Five Parsi trusts move court over civic authority’s notices on property tax

Five Parsi trusts based in Mumbai have approached Bombay High Court challenging the civic authority’s notices on property tax levied on the base of capital value as against ratable value.

The outcome of the matter is likely to impact hundreds of Mumbai properties owned by charitable trusts and religious entities and the methodology of computing taxes for these properties.

The court, while admitting the plea on Friday, has asked the Municipal Corporation of Greater Mumbai, to also not use any coercive action against the five entities till the final order. The Parsi trusts are challenging the validity of the recently modified methodology of calculating property tax.

The civic authority’s recent property tax notices based on capital values are being challenged by five Parsi trusts — Atash Behram, Agiaries & Religious Institutions Welfare Society, Zorthishti Anjumanna Atash Behram, Trustees of Zoroastrian Radih Society, Trustees of Parsi Zoroastrian Mazgaon Anjuman’s Dar-E-Meher Trust Fund and Trustees of Dadysett Charity Trust.

According to the petition filed by these entities, the levy of tax on capital is unconstitutional, exorbitant and confiscatory in nature. "The rules of fixing capital value of lands and buildings have come into force from March 2012 and, hence, they have retrospective effect.

The rules cannot have retrospective effect and hence they are illegal and special notices issued on that basis are bad in law." A person familiar with the development also says that many trusts including hospitals, churches and other religious entities are also considering joining the suit as they have also received the tax notices.

While admitting the petition, the division bench comprising Chief Justice Mohit Shah and Justice MS Sanklecha ruled in the order that, "The petitioners have already paid the property tax till today under protest. The petitioners will pay only 25% for the period from October 1, 2013. In the meantime , the respondents (municipal authorities are) not to take any coercive action."

"The section is not enacted properly ," said Homiar N Vakil, partner at a firm representing Parsi trusts in the matter. "The increase in property tax by this mechanism will create lots of hardship to the citizens of Mumbai, societies, charitable and religious trusts and, therefore , this would result in a number of litigations in courts."

The earlier tax calculation system which was applicable until April 2010 was based on a ratable value, while the new system will be based on the capital value of the property factoring the ready reckoner value. Ratable value of the property represents the annual rent which the property is leased out for.

Under the new system, for commercial properties the tax rate is fixed at 1.3% of capital value, while for the residential segment it is 0.35%. "Under the earlier system, charitable organisations were offered certain concessions and those are not available in the new capital value system.

These are charitable trusts and have nothing to do with capital value as there is no commercial interest involved here," said Rajendra Mehta, chairman of the Property Lessors Association.

"Rate of taxes levied has also gone up significantly for all properties and there would be more entities coming forward now to challenge the revised system," Mehta said.