Setback for telcos: SC allows state govts to levy property tax on mobile towers

In a setback for the cellular operators, the Supreme Court on Friday ruled that property tax can be levied on mobile towers by the state governments and their municipal bodies under the law. Setting aside an order of the Gujarat High Court, a bench of Justices Ranjan Gogoi and PC Pant held that mobile towers are to be taxed as “land” and “building” under the state legislation, and that this cess will

be independent of the levy on entities engaged in providing telecommunication services through such mobile towers. The court said the levy is on the occupier of the building. Gujarat High Court had in April 2013 struck down as unconstitutional a legal provision introduced by the state government that enabled local institutions of self-governance to levy property tax on mobile towers while considering them as buildings. The high court further took a view that only the cabin in a mobile tower, in which the Base Transceiver Station (BTS) system is located, would be eligible to be taxed.

While the state government and municipal bodies appealed against the first part of this order, cellular operators challenged the second part. Later similar matters arising from the Bombay High Court also came to the apex court, which decided them simultaneously. In its judgment, the bench has now held in favour of the legislative competence of state governments to impose taxes on mobile towers as ‘land’ and ‘buildings’.

“If the definition of ‘land’ and ‘building’ contained in the Gujarat Act is to be understood, we do not find any reason as to why, though in common parlance and in everyday life, a mobile tower is certainly not a building, it would also cease to be a building for the purposes of Entry 49 List II so as to deny the State Legislature the power to levy a tax thereon. Such a law can trace its source to the provisions Entry 49 List II of the Seventh Schedule to the Constitution,” noted the bench.

It underlined that the financial relations between the Union and the states would suggest a constitutional scheme wherein the federating States of the Indian Union are not destined to remain financially weak despite a situation where the Union undoubtedly has the upper hand by an allocation of the more lucrative subjects of taxation under the Seventh Schedule.

“Constitutionality of the Gujarat Act, in the above light, must be answered in favour of the State,” said the bench, adding it will be difficult to confine the meaning of the expression ‘building’ to a residential building as commonly understood or a structure raised only for the purpose of habitation.

The court further said that a “dynamic rather than a pedantic view has to be preferred if the constitutional document is to meet the challenges of a fast developing world throwing new frontiers of challenge and an ever changing social order.” It disposed of the matters from the Bombay High Court in terms of the same order.