NEW DELHI MUNICIPAL COUNCIL ETC. ETC. v. ASSOCIATION OF CONCERNED CITIZENS OF NEW DELHI AND OTHERS ETC. ETC.

A the Government itself and the rest 10% is owned by the individuals, body corporates etc. As the Government has been exempted from paying taxes, therefore the burden to pay tax is on the persons, who occupy only 10% land of the total NDMC area. This according to the respondents is discriminatory and in violation of Article 14 of the Constitution of India.

60Copy pinpoint60. Adverting to the issue of ultra vires which has appealed to the High Court thereby quashing the impugned Bye-laws, the respondents supported the reasons given by the High Court in this behalf. Emphasizing the fact that as per Section 63(1) of the NDMC Act, annual rent to be arrived at has to be the rent which such land or building might reasonably be expected to be let from year to year. Respondents emphasised that C Section 63(1) uses the word ‘rent’ and not ‘value’ and, therefore, the only way for determining the annual rent is to see the ‘rent’ which the properties likely to reasonably fetch. The respondents have submitted that this language contained in Section 63(1) of the NDMC Act has come up for interpretation before this Court in number cases and D interpreted in the same manner in which the High Court has dealt with the issue. The respondents, in this behalf, referred to the following judgments: (i) The Corporation of Calcutta vs. Smt. Padma Debi and Others11; E (ii) The Guntur Municipal Council vs. The Guntur Town Rate Payers’ Association etc.12 (iii) Dewan Daulat Rai Kapoor vs. New Delhi Municipal Council and Others13

F (iv) Indian Automobiles Ltd. vs. Calcutta Municipal Corporation and Anr.14 (v) State Trading Corporation case

61Copy pinpoint61. It is thus argued that the High Court has rightly held that the UAM is not a means or method of collecting the rent for which a property G might reasonably be expected to let. In support of this contention, the respondents referred to some of the Bye-laws and the position thereunder 11 (1962) 3 SCR 49 12 (1970) 2 SCC 8703 13 (1980) 1 SCC 685 14 H (2002) 3 SCC 388

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which according to the respondents makes it clear that UAM introduced in the impugned Bye-laws is completely foreign to the methodology of ‘annual rent’ provided under Section 63. The Bye-laws referred to are as below:

62Copy pinpoint62. Bye-laws 4(6) introduces a “multiplication factor for use and occupancy of the covered space”, wherein the multiplication factor for residential use is 1 but all other use is 6. Similarly, for self occupied or vacant properties, the multiplication factor is 1 whereas for others it is 3. As per the explanation to this Bye-law. “premises owned by companies, firms, trusts, etc. and used by the directors, employees or partners for residence or guest house shall not be treated as self occupied by the owners.”

63Copy pinpoint63. Thus, by way of illustration, a property owned by a trust and used by it as a guest house or to run a charity would be taxed 18 times what an identical self occupied residential property would be taxed. Properties fetch the same rent whether they are owned by an individual or a trust, whether they are used as a residence or a guest house. This Bye-law is thus directly contrary to the contention that the Impugned Bye-laws are a method of computing rent.

64Copy pinpoint64. The impugned Bye-laws provide for the calculation of tax to begin by multiplying the total covered area by an assigned base UAV of E Rs. 1,000/- per sq. mtr. (revised to Rs. 1200/- per sq. mtr. w.e.f. 01.04.2013), irrespective of location. The appellant thus seems to be inexplicably equating the rent a property which a house in B.K. Dutt would fetch with one in Golf Links or Prithviraj Road.

65Copy pinpoint65. Factors such as location, neighborhood, corner plot, architectural F style, etc. which play a significant role in ascertaining the rent a property would fetch are ignored in the impugned Bye-laws.

66Copy pinpoint66. It is, thus, argued that the Impugned Bye-laws are not a means of calculating the rent a property would fetch. To the contrary, they lay out a method that is entirely different from the parent legislation. G Respondents also point out difference in the following manner: (a) Firstly, Section 63(2) of the NDMC Act provides for taxation only on land capable of being built upon. Given that parts of the NDMC area fall under the Lutyens’ Bungalow Zone (‘LBZ’) or ‘prohibited’ or H

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A ’regulated area’ declared by the Archaeological Survey of India under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (including the rules framed thereunder), and given that building bye- laws require certain setbacks to be left vacant, the unconstructed/vacant land is often not capable of being built upon. Bye-law 4(2), which provides for calculation of bona fide value of land not constructed upon, ignores B this aspect and thus contradicts the parent legislation. (b) Secondly, the categories created under the Bye-law 4(6) are different from the classification envisaged under the NDMC Act and in particular classification of property in Section 62 and 65 of the NDMC Act. Section 66 of the NDMC Act creates three categories of properties C – those which have been let, those which have been sub-let and those that are not let out at all. The impugned Bye-laws, however, create an entirely different method of categorization. (c) Furthermore, the Impugned Bye-laws confer extensive powers upon the Valuation Committee in Bye-Law 5, which amounts to excessive delegation of power in a manner that has not even been envisaged in the parent statute. Consideration of the arguments:

67Copy pinpoint67. In the first place, we take up the fundamental issue, namely, whether the impugned Bye-laws are ultra vires Section 63 of the NDMC Act? As noted above, judgment of the High Court is confined to this issue alone. As can be seen from the legislative scheme contained in various provisions pertaining to property tax, Section 60 is the charging Section which authorizes the NDMC to levy various types of taxes including property tax. As per sub-section (3), tax can be assessed and collected in accordance with the provisions of the Act and Bye-laws made thereunder, rates at which the property tax can be charged are mentioned in Section 61. This Section, inter alia, provides that the property tax shall be levied on lands and buildings in New Delhi and shall consistent of not less than 10% and not more than 30% of the rateable value of lands and buildings. Thus, property tax can be charged on lands and buildings for which rates can be prescribed and these rates have to be between 10% to 30%. Further, this percentage is of the ‘rateable value’ of lands and buildings. Definition of ‘rateable value’ is given in Section 2(42) of the NDMC Act to mean ‘the value of any land or building fixed

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in accordance with the provisions of this Act and Bye-laws made thereunder for the purposes of assessment to property taxes’.

68Copy pinpoint68. Various premises, viz: lands and buildings, in respect of which property tax can be levied are mentioned in Section 62. Insofar as rateable value is concerned, the manner of determination thereof is specified in Section 63 of the Act. Since, the method of determination is the fulcrum of the dispute, Section 63 assumes importance for the purposes of deciding the issue in these appeals. It is also an accepted position that the interpretation that is to be given to this provision would lead to the outcome of the case. For these reasons and for the sake of continuity and clarity, we reproduce Section 63(1) and (2) thereunder: C “Section 63 : Determination of rateable value of lands and buildings assessable to property tax-

1. The rateable value of any lands or buildings assessable to any property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year less a sum equal to ten per cent of the said annual rent which shall be in lieu of all allowances for cost of repairs and insurance, and other expenses, if any, necessary to maintain the land or building in a state to command that rent: Provided that in respect of any land or building the standard rent of which has been fixed under the Delhi Rent Control Act, 1958 (59 of 1958) the rateable value thereof shall not exceed the annual amount of the standard rent so fixed.

2. The rateable value of any land which is not built upon but is capable of being built upon and of any land on which a building is in process or erection shall be fixed at five per cent of estimated capital value of such land.”

69Copy pinpoint69. As per Section 63(1) rateable value of any lands or building assessable to any property taxes is the ‘annual rent’. Further, such annual rent has to be determined ‘at which such land or building might be reasonably be expected to let from year to year….’ .

70Copy pinpoint70. The ‘rateable value’, as per Section 2(42) of the NDMC Act is to be fixed in accordance with the provisions of the Act and the Bye-laws made thereunder. Therefore, the first question is as to what

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A are the provisions made in this behalf in the Act. For this Section 63 comes into play which prescribes that ‘annual rent’ would be rateable value. This annual rent, as per this provisions, is one such land or building is expected to let from year to year minus 10% thereof. The Impugned Bye-laws lay down the procedure for fixing of annual rent on UAM. This leads us to the question as to whether this UAM can be stated to be the method of arriving at annual rent which land or building is reasonably expected o let from year to year? Here it may be noted that as per NDMC, Section 63 does not prescribe any particular method for arriving at annual rent and, therefore, this gap has been filled up by the Impugned Bye-laws by prescribing the formula based on UAM. It would be difficult to accept such an interpretation of Section 63(1) as sought to be given by the learned senior counsel for NDMC.

71Copy pinpoint71. Section 63(1) is not silent on how to determine the annual rent of a property. This annual rent has to be the one which the land or the property ‘might reasonably be expected to let from year to year’. It is, thus, based on the letting yearly value of the property. Such a conviction has come up for interpretation before this Court in a series of cases right from 1960s till date. It would be relevant to note that similar language was used in the unamended provisions of Delhi Municipal Corporation Act as well as similar acts of some other states.

72Copy pinpoint72. The Corporation of Calcutta vs. Smt. Padma Debi and E Others15 has analyzed the words ‘gross annual rent at which the land or building might reasonably be expected to let from year to year”. In a similar provision under the Calcutta Municipal Act, 1923 as Section 63(1) and held as under: “We shall first look at the provisions of the section to ascertain the meaning: The crucial words are “gross annual rent at which the land or building might at the time of assessment reasonably be expected to let from year to year”. The dictionary meaning of the words “to let”, is “‘grant use of for rent or hire”. It implies that the rent which the landlord might realise if the house was let is the basis for fixing the annual value of the building. The criterion, therefore, is the rent realisable by the landlord and not the value of the, holding in the hands of the tenant. This aspect has been emphasized by the Judicial Committee in Bengal Nagpur Railway Company Limited v. Corporation of Calcutta (AIR 1942 Calcutta 455)(1). H 15 (1962) 3 SCR 49

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73Copy pinpoint73. In the case of The Guntur Municipal Council case, this A Court again analyzing similar provision under the Madras District Municipalities Act, 1920 held as under : “……………Section 82 gives the method of assessment. It is provided by sub-section (2) of that section that the annual value of lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year less certain deductions. ….. …………..Now Section 82(2) of the Municipalities Act, as stated before, makes provision for the fixation of annual value according to the rent at which lands and buildings may reasonably be expected to be let from month to month or from year to year less the specified deduction. The test essentially is what rent the premises can lawfully fetch if let out to a hypothetical tenant. The municipality is thus not free to assess any arbitrary annual value and has to look to and is bound by the fair or the standard rent which would be payable for a particular premises under the Rent D Act in force during the year of assessment…….”

74Copy pinpoint74. In Dewan Daulat Rai Kapoor case, this Court held as under: “ …..The criterion is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. The rent which the landlord might realise if the building were let is made the basis for fixing the annual value of the building. The word “reasonably” in the definition is very important. What the landlord might reasonably expect to get from a hypothetical tenant, if the building were let from year to year, affords the statutory yardstick for determining the annual value. Now, what is reasonable is a question of fact and it would depend on the facts and circumstances of a given situation. …...”

75Copy pinpoint75. Similarly, in Indian Automobiles Ltd. case, it was held that the criterion for calculating annual valuation must be the rent realizable by the landlord and not the value of holdings, and that the word G ‘reasonably’ in the Section was a question of fact.

76Copy pinpoint76. In State Trading Corporation case, while dealing with certain other Bye-laws as against the NDMC Act came to the conclusion that:

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A “7. …...Since there is a provision and procedure under Section 63 of the NDMC Act for calculating the annual rent, one need not refer at all to the bye-laws as quoted above since they are apparently inconsistent with the provisions of the NDMC Act. In short, it is impermissible to refer to the bye-laws framed under the Punjab Act in view of specific provisions made under the B NDMC Act providing for the levy, assessment and collection of property tax.

8. Therefore, the only basis for fixation of rateable value is the annual rent at which the land or building might reasonably be expected to be let from year to year, subject to the deductions provided under the Act.”

77Copy pinpoint77. The aforesaid judgments give a clear message that annual rent is to be the one which the landlord might realize if the house was let. The criteria, thus, is the rent realizable by the landlord and not the value of the holding. The test essentially is what rent the premises can lawfully fetch if let out to a hypothetical tenant. In the Guntur Municipal Council case, this Court made it clear that having regard to the provision in the Act, the municipality was not free to assess any arbitrary annual value and has to look to and is bound by the fair or standard rent which would be payable for a particular premises under the Rent Act in force during the assessment.

78Copy pinpoint78. In State Trading Corporation, which was a case directly dealing with this very provisions, namely, Section 63 of the NDMC Act, the Court again reiterated in unambiguous terms ‘the only basis for fixation of rateable value is the annual rent at which the land or building might reasonably be expected to let from year to year, subject to the deductions provided under the Act’.

79Copy pinpoint79. Even in common parlance, simple language of Section 63(1) clearly conveys that the rateable value is the annual rent which the property is likely to fetch. The yardstick is the ‘letting’. Two words used in this Section convey this meaning very clearly, namely, the word ‘rent’ in the phrase ‘annual rent’ and the word ‘let’. Therefore, annual rent is to be determined on the basis of the letting value which is expected reasonably. In cases where the property is already let out, actual rate at which the property is let out becomes the amount at which the land or building is reasonably expected to fetch. Exception may be those cases H

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where the property is let out actually at a rent which is lesser than the rent it would be fetched otherwise. This is the ratio of Mehrasons Jewellers Private Limited2. It was a case in respect of premises not controlled by Delhi Rent Control Act. This Court held that the annual rent received by the landlord is what willing lessee uninfluenced by other circumstances would pay to the willing lessor; actual annual rent in these circumstances can be taken as the annual rateable value of the property for assessment of property tax.

80Copy pinpoint80. The question directly arose for consideration in Government Servant Cooperative House Building Society Limited and Others vs. Union of India and Others16, this Court noticed the 1988 amendment to the Delhi Rent Control Act and various judgments referred to hereinabove by us and concluded as under: “8. Therefore, the annual rent actually received by the landlord, in the absence of any special circumstances, would be a good guide to decide the rent which the landlord might reasonably expect to receive from a hypothetical tenant. Since the premises in the present case are not controlled by any rent control legislation, the annual rent received by the landlord is what a willing lessee, uninfluenced by other circumstances, would pay to a willing lessor. Hence, actual annual rent, in these circumstances, can be taken as the annual rateable value of the property for the assessment of property tax. The municipal corporation is, therefore, entitled to revise the rateable value of the properties which have been freed from rent control on the basis of annual rent actually received unless the owner satisfies the municipal corporation that there are other considerations which have affected the quantum of rent.” F

81Copy pinpoint81. In case there is a proof and/or material to find out that the reasonable rent could have been more than at which it is actually let out, the actual rent receipt can be discarded by adopting the expected rent which, on the basis of material, can be said to be reasonable. In those cases where the property is self-occupied or is vacant and not let out, it can be gathered from the rent at which a comparable property is let out. G However, in such a case there would be two situations. Going by the dicta laid down in Dewan Daulat Rai Kapoor and other cases, the reasonable rent would be the standard rent which can be determined

16 (1998) 6 SCC 381 H

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A under the provisions of Delhi Rent Control Act. However, this principle would be applicable only in respect of those properties where Delhi Rent Control Act applies. In other cases, the yardstick would be the letting value of comparable properties, i.e., the rent at which comparable properties are let out. However, such criteria of fixation of standard rent has lost its relevance after the judgment of the Delhi High Court in B Raghunandan Saran Ashok Saran (HUF) vide which Sections 4,6 and 19 of the Delhi Rent Control Act which deal with fixation of standard rent, were declared as ultra vires of the Constitution of India. The aforesaid decision has been affirmed by this Court in State Trading Corporation of India Ltd. case.

82Copy pinpoint82. Be as it may, in the context of the issue at hand, we emphasize that it is the annual letting value fixed in the aforesaid manner which can be the annual rent and not the value of the property in question. The expression ‘annual rent’ is to be read in contradistinction to ‘annual value’. Two concepts are altogether different. Inasmuch as the latter expression relates to annual value of the property which may be based on parameters different from fixing the annual rent of the property.

83Copy pinpoint83. Having cleared the aforesaid aspect, we need to discuss as to whether UAM specified in the impugned Bye-laws aims to strive at ascertaining ‘annual rent’? If the answer is in the affirmative, only then one can say that the impugned Bye-laws are in tune with the provisions of Section 63(1) of the NDMC Act. After going through the Bye-laws and the manner in which the rateable value is fixed, we are constrained to observe that it is not in sink with the scheme of Section 63(1) of the NDMC Act. To recapitulate in brief, Bye-law 4 stipulates that the bona fide annual value of land not covered under Bye-law 3 would be the annual value of land and bona fide annual value of the covered space of the building. Bye-law 3 seeks to fix the entire value of land falling in the jurisdiction of New Delhi at the circle rate of Rs. 43,000/- (Rupees Forty Three Thousand only) per square meter. Likewise, Bye-law 4(10) where annual rent of any building is determinable under more than one-sub- G bye-law, the annual rent shall be the aggregate of the annual value determined under sub-bye-law of this Bye-law. We, therefore, reject the arguments of the appellants and do not deem it necessary to deal therewith any further.

84Copy pinpoint84. Thus, we agree with the High Court that the Impugned Bye- H laws that provide UAM which is based on value of the property that on

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rental which the property is likely to fetch and are, there, foreign to the methodology provided in Section 63 of the NDMC Act. Such Bye-laws are, thus, ultra vires the provisions of NDMC Act. They are in excess of the scope and ambit of powers vested in the NDMC Act under Section 388(1)(A)(9) of the NDMC Act.

85Copy pinpoint85. As rightly contended by the assessees, initially, same was the thinking process in the NDMC as well inasmuch as there was a move to amend the Act in order to bring UAM for the purpose of levying property tax. This is how the Municipal Corporation of Delhi achieved its objective. However, for the reasons best known to the appellants, without amending the provisions of the Act it went ahead in bringing Impugned Bye-laws,

86Copy pinpoint86. No doubt, in many ways, UAM is a better method in comparison with the earlier method based on annual rent. For this reason, this method has now been followed for the purpose of levying property tax not only in the areas in Delhi itself covered under the Municipal Corporation of Delhi but in many other States as well. However, such a method which may be a better method can be incorporated in accordance with the law. In the present case, it could be done after amending the provisions of the NDMC Act. Since, we are agreeing with the High Court which has quashed the Impugned Bye-laws as ultra vires, it becomes meaningless and irrelevant to go into other issues or other arguments advanced before us. However, we may only add that once the appellants take steps for amending the Act and want to reintroduce the Bye-laws of 2009, many aspects highlighted by the assessees in respect of Bye-laws would be kept in mind. We are not suggesting that the contentions raised by the respondents/assessees relating to validity of different Bye-laws are well- founded, nor are we suggesting that they are ill-conceived. This Court F has not expressed any views on the merits of these contentions, either waym as this Court has not gone into the merits of such contentions. At the same time in order to obviate any future challenge the NDMC is expected to keep in mind the arguments of the appellants on these aspects.

87Copy pinpoint87. We may record here that when the matter was heard at a G stage when the counsel for NDMC had argued the matter and even respondents have made their submissions in reply thereto, learned counsel for the NDMC before giving rejoinder made a statement on 16th January, 2018 that the new Bye-laws had been accepted by approximately 95% assessees. Further, because of the interim order passed by this Court H

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A permitting such assessees to deposit the property tax on the basis of these Bye-laws, they had voluntarily deposited the property tax as well on the basis of self-assessment. Having regard to this, the learned counsel for the NDMC submitted that the grievances of the respondents/ assessees can be looked into by the Valuation Committee. Based on this statement, following order was passed on 16th January, 2018. B “Learned counsel for the respondents have completed their submissions. The petitioner(s) have to give rejoinder thereto. Before making the submissions in rejoinder Mr. Yoginder Handoo, learned counsel appearing for petitioner(s), has stated that approximately 95% assessees have accepted the new bye-laws and pursuant to the order passed by this Court, they have come forward voluntarily and deposited the property tax on the basis of 4 self-assessment. He submits that some of the grievances which are stated by the respondents herein in respect to their properties which according to them are in the impugned bye-laws can be looked into by the Valuation Committee. He further submits that Valuation Committee may be having its sitting within two weeks and may give its report in this behalf within five weeks. He, therefore, makes a request to adjourn the matters for five weeks. The matters stand adjourned to 06.03.2018. E We make it clear that the aforesaid exercise would be without prejudice to the rights and contentions of the parties. The petitioners may file its written submissions during this period. In the meantime, interim order to continue.”

88Copy pinpoint88. When the matter came up on 6th March, 2018, Mr. Sanjay F Jain made a statement on behalf of NDMC that the revised guidelines have been framed and put on website, to which objections have been invited. He also stated that after receiving and considering the objections, the matter would be finalized at NDMC’s end. The respondent/assessee and some others also submitted their objections to the modified guidelines. These were looked into by the NDMC and decision thereon was taken by the Chairperson, NDMC under Bye-law 5(2) of the Impugned Bye- laws after the Valuation Committee had given its recommendations for the year 2018-19. This decision dated 14th May, 2018 of the Chairperson was handed over to the Court. As per this, various objections of the assessees were considered and decision taken thereon which are reflected in the tabulated form. Many respondents/ assessees are still

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not satisfied with the decision taken on various aspects and the arguments. A We, however, leave it to the NDMC to take a final call thereupon having due regard to the legal position on these aspects.

89Copy pinpoint89. One last but very significant aspect is still required to be dealt with. The declaration of Impugned Bye-laws as ultra vires has created a difficult situation. These Bye-law were framed in the year 2009. They B were struck down by the High Court vide impugned judgment dated 10th August, 2017. They held the field from 2009-2017. While issuing notice in these Special Leave Petitions on 22nd September, 2017, in respect of the direction of the High Court to pass re-assessment order, this Court observed that it would be open to the NDMC not to pass such re-assessment orders. That interim order has prevailed during the pendency of these appeals. Further, as already noted above, 95% of the assessees are agreeable to pay the tax as per Bye-laws 2009. They have even paid the taxes on that basis. In these circumstances, to upset the applecart completely may not be appropriate. In such a peculiar situation, in exercise of powers under Article 142 of the Constitution, we direct that those assessees who have paid the tax as per Bye-Laws, 2009, their assessments shall not be reopened. Another reason for taking this course of action is that these assessees are satisfied with the assessments under Bye-laws, 2009. However, it will not apply to the respondents herein, namely, those assessees who were the writ petitioners in the High Court. In their cases, the direction given by the High Court E in the impugned judgment shall prevail.

90Copy pinpoint90. The appeals stand disposed of in the aforesaid terms.

Divya Pandey Appeals disposed of. F