Lucknow Nagar Nigam vs. Kohli Brothers Colour Lab Pvt. Ltd.

Background

This Supreme Court case addressed whether "enemy property"—property vested in the Custodian under the Enemy Property Act, 1968—was exempt from municipal taxes under Article 285 of the Constitution. The property in question, originally owned by the Raja of Mahmudabad (who migrated to Pakistan post-1947), was leased to Kohli Brothers Colour Lab Pvt. Ltd. The Lucknow Nagar Nigam (Municipal Corporation) demanded house and water taxes from the lessee. The Allahabad High Court quashed these demands, holding that enemy property is Union property and thus exempt from local taxes.

Key Issues

Does vesting of property in the Custodian under the Enemy Property Act make it Union property, exempt from municipal taxation under Article 285?

Is the lessee of enemy property liable for municipal taxes?

Arguments

Municipal Corporation: Argued that the Custodian holds the property as a trustee, not as absolute owner for the Union, and that the property is not exempt from local taxes merely because it is enemy property. The lessee, using the property for commercial purposes, should be liable for taxes under the UP Municipal Corporation Adhiniyam, 1959.

Respondent (Kohli Brothers): Supported the High Court’s view that enemy property is Union property, and thus, under Article 285, is exempt from state or local taxation.

Supreme Court’s Analysis

The Court clarified that the Custodian of Enemy Property does not acquire absolute ownership; rather, the Custodian acts as a trustee for management and administration of the property.

The Supreme Court held that statutory vesting of enemy property in the Custodian does not amount to expropriation by the Union Government. There is no legislative declaration that enemy property becomes Union property free from encumbrances.

Therefore, enemy property is not "property of the Union" within the meaning of Article 285, and is not exempt from local taxes.

The Court found that the High Court erred in exempting the respondent from property tax liability.

Judgment

The Supreme Court allowed the appeal, set aside the High Court’s order, and held that the respondent, as occupier of the subject property, is liable to pay property tax and other local taxes to the Municipal Corporation.

The Court directed that from the fiscal year 2024-2025 onwards, the Municipal Corporation is entitled to levy and collect property tax, water tax, sewerage charges, and any other lawful local taxes from the occupier of enemy property.

Any taxes already paid by the respondent would not be refunded, and no retroactive demands would be issued if not already served.

Significance

The ruling clarifies that enemy property is not immune from local taxation and that the Custodian’s role is administrative, not proprietary.

The decision ensures municipal authorities can levy taxes on properties vested in the Custodian but used by private entities, promoting fiscal fairness and municipal revenue integrity.

Citation:
Lucknow Nagar Nigam & Ors. vs. Kohli Brothers Colour Lab Pvt. Ltd. & Ors., 2024 SCC OnLine SC 188, decided on 22-02-2024.

 

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