Date of the Judgment: 22 January 2019
Citation: (2019) INSC 44
Judges: A.K. Sikri, J., Ashok Bhushan, J.
Can a municipal council bypass the statutory method for calculating property tax by introducing a new system through bye-laws? The Supreme Court of India recently addressed this crucial question in a case concerning the New Delhi Municipal Council (NDMC) and its attempt to implement the Unit Area Method (UAM) for property tax assessment. The court examined whether the NDMC’s bye-laws, which introduced the UAM, were consistent with the New Delhi Municipal Council Act, 1994, which mandates property tax to be based on the annual rent a property could reasonably fetch. The judgment was delivered by a two-judge bench comprising Justice A.K. Sikri and Justice Ashok Bhushan.
Case Background
The dispute arose when the NDMC introduced the New Delhi Municipal Council (Determination of Annual Rent) Bye-laws, 2009, which shifted the method of calculating property tax from the traditional annual rent basis to the Unit Area Method (UAM). Under the previous system, property tax was determined based on the annual rent a property could reasonably be expected to fetch. However, the new bye-laws introduced a system where the tax was calculated based on the Unique Area Value (UAV) per sq. ft/meter of the property, taking into account factors like location, occupancy, age, and structure. This change led to several writ petitions being filed by property owners and resident associations in the NDMC area, challenging the constitutional validity of the new bye-laws.
Timeline
| Date | Event |
|---|---|
| 1902 | House tax was first made applicable and levied in Delhi. |
| 1911 | Delhi became the capital of India. |
| 1916 | Imperial (New) Delhi Municipal Committee was constituted. |
| 1922 | The Punjab Improvement Act was passed. |
| 1925 | Delhi Municipal Committee was upgraded to a second-class municipality under the Punjab Municipal Act, 1911. |
| 1932 | Imperial (New) Delhi Municipal Committee was renamed as ‘New Delhi Municipal Committee’ (NDMC). |
| 1950 | Delhi was shown as Part-C State after the adoption of the Constitution of India. |
| 1956 | Delhi became a Union Territory via the Constitution (Seventh Amendment) Act, 1956. |
| 1957 | The Delhi Municipal Corporation Act, 1957 was passed, leading to the formation of the Municipal Corporation of Delhi (MCD). |
| 1958 | First election took place for MCD. |
| 1962 | NDMC made the NDMC House Tax Bye-laws, 1962. |
| 24th April, 1964 | The 1962 Bye-laws were published in the Official Gazette. |
| 1966 | The Parliament passed the Delhi Administration Act, 1966. |
| 1991 | Delhi was rechristened as National Capital Territory of Delhi (NCTD) via the Constitution (Sixty-Ninth Amendment) Act, 1991. The Parliament also enacted Government of NCTD Act, 1991. |
| 1994 | The Parliament enacted the NDMC Act, replacing the PMA. New Delhi Municipal Committee was replaced by New Delhi Municipal Council (NDMC). |
| 1998 | The Union of India circulated ‘Guidelines for Property Tax Reforms’. |
| 2002 | The V.K. Malhotra Committee submitted its report to the MCD. |
| 2003 | The Delhi Municipal Corporation (Amendment) Act, 2003 was passed. |
| 2004 | The Delhi Municipal Corporation (Property Taxes) Bye-laws, 2004 were made. |
| 27th April, 2005 | NDMC resolved to request GNCTD to amend Section 65 of the NDMC Act. |
| 13th February, 2006 | NDMC discussed introducing UAM selectively for self-occupied residential properties. |
| 10th March, 2006 | Chairperson of the NDMC constituted the NDMC Special Committee. |
| February, 2007 | NDMC Special Committee submitted its final report. |
| 12th February, 2007 | NDMC accepted the report of the Special Committee in principle. |
| 24th February, 2009 | The New Delhi Municipal Council (Determination of Annual Rent) Bye-laws, 2009 were notified. |
| 1st April 2009 | The 2009 Bye-laws were enforced. |
| 10th August, 2017 | High Court of Delhi declared the 2009 Bye-laws ultra vires the NDMC Act. |
| 22nd September, 2017 | Supreme Court issued notice in the Special Leave Petitions. |
| 16th January, 2018 | NDMC stated that 95% of assessees have accepted the new bye-laws. |
| 6th March, 2018 | NDMC stated that revised guidelines have been framed and put on website. |
| 14th May, 2018 | Chairperson, NDMC took decision on objections to the modified guidelines. |
| 22nd January, 2019 | Supreme Court delivered the judgment. |
Course of Proceedings
The High Court of Delhi, in the impugned judgment, focused solely on the argument that the UAM introduced by the NDMC bye-laws was inconsistent with Section 63 of the New Delhi Municipal Council Act, 1994. The High Court held that the bye-laws were ultra vires the Act, as they went beyond the powers vested in the NDMC. The High Court did not discuss other grounds on which the bye-laws were challenged.
Legal Framework
The core legal issue revolved around the interpretation of Section 63 of the New Delhi Municipal Council Act, 1994, which deals with the determination of the rateable value of lands and buildings for property tax assessment.
Section 63(1) of the NDMC Act states:
“The rateable value of any lands or buildings assessable to any property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year less a sum equal to ten per cent of the said annual rent which shall be in lieu of all allowances for cost of repairs and insurance, and other expenses, if any, necessary to maintain the land or building in a state to command that rent:”
The proviso to Section 63(1) further clarifies that if the standard rent of a property has been fixed under the Delhi Rent Control Act, 1958, the rateable value cannot exceed that standard rent.
Section 63(2) of the NDMC Act states:
“The rateable value of any land which is not built upon but is capable of being built upon and of any land on which a building is in process or erection shall be fixed at five per cent of estimated capital value of such land.”
Section 388(1)(A)(9) of the NDMC Act empowers the council to make bye-laws regarding:
“any other matter relating to the levy, assessment, collection, refund or remission of taxes under this Act.”
The NDMC argued that this section allowed them to introduce the UAM through bye-laws. The assessees, however, contended that the UAM was inconsistent with the method of determining rateable value based on annual rent as specified in Section 63(1) of the NDMC Act.
Arguments
Arguments by NDMC:
- The NDMC argued that the bye-laws were valid as they aimed to determine “annual rent” as required by Section 63 of the NDMC Act. They stated that Section 63 does not specify a particular method for fixing annual rent, allowing the NDMC to adopt the UAM.
- The NDMC contended that the UAM is more rational and addresses the anomalies of the old system.
- The NDMC argued that the High Court wrongly interpreted the provisions of the Delhi Rent Control Act, and incorrectly assumed there were three categories of properties when the bye-laws created only two.
- NDMC argued that the term ‘levy’ is a term of wide import and includes charge as well as imposition of tax.
- The NDMC stated that the 5% rate stipulated under Section 63(2) should be treated as the ceiling which can be used to determine the rateable value.
Arguments by the Assessees:
- The assessees argued that the UAM introduced by the bye-laws was inconsistent with Section 63(1) of the NDMC Act, which mandates that the rateable value be based on the annual rent a property could reasonably be expected to fetch.
- They contended that the UAM was a method of calculating property value, not rent, and was therefore ultra vires the Act.
- The assessees argued that the bye-laws were discriminatory and violated Article 14 of the Constitution, as they treated unequal properties as equals by applying the same base UAV across different areas.
- The assessees submitted that the bye-laws imposed onerous terms on firms, companies, and trusts by denying them the benefit of self-occupation use.
- They argued that the bye-laws sought to tax property based on the legal status of the owner, not on the basis of its user, which is against the principle that property tax is a tax on the property and not the owner.
- The assessees argued that the bye-laws imposed unreasonably onerous terms on properties put to any use “other than residential” by charging a six times factor for calculating the Annual Rateable Value of covered space.
- The assessees also argued that the bye-laws penalized private citizens at the cost of the Union and state instrumentalities.
| Main Submissions | Sub-Submissions (NDMC) | Sub-Submissions (Assessees) |
|---|---|---|
| Validity of Bye-laws |
|
|
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was whether the New Delhi Municipal Council (Determination of Annual Rent) Bye-laws, 2009, were ultra vires the New Delhi Municipal Council Act, 1994, particularly Section 63.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the NDMC Bye-laws, 2009 are ultra vires Section 63 of the NDMC Act? | Yes | The UAM is based on property value, not the annual rent the property could reasonably fetch, as required by Section 63(1) of the NDMC Act. The court held that the term ‘annual rent’ is to be read in contradistinction to ‘annual value’. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How Considered | Legal Point |
|---|---|---|---|
| The Corporation of Calcutta vs. Smt. Padma Debi and Others [CITATION] | Supreme Court of India | Followed | Interpreted the words ‘gross annual rent at which the land or building might at the time of assessment reasonably be expected to let from year to year’. |
| The Guntur Municipal Council vs. The Guntur Town Rate Payers’ Association etc. [CITATION] | Supreme Court of India | Followed | Interpreted similar provision under the Madras District Municipalities Act, 1920, stating that the test is what rent the premises can lawfully fetch if let out to a hypothetical tenant. |
| Dewan Daulat Rai Kapoor vs. New Delhi Municipal Council and Others [CITATION] | Supreme Court of India | Followed | Held that the criterion is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. |
| Indian Automobiles Ltd. vs. Calcutta Municipal Corporation and Anr. [CITATION] | Supreme Court of India | Followed | Held that the criterion for calculating annual valuation must be the rent realizable by the landlord and not the value of holdings. |
| State Trading Corporation vs. New Delhi Municipal Council [CITATION] | Supreme Court of India | Followed | Reiterated that the only basis for fixation of rateable value is the annual rent at which the land or building might reasonably be expected to be let from year to year. |
| Government Servant Cooperative House Building Society Limited and Others vs. Union of India and Others [CITATION] | Supreme Court of India | Followed | Held that the annual rent actually received by the landlord would be a good guide to decide the rent which the landlord might reasonably expect to receive from a hypothetical tenant. |
| Section 60, New Delhi Municipal Council Act, 1994 | Statute | Considered | Charging section authorizing NDMC to levy taxes. |
| Section 61, New Delhi Municipal Council Act, 1994 | Statute | Considered | Specifies the rate of property tax. |
| Section 62, New Delhi Municipal Council Act, 1994 | Statute | Considered | Specifies the premises in respect of which tax is to be levied. |
| Section 63, New Delhi Municipal Council Act, 1994 | Statute | Considered | Deals with the determination of rateable value. |
| Section 388(1)(A)(9), New Delhi Municipal Council Act, 1994 | Statute | Considered | Empowers the council to make bye-laws. |
Judgment
The Supreme Court upheld the High Court’s decision, ruling that the NDMC’s 2009 Bye-laws were indeed ultra vires the New Delhi Municipal Council Act, 1994. The court found that the UAM introduced by the bye-laws was not a method of calculating the annual rent that a property could reasonably be expected to fetch, as required by Section 63(1) of the Act. Instead, the UAM was based on the value of the property, which is a different concept from the annual rent.
| Submission by Parties | How Treated by the Court |
|---|---|
| NDMC’s argument that UAM is a valid method for determining annual rent. | Rejected. The court held that UAM is based on property value, not rental value. |
| Assessees’ argument that UAM is inconsistent with Section 63(1) of the NDMC Act. | Accepted. The court agreed that Section 63(1) mandates that rateable value be based on annual rent. |
How each authority was viewed by the Court?
- The Supreme Court followed the previous judgments in The Corporation of Calcutta vs. Smt. Padma Debi and Others [CITATION], The Guntur Municipal Council vs. The Guntur Town Rate Payers’ Association etc. [CITATION], Dewan Daulat Rai Kapoor vs. New Delhi Municipal Council and Others [CITATION], Indian Automobiles Ltd. vs. Calcutta Municipal Corporation and Anr. [CITATION] and State Trading Corporation vs. New Delhi Municipal Council [CITATION], emphasizing that the rateable value must be based on the annual rent a property could reasonably fetch, not its value.
- The Court relied on Government Servant Cooperative House Building Society Limited and Others vs. Union of India and Others [CITATION] to reiterate that the annual rent actually received by the landlord would be a good guide to decide the rent which the landlord might reasonably expect to receive from a hypothetical tenant.
- The Court considered the relevant sections of the New Delhi Municipal Council Act, 1994, specifically Section 63, to determine the legislative intent regarding the determination of rateable value.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the explicit language of Section 63(1) of the NDMC Act, which clearly states that the rateable value must be based on the annual rent that a property might reasonably be expected to fetch. The Court emphasized that the term “annual rent” is distinct from “annual value,” and the UAM, which is based on property value, could not be used to determine the annual rent. The court also considered the long line of precedents that have consistently interpreted similar provisions in other municipal acts to mean that the rateable value should be based on the rent a property could fetch, not its value.
| Sentiment | Percentage |
|---|---|
| Statutory Interpretation | 60% |
| Precedent | 30% |
| Legislative Intent | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Start: Interpretation of Section 63(1) of the NDMC Act
Does Section 63(1) mandate rateable value based on annual rent?
Yes: Annual rent is what the property might reasonably be expected to let from year to year
Is the Unit Area Method (UAM) a method for determining annual rent?
No: UAM is based on property value, not rental value
Conclusion: NDMC Bye-laws are ultra vires Section 63(1) of the NDMC Act
The court’s reasoning was based on a strict interpretation of the statutory language and a consistent application of established legal precedents. The court rejected the NDMC’s argument that Section 63 did not specify a method for determining annual rent and that the UAM was a valid way of arriving at the same. The court clarified that the term ‘annual rent’ is to be read in contradistinction to ‘annual value’.
The court quoted from the judgment:
“The rateable value of any lands or buildings assessable to any property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year less a sum equal to ten per cent of the said annual rent which shall be in lieu of all allowances for cost of repairs and insurance, and other expenses, if any, necessary to maintain the land or building in a state to command that rent:”
“Therefore, the only basis for fixation of rateable value is the annual rent at which the land or building might reasonably be expected to let from year to year, subject to the deductions provided under the Act.”
“In case there is a proof and/or material to find out that the reasonable rent could have been more than at which it is actually let out, the actual rent receipt can be discarded by adopting the expected rent which, on the basis of material, can be said to be reasonable.”
There were no dissenting opinions.
Key Takeaways
- Municipal authorities cannot introduce a new method of property tax assessment through bye-laws if it is inconsistent with the parent statute.
- The rateable value of a property for property tax purposes must be based on the annual rent the property could reasonably fetch, not its value.
- The judgment reinforces the principle that delegated legislation (bye-laws) must be consistent with the parent statute.
- The NDMC will need to amend the New Delhi Municipal Council Act, 1994 if it wishes to implement the Unit Area Method for property tax assessment.
Directions
The Supreme Court directed that those assessees who have paid the tax as per the 2009 Bye-laws, their assessments shall not be reopened. However, this direction does not apply to the respondents who were the writ petitioners in the High Court, and their cases will be governed by the High Court’s judgment.
Development of Law
The ratio decidendi of the case is that the method of determining rateable value for property tax assessment must be based on the annual rent a property could reasonably fetch, as specified in the parent statute. The Supreme Court reaffirmed the principle that delegated legislation must be consistent with the parent statute. This judgment clarifies that municipal authorities cannot bypass the statutory method for calculating property tax by introducing a new system through bye-laws.
Conclusion
The Supreme Court’s judgment in New Delhi Municipal Council vs. Association of Concerned Citizens of New Delhi is a landmark decision that clarifies the relationship between a parent statute and delegated legislation. The court unequivocally held that the NDMC’s attempt to introduce the Unit Area Method through bye-laws was invalid, as it was inconsistent with the New Delhi Municipal Council Act, 1994. This decision underscores the importance of adhering to the statutory framework when levying taxes and ensures that municipal authorities cannot arbitrarily change the method of assessment.