Delhi High Court
Express Newspapers Ltd. vs Municipal Corporation Of Delhi on 1 January, 1987
Equivalent citations: 31(1987)DLT369
Author: B.N. Kirpal
Bench: B.N. Kirpal
JUDGMENT B.N. Kirpal, J.
(1) This judgment will dispose of a bunch of writ petitions in which .the common question which arises is as to what should be the rateable value, for the purposes of levy of Municipal taxes, of the property owned by the petitioner.
(2) The petitioner purchased, vide a lease-deed dated 17th March, 1958, lease hold rights of plot of land bearing Nos. 9 and 10. Bahadur Shah Zafar Marg, New Delhi. The Premium which was paid by the petitioner fur the purchase of this land was Rs. 96,955. A building was constructed on the said plot of land. The construction commenced in the year 1958 and when it was completed, the total cost of construction, according to the petitioner, came to Rs. 31,78,945.47 p. (excluding the cost of land).
(3) Under the provisions of the Delhi Municipal Corporation Act which will be referred to in greater detail presently. Municipal Taxes including property tax are determined having regard to the rateable value of the property in question. In the present case the rateable value was first determined in the year 1958-59 at Rs. 2,01,024. Till the year 1969-70 the rateable value was revised upwards on three different occassions, namely, in the year 1960-61, 1961-62 and 1966-67. The property tax payable on the rateable value determined was deposited by the petitioner.
(4) In respect of the assessment year 1970-71 the petitioner received a notice dated 4th February, 1971 for a further increase in the rateable value. In the year subsequent to 1970-71 also the proposed increased rateable value would have been applicable. The petitioner challenged the said proposal by filing a civil suit. During the pendency of the said suit, the dispute between the parties, namely, determination of the rateable value, was referred to the sole-arbitration of Shri Alagiriswamy, a retired Judge of the Supreme Court of India. The years for which this dispute was referred were 1970-71 to 1978-79.
(5) Shri Alagiriswamy gave his award dated 24th November, 1977 which was filed in this Court and was subject-matter of suit No. 92-A of 1978. As per this award, the rateable value for the year 1970-71 was determined at Rs. 20,39,360. I am informed that objections were filed to the said award but objections of both the parties have been dismissed and the award has been made a rule of the Court. In respect of the assessment years 1979-80 and 1980-81 civil suits have been filed by the petitioner challenging the rateable value proposed by the respondent and the same are pending in the Court of a Subordinate Judge, Delhi. For these years, the respondent-herein had adopted the earlier rateable value as had been determind in the award of Shri Alagririswamy.
(6) On a sorption of the land of the petitioner, it commenced construction of a, what for convenience sake is called, new building in the year 1978. This construction was completed on 10th April, 1981. On 10th April, 1981 notice was issued by the petitioner to the respondent intimating that the said building had been completed. Permission was sought of the Corporation for use and occupation of the building under section 346(2) of the Delhi Municipal Corporation Act (hereinafter referred to as the revised Act). This permission was not granted. In fact prior to 10th April, 1981a notice had been served on the petitioner to the effect that this new construction was illegal and the petitioner should show cause why the same should not be demolished. In reply to the aforesaid letter of the petitioner dated 10th April, 1981 the respondent, vide its letter dated 19th May, 1981, rejected the application filed under section 346 of the Act.
(7) In respect of the assessment year 1981-82 the petitioner received a notice dated 1st March, 1982 in which the petitioner was told that the rateable value which was proposed was 1,01,02,910. This rateable value was in respect of both the old building as well as the new building. Another notice dated 9th March 1984 was received by the petitioner proposing a still higher rateable value in respect of the assessment year 1983-84. The petitioner filed its reply to the rateable value proposed by the respondent. The petitioner objected to the rateable value which was arrived at. It is not necessary at this stage to refer in any great detail to the objections so raised. By order dated 29th May, 1984 the rateable value was proposed in respect of the old building was affirmed. By another order dated 9th October 1984 the rateable value in respect of the new construction, as proposed by the respondent, was also affirmed. The objections of the petitioner to the proposal were not accepted for the reasons stated in the said order and which will be referred to presently. On 28th June, 1985 another order was passed in respect of the assessment year 1985-86 whereby the rateable value for the old building was fixed at Rs. 23,06,070 and for the new construction at Rs. 97,86,050.
(8) The petitioner has filed Cw No. 1150 of 1986 challenging the rateable value of the new building in respect of the assessment year 1981-82. In respect of the new building writ petition Nos. 1236, 1237 of 1986, 2702, 2953 of 1985 and 1595/86 have been filed for the assessment years 1982-83, 1983-84, 1984-85, 1985-86 and 1986-87 respectively. In respect of the old building writ petitions for the years 1981-82 to 1983-84 being Cw Nos. 1778/81, 2226/ 1423 HCD/89-13 82 and 2064/83 have been filed. The challenge to the assessment of the old complex in respect of the years 1984-85 to 1986-87 is contained in the aforesaid writ petitions Nos. 2702 'and 2953/ 85 and 1595/86 respectively.
(9) Before dealing with the rival contentions, one important fact has to be noted. As already mentioned, the petitioner, on 10th April, 1981, had applied under section 346 of the Act. The permission which was sought for was refused by the respondent vide its letter dated 19th May, 1981. The petitioner had challenged in the Supreme Court notices which had been received by it for demolition of the new building. During the pendency of that petition an interim order was passed on 29th April, 1982 whereby the petitioner was permitted, at its own risk, to use the new building. The case of the petitioner is that the new construction is really in the nature of an addition to the old building and the basement was let out to the existing tenant of the basement of the old building, namely, its sister concern M/s Indian Express Newspapers Bombay Private Limited. The rest of the building which was newly constructed was mutually retained by the petitioner for its own occupation. It is, however, admitted that at later stages, portions of the building have been let out from time to time.
(10) In these writ petitions the challenge to the assessment of the new building and to that of the old building has to be dealt with separately, which I now propose to do.
(11) It is an admitted case, of the parties that assessment in respect of the old building, which is impugned in the present petitions, has been made on the basis of the award of Shri Alagiri-swami. It is further admitted that the rateable value computed in the said award was on the basis of the rateable value arrived at by having regard to the rent which was being received by the petitioner as well as in the neighborhood.
(12) The contention of the petitioner is that in respect of the old building, the award of Shri Alagiriswami could, under no circumstances, be made applicable for the years 1979-80 and onwards because rateable value for the said years were not the subject-matter of arbitration before Shri Alagiriswami. The submission of the learned counsel for the petitioner is that it is now well settled by a series of decisions of the Supreme Court, that the rateable value has to be arrived at by taking into consideration the standard rent of the building. The submission is that tinder no circumstances can the rateable value be more than the standard rent. In this behalf reliance is placed by the learned counsel on the decisions of the Supreme Court in the cases of Devan Daulat Rai Kapoor etc. etc. v. New Delhi Municipal Committee and another etc. etc., and Dr. Balbir Singh and others etc.v. M/s. Mcd and others, etc. .
(13) Briefly stated, the Supreme Court has observed in these decisions that the rateable value can only be the rent which an owner can legally receive. The rent which can be legally received is controlled by the provisions of the Delhi Rent Control Act (hereinafter 'to referred as the Rent Act) and it is not permissible for an owner/landlord to receive more than the standard rent determinable under the said Act. It has further been held that the standard rent has to be determined by applying the provisions of section 6 of the Rent Act and if for any reason the standard rent cannot be so determined, then the Assessor & Collector can have recourse to the provisions of section 9(4) of the Rent Act. The learned counsel submits that in the present case the Assessor & Collector did not go through this exercise and though full particulars had been given to the respondent, namely, the cost of land plus the cost of construction, the respondent has chosen to invoke the provisions of said section 9(4), in determining the standard rent of the property in question.
(14) Mr. Datar, the learned counsel for the respondent, has submitted that lease-hold rights of the land in this case were sold to the petitioner at a favored price and not at the market price. The learned counsel submits that it was not possible to determine the market value of the land and, therefore, the only way in which the standard rent could be determined was by invoking the provisions of section 9(4) of the Rent Act.
(15) I am unable to agree with the submission of the learned counsel for the respondent that, in the present case, the provisions of section 9(4) were attracted. Section 6 and section 9(4) of the Rent Act read as under : "6.(l) Subject to the provisions of sub-section (2), "standard rent", in relation to any premises means-' (A) in the case of residential premises- (1) here such premises have been let out at any time before the 2nd day of June, 1944,-' 1423 HCD/89-14 (a) if the basic rent of such premises per annum does not exceed six hundred rupees, the basic rent; or (b) if the basic rent of such premises per annum exceeds six hundred rupees, the basic rent together with ten per cent of such basic rent; (2) where such premises have been let out at any time on or after the 2nd day of June, 1944,- (a) in any case where the rem of such premises has been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947, or the Delhi and Ajmer Rent Control Act, 1952- "(i) if such rent per annum does not exceed twelve hundred rupees, the rent so fixed; or (ii) if such rent per annum exceeds twelve hundred rupees, the rent so fixed together with ten per cent of such rent; (b) in any other case, the rent calculated on the basis of seven and one-half per cent per annum of the aggregate amount of the reasonable cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction; Provided that where the rent so calculated exceeds twelve hundred rupees per annum, this clause shall have effect as if for the words "seven and one-half per cent", the words "eight and one-fourth per cent" had been substituted; (B) in the case of premises other than residential premises. (1) where the premises have been let out at any time before the 2nd day of June, 1944, the basic rent of such premises together with ten per cent of such basic rpnt: Provided that where the rent so calculated exceeds twelve hundred rupees per annum, this clause shall have effect as if for the words "ten per cent", the words "fifteen per cent" had been substituted; (2) where the premises have been let out at any .time on or after the 2nd day of June, 1944,- (a) in any case where the rent of such premises has been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947 or the Delhi and Ajmer Rent Control Act, 1952- (i) if such rent per annum does not exceed twelve hundred rupees, the rent so fixed; or (ii) if such rent per annum exceeds twelve hundred rupees, the rent so fixed together with fifteen per cent, of such rent; (b) in any other case, the rent calculated on the basis of seven and one-half per cent, per annum of the aggregate amount of the reasonable cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction: Provided that where the rent so calculated exceeds twelve hundred rupees per annum, this clause shall have effect as if for the words "seven and one-half per cent", the words "eight and five-eight per cent", had been substituted. (2) Notwithstanding anything contained in sub-section (1)- "(a) in the case of any premises, whether residential or not, constructed on or after the 2nd day of June, 1951. but before the 9th day of June, 1955, the annual rent calculated with reference to the rent at which the premises were let for the month of March, 1958, or if they were not so let, with reference to the rent at which they were last let out, shall be deemed to be the standard rent for a period of seven years from the date of the completion of the construction of such premises; and (b) in the case of any premises, whether residential or not, constructed on or after the 9th day of June, 1955, including premises constructed after the commencement of this Act, the annual rent calculated with reference to the rent agreed upon between the landlord and the tenant when such premises were first let out shall be deemed to be the standard rent for a period of five years from the date of such letting out. (3) For the purposes of this section, residential premises include premises let out for the purposes of a public hospital, an educational institution, a public library, respect of such premises." xx xx xx xx 9(4) Where for any reason it is not possible to determine the standard rent of any premises on the principles set forth under section 6, the Controller may fix such rent as would be reasonable having regard to the situation, locality 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.
(16) In this case we are concerned with non-residential premises which were constructed in the year 1958. The standard rent according to the provisions of section 6(1)(B)(2)(b) of the Rent Act has to be determined on the basis of 7-1/2 per cent per annum of the aggregate amount of the reasonable cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction. Section 9(4) is applicable where it is not possible to determine the standard rent of any premises on the principles set forth under section 6. Merely because the lease-hold rights of the land, which had been sold to the petitioner, were allegedly sold at a favored price it cannot be said that the market value of the land cannot be determined. A similar contention had been raised before the Supreme Court in Dr. Balbir Singh's case (supra) but was repelled. In the present case, the Assessor, and Collector has not undertaken the exercise of determining the market value of the land in the yet 1958 when the construction of the old building had commenced. It is difficult for me to imagine that if such an exercise had been undertaken it would not have been possible for the Assessor & Collector to determine the market value of the land. The respondent had before it the price which was paid by the petitioner when it bought the land from the Government. If there was any material to show that this price which was paid did not in fact reflect the correct market price, then it was incumbent on the respondent to substitute the correct market price of the land as determined by it. But for refusing to take into consideration the price paid by a purchaser the Corporation must give cogent reasons, based on undisputable facts, which can lead one to a reasonable conclusion that such price does not reflect the correct market price of the land in question. In the present case it has never been suggested till now that the price paid by the petitioner did not represent the correct market price of the land in the year 1958. If the respondent had disputed the market price of the land then it should have said so in the impugned orders, which it has not done.
(17) Even if it be assumed that the price paid by the petitioner in 1958 did not represent the correct market price, then the respondent ought to have determined the same. Non determination of the market price of land cannot be a reason for invoking the provisions of section 9(4) of the Rent Act instead of determining the standard rent under section 6 of the said Act.
(18) In my view, therefore, the determination of the net rateable value of the old building by invoking the provisions of section 9(4) of the Rent Act was not valid. The respondent was bound to determine the rateable value by applying the provisions of section 6 and not section 9(4). As this has not been done, the determination of the rateable value of the old building in these cases will have, therefore, to be quashed and the case remanded. Challenge with regard to the assessment of the new building:
(19) The first contention of the learned counsel for the petitioner is that no property tax could be levied up to 29th April, 1982 because the new building was in fact not in occupation and nor could it have been let-out. It is submitted that property tax can be levied only on a building when it is completed and for which permission to occupy has been granted.
(20) Before dealing with the said submission. It is, at this stage, necessary to refer to some of the provisions of the Mcd Act. Section 113 specifies the types of taxes which are levied and this includes property tax. Section 116 of the Mcd Act provides for determination of rateable value of lands and buildings assessable to property tax. Relevant portion of section 116(1) reads asunder:- "116. (1) The rateable value of any land or building assessable to property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year less - (a) a sum equal to ten per cent of the said annual rent which shall be in lieu of all allowances for casts of repairs and insurance, and other expenses, if any necessary to maintain the land or building in a state to command that rent, and (b) the water tax or the scavenging tax or both, if the rent is inclusive of either or both of the said taxes. The word "building" has been defined by section 2(3) as under:- ""Building" means a house, out-house, stable, latrine, urinal, shed, hut, wall (other than a boundary wall) or any other structure, whether of masonry, bricks, wood, mud, metal or other material but does not include any portable shelter."
When a building has been erected, section 129 of Mcd Act requires notice to be given by the owner in respect thereto. The said section reads as follows: "129. When any new building is erected or when any building is re-built or enlarged or when any building which has been vacant is re-occupied the person primarily liable for the property taxes assessed on the building shall give notice there of in writing to the Commissioner within fifteen days from the date of its completion or occupation whichever first occurs or as "the case may be, from the date of its enlargement or re-occupation; and property taxes shall be assessable on the building from the said date. The last section which is relevant for the present case is section 346 of Mcd Act which deals with issuance of completion certificates and the same reads as under :- "346.(l) Every person who employs a licensed architect or engineer or a person approved by the Commissioner to design or erect a building or execute any Work shall, within one month after the completion of the erection of the building or execution of the work, deliver or send or cause to be delivered or sent to the Commissioner a notice in writing of such completion accompanied by a certificate in the form prescribed by bye-laws made in this behalf and shall give to the Commissioner all necessary facilities for the inspection of such building or work. (2) No person shall occupy or permit to be occupied any such building or use or permit to be used any building or a part thereof effected by any such work until permission has been granted by the Commissioner in this behalf in accordance with bye-laws made under this Act; Provided that if the Commissioner fails within a period of thirty days after the receipt of the notice of completion to communicate his refusal to grant such permission, such permission shall be deemed to have been granted."
(21) The reading of the aforesaid provisions make it clear that property tax is levied under section 116 by determining the rateable value of a building, which is to be the annual rent at which the building "might reasonably be expected to let from year to year". Section 129 fixes the time when the building can be subjected to tax. According to the said provision property taxis assessable from the date on which notice of erection of the building is issued under section 129. There is, therefore, considerable force in the contention of the learned counsel that assessability to tax arises with the issuance of a notice under section 129, but the next question which arises is the determination of the rateable value. If the rateable value is nil then the question of payment of any property tax would obviously not arise. In order to see what is to be the rateable value, the relevant provision is section 116. The said section provides that rateable value is to be the rent at which the building might reasonably be expected to let. Section 346 makes it clear that a building cannot be occupied or permitted to be let unless a completion certificate has been obtained. If, therefore, a building which has been erected, and in respect of which notice under section 129 has been issued, permission to occupy is refused and the building is actually not in occupation then, to my mind,. there cannot be any annual rent of such a building because that building cannot be let from year to year. When there is an embargo on the letting of a building, and such a building; is in fact not occupied either by a tenant or by the owner himself, then there can be no determination of rateable value or, to put it differently, the rateable value cannot be more than nil and, therefore, even though the building may have become liable to payment of property tax but in fact the rateable value which will be determined would be nil. The consequence of this would be that in actual fact no tax would be payable in respect thereof.
(22) In the impugned order reference is made to a letter dated 14th October, 1981 in which the petitioner had informed the respondent that the basement of the additional building was being used for installing the press machinery by Indian Express Newspapers (Bombay) Pvt. Limited and the balance of the building was under the occupation of the company. This letter no doubt seem to indicate that the new building which had been constructed was under occupation. In the writ petition, however, it has been categorically averred that the new building was vacant and was not in the occupation of any one. It is on this basis that a contention was raised that no tax could be levied till the Supreme Court had granted permission to occupy the said building. This specific averment raised in the grounds in the writ petition has not been specifically denied by the respondent. It appears to me that notwithstanding what has been stated in the letter dated 14th October, 1981 there is, apart from not controverting the specific allegation raised in this behalf in the writ petition, intrinsic evidence to show that the building in question could not have been occupied till the Supreme Court had permitted its occupation. Firstly on 10th April, 1981 notice had been issued by the petitioner intimating that the building had been completed and seeking permission for its use and occupation. The permission sought for was specifically rejected by the respondent by its letter dated 19th May, 1981. By virtue of the provisions of section 346 of the Mcd Act, because of the rejection of the said permission, there could be no question of any one occupying the said premises.
(23) Furthermore, the learned counsel for the petitioner has brought to my notice the application which was filed in the Supreme Court on which orders were passed on 29th April. 1982. In the said application filed in the Supreme Court, it was averred that after the petitioner had sent notice of the building being completed, the representative of the respondent had inspected the said building. On 19th May, 1981 the petitioner is stated to have written a letter to the respondent to the effect that as there was no communication of refusal from the respondent, therefore the petitioner .was entitled to occupy the said building under the provisions of section 346(2) of the Mcd Act. It was further alleged in the application that immediately on the receipt of the petitioner's letter dated 19th May, 1981 the respondent wrote on 19th May, 1981 rejecting the application of the petitioner for permission to occupy the building under section 346 of the Mcd Act. It is further averred in that application that the respondent should be directed to grant the completion certificate "so as to enable the petitioners to occupy and to put to use the said completed building such occupation and use being subject to the final orders that may be passed by Your Lordships in the Writ Petition". Prayer to this effect was made in the said application. On 29th April, 1982 the Supreme Court passed order granting the permission in the following words: "Pending the disposal of the writ petition of the petitioners may at their own risk and without the issue of the necessary completion certificate by the Municipal Corporation occupy and put to use the newly constructed building without prejudice to the rights and contentions of the parties and subject to the final orders that may be passed in the writ petitions. Such user of the newly constructed buildings shall not be taken into consideration in deciding the writ petitions. All persons who are placed in occupation of the said buildings shall be subject to the result of the writ petitions and they shall be informed of these terms by the petitioners and further that each of such persons allowed to occupy any part of the newly constructed buildings shall give a written undertaking to this Court to abide by the orders of this Court in those writ petitions. Such written undertakings should be filed in this Court before any such person is placed in occupation." From the aforesaid facts, it is clear that the new building which had been constructed was not in the physical occupation of any one till after 29th April, 1982. The building, of course, was in the possession of the petitioner because it had constructed the same and it is on that basis that letter dated 14th October, 1981 may have been written but the fact remains that till 29th April, 1982 the building was not in physical occupation of any one. If the building had in fact been occupied by the petitioner and by its sister concern then there would have been no occasion for the Supreme Court to pass the order dated 29th April, 1982. I must, therefore, proceed on the basis that the building in question was neither occupied nor permitted to be occupied till after 29th April, 1982.
(24) It was then contended before me that in computing the rateable value the respondent has taken into consideration the area of the working platform in the basement. The taking into consideration of the plinth area of the working platform became relevant, in the present case, because the respondent had determined the standard rent of the new building not by applying section 6 of the Rent Act but by applying the provisions of section 9(4) of the Rent Act. In the impugned order the reason for invoking the provisions of section 9(4) of the Rent Act was stated in the following words :- "SINCE the correct rate at which this property has been let out has not been made available and the tenant is a sister-concern, the rent will have to be estimated under provisions of section 9(4) of the Delhi Rent Control Act keeping in view the similarly situated accommodation with similar facilities in the same locality. As regards remaining accommodation which was claimed to be in self-occupation, as aforesaid, rent has to be estimated on the basis of the prevalent rents in the locality with similar facilities, i.e. under section 9(4) of the Delhi Rent Control Act."
(25) This view of the assessing authority is clearly inconsistent with the law as enunciated by the Supreme Court. In Balbir Singh's case (supra), in particular, the Supreme Court has emphasised that the standard rent has first to be determined under section 6 of the Rent Act both in respect of property which is self-occupied and also in respect of the property which is let out on rent. The provisions of section 9(4) are to be applied only if it is, for some reason, not possible to determine the standard rent under section 6 of the Rent Act. In the present case, the cost of land and of the construction thereon was known and, therefore, the standard rent had to be determined under section 6 of the Rent Act and the application of section 9(4) by the respondent was clearly unwarranted. As the rateable value had to be determined with reference to the standard rent calculated by applying the provisions of section 6 of the Rent Act, the question of the finding out what was the area of the basement would be clearly meaningless. The standard rent has to be determined on the basis of the cost of construction, plus the value of land, and not on the basis of the rent per square foot receivable for any part of the building. As such merely because the rent receivable from the sister concern was not known would not be a ground for determining standard rent under section 9(4) of the Rent Act.
(26) At this stage, it is pertinent to note a contention which has been raised to the effect that when new construction arises then in determining the standard rent the Assessor & Collector will have to take into consideration the market value of the land in question. This submission was raised by Shri Datar and it was contended by him that in determining the rateable value of the new building constructed by the petitioner, not only will the cost of construction of the new building has to be considered but to this will have to be added the market price of the land in 1978 on which this new construction has been raised.
(27) Shri Mehra, the learned counsel for the petitioner, has, however, submitted that there would be no occasion to take into consideration the market value of the land on which the new building has been erected. The first submission of the learned counsel for the petitioner in this regard is that the new building is merely an addition to the existing premises and, therefore, the standard rent has to be determined by invoking the provisions of section 7 of the Rent Act. The learned counsel further submits that assuming, though not admitting, that for the additional construction the standard rent has to be determined by invoking the provisions of section 6 of the Rent Act, even then the cost of the land will not be the market value of the land at the time when the additional construction is put up but the cost of the land would be as to what it was at the time when the original construction had commenced.
(28) Whereas section 6 requires, in determining the standard rent, not only the cost of construction of the building to be taken into consideration but also "the market price of the land comprised in the premises on the date of the commencement of the construction", section 7(1) on the other hand. inter alia, provides for taking into consideration the cost of the addition made in the premises and does not postulate taking into consideration the cost or the market price of land at the time when the additions are made. Section 7(1) of the .Rent Act reads as under: "7.(1)Where a landlord has at any time, before the commencement of this Act with or without the approval of the tenant or after the commencement of this Act with the written approval of the tenant or of the Controller, incurred expenditure for any improvement, addition or structural alternation in the premises, not being expenditure on decoration or tenantable repairs necessary or usual for such premises, and the cost of that improvement, addition or alteration has not been taken into account in determining the rent of the premises, the landlord may lawfully increase the standard rent per year by an amount not exceeding seven and one-half per cent, of such cost."
The reading of the two provisions, namely, sections 6 and 7, therefore, clearly show that if the computation is to be made under section 7 then the value of land is to be ignored but if the standard rent is to be determined under section 6 then the market price of the land becomes relevant.
(29) Normally standard rent is determined by invoking the provisions of section 6 of the Rent Act. Section 7 of the Rent Act, however, applies only to a specific category of cases. The reading of section 7 shows that it applies to only those cases where there is addition, alteration or improvement in the premises which have already been let out to a tenant. Whenever such addition, alteration or improvement takes place the same has to be for the benefit of the tenant but the landlord is entitled to increase the rent by 7" per cent of the cost incurred by him on such addition, alteration or improvement.
(30) In the present case the basement constructed in the new building has, admittedly, been let to the existing tenant of the basement of the old building. That tenant in Indian Express Newspapers (Bombay) Pvt. Limited, a sister concern of the petitioner. In determining the rateable value of this portion of the new building, the Assessor will first have to examine whether this amounts to an addition in the premises of the existing tenant so as to attract the provisions of section 7 of the Rent Act. The rest of the new building was self-occupied till portions of the same were let out, at different, points of time, to other tenants. To my mind the provisions of section 7 would, therefore, not be applicable in determine the standard rent of the rest of the new building. The standard rent for the same will have to be determined by applying the provisions of action 6 of the Rent Act.
(31) As has already been noted, section 6 of the Rent Act requires the taking into consideration of the market price of the land on which the premises are constructed. This price has to be as on the date on which the construction of the premises, whose standard rent has to be determined, commences.
(32) Now when a building or premises are constructed at one time, there would be no difficulty in determining the market price of land. If, for example, land is purchased in the year 1980 but the construction is commenced on the said land in 1985 then the market price of land in 1985 has to be determined and taken into account while computing the standard rent under section 6 of the Rent Act. The problem, however, arises when a building or more than one premises are constructed on a plot of land at different points of time and/or in different stages. When the cost of land is taken into consideration when the original or the first structure is built for determining its standard rent then when, after a lapse of a few years, additional construction is built then how can the standard rent of the latter construction be determined under section 6 of the Rent Act. That provision requires the market price of land, on the day when the construction begins, to be added, to the cost of construction. But if the market price was taken into account while determining the standard rent when the original structure was built can the market price of the same land be added to the cost of construction of the latter construction.
(33) Before attempting to find an answer, there is one more thing which has to be kept in view. That is that the additional construction made at a later date may either be by constructing above the original building and without any increase in the plinth area on the ground floor or by constructing the new building adjacent to the original one and thereby constructing on an unbuilt portion of land.
(34) One view could have been that where the-new structure is constructed then one of elements of section 6 is the cost of land in determining the standard rent of the additional structure. The market price has to be on the date when the construction of the additional structure is commenced. The practice which is being followed, I understand, by the respondent-Corporation is that if supposing in 1970 a flat was constructed only on the ground floor and more construction is made on the higher floors or by constructing on unbuilt portion of the plot in 1980 then, on pro-rata basis, market price of the land as in 1980 would be taken into account.
(35) One way in which this problem could have been approached was to take into account the market price of a portion of land only if the new and additional construction was on the unbuilt portion of the plot thereby resulting in an increase ir the covered area on the ground floor itself. It is, however, not necessary to examine this aspect in greater detail, however attractive? the contentions raised by the respondent be, because of the observations of the Supreme Court in Dr. Balbir Singh's case (supra).
(36) It appears that before the Supreme Court also a contention was raised as regards the cost of land to be taken into consideration in determining the standard rent. Dealing with such acontention, the Supreme Court observed as follows:- "THE basic point to be noted in all these cases is-and this is what we have already emphasized earlier-that the formula set out in sub-sis (1) (A) (2) (b) and (1)(B)(2)(b) of S. 6 cannot be applied for determining the standard rent of an addition as if that addition was the only structure standing on the land. The assessing authorities cannot determine the standard rent of the additional structure by taking the reasonable cost of construction of the additional structure and adding to it the market price of the land and applying the statutory percentage of 7" of the aggregate amount. The market price of the land cannot be added twice over, once while determining the standard rent of the original structure and again while determining the standard rent of the additional structure. Once the addition is made, the formula set out in sub-sis (1) (A) (2) (b) and (1)(B)(2)(b) of S. 6 can be applied only in relation to the premises as a whole and where the additional structure consists of a distinct and separate unit of occupation, the standard rent would have to be apportioned in the manner indicated by us in the earlier part of this judgment".
The aforesaid decision of the Supreme Court has to be applied in all cases where an owner raises additional construction on land whose market price has once been added to the cost of construction of the old premises while determining the standard rent of those old premises.
(37) This interpretation would also be in consonance with the object of the Rent Act which is to protect the tenant. The amount of standard rent fixed has to have a nexus with the amount spent by the landlord on the construction and the market value of the land on the date of initial commencement of the construction. If subsequent increase in land value, before the commencement of the second part of the construction, is permitted to be added, then the landlord would be entitled to charge a standard rent, which is absolutely disproportionate to his investment.
(38) In the present case, therefore, as the value of land as in 1958 has to be added to the cost of construction of the old building, therefore the market price of a part of the same land, as in 1978 when construction of the new building started, cannot be added to the cost of construction of the new building while determining the standard rent of the said building.
(39) As already noticed, the Supreme Court permitted the occupation of the new building by its order dated 29th April, 1982. Thereafter portions of the same were let out to different tenants. Whereas the basement was given on rent to Indian Express Newspapers (Bombay) Pvt. Limited, the rest of the building was let out as under : (a) Ground Floor : On 1-7-1983 (b) First Floor : On 8-7-1983 (c) Second Floor : On 1-10-1982 (d) Third Floor : On 23-6-1983. The submission of the learned counsel for the petitioner is that in determining the standard rent of the new building for the purposes of calculating the rateable value under section 116 of the Mcd Act, the actual rent received by the petitioner from its tenants should be ignored. The contention is that even in respect of the portions which were .given on rent after 29-4-1982 standard rent should be calculated by applying the provisions of section 6(1)(B) of the Rent Act and by ignoring the actual rent received.
(40) According to the learned counsel the agreed rent, for a period of five years, of a portion being first let, cannot be regarded as the standard rent under section 6(1)(B) though under sub-section (2) of section 6 it is deeded to be the standard rent. The learned counsel further elaborated that the deeming provision of sub-section (2) of section 6 of the Rent Act cannot be read into the provisions of section 116 of the Mcd Act. He submitted that a fiction is to be read for the purpose for which it was created and not for any other purpose. The rateable value can be fixed, it was submitted, only by seeing what is the reasonable rent in the market and actual rent is not to be the yardstick.
(41) I am unable to agree with this contention. The rateable value is to be the value at which the premises can be reasonably expected to be let out on rent. In construing this the Supreme Court has observed that the maximum value cannot exceed what is permissible by law. It is for this reason that it has been held that the rateable value would be the actual rent received subject to the maximum of the standard rent. This would be a case where the actual rent received is less than the standard rent. Where, however, the actual rent received is more than the standard rent then the excess amount is not legally recoverable and, therefore, the rateable value cannot be in excess of the standard rent. In the case of first letting, however, the actual rent itself becomes the standard rent and, therefore, determining the rateable value by taking into consideration the actual rent received would in effect amount to determining the rateable value on the basis of the standard rent fixed under section 6(2) of the Act. This rent would be different' from the standard rent which can be fixed under section 6(1)(B) and may. in some cases, be even different from the actual rent received. For example, if premises are constructed in the year 1980 ami immediately let out for a sum of Rs. 2000 per month, then for the first five years thereafter the standard rent will be taken to he Rs, 2000 per month. If the rent of the said premises is increased in the year 1981 to Rs. 4000 the standard rent would remain at Rs. 2000 and would not increase to Rs. 4000. This is because sub-section (2) of section 6 of the Rent Act provides that the rent which is received when the premises are first let out would become the standard rent for the first five years. After the five year period of the first letting is completed, then the standard ent will have to be fixed by applying the provisions of section 6(1)(B) of the Rent Act. The deeming provision in sub-section (2) of Section 6 has to be given its full effect. This full effect can be given if after the first letting the standard rent is taken to be that which is determined under sub-section (2) of section 6 and not what is determined Under section 6(1)(B) of the Rent Act. In this connection, reference may also be made to the decision of the Supreme Court in the case of Mrs. Shiela Kaushish v. The Commissioner of Income-tax, Delhi, In that case the question arose as to what is to be the standard rent when portions of a warehouse which had been constructed were let out to tenants at different points of time. The Supreme Court held that in determining the standard rent the provisions of sub-section (2) of section 6 would be applicable and the actual rent received would be the standard rent. The head-note of the decision reported above clearly brings out the ratio of the case. Relevant portion of the said head-note reads as under : "WHERE a portion of the warehouse constructed after 19th June, 1955 and governed by the Delhi Rent Control Act was first let out from 19th March, 1962 at rent of Rs. 5810 per month, the standard rent for the first five years from the date of letting being contractual rent and thereafter being determinable under para (b) of S. 6(1)(B)(2), its standard rent (annual value) for the accounting years 1968-69 and 1969-70, the years in question, would have to be determined Under para (b), sub-clause (2) of Clause (B) of sub-section (1) of S. 6 of the Rent Control Act and this latter figure would represent the standard rent of the warehouse determinable under the provisions of the Rent Act. Where another portion of the warehouse was let out on 1st April 1964 at the rent of Rs. 6,907 per month, its standard rent for the accounting year 1st April 1968 to 31st March 1969 determinable under the provisions of the Rent Act would be Rupees 6,907 per month while for the accounting year 1st April 1969 to 31st March 1970, the standard rent would be that determinable under para (b) of sub-el. (2) of d. (B) of sub-section (1) of S. 6. Where still another portion of the warehouse was let out on 7th December 1964 at the rent of Rs. 6,640 per month; its standard rent for the accounting year 1st April 1968 to 31st March 1969 and 1st April 1969 to 6th December 1969 determinable under the provisions of the Rent Act would be Rs. 6,640 per month, while for the remaining portion of the accounting year from 7th December, 1969 to 31st March, 1970, the standard rent would be determinable under para (b) of sub-el. (2) of Clause (B) of sub-section (1) of S. 6."
(42) In the present case, therefore, the respondent would be justified in increasing the rateable value from time to time when portions of the new building were let out. The rent so received would be regarded as standard rent under the provisions of subsection (2) of Section 6 and will be taken into consideration in determining the rateable value of the building in question.
(43) This takes me to the next argument of the learned counsel for the petitioner which is that the rateable value of the newly constructed building cannot be very much different than the rateable value which had been fixed for the year 1958. In support of this contention, the learned counsel relies upon the following observations of the Supreme Court in Dr. Balbir Singh's case, : "THE annual rent which the owner of the premises may reasonably expect to get if the premises are let out would depend on the size, situation, locality and condition of the premises and the amenities provided therein and all these and other relevant factors would have to be evaluated in determining the rateable value, keeping in mind the upper limit fixed by the standard rent. If this basic principle is borne in mind, it would avoid wide disparity between the rateable value of similar premises situate in the same locality, where some premises are old premises constructed many years ago when the land prices were not high and the cost of construction had not escalated and others are recently constructed premises when the prices of land have gone up almost 40 to 50 times and the cost of construction has gone up almost 3 to 5 times in the last 20 years. The standard rent of the former category of premises on the principles set out in sub-sis., (1) (A) (2) (b) or (1) (B) (2) (b) of S. 6 would be comparatively the standard rent determinable on these principles would be unduly high. If the standard rent were to be the measure of rateable value, there would be huge disparity between the rateable value of old premises and recently constructed premises, though they may be similar and situate in the same or adjoining locality. That would be wholly illogical and irrational. Therefore, what is required to be considered for determining rateable value in case of recently constructed premises is as to what is the rent which the owner might reasonably expect to get if the premises are let out and that is bound to be influenced by the rent which is obtainable for similar premises constructed earlier and situate in the same or adjoining locality and which would necessarily be limited by the standard rent of such premises. "The position in regard to the determination of rateable value of self-occupied residential and non-residential premises may thus be stated as follows : The standard rent determinable on the principles set out in sub-s. (2) (a) or 2(b) or (1) (A) (2) (B) or .(1)(B)(2)(b) of S. 6, as may be applicable, would fix the upper limit of the rateable value of the premises and within such upper limit, the assessing authorities would have to determine as to what is the rent which the owner may reasonably expect to get if the premises are let to a hypothetical tenant and for the purpose of such determination, the assessing authorities would have to evaluate factors such as size, situation, locality and condition of the premises and the amenities . therein provided. The assessing authorities would also have to take into account the rent which the owner of similar premises constructed earlier and situate in the same or adjoining locality, might reasonably expect to receive from a hypothetical tenant and which would necessarily be within the upper limit of the standard rent of such premises, so that there is no wide disparity between the rate of rent per square foot or square yard which the owner might reasonably expect to get in case of the two premises. Some disparity is bound to be there on account of the size, situation, locality and condition of the premises and the amenities provided therein. Bigger size beyond a certain optimum would depress the rate of rent and so also would less favorable situation or locality or lower quality of construction or unsatisfactory condition of the premises or absence of necessary amenities and similar other factors. But after taking into account these varying factors. the disparity should not be disproportionately large."
The aforesaid observations of the Supreme Court would, however, be applicable only in those cases where the new construction is in. self-occupation. The said observations are not applicable where the premises which ace newly constructed are let out oft rent. In the latter case the decision of the Supreme Court in Shiela Kaushish's case (supra) would be clearly applicable. The respondent would, therefore, have to keep in view the principles laid down by the Supreme Court in the case of Shiela Kaushish as well as in the case of Dr. Balbir Singh (supra) while determining the rateable value of the property in question.
(44) No other contention has been raised by any of the learned Counsel.
(45) For the aforesaid reasons the writ petitions are allowed. The impugned orders of assessment are quashed. The respondent is directed to make a fresh assessment of the property in question for the various assessments years in the light of the observations of the Supreme Court and in the light of what is stated hereinabove. The fresh assessments shall be made after giving the notice to the petitioner and affording it full opportunity of being heard. The respondent will endeavor to complete the assessment as soon as possible. Parties will bear their own costs.