New Delhi Municipal Council Etc. Vs Association Of Concerned Citizens Of New Delhi And Others Etc. (Supreme Court of India)
FACTS –
NDMC made NDMC House Tax Bye-laws, 1962 and was published on 24th April, 1964. Section 60 empowers levy of taxes which includes property tax. NDMC adopted existing 1962 bye-laws in so far as levy of property tax is concerned. Under these Bye-laws, the method of arriving at annual rent is on the basis of annual rent which land and building may reasonably be expected to be let from year to year.
On 13th February, 2006, the NDMC in its meeting discussed that the rateable value Bye-laws may be prepared in such a way so as to remove most of the difficulties faced in the present system. It was suggested to introduce Unit Area Method (UAM) selectively for self-occupied residential properties in the Bye-laws. Thereafter, on 10th March, 2006, the Chairperson of the NDMC constituted a committee (the NDMC Special Committee) under Section 9 of the NDMC Act to advice upon the property tax. This Special Committee submitted its final report in February, 2007 which was, in principle, accepted by the NDMC in its meeting on 12th February, 2007. Ultimately on, 24th February, 2009, the GNCTD notified the New Delhi Municipal Council (Determination of Annual Rent) Bye-laws, 2009 in the Official Gazette. These Bye-laws were enforced from 1st April 2009 and were made applicable in the area under the jurisdiction of the NDMC.
The constitutional validity of NDMC (Determination of Annual Rent) Bye-laws, 2009 was challenged by the person who have their properties in NDMC area by filing of a writ petition in High court. High court held that bye-laws are ultra vires the NDMC Act as they are far beyond the scope and ambit of the powers vested in NDMC under Section 388(1)(A)(9) of the Act. Against the said judgment of high court NDMC filed an appeal.
HELD –
The Impugned bye-laws that provide UAM which is based on the value of the property that on rental which the property is likely to fetch and are there, foreign to the methodology provided in section 63 of NMDC Act. Such bye-law are, thus, ultra vires the provisions of NMDC Act. They are in excess of scope and ambit of powers vested in NMDC Act u/s 388 (1)(A)(9) of NMDC Act.
No doubt, in many ways, UAM is a better method in comparison with the earlier method based on annual rent. For this reason, this method has now been followed for the purpose of levying property tax not only in the areas in Delhi itself covered under the Municipal Corporation of Delhi but in many other States as well. However, such a method which may be a better method can be incorporated in accordance with the law. In the present case, it could be done after amending the provisions of the NDMC Act.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
Introductory Remarks:
2) These appeals are filed by New Delhi Municipal Council (NDMC) against the judgment dated August 10, 2017 rendered by High Court of Delhi in a batch of writ petitions which were filed by the persons who have their houses/properties in NDMC area. Some of the petitions were by the associations of residents as well (hereinafter referred to as the “assessees/respondents”). In those writ petitions filed by the assessees they had challenged the constitutional validity of NDMC (Determination of Annual Rent) Bye-laws, 2009 (hereinafter referred to as the ‘impugned Bye-laws’). These Bye-laws changed the earlier regime of determining the rateable value for the purposes of levying property tax. These Bye-laws seek to alter the earlier system of determining the rateable value on the basis of he annual rent at which the land or buildings may reasonably be expected to be let from year to year. On that basis annual rent used to be fixed and a particular percentage was prescribed for the purposes of payment of property tax. The impugned Bye-laws introduced the system of Unit Area Method (UAM). As per this method Unique Area Value (UAV) per sq. ft/meter of a property is fixed with reference to the characteristics of the property such as location, occupancy, age, structure of the said property. This UAV is then multiplied by the area of the vacant land or covered space to arrive at its annual value. When the annual value is determined on the basis of such a formula, property tax thereupon is to be paid by the assessees.
3) It may be mentioned at this stage itself that the impugned Bye-laws have been framed by the Government of India in exercise of powers conferred by sub-section (1) of Section 391 of the New Delhi Municipal Act, 1944 (hereinafter referred to as the ‘Act’). It is also to be noted that Section 63 of the Act deals with determination of annual rent. Various grounds were raised challenging the validity of these Bye-laws and one of the grounds was that the UAM of fixing the annual value as prescribed in the Bye-laws was foreign to the provisions of Section 63 of the Act, meaning thereby that the language of Section 63 did not permit determination of annual value on such a basis as it prescribed the method of fixing annual rent on the basis of the rent which the land or building may reasonably be expected to let from year to year. It was, thus, argued by the assessees in the writ petitions that the impugned Bye-laws were ultra vires the provisions of Section 63 of the Act. The High Court chose to confine itself to this particular submission and eschewed the discussion on other grounds on which these bye-laws were also challenged. In the impugned judgment, the High Court accepts the submission of the assessees holding that the impugned Bye-laws are ultra vires the NDMC Act as they are far beyond the scope and ambit of the powers vested in NDMC under Section 388(1)(A)(9) of the Act. Section 388 gives rule making power to the NDMC.
4) When the matter was argued before us, initially the parties confined to the aforesaid aspect on which High court has rendered its decision. However, arguments were heard on the other grounds of challenge as well, so that decision is given on merits, if the circumstances so warrant. We may also mention at this stage that many applications for intervention/impleadment have been filed by those assessees who were not parties to the writ petitions in the High Court. Such assessees are satisfied with the impugned Bye-laws and, therefore, they have not supported the case set up by the NDMC.
Factual background:
5) Before adverting to the controversy, it would be appropriate to take note of some relevant facts:
6) As is well-known, during the period of the British India, Delhi became the capital of India in the year 1911. Even before it became the capital, for the first time house tax was made applicable and levied in Delhi in the year 1902. After becoming the capital of India, Delhi was detached from Punjab and Delhi Enclave covering an area of 1240 sq. miles was formed and new roads were constructed between the temporary capital near Civil Lines and Raisina. The Punjab Improvement Act was passed in the year 1922 and it became the town planning legislation. A large chunk of land was acquired by the Imperial Delhi Committee and was transferred to the Imperial (New) Delhi Municipal Committee which was constituted in the year 1916 but came into effect in the year 1925 when this Delhi Municipal Committee was upgraded to the level of a second class municipality to be governed under the Punjab Municipal Act, 1911 (hereinafter referred to as ‘PMA’). Section 188 of the PMA conferred power on the Committee to make Bye-laws, inter alia, for carrying out the purposes of the PMA. In 1932, the Imperial (New) Delhi Municipal Committee was renamed as ‘New Delhi Municipal Committee’ (NDMC). After obtaining the independence and with the adoption of the Constitution of India in the year 1950, Delhi was shown as Part-C State. However, in the year 1956, vide the Constitution (Seventh Amendment) Act, 1956, Delhi became a Union Territory. Immediately, thereafter the Delhi Municipal Corporation Act, 1957 (DMC Act) was passed whereunder Municipal Corporation of Delhi (MCD) was constituted to which first election took place in the year 1958. The jurisdiction of MCD covers the entire Union Territory of Delhi including the rural areas, but excluding the New Delhi Municipal Committee and Delhi Cantonment Areas. However, the area under the jurisdiction of the NDMC was reduced from 32 sq. miles to 16 sq. miles.
7) In terms of the powers conferred under Section 188(v) of the PMA which related to assessment and collection of house tax, the NDMC made the NDMC House Tax Bye-laws, 1962 (‘the 1962 Bye-laws). These were published in the Official Gazette by a notification dated 24th April, 1964. There are only around 12,000 units which are subject to assessment for property tax in the NDMC area. 20% of these are residential units and rest are commercial units. However, only 20% of the properties are private properties. The remaining 80% are (a) properties belonging to the Union of India, (b) properties of Diplomatic Missions and Foreign Embassies, (c) properties of State Governments and (d) properties of Railways.
8) The above four types of properties are outside the purview of property tax assessment. This is because Articles 285 and 289 of the Constitution prohibit levy of taxes on the properties of the Centre and State by the State and Centre respectively. Except the properties belonging to the Union of India, the other three types of properties do not pay even the service charges to the local authorities. 75% of the property tax demand is collected from just about 6.25% of the properties in the NDMC area. Therefore, the tax base for the purpose of collection of property tax is small compared to the MCD area.
9) For the governance of Union Territory of Delhi, the Parliament passed the Delhi Administration Act, 1966 which continued to operate till 1992, when a special status was conferred upon Delhi by rechristening it as National Capital Territory of Delhi (NCTD). This happened with the insertion of Article 239AA and 239AB in the Constitution of India vide Constitution (Sixty-Ninth Amendment) Act, 1991. Simultaneously, the Parliament also enacted Government of NCTD Act, 1991 which replaced the earlier Delhi Administration Act, 1966. With these developments several provisions of PMA were also brought in tune with the GNCTD Act, 1991. Subsequently, for the NDMC area, the Parliament enacted NDMC Act in the year 1994 that replaced Hitherto New Delhi Municipal Committee was also replaced by New Delhi Municipal Council (NDMC).
10) As per Section 60 of the NDMC Act, the power to levy taxes, including property tax, is vested with the NDMC. The NDMC, in exercise of powers conferred under Section 416(2)(a) of the NDMC Act adopted the existing 1962 Bye-laws insofar as levy of property tax is concerned as it was found that they were not inconsistent with the NDMC Act. Under these Bye-laws, as noted above, the method of arriving at annual rent is on the basis of annual rent which land and building may reasonably be expected to be let from year to year. It would be significant to mention that even in the Bye-laws of MCD, identical method of levying the house tax/property tax was incorporated.
11) There were certain concerns expressed at various quarters about the said annual rent method in the Bye-laws. Insofar as the MCD is concerned, it constituted V.K. Malhotra Committee to study and report upon the efficacy of the property tax assessment and collection system, so that the faults in the system could be ironed out. While this Committee was in the process of undertaking that study, the Union of India circulated ‘Guidelines for Property Tax Reforms’ in the year 1998 in order to bring needed reforms in the method of calculation of property tax and to exploit the potential of property tax as a major source of income for strengthening the revenue base of these municipalities. The V.K. Malhotra Committee submitted its report to the MCD in the year 2002. Based on its recommendations, an Expert Committee under the Chairmanship of Sh. K. Dharmarajan was constituted by the Lieutenant Governor of Delhi for recommending the modalities required for the interpretation of the UAM of property tax assessment in the MCD area, which was the major recommendation of the V.K. Malhotra Committee. After receiving the final report from Dharmarajan Committee, the Delhi Municipal Corporation (Amendment) Act, 2003 was passed. Further, in exercise of the powers conferred by the Delhi Municipal Corporation (Amendment) Act, the Delhi Municipal Corporation (Property Taxes) Bye-laws, 2004 were also made.
12) With the aforesaid introduction of UAM for the purposes of property tax assessment in MCD area, the NDMC also deliberated on this subject, having regard to the recommendations given by the Dharmarajan Committee. In a meeting held by NDMC on 27th April, 2005, it was resolved that it would request GNCTD to amend the provisions of Section 65 of the NDMC Act.
13) On 13th February, 2006, the NDMC in its meeting discussed that the rateable value Bye-laws may be prepared in such a way so as to remove most of the difficulties faced in the present system. It was suggested to introduce UAM selectively for self-occupied residential properties in the Bye-laws. Thereafter, on 10th March, 2006, the Chairperson of the NDMC constituted a committee (the NDMC Special Committee) under Section 9 of the NDMC Act to advice upon the property tax. This Special Committee submitted its final report in February, 2007 which was, in principle, accepted by the NDMC in its meeting on 12th February, 2007. More deliberations took place thereafter and it is not necessary to spell out the same. Suffice it is to mention that amendments in the Bye-laws were proposed and objections invited. Ultimately on, 24th February, 2009, the GNCTD notified the New Delhi Municipal Council (Determination of Annual Rent) Bye-laws, 2009 (Impugned Bye-laws) in the Official Gazette. These Bye-laws were enforced from 1st April 2009 and were made applicable in the area under the jurisdiction of the NDMC.
Provisions of the Bye-laws and the NDMC Act:
14) It is pertinent to mention that the NDMC Special Committee which was appointed by the Chairperson, had submitted its final report in February, 2007. In that report, the Committee noted that it was difficult to advise a perfect tax system. However, keeping in view the distinct advantages offered by the UAM, the NDMC Special Committee recommended a modified form of UAM for NDMC which attempted to balance the principles of neutrality, stability, accountability, ease of administration, fairness based on benefits received and the ability to pay. The NDMC Special Committee also examined the financial position of the NDMC with special reference to the profit profile of NDMC wherein a large percentage of properties are owned by the Government and only a very small percentage of private properties are liable for payment of property tax. The NDMC Special Committee stated that it considered the following options:
“(a) Maintain the status-quo as far as the method of assessment is concerned. Thus to continue with the annual value method of property tax assessment but address procedural shortcomings.
Or
(b) Selective introduction of Unit Area Method in respect of residential units that are self-occupied (or for both self occupied W.P.(C) 3348/2010 & connected matters Page 26 of 40 and rented) and for institutional buildings and The remaining properties to continue under the reasonable rent method of assessment as at present. Or
(c) Levy uniform service charges for all non-residential properties regardless of their ownership, government or The service charges would be liable for increases from time to time to keep pace with the inflation and increased cost of services. The base service charges would be fixed at some proportion of land values and unit rate subject to the condition that they will not be lower than the existing Rateable Value
(d) Introduce a modified form of Unit Area Method for all properties by fixing the unit rates solely by category of use and land values. Thus the lowest unit rate (or multiplicative factors) would be in respect of a self-occupied residential property in an area where land values are low; the highest unit rate (or multiplicative factor) would be in respect of commercial properties/hotels that are located in areas where land values are the highest (land values to be computed as per Land & Development Office rate schedules amended from time to time)”
15) The NDMC Special Committee rejected options (a), (b) and (c). It recommended acceptance of option (d). However, it recommended “a formula which is revenue neutral and at the same time optimizes the objective of vertical equity. The analysis of data compiled by the tax department suggests that there is extreme variation in taxation of similarly placed properties for various reasons discussed earlier. This problem will be automatically addressed as horizontal equity is inbuilt in the Unit Area System.”
16) It is significant that the NDMC Special Committee did not touch upon the manner of bringing about the above change i.e. whether it should be by amending the Bye-laws or amending the NDMC Act itself. However, in the position paper submitted to the NDMC, the Special Committee, while recommending the adoption of a modified UAM, had suggested that it should be introduced selectively for “self-occupied residential properties.” It also added: “However, Bye-laws cannot go beyond what is provided in the Act. As such, depending upon the final decision in the matter, an appropriate amendment in the Act appears to be the only alternative.”
17) Since the impugned Bye-laws are declared by the High Court as ultra vires the NDMC Act, it would also be necessary to notice some of the relevant provisions of the NDMC Act. From the reading of these Bye-laws, it is clear that the UAM for determining the rateable value has been introduced which is different from ‘annual rent’. Bye-laws 2 of impugned Bye-laws mentions that the annual rent for which the land and building were expected to be let would be determined as per Bye-law 3 in respect of special categories of lands and buildings and as per Bye-law 4 in respect of other lands and buildings.
18) Some of the relevant provisions of the impugned Bye-laws, may now be noted:
“2. Determination of Annual Rent – For the purpose of sub-section (1) of Section 63 of the New Delhi Municipal Council Act, 1994 (44 of 1994) hereinafter referred to as the ‘Act’) the annual rent, for which lands and buildings are expected to let from year, shall be determined as under:-
“(i) Special categories of lands and buildings as per provisions of bye-law 3 and;
(ii) Other lands and buildings as per provisions of bye-law 4.
3. Annual Rent of Special Category of land and buildings:- (1) the annual rent of the lands and buildings, which are not normally let, being the property of the Union, Government, State or used as school, college, hostel, guest house, clubs, cinema hall, hotels and such other lands and buildings as may be specified by the Valuation Committee, shall be calculated at such percentage, as may be determined by the Valuation Committee, being not less than 5% and not more than 10% of the aggregate of:
(a) value of land falling in the jurisdiction of New Delhi, at the circle rate of Rs. 43,000 (Rupees forty three thousand only) per square meter, as increased by the multiplication factor for user of the land, specified in sub-bye-law (3); and
(b) value of covered space of the building at Rs. 15,000 (Rupees fifteen thousand only) per square meter of the covered space of the building as reduced by the age factor of the building as reduced by the age factor of the building specified in sub-bye-law (4).
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(3) The use factor for the land shall be as under:-
