The Bombay High Court has said that there was no provision for Mumbai’s civic chief, to frame rules for laying down guidelines for determining the capital value of a property, based on which tax could be levied on it. The high court made the observation, while striking down certain rules enacted by the Brihanmumbai Municipal Corporation (BMC), for assessment of capital value of a property based on which tax could be levied on it.
A division bench of justices AS Oka and Riyaz Chagla had, on April 24, 2019, struck down Rules 20, 21 and 22 of the Capital Value Rules of 2010 and 2015, saying they are ultra vires to the Maharashtra Municipal Corporation Act (MMC Act). The high court said all the assessments and bills issued under these rules stand quashed. “There is no provision which enables the civic body commissioner to frame rules for laying down guidelines for determining capital value,” the bench said in its order made available on April 25.
The order noted that the Corporation, while assessing capital value of a property, will have to consider factors like nature of land, type of land or structure, area, user category (residential or commercial) and its age. “In fact, framing rules for laying down the method of calculating the capital value is itself ultra vires, beyond one’s legal authority,” the bench noted. The court said the civic body will have to give a fresh hearing to the complaints filed before it.
The bench, however, upheld the constitutional validity of the 2009 amendment to the MMC Act that had changed the levying of property tax basis in Mumbai, from rateable value on standard rent to capital value. Rateable value of a property is derived from its rent, while capital value is based on a host of factors, such as the property’s market value, its location and use, among others. “By adopting capital value as the basis for levy of property tax, only the measure of computing of property tax has undergone a change,” the court said in its order. “Only the basis of charging the property tax has changed. Instead of calculating hypothetical rent, now, the hypothetical market value of the property will have to be worked out,” the court said.
The bench had stayed the striking down of the rules part of the judgement till August 31, to enable the BMC to approach the Supreme Court in an appeal. The bench was hearing a bunch of petitions filed by an association of property owners, builders’ associations and charitable institutions, including religious bodies, against the BMC and the Maharashtra government, challenging the levy of property tax on the basis of capital value. In 2009, the MMC Act was amended and a concept of levying property tax on capital value system, was brought into force.
The petitioners challenged the constitutional validity of the amended property tax based on capital value of land, as opposed to the earlier rateable value based on standard rents. There were a series of constitutional challenges raised by the Property Owners Association and developers, to an amendment to the MMC Act and rules framed in 2010 and 2015, for fixation of capital value of lands and buildings. The rules are void and unconstitutional, the developers had argued.