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PETITIONER: BHAGWANT RAI AND OTHERS

       Vs.

RESPONDENT: STATE OF PUNJAB AND OTHERS

DATE OF JUDGMENT17/08/1995

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. HANSARIA B.L. (J)

CITATION:  1996 AIR   95            1995 SCC  (5) 440  JT 1995 (6)   245        1995 SCALE  (4)850

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      Leave granted.      The appeal  by special  leave arises  from the order of the High  Court of  Punjab and  Haryana in  Civil  W.P.  No. 19209/91 dismissing the writ petition in limine.      The admitted  facts are  that the appellant is having a house in  Sangrur. For  the  assessment  year  1987-88,  the respondents have  assessed the ratable value of the house at Rs.1,50,472.50  after   giving  standard   deductions  under s.3(1)(b) of the Punjab Municipal Act, 1911 (for short, ‘the Act’). The  basis on which the property was assessed was the rent being  received by  the appellant  from State  Bank  of India to  whom they  had let  out at Rs. 12,687/- per month. The question  is whether  the actual  rent received  by  the appellants  from   the  tenant  would  be  the  measure  for determining annual  value. Section 3 (1)(b) of the unamended Act reads thus:      "3(1) "annual value" means-           xxxxxxxxxxxxxxxxxxx      (b)  in   the  case   of  any  house  or      building, the gross annual rent at which      such house or building together with its      appurtenances and any furniture that may      be let  for or  enjoyment therewith, may      reasonably be  expected to let from year      to  year   subject  to   the   following      deductions:           xxxxxxxxxxxxxxxxxxx"      This provision  was subject  of interpretation  by this Court in  Diwan Daulat  Rai Kapur  vs. New  Delhi  Municipal Committee, 1980  (2) SCR  607, which  was followed  in  Mrs. Shiela Kaushish  v. C.I.T.,  1981 (4)  SCC 121. The question therein was whether the actual rent received from the tenant would from  basis to  determine the annual value. This court considered the controversy and held thus:

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    "The   argument    of   the    municipal      authorities was  that since the standard      rent of  the building  was not  fixed by      the Controller  under Section  9 of  the      Rent Act  in any of the cases before the      Court and  in  each  of  the  cases  the      period  of   limitation  prescribed   by      Section 12 of the Rent Act for making an      application for fixation of the standard      rent had  expired, the  landlord in each      case was entitled to continue to receive      the contractual  rent  from  the  tenant      without any  legal impediment  and hence      the annual value of the building was not      limited    to    the    standard    rent      determinable  in   accordance  with  the      principles laid  down in  the Rent  Act,      but  was   liable  to   be  assessed  by      reference  to   the   contractual   rent      recoverable by  the  landlord  from  the      tenant. The  municipal authorities urged      that  if   it  was  not  penal  for  the      landlord to receive the contractual rent      from the  tenant, even  if it  be higher      than  the   standard  rent  determinable      under the privisions of the Rent Act, it      would not  be incorrect  to say that the      landlord could  reasonably expect to let      the building at the contractual rent and      of  the   contractual   rent   therefore      provided   a    correct   measure    for      determination of the annual 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      Controller under  Section 9  of the Rent      Act,  the   landlord  cannot  reasonably      expect to  receive from a hypothec\tical      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      standard rent by reason of expiration of      the period  of limitation  prescribed by      Section  12  of  the  Rent  Act  or  the      building is  self-occupied by the owner.      Therefore, in  either case, according to      the definition  of "annual  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      rtenant  would  constitute  the  correct      measure  of  the  annual  value  of  the      building. The  Court pointed out that in      each case  the assessing authority would      have to  arrie at  its own figure of the      standard rent by applying the principles      laid  down   in   the   Rent   Act   for      determination of  the standard  rent and      determine  the   annual  value   of  the      building on  the basis of such figure of

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    the standard  rent. The  Court, on  this      view,  negatived   the  attempt  of  the      municipal authorities  each of the cases      to determine  the annual  value  of  the      building on  the  basis  of  the  actual      received by  the landlord  and  observed      that the  annual value  of the  building      must  be  held  to  be  limited  by  the      measure    of    the    standard    rent      determinable on the principles laid down      in the Rent Act and it could not aexceed      such measure of the standard rent."      When similar contention was raised that the actual rent received will  form   the basis to determine annual value of the building,  another bench  of this  Court  in  New  Delhi Municipal Committee  vs. M.N. Soi and Anr., 1976 (4) SCC 535 held thus as stated in the Headnote:      "    It is  not the actual rent received      by the  landlord but  the  "hypothetical      rent which can reasonably be expected if      the building is to be let", which has to      be the  legal yardstick of a "reasonable      expectation" in  an "open  market".  The      municipal   authorities    cannot   take      advantage of  the defiance of the law by      the landlord. Rating cannot operate as a      mode of  sharing the benefits of illegal      rackrenting  indulged  in  by  rapacious      landlords for  whose activities  the law      prescribes   condign   punishment.   The      prudence  of  the  landlord  has  to  be      assumed and  judged by  normal standards      to     determine     his     "reasonable      expectation".           Hence rating  is to  be governed by      the fixation  of rent  by  rent  control      authorities  and  not  by  the  test  of      actual income derived by the landlord.           The concept  of  reasonableness  of      expectation of  rent must take the penal      law of the State into account. It is not      the expectation  of a landlord who taken      the risk  of prosecution  and punishment      which the violation of the law involves,      but the  expectation of the landlord who      is prudent  enough to  abide by  the law      that   serves   as   the   standard   of      reasonableness for purpose of rating."      This question  was further examined by a bench of three Judges in  Balbir Singh vs. M/s M.C.D. AIR 1985 SC 339. This Court said  that "The  ratable value  of a building, whether tenanted or  self occupied,  is limited  by the  measure  of standard rent  arrived at  by  the  assessing  authority  by applying the principles laid down in the Rent Act and cannot exceed the  figure of the standard rent so arrived at by the assessing authority.  The standard  rent determinable on the principles set out in the Rent Act is the upper limit of the rent which  the landlord  may  expect  to  received  from  a hypothetical tenant, but it may in a given case be less than the  standard   rent  having  regard  to  various  attendant circumstances and considerations."      Thus, it  is settled  law that the actual rent received from a  tenant is  not the  measure for determination of the annual ratable  value,  but  the  reasonable  standard  rent expected to  be received  under the  relevant Rent  Act. The

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view  taken   by  the  authorities  is,  therefore,  clearly illegal.      It is  contended by  the respondent that in view of the admission by  the appellants  in their  letter that they are prepared to  pay the  tax on  the basis  of the  actual rent received from  the Bank,  they are  estopped to go back from the admission and the respondents are right to adopt that as a measure  of assessing ratable value. We fail to appreciate the contention  as there is no estoppel against the statute. When the statute prescribes particular mode to determine the annual rental  value, it  has to  be done  in  that  manner. Admission wrongly  made by  the landlord  or the owner would not be a ground to deny the statutory benefit.      The appeal  is accordingly  allowed. The  order of  the assessing authority  and the  appellate  authority  are  set aside and  they are  directed to determine the annual value, to determine the amount of tax, as indicated hereinabove. No costs.