Operator Of MPSTDC Motel Cannot Invoke State Ownership To Claim Property Tax Exemption: MP High Court

The Jabalpur Bench of the Madhya Pradesh High Court has held that a private company operating a tourism corporation-owned motel for commercial purposes is liable to pay property tax and other charges and cannot claim exemption from property tax on the ground that the property belongs to the State.

The court, however, ruled that the operator could not be made liable for any period before it entered into the agreement to run the motel.

Justice Vishal Mishra passed the ruling in a petition filed by Gujral Hotels Pvt. Ltd., which operates the Tourist Motel at Katni under an agreement with the Madhya Pradesh State Tourism Development Corporation Ltd. (MPSTDC). The corporation had awarded Gujral Hotels the contract to operate and manage the motel. The parties executed an agreement on April 24, 2019.

Rejecting the company's claim for exemption from property tax under Section 136 of the Madhya Pradesh Municipal Corporation Act, the court observed,

“As the MPSTC is a Company registered under the Companies Act, 1956, it is a legal person, separate and distinct from its individual members and it is a legal entity of its own. Thus, it cannot be said that the property in question is owned by the State and thus, Section 136 (a) (ii) cannot be invoked in the present case.”

The dispute arose after the Municipal Corporation, Katni, issued a demand notice seeking property tax and other surcharges for the period from 2010-11 to 2022-23 in respect of the Tourist Motel at Katni.

According to the petition, MPSTDC had invited tenders for the operation and management of the motel. Gujral Hotels participated in the bidding process and was declared successful. A letter of award was issued to the company on May 1, 2018. The agreement executed in 2019 granted Gujral Hotels the right to operate and manage the motel as a licensee.

Gujral Hotels contended that the property belonged to the State Government and was therefore exempt from property tax. It argued that it was merely a licensee and not the owner of the property. The company further submitted that property tax could be imposed only on the owner and not on it. It also challenged the demand raised for the period before 2019, arguing that it had no connection with the property before execution of the agreement.

The State and the Municipal Corporation opposed the petition. They argued that MPSTDC is a company registered under the Companies Act and is a separate legal entity. Consequently, the exemption under the Madhya Pradesh Municipal Corporation Act could not be claimed on the basis that the property belonged to the State.

After examining the record, the Court noted that the property was owned by MPSTDC and that the corporation was a company registered under the Companies Act. The Court further noted that MPSTDC had sublet the building to Gujral Hotels, which was operating the Tourist Motel for commercial purposes.

The Court held that the building housing the motel could not be treated as State Government property merely because the land was associated with the tourism corporation. It therefore held that the Municipal Corporation was entitled to claim property tax and other taxes from the petitioner in relation to the hotel building.

The court observed, “The exemption under Section 136 of the M.P. Municipal Corporation Act, 1956, applies to the owner of the building (the State Government / Tourism Development Corporation), not to the private commercial operator running a hotel in that building. The private entity running a commercial enterprise on government land is liable for property tax, urban development cess, and education cess. Because the petitioner is in occupation and using the building for profit-oriented commercial activity (hotel), they are considered the "occupier" liable for tax.”

On the demand raised for earlier years, the court noted that Gujral Hotels entered into the agreement with MPSTDC only in 2019. It therefore held that the company could not be made liable for property tax and other charges for the period prior to the agreement.

Partly allowing the petition, the court directed that Gujral Hotels would be liable to pay property tax and other charges only from the date on which it entered into the agreement with MPSTDC. The demand raised for the period from 2010-11 until execution of the agreement was consequently set aside.

For Petitioner: Shri Anshuman Singh with Shri Anuj Shrivastava

For Respondents/State: Shri Prabhanshu Shukla

For Respondent no. 3: Shri Utkarsh Agrawal