Full Judgment Text
W.P. (C) Nos. 3347/1987 & 1632/1988 1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WRIT PETITION (CIVIL) NOS. 3347 OF 1987 & 1632/1988
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Reserved on : 24 February, 2010.
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% Date of Decision 21 April, 2010.
P.N. KUMAR AND ANOTHER .... Petitioners
Through Mr. Lovkesh Sawhney & Mr. Durgesh Kumar
Pandey, Advocates.
VERSUS
MUNICIPAL CORPORATION OF DELHI & OTHERS …..Respondents
Through Ms. Amita Gupta & Mr. Sushil Jaswal,
Advocates for MCD.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
1. Whether Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported
in the Digest ? YES
SANJIV KHANNA, J.:
1. These two writ petitions have been filed by Mr. P.N. Kumar and Jaypee
Hotels Limited in respect of property tax assessment under the provisions of
Delhi Municipal Corporation Act, 1957 (hereinafter referred to as the Act, for
short). Writ Petition(Civil) No. 1632/1988 pertains to a hotel in Rajendra Place
and the petitioners have challenged and questioned the assessment order dated
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4 September, 1987 fixing the rateable value of the property at Rs.14,57,880/-
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with effect from 15 July, 1981. In Writ Petition (Civil) No. 3347/1987, the
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petitioners have challenged and questioned the assessment order dated 4
August, 1983 in respect of vacant land for a hotel in Vasant Vihar for the
period 1981-82 (part), 1982-83 and 1983-84 (full). In both writ petitions, the
petitioners have asked for refund of the property tax, which were paid.
W.P. (C) Nos. 3347/1987 & 1632/1988 2
2. The two writ petitions were taken up together as the petitioners had
challenged vires of Section 114 and other provisions of the Act on the ground
that they were violative of Article 14 of the Constitution of India.
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Accordingly, the matter was listed before the Division Bench on 3 February,
2005. Learned counsel for the petitioners stated that they did not want to press
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challenge to the vires of Section 114 of the Act. By order dated 28 July,
2008, the matter was accordingly directed to be listed before a Single Bench as
per the Roster. The question of vires is, therefore, not being examined.
WRIT PETITION (CIVIL) NO. 3347 OF 1987
3 . The petitioner No. 2 had given highest bid of Rs. 1,82,00,000/- for
purchase of lease hold rights for a vacant piece of land measuring 1250 square
meters in community centre Basant Lok, Vasant Vihar, New Delhi in the year
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1980. On 9 June, 1981, possession of this land was handed over to the
petitioner No.2. The lease deed was executed and registered by Delhi
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Development Authority on behalf of the President of India on 19 March,
1982. The question raised in the writ petition is whether the petitioner No.2 is
liable to pay property tax on vacant land under Section 120 of the Act. The
other contention raised by the petitioner relates to the quantification of the
capital value of the land and whether the auction bid amount or the auction
price paid by the petitioner No.2 can be regarded as the estimated capital value
or the market price. The third question raised by the petitioners is whether the
stamp duty payable on the lease deed should be added for computing the
capital value or market price of land. Lastly, it is submitted that the petitioners
are not liable to pay scavenging tax and water tax.
4. The question of payment of property tax on vacant land has been
considered by a Full Bench of this Court in Municipal Corporation of Delhi
versus Shashank Steel Industries Private Limited , 100(2002)DLT 66(FB) and
by a single Judge of this Court in K.K. Enterprises versus Municipal
Corporation of Delhi and other cases , 127(2006)DLT 679. In these decisions,
Delhi High Court has examined Sections 116 and 120 of the Act. These
Sections read as under:-
W.P. (C) Nos. 3347/1987 & 1632/1988 3
“116. Determination of rateable value of lands and
buildings assessable to property taxes .—(1) The
rateable value of any land or building assessable to
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 ) a sum equal to ten per cent of the said annual
rent which shall be in lieu of all allowances for costs of
repairs and insurance, and other expenses, if any,
necessary to maintain the land or building in a state to
command that rent; and
( b ) the water tax or the scavenging tax or both, if
the rent is inclusive of either or both of the said taxes:
Provided that if the rent is inclusive of charges for
water supplied by measurement, then, for the purpose
of this section the rent shall be treated as inclusive of
water tax on rateable value and the deduction of the
water tax shall be made as provided therein:
Provided further that in respect of any land or building
the standard rent of which has been fixed under the
Delhi and Ajmer Rent Control Act, 1952 (38 of 1952),
the rateable value thereof shall not exceed the annual
amount of the standard rent so fixed.
[ Explanation .—The expressions “water tax” and
“scavenging tax” shall mean such taxes of that nature
as may be levied by an appropriate authority.]
(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 of erection shall be
fixed at five per cent of the 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 Commissioner with the approval of the Standing
Committee, 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.”
120. Incidence of property taxes .—(1) The property
taxes 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:
[Provided that the property taxes 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 taxes assessed in respect of that land
and the building erected thereon shall be primarily
W.P. (C) Nos. 3347/1987 & 1632/1988 4
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 inter vivos .
(3) The liability of the several owners of any building
which is, or purports to be, severally owned in parts or
flats or rooms, for payment of property taxes or any
instalment thereof payable during the period of such
ownership shall be joint and several.”
5. The Full Bench of Delhi High Court in the case of Shashank Steel
Industries Private Limited (supra) interpreted Section 120 of the Act and held
it is a charging Section. As per the said Section, the primary liability to pay
property tax on vacant land under clauses (a) and (b) is firstly upon the lessor,
if the land or building is let; upon the superior lessor in case the land or
building is sub-let; and as per clause (c) upon the persons in whom the right to
let or sub-let vests in case the land or building is unlet. Section 120, therefore,
fixes liability on the person, who is liable to pay property tax in respect of land
or building. The Full Bench observed that the court by process of judicial
interpretation cannot make a person liable to pay tax although he is not
primarily liable as per the enactment. In such cases, the remedy of the
Corporation is to take recourse to such action as may be permissible in law.
The Full Bench jurisprudentially examined the concept of ownership
consisting of bundle of rights, claims, liabilities or powers and immunities.
Reference was made to clause (37) of Section 2 of the Act. An owner is a
person, who has propriety rights or superior rights vis-a-vis another person
having inferior rights on the property and may be also a person, who for the
time being is receiving or entitled to receive rent. Thereafter, the provisions of
the perpetual lease deed executed between the President of India as a superior
lessor, Mohan Cooperative Industrial Private Limited, the lessor/lessee and
Shashank Steel Industries Private Limited, the sub-lessee were examined. It
was held that as per the terms of the lease, Shashank Steel Industries Private
Limited was not owner of the land in view of the terms of the perpetual lease
deed and was not liable to pay property tax under Section 120 clause (c). In
W.P. (C) Nos. 3347/1987 & 1632/1988 5
paragraph 40 of the said judgment, the Full Bench answered the questions (a)
and (b) i.e., whether the vacant land held under the perpetual lease deed was
assessable to property tax if the sub-lessee had not commenced construction of
a building upon the vacant land and upon whom the incidence of property tax
shall fall in respect of vacant land and observed:-
“ 40. By reason of a covenant, the person, who is not
liable to pay tax, under a legislative enactment cannot
be made liable therefor, particularly when the
Corporation in relation to the sub-lessee is a third party
and cannot in law be permitted to derive any benefit
therefrom. The said finding also must be held to be
contrary to the scope and purport of Section 120(1) of
the DMC Act. We, therefore, are of the opinion that in
a case where no building has been constructed, the
sub-lessee would not be liable to pay the property tax.”
6. The Full Bench thereafter examined the third question which reads:-
“(c) What would be the meaning of the expression
“capable of being built upon” in Section 116(2) of the
DMC Act?”
7. This question was answered in the words of the Full Bench as under:-
“ 53. ………..Thus in our opinion unless there exits
any statutory interdict, or a genuine impediment
beyond the control of the assessee, the property tax is
leviable in respect of a land which is otherwise capable
of being built upon meaning thereby which falls within
such areas/zones of Master Plan and Zonal
Development Plan, where construction is permissible.”
8. In the case of K.K. Enterprises (supra), a single Judge of this Court
examined Section 116 and the effect of the decision of the Full Bench in
Shashank Steel Industries Private Limited (supra) interpreting Section 120 of
the Act. The interplay between the two Sections was considered. It was held
as under:-
“12. Lengthy arguments have been generated viz-a-viz
Section 120 of the Act. What it clarifies is that the lessor
shall be primarily liable for payment of property tax; the
exceptions have been spelt out in the proviso to the first
sub-section, and in the second sub-section. In the present
W.P. (C) Nos. 3347/1987 & 1632/1988 6
case it must be kept in mind that the lessor is the DDA.
Instead of granting a lease of ninety-nine years and
thereby retaining the luxury of theoretical or notional
ownership of the land, the DDA could have conveyed
absolute rights of ownership, in which event the
transferees would become exclusively liable for payment
of property taxes. The statute, however, also
contemplates the situation where the land has been let for
a period of more than one year and the tenant carries out
construction thereon, presumably with the consent of the
lessor. As I see it, in such an event the rights of the
lessee are virtually the same as an absolute owner in fee
simple, and therefore property tax is leviable on the
tenant or a sub-tenant of such tenant. It is necessary to
underscore the fact that the Legislature has not repeated
the words „capable of being built upon‟, which are to be
found in Section 116(2) in the succeeding Section
120(2). Logically, if the land is capable of being built
upon it is liable to property tax, which is payable by the
lessor till such time as the lessee builds upon it.
According to the petitioner itself, the construction was
completed on 3.9.1997 and the DDA granted the
Occupancy Certificate on 15.9.1997. Therefore, with
effect from September 1997 the liability to pay tax rested
entirely on the petitioner.
13. In the facts of the case in hand what has to be
considered is whether „vacant land tax‟ could have been
levied; the answer has already been given above namely
that this could have been done commencing from the
year 1996-97. The next point to be determined is on
whom the property tax is leviable; the answer is that if
any liability arose prior to 15.9.1997 it would be
recoverable from the DDA and thenceforward from the
petitioner. So far as Shashank Steel is concerned, Ms.
Mehrotra has contended that a perusal of paragraphs 41,
48 and 49 thereof indicates that the land can be assessed
to property tax. The Full Bench has inter alia opined that
“unless there exists any statutory interdict, or a genuine
impediment beyond the control of the assessee, the
property tax is leviable in respect of a land which is
otherwise capable of being built upon meaning thereby
which falls within such areas/zones of Master Plan and
Zonal Development Plan, where construction is
permissible”. This, however, begs the questions so far as
the issues in the present case are concerned. The
intendment of Section 116(2) is very obvious, that is,
whilst agricultural land is not susceptible to tax, all lands
upon which buildings can be constructed are taxable.
W.P. (C) Nos. 3347/1987 & 1632/1988 7
However, by virtue of Section 120(2) the incidence of
tax falls on the DDA till the building is complete.
Liability of DDA cannot be foisted on the petitioner. In
Municipal Corporation of Greater Bombay v. Polychem
Ltd., AIR 1974 SC 1779, the Court has clarified that the
English doctrine of sterility does not apply in India, and
therefore, during the period when construction is
ongoing, the property may be assessed to tax as vacant
land. The natural corollary is that when the building is fit
for occupancy, or has actually been occupied as in MCD
v. Piyush Traders, 1989 (1) RCR 389, it is susceptible to
levy of property tax as a building.”
9. Thus, as per the leaned single Judge the primary liability to pay property
tax in case of vacant leasehold land is upon the lessor till such time the lessee
builds upon the said land. Accordingly, the lessee will be liable to pay from
the date the building was constructed. However, learned single Judge was
careful and has clarified the impact of Section 116(2) in the following words:-
“ 11. ………… In the present case the petitioner has
diligently submitted the building drawings for the
sanction of the Appropriate Authority. It is
conceivable that it may not have done so for one or
two years or more. Would such a party still remain
insulated from the liability for payment of vacant land
tax. This is what Section 116(2) seeks to clarify. In
this example it could obviously not be contended that
the petitioner had not built upon the land but it could
have done so if requisite steps have been initiated with
diligence. It is also conceivable that a person may
undertake a „process of erection‟ at snail‟s pace scale
so that the building would take several years to be
completed. The question that would then arise is
whether, within this period the Corporation would be
precluded from claiming tax. This position also stands
clarified in Section 116(2), the answer being in favour
of the Corporation. In the proceeding I would not
venture to affirmatively decide the question whether a
remission should be given for a reasonable period for
obtaining sanction of building plans. In the present
case the Plans have been sanctioned in June, 1996
itself. The only remaining aspect is whether even for
this period it is the petitioner and not the Lessor, that
is, Delhi Development Authority (DDA), which is
liable on this account.”
W.P. (C) Nos. 3347/1987 & 1632/1988 8
10. The submission on behalf of the MCD is that there is a contradiction
between the Full Bench decision in the case of Shashank Steel Industries
Private Limited (supra) and K.K. Enterprises (supra) and, therefore, the matter
should be referred to a larger Bench. In K.K. Enterprises (supra), learned
single Judge of this Court has specifically considered the effect of the decision
of the Full Bench in Shashank Steel Industries Private Limited (supra) and
the decision on question C in the said case and the effect thereof. It also
appears that decision in the case of K.K. Enterprises (supra) was appealed
against but without success by MCD. Decision in the case of Shashank Steel
Industries Private Limited (supra) has been upheld by the Supreme Court in
the judgment reported as MCD v Shashank Steel Industries (P) Ltd. AIR 2009
SC 967 . It was pointed out that the MCD had also preferred a Special Leave
Petition against the decision of Division Bench in the case of K.K. Enterprises
(supra) and other cases. The decisions of the Division Bench in K.K.
Enterprises (supra) were examined by the Supreme Court in the same
judgment but appeals were dismissed. In case there was any contradiction or
dichotomy or if the ratio of the full Bench in Shashank Steel (supra) was
incorrectly applied in K.K. Enterprises (supra) , it was for the MCD to
highlight and question the same before the Supreme Court. The Supreme
Court examined clauses of the lease deed/sub-lease deeds and has held that the
lessee/sub-lessees were not owners of the vacant land, which were owned by
the DDA. It was also held that the stipulation in the sub-lease deed/lease deed
that the sub-lessee/lessee is liable to pay the property tax paid by the
lessor/superior lessor is merely enabling clause but do not make any difference
on the question of primary liability to pay property tax under Section 120 of
the Act. It was accordingly observed as under:-
“ 19. In this case, we are concerned with the question
of primary liability on the vacant land during the
period 1982 to 1987. During that period the factory
had not come up. Therefore, there was no question
of enhanced value on account of accretion taking place
during the said period. Therefore, keeping in mind the
restriction(s) placed on the sub-lessee we are of the
opinion that this is a case of “letting”. It is not the case
of conferring ownership rights on the sub-lessee.
Under the deed, M/s Shashnak Steel Industries (P) Ltd.
W.P. (C) Nos. 3347/1987 & 1632/1988 9
remains a sub-lessee. In fact, there is forfeiture/re-
entry provided for in the said lease. That right of
forfeiture/re-entry can be effected either by the lessor
or by the lessee which further shows that the sub-
lessee is not in full enjoyment of the leasehold rights in
the property in question.
20. For the aforestated reasons on interpretation of the
perpetual sub-lease dated 20-2-1981, we are of the
view that the said deed cannot be construed as a
conveyance of leasehold rights in favour of M/s
Shashnak Steel Industries (P) Ltd. We are of the view
that this case is that of letting. Therefore, we do not
find any infirmity in the impugned judgment. We also
agree with the view taken by the Delhi High Court that
a bare perusal of the deed would show that the
condition imposed on the sub-lessee to pay tax is only
as a matter of indemnification and it would not
indicate ownership of the leasehold rights in favour of
the sub-lessee.
21. Coming to the interpretation of the provisions of
Section 120(1) of the said 1957 Act, at the outset we
may state that the language of the said section suggests
that the intention of the legislature in fixing primary
liability of property tax upon the owner of the land is
to facilitate the collection of property tax. It is not
unreasonable for the legislature to impose the primary
liability upon the lessor and to give him the right of
recoupment.
22. In the present case, we are concerned only with the
question as to whether the Corporation was right in
imposing primary liability to pay property tax on the
sub-lessee under Section 120(1)( c ) of the said 1957
Act. Whether the liability was on Mohan Cooperative
Industrial Estate Ltd., is not required to be gone into
by us because that is not the case of the Corporation
and also because the lease between the President of
India and Mohan Cooperative Industrial Estate Ltd.
dated 20-3-1980 was not produced before us. We also
do not know the basis on which premium was payable
by the lessee to the lessor.
23. On a bare reading of Section 120(1)( c ), in the
context of the deed dated 20-2-1981, we find that the
said deed did not operate as a conveyance and that the
industrial plot was let out to M/s Shashnak Steel
Industries (P) Ltd. Since there was letting in favour of
the said Company, Section 120(1)( c ) of the said 1957
Act did not apply.
24. For the aforestated reasons, we see no infirmity in
the impugned judgment of the Delhi High Court.
Accordingly, the civil appeal filed by the Corporation
is dismissed with no order as to costs.”
W.P. (C) Nos. 3347/1987 & 1632/1988 10
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11. The clauses of the lease deed dated 19 March, 1982 placed on record
are similar to the clauses of the lease/sub-lease which were interpreted by the
Supreme Court in the case of Shashank Steel Industries Private Limited
(supra) including Gold Construction Company . No doubt, the petitioner No.
2 had paid premium for acquiring the leasehold rights but the petitioner No. 2
is liable to pay annual lease rent as fixed. There is stipulation that the lessee
shall not sub-let, transfer, assign or otherwise part with possession of the whole
or any part of the plot without consent of the lessor, who has absolute
discretion to refuse consent. There is also stipulation for payment of 50%
unearned increase in value of the land and the clause states that no consent
shall be given for a period of ten years unless exceptional circumstances exist.
On a consent being given, the lessor can impose terms and conditions as the
lessor may think fit. Even for mortgaging of the property, permission is
required with the pre-emptive right to the lessor to purchase, mortgage or
charge property along with building or part thereof. There is restriction on
transfer of the lease of the hotel, with right to the lessee but with prior
permission to rent, sell or transfer commercial floor space as described in
clause 2 of the architectural control restricted to 7% of the permissible floor
space.
12. In view of the aforesaid discussion, it is held that the petitioner No. 2 is
not covered by clause 120(1)(c) of the Act and will not be liable to pay vacant
land tax till the date the building was constructed on the said land. The
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petitioners have filed on record along with the writ petition, letter dated 11
February, 1983 written by them to the Joint Assessor and Collector, MCD
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stating that the building was occupied on 18 November, 1982 (at partly
completed stage). The petitioner will be liable to pay property tax on vacant
land with effect from the said date. It is also clarified that this decision will not
affect any assessment order or proceedings relegated on completion of
construction of building and or its occupation. If any such proceedings were
initiated, findings recorded in this judgment shall not affect the outcome
W.P. (C) Nos. 3347/1987 & 1632/1988 11
thereof. As clarified, the petitioner would be liable to pay property tax on
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vacant land with effect from 18 November, 1982.
13. Section 116(2) of the Act has been quoted above and stipulates that
rateable value of any land, which is capable of being built up or on which
building is in process of erection, shall be fixed at 5% of the estimated capital
value of such land. Relying upon decision of the Supreme Court in Godhara
Borough Municipality, Godhara versus Godhra Electricity Company
Limited , AIR 1968 SC 1504 and judgment of this Court in Indian Oil
Corporation versus Municipal Corporation of Delhi , 1997 1 AD (Delhi) 503
it was contended that estimated capital value of vacant land has to be
calculated as per contractors method explained in Ryde on Rating and should
be limited to value of land as per the existing use. The said contention cannot
be accepted. Judgment of the single Judge of this Court in the case of Indian
Oil Corporation (supra) has been over-ruled by a Division Bench of this Court
in the Judgment dated 26.7.2005 reported in 2005 (122) DLT 607. The
Division Bench has held that the contractor‟s method cannot be applied where
assessment is of capital value of vacant land and observed as under:-
“5. The contractor's method envisages five stages
which have been taken note of by the learned single
Judge. The first stage is the estimation of the cost of
construction of the building. The second stage is to
make deduction from the cost of construction to allow
for age, obsolescence and any other factors necessary
to arrive at the effective capital value. The third stage
is to estimate the cost of the land. The fourth stage is to
apply the market rate or rates at which money can be
borrowed or invested to the effective capital value of
the building and the land. The fifth stage is to consider
whether the result of the fourth stage really represents
what the hypothetical tenant would pay for the annual
tenancy on the statutory terms and to make any
necessary adjustments.
6. x x x x
7. x x x x
8. The cases where contractor's method have been
made applicable are not in respect of the vacant land
but where the building had been constructed upon.
W.P. (C) Nos. 3347/1987 & 1632/1988 12
There is no dispute that the value of purchase of the
rights in respect of the land by the respondent from the
DDA are available. It is this value which has been
applied in the determination and considered by the
learned Addl. District Judge, Delhi who has approved
of this methodology. It cannot be said in such a case
that the price of the land is 'mething more' is liable to
be excluded from the capital value”
14. The petitioner No.2 in the present case had purchased the leasehold
rights of the land in question in an open auction. It is not possible to accept the
contention of the petitioners that the bid price paid by the petitioner No. 2 is
not the market price but more than the actual market price. This argument does
not appeal, as no person will pay or bid and purchase land at a price more than
the actual market price and suffer a loss. Market price of a particular piece of
land depends upon number of factors including clarity of title, the seller
involved, nature of transfer, stipulation or conditions in the lease etc. The price
paid by a willing buyer to a willing seller in an open auction is the best
indicator of the market price of the said plot/building in the hands of the said
buyer in the auction. The auction bid may not be the best indicator of the actual
market price in case of transactions between third persons as in such case
market price can get depressed for a number of reasons; risks relating to clarity
of title, seller involved etc. Actual bid price paid by the petitioners is the best
evidence of the market value of the land. The petitioners had given bid and
purchased the leasehold rights in land. Auction bid amount paid by a third
person is not being applied to compute market value of land in the case of the
petitioners. The decisions relied upon by the petitioners do not relate to cases
of self purchase of land/building by an assessee in an open auction, but relate
to cases where auction price was relied upon in third cases to compute market
value or price of land on the date of commencement of construction. In such
cases, it has been held that auction price has to be discounted and may not be
the true reflector of the actual market price, when a sub-lessee or a lessee of
DDA wants to sell the property to a third person and the sale is not directly
made by the lessor/superior lessor himself. The decisions in Municipal
Corporation of Delhi versus K.P. Gupta , 1990 (2) Delhi Lawyer 337(DB) and
W.P. (C) Nos. 3347/1987 & 1632/1988 13
in Raj Kumar & Ors. V. Haryana State & Ors . AIR 2007 SC 3124 are
distinguishable. The ratio of these decisions will not be applicable to cases
where the assessee himself has purchased a plot of land in an open auction. In
such cases, the bid price itself is a true and correct indicator and is the actual
market price of land.
15. The stamp duty for registration is to be paid to acquire title or interest in
land as per the provisions of Section 54 of the Transfer of Property Act, 1882
and the Indian Stamp Act, 1898. It is a pre-condition for acquiring a valid title.
The stamp duty is not paid after a person has acquired title or post acquisition
of title or right. It is, therefore, not possible to accept the contention of the
petitioners that the component of stamp duty paid by the petitioner No.2 for
registration of the lease deed should not be included to compute the market
value of land. Stamp duty, unless a contract is to the contrary, is to be paid by
the purchaser/lessee. As payment of stamp duty is a condition precedent for
acquiring interest under a written lease deed, the said amount has to be added
to the auction bid amount to compute the actual market value of land unless the
said amount has to be borne and paid by the lessor. Without payment of stamp
duty, valid and complete interest as per the written instrument is not transferred
to the lessee . In the present case, learned counsel for the petitioners submitted
that during the period in question and till the year 2000, in a large number of
cases, land/properties were sold/transferred on the basis of Power of Attorney,
General Power of Attorney, Agreement to Sell, etc. without execution of a sale
deed and payment of stamp duty. It was submitted that in such cases market
value of land is not taken by including the stamp duty payable on transfer
under the Stamp Act. In other cases, if the stamp duty is taken into account,
this would result in discrimination. The so called “transfers” by execution of
Agreement to Sell, Power of Attorney, etc. are not “transfers” within the
meaning of Section 54 of the Property Act, 1982 (TPA for short). Such
transfers do not confer a valid and a legal title on the transferee and are
imperfect and only legal protection is available under Section 53 A of the TPA
Act and the Contract Act, 1872. In such cases the rights of the “transferee” are
far inferior than rights of a purchaser with stamped instrument of transfer in
W.P. (C) Nos. 3347/1987 & 1632/1988 14
accordance with Section 54, TPA. Market value of land depends upon the
marketability of the said land and in case the “title” which is transferred or
transferable is imperfect or incomplete, the market value gets depressed or is
lower than the market value where transfers is in accord and as per Section 54,
TPA. Thus whether or not stamp duty is to be taken into consideration for
computing the market value will depend on facts of each case. In the present
case, the auction itself envisages execution of a lease deed and payment of
stamp duty for transfer of leasehold rights in favour of the petitioner No.2. The
said petitioner was aware when they gave their bid that they were to pay stamp
duty for execution of the lease deed. Market value of the land therefore in the
present case would include the stamp duty payable for transfer of title in favour
of the petitioner No.2. Even if the petitioner No.2 was/is to transfer the land/
property to a third person, they would include the element of stamp duty paid
to get the lease deed registered. Ironically, the stand of the petitioners in the
writ petition is that till a lease deed was registered a valid and legal transfer
was not executed in favour of the petitioner No.2. Thus the plea of
discrimination fails.
16. Question of payment of water tax, scavenging tax, etc. are rendered
infructuous in view of the finding that the petitioner would be liable to pay tax
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with effect from 18 November, 1982, the date when the building was partly
constructed and occupied. Obviously, when the petitioners had occupied the
building, they are liable to pay scavenging tax and water tax, etc. Challenge to
vires of the provisions of the Act has been given up. Scavenging tax and water
tax, etc, are taxes under the Act and have to be paid irrespective of whether
adequate and proper services are rendered or provided by the Corporation.
They can be avoided only if the enactment itself provides to the contrary and
stipulates that the said taxes are not payable unless the said services are
provided. Payment of said taxes, it is well settled, has nothing to do with the
rendering or providing of services or a precondition for imposing tax by the
Corporation. Thus, it is a different matter that a citizen can insist and even ask
for Mandamus in case the State fails to perform its statutory obligation. The
W.P. (C) Nos. 3347/1987 & 1632/1988 15
question whether a citizen has any right to stop payment of tax is not raised
and not answered. There is no material or evidence to hold that the scavenging
tax levied or the rate fixed is contrary to Section 114(1)(b) of the Act. In
Panchshila Cooperative House Building Society Ltd v MCD 24(1983) DLT
285, a Division Bench of this Court has rejected a similar contention.
17. The Writ Petition(Civil) No. 3347/1987 is accordingly partly allowed to
the extent that the petitioner would be liable to pay vacant land tax with effect
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from 18 November, 1982 and not for the period prior thereto. However, other
aspects/pleas of the petitioner are not accepted. As clarified above, this
judgment would not affect any other proceedings or order passed by the MCD
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assessing the land as well as building to property tax with effect from 18
November, 1982. The respondent MCD will calculate property tax
payable/paid by the petitioner No.2 and if any amount is refundable, pay the
same within 16 weeks from the date of judgment, failing which they will be
liable to pay interest @ 10% per annum from the date of judgment till
payment.
WRIT PETITION (CIVIL) NO. 1632/1988
18. The petitioner No.2 had purchased leasehold rights in respect of land at
Patel Nagar in an auction for Rs.40,60,000/- in the year 1976. A registered
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lease deed dated 3 July, 1976 was executed by DDA in favour of the
petitioner No.2. The challenge made by the petitioners on computation of the
market value of land on the basis of auction bid price paid has to be rejected in
view of the aforesaid discussion while deciding Writ Petition (Civil) No.
3347/1987. The petitioner No.2 had purchased the land in question in an open
auction and the auction price is the best indicator and in fact the actual and true
market value of land. The petitioner No.2 did not dispute the question that the
bid amount was the actual and true market value of land and had paid property
tax for vacant land computed on the said basis from May, 1977 onwards. In
fact, the petitioner No.2 had paid property tax on vacant land computed on the
basis of the auction price of Rs.40,60,000/- and registration charges of
Rs.2,21,000. The contention of the petitioners, therefore, challenging and
W.P. (C) Nos. 3347/1987 & 1632/1988 16
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questioning the computation of market value of land in order dated 4
September, 1987 is therefore, not accepted.
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19. The petitioners have impugned order dated 4 September, 1987 passed
by the Assessor and Collector fixing rateable value of the property at
th th
Rs.14,57,880/- with effect from 15 July, 1981. The date 15 July, 1981 has
been fixed as this was the date on which hotel on the said plot of land started
operations after obtaining necessary permission/licence to run the hotel. The
Assessor and Collector has been, therefore, considerate and has not taken the
date of actual construction for increasing rateable value. Learned counsel for
the petitioners had submitted that cost of lifts, air conditioning plant, etc.,
cannot be included in the cost of construction. To this extent, there is merit in
the contention of the petitioners in view of the decisions of the Supreme Court
in the case of Hindustan Lever Limited versus Municipal Corporation of
Greater Bombay and Others , (1995) 3 SCC 716 and Krishna Mohan Private
Limited versus Municipal Corporation of Delhi and Others , AIR 2003 SC
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2935. However, the assessment order dated 4 September, 1987 reveals that
some concession/deductions have been granted by the Assessor and Collector
while computing cost of construction. Paragraph 3 of the assessment order
reads as under:-
“3. According to the definition of the premises as per
D.M.C Act, any fittings affixed to the building for the
more beneficial enjoyment thereof have to be treated
as a part of the premises and no deductions are
permissible for the same. However, pre-operative
expenses do not form part of the cost of construction.
Similarly, detachable furnishings also do not form part
of the building. Likewise, sophisticated sanitary
fittings provided in the hotel premises can also be
excluded. As per details furnished by the tax payer,
pre-operative expenses of Rs. 14,00,545/- and Rs.
1,70,608/- have been debited in the building account
and account and sanitary fittings. The sanitary fittings
include items, like, Harsha Bath Tubes, fancy fittings
& installations and soap dish. These items sjall not
form part of the cost of construction. Similarly, cost of
D.E.S.U. sub-station installation charges at Rs.
1,31,762 , D.G. set at Rs. 11,25,802/-, fans and coolers
W.P. (C) Nos. 3347/1987 & 1632/1988 17
at Rs. 50,467/- and transformer at Rs. 3,24,480/- also
do not form part of the cost of construction. The
representatives of the tax payer claim that out of Rs.
23,83,878/- representing electrical equipments, these
are mostly equipments required for the kitchen and are
not for the purposes of the building. I have gone
through the fixed assets account and do not find such
items in the said account and as such a deduction of
about Rs. 10 lacs shall be allowed for such items.
Keeping all the factors discussed above into
consideration the reasonable cost of construction of the
building, after excluding the expenditure on the
aforesaid items, is taken in round figure at Rs.
1,45,000,00/-.”
20. The matter is remanded back to the Assessor and Collector to re-
examine the question whether lifts, air conditioning plant, etc., have been
excluded while computing the cost of construction.
21. Accordingly, this writ petition is partly allowed to the extent that the
Assessor and Collector will re-examine the question whether cost of lifts, air
conditioning plant, etc. have been included while computing the cost of
construction. In case no deductions have been made, suitable amount will be
deducted for computation of the rateable value. The petitioners will appear
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before the Assessor and Collector on 14 May, 2010 when a date of hearing
for the said purpose will be fixed.
The writ petitions are accordingly disposed of.
(SANJIV KHANNA)
JUDGE
st
APRIL 21 , 2010.
VKR/P
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WRIT PETITION (CIVIL) NOS. 3347 OF 1987 & 1632/1988
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Reserved on : 24 February, 2010.
st
% Date of Decision 21 April, 2010.
P.N. KUMAR AND ANOTHER .... Petitioners
Through Mr. Lovkesh Sawhney & Mr. Durgesh Kumar
Pandey, Advocates.
VERSUS
MUNICIPAL CORPORATION OF DELHI & OTHERS …..Respondents
Through Ms. Amita Gupta & Mr. Sushil Jaswal,
Advocates for MCD.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
1. Whether Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported
in the Digest ? YES
SANJIV KHANNA, J.:
1. These two writ petitions have been filed by Mr. P.N. Kumar and Jaypee
Hotels Limited in respect of property tax assessment under the provisions of
Delhi Municipal Corporation Act, 1957 (hereinafter referred to as the Act, for
short). Writ Petition(Civil) No. 1632/1988 pertains to a hotel in Rajendra Place
and the petitioners have challenged and questioned the assessment order dated
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4 September, 1987 fixing the rateable value of the property at Rs.14,57,880/-
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with effect from 15 July, 1981. In Writ Petition (Civil) No. 3347/1987, the
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petitioners have challenged and questioned the assessment order dated 4
August, 1983 in respect of vacant land for a hotel in Vasant Vihar for the
period 1981-82 (part), 1982-83 and 1983-84 (full). In both writ petitions, the
petitioners have asked for refund of the property tax, which were paid.
W.P. (C) Nos. 3347/1987 & 1632/1988 2
2. The two writ petitions were taken up together as the petitioners had
challenged vires of Section 114 and other provisions of the Act on the ground
that they were violative of Article 14 of the Constitution of India.
rd
Accordingly, the matter was listed before the Division Bench on 3 February,
2005. Learned counsel for the petitioners stated that they did not want to press
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challenge to the vires of Section 114 of the Act. By order dated 28 July,
2008, the matter was accordingly directed to be listed before a Single Bench as
per the Roster. The question of vires is, therefore, not being examined.
WRIT PETITION (CIVIL) NO. 3347 OF 1987
3 . The petitioner No. 2 had given highest bid of Rs. 1,82,00,000/- for
purchase of lease hold rights for a vacant piece of land measuring 1250 square
meters in community centre Basant Lok, Vasant Vihar, New Delhi in the year
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1980. On 9 June, 1981, possession of this land was handed over to the
petitioner No.2. The lease deed was executed and registered by Delhi
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Development Authority on behalf of the President of India on 19 March,
1982. The question raised in the writ petition is whether the petitioner No.2 is
liable to pay property tax on vacant land under Section 120 of the Act. The
other contention raised by the petitioner relates to the quantification of the
capital value of the land and whether the auction bid amount or the auction
price paid by the petitioner No.2 can be regarded as the estimated capital value
or the market price. The third question raised by the petitioners is whether the
stamp duty payable on the lease deed should be added for computing the
capital value or market price of land. Lastly, it is submitted that the petitioners
are not liable to pay scavenging tax and water tax.
4. The question of payment of property tax on vacant land has been
considered by a Full Bench of this Court in Municipal Corporation of Delhi
versus Shashank Steel Industries Private Limited , 100(2002)DLT 66(FB) and
by a single Judge of this Court in K.K. Enterprises versus Municipal
Corporation of Delhi and other cases , 127(2006)DLT 679. In these decisions,
Delhi High Court has examined Sections 116 and 120 of the Act. These
Sections read as under:-
W.P. (C) Nos. 3347/1987 & 1632/1988 3
“116. Determination of rateable value of lands and
buildings assessable to property taxes .—(1) The
rateable value of any land or building assessable to
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 ) a sum equal to ten per cent of the said annual
rent which shall be in lieu of all allowances for costs of
repairs and insurance, and other expenses, if any,
necessary to maintain the land or building in a state to
command that rent; and
( b ) the water tax or the scavenging tax or both, if
the rent is inclusive of either or both of the said taxes:
Provided that if the rent is inclusive of charges for
water supplied by measurement, then, for the purpose
of this section the rent shall be treated as inclusive of
water tax on rateable value and the deduction of the
water tax shall be made as provided therein:
Provided further that in respect of any land or building
the standard rent of which has been fixed under the
Delhi and Ajmer Rent Control Act, 1952 (38 of 1952),
the rateable value thereof shall not exceed the annual
amount of the standard rent so fixed.
[ Explanation .—The expressions “water tax” and
“scavenging tax” shall mean such taxes of that nature
as may be levied by an appropriate authority.]
(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 of erection shall be
fixed at five per cent of the 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 Commissioner with the approval of the Standing
Committee, 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.”
120. Incidence of property taxes .—(1) The property
taxes 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:
[Provided that the property taxes 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 taxes assessed in respect of that land
and the building erected thereon shall be primarily
W.P. (C) Nos. 3347/1987 & 1632/1988 4
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 inter vivos .
(3) The liability of the several owners of any building
which is, or purports to be, severally owned in parts or
flats or rooms, for payment of property taxes or any
instalment thereof payable during the period of such
ownership shall be joint and several.”
5. The Full Bench of Delhi High Court in the case of Shashank Steel
Industries Private Limited (supra) interpreted Section 120 of the Act and held
it is a charging Section. As per the said Section, the primary liability to pay
property tax on vacant land under clauses (a) and (b) is firstly upon the lessor,
if the land or building is let; upon the superior lessor in case the land or
building is sub-let; and as per clause (c) upon the persons in whom the right to
let or sub-let vests in case the land or building is unlet. Section 120, therefore,
fixes liability on the person, who is liable to pay property tax in respect of land
or building. The Full Bench observed that the court by process of judicial
interpretation cannot make a person liable to pay tax although he is not
primarily liable as per the enactment. In such cases, the remedy of the
Corporation is to take recourse to such action as may be permissible in law.
The Full Bench jurisprudentially examined the concept of ownership
consisting of bundle of rights, claims, liabilities or powers and immunities.
Reference was made to clause (37) of Section 2 of the Act. An owner is a
person, who has propriety rights or superior rights vis-a-vis another person
having inferior rights on the property and may be also a person, who for the
time being is receiving or entitled to receive rent. Thereafter, the provisions of
the perpetual lease deed executed between the President of India as a superior
lessor, Mohan Cooperative Industrial Private Limited, the lessor/lessee and
Shashank Steel Industries Private Limited, the sub-lessee were examined. It
was held that as per the terms of the lease, Shashank Steel Industries Private
Limited was not owner of the land in view of the terms of the perpetual lease
deed and was not liable to pay property tax under Section 120 clause (c). In
W.P. (C) Nos. 3347/1987 & 1632/1988 5
paragraph 40 of the said judgment, the Full Bench answered the questions (a)
and (b) i.e., whether the vacant land held under the perpetual lease deed was
assessable to property tax if the sub-lessee had not commenced construction of
a building upon the vacant land and upon whom the incidence of property tax
shall fall in respect of vacant land and observed:-
“ 40. By reason of a covenant, the person, who is not
liable to pay tax, under a legislative enactment cannot
be made liable therefor, particularly when the
Corporation in relation to the sub-lessee is a third party
and cannot in law be permitted to derive any benefit
therefrom. The said finding also must be held to be
contrary to the scope and purport of Section 120(1) of
the DMC Act. We, therefore, are of the opinion that in
a case where no building has been constructed, the
sub-lessee would not be liable to pay the property tax.”
6. The Full Bench thereafter examined the third question which reads:-
“(c) What would be the meaning of the expression
“capable of being built upon” in Section 116(2) of the
DMC Act?”
7. This question was answered in the words of the Full Bench as under:-
“ 53. ………..Thus in our opinion unless there exits
any statutory interdict, or a genuine impediment
beyond the control of the assessee, the property tax is
leviable in respect of a land which is otherwise capable
of being built upon meaning thereby which falls within
such areas/zones of Master Plan and Zonal
Development Plan, where construction is permissible.”
8. In the case of K.K. Enterprises (supra), a single Judge of this Court
examined Section 116 and the effect of the decision of the Full Bench in
Shashank Steel Industries Private Limited (supra) interpreting Section 120 of
the Act. The interplay between the two Sections was considered. It was held
as under:-
“12. Lengthy arguments have been generated viz-a-viz
Section 120 of the Act. What it clarifies is that the lessor
shall be primarily liable for payment of property tax; the
exceptions have been spelt out in the proviso to the first
sub-section, and in the second sub-section. In the present
W.P. (C) Nos. 3347/1987 & 1632/1988 6
case it must be kept in mind that the lessor is the DDA.
Instead of granting a lease of ninety-nine years and
thereby retaining the luxury of theoretical or notional
ownership of the land, the DDA could have conveyed
absolute rights of ownership, in which event the
transferees would become exclusively liable for payment
of property taxes. The statute, however, also
contemplates the situation where the land has been let for
a period of more than one year and the tenant carries out
construction thereon, presumably with the consent of the
lessor. As I see it, in such an event the rights of the
lessee are virtually the same as an absolute owner in fee
simple, and therefore property tax is leviable on the
tenant or a sub-tenant of such tenant. It is necessary to
underscore the fact that the Legislature has not repeated
the words „capable of being built upon‟, which are to be
found in Section 116(2) in the succeeding Section
120(2). Logically, if the land is capable of being built
upon it is liable to property tax, which is payable by the
lessor till such time as the lessee builds upon it.
According to the petitioner itself, the construction was
completed on 3.9.1997 and the DDA granted the
Occupancy Certificate on 15.9.1997. Therefore, with
effect from September 1997 the liability to pay tax rested
entirely on the petitioner.
13. In the facts of the case in hand what has to be
considered is whether „vacant land tax‟ could have been
levied; the answer has already been given above namely
that this could have been done commencing from the
year 1996-97. The next point to be determined is on
whom the property tax is leviable; the answer is that if
any liability arose prior to 15.9.1997 it would be
recoverable from the DDA and thenceforward from the
petitioner. So far as Shashank Steel is concerned, Ms.
Mehrotra has contended that a perusal of paragraphs 41,
48 and 49 thereof indicates that the land can be assessed
to property tax. The Full Bench has inter alia opined that
“unless there exists any statutory interdict, or a genuine
impediment beyond the control of the assessee, the
property tax is leviable in respect of a land which is
otherwise capable of being built upon meaning thereby
which falls within such areas/zones of Master Plan and
Zonal Development Plan, where construction is
permissible”. This, however, begs the questions so far as
the issues in the present case are concerned. The
intendment of Section 116(2) is very obvious, that is,
whilst agricultural land is not susceptible to tax, all lands
upon which buildings can be constructed are taxable.
W.P. (C) Nos. 3347/1987 & 1632/1988 7
However, by virtue of Section 120(2) the incidence of
tax falls on the DDA till the building is complete.
Liability of DDA cannot be foisted on the petitioner. In
Municipal Corporation of Greater Bombay v. Polychem
Ltd., AIR 1974 SC 1779, the Court has clarified that the
English doctrine of sterility does not apply in India, and
therefore, during the period when construction is
ongoing, the property may be assessed to tax as vacant
land. The natural corollary is that when the building is fit
for occupancy, or has actually been occupied as in MCD
v. Piyush Traders, 1989 (1) RCR 389, it is susceptible to
levy of property tax as a building.”
9. Thus, as per the leaned single Judge the primary liability to pay property
tax in case of vacant leasehold land is upon the lessor till such time the lessee
builds upon the said land. Accordingly, the lessee will be liable to pay from
the date the building was constructed. However, learned single Judge was
careful and has clarified the impact of Section 116(2) in the following words:-
“ 11. ………… In the present case the petitioner has
diligently submitted the building drawings for the
sanction of the Appropriate Authority. It is
conceivable that it may not have done so for one or
two years or more. Would such a party still remain
insulated from the liability for payment of vacant land
tax. This is what Section 116(2) seeks to clarify. In
this example it could obviously not be contended that
the petitioner had not built upon the land but it could
have done so if requisite steps have been initiated with
diligence. It is also conceivable that a person may
undertake a „process of erection‟ at snail‟s pace scale
so that the building would take several years to be
completed. The question that would then arise is
whether, within this period the Corporation would be
precluded from claiming tax. This position also stands
clarified in Section 116(2), the answer being in favour
of the Corporation. In the proceeding I would not
venture to affirmatively decide the question whether a
remission should be given for a reasonable period for
obtaining sanction of building plans. In the present
case the Plans have been sanctioned in June, 1996
itself. The only remaining aspect is whether even for
this period it is the petitioner and not the Lessor, that
is, Delhi Development Authority (DDA), which is
liable on this account.”
W.P. (C) Nos. 3347/1987 & 1632/1988 8
10. The submission on behalf of the MCD is that there is a contradiction
between the Full Bench decision in the case of Shashank Steel Industries
Private Limited (supra) and K.K. Enterprises (supra) and, therefore, the matter
should be referred to a larger Bench. In K.K. Enterprises (supra), learned
single Judge of this Court has specifically considered the effect of the decision
of the Full Bench in Shashank Steel Industries Private Limited (supra) and
the decision on question C in the said case and the effect thereof. It also
appears that decision in the case of K.K. Enterprises (supra) was appealed
against but without success by MCD. Decision in the case of Shashank Steel
Industries Private Limited (supra) has been upheld by the Supreme Court in
the judgment reported as MCD v Shashank Steel Industries (P) Ltd. AIR 2009
SC 967 . It was pointed out that the MCD had also preferred a Special Leave
Petition against the decision of Division Bench in the case of K.K. Enterprises
(supra) and other cases. The decisions of the Division Bench in K.K.
Enterprises (supra) were examined by the Supreme Court in the same
judgment but appeals were dismissed. In case there was any contradiction or
dichotomy or if the ratio of the full Bench in Shashank Steel (supra) was
incorrectly applied in K.K. Enterprises (supra) , it was for the MCD to
highlight and question the same before the Supreme Court. The Supreme
Court examined clauses of the lease deed/sub-lease deeds and has held that the
lessee/sub-lessees were not owners of the vacant land, which were owned by
the DDA. It was also held that the stipulation in the sub-lease deed/lease deed
that the sub-lessee/lessee is liable to pay the property tax paid by the
lessor/superior lessor is merely enabling clause but do not make any difference
on the question of primary liability to pay property tax under Section 120 of
the Act. It was accordingly observed as under:-
“ 19. In this case, we are concerned with the question
of primary liability on the vacant land during the
period 1982 to 1987. During that period the factory
had not come up. Therefore, there was no question
of enhanced value on account of accretion taking place
during the said period. Therefore, keeping in mind the
restriction(s) placed on the sub-lessee we are of the
opinion that this is a case of “letting”. It is not the case
of conferring ownership rights on the sub-lessee.
Under the deed, M/s Shashnak Steel Industries (P) Ltd.
W.P. (C) Nos. 3347/1987 & 1632/1988 9
remains a sub-lessee. In fact, there is forfeiture/re-
entry provided for in the said lease. That right of
forfeiture/re-entry can be effected either by the lessor
or by the lessee which further shows that the sub-
lessee is not in full enjoyment of the leasehold rights in
the property in question.
20. For the aforestated reasons on interpretation of the
perpetual sub-lease dated 20-2-1981, we are of the
view that the said deed cannot be construed as a
conveyance of leasehold rights in favour of M/s
Shashnak Steel Industries (P) Ltd. We are of the view
that this case is that of letting. Therefore, we do not
find any infirmity in the impugned judgment. We also
agree with the view taken by the Delhi High Court that
a bare perusal of the deed would show that the
condition imposed on the sub-lessee to pay tax is only
as a matter of indemnification and it would not
indicate ownership of the leasehold rights in favour of
the sub-lessee.
21. Coming to the interpretation of the provisions of
Section 120(1) of the said 1957 Act, at the outset we
may state that the language of the said section suggests
that the intention of the legislature in fixing primary
liability of property tax upon the owner of the land is
to facilitate the collection of property tax. It is not
unreasonable for the legislature to impose the primary
liability upon the lessor and to give him the right of
recoupment.
22. In the present case, we are concerned only with the
question as to whether the Corporation was right in
imposing primary liability to pay property tax on the
sub-lessee under Section 120(1)( c ) of the said 1957
Act. Whether the liability was on Mohan Cooperative
Industrial Estate Ltd., is not required to be gone into
by us because that is not the case of the Corporation
and also because the lease between the President of
India and Mohan Cooperative Industrial Estate Ltd.
dated 20-3-1980 was not produced before us. We also
do not know the basis on which premium was payable
by the lessee to the lessor.
23. On a bare reading of Section 120(1)( c ), in the
context of the deed dated 20-2-1981, we find that the
said deed did not operate as a conveyance and that the
industrial plot was let out to M/s Shashnak Steel
Industries (P) Ltd. Since there was letting in favour of
the said Company, Section 120(1)( c ) of the said 1957
Act did not apply.
24. For the aforestated reasons, we see no infirmity in
the impugned judgment of the Delhi High Court.
Accordingly, the civil appeal filed by the Corporation
is dismissed with no order as to costs.”
W.P. (C) Nos. 3347/1987 & 1632/1988 10
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11. The clauses of the lease deed dated 19 March, 1982 placed on record
are similar to the clauses of the lease/sub-lease which were interpreted by the
Supreme Court in the case of Shashank Steel Industries Private Limited
(supra) including Gold Construction Company . No doubt, the petitioner No.
2 had paid premium for acquiring the leasehold rights but the petitioner No. 2
is liable to pay annual lease rent as fixed. There is stipulation that the lessee
shall not sub-let, transfer, assign or otherwise part with possession of the whole
or any part of the plot without consent of the lessor, who has absolute
discretion to refuse consent. There is also stipulation for payment of 50%
unearned increase in value of the land and the clause states that no consent
shall be given for a period of ten years unless exceptional circumstances exist.
On a consent being given, the lessor can impose terms and conditions as the
lessor may think fit. Even for mortgaging of the property, permission is
required with the pre-emptive right to the lessor to purchase, mortgage or
charge property along with building or part thereof. There is restriction on
transfer of the lease of the hotel, with right to the lessee but with prior
permission to rent, sell or transfer commercial floor space as described in
clause 2 of the architectural control restricted to 7% of the permissible floor
space.
12. In view of the aforesaid discussion, it is held that the petitioner No. 2 is
not covered by clause 120(1)(c) of the Act and will not be liable to pay vacant
land tax till the date the building was constructed on the said land. The
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petitioners have filed on record along with the writ petition, letter dated 11
February, 1983 written by them to the Joint Assessor and Collector, MCD
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stating that the building was occupied on 18 November, 1982 (at partly
completed stage). The petitioner will be liable to pay property tax on vacant
land with effect from the said date. It is also clarified that this decision will not
affect any assessment order or proceedings relegated on completion of
construction of building and or its occupation. If any such proceedings were
initiated, findings recorded in this judgment shall not affect the outcome
W.P. (C) Nos. 3347/1987 & 1632/1988 11
thereof. As clarified, the petitioner would be liable to pay property tax on
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vacant land with effect from 18 November, 1982.
13. Section 116(2) of the Act has been quoted above and stipulates that
rateable value of any land, which is capable of being built up or on which
building is in process of erection, shall be fixed at 5% of the estimated capital
value of such land. Relying upon decision of the Supreme Court in Godhara
Borough Municipality, Godhara versus Godhra Electricity Company
Limited , AIR 1968 SC 1504 and judgment of this Court in Indian Oil
Corporation versus Municipal Corporation of Delhi , 1997 1 AD (Delhi) 503
it was contended that estimated capital value of vacant land has to be
calculated as per contractors method explained in Ryde on Rating and should
be limited to value of land as per the existing use. The said contention cannot
be accepted. Judgment of the single Judge of this Court in the case of Indian
Oil Corporation (supra) has been over-ruled by a Division Bench of this Court
in the Judgment dated 26.7.2005 reported in 2005 (122) DLT 607. The
Division Bench has held that the contractor‟s method cannot be applied where
assessment is of capital value of vacant land and observed as under:-
“5. The contractor's method envisages five stages
which have been taken note of by the learned single
Judge. The first stage is the estimation of the cost of
construction of the building. The second stage is to
make deduction from the cost of construction to allow
for age, obsolescence and any other factors necessary
to arrive at the effective capital value. The third stage
is to estimate the cost of the land. The fourth stage is to
apply the market rate or rates at which money can be
borrowed or invested to the effective capital value of
the building and the land. The fifth stage is to consider
whether the result of the fourth stage really represents
what the hypothetical tenant would pay for the annual
tenancy on the statutory terms and to make any
necessary adjustments.
6. x x x x
7. x x x x
8. The cases where contractor's method have been
made applicable are not in respect of the vacant land
but where the building had been constructed upon.
W.P. (C) Nos. 3347/1987 & 1632/1988 12
There is no dispute that the value of purchase of the
rights in respect of the land by the respondent from the
DDA are available. It is this value which has been
applied in the determination and considered by the
learned Addl. District Judge, Delhi who has approved
of this methodology. It cannot be said in such a case
that the price of the land is 'mething more' is liable to
be excluded from the capital value”
14. The petitioner No.2 in the present case had purchased the leasehold
rights of the land in question in an open auction. It is not possible to accept the
contention of the petitioners that the bid price paid by the petitioner No. 2 is
not the market price but more than the actual market price. This argument does
not appeal, as no person will pay or bid and purchase land at a price more than
the actual market price and suffer a loss. Market price of a particular piece of
land depends upon number of factors including clarity of title, the seller
involved, nature of transfer, stipulation or conditions in the lease etc. The price
paid by a willing buyer to a willing seller in an open auction is the best
indicator of the market price of the said plot/building in the hands of the said
buyer in the auction. The auction bid may not be the best indicator of the actual
market price in case of transactions between third persons as in such case
market price can get depressed for a number of reasons; risks relating to clarity
of title, seller involved etc. Actual bid price paid by the petitioners is the best
evidence of the market value of the land. The petitioners had given bid and
purchased the leasehold rights in land. Auction bid amount paid by a third
person is not being applied to compute market value of land in the case of the
petitioners. The decisions relied upon by the petitioners do not relate to cases
of self purchase of land/building by an assessee in an open auction, but relate
to cases where auction price was relied upon in third cases to compute market
value or price of land on the date of commencement of construction. In such
cases, it has been held that auction price has to be discounted and may not be
the true reflector of the actual market price, when a sub-lessee or a lessee of
DDA wants to sell the property to a third person and the sale is not directly
made by the lessor/superior lessor himself. The decisions in Municipal
Corporation of Delhi versus K.P. Gupta , 1990 (2) Delhi Lawyer 337(DB) and
W.P. (C) Nos. 3347/1987 & 1632/1988 13
in Raj Kumar & Ors. V. Haryana State & Ors . AIR 2007 SC 3124 are
distinguishable. The ratio of these decisions will not be applicable to cases
where the assessee himself has purchased a plot of land in an open auction. In
such cases, the bid price itself is a true and correct indicator and is the actual
market price of land.
15. The stamp duty for registration is to be paid to acquire title or interest in
land as per the provisions of Section 54 of the Transfer of Property Act, 1882
and the Indian Stamp Act, 1898. It is a pre-condition for acquiring a valid title.
The stamp duty is not paid after a person has acquired title or post acquisition
of title or right. It is, therefore, not possible to accept the contention of the
petitioners that the component of stamp duty paid by the petitioner No.2 for
registration of the lease deed should not be included to compute the market
value of land. Stamp duty, unless a contract is to the contrary, is to be paid by
the purchaser/lessee. As payment of stamp duty is a condition precedent for
acquiring interest under a written lease deed, the said amount has to be added
to the auction bid amount to compute the actual market value of land unless the
said amount has to be borne and paid by the lessor. Without payment of stamp
duty, valid and complete interest as per the written instrument is not transferred
to the lessee . In the present case, learned counsel for the petitioners submitted
that during the period in question and till the year 2000, in a large number of
cases, land/properties were sold/transferred on the basis of Power of Attorney,
General Power of Attorney, Agreement to Sell, etc. without execution of a sale
deed and payment of stamp duty. It was submitted that in such cases market
value of land is not taken by including the stamp duty payable on transfer
under the Stamp Act. In other cases, if the stamp duty is taken into account,
this would result in discrimination. The so called “transfers” by execution of
Agreement to Sell, Power of Attorney, etc. are not “transfers” within the
meaning of Section 54 of the Property Act, 1982 (TPA for short). Such
transfers do not confer a valid and a legal title on the transferee and are
imperfect and only legal protection is available under Section 53 A of the TPA
Act and the Contract Act, 1872. In such cases the rights of the “transferee” are
far inferior than rights of a purchaser with stamped instrument of transfer in
W.P. (C) Nos. 3347/1987 & 1632/1988 14
accordance with Section 54, TPA. Market value of land depends upon the
marketability of the said land and in case the “title” which is transferred or
transferable is imperfect or incomplete, the market value gets depressed or is
lower than the market value where transfers is in accord and as per Section 54,
TPA. Thus whether or not stamp duty is to be taken into consideration for
computing the market value will depend on facts of each case. In the present
case, the auction itself envisages execution of a lease deed and payment of
stamp duty for transfer of leasehold rights in favour of the petitioner No.2. The
said petitioner was aware when they gave their bid that they were to pay stamp
duty for execution of the lease deed. Market value of the land therefore in the
present case would include the stamp duty payable for transfer of title in favour
of the petitioner No.2. Even if the petitioner No.2 was/is to transfer the land/
property to a third person, they would include the element of stamp duty paid
to get the lease deed registered. Ironically, the stand of the petitioners in the
writ petition is that till a lease deed was registered a valid and legal transfer
was not executed in favour of the petitioner No.2. Thus the plea of
discrimination fails.
16. Question of payment of water tax, scavenging tax, etc. are rendered
infructuous in view of the finding that the petitioner would be liable to pay tax
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with effect from 18 November, 1982, the date when the building was partly
constructed and occupied. Obviously, when the petitioners had occupied the
building, they are liable to pay scavenging tax and water tax, etc. Challenge to
vires of the provisions of the Act has been given up. Scavenging tax and water
tax, etc, are taxes under the Act and have to be paid irrespective of whether
adequate and proper services are rendered or provided by the Corporation.
They can be avoided only if the enactment itself provides to the contrary and
stipulates that the said taxes are not payable unless the said services are
provided. Payment of said taxes, it is well settled, has nothing to do with the
rendering or providing of services or a precondition for imposing tax by the
Corporation. Thus, it is a different matter that a citizen can insist and even ask
for Mandamus in case the State fails to perform its statutory obligation. The
W.P. (C) Nos. 3347/1987 & 1632/1988 15
question whether a citizen has any right to stop payment of tax is not raised
and not answered. There is no material or evidence to hold that the scavenging
tax levied or the rate fixed is contrary to Section 114(1)(b) of the Act. In
Panchshila Cooperative House Building Society Ltd v MCD 24(1983) DLT
285, a Division Bench of this Court has rejected a similar contention.
17. The Writ Petition(Civil) No. 3347/1987 is accordingly partly allowed to
the extent that the petitioner would be liable to pay vacant land tax with effect
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from 18 November, 1982 and not for the period prior thereto. However, other
aspects/pleas of the petitioner are not accepted. As clarified above, this
judgment would not affect any other proceedings or order passed by the MCD
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assessing the land as well as building to property tax with effect from 18
November, 1982. The respondent MCD will calculate property tax
payable/paid by the petitioner No.2 and if any amount is refundable, pay the
same within 16 weeks from the date of judgment, failing which they will be
liable to pay interest @ 10% per annum from the date of judgment till
payment.
WRIT PETITION (CIVIL) NO. 1632/1988
18. The petitioner No.2 had purchased leasehold rights in respect of land at
Patel Nagar in an auction for Rs.40,60,000/- in the year 1976. A registered
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lease deed dated 3 July, 1976 was executed by DDA in favour of the
petitioner No.2. The challenge made by the petitioners on computation of the
market value of land on the basis of auction bid price paid has to be rejected in
view of the aforesaid discussion while deciding Writ Petition (Civil) No.
3347/1987. The petitioner No.2 had purchased the land in question in an open
auction and the auction price is the best indicator and in fact the actual and true
market value of land. The petitioner No.2 did not dispute the question that the
bid amount was the actual and true market value of land and had paid property
tax for vacant land computed on the said basis from May, 1977 onwards. In
fact, the petitioner No.2 had paid property tax on vacant land computed on the
basis of the auction price of Rs.40,60,000/- and registration charges of
Rs.2,21,000. The contention of the petitioners, therefore, challenging and
W.P. (C) Nos. 3347/1987 & 1632/1988 16
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questioning the computation of market value of land in order dated 4
September, 1987 is therefore, not accepted.
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19. The petitioners have impugned order dated 4 September, 1987 passed
by the Assessor and Collector fixing rateable value of the property at
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Rs.14,57,880/- with effect from 15 July, 1981. The date 15 July, 1981 has
been fixed as this was the date on which hotel on the said plot of land started
operations after obtaining necessary permission/licence to run the hotel. The
Assessor and Collector has been, therefore, considerate and has not taken the
date of actual construction for increasing rateable value. Learned counsel for
the petitioners had submitted that cost of lifts, air conditioning plant, etc.,
cannot be included in the cost of construction. To this extent, there is merit in
the contention of the petitioners in view of the decisions of the Supreme Court
in the case of Hindustan Lever Limited versus Municipal Corporation of
Greater Bombay and Others , (1995) 3 SCC 716 and Krishna Mohan Private
Limited versus Municipal Corporation of Delhi and Others , AIR 2003 SC
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2935. However, the assessment order dated 4 September, 1987 reveals that
some concession/deductions have been granted by the Assessor and Collector
while computing cost of construction. Paragraph 3 of the assessment order
reads as under:-
“3. According to the definition of the premises as per
D.M.C Act, any fittings affixed to the building for the
more beneficial enjoyment thereof have to be treated
as a part of the premises and no deductions are
permissible for the same. However, pre-operative
expenses do not form part of the cost of construction.
Similarly, detachable furnishings also do not form part
of the building. Likewise, sophisticated sanitary
fittings provided in the hotel premises can also be
excluded. As per details furnished by the tax payer,
pre-operative expenses of Rs. 14,00,545/- and Rs.
1,70,608/- have been debited in the building account
and account and sanitary fittings. The sanitary fittings
include items, like, Harsha Bath Tubes, fancy fittings
& installations and soap dish. These items sjall not
form part of the cost of construction. Similarly, cost of
D.E.S.U. sub-station installation charges at Rs.
1,31,762 , D.G. set at Rs. 11,25,802/-, fans and coolers
W.P. (C) Nos. 3347/1987 & 1632/1988 17
at Rs. 50,467/- and transformer at Rs. 3,24,480/- also
do not form part of the cost of construction. The
representatives of the tax payer claim that out of Rs.
23,83,878/- representing electrical equipments, these
are mostly equipments required for the kitchen and are
not for the purposes of the building. I have gone
through the fixed assets account and do not find such
items in the said account and as such a deduction of
about Rs. 10 lacs shall be allowed for such items.
Keeping all the factors discussed above into
consideration the reasonable cost of construction of the
building, after excluding the expenditure on the
aforesaid items, is taken in round figure at Rs.
1,45,000,00/-.”
20. The matter is remanded back to the Assessor and Collector to re-
examine the question whether lifts, air conditioning plant, etc., have been
excluded while computing the cost of construction.
21. Accordingly, this writ petition is partly allowed to the extent that the
Assessor and Collector will re-examine the question whether cost of lifts, air
conditioning plant, etc. have been included while computing the cost of
construction. In case no deductions have been made, suitable amount will be
deducted for computation of the rateable value. The petitioners will appear
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before the Assessor and Collector on 14 May, 2010 when a date of hearing
for the said purpose will be fixed.
The writ petitions are accordingly disposed of.
(SANJIV KHANNA)
JUDGE
st
APRIL 21 , 2010.
VKR/P