Bombay High Court
Municipal Corporation Of Gr.Bombay And ... vs Himatlal Kantilal And Anr on 9 April, 2025
2025:BHC-AS:16628
First Appeal No. 816 of 1992 (final).doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO. 816 OF 1992
(1) The Municipal Corporation of Greater ]
Bombay ]
(2) Shri S. S. Tinaikar ]
(3) Mr. D. J. Joshi ] ...Appellants
Versus
(1) Himatlal Kantilal ]
(since deceased, through LRs) ]
1A. Nalini Himatlal (Widow) ]
1B. Rajesh Himatlal (Son) ]
1C. Mukesh Himatlal (Son) ]
Nos. 1A to 1C residing at 14, ]
Kantilal House, Mama Parmanand Marg ]
Mumbai - 400 001. ]
(2) Mrs. Hasumati Arvind ] ...Respondents
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Mr. Narendra Walavalkar, Senior Advocate a/w Ms. Vidya Vyavahare, Ms. Pallavi
Khale i/b Ms. Komal Punjabi for Appellant-BMC.
Mr. Rajesh Kachare, Mr. T. C. Deshpande, Ms. Sonal Dabholkar for Respondents.
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Coram : Sharmila U. Deshmukh, J.
Reserved on : 31st January, 2025.
Pronounced on : 9th April, 2025.
Judgment :
1. By the present First Appeal, the judgment of the Small Causes Court dated 22nd April, 1991 passed in Municipal Appeal No. 190 of Sairaj 1 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc 1987 filed by the Respondents under Section 217 of the Mumbai Municipal Corporation Act, 1888 [for short, "MMC Act"] challenging the order of Investigating Officer dated 27 th March, 1987 fixing the rateable value at Rs. 88,740/- with effect from 1 st April, 1987 to 31st March, 1988 has been impugned.
2. The facts of the case are that the Respondents are the owners of the building known as 'Kantilal House' situated at 14, Mama Parmanand Marg, Bombay - 400 004 assessed under D-Ward 515(1), which consisted of ground floor, mezzanine floor and four upper floors, out houses and store rooms and the garages on the ground floor. The dispute is relating to fixation of rateable value of the ground floor and first floor.
3. Pursuant to Lease Deed of the year 1939, the entire ground floor of Kantilal House along with one room in outhouse and a garage with exclusive use of right side passage was let out on a monthly rent of Rs.
800/- to Swiss Engineering Company Limited till beginning of year 1943. From March, 1943 till March, 1946, the ground floor was let out to Garrison Engineering Company (Government of India) on the same monthly rent of Rs. 800/- After the entire ground floor was vacated in May, 1946, the ground floor premises was divided into two parts, one part admeasuring 1000 square feet was let out to Kohinoor Mills on monthly rent of Rs. 1,200/- and the other part admeasuring 2300 Sairaj 2 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc square feet was let out to Nahalchand Lalloochand Private Limited on monthly rent of Rs. 200/-. In August, 1962, Nahalchand Lallochand Pvt Ltd sub-let their ground floor portion to Bank of Baroda, who constructed mezzanine floor in the year 1972 with permission of Respondents. The rent charged to Nahalchand Lalloochand Pvt Ltd for ground floor was increased and in the year 1986-1987, the rent was Rs 3,961.95 claimed to have been increased on account of permitted increases.
4. The first floor of Kantilal House was divided into two wings. The northern wing of first floor was let out to one Dr. Sardesai in 1940 at the monthly rent of Rs. 175/- till November, 1942. Thereafter, it was let out to one Continental Trading Company alongwith garage and Rs 190/- was the monthly rent inclusive of the rent for the garage. In 1953, the first floor premises was requisitioned by Government of India at monthly rent of Rs. 175/- per month and was allotted to one P.D. Vyas and was de-requisitioned in July, 1982. At that time, the montly rent was Rs 298.50. From August, 1982, the northern wing was let out to Nahalchand Lalloochand Private Limited on monthly rent of Rs. 298.50 paise till 1984. In 1984, in exchange for permission to sub-let the first floor premises to Bank of Baroda, Nahalchand Lallochand Private Ltd surrendered 1/3rd portion to the Respondents. The portion retained by Nahalchand Lalloochand Pvt Ltd consisted of Sairaj 3 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc central halls, two rooms, store room and one toilet block and the surrender was of two rooms and toilet blocks.
5. In respect of the surrendered portion of first floor, the Respondents created two tenancies, one in favour of Himatlal Laxmichand Private Limited on monthly rent of Rs. 76/- for one room and toilet block and other is favor of Raj Kukhi and Co. on monthly rent of Rs. 23.33 paise for one room. Nahalchand Lalloochand Pvt Ltd sub- let their retained portion to Bank of Baroda in the year 1984. By reason of surrender, the monthly rent of Nahalchand Lallochand Pvt Ltd for first floor portion was reduced to Rs 221.17.
6. For the year 1950, the rateable value of the property was fixed at Rs. 32,865/- which was progressively increased and w.e.f 1 st April, 1985 increased to Rs 5,23,965/- and to Rs. 8,98,005/- with effect from 1 st April, 1987 which was reduced to Rs. 88,740/- and is subject matter of present Appeal.
7. The Municipal Appeal came to be filed challenging the fixing of rateable value at Rs 107.60 per 10 square meters in respect of part of ground floor and Rs 230/- per 10 square meters in respect of 1 st floor. It was contended that the rateable value has to be fixed at standard rent for first floor at Rs. 175/- per month and in respect of ground floor at Rs. 800/- per month as per the settled position in law. One of the grounds of challenge in the Municipal Appeal was that the rateable Sairaj 4 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc value was increased by taking into consideration the construction of spiral staircase which only afforded great deal of convenience and the increase was without any basis.
8. The Appellants filed their Written Statement contending that the fair and reasonable rent for portion of 1 st floor was fixed by adopting rate of Rs 230/- per 10 square meters i.e. 2 ½ times residential rate for the area. It was contended that Nahalchand Lallochand Private Limited had not sub-let the premises to Bank of Baroda and that the Bank was in exclusive possession of the premises who had carried out alterations and additions to make it suitable for banking activities. By constructing the spiral staircase, the entire portion has become one unit. The value of occupation was enhanced and therefore, the reasonable rent of premises was fixed. The premises were let out with monthly charges for the purpose for which it was not originally let out and there was change in user of the property. As no standard rent of the property was fixed by any Competent Court, the amount which Appellant received by way of fixed monthly charges is the standard rent.
9. On behalf of the Respondents, the Constituted Attorney of Respondents was examined as C.W.-1. He deposed about the tenancies created and the monthly rent in respect of the subject premises since the year 1940. He produced the ledger account showing the rent for Sairaj 5 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc the year 1941, the Lease Deed dated 11 th December, 1939 executed between the erstwhile owner Trust and Swiss Engineering Company, the rent ledger of 1943 showing the rent paid by Garrison Engineering Company, rent ledger of the year 1942 to show the rent paid by Continental Trading Company of Rs. 175/-, cash book for the year 1942 to show the rent paid by Continental Trading Company at Rs. 175/-, cash book of January, 1943 to show payment of Rs. 175/-, entries in cash book to show the payment by Mr. P.D. Vyas at rate of Rs. 298.50/-. He produced the ledger for the year 1986-87, 1987-88 to show the payment of rent by Nahalchand Lallochand Private Limited and Himatlal Laxmichand Private Limited and Rajkukhi and Company, the charges paid by Bank of Baroda to the Corporation for construction of Mezzanine floor, the bills to show increased rateable value, Written Submissions filed before the Investigating Officer on 17th March, 1987.
10. C.W.-1 has deposed that the increase in rent in year 1986-1987 was due to permitted increases of Rs 1155/- and Rs 1445/- for repair cess. He has deposed that in the year 1984-1985, the first floor premises was sublet to Bank of Baroda which led to increase in rateable value. He has deposed that the rates taken by the Corporation was not comparable rate in the locality. He has deposed that the Trust which owns the property in Appeal was separately assessed for income tax and the income from the Bank premises in the property in Appeal is Sairaj 6 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc not reflected in the income tax return of the Respondents or of the Trust because it is not received by the Respondents or the Trust. He has deposed that the Bank has a separate entrance on the first floor and that the utility of the premises is increased because of spiral staircases.
11. In cross-examination, he has deposed that he is with Respondent No. 1 since more than 15 years. He has admitted that he is not aware of the basis for fixing the rent at Rs. 200/- per month of Nahalchand Lallochand Private Limited and he cannot give any reason for difference between the rent of Kohinoor Mill and rent of Nahalchand Lallochand Private Limited. He has deposed that rent in respect of first floor of Nahalchand Lallochand Private Limited was charged on the same basis which the previous tenant was paying. He has deposed that landlord has granted permission for construction of said mezzanine floor by Bank of Baroda and no premium was charged by the landlord and permission was granted for putting spiral staircase leading from mezzanine floor to first floor.
12. On behalf of the Appellants, R.W. No. 1 attached to Assessment and Collection Department, D-Ward between 1976 to 1979 was examined. He deposed that he visited the property during the A.Y. 1976-1977 and proposed revision in rateable value as there was improvements in property and also an increase in rent. He produced Sairaj 7 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc the Tabulated Ward Report-Exhibit 3A which reflects the rent.
13. In cross-examination, he has deposed that Tabulated Ward Report- Exhibit-3A and Register of Inspection-Exhibit 3 are the same for the year 1976-1977. He has admitted that it is mentioned in Exhibit-3A that due to slight improvements, the rent was increased and the same was in respect of the entire property. He has deposed that he cannot recollect those slight improvements. He has deposed that he has taken the rent which the Bank of Baroda was paying to the said Company for revising the rateable value under Exhibit-3A. In response to a specific question, he has admitted that he has taken the actual rent paid by Bank of Baroda to Nahalchand Lallochand Pvt Ltd when put up the proposal under Exhibit 3A. Subsequently, he deposed that the amount of rent paid by the Bank was not considered and flat rate was adopted which was more than twice the rate in that locality. He has deposed that the rates for residential premises in the locality was Rs 48/- per 10 square meters. He admits that those rates were for new buildings in the locality. He admits that he has not checked the rate from the ground floor portion of rented commercial premises and neither checked the ratio of difference between commercial and residential premises in the locality. He admits that the rates adopted by Investigating Officer while fixing the rateable value was of new building. He has admitted that he has not inquired the rent of the Sairaj 8 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc Banks in the locality for the reasons that he has taken actual rent paid by Bank of Baroda.
14. He has admitted that he did not make any inquiries as to commencement of tenancy of Nahalchand Lallochand Private Limited. He has admitted that he did not find out how many directors were there and he has further admitted that he found the name of Mr. Himmatlal Kantilal as a Director and therefore, he found the tenancy of Nahalchand Lallochand Private Limited as fictitious tenancy. He has admitted that he Investigating Officer did not consider the said tenancy as fictitious tenancy. He has admitted that he is not aware that Himmatlal Kantilal was not concerned with Nahalchand Lallochand Private Limited during the year 1975-76, 1976-77 and 1977-78 and he is not aware since when the company was tenant of Building under Appeal and that he is not aware if the premises was let out prior to the year 1940.
15. The Small Causes Court considered the provisions of Section 5(10) and Section 11 of The Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 [for short, "Rent Act"] and noted that the monthly rent of ground floor in 1940 or January, 1941 was Rs 800/- and for 1st floor was Rs 175/-. It held that the landlord cannot charge more than the standard rent and the Corporation has not followed this principle while fixing the rateable value. The Small Causes Court noted Sairaj 9 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc the deposition of A.W.-1 that the rent charged to Nahalchand Lallochand Private Limited for ground floor and first floor has been increased and in the year 1986-87, for ground floor it was Rs. 3,961.95 paise and for the first floor in the year 1982 was Rs 298.50 and this increase was on account of permitted increase of Rs. 1,155/- and repair cost of Rs. 1,445/-, which was not controverted in the cross examination.
16. As regards the additions and alterations, the Small Causes Court held that there is no sufficient evidence on record and though putting up spiral staircase gives some convenience to the user of the premises, it does not increase the rental value. The Small Causes Court further considered the Tabulated Ward Report-(Exhibit-3A) and evidence of R.W.-1 where it is stated that due to slight improvement, the rent has been increased and the deposition of R.W.-1 that he cannot say what improvements were carried out in the disputed property and no efforts have been made by the Corporation to bring out the nature of slight improvement in the rental value of the premises due to which, the rental value of the premises have been increased. The Small Causes Court thus treated the rent of Rs. 800/- and rent of Rs. 175/- which was the rent paid when the premises were let out for the first time prior to 1st September, 1941 in view of Section 5(10) of the Rent Act as 'standard rent'.
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17. The findings of the Small Causes Court as regards the mezzanine floor is not in dispute. The Small Causes Court allowed the Appeal and directed the Corporation to fix the rateable value of the entire building after taking the rent for the ground floor at Rs. 800/- per month and for a portion of north wing of first floor at Rs. 175/- per month and for mezzanine floor at Rs. 107.50 paise per 10 sq. metre.
18. Mr. Walavalkar, learned Senior Advocate appearing for the Appellant has taken this Court in detail through the judgment of the Small Causes Court and would submit that Issue No. (i) framed by the Small Causes Court erroneously casts the burden upon the Corporation whereas the admitted position is that the burden is upon the Assessee to prove that rateable value is incorrect. He submits that the landlord did not enter into witness box and evidence was led by the constituted Attorney who did not have complete knowledge about the transactions. He submits that the Bank of Baroda was inducted by Nahalchand Lalloochand Private Limited and the Respondent No. 1 was a Director of Nahalchand Lalloochand Private Limited which shows that the tenancy of Nahalchand Lalloochand Private Limited was fictitious tenancy.
19. He submits that the evidence on record would show that there were improvements which changed the identity of the property as by construction of spiral staircase, the ground floor was connected with Sairaj 11 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc the first floor and therefore standard rent will not apply. He would further submit that consideration value of handing over part of the first floor would have to be factored in the rateable value. He submits that in January, 1984, Nahalchand Lalloochand Private Limited started negotiations with Bank of Baroda and therefore, the position existing prior thereto faded. He has taken this Court through the deposition of AW-1 which shows that after 1984, the spiral staircase was constructed. He submits that thus there was improvement in the property.
20. He would further submit that AW-1 has admitted that Kohinoor Mills Company has not made any change in the ground floor premises and Bank of Baroda has put up Mezzanine floor in 1970-71 which shows improvements in the property. He would further point out that AW-1 has deposed that in the year 1984-85, Nahalchand Lalloochand Private Limited sublet first floor portion of premises to Bank of Baroda leading to increase in rateable value to Rs. 5,23,965/-, which was not challenged and there is acceptance of increase in rateable value by reason of premises being sublet. He would further submit that AW-1's deposition that the rates taken by the Corporation for fixing the rateable value from 1984 till 1987 was not a comparable rate in the locality is without any evidence.
21. He would further submit that it is admitted by the AW-1 that the Bank has separate entrance on the first floor and the utility of the Sairaj 12 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc premises is being increased due to spiral staircases of the Bank. He submits that there cannot be any splitting of the units and the ground floor and the mezzanine floor has to be construed as one unit. He would further submit that Section 9 of Rent Act as existed pre-1987 amendment provides for increase in rent on account of improvement or structural alteration of the premises which shall not be deemed to be 'increase' for the purpose of Section 7. He submits that the landlord charged new rent and as there is an improvement in the property, the 'standard rent' cannot be taken as the basis for fixing the rateable value. He would further submit that the Appellant has not discharged the burden cast upon him as there is no evidence to show the standard rent of the disputed premises. He submits that as the provisions of Section 13(1)(e) and Section 15 of the Rent Act, prohibits sub-letting without the permission of the landlord, in event the sub-letting is with consent of landlord as in this case, then the decision of The Corporation of Calcutta vs. Padma Debi1 will not apply. He submits that as the identity changed the 'standard rent' cannot be applied which was received by the landlord in the year 1940. He submits that the Bank of Baroda did not approach for fixing the 'standard rent'.
22. Per contra, Mr. Kachare, learned counsel appearing for Respondents submits that the assessment is from year to year and 1 1961 SCC OnLine SC 162.
Sairaj 13 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc therefore, the ground of improvement goes away. He submits that as far as the aspect of construction of spiral staircase is concerned, the Tabulated Ward Report records that there is slight improvement. He submits that the construction of spiral staircase is not a new construction or improvement but additional convenience and therefore standard rent under Section 5(10) of Rent Act will apply.
23. Pointing out to the issues framed by the Small Causes Court, he submits that issue does not cast the burden on the Appellant- Corporation and merely sets out the point for determination. He submits that A.W.-1 has produced documentary evidence to establish the rent paid prior to 1st September, 1940 which is rightly accepted as standard rent and has discharged the burden. He would further submit that R.W.-1 has admitted that he has not visited the suit premises and that the Tabulated Ward Report mentions that due to slight improvement, the rent was increased. He would further submit that Corporation's case of fictitious tenancy was not put up before the Investigating Officer. He submits that RW-1 has admitted that the rateable value has been fixed on the basis of rent paid by Bank of Baroda for revising the rateable value under Exhibit-3A, which is erroneous. He further points out the admissions of AW-1 that only on basis of Respondent No 1 being one of the Director of Nahalchand Lalloochand Pvt Ltd, he has considered the tenancy to be fictitious Sairaj 14 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc tenancy. He submits that a company is a distinct and separate entity from its directors. He would further submit that the admissions of RW- 1 in cross examination will establish that no exercise was carried out before fixing the rateable value. He further points out that RW-1 has admitted that he has not checked the rate per 10 square metre of commercial premises in the vicinity, that the rent adopted by the Investigating Officer while fixing the rateable value was a new building, that he has not inquired about the rent paid by the Banks in the locality as he has taken actual rent paid to Nahalchand Lalloochand Private Limited and considered it as fictitious tenancy. Drawing attention of this Court to the case of Municipal Corporation of Greater Mumbai vs. Kamla Mills Limited2,he submits that it is clear that in case where there is rent control legislation, it is the 'standard rent' which has to be taken into consideration for fixing the rateable value. In support, he relies upon decision in the case of Nirlon Synthetic Fibres and Chemicals Ltd., Bombay vs. Municipal Corporation of Greater Bombay3.
24. In Rejoinder, Mr. Walavalkar would submit that because of mutual agreement between the Nahalchand Lalloochand Private Limited and the Appellants, the rent control legislation did not apply. He would further point out Section 11A of the Bombay Rent Act, 1947 2 (2003) 6 SCC 315.
3 2002(2) Mh.L.J. 807.
Sairaj 15 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc and submits that in the present case, there has been change in the amenities which has relevance to fixation of the standard rent. He submits that the burden was upon the Assessee to prove that the rateable value is not sufficient and the deficiency in the Corporation's witness is not sufficient to discharge the burden. He would further submit that under the provisions of Section 218B of the MMC Act, the party in Appeal against the rateable value can make an Application to the Chief Judge of the Small Causes Court before the evidence to direct a valuation of the premises which has not been done in the present case. In support, he relies upon the following decisions:
The Corporation of Calcutta vs. Sm. Padma Debi (supra) Filmistan Private Limited vs. Municipal 4 Commissioner for Greater Bombay Municipal Corporation of Greater Mumbai vs. Kamla Mills Limited (supra)
25. The following points would arise for determination:
(i) Whether the acceptance of monthly rent of Rs. 800/- for the ground floor and Rs. 175/- of the first floor, being the rent at which the premises was let out prior to 1 st September, 1941, as standard rent under Section 5(10) of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 for fixing rateable value by the Small Causes Court is correct?
4 1970 Mh.L.J. 866.
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(ii) Whether the tenancy created by the Respondents in favor of Nahalchand Lalloochand Private Limited was fictitious tenancy and therefore, the monthly rent paid by the Bank of Baroda can form the basis for fixing rateable value?
(iii) Whether the construction of mezzanine floor and spiral staircase connecting the ground floor and first floor has resulted in improvement in the subject property by reason of which the standard rent cannot be fixed at the monthly rent at which the premises were let out prior to the year 1941 for purpose of fixing the rateable value?
26. As the core issue is fixing of rateable value by the Assessing Authority under Section 154(1) of the MMC Act, it would be appropriate to commence the discussion with a look at the relevant provision, which reads thus:
"154. (1) In order to fix the rateable value of any building or land assessable to a property-tax, there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten per centum of the said annual rent and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever.
27. Section 154(1) provides that the rateable value has to be fixed at 9/10th of the annual rent for which such land or building might reasonably be expected to let from year to year. It is well-settled by various decisions of the Hon'ble Apex Court that where the Rent Control Legislation operates and provides for fixing of the standard Sairaj 17 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc rent of the premises by imposing a legislative prohibition on the landlord to charge anything in excess of standard rent, the rent for the purpose of Section 154(1) would be limited by the standard rent. The decision in Municipal Corporation of Greater Mumbai vs Dalamal Tower Premises Co-operative Society Ltd. 5, encapsulates several decisions on the subject as under:
"9. In Corporation of Calcutta v. Padma Debi (supra), the Supreme Court interpreted the provisions of section 127(a) of the Calcutta Municipal Act, 1923 in which the annual value of land and of building was to be computed with reference to the gross annual rent at which the land or building "might at the time of assessment reasonably be expected to let from year to year". A bench of four learned Judges of the Supreme Court held that the Rent Control Act in the State of West Bengal stipulated that any amount in excess of the standard rent of the premises would be irrecoverable despite an agreement to the contrary and whoever knowingly received a sum on account of rent in excess of the standard rent would be liable to penalties. The Supreme Court held that the statutory limitation of rent, prescribed by the rent control law "circumscribes the scope of the bargain in the market" (Para 7, at page 154) and held as follows:
"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." (Para 6 at pages 153 and
154) The rental value, ruled the Supreme Court, cannot be fixed 5 2012 SCC Online Bom 1335.
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11. In Corporation of Calcutta v. Life Insurance Corporation of India, [(1970) 2 SCC 44] the Supreme Court considered the provision of section 168(1) of the Calcutta Municipal Corporation Act, 1951 under which the annual value of any land or building was "deemed to be the gross annual rent at which the land or building might be reasonably expected to let from year to year." The proviso to the provision was as follows:
"Provided that in respect of any land or building the standard rent of which has been fixed under section 9 of the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950, the annual value thereof shall not exceed the annual amount of the standard rent so fixed." (para at 6 page 46) The submission before the Supreme Court was that it was only in those cases in which standard rent has been fixed under section 9 of the Rent Control Act, 1950 that the annual value would be subject to the maximum limit of the standard rent. In other words, it was contended that where the standard rent has not been fixed, the proviso would not apply and the assessing authority while fixing the annual value could take into account all relevant circumstances, including the rent at which the premises were sublet. The Supreme Court held that though the provision which was interpreted in Padma Debi's case did not contain a similar proviso, the enactment of the proviso did not alter the law since the meaning of the substantive part, namely, "gross rent at which the land or building might reasonably be expected to let" is not altered. Though there was no order of the Controller fixing the standard rent, the Supreme Court observed that the standard rent stands determined under a deeming statutory provision in the Rent Control Act, 1950 by which the standard rent was the rent which has been fixed or that which would have been fixed if an application were made. Hence, in determining the annual value, the assessing authority would not be concerned with the rent which the tenant may receive from his sub-
tenant. (emphasis supplied)
12. The decision of the Supreme Court in the Guntur Municipal Council v. The Guntur Town Rate Payers' Association, [(1970) 2 SCC 803] dealt with the issue as to whether before the fixation of a fair rent of any premises, the Municipality was bound to make an assessment in the light of the provisions contained in the Rent Control Act. The submission of the Municipality was that if the fair rent has not been fixed, the municipality need not be limited or governed by the measure of standard rent in the Rent Act. While rejecting the submission, the judgment of the Supreme Court considered the issue from two Sairaj 19 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc perspectives. The first perspective is the test of what rent a hypothetical tenant would pay:
"The test essentially is what rent the premises can lawfully fetch if let out to a hypothetical tenant. The municipality is thus not free to assess any arbitrary annual value and has to look to and is bound by the fair or the standard rent which would be payable for a particular premises under the Rent Act in force during the year of assessment." (para 4 at page 805) The second aspect is that where rent control legislation is in operation, the landlord cannot lawfully expect to get more rent than the fair rent:
"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." (para 5 at page 806) The judgment in Guntur Municipal Council consequently held that the standard rent under rent control legislation constitutes an index of what the premises can reasonably be expected to let even if there were no fixation of standard rent under the Rent Act.
15. A decision of a Bench of three learned Judges of the Supreme Court in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee, [(1980) 1 SCC 685] dealt with the construction of the annual value provision in the Punjab Municipal Act, 1911 and Delhi Municipal Corporation Act, 1957 under which the annual rent at which the house or building may reasonably be expected to let from year to year constituted the basis of the provision. In the appeal before the Supreme Court, the standard rent had not been fixed by the Controller and the period of limitation for making an application for the fixation of the standard rent had expired. As a result, the landlord was entitled to continue to receive the contractual rent from the tenant without legal impediment. The Municipal Corporation contended that since it was not penal for the landlord to receive contractual rent even if it was higher than the standard rent, the landlord would be reasonably expected to let the building at the contractual rent which provided a correct measure for the determination of the annual value. Following the decision in the Life Insurance Corporation and Guntur Municipal Council, the Supreme Court held that there was no material distinction Sairaj 20 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc between cases where the standard rent has actually been fixed by the Controller and those of which no such rent has been fixed. The Supreme Court held that in either case, the upper limit of 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. Even if an existing tenant was barred by limitation from making an application for the fixation of standard rent, a hypothetical tenant would not suffer from that disability. The Supreme Court held as follows;
"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 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 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 according 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 case, and the Guntur Municipal Council 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." (Para 10 at page 697) Sairaj 21 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc
17. The same principle was reiterated by a Bench of three learned Judges of the Supreme Court in Balbir Singh v. MCD, [(1985) 1 SCC 167]:
"...the rateable value of the premises would be the annual rent at which the premises might reasonably be expected to be let to a hypothetical tenant and such reasonable expectation cannot in any event exceed the standard rent of the premises, though in a given situation it may be less than the standard rent. The standard rent of the premises would constitute the upper limit of the annual rent which the owner might reasonably expect to get from a hypothetical tenant, if he were to let out the premises. Even where the premises are self-occupied and have not been let out to any tenant, it would still be possible to determine the standard rent of the premises on the basis of hypothetical tenancy. The question in such case would be as to what would be the standard rent of the premises if they were let out to a tenant."(Para 11 at pages 184 and 185)
22. The earlier judgments of the Supreme Court were revisited by a Bench of two Learned Judges of the Supreme Court in East India Commercial Co. Pvt. Ltd. v. Corpn. of Calcutta, [(1998) 4 SCC 368] where the issue arose in 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 principle which emerges from the judgments of the Supreme Court was stated thus:
"...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 rateable 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 case, [(1995) 4 SCC 696] relating to Ahmedabad or contains a non obstante clause as in Ratnaprabha case, [(1976) 4 SCC 622] then the determination of the annual letting value has to be according to the terms of the Municipal Act." (Para 17 at pages 377 and 378) The Supreme Court held that since section 168 did not contain Sairaj 22 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc a non obstante clause to make the Tenancy Act inapplicable and since the Act did not provide a method for determining annual value that assessment had to be based on the fair rent determinable under Rent Legislation.
24. In a later decision also of three Learned Judges of the Supreme Court in India Automobiles (1960) Ltd.v. Calcutta Municipal Corpn., [(2002) 3 SCC 388] the property in question was used for commercial purposes and was leased out to a tenant. The Municipal Corporation carried out a revision of the annual valuation of premises and while making an assessment of annual value under section 174 of the Calcutta Municipal Corporation Act, 1980, the rent paid by the sub-tenant was taken into consideration. The Municipal Tribunal allowed the appeal by the owner, but in a Petition under Article 227 of the Constitution, the order of the Tribunal was set aside. Section 174 of the Calcutta Municipal Corporation Act, 1980 contained a non obstante clause under which the annual value was the annual rent at which the property might reasonably be expected to let from year to year, notwithstanding anything contained in the Rent Control Act. The judgment of the Supreme Court which adverts to the earlier decisions on the subject, classified municipal legislation into two groups, the first being those cases where the application of rent control legislation is not expressly excluded and the other where municipal legislation expressly excludes the application of rent control legislation:
"On the basis of various, statutes relating to the determination of the annual value for the purposes of the Municipal Acts, this Court has devised two distinct groups. One such group deals with the municipal laws of some States which do not expressly exclude application of the Rent Restrictions Acts in the matter of determination of annual value of a building for the purposes of levying municipal taxes and the other group deals with the municipal laws which expressly exclude application of the Rent Restriction Acts in the matter of determination of annual value of land or building on rental method. Whereas in the first category of cases the determination of annual value has to be made on the basis of fair or standard rent notwithstanding the actual rent, even if it exceeds the statutory limits. In the other group where the restriction in the Rent Acts has been excluded, the determination of annual value of the building on rental method is referable to the method provided under the relevant Municipal Act. Whereas Padma Debi case, AIR 1962 SC 151, LIC case, (1970) 2 SCC 44, Guntur Town Rate Payers' case, (1970) 2 SCC 803 and Dewan Daulat Rai case, (1980) 1 SCC 685 deal with the first group of municipal laws, the cases in Ratnaprabha case, (1976) 4 SCC 622, AGM, Central Bank of India case, Sairaj 23 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc (1995) 4 SCC 696, East India Commercial Co. Case, (1998) 4 SCC 368, Balbir Singh case, (1985) 1 SCC 167, Indian Oil Corpn. Case, (1995) 4 SCC 96 and Srikant case, (1994) 6 SCC 572 deal with the second group." (Para 21 at page 407 and 408) Where municipal legislation excludes the application of rent control legislation by incorporating a non obstante clause in the taxing statute, the powers of the assessing authority under the former would not be circumscribed by the limits indicated in Padma Debi. The Supreme Court held as follows:
"We cannot agree that in all cases, notwithstanding the non obstante clause the annual rental value cannot be fixed beyond the standard rent determined or determinable under the rent statute. We also find it difficult to hold that in all cases the rent actually paid by the sub-tenant to the tenant be taken as a sole criterion for determining the annual value on the assumption that such land or building might, at the time of assessment, is reasonably expected to get the aforesaid amount of rent if let from year to year. The argument that the rent actually received by the owner should always be deemed to be reasonable rent in the absence of fraud, collusion and other extraneous considerations is too general and broad proposition of law which cannot be accepted for the purposes of determining the annual value of the property for the purposes of section 174 of the 1980 Act." (Para 23 at page
409) .....The principle which has been laid down by the Supreme Court is as follows:
"..the basis for determination of annual rent value has to be the standard rent where the Rent Control Act is applicable and in all other cases reasonable determination of such rent by the municipal authorities keeping in view various factors as indicated herein earlier, including the rent which the tenant is getting from his sub-tenant. In appropriate cases the owner of the property may be in a position to satisfy the authorities that the gross annual rent of the building of which the annual valuation was being determined cannot be more than the actual rent received by such owner from his tenant. The municipal authorities shall keep in mind the various pronouncements of this Court, the statutory provisions made in the specified Municipal Acts, keeping in mind the applicability or non- applicability of the Rent Act and the peculiar circumstances of each case, to find out the gross annual rent of the building including service charges, if any, at which such land or building might, at the time of assessment, be reasonably expected to let from year to Sairaj 24 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc year in terms of section 174 of the 1980 Act." (Para 24 at page 410)
25. The next judgment to which a reference must be made, is the judgment of the Supreme Court in Municipal Corpn. of Greater Mumbai v. Kamla Mills Ltd., [(2003) 6 SCC 315]........
Mr. Justice B.N. Srikrishna speaking for the Bench of two learned Judges held thus:
"The case before us is governed by the provisions of a rent restriction legislation viz., the Bombay Rent Act. The Bombay Municipal Corporation Act neither contains a statutory definition of "rateable value", nor does it lay down the manner in which the rateable value has to be computed, as distinguished from the situation in Commr.v.Griha Yajamanula Samkhya, (2001) 5 SCC 651, The Bombay Municipal Corporation Act neither contains a defining clause, nor a non obstante clause, which would hold the field notwithstanding the definition of "standard rent" in the Bombay Rent Act. Therefore, prima facie, this would be a case which would fall within the general principle laid down by the series of judgments commencing Padma Debi, AIR 1962 SC 151 and ending with Srikant Kashinath Jituri, (1994) 6 SCC
572." (Para 22 at page 327) The Supreme Court held that the rateable value to be fixed under section 154(1) is limited by the measure of the standard rent within the meaning of the Rent Act, particularly since the Rent Act made it illegal to claim rent or licence fee in excess of the standard rent. A hypothetical - tenant, held the Supreme Court, "would hardly be inclined to pay a rent in excess of the standard rent, though, on account of circumstances which may be peculiar to the property, the reasonable rent which may be offered by the hypothetical tenant could even be less than the standard rent". The principle of law which was enunciated by the Supreme Court was thus:
"It must be remembered that the principle of "standard rent" has not been invoked by reason of any requirement or declaration under the Municipal Corporation Act, but by reason of the fact that if the rateable value is the reasonable annual rent at which the property may be expected to be let, then we must consider what a hypothetical tenant would be willing to offer as rent for the property let. As has been pointed out earlier, the concept of reasonableness would necessarily include the concept of an owner and a tenant who are both law-abiding and do not indulge in "black marketing". If there is a rent restriction legislation which imposes a limit on the rent which can be charged, then the Sairaj 25 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc concept of "reasonableness" would include that restriction also. This is the reason why in a series of judgments of this Court it has been laid down that the rateable value is limited by the standard rent determined or determinable under the provisions of the rent restriction legislation. The only exception made was in a situation like Griha Yajamanula Samkhya, [(2001) 5 SCC 651] where the Municipal Corporation Act has a detailed method to fix the rateable value. As already noticed by the judgments of this Court, barring the two exceptional cases of municipal legislation containing a non obstante clause or deeming clause with regard to the rateable value, it must necessarily be held to be limited by the standard rent determined or determinable under the applicable rent control legislation." (Para 26 at page 329) (emphasis supplied) ................
30. In the judgments to which a reference has been made earlier, the Supreme Court has considered the provisions of municipal legislation under which the annual value of land and building has been defined with reference to the rent at which the premises may reasonably be expected to let from year to year. Generally speaking, municipal enactments do not expressly incorporate or make a reference to the State Rent Act. Nor do the municipal enactments expressly co-relate the annual rent for which the premises may be expected to let from year to year with the standard rent under rent control legislation. However, in defining the reasonable expectation of the landlord of the rent at which the premises may reasonably be expected to let, the Supreme Court held that where rent control legislation applies, the reasonableness of that expectation must be founded on what is lawful for the landlord to charge under the Rent Act. Where the Rent Act applies and stipulates that it is not lawful for the landlord to claim or receive any amount in excess of the standard rent, the statutory prescription under the Rent Act has been held to constitute a ceiling on the reasonable expectation of the landlord in regard to the letting value of the premises. A hypothetical landlord has to be presumed to be a law abiding person. Where the law as enacted in rent control legislation precludes the landlord from charging in excess of the standard rent, such a landlord would necessarily have to confine himself within the ceiling of the standard rent determinable with reference to the provisions of the Rent Act. The foundation of this principle is that the Rent Act does apply to the premises. The decisions in Padma Debi, Life Insurance Corporation and Guntur Municipal Council (supra) clearly involve cases where the Rent Act applied to the premises. The principle of law which was initially laid down was refined further to hold that even if the standard rent had not actually been fixed by the Sairaj 26 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc Controller or the competent authority under rent legislation, for the purposes of determining the annual value for municipal taxation, the standard rent would constitute the upper limit. The judgment in Dewan Daulat Rai Kapoor (supra) recognises a cardinal distinction between a situation where rent payable in respect of certain premises is not governed by rent legislation and those cases where it is. Mr. Justice P.N. Bhagwati (as the Learned Judge then was) elaborates upon this distinction in a succinct passage:"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." (Para 2 at pages 687 and 688)
28. The following principles can be culled out from the enunciation of law in the above decisions:
(a) The rateable value is limited by measure of standard rent determinable on principles laid down in rent control legislations.
(b) Even if the standard rent is not fixed, the standard rent stands determined under a deeming statutory provision in rent control legislation.
(c) While determining the annual value, the assessing authority would not be concerned with the rent which a tenant may receive from its sub-tenant.
(d) The Assessing authority is bound by fair or standard rent payable under the rent legislation in force.
(e) If standard rent is not fixed, the standard rent under the rent control legislation constitutes an index of what the premises can reasonable be expected to let.
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29. Let us now consider the relevant statutory provisions under the applicable Rent Act for ascertaining the measure of standard rent. The pre-1987 amendment governs the present case. Section 5(10) of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, defines 'standard rent' as under:
"5 (10) "standard rent" in relation to any premises means, -
(a) where the standard rent is fixed by the Court and the Controller respectively under the Bombay Rent Restriction Act, 1939, or the Bombay Rents, Hotel Rates and Lodging House Rates (Control) Act, 1944, such standard rent; or
(b) when the standard rent is not so fixed-
subject to the provisions of section 11,
(i) the rent at which the premises were let on the first day of September 1940, or
(ii) where they were not let on the first day of September 1940, the rent at which they were last let before that day, or
(iii) where they were first let after the first day of September 1940, the rent at which they were first let, or
(iv) in any of the cases specified in section 11, the rent fixed by the Court;
30. Section (7) governing the permitted increases reads thus:
"(1) Except where the rent is liable to periodical increment by virtue of an agreement entered into before the first day of September, 1940, it shall not be lawful to claim or receive on account of rent for any premises any increase above the standard rent, unless the landlord, was, before the coming into operation of this Act, entitled to recover such increase under the provisions of the Bombay Rent Restriction Act, 1939 or the Bombay Rents, Hotel Rates and Lodging House Rates (Control) Act, 1944, or is entitled to recover such increase under the provisions of this Act.
(2) (a) No person shall claim or receive on account of any licence fee or charge for any premises or any part thereof, anything in excess of the standard rent and permitted increase (or, as the case may be, a proportionate part thereto), for such Sairaj 28 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc premises if they had been let, and such additional sum as is reasonable consideration for any amenities or other services supplied with the premises.
(b) All the provisions of this Act in respect of the standard rent and permitted increases in relation to any premises let, or if let, to a tenant, shall mutatis mutandis apply in respect of any licence fee or charge and permitted increases in relation to the premises given on licence; and accordingly, the licensee or licensor may apply to the Court for the fixation of the licence fee or charge and permitted increases and the additional sum mentioned above.
31. Section 9 reads thus:
"9. Increase in rent on account of improvements, etc. excepted A landlord shall be entitled to make such increase in the rent of the premises as may be reasonable for an improvement or structural alteration of the premises which has been made with the consent of the tenant given in writing; and such increase shall not be deemed to be an increase for the purposes of Section 7.
Explanation.- In this section improvements and alterations do not include the repairs which the landlord is bound to make under sub-section (1) of section 23.
32. As the rent control legislation applies and Section 7 stipulates that it is shall not be lawful to claim any increase above the standard rent except where the rent is liable to periodical increment by virtue of an agreement entered into before 1st September, 1940, the standard rent would constitute the upper limit. The principle of Padmadebi (supra) would apply and even if the standard rent is not actually fixed by the competent authority under the rent legislation, the Assessing Authority was bound to determine the rateable value on the basis of the standard rent notwithstanding the fact that the rent paid by the sub-tenant to the tenant exceeds the standard rent.
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33. In the present case, the Appellant-Corporation has pleaded in the written statement that the reasonable rent has been determined by adopting rate of Rs 230/- per 10 square meters i.e. 2/12 times residential rent and fixed annual rent and fixed the annual rent for the first floor at Rs 3836.36, whereas for the ground floor, the rate of Rs 107.60 square meters was adopted and necessary deductions given.
34. In cross examination, RW-1 has given vital admissions that he has not checked the rate per 10 square meters of the rented commercial premises in the locality and that the rates adopted while fixing the rateable value was of new building. He has admitted that the proposal for revision under Exhibit 3A was based on the rent which Bank of Baroda was paying to Nahalchand Lallochand Pvt Ltd. He has admitted that he has not inquired the rents of the banks in that locality as he has taken actual rent paid by Bank of Baroda to M/s. Nahalchand Lallochand Pvt Ltd by considering the tenancy as fictitious tenancy. The admissions of R.W.-1 shows that the inquiry contemplated for determining the reasonable rent on the principles of determination of standard rent has not been carried out. The rateable value was required to be fixed by considering principles applicable for fixing of standard rent. However, the evidence of Respondents does not show any clarity in the Assessing Authority's determination. The pleadings in the Written Statement and evidence of A.W.-1 is at variance as to the Sairaj 30 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc basis for fixing rateable value. The decision of Padmadebi (supra) applies where rent control legislation is applicable and because the rent paid by Bank was by consent does not unsettle the position in law as enunciated in Padmadebi (supra). The measure of standard rent is the upper limit irrespective of mutual contractual arrangement.
35. Mr. Walavalkar would contend that Bank of Baroda is the tenant of Respondents and the tenancy of Nahalchand Lallochand is fictitious tenancy. The evidence on record would indicate that in 1940, the property belonged to Nahalchand Lalloochand Private Trust who was the owner of the property since 1926. The Trustees of the said Trust were Himatlal Kantilal, Kantilal Mahalchand, Hiraben Kantilal, Subhadraben Chandrakant and Champavati Poonamchand up to 1970- 71 and thereafter, Himatlal Kantilal and Hasumati Arvind, i.e. present Respondent No. 2 became absolute owner of the property. In the year 1972, the directors of Nahalchand Lalloochand Private Limited was Kantilal Nahalchand and also Himatlal Kantilal, i.e. Respondent No. 1 and at the time when the evidence was given in the year 1990, the Directors of the Company were Rajesh Himatlal, Mukesh Himatlal and Nalini Himatlal. The evidence-on-record would disclose that Respondent No. 1 was the Trustee of the Trust and in the year 1972, he was the Director of the Nahalchand Lalloochand Private Limited. It needs to be accepted that the Company is separate and distinct entity Sairaj 31 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc from its Directors and merely because one of the owners is Director of the Company, the same is not sufficient to arrive at the conclusion that the tenancy is a fictitious tenancy. In the evidence, A.W.-1 has produced the entries in the ledger accounts for the years 1952/1953 and 1987/1988 to show the rent paid by Nahalchand Lalloochand Private Limited for the subject premises. AW-1 has deposed that the rent received from the bank premises in the property is not reflected in the returns of the Respondents as it is not received by them. The admission is being construed by Mr. Walavalkar as admission of fictitious tenancy. However, the deposition is that the income from the premises in occupation of bank i.e. the rent paid by the bank is not received by the Respondents.
36. Irrespective of whether the tenancy was fictitious tenancy or not, for determination of the annual value, the measure of standard rent would apply and for that purpose, the rent paid by the sub-tenant to the tenant or that the sub-tenant is the direct tenant of the landlord is immaterial consideration. In case of Nirlon Synthetic Fibres and Chemicals Ltd vs. Municipal Corporation of Greater Bombay (supra), this Court has held that mere increase in the actual rent received by the landlord cannot be the criteria for determining the rateable value of the building. This Court after considering various decisions on the subject held in paragraph 18 to 20 as under:
Sairaj 32 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc "18. It is apparent that under the Delhi Rent Act, the definition of "standard rent" does not include the fixation of such standard rent by the Controller under Section 9. There is a difference between the said provision and the provisions of the Rent Act in this Stale. The standard rent under the Rent Act includes the rent specified under Section 11 of the Rent Act. Section 11 of the Rent Act empowers the Court to fix the standard rent and the permitted increases therein and apart from taking into consideration the factors specified in Section 5(10)(b)(i), (ii) and (iii) of the Rent Act, it also specifies the situation where by reason of the premises having been let at one time as a whole or in parts and another time in parts or as a whole, or for any other reason, any difficulty arises in giving effect to this part, or where any premises have been or are let rent-free or at a nominal rent or for some consideration in addition to rent as well as where there is any dispute between the landlord and tenant regarding the amount of standard rent. From these provisions in the Rent Act read with the decision of the Apex Court in Balbir Singh's case and other cases referred to above, one can safely conclude that though basically for the purpose of arriving at a rateable value of a building, the principle that the annual rent which the owner of the premises expected to get if the premises were let out to a hypothetical tenant, is to be accepted, at the same time, various other relevant factors can also be taken into consideration without ignoring the restrictions imposed under the Rent Legislation in the State pertaining to the rent amount which can be demanded by the landlord from the tenant and the prohibition for demand in excess to standard rent to be calculated under the Rent Legislation in the State. Undoubtedly, this would be subject to the provisions contained in the Municipal Act inasmuch as where such Act provides for a method and manner of determination of rateable value in which case those provisions would be applicable and would have to be followed, and in that case, there can be no restriction for the rateable value to be equal or less than the standard rent. But in the absence of the method for fixation of the rateable value under the Municipal Act, the Authority cannot ignore the restrictions imposed upon the landlord against demand of anything in excess to the standard rent which can be calculated under the Rent Act.
19. Referring to the said Rent Act, therefore, though Section 5(10) provides for various situation wherein the standard-rent could be calculated and the formula for that purpose, it also includes the situation wherein there is a dispute about the standard rent to be determined by the Court under Section 11 of the Rent Act. Being so, in case of dispute between the landlord and the tenant regarding amount of the standard rent, the Court is bound to determine the same taking into consideration various factors without ignoring provisions of Sairaj 33 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc Section 5(10) of the Rent Act. Similarly, the Municipal Authorities also will have to determine the reasonable rent which the landlord could expect from a hypothetical tenant and considering the observations by the Apex Court in Dewan Daulat's case, while agreeing with this earlier decision in Guntur Municipal Corporation's case, it is to be held that the Municipal Authorities by doing so, would not usurp the function of the Court under Section 11 of Rent Act, but they would perform their function within the scope of jurisdiction of an assessing authority under the said Act.
20. It is therefore to be held that the authorities, while determining the rateable value under Section 154 of the said Act, have to bear in mind the provisions of the Rent Act and while deciding the rateable value have to take into consideration the provisions of the said Act as well as the Rent Act and considering the facts and materials placed before them, have to arrive at the figure pertaining to the rateable value of the premises. While doing so, in cases where the Court under the Rent Act has already fixed the standard rent for any such premises, undoubtedly the same will have to be considered for determining the rateable value of the building. However, in case no such standard rent has been fixed under the Rent Act, the reasonable amount of rent, which can be expected by the owner from a hypothetical tenant, has to be arrived at by taking into consideration the provisions of Section 11 read with Section 5(10) of the Rent Act as also Sections 154 and 155 of the said Act. Section 155 of the said Act empowers the Commissioner to call for information and returns from the owner or enter an exigible premises. It should be also borne in mind by the authorities that whatever figure which can be arrived at shall be a reasonable amount of rent which can be expected by the owner from a hypothetical tenant; i.e. the amount so arrived at should not be more than the standard rent which can be calculated in terms of the provisions contained in Section 11 read with Section 5(10) of the Rent Act."
37. The burden is upon the Respondents to establish the standard rent by producing cogent evidence on record. The Respondents have produced evidence as regards the rent at which the premises were first let out prior to 1st September, 1940 i.e. Rs 800/- for the ground floor and Rs 175/- for the first floor. The Small Causes Court has accepted the said rent as standard rent without noticing the various provisions Sairaj 34 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc of Rent act providing for alteration in the standard rent by way of permitted increases in circumstances provided under Section 7 to 10B of Rent Act.
38. The premises which were let out in the year 1940 was ground floor plus one room in the outhouse and garage and the first floor premises was the northern wing. In the year 1972, Bank of Baroda put up mezzanine floor in the ground floor portion. In the year 1984, Bank of Baroda acquired tenancy of northern wing premises and the spiral staircase was constructed in the year 1984 connecting the ground floor to the first floor. The admission is that the utility of the premises is increased because of construction of the spiral staircase connecting the ground floor to the first floor. The ground floor and first floor were let out as independent units in the year 1940 to different tenants. Subsequently though Nahalchand Lallochand Pvt Ltd became the tenant of ground floor and first floor, upon the premises being sub-let to Bank of Baroda, the ground floor and first floor were connected by construction of spiral staircase changing the identity of the separate units into one connected unit. The construction of mezzanine floor and the construction of spiral staircase was definitely one of the circumstances warranting alteration in the standard rent. The scheme regarding permitted increase is that any increase in the rent or recovery of any amount in standard rent which has not been hit by the Sairaj 35 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc provisions of Section 7 is a permitted increase. More particularly, pre- 1987 amendment to the Rent Act, Section 9 provides that the landlord shall be entitled to make such increase as may be reasonable for an improvement or structural alteration of the premises which do not include the repairs which the landlord is required to make. Such increase is not hit by the prohibition under Section 7 and is a permitted increase.
39. The Small Causes Court has opined that there is no sufficient evidence on record and putting up spiral staircases connecting the ground floor to first floor is not a ground to increase the rateable value and does not enhance the rental value. As compared to separate units, when the units are connected together as one unit and enhances the utility of the premises for conducting the commercial activities for which the premises are let out, the addition/alteration would result in an improvement increasing the rental value.
40. The Small Causes Court has taken into consideration the tabulated ward report -Exhibit 3A, which mentions that due to slight improvement, the rates has been increased with effect from 1976. In evidence, it has come on record that the mezzanine floor was put up sometime in the year 1971, and the spiral staircases was constructed in the year 1984. The slight improvement mentioned in the proposal for revision under Exhibit 3A is for the year 1976-1977 and therefore Sairaj 36 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc immaterial for considering whether the construction of spiral staircase has led to an improvement enhancing the rental value.
41. The Small Causes Court failed to appreciate that the units let out separately in the year 1940 and the premises in respect of which the rateable value was revised had changed in identity and therefore, it was necessary to consider the increase in the facilities and circumstances on account of the improvements, which has taken place, which has not been considered. Although, no Application for 'standard rent' under Section 11 was filed, apparently as it was convenient to both the landlord and tenant, the Small Causes Court had to determine the 'standard rent' while fixing the rateable value by taking into consideration, the statutory provisions of Rent Act as held in Nirlon Synthetic Fibres and Chemicals Ltd vs Municipal Corporation of Greater Bombay (supra).
42. Considering that circumstances had changed and the subject premises had undergone improvements by way of an additions and alterations, the standard rent as of the date when the premises was first let out cannot be static and warrants alteration and and therefore, the Small Causes Court was in error in computing the rateable value on the standard rent based on the rent at which the premises were let out prior to 1940 as separate units.
43. Considering that the required exercise has not been carried out Sairaj 37 of 38 ::: Uploaded on - 09/04/2025 ::: Downloaded on - 09/04/2025 22:25:40 ::: First Appeal No. 816 of 1992 (final).doc by Small Causes Court, the judgment is required to be set aside and the matter remanded for fresh trial. However, evidence will have to be produced on record before the Small Causes Court to enable the Court to determine the standard rent by placing necessary material on record as regards the standard rent fixed in respect of similar properties in the vicinity which is the responsibility of the Respondents.
44. In light of the above, First Appeal is allowed. The Municipal Appeal No 190 of 1987 is remanded to the Small Causes Court for re- determination of rateable value. Considering the proceedings are of the year 1987, the Small Causes Court is requested to decide the same expeditiously. Both parties are directed to co-operate in expeditious disposal of the Appeal and not to seek unnecessary adjournments.
45. Nothing survives for consideration in pending Interim/Civil Applications, if any, and the same stand disposed of.
[Sharmila U. Deshmukh, J.]
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