“Changed use of the Premises !!, capping benefit of two times / three times will not be available”
Letter to Municipal Commissioner of Mumbai
To, 00.00.0000
The Municipal Commissioner,
The
Municipal Corporation of Greater Mumbai,
BMC
Headquarters,
Opp.
CST Station,
Mumbai
– 400 001.
Subject:
Faulty
implementation of Capital value based property tax system, in so far as application
of Section 140A of MMC Act, to “change of use of premises” category of premises
are concerned.
Sir,
Under
instructions from my Client __________, residing at 703, Raj Classic, Panch
Marg Road, Versova, Mumbai – 400061, I most respectfully submit as under –
1. My
Client is the owner of a property situate at ________________, Mumbai – ________
(Property
A/C No. ________). It is a two storeyed structure, i.e. ground floor plus first
floor, and there are only two units, i.e. one on the ground floor and one on
first floor. It is a residential premise. My Client is the owner of first floor
unit.
2. It
is a case where although both the residential units are identical in every
respect, be its usage or its area, yet the property tax for ground floor is
being assessed at Rs._______/- and property tax for first floor is assessed at
Rs.________/-, i.e. nearly nine times to ground floor. This assessment is based
on capital value system of property tax, for the year 01.04.2010 to 31.03.2011,
for the next five years.
3. In
this backdrop, my Client recorded objections; and further, made representation
before _________ ward office Assessment dept, and requested for personal
hearing as contemplated u/s 164 and 165 of MMC Act, 1888. The Assessment Dept. were
very humble and gave us personal hearing on __________.
4. During
the course of hearing, we made detailed representation before Authority and
tried to point out the anomaly due to which such disparity is coming in the
assessment. The Authorities comprising seniot Municipal officers ___________
and _________, the Asst Assessor and Collector and the Ward Inspector, gave a
thoughtful hearing to us; and although acknowledges this unfair assessment, yet
expressed their inability to do anything in this respect. They stated that they
are merely following the system / programme which is being prepared pursuant to
introduction of capital value based property tax regime; and they are bound by
the output which is being produced by said system / programme.
5. We
therefore are approaching to your good office to point out as where the anomaly
lies in the assessment.
6. We
seek to briefly revisit the material facts of the case.
a) The
above referred property is a two storeyed structure, i.e. ground plus first
floor, in the joint name of _______________, situate at __________________. It
is residential property, wherein ground floor is owned by _____________ and
first floor is owned by ___________, my Client herein.
b) We
are concerned for First floor property tax.
c) There
was a change of user in respect of first floor of the said property from the
period year 2008 to 2010.
d) The
property tax paid as on 31.03.2010 was Rs.________, being _______/- (for six months) as applicable to commercial
user.
e) There
was a migration of property tax system from Rateable value to capital value in
the year 2013, which was applied retrospectively from 1st April,
2010.
f) In
this backdrop, the property tax Bills were revised and new bills were raised
for the year 2010-11, for the said property, and both, ground floor and first
floor were separately assessed. The carpet area and Built up area for both the
floors are substantially the same.
g) According
to Bill of 2010-11, the ground floor was used as Residential and was
accordingly charged as residential usage. In so far as first floor is
concerned, it is a matter of record that the use of first floor was considered
as commercial till __________. (Please refer my Client’s letter dated __________,
submitted to your office on _________; and also your letter dated ________).
But the Authorities in their Bill stated first floor as Residential use, but
actually charged as Commercial usage. This is reflecting in the amount of
“Existing tax” for first floor which came to about Rs.________ which my Client
paid in the last assessment year as commercial use as compared to Rs.________/-
which was assessed for ground floor as on 31.03.2010; and it is a matter of
record that Authorities accepted the restoration of use of premises to
residential from __________ (your letter dated _________).
h) Since there
was a change of use of premises from commercial to residential, the Property
tax must come down from ________ for first floor. However, the property tax of
first floor remained the same and it was not reduced. This happened because
Authorities have erroneously stated in their Bill ________ the use of premises as
“Residential”, and therefore according to Authorities there was no occasion to
revise the assessment from commercial to residential. The
Authorities stated “residential use” in their Bill apparently on the premise
that, said commercial usage remained only till _________, and thereafter the
first floor was restored to residential use, during the same financial year.
And this anomaly continued in the subsequent year billings, on the premise that
concerned property was always charged on the basis of Residential usage.
i) Coming
to denial of capping benefit to us, Section 140A of MMC Act, inter alia, puts a
capping in the increase of property tax liability; and for residential
properties the capping is two times, i.e., if the last tax payable was Rs.100,
the new tax payable under capital value system can be maximum Rs.200
irrespective of whatever tax liability arrives in the computation. In so far as
non residential properties are concerned, the capping is three times.
j) In
the present case, the capping benefit of maximum two times increase was
extended to the ground floor, i.e. last tax paid was Rs.3694/-, the tax after
capping was Rs.7388/-, although tax liability according to capital value came to
Rs.61,933/. However, the said capping benefit was not given in respect of first
floor property, and computation arrived on the basis of capital value was
charged to first floor property, i.e. Rs.64,479/-.
k) My
Client vide his letter dated __________ to this office, recorded objection u/s
163 of the MMC Act, 1888, and in accordance with the format prescribed in your
Notice u/s 162(2) of MMC Act, 1888; and further requested clarification about
the anomaly wherein, although both the properties, i.e. ground floor and first
floor are identical in every respect, i.e. area, use of the premises, etc., the
tax liability of ground was assessed at Rs.7388/- and tax liability for first
floor was assessed at Rs.64,479/-, i.e. almost 9 times more than ground floor
tax liability.
l) Your
office, vide their letter dated _______, replied that the capping benefit was
not considered by their system because there was a change of user of the
premises in the first floor. It was thus submitted by you that the law does not
permit capping benefit to such properties where there was a change of user of
the premises.
7. In
the aforesaid factual backdrop, it is submitted that, after a careful reading
of all relevant provisions of MMC Act, and in particularly the reading of
Section 140A of MMC Act, which deals with and provides for capping benefit,
there is no indication in the said provision, either expressly or by necessary
implication, that capping benefit is not available to such properties where
there was a change of use of the said property.
8. Now
let us interpret Section 140A of MMC act, 1888. The relevant portion of Section
140A is reproduced.
Section 140A:
Property taxes to be levied on capital
value and the rate thereof:
(1)
Notwithstanding anything contained in section 140 or any other provision of
this Act, the Corporation may pass a resolution to adopt levy of property tax
on buildings and lands in Brihan Mumbai on the basis of capital value of the
buildings and lands on and from such date, and at such rates, as the
Corporation may determine in accordance with the provisions of section 128:
Provided
that, for the period of five years from the date on and from which such
property tax is levied on capital value, the tax shall not exceed,— (i)
in respect of building used for residential purposes, two times, and (ii) in
respect of building or land used for non-residential purposes, three times, the
amount of the property tax leviable in respect thereof in the year
immediately preceding such date:
9. The
plain reading of said section indicates that for the first five years of
introduction of capital value system of taxation, the property tax in respect
of residential property would not increase more than two times, i.e., if the
last tax payable as on 31.03.2010 was Rs.100, the new tax payable under capital
value system can be maximum Rs.200 irrespective of whatever tax liability
arrives in the computation according to capital value. In so far as non
residential properties are concerned, the increase could be maximum Rs.300, if
the last tax payable was Rs.100/-. The emphasize of proviso to Section 140A is
on “Leviable”, as explained hereinafter.
10. In
the reading of section 140A, there is no indication whatsoever, that capping
benefit would not be available to change of user premises cases. As a matter of
fact, the said proviso in Section 140A uses the expression, “the tax shall
not exceed” which also indicates the intention of the lawmakers that in
“any event”, “the tax shall not exceed”, two times in respect of
residential property and three times in respect of non residential properties.
The said Section does not sought to make any difference as to properties,
whether there is a change of use or there is no change of use.
11. In
the backdrop of the legal expression used in Section 140A, i.e. “the tax
shall not exceed”, it is clearly the intention of the lawmakers that under
no circumstances, the property owners / occupiers would be burdened with
increased tax liability of two times or three times, of what was last “payable”
liability, and not last “paid liability”. And lawmakers have nowhere indicated
that capping benefit would not be available to “change of user” premises.
12. Therefore,
it is submitted that there is absolutely no basis or justification to say that
“capping benefit is not available to such properties where there was a change
of user of the premises”.
It is further submitted that –
13. A
careful reading of 1st proviso to section 140A of MMC Act, 1888,
would reveal that the said proviso uses the expression “Leviable”. The
expression “Leviable” indicates the “payable liability” and not “paid
liability” as on 31.03.2010, and it has significance in cases where there was a
change of use of the premises as on 01.04.2010 (when capital value system was
introduced), or may be thereafter.
14. In
view of the expression “Leviable” in Section 140A, if there is a change of use
of the premises as on 01.04.2010, or thereafter, the Authorities would
notionally calculate the tax liability according to old system of taxation, and
would notionally arrive at the tax “leviable” as on that date, according to
“changed use”; and then would give benefit of capping. Let us illustrate this
with an example.
15. Suppose
the property “X” was assessed as a residential property as on 31.03.2010, i.e.
immediately before the introduction of capital value system. Now suppose that
as on 01.04.2010, there was a change of use of the property “X” from
residential to non residential. In this situation, the authorities are expected that they would notionally
assess the tax liability of property “X” as a “Non residential property” as on
31.03.2010, according to old Rateable system; and then they would assess the
liability according to capital value system as on 01.04.2010, and would accordingly
give capping benefit.
16. This
may further be illustrated with example. Let us suppose that the said Property
“X” which was used as residential as on 31.03.2010, its tax liability was
assessed at Rs.100 as on 31.03.2010 according to old Ratebale system. Suppose
there is no change of use of the said property, the tax liability under the
capital value regime would be Rs.200, i.e. two times of last levied.
17. Now
suppose that as on 01.04.2010, there is a change of use of said property “X”
from Residential to Non residential. In this situation, the authorities would
notionally assess the tax liability of property “X” as a “Non residential
property” as on 31.03.2010, according to old Rateable system, and suppose that
it come to Rs.300. The Authorities then would assess the liability according to
capital value system as on 01.04.2010. Assume that the tax liability according
to new system for non residential use as on 01.04.2010 come to Rs.1000.
However, looking at the capping provision, the tax liability would come to
Rs.900/-; and thus the liability would be assessed at Rs.900, which is completely
in consonance with the mandate of Section 140A.
18. No prejudice to MMC:
It is further submitted that there is no prejudice whatsoever to MMC, if the
aforesaid interpretation is accepted. It is submitted that, depending upon the
nature of use of the premises, the property tax would be assessed according to
capital value system, and capping benefit would be given, irrespective of fact
whether there was a change of use or no change of use, because, the property
tax is being assessed according to use of the premises as on date of
assessment; and the MMC cannot be said to be suffering any prejudice of loss of
revenue, for, the MMC is levying and collecting tax according to nature of use
of property as on that date of assessment, i.e. if the premises is used as non
residential, the tax would be assessed as non residential; and if the premises
is used as residential, the tax would be assessed as residential.
19. The whole purpose of introducing
Capital value system gets defeated if such stand of MCGM /BMC is to be
accepted: Admittedly, the main objects of introducing /
shifting to the capital value system was to remove the disparities in tax
liabilities between old and new properties / buildings. However, it is a case
where vast disparity in tax liability occasions on two units of identical
nature on the same premises. It is submitted that in the present understanding
and application of law by MCGM Authorities, a property which is identical in
every respect as to use of the premises, its area and other things being
identical, yet the property which is situate at ground floor, the property tax
is assessed at Rs.7388=00, and the property situate at first floor, the property
tax is assessed at Rs.64,479=00. We submit that if this disparity were to exist
and persist, the whole purpose of introducing capital value based property tax,
is defeated.
20. In
the present case, although as on 01.04.2010, the relevant property was
categorized as “changed user of the premises”, the capping benefit has to be
given to my Client as provided u/s 140A of MMC Act, 1888, as explained
hereinbefore.
21. In the entire discussion hereinabove,
we summarize our argument stating that –
a. In
so far as first floor is concerned, there has to be two separate assessment for
two periods, being from 01.04.2010 to 18.10.2010 for commercial use; and second
from 18.10.2010 onwards for residential use.
b. And
in so far as assessment for residential usage from 18.10.2010 onwards is
concerned, the Authorities are expected to raise fresh bill and revise the
property tax by notionally arriving at the tax liability as “Residential” as on
31.03.2010, and thus have to arrive at a tax liability “leviable” as on date of
31.03.2010; and then are expected to assess the tax liability from 18.10.2010
onwards as Residential, according to new capital value system, and then would
give benefit of two times capping.
c. After
a careful reading of all relevant provisions of MMC Act, and in particularly
the reading of Section 140A of MMC Act, which deals with and provides for
capping benefit, there is no indication in the said provision, either expressly
or by necessary implication, that capping benefit is not available to such
properties where there was a change of use of the property.
As
a matter of fact, the said proviso in Section 140A uses the expression, “the tax shall not exceed” which
also indicates the intention of the lawmakers that in “any event”, “the tax
shall not exceed”, two times in respect of residential property and three times
in respect of non residential properties. The said Section does not sought to
make any difference as to properties, whether there is a change of use or there
is no change of use.
The
purport and import of Section 140A stated hereinabove at Paras 8 to 17 is completely
in consonance with the objectives of capital value based property tax based
regime. If Section 140A is not to be interpreted in the manner suggested
hereinabove, then Capital value based regime increases the disparity in
assessment of liability instead of reducing it.
d. When
there is change of use of premises from commercial to residential, the property
tax should come down; but in the present case, whereas there is change of
commercial use to residential use from 18.10.2010 onwards, the property tax has
not come down, and it has remained the same.
e. That there is no
prejudice of revenue whatsoever to MMC, if the interpretation suggested
hereinbefore is accepted.
f. The whole purpose of introducing
Capital value system gets defeated if stand of MCGM /BMC is accepted, that
capping benefit contemplated u/s 140A of MMC act, 1888 is not available to such
categories of properties where there is a change of use of premises, wherein
such interpretation of law results in huge disparity of property tax despite the
property being identical in every respect.
22. Therefore, it is most humbly prayed
that –
a)
To
look into the issue raised in this communiqué;
b)
Whereas
the present case raises a complex question of law, it is just and reasonable
that you may be pleased to obtain legal opinion from your Law dept or from
Advocate General of the State.
c)
Please
clarify under which provision of law it is stated that capping benefit provided
under 1st proviso to Section 140A of MMC Act, 1888, will not be
available to “change of use of premises” class of premises;
d)
Please
clarify the position of law, i.e. the purport and import of Section 140A stated
hereinabove at Paras 8 to 17.
23. If
you are of the view that submissions put forth by us are meritless, you may
pleased to record a reasoned Order.
Thanking you.
With great Respect
Sandeep
Jalan
Advocate
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