Recently, the Delhi high court held that advocates running offices from residential buildings will not be charged property tax by the Delhi Municipal Corporation as a “business building” while holding that the professional activity” of lawyers cannot be seen as “commercial activity”.

A division bench comprising justices Najmi Waziri and Sudhir Jain held that the Master Plan for Delhi (MPD), 2021 permits professional activity in residential buildings, subject to certain conditions.

Further, it said that the MPD does not allow the corporation to charge tax on the professional activity being carried out from the residential building.

“In the opinion of this court, a premise would not become business premise just because a lawyer read his office file or did some official work at his residence, “ the court said in its judgment.

“In so far as the statute has not included “professional activity” of lawyers as “commercial activity”, the former cannot be put to tax. The aforesaid bye-laws cannot seek to over-reach the statute itself, “ it added.

In the said matter, the South Delhi Municipal Corporation (SDMC) had challenged the judgment of a single judge, which held that services rendered by advocates are professional activities and hence they cannot be classified, categorised, or subject to tax under the category of business establishment.

Case History -

The case dates back to 2013 when the SDMC issued notice to a lawyer who was running his office from a portion of his residential premises.

The lawyer petitioned the high court challenging the corporation assessing property tax on the ground that he was running a commercial activity from the premises.

The Court quashed the corporation’s order in 2015, leading the corporation to file an appeal.

The municipal corporation contended that when a building or a part is used for the transaction of business or for the keeping of books, accounts and records, it shall be considered as a “business building” and therefore was subject to levy of property tax.

The corporation also said that a lawyer’s services fell within the sphere of

professional activity and, that part of a building which is used for professional activity, would fall within the definition of a ‘business building’ under a provision of the 2004 bye-laws.

He further contended that the provision in the bye-laws categorically includes office buildings premises solely or principally used as office or for office purposes; that the definition of ‘business building’ or ‘mercantile building’ contained in other statutes were extraneous to the determination of the annual value under the Unit Area System of Property Tax.

The corporation also argued that since activities being carried out by advocates/professionals are commercial and non-domestic in nature, therefore they are subject to tax and simply

because such activity is carried out from residential premises, as per permitted user under MPD 2021, the activity would not become residential.

However, the court rejected this reasoning, underlining that the contention was ex facie untenable because there is no such deeming provision in law, for taxation.

Citing a Supreme Court verdict of 2004 where the apex court held that the “power to tax must be express, else no power to tax”, the bench said that under the DMC Act, there is no power to tax “professional activities” carried out from residential buildings.

“Neither the Act nor the Bye-laws define “professional activity” carried out by advocates, architects and doctors, etc, “ the court said