SC upholds Bombay HC verdict against rules pushing up land property tax, Legal News, ET LegalWorld – Legal Firms

MUMBAI: The Supreme Court on Monday upheld an April 2019 Bombay high court judgment that had struck down three rules to fix the ‘capital value’ of land where construction is set to start under a new property tax regime.

In a setback for the BMC, the SC judgment by a bench of Chief Justice U U Lalit and Justice Bela Trivedi is being viewed by property owners and developers as a major relief.

The new rules of the BMC had led to much higher property taxes for the developers, who challenged the constitutional validity of the new regime for computing property taxes. Property tax is among the biggest and “crucial” revenue sources for the BMC, especially since the abolition of the octroi.

“There is no provision under the BMC Act to take into consideration the development potential of vacant land for determining its capital value,” the high court had held. But in a victory for the BMC, the HC had upheld the constitutional validity of the ‘capital value’ system of calculating property tax.

The SC reiterated that “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”.

In 2009, the BMC changed the property tax regime and shifted the calculation mode to ‘capital value’ of land instead of ‘rateable value’ – a complex formula involving pre-1940 level-low standard rent.

The Property Owners Association (POA) spearheaded the legal battle in 2013 against the ‘capital value’ regime. Numerous others, including trusts, hotels, institutions and other developers’ bodies including the Central Mumbai Developers Welfare Association (CMDWA), joined in.

In 2019, the HC had held that the amendment was valid but quashed three of its rules-20-22- as invalid. Rule 20 said ‘capital value’ would rely on the buildable potential of the land.

The BMC went in appeal to the SC, saying rules provided for a cap on property tax, and hence they wouldn’t skyrocket as builders feared. The HC had also said the new tax regime could be applicable only from March 2012, not 2010 as the BMC was doing.

The POA, CMDWA, other developers and interveners had challenged the part of the HC verdict upholding the new regime.

On Monday, the SC said appeals were dismissed and the matter was finally disposed of.

The SC heard a litany of leading counsel, including attorney general K K Venugopal and V Sreedharan for the BMC, and Shekhar Naphade, Milind Sathe Neeraj Kishan Kaul, Darius Khambata, Chirag M Shroff, H Devarajan who argued that land where existing old buildings were dilapidated could be taxed only as ‘vacant land’ and not based on a proposed mall or hotel.

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