The Bombay High Court said there was no provision for the Mumbai civic leader to make rules to establish guidelines for determining the capital value of a property on the basis of which to tax. could be taken from it.
The high court made this observation by setting aside certain rules issued by the Brihanmumbai Municipal Corporation (BMC) for the assessment of the capital value of a property on the basis of which tax could be levied on it.
A division bench of judges AS Oka and Riyaz Chagla on Wednesday annulled rules 20, 21 and 22 of the capital value rules of 2010 and 2015, saying they were ultra vires compared to the law on the municipal company of Maharashtra (MMC law).
The High Court said all appraisals and invoices issued under those rules were canceled.
“There is no provision that allows the commissioner of civic bodies to frame rules to set guidelines for determining the value of capital,” said the judiciary in its order made available Thursday.
The ordinance stated that the company, when assessing the capital value of a property, should take into account factors such as the nature of the land, the type of land or structure, the area, the category of users (residential or commercial) and its age.
“In fact, the framing of the rules to fix the method of calculating the value of the capital is itself ultra vires (beyond its legal authority)”, noted the magistracy.
The court said the civic body will have to rehear the complaints filed before it.
The bench, however, upheld the constitutional validity of the 2009 amendment to the MMC Act which changed the collection of property tax in Mumbai from the assessed value on standard rent to the capital value.
The assessed value of a property is derived from its rent, while the capital value is based on a multitude of factors such as the market value of the property, its location and use, among others.
“By adopting the capital value as the basis for levying the property tax, only the measure for calculating the property tax has undergone a change,” said the court in its order.
“Only the tax base for the property tax has changed. Instead of calculating a hypothetical rent now, the hypothetical market value of the property will have to be determined,” the court said.
The court had suspended the annulment of the rule part of the judgment until August 31 to allow the BMC to appeal to the Supreme Court.
The judiciary heard a slew of petitions filed by an association of landowners, builders’ associations and charities, including religious organizations, against the BMC and the Maharashtra government, challenging the levy of the property tax. on the basis of capital value.
In 2009, the MMC law was amended and a concept of levying property tax on the capital value system entered into force.
The petitioners challenged the constitutional validity of the amended property tax based on the capital value of the land as opposed to the prior assessed value based on standard rents.
The Association of Landowners and Developers have raised a series of constitutional challenges regarding an amendment to the MMC Law and the rules developed in 2010 and 2015 for setting the capital value of land and buildings.
The rules are null and unconstitutional, the developers argued.
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