The Supreme Court has upheld a Delhi High Court ruling, maintaining that an advocate’s office situated in a residential building is exempt from property tax under the Delhi Municipal Corporation Act, categorizing it as a non-“business building.”
The Two Judge Bench of Justices BV Nagarathna and Augustine George Masih, presiding over the case, affirmed that the legal profession’s “professional activity” does not fall under the classifications of a “commercial establishment” or a “business activity,” emphasizing that a lawyers’ firm does not qualify as a “commercial establishment.”
The bench, considering the specifics of the case and the remarks in paragraphs 15 and 16 of the contested judgment regarding the “professional activity” of lawyers, expressed their reluctance to interfere. Consequently, the Special Leave Petition filed by the South Delhi Municipal Corporation challenging the Delhi High Court’s decision was dismissed.
The origin of this legal dispute dates back to 2013 when the South Delhi Municipal Corporation (SDMC) issued a notice demanding property tax from a lawyer operating his office within his residential premises. The Single Judge’s judgment, which asserted that services provided by advocates are professional activities and thus not subject to taxation as a business establishment, prompted the SDMC’s appeal to the Delhi High Court.
During the proceedings, the SDMC argued that a lawyer’s services, being professional activities, should be deemed part of a ‘business building.’ Conversely, the respondent contended that the power to tax must be explicitly expressed, and the Delhi Municipal Corporation Act, 1957, lacks the authority to tax “professional activities” conducted in residential buildings.
In its decision, the High Court Bench, consisting of Justices Najmi Waziri and Sudhir Kumar Jain, pointed out that the relevant statute does not consider the “professional activity” of lawyers as “commercial activity,” thereby precluding it from taxation. Referring to section 116 A (1) of the Delhi Municipal Corporation Act, 1957, the Court noted the absence of provisions for taxing professional activities.
Drawing inspiration from a Bombay High Court precedent, Sakharam Narayan Kherdekar v. City of Nagpur Corporation & Ors., the High Court maintained that advocates’ professional activities do not fit within the definitions of “business” or “professional establishment.” Consequently, the Court emphasized the strict interpretation of taxation statutes, emphasizing the absence of room for deriving additional meanings or intentions from the statute.
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