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The Delhi High Court has upheld the Municipal Corporation of Delhi's (MCD) decision to levy higher property taxes on hotels rated three-star and above. The court rejected arguments from hotel associations claiming the star-rating system lacked statutory backing. It noted that luxury hotels voluntarily seek star accreditation and benefit from a premium market position. The ruling reinforces the principle that property taxes should reflect the economic capacity of owners and validates the MCD's approach to equitably distributing fiscal responsibility across hotel categories.
The Delhi High Court has confirmed the Municipal Corporation of Delhi's (MCD) move to impose higher property taxes on hotels rated three-star and above. Hotel associations had challenged the MCD's decision, arguing that the star-rating system had no statutory basis and unfairly increased their tax burden. The court, however, dismissed these claims, stating that the system is rational and non-discriminatory. Advertisement
Justice Purushaindra Kumar Kaurav highlighted that hotels opt for star accreditation voluntarily and, in doing so, position themselves in a segment catering to affluent clients. These establishments provide premium services and amenities, which justifies their higher property tax liability. The court emphasized that the legislative purpose behind these higher taxes is to ensure that properties with greater economic capacity contribute proportionately to public revenue.
The MCD?s revised tax structure followed recommendations from the Municipal Valuation Committee (MVC). The MVC suggested a user multiplier factor (UF) of 8 for five-star and above hotels and UF-4 for other hotels. These recommendations were implemented starting April 1, 2023. The court also supported the inclusion of basements and non-FAR (Floor Area Ratio) spaces in the tax calculations, making the system more comprehensive and equitable.
The ruling noted that luxury hotels enjoy market advantages due to their rating and can absorb higher property tax rates without affecting basic operations. By upholding this differential taxation system, the court reinforced the principle that public revenue collection should consider the economic capacity of property owners.
The court also referred to past instances where the MCD had faced challenges regarding valuation methods, observing that the current system provides clarity and consistency. This decision gives clarity to hotel owners and municipal authorities on how property taxes are calculated for star-rated hotels and prevents arbitrary disputes in the future.
Source PTI
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