REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE JURISDICTION

CIVIL APPEAL NO(S).   903-930              OF 2019 (ARISING OUT OF SLP (C) NO. 23186-23213 OF 2017)

NEW DELHI MUNICIPAL COUNCIL ETC. ETC.

.....APPELLANT(S)

VERSUS

ASSOCIATION  OF  CONCERNED CITIZENS OF NEW DELHI AND OTHERS ETC. ETC.

.....RESPONDENT(S)

W I T H

CIVIL APPEAL NO(S).       964        OF 2019 (ARISING OUT OF SLP (C) NO.  2305  OF 2019) (ARISING OUT OF DIARY NO. 35928 OF 2017)

J U D G M E N T

A.K. SIKRI, J.

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

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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 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.

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3) It may be mentioned at this stage itself that the impugned Bye-

laws 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 Act, 1944 (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

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powers vested in NDMC under Section 388(1)(A)(9) of the Act.

Section 388 gives rule making power to the NDMC.

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

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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

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covers the entire Union Territory of Delhi including the rural areas,

but  excluding  the  New  Delhi  Municipal  Committee  and  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

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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

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exercise  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.

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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

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was  suggested  to  introduce  UAM  selectively  for  self-occupied

residential properties in the Bye-laws.  Thereafter, on 10 th 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

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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 W.P.(C)  3348/2010 & connected matters  Page 26 of  40  and  rented)  and for  institutional  buildings  and hotels.  The  remaining  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

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(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

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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.”

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.   From the

reading of these Bye-laws, it is clear that the UAM for determining

the rateable value has been introduced which is  different  from

‘annual  rent’.  Bye-laws 2 of impugned Bye-laws mentions that

the annual rent for which the land and building were expected to

be let would be determined as per Bye-law 3 in respect of  special

categories of lands and buildings and as per Bye-law 4 in  respect

of other lands and buildings.

18) Some of the relevant provisions of the impugned Bye-laws, may

now be noted:

"2. Determination of Annual Rent – For the purpose of sub-section (1) of Section 63 of the New Delhi Municipal Council Act, 1994 (44 of 1994) hereinafter referred to as the ‘Act’) the annual rent, for which lands and buildings are expected to let from year, shall be determined as under:-

“(i)  Special categories of lands and buildings as per provisions of bye-law 3 and;

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(ii) Other  lands  and buildings  as  per  provisions  of bye-law 4.

3.  Annual Rent of Special Category of land and buildings:- (1) the annual rent of the lands and buildings, which are not  normally  let,  being  the  property  of  the  Union, Government,  State  or  used  as  school,  college,  hostel, guest  house,  clubs,  cinema hall,  hotels  and such  other lands and buildings as may be specified by the Valuation Committee,  shall  be  calculated  at  such  percentage,  as may be determined by the Valuation Committee, being not less than 5% and not more than 10% of the aggregate of:

(a) 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, as increased by  the  multiplication  factor  for  user  of  the  land, specified in sub-bye-law (3); and

(b) value  of  covered  space  of  the  building  at  Rs. 15,000  (Rupees  fifteen  thousand  only)  per  square meter  of  the  covered  space  of  the  building  as reduced by the age factor of the building as reduced by the age factor of the building specified in sub-bye- law (4).

xxx xxx xxx

(3)  The use factor for the land shall be as under:- Use Factor

Residential, Public Purpose, School, College Hostel, Hospital   1 Public Utility Government Offices, Embassies   2 Club, Guest Houses, Cinema Halls and Hotels   3 (Other than 5 star hotels)

Explanation:-   Use Factor  for  a  particular  year  shall  be determined based on usage of a particular type for more than 180 days in a financial year.

(4) Age factor for age of the building shall be as under:- Age Factor

Constructed upto 1960 0.5 Constructed upto 1960-69 0.6

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Constructed upto 1970-79 0.7 Constructed upto 1980-89 0.8 Constructed upto 1990-99 0.9 Constructed upto 2000-09 1.0

4. Annual Rent of other land and buildings- (1) The annual rent of lands and buildings valuation of which is not covered by bye-law 3 shall be the aggregate of the bona fide annual value of land and bona fide annual value of the covered space of the buildings.

xxx xxx xxx    (5) The relevant factors for the increasing on decreasing or  for  not  increasing  or  decreasing,  the  base  unit  area values specified in respect of each of the parameters of type  of  use,  age,  type  of  structure,  occupancy  status, average  rentals  available  in  the  building,  location  of covered space and any other relevant factors as may be necessary for determining the bona fide annual value of land  and  building  shall  be  fixed  by  the  Valuation Committee, from time to time.

(6) Pending  fixation  of  relevant  factors  and  revisions thereof  by  the  Valuation  Committee,  the  multiplication factor for use and occupancy of the covered space shall be as under:

Use of land and covered space of building Factor

Residential   1 Others   6

Occupancy of land and covered space of building  Factor

Self-Occupied or Vacant     1 Others     3

Provided  that  the  location  factor  covered  space  in basement  used for  storage,  parking  and  utilities  will  be taken 0.5.

Explanations:-

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(i) The premises owned by companies, firm, trust etc. and  used  by  the  directors,  employees  or  partners  for residence  or  guest  house  shall  not  be  treated  as  self- occupied by the owners.

(ii) For  a  particular  year,  the  use  factor  and  the occupancy  factor  shall  be  determined  on  the  basis  of usage/occupancy prevailing for more than 180 days in that year.  In  case  the  occupancy  factor  is  determined  as “others” and the premises actually remains vacant for part of  the  year,  the  property  will  be  eligible  for  vacancy remission as per provisions below the heading “Remission and Refund”  under  Chapter-VIII  relating to  “Taxation”  of the New Delhi Municipal Council Act, 1994 (44 of 1994).

(7) Age factor for age of the building shall be as under:-

Age Factor

Constructed upto 1960 0.5 Constructed upto 1960-69 0.6 Constructed upto 1970-79 0.7 Constructed upto 1980-89 0.8 Constructed upto 1990-99 0.9 Constructed upto 2000-09 1.0

(8) Where  the  land  and  the  covered  space  of  the building is let and actual rent is in excess of the bona fide annual value of land and building referred to in sub-bye- law (1), the rateable value for the purposes of that sub- bye-law shall be such actual rent.

Provided  that  this  will  not  apply  to  residential properties  used  by  occupier  exclusively  for  residential purposes.”

19) Let us also scan through the relevant provisions of the Act:

"Section 60 :  Levy of Taxes -  

1. The Council shall for the purposes of this Act, levy the following taxes, namely:-

a. Property tax;

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b. x x x x x x

2. X X X X X X 3.  The taxes specified in sub-section (1) and sub-section (2) shall be levied, assessed and collected in accordance with  the  provisions  of  this  Act  and  the  bye-laws  made thereunder.

Section 61:  Rate of Property Tax-

1.  Save as otherwise provided in this Act, the 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:

provided  that  the  Council  may,  when  fixing  the  rate  at which  the  property  tax  shall  be  levied  during  any  year, determine that  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 portions of other lands and buildings by an amount not exceeding one-half of the rate so fixed:

Provided further that the tax may be levied on graduated scale, if the Council so determines.

Explanation. - 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.

2.   The  Council  may  exempt  from  the  tax  lands  and buildings of which the rateable value does not exceed one thousand rupees.

Section 62:  Premises in respect of which property tax is to be levied-   

Save as otherwise provided in this Act, the property tax shall be levied in respect of all lands and buildings in New Delhi except-

a. lands and buildings or portions of lands and buildings exclusively occupied and used for public worship or by a society or body for a charitable purpose:

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Provided that such society or body is supported wholly or in part by voluntary contributions, applies its profits, if any, or other income in promoting its objects and does not pay any dividend or bonus to its members.

Explanation. - "Charitable purpose" includes relief  of  the poor, education and medical relief but does not include a purpose which relates exclusively to religious teaching.

b. lands and buildings vested in the Council, in respect of which the said tax, if levied, would under the provisions of this Act be leviable primarily on the Council;

c.   agricultural  lands  and buildings  (other  than dwelling houses).

2.   Lands and buildings or portions thereof  shall  not  be deemed to  be exclusively  occupied  and used for  public worship or for a charitable purpose within the meaning of clause (a) of  sub-section (1) if  any trade or  business is carried on in such lands and buildings or portions thereof or  if  in  respect  of  such lands  and buildings  or  portions thereof, any rent is derived.

3.  Where any portion of any land or building is exempt from the property  tax by  reason of  its  being exclusively occupied and used for public worship or for a charitable purpose such portion shall be deemed to be a separate property for the purpose of municipal taxation.

Section 63 : Determination of rateable value of lands and buildings assessable to property tax-

1.  The rateable value of any lands or buildings assessable to any property  taxes 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 ten per cent of the said annual rent which shall be in lieu of all allowances for cost of repairs and insurance, and other expenses, if any, necessary to maintain  the land or  building in a state to command that rent:  

Provided  that  in  respect  of  any  land  or  building  the standard rent of which has been fixed under the Delhi Rent Control Act, 1958 (59 of 1958) the rateable value thereof shall not exceed the annual amount of the standard rent so fixed.

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2.  The rateable value of any land which is not built upon but is capable of being built upon and of any land on which a building is in process or erection shall be fixed at five per cent of estimated capital value of such land.

3.  All plant and machinery contained or situate in or upon any land or building and belonging to any of the classes specified  from  time  to  time  by  public  notice  by  the Chairperson  with  the  approval  of  the  Council,  shall  be deemed  to  form  part  of  such  land  or  building  for  the purpose of  determining the rateable value thereof under sub-section (1) but save as aforesaid no account shall be taken of the value of any plant or machinery contained or situated in or upon any such land or building.

Section 65 :  Taxation of Union Properties-

(1)  Notwithstanding anything contained in the foregoing provisions  of  this  Chapter,  lands  and  buildings  being properties of the Union shall be exempt from the property tax specified in section 61:

Provided that nothing in this sub-section shall prevent the Council  from  levying  property  tax  on  such  lands  and buildings to  which immediately  before the 26th January, 1950, they were liable or treated as liable, so long as that tax continues to be levied by the Council on other lands and buildings.

(2)  Where the possession of any land or building, being property of the Union, has been delivered in pursuance of section 20 of the Displaced Persons (Compensation and Rehabilitation)  Act,  1954  (44  of  1954)  to  a  displaced persons, or any association of displaced person, whether incorporated or not,  or to any other person [hereafter in this  sub-section  and  the  proviso  to  sub-section  (1)  of section 66 referred to as the transferee], the property tax specified  in  section  61  shall  be  leviable  and  shall  be deemed to have been leviable in respect of such land or building with effect from the 7th day of April, 1958 or the date on which possession thereof has been delivered to the transferee, whichever is later,  and such property tax shall,  notwithstanding  anything  contained  in  any  other provision of this Act, be recoverable with effect from that day or date, as the case may be.

Section 66:  Incidence of Property Tax-

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(1)  The property tax shall be primarily leviable as follows:-

(a) if the land or building is let, upon the lessor;

(b) If the land or building is seb-let, upon the superior lessor

(c) if  the land or building is unlet,  upon the person in whom the right to let the same vests:

Provided  that  the  property  tax  in  respect  of  land  or building, being property of the Union, possession of which has  been  delivered  in  pursuance  of  section  20  of  the Displaced Persons (Compensation and Rehabilitation) Act, 1954  (44  of  1954)  shall  be  primarily  leviable  upon  the transferee.

(2) If any land has been let for a term exceeding one year to a tenant and such tenant has built upon the land, the  property  tax  assessed  in  respect  of  that  land  and building erected thereon shall  be primarily leviable upon the said tenant, whether the land and building are in the occupation of such tenant or a sub-tenant of such tenant.

Explanation.  -  The  term  "tenant"  includes  any  person deriving title to the land or the building erected upon such land from the tenant  whether by operation of  law or  by transfer intervivos.

3.   The  liability  of  the  several  owners  of  any  buildings which is, or purports to be, severally owned in parts or flats or rooms, for payment of property tax or any installment thereof payable during the period of such ownership shall be joint and several.

Section  67  :   Apportionment  of  liability  for  property  tax when the premises are let or sub-let-

(1)  If any land or building assessed to property tax is let, and its rateable value exceeds the amount of rent payable in  respect  thereof  to  the  person  upon  whom under  the provision of section 66 the said tax is leviable, that person shall be entitled to receive from his tenant the difference between the amount of the property tax levied upon him and the amount which would be leviable upon him if the said tax was calculated on the amount of rent payable to him.

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(2)  If the land or building is sub-let and its rateable value exceeds the amount of rent payable in respect thereof to the tenant by his sub-tenant, or the amount of rent payable in respect thereof to a sub-tenant by the person holding under the sub-tenant, the tenant shall be entitled to receive from his sub-tenant or the sub-tenant shall be entitled to receive from the person holding under him, as the case may be, the difference between any sum recovered under this  section  from  such  tenant  or  sub-tenant  and  the amount of property tax which would be liable in respect of the said land or building if the rateable value thereof were equal to the difference between the amount of rent which such tenant or sub-tenant receives and the amount of rent which he pays.

(3)   Any  person  entitled  to  receive  any  sum under  this section shall have, for the recovery thereof, he same rights and remedies as if such sum were rent payable to him by the person from whom he is entitled to receive the same.”

20) Though some other provisions may also be relevant, instead of

reproducing those provisions, the gist thereof can be mentioned.

It is extracted from the discussion from the impugned judgment

as it correctly captures the essence of these provisions.

21) Under  Section 61 (1)  of  the  NDMC Act,  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

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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.”  

22) 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.”  

23) The expression ‘rateable value’ is defined under 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 the Bye-laws made

thereunder for the purpose of assessment to property taxes.”  

24) 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

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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.”

25) 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

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thereof "shall not exceed the annual amount of the standard rent

so fixed.".  

26) 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  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.  

27) 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.  

28) 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

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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.

29) 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

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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 List and Section

73 for preparation of new Assessment List.  

30) 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.

The Impugned Judgment:

31) After taking note of the aforesaid provisions of the Act as well as

Bye-laws, the Delhi High Court, inter alia, observed that insofar

as definition of ‘rateable value’ given under Section 2(42) of the

NDMC Ac is concerned, it means ‘value of any land or building

fixed in accordance with the provisions of this Act  and the Bye-

laws  made  thereunder  for  the  purposes  of  assessment  of

property taxes’.  According to it, the conjunction “and” used in the

above definition makes the legislative intent explicit, namely, the

rateable value has to be fixed both in accordance with the NDMC

Act as well as the Bye-laws.  Consequently, it  is inconceivable

that the manner of determination of the rateable value under the

Bye-laws  could  be  inconsistent  or  different  from that  provided

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under the Act.  Therefore, the rateable value has to be fixed, both

in accordance with the provisions of the Act and in accordance

with  the  Bye-laws.  Further,  Section  63,  which  prescribes  the

method  for  determination  of  the  rateable  value  of  lands  and

building stipulated that the rateable value of any land or building

assessable to property tax shall be the annual rent at which such

land and building might reasonably be expected to let from year

after year less a sum equal to 10% of the said annual rent.  Also,

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, the rateable

value thereof ‘shall not exceed the annual amount of the standard

rent so fixed.”

32) Further in the opinion of the High Court though under Section 81

of the NDMC Act, the Chairperson can employ valuers to give

advice or assistance in respect of valuation of land and building,

this is different from the determination of the rateable value. Such

value becomes relevant when there is attachment of the property

to cover the arrears of municipal taxes and the value of such land

and building has to be determined to ascertain what  could be

recovered towards the arrears.  By reading these provisions in

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the aforesaid manner, the High Court has held insofar as NDMC

Act  is  concerned  that  the  legislative  scheme   envisages

determination of  rateable value only on one basis,  i.e.,  on the

basis  of  the  ‘annual  rent’  at  which  the  land  or  building  might

reasonably be expected  to let from year to year.  In contrast,

holds the High Court, the impugned Bye-laws seek to introduce a

completely  different  system  of  rateable  value  than  what  is

provided  under  the  NDMC  Act.  As  it  provides  UAM  which

envisages fixing UAV with reference to the characteristics of  a

property and then multiplying the UAV by area of the vacant land

or covered space to find out ‘annual value’.  This method of levy

assessment  collection  of  tax  is  entirely  different  from  what  is

provided  under  the  NDMC Act  and,  therefore,  could  not  have

been introduced by the Bye-laws in terms of Section 388(1)(A)(9)

which  confers  power  to  make  Bye-laws  relating  to  the  levy,

assessment, collection, refund or imposition of taxes ‘under this

Act’.

33) Such a course of action could not be taken without amending the

provisions of NDMC Act.   Relevant discussion in this behalf  is

reproduced below:

"Analysis of the new impugned Bye-laws 52. The new impugned Bye-laws in the present case seek to  introduce  a  completely  different  system  of  rateable

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value than what is provided under the NDMC Act. While the  NDMC  Act  provides  for  rateable  value  to  be determined on the basis of the annual rent at which the land or building might reasonably be expected to let from year  to  year,  the  UAM  envisages  fixing  the  UAV  with reference  to  the  characteristics  of  a  property  and  then multiplying  the  UAV  by  the  area  of  the  vacant  land  or covered space to find out the ‘annual value'.

53. It is not as if the NDMC was unaware that this could be done only by amending the NDMC Act. Yet only because this might be a time consuming process it chose the short cut  of  making  the  new  impugned  Bye-laws  without amending the NDMC Act. Section 388 (1) of the NDMC Act begins with the expression “Subject  to the provisions of this  Act”.  Clearly,  therefore,  the  legislative intent  was  to confer upon the NDMC the power to make Bye-laws which were subject to and consistent with the provisions of the Act.

54.  Secondly,  Section  388  (1)  A (9)  of  the  NDMC  Act confers  powers  to  make  Bye-laws  relating  to  the  levy, assessment,  collection,  refund  or  imposition  of  taxes "under this Act". The expression 'relating to' preceding the words  “levy,  assessment,  collection...”  clearly  means, therefore,  that  Bye-laws will  have  to  be  consistent  with what is already provided under the NDMC Act. A method of levy,  assessment,  collection  of  taxes  which  is  different from  what  is  provided  under  the  NDMC  Act  cannot possibly be introduced by the Bye-laws in terms of Section 388 (1) A (9) of the NDMC Act. That would make the Bye- laws inconsistent with and contrary to the NDMC Act.

55. There are specific provisions of the NDMC Act which have  been  sought  to  be  supplanted  by  the  Bye-laws. Illustratively, the whole system of determination of annual rent under Section 63(1) of the NDMC Act is sought to be substituted by the UAM. There is no provision in the new impugned Bye-laws that could be related to Section 63(1) of  the  NDMC  Act.  The  new  impugned  Bye-laws  create classification among assessees which are different  from the classification envisaged under the NDMC Act and in particular classification of property as spelt out in Sections 62 and 65 of the NDMC Act. Section 66 of the NDMC Act contemplates imposition of the property tax in respect of three  categories  of  properties  i.e.  the  property  that  has

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been let, sub-let and properties that are not let out at all. There  is  no  further  classification  contemplated  in  the NDMC  Act  on  the  basis  of  nature  of  rights  which  are created in respect of such land and buildings.

56.  Under  the  proviso  to  Section  63(1)  of  the  Act,  the rateable  value  cannot  exceed  the  standard  rent  fixed under the DRC Act. This is sought to be overwritten by the impugned new Bye-laws. Under the explanation to Section 61(1) of the Act where a portion of a land or building is liable  to  a  higher  rate  of  tax  then  such  portion  will  be deemed  to  be  a  separate  property  for  the  purpose  of municipal taxation. This is sought to be substituted under the UAM which seeks to aggregate the value of land as a whole with the value of the space covered on such land.

57. While categorising the occupancy factor, the impugned Bye-laws create only two categories i.e. (i) self-occupied or vacant  buildings  or  lands  and  (ii)  others.  Thereby  the letting out of a property for use by a person other than the owner for no consideration is treated at par with the letting out  such property  for  consideration.  These are only  the illustrations  of  changes  brought  about  by  the  new impugned Bye-laws.

58. In State Trading Corporation India Limited v. New Delhi Municipal Council (supra), the Supreme Court emphasised that the manner of determination of rateable value has to be only in terms of Section 63 of the NDMC Act even in respect  of  properties  that  have been sub-let  and not  in terms  of  Bye-law  12  of  the  1962  Bye-laws which  were found to be inconsistent with the provisions of the NDMC Act.

59. Consequently, as far as the present case is concerned it is plain that the new impugned Bye-laws are ultra vires the  NDMC  Act.  They  require  to  be  invalidated  on  this ground alone.”

Submission of the Counsel:

34) Mr. Sanjay Jain, learned senior counsel appeared on behalf of the

appellant, NDMC.  After referring to the various provisions of the

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NDMC Act as well as the impugned Bye-laws, he submitted that

as per Bye-law 5 the valuation committee sits every year and lays

down  the  standards  for  fixing  the  annual  rent.   The  process

undertaken  is  with  a  purpose  to  arrive  at  ‘annual  rent’  which

according to him is in consonance with Section 63 of the NDMC

Act.   He read Section 63 to  emphasise that  even as per  that

provision it is the rateable value on which tax is to be imposed on

lands  and  building  which  are  assessable  to  any  property  tax.

This  rateable  value,  the  provisions  sates,  shall  be  the ‘annual

rent’.   Thus, the tax has to be on the annual rent which is the

rateable value and no particular method is given under Section 63

of the NDMC Act for fixing such annual rent.  Therefore, it was

permissible to lay down a method of fixing annual rent in the Bye-

laws which would not be contrary to Section 63 of the Act.  He

also  submitted  that  UAM  provided  in  the  Bye-laws  is  more

rationale and takes care of many anomalies of the old system.

According  to  him,  the  High  Court  committed  certain  errors  in

approaching the subject.   In the first instance it  referred to the

provisions of Delhi Rent control Act and application thereof which

is  without  any  basis.  Other  error  was  to  wrongly  assume that

there  are  three  categories  of  properties  where  the  Bye-laws

create only two categories.  Thirdly, methodology which is worked

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out  and  mentioned  in  para  22  of  the  judgment  (relating  to

interpretation that is to be given to Section 181 of the NDMC Act)

is contrary to Section 63 of the NDMC Act.    

35) Mr. Jain also submitted that the observations of the Delhi High

Court in State Trading Corporation of India Ltd. vs. New Delhi

Municipal Council1 are wrongly interpreted as the Court did not

hold in that case that determination of rateable value has to be

only in terms of Section 63 of the NDMC Act.  He further argued

that even in  respect of  those properties which are let  out,  still

exercise is to be dome to find out the annual value inasmuch as

the ‘rent’ which it is likely to fetch has to be determined as per

Section 63.  On the other hand, in respect of  the properties which

are  self-occupied, in any case annual rent has to be arrived at.

The impugned Bye-laws seek to achieve that purpose only, which

was very much in consonance with Section 63 of the NDMC Act.

He also submitted that the judgment in question has created a

void insofar as intervening period is concerned as the NDMC has

taxed  the  properties,  after  coming  into  force  the  Bye-laws,  in

accordance with the new Bye-laws which have been struck down

and thereby leaving the properties in question without any tax for

the intervening period.

1 104(2003) DLT 808 = AIR 2003 Delhi 295

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36) Mr.  Jain also submitted that UAM introduced by the MCD has

been upheld by this Court.  

37) In a nutshell, it is the case of NDMC that the impugned Bye-laws

are not ultra vires the NDMC Act. The NDMC has contended that

the finding of the impugned judgment that the Bye-laws of NDMC

as  ultra  vires  the  NDMC  Act,  on  the  premise  that  the  same

instead of supplementing Section 63(1), supplants the same is

erroneous.

38) NDMC  has  also  contended  that  the  entire  functioning  and

activities  of  NDMC  is  dependent  on  its  revenue  collections.

Property tax accounts for the major individual source of revenue

of  NDMC.  In  the  event  the  Bye-laws are  struck down in  their

entirety, as has been done by the impugned judgment dated 10 th

August, 2017 of the Delhi High Court, NDMC will stand to lose a

huge portion of its revenue, in the absence of which NDMC will

not  be  in    a  position  to  provide the  services that  it  currently

provides in the New Delhi area.

39) As per NDMC, no particular method is prescribed under Section

63(1) for arriving at annual rent and the said gap has been filed

up  by  the  Bye-laws  of  2009.   It  claims  that  what  has  been

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 33 of 72

prescribed by Section 63 (1) is only the broad principle on which

the rateable value would be determined, which is the annual rent

that the property “might reasonably be expected to let from year

to year.  

40) Section 63(1) is silent on how to determine the annual rent of a

property and for  calculation of  annual rent,  NDMC can employ

any method which is reasonable to arrive at the hypothetical rent

which a property might reasonably be expected to let from year to

year.   Using the current  Bye-laws to arrive and determine the

annual rent, cannot be said to be unreasonable or ultra vires of

the provisions of the NDMC Act.

41) Mr. Parag Tripathi, who appeared in the civil appeal arising out of

Special Leave Petition (Civil) No. 35938 of 2017, supported the

case  set  up  by  the  NDMC.  He  also  argued  that  Section  63

provides  for  the  determination  of  rateable  value  for  buildings

assessable to property tax which is on the basis of annual rent

which the land or building might reasonably be expected to let

from year to year.  There is no statutory formula provided and

indeed there can be non to determine the value of rent at which

any land or building might  reasonably be expected to let  from

year to year. It is for this reason that Section 388(1)(A)(9) of the

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 34 of 72

NDMC Act, 1994 vests power on the Council to make bye-laws I

n all  matters relating to levy,  assessment,  collection,  refund or

remission of taxes under the Act.  It is a well-settled position of

law that  the term ‘levy’ is  a  term of  wide import  and includes

charge as well as imposition of tax, as laid down in the followings

judgments:

(I) Ashok Singh vs. Asstt. Controller of Estate Duty2

(ii) Assistant  Collector  of  Central  Excise  vs.  National

Tobacco Co. of India Ltd.3

(iii) Mafatlal Industries & Ors. vs. Union of India & Ors.4

42) Analyzing the Impugned Judgment dated 10.08.2017 of the High

Court,  he  argued that  it  has  proceeded on  the  basis  that  the

concept of annual value sought to be introduced by the NDMC

(Determination  of  Annual  Rent)  Bye-laws,  2009  is  completely

alien to the statutory scheme of the NDMC Act on the following

basis:

(i) Bye-law  2  of  the  2009  Bye-laws  provides  that  ‘for  the

purposes of Section 63(1)” the annual rent for which the lands

and  buildings  are  expected  to  let  from  year  to  year  shall  be

determined in terms of Bye-laws 3 and 4.,  

2 (1992) 3 SCC 169 3 (1972) 2 SCC 560 4 (1997) 5 SCC 536

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(ii) Bye-law  4  provides  that  the  annual  rent  of  lands  and

buildings not covered by Bye-law 3 shall be the aggregate of the

bona fide annual  value of  land and bona fide annual  value of

covered space of the building.  In terms of sub- bye-law 3 of Bye-

law 4 the annual value of any covered space shall be the amount

arrived at by multiplying the total area by the base unit area value

of such covered space and the relevant factors stipulated in sub-

bye laws 5,6 and 7.

(iii) ‘Annual value” for the purpose of arriving at the annual rent

which a property may reasonably expected to fetch is not a new

concept  and  has been applicable  to  the  NDMC area until  the

enactment of  the NDMC Act in 1994. In this regard,  reference

may also be had to the definition of “annual value” in Section 3(1)

(b) of the Punjab Municipal Act which provides that annual value

shall mean the gross annual rent which a house or building may

reasonably be expected to let from year to year.

(iv) It is, therefore, clear that the term ‘annual value’, which is

arrived at by taking into account factors such as area, usage of

the property, age factor and also occupancy, is only an indicator

of the rent which a particular property would fetch when let for

use or enjoyment.

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43) Mr.  Tripathi  further submitted that  the impugned judgment also

proceeds on the basis that the 2009 Bye-laws have overwritten

the  proviso  to  Section  63(1)  which  provides  that  the  rateable

value shall  not  exceed the standard rent fixed under the Delhi

Rent Control Act.  Questioning this approach, he submitted that

the  High  Court  has,  with  respect,  lost  sight   of  the  fact  that

concept of standard rent is no longer available under the Delhi

Rent Control Act, 1958 since the Delhi High Court was pleased to

strike  down  Sections  4,6  and  9  of  the  said  Act  dealing  with

Standard Rent in Raghunandan Saran Ashok Saran (HUF) vs.

Union  of  India  and  Others5 ,  which  judgment  was  never

challenged in appeal and has thus attained finality.

44) This  aspect  was  also  noted  by  this  Court  in  State  Trading

Corporation vs. New Delhi Municipal Council6.  In that view of

the matter,  there was no occasion for  the High Court  to strike

down  the  Bye-laws  on  the  ground  that  the  Bye-laws  have

overwritten the proviso to Section 63(1).

45) Mr. Tripathi also submitted that various judgments relied upon by

the High Court on the aspect of excessive delegation were not

applicable in the facts of the present case.

5 95(2002)DLT 528 6 (2016) 12 SCC 603

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46) One  additional  submission  was  made  by  Mr.  Parag  Tripathi

deviating from the NDMC stand. Learned senior counsel referred

to the provisions of Section 63(2) of the NDMC as well as Section

388(1)(A)(9) of the Act which read as under:

"Section 63(2): The ratable value of any land which is not built upon but is capable of being built  upon and of 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.

Section 388(1)(A)(9)  :   any other matter relating to the levy, assessment, collection, refund or remission of taxes under this Act.”

47) His submission was that from a conjoint reading of the aforesaid

provisions it is clear that that provisions of Section 388(1)(A)(9)

sufficiently  empower  NDMC  to  make  Bye-laws  in  respect  of

matters covered under Section 63, i.e., Sections 63(1) and 63 (2).

His further submission was that this Court has, time and again,

held  while  interpreting taxing statute  that  percentage of  tax  or

charges or penalties provided is to be treated not as a mandatory

provision  but  merely  as  indicative  of  a  ceiling.   For  this

submission, he invited the attention of this Court to the following

passage in  P. Ratnakar Rao and Others vs. Sate of A.P. and

Others7:

"4.  The  contention  raised  before  the  High  Court  and repeated before us by Shri  Rajeev Dhavan,  the learned

7 (1996) 5 SCC 359

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Senior  Counsel  for  the  petitioners  is  that  the  discretion given in Section 200(1) of the Act is unguided, uncanalised and arbitrary. Until an accused is convicted under Section 194, the right to levy penalty thereunder would not arise. When discretion is given to the court for compounding of the offence for the amount mentioned under Section 200, it cannot  be  stratified  by  specified  amount.  It  would, therefore, be clear that the exercise of power to prescribe maximum  rates  for  compounding  the  offence  is  illegal, arbitrary and violative of Article 14 of the Constitution. We find no force in the contention. For violation of  Sections 113 to 115, Section 194 accords penal sanction and on conviction  for  violation  thereof,  the  section  sanctions punishment  with  fine  as  has  been  enumerated hereinbefore. The section would give guidance to the State Government as a delegate under the statute to specify the amount for compounding the offences enumerated under sub-section (1) of Section 200. It is not mandatory that the authorised officer would always compound the offence. It is conditional upon the willingness of the accused to have the offences compounded. It may also be done before the institution  of  the  prosecution  case.  In  the  event  of  the petitioner's  willing to have the offence compounded,  the authorised  officer  gets  jurisdiction  and  authority  to compound the offence and call upon the accused to pay the  same.  On  compliance  thereof,  the  proceedings,  if already  instituted,  would  be  closed  or  no  further proceedings shall be initiated. It is a matter of volition or willingness  on  the  part  of  the  accused  either  to  accept compounding of the offence or to face the prosecution in the  appropriate  court.  As  regards  canalisation  and prescription  of  the  amount  of  fine  for  the  offences committed,  Section 194,  the penal  and charging section prescribes  the  maximum  outer  limit  within  which  the compounding  fee  would  be  prescribed.  The  discretion exercised by the delegated legislation, i.e., the executive is controlled  by  the  specification  in  the  Act.  It  is  not necessary that Section 200 itself should contain the details in that behalf. So long as the compounding fee does not exceed the fine prescribed by the penal section, the same cannot be declared to be either exorbitant or irrational or bereft of guidance.”

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48) On  that  basis,  he  argued  that  the  5%  rate  stipulated  under

Section 63(2) should be treated as the ceiling which can be used

to determine the rateable value.  Section 63(2) on a fair reading

thereof and in view of the various judgments of this Court does

not mandate rateable value fixed at 5% of the capital value of the

land.  This is only the ceiling and has to be dealt with accordingly.

49) He also argued that the whole idea behind Section 63(2) is to

determine the property tax.  When there is no enjoyment of the

property itself and the building is in the process of erection, then

the land falls in the category of  ‘not  built  up but  is capable of

being built up’ or is actually being built up.

50) In these circumstances once a building is demolished and a fresh

building  is  constructed  after  obtaining  sanction  plans  from the

NDMC, the rateable value can be determined under Section 63(2)

only for the period during which the building is fully demolished,

i.e., the land in question becomes fully vacant till such time as the

roof of the ground floor is constructed.  Once such construction is

made  after  obtaining  the  sanction  plan,  by  no  stretch  of

imagination can the land be said to be vacant, as it now contains

a  building,  with  a  constructed  roof  in  accordance  with  the

sanctioned plan.  According to him, any other interpretation will

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 40 of 72

create  a  huge  discrimination  between  those  parties  who  are

seeking to construct a building and others who are enjoying the

benefit  of  a  constructed  building.   In  the  case  of  a  newly

constructed  building,  once  the  construction  is  complete,  the

rateable  value  will  not  exceed  Rs.  1  to  4  lakhs  whereas  a

percentage of the capital value of the land at 5%, the same would

be in the region of Rs. 3 to 4 crores.  This discrimination which is

60-80 times would be totally without any justification because no

new  or  additional  benefit  are  accruing  to  a  party  which  is

demolishing and reconstructing the property, rather a great health

hazard will be created with the old building are continued to be

used in that dilapidated stage.

51) He, thus, argued that a 5% levy is wholly arbitrary and does not

serve any purpose also for the reason that no municipal services

whatsoever  whether  sewerage,  water  or  electricity  are  really

being provided by the NDMC to a demolished property because

there  is  no  resident,  but  only  a  limited  extent  of  water  and

electricity is used for the purposes of construction. Emphasizing

that property tax is really in the nature of a fee on account of the

services rendered by the Municipal Authority. (See:  Pradeep Oil

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 41 of 72

Corporation  vs.  Municipal  Corporation  of  Delhi  and  Anr.;

(2011) 5 SCC 270).

52) He submitted that the levy must commensurate to the services

rendered by the authority. On that basis, Mr. Tripathi has sought a

direction from this Court to the NDMC to formulate Bye-laws in

respect of Section 63(2) as well and/or laid down guidelines in the

case of those building where pursuant to sanction plan existing

building is  demolished and a fresh building is  constructed,  the

property tax during the period of vacancy of the land due to the

demolition of the building, be determined at the same rate, as the

building upon construction based on the sanction plans would be

subject  to.   Further,  any in  any case this  period during which

rateable value would be determined under Section 63(2) should

be  limited  to  from  the  period  of  demolition  of  the  existing

structure/building till such time as the roof of the ground floor is

laid and constructed.

53) Ms. Maninder Acharya,  M/s.  Mukul  Rohatgi,  Sanjay R. Hegde,

Huzefa Ahmadi,  B.B. Gupta,  Ms. Vibha Datta Makhija,  learned

senior counsel, M/s. Sanjeev Anand, B.B. Jain and many other

counsel  appeared  on  behalf  of  the  different  respondents/

assessees and defended the judgment of the High Court. It may

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 42 of 72

not be necessary to separately state the arguments advanced by

these counsel.  Instead the arguments of these counsel are noted

below in a consolidated manner.

54) Before concentrating on the main issue of ultra vires, the counsel

for  the  respondents  highlighted  that  under  the  impugned Bye-

laws  NDMC  is  demanding/collecting  property  taxes  on

unconstructed/vacant  land  which  are  otherwise  incapable  of

being  constructed  upon.  This  is  notwithstanding  the  fact  that

Section 63 of the NDMC Act stipulates the annual rateable value

(ARV) can only be determine don the basis of constructed/vacant

land which is  capable of  being constructed upon.   In  order  to

show that a large portion of land falling under the jurisdiction of

NDMC cannot be built upon, following aspects are highlighted:

A. A majority  of  the properties of  NDMC are situated in  the

Lutyens’ Bungalow Zone (“LBZ” and are governed by the LBZ

Guidelines  dated  8th February,  1988,  which  not  only  prohibit

construction on a large part of the plots falling in LBZ but also

severely restrict new development and construction beyond the

area previously constructed upon.

B. Similar  restrictions  exist  for  properties  falling  within  the

‘prohibited  areas’  and  ‘regulated  areas’  declared  by  the

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 43 of 72

Archaeological  Survey  of  India  (ASI)  under  the  Ancient

Monuments and Archaeological Sites and Remains Act, 1958 and

amendments thereto.

C. Given  limitations  of  building  bye-laws,  such  a  legally

required setbacks, it is quite clear that there are portions of the

property  that  owners  are  compelled  by  law  to  leave  vacant.

Larger  plots  of  land  also  require  larger  setbacks  and  lesser

ground coverage.

55) It is submitted that the above three restrictions make it impossible

to construct on the entire plot of land, and result in large portions

of these plots becoming unconstructed/vacant land that are not

capable of being built upon. In fact, over 50% of properties falling

with the NDMC jurisdiction are governed by either LBZ Guidelines

and/or  by  ASI  regulations.   The  respondents  argue  that,  it  is

completely  discriminatory  vis-a-vis  properties  situated  outside

such  areas  to  levy  heavy  taxes  on  such  vacant  land  when

development thereupon is strictly prohibited.

56) It is also argued that on such properties, no property tax can be

levied.  Support from the judgment of the High Court of Delhi, in

the  case  of  Municipal  Corporation  of  Delhi  vs.  Shashank

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 44 of 72

Steel Industries (P)  Ltd.8  is  taken in this behalf  wherein the

Court  interpreted  the  expression  ‘capable  of  being  built  upon’

appearing in Section 116(2) of the Delhi Municipal Corporation

Act, 1957, which is stated to be in pari materia with Section 63(2)

of the NDMC Act.  Therein, that High Court has held that property

tax is leviable only in respect of land which is otherwise ‘capable

of being built upon’ and where construction is permission.  It was

submitted that the civil appeal filed by the Municipal Corporation

of Delhi against the decision of the Full Bench was dismissed by

this Court.

57) The impugned Bye-laws are also questioned as violative of Article

14  of  the  Constitution  of  India  on  the  ground  that  they  lack

reasonable classification.  All areas under the NDMC from B.K.

Dutt Colony to Golf Links to Bengali Market to Prithviraj Road, are

treated at par in that the same base UAV Rs. 1,000/- per sq. mtr.

(later  increased  by  20%  to  Rs.  1,1200/-  per  sq.   mtr.  w.e.f.

01.04.2013) is imposed on them even though the rent that they

would fetch is in no way comparable.  The Annual Rateable Value

for two buildings/houses (of say 1,000 sq. mtr. each built between

2000-09 on plots below between 500 to 1,000 sq. mtrs.) one in

B.K. Dutt  Colony and the other on Golf  Links,  where both are

8 100 (2002) DLT 66 (FB)

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used as a residence by the individuals who own them, would be

the same, calculated by the formula below:

bona fide Annual Rateable Value of the Covered Space

=Base unite Area Value x Covered Space x Age factor  x  Use

Factor x Occupancy Factor

=1,200x1,000x1x1x1.5x1=18,00,000/- less 10% deduction

= Rs. 16,20,000/-

58) It is submitted that fixing the same base unit area value for all the

colonies falling within the jurisdiction of the appellant ignores the

roles, location and social factors play in determining annual rent

and thus tax, and accordingly treat unequals as equals.  This is

argued as discriminatory,  as  held  in  State of  Kerala  vs.  Haji

Kutty9 wherein this Court held that “imposing a uniform tax on

objects, persons or transaction essentially dissimilar may result in

discrimination”.  Comparison is made with the Scheme adopted

by the MCD, which has divided the area under its jurisdiction into

six different zones and has provided a separate location factor for

each zone for calculating the property tax.

59) Further submissions predicated on Article 14 of the Constitution

are as under:

9 AIR 1969 SC 378

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(i) The  impugned  Bye-laws  seek  to  impose  onerous  terms

upon firms, companies, trusts etc. by denying the benefit of self-

occupation  use  to  their  properties  in  which  their

partners/directors/employees/trustees reside, and charging three

times the property tax being charged from individual assessees.

Such impermissible impugned Bye-laws have been made in utter

disregard of Section 66 of the NDMC Act, sub-section (1) of which

clearly mandates that:

"The property tax shall be primarily leviable as follows:- (a) if the land or building is let, upon the lessor; (b) if the land or building is sub-let, upon the superior lessor; (c) if  the land or building is unlet,  upon the person in whom the right to let the same vests.”

This Section clearly contemplates the classification of unlet

land or  building as a  single  category  if  there  is  no lease/sub-

lease, therefore, suggesting that such properties owned by firms,

companies or trusts etc. fall in the same class as self-occupied

properties.  Such unequal treatment is indubitably discriminatory.

(ii) Furthermore,  the  impugned  Bye-laws  seek  to  tax  the

property not on the basis of its user but on the basis of the legal

status of the owner, which goes against the principle that property

tax is a tax on a property and not a tax on the owner.  This is also

discriminatory as many beneficial owners of the property hold the

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 47 of 72

same through a firm, company, trust,  etc.  for  reasons such as

estate planning, family settlements, synergies of business, court

decrees, business exigencies etc. and they cannot be penalised

on the basis of nature of ownership and that too for a historic and

irreversible act done by them or their predecessors-in-it.

(iii) The  service  provided  by  NDMC  towards  sewage,  public

health, streets, roads, drainage, parks etc. does not change and

there is no qualitative and quantitative difference in the same for

firms, companies, trusts etc.

(iv) The  impugned  Bye-laws  [Bye-law  4(6)]  seek  to  impose

unreasonably  and  discriminatory  onerous  terms  upon  the

assessees putting their  property  to  any permissible  use “other

than residential” by charging a six times factor for calculating the

Annual Rateable Value of covered space.  This omnibus category

of  “Other  than Residential”  does not  envisage multiple diverse

uses  that  a  property  may  be  put  to  an  unreasonably  and

arbitrarily clubs all uses “other than residential” into one category

without providing any distinction between a use which is likely to

yield  profits  and/or  cause  more  burden  on  the  infrastructural

facilities of the appellant and other uses which may be non-profit

and/or  do  not  cause  an  additional  excess  burden  on  the

infrastructure as compared to residential  use.   This is  in  stark

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contrast to the MCD Act, which, in Section 116A classifies vacant

land and buildings into colonies and groups and specifies base

area value thereafter.  In this calculation, use wise categorization

is done, nut just into ‘residential’ and ‘other than residential’, but

into categories like business building, mercantile building, building

for recreation, public purpose building, etc. Bye-law 6 of the Delhi

Municipal Corporation (Property Taxes) Bye-laws 2004 goes so

far as to exempt land or buildings used for charitable purposes

such as orphanages, hospitals and schools that are free of cost,

etc.  This demonstrates a significant  application of  mind by the

MCD in contrast to the appellant herein.

The outcome of  the Impugned Bye-laws is  that  if  a  trust

owns a property which is used partly for the residential purpose of

its  trustees  and  partly  for  running  a  charity,  the  tax  obligation

would be many times the amount of tax payable by a house next

door which is owned by the individual who resides in it, both on

account of the multipliers for non-self occupied and ownership not

by an individual.  This scenario is unreasonable and violative of

Article 14.

(v) Properties which are designated for residential use [as per

the city master plan] and are put to ‘residential cum office use’ by

foreign/diplomatic  missions operating out  of  such properties as

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 49 of 72

permitted  under  applicable  law  (whether  as  owner  or  tenant)

cannot be treated as “other than residential” and consequently be

subjected  to  higher  factor  for  calculating  the  Annual  Rateable

Value of covered space.

(vi) Rationality of the impugned Bye-laws is also questioned on

the ground that under the impugned Bye-laws, if some portion of

the  covered  space  of  the  property  is  partly  rented  and  the

remaining  covered  space  of  the  property  is  self-occupied,  the

impugned Bye-laws do not give a self occupation rebate on the

unconstructed/vacant  land  {i.e.  applying  the  current  base  unit

area of Rs. 1,200/- per sq. mtr. Instead of Rs. 600/- per sq. mtr.)

even though the unconstructed/vacant land may be I n complete

occupation/enjoyment of the owners.   Even in cases where as

little as one room in the barsati floor or outhouse is rented and the

tenant is not given any access to the unconstructed/vacant land

(except right of entry/ingress from the main gate/driveway), the

landlord/owners would be obligated to pay an inexplicably and

substantially higher amount of property tax.

(vii) As per the Bye-law 4(8) of the impugned Bye-laws, in case

of  commercial  properties,  the  Annual  Rateable  Value  of  the

covered space as per the impugned Bye-laws is the value arrived

under  the  Impugned  Bye-laws  or  the  actual  rent  fetched,

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whichever is higher.  Grievance is that in this way, the NDMC is

trying to achieve best of both worlds, which is not consistent with

the “optionality”  underlying the impugned Bye-laws.  Moreover,

after the NDMC has taken the stand that the impugned-Bye-Laws

seek only to provide a method by which to calculate the annual

rent,  it  is  incongruous  that  the  actual  rent  be  taken  into

consideration.

(viii) Given that Delhi is one state, there is no reason for different

systems between the NDMC and MCD areas.  For this purpose,

reference is made to the case of State Trading Corporation of

India Ltd. case wherein a Single Judge of the High court of Delhi

observed as under:

"37. Before parting with this judgment, I must express my anguish at the fact that though Delhi is one city, different parameters are being followed by Municipal authorities in the same town. It is only for purposes of convenience that jurisdiction have been divided among NDMC, MCD and Delhi Cantonment Board. The least that is expected is that all  these Municipal authorities should act at tandem and follow similar principles in determination of rateable value. Merely because the house of one person falls in one area or the other, which may even be adjacent, and a different Municipal  authority  is  dealing  with  the  issue  of determination  of  rateable  value,  should  not  imply  totally different concepts in determination of such rateable value. It  is  appropriate  that  all  the  Municipal  authorities  must meet and consider this aspect to bring a uniformity in the system of determination of the rateable value in parts of Delhi  when they fall  within  one jurisdiction or  the other. This is more so as the provisions under said Act and the DMC  Act  are  para  materia.  The  MCD,  in  fact,  now proposed to apply a different concept of a unit method of

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taxation,  but  so  far,  the  NDMC  has  not  finalised  any proposal in the same terms.”

It  is  argued  that  although  the  appeal  against  the  said

decision was allowed by a Division Bench of the High Court of

Delhi in  NDMC vs.  State Trading Corporation10,  the aforesaid

observations were neither overruled nor commented upon by the

Division Bench and do hold good.  In any case, appeal against

the judgment of the Division Bench was thereafter allowed by this

Court in State Trading Corporation case.  Therefore, as per the

respondents, these observations do hold the field.

(ix) It  is  also  submitted  that  the  impugned  Bye-laws seek  to

penalise  private  citizens  at  the  cost  of  the  union  and  state

instrumentalities.  Out of the total NDMC area of land about 90%

of the land is owned by the Government itself and the rest 10% is

owned  by  the  individuals,  body  corporates  etc.  As  the

Government has been exempted from paying taxes, therefore the

burden to pay tax is on the persons, who occupy only 10% land of

the  total  NDMC  area.   This  according  to  the  respondents  is

discriminatory and in violation of Article 14 of the Constitution of

India.

60) Adverting to the issue of ultra vires which has appealed to the

High  Court  thereby  quashing  the  impugned  Bye-laws,  the 10 126(2006) DLT 191

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respondents supported the reasons given by the High Court in

this behalf. Emphasizing the fact that as per Section 63(1) of the

NDMC Act, annual rent to be arrived at has to be the rent which

such land or building might reasonably be expected to be let from

year to year. Respondents emphasised that Section 63(1) uses

the word ‘rent’ and not ‘value’ and, therefore, the only way for

determining  the  annual  rent  is  to  see  the  ‘rent’  which  the

properties  likely  to  reasonably  fetch.  The  respondents  have

submitted that  this  language contained in  Section 63(1)  of  the

NDMC Act  has come up for  interpretation before this  Court  in

number cases and interpreted in the same manner in which the

High Court  has dealt with the issue.  The respondents, in this

behalf, referred to the following judgments:

(i) The Corporation of Calcutta vs. Smt. Padma Debi and

Others11;

(ii) The  Guntur  Municipal  Council  vs.  The  Guntur  Town Rate Payers’ Association etc.12

(iii) Dewan  Daulat  Rai  Kapoor  vs.  New  Delhi  Municipal Council and Others13

(iv) Indian  Automobiles  Ltd.  vs.  Calcutta  Municipal Corporation and Anr.14

(v) State Trading Corporation case  

11 (1962) 3 SCR 49 12 (1970) 2 SCC 8703 13 (1980) 1 SCC 685 14 (2002) 3 SCC 388

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61) It is thus argued that the High Court has rightly held that the UAM

is  not  a  means  or  method  of  collecting  the  rent  for  which  a

property might reasonably be expected to let.  In  support of this

contention, the respondents referred to some of the Bye-laws and

the  position  thereunder  which  according  to  the  respondents

makes it clear that UAM introduced in the impugned Bye-laws is

completely foreign to the methodology of ‘annual rent’ provided

under Section 63.  The Bye-laws referred to are as below:

62) Bye-laws  4(6)  introduces  a  “multiplication  factor  for  use  and

occupancy  of  the  covered  space”,  wherein  the  multiplication

factor for residential use is 1 but all other use is 6. Similarly, for

self occupied or vacant properties, the multiplication factor is 1

whereas for others it is 3.  As per the explanation to this Bye-law.

"premises  owned  by  companies,  firms,  trusts,  etc.  and used by the directors, employees or partners for residence or guest house shall not be treated as self occupied by the owners.”

63) Thus, by way of illustration, a property owned by a trust and used

by it as a guest house or to run a charity would be taxed 18 times

what  an  identical  self  occupied  residential  property  would  be

taxed.  Properties fetch the same rent whether they are owned by

an individual or a trust, whether they are used as a residence or a

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guest  house.   This  Bye-law  is  thus  directly  contrary  to  the

contention  that  the  Impugned  Bye-laws  are  a  method  of

computing rent.  

64) The impugned Bye-laws provide for the calculation of tax to begin

by multiplying the total covered area by an assigned base UAV of

Rs. 1,000/- per sq. mtr. (revised to Rs. 1200/- per sq. mtr. w.e.f.

01.04.2013), irrespective of location.  The appellant thus seems

to be inexplicably equating the rent a property which a house in

B.K. Dutt would fetch with one in Golf Links or Prithviraj Road.

65) Factors such as location, neighborhood, corner plot, architectural

style, etc. which play a significant role in ascertaining the rent a

property would fetch are ignored in the impugned Bye-laws.

66) It is, thus, argued that the Impugned Bye-laws are not a means of

calculating the rent a property would fetch.  To the contrary, they

lay  out  a  method  that  is  entirely  different  from   the  parent

legislation.  Respondents also point out difference in the following

manner:

(a) Firstly, Section 63(2) of the NDMC Act provides for taxation

only on land capable of being built upon.  Given that parts of the

NDMC area  fall  under  the  Lutyens’ Bungalow Zone (‘LBZ’)  or

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‘prohibited’  or  ’regulated  area’  declared  by  the  Archaeological

Survey of India under the Ancient Monuments and Archaeological

Sites  and  Remains  Act,  1958  (including  the  rules  framed

thereunder),  and  given  that  building  bye-laws  require  certain

setbacks to be left vacant, the unconstructed/vacant land is often

not capable of being built upon. Bye-law 4(2), which provides for

calculation  of  bona  fide  value  of  land  not  constructed  upon,

ignores this aspect and thus contradicts the parent legislation.

(b) Secondly, the categories created under the Bye-law 4(6) are

different from the classification envisaged under the NDMC Act

and in particular classification of property in Section 62 and 65 of

the  NDMC  Act.  Section  66  of  the  NDMC  Act  creates  three

categories of properties – those which have been let, those which

have been  sub-let  and  those  that  are  not  let  out  at  all.   The

impugned Bye-laws, however, create an entirely different method

of categorization.

(c) Furthermore,  the  Impugned  Bye-laws  confer  extensive

powers  upon  the  Valuation  Committee  in  Bye-Law  5,  which

amounts to excessive delegation of power in a manner that has

not even been envisaged in the parent statute.

Consideration of the arguments:

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67) In  the  first  place,  we  take  up  the  fundamental  issue,  namely,

whether the impugned Bye-laws are ultra vires Section 63 of the

NDMC Act?   As  noted  above,  judgment  of  the  High  Court  is

confined to this issue alone.   As can be seen from the legislative

scheme contained in various provisions pertaining to property tax,

Section 60 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 Bye-laws 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’.

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68) Various premises, viz:   lands and buildings, in respect of which

property tax can be levied are mentioned in Section 62.  Insofar

as  rateable  value  is  concerned,  the  manner  of  determination

thereof is specified in Section 63 of the Act.  Since, the method of

determination is the fulcrum of the dispute, Section 63 assumes

importance  for  the  purposes  of  deciding  the  issue  in  these

appeals.  It is also an accepted position that the interpretation that

is to be given to this provision would lead to the outcome of the

case.  For these reasons and for the sake of continuity and clarity,

we reproduce Section 63(1) and (2) thereunder:

"Section  63  :  Determination  of  rateable  value  of  lands  and buildings assessable to property tax-

1.  The rateable value of any lands or buildings assessable to any property taxes 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 ten per cent of the said annual rent which shall be  in lieu  of all allowances for cost of repairs and insurance, and other expenses, if any, necessary to maintain the land or building in a state to command that rent:  

Provided that in respect of any land or building the standard rent of which has been fixed under the Delhi Rent Control Act, 1958 (59 of 1958) the rateable value thereof shall not exceed the annual amount of the standard rent so fixed.

2.  The rateable value of any land which is not built upon but is capable of being built upon and of any land on which a building is  in  process  or  erection  shall  be  fixed  at  five  per  cent  of estimated capital value of such land.”

69) As  per  Section  63(1)  rateable  value  of  any  lands  or  building

assessable  to  any property  taxes is  the  ‘annual  rent’.  Further,

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 58 of 72

such annual rent  has to be determined ‘at  which such land or

building  might  be  reasonably  be  expected  to  let  from year  to

year….’ .

70) 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.  Therefore, the first question is as to what

are the provisions made in this behalf in the Act.  For this Section

63 comes into play which 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 Bye-laws lay down the procedure for

fixing of annual rent on UAM.  This leads us to the question as to

whether this UAM can be stated to be the method of arriving at

annual rent which land or building is reasonably expected o let

from year to year?  Here it  may be noted that  as per NDMC,

Section 63 does not prescribe any particular method for arriving

at annual rent and, therefore, this gap has been filled up by the

Impugned Bye-laws by prescribing the formula based on UAM.  It

would be difficult to accept such an interpretation of Section 63(1)

as sought to be given by the learned senior counsel for NDMC.

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71) 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.

Such a conviction has come up for interpretation before this Court

in a series of cases right from 1960s till date.  It would be relevant

to  note  that  similar  language  was  used  in  the  unamended

provisions of Delhi Municipal Corporation Act as well as similar

acts of some other states.

72) The  Corporation  of  Calcutta  vs.  Smt.  Padma  Debi  and

Others15 has analyzed the words ‘gross annual rent at which the

land or building might reasonably be expected to let from year to

year”.   In a similar  provision under the Calcutta Municipal  Act,

1923 as Section 63(1) and held as under:

"We shall first look at the provisions of the section to ascertain the meaning: The crucial words are "gross annual rent at which the land or building might at the time of assessment reasonably be expected to let from year to year". The dictionary meaning of the words "to let", is "'grant use of for rent or hire". It implies that the rent which the landlord might realise if the house was let is the  basis  for  fixing  the  annual  value  of  the  building.  The criterion, therefore, is the rent realisable by the landlord and not the value of the, holding in the hands of the tenant. This aspect has  been  emphasized  by  the  Judicial  Committee  in Bengal Nagpur  Railway Company Limited  v.  Corporation  of  Calcutta (AIR 1942 Calcutta 455)(1).  

15 (1962) 3 SCR 49

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73) In the case of  The Guntur Municipal Council case,  this Court

again  analyzing  similar  provision  under  the  Madras  District

Municipalities Act, 1920 held as under :

"……………Section 82 gives the method of assessment. It is  provided  by  sub-section  (2)  of  that  section  that  the annual value of lands and buildings shall be deemed to be the gross annual  rent  at  which they may reasonably be expected to let from month to month or from year to year less certain deductions. …..

…………..Now Section 82(2) of the Municipalities Act, as stated before, makes provision for the fixation of annual value according to the rent at which lands and buildings may  reasonably  be  expected  to  be  let  from  month  to month or from year to year less the specified deduction. The test essentially is what rent the premises can lawfully fetch if let out to a hypothetical tenant. The municipality is thus not free to assess any arbitrary annual value and has to look to and is bound by the fair  or the standard rent which would be payable for a particular  premises under the Rent Act in force during the year of assessment…….”

74) In Dewan Daulat Rai Kapoor case, this Court held as under:

" …..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.  The word  “reasonably”  in  the  definition  is  very important.  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. Now, what is reasonable is a question of fact and it would depend on the facts and circumstances of a given situation. …...”

75) Similarly, in  Indian Automobiles Ltd. case,  it was held that the

criterion  for  calculating  annual  valuation  must  be  the  rent

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 61 of 72

realizable by the landlord and not the value of holdings, and that

the word ‘reasonably’ in the Section was a question of fact.

76) In  State Trading Corporation case,  while  dealing with certain

other Bye-laws as against the NDMC Act came to the conclusion

that:

"7.   …...Since there is a provision and procedure under Section  63  of  the  NDMC Act  for  calculating  the  annual rent, one need not refer at all to the bye-laws as quoted above  since  they  are  apparently  inconsistent  with  the provisions of the NDMC Act. In short, it is impermissible to refer to the bye-laws framed under the Punjab Act in view of specific provisions made under the NDMC Act providing for the levy, assessment and collection of property tax.

8. Therefore, the only basis for fixation of rateable value is the  annual  rent  at  which  the  land  or  building  might reasonably be expected to be let from year to year, subject to the deductions provided under the Act.”

77) The aforesaid judgments give a clear message that 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.  In

the Guntur Municipal Council case, this Court made it clear that

having regard to the provision in the Act, the municipality was not

free to assess any arbitrary annual value and has to look to and

is bound by the fair or standard rent which would be payable for a

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particular  premises  under  the  Rent  Act  in  force  during  the

assessment.

78) In State Trading Corporation, which was a case directly dealing

with this very provisions, namely, Section 63 of the NDMC Act,

the Court again reiterated in unambiguous terms ‘the only basis

for fixation of rateable value is the annual rent at which the land

or building might reasonably be expected to let from year to year,

subject to the deductions provided under the Act’.

79) 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.  This  is  the  ratio  of

Mehrasons Jewellers  Private  Limited2.   It  was  a  case  in

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respect  of  premises  not  controlled  by  Delhi  Rent  Control  Act.

This Court held that the annual rent received by the landlord is

what willing lessee uninfluenced by other circumstances would

pay  to  the  willing  lessor;  actual  annual  rent  in  these

circumstances  can be taken as the annual rateable value of the

property for assessment of property tax.

80) The  question  directly  arose  for  consideration  in  Government

Servant  Cooperative  House  Building  Society  Limited  and

Others vs.  Union of India and Others16, this Court noticed the

1988  amendment  to  the  Delhi  Rent  Control  Act  and  various

judgments  referred  to  hereinabove  by  us  and  concluded  as

under:

“8. 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.”

16 (1998) 6 SCC 381

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81) 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 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.

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82) Be as it may, in the context of the issue at hand, we emphasize

that it  is the annual letting value fixed in the aforesaid manner

which can be the annual rent and not the value of the property in

question.  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.

83) Having cleared the aforesaid aspect, we need to discuss as to

whether UAM specified in the impugned Bye-laws aims to strive

at ascertaining ‘annual rent’?  If the answer is in the affirmative,

only then one can say that the impugned Bye-laws are in tune

with the provisions of Section 63(1) of the NDMC Act.  After going

through the Bye-laws and the manner in which the rateable value

is fixed, we are constrained to observe that it is not in sink with

the scheme of Section 63(1) of the NDMC Act. To recapitulate in

brief, 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

Civil Appeals arising out of SLP (C) Nos. 23186-23213 of 2019 & Ors. Page 66 of 72

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.   We,  therefore,  reject  the  arguments  of  the

appellants and do not deem it necessary to deal therewith any

further.

84) Thus, we agree with the High Court that the Impugned Bye-laws

that provide UAM which is based on value of the property that on

rental which the property is likely to fetch and are, there, foreign

to  the methodology  provided in  Section  63  of  the NDMC Act.

Such Bye-laws are, thus, 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.

85) 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 Bye-laws, 2009.

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86) No doubt, in many ways, UAM is a better method in comparison

with the earlier method based on annual rent.  For this reason,

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, we are agreeing with the High Court which has quashed

the Impugned Bye-laws as ultra vires, it  becomes meaningless

and  irrelevant  to  go  into  other  issues  or  other  arguments

advanced before us.  However, we may only add that 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.  We

are  not  suggesting  that  the  contentions  raised  by  the

respondents/assessees relating to validity of  different  Bye-laws

are  well-founded,  nor  are  we  suggesting  that  they  are  ill-

conceived.   This  Court  has  not  expressed  any  views  on  the

merits of these contentions, either waym as this Court has not

gone into the merits of such contentions.  At the same time in

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order to obviate any future challenge the NDMC is expected to

keep in mind the arguments of the appellants on these aspects.

87) We may record here that when the matter was heard at a stage

when the counsel  for  NDMC had argued the matter  and even

respondents  have  made  their  submissions  in  reply  thereto,

learned counsel for  the NDMC before giving rejoinder made a

statement on 16th January, 2018 that the new Bye-laws had been

accepted by approximately 95% assessees.  Further, because of

the interim order passed by this Court permitting such assessees

to deposit the property tax on the basis of these Bye-laws, they

had voluntarily deposited the property tax as well on the basis of

self-assessment.  Having regard to this, the learned counsel for

the  NDMC  submitted  that  the  grievances  of  the

respondents/assessees  can  be  looked  into  by  the  Valuation

Committee.  Based on this statement, following order was passed

on 16th January, 2018.

"Learned  counsel  for  the  respondents  have  completed their submissions. The petitioner(s) have to give rejoinder thereto.  Before  making the submissions  in  rejoinder  Mr. Yoginder  Handoo,  learned  counsel  appearing  for petitioner(s),  has  stated  that  approximately  95% assessees have accepted the new bye-laws and pursuant to the order passed by this Court, they have come forward voluntarily and deposited the property tax on the basis of 4 self-assessment. He submits that some of the grievances

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which are stated by the respondents herein in respect to their  properties  which  according  to  them  are  in  the impugned bye-laws can be looked into by the Valuation Committee. He further submits that Valuation Committee may be having its sitting within two weeks and may give its report  in  this  behalf  within  five  weeks.  He,  therefore, makes a request to adjourn the matters for five weeks. The matters stand adjourned to 06.03.2018.  

We make  it  clear  that  the  aforesaid  exercise  would  be without  prejudice  to  the  rights  and  contentions  of  the parties.  The  petitioners  may  file  its  written  submissions during  this  period.  In  the  meantime,  interim  order  to continue.”  

88) When the matter came up on 6th March, 2018, Mr. Sanjay Jain

made a statement on behalf of NDMC that the revised guidelines

have been framed and put on website, to which objections have

been invited.  He 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 Bye-laws 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

which are reflected in  the tabulated form.  Many respondents/

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assessees are still not satisfied with the decision taken on various

aspects and the arguments.  We, however, leave it to the NDMC

to  take  a  final  call  thereupon  having  due  regard  to  the  legal

position on these aspects.

89) One last but very significant aspect is still  required to be dealt

with.  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,  we  direct  that  those

assessees who have paid the tax as per Bye-Laws, 2009, their

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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.

90) The appeals stand disposed of in the aforesaid terms.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; JANUARY 22, 2019.

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