Delhi High Court
Sant Ram Saigal And Anr. vs Municipal Corporation Of Delhi on 16 July, 2003
Equivalent citations: 2003VAD(DELHI)574, 105(2003)DLT746, 2003(70)DRJ42
Author: Sanjay Kishan Kaul
Bench: Sanjay Kishan Kaul
JUDGMENT Sanjay Kishan Kaul, J.
1.The purchaser purchases an existing constructed property. The Municipal Corporation of Delhi assesses the rateable value afresh on the basis of new purchase value. The purchaser claims that since no change has been made in the property, mere purchase of the same by the purchaser cannot result in increase of rateable value determined on the basis of new purchase price. This, in sum and substance, is the dispute in the present writ petition.
2.The property bearing No. C - 776, New Friends Colony, New Delhi was purchased and constructed upon in 1981. The premises were initially let out. The plot measures 480 sq. yds. and two independent building units are stated to have been constructed on the same being front and rear portion of the building. Shri P.S. Khera was owner of the property. Shri Khera sought fixation of rateable value on the basis of standard rent determinable on cost basis under Section 6 of the Delhi Rent Control Act, 1958 ( hereinafter to be referred to as, `the Rent Act' ) on expiry of the initial five years' period of letting. In terms of the assessment order dated 20.05.1987, the said plea was accepted, but Shri Khera was aggrieved by determination of the said rateable value and preferred an appeal. In terms of the order of the appellate authority dated 20.05.1987, the rateable value was determined at Rs.43,650/-. The petitioners purchased the front portion of the said building in terms of two sale deeds dated 15.04.1996 executed by Shri Khera, which was constructed on land measuring 272.8 sq. yds., for a sale consideration of Rs.42.5 lakhs each totalling to Rs.85 lakhs.
3.As a consequence of purchase and transfer of the property, the respondent Corporation proposed enhancement of rateable value of the entire property to Rs.11,80,000/- w.e.f. 01.04.1995. The petitioners requested for the front portion to be assessed separately in their names and stated that the same continued in the original position without any additions or alterations and, thus, no change was required since the rateable value was fixed on cost basis in the year 1987. In terms of the assessment order dated 26.12.1997, the respondent fixed rateable value of the front portion of the property purchased by the petitioners at Rs.7,22,500/- w.e.f. 18.12.1995. It was accepted that the building was in the earlier old condition and determination of rateable value is on the basis of the price paid by the petitioners.
4.The petitioners have filed the present writ petition aggrieved by the said assessment order and has prayed for fixation of rateable value on the basis of standard rent under the Rent Act.
5.The determination of rateable value as aforesaid is stated to have been done on the basis of the Delhi Municipal Corporation (Determination of Rateable Value) Bye-Laws, 1994 ( hereinafter to be referred to as, `the said Bye-Laws' ) framed under the Delhi Municipal Corporation Act, 1957 ( hereinafter to be referred to as, `the DMC Act' ).
6.The Bye-Laws on the basis of which the rateable value has been determined are reproduced hereunder :-
" 2. Definitions. - (1) In these bye-laws -
... ... ... ...
(b) 'Cost of premises' means -
(i) where the premises have been acquired by purchase or through any transaction (whether by way of becoming a member of, or acquiring shares in a Co-operative Society, company or their association of persons or by way of any agreement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of the premises, the cost paid, or where the cost is partly paid or partly payable the aggregate of the cost paid or payable for the premises and the cost of additions and improvements whether made by the owner or by the occupier, or ... ... ... ..."
" 3. Determination of rateable value of lands and buildings. - (1) For the purposes of sub-section (1) of Section 116 of the Act, the annual rent shall be determined as under :-
... ... ... ...
(c) in case premises are used and occupied or are lying vacant for use and occupation by the owner himself.-
... ... ... ...
(iii) where the premises are not covered by sub-clauses (i) and (ii) above, the annual rent shall be the amount calculated at ten per cent of the cost of the premises up to the year of assessment of the prevalent rent, whichever is lower:
... ... ... ...
(3) In the case of premises to which rent restriction legislation is applicable, the annual rent determinable under sub-bye-law (1) above, shall not be more than the rent realised or realisable under the rent restriction legislation."
1. The provisions of bye-law 3(1)(c)(iii) of the said Bye-Laws apparently form the basis of determination of the rateable value being the cost of premises and the cost of premises in case of acquisition has been defined in Section 2(1)(b)(i) as the cost paid for purchase.
2. Learned counsel for the petitioners contended that the aforesaid principle is contrary to the settled principles of law and, in fact, is in violation of bye-law 3(3) of the said Bye-Laws. It is contended that the said Bye-Laws were upheld only in view of the said provision, which clearly stipulates that in case of premises to which rent restriction legislation is applicable, the annual rent shall not be more than the rent realised or realisable under the rent restriction legislation and, thus, is liable to be determined under Section 6 of the Rent Act. It is contended that the Rent Act applies to all premises, whether rented out or self-occupied, unless they are taken outside the purview of the Rent Act and the only premises, which are taken outside the purview of the Rent Act, are those where the property has been let out for a rent exceeding Rs.3,500/- per month.
3. Learned counsel for the petitioners relied upon the judgment of the Supreme Court in Morvi Municipality v. State of Gujarat & Ors., . In the said judgment, reference was made to earlier judgments of the Supreme Court and it was observed as under :-
"2. ... It has also been held there that wherever the rent is restricted on account of the operation of the rent restriction legislation, the outer limit of the reasonable rent that can be expected from the property stands defined by such restriction. Hence, while estimating or calculating the annual rent which might reasonably be expected from such property, the provisions of such legislation have to be taken into consideration. Different rent restriction legislations have described the maximum rent recoverable under them differently such as standard rent, fair rent, etc. Hence the annual letting value of the building or land or both to which the rent restriction legislation is applicable cannot exceed the annual standard or fair rent. It is the annual standard / fair rent which alone, therefore, can form the basis of the assessment of the property tax by the basis of the assessment of the property tax by the local authority."
The aforesaid judgment, thus, makes it clear that it is the annual standard/fair rent alone which can form the basis of assessment of property tax by the local authority.
4.Learned counsel referred to the judgment of the Supreme Court in Delhi Paints & Chemicals v. New Delhi Municipal Committee & Anr., where it was held that the consequence of addition of clause (c) in Section 3 of the Rent Act is only that the Rent Act will not apply to any premises, whether residential or not, whose monthly rent exceeds Rs.3,500/-. It was held that where premises are self-occupied, the concept of monthly rent cannot be introduced and for determination of annual value, one will have to fall back on the provisions of the Rent Act.
5.Learned counsel referred to the judgment of the Supreme Court in Govt. Servant Co-operative House Building Society Ltd. & Ors. v. Union of India & Ors., , it was observed as under :-
" 14. Learned counsel for the Delhi Municipal Corporation has pointed out that in the case of self-occupied properties the Delhi Municipal Corporation has continued to fix the rateable value on the basis that the property is governed by the Delhi Rent Control Act. The arguments of the appellants, therefore, have centered on properties which are let out and which are not subject to rent control."
It is, thus, submitted that the counsel for the respondent Corporation had stated before the Supreme Court that in self-occupied properties, the respondent Corporation continues to fix rateable value on the basis of the property governed by the Rent Act.
6.Learned counsel also referred to the Departmental Instruction No. 18 of 2000 dated 31.03.2000 and contended that it was observed in the said circular that it has been held by the Courts that the premises, which are subject to rent restriction legislation and are not out of the purview of the Rent Act, shall continue to be assessed under sub-bye-law (3) of bye-law 3 of the said Bye-Laws.
7.Learned counsel further referred to the fact that whether the issue of validity of the said Bye-Laws arose before the Division Bench of this Court in Delhi Urban House owner's Welfare Association & Anr. v. Union of India & Ors., , wherein while upholding the said Bye-Laws as a whole and striking down bye-laws 3(1)(a) and 3(1)(c)(iii) Explanation, the Division Bench observed in para 19 as under :-
" 19. The whole basis of fixation of rateable value of any land or building is to be the annual rent at which such land or building might reasonably be expected to let from year to year. This is sub-section (1) of Section 116 of the Act and it has to be read with the definition of " rateable value" as contained in sub-section (47) of Section 2 of the Act. The Bye-laws framed cannot fix the rateable value at any figure more than the annual rent at which such land or building might reasonably be expected to let. Bye-law 3(1)(c)(ii) offends the basic principle of the law fixing rateable value when it fixes the rateable value at an amount higher than the " prevalent value". If this bye-law had said that annual rent shall be the amount calculated at 10% of the market price of land and the cost of building, etc. or the prevalent rent whichever is lower, the bye-law would have been beyond any challenge. As it stands, the bye-law is invalid. It is no function of the Court to read down the words "whichever is higher" as "whichever is lower". This bye-law is, therefore, also struck down."
It is, thus, contended that the basis of upholding the other bye-laws was the provision contained in bye-law 3(3) of the said Bye-Laws. Reading the said Bye-Laws as a whole makes it clear that the rateable value has to be determined on the principles of standard rent if it is self-occupied.
8.Learned counsel lastly referred to the judgment of this Court in State Trading Corporation of India Ltd. & Ors. v. New Delhi Municipal Council, . The judgment was related to NDMC wherein it was held that all properties, which are self-occupied, even though they may have been rented out or not at some stage of time, are liable to be assessed in accordance with the provisions of Section 6 of the Rent Act. The effect of the amendment to the Rent Act by Section 3(c) was discussed as under :-
"15. In order to appreciate this aspect, it is necessary to see the effect of the provisions of Section 3(c) of the Rent Act. Section 1(2) of the said Act makes the Rent Act applicable to the complete area of NDMC. Section 3 carves out the exception and one of the exceptions is under Section 3(c) of the Rent Act. Such exception is carved out both for residential and/or commercial use. However, the wordings are very clear. The Act shall not apply to any premises whose monthly rent exceeds Rs.3,500/-. Thus, in order for a premises to not be covered by the Rent Act, the monthly rent should exceed Rs.3,500/-. This implies that there has to be a realisation of rent exceeding Rs.3,500/-.
16. The Division Bench of this Court in Sir Sobha Singh & Sons Pvt. Ltd. v. New Delhi Municipal Council, 1996 IV AD (DELHI) 56 also held that it is only premises which are actually occupied by tenant and where actual rent is paid or payable exceeding Rs.3,500/- would be outside the purview of the Rent Act and, thus, the principles of standard rent would not govern the rateable value.
17. Further, the Supreme Court in Government Servant Cooperative House Building Society Ltd. & Ors. v. Union of India & Ors., considered the issue as to how the actual rent at which a property is let out is liable to be arrived at when the rent of the property is not controlled under the Rent Act or any other rent control legislation specially taking into consideration the provisions of Section 116 of the DMC Act. It was held that where there is no artificial control on the rent which is charged, there is a bargain between a willing Lesser and a willing lessee uninfluenced by any extraneous circumstances and reliance was placed on the judgment of Dewan Daulat Rai Kapoor's case (Supra). Thus, this case also really dealt with the situation of rented properties where rent is of such a value that there is no protection available under the Rent Act.
18. In none of the cases it was held that the concept of determination of rateable value on the principles of standard rent under Section 6 of the Rent Act will not apply where the property is self-occupied.
... ... ... ...
22. There is no doubt that the Rent Act is for the protection of tenants. The original concept was not to cover self-occupied properties. However for purposes of calculation of rateable value, the Supreme Court in terms of the aforesaid judgments applied the principles of standard rent also to self-occupied properties. It is by this principle in fiction that self-occupied properties continue to be governed and the rateable value determined in terms of Section 6 of the Rent Act. The mere fact that for some period of time the property is outside the purview of the Rent Act will not give a license to the respondent to determine the rateable value for all times to come on the same principle of actual rental. The moment the property ceases to be a tenanted property and is self-occupied, it comes back to the original position where it was before the property was so rented out. In such a situation, thus, the principles laid down in Dr. Balbir Singh's case (Supra), Dewan Daulat Rai Kapoor's case (Supra) and as interpreted and incorporated in Delhi Paints And Chemicals's case (Supra) would once again become applicable to the property in question and the rateable value would be liable to be determined on the basis of the principles contained in Section 6 of the Rent Act. This would equally apply whether the letting out is by the owner or by the predecessor in interest of the owner."
9.It was further observed in para 37 of the said judgment that all the municipal authorities should act at tandem and follow similar principles in Delhi. It was observed as under :-
"37. Before parting with this judgment, I must express my anguish at the fact that though Delhi is one city, different parameters are being followed by municipal authorities in the same town. It is only for purposes of convenience that jurisdiction have been divided among NDMC, MCD and Delhi Cantonment Board. The least that is expected is that all these municipal authorities should act at tandem and follow similar principles in determination of rateable value. Merely because the house of one person falls in one area or the other, which may even be adjacent, and a different municipal authority is dealing with the issue of determination of rateable value, should not imply totally different concepts in determination of such rateable value. It is appropriate that all the municipal authorities must meet and consider this aspect to bring a uniformity in the system of determination of the rateable value in parts of Delhi when they fall within one jurisdiction or the other. This is more so as the provisions under said Act and the DMC Act are para materia. The MCD, in fact, now proposed to apply a different concept of a unit method of taxation, but so far, the NDMC has not finalised any proposal in the same terms."
10.Learned counsel for the respondent Corporation, however, solely relies on the said Bye-Laws as aforesaid to contend that reading of definition clause of the said Bye-Laws being bye-law 2(1)(b)(i) read with bye-law 3(1)(c)(iii) implies that it is the cost of purchase of the property which has to be taken into account while determining the rateable value.
11. I have considered the submissions advanced by learned counsel for the parties.
12. In my considered view, the rationale of the judgment in State Trading Corporation's case (supra) would also apply to the present case dealing with the Municipal Corporation of Delhi and bringing into force of the said Bye-Laws would not in any manner alter the position. In fact, in the said case, the effect of the judgment in Delhi Paints & Chemical's case (supra) was also discussed.
13. There is force in the contention of the learned counsel for the petitioners that the Rent Act applies to all the properties in Delhi and the only properties excluded are the ones specified in clause 3(c) where the rent exceeds Rs.3,500/- per month. This itself envisages an actual letting out of the property.
14. The concept of hypothetical tenant was brought into force by the judgment of the Supreme Court in Dr. Balbir Singh & Ors. v. MCD & Ors., . The hypothetical tenant was one, who would not pay more than the standard rent fixed under the Rent Act and the fiction was extended even to self-occupied properties. Thus, the properties, which cannot have been actually let out but were self-occupied, were to be governed by the same principles.
15. The Rent Act extends to the complete areas included within the limits of the New Delhi Municipal Council, Delhi Cantonment Board and such urban areas within the limits of the Municipal Corporation of Delhi as are specified in terms of sub-section (2) of Section 1 of the Rent Act. It was, thus, held that where premises were self-occupied, the concept of any monthly rent could not be introduced and the only method for arriving at the annual value as defined under the DMC Act was to rely upon the provisions of the Rent Act. The various judgments of the Supreme Court were discussed and in none of the cases, it was held that the concept of determination of the rateable value on the principles of standard rent under Section 6 of the Rent Act will not apply where the property is self-occupied.
16. The submission recorded of the counsel for the respondent Corporation by the Supreme Court in Govt. Servant Co-operative House Building Society Ltd.'s case (supra) also reinforces the view that same principle was being followed by the MCD.
17. Insofar as the effect of the said Bye-Laws are concerned, a part of the said Bye-Laws was struck down in Delhi Urban House owner's Welfare Association's case (supra), but not the Bye-Laws as a whole. I am in agreement with the submission of the learned counsel for the petitioners that bye-law 3(3) of the said Bye-Laws was material in this behalf. The said bye-law makes it clear that where the premises to which rent restriction legislation is applicable, the principles under Section 6 of the Rent Act would apply for determination of the rateable value.
18. As stated above, the rent restriction legislation is applicable to all the properties other than the ones which are excluded, which would only be the case of properties Realizing the rent in excess of Rs.3,500/-. It is too late in the day to say that self-occupied properties are not covered under the same in view of the observations of various Courts as discussed aforesaid starting from Dr. Balbir Singh's case (supra).
19. There is also another aspect of the matter that the principles of parity are to be kept in mind while determining the rateable value and this has been observed repeatedly by various courts. The Supreme Court in Lt. Colonel P.R. Chaudhary (Retd.) etc. v. MCD & Ors., has held that there is no manner of doubt that the said principles of parity would apply, especially in view of the pronouncement of the Supreme Court in Dr. Balbir Singh's case (supra). It was, thus, observed in para 31 of the judgment in State Trading Corporation's case (supra) that the said principles would apply even post-Bye-Laws coming into force, as held in the case of M.C.D. v. Dhunishaw Framroz Daruwala, . It was observed in para 31 as under :
" 31. It may also be noticed that the principles of parity have always to be kept in mind while determining the rateable value and this would apply equally to MCD and NDMC. The Supreme Court in Lt. Colonel P.R. Chaudhary (Retd.) etc. v. MCD & Ors., has held that there is no manner of doubt that the said principles of parity would apply, especially in view of the pronouncement of the Supreme Court in Dr. Balbir Singh's case (Supra). It may be noticed that MCD framed its own Bye-laws in the year 1994 and issue arose when after the Bye-laws have been brought into force, the said principles of parity would apply or that only the Bye-laws would govern. It was held by this Court in MCD v. Dhunishaw Framroz Daruwala, that the principles of parity would continue to apply pre or post amendment of Bye-laws."
20. Once the principles of parity have to apply, it cannot be appreciated how a property, which already exists as constructed and no modification has been made in the same, can be subject to revision on the basis of the price of acquisition of the property. In such a case, I am of the considered view that the basis for determination of the rateable value has to be the principles as contained in Section 6 of the Rent Act.
21. In view of the aforesaid, a Writ of Mandamus is, thus, issued quashing the impugned order dated 26.12.1997 and directing the respondent Corporation to redetermine rateable value of the property in question on the basis of the principles of standard rent under the Rent Act.
22. Parties are left to bear their own costs.
23. Petitioners to appear before the Joint Assessor and Collector on 04.08.2003 at 3.00 p.m.