Mumbai Property Taxes- The decision will provide uniformity to the Maximum City’s property tax rates. A long-running legal battle between Mumbai property owners, developers, and the Municipal Corporation of Greater Mumbai (MCGM) over the corporation’s authority to levy property taxes using the capital-value (CV) system rather than the more common rateable-value (RV) system was recently resolved by the Supreme Court (SC).

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Describe property tax

According to the terms of the Mumbai Municipal Corporation Act, 1882, the MCGM imposes municipal taxes, including property taxes, on lands and structures in Greater Mumbai. Water and water benefit taxes, sewerage & sewerage benefit taxes, general taxes, education cess, street taxes, and improvement charges are all included in the property tax.

 

Previous approach: RV-based taxes

Before April 2010, property taxes were assessed based on the property’s RV. Which was determined by deducting a statutory allowance for building repairs and maintenance from the gross annual rent at which the property is rented out or, if not rented out. the ground rent at which it may be reasonably expected to rent annually.

Additionally, the size, location, condition, amenities, potential rent receivable, & capital value of the property were all taken into account by the MCGM when determining the RV. The Maharashtra rate Control Act, 1999 stipulates that the RV cannot be more than the regular rate. In a nutshell, property taxes are a fixed proportion of the RV of the property after certain allowed deductions.

 

Currently used approach: CV-based taxation

Property tax is calculated using the market value/ready reckoner (RR) value & numerous other parameters related to the property under the CV-based taxation system rather than the rental value.

On April 13, 2009, the government proposed amending the Act with effect from April 1, 2010, by adding Sections 154(1A), 154(1B), and 154A, giving the Municipal Commissioner the authority to fix the land’s and building’s CV and levy property tax on the basis of the property’s CV rather than its RV as of April 1, 2010.

• Real-world value/RR of the property
• Property’s type and nature
• Dimensions of the property
• Residential, business, and office users, among others.
• Age of the structure and its floors
• Other elements that the MCGM may specify

The MCGM created the Factors and Categories of Users of Buildings or Lands (Assignment of Weightage by Multiplication) Fixation of Capital Value Rules, 2010. Which went into effect on March 20, 2012, in order to create uniform equations for CV computation. Following that, it created the “Factors and Categories of Users of Buildings or Lands (Assignment of Weightages by Multiplication) Fixation of Capital Value Rules, 2015.” Which took effect on April 1, 2015, and were designed to be used in the computation of capital values for a variety of properties, including open land, buildings, hoardings or towers, open terraces, mezzanine floors, lofts, and attic floors, as well as demolished buildings and storage tanks.

 

According to the 2010 and 2015 CV Rules, a property’s CV is determined in the following way:

CV for Open Land = BV of Open Land x UC x FSI x AL
CV for Building = BV of a Building x UC x NTB x AF x FF x CA
UC	Multiplication of weights based on user category (as per Schedule A)
CV	Capital value
FSI	Permissible or approved floor space index
CA	Carpet area
BV	Base value, i.e., the market value of the property as per R
AL	Area of the land
FF	Weighting by multiplication due to the floor factor for a structure made of reinforced concrete with a lift (as outlined in Schedule D)
NTB	Multiplying weights based on the kind and nature of the building [as specified in Schedule B]
AF	Age-related weighting multiplied by the building’s age [as per Schedule C]

In addition, Section 154A of the Act gave the MCGM the authority to fix the CV provisionally for the 2009–2010 fiscal year. And this provisional CV was to be considered the CV for the following fiscal years: 2010–2011, 2011–2012, and 2012–2013, pending the fixing of the CV and the issuance of property tax bills in accordance.

 

The issues brought up by the bodies of property owners

The MCGM was permitted to assess property tax using RV-based formulas up until the CV Rules of 2010 were put into effect. As a result, it kept sending out temporary property tax invoices that were calculate using the RV. Final bills based on final assessment & special assessment (imputed bills) in accordance with the CV were issued by the MCGM for the entire tax levy on March 20, 2012, the day the new regime went into effect. The ensuing property tax payments were supposed to cover the difference in the RV-based property tax from April 1, 2010, to March 2012, and account for it.

Before the honourable High Court of Judicature in Bombay (HC). Several petitions were submit and grouped together with the petition filed by the Property Owner’s Associations, contesting, among other things:

• Validity of CV-based property tax calculation and collection
• Violates the 2010 and 2015 rules for resumes
• The Act was amended in this manner.
• Retrospective application of the 2010 CV Rules
• Utilizing FSI or future potential when calculating a land’s value

 

Ruling by the Bombay High Court

The Division Bench of the HC held that the CV Rules of 2010 shall apply prospectively from March 20, 2012, instead of April 1, 2010, in an order dated April 24, 2019 (HC Order). Upholding the constitutional validity of the Act’s amendments as well as the computation and levying of CV-based property tax.

The HC determined that the following regulations violated Sections 154(1A) & 154(1B) of the Act:

• The Rule 20 dealt with valuing open land that could be develop with more than 1.0 FSI or transferring development rights while taking into account the possibility of building on the undeveloped site.
• Rule 21 established the formula for calculating the CV of an open piece of land, a building, or a portion of one, and it allowed for multiplication to the base value based on the carpet area of the land by permitted or approved FSI (Rule 21).
• Rule 22 granted stamp duty RR regulations priority over CV rules, and vice versa.

The HC subsequently ordered the challenged bills issued by the MCGM. To be thrown out and new special assessment notices to be issue. Once a new CV was fix in accordance with Section 154(1A) of the Act.

 

Concerning reaches SC

The MCGM petitioned the SC with a Special Leave Petition after becoming enraged by the ruling. The SC upheld the HC judgement and determined that Rules 20, 21, & 22 of the CV Rules from 2010 and 2015 are extra vires in its judgement dated November 7, 2022 (SC Order). The SC further noted that the prospects or FSI of the land cannot be taken into account while calculating the CV of any property, only the physical qualities and status of the land & building in their current state.

Regarding the retrospective applicability of the 2010 CV Rules. The SC noted that the rule-making authorities could not have produced a liability for the time prior to the rules’ effective date, which was March 20, 2012. Additionally, since the Act’s statutory provisions do not take into account the likelihood of using or exploiting a capacity in the future, the CV of the land & building must be based on the current situation rather than on the likelihood of doing so in the future, especially since none of the factors listed in Section 154(1A) of the Act mention prospects.

 

 Petition for review before the SC

Following that, the MCGM submitted a review petition challenging the SC Order, which the SC dismissed on March 14, 2023. As a result, even while the HC and SC confirmed the constitutional legality of the Act’s changes. Which gave the MCGM the authority to impose a property tax based on CV, the courts:

• Ruled against the MCGM’s ability to impose such fees retroactively. That is, during the time frame of April 2010 through March 20, 2012.
• Confirm that the MCGM is not allow to determine a land’s CV by taking future development potential/FSI into account.

 

Impact

The CV system’s deployment will eliminate disparities and bring uniformity to the property tax rates. That apply to various types of land and structures throughout Mumbai. For instance, inhabitants of South Mumbai paid significantly less property tax under the previous system. Because the structures were last assess before 1940, when rents were at a low level. Residents of the suburbs and expanded suburbs. Where buildings were built after 1960 or rentals were proportionally significantly higher, paid higher taxes. Additionally, developers and landowners in Mumbai who dreaded the MCGM’s property taxes. Based on the future potential/FSI and its retroactive enforcement from April 1, 2010, have breathed a sigh of relief following the dismissal of the review petition.

 

 

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