Nithyakalyani Narayanan. V
The Delhi High Court held that services provided by Advocates could not be taxed under the category of “commercial establishment” as per the taxation statute as they are professional activities.
The division bench stated that “The rule of strict interpretation of taxation statute has to be applied. There is no scope of reading any derivative meaning or of reading any intent of the statute. Insofar as the statute has not included ‘professional activity’ of lawyers as ‘commercial activity’ the former cannot be put to tax.
In 2013, the Municipal Corporation of Delhi (MCD) issued two orders against an Advocate for operating a “commercial activity” in his premises after calculating the property tax. He challenged those orders and were quashed.
The MCD submitted before the Delhi High Court that it had the right to impose a property tax on all lands and buildings coming under its jurisdiction. Hence, no building, property or activity cannot be subjected to tax unless it is deliberately excluded. It was argued that a building or a part of it used for any business transaction or for the keeping of books, accounts and records shall be considered as a “business building” and must be subjected to a property tax levy. It was also mentioned that the service of an Advocate comes under the category of professional activity according to 2004 bye-laws, and the part of the building used for the said activity would fall within the definition of a “business building.” Also, as per MCD 221, the commercial and non-domestic activities of advocates/professionals would not become residential just because the said activity is carried out in residential premises and are subject to tax.
The Court opined that the MCD’s arguments were not strong ex-facie as there was no such “deeming provision” in law for taxation. The Court pointed out that the Master Plan of Delhi (MPD) 2021 allowed professional activity in residential buildings, subject to certain conditions.
The Court referred to State of West Bengal vs. Kesoram Industries Ltd. and others, (2004) 10 SCC 201 to highlight that there was no power to tax “professional activities” carried out from residential buildings as per the Delhi Municipal Corporation Act. The Bench remarked that “Rate of taxation is another issue but for taxation to extend to a class of activity, such activity must be specified, defined and included in that class/category. Neither the Act nor the bye-laws define ‘professional activity’ carried out by advocates, architects and doctors, etc.”
Justice Najmi Waziri and Justice Sudhir Kumar dismissed the appeal as being “without merit.”
Standing counsel Sanjeev Sabharwal and Advocate Shweta appeared for the MCD, while Advocate BN Magon appeared in person along with Advocate Neeraj Gulati.
Name of the case: South Delhi Municipal Corporation v. B N Magon
Bench: Justice Najmi Waziri and Justice Sudhir Kumar