Dewan Daulat Rai Kapoor Vs. New Delhi
Municipal Committee & ANR [1979] INSC 268 (20 December 1979)
BHAGWATI, P.N.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION: 1980 AIR 541 1980 SCR (2) 607 1980
SCC (1) 685
CITATOR INFO :
R 1981 SC1729 (3) R 1982 SC 16 (2) E 1985 SC
339 (2,5,6)
ACT:
Delhi Municipal Corporation Act 1957 Section
116 & Punjab Municipal Act 1911, Section 3(1)(b)-Assessment of building for
municipal tax-Annual value-Standard rent or contractual rent-Applicability of
rent control legislation.
Wolds & phrases-Annual Value
Reasonably-Meaning of.
HEADNOTE:
Section 3(1)(b) of the Punjab Municipal Act,
1911 defines "annual value" to mean, in the case of any house or
building "the gross annual rent at which such house or building.... may
reasonably be expected to let from year to year" subject to certain
specified deductions. The same definition of "annual value" is to be
found in section 116 of the Delhi Municipal Corporation Act, 1957 but with only
difference that there is a, second proviso to section 116 which is absent in
section 3(1)(b).
One appeal related to a case where the
building is situated within the jurisdiction of the New Delhi Municipal
Committee and is liable to be assessed to house tax under the Punjab Municipal
Act, 1911 while the other two related to cases where the building is situated
within the limits of the Corporation of Delhi and is assessable to house tax
under the Delhi Municipal Corporation Act, 1957. The house tax under both
statutes was levied with reference to the "annual value" of the
building.
The common question of law arising in the
appeals related to the assessment of annual value for levy of house tax where
the building is governed by the provisions of Rent Control Legislation but
where the standard rent has not yet been fixed.
The argument of the Revenue was (i) that if
it was not penal for the landlord to receive the contractual rent from the
tenant, even if it be higher than the standard rent determinable under the
provisions of the Act, it would not be incorrect to say that the landlord could
reasonably expect to let the building at the contractual rent and the
contractual rent therefore provided n correct measure for determination of the
annual value of the building, and (ii) the period of limitation for making an
application for fixation of tho standard rent had expired long prior to the
commencement of the assessment years and in each of the cases, the tenant was
precluded by section 12 of the Rent Control Act from making an application for fixation
of the standard rent with the result that the landlord was lawfully entitled to
continue to receive the contractual rent from the tenant without any let or
hindrance.
Allowing the appeals,
HELD: 1. Tho Court would have examined the
validity of this argument first on principle and then turned to the
authorities, hut it proposed to reverse this order because the decisions in the
Life Insurance Corporation's 608 case and the Guntur Municipal Council's case
(supra) completely covered the. present controversy and did not leave any scope
for further argument. The decision in Padma Devi's case may be said to be
distinguishable on the ground that in the present cases, unlike Padma Devi's
case, the standard rent of the building was not fixed by the Controller and
hence it could not be said that it was unlawful or penal for the landlord to
receive anything more than the standard rent. But so far as the decision in
Life Insurance Corporations case is concerned, it is difficult to sec how its
applicability could be disputed, because there also, as in the present case,
the standard rent of the building was not fixed by the Controller and in the
absence of the standard rent, it was open to the landlord to receive rent in
excess of the standard rent determinable under the Act. The only distinction
was that under the West Bengal Premises Rent Control (Temporary Provisions)
Act, 1950, which came up for consideration in the Life Insurance Corporation s
case, the standard rent was statutorily determinable on the application of a
mathematical formula without any discretion being left in the Controller, while
under the Delhi Rent Control Act, 1958 the standard rent was not a certain and
definite figure to be arrived at mathematically by application of the formula
laid down in section 6 but it was left to the Controller under section 9
sub-section (2) to fix the standard rent at such amount as appeared to him to
be reasonable having regard to the provisions of section 6 and the
circumstances of the case.
Hence, until the standard rent was fixed by
the Controller, it could not be said what would be the standard rent of the
building. [622D-H, 623A]
2. Undoubtedly there is some difference in
the provisions of the two statutes but this difference is not of such a
character as to affect the applicapability of the decision in the Life
Insurance Corporation's case. In that case too, the prohibition against the
landlord to receive any rent in excess of the standard rent was operative only
after the fixation of the standard rent by the Controller and so long as the
standard rent was not fixed, it was not unlawful or penal for the landlord to
receive any rent in excess of the standard rent. If the standard rent though
not fixed and hence not legally enforceable, could provide the measure for the
reasonable expectation of the landlord to receive rent from a hypothetical
tenant in the Life Insurance Corporation's case, there is no reason why it
should not equally be held to provide such measure in the present cases. As in
the one case so also in the other? the upper limit of the standard rent. though
yet to be fixed by the Controller, would enter into the determination of the
reasonable rent. [623A-D]
3. It is not correct to say that under
section 9 sub- section (2) of the Delhi Rent Control Act, 1958, it is left to
the unfettered and unguided discretion of the Controller to fix any standard
rent which he considers reasonable. He is required to fix the standard rent in
accordance with the relevant formula laid down in section 6 and he cannot
ignore that formula by saying that in the circumstances of the case, he
considers it reasonable to do so. The only discretion given to him is to make
adjustments in the result arrived at on the application of the relevant
formula, where it is necessary to do so by reason of the fact that the landlord
might have made some addition, alteration or improvement in the building or
circumstances might have transpired affecting the condition or utility of the
building or some such circumstances of similar character.
The compulsive force of the formula laid down
in section 6 for the determination of the standard rent 609 is not in any way
whittled down by section 9 sub-section (2) but a marginal discretion is given
to the Controller to mitigate the rigour of the formula where the circumstances
of the case so require. The amount calculated in accordance with the relevant
formula set out in section 6 would, therefore, ordinarily represent the
standard rent of the building, unless the landlord of the tenant., as the case
may be, can persuade the Controller that there are circumstances requiring
adjustment in the amount so arrived at. There is therefore no material
distinction between the West Bengal Premises Rent Control (Temporary
Provisions) Act, 1950 and the Delhi Rent Control Act, 1050 so far as the
provisions regarding determination of standard rent are concerned and the
decision in the Life insurance Corporations case must be held to be applicable
in determination of the annual value in the present cases.
[623D-H, 624A]
4. In the Guntur Municipal Council's case
also, as in the present cases. the standard rent of the building was not fixed
by the Controller and under the Andhra Pradesh Rent Act which applied to the
town of Guntur, in the Absence of fixation of the fair rent, it was lawfully
competent to the landlord to recover rent hl excess of the fair-rent.
determinable under that Act. [624B-C]
5. The annual value of the building governed
by the Delhi Rent Control Act, 1958 must be limited by the measure of standard
rent determinable under that Act. The landlord cannot reasonably expect to get
more rent than the standard rent payable in accordance with the principles laid
down in the Delhi Rent Control Act, 1958. It is true that the standard rent of
the building not having been fixed by the Controller, the assessing authority
would have to arrive at its own figure of standard rent by applying the,
principles laid down in the Delhi Rent Control Act, 1958 for determination of
standard rent, but that is a task which the assessing authority would have to
perform as a part OF the process of assessment and in the Guntur Municipal
Council's case, this Court has said that it is not a.. task foreign to the
function of assessment and has to be carried out by the assessing authority.
When the assessing authority arrives at its own figures of standard rent by
applying the principles laid down in the Act, it does not, in any way, usurp
the function of the Controller, because it does not fix the standard rent which
would he binding on the landlord and the tenant, which can be done only by the
Con- F troller under the Act but it merely arrives at its own estimate of
standard rent for the purpose of determining the annual value of the building.
That is a perfectly legitimate function within the scope of the jurisdiction of
the assessing authority. [624G-H. 625A-C]
6. The existing tenant may be barred from
making an application for fixation of the standard rent and may, therefore, be
liable to pay contractual rent to the landlord but the hypothetical tenant to
whom the building is hypothetically to be let, would not suffer from this
disability created by the bar of limitation and he would be entitled to make an
application for fixation of the standard rent at any time within two years of
the hypothetical letting and the limit of the standard rent determinable under
the Act. would therefore, inevitably enter into the bargain and circumscribe
the rate of rent at which the building could reasonably be expected to he let.
[625E-G]
7. It is difficult to sec how the annual
value of the building could vary accordingly as it is tenanted or self
occupied. The circumstance that in each.
610 of the present cases, the tenant was
debarred by the period of limitation from making an application for fixation of
the standard rent and the landlord was consequently entitled to continue to
receive the contractual rent. cannot therefore, affect the applicability of the
decision in the Life Insurance Corporation's case and the Guntur Municipal
Council's case, and it must. be held that the annual value of the building in
each of these cases was limited by the measure of the standard rent
determinable under the Act.
[626B-C]
8. Even if the standard rent has not been
fixed by the Controller, the landlord cannot reasonably expect to receive from
a hypothetical tenant anything more than the standard rent determinable under
the Act and this would be so equally whether the building has been let out to a
tenant who has lost his light to apply for fixation of' the standard rent or
the building is self occupied by the owner. The assessing authority would. in
either case, have to arrive at its own figure of the standard rent by applying
principles laid down in the Delhi Rent Control Act, 1958 for determination of standard
rent and determine the annual value of the building on the basis of such figure
of standard rent. [626G-H, 627A]
9. It is clear therefore that in each of the
present cases the annual value of the building must be held to be limited by
the measure of the standard rent determinable on the principles laid down in
the Delhi Rent Control Act, 1958 and it cannot exceed such measure of standard
rent. [627A-B] Corporation of Calcutta v. Life Insurance Corporation [1970] 2
SCC 44; Corporation of Calcutta v. Padma Devi [1962] 3 SCR 49; Guntur Municipal
Council v. Guntur Town Rate payers' Association [1971] 2 SCR 423: M. M. Chawla
v. J. S. Sethi [1970] 2 SCR 390 referred to.
Municipal Corporation, Indore & Ors. v,
Smt.
Ratnaprabha & Ors. [1977] 1 SCR 1017 distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos.
11431144/73 and 1201 (N) of 1973.
From the Judgment and order dated 16-11-1972
of the Delhi High Court in C.W. No. 580/71, LPA No. 58/72 and 54/72.
P. N. Lekhi and M. K. Garg for the Appellants
in C.A.
Nos. 1143-44/73 and for Respondents in C.A.
No. 1201/73.
F. S. Nariman P. D. Singhania, Homi Ranina,
Ravinder Narain and T. Ansari in C.A. No. 1143/73 for the Intervener.
S. N. kaeker Sol. General and A. V. Ramgam
for the Respondent in C.A. No. 1144/73 and for the Appellant in C.A.
No. 1201/73.
S. N. Kaeker, Sol. General, B. P. Maheshwari,
S. Sethi, Bikramjit Nayyar and E. C. Sharma for Respondent No. 1 in C.A. Nos.
1143-44/73 S.T. Desai, S. P. Nayyar and Miss A. Subhashini for the Intervener,
C.I.T. Delhi.
611 The Judgment of the Court was delivered
by BHAGWATI, J. These appeals by certificate raise a common question of law
relating to assessment of annual value for levy of house-tax where the building
is governed by the provisions of Rent Control legislation, but the standard
rent has not yet been fixed. One appeal relates to a case where the building is
situate within the jurisdiction of the New Delhi Municipal Committee and is
liable to be assessed to house tax under the Punjab Municipal Act, 1911 while
the other two relate to cases where the building is situate within the limits
of the Corporation of Delhi and is assessable to house tax under the Delhi
Municipal Corporation Act, 1957. The house tax under both statutes is levied
with reference to the annual value of the building.
Section 3(1)(b) of the Punjab Municipal Act,
1911 defines "annual value" to mean, in the case of any house or
building "the gross annual rent at which such house or building ......may
reasonably be expected to let from year to year" subject to certain
specified deductions, and the same definition of "annual value" is to
be found in section 116 of the Delhi Municipal Corporation Act, 1957 with only
this difference that there is a second proviso to section 116 which is absent
in section 3(1)(b). That proviso reads:
"Provided further that in respect of any
land or building the standard rent of which has been fixed under the Delhi and
Ajmer Rent Control Act, 1952, the rateable value thereof shall not exceed the
annual amount of standard rent so fixed." It was, however, common ground
between the parties that this proviso is immaterial and, in fact, it was so
held in Corporation of Calcutta v. Life Insurance Corporation(1).
We may, therefore, ignore the existence of
this proviso and deal with both the categories of appeals on the basis of the
same definition of "annual value". "Annual value" of a
building, according to this definition, would be the gross annual rent at which
the building may reasonably be expected to let from year to year (emphasis
supplied).
It is obvious from this definition that
unlike the English Law where the value of occupation by a tenant is the
criterion for fixing annual value of the building for rating purposes, here it
is the value of the property to the owner which is taken as the standard for
making assessment of annual value. The criterion is the rent realisable by the
landlord and not the value of the holding in the hands the tenant. The rent
which the landlord might realise if the building were let is made the basis for
fixing the annual value of the 612 building. The word "reasonably" in
the definition is very important. What the landlord might reasonably expect to
get from a hypothetical tenant, if the building were let from year to year, affords
the statutory yardstick for determining the annual value. Now, what is
reasonable is a question of fact and it would depend on the facts and
circumstances of a given situation. Ordinarily, as pointed out by Subba Rao,
J., speaking on behalf of the Court in Corporation of Calcutta v. Padma
Devi(1); "a bargain between a willing lessor and a willing lessee
uninfluenced by any extraneous circumstances may afford a guiding test of
reasonableness. An inflated or deflated rate of rent based upon fraud, emergency,
relationship and such other considerations may take it out of the bounds of
reasonableness". The actual rent payable by a tenant to the landlord would
in normal circumstances afford reliable evidence of what the landlord might
reasonably expect to get from a hypothetical tenant, unless the rent is
inflated or depressed by reason of extraneous considerations such as
relationship, expectation of some other benefit etc. There would ordinarily be
in a free market close approximation between the actual rent received by the
landlord and the rent which he might reasonably expect to receive from a
hypothetical tenant. But where the rent of the building is subject to rent
control legislation, this approximation may and often does get displaced. It
is, therefore, necessary to consider the effect of rent control legislation on
the determination of annual value This is fortunately not a virgin field. There
are at least three decisions of this Court which have spoken on this subject.
The first is the decision in Corporation of Calcutta v. Padma Devi (supra). The
question which arose in that case was whether the "annual value" of a
building governed by the West Bengal Premises Rent Control (Temporary
Provisions) Act, 1950 could be determined at a figure higher than the standard
rent fixed under the provision of that Act. The definition of "annual
value" in section 127(a) of the Calcutta Municipal Act, 1923 under which
the house tax was being levied was the same as in section 3(1)(b) of the Punjab
Municipal Act, 1911 or section 116 of the Delhi Municipal Corporation Act, 1957
without the second proviso and hence in order to determine the "annual
value" of the building it was necessary to find out what was the rent at
which the building might reasonably be expected to let from year to year. The
Court speaking through Subba Rao, J.
emphasized the use of the word
"reasonably" in the definition and pointed out that since it was
penal for the landlord to receive any rent in excess of 613 the standard rent
fixed under the Act, the landlord could not reasonably expect to receive any
higher rent in breach of the law. It is the standard rent alone which the
landlord could reasonably expect to receive from a hypothetical tenant, because
to receive anything more would be contrary to law. The learned Judge, after
analysing the provisions of the Act, observed:
"A combined reading of the said
provisions leaves no room for doubt that a contract for a rent at a rate higher
than the standard rent is not only not enforceable but also that the landlord
would be committing an offence if he collected a rent above the rate of the
standard rent. One may legitimately say under those circumstances that a
landlord cannot reasonably be expected to let a building for a rent higher than
the standard rent. A law of the land with its penal consequences cannot be
ignored in ascertaining the reasonable expectations of a landlord in the matter
of rent. In this view, the law of the land must necessarily be taken as one of
the circumstances obtaining in the open market placing an upper limit on the
rate of rent for which a building can reasonably be expected to let".
It may be noted that in this case the
standard rent of the building was fixed under the Act and since it was penal
for the landlord to receive any rent higher than the standard rent fixed under
the Act, it was held that the landlord could not reasonably expect to receive
anything more than the standard rent from a hypothetical tenant and the annual
value of the building could not exceed the standard rent.
The next decision to which we must refer in
this connection is the decision of this Court in Corporation of Calcutta v.
Life Insurance Corporation (supra). This case also related to a building
situate in Calcutta which was governed by the West Bengal Premises Rent Control
(Temporary Provisions) Act, 1950. Section 2(10) (b) of the Act defined
"standard rent" to mean "where the rent has been fixed under
section 9, the rent so fixed, or at which it would have been fixed if application
were made under the said section".
Here, unlike Padma Devi's case, the standard
rent of the building had not been fixed under section 9 but it was common
ground between the parties that Rs. 2,800 per month being the amount of the
agreed rent represented the figure at which the standard rent would have been
fixed if an application had been made for the purpose under section 9 and the
standard rent of the building was therefore 614 Rs. 2,800 per month within the
meaning of the second part of the definition of that term. The question which
arose for consideration was whether the annual value of the building was liable
to be determined on the footing of this standard rent or it could be determined
by taking into account the higher rent received by the tenant from its sub-tenants.
The principle of the decision in Padma Devi's case was invoked by the assessee
for contending that the annual value of the building could not be determined at
a figure higher than the standard rent and this contention was upheld by the
Court, though there was no fixation of standard rent by the Controller under
section 9 and the statutory prohibition was only against receipt of rent in
excess of the standard rent fixed under the Act. The Court pointed out that the
standard rent stood defined by the latter part of section 2(10) (b) and by
virtue of that provision it was statutorily determined at Rs. 2,800 per month
though not fixed by the Controller under section 9 and proceeded to hold, by
applying the principle of the decision in Padma Devi's case, that the landlord
could not reasonably expect to receive any rent higher than the standard rent
from a hypothetical tenant and the annual value of the building could not,
therefore, be fixed at a figure than the standard rent. It will be seen that
this decision marked a step forward from the decision in Padma Devi's case
because here the standard rent was not fixed by the Controller under section 9
and it was not penal for the landlord to receive any rent in excess of the
statutorily determined standard rent of Rs. 2.800 per month and yet it was led
by this Court that the standard rent determined the upper limit of the rent at
which the landlord could reasonably expect to let the building to a
hypothetical tenant. It may be pointed out that an attempt was made on behalf
of the Corporation to distinguish the decision in Padma Devi's case by
contending that that decision was based on the interpretation of section 127(a)
of the Calcutta Municipal Corporation Act, 1923 while the provision which fell
for interpretation in this case was section 168 of the Calcutta Municipal
Corporation Act, 1951 which was different from section 127(a), in that it
contained a proviso that "in respect of any land or building the standard
rent of which has been fixed under section 9...
the annual value thereof shall not exceed the
annual amount of the standard rent so fixed" which was absent in section
127 (a). The argument was that under the proviso the annual value was limited
to the standard rent only in those cases where the standard rent was fixed
under section 9 and since in the case before the Court the standard rent of the
building was not fixed under section 9, the proviso has no application and the
assessing authority was not bound to take into account the limi- 615 tation of
the standard rent. This argument was negatived by the Court and it was held
that the enactment of the proviso in section 168 of the Calcutta Municipal
Corporation Act, 1951 did not alter the law and by the addition of the proviso,
the meaning of the expression "gross rent at which the land or building
might reasonably be expected to let" was not changed. It was for this
reason that we pointed out at the commencement of the judgment that the
existence of the proviso in section 116 of the Delhi Municipal Corporation Act,
1957 is immaterial and we may proceed to deal with the appeals arising under
that Act as if the definition of "annual value" did not contain that
proviso.
That takes us to the third decision in Guntur
Municipal Council v. Guntur Town Rate Payers' Association(1) which extended
still further the principle of the decision in Padma Devi's case. This was a
case where the annual value was to be determined under the Madras District
Municipalities Act, 1920 which applied in the city of Guntur. Section 82
sub-section (2) of the Act gave a definition of "annual value"
practically in the same terms as section 3(1)(b) of the Punjab Municipal Act,
1911 and section 116 of the Delhi Municipal Corporation Act, 1957 without the
second proviso. There was also in force in the city of Guntur, the Andhra
Pradesh Buildings (Lease Rent and Eviction) Control Act, 1960, which provided
inter alia for fixation of fair rent of buildings. It is necessary to refer to
a material provisions of this Act. Section 4, sub-section (1) conferred power
on the Controller, on application by the tenant or landlord of a building, to
fix the fair rent for such building after holding such inquiry as he thought
fit and sub-section (2) to (5) of section 4 laid down the formulae for
determination of fair rent in different classes of cases. Sub-section (1)(a) of
section 7 gave teeth to the determination of fair rent by providing that where
the Controller has fixed the fair rent of a building, the landlord shall not
claim, receive or stipulate for the payment of anything in excess of such fair
rent and sub- section 2(a) of that section recognised that where the fair rent
of a building has not been fixed by the Controller, the agreed rent could be
lawfully paid by the tenant to the landord and it was only payment of a sum in
addition to the agreed rent that was prohibited by that sub-section. Section 29
made it penal for any one to contravene the provisions of subsections 1(a) and
2(a) of section 7. Now there could be no doubt that if the fair rent of a
building were fixed under section 4, sub-section (1), the decision in Padma
Devi's case would be clearly 616 applicable and the annual value would be
limited to the fair rent so fixed. But, would the same principle apply where
the fair rent were not fixed ? Would the annual value in such a case be liable
to be assessed in the light of the provisions contained in the Rent Act ? That
was the question which arose before the Court in the Guntur Municipal Council's
case. The Guntur Municipal Council urged that the decision in Padma Devi's case
was not applicable and attempted to distinguish it by saying that under section
7, sub-section (1) it was only after the fixation of fair rent of a building
that the landlord was debarred from claiming or receiving payment of any rent
in excess of such fair rent and since the fair rent of the building in that
case had not been fixed, it was not penal for the landlord to receive any
higher rent and the assessment of annual value was therefore, not "limited
or governed by the measure provided by the provisions of the Act for
determination of the fair rent." This attempt, however, did not find
favour with the court and it was held that there was no distinction
"between buildings the fair rent of which has been actually fixed by the
Controller and those in respect of which no such rent has been fixed." The
Court pointed out: "It is perfectly clear that the landlord cannot
lawfully expect to get more rent than the fair rent which is payable in
accordance with the principles laid down in the Act. The assessment of
valuation must take into account the measure of fair rent as determinable under
the Act. It may be that where the Controller has not fixed the fair rent, the
municipal authorities will have to arrive at their own figure of fair rent but
that can be done without any difficulty by keeping in view the principles laid
down in section 4 of the Act for determination of fair rent." It will thus
be seen that even though fair rent had not been fixed under the Act as in Padma
Devi's case, nor was it statutorily determined as in the Life Insurance
Corporation's case (there being no provision in the Andhra Pradesh Rent Act
similar to the latter part of section 2(10)(b) of the West Bengal Rent Act) and
it was clear from the provisions of the Rent Act that it was only after the
fair rent of a building was fixed by the Controller that the prohibition
against receipt of any amount in excess of fair rent became applicable and so
long as the fair rent was not fixed by the Controller it was open to the
landlord to receive the agreed rent even though it might be higher than the
fair rent, yet it was held by the court that in view of the provisions in the
Rent Act in regard to fair rent, the landlord could not reasonably expect to
receive from a hypothetical tenant anything more than the fair rent payable in
accordance with the principles laid down in the Rent Act and the annual value
was liable to be determined on the 617 basis of fair rent as determinable under
the Rent Act. The Court observed that the assessing authority would have to
arrive at its own figure of fair rent by applying the principles laid down in
sub-sections (2) to (5) of section 4 for determination of fair rent. This
decision clearly represented a further extension of the principle in Padma
Devi's case to a situation where no standard rent has been fixed by the
Controller and in the absence of fixation of standard rent, there is no
prohibition against receipt of higher rent by the landlord.
It is in the light of these decisions that we
must consider whether in case if a building in respect of which no standard
rent has been fixed by the Controller under the Delhi Rent Control Act, 1958
the annual value must be limited to the measure of standard rent determinable
under that Act or it can be determined on the basis of the higher rent actually
received by the landlord from the tenant. But before we proceed to examine this
question, we must refer to a recent decision of this Court in Municipal
Corporation, Indore & Ors. v. Smt. Ratnaprabha & Ors.(1) which
apparently seems to strike a different note. That was a case relating to a
building situated in Indore and subject to the provisions of the Madhya Pradesh
Accommodation Control Act, 1961. The building was self occupied and hence there
was no occasion to have its standard rent fixed by the Controller.
The annual value of the building was sought
to be assessed for rating purposes under the Madhya Pradesh Municipal
Corporation Act, 1956 and section 138(b) of that Act provided that the annual
value of any building shall, notwithstanding anything contained in any other
law for the time being in force be deemed to be the gross annual rent at which
such building might reasonably be expected to let from year to year, subject to
certain specified deductions. The argument of the assessee was that even though
no standard rent in respect of the building was fixed by the Controller, the
reasonable rent contemplated by section 138(b) could not exceed the standard
rent determinable under the Act and it was incumbent on the Municipal
Commissioner to determine the annual value of the building on the same basis on
which its standard rent was required to be fixed under the Act. This argument
was sought to be supported by relying on the three decisions to which we have
already made a reference. Now it would appear that the decision in Guntur
Municipal Council's case was clearly applicable on the facts of this case and
following that decision the Court ought to have held that the annual value of
the building could not exceed 618 the standard rent determinable under section
7 of the Act and the assessing authority should have arrived at its own
estimate of the standard rent by applying the principles laid down in that
section and determine the annual value on the basis of such standard rent. But
the Court negatived the applicability of the decision in Guntur Municipal
Council's case and the earlier two cases by relying on the words
"notwithstanding anything contained in any other law for the time being in
force" in section 138(b). The Court pointed out that while 'the
requirement of the law is that the reasonable letting value should determine
the annual value of the building, it has also been specifically provided that
this would be so "notwithstanding anything contained in any other law for
the time being in force" and observed that it would be a proper
interpretation of these words "to hold that in a case where the standard
rent of a building has been fixed under section 7 of the Madhya Pradesh Accommodation
Control Act, and there is nothing to show that there has been fraud or
collusion, that would be its reasonable letting value, but where this is not
so, and the building has never been let out and is being used in a manner where
the question of fixing its standard rent does not arise, it would be
permissible to fix its reasonable rent without regard to the provisions of the
Madhya Pradesh Accommodation Control Act, 1961. This view will, in our opinion,
give proper effect to the non-obstante clause in clause (b), with due regard to
its other provision that the letting value should be "reasonable".
The Court leaned heavily on the non-obstante clause in section 138(b) and
distinguished the decision in Guntur Municipal Council's case and the earlier two
cases on the ground that in none of the three Municipal Acts which came up for
consideration before the Court in these cases, there was any such non- obstante
clause. We are not at all sure whether this decision represents the correct
interpretation of section 138(b) because it is rather difficult to see how the
non- obstante clause in that section can possibly affect the interpretation of
the words "the annual value of any building shall.................... be
deemed to be the gross annual rent at which such building.. might reasonably
........ be expected to be let from year to year." The meaning of these
words cannot be different in section 138(b) than what it is in section 127(a)
of the Calcutta Municipal Corporation Act, 1923 and section 82(2) of the Madras
District, Municipality Act, 1920 and the only effect of the non-obstante clause
would be that even if there is anything contrary in any other law for the time
being in force that should not detract from full effect being given to these
words according to their proper meaning. But it is not 619 necessary for the
purpose of the present appeals to probe further into the question of
correctness of this decision, since there is no non-obstante clause either in
section 3(1)(b) of the Punjab Municipal Act, 1911 or in section 116 of the
Delhi Municipal Corporation Act, 1957 and this decision has therefore, no
application.
Now let us turn to the present appeals and
see how far the trilogy of decisions referred to earlier throws light on the
solution of the problem before us. We may first refer to the relevant
provisions of the Delhi Rent Control Act, 1958 for that was the law in force at
the material time relating to restrictions of rent of buildings situate within
the jurisdiction of the Delhi Municipal Corporation and the New Delhi Municipal
Committee. Section 2(k) defined 'standard rent' in relation to any premises to
mean "the standard rent referred to in section 6 or where the standard
rent has been increased under section 7, such increased rent." Sub-section
(1) of section 4 provided that, subject to a single narrow exception which is
not material for our purpose, "no tenant shall, notwithstanding any
agreement to the contrary be liable to pay to his landlord for the occupation
of any premises any amount in excess of the standard rent of the premises"
and sub-section (2) of section 4 declared that, subject to provision of
sub-section (1) "any agreement for the payment of rent in excess of the
standard rent shall be construed as if it were an agreement for the payment of
the standard rent only". Section 5 sub-section (1) enacted a prohibition
injuncting that "no person shall claim or receive any rent in excess of
the standard rent, notwithstanding any agreement to the contrary." Then,
section 6 proceeded to set out different formulae for determination of standard
rent in different classes of cases and each formula gave a precise and
clear-cut method of computation yielding a definite figure of standard rent in
respect of building falling within its coverage. Section 9 sub-section (1)
provided that the Controller shall, on an application made to him in this
behalf either by the landlord or by the tenant, fix in respect of any premises
the standard rent referred to in section 6 and sub-section (2) of section 9
laid down that in fixing the standard rent of any premises, the Controller
shall fix an amount which appears to him to be reasonable having regard to the
provisions of section 6 and the circumstances of the case.
Sub-section (4) of section 9 provided for
determination of standard rent in a case where for any reason it was not
possible to determine the standard rent on the principles set forth under
section 6 and said that in such a case "the Controller may fix such rent
as would be reasonable having regard to the situation, locality 620 and
condition of the premises and the amenities provided therein and where there
are similar or nearly similar premises in the locality, having regard also to
the standard rent payable in respect of such premises". Section 9 sub- section
(7) enjoined the Controller, while fixing the standard rent of any premises, to
specify a date from which the standard rent so fixed shall be deemed to have
effect and added a proviso that in no case the date so specified shall be
earlier than one year prior to the date of the application for the fixation of
the standard rent. Lastly, section 12 laid down a period of limitation within
which an application for fixation of the standard rent may be made by the
landlord or the tenant by providing that such application must be made within 2
years from the date of commencement of the Act in case of premises let prior to
such commencement and if the premises were let after such commencement, then
within 2 years from the date on which the premises were let to the tenant. The
proviso to section 12 empowered the Controller to entertain the application
after the expiry of the period of limitation if he was satisfied that the
applicant was prevented by sufficient cause from filing the application in
time. These provisions of the Delhi Rent Control Act, 1958 came up for
consideration before this Court in M. M. Chawla v. J. S. Sethi(1) where the
question was whether in answer to a suit for eviction filed by the landlord,
the tenant was entitled by way of defence to ask the Controller to fix the
standard rent of the premises and to resist eviction by paying or depositing
the standard rent so fixed even though at the date of the filing of the
defence, the period of limitation for making an application for fixation of the
standard rent had expired. The argument of the tenant was that by reason of the
prohibition enacted in section 4 and sub-section (1) of section 5, it was not
competent to the landlord to claim or receive any amount in excess of the
standard rent and even though the period of limitation prescribed for making an
application for fixation of standard rent had expired, the tenant was entitled
to ask the Controller by way of defence to fix the standard rent, since the
period of limitation was applicable only where a substantive application was
made for fixation of standard rent and it had no application where the fixation
of standard rent was sought by way of defence.
This Court speaking through Shah, J.
negatived the contention of the tenant and construing the scheme of the Act,
pointed out:
".............................. the
prohibition in sections 4 and 5 operate only after the standard rent of 621
premises is determined and not till then. So long as the standard rent is not
determined by the Controller, the tenant must pay the contractual rent: after
the standard rent is determined the landlord becomes disentitled to recover an
amount in excess of the standard rent from the date on which the determination
operates.
We are unable to agree that standard rent of
a given tenement is by virtue of s. 6 of the Act a fixed quantity, and the
liability for payment of a tenant is circumscribed thereby even if the standard
rent is not fixed by order of the Controller. Under the scheme of the Act
standard rent of a given tenement is that amount only which the Controller
determines. Until the standard rent is fixed by the Controller the contract
between the landlord and the tenant determines the liability of the tenant to
pay rent. That is clear from the terms of section 9 of the Act. That section
clearly indicates that the Controller alone has the power to fix the standard
rent, and it cannot be determined out of court. An attempt by the parties to
determine by agreement the standard rent out of court is not binding. By section
12 in an application for fixation of standard rent of premises the Controller
may give retrospective operation to his adjudication for a period not exceeding
one year before the date of the application. The scheme of the Act is entirely
inconsistent with standard rent being determined otherwise than by order of the
Controller. In our view, the prohibition against recovery of rent in excess of
the standard rent applies only from the date on which the standard rent is
determined by order of the Controller and not before that date." it was,
thus, held that the prohibition in section 4 and sub-section (1) of section 5
against recovery by the landlord of any amount in excess of the standard rent
was operative only after the standard rent was fixed by the Controller under
section 9 and until the standard rent was so fixed, it was lawful for the
landlord to receive the contractual rent from the tenant and if the period of
limitation prescribed for making an application for fixation of the standard
rent had expired, the tenant could not, thereafter, get the standard rent fixed
by the Controller and would continue to be liable to pay the contractual rent
to the landlord. The Revenue relied heavily on this decision and contended that
since in each of the present appeals the building was let out to the tenant,
but its standard rent 622 was not fixed by the Controller under section 9 and
the period of limitation for making an application for fixation of the standard
rent had expired, the landlord was entitled to continue to receive the
contractual rent from the tenant without any legal impediment and hence the
annual value of the building was not limited to the standard rent determinable
in accordance with the principles laid down in the Act, but was liable to be
assessed by reference to the contractual rent recoverable by the landlord from
the tenant. The argument of the Revenue was that if it was not penal for the
landlord to receive the contractual rent from the tenant, even if it be higher
than the standard rent determinable under the provisions of the Act, it would
not be incorrect to say that he landlord could reasonably expect to let the
building at the contractual rent and the contractual rent therefore provided a
correct measure for determination of the annual value of the building. This
argument, plausible though it may seem at first blush, is in our opinion not
well founded and must be rejected.
Ordinarily we would have examined the
validity of this argument first on principle and then turned to the
authorities, but we propose to reverse this order because the decisions in the
Life Insurance Corporation's case and the Guntur Municipal Council's case
(supra) completely cover the present controversy and do not leave any scope for
further argument. Of course, the decision in Padma Devi's case may be said to
be distinguishable on the ground that in the present cases, unlike Padma Devi's
case, the standard rent of the building was not fixed by the Controller and
hence it could not be said that it was unlawful or penal for the landlord to
receive anything more than then the standard rent. But so far as the decision
in Life Insurance Corporation's case is concerned, it is difficult to see how
its applicability could be disputed, because there also, as in the present
case, the standard rent of the building was not fixed by the Controller and in
the absence of fixation of the standard rent, it was open to the landlord to
receive rent in excess of the standard rent determinable under the Act. The
only distinction which could be urged on behalf of the Revenue was that under
the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950, which
came up for consideration in the Life Insurance Corporation's case, the
standard rent was statutorily determinable on the application of a mathematical
formula without any discretion being left in the Controller, while under the
Delhi Rent Control Act, 1958, the standard rent was not a certain and definite
figure to be arrived at mathematically by application of the formulae laid down
in section 6 but it was left to the Controller under section 9 sub-section (2)
to 623 fix the standard rent at such amount as appeared to him to be reasonable
having regard to the provisions of section 6 and the circumstances of the case
and hence, until the standard rent was fixed by the Controller, it could not be
said what would be the standard rent of the building. Now undoubtedly there is
some difference in the provisions of the two statutes but this difference is
not of such a character as to affect the applicability of the decision in the
Life Insurance Corporation's case, because in that case too, the prohibition
against the landlord to receive any rent in excess of the standard rent was
operative only after the fixation of the standard rent by the Controller and so
long as the standard rent was not fixed, it was not unlawful or penal for the
landlord to receive any rent in excess of the standard rent. If the standard
rent though not fixed and hence not legally enforceable, could provide the
measure for the reasonable expectation of the landlord to receive rent from a
hypothetical tenant in the Life Insurance Corporation's case, there is no
reason, why it should not equally be held to provide such measure in the
present cases; as in the one case so also in the other. The upper limit of the
standard rent, though yet to be fixed by the Controller, would enter into the
determination of the reasonable rent. Moreover, it is not correct to say that
under section 9 sub-section (2) of the Delhi Rent Control Act, 1958 it is left
to the unfettered and unguided discretion of the Controller to fix any standard
rent which he considers, reasonable. He is required to fix the standard rent in
accordance with the relevant formula laid down in section 6 and he cannot ignore
that formula by saying that in the circumstances of the case, he considers it
reasonable to do so. The only discretion given to him is to make adjustments in
the result arrived at on the application of the relevant formula, where it is
necessary to do so by reason of the fact that the landlord might have made some
addition, alteration or improvement in the building or circumstances might have
transpired affecting the condition or utility of the building or some such
circumstances of similar character. The compulsive force of the formulae laid
down in section 6 for the determination of the standard rent is not in any way
whittled down by section 9 sub-section (2) but a marginal discretion is given
to the Controller to mitigate the rigour of the formulae where the
circumstances of the case do require. The amount calculated in accordance with
the relevant formulae set out in section 6 would, therefore, ordinarily
represent the standard rent of the building, unless the landlord or the tenant,
as the case may be, can persuade the Controller that there are circumstances
requiring adjustment in the amount so arrived at. It would thus be seen that
there is no material distinction between the West Bengal Premises 624 Rent
Control (Temporary Provisions) Act, 1950 and the Delhi Rent Control Act, 1958
so far as the provisions regarding determinations of standard rent are
concerned and the decision in the Life Insurance Corporation's case must be
held to be applicable in determination of that annual value in the present
cases.
But more than the decision in the Life
Insurance case decision, it is the Guntur Municipal Council's case which is
nearest to the present case and is almost indistinguishable.
In that case also, so in the present cases,
the standard rent of the building was not fixed by the Controller and under the
Andhra Pradesh Rent Act which applied in the town of Guntur, in the absence of
fixation of the fair-rent, it was lawfully competent to the landlord to recover
rent in excess of the fair-rent determinable under that Act.
Moreover, the Andhra Pradesh Rent Act did not
prescribe any clear-cut formula to be applied mechanically for statutorily
determining the standard rent, but it was left to the Controller to fix the
standard rent having regard to (a) the prevailing rates of rent in the locality
for the same or similar accommodation in similar circumstances during the 12
months prior to 5th April, 1944; (b) the rental value entered in the property
tax assessment book of the concerned local authority relating to the period
mentioned in clause (a) and (c) the circumstances of the case, including any
amount paid by the tenant by way of premium or any other like sum in addition
to rent after 5th April 1944 with a provision for allowance of increase
depending on the quantum of the rent so arrived at. The discretion left to the
Controller to fix the fair rent was thus much larger than that under the Delhi
Rent Control Act, 1958 and yet it was held that, even though the fair rent was
not fixed by the Controller, the annual value was limited by the measure of the
fair-rent determinable under the Act. The view taken was that there was no
material distinction between buildings fair-rent of which has been actually
fixed by the Controller and those in respect of which no such rent has been
fixed and even if the fair-rent has not been fixed by the Controller, the upper
limit of the fair-rent payable in accordance with the principles laid down in
the Act is bound to enter into the determination of the rent which the landlord
could reasonably expect to receive from a hypothetical tenant. The principle of
this decision applies wholly and completely in the present cases and following
that principle, it must be held that the annual value of a building governed by
the Delhi Rent Control Act 1958 must be limited by the measure of standard rent
determinable under that Act. The landlord cannot reasonably expect to get more
rent than the standard rent payable in accordance with the principles laid down
in the Delhi Rent 625 Control Act, 1958. It is true that the standard rent of
the building not having been fixed by the Controller, the assessing authority
would have to arrive at its own figure of standard rent by applying the
principles laid down in the Delhi Rent Control Act, 1958 for determination of
standard rent, but that is a task which the assessing authority would have to
perform as a part of the process of assessment and in the Guntur Municipal
Council's case, this Court has said that it is not a task foreign to the
function of assessment and has to be carried out by the assessing authority.
When the assessing authority arrives at its own figure of standard rent by
applying the principles laid down in the Act, it does not, in any way, usurp
the functions of the Controller, because it does not fix the standard rent
which would be binding on the landlord and the tenant, which can be done only
by the Controller under the Act, but it merely arrives at its own estimate of
standard rent for the purpose of determining the annual value of the building.
That is a perfectly legitimate function within the scope of the jurisdiction of
the assessing authority.
Now it is true that in the present cases the
period of limitation for making an application for fixation of the standard
rent had expired long prior to the commencement of the assessment years and in
such of the cases, the tenant was precluded by section 12 from making an
application for fixation of the standard rent with the result that the landlord
was lawfully entitled to continue to receive the contractual rent from the
tenant without any let or hindrance. But from this fact-situation which
prevailed in each of the cases, it does not follow that the landlord could,
therefore, reasonably expect to receive the same amount of rent from a hypothetical
tenant. The existing tenant may be barred from making an application for
fixation of the standard rent and may, therefore, be liable to pay the
contractual rent to the landlord, but the hypothetical tenant to whom the
building is hypothetically to be let would not suffer from this disability
created by the bar of limitation and he would be entitled to make an
application for fixation of the standard rent and may, therefore, be liable to
pay the contractual rent to the landlord, but the hypothetical tenant to whom
the building is hypothetically to be let would not suffer from this disability
created by the bar of limitation and he would be entitled to make an
application for fixation of the standard rent at any time within two years of
the hypothetical letting and the limit of the standard rent determinable under
the Act would, therefore, inevitably enter into the bargain and circumscribe
the rate of rent at which the building could reasonably be expected to be let.
This position becomes absolutely clear if we take a situation where the tenant
goes out and the building comes to be self-occupied by the owner. It is obvious
that in case of a self-occupied building, the annual value would be limited by
the measure of standard rent determinable under the Act, for it can reasonably
be presumed that no hypothetical tenant would ordinarily agree to pay 626 more
rent than what he could be made liable to pay under the Act. The anomalous
situation which would thus arise on the contention of the Revenue would be that
whilst the tenant is occupying the building the measure of the annual value
would be the contractual rent, but if the tenant vacates and the building is
self-occupied, the annual value would be restricted to the standard rent
determinable under the Act.
It is difficult to see how the annual value
of the building could vary accordingly as it is tenanted or self-occupied.
The circumstance that in each of the present
cases the tenant was debarred by the period of limitation from making an
application for fixation of the standard rent and the landlord was consequently
entitled to continue to receive the contractual rent, cannot therefore affect
the applicability of the decisions in the Life Insurance Corporation's case and
the Guntur Municipal Council's case and it must be held that the annual value
of the building in each of these cases was limited by the measure of the
standard rent determinable under the Act.
The problem can also be looked at from a
slightly different angle. When the Rent Control Legislation provides for
fixation of standard rent, which alone and nothing more than which the tenant
shall be liable to pay to the landlord, it does so because it considers the
measure of the standard rent prescribed by it to be reasonable. It lays down the
norm of reasonableness in regard to the rent payable by the tenant to the
landlord. Any rent which exceeds this norm of reasonableness is regarded by the
legislature as unreasonable or excessive. When the legislature has laid down
this standard of reasonableness, would it be right for the Court to say that
the landlord may reasonably expect to receive rent exceeding the measure
provided by this standard? Would it be reasonable on the part of the landlord
to expect to receive any rent in excess of the standard or norm of
reasonableness laid down by the legislature and would such expectation be
countenanced by the Court as reasonable? The legislature obviously regards
recovery of rent in excess of the standard rent as exploitative of the tenant
and would it be proper for the Court to say that it would be reasonable on the
part of the landlord to expect to recover such exploitative rent from the
tenant ? We are, therefore, of the view that, even if the standard rent has not
been fixed by the Controller, the landlord cannot reasonably expect to receive
from a hypothetical tenant anything more than the standard rent determinable
under the Act and this would be so equally whether the building has been let
out to a tenant who has lost his right to apply for fixation of the standard
rent or the building is self-occupied by the owner. The assessing authority
would, in either case, have to arrive at its own figure of the standard rent by
627 applying principles laid down in the Delhi Rent Control Act, 1958 for
determination of standard rent and determine the annual value of the building
on the basis of such figure of standard rent.
It is, therefore, clear that in each of the
present cases, the annual value of the building must be held to be limited by
the measure of the standard rent determinable on the principles laid down in
the Delhi Rent Control Act, 1958 and it cannot exceed such measure of standard
rent. We accordingly allow Appeals Nos. 1143 and 1144 of 1973 and declare in
such of these two cases that the assessment of the Annual value of the building
in excess of the standard rent determinable on the principles laid down in the
Delhi Rent Control Act, 1958 was illegal and ultra vires. So far as Appeal No.
1201(N) of 1973 preferred by the Municipal Corporation of Delhi is concerned,
it relates to assessment of annual value of self-occupied building and since we
have held that in case of self-occupied building also the annual value must be
determined on the basis of the standard rent determinable under the provisions of
the Delhi Rent Control Act, 1958 and there we have agreed with the judgment of
the High Court, that appeal must be dismissed. The assessee in each case will
get his costs throughout.
N.K.A. C.A. Nos. 1143 & 1144/73 allowed.
C.A. 1201 (N)/73 dismissed.
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