The SC upholds a Bombay HC decision against laws that raise land property taxes.

MUMBAI: The SC upheld an April 2019 Bombay high court decision that invalidated three rules for determining the “capital value” of land where construction is set to begin under a new property tax regime. Despite being a setback for the C, the SC decision by a bench led by Chief Justice U U Lalit and Justice Bela Trivedi is seen by property owners and developers as a significant relief.

The BMC’s new rules resulted in significantly higher property taxes for developers, who challenged the new regime for computing property taxes as unconstitutional. Property tax is one of the C’s most important and “critical” revenue sources, especially since the octroi was repealed.

“There is no provision in the BMC Act to take the development potential of vacant land into account when determining its capital value,” the high court ruled. In a victory for the C, the HC upheld the constitutionality of the “capital value” method of calculating property tax.

The SC reiterated that “only the current physical attributes and status of the land and building, rather than the land’s future prospects, can be considered for the purpose of determining ‘capital value.’ The BMC changed the property tax regime in 2009, shifting the calculation mode from “rateable value” to “capital value” of land – a complicated formula involving pre-1940 level-low standard rent.

In 2013, the Property Owners Association (POA) led the legal fight against the ‘capital value’ regime. Trusts, hotels, institutions, and other developer organizations, such as the Central Mumbai Developers Welfare Association, also participated (CMDWA). The HC ruled in 2019 that the amendment was valid, but three of its rules were invalid (20-22). According to Rule 20, the ‘capital value’ of the land would be determined by its buildable potential.

The BMC petitioned the SC, claiming that the rules included a cap on property taxes, preventing them from skyrocketing as builders had feared. The HC also stated that the new tax regime would go into effect in March 2012, rather than in 2010, as the BMC had planned.

The POA, CMDWA, and other developers and intervenors filed a lawsuit to challenge the portion of the HC ruling that upheld the new regime. On Monday, the SC announced that the appeals had been dismissed and the case had been settled.

The SC heard from several prominent lawyers, including India’s Attorney General, K Venugopal, and V Sreedharan, as well as Shekhar Naphade and Milind Sathe. Land with dilapidated old buildings, according to Neeraj Kishan Kaul, Darius Khambata, Chirag M Shroff, and H Devarajan, could only be taxed as “vacant land,” not on the basis of a proposed mall or hotel.