Bombay HC maintains property tax capital value calculation method and rescinds rules framed by Mumbai Municipal Corporations Act [Read Judgment]

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In an important and detailed judgment, the Bombay High Court upheld the method of calculating property tax using the capital value method under the Mumbai Municipal Corporations Act (MMC), but overturned some rules defined under the said law in 2010 and 2015 for evaluation. of the capital value of an asset.

The court struck down rules 20, 21 and 22 of the 2010 and 2015 capital value rules as ultra vires to the MMC law.

A division bench of Judge AS Oka and Judge RI Chagla heard several petitions challenging the constitutional validity of the 2009 amendment to the MMC Act, in particular the change in the method of calculating property tax. After the 2009 amendment, the property tax was calculated on the basis of the capital value of a property rather than the assessed value, which is the value obtained after annual assessment of the rent of the property.

The main petition was filed by the Property Owner’s Association, an association of owners of older properties and buildings in the city. Some 610 owners had submitted their affidavits in support of the challenge. Apart from this, similar petitions have also been filed by some trusts that run Parsi temples and apiaries in the city. Some five-star hotels have also challenged the said amendment. In addition to the amendment, certain provisions of the said law were also challenged.

Context of the case

The Municipality of Mumbai, which was established under the BMC Act, appointed the Tata Institute of Social Sciences (TISS) to study the property tax levy system and propose an alternative system for such levy. TISS submitted a detailed report recommending that a valuation system based on capital value be adopted instead of the annual rental system. TISS has studied the practice followed in developing countries. Based on the recommendations of TISS, the BMC Law was amended by Maharashtra Law No. XI of 2009. The amendment incorporated an option to levy property tax on the basis of capital value as an alternative to the method. prior levy of property tax on the basis of the assessed value. Corresponding changes have been made to various provisions of the Mumbai Municipal Companies Act or the BMC Act.

The said law entered into force on March 12, 2012, and the BMC decided to adopt the system of levying property tax on land and buildings on the basis of capital value as of April 1, 2010.

Submissions

A battery of seasoned lawyers appeared in the case, including Rafique Dada, Milind Sathe and VV Tulzapurkar, who argued on behalf of the petitioners. Attorney General AA Kumbhakoni appeared for the state and Attorney SS Pakale appeared on behalf of the BMC.

Rafique Dada argued that the provisions of Section 243X require the state legislature to confer by law the power to the municipality to collect, collect and allocate such taxes, duties, tolls and charges. However, the power to levy, collect and appropriate taxes cannot be vested in a committee because the “Society” is different from a “standing committee,” Dada said.

Under the said 2009 amendment, the Standing Committee is empowered to impose the relevant taxes under Articles 140 (1) a (i) and (ii) and Article 140 (1) b (i) and (ii) . Therefore, the said amendment is invalid, the petitioners argued.

As to the difference in the calculation of the property tax based on the capital value and the assessed value, the petitioners argued that under the assessed value, the tax for residential premises was capped at 363% of the taxable amount. assessed value and for non-residential premises at 916.5% of assessed value. value. This is a big contrast to the capital value tax, as it went from 17.68 times to 212.0 times.

Provisions permitting such a high tax, much higher than the amounts received by landlords as rent, would be patently unreasonable and expropriating. This would be contrary to Article 19 (1) (g) of the Indian Constitution, the petitioners said.

It has also been argued that there is excessive, unguided and unbridled delegation to the BMC since it has the power to choose between the assessed value system and the capital value system. It has further been alleged that there is excessive delegation on the part of the BMC to the Commissioner and the Standing Committee. It is also the petitioners’ claim that the BMC, which is itself a delegate, could not have delegated any power to the commissioner or the standing committee.

Judgement

After considering the MMC Act and various arguments presented on behalf of the Claimants and Respondents, the court noted:

“We maintain the constitutional validity of the provisions of the BMC Act which are being challenged. The 2010 capital value rules will apply prospectively from the date they are adopted. “

Subsequently, the court examined the said rules: “There is no provision allowing the Commissioner to frame rules to set guidelines for the determination of the value of the capital.

In addition, the judiciary observed: “Rule 20 provides for consideration of the potential for construction on vacant land in making the assessment. For property tax purposes, not only vacant land but even land under construction should be treated as vacant land.

Thus, rule 20 is ultra vires the provisions of paragraphs (1A) and (1B) of article 154 of the BMC law. There is no difference in Rule 20 of the Capital Value Rules 2010 and 2015.

Rule 21 of the Capital Value Rules 2010 establishes a formula for calculating the capital value of open land. Whereas, in the 2015 capital value rules, the only change is that “built-up area” is replaced with “carpet area”.

Rules 20, 21 and 22 of the 2015 Capital Value Rules are almost identical. Therefore, even these rules will have to be rescinded. Sub-rules (1) and (2) of rule 17 are the same as the 2010 rules. Accordingly, the capital value of the open land, as provided in rule 17 of the capital value rules of both years, cannot be set under rule 21. Even rule 3 which refers to rule 21 will be redundant to that extent. No other rule on the 2015 rule has been found to be illegal. “

The court also quashed the valuation opinions challenged by some of the claimants, these opinions being based on a final capital value assessed prior to said judgment. Thus, the court ordered the civic body to reassess the capital value of the properties in the light of the recorded findings. Additionally, at the request of BMC’s attorney, he suspended the part overturning Rules 20, 21 and 22 until September 1.

Read the judgment here



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