East
India Commercial Co. Pvt. Ltd., Smt. D.P. Mantosh Vs. Corporation of Calcutta [1998] INSC 188 (30 March 1998)
A.S.
Anand, B.N. Kirpal Kirpal, J.
ACT:
HEAD NOTE:
WITH CIVIL
APPEAL NO. 1826/1998 (ARISING OUT OF S.L.P. @ NO. 7343/82)
Leave
granted in SLP(C) No. 7343 of 1982.
The
only question which arises in these appeals relates to the determination of
annual value under Section 168 of the Calcutta Municipal Act, 1951 in respect
of buildings which are actually let out to tenants on rent agreed, but not
fixed by the Controller under the rent Restriction Act for the purpose of
assessment of property tax.
The
appellant constructed a multi-storey building in Calcutta after the year 1956. By notice dated 10.10.1966 issued
under Section 180 of the Calcutta Municipal Act, 1951 (hereinafter referred to
as the 'Municipal Act') , the respondent assessed the annual value of the said
building at Rs. 63365/- with effect from 3rd quarter of 1966-67. The appellant
filed objections to the aforesaid valuation. While disposing of the objections
the special Officer reduced the value to Rs. 49,368/- . The appellant filed an
appeal against the said order before the Court of Small Causes, Calcutta. The appeals for subsequent years
for similar orders passed by the special Officer were also filed by the
appellant. The main contention of the appellant in the said appeal was that the
annual valuation of the property ought to be fixed on the basis of fair rent as
contemplated under the Municipal Act read along with the provisions of Sections
8 (1)(d) of the West Bengal Premises Tenancy Act, 1956 (hereinafter referred to
as the "Tenancy Act" ) and not on the basis of the actual rent being realised
by the appellant.
In
order to lead evidence relating to the actual cost of construction of the
building, the appellant moved an application before the Small Causes Court for
permission to examine an expert valuer as a witness to prove the cost of
construction of the said building. The Chief judge of the Small Caused Court
rejected the said application on the ground that such evidence was neither
necessary not relevant for examining the correctness or otherwise of the
determination of the annual valuation under Section 168(1) of the Municipal
Act. A revision petition filed against the said order was rejected by the High
Court of Calcutta. After the decision of this Court in the case of Dewan Daulat
Rai etc. etc. (1980) 2 SCR 607, wherein it was inter alia held that a building
is governed by the provisions of the Rent control Legislation and the landlord
cannot reasonably be expected to receive anything more than the standard rent,
the appellant once again applied to the Small causes Court for recalling its
earlier order and for permitting the appellant to lead evidence for the purpose
of determination of the actual cost construction. This application was allowed
as the Chief judge of the Small causes Court was of the opinion that in view of
the decision of this Court in Dewan daulat Rai Case (supra), the assessing
authority has to follow the principle laid down in the Tenancy Act for
determining the fair rent as the building had been constructed after 1956. it
accordingly recalled its earlier order dated 7.6.1974 and allowed the
appellant's prayer for examining his expert valuer in order to arrive at the
fair rent of the premises in accordance with the provisions of the Tendency
Act.
The
respondent then filed appeals against the aforesaid decision of the Chief
Judge, Small Causes Court. It was contended before the High Court that the
decision in Dewan Daulat Rai's case, and other cases where the similar view had
been taken, was distinguishable as the provisions of the West Bengal Statutes
were different. Accepting this contention, the High Court came to the
conclusion that on a correct interpretation of the Municipal Act and Tenancy
Act, the rateable value had to be fixed on the basis of the actual rent
received and not on the basis of cost of construction. The order of the Chief
Judge Small Causes, Court, who had allowed the examination of a expert valuer,
was accordingly set aside. Hence, these appeals by special leave.
On
behalf of the appellant, it has been contended that the provisions of the
Calcutta Municipal Act and the West Bengal Tenancy Act are similar to the
provisions of the corresponding statutes which were the subject of the
interpretation by this Court in Dewan Daulat Rai's case (supra) and the other
decisions where the similar view had been adopted and, therefore, it is not the
actual rent but the fair rent determinable under the Tenancy Act which is
relevant for the purpose of assessment to municipal taxes.
Shri Tapas
Ray, learned senior counsel, on the other hand submitted that it is the actual
rent which was received by the appellant which alone could be the basis of
determining the assessable value and the principle of fixation of fair rent
under Sector 8 of the Tenancy Act was wholly irrelevant.
In
order to deal with the rival contentions, it is necessary to first refer to the
relevant provisions of the statutes, Section 168 of the Municipal Act provides
for the method by which the amount of consolidated rate for the purpose of
assessment of the rent and building has to be fixed. Sub-sections (1) to (3) of
Section 168, which are relevant, read as under:
"(1)
For the purpose of assessment to the consolidated rate the annual value of any
land or building shall be deemed to be the gross annual rent at which the land
or building might at the time of assessment be reasonably expected to let from
year to year, less, in the case of a building, an allowance of ten per cent,
for the cost of repairs and for all other expenses necessary to maintain the
building in a state to command such gross rent;
Provided
hat in respect of any land or building the rent of which has been fixed under
the provisions of the West Bengal Premises Rent Control (Temporary Provisions)
Act, 1950 or the West
Bengal premises
Tenancy Act, 1956, the annual value thereof shall not exceed the annual amount
of the rent so fixed.
(2) If
the gross annual rent of any land not ordinarily let cannot be easily
estimated, the gross annual rent of the land for the purpose of sub-section (1)
shall be deemed to be five per cent of the estimated present value of the land.
(3) If
the gross annual rent of a building not ordinarily let cannot be easily
estimated, the gross annual rent of the building for the purposed of
sub-section (1) shall be deemed to be five per cent of the value of the
building obtained by adding the estimated cost of erecting the building at the
time of assessment less a reasonable amount to be deducted on account of
depreciation, if any, to the estimated present market value of the land valued
with the building as part of the same premises." At the time when the
Municipal Act was enacted it is the West Bengal Premises Rent Control
(Temporary provisions) Act, 1950 which was applicable. Section 3 of the said
Act Prohibited the realisation of any rent in excess of the fair rent and the
same was as under;
"3.
(1) Subject to the provisions of this Act, any amount in excess of the standard
rent of any premises shall be irrecoverable notwithstanding any agreement to
the contrary.
(2)
For the purposes of sub-section (1), the rent shall be deemed to have accrued
from day to day.
Provided
that nothing in this section or Act shall be deemed to affect the terms as to
rent of a lease entered into before the first day of December, 1941, the period
of which has not expired." A charge was brought about, in this regard, by
the Tenancy Act, 1956. Section 4 of the Tenancy Act relating to realisation of
excess over the fair rent is as under:
"4.
Excess over fair rent to be irrecoverable.
(1) A
tenant shall subject to the provisions of this Act pay to the landlord:
(a) in
case where fair rent has been fixed for any premises. such that
(b) in
other cases the rent agreed upon until fair rent is fixed.
(2)
Rent shall be paid within the time fixed by contract or in the absence of such
contract by the fifteenth day of the month next following the month for which
it is payable.
Provided
that a tenant may pay the rent payable for any month at any time during such
month before it falls due.
(3) Any
sum in excess of the rent referred to in sub-section (1) shall not be
recoverable by the landlord."
Section
2 (c) of the Tenancy Act defines fair rent as, inter alia, meaning that rent
which is referred to in Section 8 of the Tenancy Act, 1956 and contains the
provisions for fixation of fair rent. It is not in dispute that in the present
case it is clause (d) of Sub-section (1) of Section 8 of the Tenancy Act which
is relevant and which reads as under:
"8(1)
(d) "Fair Rent" in relation to any premises means.
Where
such premises have ben constructed and let out after the commencement of this
Act, the rent calculated on the basis of annual payment of an amount equal to
6% per cent, per annum of the aggregate amount of the actual cost of
construction and the market price of the land on the date of commencement of
construction, together with one-half of the total amount of the municipal rates
and taxes payable annually in respect of the premises:
Provided
that the rent agreed upon between the landlord and the tenant when such
premises are first let out shall, for a period of eight years from the date of
commencement of this Act, be deemed to be the fair rent." Comparing
Section 3 of the West Bengal Premises Rent Control (Temporary Provisions) Act,
1950 with Section 4 of the Tenancy Act, it is evident, that, notwithstanding
any agreement between the landlord and tenant, under the 1950 Act any rent
received in excess of the standard rent was irrecoverable Section 4 of the
Tenancy Act of 1956, however, does not make the recovery of the contractual
rent irrecoverable so long as fair rent has not been fixed. Where fair rent is
fixed then the landlord anc only realise that amount of rent and any sum in
excess of the fair rent is irrecoverable. As already noticed, in the present
case, fair rent had not been fixed under the Tenancy Act and, therefore, by
virtue of Section 4(1) (b) of the Tenanoy act, the contractual rent was not
irrecoverable by the landlord.
On
attention has been drawn by the learned counsel for the parties to many
decisions of this Court where the question relating to the determination of the
assessable value under the Municipal Act in relation to levy of property tax
has been considered. The first such decision, to which reference may be made,
is that of The Corporation
49.
This case arose from Calcutta where the provisions under Section
127(a) of the Calcutta Municipal Act, 1923 were similar to Section 168 (1) of
the Municipal Act, 1951.
Having
regard to Section 3 of the tenancy Act of 19501 whereby amount in excess of the
standard rent was irrecoverable, notwithstanding any agreement to the contrary,
this Court came to the conclusion that the rental value could not be fixed
higher than the standard rent under the Rent Control Act. it interpreted
Section 127(a)) to mean that it did not contemplate the actual rent received by
a landlord to be the annual value of any building but it contemplated
hypothetical rent which he could reasonably be expected to receive if the
building was let out. This hypothetical rent could not exceed the standard rent
under the Rent Control Act.
It was
submitted by Shri Tapas Ray that Padma Debi's case (supra) is clearly
distinguishable because, unlike Section 3 of the Tenancy Act of 1950, the
appellant was at liberty to receive the contractual rent because of Section 4(1)(b)
of the Tenancy Act of 1956 as fair rent had not been fixed and, therefore,
there was no prohibition to the receipt of the contractual rent. The
contractual rent it was contended should be regarded as the basis for
determining assessable value. It is no doubt true that there is this difference
in the two Acts but, as we shall presently see, decisions subsequent to Padma Debi's
case (supra), have clearly laid down that this distinction is irrelevant.
Players'
Association, (1971) 2 S.C.R. 423, this Court had to consider a similar question
relating to the fixation of the annual value. Section 82(2) of the Municipal
Act, which was applicable there, inter alia, stated that the annual value of
the lands and buildings shall be deemed to be the gross annual rent at which
they may reasonably be expected to be let from month to month or from year to
year. Just like sub-sections (2) and (3) of Section 168 of the Calcutta
Municipal Act, the proviso to sub-section (2) of Section 82 of the T.N.
District Municipalities Act, 1920, which was applicable in the case of Guntur
Municipal Council, also provided for annual value being determined to be a
fixed percentage of the total estimated value of the land and cost of building
where such building or class is not ordinarily let or in case of buildings
where essential amenities are not provided by the Municipality. Section 7 of
the A.P. Buildings (Lease, Rent and Eviction ) Control act, 1960 provided that
landlord could not claim or receive anything in excess of the fair rent when
fixed by the Controller. In other words, just like Section 4 of the Tenancy Act
of 1950, the landlord could receive the contractual rent till the Controller
fixed the fair rent under the Act. Even though this provision contained in
Section 7 of the A.P. Buildings (Lease, Rent & Eviction) Control Act, 1960
was different from Section 3 of the Tenancy Act of 1950, this Court in Guntur
Municipal Council case (supra) followed and applied the ratio of the decision
of this Court in Padma Debi's case (supra).
The
principle, namely, that the annual value for the purpose of the Municipal Act
could not be in excess of the standard rent even if the landlord was entitled
to receive the contractual rent in respect of a building to which the rent
restriction Law applies has been elaborately discussed in Dewan Daulat Rai's
Case (supra). It was sought to be contended on behalf of the New Delhi
Municipal Committee that till the fixation of the standard rent, the landlord
could legally receive the contractual rent, more so when the tenant's right to
get the standard rent had come to an end with a limitation for moving such an
application having expired, therefore, the annual value should be the actual
rent which was legally received by the landlord. Rejecting this contention,
this Court applied and followed the decision in Padma Debi's case (supra) and
also the decision in corporation of Calcutta vs. Life Insurance Corporation,
(1970) 2 SCC 44 where Padma Debi Case and Guntur Municipal Council case (supra)
had been followed. Dealing specifically with the question that the contractual
rent could be claimed by the landlord lawfully and, therefore, that should be
the basis of the annual valuation, this Court in Dewan Daulat Rai's case
(supra) at page 625 observed as under:
"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
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 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 more rent than what he could be made liable to pay under the Act. The
anomalous situation which could 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 valued 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 circumstances that in each of the present cases the
tenant was debarred by he 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." We do not think that it is necessary to
consider, in detail, any other decision except to observe that the principle
elaborated and laid down in Dewan Daulat Rai's Case (supra) has been followed
by this Court in Dr Balbir Singh & ors. Etc. etc. vs. Municipal Corporation
of Delhi & Ors. 1985 (2) M.N. Soi & Another, (1977) 1 SCR 731.
One
decision in which a different view was expressed is Ratna Prabha & Ors. (1977)
1 SCR 1017. There also the question arose whether for fixing the gross annual
rental value for the purpose of assessment to property-tax, the Corporation
must adopt as the annual value the standard rent which could be fixed under the
Accommodation Control Act when the premises were let out. While answering this
question in the negative, this Court distinguished the earlier decisions in the
cases of Padma Debi, Life Insurance Corporation, Guntur Municipal Council and
M. N. Soi (supra) because the peculiar language of Section 138(b) of the M.P. Municipal
Corporation Act, 1956 which was differently worded as it contained a non obstante
clause. The said clause read as under:
"
(b) the annual value af any building shall notwithstanding anything contained
in any other law for the time being in be deemed to be gross annual rent at
which such building, together with its appurtenances and any furniture that may
be let for use or enjoyment therewith might reasonably at the time of
assessment be expected to be let from year to year, less an allowance of ten
per cent for the cost of repairs and for all other expenses necessary to
maintain the building in a state to command such gross annual rent." [emphasis
added] It is for this reason, namely, the existence of non-obstante clause in
Section 138(b) of the Said Act, that Ratna Prabha's case (supra) was
distinguished and was held to be non-applicable in Dewan Daulat Rai's case
(supra) because the Delhi Act did not contain any non-obstante clause like one
with which this court was concerned in Ratna Prabha's case (supra). This
distinction has again been emphasized by Corporation and another (1995) 4 SCC
96 which was a case relating to Section 138(b) of the M.P. Municipal
Corporation Act, 1956 where Ratna Prabha's case (supra) was followed and the
other decisions in the cases of Dewan Daulat Rai, Balbir Singh etc. (supra)
were distinguished because of the existence of the non-obstante clause in
Section 138(b) of the said Act. In Section 168 of the Municipal Act, with which
we are concerned in the present case, the non-obstante clause is not there. The
Municipal Act is different from the M.P. Municipal Act, 1956. Section 168 of
the Municipal Act is similar to the corresponding provisions in Delhi and in Andhra Pradesh and,
therefore, it is the ratio of the decisions in the cases of Prabha Devi, Dewan Daulat
Rai and Guntur Municipal Council which should apply.
There
is one more decision to which reference need be made, i.e., the case of Asstt.
General manager, Central bank of India & Others VS. Commissioner, Municipal
Corporation for the City of Ahmedabad and
others (1995) 4 SCC 696. Here again the question arose with regard to the
determination of the annual letting value of the property. It was contended
that the principles of Dewan Daulat rai case (supra) should be followed but
this contention was repelled in view of the fact that the Municipal corporation
Act applicable in Ahmedabad, after its amendment, itself defined what the
annual letting value was to be. This provision also contained a non-obstante
clause, similar to one, which was in M.P. Municipal Corporation Act and as a
reason thereof, the rateable value was determined according to the principles
contained in the Municipal Corporation Act and not as per the fair rent or the
standard rent determinable under the Rent Restriction Act.
From
the aforesaid decisions the principle which is deducible is that when the
Municipal Act requires the determination of the annual value, that Act has to
be read along with rent restriction Act which provides for the determination of
fair rent or standard rent. reading the two acts together the reteable value
cannot be more than the fair or standard rent which can be fixed under the Rent
Control Act. The exception to this rule is that whenever any municipal Act
itself provides the mode of determination of the annual letting value like the
Central Bank of India's case (supra) relating to Ahmedabad or contains a non- obstante
clause as in Ratna Prabha's case (supra) then the determination of the annual
letting value has to be according to the terms of the Municipal Act. In the
Present case, Section 168 of the Municipal Act does not contain any non-obstante
clause so as to make the Tenancy Act inapplicable and nor does the Act itself
provide the method or basis for determining the annual value. this Act has,
therefore, to be read along with Tenancy Act of 1956 and it is the fair rent
determinable under Section 8(1) (d) which alone can be the annual value for the
purpose of property tax.
For
the aforesaid reasons, we are of the view that the decision of Calcutta High
Court, under appeal, cannot be sustained. The annual value under Section 168 of
the Municipal Act has to be fixed on the basis of fair rent determinable under
Section 8 of the Tenancy Act.
We,
however, find that the proviso to Section 8(1) (d) of the Tenancy Act has not
been considered so far in dealing with the question with regard to the fixation
of the annual value. The decisions of this court referred to hereinabove
clearly bring out that annual value cannot be more than the 'fair rent' or
'standard rent' (whatever may be the nomenclature in the relevant law of the
State) which is determinable under the rent Restriction Act. The proviso to
Section 8(1) (d) of the Tenancy Act regards the Contractual rent, for a period
of 8 years, when the premises was first let out, to be the 'fair rent'. When,
therefore, the actual value or the annual value for the purpose of determining
the municipal tax has to be the 'fair rent' determinable under the Tenancy Act
then, because of the proviso, it is the agreed rent for a period of eight years
which is the 'fair rent' and has to be taken into consideration in determining
the property tax. Because of the proviso the annual value of the building for
the period of eight years form the first letting has to be fixed on the basis
of contractual rent and thereafter the annual value will have to be revised and
fixed as per the formula contained in Section 8(1) (d) of the Tenancy Act
namely 6% per cent, per annum on aggregate amount of the actual cost of
construction and the market price of the land on the date of commencement of
construction as provided in that provision. To put it differently it is only
the 'fair rent' which can be taken into consideration for the purpose of fixing
the annual value under the Municipal Act. Because of the fiction created by the
proviso to Section 8(1) (d) of the Tenancy Act, the contractual rent is
regarded as the 'fair rent' for a period of eight years from the date the
premises was first let out. It is for that reason that this figure of 'fair
rent' will be the annual value which will have to be revised after eight years
when the proviso will no longer be applicable and the 'fair rent' will have to
be determined on the basis of the formula contained in the said provision.
In the
present case, it is not known as to when the property was first let out and
when does the period of eight years come to an end. it is no doubt true that in
Special Leave Petition, it has been stated that the premises were constructed
after 1964 and they were let out only in 1966 but the assessing authority has
not examined the question by taking into consideration the effect of the
provision to Section 8(1) (d) of the Tenancy Act. It would, therefore, be
necessary to determine as to when the property was first let out so that for a
period of eight years, during the subsistence of tenancy, the contractual rent
being the 'fair rent' will be regarded as the basis for fixing the annual value
under Section 168 of the Municipal Act. Thereafter the annual value has to be
determined in accordance with Section 8(1) (d) of the Tenancy Act.
Accordingly
for the aforesaid reasons, the appeals are allowed. The impugned judgment of
the High Court and the decision of the assessing authority is set aside with a
direction that the assessing authority shall make a fresh assessment in
accordance with law. Parties to bear their own cost.
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