Money Johny v. State of Kerala — 1997 DIGILAW 204 (KER)

Judgment :- P.A. Mohammed, J. The dispute involved in this writ petition relates to the manner of fixation of the building tax payable in respect of a building in a Panchayat area under the provisions of the Kerala Panchayat (Building Tax) Rules, 1963 (for short 'the rules'). The writ petition has been filed seeking to quash Exts. P1, P4 and P5 and Ext. P6 orders/demand notice in respect of the building No. 9/339 of Peringara Panchayat. Ext. P1 is the copy of the assessment and Ext. P4 is the appellate order of the Deputy Director of Panchayats. Ext. P5 is the order of the Government dated 17.2.1992 rejecting the revision petition filed by the petitioner against Ext. P4 order. 2. Heard learned counsel for the petitioner and also the Standing Counsel for respondents 2 and 3. I also heard Government Pleader for first respondent. 3. Ext.P1 is the assessment in respect of the building in question for the year 1988-89. As per the said assessment the second respondent determined capital value of the building after revision as Rs. 2,50,000/-. On that basis the annual probable rent was fixed at Rs. 15,000/-. Accordingly the second respondent determined the annual tax in respect of the building as Rs. 1,080/-. Being dis-satisfied with this assessment the petitioner filed an appeal before the Deputy Director of Panchayats. The Deputy Director has observed that this building is situated in a place where there is road facilities and that the building is electrified. The estimated value of the building as originally proposed was Rs. 3.5 lakhs and it was on that basis building tax was fixed at Rs. 1,512/-. The tax was reduced to Rs. 1,080/- in the revision by the second respondent and the above order was found to be correct by the Deputy Director. The first respondent as per Ext. P5 dismissed the revision petition confirming the orders passed by the authorities below. 4. Learned counsel for the petitioner submits that the determination of the building tax shall be made on the basis of the net annual rental value of the building under S.68 of the Kerala Panchayat Act 1960 (for short 'the act). He further points out that the fixation of building tax on the basis of the capital value of the building is authorised under R.4 of the Rules only in exceptional circumstances. He further points out that the fixation of building tax on the basis of the capital value of the building is authorised under R.4 of the Rules only in exceptional circumstances. Sub-s.(1) of S.68 of the Act is as follows: "68. Building tax (1) Every Panchayat shall in accordance with the rules prescribed for the purpose of levy a tax on all buildings (other than huts and buildings exempted by the provisions of this s act) in the Panchayat area, at that percentage of the net annual rental value of the building as may be fixed by the Panchayat by resolution, subject to a maximum of ten per cent and a minimum of six percent." The above provision authorises the Panchayat to levy a tax on all buildings in the Panchayat area at such percentage of the net annual rental value of the building. Thus, the basis of the levy under this provisions the net annual rental value and not the capital value of the building, But S.68 operates with rules prescribed for the purpose of levy of building tax. Sub-s.(4) of S.68 authorises the Government to frame rules providing for, inter alia, the manner of ascertaining the net annual rental value of the buildings or the categories into which they fall for the purpose of taxation. 5. In pursuance of the provisions contained in S.68(4) the Government have framed the Kerala Panchayat (Building Tax) Rules, 1963 and published in Kerala Gazette dated 8.1.1963. R.4 of the said Rules prescribes the procedure for determination of annual rental value of the buildings. The relevant portion of R.4 is extracted hereunder. "4. 5. In pursuance of the provisions contained in S.68(4) the Government have framed the Kerala Panchayat (Building Tax) Rules, 1963 and published in Kerala Gazette dated 8.1.1963. R.4 of the said Rules prescribes the procedure for determination of annual rental value of the buildings. The relevant portion of R.4 is extracted hereunder. "4. Determination of annual rental value - The net annual rental value of buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to be let from month to month or from year to year, less a deduction of ten per cent of such annual rent, and the said deduction shall be in lieu of all allowances for repairs or any other account whatever: Provided that in the case of - (i) any Government building, or (ii) any building of a class not ordinarily let, the gross annual rent of which cannot, in the opinion of the Executive Authority be estimated, the annual rental value shall be deemed to be six per cent of the total estimated value of the appurtenant land and estimated present cost of erecting the building after deducting for depreciation a reasonable amount which shall in no case be less than ten per cent of such cost: Provided further that where the annual value of any building is attributable partly to the use of such building or any portion thereof for the display of any advertisement or advertisements the value of such building for the purpose of assessing the building tax thereon shall be ascertained as if such building or portion is not used for the display of such advertisement or advertisements". The net annual rental value of building shall be the gross annual rent less a deduction often percent thereof in lieu of all allowances for repairs or any other account whatever. The above rule provides how the net annual rental value contemplated in S.68(1) can be determined. The gross annual rent is the rent which a building may reasonably be expected to be let from month to month or from year to year. In other words, the basis of the fixation of building tax is the net annual rental value of the building. The gross annual rent is the rent which a building may reasonably be expected to be let from month to month or from year to year. In other words, the basis of the fixation of building tax is the net annual rental value of the building. However, clause (ii) of proviso to R.4 authorises the fixation of annual rental value on the basis of the estimated value of the appurtenant land and estimated present cost of construction of the building. In other words, this clause authorises the fixation of the building tax on the basis of the capital value of the building. But, this is applicable in the case of any building of a class not ordinarily let, the gross annual rent of which cannot be estimated. In such cases, the annual rental value shall be deemed to be six percent of the total estimated value of the appurtenant land and estimated present cost of erecting the building after deducting for depreciation a reasonable amount which shall in no case be less than ten per cent of such cost. In order to attract clause (ii) of the proviso there must be an opinion by the Executive Authority that the gross annual rent of the building cannot be estimated. To put it differently, the fixation of the tax on the basis of the capital value can be adopted only when there is an 'opinion' by the Executive Authority that the gross annual rent of the building cannot be estimated. Mere ipsi dixit of the Executive Authority is not sufficient. That 'opinion' shall be formed on cogent materials because it may result in adopting a different mode of fixation of annual rental value in the case of buildings not ordinarily let. The 'opinion' of the Executive Authority may sometimes adversely affect the owner of the building. Therefore, the reasons for formation of 'opinion' shall be recorded by the Executive Authority before proceeding to determine the annual rental value of the basis of the capital value in the case of buildings not ordinarily let. In the present case, there is nothing on record to show that the Executive Authority has recorded the reasons for formation of the opinion that it is a building not ordinarily let. In this case as could be seen from Ext. P1, the second respondent has fixed the capital value of the building as Rs. In the present case, there is nothing on record to show that the Executive Authority has recorded the reasons for formation of the opinion that it is a building not ordinarily let. In this case as could be seen from Ext. P1, the second respondent has fixed the capital value of the building as Rs. 2,50,000/- and on that basis the tax payable has been fixed. 6. The next question that falls for consideration is whether the present building falls within the category of buildings which ordinarily let or not ordinarily let. The case of the petitioner is that he has constructed the building for his residence and it is used for that purpose. But when the building is assessed on capital value it is clear that the Executive Authority has treated it as not ordinarily let. In this context, it is apt to recall the decision of a Division Bench of this Court in K.B. Eapen v. Executive Officer (1973 KLT42). The Division Bench while dealing with the present rule observed thus: "On the other hand, if the building is designed or constructed in such a fashion as to be a residential building, it may fall within the class of buildings ordinarily let, though the intention at the time of its construction was not to let the building on rent. It is quite common that buildings are constructed for the residence of the owners and not for being let out on rent. Still, from the design or mode of construction of such buildings, if they can be considered as buildings, falling under a class ordinarily let, then the buildings will fall within the class of buildings ordinarily let and taxed accordingly". The Court further observed that the question whether a particular building falls within one category or other depends upon its design or construction, its location etc. and this is more or less a question of fact which has to be decided in each case. 7. As observed earlier, before any assessment is made, under R.4 of the Rules the Executive Authority shall record reasons for formation of the opinion that the annual rental value of the building cannot be estimated. The Court can examine the correctness of such opinion taking note of the particular facts involved in a case. In Ext. 7. As observed earlier, before any assessment is made, under R.4 of the Rules the Executive Authority shall record reasons for formation of the opinion that the annual rental value of the building cannot be estimated. The Court can examine the correctness of such opinion taking note of the particular facts involved in a case. In Ext. P5 order of the Government it was observed that tax was determined on the basis of the capital value of the building treating it as a class not ordinarily let out. Therefore, the Government came to the conclusion that the fixation of the tax on the basis of the estimated capital value of the building is correct. I think this approach of the Government is erroneous. What are the reasons for treating the building as not ordinarily let are not known. Non-recording of the 'opinion' by the Executive Authority is a serious infirmity in the present case. In view of this reason, the entire proceedings for levying the building tax on the basis of the capital value of the building are liable to be declared illegal. Accordingly, Exts. P1, P4 and P5 are quashed. Consequently, I direct the second respondent to complete the assessment of the building in question afresh in accordance with law and in view of the observation made above after affording a reasonable opportunity of being heard to the petitioner. The original petition is allowed.