Municipal Corporation of Greater Mumbai & Ors. vs Property Owners’ Association & Ors.

Dismissing the appeals, the Court

HELD: 1.1 Article 243Y of the Constitution deals with constitution of Finance Commission whose principal duty is to review the financial position of the municipalities and to make recommendations to the Governor as to the relevant principles which should govern distribution of the net proceeds of the taxes and the measures needed to improve the financial position of the municipalities. It is true that certain functions are entrusted to the Finance Commission and the recommendations made by the Finance Commission must carry great weightage. However, the matter has to be seen from the perspective: whether any “measures needed to improve the financial position of the municipalities” must necessarily emanate from the recommendations of the Finance Commission. Sub-Article (2) contemplates that the recommendations made by the Finance Commission along with the explanatory memorandum as to the action taken thereon must be laid before the Legislature of the State. Thus, it is the Legislature of the State which will ultimately take an appropriate action with respect to the recommendations made by the Finance Commission and the papers placed before it. If the Legislature itself has taken into account certain prevailing situation, which according to the Legislature is causing some prejudice to the financial health and condition of the municipalities and, therefore, the method of imposition of property tax ought to be changed, it cannot then be said that the matter must necessarily and ought to have emanated from the Finance Commission or that in the absence of such recommendations by the Finance Commission, no steps could have been taken by the Legislature. Article 243X of the Constitution states that the Legislature of a State may by law authorize a municipality to levy, collect and appropriate such taxes etc. in accordance with such procedure and subject to such limits as may be specified in law. The exercise undertaken by the Legislature in the instant case is completely consistent with the empowerment relatable to Article 243X of the Constitution and does not in any way go counter to said empowerment. [Paras 25-27][738-H; 739-A-B, E-H; 740-A-B]

1.2 Coming to the effect and scope of the statutory provisions, it must be stated that Sections 123 to 128 of the MMC Act deal with accounts and annual budget estimates. 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. [Para 28][740-C-E]

1.3 Section 154(1A) of the MMC Act is the crucial provision for the present discussion. The opening part of subsection (1A) states that in order to fix the capital value of any building or land assessable to property tax, regard shall be had to the value of any building or land as indicated in the SDRR for the time being in force. The value so indicated in SDRR is to be the base value to which certain factors delineated in clauses (a) to (e) of subsection (1A) are to be applied while fixing the capital value. Clauses (a) to (d) are physical features or attributes of the land or building which are in existence when the value is to be reckoned. In essence these attributes are situations “in praesenti”. The buildable potential of the land in future is not an attribute “in praesenti” but is in the nature of likelihood of user or exploitation of the asset “in futuro”. The crucial question is: 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? [Para 30, 31][741-C-F]

1.4 Both the decisions in Patel Gordhandas and Polychem Ltd. 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. Notably, the second decision was premised on the methodology where the rateable value was the determining criteria. Therefore, so long as the building could not be let out in open market, the land would continue to be treated as “vacant land”. However, after the amendments, the emphasis has now changed and the basis for taxation is now to be capital value of land and building. Capital value again can have two dimensions. First, the value of land or building as it stands today or secondly, the value as may be in future as per anticipated development. However, the legislative intent, as is clear from clauses (a) to (d), is about actual status and user as on the date the capital value is to be reckoned or considered. These clauses clearly show that the features contemplated therein must be in existence as on such date and not what would be the projection in future. There are two ways in which sub-clause (e) of sub-Section (1A) of Section

154 can be construed. In the first case, said clause can be read ejusdem generis along with sub-clauses (a) to (d), in which event the scope of any rules to be made in terms of power granted by sub-clause (e) read with sub-Section (1B), would be relatable to the factors actually in existence and not as something contemplated in future. On the other hand, if the clause is read independently, there is nothing in clause (e) or in the language of sub-Section (1B) that the future prospects of the land in question could be reckoned or noted for arriving at the capital value. The conclusion is thus quite clear that the width of clauses (a) to (e) read with sub-Section (1B) do not by any stretch of imagination contemplate taking into account the future prospects of the land in question. Therefore, the empowerment in terms of clauses (a) to (e) read with subsection (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. [Paras 33-36][743-H; 744-A-H; 745-A]

Patel Gordhandas Hargovindas & Ors. v. Municipal Commissioner, Ahmedabad & Anr. AIR 1963 SC 1742 : [ 1964] 2 SCR 608; The Municipal Corporation of Greater Bombay v. Polychem Ltd. (1974) 2 SCC 198 : [1974] 3 SCR 687 – referred to.

1.5 To the extent Rule 20 of the Capital Value Rules of 2010 and the Capital Value Rules of 2015 empower the Commissioner to consider the capability of the open land of utilizing more than 1 floor space index (FSI) or any transfer of development right (TDR), would go well beyond the permissible scope delineated by the provisions of Section 154 of the MMC Act. The High Court, 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 subsections (1A) and (1B) of Section 154 of the MMC Act. [Para 38][745-D-F]

1.6 In regard to the issue of retrospectivity of the Capital Value Rules of 2010. The factual narration relied upon by the learned counsel for the Corporation does show that the preparatory steps were being undertaken since 2010 with the appointment of an expert committee and publication of draft rules. It appears that the Corporation had to collect voluminous data. But in order to enable the Corporation to compute or levy property tax based on capital value, the concerned rules had to be in force. There being no empowerment to compute and/or levy property tax with retrospective effect by the statute itself, the rule making power, in any view of the matter, could not have created a liability pertaining to the period well before the Rules came into effect. The first ground as set out in paragraph 15 was, therefore, rightly answered by the High Court against the Corporation. Logically, the Rules having come into force on 20.3.2012, the levy and computation of property tax on capital value would be available and possible on and with effect from 20.3.2012 and not with any retrospective operation. [Para 39][745-F-H; 746-A]

1.7 The question then arises as to what would be the scope and extent of the present property tax regime. It is quite clear that with the amendment to Section 154 and other provisions, the property tax can be levied on the basis of capital value of the land or building. To that extent, there would be departure from the regime which was in existence when Patel Gordhandas and Polychem Ltd. were decided by this Court. Now, the statute certainly empowers and contemplates imposition of property tax on the capital value. However, the capital value must be one which answers the postulates in sub-clauses (a) to (e) of sub-Section (1A) read with sub-Section (1B) of Section 154. Since the statutory provisions do not contemplate any likelihood of exploitation of capacity in future, the capital value of the land and building must be based on situation “in presenti”. 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. The challenge raised by the Corporation must fail and the appeal preferred by the Corporation is dismissed. Challenges raised by the original writ petitioners 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. No reason or room to take a different view. Therefore, the view is affirmed and the challenge is dismissed. [Paras 40, 41][746-B-F]

Marathwada University v. Seshrao Balwant Rao

Chavan (1989) 3 SCC 132 : [1989] 2 SCR 454; Delhi Race Club Limited v. Union of India & Ors. (2012) 8 SCC 680 : [2012] 8 SCR 1; Devi Das Gopal Krishnan etc. v. State of Punjab & Ors. AIR 1967 SC 1895 : [1967] 3 SCR 557; Avinder Singh &Ors. v. State of Punjab & Ors. (1979) 1 SCC 137 : [1979] 1 SCR 845; State of Uttar Pradesh & Ors. v. Systematic Conscom Ltd. (2014) 13 SCC 627; State of Himachal Pradesh & Ors. v. Nurpur Private Bus Operators’ Union & Ors. (1999) 9 SCC 559 : [1999] 3 Suppl. SCR 430 –

referred to.

Campaign for People Participation in Development Planning v. Lieutenant Governor of NCT of Delhi & Ors. (2016) SCC Online Del 80 – referred to.