The Supreme Court recently upheld a Delhi High Court verdict holding that services rendered by advocates are professional activities, and, therefore, cannot be taxed under the “commercial establishment” category [Municipal Corporation of Delhi v. BN Magon].A Bench of Justices BV Nagarathna and Augustine George Masih dismissed the appeal filed by the Municipal Corporation of Delhi, which sought to levy property tax under the commercial category for advocates conducting their legal practice from home."Having regard to the facts of this case and the observations made in paragraphs 15 and 16 of the impugned judgment in the context of “professional activity” of lawyers are concerned, we are not inclined to interfere in the matter. The Special Leave Petition is hence dismissed," the Court said.In June last year, a Delhi High Court Bench of Justices Najmi Waziri and Sudhir Kumar Jain upheld an appeal against the decision of single-judge holding the same in January 2015.After reading the taxation statute, the Court underlined that services of advocates did not amount to “commercial activity” and they cannot be subjected to such tax. The issue arose before the High Court after the Municipal Corporation of Delhi (MCD) in 2013 issued two orders after assessing the property tax on a lawyer for running a “commercial activity” in his Greater Kailash 2 premises. The lawyer challenged the assessment orders.These were eventually quashed by the order of the single-judge of the High Court, and now affirmed by a division bench of the High Court and the Supreme Court.Before the Division Bench, the MCD had submitted that it had powers to levy property tax on all lands and buildings under its jurisdiction. Therefore, unless consciously excluded, there cannot be any building, property or activity that cannot be subjected to tax, it had argued.
Some of its contentions were:
A building or a part of it used for transaction of business or for keeping of books, accounts and records shall be considered as a “business building” and therefore subject to levy of property tax.A lawyer’s services fall within the category of professional activity and, that part of the building used for a professional activity would fall within the definition of a “business building” as per a clause the 2004 bye-laws.The clause categorically includes office buildings premises solely or principally used as office or for office purposes.
The ambit of a “business building” was wide as well as inclusive under the Delhi Municipal Corporation Act, 1957.Activities carried out by advocates/professionals are commercial and non-domestic in nature, and, therefore, subject to tax and simply because such activity is carried out from residential premises, as per permitted use under MPD 2021, the activity would not become residential.In the High Court's opinion, the MCD’s contentions were ex facie untenable as there was no such “deeming provision” in law for taxation.
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