Bombay High Court Allows State To Charge Share In Leasehold Profits

Bombay High Court Allows State To Charge Share In Leasehold Profits

Bombay High Court Allows State To Charge Share In Leasehold Profits
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When the state government made an insertion and created an amendment in the Maharashtra Land Revenue Code, 1966, in August 2016, real estate developers were among the parties that were terrified. The state added Section 37A in the Code, giving itself the right to charge and recover from lessees the unearned income—the money they earned by transferring lease-holding rights to another person or entity. Under the changed norms, lease-holders could not transfer their lease-holding rights to another party without a prior permission of the state. 

Following a notification of the order, the state revenue started sending demand notices to lease-holders to claim 50 per cent of their unearned income. Had the “aggrieved” parties not gone to the court terming the changes in the law “unconstitutional, arbitrary, discriminatory and retrospective”, the exchequer would have been replete with hundreds of crores of money.  But naturally, several companies, including real estate developers Glider Buildcon Realtors and Arvind Properties, challenged the move. On May 3, the Bombay High Court allowed them great relief while upholding the validity of the amendment.

It did state that the state was well within its right to grant permission and recover unearned income from lease-holders if they transferred their rights to another party,

“If one bears in mind that this is in relation to government land or public property, then, it is but expected that if these leasehold rights, which are capable of being further assigned or transferred, shall be done so only with the prior permission of the Collector, that shall be also subject to payment of such premium on account of unearned income and transfer fees or charges, at such rates, as may be specified by the government by an order from time to time,” the HC order read.

"The public interest and public revenue cannot be sacrificed by allowing government lands to be used and occupied for decades together, but without any benefit or income to the state," it read further.

While stating that people cannot be allowed to exploit the potential of government land without sharing the benefits, the HC said that the terms and conditions of allotment could not be static. "They can be modified depending on market factors as well," the HC added.

However, the court has ordered that the amendment to the Code will be applicable prospectively and not retrospectively. This means the changed rules would be applicable only on deals that were entered into after August 22, 2016 -- the day on which the amendments in the Code came into force. Consequently, the state revenue department would have to lower its earlier revenue projections. Now, Glider Buildcon Realtors, for instance, will not have to pay Rs 454.35 crore to the state revenue department. The demand notice of Rs 20.03 crore to Mangala Properties also stands struck down after the HC judgment.

Leasehold properties are government-owned assets whose ownership rights are transferred for a certain period by charging a rent. The lease period ranges between 30-99 years, or more.

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