MMC Act - Future Prospects Of Land & Building Cannot Be Considered For Determining Capital Value For Imposing Property Tax: Supreme Court

The Supreme Court observed that for determining capital value for imposing property tax under Mumbai Municipal Corporation Act, only the present physical attributes and status of the land and building can be considered and not the future prospects of the land.

The bench comprising CJI Uday Umesh Lalit and Justice Ajay Rastogi dismissed appeals filed by Mumbai Municipal Corporation which held that Rules 20, 21 and 22 of the Capital Value Rules 2010 and 2015  are ultra vires the provisions of the MMC Act. Appeals filed against that part of the judgment of the High Court which upheld validity of various provisions of the MMC Act have also been dismissed.

Before the Bombay High Court, the property owners association and others filed writ petitions challenging the validity of computation and levy of property tax based on capital value system. The petitions also challenged the vires of Capital Value Rules of 2010 and Capital Value Rules of 2015. Some of the petitions also challenged the amendment effected to the MMC Act pertaining to the implementation of the Capital Value System for computing and assessing property tax. The High Court rejected the challenge as to the validity of various provisions of the MMC Act. But it held Rules 20, 21 and 22 of the Capital Value Rules 2010 and 2015 to be ultra vires the provisions of the MMC Act. 

In appeal, the Apex court bench noted that 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).

"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 sub­Sections (1A) and (1B) of Section 154 of the MMC Act.", the bench said. 

On the issue regarding retrospectivity of the Capital Value Rules of 2010, the bench observed:

"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 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.", the court said.

While upholding the High Court judgment, the bench observed:

Capital value again can have two dimensions. First, the value of land or building as it stands today or secondly, the value as may be in future as per anticipated development. However, the legislative intent, as is clear from clauses (a) to (d), is about actual status and user as on the date the capital value is to be reckoned or considered. These clauses clearly show that the features contemplated therein must be in existence as on such date and not what would be the projection in future.
....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 sub­clauses (a) to (e) of sub­Section (1A) read with sub­Section (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.

Case details

Municipal Corporation of Greater Mumbai vs Property Owners Association | 2022 LiveLaw (SC) 927 | SLP(C) 17009 of 2019 | 7 November 2022 | CJI UU Lalit and Justice Ajay Rastogi

Headnotes

Mumbai Municipal Corporation Act, 1888 ; Section 154 - Imposition of property tax on the capital value - 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 - 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" - In projects which are in progress, the value addition to the property would be ongoing feature. (Para 36-40)

Constitution of India, 1950 ; Articles 243X and 243Y - Whether 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? If the Legislature itself has taken into account certain prevailing situation, which according to the Legislature is causing some prejudice to the financial health and condition of the municipalities and, therefore, the method of imposition of property tax ought to be changed, it cannot then be said that the matter must necessarily and ought to have emanated from the Finance Commission or that in the absence of such recommendations by the Finance Commission, no steps could have been taken by the Legislature. (Para 25-27)

Mumbai Municipal Corporation Act, 1888 ; Section 154 - Capital Value Rules - Rule 20 of the Capital Value Rules of 2010 and 2015 empower the Commissioner to consider the capability of the open land of utilizing more than 1 floor space index (FSI) or any transfer of development right (TDR), would go well beyond the permissible scope delineated by the provisions of Section 154 of the MMC Act - Rule 20 of the Capital Value Rules of 2010 and the Capital Value Rules of 2015 would be ultra vires the provisions of sub­Sections (1A) and (1B) of Section 154 of the MMC Act - 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. (Para 38-39)

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