‘Industrial Building’ Not Limited To Manufacturing Units, Can Include IT & Software Offices For Purposes Of Property Tax: Delhi High Court

The Delhi High Court has held that the scope of an ‘Industrial Building’ cannot be restricted merely to traditional notions of manufacturing involving tangible and physical goods.

Justice Purushaindra Kumar Kaurav rather held that an ‘Industrial Building’ encompasses IT sector businesses where non-material inputs such as data, digital content, or intellectual capital are subjected to systematic transformation or reconstitution into new intellectual property outputs, such as software, algorithms, digital products, or proprietary databases.

The bench however clarified that there cannot be a blanket classification of IT offices as ‘Industrial Building’ and the test is whether its operations involve sophisticated processing akin to manufacturing. IT offices that involve clerical or communicative activities would not be classified as an Industrial Building.

It observed, “The term IT/ITeS is a broad and inclusive expression that encapsulates a wide spectrum of services…IT/ITeS sector is not a monolithic entity and cannot be treated as a homogeneous unit for the purposes of classification…Various aspects such as legislative intent, scope and place of operations and context etc need to be looked into while construing the nature of IT/ITeS services and putting a single classification of this entire industry.”

The Court added, “nature of work performed across different segments of this industry is widely dissimilar, both in process and in end purpose. Consequently, in determining whether a particular unit qualifies as an ‘industrial building’ under relevant statutory frameworks, the critical test would hinge upon the dominant or principal nature of activity undertaken—specifically, whether it involves fabrication, assembly, or processing of goods or materials, as opposed to mere provision of services through digital means.”

The observations were made in the context of Delhi Municipal Corporation (DMC) Act 1957 and the DMC (Property-Taxes) ByeLaws 2004.

The Court was dealing with a petition moved by the Municipal Corporation of Delhi assailing the orders passed by Municipal Tax Tribunal (MTT) which held that the property in question, which had been leased out to Wipro for IT and for enabled services, is an ‘Industrial Building’, thus nullifying the demand of enhanced property tax.

The Corporation argued that property tax is exclusively governed by the provisions of the DMC Act and as per Section 116 A(1)(f) thereof, activities of Wipro would constitute a ‘business building’ and not Industria Building.

The Respondent-assessee on the other hand contended that as per Clause 7.7 of Master Plan for Delhi 2021, computer hardware and software industry and industries doing system integration with computer hardware and software have been regarded as an ‘industrial activity’.

At the outset, the High Court perused Bye-law 9(e) of the DMC Property Tax Bye-Laws 2004 which prescribes that industrial building means any building in which products or materials of all kinds and properties are “fabricated, assembled or processed” and such building shall include laboratories/power plants/smock houses, refineries, gas plants, mills, dairies, factories, workshops, automobile repair garages and printing presses, but the portion of the building for purposes, other than purposes specified, in said Clause shall be assessed separately, according to its use.

In order to understand the ambit of the said definition, Court said it is essential to accord due significance to certain key terms embedded within it, i.e., ‘fabricated, assembled, and processed’.

“These expressions are not merely incidental; rather, they form the core of the definitional framework and serve to delineate the nature of transformation or treatment that a material or product must undergo to fall within the ambit of the definition…the manner in which these terms have been defined—often employing broad, functional language such as ―a series of actions, ―the act of preparing or treating, or ―the fitting together of parts—indicates a deliberate attempt to render them inclusive and adaptable to varied industrial and commercial contexts,” the Court said.

It added, “This expansive approach ensures that the terms can encompass a wide spectrum of activities and technological processes, including evolving methods of production, automation, and hybrid manufacturing practices. Therefore, the purpose of such definitions is not to limit the meaning of these terms to a fixed set of operations but to accommodate their applicability across a range of factual and operational matrices.”

Thus the Court concluded that an ‘industrial building’ is any establishment wherein raw materials, “irrespective of their nature or origin”, are assembled, fabricated, or subjected to processing.

Reliance was placed on Panacea Biotec Ltd. v. D.D.A. (2008) wherein the Court held that the software development and ITeS come under the purview of the ‘industry’ as per Clause 7.7 of the MPD 2021.

It also referred to ESI Corpn. v. Reliable Software Systems (P) Ltd. (1991) wherein the Court held that computer related activities like development, programming, application, and software development, though not mentioned in the definition but would fall within the meaning of ‘manufacturing process’ under section 2(k) of the Factories Act, 1948.

So far as Corporation’s argument of it being a business building is concerned, the High Court held that in business building there does not seem to be any production, assembling, fabrication of raw materials, it observed,

“A fair comparison of ‘industrial building’ and ‘business building’ would indicate that ‘industrial building’ would include any building or any part or structure thereof, wherein some fabrication, assembling or processing of raw materials are few basic ingredients, whereas, in ;business building’, the principal dominant purpose seems to be a premises where business is transacted, offices are held, and record etc. are being maintained.”

The Court finally concluded,

“Where raw data is ingested, structured, refined, and ultimately transformed into a new and distinct intellectual property possessing commercial utility and independent market value, the process bears the hallmark of industrial activity in its modern, knowledge-based incarnation, rendering them to peg under the definition of ‘industrial building’. Thus, industries engaged in such technologically intensive processing should also be brought within the fold of ‘industrial building’, consistent with the progressive interpretation of planning and taxation statutes in the context of a digitised economy.”

Case title: SDMC v. Moon Steeland General Industries Pvt. Ltd.

Case no.: W.P.(C) 9986/2021

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