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CASE NO.:

Appeal (civil) 2452 of 2000

PETITIONER:

MUNICIPAL CORPORATION OF GREATER MUMBAI AND ANR.

RESPONDENT:

KAMLA MILLS LTD.

DATE OF JUDGMENT: 11/07/2003

BENCH:

RUMA PAL & B.N. SRIKRISHNA

JUDGMENT:

JUDGMENT

2003 Supp(1) SCR 500

The Judgment of the Court was delivered by

SRIKR1SHNA, J. The central issue involved in both these appeals is: When a

building constructed upon land previously assessed to Municipal lax is

demolished for construction of new building, is it open to the Municipal

Corporation to assess the rateable value of the land till the construction

of the building by taking the market value of the land?

Facts:

The facts relevant for appreciating the controversy, shortly stated, are as

under :

The respondent is a company whose main business was running of a textile

mill known as M/s Kamla Mills Limited in Mumbai. It owned a large area of

land comprising approximately 38,000 sq. mtrs. In the city of Mumbai on

which structures were standing. The entire property (i.e. land & buildings)

was assessed under Ward No. G/S 1955 (1) at rateable value of Rs. 370,505.

The prolonged general strike of the textile workers in Bombay affected

financial position of all the textile mills in Mumbai and a policy decision

was taken by the Government of Maharashtra to permit construction of

residences in the industrial zone in the Bombay Metropolitan Region. As a

result of the newly adopted policy, textile mills which had extensive land,

and were hitherto not permitted to build thereupon, were granted permission

to demolish old structures upon the land and construct residential

buildings and sell them on condition that the finances thereby generated

would be utilized for paying off the dues of the textile employees. Taking

advantage of this liberalised industrial policy, the respondent company

demolished some of the old structures standing on a part of its land in or

about June, 1995 and got plans approved for construction of a new building

complex thereupon consisting of three wings A. B and C.

On 31st January, 19%, the Investigating Officer of the appellant -

Corporation made a Tabulated Ward Report (TWR) No. 441 proposing a revision

of the assessable value of the respondent's property. The appellant was of

the view that the land under the demolished structures forms a suitable

buildable plot of land whereupon construction work of the building in

phases had been started, and considering the building potential of the land

which had become available, the appellant bifurcated the entire plot of

land falling within Ward No. G/S 1955 (1) into two plots. By another

Tabulated Ward Report No. 442 of 31.1.1996 it was proposed that the land

under the demolished structures formed from June, 1995 a buildable vacant

plot of 15014 sq. mtr. on which construction had commenced. It was proposed

to "treat the whole plot of land admeasuring 15014 sq. mtr. as plot of land

under construction" and to revise its rateable value to Rs. 53, 50,990 by

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adopting a rate of Rs. 3300 per sq. mtr. Consequently, the rateable value

of the residual plot was reduced from Rs. 3,70,505 to Rs. 2,36,130. The

respondent filed complaints objecting to the proposed revision of the

rateable value in respect of both the plots. These complaints were heard by

the appropriate officer. By an order made on 12.2.1998, the concerned

officer reduced the rateable value by adopting the rate at Rs. 3,000 per

sq. mtr. He also assessed the property in two parts i.e., 'A' Wing "as plot

of land under construction" and 'B' & 'C' Wings "as plot of land". He

adopted the uniform rate of Rs. 3,000 per sq. mtr. for both the plots and

assessed the rateable value at Rs. 31,1 1,595 w.e.f. 1.12.1995. By another

order made on 11.3.1998. the appropriate officer of the appellant -

Corporation fixed the rateable value w.e.f. 1.10.1996. The order made by

the appropriate officer of the appellant - Corporation records that during

the hearing of the complaints though the respondent suggested that the

value of the land be determined by taking the rate of Rs. 2500 per sq.

mtr., the respondent did not adduce any evidence or reasons for reducing

the market rate of the buildable vacant land from Rs. 3000 per sq. mtr. to

Rs. 2500 per sq. mtr. Consequently, this suggestion of the respondent was

not accepted and the concerned officer fixed the rateable value of both the

plots of land at Rs. 31,11,595 w.e.f. 1.6.1995 by adopting the market rate

of land at Rs. 3000 per sq. mtr.

The respondent filed two appeals before the Small Causes Court. Municipal

Appeal No. 367 of 1998 was directed against the order of the Investigating

Officer dated 11.3.1998 passed in Complaint No. 140 of 1996/97 fixing the

rateable value w.e.f 1.10.1996. Municipal Appeal No. 370 of 1998 was

directed against the order of the Investigating Officer dated 12.2 1998.

The Small Causes Court heard the appeals and by a common judgment In Id

that the appellant - Corporation was not entitled to revise the rateable

value by adopting the market rate. It was also held that the Investigating

Officer had failed to follow the principle laid down by this Court in the

case of the Municipal Corporation of Greater Bombay v. M/s. Polychem Ltd.,

[ I974] 2 SCC 198, that the rate adopted by the Investigating Officer was

excessive and exorbitant, and that the proper rate of assessment should be

Rs. 654 per sq. mtr.

After setting aside the order of the Investigating Officer dated 11.3 1998,

the Small Causes Court determined the rateable value of wing 'A' at Rs.

26,96,355 w.e.f. 1.10.1996, and for wing'B'&'C'(as vacant land) at Rs.

89,396, w.e.f. the same date. The appellants were directed to issue fresh

bills accordingly with a direction to refund the excess amount paid alter

adjusting against taxes due.

The appellant - Corporation challenged the judgments of the Small Causes

Court before the High Court by filing two appeals. First Appeal No. 660/99

against the judgment in Municipal Appeal No. 370/98 was summarily rejected

on the ground that no interference was called for. First Appeal No. 659/99

directed against the judgment of the Small Causes Court in Municipal Appeal

No. 367/98 was also rejected by taking the view that in Dewan Daulat Raj

Kapoor v. New Delhi Municipality, AIR (1980) SC 541 this Court has laid

down that the annual value at which the building can reasonably be experted

to let must be limited to the measure of standard rent determined under the

Rent Act and cannot be determined on the basis of the higher rent actually

received by the landlord from the tenant.

Being aggrieved by the said two judgments of the High Court the appellant

is before this Court. The appellant filed an application for producing

certain additional documents before this Court vide I.A. No. 2 of 2000. It

was pointed out that in response to notices issued by the appellant -

Corporation under Section 155 of the Bombay Municipal Corporation Act, the

letters dated 16.12.1999 and 24.12.1999 were received from National Stock

Exchange of India Limited and National Securities Depository Ltd.,

respectively, indicating the actual amounts paid by them for occupation of

certain portions of the building known as "Trade World" which had been

constructed by the respondent after demolition. Since these documents

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became available after the High Court had delivered its judgment, the

appellants craved leave to rely upon them. This application was allowed by

an order dated 3.4.2000 made by this Court.

Contentions:

The appeals pertain to two different aspects. One pertains to the completed

building 'A' wing and the other pertain to the vacant land. With regard to

the completed building 'A' wing, learned counsel for the appellant contends

that the assessee deliberately failed to furnish the particulars of leave

and license / rent at which the premises had been given to the occupants.

It is only after the notice issued under Section 155 that the appellant was

able to gather information that at the material time National Stock

Exchange of India Limited was paying Rs. 53,92,049.46 to the respondent for

occupation of basement and three upper floors and similarly National

Security Depository Ltd. was using and occupying 4th and 5th floors of 'A'

wing on ownership basis. The learned counsel contends that the judgment of

this Court in Polychem (supra) merely holds that when a building on land,

previously rated, is demolished, and new construction is commenced, the

land upon which the construction is being made, should continue to be rated

as vacant land. However, this Court has not laid down that its rateable

value should be the same as prior to the demolition of the building. It is

contended that even if the rateable value of a building is to be held

limited to the standard rent, and the assessment of the rateable value has

to be done on the said basis, the evidence on record clearly shows that the

building was being assessed for the first time and, therefore, the actual

letting value of the premises has to be taken as the basis for working out

the rateable value irrespective of the fact that it was styled as 'leave

and license compensation'. The actual amount paid by the National Stock

Exchange India Limited and National Securities Depository Limited must be

taken as the basis for working out the rateable value of the land under

construction from 1.10.1996 onwards.

With regard to the assessment for rating of the vacant land, the learned

counsel for the appellant contends that, after demolition of the structures

on the land, the character of the land changed inasmuch as its building

potential increased tremendously. Since the land as such had not been

assessed previously, it had to be assessed for rateable value on the basis

of "Contractor's Method" by taking a suitable percentage of the market

value, which was one of the known methods of assessing the rateable value.

Hence, from 1.10.1996 the appellant had rightly proposed the rateable value

on the basis of the market value of the land at Rs. 3300 per sq mtr. while

the respondent had made a counter suggestion that it should be 2500 sq.

mtr. as fair and reasonable value without producing any evidence in

support. In the circumstances, the appellant's orders that the rateable

value should be worked out by taking market value of land at Rs. 3,000 per

sq. mtr. was not liable to be disturbed. The learned counsel contends that

both the Small Causes Court and the High Court have misunderstood the

judgment of this Court in Polychem (supra). In Polychem (supra) this Court

has merely laid down that once the building is demolished, the land does

not cease to have rateable value (as the doctrine of sterility does not

hold good in India), but continues to be rateable as "vacant land". This

Court has nowhere laid down that the land should be rated only at the rate

prevalent prior to the demolition of the structures Since "contractor's

method" is a known method of assessing the rateable value of land, no fault

could be found with the rateable value arrived at by the appellant -

Corporation.

The learned counsel for respondent urged the following propositions of law

to support the judgments of the courts below:

(i) The rateable value of land and building is limited by the measure of

standard rent arrived at by the assessing authority by applying the

principles laid down in the Bombay Rent Act and cannot exceed the figure of

the standard rent so arrived at by the assessing authority.

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(ii) The standard rent of premises (land or land & building) is based on

allowing the landlord a reasonable return on his investment. It is linked

to the capital investment of the landlord and not linked to the market

value of the premises. Under the Bombay Rent Act the standard rent of

premises always remains fixed

(iii) As the standard rent (of premises land or building) remains fixed

under the Bombay Rent Act, the Corporation could not have revised the

rateable value of land under construction, even if" it is treated as vacant

land under the ratio of the judgment in Polychem case, on the basis of the

current market value of the land or the current market value of the

building.

"to-

According to the learned counsel for the respondent, Polychem holds that

once the building is demolished and reconstruction is commenced on the

land, the land must be treated as vacant land for the purpose of rateable

value and its rating has to remain frozen at what it was earlier unless

there has been additional investment or improvement therein. In the instant

case, what was being assessed for rateable value was subject to the limit

of standard rent applicable under the Bombay Rent Act and merely because

the land had building potential, The Corporation was not entitled to revise

the rateable value.

Both sides cited a large number of authorities in support of their

respective cases which we shall presently notice.

Law:

Under Section 139 of the Bombay Municipal Corporation Act, the Corporation

is inter alia empowered and obligated to impose property taxes. The

property taxes comprise general tax, water tax, sewage tax and so on. All

these taxes are leviable at such percentage of the rateable value as

determined by the Municipal Corporation. The manner of determination of

rateable value, therefore, becomes crucial to the debate before us. The

material portion of Section 154 of the Mumbai Municipal Corporation Act

relevant for our discussion reads as under:

"Section 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."

The key words of Section 154( 1) are "the amount of the annual rent for

which such land or building might reasonably by expected to let from year

to year" (emphasis added). Considerable forensic skill and judicial talent

have been expended to ascertain the meaning of these words. Depending upon

whether the area in question is subject to Rent Restriction Legislation or

not, the Courts have answered the question differently.

Counsel placed reliance on the following judgments in support of the

proposition that the rateable value of a premises is limited by the

standard rent determined or determinable under the provisions of the Rent

Restriction Legislation.

1. [1998] 6 SCC 381. Govt. Servant Coop. House Building Society Ltd.

v. Union of India

2. [ 1998] 4 SCC 368, East India Commercial Co. (?) Ltd. v. Corpn. of

Calcutta.

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3. [1995] 4 SCC 696, Asstt. G.M., Central Bank of India v. Commr. ,

Municipal Corpn. For the City of Ahmedabad.

4. [1995] 4 SCC 96, Indian Oil Corpn. Ltd. v. Municipal Corpn

5. [ 1994] 6 SCC 572, Srikant Kashinath Jituri v. Corpn. of the- City

of Belgaum.

6. [1985] 1 SCC 167, Balbir Singh (Dr.) v. MCD.

7. [1980] 1 SCC 685, Dewan Daulat Rai Kapoor v. New Delhi Municipal

Committee

8. [1976] 4 SCC 622, Municipal Corpn., Indore v. Ratnaprabha

9. [1970] 2 SCC 803, Guntur Municipal Council v. Guntur Town Rate

Payers' Assn.

10. [1970] 2 SCC 44, Corpn, of Calcutta v. L1C of India.

11. AIR (1962) SC 151, Corpn. of Calcutta v. Padma Debi.

We are, fortunately, spared the effort of having to analyse these judgments

in detail and ascertain their ratios, as two judgments of this Court have

already anticipated and carried out this task for us.

In East India Commercial Co. (P) Ltd. v. Corpn of Calcutta, [ 1998] 4 SCC

368 all these judgments were analysed by this Court and the position in law

was neatly summed up as under:

"From the aforesaid decisions, the principle which is deducible is that

when the Municipal Act requires the determination of the annual value, that

Act has to be read along with Rent Restriction Act which provides for the

determination of fair rent or standard rent. Reading the two Acts together

the rateable value cannot be more than the lair or standard rent which can

be fixed under the Rent Control Act. I he 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 relating to

Ahmedabad or contains a non obstante clause as in Ratnaprabha case then the

determination of the annual letting value has to be according to the terms

of the Municipal Act. In the present case, Section 168 of the Municipal Act

docs not contain any non obstante clause so as to make the Tenancy Act

inapplicable and nor does the Act itself provide the method or basis for

determining the annual value. This Act has, therefore, to be read along

with Tenancy Act of 1956 and it is the fair rent determinate under Section

8 (1) (d) which alone can be the annual value for the purpose of property

tax." (Vide paragraph 17).

Since that was a case pertaining to the Calcutta Municipal legislation, the

reference therein is thus to Section 8(1) (d) of the West Bengal Tenancy

Act, 1956.

Despite the law having been thus clearly laid down in East India Commercial

Co, (P) Ltd. (Supra), thanks to ingenuity of counsel, the issue was

reagitated before this Court in India Automobiles (I960) Ltd \. Calcutta

Municipal Corpn., [2002] 3 SCC 308. This Court once again carried out a

survey of the judgments and culled out the law as under (vide paragraph

21):

"A perusal of various judgments, relied upon by the learned counsel for the

parties, clearly shows that this Court has taken a consistent view

regarding the determination of annual value of land or building for the

purposes of determination of taxes under the Municipal Acts. 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

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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, LIC case, Guntur Town Rate Payers case and Dewan Daulat Rai case deal

with the first group of municipal laws, the cases in Ratnaprabha case, AGM,

Central Bank of India case. East India Commercial Co. case, Balbir Singh

case, Indian Oil Corpn. Case and Srikant case deal with the second group.

As already noticed, this Court in LIC case dealt with the first category as

in Section 168 of the Calcutta Municipal Corporation Act, there existed no

non obstante clause. The observations of the Bench of this Court which

dealt with the case on 10.10.2001 cannot be taken in isolation."

It was further observed (vide paragraph 23):

"As already noticed even without specific determination, the standard rent

was held to have been statutorily determined under Section 2(10) (b) of the

Rent Act. Upon analysis of the various municipal laws and the judgments of

this Court it is held that in cases where the municipal laws exclude the

applicability of the Rent Acts by incorporating non obstante clause in the

taxing statute, the powers of the authorities under the Municipal Acts are

not circumscribed by the limits indicated in Padma Debi case and followed

in that group of cases. In cases where the fair rent payable by the tenant

has been determined and there is no justification for refusing to accept

that fair rent as rental value of the premises, the municipal authorities

should generally accept the standard rent fixed, notwithstanding the non-

applicability of the Rent Acts because such a view would be a reasonable

guideline to determine the rate of rent at which such land or building

might, at the time of assessment, be reasonably expected to let from year

to year. The rent which the tenant is receiving from his subtenant is also

an important statutory consideration for determining the rent at the time

of assessment to which the property might reasonably be expected to be let

from year to year. Such a consideration is also justified on the principles

of reasonableness. 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."

Now that the law has been culled out to the exercise of applying it.

The case before us is governed by the provisions of a Rent Restrictions

Legislation viz. The Bombay Rent Act. The Bombay Municipal Corporal ion 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 Commissioner v Griha Yajmanule Samkya

and Ors., [2001] 5 SCC 561. The Bombay Municipal Corporal on 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 all within

the general principle laid down by the series of judgments commencing Padma

Devi (supra) and ending with Srikant Kashinath Jituri (supra).

The contention of the learned counsel for the respondent that the rateable

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value to be fixed under Section 154(1) of the Bombay Municipal Corporation

Act is limited by the measure of the standard rent within the meaning of

Section 5 (10) of the Bombay Rent Act appears to be justified, particularly

in view of the fact that Section 7 of the Bombay Rent Act makes it illegal

to claim of any rent or any licence fee in excess of the standard rent.

Thus, in determining what would be the "amount of the annual rent for which

such land or building might reasonably be expected to let from 'ear to

year" for the premises, meaning thereby land or building, since both are

included in the definition of the premises in Section 2 (3) (g), one has to

I eep in mind that determining anything contrary to law could not be

"reasonable" as a hypothetical tenant 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.

Mr. Singhvi, learned counsel for the appellant, urged that this contention

cannot be accepted for several reasons. First, he urged that such a

contention was never raised at any stage of the proceedings either before

the Investigating Officer, Small Causes Court, or even before the High

Court. He contends that 'standard rent' is a pure question of fact, or, at

any nite, a mixed question of law and fact, and ought not to be permitted

to raise before this Court first time. He, therefore, urged upon us to

decline permission for this ground to be raised. Though, as a normal rule,

this Court does nut permit in appeal the raising of a totally new ground,

particularly when wider r; mifications may arise, we are inclined to permit

raising this ground for more than one reason. First, that the proposition

of law that rateable value is limited by the amount of the standard rent,

per se does not require actual invesigation. as it appears to be well

settled by catena of decisions of this Court Secondly, we find that the

High Court and the courts below focused the r attention merely on the ratio

laid down in the judgment by this court in Polychem (supra) without

adverting to this proposition of law which appears to be well established.

Thirdly, substantive justice requires over-looking of the rigid rule,

particularly when the contention, if permitted to be urged, does not cause

prejudice to the opposite party.

Mr. Singhvi then contended that under Part-II of the Mumbai Rent Act, which

contains the provisions with regard to the standard rent, the restrictions

imposed under Section 7 would apply in respect of the premises only if they

are let. He contended that entire Part - II of the Rent Act would not apply

to the premises of Kamla Mills since the premises was never let out at any

time earlier and, therefore, the restrictions under Section 7 of the Mumbai

Rent Act would not apply. In our view, the argument is untenable. What we

are required to consider is what would a hypothetical tenant be willing to

offer as reasonable rent for the premises in question. Upon the premises

being offered to be let, there would be hypothetical tenant; that

hypothetical tenant would look at the restrictions applicable under the

rent legislation and make a reasonable offer. Section 6 in Part-II of the

Mumbai Rent Act, therefore, is hardly of relevance. We may examine the

question from another angle. It surely cannot be contended that no rateable

value can be fixed in respect of the premises occupied by the owner

himself. In fact, Section 154 (I) of Mumbai Municipal Corporation Act would

apply equally to such premises. Even in such a situation, the reteable

value has to be ascertained on the basis of what a hypothetical tenant

would offer for it as reasonable rent. If Mr. Singhvi's argument that

Section 6(1) of the Mumbai Rent Act makes the provisions of Part-II

inapplicable to such premises is accepted, then no taxes would be payable

by any owner for self-occupied property. We, therefore, reject this

contention.

It is next contended by Mr. Singhvi that Bombay Municipal Corporation Act,

1888 is a complete code for determination of the rateable value and is not

subject to the provisions in the Bombay Rent Act, 1947. Our attention was

drawn to the fasciculus of Sections 139, 140, 146, 147, 154, 155. 156 to

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167 and 217 of Bombay Municipal Corporation Act in support of the

contention. In our view, the contention is unsustainable. No doubt the

Bombay Municipal Corporation Act is a legislation for fixing of the

rateable value and imposing of property tax, but it nowhere defines what

'rateable value' is, except in general terms under Section 154 (1). If the

statute had defined 'rateable value' in specific terms, then the argument

may have been sustainable, as sustained in Griha Yajmanule Samkhya and Ors.

(supra). 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 oroperty let. As has been pointed 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 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 Yajmanule Samkya and Ors.

(supra), where the Municipal Corporation Act has a detailed method to fix

the rateab e value. As already noticed by the judgments of this Court,

barring the two exceptional cases of Municipal Legislation containing 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.

We are unable to accept the contention of Shri Singhvi that this case falls

within the ratio of Griha Yajmanule Samkya and Ors. (supra). In that case

the municipal legislation in Hyderabad specifically contained detailed

provisions for fixation of monthly or yearly rent. Examining the statute

before it, this Court took the view that the statutory provisions required

the tax to be levied on the basis of rateable value as fixed by the

Corporation and there was further provision in the Act as to the method or

manner of determination of the rateable value. Hence, this Court observed

(vide paragraph 35), "the act mandates that the Commissioner shall

determine the tax to be p lid by the person concerned in the manner

prescribed under the statue and the rules. It is our view that the Act and

the Rules provide a complete code for assessment of the property tax to be

levied upon buildings within the Municipal Corporation. There is no

provision in the statute that the fair rent determined under the Rent

Control Act in respect of a property is binding on the Commissioner. The

legislature has wisely not made such a provision because determination of

annual rent depends on several criteria". We are, therefore. unable to

accept the contention of Shri Singhvi in this regard.

It is next contended by Shri Singhvi that Section 5 (10) (b) and Section 11

of the Mumbai Rent Act, 1947 have been declared to be ultra vires Article

14 of the Constitution by this Court in Malpe vishwanath Acharya and Ors.

v. State of Maharashtra and Anr., [1998] 2 SCC 1. It is undoubtedly true

that this Court held the aforesaid provisions of the Bombay Rent Act to he

unreasonable and liable to be struck down as unreasonable and arbitrary.

However, this Court refrained from striking down the same in view of the

fact that the existing Act was to lapse on 31.3.1998. Hence, this Court

made the following directions:

"We however refrain from striking down the said provisions as the existing

Act elapses on 31.3.1998 and we hope that a new Rent Control Act will be

enacted with effect from 1.4.1998 keeping in view the observations made in

this judgment insofar as fixation of standard rent is concerned. It is,

however, made clear that any further extension of the existing provisions

without bringing them in line with the views expressed in this judgment,

would be invalid as being arbitrary and violative of article 14 of the

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Constitution and therefore of no consequence. The respondents will pay the

costs."

This judgment need not detain for another reason. We are concerned with the

period prior to 31st March, 1998, at which time, admittedly, the concerned

sections were not held to be bad, by this Court despite noticing the

infirmity in the sections. For this reason also, we are unable to accept

the contention.

Shri Singhvi then contended that the appeals must fail for failure to place

the requisite evidence on record. He contends that there is no warrant for

the assumption and assertion of the respondent that the rateable value for

the property of the respondent for the years 1994-95 and 1995-96 was based

on "standard rent", nor is there any warrant for the assertion that the

land had been separately valued as contended. There appears to be merit in

this contention. While the material on record shows that prior to 1994-95

the rateable value of the entire property before the demolition was fixed

at Rs. 3,70,505, there is no evidence on record to show either that this

was based on standard rent or that there was any assessment of the land and

structures separately. Learned counsel relied on the judgment of this Court

in National and Grindlays Bank Ltd. v. The Municipal Corporation of Greater

Bombay, [1969] 1 SCC 541, a case arising under the Bombay Municipal

Corporation Act, 1888 itself, in which the court observed that the Act was

passed in the year 1888 and Municipal Corporation had a practice for a very

long time of treating the land and the building constructed upon it as

single unit and charging the property tax upon the owner of the land in a

case where the land is let for a period of less than one year to a tenant

who has constructed a building thereupon, approving the observations made

by the Division Bench of the Bombay High Court in Ramji Keshavji v.

Municipal Corporation for Greater Bombay, [56 Bom. LR 1132]. Relying on

this judgment the learned counsel for the appellant contended that, far

from there being material to suggest that rateable values were fixed

separately for land and building, judicial notice has been taken of the

fact that the land and buildings were rated as a composite unit by the

Bombay Municipal Corporation is matter of practice. Placing reliance on the

judgment of this Court in AGM, Central Bank of India v. Commr. Municipal

Corporation, [1995] 4 SCC 696 it is urged that once the Commissioner of the

Corporation has fixed the rateable value, the burden is upon the tenant to

show as to what should be the correct rateable value. In the present case

the respondent failed to lead any evidence to show why Rs. 3,000 per sq.

mtr. was not a reasonable market value, nor did it adduce any evidence to

show that Rs. 2500 per sq. mtr. was the reasonable market value. In the

circumstances, Shri Singhvi contends that taking the market value at Rs.

3,000 per sq. mtr. was perfectly justified for assessing the rateable

value.

It is next contended by the appellant that even if we assume that the

provisions of Bombay Rent Act apply, 'standard rent' is different y defined

by the Bombay Rent Act. Section 5(10) (b) defines standard rent as under:

"Section 5 (10) (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

[(iii-a) notwithstanding anything contained in paragraph (iii) the rent of

the premises referred to in sub-section (1-A) of Section 4 shall, on expiry

of the period of five years mentioned in that sub-section, not exceed the

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amount equivalent to the amount of net return of fifteen per cent, on the

investment in the land and building and all the outgoings in respect of

such premises; or]

(iv) on any of the cases specified in section 11, the rent fixed by the

court; Section II contemplates that the Court may fix the 'standard rent'

in certain cases which are indicated by clauses (a) to (e) of sub-section)

(I) and sub-section (2), when an application for fixing the standard rent

is made Section 11 reads as under:

"Section 11(1) - [Subject to the provisions of Section IIA in any of the

following] cases the Court may, upon an application made to it for that

purpose, or in any suit or proceedings, fix the standard rent .at such

amount as, having regard to the provisions of this Act and circumstances of

the case, the Court deems just -

(a) where any premises are first let after the first day of September,

1940 and the rent at which they are so let is in the opinion of the Court

excessive; or

(b) where the Court is satisfied that there is not sufficient evidence

to ascertain the rent at which the premises were let in any one of the

cases mentioned in [paragraph (i) to (iii) of sub-clause (b) of clause

(10)] of section 5; or

(c) where by reason of the premises having been let at one time as a

whole or in parts and at another time in parts or as a whole, or for any

other reason, any difficulty arises in giving effect to this Part; or

(d) where any premises have been or are let rent free or at a nominal

rent or for some consideration in addition to rent; or

(d-1) without prejudice to the provisions of sub-section (A) of Section 4

and paragraph (iii-a) of sub-clause (b) of clause (10) of Section 5, where

the Court is satisfied that the rent in respect of the premises referred to

therein exceeds the limit of standard rent laid down in the said paragraph

(iii-a); or]

(e) where there is any dispute between the landlord and the tenant

regarding the amount of standard rent."

"Section - 11(2) - If there is any dispute between the landlord and the

tenant regarding the amount of standard rent."

Section 11 read with Section 5(10) (b) of the Bombay Municipal Act, 1947

makes it clear that where premises were let before, on or after the first

September, 1940 the first letting rate shall be the standard rent subject

to the provisions of Section 11. In the present case, as to whether the

premises in question were let before first September, 1940, or thereafter,

and, if so, what was the first letting rate, is not ascertainable from the

record. In the circumstances, Shri Singhvi submits that the other

alternative method of finding out the standard rent is "contractor's

method" which has been judicially approved. Under this method the market

value of the land has to be ascertained and reasonable return fixed

thereupon to determine the standard rent. This is precisely what was done

by the assessor and Collector by taking the market value Rs. 3,000 per sq.

mtr. as a fair value with a reasonable return of 12% thereupon, in fact,

even the respondent suggested only Rs. 2500 per sq. mtr. as the fair market

value and did not raise any dispute with regard to the fair return. The

Bombay High Court in Harilal Parekh v. Jain Coop. Housing Society, AIR

(1957) Bom. 207 and Saipansaheb Wd. Dawoodsaheb v. Laxman Venkatesh Naik,

57 BLR 413, pointed out that under Section 5 (10) (b) (1) the first letting

on first September, 1940 becomes the standard rent subject to the provision

of Section 11 of the Act and, when the occasion arises, the Court has the

jurisdiction to re-determine it under Section 5 (10) (b) (1), where the

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case falls under Section 11 (1) (e) of the Bombay Rent Act. It was also

pointed in Harlal Parekh (supra) that the premises were first let after

first September, 1940 and the rent shall be equivalent to 6% on the

valuation of land and 8.2/3% on the valuation of building.

It is true that Section 11 of the Rent Act provides that even standard rent

can be altered and re-fixed if there is any structural alteration or change

in the amenities. It is urged by Shri Singhvi that demolition of tre

building and increasing the building potential of the land is one such

change contemplated by Section 11 (a). This contention, we are unable to

accept. Section 11 (a) is intended to enable the Court, upon an application

n any suit or proceeding, to modify the standard rent as a result of

structural alteration or change in the amenities involving further capital

investment of I he owner. We do not think that demolition of a building is

one such contingency contemplated by Section 11 (a) of the Act.

In the result, though we accept the proposition urged by the respondent

that in the facts of the present case the standard rent would be the limit

of the rateable value, we find that there was no material produced on

record at any stage by the respondent to show what the standard rent was

either in respect of the vacant land or in respect of the land on which the

building was constructed and demolished, or in respect of the building

after it was constructed. We accept the contention of the appellant that

the hurden of proving this fact, while objecting to the rateable value

fixed by the Commissioner, is always on the respondent-assessee. We also

accept the contention of the appellant that the respondent was less than

fair to the appellant in not disclosing that its property had been occupied

by National Stock Exchange of India Ltd. and National Security Depository

Ltd. and in not disclosing the amounts paid by them. The respondent ought

to have disclosed the fact, fairly and fully, and urged the legal

contentions open to it based thereupon. These facts would have justified

our allowing the appeal fully and restoring the assessment orders made by

the appellant officers. However, we are not inclined to do so for the

reason that the attention of the parties has not been focused on the core

issue, as a result of which, perhaps, there was failure to produce relevant

material before the assessor to show what was the standard rent. The

interests of justice would require that the issue be reconsidered after

giving an opportunity to the respondent to discharge the burden placed upon

it under law.

In the result, we allow the appeals and set aside the judgments of the High

Court and Small Causes Court. The concerned proceedings are restored before

the Assessor and Collector who shall hear and dispose the complaints after

giving an opportunity to the respondent to produce such material as they

may desired in support of their objections to the assessments made by the

appellant.

In the circumstances of the case, the appeals are thus allowed with costs

quantified at Rs. 50,000.