TMI Blog1984 (12) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... l premises are concerned. The rateable value of the premises, whether residential or non-residential, cannot exceed the standard rent, but, as already pointed out above, it may, in a given case, be less than the standard rent. Second category of premises which are partly self-occupied and partly tenanted the sum total of the rent which the owner may reasonably expect to get from a hypothetical tenant in respect of each distinct and separate unit of occupation calculated in the manner aforesaid, would represent the rateable value of the building. We may point out that this formula for determination of the rateable value would apply, irrespective of whether any of the distinct and separate units of occupation comprised in the building are self-occupied or tenanted. The only difference in the case of a distinct and separate unit of occupation which is tenanted would be that, subject to the upper limit of the standard rent, the actual rent received by the owner would furnish a fairly reliable measure of the rent which the owner may reasonably expect to receive from a hypothetical tenant, unless it can be shown that the actual rent so received is influenced by extra-commercial consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey affect the liability of a large number of property owners in the Union territory of Delhi to pay property tax under the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911. The appeals before us arise out of writ petitions filed in the High Court of Delhi challenging assessments made by the Municipal Corporation. The writ petitions fall broadly into two categories-one category consisting of writ petitions which were originally filed in the High Court of Delhi but were subsequently transferred to this court, and the other consisting of writ petitions which were filed directly in this court. We are definitely of the view that the writ petitions filed directly in this court are not maintainable under article 32 of the Constitution, since none of them complains of violation of any fundamental right and ordinarily we would have rejected them straightway without going into the merits, but the parties before us agreed that in view of the fact that these writ petitions involve identical questions as the appeals and the other writ petitions transferred to this court and those questions would, in any event, have to be determined by us, we should not dismiss these wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made thereunder for the purpose of assessment to property taxes ". Chapter VIII of the Act deals with the subject of taxation and it comprises ss. 113 to 184. Clause (a) of sub-s. (1) of s. 113 provides that the Corporation shall, for the purpose of the Act, levy property taxes. The subject of property taxes is then dealt with in ss. 114 to 135. Section 114, sub-s. (1), lays down that property taxes shall be levied on lands and buildings in Delhi and shall consist, inter alia, of a general tax of not less than 10 and not more than 30 per cent. of the rateable value of lands and buildings within urban areas. There is a proviso to sub-s. (1) of s. 114 which says that the Corporation may, when fixing the rate at which the general tax shall be levied during any year, determine that the rate leviable in respect of lands and buildings or portions of lands and buildings in which a particular class of trade or business is carried on, shall be higher than the rate determined in respect of other lands and buildings or portions, of other lands and buildings by an amount not exceeding one half of the rate so fixed. Then follows an Explanation which provides that where any portion of a land or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (1) of that section says that the property taxes shall be primarily leviable, if the land or building is let, upon the lessor, if the land or building is sublet, upon the superior lessor and if the land or building is unlet, upon the person in whom the right to let the same vests. Subsection (2) of s. 120 deals with an exceptional case where any land has been let for a term exceeding one year to a tenant and such tenant has built upon the land and in such a case, the sub-section provides that the property taxes shall be primarily leviable upon the tenant. Sub-section (3) of s. 120 is an important provision and we may, therefore, reproduce it in extension " The liability of the several owners of any building which is, or purports to be, severally owned in parts or flats or rooms, for payment of property taxes or any instalment thereof payable during the period of such ownership shall be joint and several. " This provision contemplates a case where there are several owners of a building which is or which purports to be severally owned in parts or flats or rooms, so that each part or flat or room in the building is owned by separate owner and the question arises as to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of a building subject to rent control legislation, this approximation may and often does get displaced, because under rent control legislation, the landlord cannot claim to recover from the tenant anything more than the standard rent and his reasonable expectation must, therefore, be limited by the measure of the standard rent lawfully recoverable by him. There are several decisions where the impact of rent control legislation on the determination of rateable value has been considered by this court and the latest amongst such decisions is that in Dewan Daulat Rai v. New Delhi Municipal Committee [1980] 122 ITR 700 (SC). This decision has reviewed all the earlier decisions given by this court and as of date has spoken the last word on the subject so far as this court is concerned and, hence, it would be instructive and helpful to refer to it in some detail. There were three appeals decided by a common judgment in Dewan Daulat Rai's case [1980] 122 ITR 700 (SC), and the question which arose for determination in those appeals was as to how the rateable value of building should be determined for levy of property tax where the building is governed by the provisions of the Delhi Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, be regarded as providing a correct measure for determination of the rateable value of the building. This argument was, however, rejected by the court and it was held that even if the standard rent of a building has not been fixed by the court under s. 9 of the Rent Act, the landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent determinable under the provisions of the Rent Act and this would be so equally whether the building has been let out to a tenant who has lost his right to apply for fixation of the rent by reason of expiration of the period of limitation prescribed by s. 12 of the Rent Act or the building is self-occupied by the owner. Therefore, the court held that in either case, according to the definition of If rateable value " given in both statutes, the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant, would constitute the correct measure of the rateable value of the building. The court pointed out that, in each case, the assessing authority would have to arrive at its own figure of the standard rent by applying the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rateable value even if it be higher than the standard rent determinable under the provisions of the Rent Act. The court held that even if the landlord was entitled under the law to recover the contractual rent from the tenant because the standard rent of the building had not yet been fixed and the time for making an application by the tenant for fixation of the standard rent had already expired, such contractual rent could not furnish a measure for determination of the rateable value, because the question had to be judged not with reference to the actual tenant but with reference to a hypothetical tenant and the yardstick provided by the statute for determination of the rateable value was as to what rent the owner of the building might reasonably expect to get from a hypothetical tenant, if the building were let from year to year and the hypothetical tenant could not be assumed to be willing to pay anything more than the standard rent, because after taking the hypothetical tenancy, he could immediately make an application for fixation of the standard rent. The court, therefore, reached the conclusion that even if the landlord was lawfully entitled to receive the contractual rent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iples laid down in the Rent Act may be very high having regard to the fantastic inflation in the value of land and the abnormal rise in the cost of construction in the last few years, but it may not be, and perhaps in many cases would not be, possible for the owner to obtain such high rent from a hypothetical tenant. It is equally possible that the building constructed by the owner may be so large as a single unit that it may be difficult for the owner to find a tenant who will be prepared to pay the huge amount of rent which the standard rent is bound to be if determined on the principles laid down in the Rent Act and having regard to the extreme smallness of the number of possible tenants of such a building, the rent which the owner may reasonably expect to receive from a hypothetical tenant may be very much less than the standard rent. The test, therefore, is not what is the standard rent of the building but what is the rent which the owner reasonably expects to receive from a hypothetical tenant and such reasonable expectation can in no event exceed the standard rent of the building determinable in accordance with the principles laid down in the Rent Act, though it may, in a gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omprised in the premises on the date of the commencement of the construction: Provided that where the rent so calculated exceeds twelve hundred rupees per annum, this clause shall have effect as if for the words 'seven and one-half per cent.', the words 'eight and one-fourth per cent.' had been substituted; " Though we are not concerned with non-residential premises, we may point out that in respect of the non-residential premises which have been let out at any time on or after June 2, 1944, and in respect of which rent has not been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947, or the Delhi and Ajmer Rent Control Act, 1952, standard rent is required to be calculated on the same basis as set out in sub-s. (1)(AX2)(b) of s. 6 with only this difference that instead of the rent being calculated at the rate of 8 1/4th per cent. as laid down in that provision, it is required to be calculated at the rate of 85/8ths per cent. Sub-section 2 of s. 6 has also considerable bearing on the controversy between the parties and it may, therefore, be set out in full : "(2) Notwithstanding anything contained in sub-section (1) (a) in the case of any premises, whether residenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case. (4) Where for any reason it is not possible to determine the standard rent of any premises on the principles set forth under section 6, the Controller may fix such rent as would be reasonable having regard to the situation, locality and condition of the premises and the amenities provided therein and where there are similar or nearly similar premises in the locality, having regard also to the standard rent payable in respect of such premises. " These are the only material provisions of the Rent Act which are relevant for the determination of the controversy which arises in the present appeals and writ petitions. It is clear from the definition of " standard rent " contained in s. 2(k) that the standard rent of a building means the standard rent referred to in s. 6 or where the standard rent has been increased under s. 7, such increased rent. This definition is not an inclusive one but an exhaustive definition and it defines the standard rent to mean either the standard rent referred to in s. 6 or the increased standard rent under s. 7. It is significant to note that it does not contain any reference to s. 9, sub-s. (4). Whenever, therefore, any reference i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he compulsive force of the formulae laid down in s. 6 for the determination of the standard rent and of the provisions of s. 7 for increase in standard rent is not in any way whittled down by sub-s. (2) of s. 9 but a marginal discretion is given to the Controller to mitigate the rigour of the formulae where the circumstances of the case so require. The question, however, may arise as to what is to happen if it is not possible to determine the standard rent of any premises on the principles set forth in s. 6. The machinery set out in sub-sections (1) and (2) of s. 9 would then fail of application, because it would not be possible for the Controller to fix the standard rent having regard to the provisions of s. 6. This contingency is taken care of by sub-s. (4) of s. 9 which provides that, in such a situation, the Controller may fix such rent as would be reasonable having regard to the situation, locality and condition of the premises and the amenities provided therein and where there are similar or nearly similar premises in the locality, having regard also to the standard rent payable in respect of such premises. But the basic condition for the applicability of sub-s. (4) of s. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extremely rare and even there, the Controller would not be on an uncharted sea : he would have to fix the reasonable rent of the premises taking into account the standard rent of similar or nearly similar premises in the adjoining locality and making necessary adjustments in such standard rent. Now, let us take up for consideration the first category of premises, in regard to which the question of determination of rateable value arises, namely, where the premises are sell-occupied, that is, occupied by the owner. We will first consider the case of residential premises. It is clear from the above discussion that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... begin to run and for this period of five years, the annual rent agreed upon between the landlord and the tenant at the time of first actual letting out would be deemed to be the standard rent. Sub-s. (2)(b) of s. 6 can have no application where there is no actual letting out and, hence, in the case of premises which are constructed on or after June 9, 1955, and which have never been let out at any time, the standard rent would be determinable on the principles laid down in sub-s. (1)(A)(2)(b) of s. 6. So also in the case of premises which have been constructed before June 9, 1955, but after June 2, 1951, the standard rent would, for like reasons, be determinable under the provisions of sub-s. (1)(A)(2)(b) of s. 6, if they have not been actually let out at any time since their construction. But if these two categories of premises have been actually let out at some point of time in the past, then in the case of the former category, the annual rent agreed upon between the landlord and the, tenant when the premises were first actually let out shall be deemed to be the standard rent for a period of five years from the date of such letting out and in the case of the latter category, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction has gone up almost 3 to 5 times in the last 20 years. The standard rent of the former category of premises on the principles set out in sub-s. (1)(A)(2)(b) or (1)(B)(2)(b) or s. 6 could be comparatively low, while in the case of the latter category of premises, the standard rent determinable on these principles would be unduly high. If the standard rent were to be the measure of rateable value, there would be huge disparity between the rateable value of the old premises and recently constructed premises, though they may be similar and situate in the same or adjoining locality. That would be wholly illogical and irrational. Therefore, what is required to be considered for determining rateable value in the case of recently constructed premises is as to what is the rent which the owner might reasonably expect to get if the premises are let out and that is bound to be influenced by the rent which is obtainable for similar premises constructed earlier and situate in the same or adjoining locality and which would necessarily be limited by the standard rent of such premises. The position in regard to the determination of rateable value of self-occupied residential and non-res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to which the rateable value is required to be determined. This category comprises premises which are partly self-occupied and partly tenanted. Now, as we have pointed out above, it is the premises as a whole which are liable to be assessed to property tax and not different parts of the premises as distinct and separate units. But while assessing the rateable value of the premises on the basis of the rent which the owner may reasonably expect to get if the premises are let out, it cannot be overlooked that where the premises consist of different parts which are intended to be occupied as distinct and separate units, the hypothetical tenancy which would have to be considered would be the hypothetical tenancy of each part as a distinct and separate unit of occupation and the sum total of the rent reasonably expected from a hypothetical tenant in respect of each distinct and separate unit would represent the rateable value of the premises. Now obviously the rent which the owner of the premises may reasonably expect to receive in respect of each distinct and separate unit cannot obviously exceed the standard rent of such unit and the assessing authorities would therefore have to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the formula and then apportioning the standard rent so computed amongst the different units of occupation comprised in the building on the basis of floor area, taking into consideration differences, if any, on account of the situation and condition of the various units and the amenities provided in such units. This would be the most rational way in which the market price of the land comprised in the building on the date of the commencement of construction can be spread over amongst the different units of occupation comprised in the building. It would, therefore, seem that when the rateable value of a building consisting of distinct and separate units of occupation is to be assessed, the standard rent of each unit would have to be determined on the principles set out above and within the upper limit fixed by the standard rent, the assessing authorities would have to determine the rent which the owner may reasonably expect to get if such unit were let out to a hypothetical tenant and in arriving at this determination, the assessing authorities would have to take into account the same factors which we have already discussed in the preceding paragraphs of this judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enami or otherwise, to a person who is not a member of the lessee. (b) The sub-lessee shall not sell, transfer, assign or otherwise part with the possession of the whole or any part of the residential plot to any other member of the lessee except with the previous consent in writing of the lessor which he shall be entitled to refuse in his absolute discretion : Provided that in the event of the consent being given, the lessor may impose such terms and conditions as he thinks fit and the lessor shall be entitled to claim and recover a portion of the unearned increase in the value (i.e., the difference between the premium paid and the market value) of the residential plot at the time of sale, transfer, assignment, or parting with the possession, the amount to be recovered being fifty per cent. of the unearned increase and the decision of the lessor in respect of the market value shall be final and binding: Provided further that the lessor shall have the pre-emptive right to purchase the property after deducting fifty per cent. of the unearned increase as aforesaid." It is obvious that by reason of this clause in the sub-lease, the owner who has constructed premises on the plo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use under the terms and conditions of the conveyance deed, the land is not open for sale in the open market. As such, I am not in position to apply s. 6 of the Delhi Rent Control Act for fixing the standard rent. I have, therefore, to resort to s. 9 of the Delhi Rent Control Act for fixing the standard rent." This argument which seems to have prevailed with the assessing authorities in rejecting the applicability of sub-s. (1)(A)(2)(b) or (1)(B)(2)(b) of s. 6 and resorting to the provisions of sub-s. (4) of s. 9 is wholly unfounded. Merely because the plot of land on which the premises are constructed cannot be sold, transferred or assigned except to a member of the co- operative house building society and without the prior consent of the Government, it does not necessarily mean that there can be no market price for the plot of land. It is not as if there is total prohibition on the sale, transfer or assignment of the plot of land, so that in no conceivable circumstance, it can be sold, transferred or assigned. The plot of land can be sold, transferred or assigned but only to one from amongst a limited class of persons, namely, those who are members of the co-operative house buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market price of the plot of land and the only way in which this can be done is by taking the market price of the plot of land as if it were unaffected by this burden or restriction and deducting from it, 50% of the unearned increase in the value of the plot of land on the basis of the hypothetical sale, as representing the value of such burden or restriction. This mode of determination of the market price has the sanction of the decision of this court in Sikand's case [1977] 107 ITR 922 (SC). We do not, therefore, think that the assessing authorities were right in taking the view that because the plot of land could not be sold, transferred or assigned except to a member of the co-operative house building society and without the prior consent of the Government, its market price was unascertainable and, hence, the standard rent of the premises could not be determined under sub-ss. (1)(A)(2)(b) or (1)(B)(2)(b) of s. 6 and had to be assessed only under sub-s. (4) of s. 9. We are firmly of the view that the market price of the plot of land at the date of the commencement of construction of the premises was ascertainable on the basis of the formula we have indicated, notwithstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut in sub-s. (1)(A)(2)(b) or (1)(B)(2)(b) of s. 6. But on this account, the assessing authorities could not, justify resort to sub-s. (4) of s. 9. It is only where for any reason it is not possible to determine the standard rent of any premises on the principles set forth in s. 6 that the standard rent may be fixed under sub-s. (4) of s. 9 and merely because the owner does not produce satisfactory evidence showing what was the reasonable cost of construction of the premises or the market price of the land on the date of commencement of the construction, it cannot be said that it is not possible to determine the standard rent on the principles set out in sub s. (1)(A)(2)(b) or (1)(B)(2)(b) of s. 6. Take for example, a case where the owner produces evidence which is found to be incorrect or which does not appear to be satisfactory : Can the assessing authorities in such a case resort to subs. (4) of s. 9 stating that it is not possible to determine the standard rent on the principles set out in sub-s. (1)(A)(2)(b) or (1)(B)(2)(b) of s. 6 ? The assessing authorities would obviously have to estimate for themselves, on the basis of such material as may be gathered by them, the reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased under s. 7 and such increased rent would be the standard rent of the premises as a whole and within the upper limit fixed by such standard rent, the assessing authorities would have to determine the rent which the owner may reasonably expect to get if the premises as a whole are let out as a single unit to a hypothetical tenant and in such a case, the actual rent received would be a fair measure of the rent which the owner may reasonably expect to receive from such hypothetical tenant unless it is influenced by extra-commercial considerations. Lastly, the addition may be of a distinct and separate unit of occupation and in such a case, the rateable value of the premises would have to be determined on the basis of the formula laid down by us for assessing the rateable value of premises which are partly self-occupied and partly tenanted. The same principles for determination of rateable value would obviously apply in the case of subsequent additions to the existing premises. The basic point to be noted in all these cases is and this is what we have already emphasised earlier that the formula set out in sub-ss. (1)(A)(2)(b) and (1)(B)(2)(b) of s. 6 cannot be applied for det ..... X X X X Extracts X X X X X X X X Extracts X X X X
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