Kerala High Court Strikes Down Rules 9(4A) and 9(4C) Of Municipality Rules On Property Tax Fixation

The Kerala High Court has set aside Rules 9(4A) and 9(4C) of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules which prescribe fixation of property tax at a minimum of 25% over and above the tax levied for the previous year, if the property tax arrived at on computation as per the Rules is less than the tax levied for the previous year.

Justice N. Nagaresh pointed out that Section 233 of the Kerala Municipality Act, 1994 does not permit the fixation of property tax over and above the upper limit fixed by the Government.

It was also clarified that Section 233(19)(i) only empowers the State to make rules for the procedure to be followed for fixing the rates of Basic Property Tax in the Municipality, subject to these limits specified by the Government.

"It is declared that Rules 9(4A) and 9(4C) of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011, which prescribe fixation of property tax at a minimum of 25% over and above the tax levied for the previous year, if property tax arrived at on computation as per the Rules, 2011 is less than the tax levied for the previous year, is ultra vires the Kerala Municipality Act, 1994. Rule 9(4A) and Rule 9(4C) are therefore set aside to that extent." 

The Court further added:

"As per Section 233(2)(a) for the purpose of levying property tax, the Government shall, by notification, fix the minimum and maximum limits of rates of basic property tax applicable to one square metre plinth area of the categories of building in accordance with the use and the date on which they shall come into force. Therefore, there should be a minimum and maximum limit of rates of basic property tax." 

The petitioner is the owner of a group of buildings and these buildings were assessed to Property Tax by the Municipality prior to 01.04.2011 on the basis of annual rental value.

Although he paid the tax, alleging that it was fixed arbitrarily, the petitioner filed representation to re-fix the tax reasonably. 

In the meantime, the system of taxation was substituted by the amendment of Section 233. As per the new system, the tax is to be fixed on the plinth area basis with allowances and additions.

Rules 9(4A) and 9(4C) of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011 prescribe fixation of Property Tax at 25% over and above the existing property tax levied, denying any benefit of the amended provision of Section 233.  

Advocate R. Surendran appearing for the petitioner contended that the said rules were ultra vires Section 233 of the Kerala Municipality Act, 1994 and without any authority of law. 

It was urged that Section 233 does not empower the Government and Municipalities to fix property tax at a minimum of 25% over and above the tax levied for the previous year unless the property tax so computed falls within the minimum and maximum slab prescribed. 

Similarly, it was pointed out that as per Article 265 of the Constitution, no tax shall be levied or collected except by authority of law. Hence, the rules were liable to be declared ultra vires and be quashed, contended the petitioner. 

Resisting the petition, Advocates P.V. Surendranath, Bindumol Joseph, B.S. Syamanthak and Special Government Pleader K.R. Deepa stated that fixing property tax based on annual value of the building led to several complaints and objections which culminated in the substitution of Section 233.

Prior to the substitution, the property tax was levied on the basis of the annual value of the building or lands.

The respondents further pointed out that the petitioner's contention that the property tax collected from 01.04.2011 is without any authority of law for it was collected under the old provision of Section 233 is misconceived.

The Court noted that the amended Section 233 enables computation and levy of property tax on buildings depending on the nature of the buildings and conveniences available on the basis of the plinth area of the building.

Finding considerable force in the petitioner's argument, the Judge recorded that Section 233 does not give power to the authorities to make property tax fixation in the present manner. 

The Single Bench observed that Section 233 does not permit the fixation of property tax over and above the upper limit fixed by the Government. 

Section 233(19)(i) only empowers the Government to make rules in respect of the procedure to be followed by the Council for fixing the rates of Basic Property Tax to be made applicable to the area of the Municipality, subject to the limits specified by the Government.

As such, the Rules were set aside. The Court noted that the petitioner was entitled to the consequential benefits. 

Case Title: K.P. Muhammed Ashraf v. Taliparamba Municipality & Ors.

Citation: 2022 LiveLaw (Ker) 20

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