The first basic principle is that property tax is a liability attached to the property and travels with the property. It does not matter who is the owner of the property or in occupation of the property or has any other interest in it. If some tax is due for a particular property, that tax can be realised by sale of the property. So, for realisation of property tax, directions in personem, like orders upon the owner or occupier or trustee or beneficiary to pay the property tax may not be necessary. The property itself is sold and the tax realised out of the sale price. Just like in maritime law, maritime liens are attached to the ship or res and are discharged by sale of the ship and distribution of the sale proceeds in satisfaction of those claims. (See Municipal Corporation of Delhi – vs – M/s. Trigon Investment and Trading Private Limited and another, reported in 1996 SC 1579).
The Calcutta Municipal Corporation Act 1980 (in short the Act) has a detailed scheme for levy and collection of taxes. Levy of taxes is provided for in sub parts A to G of Part IV. This part provides detailed provisions for determination of annual valuation, provisional assessment, invitation of objections to it and final assessment. Sub part ‘G’ provides for incidence and payment of property tax. Section 193 enacts that if the land or building is un-let (as is the case here) tax would have to be paid by the person who has the right to let such land or building. Therefore, before transfer of this flat the erstwhile owner had the liability to pay the property tax and after transfer, the buyer. Now let us come to the Transfer of Property Act 1882. The seller has to pay the property tax which has accrued in respect of the property up to the date of the sale. [Section 55 (1)(g)]. The seller is therefore liable to pay any tax liability up to the date of sale and the buyer such liability which accrues after the date of sale. This is the general law.
Section 183(1) enjoins both seller and buyer to give notice of transfer to the corporation within three months of such transaction. In this case neither seller nor buyer had notified the corporation. What is the effect of such default? Section 183 (4) says that if the transferor defaults he continues to be liable. It adds that ‘nothing in this section would be deemed to affect the liability of the transferee for payment of the property tax on such land and building.’ Therefore, under this sub-section if there is no notice of transfer the liability of the transferor and transferee is concurrent for after sale tax. But this sub-section has to be harmoniously read with the above provisions of the Transfer of Property Act and Section 193 of the Act. In law the seller would remain liable for any tax accrued up to the date of sale and the buyer to pay any tax accruing thereafter.
The respondent corporation, in the absence of any notice of transfer would have the right to recover such tax accruing after sale from either or both. Then, it would be for the party paying the other party’s share to seek its recovery from such party in a proper proceeding. This is the effect after such harmonious construction. But sub-section 4 nevertheless makes it very clear that the liability of the transferee cannot be avoided. Neither, the right of the corporation to realise such amount by sale of the property. I have cited the part providing for levy of taxes. Now chapter XVI of the Act deals with recovery of taxes. At the time of levy of taxes there is provision for provisional assessment and objections and hearing of such objections before assessment is made. Therefore, at this stage a party interested in a property has a chance of hearing before tax on the property is determined. But after tax is determined I find no provision for hearing when there is default in tax and proceedings are taken for recovery under chapter XVI. When the person interested in property has been heard before assessment and tax levied, accordingly, then he has had an opportunity of disputing the tax at that stage. The distress warrant is issued only for non-payment of tax. When this tax has been determined the scope for dispute in a distress warrant proceeding is very limited and must be confined to ascertaining the tax, interest and penalty impositions.
A purchaser of a premise has not had an opportunity of participating in the assessment proceedings. He may not know the details of the tax liability, the interest, the penalty, the period for which they are un-cleared and other particulars at the time of buying the property, though a prudent purchaser ought to make such enquiry and ascertain it. In any event, he must be given an opportunity of disputing it or paying it. Therefore, before a distress warrant is issued this kind of a purchaser should be heard. Also, the owner or occupier of a property which is proposed to be sold under a distress warrant must be given a chance of representing his case before the distress warrant is issued. These principles of natural justice have to be read into these sections for them to be valid. Our Division Bench decision in the case of Calcutta Municipal Corporation and ors. –v – Ram Niranjan Kajaria & Ors., reported in 2009 (1) CHN 382 has no application in this case because that case was concerned with challenge to an annual valuation thrown by a purchaser. Notice of transfer was not given. The court held that such transferee could not be heard in the assessment proceedings.