Kerala High Court strikes down Municipality Rule on property tax fixation

The Kerala High Court in the case of K.P. Muhammed Ashraf v/s The Taliparamba Municipality and anr. struck down municipality rule on property tax fixation.

The petitioner is the owner of buildings in Taliparamba municipality. The entire buildings were assessed to Property Tax by the Municipality prior to 01.04.2011 on the basis of annual rental value and the tax was paid by the petitioner. The Property Tax of the buildings were fixed arbitrarily and the petitioner had filed representation to re-fix the tax reasonably. In the meantime, the system of taxation was substituted by the amendment of Section 233 of the Kerala Municipality Act, 1994. As per the new system, the tax is to be fixed on the plinth area basis with allowances and additions. Rules 9(4A) and 9(4C) of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011 prescribe fixation of Property Tax at 25% over and above the existing property tax levied, denying any benefit of the amended provision of Section 233. 

Advocate R.Surendran, appearing for the petitioner, contended that Article 265 of the Constitution of India, no tax shall be levied or collected except by authority of law.  The said rule is liable to be declared ultra vires and is liable to be quashed.

The respondents on the other hand contended that the fixation of property tax on the basis of annual value of the building led to several complaints and objections which culminated in the substitution of Section 233 of the Kerala Municipalities Act, 1994. Prior to the substitution, the property tax was levied on the basis of annual value of the building or lands.

The single judge bench of justice N. Nagaresh noted that section 233 does not give power to the authorities to make property tax fixation in such a manner. 

The court said that as per Section 233(2)(a) for the purpose of levying property tax, the Government shall, by notification, fix the minimum and maximum limits of rates of basic property tax applicable to one square meter plinth area of the categories of building in accordance with the use and the date on which they shall come into force. There should be a minimum and maximum limit of rates of basic property tax.  

The court declared the Rules 9(4A) and 9(4C) of the Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules, 2011, which prescribe fixation of property tax at a minimum of 25% over and above the tax levied for the previous year, if property tax arrived at on computation as per the Rules, 2011 is less than the tax levied for the previous year, ultra vires the Kerala Municipality Act, 1994 and set aside both the rules to that extent.

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