While taking a clear, categorical, composed and convincing stand and holding that the “professional activity” of lawyers cannot be seen as “commercial activity”, the Delhi High Court in a most learned, laudable and landmark oral judgment titled South Delhi Municipal Corporation vs BN Magon in LPA 564/2015 that was pronounced on March 23, 2023 has held in no uncertain terms that an advocate’s office run from a residential building is not subject to property tax under the Delhi Municipal Corporation Act as a “business building”. It certainly merits mentioning here that the Division Bench of Delhi High Court comprising of Hon’ble Mr Justice Najmi Waziri and Hon’ble Mr Justice Sudhir Kumar Jain noted that the Master Plan for Delhi (MPD), 2021 permits professional activity in residential buildings, subject to certain conditions. However, the said provision of MCD does not empower the Corporation to levy tax for professional activity being carried out from residential buildings. It also must definitely be disclosed here that the Division Bench was dealing with an appeal that had been filed by the South Delhi Municipal Corporation (SDMC) against the judgment of the Single Judge which held that services rendered by advocates are professional activities and hence they cannot be classified, categorized or subject to tax under the category of business establishment. It also must be noted here that the issue arose way back in 2013 when the SDMC issued notice demanding property tax to a lawyer who was running his office in a portion of his residential premises.
At the very outset, this brief, brilliant, bold and balanced judgment authored by Hon’ble Mr Justice Najmi Waziri for the Division Bench of Delhi High Court comprising of himself and Hon’ble Mr Justice Sudhir Kumar Jain sets the ball in motion by first and foremost putting forth precisely that, “The hearing has been conducted through hybrid mode (physical and virtual hearing).”
To put things in perspective, the Division Bench envisages in para 1 that, “This appeal impugns the judgment of the learned Single Judge passed on 27.01.2015 in W.P. (C) 60/2014 holding that services rendered by advocates are professional activities and cannot be classified/categorised or be subject to tax under the category of business establishment or professional establishment. The judgment has concluded as under:
67. For the aforesaid reasons, this Court is of the view that if MPD 2021, DMC Act, 1957 and Bye-Laws, 2004 are read harmoniously, it would be apparent that where a professional activity is carried out by a professional belonging to a category and within the parameters mentioned in Clause 15.8 of MPD 2021, then the user of premises remains predominantly residential and the said property cannot be assessed to property tax as a ‘business building’.
68. Consequently, present petition is allowed and the impugned Assessment Order under Section 123D of DMC Act, 1957 passed on 22nd November, 2013 and issued on 11th December, 2013 bearing no. TAX/A&C/ SZ/2013/1139/10860 passed by Jt. Assessor & Collector, South Zone, R.K. Puram fixing value at Rs. 60,000/- w.e.f. 1st April, 2004 as well as the demand, if any computed on the said basis along with levy for Assessment Years 2004-05 to 2012-13 in respect of property bearing no. E-403, Greater Kailash-II, New Delhi-48 are quashed. The pending application also stands disposed of.””
Be it noted, the Division Bench notes in para 5 that, “It is clear that MPD, 2021 permits professional activity in residential buildings, subject to certain conditions. However, what is to be noted is that the said provision of MPD, does not empower the Corporation to levy tax for professional activity being carried out from residential buildings. Section 115 and 115A of the DMC Act, as quoted hereinabove, empowers the MCD to levy taxes but only in terms of and to the extent specified in the statute. Categories of buildings, user-wise, have been defined under clause 9 (a) and (b) (i) and (ii) of the DMC (Property Tax) Bye-laws, 2004, as under:
“…. 9. Definitions of use-wise categories of buildings. -For the purposes of clause (f) of sub-section (1) of section 116 A, the usewise
(a) “residential building” shall mean any building used for dwelling purposes by a family/families/individual but excludes any premises for commercial use including lodging, guest house, hotel or similar purposes:
(b) “business building” shall mean any building or part thereof used for transaction of business or for keeping of accounts and records or for similar other purposes, and such buildings shall include
(i) offices (other than offices of Central Government, State Government and local bodies), banks, professional establishments, court houses, and libraries for the principal function of transaction of public business and keeping of books and records;
(ii) office buildings (premises) solely or principally used as office or for office purpose; and…””
Simply stated, the Division Bench mentions in para 6 that, “The MCD contends that insofar as: i) a building or a part thereof is used for transaction of business or for keeping of books, accounts and records, it shall be considered as a “business building” and therefore subject to levy of property tax; ii) that a lawyer’s services fall within the sphere of professional activity and, that part of a building which is used for professional activity, would fall within the definition of a ‘business building’ as per clause 9(b)(i) of the Bye-laws; iii) that clause 9(b)(ii) categorically includes office buildings premises solely or principally used as office or for office purposes; that the definition of ‘business building’ or ‘mercantile building’ contained in other statutes were extraneous to the determination of the annual value under the Unit Area System of Property Tax; iv) that the ambit of that ‘business building’ was wide as well as inclusive under the Delhi Municipal Corporation Act, 1957 and v) that activities being carried out by advocates/professionals are commercial and non-domestic in nature, therefore the same are subject to tax and simply because such activity is carried out from residential premises, as per permitted user under MPD 2021, the activity would not become residential.”
Do note, the Division Bench clearly notes in para 7 that, “The aforesaid contention is ex facie untenable because there is no such deeming provision in law, for taxation. As noted hereinabove taxation powers have to be specifically mentioned and categories of taxable activity have to be defined.”
It is worth noting that the Division Bench notes in para 10 that, “The Supreme Court has held that the “power to tax must be express, else no power to tax” (State of West Bengal vs. Kesoram Industries Ltd. and others, (2004) 10 SCC 201). Under the DMC Act there is no power to tax “professional activities” carried out from residential buildings. Professional activities are permitted under MPD 2010, under certain conditions. The Master Plan has force of law [R.K. Mittal & Ors. vs. State of Uttar Pradesh & Ors. (2012) 2 SCC 232; Manushi Sangathan vs. Government of Delhi & Ors. 168 (2010) DLT 168]. The language of section 116 A (1) of the DMC Act, 1957 does not include tax on professional activities. Interestingly, clause 9 (b) (i) and (ii) of the Bye-laws refer only to ‘professional establishment’ but does not define the expressions ‘professional’ or ‘establishment’.”
While citing the relevant case law, the Division Bench observes in para 12 that, “As regards the professional activity and professional services rendered by advocates, a Division Bench of the Bombay High Court has in Sakharam Narayan Kherdekar v. City of Nagpur Corporation & Ors., AIR 1964 Bombay 200, has held that the discharge of professional activities by advocates would not be covered under the expression “business” nor would it be professional establishment because the word “establishment” would only refer to as ‘shops’ as defined in the Bombay Shops and Establishment Act, 1948.”
Most significantly, the Division Bench lays bare in para 13 that, “The result of the aforesaid discussion is that no tax can be levied in the absence of a statutory empowerment. The MCD’s powers to levy property tax are embodied in Section 115 and 115-A of the DMC Act. The Byelaws have been enacted under Sections 481 and 483 of the Act. Clause 9 of the Bye-laws, as noted hereinabove, defines the categories under which property tax can be levied. 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 Byelaws define “professional activity” carried out by advocates, architects and doctors, etc.”
Most remarkably, the Division Bench hastens to add in para 14 specifying that, “A Constitution Bench of the Supreme Court in Commissioner of Customs and Others vs. Dilip Kumar and Company and others (2018) 9 SCC 1, has held that: i) when the language of the statute is plain and unambiguous, court has to seal and understand the plain language as such, and there is no scope of interpretation, ii) all cases of literal interpretation would involve strict rule of interpretation, but strict rule may not necessarily involve the former, especially in the area of taxation, thus, strict interpretation does not encompass strict literalism into its fold; iii) every taxing statute including charging, computation and exemption clause (at the threshold stage) should be interpreted strictly; iv) in a taxation statute there is no room for any intendment; v) in taxation statutes contextual or purposive interpretation cannot be applied, nor can any resort be made to look to other supporting material. Equity has no place in interpreting a tax statute.”
It cannot be glossed over that the Division Bench then further states in para 15 that, “That being the law regarding interpretation of taxing statutes, what needs to be seen is whether “professional activity” by lawyers would be classified under clause 9 (a) (b) (i) and (ii) of the Delhi Municipal Corporation (Property Taxes) Bye-laws, 2004. The DMC Act does not define “professional activity”. What it defines has been discussed hereinabove. Also in V. Sasidharan v. M/s. Peter and Karunakar and others AIR 1984 SC 1700 the Supreme Court has held that “professional activity” of lawyers does not fall within the category of ‘commercial establishment’ or ‘business activity’ and the firm of lawyers is not a ‘commercial establishment’. Relevant portion of the said judgment is reproduced as under:
“10. Learned counsel for the appellant argues that a lawyer’s office is a commercial establishment because, persons who are employed in that office are mainly engaged in office work. This argument overlooks that, under the second clause of the definition in Section 2(4), ‘commercial establishment’ means “an establishment or administrative service in which the persons employed are mainly engaged in office work”. Partly, we go back to the same question as to whether a lawyer’s office is an ‘establishment’ within the meaning of the Act. The other aspect which this argument fails to take note of is that a lawyer’s office is not an ‘administrative service’. It seems to us doing violence to the language of the second clause of Section 2(4) to hold that a lawyer’s office is an ‘administrative service’. This argument has therefore to be rejected.
12. For these reasons, we are of the opinion that the office of a lawyer or of a firm of lawyers is not a ‘commercial establishment’ within the meaning of the Act. This conclusion is strengthened by the other provisions of the Act…….If the current trends are any indication and if old memories fail not, the earnings of lawyers’ clerks cannot, in reality, bear reasonable comparison with the earnings of employees of commercial establishments, properly so called. They, undoubtedly, work hard but they do not go without their reward. They come early in the morning and go late at night, but that is implicit in the very nature of the duties which they are required to perform and the time they spend is not a profitless pastime.
15. ………We agree with their reasoning and hold that the office of a lawyer or of a firm of lawyers is not a ‘commercial establishment’ within the meaning of Section 2(4) of the Act.””
Most forthrightly, the Division Bench mandates in para 16 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 intentment of the statute. Insofar as the statute has not included “professional activity” of lawyers as “commercial activity” the former cannot be put to tax. The aforesaid Bye-laws cannot seek to over-reach the statute itself. The assessment order issued by the MCD under section 123D of the DMC Act, 1957 alongwith any demand, were rightly quashed.”
Finally, the Division Bench concludes by holding in para 17 that, “We see no reason to interfere with the impugned judgement. The appeal is without merit and is accordingly dismissed.”
In conclusion, the Delhi High Court in this leading judgment has made it indubitably clear that advocates office run from residence is not subject to property tax under the Delhi Municipal Corporation Act as “business building”. No denying it. So there should be no doubt now left on this lingering in our mind.