Tata Engineering And Locomotive … vs Municipal Corporation Of Delhi on 5 November 2003

Delhi High Court
Tata Engineering And Locomotive … vs Municipal Corporation Of Delhi on 5 November, 2003
Equivalent citations: 2004IAD(DELHI)507, AIR2004DELHI191, 108(2003)DLT217, AIR 2004 DELHI 191, (2003) 108 DLT 217
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT

Sanjay Kishan Kaul, J.

1. The petitioner company was declared the highest bidder for a plot of land bearing No. 1, Patparganj Transport Centre, New Delhi measuring about 5 acres for a consideration of Rs. 65,76,375/- on 29.8.1983. On the petitioner depositing the full consideration, the possession of the plot was handed over on 1.10.1984. However, the perpetual lease deed was only executed subsequently on 7.10.1988. The prescribed user of the plot is automobile service-cum-training centre.

2. The plan for the construction on the plot was sanctioned on 29.8.1985 and it is stated that the petitioner started construction in the very next month and carried out construction of 7135.75 sq. mtrs. The C and D forms were issued in October, 1988 and the Occupancy Certificate was applied on 25.8.1989 but issued on 9.4.1990. The property is stated to be used for the prescribed user. In terms of the Master Plan for Delhi, automobile services fall under the Annexure III dealing with classification of industries in Group E.

3. The respondent No.1 Corporation issued a notice dated 29.3.1991 under Section 126 of the Delhi Municipal Corporation Act, 1957 (hereinafter referred to as ‘the said Act’) proposing a rateable value of Rs. 46,25,690/- w.e.f. 1.4.1988. Objections were filed to the said proposed valuation. The assessment order was passed on 31.12.1997 assessing different rateable values for different periods effective 1.4.1988, 1.12.1988 and 1.4.1994.

4. The petitioner preferred appeals against the said assessment and by an order dated 21.9.1998, the impugned assessment order was set aside and the matter was remanded back for fresh assessment. In para 10 of the assessment order it was noticed as under:

“Assessing the land on the L&DO Rates and that too commercial rates is not justified because L&DO itself has circulated vide the above referred notification that the rate of the industrial plot could be taken as of the residential plot for the purpose of unearned increase etc.”
5. The petitioner was still aggrieved by the aforesaid order of the appellate authority remanding the matter back for re-assessment in view of the fact that there was no pronouncement on certain issues raised in the ground of appeal including the issue of parity. The petitioner thus filed Civil Writ Petition 6597/1998 before this court. Interim directions were passed in the said writ petition for the assessing authority to keep in the mind the question of parity in view of the judgments of the Hon’ble Supreme Court.

6. The assessing authority passed the impugned assessment order dated 17.9.2002 giving rise to the present petition.

7. The impugned assessment order is sought to be challenged by the petitioner on four accounts urged by learned counsel for the petitioner which are as under:

(i) The valuation of the structure cannot be based on the balance sheet in view of the fact that the same is meant for Income-tax purposes and the valuation report submitted by the petitioner has been ignored.
(ii) The land value of the property can only be taken as the purchase value in view of the Delhi Municipal Corporation (Determination of Rateable Value) Bye-laws, 1994 (hereinafter referred to as ‘the said bye-laws’).
(iii) In order to determine the rateable value of the land, the principle of taking residential rates and doubling the same cannot be applied.
(iv) The principles of parity have once again been ignored.
1. In so far as the first issue about the assessment of the cost of construction is concerned, the assessment of the rateable value is based on a certificate of the Chartered Accountant giving the valuation as per balance sheet as on 1.4.1995. It was urged by learned counsel for the petitioner that the same cannot form the basis of the true value of cost of construction for determination of the rateable value under the said Act since the balance sheet figures would include the cost of plant etc. as is required under the Income-tax Act. It was urged that the balance sheet is not prepared for the purposes of assessment of property tax. Learned counsel further submitted that the assessment has to be made on the date of commencement of construction which, according to the respondents is January, 1989 and not 1.4.1995 which is the date of the balance sheet figure.

2. In this behalf, learned counsel for the petitioner relied upon the judgment of the Supreme Court in Godhara Borough Municipality, Godhara v. Godhara Electricity Co. Limited, where it was held that the valuation under the Companies Act, 1956 is not relevant or applicable for purposes of determination of rateable value under the Municipal Act. It was observed in para 10 as under:

“10. Rule 5 of the Godhra Municipal Rules lays down that the capital value is to be determined in each case on reliable data furnished by the mills and the factories when called upon to do so and in the absence thereof is to be determined by the Chief Officer or expert valuer. The learned counsel for the respondent contended that here there were reliable data in that the balance sheet of the company showing the value of these properties for the purpose of the Companies Act and there was no reason why the same figures should not be adopted as the capital value of the lands and buildings within the jurisdiction of Godhra municipality. This clearly is fallacious as under Section 211 of the Companies Act, 1956 the balance sheet of a company has to be drawn up in the form prescribed by Schedule VI. Under the said Schedule, Part I, the value of fixed assets has to be shown “distinguishing as far as possible between expenditure upon (a) goodwill, (b) land, (c) buildings, (d) leaseholds, (e) railway sidings, (f) plant and machinery, (g) furniture and fittings, (h) development of property etc.” The fourth column of the form which gives the instructions in accordance with which assets should be made out shows under each head “the original cost and the additions thereto and deductions there from during the year, and the total depreciation written off or provided up to the end of the year is to be stated.” It will therefore be noticed that the figures given in the balance sheet are merely statements in terms of the form given in Schedule VI. They have no relevance in determining the capital value of property for the purpose of assessment to a rate.”
3. Learned counsel submitted that fallacy in accepting the value as reflected in the balance sheet arises on account of the fact that the value of the plant and machinery, is added in the valuation of the building in the balance sheet since it is so required under the Income-tax Act. In this behalf, learned counsel fortified his submissions by reference to the judgment of the Division Bench of this court in Gas Authority of India Limited v. Municipal Corporation of Delhi, . The Division Bench considered the effect of Section 116(3) of the said Act which is as under:

“116. Determination of rateable value of lands and buildings assessable to property taxes.–
(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.”
4. Thus, it is only plant and machinery which is specified from time to time by Public Notice in accordance with the sub-section which would deem to form a part of such land or building for determination of rateable value. This aspect is also considered by a learned Single Judge of this court in Municipal Corporation of Delhi v. Lawrence Cold Storage Pvt Ltd & Anr., which once again held that until and unless a notification is issued in terms of Section 116(3) of the Act, the plant and machinery could not be included for purposes of determination of ratable value.

5. Lastly, a reference was made to the recent judgment of the Supreme Court in Krishna Mohan Pvt Ltd v. Municipal Corporation of Delhi & Ors., 105 (2003) DLT 645 which over-ruled the Full Bench judgment of this court in Municipal Corporation of Delhi v. Pragati Builders & Ors., . In terms of the judgment of the Full Bench, the value of the lift could be added for determination of ratable value. The Supreme Court framed the two questions of law which arose for consideration as under:

“Whether the cost of the plant and machinery installed in or upon a building is includible for the purpose of arriving at the rateable value of the building? and Whether Section 116(3) of the Delhi Municipal Corporation Act, 1957 (hereinafter referred to as “the DMC Act”) vests arbitrary and uncanalised discretion in Commissioner and is, therefore, invalid for excessive delegation of legislative powers?”
6. After considering the legal position, the Supreme court came to the following conclusion in para 51 which is as under:

“51. In the result, we allow the appeals and hold as under:
(1) Section 116(3) is declared invalid as it delegates unguided and uncanalised legislative powers to the Commissioner to declare any plant or machinery as part of land or building of the purpose of determination of the rateable value thereof.
(2) The cost of plant or machinery, lifts and air-conditions fixed on the land or building of the appellant in question shall not be liable to be included for the determination of the rateable value of the land or building.
(3) The decision in Pragati Builders (supra), and that of the Full Bench of the High Court under appeal do not lay down the law correctly. Consequently, they are hereby over-ruled.
(4) The appeals are accordingly allowed and impugned judgments of the High Court are set aside. The impugned assessment orders are set aside and remitted to the Assessing Authority under the DMC Act for passing orders afresh in accordance with law and the observations made in the judgment.”
7. The effect of the aforesaid is that even Section 116(3) of the said Act has been invalidated and cost of plant and machinery does not have to be included for purposes of determination of ratable value of land or building.

8. Learned counsel for the petitioner also referred to the fact that the valuation report was submitted by the petitioner assessing the cost of construction after deducting the valuation of the plant and machinery. However, this report has not been dealt with at all.

9. In my considered view, there is no doubt left in respect of the proposition that the plant and machinery cannot be included for purposes of determination of ratable value for property tax in view of the recent judgment of the Supreme Court in Krishna Mohan Private Ltd. case (supra) which decision has come after the decision by the assessing authority in terms of the impugned order. It is thus unnecessary to refer in further detail to the aforesaid judgments cited by learned counsel for the petitioner. There can also be no doubt about the proposition that for purposes of the Income-tax Act, 1961 that the balance sheet of the company is made for a different purpose and the valuation and method has to keep in mind the provisions of the Companies Act, 1956. It was in view thereof that in Godhara Municipality case (supra), it was held that the balance sheet of the company showing the value of the properties for the Companies Act has no relevance in determining the capital value of property for the assessment of rateable value. Thus, I have no doubt that the certificate of the Chartered Accountant based solely on the balance sheet of the company could not have been relied upon by the respondent for determination of the cost of construction. This is more so as petitioner had submitted a valuation report, a copy of which is placed on record. This aspect has not been discussed at all as to why this valuation report has been ignored. In case the assessing authority was not satisfied with the valuation report, it was always open to get the valuation done through a valuer appointed by the assessing authority and to confront the assessed with the said report. Reference in this behalf may be made to the provisions of Section 135 of the Act which are as under:

“135. Power of Commissioner to employ valuers-(1) The Commissioner, may, if he thinks fit, employ one or more competent persons to given advice or assistance in connection with the valuation of any land or building, and any person so employed shall have power, at all reasonable times and after giving due notice, and on production, if so required, of authorisation in writing in that behalf from the Commissioner, to enter on, survey and value any land or building which the Commissioner may direct him to survey and value.
(2) No person shall willfully delay or obstruct any such person in the exercise of any of his powers under this section.”
10. In view of the aforesaid, I am of the considered view that the valuation of construction based on the balance sheet of the petitioner cannot be sustained as the same is not in accordance with law.

11. The second question raised is in respect of the valuation of the land and as to what rate should be made applicable. In this behalf, both the second and the third issue raised by the learned counsel for the petitioner can be dealt with together.

12. A circular was issued by the Government of India, Ministry of Works and Housing on 1/6.12.1975 for fixing the land value for industrial plots for calculation of unearned increase and damages. The circular is as under:

“Sub: – Fixation of land values in respect of industrial plots.
Sir, I am directed to say that the question of fixation of land values for industrial plots in Delhi/New Delhi has been under consideration of this Ministry for the past some time & it has now been decided that the residential rates fixed for the various areas in Delhi/New Delhi may be adopted for the industrial plots for the calculation of unearned increase and damages for misuse etc.
2. These rates will be applicable from the date of issue of these orders and the cases decide otherwise in the past need not be re-opened.”
13. Learned counsel thus submitted that there can be no doubling of land rates for residential property but it is the residential land rates which had to be adopted. The plea advanced by learned counsel for the respondent that aforesaid circular applies only for purposes of calculation of unearned increase by the Ministry of Works and Housing was repelled by learned counsel for the petitioner by further reliance on the Departmental Instructions No. 6/91 dated 6.2.1991 of the MCD itself where it was observed in para 9 as under:

“Where the construction is on the industrial plots, the land rates may be taken on the same basis as the land rates for residential properties and rateable values proposed accordingly.”
14. Learned counsel thus submitted that there can be no doubt about this proposition in view of the own circular of the MCD.

15. Learned counsel further submitted that the observations made by the appellate authority in the earlier order dated 21.9.1998 in para 10 which has been quoted in this judgment itself directed that commercial land rates cannot apply and that residential land rates should be made applicable to the industrial plots taking into consideration some increase in the market price of land from the period of allotment to the commencement of construction. In fact, learned counsel submitted that there is no doubt about the industrial user in view of the fact that premises are for purposes of an automobile service and repair workshop which had been categorised and classified as an industry under the Master Plan at item No.154 of Group E Industry. Thus, at best, residential rates should have been made applicable and further downward revision should have been made taking into consideration the fact that there was no provision for water, sewage or electricity services.

16. It was further submitted by learned counsel for the petitioner that a 15% rebate is also liable to be granted on account of the large size of the plot in view of the judgment of this court in Civil Writ Petition 665 and 667/1999 MCD v. Jain Brothers & Anr. decided on 23.4.2003. The said judgment, inter alia, dealt with the issue of such rebate for plots over 500 sq.mtrs. in view of the policy of the respondent. The plea raised there by the Corporation was that such 15% rebate is applicable only to the extent that the area exceeds 500 sq. mtrs. and would not apply to the first 500 sq. mtrs. The plea of the learned counsel for the MCD was accepted but subject to the submissions made that this 15% rebate is an extra benefit over and above the discounted rate per sq.mtr. which is liable to be given to the assessed on account of a large plot size. This is so since plots of smaller size would have higher rate per sq. mtr. as compared to plots of larger size area and with the size increasing, the rate per sq. mtr. keeps on falling for the whole plot. Even the covered area/FAR permissible on the plot has to be taken into account for calculation of the market value of the land apart from the location of the plot which would have bearing on the determination of the rateable value.

17. The position, however, is little different after 1994 when the said bye-laws came into force. The meaning of the expression “cost of premises” is defined in bye-law 2(1)(b) and the relevant provision is as under:

“2(1)(b) ‘Cost of premises’ means–
1. Where the premises have been acquired by purchase or through any transaction (whether by way of becoming a member of, or acquiring shares in a Co-operative Society, company or their associatin of persons or by way of any agreement or in any 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 payable 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
2. xxx xxx xxx
3. 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 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 improvements in the premises whether made by the owner or occupier.”
18. Bye-law 2(1)(e) states that the premises shall have the same meaning as defined in sub-section (38) of Section 2 of the Act and the said sub-section is as under:

“2(38) “premises” means any land or building or part of a building and includes–
(a) the garden, ground and out-house, if any, appertaining to a building or part of a building; and
(b) any fittings affixed to a building or part of a building for the more beneficial enjoyment thereof”
19. Learned counsel for the petitioner sought to contend that it is the purchase price which should be taken into account in view of the provisions of bye-law 2(1)(b)(i). On the other hand, learned counsel for the respondent contended that it is bye-law 2(1)(b)(iii) which would apply in this behalf.

20.In respect of this determination of land rate, so far as the period prior to 1994 is concerned, there can be no doubt in view of the departmental instruction No.6/91 dated 6.2.1991 that the MCD itself had accepted that the price of industrial plots and residential plots are alike. An automobile service centre under the Master Plan itself has been categorised as an industry. Thus, there could not be any case made out for application of a multiplier to the value of residential land. In terms of the impugned assessment order, the rates of Jhilmil Colony have been taken as nearest DDA colony and a multiplier of doubling has been applied. In my considered view, this could not have been the mode of calculation of the land rate in question. Firstly, Jhilmil Colony is a residential colony which is developed which is not so in respect of the present land. Secondly, the plots in question are small plots and not a large track of 5 acres as in the present case. If at all, there had to be considerable depletion in the value of the land on account of such a large size of the plot.

21. There was no dispute about the valuation of the plot as on 1983 when it was purchased in pursuance to bids made. The value of the plot paid for by the petitioner can reasonably and fairly be assumed the correct valuation as in 1983. Thereafter, increase, if any, would take place from the said date till the date of commencement of construction. In my considered view, the correct methodology could have been to work out a multiplier comparing the residential rates of adjacent areas of 1983 as compared to the rates as on date of commencement of construction in the present case and the same multiplier could have been applied to the value paid for by the petitioner. A further deduction would also have to be given on account of the fact that it is a very large size plot of 5 acres and this position cannot be disputed in view of the stand of the MCD itself in MCD v. Jain Brothers’ case (supra).

22. Not only the rebate but other factors had to be taken into account since the contention of the MCD in the aforesaid case was that the 15% rebate is an extra benefit over and above the discounted rate per sq.mtr. which is liable to be given to an assessed on account of large plot size. Thus, 15% rebate would not suffice and decline in the rate on account of a higher rate prevalent per sq.mtr. for a smaller size plot would have to be taken into account. This rate would be considerably lower for large size plot. As noted in the said judgment, factors such as covered area/FAR permissible and location of the plots and the facilities available therein would also be material parameters to be considered. If the aforesaid parameter was applied by the assessing authority, really speaking the issue of the plot being commercial or industrial would also not be relevant in determination of the ratable value. It also has to be noticed that the petitioner Corporation did not challenge the direction of the appellate authority in the earlier proceedings decided on 21.9.1998 where a specific direction was made that land rates of residential plots would apply.

23. The finding arrived at by the assessing authority on page 3 of the impugned order that the property is a locomotive workshop is also not correct. The assessing authority appears to have incorrectly recorded the said fact on the basis of the principal business of the petitioner being of manufacture of cars. The relevant factor is the purpose for which the land is used which is not for a manufacturing workshop but as automobile service and repair workshop and training centre. Thus, the said finding of the assessing authority is erroneous.

24. In so far as the period post the bye-laws coming into force is concerned, I am unable to accept the contention of learned counsel for the petitioner that for determining the cost of the premises (which includes land and structure thereon as defined under the Act) it is the provisions of bye-law 2(1)(b)(i) which would apply. This is so since clause 2(1)(b)(iii) specifically deals with premises which are used for non-residential purposes. The premises of the petitioner whether they are commercial or industrial, are certainly not residential. The factum of land rates of industrial property being equated with residential property through circulars does not imply that the plain language of the bye-laws has been given a go-bye. Thus, post 1994 it is in terms of the principles of bye-law 2(1)(b)(iii) which would apply.

25. The last issue relates to the claim of parity advanced by learned counsel for the petitioner. This plea is based on the observations of the Supreme Court in Dr. Balbir Singh v. MCD, and Lt. Colonel P.R. Chaudhary (Retd.) etc. v. MCD & Ors., 85 (2000) DLT 223. It was held that in so far as newly constructed properties are concerned, the valuation of adjoining properties and colonies has to be seen so that there is no wide disparity per sq.ft. between the old and the newly constructed properties. These premises of parity are applicable whether it is post or pre-1994 bye-laws in view of the judgment of this court in M.C.D. v. Dhunishaw Framroz Daruwala, and Dr. (Mrs) Vimla Rajan v. MCD, . A direction was even issued in the earlier Civil Writ Petition No.6597/1998 filed by the petitioner that such principles of parity should be kept in mind. It has, however, to be appreciated that it would be difficult to find plots of such large size in the adjacent areas being put to similar use. Learned counsel for the petitioner sought to rely on the valuation of plots No.505-519, G.T. Road, Shahdara which is about 1 acre. The grievance of the petitioner is that this plea of parity has not been accepted despite the directions on the ground that there is a separate year of purchase and hence parity cannot be done with each other.

26. In my considered view, the principles of parity undisputedly have to be followed by the assessing authority. Merely because the year would be different would have no material bearing since the nearest year can be taken into account and necessary adjustments done thereafter. Such comparative plots of large size of similar use in and around the same time can be considered for purposes of determination of the rateable value and it is open to the petitioner to bring to the notice of the assessing authority such plots whose rateable value would be material for purposes of determining the rateable value in the present case.

27. In view of all the aforesaid reasons, the impugned assessment order dated 17.9.2002 cannot be sustained and is hereby quashed. Consequently, the bill dated 17.10.2002 for properties has also to be quashed.

28. It is to be noticed that in so far as the disputed amount of tax is concerned, in terms of the order of the Division Bench dated 30.5.2002 in LPA 50/2003, the amount of Rs. 52,81,812/- was deposited in court and was directed to be kept in fixed deposit receipt initially for a period of six months. This deposit was made subject to the orders to be passed in the present writ petition. It may also be noticed that in terms of the calculation made of the tax paid by the petitioner in CM 23/2003 there is an excess payment of Rs. 43,84,528/- for the period ending 2003 not including the amount deposited in court which amount, according to the petitioner is further liable to be reduced once the assessment is on cost basis and parity is given effect to.

29. In view of the aforesaid position and the petitioner having succeeded in the

30. petition, it is directed that the amount deposited by the petitioner of Rs. 52,81,812/- along with accrued interest on the FDR be returned to the petitioner by the Registry of this court.

31. The writ petition is allowed in the aforesaid terms with costs of Rs. 5,000/-.

32. The petitioner to appear through authorized representative before assessing authority for further proceedings on 28.11.2003 at 3.00 PM.