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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5377 OF 2003

KHADI ASHRAM          ...APPELLANT (S)

VERSUS

THE STATE OF HARYANA & ANR.   ...RESPONDENT(S)

CIVIL APPEAL NOS.6150-6151 of 2008 @ SLP(C) NOS. 1158-1159 OF 2004 CIVIL APPEAL NO. 5379 OF 2003 CIVIL APPEAL NO. 7139 OF 2003 CIVIL APPEAL NO. 7140 OF 2003 CIVIL APPEAL NO. 7141 OF 2003 CIVIL APPEAL NO. 9066 OF 2003 CIVIL APPEAL NO. 2655 OF 2006

O R D E R

Leave granted in SLP(C) Nos. 1158-1159 of 2004.

In this bunch of Civil Appeals filed by the assessees the vires of Haryana Municipal

Amendment Act, 2001, whereby the definition of `annual value' in clause (i) of Section 2 of the

Principal Act has been amended.  It is this amendment which is challenged on the ground that

it is violative of Article 14 of the Constitution.  One more challenge has been made in this

bunch of Civil Appeals.  It is to the directions issued by the State Government under proviso

(ii) of Section 2(1)(b) and (c) as introduced by the said impugned amending Act.

Prior to the amendment of the Principal Act, clause (b) and clause (c) of Section 2

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(1) gave the definition of the words `annual value' to mean in the case of house or building the

gross annual rent to be calculated on the basis of the fair rent fixed under the law relating to

rent restricted for the time being in force or in cases where fair rent was not fixed, the gross

annual rent was to be calculated at the hypothetical rent at which the property was expected

to  be  let  out  or  is  actually let  out,  whichever is  greater,  subject  to  certain deductions

mentioned therein.

After the amendment, clause (b) of Section 2(1) defining `annual value' has been

substituted by the following two clauses:-

“Clause (b): In the case of any land on which no building has been erected, but on which a building can be erected, and on any land on which a building is in the process of erection, five per cent of the estimated market value of the land;

(c)  In  the  case  of  any  house  or  building  whether  self- occupied or tenanted, five percentum on the sum obtained by adding the estimated present cost of erecting the building, less such amount as the Government may deem reasonable to be deducted on account of depreciation, if any, to the estimated market value of the site and any land attached to the house or building.”

The two clauses are clauses (b) and (c) inserted in the definition of annual value

under Section 2(1).

On reading the said amendment it becomes clear that the Legislature decided to

change the basis  of  annual value by substituting the  rental  method  by what  can  be

simplistically  

stated as capital value method.  Under the capital value method the parameter laid down is

market value of the land and cost of construction of the building thereon.  It is well settled

that in India property tax can be  levied  on the  building and the  land separately.   This

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dichotomy, therefore, has the basis of property tax enumerating enactments.

Valuation, strictly speaking, is  not  a matter of  law.  Broadly,  it  is  a matter of

estimation.  It  is  always open to the Legislature to impose tax separately on land and on

building.  There are different methods of valuation, namely, actual rent, hypothetical rent,

cost of construction method, contractors' method and even the capital value method.  It is

open to the Legislature to select anyone of the above methods of valuation for the purpose of

levying property taxes.  It is always open to the Legislature to lay down the parameters on the

basis of which annual value is required to be fixed.  As stated earlier, prior to the amendment,

annual value of the property was confined to house and building.  At that time the basis of the

annual value was the rental method.   However, it  appears that in due course of time, on

account of price escalation, the Legislature decided to change the definition of annual value

which, in effect, brings in the concept of capital value in place of rental value.  There is one

more reason why the amendment became necessary.  Prior to the amendment, property  tax

was  levied only  on building  and in the  

process the cost of the land came to be excluded.  This has resulted in loss of revenue to the

Municipalities.  Therefore, by reason of the said amendment the cost of construction plus the

value of the land has been taken as the basis of fixing the annual value.  In our view, therefore,

it  cannot  be  said  that  the  amended  clauses  (b)  and (c)  to  Section  2(1)  inserted  by  the

impugned Amendment Act, 2001, is discriminatory or arbitrary or violative of Article 14 of

the Constitution.  In this regard, we find no infirmity in the impugned judgment of the High

Court.

As regards the challenge to the directions issued by the State Government under

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proviso (ii) to Section 2(1)(b) and (c), as noticed by the amendment, it has been vehemently

urged on behalf of the assessees before us the formula fixed by the State Government for the

purposes of determining the value of the property is an arithmetic formula which leaves no

discretion with the Municipal Committee/Council to vary the same even in cases where the

actual market value of the property in question is less than the value arrived at on the basis of

the formula.  This,  according to  the  assessees,  does  not  leave any scope  for raising any

objections  to  the  proposed  valuation of  property and,  therefore,  the  provision regarding

inviting objections to the proposed valuation has been rendered redundant.  In this connection

it has been further urged that the State Government is also not  justified in fixing the  market

value of the land on the  

basis of the rate as fixed by the District Collector, which according to the appellants, do not

necessarily reflect actual value of the land.

We find no merit in this argument.  Under proviso (ii) quoted hereinabove it is,

inter alia, provided that the Government  

may fix the  basis of assessing the current  market value of  the rent as well as the cost  of

erecting the building and depreciation thereon.  Further, under the said proviso it is stated

that different rates may be determined for different categories of buildings and lands.

Before analysing proviso (ii)  we quote  hereinbelow the directions issued by the

State Government under proviso (ii) vide its Memo No. 9/31/2001–5K-T dated 12th December,

2001:-

“From

Commissioner and Secretary Govt. Haryana,

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Local Govt. Department.

To

All the Executive Officers/Secretaries of All Municipal Councils/Corporations.

Memo No.9/31/2001-5K-T dated 12.12.2001.

Subject:- Directions for assessing House Tax amended procedure thereof.

Reference to Memo No. 4315-GS, Memo No. 4E-2001/4386-4437, Memo

No. 4E-2(1)(i)1/4827 – 78 dated 25.1.2001 and Memo No. 4E-2001/7324-76 dated 9.2.2001 on

the above mentioned subject.

3. Serial No.4 of Government Memo No. 4315-66, dated 25.1.2001 as amended as under:-

4. (a) The following formula be  applied  for determining the value of  land and super

structure of residential and commercial areas.

1. Value of land = Estimated cost of construction +   cost of land as per Collectors'  

 rate.

2. Annual value of the = 5% of annual value. property.

3. Rebate of annual = 10% annual value of the property. repair

4. Annual value after = 90% of annual value rebate

5. Land and Building Tax = (a) 2.5% of annual value determined   after rebate for residential    buildings

(c) 5% of annual value after rebate in

(d) respect of commercial building.

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(b) The revised formula for determining of cost of land and building as per

revised scheme of industrial and other institutions is as under:-

1. Value of the property = Cost of construction of building +   land as per Collectors' rate of the    Constructed area (value of the    vacant land will not be taken into   consideration).

2. Annual value of the = 5% of the annual value of the  property   property.

3. Yearly rebate for = 10% of annual value of the property Maintenance.

4. Annual value after = 90% of the annual value. Rebate.

5. House Tax. = 5% of annual value after rebate.

Note:- If actual rent is more than annual value then actual rent shall be treated as annual

value.

XX XX XX XX XX XX XX XX XX

6. Clause  4  of  Government Memo No.  4E/4386-4437,  dated  25.1.2001  be  read as

under:-

1. To obtain necessary approval in the 18.12.2001    Meeting of Municipal Council/    Corporation.

2. Publication of tax assessment list: 19.12.2001 to     25.12.2001

3. Notice to the owners of the property: 26.12.2001 to

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    05.01.2001

4. Decision on the objection of the owners: Upto 10.02.2001

5. Final publication of tax assessment list: 11.02.2001 to  15.02.2002

6. Distribution of bills: 20.02.2002 to 28.02.2002

7. The Municipal Councils/Corporations who have not constituted Sub Committees

in  terms  of  Section  25  of  Haryana  Municipal  Business  Bye-laws  for  consideration  of

objections  by  building  and  house  tax  committees  be  ensured  to  be  constituted  before

18.12.2001.

Sd/- Superintendent Committee-1.

For Commissioner & Secretary, Govt.Haryana,

Town Improvement Department.”

The  important point  to  be  noted  is  that  under proviso  (ii)  different  rates  for

different categories of buildings and lands are required to be determined by the Government.

When it comes to  

the market value of the land the Government has chosen the cost of the land as per rate fixed

by the Collector.  It is a matter of common knowledge that Collector's rates are normally fixed

under revenue laws.  These rates are basically made applicable to assess and fix stamp duties.

Essentially these rates are guidance rates or otherwise also called as basic value.  In our view

the Memorandum dated 12.12.2001 issued by the Government defines the value of the land to

mean estimated cost of construction plus cost of land as per the Collector's rate and five per

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cent of that value is fixed as annual value of the property.  The Memo, therefore, clearly

indicates that the Government has only fixed the basis of the market value of the land, the cost

of erecting the building and depreciation, to arrive at the value of the land.  The formula

indicated in the said Memorandum falls within the ambit of the said proviso (ii).  At this stage

we may clarify that it is always open to the assessee in the assessment proceedings to show

that the application of those rates in individual particular case is not correct.  Application of

the formula mentioned in the Memo of the Government is a matter of assessment.  It is always

open  to  the  assessee  to  produce  its  own  valuation report  to  show  to  the  Adjudicating

Authority as to the correct market value of the land and the correct cost of construction of

building on a given date.  Fixing of the guidance rate is a concept which is different from

application of the rate to the  facts of  a given case  under Section  70 of the said 1973 Act.

Also it is made clear that the imposition of the property tax by the Committee is subject to the

general or special order of the State Government and that, in any event, the rates of any tax

shall  be  determined  by  the  different  subjects  to  the  maximum limit  fixed  by  the  State

Government.

In the circumstances of the case, there is no merit in the contention advanced on

behalf of the assessees that on account of formula fixed by the State Government, which is an

arithmetic formula, no discretion is left with the Municipal Committee to vary the same at the

time of assessment.  In any event, we have sufficiently clarified the scope of assessment.  We

again re-iterate that during the assessment the assessees  would be entitled to produce the

valuation report and show to the Adjudicating Authority the market value of the land on a

given date.   It  may be noted that generally the guidance rates are lower than the correct

market  value.   The  said  rates  generally  forms  the  minimum basis  of  valuation  in  the

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assessment proceedings.

For the afore-stated  reasons,  we see  no reason to  interfere with the impugned

judgment.  The Civil Appeals are accordingly dismissed with no order as to costs.

....................J. [ S.H. KAPADIA ]

New Delhi, ....................J October 14, 2008 [ B. SUDERSHAN REDDY ]