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PETITIONER: DR. BALBIR SINGH AND ORS. ETC. ETC.

       Vs.

RESPONDENT: MUNICIPAL CORPORATION, DELHI AND ORS

DATE OF JUDGMENT12/12/1984

BENCH: RAY, B.C. (J) BENCH: RAY, B.C. (J) SEN, A.P. (J)

CITATION:  1986 AIR  345            1985 SCR  Supl. (3) 812  1986 SCC  (1) 410        1985 SCALE  (2)1258

ACT:      Delhi  Municipal   Corporation  Act   1957  and  Punjab Municipal Act  1911  Assessment  of  properly  tax-Different categories of properties enumerated Rateable value-How to be determined-Criteria for  calculating annual  rent not  to be higher than  standard rent-May  be even  lower than standard rent.       Delhi  Rent Control  Act  1958  s  6-Determination  of Standard Rent-Principal  explained-Sec.  9  prescribes  only procedures for fixation of standard rent.

HEADNOTE:        Section   2,  sub-section  (47)  of  Delhi  Municipal Corporation Act,  1957 defines  rateable value  to mean  the value of  any land  or building fixed in accordance with the provisions of  this Act  and the  bye-laws made there. under for the purpose of assessment to property taxes. Sub-section (I) of  Section 116 lays down that the rateable value of any land or  building assessable  to property taxes shall be the annual rent at which such land or building may reasonable be expected to  be let  from year  to year, less a sum equal to 10% of  such annual rent- Sub-section 3 of sec. 120 provides that 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.       The  appellants and petitioners challenged in the High Court of  Delhi the  assessments with regard to property tax made by  the Municipal Corporation under the Delhi Municipal Corporation Act,  1957 aud  the Punjab Municipal Act 1911 in respect of  four categories  of properties situated in Delhi and New  Delhi areas.  The Municipal  authorities  contended that the  ratio of  the decision in Dewan Daulat Ram v. NDUC [1982] 2  S.C.R. 607  was that whatever be the figure of the standard rent  whether determined  by the  Controller  under Section 9  of the  Rent Act  or arrived  at by the assessing authority by applying the principles laid down the Rent Act, must be  taken as  the measure  of  rateable  value  of  the building for  the purpose  of assessability to property tax, irrespective of any other considerations; (2) that where any premises constructed on or after 9th June 1955 have not been

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let out  at any time and have throughout been self occupied, the standard  rent of  such promises  would be  determinable under the  provisions of sub-section (2) (b) of Section 6 of the Delhi Rent Control Act l958 and 440  any  rent which  could be  agreed upon between the landlord and  the   tenant  if   tho  premises  were  let  out  to  a hypothetical tenant  would be deemed to be the standard rent of the premises and the formular set out in sub. section (l) (B) (2)  (b) of  Section  6  would  not  be  applicable  for determining the  standard rent  by  reason  of  non-obstante clause contained  in the  opening part of sub-section (2) of Section 6;  and (3) that since in some of tho cases the plot of land  on which the premises stands, cannot be transferred without the  previous consent  of the  Government, it bas no market value  and its market price cannot be ascertained and hence the standard rent of tho premises cannot be determined on the principles set out in sub-sections (1) (A) (2) (b) or (1) (B) (2) (b) of Section 6 and consequently, the residuary provision in  sub-section (4)  of Section  9 would apply and the standard  rent would have to be fixed in accordance with the principles laid down in that provision.       On tho question of determination of rateable value for four  categories   of  properties   for   the   purpose   of assessability to property tax, the Court, ^      HELD: 1.1  The relevant  provisions of  Delhi Municipal      Corporation Act,  1957 and  tho Punjab  Municipal  Act,      1911 in  respect of determination of rateable value for      the purpose of assessability to property tax are almost      identical as  observed by Supreme Court in Diwan Daulat      Ram v.  N. D.M.C.  [1980] 2  S.C.R. 607-  and it  would      therefor be  sufficient to  refer to  the provisions of      the Delhi  Municipal Corporation  Act, 1957 (for short,      the Act). [453E]            It would appear from the provisions of ss 114 and 115 and the Act that the general tax is leviable on land and building as  a whole  and separate  portions  of  large  and buildings are  not assessable to general tax as distinct and independent units  save and  except where any portion of the land or  building is  liable to a higher rate of general tax under the  proviso to  clause  (d)  of  sub-section  (I)  of Section 114  or is  exempt from the general tax by reason of its being exclusively occupied or used for public worship or for a  charitable purpose  under sub-section  (4) of Section 115 in  which case  such portion  of the land of building is deemed  to  be  a  separate  property  for  the  purpose  of municipal taxation. [451A-B]            1.2. The basic assumption underlying sec. 120 (3) of the Act is that tho building as a whole is to be assessed to the  property taxes and not each separate part or flat or room belonging  to a separate owner and the liability or the several owners  for payment  of the amount of property taxes assessed on  the building is to be joint and several so that each of  them would be liable to pay the whole amount of the property  taxes  assessed  on  the  building  vis-a-vis  the Corporation. The  amount of property taxes a assessed on the building would,  of course,  be liable to be divided amongst the-several owners  in the  proportion of the area comprised in the  part or flat or room belonging to each owner, but so far as  the Corporation  is concerned  the liability  of the several owners will be joint and several. [452B-C]       1.3.  Under the  provisions of  the Act,  criteria for determining rateable  value of a building is the annual rent at which such building might reasonable  be   expected to be

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let from year to year less certain deductions. 441 The word ’reasonably’ in the definition of rateable value in S. 116  (1)  is    very  important.  What  the  owner  might reasonably expect  to get from a hypothetical tenant, if the building were  let from  year to year, affords the statutory yardstick for  determining the  rateable value. Now, what is reasonable is a question of fact and it depends on the facts and  circumstances  of  a  given  situation.  Ordinarily,  a bargain between  a  willing  lessor  and  a  willing  lessee uninfluenced by  any extraneous  circumstances may  afford a guiding test  of reasonableness and in normal circumstances, the actual  rent payable  by a  tenant to the landlord would afford reliable evidence of what the landlord may reasonably expect to  get from the hypothetical tenant, unless the rent is  inflated   or  depressed   by   reason   of   extraneous considerations such  as relationship,  expectation  of  some other  benefit.   There  would   ordinarily   be   a   close approximation  between  the  actual  rent  received  by  the landlord and  the rent  which he  might reasonably expect to receive from  a  hypothetical  tenant.  But  in  case  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. [452E-H, 453A]       (2) The controversy in Dewan Daulat Ram’s case (supra) was not  whether the  figure of  standard rent of a building should be  taken as  its rateable  value even where the rent which  the   owner  reasonably   expects  to   get  from   a hypothetical tenant  is less than the figure of the standard rent but  whether the  contractual rent  receivable  by  the landlord from  the tenant should be taken to be the rateable value  even   if  it   be  higher  than  the  standard  rent determinable under the provisions of the Rent Act. The Court held (i)  that even  if the  standard rent of a building has not been fixed by the Court under Section 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 on  the period  of limitation prescribed by  Section 12 of the Rent Act or the building is self occupied  by the  owner, and therefore, in either case, 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; (ii) that in each case the assessing authority  would have  to arrive 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 rateable value of the building on the basis of the actual  rent received  by  the  landlord  and  that  the rateable 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  would  not exceed such measure of the standard rent, (iii) that even if the  landlord   was  lawfully   entitled  to   receive   the contractual rent  from the  tenant,  such  contractual  rent could not be taken to be the rateable value of the building, because  the  reasonable  expectation  of  the  landlord  to receive the-contractual  rent from hypothetical tenant could

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not  possibly  exceed  the  standard  rent  determinable  in accordance with the provisions laid down in the Rent Act and (iv) that the rateable value of a building cannot exceed the 442 measure  of   standard  rent   whether  determined   by  the Controller under  Section 9 of the Rent Act or arrived at by the assessing authority by applying the principles laid down in the Rent Act, but it may in a given case be less than the standard  rent   having-   regard   to   various   attendant circumstances and considerations [455C-D; 454C-H; 455A]       3.1.  The definition of "standard rent" in S. 2 (k) of Delhi Rent  Control Act,  1958 (for  short, the Rent Act) is not an inclusive but an exhaustive definition and it defines the standard  rent to mean either the standard rent referred to in Section 6 or the increased standard rent under Section 7. It  is significant  to Dote  that it does not contain any reference to Section 9, sub-section (4). Wherever, therefore any reference  is made  to standard rent in any provision of the Rent  Act, it  must mean  standard rent  as laid down in Section 6  or increased standard rent as provided in Section 7 and  nothing more.  Section o lays down the principles for determination of   standard  rent in  almost all conceivable classes of causes and Section 7 provides for increase in the standard rent  where the  landlord has  incurred expenditure for any  improvement, addition  or structural  alteration in the premises. [460C-E]              3 2. Section 9, as the definition in sec. 2 (k) clearly suggests  and the marginal note definitely indicates does not  define what is standard rent but  merely lays down the procedure  for fixation of standard rent. The Controller is entrusted  by sub-sections  (1) and (2) of section 9 with the task  of fixing the standard rent of and premises having regard to  the principles  set  out  in  section  6  or  the provisions of Section 7 and any other relevant circumstances of  the   case.  The   words  having   regard   to   ..."the circumstances of  the  case"  undoubtedly  leave  a  certain measure  of  discretion  to  the  Controller  in  fixing  he standard rent. But this discretion is not such an unfettered and unguided  discretion as  to enable the Controller to fix any standard  rent which  he  considers  reasonable.  He  is required to  fix the  standard rent  in accordance with- the formula laid  down in  Section 6  or Section 7 and he cannot ignore that  formula by  saying that in the circumstances of the case  he considers  it reasonable  to do  so.  The  only discretion given to him is to make adjustments in the result arrived at on the application of the relevant formula, where it is  necessary to  do so  by reason  of the  fact that the landlord might  have made  some alteration or improvement in the  building   or  circumstances   might  have   transpired affecting the  condition or  utility of the building or some such circumstances of similar character The compulsive force of the  formula laid down in Section 6 for the determination of standard  rent  and  the  provisions  of  Section  7  for increase in standard rent is not in any way whittled down by sub section  (2) of  Section 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. However, in  case if  it is  not possible  to determine  the standard rent  of any  premises on the principles set out in Section 6,  then  Section  9(4)  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 whore  there are  similar or  nearly similar premises in the locality,  having  regard  also  to  the  standard  rent

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payable in respect of such promises. But the basic condition for the  applicability of  sub-section (4)  of Section  9 is that it  should not  be possible  to determine  the standard rent on the principles set out in Section 6. But even while 443 fixing such  rent, the  Controller does not enjoy unfettered discretion to do  what he likes and he is bound to take into account the  standard rent  payable in respect of similar or nearly similar  premises in  the locality. The standard rent determinable  on  the  principles  set  out  in  section  6, therefore again becomes a governing consideration. [460E; G- H; 461A-C, E-F; G]       The  Court laid  down  the  following  principles  for determining rateable  value in respect of four categories of properties involved  in these  appeals and  writ  petitions. [452D]        (A)  Where  the  properties  arc  self-occupied  i.e. Occupied by the owners:       4.  1. Where  the premises  are self-occupied and have not been  let out  to any tenant, it would still be possible to determine  the standard rent of the premises on the basis of hypothetical  tenancy. The  question in such a case would be as  to what would be the standard rent of the premises if they were  lot out  to  a  tenant.  Obviously,  in  such  an eventuality the  standard rent  would be determinable on the principles set out in sub-section (1) (A) (2) lb) of Section 6 of  the Rent  Act. The  standard rent  would be  the  rent calculated on  the basis of 7 1/2 per cent or 8.1/4 per cent per annum  of the aggregate amount of the reasonable cost of construction and  the market  price of the land comprised in the  premises   on  the   date  of   commencement   of   the construction- [462H; 463A]       4. 2. It is difficult to see how the provision enacted in sub-section  (2) (b)  of Section  6 can  be  applied  for determining the  standard rent  of  the  premises  when  the premises have  not been  actually let  out at any time. Sub- section (2)  (b) of  Section 6  clearly contemplates  a case where there  is  actual  letting  out  of  the  premises  as distinct from  hypothetical letting  out, because under this provision, the  annual rent agreed upon between the landlord and the tenant at the time of first letting out is deemed to be the rent for a period of five years from the date of such letting out  and it is impossible to imagine how the concept of first  letting out can fit in with anything except actual letting out and how the period of five years can be computed from the  date of  any hypothetical  letting out. It is only from the date of first actual letting out that the period of five years  can 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 lo  be the  standard rent.  Sub-section  (2)  (b)  of Section 6  can have  no application where there is no actual letting  out  and  hence  in  case  of  premises  which  are constructed on  or after 9th June, 1955 and which have never been let  out at  any  time,  the  standard  rent  would  be determinable on  the principles laid down in sub-section (1) (A) (2)  (b) of  Section 6. So also in case f premises which have been  constructed before  9th June,  1955 but after 2nd June, 1951  the standard  rent would,  for like  reasons, be determinable under the provisions of sub-section (1) (A) (2) (b) of  Suction 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  former category, the  annual rent  agreed upon between the landlord

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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 444 of the  latter category,  the annual  rent  calculated  with reference to  the rent  at which  the premises were actually let for  the month of March 1958 or if they were not so let, with reference  to the rent at which they were last actually let out shall be deemed to be the standard rent for a period of  seven   years  from   the  date  of  completion  of  the construction of  the premises.  However, even in the case of these two categories of promises the standard rent after the expiration of the period of five years or seven years as the case may be, would be determinable on the principles set out in sub-section  (1) (A)  (2) (b)  of Section  6. Thus in the case of  self-occupied residential  premises,  the  standard rent determinable  under the  provisions of  sub-section (2) (a) or  (2) (b)  of Section  6 in  cases falling  within the scope and  ambit of those provisions and in other cases, the standard rent  determinable under  the  provisions  of  Sub- section (1)  (A) (2)  (b) of  Section 9 would constitute the upper limit of the rateable value of the premises Similarly, on an   analogous  process of  reasoning, the  standard rent determinable under  the provisions of sub-section (2) (a) or (2) (b)  of Section  6 in cases falling within the scope and ambit of  those provisions  and in other cases, the standard rent determinable  under the  provisions of  sub-section (1) (A) (2) (b) of Section 6 would constitute the upper limit of the rateable  value so  far as self-occupied non-residential premises are  concerned. The rateable value of the premises, whether residential  or non-residential,  cannot exceed  the standard rent,  but, it may in a given case be less than the standard rent.                                             [463E-H; 464A-F]            (B) Where the properties are partly self-occupied and partly tenanted:           5.1. It is the premises as a whole which is 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  cannot  obviously  exceed  the standard rent  of such  unit and  the assessing  authorities would therefore  have to  determine the standard rent with a view to  fixing the  upper  limit  of  the  rent  which  can reasonably be expected by the owner on letting out such unit to a hypothetical tenant.                            [466DF]       5.2.  Where the  case falls within sub-section (2) (a) or (2)  (b) of Section 6, no problem arises, because whether the distinct and separate unit of which the standard rent is to be  determined is  self-occupied  or  .enanted  makes  no difference, for  in either  case, the standard rent would be governed by  one or  the other  of these  two provisions. So also in  cases falling  outside sub-section  (2) (a) and (2) (B) of  Section 6,  it would  make no difference whether the distinct and  separate unit of which the standard rent is to be determined  is self-occupied  or tenanted;  for in either case, the  standard rent  would be  determinable  under  the

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provisions of sub-section (1) (A) (2) (b) or (1) (B) (2) (b) of Section  C. But  the question  is, how is the formula set out in  sub-section (1)  (A) (2)  (b) or  (1) (B) (2) (b) of Section 6  to  be  applied?  Obviously  there  would  be  no difficulty in applying the 445 formula, if the premises of which the standard rent is to be determined    consist  of  the  entire  building.  Then  the reasonable cost of construction of the building can be taken and it  can be  aggregated with the market price of the land comprised in  the building  on the  date of  commencement of construction of  the building  and 7  1/2  percent  of  such aggregate amount  would represent  the standard  rent of the building. But  whore the  building consists of more than one distinct and  separate units  and the  standard rent  to  be determined is  that of  any particular unit, the formula may present some difficulty of application if it is sought to be applied literally  in relation to that particular unit alone and by  itself, because  even if  the reason  able  cost  of construction of  that particular unit can be ascertained, it would not  be possible to determine "the market price of the land  comprised   in  the   premises  on  the  date  of  the commencement of  construction" since the entire building and not merely  that particular  unit would  be standing  on the land and the land on which the building is standing would be land comprised  in the  building and  it would be irrational and absurd  to  speak  of  it  as  land  comprised  in  that particular unit.  The formula  can, however,  be applied for determining the  standard  rent  of  a  particular  unit  by computing the  standard rent  of the  building in accordance with the formulas 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  unit. This  would be  the  most rational way in which the market price of the land comprised in the  building on the date of commencement of construction can be spread ever amongst the different units of Occupation comprised in  the building.  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 reasonable  expect get  if such unit were let out to  a hypothetical   tenant  and  in  arriving  at  this determination,  the   assessing  authorities  to  take  into account the  same factors  which have already been discussed in  this   judgment  while  dealing  with  the  question  of assessment of self occupied properties. The sum total of the rent which  the owner  may reasonably  expect to  Bet from a hypothetical tenant in respect of each distinct and separate unit o’ occupation calculated in the manner aforesaid, would represent the reasonably value of the building. This formula for determination of 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.[466G-H; 467A-H; 468A-B]        (C)   Where  the   land  on  which  the  property  is Constructed is  lease hold  land with a restriction that the lease-hold interest  shall not  be transferable  without the approval of the lessor:       6.1.  Some of  these writ  petitions and  appeals  are concerned with  eases where premise have been constructed by the owners  on land  taken on  sub-lease from  a Cooperative House Building  Society which  has in its turn taken a lease

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from the  Government. One  of the  clauses in  the sub-lease executed by the Cooperative House Building Society in favour of each  of its  members provided  that the  owner  who  has constructed pre- 446 mises on  the plot  of land  sub-leased to  him cannot sell, transfer or  assign his  lease-hold interest  in the plot of land to  any one  except a  member of  the Cooperative House Building Society and even so far as sale, transfer or assign to a  member of  the cooperative  House Building  Society is concerned, it  can not  be made  except  with  the  previous consent in  writing of  the Government  which the Government may give  or refuse  in its absolute discretion, and in case the Government  choose to  give its  consent, the Government would be  entitled to  claim 50% of the unearned increase in the value  of the land at the time of such sale, transfer or assignment and  moreover, if-the  Government so  desires, it would have  a pre-emotive right to purchase the plot of land after deducting  50 per cent of the unearned increase in the value of  the plot  of land. This co-tenant in the sub-lease is clearly  a covenant  running with the land and even where hale, transfer  or assignment  of the plot of land has taken place  with   the  previous  consent  in    writing  of  the Government  this   covenant  would   continue  to  bind  the purchaser, transferee or assignee. [469F-H]       Commissioner of Wealth Tax V. P. N Sikand [1977] 2 SCC 798 referred to.            6.2. Merely because the plot of land on which the premises are  constructed cannot  be  sold,  transferred  or assigned except  to a  member of  Cooperative House Building Society and  without the prior consent of the Government, it does not  Necessarily mean that those 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 Cooperative  House Building  Society and  subject to the Rules and  Regulations, any  eligible person can be admitted to the membership of the Cooperative House Building Society. There is  also a  further restriction, namely that the sale, transfer or  assignment can  take place  only with the prior Consent  of   the   Government.   But   subject   to   these restrictions, the  sale  transfer  or  assignment  can  take place. It cannot. therefore be said that the market price of the plot of land cannot be ascertained. [470G-H; 471A-B]       6.3.  To determine  what would  be the market price of the plot of land on the date of commencement of construction of the premises, one must proceed on the hypothesis that the prior consent  of the Government has been given and the plot of land is available for sale, transfer or assignment and on that footing,  ascertain what  price it  would fetch on such sale, transfer  or assignment.  Of course  when the class of potential buyer, transferees or assignees is restricted, the market price would tend to be depressed. But even so, it can be ascertained and it would not be correct to say that it is incapable of  determination. There  is also one other factor which would  to depress the market price and that stems from the clause  in the  sub-lease which  provides that  on sale, transfer or  assignment of  the plot of land, the Government shall be  entitled to claim 50% of the unearned increment in the value of the plot of land and the Government  shall also be entitled  to purchase  the plot  of  land  at  the  price releasable

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447 in the  market after deducting therefrom 50% of the unearned increment.  since the leasehold interest of the sub-lease in the plot  of land is cut down by this burden or restriction, the market price of the plot of land cannot be determined as if the  leasehold interest  were free  from this  burden  or restriction This  burden  or  limitation  attaching  to  the leasehold interest must be taken into account in arriving at the market  price of the plot of land, because any member of the Cooperative House Building Society who takes the plot of land by  way of  sale, transfer or assignment would be bound by this  burden or  restriction which runs with the land and that would  necessarily have  the effect  of depressing  the market price  which be would be inclined to pay for the plot of land.  This mode of determination of the market price has the sanction of the decision of this Court in N.S.. Sikand’s Case (Supra). [471C-H]       In  the instant  case, therefore,  the market price of the plot of land at the date of commencement of construction of the  premises was  ascertainable  on  the  basis  of  the formula indicated  above notwithstanding  the restriction on transferability contained  in the sub-lease and the standard rent of  the premises  constructed on  the plot  of land was determinable under  the pro  visions of  sub-section (1) (A) (2) (b) or [1) (B) (2) (b) of Section 6. The argument of the Delhi Municipal  Corporation that  in all  such cases resort has to  be made  to the  provisions of  sub-section  (4)  of Section 9  for determination  of the  standard rent  of  the premises must be rejected [472C-D]       (D) Where the property has been constructed in stages-       (7)  When any  adulation is  made to the premises at a subsequent stage,  three  different  situations  may  arise. Firstly, the  addition may not be of a distinct and separate unit of  occupation but may be merely by way of extension of the existing  premises which  are self-occupied.  In such  a case the  original premises  together  with  the  additional structure would  have to be treated as a single unit for the purpose of  assessment and  its rateable value would have to be determined  on the  basis of the rent which the owner may reasonably expect to get, if the premises as a whole are lot out, subject  to  the  upper  limit  of  the  standard  rent determinable under the provisions of sub.section (1) (A) (2) (b) of  Section 6. Secondly, the existing promises before be addition might  be tenanted and the addition might be to the tenanted premises  so that  the  additional  structure  also forms part  of the same tenancy. Where such is the case, the standard rent  of the  premises as  a whole  and within  the upper limit  fixed  by  such  standard  rent  the  assessing authority 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  for  assessing  the  rateable  value  of premises which are partly self-occupied and partly tenanted. The same  principles for determining of rateable value would obviously apply  in case  of  subsequent  additions  to  the existing premises. [474C-G] 448      (8) The  formula set out in sub-section (1) (A) (2) (b)

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and (1)  (B) (2)  (b) of  Section 6  cannot be  applied  for determining the  standard rent  of an  addition, as  if that addition was  the only  structure standing  on the land. The assessing authorities  cannot determine the standard rent of the  add   structure  by   taking  the  reasonable  cost  of construction in  the additional  structure and  adding to it the  market  price  the  land  and  applying  the  statutory percentage of  7 1/2   to  the aggregate  amount. The market price of  the land  cannot the  added twice over, once while determining the  standard rent of the original structure and again while  determining the standard rent of the additional structure. Once the addition is made, the formula set out in sub-section (1) (A) (2) (b) and (1) (B) (2) (b) of Section 6 can be  applied only  in relation to the premises as a whole and where  the additional  structure consists  of a distinct and separate  unit of  occupation, the  standard rent  would have to  be apportioned  in  the  manner  indicated  in  the earlier part of the judgment. [475A-C]        9.   Merely  because   the  owner  does  not  produce satisfactory evidence  showing what  was the reasonable cost of construction  of the  promises or the market price of the land at  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-section (I) (A) (2) (b) or (1) (B) (2)(b) of Section 6. [473]       10. The Court suggested that 20% self-occupancy rebate which was  allowed prior  to 1980 but was later discontinued should be  resumed and  said that  self-occupied residential premises should  be treated  on a more favourable basis than tenanted  premises  for  the  purpose  of  assessability  to property tax. [466B-C]

JUDGMENT:   ORIGINAL JURISDICTION: WP. NOs. 483-86, 471 Of 1980 etc            (Under Article 32 of the Constitution)          S. Rangarajan, S.C. Misra, M.S. Batta, Miss Kailash Mehta, Mrs.  M. Quamruddin,  B.B. Tawakley,  Shrinath Singh, Mohan   Pandey, Rajiv  Datta, Miss  Renu Gupta,  K Garg, Mr. S.R. Shrivastava,  D.R. Gupta,  B.R. Kapoor, B.P Maheshwari, R.B.  Dattar,   K.B.  Rohtagi  and  A.  Subba  Rao  for  the petitioners.       L.N.  Sinha, Attorney General of India, P. Maheshwari, R B. Dattar and Miss Sieta Vaidlingam, for the respondents.          S.K. Mehta for Municipal Corporation, Ludhiana.       The Judgment of the Court was delivered by              BHAGWATI,J  . This  group of writ petitions and appeals raise  interesting questions  of law  in  regard  to determination of  rateable value  of certain  categories  of properties situate  in the  Union Territory  of  Delhi.  The questions are of great importance since they 449 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 while 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,  while 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

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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 straight  way 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 writ petitions on the ground of non-maintainability but should proceed to dispose them of on merits on the assumption that they are maintainable.              We  are concerned  in these  appeals  and  writ petitions  with  four  different  categories  of  properties namely (1)  where the properties are self-occupied, that is, occupied by  the owners (ii) where the properties are partly self-occupied and  partly tenanted;  (iii) where the land on which the property is constructed is leased hold land with a restriction that  the  lease  hold  interest  shall  not  be transferable without  the approval  of the  lessor and  (iv) where the  property has  been  constructed  in  stages.  The question is as to how the rateable value is to be determined in respect of these four categories of properties. So far as properties situate  in the  Union Territory  of Delhi except New Delhi are concerned. the determination of rateable value for the purpose of assessability to property tax is governed by the  Delhi Municipal  Corporation  Act,  1957  while  the determination  of   rateable  value   for  the   purpose  of assessability to  property  tax  in  respect  of  properties situate in  New Delhi  is governed  by the  Punjab Municipal Act, 1911. The relevant provisions of both these statutes in respect of  determination of  rateable value for the purpose of assessability  to property  tax are  almost identical  as observed by  this Court  in Dewan  Daulat Ram  v. New  Delhi Municipal Committee  and it would therefore be sufficient if we  refer   to  the   provisions  of   the  Delhi  Municipal Corporation  Act,   1957.  Whatever  we  say  in  regard  to determination of  rateable value under the provisions of the Delhi Municipal Corpora- 1. [1980] 2 SCR 607 450 tion  Act,   1957  would   apply  equally   in  relation  to determination rateable  value under  the provisions  of  the Punjab Municipal Act 1911.      The definitions  of the  expressions used  in the Delhi Municipal Corporation Act, 1957 are to be found in Section 2 of that  Act. Sub  section (3) of Section 2 defines building to mean  "a house,  outhouse. stable, latrine, urinal, shed, hut,  wall  (other  than  a  boundary  wall)  or  any  other structure, whether  of masonary, bricks, wood, mud, metal or other material  but does  not include any portable shelter". ’Rateable Value’ is defined in Section 2 sub-section (47) to mean "the  value of any land or building fixed in accordance with the  provisions of  this  Act  and  the  bye-laws  made thereunder for the purpose of assessment to property taxes". Chapter VIII  of the  Act deals with the subject of taxation and it  comprises Sections  113 to  184. Clause  (a) of sub- section (1)  of Section  113 provides  that the  Corporation shall, for the purposes of the Act, levy property taxes. The subject of property taxes is then dealt with in Sections 114 to 135.  Section 114 sub-section (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  the urban  areas.  There  is  a proviso to  sub-section (1)  of Section  114 which says that

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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 building  is liable to a higher rate of general tax, such portion shall  be deemed  to be  a separate property for the purpose of  municipal taxation.  Section 115  sub-section(4) lays down  that save  as otherwise  provided in the Act, the general tax  shall be  levied in  respect of  all lands  and buildings in  Delhi, except  lands and buildings or portions of lands  and buildings  exclusively occupied  and used  for public worship by a society or body for a charitable purpose and two other categories of lands and buildings. Sub-section (6) of  Section 115  provides that  where any portion of any land or building is exempt from the general tax by reason of its being  exclusively occupied  and used for public worship or for a charitable purpose, such portion shall be deemed to be a separate property for the purpose of municipal 451 taxation, It  would appear  from these  provisions that  the general A  tax is  leviable on  land and building as a whole and  separate  portions  of  lands  and  buildings  are  not assessable to  general tax as distinct and independent units save and except where any portion of the land or building is liable to  a higher rate of general tax under the Proviso to clause (d)  of Sub-section  (1) of  Section 114 or is exempt from the  general tax  by reason  of its  being  exclusively occupied or  used for  public worship  or for  a  charitable purpose under  subsection(4) of  Section 115  in which  case such portion  of the  land or  building is  deemed to  be  a separate property  for the purpose of municipal taxation. We may point  out that  apart from the general tax, three other categories of taxes, namely water tax, savenger tax and fire tax are  include in  the property  taxes and  they  too  are leviable as  a percentage of the rateable value of lands and buildings. Now  how is  rateable value to be determined. The answer is provided by Section 116 Sub-section (1) of Section 116 lays  down that  the  rateable  value  of  any  land  or building assessable  to property  taxes shall  be the annual rent at  which such  land  or  building  may  reasonably  be expected to  be let  from year  to year, less a sum equal to 10% of such annual rent. Section 116 Subsection (2) provides that the  rateable value of any land which is not built upon but is  capable of  being built upon and any land on which a building is  in process  of erection  shall be fixed at five per cent  of the  estimated  capital  value  of  such  land. Section 120  provides for  the incidence  of property taxes. Sub-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 Section  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 case, the sub-section provides that the property taxes shall be primarily  leviable upon  the tenant.  Sub-section  3  of Section 120 is an important provision and we may, therefore, reproduce it in extenso,                  "The liability of the several owners of any

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    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 452 owned in  parts or flats or rooms, so that each part or flat or room in the building is owned by a separate owner and the question arises  as to  how the  property taxes  are  to  be assessed and  who is  to be held liable to pay the same. The basic assumption  underlying  this  provision  is  that  the building as  a whole is to be assessed to the property taxes and not  each separate  part or  flat or room belonging to a separate owner  and the  liability of the several owners for payment of  the amount  of property  taxes assessed  on  the building is  to be  joint and  several so that each of there would be  liable to  pay the  whole amount  of the  property taxes assessed  on the  building vis-a-vis  the Corporation. The amount  of the  property taxes  assessed on the building would, of  course, be  liable  to  be  divided  amongst  the several owners  in the  proportion of  the area comprised in the part or flat or room belonging to each owner, but so far as the  Corporation  is  concerned  the  liability,  of  the several owners  will be  joint and  several. Then  there are certain other  provisions  relating  to  the  machinery  for assessment but with them we are not immediately  concerned in these appeals and writ petitions       It  will thus be seen that under the provisions of the Delhi Municipal  Corporation  Act  1957,  the  criteria  for determining rate able value of a building is the annual rent at which  such building  might reasonably  be expected to be let from  year to  year less certain  deduction is which are not material  for our purpose. The word ’reasonably’ in this definition  is   very  important.   What  the   owner  might reasonably expect  to get from a hepothetical tenant, if the building were  let from  year to year, affords the statutory oardstick for  determining the  rateable value  Now, what is reasonable is a question of fact and it depends on the facts and circumstances  of  a  given  situation.  Ordinarily,  "a bargain between  a  willing  lessor  and  a  willing  lessee uninfluenced by  any extraneous  circumstances may  afford a guiding   test    of   reasonableness’’    and   in   normal circumstances, the  actual rent  payable by  a tenant to the landlord would afford reliable evidence of what the landlord may reasonably  expect to  get from the hypothetical tenant, unless the  rent is  initiated or  depressed  by  reason  of extraneous considerations  such as relationship, expectation of some  other benefit  etc. There would ordinarily be close approximation  between  the  actual  rent  received  by  the landlord and  the rent  which he  might reasonably expect to receive from  a  hypothetical  tenant.  But  in  case  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 453 rent and  his reasonable  expectation  must,  therefore,  be limited by  a 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 Ram v. New Delhi  Municipal Committee.1  This decision has reviewed

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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  Dualat Ram’s  (supra) and the question which arose for determination  in  these  appeals  was  as  to  how  the rateable value  of a  building should be determined for levy of property  tax where  the  building  is  governed  by  the provisions of  the Delhi Rent Control Act, 1958 (hereinafter referred lo  as the  Rent Act) but the standard rent has not yet been fixed. One of these appeals related to a case where the building  was situate within the jurisdiction of the New Delhi Municipal  Committee and  was liable to be assessed to property tax under the Punjab Municipal Act, 1911, as is the case in  many of  the appeals  and writ petitions before us, while the  other two  related to  cases where  the buildings were situate  within the  limits of the Corporation of Delhi and  were   assessable  to  property  tax  under  the  Delhi Municipal Corporation Act, 1957. The property tax under both statutes was  levied with reference to the rateable value of the building  and, as already pointed out by us earlier, the reteable value  was defined  in both  statutes in  the  same terms, barring  a second  proviso which  occurred in Section 116 of  the Delhi  Municipal Corporation  Act, 1957  but was absent in  Section 3(1)(b) of the Punjab Municipal Act, 1911 and  which   was  admittedly   of  no  con-  sequences.  The controversy between  the parties centered round the question as to  what is the true meaning of the expression "the gross annual  rent   at  which  such  land  or  building  -  might reasonably be  expected to  let from year to year" occurring in the definition in both statutes. The argument put forward by 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  was entitled to continue to receive the actual rent from the tenant without any legal impediment, and hence the rateable value of the building was not 1. [1980] 2 S.C.R. 607 454 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 provisions 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 the contractual rent could, therefore, 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 Contract under Section 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 Section  12 of  the Rent  Act or  the  building  is  self

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occupied by  the owner.  Therefore, the  Court held  that in either case, according to the definition of "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  laid down in the Rent  Act   for  determination  of  the  standard  Rent  and determine the rateable value of the building on the basis of the actual  rent received  by the landlord and observed that the rateable  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 would not exceed such  measure of the standard rent, This decision is, therefore, clearly  authority for  the proposition  that the rateable 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. Now, in  the course  of the arguments advanced before us, we found that  there was  some confusion  in regard to the true import of this decision. The municipal authorities contended that the  ratio of  this division  was that  whatever be the figure of  the  standard  rent  whether  determined  by  the Controller under  Section 9 of the Rent act or arrived at by the 455 assessing authority  by applying the principles laid down in the Rent  4 Act,  must be  taken as  the measure of rateable value of  the building  for the  purpose of assessability to property tax, irrespective of any other considerations. Even if the  owner of  the building  is able to show by producing satisfactory  evidence  that  having  regard  to  prevailing circumstances such  as  the  nature  of  the  building,  its situation or state of repair or economic depression or other similar causes,  he cannot  reasonably expect  to get from a hypothetical  tenant   even  the  amount  of  standard  rent determinable on  the principles  laid down  in the Rent Act, the rateable  value of the building must still be determined at the  figure of  the standard  rent. So  it was  argued on behalf of  the Municipal  authorities, but  we do  not think that this  is a  correct interpretation  of the  decision in Dewan Daulat  Ram’s case  (supra). The  controversy in  that case was  not whether  the figure  of  standard  rent  of  a building should  be taken  as its  rateable value even where the rent  which the  owner reasonably  expects to get from a hypothetical tenant  is less than the figure of the standard rent but  whether the  contractual rent  receivable  by  the landlord from  the tenant should be taken to be the 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

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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 standard rent  The Court, therefore., reached the conclusion that even  if the  landlord was lawfully entitled to receive the contractual  rent from the tenant, such contractual rent could not be taken to be the rateable value of the building, because  the  reasonable  expectation  of  the  landlord  to receive rent  from a  hypothetical tenant could not possibly exceed the standard rent determinable in accordance with the provisions laid  down in  the Rent  Act. The  standard  rent determinable on  the principles  set out in the Rent Act was laid down by the Court as the 456 upper limit  of the  rent which  the landlord  may expect to receive from a hypothetical tenant, if the building were let out to him from year to year. The Court never said that even if the  actual rent  receivable by  the  landlord  from  the tenant or  the rent which the owner may reasonably expect to receive from  a hypothetical  tenant  were  lower  than  the standard rent determinable in accordance with the principles laid down  in the  Rent Act, the standard rent must still be taken to  be the rateable value of the building. Such a view would fly  in the face of the definition of ’rateable value’ in both  statutes and  could not possibly have been taken by the Court  in this  case It  is significant to note what the Court said  in this  case, and  here we are quoting from the Judgment delivered  by the  Court, namely, that the rateable value of  a building  "must be  held to  be limited  by  the measure of standard rent determinable on the principles laid down in the Delhi Rent Control Act 1958 and it cannot exceed such’ measure  of standard  rent" (emphasis supplied). It is thus clear  from this  decision that the rateable value of a building cannot exceed the measure of standard rent, whether determined by the Controller under Section 9 of the Rent Act or arrived  at by  the assessing  authority by  applying the principles laid  down in the Rent Act, but it may in a given case be less than the standard rent having regard to various attendant circumstances and considerations. If, for example, the building  is not  in a  proper state  of repair or is so situate that  it has certain disadvantages from the point of view of  easy accessability  or means  of transport  of  any other similar  cause, the  actual rent  which the  owner may reasonably accept  to receive from a hypothetical tenant may be  less   than  the   standard  rent  determinable  on  the principles laid  down in  the Rent  Act. It is also possible that  in  case  of  a  building  recently  constructed,  the standard rent  determinable according to the principles 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 a 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

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what is the standard 457 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 given case be lower than such standard rent.       We may now turn to the relevant provisions of the Rent Act which has been since 9th February, 1959 the law in force relating to  control of  rent of building situate within the jurisdiction Or  the Delhi Municipal Corporation and the New Delhi Municipal  Committee. Section  2(k) defines  ’standard rent’ in relation to any premises to mean "the standard rent referred to in Section 6 or where the standard rent has been increased under  Section 7,  such increased rent". Section 6 lays down  different formulae  for determination of standard rent in  different classes of cases and each formula gives a precise and  clear cut  method  of  computation  yielding  a definite figure  of standard  rent in  respect  of  building falling within  its coverage.  We  are  concerned  in  these appeals and  writ petitions  with determination  of rateable value of  residential premises and we will, therefore, refer only to  so much  of Section  6 as  relates  to  residential premises.  Section  6  sub-section  1(A)(1)  lays  down  the formula for  determination  of  standard  rent  in  case  of residential premises  where such  premises have been let out at any time before 2nd June, 1914, but this provision is not material for  our purpose,  since the  residential buildings with which  we-are  concerned  in  these  appeals  and  writ petitions are  all buildings  constructed  after  2nd  June, 1944.  Subsection  1(A)(1)(a)  of  Section  6  has  also  no relevance for  our purpose  since it  deals with the case of residential premises  which have been let out at any time on or after  2nd June,  1944 and  in respect  of which rent has been fixed  under the  Delhi and Ajmer-Merwara  Rent Control Act, 1947  or the  Delhi and  Ajmer Rent  Control Act, 1952, which is  not the  case in respect of any of the residential buildings forming  the subject  matter of  the present  writ petitions and  appeals Section  6 sub-section  1(A)(2)(b) is however ’material  and we  may,  therefore  set  it  out  in extenso:       Section 6 (1) Subject to provisions of sub-section (2) ’standard rent’ in relation to any premises means-       (A) in the case of residential premises-       (2)  where such premises have been let out at any time on or after the 2nd day of June, 1944,- 458      (b)   in  any other  case, the  rent calculated  on the           basis of seven and one-half per cent, per annum of           the aggregate  amount of  the reasonable  cost  of           construction and  the market  price  of  the  land           comprised 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 non-residential premises which have been let out at any time on or after 2nd June, 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

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required to  be calculated  on the  same basis as set out in sub-section (1)(A)(2)  (b)  of  Section  6  with  only  this difference that  instead of the rent being calculated at the rate of 8-114 per cent as laid down in that provision, it is required to  be calculated  at the  rate of  8-518 per cent. Sub-section (2)  of Section  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 residential           or not,  constructed on  or after  the 2nd  day of           June, 1951,  but before the 9th day of June, 1955,           the annual  rent calculated  with reference to the           rent at  which the premises were let for the month           of March,  1958, or  if they were not so let, with           reference to  the rent at which they were last let           out, shall be deemed to be the standard rent for a           period  of  seven  years  from  the  date  of  the           completion of  the construction  of such premises,           and      (b)   in  the case of any premises, whether residential           or not,  constructed on  or after  the 9th  day of           June, 1955,  including premises  constructed after           the commencement  of this  Act,  the  annual  rent           calculated with  reference to the rent agreed upon           between the  landlord and  the  tenant  when  such           premises were first let out 459      shall be deemed to be the standard rent for a period of      A five years from the date of such letting out.      Then follows Section 7 of which only sub-section (1) is material and it runs as follows:               "7(1) Where a landlord has at any time, before      the commencement  of  this  Act  with  or  without  the      approval of  the tenant  or after  the commencement  of      this Act  with the written approval of the tenant or of      the   Controller,    incurred   expenditure   for   any      improvement, addition  or structural  alteration in the      premises,  not   being  expenditure  on  decoration  or      tenantable  repairs   necessary  or   usual  for   such      premises, and the cost of that improvement, addition or      alteration  has   not  been   taken  into   account  in      determining the  rent of the premises, the landlord may      lawfully increase  the standard  rent per  year  by  an      amount not  exceeding seven  and one-half  per cent, of      such cost." The next  section which  is  material  for  our  purpose  is Section 9  and since  considerable argument  has turned upon the provisions  of that Section and particularly sub-section (4) it would be useful to set out the relevant provisions of that section which read follows:                "9(1) The Controller shall, on an application      made to  him in  this behalf, either by the landlord or      by the tenant, in the prescribed manner, fix in respect      of any premises-       (i) the standard rent referred to in section 6; or       (ii) the increase, if any, referred to in section 7.      (2)   In  fixing the  standard rent  of any premises or           the lawful  increase thereof, the Controller shall           fix  an   amount  which   appears  to  him  to  be           reasonable having  regard  to  the  provisions  of           section 6  or section  7 and  the circumstances of           the case.      (4)   Where  for any  reason  it  is  not  possible  to

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         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 460      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  Section 2  (k) that  the standard  rent  of  a building means the standard rent referred to in Section 6 or where the  standard rent has been increased under Section 7, such increased  rent This definition is not an inclusive but an exhaustive definition and it defines the standard rent to mean either  the standard  rent referred  to in Section 6 or the  increased   standard  rent   under  Section  7.  It  is significant to  note that  it does not contain any reference to Section  9, sub-section  (4).  Whenever,  therefore,  any reference is  made to  standard rent in any provision of the Rent Act, it must mean standard rent as laid down in Section 6 or  increased standard  rent as  provided in Section 7 and nothing  more.  Section  6  lays  down  the  principles  for determination of  standard rent  in almost  all  conceivable classes of  cases and Section 7 provides for increase in the standard rent  where the  landlord has  incurred expenditure for any  improvement, addition  or structural  alteration in the premises. Section 9, as the definition in  Section 2 (k) clearly suggests and the marginal note definitely indicates, does not  define what  is standard rent but merely lays down the procedure  for fixation of standard rent Sub-section (1) of Section  9 provides  that the  Controller  shall,  on  an application made  to him  in  that  behalf,  either  by  the landlord or by the tenant, ill the prescribed manner, fix in respect of  any premises,  standard rent    referred  to  in Section 6 or the increase, if any, referred to in Section 7. Sub-section (2)  then proceeds  to say  that in  fixing  the standard  rent  of  any  premises  or  the  lawful  increase thereof, the Controller shall fix an amount which appears to him to  be reasonable  having regard  to the  provisions  of Section 6  or Section  7 and  the circumstances of the case. The Controller is thus entrusted by sub-sections (l) and (2) of Section  9 with  the task  of fixing the standard rent of any premises  having regard  to the  principles set  out  in Section 6  or the  provision of  Section  7  and  any  other relevant circumstances of the case. The words "having regard to...the circumstances  of the  case"  undoubtedly  leave  a certain measure  of discretion  to the  Controller in fixing the standard  rent. But  this  discretion  is  not  such  an unfettered  and   unguided  discretion   as  to  enable  the Controller to  fix any  standard  rent  which  he  considers reasonable. He is 461 required to  fix the  standard rent  in accordance  with the formula laid  A down in Section 6 or Section 7 and he cannot ignore that  formula by  saying that in the circumstances of the case  he considers  it reasonable  to do  so.  The  only discretion given to him is to make adjustments in the result arrived at on the application of the relevant formula, where it is  necessary to  do so  by reason  of the  fact that the

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landlord might  have made  some alteration or improvement in the  building   or  circumstances   might  have   transpired affecting the  condition or  utility of the building or some such circumstances  of  similar  character.  The  compulsive force of  the formulae  laid  down  in  Section  6  for  the determination of  standard rent  and of  the  provisions  of Section 7  for increase  in standard  rent is not in any way whittled down by sub-section (2) of Section 9 but a marginal discretion is  given to the Controller to mitigate the rigor 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 Section 6- The machinery  set out  in sub-  sections  (I)  and  (2)  of Section 9  would then  fail of application, because it would not be  possible for the Controller to fix the standard tent having  regard   to  the   provisions  of  Section  6.  This contingency is taken care of by sub-section (4) of Section 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-section (4) of  Section 9  is that  it should  not  be  possible  to determine the  standard rent  on the  principles set  out in Section 6.  Where  such  is  the  case,  the  Controller  is empowered to  fix such  rent as  would be  reasonable having regard to  the situation,  locality  and  condition  of  the premises and  the amenities provided therein- But even while fixing such  rent, the  Controller does not enjoy unfettered discretion to  do what he likes and he is bound to take into account the  standard rent  payable in respect of similar or nearly similar  premises in  the locality. The standard rent determinable  on  the  principles  set  out  in  Section  6, therefore, again  becomes  a  governing  consideration.  The legislature  obviously  did  not  intend  to  vest  unguided discretion  in  the  Controller  to  fix  such  rent  as  he considers reasonable  without any  principles  or  norms  to guide  him  and,  therefore,  it  provided  that  in  fixing reasonable rent, the Controller shall take in to account the standard rent  payable  in  respect  of  similar  or  nearly similar  premises. The 462 Controller must  derive guidance  from the  standard rent of similar or nearly similar premises in the locality and apart from discharging  the function of affording guidance to tile Controller in  fixing reasonable rent, this requirement also seeks to  ensure that there is no wide disparity between the reasonable rent  of the premises fixed by the Controller and the standard  rent of  similar or  nearly  similar  premises situate in  the locality. The process of reasoning which the Controller would  have to  follow in  fixing reasonable rent would, therefore, be first to ascertain what is the standard rent payable  in case  of similar or nearly similar premises in the  locality and  then to consider how far such standard rent in  its application  to the  premises, needs adjustment having regard  to the  situation, locality  and condition of the  premises   and  the  amenities  provided  therein.  The reasonable rent  so determined would be the standard rent of the premises fixed by the Controller. There may, however, be cases where  there are no similar or nearly similar premises in  the   locality  and  in  such  cases  guideline  to  the

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Controller would  not be  available and the Controller would have to determine as best as he can what  rent  would be  reasonable having  regard to the situation, locality and  condition of  the premises  and the  amenities provided therein.  But such cases would by their very nature be 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  rate able  value arises, namely, where the premises are  self-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 tenant, it would still  be possible  to determine  the standard rent of the premises  on the  basis  of  hypothetical  tenancy.  The question in  such case  would be  as to  what would  be  the standard rent of the premises if they were out to a 463 tenant Obviously,  in such an eventuality, the standard rent would be  determinable on  the principles  set out  in  sub- section (1)  (a) (2)  (b) of  Section 6 of the Rent Act. The standard rent would be the rent calculated on the basis of 7 1/2 percent  or 8.1/4  per cent  per annum  of the aggregate amount of the reasonable cost of construction and the market price of  the land  comprised in the premises on the date of commencement  of   the  construction.  The  Delhi  Municipal Corporation, however,  contended  that  where  any  premises constructed on  or after  9th June  1955-and the premises in most  of  the  cases  before  us  are  premises  constructed subsequent to  9th June  1955 have  not been  let out at any time and  have throughout  been self  occupied, the standard rent of  such  premises  would  be  determinable  under  the provisions of  sub-section (2) (b) of Section 6 and any rent which could  be agreed  upon between  the landlord  and  the tenant if the premises were let out to a hypothetical tenant would be  deemed to be the standard rent of the premises and the formula set out in subsection (I)(B)(2) (b) of Section 6 would not be applicable for determining the standard rent by reason of  the non-obstant  clause contained  in the opening part of  sub-section (2)  of  Section  6.  This  contention, plausible though  it may  seem, is  in our opinion not well- founded. It is difficult to see how the provision enacted in subsection  (2)   (b)  of  Section  6  can  be  applied  for determining the  standard rent  of  the  premises  when  the premises have  not been  actually let  out at any time. Sub- section (2)  (b) of  Section 6  clearly contemplates  a case where there  is  actual  letting  out  of  the  premises  as distinct from  hypothetical letting  out, because under this provision the  annual rent  agreed upon between the landlord and the tenant at the time of first letting out is deemed to be the  standard rent  for a  period of  five years from the

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date of such letting out and it is impossible to imagine how the concept  of first  letting out  can fit in with anything except actual  letting out  and how the period of five years can be  computed from  the date  of any hypothetical letting out. It  is only  from the  date of first actual letting out that the  period of five years can 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-section (2) (b) of  Section 6  can have no application where there is no actual letting  out and  hence in case of premises which are constructed on  or after  9th June 1955 and which have never been  letout  at  any  time,  the  standard  rent  would  be determinable on  the principles laid down in sub-section (1) (A) (2)  (b) Section  6. So  also in  case of premises which have been  constructed before  9th June  1955 but  after 2nd June 1951 the standard rent would, 464 for like  reasons, be  determinable under  the provisions of sub-section (I)(A)  (2) (b)  of Section  6 if  they have not been actually let out 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 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  annual  rent calculated with  reference to the rent at which the premises were actually  let for  the month  of March  1958 or if they were not so let, with reference to the rent at which they  were  last actually  let out  shall be  deemed  to  be  the standard rent  for a  period of seven years from the date of completion of  the construction  of the  premises.  However, even in  the case  of these  two categories of premises, the standard rent  after the  expiration of  the period  of five years  or   seven  years  as  the  case  may  be,  would  be determinable on  the principles  set out  in sub-section (I) (A) (2)  (b) of Section 6. Thus in the case of self-occupied residential premises,  the standard  rent determinable under the provisions  of sub-section (2) (a) or (2) (b) of Section 6 in  cases falling  within the  scope and  ambit  of  those provisions  and   in  other   cases,   the   standard   rent determinable under the provisions of sub-section (I) (A) (2) (b) of  Section 6  would constitute  the upper  limit of the rateable value of   the  premises.  Similarly,  on  an  analogous  process  of reasoning,  the   standard  rent   determinable  under   the provisions of sub-section (2) (a) or (2) (b) of Section 6 in cases falling within the scope and ambit of those previsions and in other cases, the standard rent determinable under the provisions of  sub-section (I)(B)  (2)(b) of Section 6 would constitute the  upper limit  of the rateable value so far as self-occupied non-residential  premises are  concerned. l‘he 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.  The annual  rent  which  the  owner  of  the premises may  reasonably expect  to get  if the premises are let out  would depend  on the  size, situation, locality and condition of the premises and the amenities provided therein and all  these and  other relevant  factors would have to be evaluated in determining the rateable value, keeping in mind the upper  limit fixed  by the  standard rent. If this basic principle is  borne in  mind, it  would avoid wide disparity

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between the  rateable value  of similar  premises situate in the same  locality, where  some premises  are  old  premises constructed many  years ago  when the  land prices  were not high and the Cost of construction had not 465 escalated and  others are recently constructed premises when the A  prices of land have gone up almost 40 to 50 times and the cost  of 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-section (I) (A) (2)  (b)   or  (l)  (B)  (2)  (b)  of  Section  6  would  be comparatively low,  while in  case  of  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 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  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-residential premises may thus be stated as follows: The standard rent determinable on the principles set out in sub-section (2) (a) or (2) (b) or (1) (A) (2) (b) or (1)  (B) (2) (b) of Section 6 as may be applicable, would fix the  upper limit  of the  rateable value of the premises and within such upper limit, the assessing authorities would have to determine as to what is the rent which the owner may reasonably expect  to get  if the  premises  are  let  to  a hypothetical  tenant   and   for   the   purpose   of   such determination,  the  assessing  authorities  would  have  to evaluate factors  such  as  size,  situation,  locality  and condition  of   the  premises   and  the  amenities  therein provided. The  assessing authorities would also have to take into account  the rent  which the  owner of similar premises constructed earlier  and situate  in the  same or  adjoining locality,  might   reasonably  expect   to  receive  from  a hypothetical tenant  and which  would necessarily  be within the upper  limit of  the standard  rent of such premises, so that there is no wide disparity between the rate of rent per squar foot  or square  yard which the owner might reasonably expect to get in case of the two premises. Some disparity is bound to  be  there  on  account  of  the  size,  situation, locality and  condition of  the premises  and the  amenities provided therein. Bigger size beyond a certain optimum would depress the  rate of  rent and  so also would less favorable situation or  locality or  lower quality  of construction or unsatisfactory condition  of  the  premises  or  absence  of necessary amenities and similar 466 other factors.  But after  taking into account these varying factors, the  disparity  should  not  be  disproportionately large. We  may also  point out that until 1980 the assessing authorities were  giving a  self occupancy  rebate of 20% in the property  tax  assessed  on  self  occupied  residential premises. We  would suggest  that,  in  all  fairness,  this rebate of  20% may  be resumed by the assessing authorities, because there is a vital distinction, from the point of view

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of the  owner, between  self-occupied premises  and tenanted premises and the right to shelter under a roof being a basic necessity of  every human  being, residential premises which are self-occupied must be treated on a more favourable basis then tenanted  premises, so  far  as  the  assessability  to property tax is concerned.       We  may now  turn to  consider the  second category of premises in  regard 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 over-looked 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 determine the  standard rent with a view to fixing the upper limit of  the rent  which can  reasonably be expected by the owner on letting out such unit to a hypothetical tenant. How is this to be done ?       Where the case falls within sub-section (2) (a) or (2) (b) of  Section 6,  no problem  arises, because  whether the distinct and  separate unit of which the standard rent is to be  determined   is  self  occupied  or  tenanted  makes  no difference, for  in either  case, the standard rent would be governed by  one or  the other  of these  two provisions. So also in  cases falling  outside sub-section  (2) (a) and (2) (b) of  Section 6?  it would  make no difference whether the distinct 467 and separate  unit of  which the  standard  rent  is  to  be determined is  A self-occupied  or ten anted ; for in either case, the  standard rent  would be  determinable  under  the provisions of sub-section (I) (A) (2) (b) or (1) (B) (2) (b) of Section  6. But  the question  is, how is the formula set out in  sub-section (I)  (A) (2)  (b) or  (1) (B) (2) (b) of Section 6  to be  applied ?  Obviously  there  would  be  no difficulty in applying the formula, if the premises of which the standard  rent is to be determined consist of the entire building. Then  the reasonable  cost of  construction of the building can  be taken  and it  can be  aggregated with  the market price  of the  land comprised  in he  building on the date of  commencement of  construction of the building and 7 1/2 per  cent of  such aggregate  amount would represent the standard rent  of  the  building.  But  where  the  building consists of  more than  one distinct  and separate units and the standard rent to be determined is that of any particular unit, the formula may present some difficulty of application if it  is sought to be applied literally in relation to that particular unit  alone and  by itself,  because even  if the reasonable cost  of construction of that particular unit can be ascertained,  it would  not be possible to determine "the market price 1) of the land comprised in the premises on the

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date of  the commencement  of construction" since the entire building and  not  merely  that  particular  unit  would  be standing on  the land  and the land on which the building is standing would  be land  comprised in  the building  and  it would be  irrational and  absurd to  speak  of  it  as  land comprised in  that particular unit The formula can, however, be applied for determining the standard rent of a particular unit by  computing the  standard rent  of the  building ; 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  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 468 factors which  we have  already discussed  in the preceeding paragraphs of  this judgment while dealing with the question of assessment  of self-occupied properties. 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 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 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 50 received is influenced by extra-commercial considerations.              That takes us to the third category of premises where the  land on  which the  premises are  constructed  is lease-hold  land  with  a  restriction  that  the  leasehold interest shall  not be  transferable without the approval of the lessor. There are two classes of cases which fall within this category.  The first  is where premises have been cons- tructed by  the owner  on land  taken on lease directly from the Government  and the  second is  where premises have been constructed by  the owners on land taken on sub-lease from a Cooperative House  Building Society  which has  in its  turn taken a  lease from  the Government.  The lease in the first class of  cases is a lease in perpetuity and so also are the lease and  a sub  lease in the second class of cases. We are concerned in  these writ  petitions  and  appeals  with  the second class  of cases  and we shall, therefore, confine our observations to  that class.  The sub-lease in this class of cases is  executed by the Cooperative House Building Society in favour  of each  of its members in respect of the plot of

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land sub-leased to him. One of the clauses in the sub-lease, the standard form of which is to be found in clause 6 of the document of  sub-lease in  Transferred Case No. 75/82, inter alia provides as under:              (6)(a) The Sub-Lease  shall not  sell, transfer           assign or  otherwise part  with the  possession of           the whole  or any  part of the residential plot in           any form  or manner,  benami or  otherwise,  to  a           person who Is not a member of the Lessee.           (b)  The  Sub-Lessee  shall  not  sell,  transfer,           assign or 469      Otherwise part  with the possession of the whole or any      A 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 value  shall  be  final  and      binding. D              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 plot of  land sub-leased  to him,  cannot sell,  transfer or assign his  lease-hold interest  in the  plot of land to any except a  member of  the Cooperative  House Building Society and even  so far as sale, transfer or assignment to a member of the  Cooperative House  Building Society is concerned, it cannot be  made except  with the previous consent in writing of the Government which the Government may give or refuse in its absolute  discretion, and in case the Government chooses to give  its consent,  the Government  would be  entitled to claim 50%  of the unearned increase in the value of the land at the  time  of  such  sale,  transfer  or  assignment  and moreover, if the Government so desires, it would have a pre- emptive right  to purchase  the plot of land after deducting 50 per  cent of  the unearned  increase in  the value of the plot of  land. this  covenant in  the sub-lease is clearly a covenant running with the land and even where sale, transfer or assignment  of the  plot of land has taken place with the previous consent in writing of the Government, this covenant would  continue   to  bind   the  purchaser,  transferee  or assignee, vide Commissioner of Wealth 470 Tax v. P.N. Sikand(l).       Relying  on this  clause in  the sub-lease,  the Delhi Municipal Corporation  contended that since the plot of land on which  the premises stands, cannot be transferred without the previous  consent of  the Government,  it has  no market value and  its market  price cannot be ascertained and hence the standard  rent of  the premises  cannot be determined on the principles  set out  in sub-sections  (I) (A) (2) (b) or (1) (B) (2) (b) of Section 6 and consequently, the residuary provision in  sub-section (4)  of Section  9 would apply and

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the standard  rent would have to be fixed in accordance with the principles laid down in that provision. This was in fact the ground  on which  the assessing authorities rejected the objections filed  by several  owners of  premises contending that  the   standard  rent   of  their  premises  should  be determined on  the principles  set out  in sub sections (1 ) (A) (2)  (b) or  (1) (B) (2) (b) of Section 6. To quote only one of the orders made by the assessing authority in case of petitioner No.  2 in T.C. No. 75/82 it was said in the order rejecting the objections of that petitioner:               "The property is built upon a ’case hold plot.      This being  so it  is not  feasible  to  determine  the      market  price   of  land   at  the  time  of  start  of      construction because  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 a  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- Section (1)  (Al (2)  (b) or  (1) (B)  2 (b)  of  S.  6  and resorting to  the provisions  of Sub  Section (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  Cooperative  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 (1) [1977] 2 S.C.C. 798. 471 be sold,  transferred or  assigned  but  only  to  one  from amongst a  limited class  of persons,  namely, those who are members  of  the  Cooperative  House  Building  Society  and subject to  the Rules  and Regulations,  any eligible person can be  admitted to  the membership of the Cooperative House Building Society.  There  is  also  a  further  restriction, namely that  the sale, transfer or assignment can take place only with  the prior  consent of the Government. But subject to these  restrictions, the sale, transfer or assignment can take place.  It cannot,  therefore, be  said that the market price of  the plot  of land  cannot be  ascertained. When we have to determine what would be the market price of the plot of land  on the  date of commencement of construction of the premises, we  must proceed  on the hypothesis that the prior consent of  the Government  has been  given and  the plot of land is  available for  sale, transfer  or assignment and on that footing,  ascertain what  price it  would fetch on such sale, transfer  or assignment  Of course,  when the class of potential buyers,  transferees or  assignees is  restricted, the market price would tend to be depressed. But even so, it can be  ascertained and  it would not be correct to say that it is  incapable of  determination. There  is also one other factor which  would go  to depress the market price and that stems from  the clause  in the sub-lease which provides that on sale,  transfer or  assignment of  the plot  of land, the Government shall  be entitled  to claim  50% of the unearned increment  in  the  value  of  the  plot  of  land  and  the Government shall  also be  entitled to  purchase the plot of land at  the price  realisable in the market after deducting there- from  50% of  the unearned increment. Since the lease

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hold interest  of the  sub-lease in  the plot of land is cut down by  this burden or restriction, the market price of the plot of  land cannot  be  determined  as  if  the  leasehold interest were  free from  this burden  or restriction.  This burden or  limitation attaching  to the  leasehold  interest must be  taken into  account in arriving at the market price of the  plot of  land, because any member of the Cooperative House Building  Society who takes the plot of land by way of sale, transfer  or assignment  would be bound by this burden or restriction  which runs  with the  land  and  that  would necessarily have  the effect  of depressing the market price which he  would be  inclined to pay for the plot of land. We must, therefore,  discount  the  value  of  this  burden  or restriction in  order to arrive at a proper determination of 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 472 restriction. This  mode of determination of the market price has the  sanction of  the decision  of this  Court  in  P.N. Sikand’s case  (supra). 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  Cooperative  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-section  (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 commencement of construction of the premises was ascertainable  on the  basis  of  the  formula  we  have indicated,    notwithstanding     the     restriction     on transferability contained  in the sub-lease and the standard rent of  the premises  constructed on  the plot  of land was determinable under the provisions of sub-section (1) (A) (2) (b) or  (l) (B)  (2) (b)  of Section  6. The argument of the Delhi Municipal  Corporation that  in all  such cases resort has to  be made  to the  provisions of  sub-section  (4)  of Section 9  for determination  of the  standard rent  of  the premises must be rejected.       We  may also in this connection refer to the statement made by  the Minister of State for Home Affairs on the floor of the  Lok Sabha  on 8th  April  1981  where  the  Minister observed:                  "The Municipal  Corporation  of  Delhi  has      intimated that  494 general  objections  for  the  year      1980-81 filed  by the  assessees for  the  revision  of      assessment  of  their  properties  in  accordance  with      Supreme  Court   Judgment  were   considered   by   the      Corporation. The requests for reassessment on the basis      of standard  rent under  Section 6  of the Rent Control      Act, 1958, were considered and not found accept able to      the Corporation  as the  assessees  failed  to  produce      documentary evidence as regards the aggregate amount of      the reasonable  cost of  construction  and  the  market      price of the land comprised in the premises on the date      of commencement  of the  construction as provided under      Section 9  (2)(b) of  the Delhi Rent Control Act, 1958.      Accordingly, assessments  were made  as provided  under      section 5  of the  Delhi Rent  Control Act,  1958.  The

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    details of  the proper  ties, locality-wise,  are given      ill the statement attached."       It  is indeed  strange that  the assessing authorities should have  declined to  assess the  rateable value  of 494 properties in South 473 Delhi on  the basis  of standard  rent determinable  on  the principles A laid down in sub-section (1) (A) (2) (b) or (1) (B) (2)  (b) of  Section 6, merely on the ground that in the opinion of  the assessing  authorities "the assessees failed to produce the documentary evidence as regards the aggregate amount of  reasonable cost  of construction  and the  market price of  land comprised  in the  premises on  the  date  of commencement of  the construction."  If the assessees failed to  produce   the  documentary  evidence  to  establish  the reasonable cost  of construction  of  the  premises  or  the market price  of the  land comprised  in the  premises,  the assessing authorities  could arrive at their own estimate of these two  constituent  items  in  the  application  of  the principles set out in sub-section (1) (A) (2) (b) or (1) (B) (2) (b)  of Section  6. But  on this  account, the assessing authorities could  not justify  resort to sub-section (4) of Section 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 Section 6 that the standard rent may be  fixed under  sub-section (4) of Section 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 laud  at 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-section (I) (A) (2) (b) or (I) (B) (2) (b) of Section 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  sub-section(4)  of Section 9  stating that  it is not possible to determine the standard rent  on the  principles set out in sub-section (I) (A) (2)  (b) or  (1) (B) (2) (b) of Section 6. The assessing authorities would obviously have to estimate for themselves, on the  basis of  such material  as may be gathered by them, the reasonable  cost of construction and the market price of the land  and arrive  at  their  own  determination  of  the standard rent.  This is an exercise with which the assessing authorities are  quite familiar  and  it  is  not  something unusual for  them or beyond their competence and capability. It may  be noted  that even while fixing standard rent under sub-section (4)  of Section  (9), the  assessing authorities have to  rely on such material as may be available with them and determine  the  standard  rent  on  the  basis  of  such material by a process estimation.       The  fourth category  of premises we must deal with is the category  where the  premises are constructed in stages. The discussion  in the  preceding paragraph  f this Judgment provides an answer to 474 A the question as to how the rateable value of this category of premises  is to  be determined  when the  premises at the first stage  of construction are to be assessed for rateable value,  the   assessing  authorities  would  first  have  to determine the  standard rent  of  the  premises  under  sub- section (2)  (a) or  2 (b) or (1) (A) (2) (b) or (I) (B) (2) (b) of  Section 6  as may  be applicable and keeping in mind the upper  limit fixed  by the standard rent and taking into account the  various factors  discussed above, the assessing

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authorities would have to determine the rent which the owner of the premises may reasonably expect to g-t if the premises are let  out to  a hypothetical  tenant and  such rent would represent the  rateable  value  of  the  premises  When  any addition is  made to  the premises  at a  subsequent  stage, three different  situations may arise. Firstly, the addition may not be of a distinct and separate unit of occupation but may be  merely by  way of extension of the existing premises which are self-occupied In such a case the original premises together with  the additional  structure would  have  to  be treated as  a single  unit for the purpose of assessment and its rateable  value would have to be determined on the basis of the rent which the owner may reasonably expect to get, if the premises  as a  whole are  let out, subject to the upper limit of the standard rent determinable under the provisions of sub-section  (I) (A)  (2) (b) of Section 6. Secondly, the existing premises  before the addition might be tenanted and the addition  might be  to the tenanted premises so that the additional structure  also form  part of  the same  tenancy. Where such is the case, the standard rent would be liable to increase under  Section 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 b  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 determining of rateable value would obviously apply  in 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-section 475 (I) (A)  (2) (b)  and (1) (B) (2) (b) of Section 6 cannot be applied for determining the standard rent of an addition, as if that addition was the only structure standing on the land The assessing authorities cannot determine the standard rent of the additional structure by taking the reasonable cost of construction of  the additional  structure and  adding to it the market  price of  the land  and applying  the  statutory percentage of  7 1/2  to the  aggregate amount.  The  market price of  the land  cannot be  added twice  over, once while determining  the standard rent of the original structure and again while  determining the standard rent of the additional structure. Once the addition is made, the formula set out in sub-section (I) (A) (2) (b) and (I) (B) (2) (b) of section 6 can be  applied only  in relation to the premises as a whole and where  the additional  structure consists  of a distinct and separate  unit of  eccupation, the  standard rent  would have to  be apportioned in the manner indicated by us in the earlier part of this Judgment.       These  are the  principles on which the rateable value of different  categories  of  properties  is  liable  to  be assessed under the Delhi Municipal Corporation Act 1957. The same principles would a fortiorari apply also in relation to assessment of rateable value under the Punjab Municipal Act, 1911. Since there are a number of writ petitions and appeals

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before us  and they  involve different fact situations we do not think  it would be convenient to dispose them of finally by one  single Judgment We would therefore direct that these writ petitions  and appeals shall be placed on Board on some convenient date so that they can be disposed of in the light of the principles laid down in this Judgment. M L.A. 476