STATE OF KERALA & ORS Vs. A.P MAMMIKUTTY
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 1640 of 2015, Judgment Date: Jul 01, 2015
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1640 of 2015
(@ SLP(C) NO. 12269 OF 2014)
State of Kerala & Ors. ... Appellants
Versus
A.P. Mammikutty ... Respondent
J U D G M E N T
Dipak Misra, J.
The respondent invoked the jurisdiction of the High Court of Kerala
at Ernakulam under Article 226 of the Constitution assailing the demand of
luxury tax imposed on a building that consists of 13 residential
apartments. The Tahasildar who is the competent statutory authority under
the Kerala Building Tax Act, 1975 (for brevity “the Act”) imposed luxury
tax on the building on the base of Section 5A of the Act vide order dated
1.10.2003 in Ref B4-6435/03 whereby he had measured the plinth area of all
the residential apartments and computed the tax treating the same as a
singular building.
2. The learned Single Judge opined that the levy of luxury tax of the
entire building on the owner was not permissible under the Act, for the
scheme is to levy luxury tax for each residential apartment, plinth area of
which is in excess of the limit provided under Section 5A of the Act. It
has been further ruled by the learned Single Judge that if the plinth area
of each residential apartment was below 278.7 sq. mts., there was no scope
of levying luxury tax. And if the concerned Tahsildar had found that the
plinth area of the residential apartments in toto was above 278.7 sq.
metres, the luxury tax for such apartments could be demanded, the writ
petition was disposed of with the direction that Tahsildar would verify the
plinth area of each residential apartment and levy luxury tax only for such
of the residential apartment plinth area of which was in excess of the
limit provided under Section 5A of the Act. The relevant part of the
opinion expressed by the learned Single Judge is reproduced below:-
“Even though petitioner is the owner of the entire building, luxury tax is
leviable only if the plinth area of each residential apartment is in excess
of the limit provided under Section 5A of the Kerala Building Tax Act.
Tahsildar has demanded luxury tax by clubbing the plinth area of various
residential apartments. This is not permissible under the Act and the
scheme is to levy luxury tax for each residential apartment, plinth area of
which is in excess of the limit provided under Section 5A of the Act. If
plinth area of each residential apartment is below 278.7 sq. meters then
there is no scope for levying luxury tax. However, if Tahsildar on
inspection finds that the plinth area of any residential apartment is above
278.7 sq. metres, then he can demand luxury tax for such of the apartment
or apartments.”
3. Being aggrieved by the aforesaid judgment and order passed by the
learned Single Judge dated 12.06.2008 the State of Kerala and its
functionaries preferred writ appeal No. 2150 of 2008. The Division Bench
referred to Section 5A of the Act, dictionary clause contained in Section
2, especially, Section 2 (k) and the Explanation II to Clause (e) of
Section 2 and came to hold that if there is one building having more than
one floor and they are inter-connected with each other and if one floor is
of no use without the existence of another floor, then it has to be
considered as one building. The Division Bench further proceeded to state
that as there were 13 independent flats or apartments and each of the
building could be used on its own without reference to the other apartment,
the question of taking the measurement of another building to calculate the
plinth area would not arise. The conclusion recorded by the Division Bench
reads as follows:-
“For the purpose of calculating the plinth area, if the intention of the
legislature was to adopt the entire Explanation (2) to clause (e) even with
reference to proviso to 2(k) there was no need to mention the aggregate
area where a building has more than one floor. The very reference to more
than one floor of a building would explicitly mean, if read along with the
proviso that whether the building is a single unit so far as functional use
is concerned, or separate units, so far as functional utility of the
building. If there is one building having more than one floor and they are
interconnected with each other, in other words, if one floor is of no use
without the existence of another floor, then it has to be considered as one
building. Therefore, if there are 13 independent flats or apartments and
if each of the building could be used on its own without reference to the
other apartment, the question of taking the measurement of another building
to calculate the plinth area would not arise.”
4. The singular question that emanates for consideration is whether
under the provisions of the Act, the revenue authorities are entitled to
levy the demand of luxury tax from the respondent by clubbing the plinth
area of the apartments which are 13 in number or the plinth area of the
individual apartment should be taken into consideration for levy of the
said impost.
5. Relying on Section 2(e) of the Act, it is contended by the learned
counsel for the State that on a plain reading of Explanation II, it is
vivid that a building consisting of different apartments or flats can be
deemed to be a separate building, if two conditions, namely, that the
apartments or flats are owned by different persons; and the cost of
construction of the building has been met by all such owners jointly, are
satisfied. The submission of the learned counsel for the appellants is
that the ownership of all the 13 apartments rests with the respondent
himself and the cost of construction having been singularly borne by him,
the twin conditions enshrined under the Explanation II are not satisfied,
and, therefore, it is impermissible to treat the individual apartments of
the building as different buildings. Learned counsel would emphasise that
the situation envisaged under Explanation II to Section 2(e) would arise in
a situation where the apartments are pre-booked by the buyers and whole
consideration is paid in advance to the builder thereby satisfying the
condition of separate ownership and joint meeting of costs. Reliance has
been placed on Section 5A of the Act and other definitions under Section 2
and on that basis, it is urged that the plinth area as prescribed is far
excess of the same inasmuch as the residential portion of the building is
590.4 sq.mts.
6. The submission of the learned counsel for the respondent is that the
Explanation II to Section 2(e) has no application for the levy of luxury
tax, for it is only applicable for the purpose of levy of building tax. It
is argued by him that levy of luxury tax is only for a residential building
and the reference to building in Explanation II in Section 2(e) does not
apply to a residential building. Learned counsel has drawn distinction
between “residential building” and a “building” by drawing our attention to
Section 2(l) of the Act. It is propounded by him that none of the 13
apartments individually have the plinth area of more than 278.7 sq. mts.
and hence, the proviso to Section 5A of the Act is not applicable to the
present case. It is contended that demand has to be made for the
residential apartments and not for the owner who is holding the whole unit.
Elaborating the said stand, it is submitted that there cannot be clubbing
of the residential apartments together for the purpose of imposition of
luxury tax.
7. To appreciate the rival submissions, it is necessary to extract the
relevant part of Section 2(e), which defines “building”. It is as under:-
“ “Building” means a house, out-house, garage or any other structure, or
part thereof, whether of masonry, bricks, wood, metal or other material but
does not include any portable shelter or any shed constructed principally
of mud, bamboos, leaves, grass, thatch or a latrine which is not attached
to the main structure.
[...]
Explanation II: 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.” [Emphasis supplied]
8. Section 2(k) of the Act, which defines the “plinth area”, reads as
follows:-
“plinth area” means the area included in the floor of a building and where
a building has more than one floor the aggregate area included in all the
floors together: [Emphasis supplied]
Provided that in case of a building referred to in the Explanation (2) to
clause (e), the plinth area shall be calculated separately.”
9. Section 2(l) of the Act that defines “residential building”, is as
follows:-
“‘residential building’ means a building or any other structure or part
thereof built exclusively for residential purpose including out-houses or
garages appurtenant to the building for the more beneficial enjoyment of
the main building but does not include hotels, boarding places, lodges and
the like.”
10. Section 5A stipulates charge of luxury tax. The said provision,
being of significance, to deal with the controversy in hand, is reproduced
below:-
“5A. Charge of luxury tax.- (1) Notwithstanding anything contained in this
Act, there shall be charged a luxury tax of two thousand rupees annually on
all residential buildings having a plinth area of 278.7 square metres or
more and completed on or after the 1st day of April, 1999.
11. As is evident, the aforesaid provision commences with a non-obstante
clause, and, therefore, has to be given primacy over the other provisions
of the Act. It clearly provides that luxury tax of Rs.2,000/- is payable
by the owners of all residential buildings constructed on or after 1.4.1999
having plinth area of 278.7 sq.mts. or more. In the instant case, there is
no cavil over the fact that the building in question consists of three
storeys and has 13 apartments/ flats. There is no dispute over the fact
that the aggregate area is more than 278.7 sq.mts. The controversy that
has emerged is what is meant by the term “residential building” and whether
each of the 13 apartments constitute a separate building or is a singular
building for the purpose of levy of luxury tax. There is no quarrel over
the fact and it is also manifest that each of the residential apartments
has the plinth area of less than 278.7 sq.mts., but when the entire plinth
area of 13 apartments is taken by applying the method of clubbing or when
the plinth area is aggregated, it exceeds 278.7 sq.mts. It is the admitted
position that the building has been constructed after 1.4.1999, that is,
the date provided in Section 5A of the Act.
12. Section 2(k) of the Act defines the term “plinth area” and Section
2(l) of the Act defines the term “residential building”. We have already
quoted the aforesaid provisions. As we notice, the term “plinth area”
means the area included in the floor of a building and where a building
consists of more than one floor, aggregate area of all the floors and
hence, the plinth area can include the entire construction, that is, the
floor area of a multi-storied building. The question would still arise
whether different apartments owned by separate persons can be clubbed and
aggregated in a multi-storied building. The proviso thereto states that
the plinth area of an entire building can be separated. It is postulated
therein that in case of a building when Explanation II to Section 2(e) is
attracted, the plinth area should be calculated separately. The issue
which requires examination and apposite answer is whether the Explanation
II to Section 2 (e) as an ameliorative and beneficial provision, restricts
and debars calculation and computations of plinth area of each independent
apartment by different owners in a multi-storied building.
13. Having dealt with the concept of plinth area and its applicability in
the backdrop of the provision, we are required to scan the definition of
“building”. As noted earlier, “building” has been defined in Section 2(e)
of the Act to mean a house, out-house, garage or any other structure, or
part thereof. The construction can be masonry, bricks, wood, metal or
other material. It does not include portable shelter or sheds including a
latrine which is not attached to the main structure. Explanation II is the
fulcrum that would determine the question that has emanated for
consideration in this case. The said Explanation lays the stipulation that
when a building consists of different apartments or flats owned by
different persons and cost of the building has to be met by all such
persons, each apartment or flat is deemed to be a separate building. On a
dissection of the said provision, it appears that said Explanation would
apply when there is a building; that the building must consist of different
flats or apartments; that each apartment or flat must be owned by different
persons and cost of construction of the building must have been met
jointly, and in such cases plinth area cannot be clubbed. Learned counsel
for the appellant-State has submitted that as there has been no
contribution of funds at the time of construction. The Explanation II to
Section 2(e) would not be applicable and the respondent has to be treated
as the sole owner. As we perceive, Explanation II to Section 2(e) takes
care of a situation where the building is constructed and there are
different owners who have paid the purchase price for their respective
apartments. The Explanation should not be read as a negative provision,
detrimental and fatal to cases where there are separate owners of the
apartments, for that is not the basic object and purpose behind the
Explanation II to Section 2(e) of the Act. It is a benevolent and
beneficial provision which has not been enacted to curtail and nullify what
is logical and apparent to reason.
14. In this context, it is imperative to analyse what is meant by
“residential building”. The definition in clause 2(l), means a building or
any other structure or part thereof used for residential purpose and house
or out-house or garage appurtenant to a building for more beneficial
enjoyment. It excludes hotels, boarding places, lodges and the like. Thus,
the expression “residential building” cannot be interpreted without
reference to the term “building” and Explanation II to Section 2(e) of the
Act. Therefore, each residential building owned by single owner would be
subjected to luxury tax, if it has the plinth area which exceeds 278.7
sq.mts. It makes no difference whether the residential building consists
of one floor or it is two-storied or three-storied or consists of multiple
flats or apartments. The entire plinth area in the residential building
owned by a singular owner is required to be aggregated. It is noticeable
that Section 5A does not refer to aggregate plinth area of all the floors.
The intention of the legislature is apparent that if a person is the owner
of the plinth area of 278.7 sq.mts or more in one building, even if it
consists of separate or distinct apartments, he would be liable to pay the
luxury tax under Section 5A of the Act. It also becomes further clear when
the definition of “plinth area” in Section 2 (k) is properly appreciated.
It clearly postulates that “plinth area” means the area included in the
floor of the building and where building has more than one floor aggregate
area included in all the floors are taken together. The proviso to the said
definition lays down that in case of a building referred to in the
Explanation II to clause (e), the “plinth area” shall be calculated
separately. Thus, Section 2(k) has an insegragable nexus with the
definition of “building”. Explanation II to Section 2(e) which defines
“residential building” only conveys about the building meant for
residential purpose and what it includes. Section 5A is the charging
Section and as has been stated earlier, it commences with a non-obstante
clause. It determines the annual luxury tax on all residential buildings
having a plinth area of 278.7 sq. mts. or more. It provides a date for
completion that is 1st April 1999. Though, it does not provide for
aggregate it refers to residential building definition of which refers to a
building. Section 2(k) defines “plinth area” of the building. Section 5A
also includes “plinth area”. Though the term “aggregate” is not mentioned
but the words therein are buildings having plinth area and in that context
one is required to scan and analyse the meaning of the term “building” and
the “plinth area” as defined under Section 2(e) and 2(k) respectively.
“Plinth area” as defined clearly provides that when one building has more
than one floor, the aggregate area includes all the floors. To give an
example, a building consisting of four storeys belongs to a single owner,
the aggregate of all the floors are to be included for calculation of the
plinth area and thereby the computation of the luxury tax has to be
determined as provided under Section 5A. Be it noted, the proviso to
Section 2(k) clearly stipulates that if a building as referred falls under
Explanation II to Section 2(e), the plinth area shall be calculated
separately. The Explanation II refers to different apartments or flats
owned by different persons. It also states that the cost of the
construction of the building is to be met by all such persons jointly.
This Explanation, as noted before, is required to be appositely understood.
The learned counsel for the state would submit that if there is initial
booking and the persons have contributed for the construction definitely
there shall be separate computation. The Explanation II has to be read with
Section 5A which starts with a non-obstante clause. Section 5A as has been
mentioned before refers to “residential building” having plinth area 278.7
sq. mts. or more and, therefore, the said provision also takes note of this
definition. 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 owner of the building. The 10 purchasers become
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 ceased to be the owner in law yet is asked to pay
the luxury tax solely on the ground that at the time of construction 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
Section 2(e) has to be read harmoniously with proviso to Section 2(k) and
Section 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.
15. 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 Section 2(k) and for that it has to be calculated
as is done by the revenue authority. Once he ceases to be the owner, he
will not be liable to pay the luxury tax. But as long as he continues to
be the owner, as per Section 5A, he will be liable to pay the luxury tax
for all floors/apartments subject to the cap provided under Section 5A of
the Act. In this context we may refer to the decision in State of T.N. v.
Kodaikanal Motor Union (P) Ltd.[1] wherein this Court, after referring to
K.P. Varghese b. ITO[2] and Luke v. IRC[3], observed thus:-
“The courts must always seek to find out the intention of the legislature.
Though the courts must find out the intention of the statute from the
language used, but language more often than not is an imperfect instrument
of expression of human thought. As Lord Denning said it would be idle to
expect every statutory provision to be drafted with divine prescience and
perfect clarity. As Judge Learned Hand said, we must not make a fortress
out of dictionary but remember that statutes must have some purpose or
object, whose imaginative discovery is judicial craftsmanship. We need not
always cling to literalness and should seek to endeavour to avoid an unjust
or absurd result. We should not make a mockery of legislation. To make
sense out of an unhappily worded provision, where the purpose is apparent
to the judicial eye ‘some’ violence to language is permissible.”
16. In Keshavji Ravji and Co. v. CIT[4] it has been held by this court
that when in a taxation statute where literal interpretation leads to a
result that does not sub-serve the object of the legislation another
construction in consonance with the object can be adopted.
17. In the case at hand, as is noticeable, the learned Single Judge had
remanded the matter to the revenue authority and the Division Bench has
declined to interfere. The Division Bench has applied the functional unit
test. We do not accept the same. The learned Single Judge, as we have
reproduced a paragraph hereinbefore, has opined that when the plinth area
of any residential apartment is above 278.7 sq. mts., then the authority
can demand luxury tax for such apartment or flat. Be it noted, the learned
Single Judge has held that even if the person is the owner of the entire
building the computation would be apartment-wise. The said analysis is
also incorrect. We have given purposive interpretation to Explanation II
as it has to be read with Section 5A of the Act. When the owner parts with
the building each apartment will be segregable for the purpose of luxury
tax. If he remains the owner for the whole or part then he will be liable
to pay for the plinth area in respect of the flats or apartments that is
retained by him subject to the cap as envisaged under Section 5A of the
Act. If he sells away the entire building then it has to be flat/apartment-
wise calculation/computation, for every apartment owner is different than
the others. Thus, the plinth area would be different. To clarify further,
if a singular person purchases three flats, he will be liable on the basis
of aggregate plinth area subject to the cap envisaged under Section 5A of
the Act.
18. In view of the aforesaid, we allow the appeal and set aside the order
of the revenue authority and that of the High Court in writ petition and
the writ appeal, and remand the matter to the revenue authority to compute
the luxury tax in the manner which we have clarified hereinabove. There
shall be no order as to costs.
.............................J.
[Dipak Misra]
..........................., J.
[Prafulla C. Pant]
New Delhi
July 1, 2015
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[1] (1989) 3 SCC 91
[2] (1981) 4 SCC 172 : 1981 SCC (Tax) 293
[3] (1964) 54 ITR 692 : 1963 AC 557 (HL)
[4] (1990) 2 SCC 231
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