MUNICIPAL CORPORATION OF GREATER MUMBAI & ORS. v. PROPERTY OWNERS’ ASSOCIATION & ORS.

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provisions. As the provisions do not lead to confiscatory nature of taxes, violation of Article 14 is not attracted.” (h) Challenge to the notification issued under the Maharashtra Education Cess Act, 1962 The submissions in that behalf were also negatived with observation that by adopting capital value system, only the computation of property tax was altered. (i) The ground of retrospective operation of the impugned provisions of the BMC Act. The contentions advanced in that behalf were rejected by the C High Court after making following observations: - “205. The liability to pay property taxes was always provided in the BMC Act. By the impugned amendments, only the basis of computing property taxes has undergone a change. Assuming that there is any retrospective operation, it is no facilitate transition form one regime to another. As per the amendments, the final assessment for the years 2010-11, 2011-12 and 2012-13 can be made after expiry of the respective years. But provisional assessment has to be made during the respective three years. The impugned provisions do not take away or affect any vested right as only the procedure/method of computing the property taxes has undergone a change. By virtue of the impugned amendments, a property in respect of which taxes were not payable earlier does not become subject to taxes. It cannot be said that by the impugned amendment, from an earlier date, any new obligation or disability has been attached in respect of any earlier transactions. The impugned amendments will affect the properties which even under the unamended Act, were subject to payment of property tax. The impugned provisions do not bring about any unreasonable or arbitrary consequences. Thus, there is no merit in the contention based on retrospective operation.” Thus, the majority of submissions advanced on behalf of the writ petitioners were rejected by the High Court. H

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A 15. The High Court however accepted the challenge on three grounds, namely: - (i) Challenge to the Capital Value Rules of 2010 on retrospective operation, (ii) Challenge to the Capital Value Rules of2010and 2015, on B 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 theprovisions of sub-Section (1A) and (1B) of Section 154 of the MMC Act. C

16. On the first issue, the High Court observed 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. The Capital Value Rules of 2010, which came into effect from 20.3.2012, were, therefore, held to be applicable prospectively and that said Rules D could not be applied from 1st April, 2010.

17. With regard to the second issue, it was observed that there was no provision in the MMC Act regarding consideration of development potential of vacant land for determining its capital value. The conclusion arrived at by the High Court in that behalf was as under: - E “211. Now we turn to the Capital Value Rules of 2010. As stated earlier, there is no provision which enables the Commissioner to frame rules for laying down guidelines for determining capital value. Rule 2 contains definition. Rule 3 provides that where within the precincts of the building there is a vacant land other than the land appurtenant to the building, such land shall be treated as open land and capital value thereof shall be fixed as provided in Rule

21. As observed earlier, the rule making power is confined to the three aspects mentioned above. As Rule 3 refers to Rule 21, we will have to consider the provision of Rule 21. Perusal of Rule 21 and, particularly clause (1) thereof shows that it lays down how the capital value of the open land is to be determined. It provides for a formula. It provides that the capital value of open land will be equal to rate of base value of open land according to SDRR multiplied by weightage by multiplication as per user category. The said weightage is provided in Part-I under heading “Open H Land” multiplied by permissible or approved FSI multiplied by

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area of the land. Once the base value is determined as per SDRR, A it is obvious that the said value is fixed taking into consideration potential of the land. The rates in SDRR are fixed after taking into consideration all the aspects of market value. The capital value has to be decided in accordance with the base value which has to be taken as per SDRR. Clause (1) of Rule 21 provides for weightage by multiplication as per user category. It also provides that the rate of base value shall be multiplied by permissible FSI for determining the capital value of the land. There is no provision under the BMC Act to take into consideration development potential of vacant land for determining its capital value. When the substantive provision i.e sub-section (1A) of Section 154 lays down that the base value has to be in terms of SDRR rates, the subordinate legislation cannot provide for adding additional value to SDRR rates on account of availability of FSI. Thus, the provision of multiplying base value with permissible or approved FSI is ultra vires the provisions of the BMC Act. Moreover, the rule making power does not permit the Commissioner to frame the rules for determining what is the capital value. The rule making power is confined to three aspects which are pointed out earlier. Clause (1) of Rule 21 which provides for taking into consideration the potential FSI is not covered by any of the three categories. Under sub-section (1B) of section 154 of the BMC Act, the rules can be framed providing for details of categories of buildings or land and the weightage by multiplication to be assigned to various such categories. Under clause (e) of sub-section (1A) of section 154, factors which are to be taken into consideration for determining base value can be subject matter of rules. The factors referred in clause (e) will have to be considered ejusdem generis. The other factors provided are nature of the land, type of land and structure, areas of land or building, user category such as residential or commercial and the age of the building. Under clause (e) of sub- section (1A) of section 154, rules cannot be framed to decide how the capital value should be determined. In fact, framing rules for laying down the method of calculating the capital value is itself ultra vires the statutory rule making power.”

18. Rule 20 of the Capital Value Rules of 2010 was struck down by the High Court on the reasoning that the effect of said rule would be that the value higher than what was provided for in Stamp Duty Ready H

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A Reckoner would be taken into consideration while computing the property tax. The High Court observed as under: - “216. Rule 20 of Capital Value Rules, 2010 deals with valuation of open land capable of utilizing more than 1.0 FSI or transfer of development right (TDR). It provides that as the Ready Reckoner B provides for the rate of base value of open land with 1.0 FSI, open land which is capable of utilizing more than 1.0 FSI or any TDR shall be valued at an increased rate in proportion to the higher FSI or TDR proposed to be utilized and approved under the building plan submitted to the Corporation for approval. Thus, the effect of rule 20 is that while fixing capital value of open land, C its potential for development by using additional FSI or TDR has to be considered. Thus, a value higher than what is provided in SDRR should be taken into consideration.” It was further observed thus: -

D “218. Rule 20 provides for taking into consideration potential of construction on the vacant land for making valuation. For the purpose of property taxes, not only a vacant land but even a land under construction will have to be treated as a vacant land. Wherever SDRR is applicable, in view of sub-section (1A) of section 154, the base value has to be as per SDRR rate for vacant land. Rule 20 provides for taking into consideration potential for development. It is completely contrary to the provisions of the BMC Act as interpreted in the case of Polychem Limited (supra) which requires even the land under construction to be treated as a vacant land. Moreover, rule 20 purports to lay down how valuation of the land has to be made. The rule making power under sub- section (1B) or clause (e) of sub-section (1A) of section 154 does not confer any such power. Moreover, if rule 20 is implemented, capital value which is higher than SDRR rate will have to be fixed which will be in violation of sub-section (1A) of section 154 which mandates that the Commissioner will take into consideration SDRR G rate while finalizing capital value. Thus, rule 20 is ultra vires the provisions of sub-sections (1A) and (1B) of section 154 of the BMC Act. There is no difference in Rule 20 of the Capital Value Rules of 2010 and 2015.”

19. In the end, the conclusions arrived at and the directions issued H by the High Court were as under: -

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“229. Our conclusions can be summarized as under: A (i) We uphold the constitutional validity of the sprovision of the BMC Act which are under challenge; (ii) The Capital Value Rules of 2010 shall apply prospectively from the date on which the same were made; B (iii) We strike down rules 20, 21 and 22 of Capital Value Rules of 2010 and 2015. As far as rules 3 and 17 are concerned, we hold that as rule 21 has been struck down, the capital value of properties covered by the said rules shall not be fixed in accordance with rule 21. As a result of striking down of rules 20, 21 and 22, in those cases C where the capital value has been finally fixed either by issuing notice under section 162 of the BMC Act or by issuing final bills, the Commissioner or the officer empowered to exercise delegated powers will have to re-determine the capital value in accordance with sub- D section (1A) of section 154 and serve a fresh special assessment notice. We hold that if a complaint is filed after service of special assessment notice, the same shall be disposed of only after giving an opportunity of being heard to the assessee filing such complaint. Only after the complaint is disposed of in such a fashion, a final bill can be served. (iv) As the Municipal Commissioner will require a reasonable time to do the tasks as aforesaid, the interim orders which are operating in these petitions will have to be continued till the service of final bills. We also make it clear that though we are setting aside the final bills issued, no party will be entitled to claim refund of the amounts paid under the interim orders and till the final bills are served, the petitioners will have to pay the amounts as per the interim orders. G (v) This judgment will apply only to the properties subject matter of the petitions in this group except Writ Petition No. 2592 of 2013 and PIL 46 OF 2014. We make it clear that only those special assessment notices and final bills which are specifically challenged will stand set aside. H

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A In Writ Petition No. 2592 of 2013, the fresh exercise will have to be undertaken only in relation to the properties in respect of which there is a specific prayer for quashing the notices and bills based on final assessment. The details of properties held by 610 members in the lead petition are not set out. Hence, no B relief can be extended to the properties of the said members save and except the properties subject matter of bills and notices which are expressly challenged. (vi) This judgment will not affect the final bills which are accepted by the concerned owners.

C 230. We record our appreciation for the valuable assistance rendered by the learned counsel appearing for various parties. We dispose of the petitions by passing the following order: ORDER (i) We reject the prayers made for challenging the constitutional validity of various provisions of the Mumbai Municipal Corporation Act, 1888 as prayed in the writ petition/PIL. We hold that Rules 20, 21 and 22 of the Capital Value Rules of the years 2010 and 2015 are ultra vires the provisions of the Mumbai Municipal Corporation Act, 1888 and, therefore, the same are struck down; (ii) We quash and set aside the special assessment notices and final bills based on final capital value fixed which are specifically the subject matter of challenge in this group of petitions. The demand of provisional taxes is not disturbed. The orders specifically impugned which are passed on the complaints do not survive. We direct the Mumbai Municipal Corporation to re-fix the capital value in respect of the properties subject matter of the notices/final bills which are set aside in the light of the findings recorded earlier. After re-determination of capital value, special assessment notices be issued to the persons primarily liable to pay propertytaxes in respect of subject properties. Thereafter, further steps shall be taken by the Municipal Corporation in accordance with law; (iii) We hold that the complaints filed objecting to the special assessment notices issued under sub-section (2) of section

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162 shall be disposed of only after giving an opportunity of being heard to the complainants. (iv) Till the expiry of a period of 21 days from the date on which fresh special assessment notices are served in accordance with clause (ii) above, the ad-interim/interim orders which are operating in these petitions till today shall continue to operate subject to compliance of requirement of deposit of amounts by the petitioners as set out in those orders. In those cases where the complaints are lawfully filed within stipulated time pursuant to the special assessment notices, the ad-interim/interim reliefs will continue to operate on the same conditions till the date of service of fresh final bills; C (v) Rule is made partly absolute on the above terms; (vi) All pending chamber summonses and notices of motion stand disposed of.”

20. The Corporation being aggrieved by the decision of the High Court on three issues as stated above,approached this Court by filing D Special Leave Petition (Civil) No. 17009 of 2019. While issuing notice in the matter on 29.7.2019, by way of interim relief, it was directed: “Pending further consideration, the relationship between the parties shall be governed by interim order dated 24.2.2014 passed by the High Court and more particularly by para 5 as quoted above. We are conscious of the fact that there were more than 150 petitions before the High Court but special leave petition has been filed only in one matter. However, since the issues in question are common to all the matters and go to the root of the controversy, we direct that this interim order shall apply in every single petition which was considered by the High Court.” Various interim applications have since then been preferred by certain parties seeking impleadment and projecting their view points. At the same time, some of the parties who were aggrieved by the rejection of their submissions challenging the validity of the various provisions of MMC Act and other issues which were answered against them also preferred Special Leave Petitions.

21. Mr. K.K. Venugopal, learned Attorney General for India and Mr. V. Sreedharan, learned Senior Advocate appearing on behalf of the Corporation initially advanced submissions on the issueswhich were H

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A answered against the Corporation. However, after the submissions were advanced on behalf of various impleading applicants and other parties including substantive petitions challenging the correctness of the decision of the High Court, submissions were also advanced in response.

22. The factual aspects regarding framing of the Capital Value B Rules of 2010 and 2015, as well as the background for some of the amendments effected to the MMC Act, have been dealt with in the written submissions of the Corporation, as under: “2.The amendment to the MMC Act introducing the capital value system was brought about inf 2009 (Act No. XI of 2009 on Pg 24-39 in Compilation of Corporation – Vol 4). Pursuant to the C same, the Corporation passed resolution dated 27.01.2010 for adoption of capital value with effect from 01.04.2010 (Pg 6 of consolidated counter affidavit on behalf of Respondents 2 to 4). Accordingly, the section was already enacted by State Legislature providing for levy of tax on capital value basis from 01.04.2010.

D 3. In January 2010, the Corporation appointed an expert committee composing of Appointment of expert committee comprising of Shri D.M. Sukthankar, Ex Chief Secretary of the State of Maharashtra, Shri D.N. Chaudhri, Ex Chairman of Maharashtra Law Commission and Dr. Roshan Namavati, expert on valuation E to make recommendation on the introduction and smooth implementation of capital value system. (Para 13, Pg 9 of consolidated counter affidavit on behalf of Respondents 2 to 4)

4. On 08.10.2010, the expert committee published draft rules in various newspapers for comments of public at large (Pg 79 to 94 F in Compilation of Corporation – Vol 4). The committee received 254 objections and suggestions all of which were considered and scrutinized by the committee. Thereafter, certain benevolent changes were made by the committee and draft rules were recommended to the Corporation on 29.12.2010. (Para 14, Pg 10 of consolidated counter affidavit) G

5. After the rules were published, the Corporation appointed a chartered accountant firm to suggest a revenue neutral rate. Revenue neutral rate means such rate as would yield the same amount of property tax as being levied by the Corporation before introduction of capital value system. (Para 39, Pg 22 of consolidated H counter affidavit)

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6. Evidently, the rates can be determined only after capital value of all properties are calculated on memorandum basis. The work of fixing the capital value of land and buildings across Greater Mumbai took time. The scale of the work involved was very large and extremely time consuming. The data of the old rateable value system which was in physical form had to be digitized for the purposes of the new capital value system. This voluminous data covered approximately 2.75 lakh properties (or 27.5 lakh individual units). In some cases however, the data was not complete and the carpet area was not available. In these cases the property owners were given notices under Section 155 of the MMC Act to furnish the details in the prescribed format. The response was however very limited and the officers of the MCGM had to physically ascertain the required information. (Para 31, Pg 19 of consolidated counter affidavit on behalf of Respondents 2 to 4)

7. In light of the same, the State Legislature stepped in and introduced L.A. Bill No. LXXIV of 2010 whereby inserting sub- D section (2) in Section 140A to enable the Corporation to issue provisional bills for the year 2010-11 and treat the rateable value of the building or land as provisional capital value. (Statement of object and reasons on Pg 48 and 49 in Compilation of Corporation – Vol 4). The said bill culminated into Act No. XXVII of 2010 (Pg 51 to 58 in Compilation of Corporation – Vol 4). E

8. The amendments to the MMC Act provided that once the capital value was fixed, final bills would be issued. If the final bill was lower than the provisional bill, the MCGM would refund the excess payment made with interest at the rate of 6.25% p.a., or with the consent of the tax payer, adjust the excess amount against future F bills (Section 140A(2). (Para 32, Pg 19 of consolidated counter affidavit on behalf of Respondents 2 to 4)

9. Pursuant to the same, the Corporation started implementation of the capital value system by issuing provisional property tax bills. G

10. In March 2011, the State Legislature observed that the process of fixing the capital value which had started in August, 2010 is bound to stretch beyond 31st March 2011. This is so because there are more than 3 lakh properties of which capital value has to be fixed for the purposes of such levy of property tax thereon, but H

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A the volume of work of fixing the capital value of all these properties being so large that it may not be possible for the Corporation to complete the fixation of capital value of all these properties before 31st March 2011. As a result of this, the work of fixing capital value would continue during the year 2011-2012 also. Unless the capital value of all the properties is fixed and the total extent thereof B is ascertained, it may not also be feasible.

11. Accordingly, by Maharashtra Ordinance No. X of 2011, the State Legislature expanded the scope of certain transitory provisions as contained in sections 128, 140A, 154A and 219A of the Mumbai Municipal Corporation Act, so as to enable the C Corporation to separately issue the provisional bills on the basis of rateable value treating it as provisional capital value for the years 2010-11 and 2011-12. Further, with a view to prevent loss of revenue in respect of tax on properties which have escaped from assessment, a new section 216B has also been inserted in the Act D to enable the Corporation to assess such properties at any time within six years from the date on which such properties should have been assessed. (Statement of object and reasons on Pg 141 and 142 in Compilation of Corporation – Vol 4). The said ordinance culminated into Act No. XI of 2011 (Pg 143 to 148 in Compilation of Corporation – Vol 4). E

12. In March 2012, the State Legislature observed that the process of fixing the capital value which had started in August, 2010 is bound to stretch beyond 31st March 2012. This is to because the proposal submitted to the Standing Committee of the Corporation for rules and rates have not yet received the approval. The general election of the Corporation is due in February, 2012 and new Standing Committee will be operative only from the end of March, 2012.

13. Accordingly, the bill proposed to expand the scope of transitory provisions so as to enable the Corporation to separately issue the provisional bills on the basis of rateable value treating it as provisional capital value for the years 2012-13, as was done for the period 2010-11 and 2011-12. (Statement of object and reasons on Pg 155 and 156 in Compilation of Corporation – Vol 4). The said ordinance culminated into Act No. VI of 2012 (Pg 157 to 162 H in Compilation of Corporation – Vol 4).

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14. It is submitted that, in present case there is no retrospective levy of tax. The section for imposition of tax on capital value was already in force from 01.04.2010. Draft rules were already published in October, 2010. The levy is broadly speaking on assesses who were paying tax under earlier regime also.

15. The statute provided for transitionary arrangement pursuant to which provisional bills were issued as per Section 140A(2) read with Section 154A of the MMC Act from official year 2010-2011 (under the capital value system), 2011-2012 and till 2012-2013. Refunds are granted, or shortfall recovered after the capital values are fixed. C

16. It is submitted that, time taken in assessment can never make the levy retrospective when the section imposing a tax is already in force. In case contention raised by assesses is accepted, it would amount to imposition of tax on rateable value even when the statute provides for imposition of tax on capital value w.e.f. 01.04.2010. D

Law laid down in ChhotabhaiJethabhai Patel and Co. v. Union of India AIR 1962 SC 1006. The same notes and proves the practice in USA of levying taxes from the beginning of year even when the law is made during the year.” E

23Copy pinpoint23. In response, the submissions advanced by various learned counsel, in the order that they appeared, were as under: (A) Mr. Neeraj Kishan Kaul, learned Senior Advocate appearing for Indian Hotels Company Limited which has intervened in the proceedings as well as filed substantial challenge in F the form of Special leave Petition (Civil) No.2568 of 2019 submitted that the property tax as a percentage of value was confiscatory and exorbitant.On facts it was stated that initially for a property situated in the city a property tax was to the tune of Rs.6.29 crores per annum which had now risen to Rs.17.78 crores showing an increase of 275 G %. Reliance was placed on paragraph 34 of the decision of this Court in Patel GordhandasHargovindas&Ors. vs. Municipal Commissioner, Ahmedabad &Anr.4. It was further submitted that the impugned provisions suffered 4 AIR 1963 SC 1742. H

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A from excessive delegation which was without any guidelines and in any case could not be retrospective in operation. In support of the submission, reliance was placed on the decisions of this Court in Marathwada University vs. Seshrao Balwant Rao Chavan 5, Delhi Race Club Limited v. Union of India &Ors. 6, Devi Das Gopal B Krishnan etc. vs. State of Punjab &Ors.7and Avinder Singh &Ors. vs. State of Punjab &Ors.8. Learned Senior counsel then submitted that the tax could be levied by the body constituted of elected representatives and not by the Standing Committee and that the power to tax could not be delegated. It was further submitted that since a new method of levying and computing property tax was revised, it was rightly denied retrospective application. On facts, it was also submitted that certain areas of the properties of the entity which housed pump rooms and other facilities ought to be excluded while arriving at the determination. (B) Dr. Milind Sathe, learned Senior Advocate appeared for certain entities in IA Nos.110990 of 2019, 163118 of 2019 E and 160953 of 2019 and submitted that Rules 20, 21 and 22 of the Capital Value Rules, 2010 and 2015 were rightly struck down by the High Court. Relying on the decision of this Court in The Municipal Corporation of Greater Bombay v. Polychem Ltd.9, it was submitted that till the F potential of the property was translated into a habitable building, the land must be treated and taxed only as land and not going by its buildable potential. It was further submitted that the process of fixing and/or changing the value, must be done in the same financial year.

G (C) Mr. Shekhar Naphade, learned Senior Advocate appearing for intervenors in IA Nos.110998 and 158888 of 2019 5 (1989) 3 SCC 132. 6 (2012) 8 SCC 680. 7 AIR 1967 SC 1895. 8 (1979) 1 SCC 137. H 9 (1974) 2 SCC 198

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submitted that the existing buildings having been demolished, A the property could be taxed only as land and not going by the projected or contemplated developments as a shopping centre or a mall. (D) Mr. H. Devarajan, learned Advocate who appeared for the Property Owners Association submitted that in terms of B Article 243Y(1)(b) of the Constitution the matter ought to have come through the suggestions of the Finance Commission. But the entire process was initiated as a result of the suggestions made by the TISS. It was also submitted that the exercise adopted in the instant case was in violation of Article 243-X of the Constitution. Reliance was placed on the decision of this Court in State of Uttar Pradesh & Ors. v. Systematic Conscom Ltd.10 to submit that the four components of incidence of tax as explained in Paragraphs 17 and 18 of said decision were not satisfied. The learned counsel further submitted that Sections 125 to 128 of the MMC Act deal with budget, but by virtue of amendments to the MMC Act, the rates were now being fixed without a budget. According to the learned counsel, the element of property tax under the new regime would be almost twenty times the rent and thus would be confiscatory. It was submitted that tax on lands and buildings must be directly on the land as a unit and must have a definite relationship with the land. The learned counsel further submitted that the unit for calculation according to SDRR F and the Capital Value Rules, was not the same. In one case, the reckonable unit was the built-up area while under the second, the reckonable unit was the carpet area. (E) Mr. Darius Khambata, learned Senior Advocate who appeared in I.A. No.157014 of 2014 submitted that Rules G 20, 21, 22 of the Capital Value Rules of 2010 and 2015 were rightly held to be ultra vires. It was further submitted that the factors delineated in sub-clause (a) to (d) of Section 154 (A) of the MMC Act would be matters “in presenti” 10 (2014) 13 SCC 627. H

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A and not with regard to future prospects and that no reliance could be placed on sub-clause (e) to introduce the concept of something “in futuro” i.e., the potential in the market or capital value.It was further submitted that there could be no retrospectivity to any delegated legislation when the parent Act did not give any indication in that behalf and that B the final assessment could have altered the basis in the same financial year and not otherwise. (F) Mr. Abhishek Bharti, learned counsel relied upon the decision of this Court in State of Himachal Pradesh &Ors. vs. Nurpur Private Bus Operators’ Union &Ors. 11, Mr. C Shikhil Suri, learned counsel who appeared for National Centre for Performing Arts and Tata Power Company Limited adopted the submissions of Dr. Milind Sathe and Mr. Darius Khambata, learned senior counsel. Mr. Bhushan Deshmukh who appeared for the petitioner in SLP(C) No. D 25689/2019, also adopted the submissions of Dr. Sathe and Mr. Khambata, learned senior counsel. Mr. Satish Muley, learned counsel appearing for a subsequent purchaser, also adopted the submissions of Dr. Sathe and Mr. Khambata, learned senior counsel.

24Copy pinpoint24. Mr. V. Sreedharan, learned senior counsel for the Corporation made submissions in rejoinder. He also submitted that the overall tax demand of the Corporation under the capital value assessment actually decreased by 12% to Rs.2908 crores as compared to Rs.3308 crores under the Relatable Value System. The tax demand for residential units got reduced from Rs.1030 crores to Rs.949 crores while that for the F Offices and Banks was reduced from Rs.979 crores to Rs.65 crores and from Rs.342 crores to Rs.222 crores respectively. Thus, according to the Corporation, under the new system only 32.20% units suffered an increase while 21.95 % of the units actually got benefitted as a result of reduction in the property taxes.

25Copy pinpoint25. We will first deal with the submission that any proposal for change or modification in the methodology adopted for levy of property tax ought to have been initiated through the Finance Commission alone. Article 243Y of the Constitution deals with constitution of Finance 11 (1999) 9 SCC 559. H

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Commission whose principal duty is to review the financial position of A 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. In Campaign for People Participation in Development Planning vs. Lieutenant Governor of NCT of Delhi B &Ors.12, a Division Bench of the High Court of Delhi had the occasion to consider the scope of Article 243Y of the Constitution. It was observed:- “14. Article 243I of the Constitution of India mandates constitution of a Finance Commission by the Governors of the States at the expiration of every 5th year. Article 243Y further mandates that C the Finance Commission constituted under Article 243I shall also review the financial position of the municipalities and make recommendations to the Governors as to the various aspects specified therein. As per Clause (2) of Article 243Y, the Governor shall cause every recommendation made by the Finance D Commission under the said Article together with an explanatory memorandum as to the action taken thereon to be laid before the legislature of the State.”

26Copy pinpoint26. It is true that certain functions are entrusted to the Finance Commission and the recommendations made by the Finance Commission E 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 F 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 G 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 12 (2016) SCC Online Del 80 H

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A or that in the absence of such recommendations by the Finance Commission, no steps could have been taken by the Legislature.

27Copy pinpoint27. 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.

28Copy pinpoint28. 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.

29Copy pinpoint29. We now turn to the scheme relating to property tax as is discernable from the provisions of the MMC Act. Section 139 deals with taxes including property taxes that can be imposed.Section 139A deals with the kinds of property taxes while Section 140 deals with the per centum of their rateable value or the capital value as the case may be. Section 140A enables the Corporation to adopt levy of property tax on the basis of Capital Value of buildings and lands and puts a cap in the proviso to sub-section(1). Section 154 then deals with how rateable value and capital value are to be determined. Sub-section (1) deals with rateable value while sub-section (1A), (1B) and (1C) deal with capital value. The first part of Section 154(IA) contemplates that the value indicated in the Stamp Duty Ready Reckoner for the time being in force, would be the H “base value.” According to the second part, if such ready reckoner value

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is not available, the market value can be taken into account while arriving at a base value. According to the provision, while fixing the capital value, the Commissioner “shall have regard” to the factors enumerated in sub- clauses (a) to (e). Thus, the factors on the basis of which capital value can be arrived at are delineated in sub-clauses (a) to (e) of sub-section (1A) of Section 154. While sub-clause (a) to (d) are clear and well defined, sub-clause (e) refers to the factors as may be specified by rules under sub-section (1B). Said sub-section (1B) in turn authorizes the Commissioner, to frame such rules, with the approval of the Standing Committee as respects details of categories of building or land and the weightage by multiplication to be assigned to various such factors and categories for the purpose of fixing the capital value. C

30Copy pinpoint30. 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”.

31Copy pinpoint31. 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?

32Copy pinpoint32. At this stage, we may deal with two decisions of this Court having bearing on the controversy before us. G (A) It was observed in Patel Gordhandas4 that the statutory provision did not contemplate levying of the rates as a percentage of capital value. The relevant portion of Paragraph 34 of the decision was: “34. …. H

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A ..… We are therefore of opinion that though mathematically it may be possible to arrive at the same figure of the actual tax to be paid as a rate whether based on capital value or based on annual value, the levying of the rate as a percentage of capital value would still be illegal for the reason that the law provides that it B should be levied on the annual value and not otherwise. By levying it otherwise directly at a percentage of the capital value, the real incidence of the rate is camouflaged, and the electorate not knowing the true incidence of the tax may possibly be subjected to such a C heavy incidence as in some cases may amount to confiscatory taxation. We are therefore of opinion that fixing of the rate at a percentage of the capital value is not permitted by the Act and therefore R. 350-A read with R. 243 which permits this must be struck down, even though mathematically it may be possible to arrive at the same actual tax by varying percentages in the case of capital value and in the case of annual value...” (emphasis supplied) 9 (B) In Polychem Ltd. , a part of the land was being constructed upon while the rest was lying vacant. The Assessor divided the plot notionally into two parts – one, which was being built upon and the other which was lying vacant. One of the questions was: whether during the period when the construction was going on and was not completed, what should be the approach? The following observations are noteworthy: “12. The principles upon which lands are rated in this country have been practically settled by the decisions of this Court. But, no case was brought to our notice in which an application of these principles to land upon which a building was being constructed was involved. G In other words, no case was cited by any party in which the doctrine of sterility, as indicated above, was invoked. We will, however, glance at the cases cited before deciding the question raised before us. xxx xxx xxx H

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22. The abovementioned authorities of this Court, which A were cited before us, enable us to hold that the mode of assessment in every case must be directed towards finding out the annual letting value of land which is the basis of rating of land, and, by definition, “land” includes land which is either being built upon or has been built upon. Nevertheless, B a reference to the provisions of the Act shows that, after a building has been completed, the letting value of the building, which becomes part of land, will be the primary or determining factor in fixing the annual rent for which the land which has been built upon “might reasonably be expected to be let from year to year”. All that Section 154 C seems to contemplate, by mentioning “land or building”, is that land which is vacant or which has not been built upon may be treated, for purposes of valuation, on a different footing from land which has actually been built upon. But, relevant provisions of the Act do not mention and seem to take no account, for purposes of rating, of any building which is only in the course of being constructed although Section 3(r) of the Act makes it clear that land which is being built upon is also “land”. Hence, so long as a building is not completed or constructed to such an extent that atleast a partial completion notice can be given so that the completed portion can be occupied and let, the land can, for purposes of rating, be equated with or treated as vacant land. It is only when the building which is being put up is in such a state that it is actually and legally capable of occupation that the letting value of the building can enter into the computation for rating “Rebus sic Stantibus”. Although, the definition of land, which is rateable, covers three kinds of “land”, yet, for the purposes of rating Section 154 recognises only two categories. Therefore, all “land” must fall in one of these two categories for purposes of rating and not outside.” G (emphasis supplied)

33Copy pinpoint33. 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 H

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A 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, B 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. C Therefore, so long as the building could not be let out in open market, the land would continue to be treated as “vacant land”.

34Copy pinpoint34. 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 D 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.

35Copy pinpoint35. 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.

36Copy pinpoint36. 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 H (a) to (e) read with sub-Section (1B) or the conferral of rule-making

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power would not permit the Corporation to determine the capital value A 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.

37Copy pinpoint37. At this stage, we may consider the scope of Rule 20 of the B Capital Value Rules of 2010 and the Capital Value Rules of 2015. The said Rule refers to the Ready Reckoner which provides for the rate of base value of open land with 1 (one) floor space index. However, the open land in question may be capable of utilizing more than 1 (one) floor space index, for instance in certain areas the floor space index may be 1.5 or 2. Such component i.e. the capability of the land in question in utilizing more then 1 (one) floor space index is a postulate which is sought to be reckoned by Rule 20. The second component to be added in terms of Rule 20 is the intended or proposed utilization of Transfer of Development right which has been approved under the building plan submitted for approval. Nonetheless, this component is the intended use or exploitation in future and not something which is available in presenti.

38Copy pinpoint38. 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 E MMC Act. 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.

39Copy pinpoint39. We now turn to the issue regarding retrospectivity of the Capital F 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 G 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 (supra) was, therefore, rightly answered by the H

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A 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.

40Copy pinpoint40. 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 Gordhandas4 and PolychemLtd.9 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. At the cost of repetition, we may say that 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.

41Copy pinpoint41. In the circumstances, the challenge raised by the Corporation E must fail and we dismiss the appeal preferred by the Corporation.

42Copy pinpoint42. We now turn to the challenges raised by the original writ petitioners. 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, F 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.

43Copy pinpoint43. These appeals are disposed of in aforesaid terms without any G order as to costs.

Divya Pandey Appeals dismissed. (Assisted by : Shevali Monga, LCRA)