# NEW DELHI MUNICIPAL COUNCIL ETC. ETC v. ASSOCIATION OF CONCERNED CITIZENS OF NEW DELHI AND OTHERS ETC. ETC

- **Citation:** [2019] 2 S.C.R. 331
- **Court:** Supreme Court of India
- **Decided:** 2019-01-22
- **Case number:** Civil Appeal Nos.903-930 of 2019
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/new-delhi-municipal-council-etc-etc-v-association-of-concerned-citizens-of-new-33478
- **Pages:** 55

## Headnote

NDMC (Determination of Annual Rent) Bye-Laws, 2009 -
Writ petitions filed by respondents-assesses challenging the
constitutional validity of the 2009 Bye-laws - Impugned Bye-laws
lay down the procedure for determining the rateable value inter alia
on the basis of Unit Area Method (UAM) altering the earlier system
of determining the rateable value on the basis of the annual rent -
Bye-laws challenged by respondents inter alia on the ground that
the UAM of fixing the annual value was foreign to s.63 of the 1994
Act - NDMC contended that since s.63, 1994 Act does not prescribe
any particular method for arriving at annual rent therefore, this
gap was filled by the Bye-laws by prescribing the formula based on
UAM - High Court declared the Bye-laws as ultra vires the 1994 Act
- On appeal, held: Rateable value means value of any land or
building fixed in accordance with the provisions of 1994 Act and
the Bye-laws made thereunder for the purposes of assessment of
property taxes - S.63, 1994 Act stipulated that the rateable value
of any land or building assessable to property tax shall inter alia be
the annual rent at which such land and building might reasonably
be expected to let - s.63(1), 1994 Act is not silent on how to determine
the annual rent of a property - This annual rent has to be the one
which the land or the property 'might reasonably be expected to let
from year to year' - Yardstick is the 'letting' - It is the annual letting
value which can be the annual rent and not the value of the property
in question - Manner in which the rateable value is fixed under the
Bye-Laws is not in sink with the scheme of s.63(1) of the 1994 Act -
Bye-Laws are foreign to the methodology provided in s.63 of the
1994 Act and thus, ultra vires the provisions of 1994 Act - However,
in exercise of powers u/Art.142 of the Constitution, it is directed
that assessees who have paid the tax as per Bye-Laws, 2009, being
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satisfied with the assessments under the impugned Bye-laws, their
assessments shall not be reopened - However, this will not apply to
the respondents who were writ petitioners in the High Court - In
their cases, the direction given by the High Court in the impugned
judgment shall prevail - New Delhi Municipal Council Act, 1994 -
ss.2(42), 60-63, 65-67, 70, 81, 388(1)(A)(9),391(1) and 416(2)(a)
- Delhi Municipal Corporation Act, 1957 - NDMC House Tax
Bye-Laws, 1962 - Delhi Municipal Corporation (Property Taxes)
Bye-Laws, 2004 - Constitution of India - Arts.14 and 142.
New Delhi Municipal Council Act, 1994 - ss.2(42), 61-63,
65-67, 70, 72, 73 and 81 - Essence of - Discussed.
Words & Phrases - "annual rent" & " annual value"-
Difference between- Discussed.
Disposing of the appeals, the Court
HELD: 1.1 Under Section 61 (1) of the NDMC Act, 1994
property tax shall be levied on lands and buildings in New Delhi
and "shall consist of not less than ten and not more than thirty
per cent of the rateable value of lands and buildings." The proviso
to Section 61(1) of the NDMC Act states that the NDMC may,
"when fixing the rate at which the property tax shall be levied
during any year, determine the rate leviable in respect of lands
and buildings or portions of lands and buildings in which any
particular class of trade or business is carried on shall be higher
than the rate determined in respect of other lands and buildings
or portion of other lands and buildings by an amount not exceeding
one-half of the rate so fixed." The second proviso to Section 61
(1) states that "the tax may be levied on graduated scale, if the
Council so determines." The explanation to Section 61 (1) states
that "where any portion of a land or building is liable to a higher
rate of the tax such portion shall be deemed to be a separate
property for the purpose of municipal taxation." Under Section
61 (2) of the NDMC Act, the NDMC can exempt from tax the
lands and buildings where "the ratea

## Text

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NEW DELHI MUNICIPAL COUNCIL ETC. ETC.
v.
ASSOCIATION OF CONCERNED CITIZENS OF
NEW DELHI AND OTHERS ETC. ETC.
(Civil Appeal Nos.903-930 of 2019)
JANUARY 22, 2019
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
NDMC (Determination of Annual Rent) Bye-Laws, 2009 -
Writ petitions filed by respondents-assesses challenging the
constitutional validity of the 2009 Bye-laws - Impugned Bye-laws
lay down the procedure for determining the rateable value inter alia
on the basis of Unit Area Method (UAM) altering the earlier system
of determining the rateable value on the basis of the annual rent -
Bye-laws challenged by respondents inter alia on the ground that
the UAM of fixing the annual value was foreign to s.63 of the 1994
Act - NDMC contended that since s.63, 1994 Act does not prescribe
any particular method for arriving at annual rent therefore, this
gap was filled by the Bye-laws by prescribing the formula based on
UAM - High Court declared the Bye-laws as ultra vires the 1994 Act
- On appeal, held: Rateable value means value of any land or
building fixed in accordance with the provisions of 1994 Act and
the Bye-laws made thereunder for the purposes of assessment of
property taxes - S.63, 1994 Act stipulated that the rateable value
of any land or building assessable to property tax shall inter alia be
the annual rent at which such land and building might reasonably
be expected to let - s.63(1), 1994 Act is not silent on how to determine
the annual rent of a property - This annual rent has to be the one
which the land or the property 'might reasonably be expected to let
from year to year' - Yardstick is the 'letting' - It is the annual letting
value which can be the annual rent and not the value of the property
in question - Manner in which the rateable value is fixed under the
Bye-Laws is not in sink with the scheme of s.63(1) of the 1994 Act -
Bye-Laws are foreign to the methodology provided in s.63 of the
1994 Act and thus, ultra vires the provisions of 1994 Act - However,
in exercise of powers u/Art.142 of the Constitution, it is directed
that assessees who have paid the tax as per Bye-Laws, 2009, being
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satisfied with the assessments under the impugned Bye-laws, their
assessments shall not be reopened - However, this will not apply to
the respondents who were writ petitioners in the High Court - In
their cases, the direction given by the High Court in the impugned
judgment shall prevail - New Delhi Municipal Council Act, 1994 -
ss.2(42), 60-63, 65-67, 70, 81, 388(1)(A)(9),391(1) and 416(2)(a)
- Delhi Municipal Corporation Act, 1957 - NDMC House Tax
Bye-Laws, 1962 - Delhi Municipal Corporation (Property Taxes)
Bye-Laws, 2004 - Constitution of India - Arts.14 and 142.
New Delhi Municipal Council Act, 1994 - ss.2(42), 61-63,
65-67, 70, 72, 73 and 81 - Essence of - Discussed.
Words & Phrases - "annual rent" & " annual value"-
Difference between- Discussed.
Disposing of the appeals, the Court
HELD: 1.1 Under Section 61 (1) of the NDMC Act, 1994
property tax shall be levied on lands and buildings in New Delhi
and "shall consist of not less than ten and not more than thirty
per cent of the rateable value of lands and buildings." The proviso
to Section 61(1) of the NDMC Act states that the NDMC may,
"when fixing the rate at which the property tax shall be levied
during any year, determine the rate leviable in respect of lands
and buildings or portions of lands and buildings in which any
particular class of trade or business is carried on shall be higher
than the rate determined in respect of other lands and buildings
or portion of other lands and buildings by an amount not exceeding
one-half of the rate so fixed." The second proviso to Section 61
(1) states that "the tax may be levied on graduated scale, if the
Council so determines." The explanation to Section 61 (1) states
that "where any portion of a land or building is liable to a higher
rate of the tax such portion shall be deemed to be a separate
property for the purpose of municipal taxation." Under Section
61 (2) of the NDMC Act, the NDMC can exempt from tax the
lands and buildings where "the rateable value does not exceed
Rs.1,000." [Para 21, 22] [355-G-H; 356-A-C]
1.2 The expression 'rateable value' is defined under Section
2 (42) of the NDMC Act to mean "the value of any land or building
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fixed in accordance with the provisions of this Act and the Byelaws made thereunder for the purpose of assessment to property
taxes." [Para 23] [356-D]
1.3 Section 62 of the NDMC Act relates to the 'Premises
in respect of which tax is to be levied'. Section 62 (1) lists out
such lands or buildings or portions thereof which will not be subject
to levy of property tax. This includes lands exclusively occupied
and used for public worship or by a society or body for a charitable
purpose. It also includes lands and buildings vested in the NDMC
in respect of which the tax, if levied, would be leviable primarily
on the NDMC and agricultural lands and buildings (other than
dwelling houses). Section 62 (3) clarifies that if a portion of the
land or building is exempted from property tax by reason of the
exclusive use or occupied for public worship or charitable purpose
then such portion "shall be deemed to be a separate property for
the purpose of municipal taxation." [Para 24] [356-E-F]
1.4 Section 63 of the NDMC Act sets out the method of
determination of the rateable value of lands and buildings
assessable to property tax. Section 63 (1) provides that the
rateable value of any land or building assessable to property tax
shall be the annual rent at which such land or building might
reasonably be expected to let from year to year less a sum equal
to 10% of the said annual rent which shall be in lieu of all
allowances for cost of repairs and insurance, and other expenses
necessary to maintain the land or building in a state to command
that rent. The proviso to Section 63 (1) of the NDMC Act states
that in respect of any land or building the standard rent of which
has been fixed under the Delhi Rent Control Act, 1958 ('DRC
Act'), the rateable value thereof "shall not exceed the annual
amount of the standard rent so fixed.". Section 632) of the NDMC
Act states that the rateable value of any land which is not built
upon but is capable of being built upon and any land on which a
building is in process of erection "shall be fixed at five per cent
of estimated capital value of such land." Under Section 63(3) the
Chairperson of the NDMC can by public notice, with the approval
of the NDMC, specify a plant and machinery which will be deemed
to form part of such land and building for the purposes of
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determination of rateable value. Section 65(1) of the NDMC Act
clarifies that lands and buildings being properties of the Union
shall be exempt from the property tax specified in Section 61 of
the NDMC Act. [Paras 25, 26] [356-G-H; 357-A-D]
1.5 Section 66 of the NDMC Act speaks of the incidence of
the property tax. It is primarily on the lessor if a building or land
is given on lease. It is on the superior lessor if the land or building
is given on a sub-lease. If it is not leased then on the person on
whom the right to let the same vests. Section 67 of the NDMC
Act talks of apportionment of liability of the property tax when
the premises are let or sub-let. Section 68 clarifies who will be
primarily liable for the property tax due in respect of any land or
building and in the event of default of the person liable to pay
such propertytax as specified in Section 66. It is clarified that
this would be the occupier of such land or building.
[Paras 27, 28] [357-D-F]
1.6 Section 70 of the NDMC Act deals with the 'Assessment
List'. This is a list of all lands and buildings which contains such
particulars with respect to each land and building as may be
prescribed by the Bye-laws. When such Assessment List is
prepared, the Chairperson under Section 70 (2) of the NDMC
Act gives a public notice thereof and every person claiming to be
an owner, lessor or occupier of a land or building included in the
List shall be at liberty to inspect the List and take extracts
therefrom free of charge. Under Section 70 (3), the Chairperson
is to give a public notice of a date not less than one month
thereafter when he would proceed to consider the rateable value
of the lands and buildings entered in the Assessment List. He is
also to give the written notice where the rateable value is
proposed to be increased. Section 70 (4) of the NDMC Act
provides for objections to be filed to the Assessment List in writing
to the Chairperson. Section 70 (5) of the NDMC Act talks of an
objection being notified into and investigated, and the person
making them shall be allowed an opportunity of being heard either
in person or by authorised agent before the final Assessment
List is prepared under Section 70 (6) of the NDMC Act. Section
72 of the NDMC Act provides for amendment of the Assessment
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List and Section 73 for preparation of new Assessment List. Under
Section 81 the Chairperson of the NDMC Act employs valuers
to give advice or assistance in respect of valuation of any land or
building. [Paras 29, 30] [357-F-H; 358-A-C]
1.7 Section 60, NDMC Act is the charging Section which
authorizes the NDMC to levy various types of taxes including
property tax. As per sub-section (3), tax can be assessed and
collected in accordance with the provisions of the Act and Byelaws made thereunder, rates at which the property tax can be
charged are mentioned in Section 61. This Section, inter alia,
provides that the property tax shall be levied on lands and
buildings in New Delhi and shall consistent of not less than 10%
and not more than 30% of the rateable value of lands and
buildings. Thus, property tax can be charged on lands and
buildings for which rates can be prescribed and these rates have
to be between 10% to 30%. Further, this percentage is of the
'rateable value' of lands and buildings. Definition of 'rateable
value' is given in Section 2(42) of the NDMC Act to mean 'the
value of any land or building fixed in accordance with the
provisions of this Act and Bye-laws made thereunder for the
purposes of assessment to property taxes'. Various premises,
viz: lands and buildings, in respect of which property tax can be
levied are mentioned in Section 62. The manner of determination
of rateable value is specified in Section 63 of the Act.
[Paras 67, 68] [376-E-H; 377-A-B]
1.8 As per Section 63(1), NDMC Act rateable value of any
lands or building assessable to any property taxes is the 'annual
rent'. Further, such annual rent has to be determined 'at which
such land or building might be reasonably be expected to let from
year to year....' .The 'rateable value', as per Section 2(42) of the
NDMC Act is to be fixed in accordance with the provisions of the
Act and the Bye-laws made thereunder. Section 63 prescribes
that 'annual rent' would be rateable value. This annual rent, as
per this provisions, is one such land or building is expected to
let from year to year minus 10% thereof. The Impugned Byelaws lay down the procedure for fixing of annual rent on UAM.
[Paras 69, 70] [377-G-H; 378-A]
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1.9 Section 63(1) is not silent on how to determine the
annual rent of a property. This annual rent has to be the one
which the land or the property 'might reasonably be expected to
let from year to year'. It is, thus, based on the letting yearly value
of the property. [Para 71] [378-D]
1.10 Annual rent is to be the one which the landlord might
realize if the house was let. The criteria, thus, is the rent realizable
by the landlord and not the value of the holding. The test
essentially is what rent the premises can lawfully fetch if let out
to a hypothetical tenant. [Para 77] [380-C-D]
1.11 Even in common parlance, simple language of Section
63(1) clearly conveys that the rateable value is the annual rent
which the property is likely to fetch. The yardstick is the 'letting'.
Two words used in this Section convey this meaning very clearly,
namely, the word 'rent' in the phrase 'annual rent' and the word
'let'. Therefore, annual rent is to be determined on the basis of
the letting value which is expected reasonably. In cases where
the property is already let out, actual rate at which the property
is let out becomes the amount at which the land or building is
reasonably expected to fetch. Exception may be those cases
where the property is let out actually at a rent which is lesser
than the rent it would be fetched otherwise. In case there is a
proof and/or material to find out that the reasonable rent could
have been more than at which it is actually let out, the actual rent
receipt can be discarded by adopting the expected rent which,
on the basis of material, can be said to be reasonable. In those
cases where the property is self-occupied or is vacant and not let
out, it can be gathered from the rent at which a comparable
property is let out. However, in such a case there would be two
situations. Going by the dicta laid down in Dewan Daulat Rai
Kapoor and other cases, the reasonable rent would be the standard
rent which can be determined under the provisions of Delhi Rent
Control Act. However, this principle would be applicable only in
respect of those properties where Delhi Rent Control Act applies.
In other cases, the yardstick would be the letting value of
comparable properties, i.e., the rent at which comparable
properties are let out. However, such criteria of fixation of
standard rent has lost its relevance after the judgment of the
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Delhi High Court in Raghunandan Saran Ashok Saran (HUF) vide
which Sections 4,6 and 19 of the Delhi Rent Control Act which
deal with fixation of standard rent, were declared as ultra vires of
the Constitution of India. The aforesaid decision has been
affirmed by this Court in State Trading Corporation of India Ltd.
Case. [Paras 79, 81] [380-G-H; 381-A, F-H; 382-A-C]
1.12 The expression 'annual rent' is to be read in
contradistinction to 'annual value'. Two concepts are altogether
different. Inasmuch as the latter expression relates to annual
value of the property which may be based on parameters different
from fixing the annual rent of the property. After going through
the Bye-laws and the manner in which the rateable value is fixed,
it is observed that it not in sink with the scheme of Section 63(1)
of the NDMC Act. Bye-law 4 stipulates that the bona fide annual
value of land not covered under Bye-law 3 would be the annual
value of land and bona fide annual value of the covered space of
the building. Bye-law 3 seeks to fix the entire value of land falling
in the jurisdiction of New Delhi at the circle rate of Rs. 43,000/-
(Rupees Forty Three Thousand only) per square meter. Likewise,
Bye-law 4(10) where annual rent of any building is determinable
under more than one-sub-bye-law, the annual rent shall be the
aggregate of the annual value determined under sub-bye-law of
this Bye-law. The arguments of the appellants is therefore rejected
and it is not deemed necessary to deal therewith any further.
[Paras 82, 83] [382-C-G]
1.13 The Impugned Bye-laws are ultra vires the provisions
of NDMC Act. They are in excess of the scope and ambit of
powers vested in the NDMC Act under Section 388(1)(A)(9) of
the NDMC Act. As rightly contended by the assessees, initially,
same was the thinking process in the NDMC as well inasmuch
as there was a move to amend the Act in order to bring UAM for
the purpose of levying property tax. This is how the Municipal
Corporation of Delhi achieved its objective. However, for the
reasons best known to the appellants, without amending the
provisions of the Act it went ahead in bringing Impugned Byelaws, 2009. [Paras 84, 85] [382-H; 383-A-C]
2.1 In many ways, UAM is a better method in comparison
with the earlier method based on annual rent. For this reason,
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this method has now been followed for the purpose of levying
property tax not only in the areas in Delhi itself covered under
the Municipal Corporation of Delhi but in many other States as
well. However, such a method which may be a better method can
be incorporated in accordance with the law. In the present case,
it could be done after amending the provisions of the NDMC
Act. Since, the High Court which has quashed the Impugned Byelaws as ultra vires is agreed with, it becomes meaningless and
irrelevant to go into other issues or other arguments advanced.
However, once the appellants take steps for amending the Act
and want to reintroduce the Bye-laws of 2009, many aspects
highlighted by the assessees in respect of Bye-laws would be
kept in mind. It is not being suggested that the contentions raised
by the respondents/assessees relating to validity of different Byelaws are well-founded, nor it is being suggested that they are illconceived. Supreme Court has not expressed any views on the
merits of these contentions, either way as this Court has not gone
into the merits of such contentions. At the same time in order to
obviate any future challenge the NDMC is expected to keep in
mind the arguments of the appellants on these aspects.
[Para 86][383-C-G]
2.2 When the matter came up on 6th March, 2018, a
statement on behalf of NDMC that the revised guidelines have
been framed and put on website, to which objections have been
invited. It was also stated that after receiving and considering
the objections, the matter would be finalized at NDMC's end.
The respondent/assessee and some others also submitted their
objections to the modified guidelines. These were looked into
by the NDMC and decision thereon was taken by the
Chairperson, NDMC under Bye-law 5(2) of the Impugned Byelaws after the Valuation Committee had given its recommendations
for the year 2018-19. This decision dated 14th May, 2018 of the
Chairperson was handed over to the Court. As per this, various
objections of the assessees were considered and decision taken
thereon. Many respondents/ assessees are still not satisfied with
the decision taken on various aspects and the arguments.
However, it is left to the NDMC to take a final call thereupon
having due regard to the legal position on these aspects.
[Para 88] [384-F-H; 385-A]
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2.3 The declaration of Impugned Bye-laws as ultra vires
has created a difficult situation. These Bye-law were framed in
the year 2009. They were struck down by the High Court vide
impugned judgment dated 10th August, 2017. They held the field
from 2009-2017. While issuing notice in these Special Leave
Petitions on 22nd September, 2017, in respect of the direction of
the High Court to pass re-assessment order, this Court observed
that it would be open to the NDMC not to pass such re-assessment
orders. That interim order has prevailed during the pendency of
these appeals. Further, as already noted above, 95% of the
assessees are agreeable to pay the tax as per Bye-laws 2009.
They have even paid the taxes on that basis. In these
circumstances, to upset the applecart completely may not be
appropriate. In such a peculiar situation, in exercise of powers
under Article 142 of the Constitution, it is directed that those
assessees who have paid the tax as per Bye-Laws, 2009, their
assessments shall not be reopened. Another reason for taking
this course of action is that these assessees are satisfied with
the assessments under Bye-laws, 2009. However, it will not apply
to the respondents herein, namely, those assessees who were
the writ petitioners in the High Court. In their cases, the direction
given by the High Court in the impugned judgment shall prevail.
[Para 89] [385-B-E]
State Trading Corporation v. New Delhi Municipal
Council (2016) 12 SCC 603 ; The Corporation of
Calcutta v. Smt. Padma Debi and Others [1962] 3 SCR
49 ; The Guntur Municipal Council v. The Guntur Town
Rate Payers' Association etc. (1970) 2 SCC 803 ; Dewan
Daulat Rai Kapoor v. New Delhi Municipal Council and
Others (1980) 1 SCC 685 : [1980] 2 SCR 607 ; Indian
Automobiles Ltd. v. Calcutta Municipal Corporation and
Anr. (2002) 3 SCC 388 : [2002] 1 SCR 961 - relied
on.
State Trading Corporation of India Ltd. v. New Delhi
Municipal Council AIR 2003 Delhi 295 ; Ashok Singh
v. Asstt. Controller of Estate Duty (1992) 3 SCC 169 :
[1992] 3 SCR 190 ; Assistant Collector of Central
Excise v. National Tobacco Co. of India Ltd.(1972) 2
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SCC 560 : [1973] 1 SCR 822 ; Mafatlal Industries &
Ors. v. Union of India & Ors. (1997) 5 SCC 536 :
[1996] 10 Suppl. SCR 585 ; Raghunandan Saran Ashok
Saran (HUF) v. Union of India and Others 95(2002)
DLT 528 ; P. Ratnakar Rao and Others v. Sate of A.P.
and Others (1996) 5 SCC 359 : [1996] 2 Suppl.SCR
866 ; Pradeep Oil Corporation v. Municipal
Corporation of Delhi and Anr. (2011) 5 SCC 270 :
[2011] 4 SCR 764 ; Municipal Corporation of Delhi v.
Shashank Steel Industries (P) Ltd. 100 (2002) DLT 66
(FB); State of Kerala v. Haji Kutty AIR 1969 SC
378 : [1969] 1 SCR 645 ; NDMC v. State Trading
Corporation, 126 (2006) DLT 191 ; Government
Servant Cooperative House Building Society Limited
and Others v. Union of India and Others (1998) 6 SCC
381 : [1998] 3 SCR 996 - referred to.
Case Law Reference
AIR 2003 Delhi 295
referred to
Para 35
[1992] 3 SCR 190
referred to
Para 41
[1973] 1 SCR 822
referred to
Para 41
[1996] 10 Suppl. SCR 585
referred to
Para 41
95 (2002) DLT 528
referred to
Para 43
(2016) 12 SCC 603
relied on
Para 44
[1996] 2 Suppl. SCR 866
referred to
Para 47
[2011] 4 SCR 764
referred to
Para 51
100 (2002) DLT 66 (FB)
referred to
Para 56
[1969] 1 SCR 645
referred to
Para 58
126 (2006) DLT 191
referred to
Para 59
[1962] 3 SCR 49
relied on
Para 60
(1970) 2 SCC 803
relied on
Para 60
[1980] 2 SCR 607
relied on
Para 60
[2002] 1 SCR 961
relied on
Para 60
[1998] 3 SCR 996
 referred to
Para 80
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CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 903930 of 2019.
From the Judgment and Order dated 10.08.2017 of the High Court
of Delhi at New Delhi in W.P. (C) Nos. 3348 of 2010, 12689 of 2009,
1985, 2315, 3074, 4047, 8679 of 2010, 363, 7296, 7491 of 2011, 728, 729,
1153, 1154, 1487, 1492, 1822, 2088, 2091, 2102, 3453, 1759 of 2012, 645,
1996, 1997, 1998, 2001 of 2016 and 1581 of 2017
WITH
Civil Appeal No. 964 of 2019.
Prag P. Tripathi, Amit Sibbal, B. B. Gupta, Aman Ahluwalia, Guru
Krishna Kumar, Ms. Vibha Dutta Makhija, Sr. Advs., Sanjay Jain,
Yoginder Handoo, Ms. Rhea Verma, Nishant Kumar, Arjun Mitra,
Mahesh Agarwal, Rishi Agrawala, Ramaswamy Srinivasan, Ankur Saigal,
Ms. Devika Mohan, Navjot Singh, E. C. Agrawala, Amitabh Chaturvedi,
Trideep Pais, G. V. Chandrashekar, N. K. Verma, Ms. Anjana
Chandrashekar, Abhimanyu Mahajan, Ms. Anubha Goel, Jayant Kumar
Mehta, Ms. Ruby Singh Ahuja, Ms. Aakanksha Munjhal, Shravan Sahny,
Davesh Bhata, Saurabh Kumar, Apoorv Gupta, Udai Khanna (for
M/s Karanjawala & Co.), Saurabh Mishra, Sachit Jolly, Ayush Dhawan,
Ms. B. Vijayalakshmi Menon, Abhay Kumar, B. B. Jain, Himanshu Pal,
Abhay Jain, Saurabh Mishra, Abhay Kumar, Ms. Aditi Gupta, S. K. Jain,
S. S. Ray, Ms. Rakhi Ray, Sanjeev Anand, Abhinav Shrivastava, Himadri
M. Mukherjee, Mr. Amitesh Gaurav (for Mr. Ajay Sharma), Sangram
Patnaik, Swamsiddha Patnaik, Madhav Chaturvedi, Naresh Kumar,
Sanjay Kapur, Ms. Megha Karnwal, Ms. Mansi Kapur, Ms. Disha Vaish,
Waheb Hussaini, Ms. Asita, Kabir Dixit, Advs. for the appearing parties.
The Judgment of the Court was delivered by
 A. K. SIKRI, J.1. Leave granted.
Introductory Remarks:
2. These appeals are filed by New Delhi Municipal Council
(NDMC) against the judgment dated August 10, 2017 rendered by High
Court of Delhi in a batch of writ petitions which were filed by the
persons who have their houses/properties in NDMC area. Some of the
petitions were by the associations of residents as well (hereinafter
referred to as the "assessees/respondents"). In those writ petitions filed
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by the assessees they had challenged the constitutional validity of NDMC
(Determination of Annual Rent) Bye-laws, 2009 (hereinafter referred
to as the 'impugned Bye-laws'). These Bye-laws changed the earlier
regime of determining the rateable value for the purposes of levying
property tax. These Bye-laws seek to alter the earlier system of
determining the rateable value on the basis of he annual rent at which
the land or buildings may reasonably be expected to be let from year to
year. On that basis annual rent used to be fixed and a particular percentage
was prescribed for the purposes of payment of property tax. The
impugned Bye-laws introduced the system of Unit Area Method (UAM).
As per this method Unique Area Value (UAV) per sq. ft/meter of a
property is fixed with reference to the characteristics of the property
such as location, occupancy, age, structure of the said property. This
UAV is then multiplied by the area of the vacant land or covered space
to arrive at its annual value. When the annual value is determined on the
basis of such a formula, property tax thereupon is to be paid by the
assessees.
3. It may be mentioned at this stage itself that the impugned Byelaws have been framed by the Government of India in exercise of powers
conferred by sub-section (1) of Section 391 of the New Delhi Municipal
Council Act, 1994 (hereinafter referred to as the 'Act'). It is also to be
noted that Section 63 of the Act deals with determination of annual rent.
Various grounds were raised challenging the validity of these Bye-laws
and one of the grounds was that the UAM of fixing the annual value as
prescribed in the Bye-laws was foreign to the provisions of Section 63
of the Act, meaning thereby that the language of Section 63 did not
permit determination of annual value on such a basis as it prescribed the
method of fixing annual rent on the basis of the rent which the land or
building may reasonably be expected to let from year to year. It was,
thus, argued by the assessees in the writ petitions that the impugned
Bye-laws were ultra vires the provisions of Section 63 of the Act. The
High Court chose to confine itself to this particular submission and
eschewed the discussion on other grounds on which these bye-laws
were also challenged. In the impugned judgment, the High Court accepts
the submission of the assessees holding that the impugned Bye-laws are
ultra vires the NDMC Act as they are far beyond the scope and ambit
of the powers vested in NDMC under Section 388(1)(A)(9) of the Act.
Section 388 gives rule making power to the NDMC.
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4. When the matter was argued before us, initially the parties
confined to the aforesaid aspect on which High court has rendered its
decision. However, arguments were heard on the other grounds of
challenge as well, so that decision is given on merits, if the circumstances
so warrant. We may also mention at this stage that many applications
for intervention/impleadment have been filed by those assessees who
were not parties to the writ petitions in the High Court. Such assessees
are satisfied with the impugned Bye-laws and, therefore, they have not
supported the case set up by the NDMC.
Factual background:
5. Before adverting to the controversy, it would be appropriate to
take note of some relevant facts:
6. As is well-known, during the period of the British India, Delhi
became the capital of India in the year 1911. Even before it became the
capital, for the first time house tax was made applicable and levied in
Delhi in the year 1902. After becoming the capital of India, Delhi was
detached from Punjab and Delhi Enclave covering an area of 1240 sq.
miles was formed and new roads were constructed between the
temporary capital near Civil Lines and Raisina. The Punjab Improvement
Act was passed in the year 1922 and it became the town planning
legislation. A large chunk of land was acquired by the Imperial Delhi
Committee and was transferred to the Imperial (New) Delhi Municipal
Committee which was constituted in the year 1916 but came into effect
in the year 1925 when this Delhi Municipal Committee was upgraded to
the level of a second class municipality to be governed under the Punjab
Municipal Act, 1911 (hereinafter referred to as 'PMA'). Section 188 of
the PMA conferred power on the Committee to make Bye-laws, inter
alia, for carrying out the purposes of the PMA. In 1932, the Imperial
(New) Delhi Municipal Committee was renamed as 'New Delhi
Municipal Committee' (NDMC). After obtaining the independence and
with the adoption of the Constitution of India in the year 1950, Delhi was
shown as Part-C State. However, in the year 1956, vide the Constitution
(Seventh Amendment) Act, 1956, Delhi became a Union Territory.
Immediately, thereafter the Delhi Municipal Corporation Act, 1957 (DMC
Act) was passed whereunder Municipal Corporation of Delhi (MCD)
was constituted to which first election took place in the year 1958. The
jurisdiction of MCD covers the entire Union Territory of Delhi including
the rural areas, but excluding the New Delhi Municipal Committee and
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Delhi Cantonment Areas. However, the area under the jurisdiction of
the NDMC was reduced from 32 sq. miles to 16 sq. miles.
7. In terms of the powers conferred under Section 188(v) of the
PMA which related to assessment and collection of house tax, the NDMC
made the NDMC House Tax Bye-laws, 1962 ('the 1962 Bye-laws).
These were published in the Official Gazette by a notification dated 24th
April, 1964. There are only around 12,000 units which are subject to
assessment for property tax in the NDMC area. 20% of these are
residential units and rest are commercial units. However, only 20% of
the properties are private properties. The remaining 80% are (a) properties
belonging to the Union of India, (b) properties of Diplomatic Missions
and Foreign Embassies, (c) properties of State Governments and (d)
properties of Railways.
8. The above four types of properties are outside the purview of
property tax assessment. This is because Articles 285 and 289 of the
Constitution prohibit levy of taxes on the properties of the Centre and
State by the State and Centre respectively. Except the properties
belonging to the Union of India, the other three types of properties do
not pay even the service charges to the local authorities. 75% of the
property tax demand is collected from just about 6.25% of the properties
in the NDMC area. Therefore, the tax base for the purpose of collection
of property tax is small compared to the MCD area.
9. For the governance of Union Territory of Delhi, the Parliament
passed the Delhi Administration Act, 1966 which continued to operate
till 1992, when a special status was conferred upon Delhi by rechristening
it as National Capital Territory of Delhi (NCTD). This happened with
the insertion of Article 239AA and 239AB in the Constitution of India
vide Constitution (Sixty-Ninth Amendment) Act, 1991. Simultaneously,
the Parliament also enacted Government of NCTD Act, 1991 which
replaced the earlier Delhi Administration Act, 1966. With these
developments several provisions of PMA were also brought in tune with
the GNCTD Act, 1991. Subsequently, for the NDMC area, the Parliament
enacted NDMC Act in the year 1994 that replaced PMA. Hitherto New
Delhi Municipal Committee was also replaced by New Delhi Municipal
Council (NDMC).
10. As per Section 60 of the NDMC Act, the power to levy taxes,
including property tax, is vested with the NDMC. The NDMC, in exercise
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of powers conferred under Section 416(2)(a) of the NDMC Act adopted
the existing 1962 Bye-laws insofar as levy of property tax is concerned
as it was found that they were not inconsistent with the NDMC Act.
Under these Bye-laws, as noted above, the method of arriving at annual
rent is on the basis of annual rent which land and building may reasonably
be expected to be let from year to year. It would be significant to mention
that even in the Bye-laws of MCD, identical method of levying the
house tax/property tax was incorporated.
11. There were certain concerns expressed at various quarters
about the said annual rent method in the Bye-laws. Insofar as the MCD
is concerned, it constituted V.K. Malhotra Committee to study and report
upon the efficacy of the property tax assessment and collection system,
so that the faults in the system could be ironed out. While this Committee
was in the process of undertaking that study, the Union of India circulated
'Guidelines for Property Tax Reforms' in the year 1998 in order to bring
needed reforms in the method of calculation of property tax and to exploit
the potential of property tax as a major source of income for strengthening
the revenue base of these municipalities. The V.K. Malhotra Committee
submitted its report to the MCD in the year 2002. Based on its
recommendations, an Expert Committee under the Chairmanship of Sh.
K. Dharmarajan was constituted by the Lieutenant Governor of Delhi
for recommending the modalities required for the interpretation of the
UAM of property tax assessment in the MCD area, which was the
major recommendation of the V.K. Malhotra Committee. After receiving
the final report from Dharmarajan Committee, the Delhi Municipal
Corporation (Amendment) Act, 2003 was passed. Further, in exercise
of the powers conferred by the Delhi Municipal Corporation
(Amendment) Act, the Delhi Municipal Corporation (Property Taxes)
Bye-laws, 2004 were also made.
12. With the aforesaid introduction of UAM for the purposes of
property tax assessment in MCD area, the NDMC also deliberated on
this subject, having regard to the recommendations given by the
Dharmarajan Committee. In a meeting held by NDMC on 27th April,
2005, it was resolved that it would request GNCTD to amend the
provisions of Section 65 of the NDMC Act.
13. On 13th February, 2006, the NDMC in its meeting discussed
that the rateable value Bye-laws may be prepared in such a way so as
to remove most of the difficulties faced in the present system. It was
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suggested to introduce UAM selectively for self-occupied residential
properties in the Bye-laws. Thereafter, on 10th March, 2006, the
Chairperson of the NDMC constituted a committee (the NDMC Special
Committee) under Section 9 of the NDMC Act to advice upon the
property tax. This Special Committee submitted its final report in
February, 2007 which was, in principle, accepted by the NDMC in its
meeting on 12th February, 2007. More deliberations took place thereafter
and it is not necessary to spell out the same. Suffice it is to mention that
amendments in the Bye-laws were proposed and objections invited.
Ultimately on, 24th February, 2009, the GNCTD notified the New Delhi
Municipal Council (Determination of Annual Rent) Bye-laws, 2009
(Impugned Bye-laws) in the Official Gazette. These Bye-laws were
enforced from 1st April 2009 and were made applicable in the area under
the jurisdiction of the NDMC.
Provisions of the Bye-laws and the NDMC Act:
14. It is pertinent to mention that the NDMC Special Committee
which was appointed by the Chairperson, had submitted its final report
in February, 2007. In that report, the Committee noted that it was difficult
to advise a perfect tax system. However, keeping in view the distinct
advantages offered by the UAM, the NDMC Special Committee
recommended a modified form of UAM for NDMC which attempted to
balance the principles of neutrality, stability, accountability, ease of
administration, fairness based on benefits received and the ability to pay.
The NDMC Special Committee also examined the financial position of
the NDMC with special reference to the profit profile of NDMC wherein
a large percentage of properties are owned by the Government and only
a very small percentage of private properties are liable for payment of
property tax. The NDMC Special Committee stated that it considered
the following options:
"(a) Maintain the status-quo as far as the method of assessment
is concerned. Thus to continue with the annual value method of
property tax assessment but address procedural shortcomings.
Or
(b) Selective introduction of Unit Area Method in respect of
residential units that are self-occupied (or for both self occupied
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rented) and for institutional buildings and hotels. The remaining
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properties to continue under the reasonable rent method of
assessment as at present. Or (c) Levy uniform service charges
for all non-residential properties regardless of their ownership,
government or private. The service charges would be liable for
increases from time to time to keep pace with the inflation and
increased cost of services. The base service charges would be
fixed at some proportion of land values and unit rate subject to the
condition that they will not be lower than the existing Rateable
Value
Or
(d) Introduce a modified form of Unit Area Method for all
properties by fixing the unit rates solely by category of use and
land values. Thus the lowest unit rate (or multiplicative factors)
would be in respect of a self-occupied residential property in an
area where land values are low; the highest unit rate (or
multiplicative factor) would be in respect of commercial properties/
hotels that are located in areas where land values are the highest
(land values to be computed as per Land & Development Office
rate schedules amended from time to time)"
15. The NDMC Special Committee rejected options (a), (b) and
(c). It recommended acceptance of option (d). However, it recommended
"a formula which is revenue neutral and at the same time optimizes the
objective of vertical equity. The analysis of data compiled by the tax
department suggests that there is extreme variation in taxation of similarly
placed properties for various reasons discussed earlier. This problem
will be automatically addressed as horizontal equity is inbuilt in the Unit
Area System."
16. It is significant that the NDMC Special Committee did not
touch upon the manner of bringing about the above change i.e. whether
it should be by amending the Bye-laws or amending the NDMC Act
itself. However, in the position paper submitted to the NDMC, the Special
Committee, while recommending the adoption of a modified UAM, had
suggested that it should be introduced selectively for "self-occupied
residential properties." It also added: "However, Bye-laws cannot go
beyond what is provided in the Act. As such, depending upon the final
decision in the matter, an appropriate amendment in the Act appears to
be the only alternative."
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17. Since the impugned Bye-laws are declared by the High Court
as ultra vires the NDMC Act, it would also be necessary to notice some
of the relevant provisions of the NDMC Act.