Supreme Court Upholds Bombay High Court’s Order of Fixing Capital Values

In a landmark judgement, Hon. Supreme Court has upheld the order of Hon. Bombay High Court quashing the rules framed by Municipal Corporation of Greater Mumbai (MCGM) for levying property taxes based on the capital value of the land under construction, which had forced several city – based real estate developers pay exorbitant amounts as prohibitive taxes or Land Under Construction Taxes to the MCGM. The Central Mumbai Developers Welfare Association (CMDWA) had filed the petition challenging the rules framed under the Capital Value system by the MCGM.


Before this judgement, the MCGM rules to assess the property taxes based on the capital value of the land under construction had increased the tax liability of the real estate developers almost by five times resulting into making the real estate projects unviable and under construction projects getting stalled. Now, this Supreme Court judgement has given a big relief to many real estate developers, as it may relieve the developers from paying huge amounts towards Land Under Construction taxes. The Court Order may also entail the MCGM into refunding the amounts with interest collected as prohibitive taxes from the developers since the year 2010 till date. It is estimated that the MCGM has earned the revenue of about INR 5000 crore per annum from taxes imposed on land under construction.


Opined Mr Dharmesh Chheda, Founder and President of CMDWA; Treasurer of NAREDCO Maharashtra and Chairman and Managing Director of PrinceCare Realty, “It is a big relief to Mumbai’s developers, as this excessive increase in the levies on the land under construction had rendered projects unviable and under construction properties started getting stalled. The MCGM had gone further to start auctioning and attaching the under construction properties and declaring the developers defaulters who could not pay those excess dues. This stringent imposition of the Land Under Construction Tax levied since 2015 was one of the primary reasons why redevelopment across Mumbai got stalled and mid-way projects were stuck.”

Background of the Case:

As the background of the case goes back to 2013, the Property Owners Association (POA) had filed a writ in Bombay High Court challenging the constitutional validity of Capital Values. (WP 2592 of 2013). In this petition, interim reliefs were obtained to pay 50% of the taxes. But, the Central Mumbai Developers Welfare Association (CMDWA) had filed a petition WP 2375 in 2016 and challenged the rules framed under the Capital Value system that considered the future value of the property with its development potential for the levy of taxes rather than considering the present value of land. The CMDWA had never challenged the constitutional validity of the newly introduced Capital value system.


While the developers complied with the rules formulated by the Municipal Corporation of Greater Mumbai (MCGM) from 2012 to 2015, it was only in 2015 when the MCGM changed and adjusted the inflationary trends subject to a ceiling of 40% increase over the last levy and imposed higher taxes as Land Under Construction (LUC) Tax considering the FSI potential of the land. With this new structure, the real estate developer who was hypothetically paying Rs 100,000 per annum had then to pay over Rs 5,00,000, which was a five times increase leaving them in a jittery.


However, in 2019, Hon. Bombay HC under Justice Abhay Oak delivered a final judgement wherein the challenge to constitutional validity was rejected and only the rules challenged under WP 2375 of 2016 by the CMDWA were declared as ultra vires and quashed entirely. Thereby, the CMDWA succeeded in its challenge.


Being aggrieved by the order in the lead petition WP 2592 of 2013, the MCGM filed SLP 17009 against the order in 2019. The POA also filed another petition being aggrieved as their challenge on constitutional validity of Capital Values was rejected.


The hearings in the Supreme Court concluded on August 5, 2021 and Hon’ble SC declared its verdict upholding the HC order and reaffirming the quashing of the rules 20, 21 and 22.


One of the prayers in the petition of CMDWA is to obtain refund alongwith interest from 2010 till date of all the taxes paid towards Land under construction. Now this money,if refunded,will fall back into the hands of the developers who can with some relief start paying rents to tenants and complete construction of their projects and also make their projects viable again. It remains to be seen now how the MCGM interprets the order and CMDWA only hopes that MCGM does not create more confusion in misinterpretation of the judgement rightly delivered by the SC.


The CMDWA members are small developers who undertake redevelopment largely of cessed buildings under DCR 33-7 on estate and free hold plots. Eventually, the CMDWA was very well supported by the larger associations like NAREDCO Maharashtra and CREDAI-MCHI.

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