The Supreme Court decision on Monday to uphold an April 2019 Bombay High Court order invalidating three standards to determine the ‘capital value’ of land where construction is yet to begin under a new property tax regime has come as a great relief for developers in Mumbai.
A Supreme Court bench led by then Chief Justice U U Lalit and Justice Bela Trivedi said that only “the existing physical qualities and state of the land and building” can be considered to determine ‘capital value’ and not “the prospects of the land”.
The Supreme Court decision is a setback for the Brihanmumbai Municipal Corporation (BMC) but it has provided great relief to real-estate developers in Mumbaiwhere construction cost is substantially high as compared to other cities.
Hitesh Thakkar, vice president of National Real Estate Development Council (West), said that the Supreme Court decision will help reduce the construction costs of projects. “Under the previous law, tax calculation on an under-construction property was unjustified. Suppose a project was getting delayed for say five years, the developer had to pay tax that was almost equivalent to the cost of compensation paid while acquiring the land. The cost was huge. Now, this is a major relief,” Thakkar said.
In 2009, the BMC had modified its existing property tax system and switched the calculation method from ‘rateable value’ to ‘capital value’ of the land, a complicated formula involving pre-1940 level low standard rent. In 2019, the Bombay High Court held that the amendment was valid but quashed three of its rules (20-22) as invalid. Rule 20 said that ‘capital value’ would rely on the buildable potential of the land.
Dharmesh Chheda, president of the Central Mumbai Developers Welfare Association (CMDWA), which fought a lengthy legal battle over the issue, said the BMC had appealed the Bombay High Court’s decision, arguing that because the rules provided for a cap on property taxes, it would not lead to a rise in prices as the builders had anticipated. But the Supreme Court on November 7 dismissed the appeal, putting an end to the case.
“We are happy that the Supreme Court upheld the decision of the Bombay High Court to strike down the rule that taxed a structure that has not been constructed yet,” NAREDCO Maharashtra president Sandeep Runwal said.
Boman Irani, president of CREDAI-MCHI, an apex body of members from the real estate industry from the Mumbai Metropolitan Region (MMR), also said that it would help rationalise the MMR property market price.
While Attorney General K K Venugopal and V Sreedharan appeared as senior counsel for the BMC, Shekhar Naphade, Milind Sathe, Darius Khambata, Chirag M Shroff and H Devarajan appeared on behalf of the respondents.