What is “immovable property”? The law relating to fixtures to land and buildings: Part I

(The
following post, which deals with a continuingly vexed question of law, has been
contributed by Vinod Kothari and Nidhi Ladha of Vinod Kothari &
Company. The authors can be contacted at vinod@vinodkothari.com
and nidhiladha@vinodkothari.com
respectively)
At first
glimpse, the question –what is an immovable property – sounds too basic to
warrant any attention. Land and buildings are immovable properties.  But that is not where the question is
significant. The question becomes complicated when we extend the meaning of
immovable property to include things which are embedded or fastened to earth,
commonly known as “fixtures”. Fixtures may be done to civic structures – for
example, doors or windows to buildings; fixtures may also arise in case of
variety of plant, machinery, equipment, installations, such as furnaces,
boilers, towers, and so on. To distinguish the latter from the former, we will
call the latter “trade fixtures”. So, the question is, are trade fixtures
immovable properties?

Goods and Properties:

Note the immense
significance of the question, in light of the age-old distinction between
“goods” (dealt with by Sale of Goods Act, 1930) and “properties” (dealt with by
Transfer of Property Act, 1882). But more important than the branches of law
that deal with them, there are immense tax implications of an asset being taken
as a movable or immovable property. If the asset in question is “goods”, it is
covered by Sales-tax/ value added tax (VAT) laws. If the asset manufactured is
goods, there is a Central Excise implication. If the asset being sold is an
immovable property, the question of sales-tax/VAT does not arise – however,
there may be stamp duty applicable to the conveyance of immovable property.
Transactions transferring interest in immovable property also require mandatory
registration under Registration Act, 1908. Lease, mortgage or charges on
immovable property may also bring in the implication of the Transfer of
Property Act, conveyancing and registration requirements. Questions involving
substantial sums of money continue to arise due to the fragmented nature of
taxation laws in India, and the regime of control on immovable properties by
civic authorities.
Immovable
property is defined by Section 3(26) of the General Clauses Act, 1897 as including land, benefits
arising out of land and things attached to the earth, or permanently fastened
to anything attached to the earth. “Attached to earth” is defined in section 3
of the Transfer of Property Act as meaning (a) rooted in the earth, as in the
case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or
buildings; or (c) attached to what is so imbedded for the permanent beneficial
enjoyment of that to which it is attached.
In case of trade
fixtures, the rule is permanent attachment, that is, such attachment, whereby,
removing the item in question will require demolition.

Intent and
extent of annexation:

To ascertain
whether the item is permanently attached to earth, English and Indian courts
have consistently used two-fold tests – (i) the extent of annexation and (ii) the
object of annexation. The extent of annexation means annexing the fixture or
object ceases to be detachable. It would need to be demolished if one were to
remove it. In considering whether the article is permanently annexed, the
question is not the loss value – the question is – economically, is the asset
what it was even after removal? That is, does it retain its commercial
character, or the same gets lost in the process of removal?
The intent or
object of annexation test may sound more intricate. The test lays down that
where a movable property gets annexed with an immovable property, if the intent
of annexation is of permanent beneficial enjoyment of the immovable property,
then the fixture becomes an immovable property. If the intent of annexation is
the beneficial enjoyment of the movable property, then the property still
remains movable. The test may sound quite subjective: however, note that here
also, the precondition is “permanent beneficial enjoyment”. There are two
implications of the intent test – first, the annexation must only be such as is
required for beneficial enjoyment of the movable property. For example, a
machine is cemented to earth because that is the best way to use the machine.
But if a storage tank is made of bricks and cement is built, one cannot say
that the object of annexation is to use the storage tank. The tank has become
such permanent part of the land that it is land which is being used by putting
storage tank on it. The second implication, of course, goes back to the extent
test – if something is permanently attached so as to make it permanent fixture
on land or another immovable property, one cannot contend that the intent of so
doing is to enjoy the fixture.
Thus, the
determination of whether the property is movable or immovable becomes a
facts-and-circumstances question. Needless to say, the question is as old law
of properties – dating back to centuries.
Specific cases
dealing with this question are discussed in a subsequent post.

– Vinod Kothari & Nidhi Ladha

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

4 comments

  • A quick question. I have been researching on this topic and read your blog post. Can you tell me whether it is possible for me to sell a building on a land but keep the ownership of land with me?

  • Add-on >
    As is common knowledge, there have been significantly material changes-of, in comparison, a recent origin- in the concepts of 'immovable property'. Also calls for a special focus on the newly introduced legislative concept of 'flat' / 'apartment', in consequence whereof peculiar controversies and disputes have surfaced; also led to growing court litigation.
    For instances, one may usefully look up the reported court cases and the published articles available in public domain.

  • What is the procedure to release charge on a hypothecated property once the amount has been repaid or the hypothecation is to be cancelled?

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