Bad news for Nagpur lease holders

Nazul land holders, the species, which constitute bulk of the land owners in Vidarbha region, should at once check their old lease-deeds. Because a recent judgement of far-reaching impact delivered by Nagpur bench of Bombay High Court has upheld the validity of a Government Resolution dated June 19, 2007, seeking to charge unearned income at the rate of 20 per cent for residential leases and 25 per cent for commercial leases.

However much to the respite of Nazul land holders, the High Court unequivocally held that till such time legislature authorises the government, the Revenue Department can not recover the unearned income from Nazul land holders whose lease-deeds had specifically prohibited any change in lease conditions. “The demand of unearned income is essentially related to the difference between the premium paid by the grantee/allottee at the time of original allotment and the market value of the plot at the time of proposed transfer. That is a price to be paid towards the entire bundle of rights held by the State Government in the land as landlord and enabling the grantee/lessee only to transfer his remaining rights which were enjoyed by him or her under the grant/lease. It is well established position that the Government is the real owner of the land. If the original grant/lease is not exempted from revenue, the Legislature of the State has power to direct levy of revenue on all lands under whatever title they may be held whenever and so long as the exigencies of the State may render such levy necessary. That power is vested in the Legislature. If the Legislature were to enact law on that subject, the Authority could legitimately exercise the power to levy revenue such as unearned income on all lands under whatever title which may include even lands held by occupants – Class-I, if the law so permits,” the High Court observed. Ordinarily, unearned income would mean income from investment rather than from labour. It is the difference between the premium paid and the market value of the lease plot at the time of sale. Nevertheless, in law, it is a land revenue recoverable from the grantee/lessee by the State Government if the law enacted on the subject or the terms of lease or grant so permits. Though it may appear that the State Government would share income of the grantee; but in substance, it is the price to be paid for approving the transfer of the land by the grantee/lessee to third party and recognising the right so transferred to enable the transferee to enjoy the Government property in question. The State remains the owner of the land and the right enjoyed by the grantee/lessee is a limited right granted under the Grant and not the entire bundle of rights of the State Government who is the real owner thereof. The High Court ruling has also rejected the argument that State Government had never demanded unearned income during last 100 years to recognise transfer effected by the original grantee. “For the time being, we may safely proceed on the basis that as of now, there is no legislation enacted by the State Legislature which would govern the field of power to levy unearned income. Indeed, the statutory rules framed under the MLRC, there is no corresponding provision enabling the State Government to claim or levy unearned income in respect of grant of land for Agricultural use under Part III or residential use under Part IV of the said Rules.” In other words, the State Government as of now has no authority to levy unearned income in respect of lands in question under whatever title, which would obviously include lands held by occupants-Class I. In absence of a specific law on this subject, the State Government or its Officers cannot usurp to itself power to levy such charges on the basis of a Government Resolution. That power to levy unearned income can be invested in the State Government only if the State Legislature expressly or by implication authorises it to do so and not otherwise. By no means such power can be usurped by an Executive fiat in the form of a Government Resolution. Insofar as grant of land for commercial and industrial purposes, there is express provision in the Rule 31(2)(c) enabling the State Government to claim half the unearned income where the land is sold without any construction, the High Court held. About ground rent, the High Court found no infirmity in decision of State Government to revise the rates based on market realities and devaluation of currency and held that revision in annual lease rent at the time of renewal of the lease cannot be said to be addition of new condition as such. The only limitation on the State Government would be to revise the lease rent on fair and just basis. The High Court while noting the principle expounded by the Apex Court in both the decisions of Mangalmurti’s case pointed out that the State Government has introduced the Government Resolution dated June 19, 2007 on this subject after due deliberation. The formula based on expert committee report for determining the annual lease rent is that of amount equal to the prime lending rate only on the 20% of existing market value of the land. In other words, if the prevailing prime lending rate is 10% and the existing market value of the land is around Rs.One Lakh, the Annual lease rent would be around Rs.2000/-(i.e. 10% of Rs.20,000/-). That would be only about 2% of the prevailing market value of the property. This formula attempts to factorise the inflation cost, cost of administration and escalation impact. This basis will be uniformly applied to all leases in the State. Though the nominal lease rent paid so far by Nazul land holders will be a thing of past, the High Court stated “One cannot be oblivious of the degeneration of Rupee value over the years. In our opinion, the State Government has taken a policy decision to recover fair uniform returns in relation to the Government property throughout the State which amount would factorise the inflation cost, cost of administration and escalation impact.” Ostensibly, it may appear that the formula adopted by the State Government is a complete departure from the modality of fixation of annual rent in the past. But that has been necessitated in larger public interest both for deriving realistic and fair return on the Government property and also to bring in uniformity and simplification of procedure for computation and levy of such charges. The larger public interest reckoned by the State Government in relation to regulation and control of the Government property shall necessarily prevail over the private interest of the Petitioners. Just and equitable does not mean that the annual lease rent should be so structured that in the perception of the lessee the same is affordable to him; irrespective of the fact that such low rent may not be able to subsume the inflation cost, cost of administration and escalation impact. That would militate against the larger public interest and of economics of sustainable regulation and control of the Government property. The High Court also made it clear in absence of legislative backing, it is not open to the State Government to impose new conditions for the first time either during subsistence of the lease or at the time of renewal of the lease conditions which may be prejudicial to the grantee and inconsistent with the tenor of the original lease in absence of law on that subject or condition incorporated in the original lease in that behalf. The renewal of the lease necessarily should be on same terms and conditions as in the earlier lease except the change or revision in respect of Annual lease rent. In case of persons whose lease deed had not be renewed due to opposition of grantee or sheer laxity to renew the lease, the High Court had asked the competent authority to verify factual matrix on case to case basis keeping in the light of this judgement. However, in cases where renewal has been delayed because of insistence by the State Government to impose new condition and opposition of the lessees to accept those conditions, those matters will have to be considered independently keeping in mind the legal position. About regularisation of violation of terms and conditions of lease-deed, the High Court made it clear that Nazul lease holders who had violated the terms and conditions of the lease would suffer the consequence of such violation if the same was not to be regularised. The violation will have to be reckoned only in those cases which expressly provide for such restriction in the Lease Deed or by virtue of some statutory provision. That is a matter to be enquired into on case to case basis by the appropriate authority and such irregularity can be rectified on payment of specified unearned amount of the market value of the land as on the date of violation of the condition. About transfers of land after the resolution was issued, the High Court held regularisation charges proposed for violation of lease conditions are fair and just.

~ by nagpurestate on October 29, 2008.