1998 Supreme(SC) 763

1998(6) Supreme 264
Supreme Court of India
(From Delhi High Court)
Mrs. Sujata V. Manohar and M. Srinivasan, JJ.
Government Servant Co-operative House Building Society Ltd. & Ors. etc. -Appellants
versus
Union of India & Ors. -Respondents
Civil Appeal No. 8424 of 1994
With
C.A. No. 8425, W.P. (C) No. 758/93, C.A. Nos. 8428/94 8429/94, 8430/94 and 5652/95
Decided on 5-8-1998
Counsel for the Parties :
For the Appearing Parties : S.K. Dholakia, B. Sen, Rajinder Sachar, Sr. Advocates, S. Balakrishnan, R.N. Keshwani, S.P. Mittal. C. Nayak, R.K. Maheshwari, Mrs. Shally Bhasin, Ranbir Chandra, (R.N. Verma) Advocate for B.K. Prasad (D.S. Bawa) - in-person K.J. John, Ms. Manju Mishra, (R.P. Gupta and Madan Lal Kapoor) Advocates (NP), and (Sanjay Parikh) Advocate for Intervenor) Advocates.

Headnote:Delhi Municipal Corporation Act, 1957-Section 113-Delhi Rent Control (Amendment) Act 1988-Property tax-Determination of rateable value-Amendment Act, 1988 exempting building whose monthly rent ex­ceeding Rs. 3500/- and newly constructed building from purview of Rent Control Act-Con­sequent revision of rateable value such building by Municipal Corporation-Calculating rateable value on basis of actual rent received-Whether revision on such basis justifiable? - (Yes)-Whether deter­mination of property tax with reference to rate­able value on basis of actual rental receipt would convert property tax into income-tax? (No).

       Held : Under Section 113 of the Delhi Municipal Corporation Act, 1957, the Corporation shall levy, inter alia, property taxes. Under Section 114 the property taxes shall be levied on lands and buildings in Delhi and shall consist of the following, namely, (inter alia) under sub-section (d) a general tax of not less than ten and not and not more than thirty percent of the rateable value of lands and buildings within the urban areas. (Para 3)

       To determine the quantum of property tax, therefore, it is necessary to arrive at the rateable value of the land or building. Under Section 116(1) the rateable value is the annual rent at which such land or building might reasonably be expected to be let from year to year less certain deductions. We have to consider how the annual rent at which such property might be reasonably expected to be let, is to be arrived at when the rent of the property is not controlled under the Delhi Rent Control Act, 1958 or any other rent control legislation. (Para 3)

       Where there is legislation fixing the standard rent of the premises, the rent at which the premises could be reasonably expected to be let cannot exceed the statutory ceiling. But where there is no artificial control on the rent which is charged, a bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances, affords a good test of reasonableness. Therefore, the annual rent actually received by the landlord, in the absence of any special circumstances, would be a good guide to decide the rent which the landlord might reasonably expect to receive from a hypothetical tenant. Since the premises in the present case are not controlled by any rent control legislation, the annual rent re­ceived by the landlord is what a willing lessee, uninfluenced by other circumstances, would pay to a willing lessor. Hence, actual annual rent, in these circumstances, can be taken as the annual rateable value of the property for the assessment of property tax. The Munici­pal Corporation is, therefore, entitled to revise the rateable value of the properties which have been freed from rent control on the basis of annual rent actually received unless the owner satisfies the municipal corporation that there are other considerations which have affected the quantum of rent. (Paras 5 & 8)

       It was then submitted on behalf of the appellants that if the annual rent actually received is taken as the basis for determining the rateable value of the property, the property tax will become a tax on income of the owner. Such a tax would be beyond the legislative competence of the state legislature. Being a tax on income, it can be levied only by the Central Government and it would not fall in entry 49 of List II of the Seventh Schedule of the Constitution. It would, in fact, fall in entry 82 of List I which deals with taxes on income other than agricultural income. Now, Entry 49 of List II covers taxes on lands and buildings. As the High Court has pointed out, the three lists in the Seventh Schedule of the Constitution have no relevance to the Union Territory of Delhi since the Parliament can make law re­specting all the entries in all the three lists. The Delhi Municipal Corporation Act is, in fact, Parliamentary Legislation. Nevertheless, as the argument has been advanced before us at some length and it may affect other municipal legislations, we will briefly deal with it. It is well settled that an Act of the State legislature entitling a municipal corporation to levy property tax on the basis of rateable value of land and building calculated by the yardstick of annual rent at which such property can reasonably be leased to a hypo­thetical lessee, is valid and within its legislative competence. The tax remains property tax and cannot be viewed as a tax on income. (Paras 9 & 12)

       Looking to the charging section of the Delhi Municipal Corporation Act, 1917 which clearly imposes a tax on property and Section 116 which deals with the method of determination of this tax with reference to the rateable value of lands and buildings, the property tax levied cannot be viewed as tax on income. The basis of valuation is the hypothetical annual rent which a willing lessor would receive from a willing lessee. Obviously in a case where the property is self-occupied there is no question of the owner receiving any income. In the case of properties which are covered by the Delhi Rent Control Act, there may be many cases where the annual rent received by a landlord in respect of a property may be different from its annual rateable value. A property tax under the Delhi Municipal Corporation Act is, therefore, not a tax on income. Since the position is well settled we need not elaborate on such instances. Consequently appeals and writ petitions are, dismissed. (Paras 13 & 15)