22 February 2024 Taxation Law >> Business & Commercial Law  

Facts:

The Enemy Property Act, 1968, vests control of properties belonging to individuals who migrated to Pakistan after the 1947 partition under the designation of enemy property. The Act assigns such properties to a Custodian appointed by the Union Government. In this specific case, the Custodian of a property formerly owned by the Raja of Mahmudabad contested municipal tax notices levied on the land. Citing Article 285(1) of the Constitution, the Custodian argued for exemption, asserting that the property belonged to the Union Government due to the Custodian's appointment.

Findings:

• The Custodian acts as a trustee, not an owner, of enemy property. Their function is solely to manage and administer these properties, not to claim ownership.
• The Central Government retains the authority to divest enemy properties, highlighting the temporary nature of the Custodian's control. This further underscores the non-ownership role of the Custodian.
• The absence of ownership transfer from the original owner to the Custodian precludes the Union of India from assuming ownership of enemy property.
• As enemy properties are not owned by the Union, Article 285(1), which grants tax exemption to Union Government properties, is inapplicable.

Conclusion:

Based on these findings, the Supreme Court overturned the High Court's decision that exempted the property from taxes. Consequently, the occupier of the property is now liable to pay property taxes and other local taxes to the municipal corporation. This landmark judgment offers significant clarification on the legal status of enemy property and its associated taxation. It reaffirms the constitutional framework and emphasizes the temporary, non-ownership nature of the Custodian's role. This ruling provides crucial guidance for future disputes concerning the taxation of enemy properties, ensuring adherence to constitutional principles and fostering a fair distribution of tax burdens.