Mumbai Capital Value Property Tax Judgment: A Rocket Science by Social Scientists; A Brief Analysis;

The subject of taxation is a “Rocket Science”. The constitution of Nine Judges Bench in the Mafatlal Industries Case, Reported in (1997) 5 SCC 536, running into more than 500 pages; the extremely contested Vodafone litigation; and the present Judgment of Bombay High Court running into 310 Pages, at least furnishes some justification to this statement of Rocket Science. There are umpteen Judgments, some of which are relied herein also (Para 147), that whilst dealing with challenge to Taxation laws, greater latitude is shown by Constitutional Courts, only for the reason that Taxation / Economic Legislation, by their very nature, are very complex.

And hold on, the Regime of Property Tax based on Capital Value of the Property, was brought in force, on the recommendations of Tata Institute of “Social Sciences”. (Para 33 of the Judgment) Did these Social Scientist, nevertheless very respectable, would appreciate an Inch of what was discussed in 310 Pages of Judgment, even assuming that some of them may be holding degree in Law.

Govts. of our Country have always functioned in this manner, and anything and everything is justified, sometimes in the name of expediency, in the Court of law. The Judgment goes on to record a finding that there is no illegality “per se” if this Rocket Science Taxation system was suggested by Social Scientist. (Para 194) This is despite we have a Special Legislation namely Maharashtra Municipal Property Tax Board Act, 2011, which contemplate constitution of a Board manned by Retd. Apex Court and High Court Judges and experts in the field of Municipal administration, who have, inter alia, given the mandate to make recommendations for reformation in Taxation / Revenues, including on Property tax of the Municipal Corporation. (Petitioners arguments in this behalf are at Para 38) This is the foundational flaw in the Capital Value based Property Tax regime, which ignores this crucial legislative mandate.

Coming to multiple challenges to this system of property tax, based on capital value of the property. Starting with -

1. Challenge as to Legislative competence to impose tax based on capital value of the property: It was contended by Petitioners that, having regard to nature of “Levy”, the tax is on the capital value of the Assets; and therefore by reasons of Entry 86 of List I of Seventh Schedule of Constitution, the nature of taxation falls under the exclusive domain of Parliament, and State Legislature have no competence / jurisdiction to Levy tax, based on capital value of the property. The Judgment squarely deals with this point, and records a finding that State Legislature is competent to impose such Levy. (Paras 148 to 155) The Judgment records a finding that the present Levy is covered under Entry 49 of List II of the Seventh Schedule, which permits the State Legislature to enact law to tax Lands and Building. In my limited understanding of taxation laws, I agree with the finding on this aspect. The argument of the Petitioners in this behalf are recorded at Paras 29, 148 to 155.

2. Contention that Water Tax, Sewerage Tax, and Education Cess cannot be imposed on Vacant land and on Land under Construction (Section 140(1)(a), (1)(b) and (1)(ca): This contention is founded on the premise that, these taxes/ Cess by its very nature is essentially a “Fee” for the Water and Sewerage services rendered, and since vacant land and Land under construction do not avail such Water and sewerage related services, above taxes cannot be imposed on vacant land and on Land under construction. The Judgment repelled this contention on the premise that the said Tax is generated for raising general revenue for the effective administration of the Corporation; and essentially, there is no “quid pro quo” even to those who avails these Water and Sewerage services. (Paras 156 to 160 of the Judgment). I am in agreement with the findings. Further, this challenge has nothing to do with capital value based taxation.

3. Contention that present capital Value based taxation, more particularly Section 140A of the MMC Act impinges upon the mandate of Article 243-X of the Constitution of India: It was contended that Article 243-X mandates that the Law, imposing taxes by Municipal Corporation, must be Levied, Collected, and the Rates of taxation must be fixed by “Municipal Corporation” consisting of Elected Representatives and Nominated Councillors Only”, and Municipal Authorities have no such authority in this behalf. It was contended that in the present case, the Standing Committee and the Municipal Commissioner are authorized to fix and finalize the rates of taxation. In my view, having regard to any scheme of taxation, with greatest respect to my very Learned colleagues who raised and argue for on this point, the argument is totally unsustainable and far fetched; and the Judgment rightly rejects this contention. (Paras 163 to 182). The contentions of the Petitioners are set out in Paras 14, 32, 33 and at Paras 145, 181, 182. The argument of the Respondent State in this behalf are recorded at Para 71(xxi) to (xxv).

4. Contention that there is an abdication of essential Legislative function, and consequently there is an excessive delegation of powers upon Standing Committee and Municipal Commissioner, without there being any legislative guidance to discharge delegated powers: The above contention was partly dealt with, in the aforesaid contention as to Article 243-X. The essence of the contention is that, the “Impugned law [essentially Section 154(1A)]” has conferred too much powers / unguided discretionary powers upon Standing Committee and upon Municipal Commissioner, without there being any guidance as to how and under what circumstances the powers are to be exercised, which is not permitted in the framing of any Legislation. The Judgment repelled this contention, inter alia, stating that there are sufficient guidance being laid down in the main Law. (Paras 183 to 185) I am in agreement with the findings. The argument of the Petitioners in this behalf are recorded at Paras 33, 34. The argument of the Respondent State in this behalf are recorded at Para 71(xi) to xviii).

5. The fundamental mandate of Equality Before Law and Equal Protection of Laws, to all Persons, enshrined under Article 14 of Constitution stands frustrated by capital value based property tax: 

I. This contention is founded on the premise that the Levy based on capital value based property tax is exorbitant and in fact, is confiscatory. The Judgment of Apex Court in the case of Patel Gordhandas versus Municipal Commissioner, Ahmedabad, was relied upon to bring home the point that property tax based on capital value of the property, was rejected by Apex Court; and also bring home the observation of the Apex Court that Tax / Rate at 250 percent of the Annual value may be considered as confiscatory taxation, whereas in the present case, by virtue of Section 140A(1), whereas the property tax would increase minimum, by two times for residential properties and three times for non residential properties, the exaction would invariably be exorbitant and therefore confiscatory in nature. The Judgment repelled the contention by pointing out that in the said Apex Court ruling, the Levy based on capital value was rejected because there was no provision in the main Act to Levy Tax based on capital value of the property, whereas in the present case, there is a provision in the main Act which thus permits Levy based on capital value. I am in agreement, on the aspect of competence to levy based on capital value must exist, and in Patel Gordhadas case, it was absent, and in the present case, it is present.

II. (A)In so far as argument of confiscatory taxation is concerned, it was placed on record with various Invoices as how the present regime of taxation is exorbitant. The Judgment admits that there could be cases where the taxation may be exorbitant or excessive, but the Judgment repelled the contention by stating that there is also class of people whose taxes have reduced by introduction of this new regime.

However, it escaped the attention of the Court, that this is precisely the argument that, how a regime can be said to satisfy the requirement of “equality before law” if its provisions leads to a situation where a class of people are imposed of exorbitant taxation and a class of people gets reduction in taxation, without any justifiable classification. This is the essence of the argument of Petitioners on frustration on “Equality Clause”.

The Petitioners advanced their argument regarding extremely high tax in the new regime, at Para 116 and 117, and at Para 188. The argument of the Respondent State in this behalf are recorded at Para 71(xxviii). The argument of the Respondent BMC in this behalf are recorded at Para 74, wherein the BMC, strangely argues that in the last 65 years, the Revenue of BMC has remained static and expenditure have steeply increased. Further arguments in this behalf of BMC, are recorded in at Paras 75, 82, 83, 86, 87, 88, 91, 92, 95. At Para 104, a Table is shown stating the year wise (from 2007-08 to 2012-13) Actual property tax collection of BMC. It was argued by BMC that the said Table clearly indicates that by introduction of new regime based on Capital Value, the Revenue of BMC has in fact reduced. This is completely misleading argument, because till year 2012-13, no Revenue were generated from Capital Value based system, as the final Bills based on Capital Value itself were issued in the end of December, 2012. The PIL (No.50 of 2013) of Shri Jashwant Mehta, briefly discussed hereinafter, had elaborately dealt with the argument of increase or decrease of the Revenue of BMC. The Respondent BMC further argument, at Para 109, that Tax burden in New Buildings would reduce in new regime, is completely misleading. The tax liability in the New Buildings have increased excessively.

Further, whereas it was vehemently argued by Respondent State that the purpose of new regime of property tax based on capital value, was to reduce disparity in burden of taxes, the new regime in fact, widens the disparity, wherein admittedly, a class of persons are burdened with exorbitant taxation, and class of persons are benefited with even less taxes of what they were paying earlier. There is no mention in the present Judgment, of any classification, based on which such discrimination in sharing the burden of excessive taxation and reduction in taxation, is permissible.

Whilst testing the Constitutional validity of a Taxation Laws, at the altar of Article 14 of the Constitution of India, the “discriminatory treatment” may be permitted in imposing liability upon different Class of persons, provided, it is shown / inferred from the reading of the Law, that the Class of persons on whom relaxation in taxation is given, stands unequally to the Class of persons on whom excessive burden of taxation, is imposed. The Judgment, shockingly, permits, exorbitant taxation on some persons, on the grounds that some other persons are getting reduced taxation, which is in fact, a ground to strike out the Law, as discriminatory.

In the present case, the Judgment did not even ventured into this aspect, as to who are the Class of persons who are benefited by this new regime, and whether they really stand unequally to the Class of persons who have burdened with excessive taxation.

It may be stated that the only beneficiaries of this capital value system, whose tax liability have reduced, are the owners of properties, who have let out their property on Leave & License, and who were subjected to excessive property tax under the erstwhile Rateable value system. By introduction of this system, the levy is made neutral, irrespective of whether the property is let out on Leave & License or self-occupied. The Respondent BMC argument in this behalf are at Para 110. Shri Jashwant Mehta PIL elaborately dealt with this aspect.

The very first PIL (even before the lead Petition of 2592 of 2013 of The Property Owners Association) was of Shri Jashwant Mehta, a renowned Architect and Civil Engineer, accustomed to property taxation for about 40 years, challenging this new regime of taxation. The said PIL extensively dealt with, as how the new regime mind boggling widens the disparity in imposing taxes. The said PIL was disposed of by the Hon’ble Court, on the strange premise that since many Writ Petitions are filed, the PIL is not required.

(B) This disparity was further perpetuated by the mandate of fourth proviso to Section 140A of the MMC Act. In my PIL Petition No.46 of 2014, representing Janhit Manch, I have demonstrated with exhaustive illustration, as how Section 140A, fourth proviso, manifestly frustrate mandate of equality clause. The said Section frustrate the mandate of Article 14 of the Constitution of India, i.e. to say, whereas Article 14 guarantees all persons the equality before the law, the said Section confers exemption from increased payment of taxation, to all the residential unit holders having upto a 46.45 sq. mtr (500 sq. ft.) carpet area, irrespective of the capital value of the property concerned.

The said Section would lead to a situation where a residential property admeasuring about 500 sq ft at Cuff Parade having Capital value of about 2 crores would not be subjected to increased property tax, but a property admeasuring about 550 sq ft at Mankhurd having a capital value of about Rs.10.00 Lakhs would be subjected to increased property tax. Therefore, a Person who owns a property of about 2.00 Crores is exempted from paying increased tax and a person who owns a property of about 10.00 Lakhs is subjected to increased property taxation.

Further, it may be appreciated that the nature of property tax substantially differs from other forms of taxation, like the Income tax, excise etc. Like for example, whereas in any other forms of taxation, like the Income tax or excise, the Legislature or the Executive may exempt a class of persons from paying tax; but the shortfall in the revenue that would result from said exemption, would not fall upon the rest of the class. The exemption is independent, of the burden of other class of persons who are subjected to said taxation.

In Property tax, it is not so. In property tax, Local bodies prepares budget for every year and are entitled to raise tax for meeting their budget. Now, supposing the Municipal Corporation has made a budget of Rs.100 for a particular year; then, the Municipal Corporation would raise Rs.100, in certain defined  proportions, from every occupant, dwelling and carrying out business activities within its territory.

Now if, any class of persons are exempted from paying any tax or exempted from paying increased tax, the shortfall from their “burden of share” would be compensated by putting extra burden upon rest of the class”, for the simple reason that ultimately Rs.100 is to be raised and collected.

My contentions were not dealt with, at all in the Judgment. My elaborate take on the mandate of Equality Clause of Article 14 of Constitution of India, are set out in the end.

6. Next contention was challenge to Section 140A(2) of the MMC Act, which permitted retrospective imposition of taxes, that is, the taxes were sought to be imposed and collected for the F.Y.2010-11 and 2011-12 also, whereas the actual liability under the new regime was assessed in the year 2013: Section 140A(2) of the MMC Act, 1888 permitted State / BMC to recover taxes of earlier years, that is, 2010-11, 2011-12. The Petitioners placed on record the procedure which are to be followed in Levy of Revised tax, at Paras 18 to 21. The Petitioners also advanced detailed arguments about the legitimacy of prospective operation of taxation laws, more particularly the municipal taxation, at Paras 22 to 25; and at Paras 37 and 205. The manifest breach of procedure established under the law, was discussed by Petitioners at Para 27. The arguments of the Respondent State in this behalf are set out in at Para 71(xxix).

(A) The Judgment upholds the retrospective imposition on the grounds (a) For the first two years, 2010-11 and 2011-12, the BMC was in the transitional phase of shifting from rateable value system to capital value system, which involved massive exercise and deployment of mass resources by BMC to make functional the new system; and therefore it was “expedient” to permit retrospective imposition. The straight answer to this contention would be, “the capital value system could have been introduced once the proper and requisite system was in place; and nothing is placed on record showing any expediency of circumstances warranting introduction of capital value system even in the absence of system in place. Further, how such a significant shifting of taxation regime can be introduced in the absence of system in place. The Govts. first brought in force the new regime and thereafter started putting system in place.

(B) The Judgment further justifies Retrospective imposition on the weak premise that provisional Bills so issued during these two years indicated that the said Bills are provisional and these Bills would be subject to final assessment of liability based on capital value, and the difference if any, would be payable or would be refunded or would be adjusted in future liability. So, the Retrospective imposition is justified on the ground that Assessee had notice of provisional bill and future liability. This is my view is a naive and casual argument. In the common sense of things, and as commonly understood, the general perception regarding any provisional Bill and Final Bill is understood that there could be an additional liability which may accrue to the extent of 10 to 20% in addition to the provisional Bill.

A Provisional Bill cannot make a provision for increase in liability to whopping 200% and 300%, compounded with accrued liability for three years together, that is, for Years 2010-11, 2011-12 and 2012-13, resulting in 600% and 900% increased accrued liability as on the date of presenting the first Final Bill. This is shocking and shattering to any Assesse, residential or commercial or industrial, who is subjected to such unusual sudden additional demand of 600% and 900%; and failure to pay the Demand may result in confiscation of his property. However, the Judgment observes that the Retrospective Levy does not bring any unreasonable consequences.(Para 205)

(C) Further, an exhaustive procedure is laid down u/ss 162 to 166 of MMC Act, whenever there is any upward Revision of taxation, and the Judgment itself spells out the elaborate procedure which must be followed in cases of Revision of Taxation. (Paras 200 and 201).

The process of levying the tax is complete only when the assessment list is authenticated and it is only then that the tax is levied on the tax-payers. The tax, being a tax for the official year, must obviously be levied during the official year and since the levy of the tax is complete only when the assessment list is authenticated, it must follow a fortiori that the authentication on the making of which alone the levy of the tax is effected, must take place in the official year. Any other view would result in an anomalous and rather absurd situation,  namely that the tax for official year would be leviable at any time, even years after the expiration of the official year.

The Judgment relieves the “State BMC” to strictly comply to above procedure, on the grounds of “expediency. Interestingly, on one hand, the Judgment at Para 185 proclaims that the Tax payer has the protection of “obligation of authorities to strictly adhere to the procedure provided under the Statute, to collect taxes”, however the “strict adherence to said procedure” is conveniently sacrificed whilst upholding retrospective Levy.

Whilst interpreting the mandate of Article 265 of the Constitution of India, the Apex Court consisting of Constitution Bench of Nine Judges in the Case of Mafatlal Industries versus Union of India [(1997) 5 SCC 536], have in no uncertain terms, held that the procedure to impose a liability upon the taxpayer has to be strictly complied with, in the absence of which, the Levy shall be regarded as “Without the Authority of Law”, ex-facie frustrating the mandate of Article 265. The argument of the Petitioners in this behalf are recorded at Para 163.

Mafatlal Industries versus Union of India [(1997) 5 SCC 536]

Para 160: The constitutional embargo is on both the levy and collection of tax without authority of law. It has been repeatedly asserted by the courts that every taxing law has three parts. First is  charge, the second is computation which results in a demand of tax and the third is recovery of the tax so computed. The Constitution has enjoined that there must be a valid levy. The word "levy" has also been understood in a broad sense in various cases to include not only the imposition of the charge but also the whole process up to raising of the demand. The Constitution guarantees that not only the levy should be lawful but also collection of tax must also be done with the authority of law. The State is not permitted to exact any tax from a citizen without the authority of law and without following the procedure laid down by law. This guarantee has to be strictly enforced not only in the matter of levy but also in the matter of collection. It was pointed out by this court in the case of Municipal council V/s. Kamal Kumar that Art. 265 of the Constitution clearly implies that the procedure to impose a liability upon the taxpayer has to be strictly complied with. Where it is not complied with, the liability to pay a tax cannot be said to be according to law. In that case, a validly passed municipal law was sought to be enforced, but the objections of the ratepayer were not dealt with by the Municipal Council as a whole but by a sub-committee. The court held that this was erroneous. The phrase "levy and collection" indicates that all the steps in making a man liable to pay a tax and exaction of tax from him must be in accordance with law. There must be a valid statute which will be properly followed. All steps must be taken according to statutory provisions. Recovery of tax must also be according to law. No one can be subjected to levy or tax or deprived of his money by the State without authority of law.

The above Judgment is an Authority for the proposition that the procedure to impose a liability upon the taxpayer has to be strictly complied with, in the absence of which, the Levy shall be regarded as “Without the Authority of Law”.

The present Judgment upholds the retrospective imposition whilst mechanically relying upon Apex Court rulings [D.G. Gose & Co. And Asst. Comm. Of Urban Land Tax], but remaining oblivious to equally binding rulings on Article 265 of Constitution of India, more particularly, the ruling in Nine Judges Mafatlal Industries case (supra).

(C) Further, in my PIL Petition No.46 of 2014, I have had taken an additional ground to bring home the point that Retrospective Levy is inconsistent with the with the mandate of section 139 of the MMC Act, 1888. The essence of the argument was that the taxing power of the Local bodies is limited to the extent, for carrying out its obligatory and discretionary functions under the statute. There are inherent limitations on the part of Local bodies to recover taxes, that is to say, they can impose and recover taxes, “Only for the purposes of the Act” under which they are incorporated; and permitting the recovery of tax for earlier years, i.e. for the years 2010-11, 2011-12 and 2012-13, is illegal, for it is inconsistent with the mandate of other provisions of the MMC Act, 1888, more particularly of section 139 of the MMC Act, 1888.

It was advanced that the Local bodies are obliged to make budgetary provisions for each year and are entitled to exact tax for the said amount. And this is the reason, the retrospective imposition of tax for earlier years, is not permissible, as the Local bodies are always entitled to raise revenue which is required by them, for the concerned fiscal year.

Therefore, there is no room for the Corporation to permit the recovering of tax for erstwhile years, for, the local body is always entitled to raise revenue which is required by them, for the concerned fiscal year.

The Local bodies, similarly, cannot raise the rate of taxation to such an extent, or to recover purported tax for earlier years, as to provide a “surplus” which is much more than what it needs for carrying out the functions assigned to it.

It was the case of the Petitioner that although retrospective exaction of taxation is not altogether impermissible, but at the same time, it cannot be invoked indiscriminately; and it has to be seen and evaluate in each case of its due application.

The contention about imposition of Tax on charitable buildings were set out in at Para 53, and about Religious properties are spelled out in at Para 58. The Judgment answered the said contention at Para 225 quoting Section 143 of the MMC Act, which provides for exemption from tax, to buildings and land used for public worship and/or charitable purposes and Hospitals; and the concerned Petitioners may apply to BMC in this behalf.

7. Next challenge was as to Retrospective application of Capital Value Rules of 2010: The Judgment upheld this contention, on the premise that Rules of 2010 admittedly came into force on 20^th March, 2012, and the Rules itself stated that it will come into force forthwith. Further, there was no Legislative power being conferred upon the Municipal Commissioner, the Rule making Authority, to bring operation of Rules retrospectively. Further, Rule making are a Subordinate piece of Legislation, and the Judgment rely upon a Apex Court ruling [(2017) 16 SCC 186] to bring home the legal proposition that Retrospective effect cannot be given to a subordinate legislation unless there is express or implied authority is furnished in the parent Act. In Rules of 2015, there was no Retrospective Levy. (Para 206). The argument of the Petitioners in this behalf are recorded at Para 39.

8. Next Challenge was regarding the Validity of Rules of 2010 and 2015 framed by Municipal Commissioner in the due exercise of powers conferred u/s 154(1B) of the MMC Act: The Validity of Rules of 2010 were challenged on the grounds that (a) It were ultra vires / inconsistent with the clear mandate of Section 154(1A)(b) of the MMC Act; (b) The Rule 21, which provides for determination of capital value of an Open Land, is ultra Vires the Section 154(1A), and the Rule 21 exceeded the powers conferred u/s 154(1A) of the MMC Act; (c) The Rule 20 is also ultra vires the parent Act that is MMC Act, and the said Rule 20 also exceeded the powers conferred u/s 154(1A) of the MMC Act. The Petitioners arguments in this behalf are spelled out in at Para 39.

The Judgment declared Rules 20 and 21 as ultra vires the Parent Act on the ground that whereas Rules 20 and 21 provides determination of Open Land according to SDRR, multiplied by permissible or approved FSI, multiplied by area of the Land, the same is illegal / ultra vires, because the MMC Act, more particularly Section 154(1A) do not authorize the Municipal Commissioner to frame a Rule which, whilst determining the capital value of a open Land, takes into consideration the development potential of the said Land.

The Judgment further observes that, the Rule making power does not permit the Commissioner to frame the Rules (guidelines) for determining what is the capital value. Such guidance is provided u/s 154(1A) of the MMC Act. The Judgment observes that Rule making power is confined to three aspects, two aspects being set out in Section 154(1B), that is, (i) the Rules may provide for details of categories of Buildings and Land ; (ii) the Rules may provide for weightage by Multiplication to be assigned to various such categories; and (iii) the Rules may provide for factors which are to be taken into consideration for determining base value of a property.

The Judgment observes that, whilst providing for determination of Open Land, the Rules exceeded their jurisdiction and travelled beyond their powers, by providing the FSI / development potential of a Vacant Land as a means to arrive at the capital value of an Open Land. The Judgment further held that factors referred in Clause (e) of Section 154(1A) should be considered as ejusdem generis. (Paras 207 to 211). The Petitioners arguments in this behalf are spelled out in at Para 39.

The Judgment further held that the Rule 20 is also contrary to Section 154(1A) r/w Section 3(r) of the MMC Act, wherein the Hon’ble Apex Court had the occasion to interpret the definition of Land as defined u/s 3(r) of the MMC Act. The Hon’ble Apex Court in the case of Polychem Limited versus MCGM, in unambiguous terms, have held that Land under Construction have to be treated as Vacant Land, and only after the building is legally capable of being occupied, the letting value (under esrtwhile regime of imposition of Rate based on Annual Letting Value) for the purposes of taxation, can be considered.

Under Rule 20, the Land under Construction are treated as Vacant Land; however, Rule 20 provides that whilst determining the capital value of a Vacant Land, the development potential of such Vacant land is to be considered, which ex-facie runs contrary to definition of Land as defined u/s 3(r), as interpreted in aforesaid Polychem Ruling. The said Rule 20 also runs contrary to mandate of Section 154(1A), the same grounds on which Rule 21(1) was declared ultra vires.

The Rules 20 and 21(1) were declared ultra vires to the Parent MMC Act, essentially on the same grounds that such Rules provided for determination of capital value of Vacant Land / Land under Construction, on the basis of development potential of such Vacant land / Land under Construction, which ex-facie runs contrary to definition of Land as defined u/s 3(r), and as interpreted in aforesaid Polychem Ruling. The Petitioners detailed arguments in this behalf are spelled out in at Paras 40 to 50. The argument of the Respondent BMC in this behalf are recorded at Paras 129 to 140.

The Judgment also declared Rule 21(2) of 2010 as ultra vires the Parent Act. This is on the grounds that, whereas Section 154(1A)(b) expressly mandates that Carpet area of the Building is required to be taken into consideration whilst determining the base value of any property, whereas Rule 21(2) provides for calculating capital value on the basis of built up area rates given in SDRR, which is completely contrary to said Section 154(1A)(b) of MMC Act, and Rule 21(2) does not provide for the conversion of built up area rates into carpet area rates. The Petitioners also advanced detailed arguments about the illegality in the said Rule which fixed the capital value on the basis of built up area of the property, at Para 26. The argument of the Respondent BMC in this behalf are recorded at Para 116.

The Judgment also observes that the said Rule 21, whilst it provides “additional floors” as an additional factor in determining the capital value, also exceeded / travelled beyond the Rule making powers conferred u/s 154(1A) because Section 154(1A) / the Rule making power does not permit the Commissioner to frame the Rules (guidelines) for determining what is the capital value.

The Judgment further declared Rule 22 of 2010 contrary to mandate of Section 154(1A), and thus ultra vires the Parent MMC Act. This was on the premise that whereas Section 154(1A) mandates that whilst fixing capital value, the Commissioner will have regard to the value of a Building or land as indicated in SDRR, and “Important Guidelines of Stamp Duty Valuation” are considered as integral to SDRR, and whereas the said Rule 22 provides that the said Rule would prevail over the Important Guidelines of SDRR, the said Rule 22 ex-facie runs contrary to mandate of Section 154(1A) of the MMC Act.

9. The Judgment thus holds that whereas various Writ Petitions have been filed, challenging the Special Assessment Notices and Final Bill, which were raised pursuant to Assessment made on the basis of capital value of Land and Buildings calculated under Rules 20, 21 and 22 r/w Rules 3 and 17(1), the said Final Bills / Assessment have to be set aside, and fresh Special Assessment Notices will have to be given, after fixing the capital value afresh, in accordance with Section 154(1A) of the MMC Act. The Judgment further holds that the procedure prescribed u/s 162 to 166 would have to be strictly complied with. (Paras 223 and 224).

10. Now comes the most shocking part. The above Judgment was made applicable only to those Petitioners who were before the Court,and further restricted to those Petitioners who have specifically challenged the Special Assessment Notices / Final Bills in their Petition; and the ruling was not made applicable to other Persons.

11. The submissions in this behalf is -

a) Whereas the Judgment observed to say that this Judgment will not affect the final bills which are “accepted” by the concerned owners [Para 229(vi)]; but none of the Assesses can be said to have accepted the capital value system of taxation; and in fact, there was an Interim Order of this Hon’ble Court, which was extended to every Assesse, to those who were not before the Court; [Interim Order dated 24.02.2014]

b) It appears that, it escaped the attention of the Court, that the benefits of Interim Orders passed by this Court, (whereby only 50% of the Bill amount was payable), were extended to every Asseesse irrespective whether he was Petitioner or not. This being the position, it cannot be stated that those Assesse who were not before the Court “accepted” the unlawful Assessment. In fact, in view of said Interim Orders, there was possibly no Cause of action accrued to other Assesses, as their causes were being duly represented in those Writ Petitions.

c) An Assesse cannot be subject to an Assessment, the Assessment which was made under the rules, which the competent court of jurisdiction have declared it ultra vires to the Parent Act. Any such exaction of taxation would ex-facie contravene the plain mandate of Article 265 and 300A of the Constitution of India;

d) It is settled position of law that even by consent, a Citizen cannot be deemed to have waived his fundamental rights. In the present case, the “Equal protection of Law”, which is a guaranteed fundamental right under Article 14 of our Constitution, and the protection which was otherwise made available to Petitioners who were before the Court in batch of Petitions, for no conceivable reasons, and it is not clear, as why the same protection of Law should not be made available to those Non Petitioners. The present Judgment, as it stands, mercilessly and ex-facie frustrate the fundamental right of equality, which is guaranteed under Article 14 of our Constitution.

e) As a matter of fact, whereas a PIL No.50 of 2013 was filed by Shri Jashwant Mehta, much before the lead Writ Petition No.2592 of 2013, which inter alia, challenged the Vires of the Rules. But this Hon’ble Court disposed of that PIL (Order dated 24.02.2014) on the grounds that continuation of said PIL is not warranted in view of various Writ Petitions being filed in that behalf. The Petitioner therein even applied for Recall of said Order of disposal (Notice of Motion No.91 of 2014), but the Court did not allowed said PIL.

f) There were no reasons stated in the Judgment warranting differential treatment to those Assessees / Non Petitioners, who were not before the Court, and subjecting them to an Assessment / taxation, which the Court itself have declared ultra vires to the Parent Act;

g) There is no precedent / parallel in the body of Administrative law or in taxation jurisprudence where the Courts have subjected a Citizen to an Assessment made under a Rule, which is declared as ultra vires to the Parent Act;

h) It is incomprehensible as how the Courts can subject an Asseesee / Citizen to an Assessment / exaction of taxation, which that Court itself have declared ultra vires and without authority of law.

i) The Writ Petitions are a Public Law Remedy and the Orders passed in Writ Petitions are Judgment in Rem, and not Judgment in Personam; and without any iota of doubt, the law declared in any Writ Petition is a Judgment in Rem, applicable to the world at large.

Sandeep Jalan

Advocate

Post Script

The factors which would weigh the minds of the Constitutional Courts whilst deciding the Constitutional validity of a law which is challenged on the grounds of being “discriminatory”.

a) In a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to citizens and the State should not seek to defeat the legitimate claims of citizens.

b) The Legislature, with some specific objects in mind to be achieved, makes the law. 

c) Every law, ordinarily, either confers some benefit or imposes some obligation. 

d) And, in the backdrop of the objects of the law, a law is sometimes made applicable to a certain class of persons, that is to say, for example, the benefits are extended to a class of persons only, and not to every person, and similarly the law which imposes obligations, are made applicable to a certain class of persons only, and not to every person. This may sound patent discrimination, but it may not be so.

e) Such classification or discrimination by law is permissible, provided two conditions must be satisfied – The classification of persons must be based on rational and sound parameters; AND (b) such classification must further the cause of the legislation.

f) In other words, the beneficial or burdened class of persons who are grouped together must possess a common characteristic justifying their inclusion in the group, and those who are excluded must be distinct from those who are included; AND the said conferment of benefit or obligations imposed, upon the said class of persons, to the exclusion of other persons, must have a rational nexus with the object of the law which has created such classification.

g) And, therefore, the classification of persons or things made by a law, may be challenged on two independent grounds – (a) THAT the classification of persons made under the law is not based on rational and sound parameters; or (b) The classification of persons made under the law may be rational and sound, but the benefits conferred or the obligations imposed, upon the class of persons, has no relation / nexus with the object of the legislation; or to say, the said conferment or obligations does not furthers the cause of the legislation.

h) In order to justify the validity of law, the criterion of classification of persons or things, proposed in the law, must have direct relationship with the object of the law. If the means (classification) resorted to, does not furthers in the attainment of the object of the legislation, then, the means becomes suspect. It also follows that means employed (classification proposed) must be “reasonable and rational”, in order to achieve a particular end (object of the legislation), that is to say, the object of the legislation must justify the discrimination which is proposed in the legislation. And, at the cost of repetition, there must be rational and sound parameters to classify people or things, before subjecting people or things to liabilities, or before conferring privileges upon people.

i) What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. The fact that the classification by itself is reasonable is not enough to support it, unless there is nexus between the classification and the object to be achieved.

j) A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase 'similarly situated' mean ? The answer to the question is that we must look beyond the classification, to the purpose of the law. A reasonable classification is one which includes all persons who are similarly situated with respect to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good.

k) Article 14 of the Constitution enjoins upon the State not to deny to any person 'Equality before law' or 'the equal protection of laws' within the territory of India.

l) Equality before law is a dynamic concept having many facets. One facet, the most commonly acknowledged, is that there shall be no privileged person or class and that none shall be above law. The concept of equality permits rational discrimination; and conferment of special benefits / privileges to a class of persons but for rational reasons.

m) Classification is implicit in the concept of Equality. Equality means equality among equals. Equality before law means that amongst equals, the law should be equal. The principle of equality means that a law may not have universal application towards all persons, and may not be applicable to such persons who by nature, attainment or circumstances, are not in the same position as to others.

n) The concept of equality before law, implies that among equals, the law should be equal, and the likes should be treated alike. Article 14 proceeds on the premise that equality of treatment is required to be given to persons who are equally circumstanced; and the persons who are in fact unequally situated / circumstanced, cannot be treated at par.

o) Classification means segregation in classes which have a systematic relationship, usually found in common properties and characteristics. It postulates a rational basis and does not mean hording together of certain persons and classes at whims and fancies. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration.

p) Article 14 analysis deals with cases where the law makes irrational / unjustified (arbitrary) / unreasonable classification of persons, and thereby grant benefits / imposes obligations, upon some persons and not upon other persons, although both classes of persons are similarly situated; or where the law imposes obligations upon all persons, although the class of persons included in the said law are differently positioned in their life.

q) The mandate of Article 14, that the State shall not deny to any person equality before the law, is designed to protect all persons against legislative discrimination; and is designed to check legislations which confers privileges or imposes obligations, upon a class of persons only and not upon others, without any reasonable and sound basis.

r) It is plain that every classification is in some degree likely to produce some inequality, but mere production of inequality is not by itself enough. The inequality produced, in order to invoke the rigours of Article 14, must be "actually and palpably unreasonable and arbitrary.

s) If there is a classification, the Court will not hold it invalid merely because the law might have been extended to other persons who in some respects might resemble the class for which the law was made, for, the Legislature is the best judge of the needs of the particular classes and to estimate the degree of evil so as to adjust its legislation according to the exigency found to exist. The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience.

t) Article 14 does not insist upon classification, which is scientifically perfect or logically complete. A classification would always be justified, unless it is patently arbitrary. One who assails a classification must carry the burden of showing that it does not rest upon any reasonable basis, or, the classification is although reasonable, but the nature of benefit conferred or obligations imposed, has no relationship with the object of the law.

u) The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out, but those qualities or characteristics must have a reasonable relation to the object of the legislation.

v) Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the essence of a classification that upon the class are cast duties and burdens, different from these resting upon the general public.

w) A rule of procedure laid down by law comes as much within the purview of Article 14 as any rule of substantive law and it is necessary that all litigants, who are similarly situated, are able to avail themselves of the same procedural rights for relief and for defence with like protection and without discrimination.

x) If, however, there is, on the face of the statute, no classification at all or none on the basis of any apparent difference specially peculiar to any particular individual or class and not applicable to any other person or class of persons and yet the law bites only the particular class of individuals, it is nothing but an attempt to arbitrarily single out an individuals.

y) To attract the operation of the Equality clause, it is necessary to show that the application of law is unreasonable or arbitrary, and that the purported classification of persons does not rest on any rational basis, having regard to the object which the legislature has in view.

z) A classification is under-inclusive when all who are included in the class are tainted with the mischief, but there are others who are also tainted with the mischief, but they are not included, for no appreciable reason. In other words, a classification is bad as under-inclusive when the law benefits or burdens persons in a manner that furthers a legitimate purpose, but does not confer the same benefit or place the same burden upon persons on others, who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose, but also takes within its sweep others, who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals, and thereby imposes burden upon a class of persons, who are not the class of persons, at which the law aims to suppress the mischief, that is to say, where a class of persons are covered by the law, although they materially differs in the common properties and characteristics of persons, for whom especially the law was enacted, and its like hording together of certain persons and classes at whims and fancies.

aa) In the present case, whereas the Judgment, permits, exorbitant taxation on some persons and at the same time permits that some other persons may have reduced taxation, it is not shown on whom relaxation in taxation is given, stands unequally to the Class of persons on whom excessive burden of taxation, is imposed.

Approach of the Court in applying facts of the case at the touchstone of the principle enshrined under Article 14

1. The constitutional standards by which the “rationality or soundness”, of the classification may be measured, has been repeatedly stated by the courts.

2. Prima facie, there will always be presumption in favour of the constitutionality of the Statute / Policy of the State;

3. If a legislation discriminates one person or class of persons against others similarly situated and denies to the former the privileges that are enjoyed by the latter, it may be regarded as “hostile” in the sense that it affects injuriously the interests of that persons or class.

4. That while good faith and knowledge of the existing conditions on the part of a Legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the Court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to discriminating legislation.

5. No one may speak for the Parliament and Parliament is never before the Court. After Parliament has said what it intends to say, only the Court may say what the Parliament meant to say. None else. Once a statute leaves Parliament House, the Court's is the only authentic voice which may echo (interpret) the Parliament. This the Court will do with reference to the language of the statute and other permissible aids. The executive Government may place before the Court their understanding of what Parliament has said or intended to say or what they think was Parliament's object and all the facts and circumstances which in their view led to the legislation. Validity of Legislation is not to be judged merely by affidavits filed on behalf of the State, but by all the relevant circumstances which the court may ultimately find and more especially by what may be gathered from what the legislature has itself said. [Srinivasa Theatre Versus Government Of Tamil Nadu 1992 SC].

6. In determining the impact of State action upon constitutional guarantees which are fundamental, it follows that the extent of protection against impairment of a fundamental right is determined not by the object of the Legislature, nor by the form of the action, but by its direct operation upon the individual's rights, that is to say, it is not the object of the authority, making the law, nor the form of action, it is the effect of the law and of the action upon the right which attracts the jurisdiction of the Court to grant relief.

7. A statute may direct its provisions against one individual person or things or to several individual person or things; but if no reasonable basis of classification may appear on the face of it or be deducible from the surrounding circumstances; or matters of common knowledge. In such a case the Court will strike down the law as an instance of naked discrimination.

8. If the legislative policy is clear and definite, and as an effective method of carrying out that policy, a discretion is vested by the statute upon a body of administrators or officers to make selective application of the law, to certain classes or groups of persons, the statute itself cannot be condemned as a piece of discriminatory legislation. In such cases, the power given to the executive body would import a duty on it to classify the subject-matter of legislation in accordance with the objective indicated in the statute. If the administrative body proceeds to classify persons or things, on a basis which has no rational relation to the objective of the Legislature, its action can be annulled as offending against the equal protection clause. On the other band, if the statute itself does not disclose a definite policy or objective, and it confers authority on another to make selection at its pleasure, the statute would be held on the face of it to be discriminatory, irrespective of the way in which it is applied.

9. In determining the validity or otherwise of a statute or of the statutory provision, the Court have to examine whether such classification is or can be reasonably regarded as based upon some “rational and sound principles” which distinguishes such persons or things grouped together from those left out of the group; and whether such “rational and sound principles” has a reasonable relation to the object sought to be achieved by the statute.

10. Though a law ex-facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinize the effect of the law carefully to ascertain its real impact on the persons or property similarly situated. Conversely, a law may treat persons who appear to be similarly situated differently; but on investigation they may be found not to be similarly situated. To state it differently, it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive.

11. Hon’ble Justice Vivian Bose in the case of State of W. B.  V. Anwar Ali Sarkar 1952 SC, among other things, made a remarkable observation, and I quote: “What I have to determine is whether the differentiation made offends, what I may call, the social conscience of a sovereign democratic republic…. The question with which I charge myself is, can fair-minded reasonable unbiased and resolute men, who are not swayed by emotion or prejudice, regard this with equanimity and call it reasonable, just and fair, regard it as that equal treatment and protection in the defence of liberties which is expected of a sovereign democratic republic in the conditions which obtain in India today?”

Concluding remarks

1. The law of the Constitution is not only for those who govern, and, for the theorist, but also for the bulk of the people, for the common man, for whose benefit & pride, and, safeguard, the Constitution has also been written.

2. The mere solemn object of the legislation is no justification for its enactment; and the law enacted has to pass the test of Constitutional norms and standards.

3. Notwithstanding the enacted law may have been emanated from the “Body of wisdom”, the wisdom of the Constitution should prevail.

 Sandeep Jalan

Advocate

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