Wednesday 13 May 2015

Whether co-operative society can be treated as factory for purposes of property tax?

 It is not in dispute that the Petitioner is not a factory within
the meaning of the Factories Act. Subsection
(1) of Section 125 of the
said Act, as stated earlier, contemplates an agreement by the Village
Panchayat with a factory. At this stage, it will be necessary to make a
reference to the relevant provisions of the Rules framed under the said
Act. Rule 18 of Maharashtra Village Panchayats Taxes and Fees Rules,
1960 reiterates the principles laid down by the Section 125(1) of the
said Act that the taxes shall be leviable primarily from the actual
occupier of the building or land upon which it is assessed, if such
occupier is the owner of such building or land. Separate set of Rules
have been framed which governed the agreement under Section 125(1)
of the said Act. The said Rules are Maharashtra Village Panchayats
(Payment of Lump Sum Contribution by Factories In Lieu of Taxes )
Rules 1961 (for short “the said Rules of 1961”). The Rule 3 thereof
provides that it is for an occupier of a factory desiring to arrive at an
agreement to make an application not later than 60 days from the
commencement of the particular financial year. Clause (c) of Rule 2 of
the said Rules of 1961 defines “occupier” of a factory as the person
who has ultimate control over the affairs of the factory.
12. Apart from the fact that the individual owner or the
occupier of each factory is primarily liable to pay property taxes, only

the occupier of the factory can make an application for execution of the
agreement in accordance with Subsection
(1) of Section 125 of the said
Act. Rule 3 of the said Rules of 1961 provides that only an occupier of a
factory can apply for execution of an agreement under Subsection
(1)
of Section 125 of the said Act. The obvious reason is that only a person
who is primarily liable to pay taxes can enter into such an agreement
inasmuch as the execution of the agreement attaches several liabilities
and several consequences. Subsection
(1) of Section 125 of the said
Act provides that the sanction of the State Government is required for
such Agreement.
13. The admitted position which emerges is that the Petitioner
purported to enter into an agreement under Subsection
(1) of Section
125 of the said Act in relation to 325 factories of which the Petitioner is
neither an owner nor an occupier. Apart from the fact that the Petitioner
is not a factory within the meaning of the Factories Act, the application
made by the Petitioner for execution of the agreement under Subsection
(1) of Section 125 of the said Act was itself not competent. The
Divisional Commissioner in the impugned order has rightly stated that
the Petitioner is not a factory within the meaning of the Factories Act.
It is not possible to find fault with the reasons assigned by the
Divisional Commissioner. In the affidavit filed by Shri Bharat Balbhim
Shendage, the Deputy Commissioner (Establishment), Pune Division,

Pune, it is pointed out that the Petitioner has been registered as a Cooperative
Industrial Society and, therefore, the Petitioner has no right to
make an application under Subsection
(1) of Section 125 of the said
Act.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.6477 OF 2013
Parvati Cooperative
Industrial Estate Ltd. .. Petitioner
Vs
The State of Maharashtra & Others. .. Respondents

CORAM
: A.S. OKA & M.S. SONAK, JJ
DATE : 24TH FEBRUARY 2014
Citation;2015(2) ALLMR890

1. Heard learned counsel appearing for the Petitioner. The
Petitioner is a Cooperative
Society formed by the owners of various
industrial plots. The Petitioner Society has 325 members who have
admittedly erected independent factories on their respective plots. On
22nd September 2009, an agreement purporting to be an agreement
under Section 125 of the Bombay Village Panchayats Act, 1958 ( for
short “the said Act”) was entered into between the PetitionerSociety
and the Village Panchayat which is the fourth Respondent in this
Petition. The said agreement was executed on the basis of a Resolution
passed by the Managing Committee of the Petitioner on 31st May 2009.
The agreement entered into was purportedly for payment of a lump
sum contribution by various members of the Petitioner Society who

have erected factories in lieu of property taxes levied by the Village
Panchayat fourth
Respondent for the years 200405,
200506
and
200607.
2. On 10th July 2007, the Divisional Commissioner, Pune
Division, Pune, acted on the basis of the report submitted by the Zilla
Parishad. The Divisional Commissioner on the basis of order passed in
Public Interest Litigation No.16 of 2007 submitted a report to the
Registrar of this Court on 10th July 2007. In Clause (I) and (J) of the
said report, the Divisional Commissioner observed that the concession
under Section 125 of the said Act was available only to the factories
within the meaning of the Factories Act, 1948 ( for short “the Factories
Act”) and the Petitioner is not a factory. In short, the Divisional
Commissioner was of the opinion that the agreement purportedly
executed under Section 125 of the said Act was not legal and valid.
3. On 11th November 2011, according to the case of the
Petitioner, the Chief Executive Officer of the Zilla Parishad agreed that
the Petitioner is entitled to benefit of lump sum contribution. On 20th
September 2012, the Divisional Commissioner passed an
order/communication addressed to the Chief Executive Officer of the
Zilla Parishad, Kolhapur recording that the Petitioner does not fall
under the definition “Factory” under the Factories Act, and therefore,

the proposal for grant of approval to the Agreement cannot be
considered. He observed that the Village Panchayat should make
recovery of 100% of the taxes payable in relation to the industries in
question. The case of the Petitioner is that the said order was passed
without giving an opportunity of being heard to the Petitioner. The
fourth Respondent by letter dated 22nd October 2012 demanded 100%
taxes payable. Therefore, the Petitioner Society filed an
Appeal/Revision by invoking the provisions of Subsection
(6) of
Section 124 and Section 155 of the said Act. The Petitioner challenged
the order dated 20th September 2012 issued by the Divisional
Commissioner, Pune Division, Pune. By letter dated 26th June 2013,
the first Respondent State Government declined to entertain the
Appeal/Revision filed by the Petitioner with an observation that the
remedy of the Petitioner is to challenge the order of the Divisional
Commissioner dated 20th September 2012 before this Court.
Accordingly, the present Petition has been filed by the Petitioner
wherein the challenge is to the order dated 20th September 2012 passed
by the Divisional Commissioner. The second prayer in the petition is
for a declaration that the Petitioner Society is entitled to benefit of lump
sum contribution only to the extent of 51% in lieu of the total taxes
payable by the factories run in its area in accordance with Section 125
of the said Act.

4. The submission of the learned counsel appearing for the
Petitioner is that the Petitioner is an industrial society as is clear from
the name of the Petitioner. His submission is that the PetitionerSociety
represents 325 members who have set up their separate
factories. He has invited our attention to the agreement dated 22nd
September 2009 and urged that the said agreement was entered into by
the Petitioner on behalf of all its members. He pointed out that a
Resolution was passed by the Managing Committee of the Petitioner
authorizing the ViceChairman
of the Petitioner Society to negotiate
with the Village Panchayat and to enter into an agreement. He
submitted that as the Petitionersociety
is representing its 325 members,
there was nothing illegal about the agreement entered into under
Section 125 of the said Act. He urged that apart from the fact that the
Divisional Commissioner while passing an order dated 20th September
2012 has not given any hearing to the Petitioner, the Divisional
Commissioner has proceeded on the wrong premise that the Petitioner
is not a Factory. He urged that the members of the Petitioner are
having factories within the meaning of the Factories Act and the
Petitioner was representing them. Lastly, he submitted that the State
has erroneously rejected the application under Subsection
(6) of
Section 124 of the said Act as Subsection
(6) of Section 124 of the said
Act squarely applicable. He submitted that in any event, no reasons
have been assigned for rejecting the said application. He submits that

the benefit of lump sum contribution towards taxes cannot be deprived
to the members of the Petitioner on the grounds which are wholly
untenable.
5. We have heard the learned AGP for Respondent Nos.1 and
2, the learned counsel appearing for the Zilla Parishad – the third
Respondent and the learned counsel appearing for the fourth
RespondentVillage
Panchayat.
6. It is necessary to advert to the admitted position. It is not
in dispute that the Petitioner is not claiming to be the owner or occupier
of the separate factory premises constructed by 325 members. It is also
an admitted position that the Petitioner Society is not liable to pay the
property taxes in relation to the factory premises constructed by its 325
members. Under Subsection
(2) of Section 124 of the said Act, the
taxes on buildings or lands referred to in Clause (i) of Subsection
(1) of
Section 124 of the said Act shall be leviable from the owners or
occupiers thereof. The proviso to Subsection
(2) thereof provides that
when an owner of a building or land has left the village or cannot be
otherwise found, any person to whom such building or land has been
transferred shall be liable for the tax leviable from the owner. Thus, it
is the owner or the occupier of a land or building who is primarily liable
to pay the taxes. In the present case, admittedly the members of the

Petitioner Society are the owners of their respective factories and
hence, are primarily liable to pay taxes to the Village Panchayat.
7. Reliance is placed on Section 125 of the said Act which
reads thus:
“125. Lump sum contribution by factories in lieu of
taxes levied by Panchayat :(
1) Subject to any rules that may be made under the
Act, and regard being had to the fact that a factory
itself provides in the factory area all or any of the
amenities which such Panchayat provides, a Panchayat
may arrive at an agreement with any factory with the
sanction of the State Government to receive a lump
sum contribution in lieu of all or any of the taxes
levied by Panchayat.
(2) Where no such agreement as is referred to in
subsection
(1) can be reached the matter may be
referred to the State Government in the manner
prescribed and the State Government may after giving
to the Panchayat and the factory concerned an
opportunity of being heard decide the amount of such
contribution. The decision of the State Government
shall be binding on the Panchayat and the factory
concerned.”
8. On plain reading of Section 125 of the said Act, the
agreement contemplated by the Section is the one between a Village
Panchayat and a factory with the sanction of the State Government.
Subsection
(1) of Section 125 of the said Act contemplates an
agreement in relation to a particular factory governing a factory area.

9. The Subsection
(8) of Section 3 of the said Act defines the
word “Factory” as a Factory under the Factories Act. The definition of
“Factory” is in clause (m) of Section 2 of the Factories Act which reads
thus:
“2(m) "factory" means any premises including the
precincts thereof(
i) whereon ten or more workers are working, or
were working on any day of the preceding
twelve months, and in any part of which a
manufacturing process is being carried on with
the aid of power, or is ordinarily so carried on,
or
(ii) whereon twenty or more workers are working,
or were working on any day of the preceding
twelve months, and in any part of which a
manufacturing process is being carried on
without the aid of power, or is ordinarily so
carried on,but
does not include a mine subject
to the operation of 3[ the Mines Act, 1952 (35
of 1952 ),] or 4[ a mobile unit belonging to the
armed forces of the Union, a railway running
shed or a hotel, restaurant or eating place].
5[Explanation. 6[I]For
computing the
number of workers for the purposes of this
clause all the workers in 6[ different groups
and relays] in a day shall be taken into
account;] 6[ Explanation. II.For
the purposes
of this clause, the mere fact that an Electronic
Data Processing Unit or a Computer Unit is
installed in any premises or part thereof, shall
not be construed to make it a factory f no
manufacturing process is being carried on in
such premises or part thereof;]”
10. Clause (n) of Section 2 of the Factories Act defines
“occupier” of a factory as the person who has ultimate control over the
affairs of the factory.

11. It is not in dispute that the Petitioner is not a factory within
the meaning of the Factories Act. Subsection
(1) of Section 125 of the
said Act, as stated earlier, contemplates an agreement by the Village
Panchayat with a factory. At this stage, it will be necessary to make a
reference to the relevant provisions of the Rules framed under the said
Act. Rule 18 of Maharashtra Village Panchayats Taxes and Fees Rules,
1960 reiterates the principles laid down by the Section 125(1) of the
said Act that the taxes shall be leviable primarily from the actual
occupier of the building or land upon which it is assessed, if such
occupier is the owner of such building or land. Separate set of Rules
have been framed which governed the agreement under Section 125(1)
of the said Act. The said Rules are Maharashtra Village Panchayats
(Payment of Lump Sum Contribution by Factories In Lieu of Taxes )
Rules 1961 (for short “the said Rules of 1961”). The Rule 3 thereof
provides that it is for an occupier of a factory desiring to arrive at an
agreement to make an application not later than 60 days from the
commencement of the particular financial year. Clause (c) of Rule 2 of
the said Rules of 1961 defines “occupier” of a factory as the person
who has ultimate control over the affairs of the factory.
12. Apart from the fact that the individual owner or the
occupier of each factory is primarily liable to pay property taxes, only

the occupier of the factory can make an application for execution of the
agreement in accordance with Subsection
(1) of Section 125 of the said
Act. Rule 3 of the said Rules of 1961 provides that only an occupier of a
factory can apply for execution of an agreement under Subsection
(1)
of Section 125 of the said Act. The obvious reason is that only a person
who is primarily liable to pay taxes can enter into such an agreement
inasmuch as the execution of the agreement attaches several liabilities
and several consequences. Subsection
(1) of Section 125 of the said
Act provides that the sanction of the State Government is required for
such Agreement.
13. The admitted position which emerges is that the Petitioner
purported to enter into an agreement under Subsection
(1) of Section
125 of the said Act in relation to 325 factories of which the Petitioner is
neither an owner nor an occupier. Apart from the fact that the Petitioner
is not a factory within the meaning of the Factories Act, the application
made by the Petitioner for execution of the agreement under Subsection
(1) of Section 125 of the said Act was itself not competent. The
Divisional Commissioner in the impugned order has rightly stated that
the Petitioner is not a factory within the meaning of the Factories Act.
It is not possible to find fault with the reasons assigned by the
Divisional Commissioner. In the affidavit filed by Shri Bharat Balbhim
Shendage, the Deputy Commissioner (Establishment), Pune Division,

Pune, it is pointed out that the Petitioner has been registered as a Cooperative
Industrial Society and, therefore, the Petitioner has no right to
make an application under Subsection
(1) of Section 125 of the said
Act.
14. Now turning to Subsection
(6) of Section 124 of the said
Act, what was challenged before the State Government was the order
dated 20th September 2012 passed by the Divisional Commissioner.
Looking to the scheme of Subsection
(6) of Section 124 of the said Act,
we have serious doubt whether the application was competent. In any
event, we find that the view taken by the Divisional Commissioner is
not at all erroneous. The Petitioner was not competent to enter into an
Agreement contemplated under Subsection
(1) of Section 125 of the
said Act.
15. The learned counsel appearing for the Petitioner today
pointed out that individual members of the Petitioner who are occupiers
of the factories have made an application to the Village Panchayat for
grant of benefits under Subsection
(1) of Section 125 of the said Act.
Though we are rejecting this Petition, the rejection of the petition will
not come in the way of an individual owner or occupier of the factory
prosecuting the application before the Village Panchayat and it is for the
Village Panchayat to consider the said application in accordance with
law.

16. Subject to what is observed above, there is no merit in the
Petition. The Petition is accordingly rejected.
17. At this stage, the learned counsel appearing for the
Petitioner submits that on the basis of the agreement and on the basis of
the interim order, the Petitioner has deposited a sum of Rs.79,53,417/with
the RespondentVillage
Panchayat.
18. We grant liberty to the petitioner to apply to the Village
Panchayat for grant of refund of the said amount. If such application is
made, the Village Panchayat shall decide it in accordance with law as
expeditiously as possible and in any case within a period of two months
from today.
(M.S. SONAK, J) ( A.S. OKA, J )

Print Page

No comments:

Post a Comment