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PETITIONER: GODHRA BOROUGH MUNICIPALITY

       Vs.

RESPONDENT: GODHRA ELECTRICITY CO.  LTD.

DATE OF JUDGMENT: 20/03/1968

BENCH: MITTER, G.K. BENCH: MITTER, G.K. SHAH, J.C.

CITATION:  1968 AIR 1504            1968 SCR  (3) 481

ACT: The  Bombay Municipal Boroughs Act, 1925, s. 73-Rules 4  and 5’Rate’ leviable under s. 73 on lands and  buildings-Certain lands  and  buildings to be taxed under r. 4(1)  on  capital basis-Method  of  evaluations of capital  value-English  law relating  to ’rates’, relevance of- Contractors’  method  of evaluation  recommended-Data  in  company’s  balance   sheet whether ’reliable data’ for purpose of r. 5.

HEADNOTE: Under s. 73 of the Bombay Municipal Boroughs Act, 1925  read with   rr.   4(1)  and  5  made  thereunder   a   -rate   on nonresidential  buildings belonging to factories  and  mills was  leviable on a capital basis, and the capital value  for this  purpose was to be worked out, if ’reliable data’  were furnished  by the assessee, on the basis of such data.   The respondent company owned certain buildings on which rat- was leviable  under r. 4(1) on the basis of capital value.   The respondent   company  claimed  that  the  actual   cost   of construction of the buildings in 1920 ought to be taken -as the capital value.  The Municipality of Godhra however  made its  own  estimate  of the capital  value.   Thereafter  the Judicial  Magistrate and the Sessions Judge made  valuations taking  into  account  the  rise in  the  cost  of  building materials since 1920.  The High Court in revision upheld the view that the actual cost minus depreciation thereon  should be  the capital value; it observed that the English law  and practice as to levy of rates was not relevant in the  Indian context.  The Municipality appealed. HELD:  (i) When legislatures in this country enact  statutes which closely resemble statutes in England and have the same purpose and object in view, then unless the expressions used in  the Indian Statutes are defined courts of law cannot  go wrong  in interpreting them in the way English  judges  have done.   Further, the words which have acquired a  particular shade  of meaning in England may be given the  same  meaning unless there is anything in the statute its,--If which would be contraindicative. [486-F-G] (ii) Section 73 empowered the municipality to impose a  rate on buildings or lands.  The word ’rate’ had not been defined in  the  Act  but it has a well  known  meaning.   In  Patel Gordhandas,s,  case  this Court  examined  various  statutes

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bearing  on  the English rating law and held that  the  word ’rate’  was used with respect to a tax which was  levied  on the  -net  annual  value  or rateable  value  of  lands  and buildings and not on their capital value, but capital  value could  be  adopted as the basis for working out  the  annual value. [485G-486E] (iii)  Rule  4  of the Godhra  Municipal  Rules  shows  what properties  are  to be valued on capital  basis.   What  the capital basis is not defined.  The capital value however can be determined in the way laid down in Patel Gordhandasg case by adopting the contractor’s method. [487B]. (iv)  The figures given in the balance sheet of the  company could not be regarded as ’reliable data’ for the purpose  of r.  5.  The figures given in the balance  sheet  are  merely statements in terms of the form given in 482 Schedule  VI.   They have no relevance  in  determining  the capital value of property for the purpose of assessment to a rate. [488 B-C] [Case  remanded  to District Judge for  determining  capital value  by adopting contractors method in the -light  of  the observations made by this Court.] Patel  Gordhandas  Hargovindas  v.  Municipal  Commissioner, Ahmedabad, [1964] 2 S.C.R. 608, relied on. R.  v.  School  Board for London,  (1885)  55  L.J.M.C.  33, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 631 and 632 of 1965. Appeals  by special leave from the judgment and order  dated January  7,  8,  1963 of the Gujarat  High  court  in  Civil Revision Applications Nos. 116, 117, 173 and 174 of 1961. Purshottam Trikamadas and I. N. Shrojj for the appellant (in both the appeals). S. S. Shukla, for the respondent (in both the appeals). The Judgment of the Court was delivered by Mitter,  J. These are two appeals by special  leave  against the judgment and order dated January 8, 1963 of the  Gujarat High  Court dismissing Civil Revision Applications  116  and 117  of  1961 filed by the appellant and  all-owing  similar applications  Nos.  173  and  174  of  1961  filed  by   the respondent  against  the common judgment dated  December  1, 1960   passed  by  the  District  and  Sessions   Judge   of Panchmahals. The  matter arises out of assessments made by the  appellant constituted under the Bombay Municipal Boroughs Act, 1925 on the respondent under section 73 of the Act.  The respondents are  an  electricity company owning  inter  alia  properties bearing several numbers in the municipal borough of  Godhra. For  the years 1956-57 and 1957-58 the appellant  had  fixed the valuation of the properties belonging to the  respondent at  Rs.  3,25,000/-.   On  appeal  by  the  respondent,  the Judicial Magistrate fixed the valuation of the properties at Rs.  90,000/-.   On  the appellant going  in  revision,  the Sessions Judge fixed the valuation at Rs. 1,25,000/-.  As  a result  of  the High Court’s decision  the  valuation  stood reduced  to  Rs. 90,000/-.  The present appeals are  by  the Municipality. Under  s. 73(1) of the Bombay Municipal Boroughs  Act,  1925 (hereinafter referred to as the ’Act’)               "Subject  to  any general  or  special  orders               which  the State Government may make  in  this

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             behalf  and to the provisions of  sections  75               and  76,  a municipality may  impose  for  the               purposes  of  this Act any  of  the  following               taxes, namely- 483               (i)   a  rate  on buildings or lands  or  both               situate within the municipal borough." The procedure preliminary to imposing tax is laid down in s. 75  and  s. 78 deals with the preparation of  an  assessment list.   Section 58 empowers the municipality to  make  rules prescribing  the taxes to be levied in a  municipal  brought for  municipal purposes etc.  Rules 4, 5 and 7 relevant  for our purpose read as follows:               "4. Modes of valuation: (1) For the purpose of               detennining tax the following properties shall               be valued on the capital basis :-               (a)  All  open  lands,  buildings  and   yards               belonging to the Railway Administration.               (b)  All buildings and lands other than  those               which   are  actually  used  for   residential               purposes  belonging to Mills and Factories  to               which the Indian Factories Act, is applied.               (2) All properties other than those  mentioned               above  shall  be valued on the  basis  of  the               annual  letting  value as defined  in  section               3(1) of the Act.               5.  Mode  of determining  capital  value:  The               capital value of properties mentioned in  rule               4(1)  shall,  in each case, be  determined  on               such reliable data as the Railway  Authorities               and the Agents of the mills and the  factories               may furnish when called upon from time to time               to do so and in the absence of any such trust-               worthy  reliable data, it shall be  determined               by  the  Chief Officer or  by  expert  valuers               employed by the municipality for that purpose.               6..............................               7.  Amount of tax : (1) in case of  properties               which  as  stated  above, are  valued  on  the               capital  basis the tax to be levied  shall  be               assessed at Rs. 0-8-0 per cent of the  capital               value  and  it shall be a direct  tax  thereon               provided however that any fraction of  hundred               in  excess of fifty rupees shall be  taken  as               the  next higher hundred and any  fraction  of               fifty  rupees  or less be taken as  the  lower               hundred.               (2)  In  case of properties which,  as  stated               above, are valued on the annual letting  value               the  tax  to be levied shall  be  assessed  as               -shown in the appendix annexed hereto." 484 Under  rule 4(1) (b) above, the buildings of the  respondent had  to  be  valued on the capital basis.  Under  r.  5  the capital,  value of properties had to be determined  on  such reliable  data  as the respondent might furnish and  in  the absence  thereof, it would be the duty of the Chief  Officer to determine the same.  Before the Judicial Magistrate,  one R.  R. Tewari, an Assistant Secretary of the respondent  who had affirmed an affidavit showing that the approximate value of the seven items of property on which tax was sought to be imposed as per the books of the company was Rs. 41,541-12-9. He sought to rely on the balance sheets and accounts of  the company  audited  under the Companies Act for  the  purpose. The Judicial Magistrate observed that the properties were 40

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years  old  and according to Tewari the life of  the  office buildings  was  50 years while that of others  was  only  30 years.  Acting on the admission of Tewari that the price  of building  materials had increased three times  the  original figures  in  195657  and  taking,  into  Consideration   the properties  were over 40 years old, the Magistrate  assessed the capital value at Rs. 90,000/-. The  Sessions Judge dealt with the matter in greater  detail and  noted that neither party had given him real  assistance in  determining  what  should  be  the  proper   assessment. According  to him the assessment papers preceding the  bills had not been produced and neither party had led any evidence as  to  how  the capital value was to  be  arrived  at.   He however  felt that the capital value could not  mean  merely the  book  value  shown  in the books  of  account  ,of  the assessee.  He noted that according to the balance sheet  for 1955-56  the property and assets under  the  head"buildings" was shown as below:                       Buildings.       Cost up to 31st March 1955   Rs. 1,72,866-5-11      Additions during the year     12,398-10- 3                                 Total   Rs. 1,85,265-0-2 The  said figure included the value of all the buildings  of the  ,company but those which were to be assessed were  only seven  ,out of which two residential bungalows and  servants quarters’  were  to be assessed on the  rental  value.   The Sessions  Judge  therefore inferred from the  above  figures that Rs. 1,85,265/- included at least Rs. 1,00,000/- as  the cost  up  to 31st March, 1955 of the  factory  buildings  in question.  The Sessions Judge found himself unable to accept the  contention  that the depreciated selling value  of  the property was the capital value for the purpose of assessment of  house  tax.  He also did not accept  the  municipality’s ,contention  that the cost of construction of buildings  had gone up 485 five times since 1920.  Considering the rival contentions he fixed  the capital value at three times the figure shown  by the company, viz., Rs. 41,541/- and rounded the same off  to Rs. 1,25,000/-. Taking the view that it was not open to "a Judge in India to base  his judgment as a whole or in part or  his  conclusion upon  either  Halsbury’s Laws of England or  Bean  and  Lock wood’s book on Rating Valuation Practice" on the ground that these  books were irrelevant under the Indian Evidence  Act, the  learned  Judge  of the High Court  held  that  "capital value"  in night possibly bear four different  meanings  but the  meaning given to the expression in Halsbury’s  Laws  of England  was "not appropriate in the context of -the  Indian enactment  and  the Indian Rules".  Referring to  the  rules made by Godhra Municipality he observed that it could not be said that the municipality had adopted the capital value  as one of the methods of ascertaining the rental value or  that the municipality had adopted the rental value as one of  the methods of ascertaining the capital value.  According to the learned Judge,               "capital  value’ has to be treated as  meaning               the  value of the building treated as  capital               at the time of the assessment; in other words,               the  original cost of construction  minus  the               depreciation or at the most the original  cost               of construction without depreciation." Accepting  the  figure of Rs. 41,541-12-,9 as  the  cost  of construction of the building in 1920 as found by the  courts below, he observed that the capital value should be  "either

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Rs.   41,541-12-9   or  something   less   after   deducting depreciation."  According to him "the assessee has not  come in  revision against the order of the Magistrate fixing  the value  at  Rs.  90,000/-.  Both the  courts  have  erred  in considering  the  probable  cost of construction  of  a  new building."  He  therefore  held that the  courts  below  had committed a material mistake in the exercise of jurisdiction in  relying  upon the probable cost of  constructing  a  new building of a similar type in order to estimate the  capital value as contemplated by Godhra Municipality and accordingly reduced the capital value fixed by the Sessions Judge to Rs. 90,000/-. We  find ourselves unable to accept the views  expressed  or the  reasoning  given in the judgment of  ’the  High  Court. Section  73 empowered the municipality to impose a  rate  on buildings  or  lands.   Now the word  ’rate’  had  not  been defined  in  the Act but it has a well  known  meaning.   As observed  in  Patel  Gordhandas  Hargovindas  v.   Municipal Commissioner, Ahmedabad(’) the word has come to our  country for  the  purpose of local taxation from England."  In  that case  this  Court examined Various statutes bearing  on  the English Rating Law and held that the word "’rate’ was (1) [1964] 2 S.C.R.608 at 616. 486 used  with  respect  to a tax which was levied  on  the  net annual  value or rateable value of lands and  buildings  and not on their capital value.  It would therefore not be wrong to  say  that  in the legislative history  and  practice  in England up to 1925, ’rate for the purpose of local  taxation meant  a  tax  on the annual value of  lands  and  buildings liable to such taxation." The  Court  went on to examine the methods in  use  for  the purpose  of  ascertaining  the  rateable  value  which  were generally three.  It was said :               "Where the land or building was actually  let,               the  valuation was based on the rent at  which               it  was  let.  Where, however,  the  land  -or               building was not let, two methods were evolved               for  the purpose of finding out  the  rateable               value.  The first was to assume a hypothetical               tenancy (such as where the same person is  the               owner  and occupier) and find out the rent  at               which  the premises would be let.  The  second               was   based  on  the  capital  value  of   the               premises.   But the tax was not levied on  the               capital  value itself.; the capital value  was               determined  on  the structural  value  of  the               building  to be assessed by what was known  to               be contractors method or contractor’s test  in               addition  to  the market value  of  the  land.               Sometimes the words "effective capital  value"               were also used since in most cases the  actual               capital  cost of the building plus the  market               value  of  land might for some reason  or  the               other  be in effective i.e., it might  not  be               rent   producing.   Having  arrived   at   the               effective  capital value it was  necessary  to               apply  percentages thereto in order to  arrive               at the annual value." When  legislatures  in  this country  enact  statutes  which closely  resemble  statutes  in England and  have  the  same purpose and object in view, then unless the expressions used in the Indian Statutes are defined, courts of law cannot  go wrong  in interpreting them in the way English  Judges  have done.   Further, the words which have acquired a  particular

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shade  of meaning in England may be given the  same  meaning unless  there is anything in the statute itself which  would be  contra  indicative.  In Patel Gordhandas’s  case(’)  the statute  which this Court had to interpret was the same  Act which  is  before  us  in  this  case.   Consequently,  that decision  affords  us  a  good  guide  in  forming  our  own conclusions  in  this case.  Section 75 of the  Act  has  an Explanation introduced in 1966 which reads as follows :               "Explanation-For  the  purposes of a  rate  on               buildings or lands, the basis of valuation may               be-               (i) the annual letting value; (1) [1964] 2 S.C.R. 608. 487               (ii)  the annual value;               (iii)  the floor area, in the case  of  Mills,               Factories  and buildings and  lands  connected               therewith;               (iv) the capital value, in the case of  vacant               lands." The  Explanation is deemed always to have  been  substituted for the original by Maharashtra Act 3 of 1966, s. 3(b). Rule  4 of Godhra Municipal Rules shows what properties  are to  be valued on the capital basis.  What the capital  basis is not defined.  The capital value however can be determined in  the  way  laid down in  Patel  Gordhandas’s  case(’)  by adopting  the contractor’s method.  What that method is  has been explained in Ryde on Rating (Eleventh Edition)  Chapter 20.   In R. v. School Board for London(’) Cave,  J.  applied the  contractor’s test to schools.  Ryde points out that  it was tacitly recognised as applicable in various other cases. The  principle  on which the contractor’s  basis  rests  are given  by  the  author at page 439 and  the  method  of  its application is given at page 442.  The learned author  notes that  in "applying the contractor’s basis it is possible  to discern  five stages.  The first stage is the estimation  of the  cost  of  construction of the  building."  There  is  a difference  of view as to whether it is better to  take  the cost of relacing the actual building. as it is, or,the  cost of  a  substitute building on the same plan  as  the  actual building  but otherwise in an up-to-date form.   The  second stage  is "to make deductions from the cost of  construction to  allow  for  age,  obsolescence  and  any  other  factors necessary to arrive at the I effective capital value.   "The third stage is to estimate the cost of the land.  The fourth stage  is to apply the market rate or rates at  which  money can  be borrowed or invested to the effective capital  value of  the building and the land.  The fifth stage is  to  con- sider  whether  the  result  of  the  fourth  stage   really represents  what the hypothetical tenant would pay  for  the annual  tenancy  on  the statutory terms, and  to  make  any adjustments necessary to ensure that no higher rent is fixed as  the basis of assessments than that which it is  believed the owner would really be willing to pay for the  occupation of the premises. Rule  5  of the Godhra Municipal Rules lays  down  that  the capital  value is to be determined in each case on  reliable data  furnished by the Mills and the Factories  when  called upon to do so and in the absence thereof is to be determined by the Chief Officer or expert valuer.  The learned  counsel for  the respondent contended that here there were  reliable data  in that the balance sheet of the company  showing  the value  of these properties for the purpose of the  Companies Act and there was no reason why the same figures should  not be adopted as the capital value of the lands

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(1) [1964] 2 S. C.R. 608. (2) (1885) 55 L.J.M.C. 33; 17 Q.B.D. 738 C.A. 488 and   buildings   within   the   jurisdiction   of    Godhra municipality.   This clearly is fallacious as under  section 211  of  the  Companies Act, 1956 the  balance  sheet  of  a company  has  to  be  drawn up in  the  form  prescribed  by Schedule VI.  Under the said Schedule, Part 1, the value  of fixed  assets  has  to be shown "distinguishing  as  far  as possible  between expenditure upon (a) good-will, (b)  land, (c)  buildings,  (d) leaseholds, (e)  railway  sidings,  (f) plant  and  machinery,  (g)  furniture  and  fittings’.  (h) development of property etc.  The fourth column of the  form which gives the instructions in accordance with which assets should be made out shows under each head "the original  cost and ’ the additions thereto and deductions therefrom  during the year, and the total depreciation written off or provided up  to the end of the year is to be stated." It will  there- fore be noticed that the figures given in the balance  sheet are merely statements in terms of the form given in Schedule VI.  They have no relevance in determining the capital value of property for the purpose of assessment to a rate. It  appears  to  us  therefore  that  the  true  method   of determination  of the capital value was not adopted  in  the courts below.  We therefore set aside the judgment and order of the High Court and remand the matter back to the District Judge for him to determine the capital value in the light of the  observations made by us after giving an opportunity  to the   parties to adduce evidence on the subject.  The  costs will abide by the decision of the District Judge. G.C.            Appeal allowed and case remanded. 489