The Supreme Court has upheld a Delhi High Court judgment which had struck down the New Delhi Municipal Council (Determination of Annual Rent) Bye-Law, 2009 (Bye-Law). The Court held that the impugned Bye-law is in violation of the NDMC Act..The judgment was delivered by a Bench of Justices AK Sikri and Ashok Bhushan..The Bye-law sought to bring about a change in the method of arriving at the rateable value for the purposes of property tax. As per the existing system, the rateable value was determined on the basis of the annual rent at which the land or buildings may reasonably be expected to be let from year to year..The Bye-law sought to change that by introducing the Unit Area Method (UAM). In the UAM, first the Unit Area Value (UAV) i.e. per sq. Ft./meter of a property is fixed with reference to the characteristics of the property such as location, occupancy, age, structure. The UAV is then multiplied by the area of the vacant land or covered space to arrive at its annual value..The new impugned Bye-law was challenged in the Delhi High Court on the ground that UAM cannot be introduced by way of Bye-laws without amending the NDMC Act. The contention of the petitioners was that the Bye-law cannot be justified with reference to the rule-making power conferred on the NDMC under Section 388 (1) A (9) of the NDMC Act..It was contended that the Bye-law is ultra vires the NDMC Act, as it goes far beyond the scope and ambit of the Act. It was the argument that UAM of fixing the annual value as prescribed in the Bye-law was foreign to the provisions of Section 63 of the Act, meaning thereby that the language of Section 63 did not permit determination of annual value on such a basis as it prescribed the method of fixing annual rent on the basis of the rent which the land or building may reasonably be expected to let from year to year..The Delhi High Court struck down the Bye-law on the ground that it was not in tune with Section 63, leading to the appeal in Supreme Court..The Supreme Court also took up the contention based on Section 63 of the NDMC Act as the fundamental issue in the case..Section 63 lays down the manner of determination of rateable value..As per Section 63(1) rateable value of any lands or building assessable to any property taxes is the ‘annual rent’. Further, such annual rent has to be determined ‘at which such land or building might be reasonably be expected to let from year to year….’ The Court noted the same and proceeded to place reliance on a slew of judgments..As per the judgments, the clear message was that annual rent is to be the one which the landlord might realize if the house was let. The criteria, thus, is the rent realizable by the landlord and not the value of the holding. The test essentially is what rent the premises can lawfully fetch if let out to a hypothetical tenant, the Court held..Even in common parlance, simple language of Section 63(1) clearly conveys that the rateable value is the annual rent which the property is likely to fetch. The yardstick is the ‘letting’. The Court went on to hold that two words used in Section 63 convey this meaning very clearly, namely, the word ‘rent’ in the phrase ‘annual rent’ and the word ‘let’..Therefore, annual rent is to be determined on the basis of the letting value which is expected reasonably. In cases where the property is already let out, actual rate at which the property is let out becomes the amount at which the land or building is reasonably expected to fetch..Having cleared the aforesaid aspect, the Court then proceeded to decide whether UAM specified in the impugned Bye-law aims to strive at ascertaining ‘annual rent’? If the answer is in the affirmative, only then the impugned Bye-law could be considered to be in tune with the provisions of Section 63. Analysing the bye-law, the Court noted the following:.“To recapitulate in brief, Bye-law 4 stipulates that the bona fide annual value of land not covered under Bye-law 3 would be the annual value of land and bona fide annual value of the covered space of the building. Bye-law 3 seeks to fix the entire value of land falling in the jurisdiction of New Delhi at the circle rate of Rs. 43,000/- (Rupees Forty Three Thousand only) per square meter. Likewise, Bye-law 4(10) where annual rent of any building is determinable under more than one-sub-bye-law, the annual rent shall be the aggregate of the annual value determined under sub-bye-law of this Bye-law”.Hence, it held that after going through the Bye-laws and the manner in which the rateable value is fixed, it is constrained to observe that the Bye-law is not in consonance with the scheme of Section 63(1) of the NDMC Act..“Thus, we agree with the High Court that the Impugned Bye-laws that provide UAM which is based on value of the property that on rental which the property is likely to fetch and are, there, foreign to the methodology provided in Section 63 of the NDMC Act. Such Bye-laws are, thus, ultra vires the provisions of NDMC Act. They are in excess of the scope and ambit of powers vested in the NDMC Act under Section 388(1)(A)(9) of the NDMC Act.”.Interestingly, the Court also made it clear in its judgment that the UAM is a better method in comparison to the earlier method based on annual rent. For this reason, this method has now been followed for the purpose of levying property tax not only in the areas in Delhi itself covered under the Municipal Corporation of Delhi but in many other States as well. However, such a method which may be a better method can be incorporated in accordance with the law. In the present case, it could be done after amending the provisions of the NDMC Act, the Court stated..Read the judgment below.