Property Tax Dispute: Supreme Court's Ruling on Water Benefit Tax in Mumbai

The case of Municipal Corporation of Greater Mumbai vs. Harish Lamba & Others revolved around the legal interpretation of water benefit tax as part of property tax and its applicability in cases where water supply had been disconnected. The Supreme Court’s decision in this case provided clarity on the distinction between water benefit tax and water charges under the Mumbai Municipal Corporation Act, 1888.

Background of the Case

The dispute arose when the Municipal Corporation of Greater Mumbai (MCGM) issued bills demanding payment towards water benefit tax for a property occupied by Volga Frozen Foods and Ice Cream Company. The respondent, Harish Lamba, the sole proprietor of the firm, had previously been consuming water supplied by MCGM under a fixed quota. However, due to a strike in the factory in October 1983, the business operations were shut down, leading to reduced water consumption. The respondent requested the corporation to discontinue the fixed water supply and charge based on actual consumption.

On October 25, 1993, the corporation officially disconnected the water supply. Despite this, in 1997, MCGM issued bills amounting to Rs. 10,60,312 as water benefit tax and attached the respondent’s premises for non-payment.

Petitioners’ Arguments

Harish Lamba and other respondents challenged the tax demand before the Bombay High Court, arguing:

Since the water supply was discontinued in 1993, there was no basis to levy water benefit tax.
The tax was equivalent to water charges and should only be payable on actual consumption.
The demand was retrospective and hence unlawful.
The attachment of the property was arbitrary and illegal.

Respondents’ Arguments

MCGM countered the petition by stating:

The demand was not for water charges but for water benefit tax, which is part of property tax.
Under Sections 140 and 141 of the Mumbai Municipal Corporation Act, water benefit tax applies to properties connected to municipal waterworks, even if water is not consumed.
The tax is a compulsory levy for maintaining water infrastructure, irrespective of individual usage.
The High Court’s reliance on Municipal Corporation of Greater Bombay vs. Nagpal Printing Mills was incorrect, as that case dealt with water charges under Section 169, not property tax.

Supreme Court’s Observations

The Supreme Court examined whether the demand was legally justified. The key observations were:

“The concept of water tax and water benefit tax is distinct from water charges. Water benefit tax, being a property tax, is a compulsory imposition applicable to premises connected to municipal waterworks, irrespective of actual consumption.”

Additionally, the Court clarified:

Water benefit tax is levied based on property rateable value, not actual water consumption.
Disconnection of water supply does not absolve a property owner from liability to pay the tax.
There was no retrospective application of the tax as it was applicable during the assessment years in question.

Final Verdict

The Supreme Court ruled:

The quashing of tax demand by the Bombay High Court was incorrect.
The tax demand of Rs. 10,60,312 was legally valid.
MCGM was entitled to recover the amount, but the respondents should be given installment-based payment options.
The respondents were relieved from interest on arrears during the litigation period.

Legal and Financial Implications

The ruling clarified:

Water benefit tax is a part of property tax and applies even if water is not consumed.
Discontinuation of water supply does not exempt property owners from paying the tax.
Local municipalities can levy infrastructure maintenance taxes irrespective of individual usage.

Conclusion

The Supreme Court’s judgment reinforced the principle that property taxes, including water benefit tax, are compulsory levies necessary for urban infrastructure maintenance. The case serves as a precedent for property tax disputes, ensuring that municipalities can recover essential infrastructure costs while balancing taxpayer rights.

Petitioner Name: Municipal Corporation of Greater Mumbai.
Respondent Name: Harish Lamba & Others.
Judgment By: Justice A.M. Khanwilkar, Justice Ajay Rastogi.
Place Of Incident: Mumbai, India.
Judgment Date: 22-10-2019.

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