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BMC Capital Value Property tax regime: yet another Blunder

“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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Comments

Unknown said…
Very good letter to MMC and useful to many. Thanks Ad Sandeep for fighting for commonmen.
Unknown said…
definitely painstaking efforts
Shambhu Kumar said…
I think, this is really very well and informative content given about BMC Capital Value Property tax regime: yet another Blunder. Thanks for given this information here about this blog.
Flats for Sale in Lucknow
it is a very useful information thanks for sharing this blog keep suggest these articleCriminal Lawyer for supreme court of India

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