Madurai Multi Functional Complex Private Limited  [Appellant]  Vs.  The Madurai Corporation [Respondent]

W.A(MD) No.484 of 2020

(2JB, G.R.SWAMINATHAN and M.JOTHIRAMAN JJ.)

In a significant ruling, the Madras High Court reaffirmed the constitutional immunity granted to Union Government properties, particularly railway properties, under Article 285(1) of the Constitution. The Court held that such properties are exempt from any tax imposed by State governments or their authorities, regardless of whether they are used for public service or commercial purposes.

The bench comprising Justice G.R. Swaminathan and Justice M. Jothiraman delivered the verdict while hearing an appeal filed by Madurai Multi Functional Complex Private Limited, challenging a demand notice issued by the Madurai Corporation for property tax amounting to over ₹10 lakhs. Though a single judge had earlier dismissed the writ petition against this notice, the Division Bench overturned the ruling.

The land in question belonged to the Railways, and the Railway Land Development Authority (RLDA) had leased it to Ircon Infrastructure & Services Ltd., which in turn sub-leased it to the appellant company for developing a multi-functional commercial complex. The complex was developed on railway land under a lease for 30 years, but the title remained with the Railways, as clearly stated in the agreements.

The core issue before the court was whether property tax could be levied by the local municipal corporation on land and buildings owned by the Railways but used for commercial purposes through private players. The Madurai Corporation argued that the tax demand was not against the Railways but against the private lessee using the property commercially. However, the Court rejected this argument, clarifying that property tax is levied on the land and building, not on the individual in possession.

Invoking Article 285(1), which states that “the property of the Union shall be exempt from all taxes imposed by a State or by any authority within a State,” the Court emphasized that the term “property” is not qualified or restricted, and thus must be interpreted in its broadest, absolute sense. This includes vacant land, constructed property, and property used for either public or commercial purposes.

The Court described Article 285(1) as an “Iron Dome”—providing complete protection to Union property from state taxation, irrespective of usage. It further clarified that the RLDA, although created by statute, has no juristic personality and is not a separate legal entity from the Railways. RLDA’s role is limited to development and leasing, and it does not own the land or buildings constructed on it.

Based on the lease documents, the Court found that ownership remained with the Railways, and even the structures built would revert to RLDA (and thus the Railways) after the lease period. As a result, the entire property remained Union property, enjoying constitutional immunity from state taxes.

The High Court consequently quashed the tax demand and set aside the earlier single-judge ruling. However, acknowledging that the appellant was availing municipal services, the Court permitted the corporation to enter into a special agreement with the appellant to recover charges for those specific services, without treating them as property tax. This judgment reinforces the legal sanctity of Article 285(1) and provides clarity on the non-taxable status of Union properties, even when used commercially under lease arrangements.