI JACOB PALATTY, SR.GOVT.PLEADER** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06.01.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No.35740 OF 2019(N)** **11** **ALEXANDER THOMAS, J. ----------------------------------------W.P. (C.) No. 35740 of 2019 ----------------------------------------Dated this the 6[th] day of January, 2020** ## **JUDGMENT** The aforecaptioned proceedings are primarily directed against the impugned action for assessment of tax under the Kerala Building Tax Act, 1975, whereby the apartment has been treated as a single unit in a case where there are 22 separate and individual apartments owned and occupied by the respective individual apartment owners concerned. The 2[nd] and 3[rd] petitioners herein and the other owners of the property entered into a joint venture agreement with the 1[st] petitioner builder and the said joint venture agreement is a registered as document No.4695/1996 of SRO, Ernakulam for construction of the abovesaid multi-storied building. Further that, the 1[st] petitioner had obtained building permit for construction of the abovesaid multi-storied building (cellar + ground + 6 floors) consisting of apartments, shop rooms, commercial rooms having 2752 sq.mts on 2.11.1996 and the building permit has been obtained in the name of the 1[st] petitioner. That the apartment consists of 24 separate buildings, as the units of the buildings are intended to be sold to 3[rd] parties and as the 1[st] petitioner was contemplating to construct the building with **WP(C).No.35740 OF 2019(N)** **11** the money received from the prospective buyers of the units, 1[st] petitioner had started to enter into agreements with the prospective purchasers for sale of units and also undivided rights over the subject property. Further that, there are 23 land owners including the petitioners and the 5[th] floor is exclusively occupied by M/s. Lord Krishna Bank. 23 land owners purchased undivided right over the property and the 1[st] petitioner executed sale deed in their favour and such sale deeds bearing Nos. 4584/1998, 2974/2005 and 2978/2005 of SRO, Ernakulam has been duly registered and encumbrance certificates have also been obtained. 2. Further that, para No.2 of Ext.P1 agreement provides that purchaser shall pay all taxes and other dues in respect to the shop rooms and the abovesaid undivided share in the land. That the construction of the building was completed in the year 2000. Further that, after the completion of the construction, the 1[st] petitioner as a promoter and builder has sold the flats and executed sale deeds in favour of the purchasers and also changed the ownership of the building to the respective flat owners and mutation has also been effected in the name of the respective owners and separate building Nos. have also been allotted to each of the flats. Flats were thus constructed on the basis of separate agreement to convey the undivided share in the land. The conveyance with regard to the undivided interest in land is also transferred subsequent to the construction of the flats. Flats were constructed as separate apartments, separate entries and **WP(C).No.35740 OF 2019(N)** **11** amenities and providing common amenities on the basis of separate construction agreements. Accordingly, it is contended that these flats have to be deemed to be a separate unit even though the cost of construction has been met and has been treated as separate unit. Each flat has been numbered separately, property/building tax has been assessed separately by the Kochi Municipal Corporation in terms of the provisions contained in the Municipal Corporations Act. But that the respondents while exercising power under the Kerala Building Tax Act, have failed to consider that each flat has to be deemed as a separate building and that each of the flat which is numbered separately should have been assessed for tax under the Kerala Building Tax Act by assessment as separate units. Further that, the conveyance of the subject property has been made in favour of the 2[nd] and 3[rd] petitioners as per Ext. P5 registered sale deed No.4584/1998 dated 9.12.1998 and Ext.P5 sale deed No.2974/2005 dated 26.3.2005 whereas the impugned assessment order as per Ext.P9 has been rendered only on 24.5.2018. 3. It is urged that the impugned assessment order treating all the flats as a single unit and in not treating the independent of tax for each of the buildings to be treated as separate units is per se illegal and is against the dictum laid down by the apex Court in decisions as in _**State of Kerala and others v. A.P.Mammikutty**_ [2015 (10) SCC 632 Para Nos. 20] and 21 and judgments of this Court as in _**Hi Lite Realtors (India) LLP**_ **WP(C).No.35740 OF 2019(N)** **11** _**v.Revenue Divisional Officer**_ [2018 (3) KLT 237] etc. It is pointed out that pursuant to the directions issued by this Court in Ext.P10 judgment dated 25.10.2018 in W.P.(C.) No. 30876/2018 filed by the petitioners, they have already filed statutory appeals as per Ext.P11 dated 23.11.2018 to impugn the legality and correctness of Ext.P9 assessment order dated 24.05.2018. The petitioners would contend that the legal position is fully in favour of the petitioners as per the dictum laid down in the aforecited decisions inasmuch as admittedly, sale deeds as per Exts.P5 and P5(a) have been made on 09.12.1998 and 26.03.2005 etc. whereas the impugned assessment order as per Ext.P9 is rendered much later only on 24.05.2018. Accordingly, it is urged by the petitioners' counsel that the insistence by the appellate authority that the petitioners should pre-deposit the requisite amount as a condition for consideration of appeal on merits, is not legally correct and that this Court may direct the 2[nd] respondent appellate authority to consider Ext.P11 appeal on merits and pass orders thereon without any further delay etc. 4. Heard Sri.T.K.Radhakrishnan, learned counsel appearing for the petitioners and Sri.Saigi Jacob Palatty, senior Government Pleader appearing for the respondents. Sri.T.K.Radhakrishnan, learned counsel for the petitioner would place reliance on the aforecited judgments and invite this Court's attention to para Nos. 20 and 21 of the decision of the Apex Court in the case in _**State of Kerala and others v. A.P.Mammikutty**_ **WP(C).No.35740 OF 2019(N)** **11** ## [2015 (10) SCC 632] which reads as follows : _In view of the above, the contention advanced by the learned counsel for the State is difficult to accept. The definitions have to be given a proper construction. There can be a case where the owner erects a multi-storied building consisting 10 floors. He builds it at his own cost and thereafter he sells the apartments or flats to 10 persons and in that event he ceases to be the owners of flats and in such a situation it will lead to an absurdity because one single person who once owned the entire building or several apartments, though has ceaed to be the owner in law yet is asked to pay the luxury tax solely on the ground that at the time of constructions there was no contribution by the purchasers or to put it differently there had been no prior booking. This is not the intention. The Explanation II to S.2(e) has to be read harmoniously with proviso to S.2(k) and S.5A of the Act. The intention of the Legislature as gatherable is that ownership of different flats and the cost of construction of building are met by all such persons. The meeting of the cost jointly is not to be narrowly construed to mean that there has to be an investment before the commencement of the construction of the building. The persons who purchase afterwards they really share the value of the construction cost apart from the profit margin due to the builder or the seller. Unless such an interpretation is placed, the original owner of flats when he ceases to be the owner of the building or the purchaser of a small apartment less then 278.7 square meters would still be liable to pay luxury tax. Such an interpretation would lead to absurdity._ _In our considered opinion, the principle of purposive interpretation of the provision has to be adopted and when such a construction is placed, it serves the legislative intent. To elaborate, a person may have a three – storied building and he owns it, then there has to be different computation as per the main part of S.2(k) and for that it has to be calculated as is done by the revenue authority. Once he ceases to be the owner, as per S.5A, he will be liable to pay the luxury tax for all floors/apartments subject to the cap provided under S.5A of the Act.”_ ## 5. Further, the petitioner would also place reliance on para Nos.9, 10 and 11 of the decision of this Court in _**Hi Lite Realtors (India) LLP v.Revenue Divisional Officer**_ [2018 (3) KLT 237] which reads as follows : _9. “Though various contentions have been raised by the respondents in the counter affidavit filed in the matter, in a proceedings of this nature, this Court is expected to consider only the sustainability or otherwise of the reasons stated in the impugned orders (See Mohinder Singh Gill and another v. The Chief Election Commissioner, New Delhi & Ors. (1978 KLT OnLine 1006 (SC) = AIR 1978 SC 851)). As noted, the assessing authority declined to treat the independent units in the building as separate buildings for the purpose of assessment under the Act for two reasons. The first reason is that Explanation 2 to S.2(e) of the Act does not apply to commercial buildings. The second reason is that persons to whom the petitioner sold the units in the building would acquire a right in the property only after completion of the construction of the building and therefore, the building cannot be treated as constructed by its owners. Coming to Exhibit P16 order, the appellate authority though found that the building has to be assessed having regard to Explanation 2 to S.2(e) of the Act, declined to interfere with Exhibit P10 order on the ground that the_ **WP(C).No.35740 OF 2019(N)** **11** _petitioner has not established that the cost of construction of the building was met by persons who have purchased the units in the building. The findings rendered by the authorities as referred to above are mutually destructive. While the assessing authority accepts the fact that the petitioner received amounts from persons to whom they agreed to sell the units, the appellate authority has taken the stand that the petitioner has not established the said fact. Be that as it may, according to me, the issues in dispute between the parties can be resolved without going much into the factual issues._ _10. Before dealing with the facts of this case, it is necessary to refer to the ground realities prevailing in the State in the field of construction of the buildings of the instant nature. Multi-storied buildings, both commercial and residential, are generally constructed by developers, either after purchasing land in their name or after entering into development agreements with the owners of the lands. It is common knowledge that a developer may not be able to sell all the units in the building before commencing the construction. The practice, therefore, is that the construction of the building would be started with the funds of the developer and in the course of construction, the developer would enter into either agreements with the prospective buyers for sale of the undivided right in the property as also for construction of their portion of the building and receive periodical payments depending on the progress of the work and on completion of the construction, sale deeds will be executed in favour of the buyers of the units._ _11. Now I shall come to the statutory provisions. The provisions contained in Sections 7 and 9 of the Act indicate beyond doubt that taxable event is completion of the construction of the building and the liability to pay tax is on the owner of the building. S.2(e) of the Act defines 'building'. Explanation 2 to S.2(e) of the Act clarifies that where a building consists of different apartments or flats owned by different persons and the cost of construction of the building was met by all such persons jointly, each such apartment or flat shall be deemed to be a separate building for the purpose of the Act. Explanation 2 referred to above reads thus:_ _**“Explanation 2** - Where a building consists of different apartments or flats owned by different persons and the cost of construction of the building was met by all such persons jointly, each such apartment or flat shall be deemed to be a separate building.”_ _If Explanation 2 to S.2(e) is understood in the light of Sections 7 and 9 of the Act, it is clear that when a building consisting of different apartments or flats is constructed jointly by different persons, each contributing to the cost of construction of his/her respective units, each unit has to be assessed in the name of its owner. In other words, the object of Explanation 2 to S.2(e) of the Act is to ensure that the building is assessed only in the name of the person to whom it belongs. It is on account of the said reason that this Court passed Exhibit P6 judgment directing the assessing authority to consider whether the building is liable to be treated as a composite one or different individual units for the purpose of assessment under the Act. If one would apply the same reasoning, there is no difficulty in holding that if the building is one constructed by a developer for another, the same has to be assessed in the name of the person for whom the same was constructed. The owner may get right in the property before or after the completion of construction. The same is not decisive at all in the matter of deciding the issue whether the independent units in the buildings are to be treated as separate buildings for the purpose of assessment under the Act. Similar view is seen taken by this Court in Balu v. State of Kerala (1994 (2) KLT 42). Paragraph 3 of the said judgment reads thus:_ _The sole question for decision is whether the assessment of the entire building consisting of twenty two flats as one unit is legal and valid. There is no dispute about the facts of the case. The building is an integral one_ **WP(C).No.35740 OF 2019(N)** **11** _consisting of twenty two flats. It is a multistoryed one. The land belongs to the various flat owners in co-ownership, after the transfer effected to them of the undivided interest in the land, the transfer being effected after the construction of the flats was complete. What Explanation 2 lays down is that if a building consists of different apartments or flats owned by different persons, and the cost of construction of the building is met by such persons jointly, each apartment or flat shall be deemed to be a separate building. The ingredients of the Explanation are (a) the existence of a building, (b) that building must consist of different apartments or flats, (c) the apartments or flats must be owned by different persons and (d) the cost of construction of the building should be met by such persons jointly. If these ingredients concur, each of the apartments or flats will be deemed to be a separate building, though the building is one structurally and there is an integral connection between the various parts of the building. The Explanation in effect splits on otherwise integral unit or building into multiple buildings, liable to be assessed separately. It would have been otherwise going by the main part of the definition alone. Evidently this has been done to encourage construction of apartments and flats and to alleviate the burden that will otherwise fall heavily by assessing the entire building as one unit. The fact that the undivided interest in the land is transferred only subsequent to the construction of the flats is in my opinion, irrelevant in deciding on the applicability of Explanation 2. The building in this case therefore satisfies the conditions of Explanation 2 to S.2(e). The assessing authority has not given any reasons in Ext.P7 to deny the benefit of separate assessment to the flat owners in this case, or any justification for assessing the entire building as one unit on the developer. Such assessments without keeping in mind the basic philosophy underlying the Explanation will only act as a damper to such construction activity in the State.”_ _Section 7 of the Act provides for furnishing of the return by the owner of the building for the purpose of assessment. S.8 of the Act provides that if a person has not furnished the return within the time stipulated, he may furnish the return at any time before the assessment is made. S.9 of the Act provides for assessment in cases where return is filed and also in cases where return is not filed. In other words, as far as multi-storied buildings consisting of independent units are concerned, it appears to me that the scheme of the statute is that after completion of the construction, the owner has to obtain conveyance deed in respect of the unit from the developer and file the return. In case the return is not filed, the owner has time till the time of assessment for obtaining conveyance deed and for filing return. In other words, in cases where transfer of property is not effected before the assessment proceedings, as the obligation in terms of the statute to pay tax for the building is on the owner of the building and as the agreement for sale does not confer any title on the agreement holder, such units cannot be assessed in the name of the persons with whom the developer has entered into the agreement for sale, for, the same cannot be treated as units owned by such persons. It is, therefore, to be clarified that conveyance deeds have to be obtained at any rate by the owners concerned before the assessment of the building. This is the only plausible view which can be taken in a matter like this since it is not certain that the developer would certainly convey ownership of the unit to persons with whom they have entered into agreements for sale after the assessment. If for some reason, the agreement holder does not make the payment in full, the developer may not convey ownership of the unit to him and the assessing authority is not expected to wait until appropriate conveyance deed is executed by the developer in respect of all the units constructed by them.”_ **WP(C).No.35740 OF 2019(N)** **11** 6. After having heard both sides and taking into account the specific submission made by the petitioner that the sale deeds in this case in favour of the 2[nd ] and 3[rd] petitioners as per Ext.P5 series have been rendered much before the issuance of Ext.P9 assessment order dated 24.05.2018 and also taking into account the dictum laid down in the aforestated decisions, this Court is inclined to take the view that the petitioner has made out a strong prima facie case in the matter, so as to warrant interdiction in the writ proceedings. Accordingly, it is ordered that the 2[nd] respondent appellate authority will take up the matter in Ext.P11 appeal dated 23.11.2018 without any further delay and after affording reasonable opportunity of being heard to the petitioners through the counsel and will consider the merits of the contentions in the said appeal and pass orders thereon and also taking into account the abovesaid factual submissions and contentions raised by the petitioner on the basis of the aforecited judgments. Final orders on Ext.P11 appeal should be rendered by the 2[nd] respondent within 6 weeks from the date of production of the certified copy of this order. Further, it is ordered that the petitioner will furnish bank guarantee for ¼[th] of the impugned demand to the satisfaction of the 2[nd] respondent. 7. The office of the Advocate General will forward a copy of this order to the 2[nd] respondent for necessary information and further action. In case, the petitioner furnishes the aforesaid bank guarantee, then coercive **WP(C).No.35740 OF 2019(N)** **11** steps for enforcement of the impugned Ext.P9 assessment order will be kept in abeyance, until final orders are passed on Ext.P11 appeal. With these observations and directions, the above W.P.(C.) will stand finally disposed of. Sd/- **ALEXANDER THOMAS, JUDGE** ## **SKS** **WP(C).No.35740 OF 2019(N)** **11** ## **APPENDIX** ||**APPENDIX**| |---|---| |**PETITIONER'S/S**|**EXHIBITS:**| |**EXHIBIT P1**|**THE COPY OF THE JOINT VENTRUE AGREEMENT**| ||**BEARING NO.4695/1996 S.R.O. ERNAKULAM DATED**| ||**2.11.1996.**| |**EXHIBIT P2**|**THE COPY OF THE BUILDING PERMIT ISSUED BY**| ||**CORPORATION OF COCHIN DATED 18.12.1995.**| |**EXHIBIT P3**|**COPY OF THE AGREEMENT FOR CONSTRUCTION**| ||**DATED 17.8.1998.**| |**EXHIBIT P4**|**A LIST OF APARTMENT OWNERS.**| |**EXHIBIT P5**|**COPY OF THE SALE DEED NO.4584/98 S.R.O.**| ||**ERNAKULAM DATED 9.12.1998.**| |**EXHIBIT P5 A**|**COPY OF THE SALE DEED NO.2974/05 S.R.O.**| ||**ERNAKULAM 26.3.2005.**| |**EXHIBIT P5 B**|**COPY OF THE SALE DEED NO.2978/05 S.R.O.**| ||**ERNAKULAM 26.3.2005.**| |**EXHIBIT P6**|**COPY OF ENCUMBRANCE CERTIFICATE NO.15273/18**| ||**DATED 30.7.2018.**| |**EXHIBIT P7**|**COPY OF THE ASSESSMENT NOTICE NO.B/3-**| ||**11877/17 DATED 9.4.2018.**| |**EXHIBIT P8**|**COPY OF REPLY DATED 23.4.2018.**| |**EXHIBIT P9**|**COPY OF ASSESSMENT ORDER DATED 24.5.2018.**| |**EXHIBIT P10**|**COPY OF JUDGMENT IN WPC.30876/2018 DATED**| ||**25.10.2018 ISSUED BY HON'BLE HIGH COURT OF**| ||**KERALA, ERNAKULAM.**| |**EXHIBIT P11**|**COPY OF APPEAL DATED 23.11.2019.**| |**EXHIBIT P12**|**COPY COMMUNICATION DATED 6.4.2019 ISSUED BY**| ||**2ND RESPONDENT.**| |**EXHIBIT P13**|**THE COPY OF LETTER DATED 9.7.2019 ISSUED TO**| ||**THE 2ND RESPONDENT.**|