Karanbir Singh Sidhu

 There is nothing in law that bars the open plots from the aforesaid taxation, but in most of the municipal laws, the valuation of the property taxes is related to the “annual expectancy to let”. Since it is generally assumed that an open plot would fetch a zero rental income (which indeed is the case, most of the time), the property tax liability is usually nil. Nevertheless, a little due diligence can help the prospective buyer in ascertaining the actual position.

Sometimes, the recurring liability in respect of the property taxes assessed can be so different between two or three properties that one is considering to buy, that it can well emerge as the over-riding factor in the decision-making process.

Property taxes also emerge as an important factor in the rent deeds. In absence of any recital to the contrary in the rent deed, it is generally the liability of the “owner” and not the “occupier” to pay these taxes. Thus, it is very important, while negotiating a tenancy agreement, for a landlord to insist that all the commercial taxes/ property taxes etc. would be payable by the tenant. However, where an owner is saddled with this liability, it is important to remember that the local taxes paid are usually allowed to be deducted, while determining the rental income under the Income Tax Act, 1961.

The local municipal bodies regularly initiate legal processes to fix afresh or to re-assess the property taxes. These are quasi-judicial processes and the owner gets an opportunity to put forth his views, before the statutory authorities. Whenever a notice of such proceedings is received, the case should be contested, because leaving it uncontested might lead to unrealistic and high-pitched assessments, which are usually very difficult to reverse. However, where such an eventuality does arise, the owner is strongly advise to file the statutory appeals, which are allowed with a fixed period ranging from 30 to 60 days. A little effort at the initial stage or the appellate stage can save a person from long-term recurring liability on account of the property taxes.

Sanction of Building Plans. While the building by-laws may vary from state to state or city to city, it can be confidently remarked that no construction in any urban centre is permissible without a building plan having been duly sanctioned by the competent municipal/ urban development authority, in accordance with its building by-laws. This has implication both for the built-up properties but more so for open plots.