K.P. Soni & Anr. vs Union Of India & Ors.
1999 Latest Caselaw 690 Del

ORDER

Arun Kumar, J.

1. The only point urged by the learned counsel for the petitioner is that Section 116 of the Delhi Municipal Corporation Act which provides the basis for determination of property tax to be levied on properties falling within Municipal Corporation of Delhi jurisdiction, is ultra vires the Constitution of India. To make good this point the learned counsel first contended that section 116 shows that the property tax is being levied on rental income from the property and as such it becomes a tax on income which as per Article 270 of the Constitution of India only the central Government can levy and collect. Secondly, it is contended that the Union parliament had no legislative competence to enact Section 116. Relevant portion of Section 116 is reproduced as under.

"116. Determination of rateable value of lands and buildings assessable to property taxes-

(1) The rateable value of any lands or building assessable to property taxes be the annual rent at which such land or building might reasonable by expected to let from year to year xx xx xx"

2. In support of the first point it is contended that section 116 bases the levy of property tax on annual rent at which a particular land or building might reasonable be expected to be let from year to year. Normally the standard rent of a property as per the provision of section 6 of the Delhi Rent Control Act is taken as the rent which a property is reasonably expected to fetch. However, where the rent of a property exceeds Rs.3,500/- per month, the property goes out of the purview of the Delhi Rent Control Act. In such cases the actual rent fetched by the property is treated as the rent which it is reasonably expected to fetch. Thus for purposes of Section 116 the actual rent in such cases is taken into consideration for purposes of determination of the rateable value of the property. Since the rateable value is determined on the basis of the actual rent of the property, it is argued that it really amounts to taxing the rental income. It becomes a tax on income which the Municipal Corporation of Delhi cannot levy and collect in view of the provisions of the Constitution of India.

3. In our view this contention is totally devoid of merit. A close look at the relevant provision contained in Section 116 shows that annual rent of the property is taken into consideration only for purposes of determination of the rateable value of the property. The property tax has correlation with the rateable value of a property. For purposes of levy of property tax first rateable value of a property is determined. Annual rental income which a property fetches is a factor taken into consideration in determining the rateable value. It cannot be said that rateable value and rental income fetched by a property are the same thing. The tax remains a tax based o rateable value of the property. The method of determining the tax should not be mixed with the nature of tax. Section 114 is the charging section which provides ;-

"114 Components and rates of property taxes-

     (1)  Save  as otherwise provided in this Act, the property  taxes shall be levied on lands and buildings in Delhi and shall consist      of the following, namely;- 
 

     (a) ******
 

     (b) *****
 

     (c) ***** 
 


     (d)  a general tax- 
 

     (i)  of not less than ten and not more than thirty percent of the rateable value of lands and buildings within the urban areas. and 
 

     (ii) on lands and buildings within the rural areas at such  lower rates and with effect from such date as may be determined by  the Corporation ; 
 

Provided that the Corporation may when fixing the rate at which the general tax shall be levied during any year, determine that the rate leviable in respect of lands and buildings or portions of lands and buildings in which any particular class of trade or business is carried on shall be higher than the rate determined in respect of other lands and buildings or portions of other lands and buildings by an amount not exceeding one-half of the rate so fixed

Provided further that the general tax may be levied on a graduated scale, if the Corporation so determines.

Explanation - Where any portion of a land or building is liable to a higher rate of the general tax such portion shall be deemed to be a separate property for the purpose of municipal taxation.

(2) The Corporation may exempt from the general tax lands and buildings of which the rateable value does not exceed one hundred rupees. "

4. This shows that property tax is a tax on building/property or land. It is not a tax on income. Income from property may only be a factor which is taken into consideration in determining the rateable value of a property on the basis whereof property tax is levied. Thus we are unable to accept the contention that property tax is a tax on income. We are fortified in this view by a recent judgment of the Supreme Court in Government Services Cooperative House Building Society Limited and Others Vs. Union of India and Others .

5. The learned counsel for the petitioner has explained that Article 270 of the Constitution of India provides that on income other than agricultural income, only the Government of India can levy and collect taxes. Since according to the learned counsel property tax levied and collected under the provisions of the Delhi Municipal Corporation Act is a tax on income, the relevant provisions of the Delhi Municipal Corporation Act are ultra vires the constitution of India. It is further submitted that Article 276 is the only exception to Article 270. Under Article 276 a municipality may levy tax on professions trades, callings and employments but this could also be only to the extent that from one individual the annual tax on any of these heads does not exceed Rs. 2,500/-. The property tax does not fall in any of the four heads and it often exceeds Rs. 2,500/- per annum. There fore, Article 276 is not available to save the property tax under the Delhi Municipal Corporation Act. This according to the learned counsel renders the levy and collection of property tax by the Municipal Corporation of Delhi under the provisions of the Delhi Municipal Corporation act totally ultra vires the constitution of India. We have hold that property tax is not a tax on income. Therefore this point does not survive. It has to be rejected.

6. The other point raised by the learned counsel for the petitioner challenging the legislative competence of the parliament in enacting the impugned provisions of the Delhi Municipal Corporation Act stands fully covered by the decision of the Supreme Court in Government Services Cooperative House Building Society limited's case (supra). In view of the said judgment, this point does not survive any more. The result is that writ petition is dismissed in limine.