MOTICHAND HIRACHAND Vs. BOMBAY MUNICIPAL CORPORATION

JUDGEMENT

(1.) Whether in determining the rateable value of a building the assessing authority under S. 154(1) of the Bombay Municipal Corporation Act III of 1888 can take into consideration income derived by the owner under an agreement entitling an advertisement hoarding to be put up on the roof of such building is the question arising in this appeal.

(2.) For consideration of this question a few relevant facts may first be recited. The appellants are the owners of "Fulchand Nivas", a building situate at the corner of what was known at the relevant time as Marine Drive and Sandhurst Road opposite Chowpatty Sea Face, Bombay. The building consists of ground and five upper floors and a terrace; The ground floor and five upper floors of the building were and are let out. For the last few years the Municipal Corporation has been assessing the rateable value of the building as equivalent to the actual rents recovered by the owners. After the rateable value for the year 1956-57 was assessed it was found that the terrace of the building was used for advertising Tata Mercedes-Benz Automobile Trucks and Buses by means of a neon-sign. This was done under an agreement dated February 5, 1957 entered into by the appellants under which the Tata Locomotive and Engineering Co. Ltd., had agreed to pay to the appellant Rs. 800 per month in consideration of their being allowed to display the said advertisement and a further sum of Rs. 700 in consideration of the owners agreeing not to allow any one else to use any portion of the said building for displaying any advertisement save those of the tenants on the ground floor not above the level of the height of the ground floor. The agreement provided also that it would be the owners who, during the continuance of the agreement would pay all existing and future rates, taxes, etc., which would be assessed, imposed, charged or become payable in respect of the said building or the said advertisement except the Municipal Licence fee in respect of said advertisement which would be borne by the Company. On March 3, 1958 the respondent corporation issued a notice under section 167 of the Act informing the owners that the assessment book had been amended and that the amount of the rateable value of the building was increased from Rupees 44,320 to Rs. 64, 685. The appellants thereupon filed a complaint under section 163 (2) of the Act against the said increase and the assessing authority by an order dated February 21, 1959 reduced the rateable value from Rs. 84,685 to Rs. 59,600. In maintaining the increase from Rs. 44,320 to Rs. 59,600 the assessing authority took into account the additional income arising from the said agreement and received by the appellants. The appellants thereupon filed an appeal before the Chief Judge, Small Cause Court Bombay, objecting to the said increase. The Chief Judge disallowed the said increase and directed that the rateable value should be Rs. 44,320. The Chief Judge held that under the said agreement there was no demise or transfer of an interest in the said property in favour of the Committee that the said agreement amounted merely to a licence revocable at any time though subject to the express terms of the agreement and was no more than a grant of a right in gross to display neon-sine outside the property and that the only user of the property was that of a small portion of the terrace used as a base for the said advertisement. He held that it was not any inherent or intrinsic quality of any portion of the property which commanded such a high consideration as the sum of Rs. 1500 per month. Aggrieved by this order the respondent Corporation filed an appeal before the High Court at Bombay. The High Court held that the Chief Judge was in error in holding that the Municipal Corporation was not enticed to take into account income earned by the owners under the said agreement, set aside his order and restored the original value assessed by the assessing authority at Rupees 59,000. The High Court analysed Sec. 154 of the Act and after consideration of the rules as to rating recognised by several decisions both English and that of the High Court itself in Mahad Municipality vs. Bombay S. R. T. Corporation, (1961) 63 Bom LR 174 held that the said increase was justified. The appellants then applied for and obtained a certificate under Art. 133 (1) (a) of the Constitution and filed the appeal.

(3.) Counsel for the owners challenged the correctness of the High Court's judgment and order and contended that in determining the annual rent of the building the assessing authority can take into account the rent at which the building is expected to be let, that - therefore the income derived from an agreement which amounts to a mere licence and not a demise cannot be added to such rent, such income bang totally irrelevant to the concept of annual rent envisaged in rating, To appreciate the contention it is necessary first to examine Section 154 (1) of the Act. The section provides that 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 percentum of the said annual rent and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever. The assessing authority for the purpose of fixing the rateable value has therefore to determine the annual rent, at is the annual rent for which such building might reasonably be expected to let from year to year and to deduct the 10 per cent statutory allowance therefrom and arrive at the net rateable value which would be equivalent to the net annual rent. The rateable value is thus taken to be the same as the net annual rent of the property. It is a well recognised principle in rating that both gross value and net annua1 value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits earned from the property or to the cost of construction. The expression "gross value" means the rent at which a hereditament might reasonably he expected to let from year to year. The rent which a tenant could afford to give is calculated rebus sic stantibus, that is to say with reference to the property in its existing physical condition and to the mode in which it is actually used. The hypothetical tenant includes all persons who might possibly take the property including the person actually in occupation, even though he happens to be the owner of the property. The rent is that which he will pay in the "higgling of the- market", taking into account all existing circumstances and any relevant future trends. If the property affords the opportunity for the carrying of a gainful trade, that fact also must be taken into account. The property is assumed to be vacant and to let and the material date for the valuation is that of the proposal which gives rise to the proceedings. The actual rent paid for the property is not conclusive evidence of value, though such actual rent may serve as an indication as to what a hypothetical tenant can afford to pay. However, if the actual rent is paid on terms which differ from those of the hypothetical tenancy it must be adjusted, if possible, to the terms of the hypothetical tenancy before it affords evidence of value. (See Halsbury's Laws of England, (3rd edn.) Vol. 92, p. 60 and onwards) . It is also well recognised that while valuing the property in question every intrinsic quality and every intrinsic circumstance which tends to push the rental value up or down must be taken into consideration. In other words, in estimating the hypothetical rent "all that could reasonably affect the mind of the intending tenant ought to be considered." (Cartwright vs. Sculcoates Union) , 1900 AC 150. Scott, L. J. in Robinson Bros. vs. Houghton and Chester-le Street Assessment Committee, (1937) 2 KB 445 at page No. 469 observed:-