Bombay High Court
Dr. Vijay Dinkarrao Shinde & Ors vs State Of Mah. & Anr on 10 November, 2014
Author: A. S. Chandurkar
Bench: A.S. Oka, A.S. Chandurkar
PIL60.01.odt 1/18
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
PUBLIC INTEREST PETITION NO.60 OF 2001
PETITIIONERS: 1. Dr. Vijay Dinkarrao Shinde, Age
major, Occ.-Retired, R/of Plot No.
124, Ratnappa Kumbhar Nagar
Society No.3, Morewadi, Taluka
Karvir, District Kolhapur.
2. Sou. Sulochana Jaipal Koregave, Age
major, Occ.- Housewife, R/of Plot No.
191, Ratnappa Kumbhar Nagar
ig Society No.1, Morewadi, Taluka
Karvir, District Kolhapur.
3. Dinkarrao Vithalrao Jawade, Age
major, occ.-Retired, R/of Ratnappa
Kumbhar Nagar, Morewadi, Taluka
Karvir, District Kolhapur.
4. Sharad Devappa Kamble, Age major,
R/of 17, 'Shashi', Dip Sevak Hsg.
Society, Ratnappa Kumbhar Nagar,
Panchgaon, Tal. Karvir, Dist.
Kolhapur.
5. Annasaheb Bandu Patil, Age major,
R/of Ratnappa Kumbhar Nagar
Society No.2, Panchgaon, Taluka
Karvir, District Kolhapur.
-VERSUS-
RESPONDENTS: 1. State of Maharashtra Through the
Secretary, Ministry of Rural
Development & Water Conservation
Mantralaya, Mumbai 400 032.
2. The Gram Panchayat, Morewadi,
Through its Gram Sevak, having its
Office at Morewadi, Tal.- Karvir,
Dist.- Kolhapur.
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3. The Gram Panchayat, Panchagaon,
Through its Gram Sevak, having its
office at Panchgaon, Talk.- Karvir,
Dist.- Kolhapur.
Mr. S. S. Patwardhan Advocate along with Mr. Mandar Bagkar Advocate
for the petitioners.
Mr. V. S. Gokhale, Assistant Government Pleader for respondent No.1.
CORAM: A.S. OKA AND A.S. CHANDURKAR, JJ.
DATE ON WHICH SUBMISSIONS WERE HEARD: 1ST AUGUST 2014
DATE ON WHICH JUDGMENT IS PRONOUNCED: 10TH NOVEMBER 2014
(Signed judgment pronounced by Shri A. S. Oka, J in accordance with
Rule 1(i) of Chapter XI of the Appellate Side Rules as Shri A. S.
Chandurkar, J is not available in Bombay and is sitting at Nagpur Bench)
ORAL JUDGMENT : (Per A. S. Chandurkar, J)
1. This petition filed in public interest challenges the provisions of the Maharashtra Village Panchayats Taxes and Fees (Amendment) Rules 1999 as being unconstitutional.
2. The petitioners are residents of Morewadi and Panchgaon situated in Karvir Taluka of District Kolhapur. A village Panchayat has been duly constituted in both the aforesaid villages under provisions of the Maharashtra Village Panchayats Act, 1958 (for short 'the said Act'). The petitioners being residents of aforesaid villages are liable to pay taxes as per provisions of the Maharashtra Village Panchayats Taxes and Fees Rules, 1960 (for short, 'the ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 3/18 Rules of 1960'). According to the petitioners, under the Rules of 1960 taxes on buildings and lands were being levied on the basis of the annual letting value of the building or land in question under Rule 7 of Rules of 1960.
Rule 9 of the Rules of 1960 prescribed the procedure for preparation of the assessment list. As per Schedule appended to the Rules of 1960, the minimum and maximum rates of taxes based on the capital value or annual letting value of the building and land had been specified.
3. On 3-2-1999, the State of Maharashtra through the Ministry of Rural Development and Water Conservation issued a notification thereby amending the Rules of 1960.
By virtue of said amendment, the determination of the rate of taxes on the basis of capital value or annual letting value was replaced by a different method of assessment being the total area of the building or land in question. The taxes were proposed to be levied on the basis of the area of the building or land. By aforesaid notification, the Maharashtra Village Panchayats Taxes and Fees (Amendment) Rules 1999 (for short 'Amendment Rules') were brought into force. According to the petitioners, levy of taxes on buildings or lands on the basis of capital value or annual letting value was a time tested concept of levying ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 4/18 such taxes. By the Amended Rules, said method was replaced by the levy of taxes on the total area of the building or land. This method, according to the petitioners, was arbitrary and violative of the provisions of Article 14 of the Constitution of India. According to the petitioners, by introducing said amendment, the actual value of the building or land in question as well as its subsequent depreciation in value had been ignored. In this background, the petitioners have filed the present public interest litigation challenging the Amendment Rules.
4. Shri S. S. Patwardhan, Advocate along with Shri Mandar Bagkar, Advocate appearing for the petitioners submitted that the Amendment Rules doing away with the assessment of rateable value on the basis of annual letting value and in its place introducing the concept of assessment on the basis of total area as per square foot was violative of Article 14 of the Constitution of India. It was submitted that by the assessment based on total area of the building or land in question, unequals were sought to be treated as equals. The learned Counsel submitted that the classification of buildings on the basis of the nature of construction and thereafter fixing the rate of taxation on the basis of their location had no rational basis. Similarly, fixing the categories of village panchayats on the basis of ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 5/18 their location such as tribal or hilly area, general area or village panchayats adjacent to the Municipal Corporation or Municipal Council or having population of more than 3000 was also without any justification. As an effect of the Amendment Rules, a property that had lower annual letting value was liable to higher taxation depending upon its total area and vice a versa. It was also urged that the Committee assigned with the duty of finalization of the assessment list had no guiding criteria so as to safeguard against any arbitrary assessment. By relying upon various instances on the basis of demand bills issued by the respective village panchayats, it was sought to be urged that there was huge disparity in the matter of amount of taxes on buildings and lands even in respect of similarly situated properties.
Relying upon the decision of the Supreme Court in Kunnathat Thathunni Moopil Nair vs. State of Kerala and another, reported in AIR 1961 Supreme Court 552, it was submitted that if the provisions of the Amendment Rules were violative of provisions of Article 14 of the Constitution of India, the same were liable to be struck down. It was then urged that the flat rate method according to floor area being adopted for determining rateable value had been held to be violative under Article 14 of the Constitution of India in New Manek Chowk Spg. and Wvg.
::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 6/18Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad and others reported in AIR 1967 Supreme Court 1801. Reliance was also placed on the decision of the Supreme Court in State of Kerala V. Haji K. Kutty, reported in AIR 1969 Supreme Court 378 wherein adoption of floor area as the basis of taxation irrespective of all other considerations was held to be bad in law. The learned Counsel further submitted that the Division Bench in Rajab Mahal Co-operative Housing Society Ltd. v.
State of Maharashtra and others, reported in AIR 1980 Bombay 358 had in somewhat similar circumstances held the imposition of tax on the basis of floor area of more than 125 square meters irrespective of other considerations to be violative of Article 14 of the Constitution of India. It was, therefore, submitted that in view of aforesaid position of law, the Amendment Rules deserve to be quashed as being violative of provisions of Article 14 of the Constitution of India.
5. Shri V. S. Gokhale, the learned Assistant Government Pleader appearing for the respondent No.1 vehemently opposed aforesaid submissions. The learned Assistant Government Pleader submitted that there was no challenge whatsoever to the competence of the State to impose taxes on buildings and lands. It was, therefore, ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 7/18 within the province of the State to determine the manner in which such tax on buildings and lands could be levied. It was submitted that there was nothing arbitrary in doing away with the method of annual letting value of the building or land while determining the taxes and replacing the same on the basis of the area of the building or land in question. A reasonable classification as regards types of buildings had been stipulated and houses had been categorized into mud houses, bricks or stone houses, houses in stone brick and lime or cement, new RCC type houses and royal house building made up of marble or granite.
Similarly, location of the village panchayat also indicated that lands in a village panchayat in tribal or hilly area was liable for lesser taxes while those adjacent to a Municipal Corporation or Municipal Council were liable for higher taxes. It was, therefore, submitted that the Amendment Rules could hardly be termed to be arbitrary or as being violative of Article 14 of the Constitution of India. It was further submitted that in case the petitioners were aggrieved by imposition of taxes which they felt to be on the higher side, the remedy of challenging such assessment had been provided in the Rules of 1960 and errors, if any, in the assessment could be corrected. It was also urged that a Committee had been introduced for checking if there was ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 8/18 any arbitrary assessment before finalization of the assessment list. He submitted urged that there were ample safeguards in the Amendment Rules to take care of any arbitrary assessment. The learned Counsel, therefore, submitted that there was no merit whatsoever in the challenge to the Amendment Rules.
6. As there is challenge to the Amendment Rules, it would be necessary to consider the position as was prevailing under the Rules of 1960 and the subsequent changes introduced by the Amendment Rules. Tax on buildings and lands finds place in Part-II of the Rules of 1960. Rule 6(c) defines "annual letting value" to mean the annual rent for which a building or land may reasonably be expected to be let per year or from year to year. Rule 7(1) of Rules of 1960, reads thus :
"7(1). Every panchayat which decides to levy a tax on buildings and lands shall subject to the provisions of sub- rule (2) and after following the procedure prescribed in rules 3 and 4 levy it at such rate based either on the capital value or on the annual letting value of the lands and building, as may be decided by it, but not below the minimum and not exceeding the maximum rate, specified in the Schedule annexed to this Part."
The aforesaid Rules prescribe the minimum and maximum rate of tax on buildings based on capital value as well as ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 9/18 annual letting value of the building. Similarly, minimum and maximum rates are also prescribed on the basis of capital value and annual letting value of lands. Rule 9 prescribes the procedure for preparation of the assessment list and proviso thereto empowers the village panchayat or the Standing Committee to entrust the preparation of the assessment list to an officer in the service of the Government or Zilla Parishad as the case may be.
7. ig By notification dated 3-12-1999, the Amendment Rules were introduced. Rule 6(c) of the Rules of 1960 was substituted by defining "area of buildings". Amended Rule 6(c) reads thus :
"6(c). area of building" means a structure constructed with any materials whatsoever for any purpose whether used for human habitation or not and includes:-
(i) foundation, plinth, walls, floors, roofs, chimneys, plumbing and building services; fixed platforms;
(ii) varandas, balconies, cornices, projections;
(iii) part of a building or anything
affixed thereto;
(iv) any wall enclosing or intended to enclose any land or space, signs and outdoor display structures;
(v) tanks constructed for storage.::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 10/18
Similarly, in Rule 7 sub rule (1), the words "either on the capital value or on the annual letting value" have been substituted by the words "on the total area (on the basis of per square foot)". Similarly, the table prescribing rate of tax on buildings and lands has been substituted to determine maximum and minimum taxes on the basis of the total area. Amendment has been made to Rule 9 of the Rules of 1960 and by provisions of Rule 9(4), a Committee has been formed to check any arbitrary assessment if made before finalizing the assessment list.
Thus, the basic amendment is with regard to replacing the method of assessing taxes from the capital value/annual letting value method with the total area of the building/lands in question on the basis of square foot area.
8. Before considering the challenge to the validity of the Amendment Rules, it would be apposite to keep in mind the following principles that can be deduced from the law laid down by the Supreme Court of India.
(a) State of Madhya Pradesh V. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 313.
32. While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the Court must have regard ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 11/18 to the following principles:
(i) there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature,
(ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found,
(iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and ig State Legislatures are supposed to the alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence,
(iv) hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law, and
(v) in the field of taxation, the legislature enjoys greater latitude for classification".
(b) Kunnath Thathunni Moopil Nair v. State of Kerala and another AIR 1961 Supreme Court 552.
Article 265 imposes a limitation on the taxing power of the State in so far as it provides that the State shall not levy or collect a tax, except by authority of law, that is to say, a tax cannot be levied or collected by a mere executive flat. It has to be done by authority of law, which must mean valid law. In order that the law may be valid, the tax proposed to be levied must be within the legislative ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 12/18 competence of the Legislature imposing a tax and authorising the collection thereof and, secondly, the tax must be subject to the conditions laid down in Art. 13 of the Constitution. One of such conditions envisaged by Art. 13(2) is that the legislature shall not make any law which takes away or abridges the equality clause in Art. 14, which enjoins the State not to deny to any person equality before the law or the equal protection of the laws of the country. It cannot be disputed that if the Act infringes the provisions of Art.
14 of the Constitution, it must be struck down as unconstitutional......."
ig (c) New Manek Chowk Spg. And Wvg. Mills Co. Ltd. vs. Municipal Corporation of the City of Ahmedabad and others AIR 1967 Supreme Court 1801.
"14....................................................... it would be useless for the assessee to take objections or file appeals against the decisions on rateable value to the authorities prescribed by the Act if he was challenging the determination of the rateable value as being violative of Art. 14 of the Constitution. It is no answer to such a charge to say that the rateable value could be determined properly by the municipal authorities acting under the Act and the rules thereunder when they do not resort to any of the well-known methods of valuation and cannot justify their arbitrary method"
9. As the flat rate method on the basis of floor area of the building or land in question has been earlier subjected to challenge as being violative of the provisions of Article 14 of the Constitution of India, it would be ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 13/18 necessary to refer to the law in that regard. In New Manek Chowk Spg. and Wvg. Mills (supra), the Municipal Corporation of Ahmedabad sought to impose property tax on certain special properties like textile mills, factories, buildings of Universities etc. on the basis of flat rate per 100 square feet of the floor area of the property situated within the Municipal limits. The validity of aforesaid exercise was challenged under Article 32 of the Constitution of India. It was urged that imposing property tax on the flat rate method of a fixed amount per 100 square feet was against the recognized concept of valuation. It was urged that such method was arbitrary and violative of the right guaranteed under Article 14 of the Constitution of India. Referring to various literature in the matter of determining rateable value, it was held that the said method was not one that was generally recognized by authorities on rating. The Supreme Court ultimately proceeded to set aside the assessment undertaken on that basis.
In K. T. Moopil Nair (supra), it was observed in para 8 that ordinarily a tax on land or land revenue is assessed on the actual or potential productivity of the land sought to be taxed. The tax has reference to the income actually made or which could have been made with due ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 14/18 diligence.
In State of Kerala (supra), while considering the challenge to the judgment of the Kerala High Court holding the Kerala Buildings Tax Act, 1961 to be ultra vires the provisions of Article 14 of the Constitution, the Supreme Court observed in para 5 as under:
"5. But in enacting the Kerala Buildings Tax Act no attempt at any rational classification is made by the Legislature. As already observed, the ig Legislature has not taken into consideration in imposing tax the class to which a building belongs, the nature of construction, the purpose for which it is used, its situation, its capacity for profitable user and other relevant circumstances which have a bearing on matters of taxation. They have adopted merely the floor area of the building as the basis of tax irrespective of all other considerations. Where objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result, for, in our view, refusal to make a rational classification may itself in some cases operate as denial of equality."
On that basis, the judgment of the High Court was upheld.
10. It is also necessary to refer to the decision of the Division Bench in Rajab Mahal Co-operative Housing Society Ltd. (Supra), wherein the provisions of the Maharashtra Tax on Residential Premises Act, 1974 to the extent it sought to impose tax on every flat having a floor ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 15/18 area of more than 125 square meters was under challenge.
After referring to the judgments of the Supreme Court in State of Kerala (supra), and New Manek Chowk (supra), in para 22, it was observed as under:-
"22. What is the nexus between the floor area and the tax that is sought to be levied Even though any legislature has a wide choice in the matter of selecting the objects, articles, persons and properties for the purpose of taxation, there must always be a rational nexus between the tax sought ig to be levied and the object which is subjected to that tax. On the bare examination of the provisions of the Maharashtra impugned Act, we see no difference between the provisions of the Kerala Act and this Act in the matter of selecting floor area as a flat basis for imposition of the tax. The fact that residential premises are sought to be taxed under our Act hardly makes it distinguishable from the other. Whereas the Kerala Act sought to tax all houses and buildings, the Maharashtra legislature has chosen to restrict the imposition of tax upon one use thereof, viz. Residential premises.
This is not a distinction which makes this Act any the different from the one which was already struck down by the Supreme Court.
The Division Bench thereafter proceeded to hold that the Act under challenge sought to treat unequals as equals and imposed uniform or flat tax irrespective of various rational considerations that ought to enter a tax structure.
Accordingly, the Act under challenge was declared ultra ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 16/18 vires the Constitution of India.
11. It is thus clear from aforesaid that adopting a flat rate method as per floor area to determine rateable value has been frowned upon by the Supreme Court as the same tends to treat unequals as equals. Said method has been held to be violative of the provisions of Article 14 of the Constitution of India. A weighty consideration in the form of annual letting value of the building/land is ignored and tax is sought to be determined merely on the basis of location of the building/land and the nature of construction. Thus, in a given case, a pucca house in stone, brick or cement located in the village panchayat in a tribal and hilly area, but having been constructed more than 25 years ago would be liable to pay more tax than a new RCC slab house located in the village panchayat adjacent to a Municipal area though latter house may be very recently constructed. In other words, a new construction though having higher annual letting value would be subjected to lesser taxation than a house constructed more than 25 years ago which would definitely have lesser annual letting value. As noted above, the annual letting value has been the most accepted method of determination of rateable value. Moreover, ignoring the age of the construction of the property subjected to taxation is another vital aspect that ::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 17/18 cannot be ignored. A new construction having modern amenities and having higher annual letting value would be subjected to lower rate of taxation on the basis of per square foot merely because the same is located in a general area. Moreover, it is obvious that while a brick or stone house built in clay and located in a general area but recently constructed, would have more annual letting value than a similar brick or stone house in the same general area, but constructed about 25 to 30 years ago. While in terms of their respective valuation, the value of the recently constructed brick house would be naturally more, both such houses would be taxed at the same rate as per square foot area. Thus, in effect, property having lesser value would be subjected to tax at the same rate when compared to a newly constructed property in the same area. It is thus, clear that unequals are being sought to be treated equals by the amended method of determining ratable value.
Discrimination is thus writ large by adopting the method of taxation on the basis of total area of the property in question. As observed by the Supreme Court in State of Kerala (supra), the purpose for which the building/land is used and its capacity for profitable user are relevant criteria in the matter of taxation. Said criteria has been totally ignored in the amended Rules.
::: Downloaded on - 11/11/2014 23:52:52 ::: PIL60.01.odt 18/1812. In so far as the submission made on behalf of the State that adequate machinery has been provided under the Rules to safeguard against any arbitrary assessment, similar argument has been considered and negatived by the Supreme Court in para 14 of its decision in New Manek Chowk (supra).
13. It is thus clear that the Amendment Act is discriminatory and violative of the provisions of Article 14 of the Constitution of India. Thus, clauses 2 to 4 and 5(a) of the Amendment Rules, 1999 are struck down as being violative of Article 14 of the Constitution of India. The petition thus succeeds to the aforesaid extent.
14. Considering the fact that the Amendment Act was in operation since 3-2-1999 and State would be required to take appropriate corrective steps in the matter, the operation of this judgment is stayed for a period of eight weeks from today.
JUDGE JUDGE
//Muley//
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