DEVELOPERS FRATERNITY WELCOMES SC DECISION TO UPHOLD BOMBAY HC VERDICT AGAINST MCGM RULES TAXING LAND UNDER CONSTRUCTION
The real estate industry has united in applauding the Supreme Court’s decision to uphold a Bombay High Court ruling from April 2019 that had invalidated three standards for determining the “capital value” of land where construction is yet to start under a new property tax regime. Both developer’s community and property owners see the SC ruling by the bench of Chief Justice U U Lalit and Justice Bela Trivedi as a considerable relief. Developers body like CREDAI-MCHI, which contested the constitutionality of the new system for calculating property taxes, experienced significantly higher property taxes due to the BMC’s new regulations.
The controversial Rule 20-22, taken down by the honorable Bombay High Court and Upheld by the Honorable Supreme Court of India, took into consideration the potential of construction on the vacant land for a valuation. And it took almost a decade, and a lengthy legal battle for many federations like the Central Mumbai Developers Welfare Association (CMDWA) to convince that under construction will have to be treated as vacant land in the new property tax regime. Property tax is among the biggest and “crucial” revenue sources for the BMC, especially since the abolition of the octroi. “The supreme court upheld no provision under the BMC Act to consider the development potential of vacant land for determining its capital value,” the supreme court upheld.
While congratulating CMDWA, Boman Irani, President, CREDAI-MCHI expressed, “We appreciate the tremendous efforts made by team CMDWA under the leadership of Shri Dharmesh Chheda for initiating the battle, which was very well supported by CREDAI-MCHI & NARDECO Maharashtra. “We are happy that the honourable supreme court upheld the decision of the Honourable Bombay High Court against a tax regime where under-construction property tax was higher than a constructed building. He further added that this would help rationalise the MMR property market price.
The SC reaffirmed that “only the existing physical qualities and state of the land and building can be considered for determining “capital value” and not the prospects of the land.” The BMC modified the property tax system in 2009 and switched the calculation method from “rateable value” to “capital value” of the land, a complicated formula utilising pre-1940 level-low standard rent. In 2019, the HC 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.
Speaking on the Supreme Court’s ruling, Dharmesh Chheda, President of the CMDWA, states that the MCGM had appealed the Bombay High Court’s decision, arguing that because the rules provided for a cap on property taxes, they wouldn’t rise as builders had anticipated. But on Monday, the Hon. Supreme Court dismissed the appeal, putting an end to the case.
Sandeep Runwal, President NAREDCO, expressed optimism about the development. “Any reduction in the tax amount will ultimately lead to a future property rate reduction. We are happy that the Hon. Supreme court has upheld the decision of Hon. Bombay High Court to stuck down the rule that taxed on the structure that has not been constructed yet and is only on paper,” he said.
Attorney General K. K. Venugopal and V. Sreedharan appeared as senior counsel for the BMC. At the same time, Shekhar Naphade, Milind Sathe, Darius Khambata, Chirag M. Shroff, and H. Devarajan testified before the SC on behalf of the respondents. They argued that land, where old buildings were dilapidated could only be taxed as “vacant land” and not based on a proposed mall or hotel.
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