Godhra Borough Municipality Vs. Godhra
Electricity Co. Ltd. [1968] INSC 71 (20 March 1968)
20/03/1968 MITTER, G.K.
MITTER, G.K.
SHAH, J.C.
CITATION: 1968 AIR 1504 1968 SCR (3) 481
ACT:
The Bombay Municipal Boroughs Act, 1925, s.
73-Rules 4 and 5'Rate' leviable under s. 73 on lands and buildings-Certain
lands and buildings to be taxed under r. 4(1) on capital basis-Method of
evaluations of capital value-English law relating to 'rates', relevance ofContractors'
method of evaluation recommended-Data in company's balance sheet whether
'reliable data' for purpose of r. 5.
HEADNOTE:
Under s. 73 of the Bombay Municipal Boroughs
Act, 1925 read with rr. 4(1) and 5 made thereunder a -rate on nonresidential
buildings belonging to factories and mills was leviable on a capital basis, and
the capital value for this purpose was to be worked out, if 'reliable data'
were furnished by the assessee, on the basis of such data. The respondent
company owned certain buildings on which ratwas leviable under r. 4(1) on the
basis of capital value. The respondent company claimed that the actual cost of
construction of the buildings in 1920 ought to be taken -as the capital value.
The Municipality of Godhra however made its own estimate of the capital value.
Thereafter the Judicial Magistrate and the Sessions Judge made valuations
taking into account the rise in the cost of building materials since 1920. The
High Court in revision upheld the view that the actual cost minus depreciation
thereon should be the capital value; it observed that the English law and
practice as to levy of rates was not relevant in the Indian context. The
Municipality appealed.
HELD: (i) When legislatures in this country
enact statutes which closely resemble statutes in England and have the same
purpose and object in view, then unless the expressions used in the Indian
Statutes are defined courts of law cannot go wrong in interpreting them in the
way English judges have done. Further, the words which have acquired a
particular shade of meaning in England may be given the same meaning unless
there is anything in the statute its,--If which would be contraindicative.
[486-F-G] (ii) Section 73 empowered the municipality to impose a rate on
buildings or lands. The word 'rate' had not been defined in the Act but it has
a well known meaning. In Patel Gordhandas,s, case this Court examined various
statutes bearing on the English rating law and held that the word 'rate' was
used with respect to a tax which was levied on the -net annual value or
rateable value of lands and buildings and not on their capital value, but
capital value could be adopted as the basis for working out the annual value.
[485G-486E] (iii) Rule 4 of the Godhra Municipal Rules shows what properties
are to be valued on capital basis. What the capital basis is not defined. The
capital value however can be determined in the way laid down in Patel
Gordhandasg case by adopting the contractor's method. [487B].
(iv) The figures given in the balance sheet
of the company could not be regarded as 'reliable data' for the purpose of r.
5. The figures given in the balance sheet are merely statements in terms of the
form given in 482 Schedule VI. They have no relevance in determining the
capital value of property for the purpose of assessment to a rate. [488 B-C]
[Case remanded to District Judge for determining capital value by adopting
contractors method in the -light of the observations made by this Court.] Patel
Gordhandas Hargovindas v. Municipal Commissioner, Ahmadabad, [1964] 2 S.C.R.
608, relied on.
R. v. School Board for London, (1885) 55
L.J.M.C. 33, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 631 and 632 of 1965.
Appeals by special leave from the judgment
and order dated January 7, 8, 1963 of the Gujarat High court in Civil Revision
Applications Nos. 116, 117, 173 and 174 of 1961.
Purshottam Trikamadas and I. N. Shrojj for
the appellant (in both the appeals).
S. S. Shukla, for the respondent (in both the
appeals).
The Judgment of the Court was delivered by
Mitter, J. These are two appeals by special leave against the judgment and
order dated January 8, 1963 of the Gujarat High Court dismissing Civil Revision
Applications 116 and 117 of 1961 filed by the appellant and all-owing similar
applications Nos. 173 and 174 of 1961 filed by the respondent against the
common judgment dated December 1, 1960 passed by the District and Sessions
Judge of Panchmahals.
The matter arises out of assessments made by
the appellant constituted under the Bombay Municipal Boroughs Act, 1925 on the
respondent under section 73 of the Act. The respondents are an electricity
company owning inter alia properties bearing several numbers in the municipal
borough of Godhra.
For the years 1956-57 and 1957-58 the
appellant had fixed the valuation of the properties belonging to the respondent
at Rs. 3,25,000/-. On appeal by the respondent, the Judicial Magistrate fixed
the valuation of the properties at Rs. 90,000/-. On the appellant going in
revision, the Sessions Judge fixed the valuation at Rs. 1,25,000/-. As a result
of the High Court's decision the valuation stood reduced to Rs. 90,000/-. The
present appeals are by the Municipality.
Under s. 73(1) of the Bombay Municipal
Boroughs Act, 1925 (hereinafter referred to as the 'Act') "Subject to any
general or special orders which the State Government may make in this behalf
and to the provisions of sections 75 and 76, a municipality may impose for the
purposes of this Act any of the following taxes, namely483 (i) a rate on
buildings or lands or both situate within the municipal borough." The
procedure preliminary to imposing tax is laid down in s. 75 and s. 78 deals
with the preparation of an assessment list. Section 58 empowers the
municipality to make rules prescribing the taxes to be levied in a municipal
brought for municipal purposes etc. Rules 4, 5 and 7 relevant for our purpose
read as follows:
"4. Modes of valuation: (1) For the
purpose of detennining tax the following properties shall be valued on the
capital basis :(a) All open lands, buildings and yards belonging to the Railway
Administration.
(b) All buildings and lands other than those
which are actually used for residential purposes belonging to Mills and
Factories to which the Indian Factories Act, is applied.
(2) All properties other than those mentioned
above shall be valued on the basis of the annual letting value as defined in
section 3(1) of the Act.
5. Mode of determining capital value: The
capital value of properties mentioned in rule 4(1) shall, in each case, be
determined on such reliable data as the Railway Authorities and the Agents of
the mills and the factories may furnish when called upon from time to time to
do so and in the absence of any such trustworthy reliable data, it shall be
determined by the Chief Officer or by expert valuers employed by the
municipality for that purpose.
6..............................
7. Amount of tax : (1) in case of properties
which as stated above, are valued on the capital basis the tax to be levied
shall be assessed at Rs. 0-8-0 per cent of the capital value and it shall be a
direct tax thereon provided however that any fraction of hundred in excess of
fifty rupees shall be taken as the next higher hundred and any fraction of
fifty rupees or less be taken as the lower hundred.
(2) In case of properties which, as stated
above, are valued on the annual letting value the tax to be levied shall be
assessed as -shown in the appendix annexed hereto." 484 Under rule 4(1)
(b) above, the buildings of the respondent had to be valued on the capital basis.
Under r. 5 the capital, value of properties had to be determined on such
reliable data as the respondent might furnish and in the absence thereof, it
would be the duty of the Chief Officer to determine the same. Before the
Judicial Magistrate, one R. R. Tewari, an Assistant Secretary of the respondent
who had affirmed an affidavit showing that the approximate value of the seven
items of property on which tax was sought to be imposed as per the books of the
company was Rs. 41,541-12-9.
He sought to rely on the balance sheets and
accounts of the company audited under the Companies Act for the purpose.
The Judicial Magistrate observed that the
properties were 40 years old and according to Tewari the life of the office
buildings was 50 years while that of others was only 30 years. Acting on the
admission of Tewari that the price of building materials had increased three
times the original figures in 195657 and taking, into Consideration the
properties were over 40 years old, the Magistrate assessed the capital value at
Rs. 90,000/-.
The Sessions Judge dealt with the matter in
greater detail and noted that neither party had given him real assistance in
determining what should be the proper assessment.
According to him the assessment papers
preceding the bills had not been produced and neither party had led any
evidence as to how the capital value was to be arrived at. He however felt that
the capital value could not mean merely the book value shown in the books of
account ,of the assessee. He noted that according to the balance sheet for
1955-56 the property and assets under the head"buildings" was shown
as below:
Buildings.
Cost up to 31st March 1955 Rs. 1,72,866-5-11
Additions during the year 12,398-103 Total Rs. 1,85,265-0-2 The said figure
included the value of all the buildings of the ,company but those which were to
be assessed were only seven ,out of which two residential bungalows and
servants quarters' were to be assessed on the rental value. The Sessions Judge
therefore inferred from the above figures that Rs. 1,85,265/included at least
Rs. 1,00,000/as the cost up to 31st March, 1955 of the factory buildings in
question. The Sessions Judge found himself unable to accept the contention that
the depreciated selling value of the property was the capital value for the
purpose of assessment of house tax. He also did not accept the municipality's
,contention that the cost of construction of buildings had gone up 485 five
times since 1920. Considering the rival contentions he fixed the capital value
at three times the figure shown by the company, viz., Rs. 41,541/and rounded
the same off to Rs. 1,25,000/-.
Taking the view that it was not open to
"a Judge in India to base his judgment as a whole or in part or his
conclusion upon either Halsbury's Laws of England or Bean and Lock wood's book
on Rating Valuation Practice" on the ground that these books were
irrelevant under the Indian Evidence Act, the learned Judge of the High Court
held that "capital value" in night possibly bear four different
meanings but the meaning given to the expression in Halsbury's Laws of England
was "not appropriate in the context of -the Indian enactment and the
Indian Rules". Referring to the rules made by Godhra Municipality he
observed that it could not be said that the municipality had adopted the
capital value as one of the methods of ascertaining the rental value or that
the municipality had adopted the rental value as one of the methods of
ascertaining the capital value. According to the learned Judge, "capital
value' has to be treated as meaning the value of the building treated as
capital at the time of the assessment; in other words, the original cost of
construction minus the depreciation or at the most the original cost of
construction without depreciation." Accepting the figure of Rs.
41,541-12-,9 as the cost of construction of the building in 1920 as found by
the courts below, he observed that the capital value should be "either Rs.
41,541-12-9 or something less after deducting depreciation." According to
him "the assessee has not come in revision against the order of the
Magistrate fixing the value at Rs. 90,000/-. Both the courts have erred in
considering the probable cost of construction of a new building." He
therefore held that the courts below had committed a material mistake in the
exercise of jurisdiction in relying upon the probable cost of constructing a
new building of a similar type in order to estimate the capital value as
contemplated by Godhra Municipality and accordingly reduced the capital value
fixed by the Sessions Judge to Rs.
90,000/-.
We find ourselves unable to accept the views
expressed or the reasoning given in the judgment of 'the High Court.
Section 73 empowered the municipality to
impose a rate on buildings or lands. Now the word 'rate' had not been defined
in the Act but it has a well known meaning. As observed in Patel Gordhandas
Hargovindas v. Municipal Commissioner, Ahmedabad(') the word has come to our
country for the purpose of local taxation from England." In that case this
Court examined Various statutes bearing on the English Rating Law and held that
the word "'rate' was (1) [1964] 2 S.C.R.608 at 616.
486 used with respect to a tax which was
levied on the net annual value or rateable value of lands and buildings and not
on their capital value. It would therefore not be wrong to say that in the
legislative history and practice in England up to 1925, 'rate for the purpose
of local taxation meant a tax on the annual value of lands and buildings liable
to such taxation." The Court went on to examine the methods in use for the
purpose of ascertaining the rateable value which were generally three. It was
said :
"Where the land or building was actually
let, the valuation was based on the rent at which it was let. Where, however,
the land -or building was not let, two methods were evolved for the purpose of
finding out the rateable value. The first was to assume a hypothetical tenancy
(such as where the same person is the owner and occupier) and find out the rent
at which the premises would be let. The second was based on the capital value
of the premises. But the tax was not levied on the capital value itself.; the
capital value was determined on the structural value of the building to be
assessed by what was known to be contractors method or contractor's test in
addition to the market value of the land.
Sometimes the words "effective capital
value" were also used since in most cases the actual capital cost of the
building plus the market value of land might for some reason or the other be in
effective i.e., it might not be rent producing. Having arrived at the effective
capital value it was necessary to apply percentages thereto in order to arrive
at the annual value." When legislatures in this country enact statutes
which closely resemble statutes in England and have the same purpose and object
in view, then unless the expressions used in the Indian Statutes are defined,
courts of law cannot go wrong in interpreting them in the way English Judges
have done. Further, the words which have acquired a particular shade of meaning
in England may be given the same meaning unless there is anything in the
statute itself which would be contra indicative. In Patel Gordhandas's case(')
the statute which this Court had to interpret was the same Act which is before
us in this case. Consequently, that decision affords us a good guide in forming
our own conclusions in this case. Section 75 of the Act has an Explanation
introduced in 1966 which reads as follows :
"Explanation-For the purposes of a rate
on buildings or lands, the basis of valuation may be(i) the annual letting
value;
(1) [1964] 2 S.C.R. 608.
487 (ii) the annual value;
(iii) the floor area, in the case of Mills,
Factories and buildings and lands connected therewith;
(iv) the capital value, in the case of vacant
lands." The Explanation is deemed always to have been substituted for the
original by Maharashtra Act 3 of 1966, s. 3(b).
Rule 4 of Godhra Municipal Rules shows what
properties are to be valued on the capital basis. What the capital basis is not
defined. The capital value however can be determined in the way laid down in
Patel Gordhandas's case(') by adopting the contractor's method. What that
method is has been explained in Ryde on Rating (Eleventh Edition) Chapter
20. In R. v. School Board for London(') Cave,
J. applied the contractor's test to schools. Ryde points out that it was
tacitly recognised as applicable in various other cases.
The principle on which the contractor's basis
rests are given by the author at page 439 and the method of its application is
given at page 442. The learned author notes that in "applying the
contractor's basis it is possible to discern five stages. The first stage is
the estimation of the cost of construction of the building." There is a
difference of view as to whether it is better to take the cost of relacing the
actual building. as it is, or the cost of a substitute building on the same
plan as the actual building but otherwise in an up-to-date form. The second
stage is "to make deductions from the cost of construction to allow for
age, obsolescence and any other factors necessary to arrive at the I effective
capital value. "The third stage is to estimate the cost of the land. The
fourth stage is to apply the market rate or rates at which money can be borrowed
or invested to the effective capital value of the building and the land. The
fifth stage is to consider whether the result of the fourth stage really
represents what the hypothetical tenant would pay for the annual tenancy on the
statutory terms, and to make any adjustments necessary to ensure that no higher
rent is fixed as the basis of assessments than that which it is believed the
owner would really be willing to pay for the occupation of the premises.
Rule 5 of the Godhra Municipal Rules lays
down that the capital value is to be determined in each case on reliable data
furnished by the Mills and the Factories when called upon to do so and in the
absence thereof is to be determined by the Chief Officer or expert valuer. The
learned counsel for the respondent contended that here there were reliable data
in that the balance sheet of the company showing the value of these properties
for the purpose of the Companies Act and there was no reason why the same
figures should not be adopted as the capital value of the lands (1) [1964] 2 S.
C.R. 608.
(2) (1885) 55 L.J.M.C. 33; 17 Q.B.D. 738 C.A.
488 and buildings within the jurisdiction of Godhra municipality. This clearly
is fallacious as under section 211 of the Companies Act, 1956 the balance sheet
of a company has to be drawn up in the form prescribed by Schedule VI. Under
the said Schedule, Part 1, the value of fixed assets has to be shown
"distinguishing as far as possible between expenditure upon (a) good-will,
(b) land, (c) buildings, (d) leaseholds, (e) railway sidings, (f) plant and
machinery, (g) furniture and fittings'. (h) development of property etc. The
fourth column of the form which gives the instructions in accordance with which
assets should be made out shows under each head "the original cost and '
the additions thereto and deductions there from during the year, and the total
depreciation written off or provided up to the end of the year is to be
stated." It will therefore be noticed that the figures given in the
balance sheet are merely statements in terms of the form given in Schedule VI.
They have no relevance in determining the capital value of property for the
purpose of assessment to a rate.
It appears to us therefore that the true
method of determination of the capital value was not adopted in the courts
below. We therefore set aside the judgment and order of the High Court and
remand the matter back to the District Judge for him to determine the capital
value in the light of the observations made by us after giving an opportunity
to the parties to adduce evidence on the subject. The costs will abide by the
decision of the District Judge.
G.C. Appeal allowed and case remanded.
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