D.P. Wadhwa, J.
(1) Municipal Corporation of Delhi ('MCD' for short), a body constituted under the Delhi Municipal Corporation Act, 1947 (for short 'the Act'), framed Bye-laws called 'the Delhi Municipal Corporation (Determination of Rateable Value) Bye Laws, 1994'('R.V. Bye-Laws' for short) and 'the Delhi Municipal Corporation (Property Tax Return) Bye-Laws, 1994' (for short 'Property Tax Return Bye-Laws'), both notified by notifications dated 24 October 1994. The petitioners in this petition under Article 226 of the Constitution have challenged the constitutional validity of these bye-laws. They also say that these bye-laws are ultra virus the Act. They, thereforee, seek declaration to that effect and also seek quashing of these bye-laws.
(2) For the decision of this petition the relevant provisions of the Act would be sections 2(38), 2(47), 114, 116, 131, 481, 481A and 483. The Articles of the Constitution to which references have been made are Articles 245, 266, 270 and entries 86 and 49 respectively of Lists I and Ii (Union List and State List) of Seventh Schedule to the Constitution. Reference has also been drawn to the provisions of the Delhi Rent Control Act relating to fixation of standard rent of the properties.
(3) There is another writ petition (CWP No. 555/95) filed by Dr. Vijay Aggarwal, President of the Delhi Nursing Home Forum. In this there is a challenge to bye-law 3(l)(c)(ii) of the R.V. Bye-laws being ultra virus the provisions of the Act and vocative of Article 14 and 19(1)(g) of the Constitution. This judgment will cover both these writ petitions (CWP No. 5102/94 and Cwp No. 555/95).
(4) Under section 2(47) of the Act, 'rateable value' means the value of any land or building fixed in accordance with the provisions of this Act and the bye-laws made there under for the purpose of assessment to property taxes. Section 2(38) defines 'premises' which means any land or building or part of a building and includes - (a) the garden, ground and out-houses, if any appertaining to a building or part of a building; and (b) any fittings affixed to a building or part of building for the more beneficial enjoyment thereof. As to what are the components and rates of property taxes, section 114 describes them which, in relevant parts, is as under :-
'114.Components and rates of property taxes. (1) Save as otherwise provided in this Act, the property taxes shall be levied on lands and buildings in Delhi and shall consist of the following, namely :- (a) Omitted. (b) Omitted. (c) Omitted. (d) a general tax - (i) of not less than ten and not more than thirty per cent of the rateable value of lands and buildings within the urban areas; and (ii) on lands and buildings within the rural areas at such lower rates and with effect from such date as may be determined by the Corporation: Provided that the Corporation may, when fixing the rate at which the general tax shall be levied during any year, determine that the rate livable 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 general tax may be levied on a graduated scale, if the Corporation so determines. xxxxxxxxxxxxxx'
(5) As to how the rateable value of lands and buildings assessable to property tax is to be determined, it is section 116 which in relevant parts is as under:-
'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: xxxxxxxxxxxxxx ' 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. Explanationn:........ (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 percent 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 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.'
(6) Section 131 gives powers to the Commissioner to call for information and returns to enter and inspect the premises. This section is as under :-
'131Power of Commissioner to call for information and returns and to enter and inspect premises. (1) To enable him to determine the rateable value of any land or building and the person primarily liable for the payment of any property taxes livable in respect thereof, the Commissioner may require the owner or occupier of such land and building, or of any portion thereof to furnish him within such reasonable period as the Commissioner fixes in this behalf, with information or with a written return signed by such owner or occupier = (a) As to the name and place of residence of the owner or occupier, or of both the owner and occupier of such land or building (b) As to the measurements or dimensions of such land or building or of any portion thereof and the rent, if any obtained for such land or building or any portion thereof and (c) As to the actual cost or other specified details connected with the determination of the value of such land or building. (2) Every owner or occupier on whom any such requisition is made shall be bound to comply with the same and to give true information or to make a true return to the best of his knowledge or belief. (3) Whoever omits to comply with any such requisition or fails to give true information or to make a true return to the best of his knowledge or belief, shall in addition to any penalty to which he may be liable, be precluded from objecting to any assessment made by the commissioner in the respect of such land or building of which he is the owner or occupier.
(7) Under section 481, M.C.D. may, in addition to any bye laws which it is empowered to make by any other provision of this act, make bye laws provide for all or any of the matters mentioned therein Three such powers in part A relating to taxation are as under :-
(4)The requisition by the commissioner of information and return form the person liable to pay texts; (7) the submission of returns by persons liable to pay any tax under this Act; (9) any other matter relating to the levy; assessment, collection, refund or remission of taxes under this Act;
(8) Under section 481A; regulations and bye laws are to be made after previous publication; etc; and are tod be approved by the Government. Under section 2(21-A); Government means the Government of the national Capital Territory of Delhi.
(9) To understand the rival contentions; we may reproduce the impugned bye laws;
DELHI Municipal Corporation (Determination of Rateable Value) Bye laws, 1994
1.These bye laws may be called the Delhi Municipal Corporation (Determination of Rateable Value) Bye-laws, 1994;
2.They shall come into force with effect from the date of their publication in the official Gazette.
2.(1) In these bye laws:-
(A)'Act' means the Delhi Municipal Corporation Act, 1957 (66 of 1957 as amended);
(B)Cost of premises means:- (i) Where the premises have been acquired by purchase or through any transaction ( where by way of becoming a member of, or acquiring shares in a co-operative society, company or other association of persons or any agreement or any arrangement or in any other manner whatsoever ) which has the effect or transferring, or other manner whatsoever ) which has the effect of transferring, or enabling the enjoyment of the premises, the cost paid, or where the cost is partly paid or partly, the aggregate of the cost paid or payable for the premises and the cost of additions and improvements, whether made by the owner or by the occupier; or (ii) Where the premises were to be used for residential purpose are used for non-residential purpose, the cost of premises shall be the aggregate of market value of land comprised in the premises on the date of change in used of the premises and the cost of construction of the premises or the cost paid or payable for the premises, whichever is higher and the cost of additions and improvements in the premises, whether made by the owner or the occupies; (iii) Where the premises are used or to be used for non-residential purposes, and are not covered by clauses (I) and (ii) above, the cost of the premises shall be the aggregate of the market price of land comprised in the premises on the date of the commencement of the construction and the cost of construction of the premises and the cost of additions and improvement in the premises whether made by the owner or occupier. (iv) In any other case, aggregate of the cost paid for the land and cost of construction of the building or part thereof and the cost of additions and improvements, whether made by the owner or by the occupier; Explanationn :- For the purpose of this clause: (1) Where the premises have been purchased from the Government or the Delhi Development Authority ( for short 'D.D.A.') or acquired as a member of a Group House Building Co-operative Society, the amount paid or payable to the Government or the D.D.A., or as the case may be, the Group House Building Co- operative Society, for the premises shall be the cost of the premises. Where the premises have been acquired from any other person, the cost paid or payable for the premises shall, normally, be accepted except where the Commissioner has reason to believe that the amount paid or payable has been under-stated and in such a case the Commissioner may estimate the cost of the premises or have it valued under section 135 of the Act. (2) Market price of land shall be the price for which the land was bought or the land rates notified by the D.D.A. or the land and Development Officer (for short 'L.& D.O.') or any other agency controlling the price of land for the year of commencement of construction or the year in which there is change in user of the premises, whichever is higher. (3) The cost of construction shall be the actual amount spent on construction or the cost determined as per the scheduled rates of the Central Public Works Department (for short 'C.P.W.D.') for the cost of construction for similar constructions for the year in which the premises was constructed, whichever is higher. Where the difference between the cost disclosed and the cost as per C.P.W.D. rate is up to twenty per cent of cost disclosed, the cost of construction disclosed shall be accepted. Cost of additions and improvements shall be determined in the same manner. (4) Where the land has been taken from the D.D.A., L.& D.O., local body or any other approved developer of lands, the cost paid for the land means the amount paid for such land. Where the land has been taken from any other person, the cost of land shall be the amount paid for the land or the amount arrived at the rates notified by the D.D.A./L.& D.O. for the year in which land is taken, whichever is higher. Where construction has been made after purchase of the terrace rights, the cost paid or payable for the terrace rights shall be taken as the cost of the land. (5) Premises exclusively used and occupied for charitable purposes, within the meaning of clause (a) of sub-section (4) of section 115 of the Act, shall not be deemed to be used for non-residential purposes. (c) 'let' includes sub-letting, license or such other arrangement permitting the occupier for use of the premises; (d) 'prevalent rent' means the actual rent, unless the same is collusive or concessional of similar or nearly similarly situated locality of which letting commenced in the year of assessment; (e) 'premises' shall have the same meaning as defined in sub-section (38) of section 2 of the Act; (f) 'rent' includes :- (i) license fee, commission, supervision charges, ware-housing charges or such other payments, by whatever name called, made by the occupier 133 of use of the premises and the amenities provided therein; (ii) charges for fixtures and fittings, air- conditioning, lifts, elevators, etc., and other similar payments; (iii) Where the property taxes are borne wholly or in part by the occupier, the property taxes borne or to be borne by the occupier; (iv) Where the occupier has paid any amount as security or deposit (not being a dance payment towards rent for a period up to one year being adjusted on month to month basis or a security deposit up to a period of six months), an amount calculated atg such rate as is being fixed by the bank (for the fixed deposits) on such security or deposit (in excess of one year adjustable advance rent and six months security deposit) for the duration for which the security or deposit has been paid by the occupier; (f) 'Year of assessment' means the year for which the rateable value is to be determined. (2) Words and expressions appearing in these bye-laws, but not defined shall have the same meaning as defined in the Act and rules framed there under on the subject. 3.(1) For the purposes of sub-section (1) of section 116 of the Act, the annual rent shall be determined as under:- (a) Where the premises are on rent, the rent actually realised or realisable, unless the same is collusive or concessional, shall be the annual rent. Where the tenancy commences on or after the 1st day of April, 1995 and where the Commissioner has reason to believe that the declared rent does not represent the prevalent rent of the year of letting and the difference between declared rent and prevalent rent is more than twenty five per cent of the declared rent, the annual rent shall be the prevalent rent; Explanationn:- For the purposes of this clause the prevalent rents shall be determined by a Panel of Assessors to be appointed by the Commissioner: Such Panel shall include a representative from the Government, a representative of the Corporation, a representative of any Taxation Department (other than the Corporation) or a Valuer and a representative of the property owners of the zone of which the prevalent rents are to be determined. (b) in the case of the premises which are sublet, the rent paid or payable by the occupier shall be the annual rent. Explanationn:-For the purposes of clause (a) and clause (b), it is immaterial whether the building and the fixtures and fittings affixed to the building and the land let for use and enjoyment therewith, are let by the same contract or by different contracts, and if by different contracts, whether made simultaneously or at different times; In case premises are used and occupied or are lying for use and occupation by the owner itself:- (i) Where the building has been erected on land which is on rest aad no premium has been paid, the annual rest of the building or part thereof shall be the aggregate of the annual rent of the land paid or payable in the year of assessment and an amount calculated at ten per cent of the cost of construction of the building, cost of fixtures and fittings and cost of additions, alterations and improvements; (ii) Where the building of (or) part thereof, is used or to be used as a banquet hall, cinema hall, club, guest house, hotel) nursing home or as house for marriages and such other functions, the annual rent shall be the amount calculated at ten per cent of the market price of land in the year of assessment and the cost of construction of the building cost of fixtures and fittings and cost of additions, alterations and improvements, or the prevalent rent, whichever is higher; (iii) Where the premises are not covered by sub-clause (i) and (ii) above, the annual rent shall be the amount calculated at ten per cent of the cost of the premises up to the year of assessment or the prevalent rent, whichever is lower: Provided that where the premises are used for residential purposes and cost of the premises is determined under Bye-law 2(l)(b)(iv), the annual rent of the portion of the building completed up to the year 1993- 94 shall not be more than the annual rent determined for the year 1993-94; (d) Where the building or part thereof, is lying vacant for letting, the annual rent of such building or part thereof, shall be ten per cent of the cost of the premises; (e) in respect of the properties in the unauthorised colonies; regularised unauthorised colonies, on plot allotted under Economically Weaker Section and Low Income Group Schemes and in respect of flats used for residential purposes up to a covered area of 75 sq. mts., where the Commissioner feels that determination of value of land, cost of construction or the prevalent rent is difficult, be may determine the annual rent by Unit Area Method. Explanationn I - Whether the premises has an illuminated or non-illuminated advertisement on the walls, hoardings, posts or structures affixed to the premises, the annual rent of the premises shall include the rent from such advertisement. Explanationn Ii - For the purposes of this bye-law, the annual rent of the premises includes the annual rent of the land and building thereon, and such other fixtures and fittings as are considered necessary for the use and enjoyment of the land and building for the purpose for which they are intended to be used and shall include lifts, elevators, storage tanks, pipelines, railway lines, runways, underground cables, air condtioning plant in centrally air-conditioned buildings, swimming pools, chairs and screen in cinema halls, theatres and auditoria, cost of insulations and racks in cold storage buildings, but, gave, as aforesaid, no account shall be taken of the value of any fixtures and fittings contained or situated in or upon any land or building. (2) Where the premises, as per prevent practice, are let or transferred by charging pugree or through go me other arrangement on nominal rents, the Commissioner may estimate the annual rent of the premises after taking into consideration the rents paid or payable by public undertakings or the government organisations or the premises let by such undertakings of or generations either in the same locality or in the nearby similar locality. (3) In the case of premises to which rent restriction legislation is applicable, the annual rent determinable under sub-bye law (1), above, shall not be more than the rent realised or realisable under the rent restriction legislation. (4) Where the annual rent of the building is determinable under more than one clauses of sub-bye law (1), the annual rent of the building shall be the aggregate of the annual rent determined under various clauses of that sub-bye law. (5) Where the premises have ben provided with any fixtures and fittings, the deduction for the maintenance of such premises shall be fifteen per cent of the annual rent and not ten per cent of the annual rent as provided under sub-section (1) of section 116 of the Act. 4. In order to fix the rateable value of any land under sub-section (2) of section 116 of the Act, where the market value of such land, in the year of assessment, is more than the cost paid for the land, the 'estimated capital value of such land' shall be the market value of such land in the year of assessment. Rateable value under this item shall be determined from 1-4-98 where atleast twenty five per cent of the permissible covered area is not constructed up to 31-3-98. Explanationn :- The market value of land for the purposes of this bye-law shall be the land rates notified by the D.D.A./L.& D.O. or any other agency controlling the prices of land for the locality or similarly situated nearby locality. 5. The rateable values determined under bye-laws 3 and 4 shall be revised every fourth year except :- (a) where there is increase in the rents of the premises; (b) where there is change in the user of such premises; (c) where there is change in the ownership of the premises; (d) where such premises previously lying vacant or used by the owner himself is let; or (e) where the building is erected, rebuilt, enlarged or substantially altered or improved.'
'Delhi Municipal Corporation (Property Tax Return) Bye-laws, 1994. 1.(1) These bye-laws may be called the Delhi Municipal Corporation (Property Tax Renturn) Bye-laws, 1994. (2) They shall come into force with effect from the date of their publication in the official gazette. 2. In these bye-laws, (1) 'Act' means the Delhi Municipal Corporation Act, 1957, as amended; (2) 'Building', 'Land', 'premises', 'owner' and 'occupier' means 'building', land', 'premises', 'owner and 'occupeir' respectively as defined in the Act; (3)' rent' includes rent, license, lease or commission or any other sum paid or payable for user of the building and fixtures and fittings through one or more agreements. 3. Every owner or occupier of land and building or part of building assessable to property tax shall file an annual property tax return before the Commissioner as under :- A. Return to be filed by all the owners of lands and buildings where - (i) land capable of bailing built upon or in the process of construction, has an area of more than 100 sq. metrs; or (ii) the building or part thereof, used or to be used for residential pur
IT is not necessary to reproduce the forms as mentioned in the Property Tax Return Bye-laws, 1994.
(10) The notification relating to R.V. Bye-laws states that these bye-laws have been framed by the M.C.D. under sub- section (47) of section 2 read with sections 116, 481 and 483 of the Act after previous publication and taking into consideration the objections and suggestions that have been received in this behalf with the prior approval of the Government of the National Capital Territory of Delhi. Similarly, the notification bringing into operation the Property Tax Return Bye-laws also states that these bye-laws for requisition of information and returns from the persons liable to pay property tax have been framed by the M.C.D. under entry (4) of List 'A' - (bye-laws relating to taxes) below sub-section (1) of section 481 read with sections 131 and 483 of the Act after previous publication and taking into consideration the objections and suggestions received in this behalf and with the prior approval of the Government of the National Capital Territory of Delhi.
(11) Mr. Rathee, learned counsel for the petitioner, in Cwp No. 5102/94, said that these bye-laws had no authority of law inasmuch as Corporation stands superseded and powers did not vest in the Commissioner of the M.C.D. to make these bye-laws. He said section 114(l)(d) of the Act contemplated only one rateable value though rates of tax might differ. In the present, he said, different rateable values were sought to be fixed which was not legal. It was submitted that bye-laws were against the provisions of sub-section (1), (2) and 3) of section 116 of the Act and that now it was apparent that what the bye-laws sought to recover was income tax on income derived from house property and it was not a tax on house property as such. In this connection he referred to Articles 245, 266 and 277 and Entry 86 of List I (Union List) and Entry 49 of List Ii (State List) in Seventh Schedule of the Constitution. Mr. Rathee said that new concept of 'prevalent rent' had been introduced in the bye-laws. He said he had no quarrel with the bye-law 3(l)(c)(i). Mr. Shourie, who intervened in the matter, referred to clauses (7) and (8) of Part A of section 481 of the Act and said that tenant could not be made 'liable to pay tax'. His further submission was that bye-laws were meant only to supplement the Act and could not substitute or override statutory provisions existing in the Act. It was also his submission that R.V. Bye-laws were vocative of the Constitution and they also deprived the right of equality before the law. Mr. Shourie said that R.V. Bye-laws introduced new concept being the element of cost paid as it would appear in the definition of cost of premises in clause (b) of bye-law 2(1) of R.V. Bye-laws. His objection was also to sub-clause (2) where the cost of premises was to be increased if with the change of user of the premises from residential purposes to non-residential purposes. He said sub-clause (2) of R.V. Bye-law 3(1) (c) contained a monstrous extortionate provision contrary to all well known provisions. As noted above, this clause has been subject-matter of challenge in writ petition filed by Dr. Vijay Aggarwal (CWP No. 555/95). Mr. Shourie questioned as to why the cost of premises should differ when these are used for residential and self' occupied purposes and when used for non-residential purposes. This is what sub-clause (iii) of bye-law 2(l)(b) of R.V. Bye-laws. Then Mr. Shourie said that sub-clause (e) of clause 3(1) introduced a total new concept for which there could not be found any source in the Act. Mr. Shourie also challenged the validity of Property Tax Return Bye-laws and said there was apparent conflict between these bye-laws and provisions of section 120 and 131 of the Act and particularly on the question of penalty in case of default in submission of returns under these bye- laws. Lastly, Mr. Shourie said that these set of bye-laws have created anomalous position and instead of decreasing have rather increased the difficulties of the owners of the properties.
(12) Mr. K.N. Bhat, Senior Advocate, appearing for Dr. Vijay Aggarwal in Cwp No. 555/95, said that the judgment of this Court in Delhi Paints and Chemical v. N.D.M.C. and another, 1993 (2) D L 18, and which has been approved by the Supreme Court broadly laid down the following principles:-
(A)where a premises is actually let out and fetches rent more than Rs.3,500.00 per month, the actual rent received will form the basis for determining the rateable value. In such cases, there is no scope for introducing the fiction of 'standard rent';
(B)where the premises are in self occupation the reasonable rent has to be determined by having resort to the formula laid down in the Rent Control Act; of reasonable rent shall be in accordance with the provisions of the Rent Control Act.
(13) He submitted that these principles were in consonance with the decision of the Supreme Court in Morvi Municipality v. State of Gujarat & others, : [1993]2SCR803 . He said that though the 'import of the R.V. Bye-laws would be that these were framed for the purpose of sub-section (1) of section 116 of. the Act for the determination of annual rent, but then bye-law 3(l)(c)(ii) could not be said to be a provision for determining reasonable rent because 10% of the market value of the land on which the nursing home stood as determined in the year of assessment plans cost of construction, fixtures, etc. could never be 'rent'. Mr. Bhat said that the case of Patel Gordhandas Hargovindas and others v. The Municipal Commissioner, Ahmedabad and another : [1964]2SCR608 supported his contention both on facts and law and that the bye-law 3(l)(c)(ii) was beyond what was contemplated in section 116 of the Act and was, thus, ultra vires. He said the impugned bye-law sought to impose a tax on capital value and not on rateable value as was held in Patel Gordhandas's case. Mr. Bhat said the expression ' cost of premises' used in the impugned bye-law was defined in bye-law No.2 and a combined reading thereof lead to a situation where property tax was in fact levied on the capital value, and since these two bye-laws were not severable the entire body of R.V. Bye-laws be declared void and unenforceable. He said the R.Y Bye-laws were also vocative of Article 14 of the Constitution inasmuch us drastical'' different basis of taxation had been adopted in the case of all other nor-residential users of buildings and the so-called special category and there was no justification for such unequal treatment. He said even among the special category. Nursing Homes were clubbed along with several other activities which had nothing in common with the activity of a Nursing Home. Lastly, Mr. Bhat said that the impugned Bye-laws made the levy confiscatory and vocative of Article 19(l)(g) of the Constitution as well.
(14) We may also briefly note the arguments of Mr. V.K. Aggarwal, who has intervened in these proceedings as President of Yamuna Vihar, Block B-5, Residents Welfare Association (Regd), Delhi (C.M. No. 1137/95). Mr. Aggarwal has generally supported the Property Tax Return Bye-laws and has suggested certain further improvements which according to him will reduce corruption in the department and will also result in increased revenue from property tax and reduce litigation. Mr. Aggarwal, however, has also found fault with the R.V. Bye-laws. He said that the Act did not envisage any 'assessor' and that the Commissioner under the Act could get assistance from 'competent persons' as provided in section 135 of the Act. The expression 'assessor' as used in Explanationn to bye-law 3(l)(a), according to Mr. Aggarwal, would be ultra virus the Act. But he himself admits that 'competent person' as appearing in section 135 of the Act has not been defined in the Act. Mr. Aggarwal-also found fault with the Explanationn I to bye-law 2(l)(b)(iv) under which the 'Commissioner may estimate the cost of the premises or have it valued under section 135 of the Act.' Mr. Aggarwal then submitted that assessment based on the price charged as notified by the Delhi Development Authority/Land & Development Office/Cooperative Society, etc., and as prescribed under bye-laws 2(l)(b)(i) and 2(l)(b)(iv) read with Explanationn I, Ii and Iv, would not be proper. It is stated that the valuation so fixed by the aforesaid authorities take into consideration grant of 'social subsidy' which would not be so in the case of a private developer. Explanationn Iii to bye-law 2(l)(b)(iv) which prescribes estimation of construction cost on C.P.W.D. rate has also been questioned as vocative of the Act. It is stated that this cost takes into account the margin of profit for the contractor. A great criticism has been levied on contractors-engineers syndrome existing in the public sector construction works and Mr. Aggarwal said cost fixed on the basis of C.P.W.D. rate had no relevance to the annual cost as that cost took into account various irrelevant factors like administration charges. Lastly, it was submitted that M.C.D. under Explanationn 11(5) to bye-law 2(l)(e) provided for reduction from annual rent at the rate of 15% while Income-tax Act provided for reduction at the rate of 20%. Thus, according to Mr. Aggarwal, the M.C.D. should also follow and adopt the provisions as contained in sections 23 and 24 of the Income-tax Act, 1961.
(15) Mr. B. Sen, Senior Advocate, in reply submitted that the property tax levied on the basis of R.V. Bye-laws was not confiscatory in nature. He relied on a decision of the Supreme Court in Patel Gordhandas's case : [1964]2SCR608 and to two Bench decisions of this Court in Delhi Paints and Chemical v. N.D.M. C. and another [1993 (2) Del L 18 and Government Servants Cooperative House Building Society Ltd. and Others [1993 (3) Del L 269 : 1993 (51) DLT334. Mr. Sen said that on the basis of aforesaid two decisions of the Delhi High Court the Delhi Rent Control Act was not applicable in cases (1) where the rent was more than Rs.3,500.00 per month and (2) the property had been constructed after 1988 (with exemption for ten years from the date of construction). In reply to Mr. Bhat's arguments, Mr. Sen said that Nursing Homes which had been constructed prior to 1988 would be governed by the decision of the Supreme Court in Dewan Daulat Rai's case : [1980]122ITR700(SC) . Mr. Sen said R.V. Bye-laws and Property Tax Return Bye-laws were valid and in consonance with the Act and were not unconstitutional. He referred to the relevant provisions of the Act which we have already reproduced above. In answer to submissions made by Mr. Bhat, Mr. Sen said that bye-law 3(l)(c)(ii) of R.V. Bye-laws was valid as the annual rent as percentage of capital value was first arrived at and then tax levied on that was in consonance with the Act and the law as laid down by the Supreme Court in Patel Gordhandas's ease : [1964]2SCR608 and was, thus, permissible. He said, however, if one takes capital value of the property then tax is imposed as some percentage of that, it would be invalid. We have, however, been unable to appreciate this line of reasoning. Mr. Rathee, however, had said that the term 'capital value' was used in sub-section (2) of section 116 of the Act and it could not be same thing as 'market value'. To us it appears that capital value would be the amount of capital which the owner had invested in the property and this can best be ascertained by looking at the market value of the premises. Mr. Sen said that these Bye-laws were duly framed by the Commissioner as the M.C.D. had been superseded and were approved as prescribed under the Act and then promulgated.
(16) The argument that the property tax imposed is in fact a tax on the income is oft repeated and this very argument was taken note of by this Court in Government Ser vents Co- operative House Building Society Ltd. and others v. Union of India and others, : AIR1994Delhi112 and was rejected.
(17) Again reference was made to a decision of the Federal Court in Ralla Ram v. Province of East Punjab . In this case the Federal Court had held that the tax levied by section 3 of the Punjab Urban Immoveable Property Tax Act, 1940, on buildings and lands situated in a specified area at such rate not exceeding 20% of the annual value of such buildings and lands, as the Provincial Government may by notification in the official Gazette direct in respect of each such rating area was not a tax on income, but was a tax on lands and buildings within the meaning of item No. 42 of List Ii of the Seventh Schedule of the Government of India Act, 1935. In that case it was contended that under the provisions of the Punjab Act the basis of the tax was the annual value of the buildings and since the same basis was used in the Income-tax Act for determining the income from property and generally speaking the annual value is the fairest standard for measuring income and, in many cases, is indistinguishable from it, the tax levied by the impugned Act was in substance a tax on income. The Court pointed out that the annual value is not necessarily actual income, but is only a standard by which income may be measured and merely because the Income-tax Act had adopted the annual value as the standard for determining the income, it did not follow that, if the same standard is employed as a measure for any other tax, that latter tax becomes also a tax on income. It was held by the Court that in substance the property tax levied by Section 3, Punjab Urban Immoveable Property Tax Act, 1940, fell within item 42 of the Provincial List and was not a tax on income falling within item 54 of the Federal List although the basis of the tax was the annual value of the building. In Sudhir Chandra v. Wealth-tax Officer, Calcutta : [1969]68ITR897(SC) the court said as under :-
'THE tax which is imposed by entry 86 List I of the Seventh Schedule is not directly a tax on lands and buildings. It is a tax imposed on the capital value of the assets of individuals and companies, on the valuation date. The tax is not imposed on the components of the assets of the assessee: it is imposed on the total assets which the assessed owns, and in determining the net wealth not only the encumbrances specifically charged against any item of asset, but the general liability of the assessed to pay his debts and to discharge his lawful obligations,have to be taken into account. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite. relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under entry 86 List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under Entry 49 List Ii the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not, in our judgment, make the fields of legislation under the two entries overlapping.'
(18) In Assistant Commissioner of Urban Land Tax Madras and others v. Buckingham and Carnatic Co. Ltd. etc, : [1970]75ITR603(SC) there was challenge to the constitutional validity of the law passed by the Madras Legislature which provided that there shall be levied and collected a tax on urban land from the owner of such urban land at the rate of 0.4 per cent of the market value of such urban land. The court held that the Madras Urban Land Tax Act, 1966, was entirely within the ambit of Entry 49 of List Ii of the Constitution and within the competence of the State Legislature and did not in any way trench upon the field of legislation of Entry 86 of List 1. The court rejected the contention of the respondents that the impugned Act was, both in form and' substance, taxation on capital and was hence beyond the competence of the State Legislature. It was also contended that to tax on the basis of capital or principal value of assets was permissible to Parliament under List I (Entries 86 and 87) and to State under Entry 48 of List II. The court was, however, of the opinion that there was no warrant for the assumption that Entries 86, 88 of List I and Entry 48 of List Ii formed a special group' embodying any particular scheme. The court went on to hold as under
'ENTRIES86 and 87 of List I do not preclude the State Legislature from taxing capital value of lands and buildings under Entry 49 of List II. There is no conflict between Entry 86 of List I and Entry 49 of List II. The basis of taxation under the two entries is quite distinct. As regards Entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. The tax is not imposed on the components of the assets of the assessee. The tax under Entry 86 proceeds on the principle of aggregation and is imposed on the totality of the value of all the assets. It is imposed on the total assets which the assessed owns and in determining the net wealth not only the encumbrances specifically charged against any item of assets, but the general liability of the assessed to pay his debts and to discharge his lawful obligations have to be taken into account. In certain exceptional case, where a person owes no debts and is under no enforceable obligation to discharge any liability out of his assets, it may be possible to break up the tax which is livable on the total assets into components and attribute a component to lands and buildings owned by an assessee. In such a case, the component out of the total tax attributable to lands and buildings may in the matter of computation bear similarity to a tax on lands and buildings levied on the capital or annual value under Entry 49, List II. But in a normal case a tax on capital value of assets bears no definable relation to lands and buildings which may or may to form a component of the total assets of the assessee. But Entry 49 of List Ii, contemplates a levy of tax on lands and buildings or both as units. It is not concerned With the division of interest or ownership in the units of lands or buildings Which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component of the total assets of the assessee. By legislation in exercise of power under Entry 86, List I, tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under Entry 49, List Ii, the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability do not make the fields of legislation under the two entries overlapping. The two taxes are entirely different in their basic concept and fall on different subject matters.'
(19) Similar issue was raised in D.G. Gouse and Co. (Agents) Pvt. Ltd. v. State of Kerala and. another, : [1980]1SCR804 , where there was challenge to the constitutional validity of Kerala Buildings Tax Act, 1975. It was argued that the subject-matter of the Act being a tax on building it was a tax on the capital value of the assets of an individual or company and fell within the scope of Entry 86 of List I of the Seventh Schedule and not under Entry 49 of List Ii so that it was beyond the legislative competence of the State Legislature. The court, rejected the argument and on the scope of these two entries in List I and List Ii said as under :-
'SO if a tax is levied on all that one owns, or his total assets, it would fall within the purview of entry 86 of List I, and would be outside the legislative competence of a State Legislature, e.g., a tax on one's entire wealth. That entry would not authorise a tax imposed on any of the components of the assets of the assessee. A tax directly on one's lands and buildings will not thereforee be a tax under entry 86. If thereforee a tax is directly imposed on 'buildings', it will bear a direct relation to the buildings owned by the assessee. It may be that the building owned by an assessed may be a component of his total assets, but a tax under entry 86 will not bear any direct or definable relation to his building. A tax on 'buildings' is thereforee a direct tax on the assessor's buildings as such, and is not a personal tax without reference to any particular property.'
(20) The court also said that it might well be that one's building might imperceptibly be the subject-matter of tax, say the wealth tax, as a component of his assets, under entry 86 (List I) and it (List II), but as the two taxes are separate and distinct imposts, they could not be said to over-lap each other, and would be within the competence of the Legislature concerned. The court in this case also examined the argument that the method of determining the capital value of a building on the basis of its annual value was hypothetical and should be struck down as unconstitutional. The court said :-
'WE have given our reasons for holding that the tax on buildings, under the provision of the Act, has been imposed by virtue of entry 49 of List Ii of the Seventh Schedule of the Constitution. So when the State Legislature had taken a decision to impose that tax, it was open to it to decide how best to levy it. If the tax was to be annual, one of the usual modes of levying it was to make provision for determining what is known as 'rate', or value value of the building. Rateable value is now, in almost all cases, the same as the net annual value of the building. '
(21) The court also referred to its another decision in Khandige Sham Bhat v. Agricultural Income Tax Officer : [1963]3SCR809 , where the court said that where there was more than one method of assessing tax and the Legislature selected one out of them, the court would not be justified to strike down the law on the ground that the Legislature should have adopted another method which, in the opinion of the court, was more reasonable, unless it was convinced that the method adopted was capricious, fanciful, arbitrary or clearly unjust.
(22) We will, thereforee, reject the argument that the R.V. Bye-laws levying property tax are in any way unconstitutional or invalid qua the Act.
(23) We have threadbare considered the R.V. Bye-laws and it would appear to us that the R.V. Bye-laws have been framed on the basis of the relevant provisions of the Act, the Delhi Rent Control Act, 1958, and on the basis of law as laid down by various judgments of the Supreme Court and of this Court, some of these being -
(1)Morvi Municipality v. State of Gujarat & others, : [1993]2SCR803 Assistant General Manager, Central Banki of India etc v. Commissioner, Municipal Corporation for the City of Ahmedabad etc., : (1995)4SCC696 Hindustan Lever Ltd v. Municipal Corporation of Greater Bombay and others, : [1995]3SCR807 New Delhi Municipal Committee v. M/s. Gymkhana Club and others, : [1994]3SCR429 Motichand Hirachand and others v. Bombay Municipal Corporation, : [1968]1SCR546 Dewan Daulat Rai Kapoor etc. v. New Delhi Municipal Committee and another etc., : [1980]122ITR700(SC) Dr. Balbir Singh and others v. M.C.D. and others, : [1985]152ITR388(SC) Spencer & Co. v. The State of Mysore and another, : AIR1971SC1321 State of Bihar and others v. Sachchidanand Kishore Prasad Sinha and others Jt 1995 (1) S.C. 459; (10) The Anant Mills Co. Ltd. etc. v. The State of Gujarat, : [1975]3SCR220 The Municipal Corporation of Greater Bombay and others v. The Indian Oil Corporation Ltd., : AIR1991SC686 Municipal Corporation of Delhi v. M/s. Pragati Builders and N.R.D.C. of India and another, : AIR1991Delhi212 Delhi Paints and Chemical v. N.D.M.C. and another (1993 (2) Del L 18; and (14) Government Servants Co-operative House Building Society Ltd. and others, : AIR1994Delhi112 .
(24) We do not think it necessary for us to examine each of these bye-laws separately with reference to the aforesaid judgments and the provisions of the Delhi Rent Control Act and the Act. These R.V. Bye-laws, as it would appear to us, are beyond challenge except Explanationn to R.V. Bye-law 3(l)(a), Bye-law 3(l)(c)(ii) and part of Explanationn Ii to Bye-law 3(l)(e). It may be noticed that the order levying or assessing any tax under the Act is appealable to the court of the District Judge, Delhi, under section 169 of the Act. The order, thus, appealable is a quasi judicial order and the assessing officer has to apply its mind independently on the basis of the record and the provisions of the law. The Explanationn to bye-law 3(l)(a) binds the assessing officer to determine the prevalent rent on the basis of a Panel which is not permissible. This Explanationn is also bad on the face of section 135 of the Act which gives powers to the Commissioner to employ valuers to give him advice in connection with the valuation of any land or building. This Explanationn can be splitted from the other body of R.V. Bye-laws and is struck down.
(25) The whole basis of fixation of rateable value of any land or building is to be the annual rent at which such land or building might reasonably be expected to let from year to year. This is sub-section (1) of section 116 of the Act and it has to be read with the definition of 'rateable value' as contained in sub-section (47) of section 2 of the Act. The Bye-laws framed cannot fix the rateable value at any figure more than the annual rent at which such land or building might reasonably be expected to let. Bye-law 3(l)(c)(ii) offends the basic principle of the law fixing rateable value when it fixes the rateable value at an amount higher than the 'prevalent rent'. If this bye-law had said that annual rent shall be the amount calculated at 10% of the market price of land and the cost of the building, etc., or the prevalent rent whichever is lower, the bye-law would have been beyond any challenge. As it stands, the bye-law is invalid. It is no function of the court to read down the words 'whichever is higher' as 'whichever is lower'. This bye-law is, thereforee, also struck down.
(26) We find Explanationn Ii to R.V. Bye-law 3(l)(e) is wisely worded. In New Manek Chowk Spg. & Wvg. Mills Co. Ltgd. etc. v. Municipal Corporation of the City of Ahmedabad and others, : [1967]2SCR679 , the court was considering the relevant rule framed under the Bombay Provincial Municipal Corporation Act under which all plants and machinery contained or situated in or upon any building or land could be deemed to form part of such building or land for the purpose of fixing the rateable value. It was submitted before the court that such a provision was beyond the competence of the State as otherwise even plant and machinery in the factory premises could be taken into account for arriving at the rateable value. The court said that a hypothetical tenant would certainly take into consideration the machinery in the building if he was going to rent it for the purpose of running a textile factory, and if the same Legislature had power to levy a tax only on land and building it could not be seen how the same would be levied on machinery contained in or situated on the building even though the machinery was there for the use of the building for a particular purpose. This Explanationn, thereforee, has to be given a limited meaning with reference to the aforesaid decision of the Supreme Court. In this connection reference may also be made to decision of the Supreme Court in Hindustan Lever Ltd's case (supra).
(27) A lot was said that the new concept of 'prevalent rent' has been introduced by the Bye-laws. We do not think it is so. It is merely the change of nomenclature. The effect is the same as per law under section 116 of the Act. In R.V. Bye-laws one should read bye-law 3 and then with reference to the definitions as contained in bye-law 2. . Everything then falls in line and ultimately it is the prevalent rent or even lower than that that on the basis of which rateable value of any land or building is sought to be fixed. The bye-laws may appear to be rather complex but then these have to provide for various factors. It would appear to be an attempt towards codification of law for fixation of rateable value respecting properties of different nature situated in different areas and depending upon the applicability of the Delhi Rent Control Act to the area or the premises. These bye-laws would appear to be rather benevolent to the owner or the occupier, as the case may be, as rateable value would remain fixed for certain period and could be revised only every four years except, of course, under certain circumstances where it could be revised earlier as mentioned in bye-law 5 of the R.V. Bye-laws. We may note that under section 121 of the Act, a person primarily liable for payment of property taxes can recover the same or part of it from the occupier. We also do not find any fault in law with the R.V. Bye-laws when these prescribe for the purpose of fixation of rateable value the prices fixed/charged by the authorities like the D.D.A., L.& D.O., and C.P.W.D. or the prices charged by the societies. This particular bye-law rather brings uniformity as well.
(28) The Property Tax Return Bye-laws have been challenged on the ground that these contravene section 131 of the Act. It is contended that when power is specifically conferred on the Commissioner to call for information and returns and also to enter and inspect premises in respect of any particular land or building this could not be expanded to include calling for information from each and every person liable to property tax. It was also contended that while breach of section 131 of the Act would entail a fine of Rs.50.00 , the breach of bye-laws would entail a higher amount of fine. Section 461 of the Act prescribes punishment for certain offences and it is stated that whoever contravenes any provision of any of the sections, sub-sections, clauses, provisos or other provisions of the Act mentioned in the first column of the table of the twelfth schedule shall be punishable with fine or with imprisonment and with both as mentioned in the twelfth schedule. If we refer to this twelfth schedule it could be seen that for failure to comply with requisition to furnish information etc. under section 131 a fine of Rs.50.00 might be imposed. Contravention of section 131 of the Act is an offence and fine can be imposed only after prosecution and by the Magistrate competent to take cognizance of the offence. Any contravention of bye- law framed under section 482 of the Act would also appear to be an offence and though this section does not find mention in the twelfth schedule the section itself prescribes punishment for contravention of any bye-law. Here also the punishment of fine can be imposed only by Magistrate after taking congnizance of the offence. The issue, thus, raised is if a person fails to comply with the requisition for information under section 131 of the Act when the information is called by the Commissioner can be punished only to pay fine of Rs.50.00 , could it be that failure to furnish the same information under the bye-law would entail higher punishment.
(29) On the basis of the provision as contained in section 482 of the Act it would appear that bye-law 8 was framed prescribing penalty on account of failure to furnish a true return. Under section 482 of the Act, any bye-law framed under the Act may provide that contravention thereof shall be punishable as mentioned in the section. It is, thereforee, not necessary that bye-laws must provide any penalty for breaches of those bye-laws. When section 131 itself provides for penalty and the Property Tax Return Bye-laws have also been framed under section 131, there appears to be no ground to provide for a different penalty for breach of those bye-laws. No bye-law in conflict of provision of the Act can be valid. We, thereforee, strike down bye-law 8 of Property Tax Return Bye-laws being invalid.
(30) These bye-laws do not apply to all the properties within the jurisdiction of M.C.D. and require filing of returns only by those owners of lands and buildings falling within bye-law 3. Under section 481, M.C.D. has power to make bye-laws relating to taxation which include making of the bye-law on the matter of requisition by the Commissioner of information and returns from persons liable to pay taxes; submission of returns by persons liable to pay any tax under the Act; and for any other matter relating to the levy, assessment, collection, refund or remission of taxes under the Act. We do not find any conflict in the Property Tax Return Bye-laws and section 131 of the Act. It has been submitted before us that there is rampant corruption in the house tax department of the M.C.D. and rateable value is inflated by the authorities by all proportion causing undue harassment and expense to the tax payer. Mr. Aggarwal, appearing in C.M. No. 1137/95, said that these bye-laws contained a salutary provision and any honest tax payer would not be afraid of filing a true and correct return. In the case of Government Servants Co-operative House Building Society Ltd. and others v. Union of India and others, : AIR1994Delhi112 , we had observed as under :-
'Mr. Shourie then said that there was rampant corruption in the house tax department in both the N.D.M.C. and M.G.D. He said hundreds and thousands of owners of houses were feeling exasperated at the notice threatening vast increase in property tax. They per force had to file objections and then file an appeal in the Court of the District Judge, but before appeal could be heard they had to deposit property-tax as levied by the assessing. authority. Since stakes were high because of enormous in cease in rent value, corruption also increased and amounts demanded and offered ran into tens and thousands of rupees. That certainly is an unfortunate fall out of all this and we are of the view that disciplinary proceedings be initiated all down the line in case ultimately rateable value/annual value fixed far below than what it was proposed or even assessed by the assessing authority. We suggest no action if the difference is 10% or less. Today this is merely our view, but if circumstances of a particular case would demand, this Court will not hesitate in issuing directions for initiating disciplinary proceedings. '
(31) The forms which have been prescribed for Property Tax Return are quite simple in nature where we do not find any difficulty for the owners of the properties in Delhi to whom the Property Tax Return Bye-laws apply to submit the returns in those forms. In the background of the corruption in the department alleged before us filing of return could be a welcome step. In any case, we are only concerned with the validity or otherwise of the Property Tax Return Bye-laws which, according to us, are valid but for bye-law 8 of the Bye-laws.
(32) We accordingly hold that both Delhi Municipal Corporation (Determination of Rateable Value) Bye-laws, 1994, and Delhi Municipal Corporation (Property Tax Return) Bye-laws, 1994, are valid except to the extent as mentioned in the judgment. To that extent rule in Cwp No. 5102/94 is made absolute. Cwp No. 555/95 is allowed. Rule in that petition is made absolute. In the circumstances, we will make no order as to costs.