ADVOCATES RUNNING OFFICEFROM HOME NOT TAXABLE

Advocates Running Office/Chamber From Home Not Taxable under Commercial Establishment Category: Supreme Court

A DETAILED CASE STUDY

The Supreme Court of India has affirmed that the professional activities of advocates running from their homes cannot be taxed under the “commercial establishment” category, upholding a previous verdict of the Delhi High Court in the case of 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.

The MCD sought to levy property tax on advocates practicing from their residences under the commercial category. A Bench consisting of Justices BV Nagarathna and Augustine George Masih dismissed an appeal filed by the Municipal Corporation of Delhi (MCD).

This decision follows the ruling of a Delhi High Court Bench of Justices Najmi Waziri and Sudhir Kumar Jain in June last year, which upheld an appeal against the January 2015 decision of a single judge, holding that the services rendered by advocates do not constitute “commercial activity” and thus cannot be subjected to such tax.

The issue originated when the MCD in 2013 assessed property tax on a lawyer for conducting “commercial activity” from his home in Greater Kailash 2. These orders were subsequently quashed by a single judge of the High Court and have now been affirmed by a division bench of the High Court and the Supreme Court.

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]

“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 the 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.

The Court opined that the MCD’s arguments were not strong ex-facie as there was no such “deeming provision” in law for taxation. The Court pointed out that the Master Plan of Delhi (MPD) 2021 allowed professional activity in residential buildings, subject to certain conditions.

The Court referred to State of West Bengal vs. Kesoram Industries Ltd. and others, (2004) 10 SCC 201 to highlight that there was no power to tax “professional activities” carried out from residential buildings as per the Delhi Municipal Corporation Act.

The Bench remarked that “Rate of taxation is another issue but for taxation to extend to a class of activity, such activity must be specified, defined and included in that class/category. Neither the Act nor the bye-laws define ‘professional activity’ carried out by advocates, architects and doctors, etc.”

Some of its contentions were:

A building or a part of it used for the transaction of business or the 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 in the 2004 bylaws.
The clause categorically includes office building 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, of 1957.
Activities carried out by advocates/professionals are commercial and non-domestic, and, therefore, subject to tax 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.
The division bench stated that “The rule of strict interpretation of taxation statute has to be applied. There is no scope of reading any derivative meaning or of reading any intent of the statute. Insofar as the statute has not included ‘professional activity’ of lawyers as ‘commercial activity’ the former cannot be put to tax.