MMC Act- Capital Value Can Be Determined Only By Present Physical Attributes Of Land & Building, Not Future Prospects: SC

The Supreme Court while dealing with the matter related to the levy of property tax in Greater Mumbai being changed from rateable value to capital value system through amendments under the Mumbai Municipal Corporation Act, 1888 held that only the present physical attributes and status of the property can be considered and not the future ones for the purpose of fixing the capital value.

The Bench of CJI Uday Umesh Lalit and Justice Ajay Rastogi was dealing with the appeals challenging the judgment passed by the Bombay High Court and in this context observed –

"Viewed thus, the conclusion arrived at by the High Court on the second and third grounds, as stated in paragraph 15 (supra) are quite correct. We, therefore, hold that the empowerment in terms of clauses (a) to (e) read with sub-Section (1B) or the conferral of rule-making power would not permit the Corporation to determine the capital value beyond the scope of said clauses (a) to (e). Thus, for the purpose of determining capital value, only the present physical attributes and status of the land and building can be considered and not the future prospects of the land."

The Bench while agreeing with the High Court's decision observed that "The High Court, in our view, was, therefore, right in concluding that Rule 20 of the Capital Value Rules of 2010 and the Capital Value Rules of 2015 would be ultra vires the provisions of sub-Sections (1A) and (1B) of Section 154 of the MMC Act."

Attorney General for India K.K. Venugopal appeared on behalf of the appellant i.e., Municipal Corporation of Greater Mumbai whereas Advocate H. Devarajan appeared for the respondent i.e., Property Owners' Association.

Facts of the Case-

The Mumbai Municipal Corporation Act, 18881 has been enacted by the State Government to consolidate and amend various Municipal Acts which were in force relating to the Municipal administration of the city of Mumbai. The Municipal Corporation of Greater Mumbai has been established and discharging its duties under the MMC Act. This Act authorises the Corporation to impose property tax on lands and buildings and it is one of the main sources of its revenue. The MMC Act earlier provided for levy of property tax on the basis of certain percentage of rateable value of buildings or lands. The basis of determination of such value under the Act was the annual rent for which such property might be expected to be let from year to year.

The Corporation appointed the Tata Institute of Social Sciences (TISS) and the University of Mumbai to study such a system of levying property tax and suggest an alternative system for the same. TISS recommended that a capital value-based system of assessment be adopted. After detailed analysis and discussions, MMC Act was amended empowering the Corporation to levy property on the basis of capital value. The Capital Rules of 2010 came into force and subsequently, the Capital Value Rules of 2015 were also framed.

Numerous petitions were therefore filed challenging the validity of computation and levy of property tax based on the capital value system. Such petitions also challenged the vires of the Capital Value Rules of 2010 and 2015. While some of the petitions challenged the amendment to the MMC Act pertaining to the implementation of the Capital Value System for computing and assessing property tax.

Having considered the rival submissions, the High Court rejected the challenge as to the validity of various provisions of the MMC Act. However, it held Rules 20, 21, and 22 of the Capital Value Rules 2010 and 2015 to be ultra vires the provisions of the MMC Act. The Court concluded that in the case of taxing statute, more latitude would be required to be given to the legislature and that the burden on the petitioners challenging the validity would be more onerous. Hence, the majority of the submissions advanced on behalf of the writ petitioners were rejected by the Court. The High Court however accepted the challenge on the following three grounds:

(i) Challenge to the Capital Value Rules of 2010 on retrospective operation,

(ii) Challenge to the Capital Value Rules of 2010 and 2015, on the ground that the rule making power did not permit the Commissioner to determine capital value.

(iii) Rule 20 of the Capital Value Rules of 2010 was held to be ultra vires the provisions of sub-Section (1A) and (1B) of Section 154 of the MMC Act

The Corporation being aggrieved by the High Court's decision approached the Supreme Court.

The Apex Court noted –

"With the fixed parameters and scope of taxation, as well as, the elements that can be covered by levy of such taxes, depending upon the annual budget estimates, the rates of municipal taxes, fares and charges can certainly be fixed in terms of Section 128 of the MMC Act. In such cases, the width of the tax regime is already decided and the rates of taxes would be dependent upon the annual estimates. What the present amendments seek to achieve is to change the methodology on the basis of which property tax can be levied. Instead of rateable value, the property tax can now be levied going by the capital value. Such exercise could not have been undertaken through the process of annual estimates and in terms of Sections 120, 123, 125 and 128 of the MMC Act. All that could be done under these provisions would be to vary or change the rates and not the very basis of taxation. The submission in that behalf, therefore, does not merit acceptance."

The crucial question before the Court was whether such potential of the land or the likelihood of exploitation in future can also be taken into consideration while fixing the capital value in terms of sub-Section (1A), especially when none of the factors delineated in clauses (a), (b), (c) and (d) speaks of future prospects or such likelihood?

The Supreme Court observed –

"Both the decisions were rendered in the regime when the property tax could be levied on rateable value. In the first decision, it was found that fixing of the rate at a percentage of the capital value was not a modality permitted by the Act and, therefore, Rules 350¬A read with Rule 243, which permitted such exercise, were struck down. Therefore, to the extent the rules went beyond the statutory import and extent, the transgression was not accepted by this Court. In the second decision, it was held that so long as the building was not completed and ready for occupation, the land in question for the purposes of rating must be equated with and treated as "vacant land". In the second decision, the construction was actually going on but the building was not ready. The conclusion from the second decision is quite clear that unless and until the building was ready to be occupied, the land must be treated as vacant land. … so long as the building could not be let out in open market, the land would continue to be treated as "vacant land"."

The Apex Court further observed –

"It must be clarified here that in projects which are in progress, the value addition to the property would be ongoing feature. However, considering clauses (a) to (d), it would mean that the governing principle must be the actual use and not the intended use in future. In the circumstances, the challenge raised by the Corporation must fail and we dismiss the appeal preferred by the Corporation."

The Court concluded by stating that "Those challenges on various grounds as detailed hereinabove including the grounds of legislative competence; validity of certain provisions and basis of alleged violation of Article 14 of the Constitution, were considered by the High Court in extenso. We do not find any reason or room to take a different view. We, therefore, affirm the view and dismiss the challenge. Consequently, the appeals preferred by the original writ petitioners are dismissed."

Accordingly, the Court disposed of the appeals.

Cause Title – Municipal Corporation of Greater Mumbai & Ors. v. Property Owners' Association & Ors.

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