Real Estate - January - 2014

Real Estate - January - 2014

Supreme Court's Judgements

A.       A.    SH Medical Centre Hospital vs. State of Kerala &Ors.,decided onJanuary 16, 2014.

Facts:

The Appellant, SH Medical Centre Hospital, a registered charitable institution is managed by nuns of the Christian faith.As per the Memorandum of the SH Medical Center, the object of the institution is purely philanthropic and not for profit.The Appellant had constructed several buildings with the aim of building hospital and providing free medical aid to poor. The Respondents, vide an order exempted the Appellant from assessment of building tax. The exemption was in connection with the main building of the hospital. The Appellant’s hospital was visited by an officer from the office of Tehsildar and subsequently the Appellant received a demand notice. Under the said notice, the Appellant was subjectedto building tax under the relevant provisions of the KerelaBuilding Tax Act, 1975 (“Act”).

Aggrieved by notice, the Appellant filed a writ petition before the High Court of Kerala. The High Court, by an order, disposed of the writ petition with a direction to the Tehsildar to reconsider the assessment. The High Court also rejected the request of the Appellant and referred the issue of exemption to the Government.

The Kerala Government, by its order rejected the contention of Appellant and held that as the medical service were given only in the plinth area of the third floor of the main building, only the said portion is exempted from paying building tax.

Aggrieved by the order of the Kerala Government, the Appellant filed a writ petition before the High Court praying to quash the order and to declare the appellant as charitable institution under the Act. The writ petition was dismissed by the single judge on the ground that the building was not primarily used for charitable purposes and thus the present appeal.

Held:

While examining the provisions of the Act and the question of what ‘charitable purpose’ means, the Supreme Court opined that the High Court has correctly interpreted the ‘Explanation’ clause to Section 3(1) of the Act to hold that ‘charitable purpose’ means ‘relief of the poor and free medical relief’. The Supreme Court, while dismissing the appeal,observed that the Appellant already has income tax exemption for the area in which free medical aid is provided. Only the portion of the building utilized for providing free medical aid can be said to be used principally for charitable purpose and thus the High Court was correct in its observation.

Circular

New Sub-Sector CRE-Residential Housing (CRE-RH) Segment within CRE Sector & Rationalisation of Provisioning and Risk Weight.

In September 2009, the Reserve Bank of India (“RBI”) had issued guidelines on classification of certain exposures as Commercial Real Estate (“CRE”) exposures. The CRE exposures are sensitive in view of their inherent price volatilities. Therefore, these exposures generally attract higher risk weights and higher provisioning requirements. Accordingly, it was proposed to carve out a sub-sector of ‘CRE-Residential Housing’ within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning.

As loans to the residential housing projects under the CRE Sector exhibit lesser risk and volatility than the CRE Sector taken as a whole, it has been decided to carve out a separate sub-sector called ‘Commercial Real Estate–Residential Housing’ (“CRE-RH”) from the CRE Sector. CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment. Such projects will ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (“FSI”) of the project. In case the FSI of the commercial area in residential housing complex exceeds the ceiling of 10%, the project loans will be classified as CRE and not CRE-RH.

Further, the CRE-RH segment will attract a lower risk weight of 75% and lower standard asset provisioning of 0.75% as against 100% and 1.00%, respectively for the CRE segment.

News

Housing projects allowed in Gurgaon’s commercial zones

The Haryana government has decided to allow mixed land use in commercial zones notified in the master plan. So far, licences in designated commercial zones in development plans have been granted exclusively for integrated commercial complexes but under the new Mixed Land Use (Commercial/Residential) Licensing Policy, these complexes can now house residential properties. As per the policy, the projects will only be allowed on sector roads or 30-metre wide roads. The minimum area required for the project should be 10 acres. Further, the project site should also have an existing approach road, while it should be approachable from the proposed sector roads in future.The maximum permitted Floor Area Ratio (“FAR”) of a project has to be in accordance with the present licensing policy. While the maximum FAR for the residential component cannot exceed one third (33.3%) of the maximum permissible FAR of the project and the remaining two-third (66.7%) must be used for commercial purpose.The policy doesn’t allow independent residential plots to be carved out in commercial zones.

Industrial township in Greater Noida

The central government has approved an investment of over Rs 1,700 crore in creating trunk infrastructure such as roads, bus rapid transit system and telecom and IT infrastructure for an industrial township.The proposed industrial township is part of an “early bird project” with a multi-modal hub also planned in Dadri, which part of the Delhi-Mumbai Industrial Corridor. The township is proposed under the 2021 Master Plan and will be spread over close to 750 acre.

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Newsletter - Real Estate

This newsletter is being provided to the recipient solely for the purpose of his/her/its information. It is meant to be merely an informative summary and should not be treated as a substitute for considered legal advice. This update covers significant legal developments in the field of real estate for the month of January, 2014. If you wish to receive more information about any item in this newsletter, please feel free to contact:

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