2022 (11) TMI 1477 - SC - Indian Laws

Alleged contemnor for disobedience of orders of the Court - validity of computation and levy of property tax based on capital value system - vires of Capital Value Rules of 2010 on retrospective operation and Capital Value Rules of 2015 - amendment effected to the MMC Act pertaining to the implementation of the Capital Value System for computing and assessing property tax - 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. HELD 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. Section 154(1A) of the MMC Act is the crucial provision for the present discussion. The opening part of Sub-section (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 Sub-section (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, as submitted by Mr. Khambata, learned Senior Counsel, 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 . 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? - HELD THAT - Reliance placed in the decisions of 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. 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 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 Sub-sections (1A) and (1B) of Section 154 of the MMC Act. Retrospectivity of the Capital Value Rules of 2010 - HELD THAT - 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 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. Scope and extent of the present property tax regime - HELD THAT - 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 praesenti . 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. Appeal disposed off.

Summary

Issues Involved:
1. Legislative competence of the State Legislature to enact provisions regarding property tax based on capital value.
2. Validity of Sub-sections (1)(a) and (1)(b) of Section 140 regarding water tax and sewerage tax.
3. Validity of Sub-section (1)(c)(a) of Section 140 regarding levy of Education Cess.
4. Validity of Sub-section (1)(d) of Section 140 dealing with levy of Betterment Charges.
5. Violation of provisions of Chapter IXA and Article 243-X of the Constitution of India.
6. Excessive delegation of powers.
7. Violation of Article 14 of the Constitution of India.
8. Retrospective operation of the Capital Value Rules of 2010.
9. Validity of Rules 20, 21, and 22 of the Capital Value Rules of 2010 and 2015.

Analysis of Judgment:

1. Legislative Competence:
The Court held that the legislation providing for the levy of property tax by a municipality on the basis of capital value is covered by Entry 49 of List-II. The Court rejected the argument that the tax impinges upon the powers of the Central Legislature under Entry-86 of List-I. The adoption of capital value as a measure for tax on land and building does not attract Entry-86 of List-I.

2. Validity of Sub-sections (1)(a) and (1)(b) of Section 140:
The Court observed that these taxes are a compulsory exaction as part of a common burden without promise of any special advantages to classes of taxpayers. The imposition of water tax and sewerage tax does not depend on whether the services are being provided to the premises. The Court rejected the argument that these taxes are in the nature of fees rather than taxes.

3. Validity of Sub-section (1)(c)(a) of Section 140:
The Court upheld the levy of education cess, stating that it is a compulsory exaction as part of a common burden. The Court found no merit in the submission that the provisions are ultra vires the Constitution.

4. Validity of Sub-section (1)(d) of Section 140:
The Court noted that the betterment charge is not payable on the basis of capital value and that the elaborate procedure for its determination is laid down. The Court found no relevance in the main ground of attack regarding the levy of property taxes based on capital value.

5. Violation of Chapter IXA and Article 243-X:
The Court rejected the argument that the power to levy and collect property taxes must be exercised by the Corporation consisting of elected and nominated councillors. The Court found that the BMC Act is consistent with Part-IXA of the Constitution and that the provisions do not violate Article 243-X.

6. Excessive Delegation:
The Court observed that the power conferred on the Commissioner to fix capital value is not unguided and contains sufficient guidelines. The Court rejected the argument of excessive delegation.

7. Violation of Article 14:
The Court rejected the argument of manifest arbitrariness and confiscatory nature of the taxes. The Court found that the provisions do not lead to a confiscatory nature of taxes and do not violate Article 14.

8. Retrospective Operation of the Capital Value Rules of 2010:
The Court held that the Capital Value Rules of 2010, which came into effect from 20.3.2012, are applicable prospectively and cannot be applied from 1st April 2010. The Court found that neither Clause (e) of Sub-section (1A) nor Sub-section (1B) of Section 154 of the MMC Act conferred powers to frame Rules with retrospective effect.

9. Validity of Rules 20, 21, and 22 of the Capital Value Rules of 2010 and 2015:
The Court held that Rule 20 of the Capital Value Rules of 2010 and 2015, which considers the potential of the land for development, is ultra vires the provisions of Sub-sections (1A) and (1B) of Section 154 of the MMC Act. The Court found that the Rule making power does not permit the Commissioner to frame Rules for determining capital value based on future potential.

Conclusion:
The Court dismissed the appeal preferred by the Corporation and affirmed the view of the High Court on the issues. The Court also dismissed the appeals preferred by the original writ Petitioners, upholding the constitutional validity of the provisions of the MMC Act and the Capital Value Rules, except for Rules 20, 21, and 22 of the Capital Value Rules of 2010 and 2015.