MCD v. Pradeep Oil Mills Pvt. Ltd

This blog is written by Modini Swarnkar , she is a first year law student at ILS Law College, Pune.

Facts

1. The respondent, Pradeep Oil Mills P. Ltd. was granted a distinct license by the President of India through the Superintendent of Northern Railways for maintaining a depot for storage of petroleum products at the yearly license fee of Rs.20640/- and Rs.31000/- per annum respectively.

2. The appellant, Delhi Municipal Corporation challenged that the storage tanks were not considered within the definition of ‘buildings’ under the Delhi Municipal Corporation Act, and a contention was raised that the storage tanks would not come within the purview of the definition of building as provided in Section 2(3) of the Delhi Municipal Corporation Act thus no tax would be leviable as provided under Section 114 of the Act.

3. Aggrieved by this the respondent filed a house tax appeal before the additional district court judge of Delhi. 

   
   

Issues

1. Whether the storage tanks built on the land in issue constitute a taxable erection as per Delhi Municipal Corporation Act?

2. If it is so, whether or not the equipment on those lands including the storage tanks will be considered among other things as part of plant and machinery thus being exempted under section 116 of Delhi Municipal Corporation Act?

3. Whether the document whereby interest on land is a lease or license?

Arguments advanced by: 

Petitioner

1. The Appellant argued that the agreement between the Municipal Corporation of Delhi and Pradeep Oil Mills Pvt. Ltd. constituted a lease and pointed out that the respondent had exclusive possession of the land and the right to construct permanent structures like storage tanks. According to the corporation, this constituted a lease and made the respondent liable for property tax under the Delhi Municipal Corporation Act.

2. The Appellant emphasized the authority they have to charge property tax on properties under their jurisdiction. The corporation argued that since the Oil Mills were using land for commercial purposes, they were subjected to property tax.

   
   

Respondent

1. The respondent argued that they possess a license that granted them permission to use the land for a specific purpose i.e. storing petroleum products and this distinction exempted them from any type of property tax.

2. The respondent also argued that the storage tanks were not permanent structures but containers that should be considered under Plants and Machinery and according to section 116(3) of the Delhi Municipal Corporation Act plants and machinery are exempted from property tax.

3. Respondent placed an argument that the license fee that they paid to the Northern Railway served as a substitute for property tax so they shouldn’t be subject to double tax now.

   
   

Rationale

1. The central aspect of the court’s preceding revolved around the critical distinction between a lease and a license. A lease is a right to control and sub-lease the property. The lease is for a longer duration. A license is for a shorter duration and it is permission to use property for a specific period without exclusive possession. The court stressed that one of the major criteria to differentiate an agreement from a lease or license is if it confers exclusive possession on the agreement. In case the occupant has been granted exclusive possession, such arrangement would normally be treated as a leasehold even if it is referred to as a license.On the other hand, for an arrangement not to be a lease but rather likely a license, it will have no rights to exclusive possession and simply enables its licensee use of the premises for some specific purpose while control and possession remain with its licensor.

2. The court concluded that, based on the facts and the terms of the agreement, the arrangement in question amounted to a lease rather than a license.

3. In conclusion, the court held that storage tanks, although not a fixed property, were permanently constituted under the Act. It was also determined under court  under Section 116 of the Act that the storage tanks did not qualify as plant and machinery.

Key observations of the judge

1. The Bench focused on the agreement between the two parties especially the rights granted, obligation, and duration under the agreement. 

2. The Full Bench heard the matter and was pleased to hold that the document in question constitutes a lease in favour of the respondent.

3. It also discussed the meaning and ambit of the word ‘building’ under the Delhi Municipal Corporation Act. 

4. The authority of the corporation to collect the tax was also discussed in the court although it wasn’t the primary question raised in the case.

   
   

Ratio/Law laid down (if any) 

Section 116 of the Delhi Municipal Corporation Act, Section 2(3) of the Delhi Municipal Corporation Act, Section 120 of the Delhi Municipal Corporation Act, Article 226 of the Constitution, Income Tax Act, IT Act.

Key judgments cited

1. Gas Authority of India Ltd. v. MCD, 1999(2) AD 371

2. MCD v. Batra Brothers, 1997 (4) AD 317

3. Municipal Corporation of Greater Bombay v. Indian Oil Corporation, AIR 1991 SC 686 [LNIND 1990 SC 821]

4. Assistant Collector of Central Excise v. Ramdeo Tobacco Co. (1991) 2 SCC 119 [LNIND 1991 SC 48], M.C. 

5. Mehta v. Union of India and others (2006) 3 SCC 399 [LNIND 2006 SC 100]

Author's Insights

1. The case focuses on the importance of a well-drafted agreement. The ambiguity in the agreement about the meaning of words like building, land, and structure caused the dispute which could have easily been avoided. Clear definitions in these types of agreements can prevent ambiguity.

2. Following the traditional meaning of lease and license may not fulfil the need for modern commercial agreements relating to property tax.

3. More than following the sections of the acts and other legislative documents, the judgment followed the judgments of the previous similar case laws.

4. This case gives out the message that there is a need to reform the property tax laws for clearer definitions and to maintain a balance between municipal revenue and industrial development.