21 April 1970
Supreme Court


Case number: Appeal (civil) 402 of 1967






DATE OF JUDGMENT: 21/04/1970


CITATION:  1970 AIR 1584            1971 SCR  (1) 335  1970 SCC  (1) 791  CITATOR INFO :  D          1974 SC1779  (19)

ACT: Bombay Municipal Corporation Act, 1888, s. 154(1) and Bombay Hotel- and Lodging Houses Rates Act (57 of 1947), ss.  5(7), 5(10), 7, 10, 10A and 10AA-Educational cess permitted to  be received from tenant by landlord and added to standard rent- If  can  be  included  for  fixation  of  annual  value   of buildings.

HEADNOTE: Section  154(1)  of the Bombay  Municipal  Corporation  Act, 1888,  provides  that the annual rent for which  a  building might  reasonably  be expected to be let from year  to  year shall  be  the basis for fixing the rateable  value  of  the building.   Section  5(10) of the Bombay  Rents,  Hotel  and Lodging  House  Rates  Act,  1947  (the  Rent  Act)  defines standard rent and s. 5(7) of the Rent Act defines ’permitted increase’  to mean an increase in rent permitted  under  the provisions of the Rent Act.  Under ,ss. 10, 10A and 10AA  of the Rent Act, a landlord can increase the rent on account of payment  of  rates, cesses or taxes imposed or levied  by  a local authority. The appellant imposed a tax known as educational cess on all the   properties  within  its  limits  and  the   respondent increased the rents payable by its tenants to the extent  of the  educational  cess under s. 10AA of the Rent  Act.   The appellant  increased the rateable value on the  ground  that the  educational cess should be deemed to be a part  of  the annual rent for which    the  building might  reasonably  be expected to be let from year to year’   The High Court  held that under s. 7 of the Rent Act the increase shall     not be  deemed to be an increase in rent and that therefore  the rateable value could be  fixed  only  on the  basis  of  the standard rent fixed under the Rent Act. In appeal to this   Court, HELD : Section 7 of the Rent Act provides that it shall  not be lawful for the landlord to claim  on account of rent  any increase above the standard rent, but it does not  prohibit the  recovery  of the increase to which a  landlord  may  be



entitled  under  the provisions of the Act, in  addition  to the-standard  rent.   The  definition in  s.  5(7)  and  the language  and  ss.  10,  10A  and  10AA  indicate  that  the Legislature treated the permitted increase as a part of  the rent  which the landlord would be entitled to  receive  from the  tenant.   That  is, the building can well  said  to  be reasonably  expected  to  be let from year to  year  at  the figure  arrived at by adding the permitted increase  to  the standard   rent.   Therefore,  in  the  present  case,   the valuation had to be arrived at after taking into account the amount of educational cess levied by the appellant, even  if it  leads to some inconvenience by varying the valuation  at frequent intervals.  [337 F-H; 338 D-F; 339 B-D] The  Corporation of Calcutta v. Smt.  Padma Devi,  [1962]  3 S.C.R.  49  and Patel Gordhandas  Hargovindas  v.  Municipal Commissioner, Ahmedabad, [1964] 2 S.C.R. 608, referred to.

JUDGMENT: CIVIL  APPELLATE-  JURISDICTION  Civil Appeal  No.  402  of 1967. 336 Appeal from the judgment and decree dated November 10,  1964 of  the  Bombay High Court in Appeal No. 148  of  1962  from Original Decree. Niren  De,  Attorney-General, R. N.  Banerjee  and  Ravinder Narain, for the appellant. S.  V.  Gupte,  K.  L.  Hathi  and  J.  L.  Hathi,  for  the respondent. Judgement of the Court was delivered by Grover.   J.  This  is an appeal from  a  judgement  of  the Bombay High Court in the matter of valuation of the premises belonging to the respondent made under the provisions of the Bombay  Municipal Corporation Act 1888,  hereinafter  called "the Act of 1888". For the years 1957-58 and 1958-59 the rateable valuation  of the  building was fixed by the Municipal Corporation at  Rs. 1,66,410.   On  April  1, 1958 an additional  tax  known  as educational cess was imposed by the Municipal Corporation at the  rate of 1 1/2% of the rateable value on all  properties within its limits.  This was done under S. 140 of the Act of 1888.  As the landlord became entitled to increase the  rent recoverable from the tenant to the extent of the increase in the  tax payable to the Corporation under the provisions  of s.10-AA  of the Bombay Rents, Hotel and Lodging House  Rates 1947 (Act No. LVII of 1947) hereinafter called the Rent Act, the  Assessor  and  Collector of the  Corporation  served  a notice on the respondent proposing to increase the  rateable value  of  the building in question to  Rs.  1,68,585.   The respondent objected to the above increase.  The Assessor and the  Collector,  however, raised the rateable value  to  Rs. 1,66,180.   The amount thus fixed was at lesser figure  than the  ’one  for the year 1958-59 but that was  by  reason  of certain  other  deductions  which had been  claimed  by  the respondent and which were allowed.  The claim of  respondent for  non-inclusion of the amount of educational cess in  the rent was disallowed.  The matter was taken in appeal to  the Court  of Small Causes at Bombay which was  dismissed.   The respondent preferred an appeal to the High Court.  The  High Court  held that the rateable value could be fixed  only  on the basis of the standard rent provided by the Rent Act  and the  amount of permitted increases could not be included  in rent for the purposes of valuation.  It was not disputed  by the  respondent before the High Court that the rents of  the



tenants  had  been  increased by it to  the  extent  of  the educational cess but the contention that was put forward and which prevailed was that the same was not being recovered as a part of the rent. 337 The  controversy  between  the  parties  is  a  narrow  one. According  to the appellant the amount of  educational  cess which is recoverable by the landlord under the Rent Act from tenants should be deemed to be a part of the annual rent for which  the building might reasonably be expected to  be  let from year to year within the meaning of s. 154(1) of the Act of  1888.  On the other hand the respondent has maintained throughout that the education cess levied under s. 40 of the aforesaid  Act  cannot  be  included  for  the  purpose   of valuation under s. 154(1) in the annual rent. We may now notice the relevant provisions of the Act of 1888 and  the Rent Act.  Section 140 of the Act of 1888  provides for  imposition  of property tax on buildings and  lands  in Greater  Bombay.  Section 154(1) provides that in  order  to fix  the rate-able value of any building or land  assessable to property tax there shall be deducted from the, amount  of the  annual  rent  for which such  land  or  building  might reasonably  be  expected to be 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  on or  any other account whatever.  Section 5(10) of  the  Rent Act  gives the definition of "standard rent".  There  is  no reference  or  mention  of any  permitted  increase  in  the definition.  The expression "permitted increase" is  defined by  s. 5(7) to mean an increase in rent permitted under  the provisions  of  the  Act.  Section  5(3)  defines  the  word "landlord"  as meaning any person who is for the time  being receiving  or  entitled to receive rent in  respect  of  any premises  etc.  Section 5(11) gives the meaning of the  word "tenant".   According to that meaning a tenant would be  any person  by whom or on whose account rent is payable for  any premises  and  includes  such persons  as  are  specifically mentioned in sub-cls. (a), (a) and (b).  Section 9  provides for   increase  in  rent  on  account  of  improvements   or structural  alteration of the premises which have been  made with  the consent of the tenant and such increase is not  to be deemed an increase for the purpose of s. 7. Under s. 10 a landlord  can  increase the rent on account  of  payment  of rates,  cess  or  taxes  imposed  and  levied  by  a   local authority.  Such an increase again is not to be deemed to be an increase for the purpose of s. 7. Similarly under s. IOAA the landlord can increase the rent on account of payment  of enhanced   rates  etc.  permitted  after  certain  date   in particular  areas.  Any increase in this section  cannot  be deemed to be an increase for the purpose of s. 7. The High Court was alive to the fact that the mention of in- crease in ss. 10, IOA and IOAA referred to increases in rent but  it was felt that the section in express terms  provided that such an increase shall not be deemed to be an  increase in rent under s. 7. According to the High Court it  followed that what was allowed to 338 the  landlord in addition to the’ standard rent was  not  an increase in the rent but a provision was made in a specified way  for  the  transfer of the burden of  the  tax  to  the tenants  because of the rigours of the Rent Act.  The  other factor  which  weighed With the High Court was that  if  the increase  in rates was to be treated as a part of the,  rent which would enable the Municipal Corporation to increase the valuation on every occasion when there was increase in rates



and  taxes this would "land us again into a cycle of  incre- ments every year from figure to figure never intended by the framers either of the Rent Act or of the Municipal Act".               It  is necessary to set out s. 7 of  the  Rent               Act at this stage               "Except where the rent is liable to periodical               incrementt  by virtue of an agreement  entered               into  before the first day of September  1940,               it shall not be lawful to claim or receive  on               account of rent for any premises any  increase               above  the standard rent, unless the  landlord               was, before the coming into. operation of this               Act,     entitled     to     recover      such               increase.....................    under     the               provisions of this Act." It  is quite clear that s. 7 does not prohibit the  recovery of the increase to which landlord may be,entitled under  the provisions,  of  the Act in addition to the  standard  rent. The  obvious  implication of the  definition  of  "permitted increase" in s. 5(7) is that such an increase becomes a part of the rent.  The language which has been employed in ss. 9, 10 and 10-AA seems to indicate that the legislature  treated the  permitted  increase  as a part of the  rent  which  the landlord  would be entitled to receive from the tenant.   In The  Corporation  of  Calcutta v. Smt.   Padma  Devi(1)  the question  arose  whether the Municipal Corporation  had  the power  to fix the annual valuation on a figure  higher  than the  standard  rent., It was held that on a reading  of  the provisions of s. 127 (a) of the Calcutta Municipal Act  1923 the rental value could not be fixed higher than the standard rent  under the Rent Control Act.  It was further held  that the  words "gross annual rent at which the land or  building might  at the time of assessment reasonably be  expected  to let  from year to year" in S. 127 (a) implied that the  rent which the landlord might realize if the house was let  was.- the  basis for fixing the annual valuation of the  building. Thus  the criterion was the rent realizable by the  landlord and  not  the valuation of the holding in the hands  of  the tenant.   Even applying that criterion the rent  reable,  in the  present case, would be the standard rent together  with the permitted increase on account of the levy of educational cess.   As  observed  in  Patel  Gordhandas  Hargovindas  v. Municipal Commissioner, Ahmedabad 2 ) there are three  modes of (1) [1962] 3 S.C.R. 49.      (2) [1964] 2 S.C.R. 608. 339 determining  the  annual  or  rateable  value  of  lands  or buildings.  The first is the actual rent fetched by the land or  building where it is actually let.  The second  is  rent based  on hypothetical tenancy, where it is not let and  the third is by valuation based on capital value from which  the annual  value  has  to  be found  by  applying  a.  suitable percentage,  where  either  of the first two  modes  is  not avail,able.  In the present case admittedly the  actual-rent of the building in question which is being fetched comprises the standard rent and the permitted increase.  The  building can  well be said to be: reasonably expected to be let  from year  to  year  at  the figure arrived:  at  by  adding  the permitted  increase  to the standard rent.   The,  valuation had,  therefore, to be arrived at after taking into  account the  amount  of  educational cess which was  levied  by  the Corporation.   Even if such a conclusion leads to some  kind of  inconvenience  of  variation in  valuation  at  frequent intervals  that can be no consideration for not giving  full effect and meaning to the provisions of the Act of 1888  and



the Rent Act under consideration. In  the  result the appeal is allowed and the  judgement  of the  High  Court is set aside and that of the Court  of  the Small Causes V.P.S.                            Appeal allowed. 340