Kochuthresia Antony v. Angamaly Municipality — 1998 DIGILAW 358 (KER)

Judgment :- P. Shanmugam, J. Petitioners are owners of a 3 storied building in Ward No. 12 of Angamaly Municipality. They have 7 door numbers presently. They were assessed for the first time for property tax in the year 1990 and revised in the general revision made in the year 1991. The Municipality proposed a general revision of tax for the year 1995 to 2001 and issued special notice to the petitioners. Petitioners claimed to have filed their objections. But the 1st respondent confirmed the proposal of the enhancement. Thereafter, appeal preferred before the Standing Committee were disposed of by orders dated 6.1.98. In this Original Petition, they seek to quash Exts. P5 to P14 orders confirming the general revision and for a declaration that the increase of the property tax is excessive and arbitrary. 2. The submission of the learned counsel for the petitioner can be summarised as follows: (1) The revision and enhancement of the property tax is contrary to the Circular issued by the Government in Ext.P15. (2) The appeals were disposed of by non-speaking orders and, therefore, they are illegal. (3) The materials or the basis on which the enhancement was made were not disclosed to the petitioners. (4) The value of the building has depreciated and, therefore, there is no scope for increase in the annual value. (5) Enhancement of tax is more than 50% and, therefore, it is excessive. (6) The Municipality has no jurisdiction to levy and collect library cess. 3. The 1st respondent has filed a counter affidavit. The argument of the learned Standing Counsel for the Municipality can be summarised as follows: The 3 storied building is situated in the heart of Angamaly town on the National Highway. Petitioners are running a bar attached hotel on the first floor and the 2nd floor contains 10 rooms run as a lodge. The annual value of the building has been uniformly enhanced by 20% being the existing concrete structure. The rate of tax on the annual value was enhanced from 10 to 13.5% as per the resolution of the Municipality which is marginal and very reasonable. According to them, compared to the actual rental value of the building which is used as a bar attached hotel with lodging facility, the enhancement is very marginal. As a matter of fact, the uniform flat rate fixed has resulted to the advantage of the petitioner. According to them, compared to the actual rental value of the building which is used as a bar attached hotel with lodging facility, the enhancement is very marginal. As a matter of fact, the uniform flat rate fixed has resulted to the advantage of the petitioner. Otherwise, it would be 4 to 5 times more than the normal annual value of the building and according to them, the tax would have been more higher than now fixed. The annual rental value fixed in the quinquennial revision of the year 1991 has become final. Petitioners have not pointed out any grounds or raised any points as to how the enhancement of the annual rental value fixed by the Municipality is erroneous. A mechanical statement of objection stating that tax must be reduced was the only objection raised by the petitioner. The Circular issued by the Government in the year 1992 is only a guideline and the same will not override the statutory provisions. In any event, they have not exceeded the limit prescribed in the circular. 4. I have heard the counsel at length. 5. Petitioners are owners of a 3 storied building with 7 separate numbers and building assessments. They were assessed to property tax in the year 1990. During the quinquennial revision for the period 1991-92 to 1995-96,1996-97 to 2000-2001 the buildings were reassessed. This Original Petition is concerned with the revision for the 5 years 1996-97 to 2000-2001. Admittedly, the annual value and the assessment fixed in the year 1991-92 to 1995-96 has become final. 6. A brief description of the building and the tax particulars are necessary to appreciate the points that arise for consideration. 7. The Municipality has fixed the annual rental value of the buildings after deducting 20% from its value towards maintenance. Thereafter, tax was determined at 13% of the annual value so fixed. The revision filed by the petitioner as well as the appellate orders have given reliefs to the petitioners, but not to their complete satisfaction. Ext. PI5 Circular dated 15.9.98 issued by the Government of Kerala proposed to limit the increase of percentage of property tax during the time of general revision. The revision filed by the petitioner as well as the appellate orders have given reliefs to the petitioners, but not to their complete satisfaction. Ext. PI5 Circular dated 15.9.98 issued by the Government of Kerala proposed to limit the increase of percentage of property tax during the time of general revision. The relevant portion of the Circular is as follows: "While revising the property tax, a maximum increase of 25 % to the existing property tax in case of concrete buildings and a maximum increase of 15 % to the existing property tax in case of other buildings can only be levied." The Circular is referred to under S.575, Repeal and Saving. Sub-s.(2)(xii) saves all other assessments including the guidelines issued by the Government in Circular dated 15.9.92. 8. A brief reference to the relevant provisions may be made. Chapter XIV of the Kerala Municipality Act deals with the taxation and finance. S.230 imposes a duty on the Municipality to levy property tax. S.231 empowers the Municipal Council to determine the levy of tax and specify the rates at which tax shall be levied. Sub-s.(3) to S.23 3 states that tax shall be levied at such percentage of the annual value of buildings or lands which are occupied by or adjacent and appurtenant to buildings or both as may be fixed by the Council. Proviso to sub-s.(3) states that the aggregate of percentage so fixed shall not be less than 10% and more than 25% in the case of Municipal Council. S.234 sets out the method of assessment of property tax. Sub-s.(2) of S.234 states that for the purpose of assessment, the annual value of buildings and lands which are occupied by, or adjacent and appurtenant to building 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. Proviso to sub-s.(2) says that in case of any building of a class not ordinarily let, the gross annual rent of which cannot in the opinion of the Secretary be estimated, the annual value of the premises shall be deemed to be 6% of the total of the estimated value of the land, and estimated present cost of erecting the building after deducting for depreciation a reasonable amount. Sub-s.(2)(iv) states that where any building is let out to a tenant, the actual rent received by the owner is less than the reasonable value arrived at in the manner specified above, the annual value of such building for the purpose of assessment of tax be fixed at the value arrived at. Sub-s.(3) to S.234 empowers the Government to make rules regarding the manner in which the persons by whom and intervals at which the value of the 1 and, the present cost of erecting the building and amount to be deducted shall be estimated or revised. S.236 stipulates fixation of uniform rate of tax when levied on the annual value. S.238 deals with the revision of property tax. In this case, we are concerned with quinquennial revision. S.238 is as follows: "238. Revision and time of payment of property tax:- Subject to the rules made by the Government the property tax shall be assessed and the half-yearly tax determined once in every five years and the half-yearly tax shall be payable by the owner of the assessed property within thirty days of the commencement of each half-year: Provided that except in the case of substantial improvements or addition to an existing building since the last assessment, the annual value of any building shall not exceed the limit, if any, fixed by the Government from time to time." The proviso to S.238 enables the Government to fix outer limit for the fixation of the annual value of the building. S.279 enables the Government by order to direct the Municipality to levy property tax at such rate as may be specified in the order. Sub-s.(2) of that Section states that on such publication of the said order, it shall be deemed as if the Council had determined the levy of tax at those rates. 9. A combined reading of the provisions set out above makes it clear that the Municipality has got a duty and is empowered to impose property tax on the buildings and the lands within the Municipality area. The property tax shall be assessed on the annual value of the building which shall be deemed to be the gross annual rent which they may reasonably be expected to be let. The rate of the property tax shall not be less than 10% and not more than 20% of the annual value of the buildings or lands. The property tax shall be assessed on the annual value of the building which shall be deemed to be the gross annual rent which they may reasonably be expected to be let. The rate of the property tax shall not be less than 10% and not more than 20% of the annual value of the buildings or lands. The assessment of the property tax shall be determined once in every 5 years. 10. The assessment of the property tax is as per the rules made by the Government. The Government is empowered to fix the outer limit of fixation of the annual value. The Government is empowered to issue directions on the rate of the property tax that can be leviable under the Act. The rule making power of the Government under S.565 enables the Government to make rules providing for determining the cost of building and lands. 11. Ext. P5 circular dated 15.9.92 has directed that while revising the property tax, the maximum increase of 25% to the existing property tax in the case of concrete buildings and a maximum of 15% in the case of other buildings can only be levied. 12. This Circular does not set out the provision under which the said direction has been issued. However, the direction is in reference to the ultimate fixation of the property tax. As per the provisions, the assessment of the property tax is to determine the annual value of the property and thereafter levying at a particular percentage to arrive at the tax due for a particular property. Therefore, there is no scope or provision in law for fixing an outer limit for the combined annual value as well as the rate of tax. Apart from the fact that there is no power for such a direction, that would not only be practical but also will be violating the mandatory requirements of the Act. 13. While the Government is empowered to fix a particular limit in reference to the fixation of the annual value under S.238, the Government is also empowered to fix the rate of tax under S.279. While S.279 contemplates publication of the Gazette notification of the; order of the Government, proviso to S.238 enables the issue of a Government order from time to time. While S.279 contemplates publication of the Gazette notification of the; order of the Government, proviso to S.238 enables the issue of a Government order from time to time. Sub-s.(3) to S.234 also enables the Government to make rules regarding the manner in which the officers can value the cost of the building. Therefore, Ext. P15 Circular cannot go beyond the scope of the provisions of the Act set out above. Therefore, it can only be treated as guidelines as described under the Saving Clause. S.575(2) (xii) of the Act itself refers it as the guidelines issued by the Government. Therefore, the effect of it is that those Municipalities who have followed these guidelines and the assessment made under these guidelines shall continue to be in force. S.104 of the Municipalities Act, 19 60 corresponding to S.238 did not empower the Government to fix up the outer limit for the annual value of the building. It is only under the present Act, S.238, enables the Government to do so. 14. S.132 of the old Act corresponding to S.279 of the present Act enables the Government by order to publish in the Gazette to direct the Municipal Council to levy tax at a particular rate. The respondent Municipality has by a resolution which has been published in the Gazette dated 5th March, 1996 as notification dated 26th February, 1996, increased the rate of tax by 13.5% with effect from 1.4.96. However they have adopted a uniform formula for enhancing the annual value of 20% for the existing concrete building. This, according to the Municipality is well within the guidelines set out in Ext. P15 Circular. 15. The main contention is that the Municipality cannot enhance the annual value at 25%, but they have to assess the property tax at 25%. As seen earlier, such a contention is not tenable. At the same time, the Municipality also cannot take advantage of the Circular to increase the annual value by 20%, since Ext. P15 Circular did not speak about the annual value. It only refers to the property tax. Therefore, in the absence of any order as contemplated under the proviso to S.238 the Municipality has to go by the formula set, out under S.234, namely, to fix the annual value on the basis of the gross annual rent at which the property may reasonably be let. It only refers to the property tax. Therefore, in the absence of any order as contemplated under the proviso to S.238 the Municipality has to go by the formula set, out under S.234, namely, to fix the annual value on the basis of the gross annual rent at which the property may reasonably be let. This admittedly having not been done, the assessment; of the Municipality cannot be sustained. 16. This Court in Achuthanandcm v. Commissioner (1983 KLT 671) held that it is not open to the Municipality to fix the annual rental value of the property on any basis other than the standard rent, in the following words: "After decision of the Supreme Court in Dewan DaulatRai Kapoor & Ors. v. New Delhi Municipal Committee & Ors. (1980) 1 SCC 685) it is not open to the Municipality or the Corporation governed by the Municipalities Act or the Corporation Act to fix the annual rental value of the property taxed on any basis other than that the standard rent that might be payable in accordance with the principle laid down in the Rent Control Act." At that time, under the old Act, S.100 which deals with the method of assessment of property tux states that the annual value of the building shall be deemed to be the annual rent at which they may reasonably be expected from month to month or year to year. The new Act has made a departure by stating that notwithstanding anything contained in the Kerala Buildings and Rent (Control) Act, the annual value of the building shall be deemed to be the gross annual rent at which they may reasonably be expected to. Therefore, though it is not mandatory on the part of the Municipality to go by the principles laid down under the Rent Control Act, freedom is given to the Municipality to arrive at a gross annual rent based on reasonable expected rent. Therefore, though it is not mandatory on the part of the Municipality to go by the principles laid down under the Rent Control Act, freedom is given to the Municipality to arrive at a gross annual rent based on reasonable expected rent. Sub-s.(2)(i) of S.234 of the Kerala Municipality Act reads as follows: "(2)(i) Notwithstanding anything contained in Kerala Buildings (Lease and Rent Control) Act, 1965(2 of 1965) for the time being in force, the annual value of building and lands which are occupied by, by adjacent and appurtenant to 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, in the case of buildings of twenty per cent of that portion of such annual rent which is attributable to the buildings alone apart from their sites and adjacent lands occupied as an appurtenance thereto." In Municipal Corporation of Greater Bombay v. M/s. Polychem Ltd. (1974 2 SCC 198) the Supreme Court in reference to the similar provision under the Bombay Municipalities Corporation Act, held as follows: "The mode of assessment in every case must be directed towards finding out the annual letting value of land which is the basis of rating of India, and, by definition, "land" includes land which is either being built upon or has been built upon. Nevertheless, a reference to the provisions of the Act shows that, after a building has been completed, the letting value of the building, which becomes part of land, will be the primary or determining factor in fixing the annual rent for which the land which has been built upon "might reasonably be expected to be let from year to year". S.138 of Madhya Pradesh Municipal Corporation Act provided fixation of the gross annual rent without reference to any other law similar to S.234 of the Kerala Municipality Act. The Supreme Court while dealing with the said provision in Indore Municipality v. Ratnaprabha (AIR 1977 SC 308) held that it would be permissible to fix its reasonable rent without regard to the provisions of the M.P. Accommodation Control Act, 1961. That would give proper effect to the non-obstante clause in clause (b), with due regard to its other provision that the letting value should be reasonable. That would give proper effect to the non-obstante clause in clause (b), with due regard to its other provision that the letting value should be reasonable. The Supreme Court further held that since no standard rent was fixed in respect of the premises in question, the Municipal Commissioner was justified in adopting another suitable criterion for determining the annual value of the building. There is in fact nothing in the Act to make it obligatory for the Commissioner to follow the provisions of the M.P. Accommodation Control Act in spite of the non-obstante clause and to limit the annual value to any standard rent that the building might fetch under that Act. In Devan Daulat Rai Kapoor v. New Delhi Municipality (AIR 1980 SC 541) while dealing with the similar expression, viz., gross annual rent at which they may reasonably be expected, the Supreme Court held as follows: "The criterion is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. The rent which the landlord might realise if the building were let is made the basis for fixing the annual value of the building. What the landlord might reasonably expect to get from a hypothetical tenant, if the building were let from year to year, affords the statutory yardstick for determining the annual value. There would ordinarily be in a free market close approximation between the actual rent received by the landlord and the rent which he might reasonably expect to receive from hypothetical tenant". 17. In the light of what is stated above, the Municipality has to fix the annual value as per the provisions of S.234 read with rules made in this regard. Si nee, admittedly, the Municipality has not taken this exercise and adopted a formula contrary to the provisions of the Act and Rules, the assessment orders made in reference to the petitioners' building are liable to be set aside and remanded for fresh determination. 18. In this view of the matter, the other contentions do not arise for consideration. 19. S.48 of the Kerala Public Libraries Act, 1989 (Act 15 of 1989) enables the State Library Council to levy a library cess on the building tax levied under the Kerala Municipalities Act. 18. In this view of the matter, the other contentions do not arise for consideration. 19. S.48 of the Kerala Public Libraries Act, 1989 (Act 15 of 1989) enables the State Library Council to levy a library cess on the building tax levied under the Kerala Municipalities Act. Sub-s.(2) says that the cess levied under S.150 to be collected in the area within the jurisdiction of the Municipal Council as if a cess for building tax. It is seen that the executive committee of the State Level Committee by resolution dated 21.4.95 ordered to collect the library cess from 1.4.95. The Government has been requested to issue suitable directions. Accordingly, the Circular No.15477/C3/95/L AD dated 20.5.95 has been issued directing the collection of the library cess. Therefore, the Municipality is justified in law in levying the cess and the collection of library cess at the rate of 5% of the property tax cannot be held to be illegal. For the reasons stated above, the property tax assessment orders of the respondent Municipality on the petitioners' buildings are set aside and remanded for fresh and reassessment in accordance with law. Original Petition is disposed of as indicated above.