The New Property Tax System levied by the MCGM on Capital Value System is unconstitutional
By Accommodation Times News Service
Shri. K Sankaranarayanan,
Hon’ble Governor of Maharashtra,
Raj Bhavan, Malabar Hill,
Sub: The New Property Tax System levied by the MCGM on Capital Value System is unconstitutional.
Ref: Our Memorandums / Representations submitted time to time and our
objection & suggestion totally ignored.
The Property Owner’s Association has been in existence since the year 1924.
It is the representative body of the Property Owners. Our member are the
Owners of more than ten thousand buildings/ properties in the Island City of
Mumbai [ apart from in numerous properties held by the member]. The Property owners would like to present the following point in our Memorandum to your good selves and hope that we will get an opportunity to present our case, in person.
1. At the outset, we strongly object to the change of the system of levying Property Tax on the basis of Capital Value instead on Rateable Value. That Property Tax is a form of Compensatory Tax is evident from the provisions of the Mumbai Municipal Corporation Act, 1888, as amended from time to time. It will be seen that even though the tax is termed as Property Tax, it is nothing but a levy for providing the services which are specified in Section 140 read with Section 61 of the Act (BMC Act).
2. In AIR 2006 SC 2550 the Hon’ble Supreme Court held that
(i.) Tax is levied as a part of common burden. The basis of a tax is the
ability or the taxpayer to pay;
(ii.) The principle behind the levy of a tax is the principle of ability
or capacity. In the case of a tax, there is no identification of a specific
benefit and even if such identification is there, it is not capable of direct
measurement. In the case of a tax, a particular advantage, if it exists at all, is
incidental to the states’ action;
(iii.) In the case of a fee or compensatory tax, the “principle of equivalence”
applies. The main basis of a fee or a compensatory tax is the quantifiable and
(iv.) Ability or capacity to pay is measurable by property or rental value.
Local rates are often charged according to ability to pay;
(v.) The theory of compensatory tax is that is rests upon the principle that
if the government by some positive action confers upon individual(s), a
particular measurable advantage, it is only fair to the community a large that
the beneficiary shall pay for it;
(vi.) Compensatory tax is based on the principle of “pay for the value” It is a
sub-class of “a fee”.
3. Under the provision of the Maharashtra Rent Control Act, 1999, the burden of property tax is to be borne by the tenants. In AIR 2003 SC 4278, it was held that in view of specific provision of the Act and as the provisions of the Act impose burden of tax to an appreciable extent on the tenant, sub-tenant and occupiers and the tax is liable to be recovered from them through the landlord or directly by attachment of rent or other coercive modes, the tenants, sub-tenants and occupants are entitled to an opportunity to participate in the process of valuation and assessment. They are entitled, therefore, to written notices apart from public
notice for assessment, revision of assessment or amendment of assessment of
the ‘consolidated rate’ or tax.
4. It would be seen that no such notice has been issued to the tenants to enable the make their complaints.
5. You would recollect that under the Constitution, every authority is to follow the law laid down by the Hon’ble Supreme Court and the executive is to act as per such law.
6. Property Tax should have a reasonable co-relation with the money required for performing the obligation cast on the Corporation with regard to the specific services for which the property tax is levied. In view of the above, the value of my/ our property is totally irrelevant for arriving at the basis of the property tax
7. In every compensation tax, the authorities have to establish that the levy has a co – relation with the expenditure for providing the same. Therefore the system should be bases on sound, economic consideration and commensurate with the services provided in a given locality.
8. In any event, the Corporation has been making substantial surpluses every year and there is no reason or ground to increase the property tax being levied on me/ us.
9. In any event, you are not entitled to revise the property tax unless there are compelling circumstances namely that you are unable to provide the service or perform the function cast on you by the Act.
10.You have not indicated to me/us the basis for fixing the cap or the basis on which you intend to change the valuation system.
11.Property Tax should have a reasonable co-relation with the money required to perform the obligation cast on the Corporation with regard to the specific service for which the property tax is levied. In view of the above, the value of my/our property is totally irrelevant for arriving at the basis of the property tax In every compensation tax, the authorities have to establish that the levy has a co –relation with the expenditure for providing the same. Therefore the system should on sound, economic consideration and commensurate with the services provided in a given locality. In any event, the Corporation has been making substantial surpluses every year and there is no reason or ground to increase the property tax being levied on me/us.
12.We would like to submit that the levy of property tax on the basis of the Stamp Duty Ready Reckoner has no nexus with the object for which property taxes are to be levied namely to compensate the Corporation for providing the specific services set out in the Act.
13. The levy of Municipal Taxes bases on Capital Value system is illegal,
unconstitutional and beyond Legislative competence.. Without prejudice to the pending litigation in Hon’ble High Court and Hon’ble Supreme Court of India, the detailed representation/ submission shall be submitted to you shortly. However, in addition to the above at the outset, we have to state very briefly as under:-
14.The cost of services provided by BMC has a direct co-relation with the levy of property tax and not to the value of the property. In every compensatory tax, the authorities have to establish that the levy has a co-relation with the expenditure for providing the same. Therefore the system should be based on sound, economic consideration and commensurate with the services provided in a given locality.
15.One should not forget that the services rendered in the Island city of Bombay were based on old investments in the infrastructure for rendering the same services in the suburbs, infrastructure for which was created considerably later at much higher cost. Cost for rendering the services to the suburbs compared to rendering of the services in the Island city of Mumbai is much higher. Therefore there ought to be a distinction in Property tax calculation/and or a discount to old property owners in the Island City at least.
16.f at all any concessions or free services are to be rendered by the civic
I corporations to the slum dwellers or the like, we have to state “SUBSIDY IS THE FUNCTION OF THE STATE”. The State should bear the said burden and cost of services rendered. This and cost of services should not be transferred arbitrarily to another citizen and thereby causing unreasonable discrimination and deprivation. One cannot rob Peter to pay Paul.
17.The New Rules of levying taxes should be prospective and not with retrospective effect.
18.Citizens should not be called upon to pay taxes (which may increase after the
period of five years as contemplated in the new system) to compensate the
municipality for its uncontrolled expenses. There should be strict control on
expenses and it should be ensured that the services are rendered efficiently and at
the minimum cost.
19.The value of occupied/tenanted premises is very much less compared to the value
of vacant flat. Thus, the basis adopted, namely, the value of the premises/building,
on the basis of Ready Reckoner, which, in turn, is based on an assumption that
the property is not or encumbered and capable of being sold – is not occupied
by tenants unoccupied/vacant is ab-initio totally erroneous. Therefore some
distinction has to be made and spelt out clearly.
20.It would be worthwhile for the MCGM to appoint a suitable independent agency
who can examine, in depth, the present cost of rendering the services, how could
the same be rendered more efficiently and how best the MCGM can interested
parties. In fact, it would be necessary to keep in mind the surplus that is lying with
21.The whole problem has arisen due to the freezing of rents at 1940 levels under the
provision of the Bombay Rent Act 1947. This has resulted in a lot of suffering and
hardship to the property owners and in fact it has really wiped out the class of old
A. First and foremost step that needs to be taken in the interest of all concerned,
including the MCGM, the citizens at large and the owners of house propertied
is to defreeze the rents to fully neutralize the effects of inflation. Merely
changing the system of levying municipal taxes is not the answer. We should
address the very basic cause rather than ignore it.
B. MCGM realizable that as per law, due to freezing of rents, rateable value
could not be increased, and this would lead to freezing of taxes realizable
from properties. The overcame the likely problem of frozen property taxes
by not increasing the rateable value (i.e. RV), but by increasing the rates
(percentages) of Municipal Taxes.
C. Even the Apex Court in the matter of Malpe Vishwanath Acharya decided
in December 1997 has strongly expressed its view that the rents, inspite of
galloping inflation for such a long period, is arbitrary and hit by the provisions
of Article 14 of the Indian Constitution, etc.
D. In these circumstances, in our respectful submission, the proposal to change
the mode valuation of property for the purpose of levy of taxes by the
Municipal Corporation is nothing but a refusal to follow the order of Apex
E. If the rent are increased even to neutralize the in the value of the rupee due
to inflation, the fall in the value of the rupee due to inflation, the increased
rents paid by a tenant would benefit the Corporation also. Revenue of the
corporation would be increased considerably and the need for levying the
municipal taxes at the extremely high rates, as at present even in the capital
value system, would not arise at all.
F. With the increased rents, the percentage of the municipal taxes could be
considerably reduced, but the municipal taxes could be considerably reduced,
but the gross revenue by way of property taxes of the municipality could
remain the same of even higher.
G. The extremely high increase of Taxes shall result in considerable Litigation
between the Owners and the tenants as the tenants/occupants shall not be
paying the increased Municipal taxes based on Capital values to the Owners.
H. The non – payment of high increase Taxes by the tenants/occupants to
the Owner shall result in non – payment of taxes to MCGM by the Owners
although we are ready & willing to pay earlier prevailing Municipal Taxes.
I. Any system of taxation (especially property taxes) should consider the
question whether the when could pay the same (especially as the failure to
pay the same is visited by drastic consequences).
22.The Rule does not specify the quantum rate and method of Repair Cess that will
be levied for old buildings prior to 1960. At present the Repair Cess is a certain
percentage of Rateable Value which is billed and collected by BMC. Hence what
will be liability of Tax payers towards Repair Cess & BMC should specify and
clarify, which is not done in the Rules.
23. he suggestion/objection is in respect of the Percentage of Depreciation/
Weight age as per Age of building to be given on the buildings as mentioned in
Schedule-‘C’ of the Rules.
Such rate of Depreciation is not correct and fair the older buildings
require more depreciation because the life of the building after 70 years is
as good as over. The correct position would be to charge the deprecation
as mentioned in the Ready Reckoner. In the Ready Reckoner the maximum
Percentage of depreciation is 70% for properties above 60 years old which is
correct method as per rules for valuation.
The Value of the property is the rate mentioned in the Ready
Reckoner minus the depreciation amount. If depreciation amount is not as
per the Stamp Duty Ready Reckoner is the value arrived at after taking into
account the adjustments made for the age of the after taking into account
the adjustments made for the age of the building. It on this value that the
multiplexes should be adopted.
The life of RCC Building is approximately 60 to 80 years. So if properties
as old as 80 to 100 years which have already lasted their lives and if only 30%
depreciation is considered for such properties it is not fair or even a correct
way of arriving at capital value of old buildings. Hence it is suggested that
the same value of deprecation/weight age as per age of building be given as
mentioned in the Ready Reckoner otherwise new or less old building will have
unfair advantage against very old and dilapidated buildings. In respect of very
old buildings of 80 to 100 years the land value + notional building value should
be taken and not 70% flat value of the buildings to be taken which is not fair.
24.The rates of different user of Properties are mentioned in the Ready Reckoner
then why additional weights are to be levied. If Ready Reckoner is to be base
for Capital Value then why deviation by putting weight factor. The Capital Value
has to be arrived at strictly as per Ready Reckoner which is accepted by the
State Government for Stamp Duty and also accepted by Government of India
by Income Tax Dept. for valuation of Properties and also B.M.C. for counting
premiums, deposit/fungible F.S.I Premium.
25.The Rules states that the Property Tax would be charged on build up area of the
premises and if the built up area is not available in the records of the BMC then
built up area will be arrived at Carpet area + Additional 20% area
26.For the last more than 100 years Municipal tax is levied on Carpet area basis only
and never on Built up area basis.
27.If the flats are purchased on Carpet area basis then why flats are to be taxed on
Built-up area basis when Government and BMC want sale only on Carpet area
basis in respect of flats/or buildings. In respect of flats or buildings Carpet area is
the criteria and should be made standard for all purposes of buying, selling and
for Municipal Taxes.
28.The citizen will unnecessarily be taxed 20% or more on account of Built up Area
29.Even while explaining the formula for Municipal Tax to Joint Select Committee of
the Members legislative Assembly the area referred was carpet only & not built
up area, then why this change ? We strongly abject to the same.
30.In addition to the above, we also state that we find that the present mode of
arriving at the property tax is erroneous and we have grave reservations and
a) The basis of arriving the Capital Value of property, is contrary to law,
b) Stamp Duty Ready Reckoner is not the measure of capital value as it does not
arrive with true value for the purpose of calculating capital value,
c) The age of building/structure, as the building is more than hundred years
old, and the same is not taken into account.
d) The rate of different user instead of user instead of Residential or
non – residential or Commercial or storage in case of godowns,
e) Actual carpet area of premises and multiplying factor for built up area instead
of actual built up area,
f) The cap on Tax proposed of twice the Rateable Value, however the cap of twice
of Rateable Value is not followed in our case,
g) Under the property tax while capping the taxes on capital value at 2 times or 3
times of the existing taxes the % of the general tax is 30 % of the existing bill of
property tax. However the same is made 90% of RV which is not valid under the
rules as rules cannot over ride of provisions of Act/ Section and hence in Valid.
h) We dispute in general the formula applied for arriving the Rateable
Value and Tax.
31.The Rules should have also suggested percentage of Tax which BMC will levy so
that Tax payers would know their proposed tax liability.
32.We reserve our right to take such legal steps as are permissible to protect our
right to challenge the levy of property tax on the basis of the capital value
33.We crave leave to add, amend, alter our submissions/documents at the time of
hearing, of the said complaint.
34.We the Property Owners after detail discussions today we have unanimously
resolved to oppose the New Property Tax system based on Capital Value of
the Premises/property. We unanimously resolved to once again submit the
memorandum to Hon’ble Governor of Maharashtra, Hon’ble Chief Minister
& Hon’ble Mayor of Mumbai (MCGM) etc. to reconsider their decision of
implementing Property Tax Based on Capital Value instead of Rateable Value
35.We once again earnestly request you not to change from old Rateable Value
system of levy of Property Taxes. In the meantime, we earnestly request that the
Municipal Corporation should continue to accept the old property taxes from the
36.The Association has to, therefore, request the following:-
i. The property owners’ Property as the based only on Rateable Value.
ii. Capital Value of the property as the basis for levy of property tax be given
up ( or switched to Rateable Value for old buildings) until the rent are not
defrozen or allowed to be increased atleast to neutralize the inflation from
1940 to 2012, and necessarily in case of old properties, to continue with the
present system of fixing municipal taxes on Rateable Value based on standard
iii. The rate of depreciation of old buildings should be in consonance with the
Ready Reckoner in avoid the denial of proper depreciation to calculate
iv. In case of premises affected by S.3 (1) (b) of the Bombay Rent Act, 1% to the
actual rent/ license fee may be levied by way of property tax or at a rate not
exceeding Rs.1/per Sq.ft. in case of such premises, uniformly in Mumbai,
whichever is lower since the property tax on the Capital Value system basis
would entail a higher property tax than what was being paid by them earlier,
which would cause a net loss to old property owners as the rent is meager.
v. To consider our suggestion incorporated above.
37. e therefore earnestly request you to give us the early appointment and
personal hearing in the aforesaid matter.
We further request you to give us the early appointment and personal hearing in
the aforesaid matter.
for THE PROPERTY OWNERS’ ASSOCIATION,
B. R. BHATTAD