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PETITIONER: K.C. NAMBIAR

       Vs.

RESPONDENT: THE IV JUDGE OF THE COURT OF SMALL CAUSES,MADRAS & ORS.

DATE OF JUDGMENT: 18/08/1969

BENCH: SHAH, J.C. (CJ) BENCH: SHAH, J.C. (CJ) RAMASWAMI, V. GROVER, A.N.

CITATION:  1970 AIR 1656            1970 SCR  (2) 906  1969 SCC  (2) 465

ACT:    Madras  Buildings  (Lease & Rent Control) Act,  1960,  s. 4(3)(b)(i) (ii)--"Cost of construction" if original cost  or market value at the date enactment of the Act.

HEADNOTE:     By  s. 4 of the Madras Buildings (Lease & Rent  Control) Act, 1960 the fair rent for any non-residential building  is to  be  fixed on the total cost of such building  and  under sub-s.   3(b)  the  total  cost  is  to  consist  of   three components:  (i)  the  cost of  construction  as  calculated "according to such rates for such classes of non-residential building  as may be prescribed, less depreciation   at  such rates as may be prescribed"; (ii)  the market value of  that portion of the site on which  the  non-residential  building is constructed, and (iii) such allowances not exceeding  25% of  the  cost of construction as may be  made  for  locality features of architectural interest, accessibility to market, nearness  to  a railway  station other amenities as  may  be prescribed.  The  State Government  framed rules prescribing rates  for  the calculation of the cost of  construction  of different classes of non-residential buildings.     The  appellant, a tenant of a non-residential   building applied  to  the  High  Court  of  Madras  for  a  writ   of prohibition   against  the Controller restraining  him  from proceeding  with an application for fixation of  fair  rent. He contended that  the expression  "cost  of   construction" s.  4(3)(b)(i) meant the cost of the original   construction and  not  the market value of the structure at the  date  of enactment   of  the  Act   and  therefore  the  rules   were inconsistent  with the intention and ambit of the  Act:  The High Court dismissed the application.  Allowing the appeal,     HELD:  The expression "cost of construction"  in  sub-s. 3(b)(i)  when  used  in juxtaposition  with  the  expression "market value" in sub-s. 3(b)(ii) is used to denote not  the market value but the cost of the original construction.  The Legislature  could not have used two  different  expressions for providing that the market value of the building and  the market value of the site shall form components of the  total cost   of   a  building.   If  the  expression   "cost    of

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construction"  is equated  with  the market value  it  would necessarily include the special advantages of the  situation of  the building, its amenities and architectural   features and  there  is  no reason why  these  allowances  should  be included  twice. once as part of component (i) and again  as part  of  component, (iii).  Again, if the  meaning  of  the expression  "cost of construction" were "market  value"’  it would  mean  the market value having regard  to  the  market conditions  of real property which may go on  changing  year after  year.  But the ’State had accepted by r. 12 that  the cost  of  construction was a fixed quantity related  to  the date on which the Act was brought into force. [912 B-C, G-H]

JUDGMENT:     CIVIL APPELLATE JURISDICTION:  Civil Appeal No. 2225  of 1966.     Appeal from the judgment and order dated August 6,  1965 of the Madras High Court in Writ Appeal No. 356 of 1964. 907 K.K. Venugopal and R. Gopalakrishnan, for the appellant. Lily Thomas, for respondent No. 3.     S. Govind Swaminathan, Advocate-General for  the   State of Tamil Nadu, E.S. Govindan and A.V. Rangam, for respondent No. 8. The Judgment of the Court was delivered by      Shah,  Ag. C.J. The Legislature of the State of  Madras enacted the Madras Buildings (Lease and Rent  Control)  Act, 1960.  Section  4  of the Act (insofar as  it  is  relevant) provides :--                      "(1)    The   Controller   shall,    on               application by the tenant or the landlord of a               building and after holding such inquiry as the               Controller  thinks fit fix the fair  rent  for               such   building   in   accordance   with   the               principles  set out in sub-section (2)  or  in               sub-section (3), as the case may be, and  such               other principles as  may  be prescribed.               (2)                    (3)(a)   The  fair  rent  for  any   non-               residential  building  shall be  at  nine  per               cent, gross return per annum on the total cost               of such building.                      (b) The total cost referred in   clause               (a)  shall consist of---                        (i)  the  cost of   construction   as               calculated  according to such rates  for  such               classes  of non-residential building   as  may               be  prescribed less the depreciation  at  such               rates as may be prescribed;                        (ii) the market value of that portion               of  the  site  on  which  the  non-residential               building is constructed;               and  shall include such allowances as  may  be               made  for considerations of locality in  which               the  non-residential  building  is   situated,               features     of    architectural     interest,               accessibility  to  market,  nearness  to   the               railway  station and such other  amenities  as               may be prescribed and of the purpose for which               the non-residential building is used.                      Provided  that such  allowances   shall               not  exceed twenty-five per cent. of the  cost               of  construction as calculated in  the  manner

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             specified in sub-clause (1)". 908 Section  34 confers upon the State Government power to  make rules  to carry out the purposes of the Act.   Pursuant   to the authority conferred by the Act, the State Government has published rules.  Rules 11 to 14 deal with classification of nonresidential   buildings,  calculation  of  the  cost   of construction  of the different classes   of  non-residential buildings,  allowance  for  amenities  in  respect  of  non- residential  buildings  and calculation of  depreciation  of non-residential  buildings.  Rule  11  provides :--                     r.  11--"(1)  Non-residential  buildings               shall  be  classified  into  two   categories,               namely :-               (i) Factories and godowns; and               (ii) other non-residential buildings.                     (2)   The   non-residential    buildings               belonging  to the category specified  in  sub-               rule  (1)(ii)  shall be classified  into  four               different    classes    according    to    the               classifications laid down in rule 8 in respect               of residential buildings".                     r. 12--"(1) The cost of the construction               of  nonresidential buildings belonging to  the               category  specified in rule 11(1)(i) shall  be               calculated at the rate  of  62 naye Paise  per               cubic  foot  of  the cubical  content  of  the               building.                   (2)  The  cost  of  construction  of   the               different classes of non-residential buildings               belonging  to the category specified  in  rule               11(1)(ii)  shall  be calculated at  the  rates               specified below :- Class  I  Ground Floor .. Rs. 16 per square foot  of  plinth area.           First  Floor  .. Rs. 13 per square foot of  plinth area.           Second Floor  .. Rs. 12 per square foot of  plinth area. Class II  -- Ground Floor.. Rs. 13 per square foot of plinth area.            First  Floor .. Rs. 10 per square foot of  plinth area.           Second  Floor  .. Rs. 9 per square foot of  plinth area. Class  III   Single-Storeyed .. Rs. 10 per  square  foot  of plinth area. Class  IV -- Single-Storeyed   .. Rs. 5 per square  foot  of plinth area.                     Note.--In case of every additional floor               higher  up, the rate per square foot shall  be               one  rupee less than the rate per square  foot               for the floor immediately below."                     r.  13--"When  calculating the  cost  of               construction  of  non-residential   buildings,               allowances  shall  be made for  the  following               amenities  in addition to those  specified  in               section 4(3)--               (1) air-conditioning;               (2) lifts;               909               (3) electric fans;               (4) tube-lights;               (5) number of electric points;               (6) fans;

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             (7) ventilators;               (8) electric pump for water;               (9) flush-outs;               (10) fixed wash-basins;               (11) stair-cases;               (12) out-houses;               (13) cattle-sheds;               (14) garden or vacant ground  appurtenant   to               the building enjoyed by the tenant; and               (15)  usufructs of trees, if any,  enjoyed  by               the tenant".                       r. 14--"The depreciation of  buildings               shall be calculated at the rates specified  in               Schedule II".      Dr.  K.C. Nambiar is the tenant of 2/137,  Purasawalkam High  Road, Madras at a monthly  rental of Rs.  187-50.   He conducts  a nursing home in the premises.  The  landlord  of the  premises applied to the Controller claiming  that  fair rent  of  the premises in the occupation of Dr.  Nambiar  be fixed  at Rs. 2,575 per month.  Dr. Nambiar applied  to  the High  Court of Madras for a writ of prohibition against  the Controller from proceeding with the application for fixation of  fair  rent.  He pleaded that the "rules  framed  by  the State Government in exercise of the power vested in them  by s.  4 were inconsistent with the intention and ambit of  the Act"  and  were on that account invalid.  The  petition  was heard  by  a single Judge with several  other  petitions  in which the validity of the rules was challenged.  The learned Judge passed an order dismissing the petition, and the order was confirmed in appeal by the High Court.  Dr. Nambiar  has appealed to this Court with certificate granted by the  High Court.      It was urged on behalf of Dr. Nambiar before  the  High Court  that the  expression "cost  of production" in  sub-s. (3) of s. 4 means the cost of the original construction  and the landlord was not entitled to claim that the fair rent be fixed  on  the basis of cost which may be  estimated  to  be incurred  for reproducing a similar building at the date  of the  application  or the date on which the Act  was  brought into  force.    The   learned   Single  Judge  rejected  the contention.  He observed that "the statutory sense in  which the word ’cost’ or the phrase ’total cost’  is  used in sub- s.  (2)(a)  is  not  the  original  cost  or  the   original expenditure  incurred for the construction of the  building. ’Total cost’ 910 in  s.  4(2)  is a composite  concept  consisting  of  three components   out of which the cost of construction  for  the purpose  of arriving at the total cost is to  be  calculated according to the rates prescribed for each class of building Prescribed  and not the initial expenditure incurred in  the construction".   The learned Judge proceeded then to observe :--                     "Normally, the notion of depreciation is               a  subsequent  fall in value or  reduction  of               worth  due to deterioration arising from  age,               use and other causes and it is. deducted  from               the  last value of the building as reduced  by               previous  depreciation.  But the  depreciation               calculated at the prescribed rates is under s.               4(2)  (b) to be deducted from the cost of  the               construction  as calculated according  to  the               rates   prescribed.    When  the    cost    of               construction  is arrived at on such basis, the               depreciation  at the prescribed rate is to  be

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             deducted  therefrom backwards.  This  mode  of               deduction  of  depreciation  is  no.  doubt  a               reverse  process.   But  there  seems  to   be               nothing  strange in such a manner of  arriving               at the cost of construction..."               The High Court in appeal observed:                     "In  the  first  place  we  are  of  the               opinion  that the language of s. 4  itself  is               clear that what the legislature has in mind on               the  question of the cost of construction,  is               what  has been specified under the  rules  and               Sch.  1.   The very fact  that  s.  4(2)(b)(i)               provides  that the cost of construction is  to               be  according to such rates for such class  of               residential  buildings  as may  be  prescribed               shows   that   it  is  not  actual   cost   of               construction,   but   it  is   the   cost   of               construction  which can be determined  on  the               basis of rates as may be specified. The  words               "such  rates for such classes  of  residential               buildings as may be prescribed" clearly  carry               with  it  the conception of the  fixing  of  a               statutory  rate which may or may not have  any                             relation  to  or  connection  with  th e  actual               investment.  Again the provisions of allowance               with  regard  to considerations  of  locality,               features  of architectural interest  and  such               other matters for which allowance is made at a               percentage  not exceeding 10% of the  cost  of               construction  is  to be determined as  on  the               date when the Act came into force and not  the               actual  original  investment.   We   seen   no               warrant to hold that the Legislature  intended               to   make  a  vital  difference  between   the               valuation  of  the site, which is  the  market               value,  and  the cost of construction  of  the               building   which  is  the  original  cost   of               construction or investment as contended for by               Mr. Nambiyar." 911 These  observations  interpreting sub-s. (2) of s.  4  apply also  to the interpretation of sub-s. (3 ) of s. 4,  because the  relevant provisions in regard to determination  of  the cost   of  construction  of  nonresidential  buildings   are identical.     By  sub-s. (1 ) of s. 4 the Controller is invested  with authority to fix fair rent of buildings in respect of  which an application is made in accordance with the principles set out in sub-ss. (2) & (3) and such other principles as may be prescribed.  Under  sub-s.  (3  )  fair  rent  of  any  non- residential  building is to be computed at nine per cent  of the  gross  return  per  annum on the  total  cost  of  such building and the total cost of the building is to consist of three  components--(1)  the cost of construction;  (ii)  the market  value of the portion of the site on which  the  non- residential   building  is  constructed;  and   (iii)   such allowances not exceeding 25% of the cost of construction  as may   be  made  for  locality,  features  of   architectural interest,  accessibility  to market, nearness of  a  railway station and other amenities ’as may be prescribed.     On  behalf of Dr. Nambiar it is urged that the "cost  of construction" only means cost incurred for constructing  the building when it was put up, and the cost of such  additions as  may  have  been subsequently made.   On  behalf  of  the

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landlord  ’and  the  State of Madras it is  urged  that  the expression   cost   of  construction  means  the   cost   of reproducing a similar building at the date on which the  Act was  brought  into force and therefore in  determining  fair rent  the  Controller must determine for the purpose  of  s. 4(3)(b)(i) the cost of such reproduced building according to rules in that behalf  and deduct therefrom the  depreciation at  the prescribed rate. In other words, it is intended  to, determine  under sub-s. (3) (b) (i) the market value of  the structure at the date of the enactment of the Act.     The Legislature has used in sub-section (3) (b) (i)  the expression "cost of construction" and in sub-s. ( 3 ) ( b  ) (  ii ) "market value". It is difficult to accept  that  the Legislature has used two different expressions for providing that  the market value of the building and market  value  of the  site  shall  form components of the  total  cost  of  a building.  In Black’s. Law Dictionary, 4th Edn.  at  p.  415 --"cost" it is stated "means the amount originally  expended in  performing  a  particular  act  or  operation,  or   for production or construction, as of a building." There is, not infrequently great difference between the cost of an article and  the value’ of an article. Cost of an article in  terms. of  money is what the owner has. expended to obtain it;  the value  of the ,article is ordinarily its market value  in  a market actual or hypothetical.  It may be conceded that  the expression "cost" is sometimes used as meaning the value  of an  article.  But the expression "cost of  construction"  in sub-s.  3  (b)(i) for determining the first  component  when used in juxtaposition with LI 5Sup.CI/69--14 912 the expression "market value" in sub-s. 3(b) (ii) is, in our judgment,  used to denote not the market value but the  cost of   the   original  construction.    There   are   inherent indications in cls. (i), (ii) and (iii) of sub-s. (3)  which go  to prove that the expression "cost of construction"  was no.t  intended  to. mean the market  value.  The  expression "cost  of building" includes not only the expenses  incurred ,for  constructing  the  building, but  also  the  value  of advantages  which the site of the building offers,  such  as accessibility  to  markets, nearness to a  railway  station, special amenities, and features of ’architectural  interest. If the expression "cost of construction" is equated with the "market  value",  it would necessarily include  the  special advantages   of   its   situation,   amenities    and    its architectural features. But the Legislature has provided for including in the cost of the building apart from the cost of construction,   the  value  of  allowances  for   favourable situation,  amenities  and architectural features.  That  is a  ground  for holding that the value of allowances  is  not included in the cost of building.     Amenities  such  as  air-conditioning,  lifts,  electric fans,   tubelights,   number  of  electric   points,   fans, ventilators,   electric  pump for water,  flush-outs,  fixed wash-basins,  stair-cases, out-houses, cattle-sheds,  garden or vacant ground appurtenant to the building enjoyed by  the tenant and usufructs of trees, if any, enjoyed by the tenant will also be included in the cost of building as allowances. But  many of these amenities would be taken into account  in determining  the market value of the building.  The  learned Advocate-General appearing on behalf of the State of  Madras was   unable   to  explain  why  the  Legislature   in   the determination  of the cost of building for arriving  at  the fair  rent,  if  the view expressed by  the  High  Court  is correct,  enacted that these allowances should  be  included

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twice,  once as part of component (i) and again as  part  of component (iii).     The learned Trial Judge has rightly pointed out that  in determining  the cost of construction, if the contention  of the State be accepted in determining the first component  of the  cost  of building will be the cost of  reproducing  the building  at  a  given  time  reduced  by  the  depreciation computed  on  the  life of  the  building--a  process  which reverses  the  normal  method  of  making  ’allowances   for depreciation. Again, if the meaning of the expression  "cost of construction" were "market value" it would mean that  the market value having regard to the market conditions of  real property which may go on changing year after year.  But  the State  has accepted by r. 12 the cost of construction  is  a fixed  quantity  related to the date on which  the  Act  was brought  into  force. Therefore by prescribing the  rate  at which the cost of construction is to be determined under  r. 12,  the  expression "cost of construction" is  neither  the original cost, nor the value of the building at a given time during the life of 913 the Act, but an artificial value related to the assumed cost of construction on the date on which the Act was enacted.      The   Advocate-General,  however,  submitted  that   in respect of old buildings it may not be possible to ascertain what the cost of construction of a particular building  was. But that argument cannot support an interpretation which the plain words used by the statute do not warrant.  Counsel for the  appellant pointed out, that P.W.D. rates in respect  of different classes of buildings for many years are available, and  it should not be difficult for the  Controller,  having regard  to.  the  P.W.D. rates which  would  form  a  fairly reliable   basis   for  determining,  what   the   cost   of construction  of  a particular type of  building  was.   The argument that the "cost of construction" of a building is to be such cost as may be prescribed, invites the answer that a provision  which,  without any guidance, leaves  it  to  the executive authority to fix whatever that authority thinks is the  cost  of  construction, is invalid  on  the  ground  of excessive  delegation.   If the Legislature  has  sought  to confer authority upon the executive to fix the rates and  to call   them  cost  of  construction,  the  Legislature   has abdicated its authority in favour of the executive which  in law  is not permissible.  This however was not the  argument which  was  advanced before the High Court, for it  was  the case of the State that the rates specified in the rules were rates  which were actually prevailing in 1961 in respect  of different classes of buildings.      It  was  also urged that allowing depreciation  at  the rates  prescribed  in  Sch. II to. the  rules  might  unduly depreciate the value of the properties and the landlord  may not get a fair return.  But it has been a common feature  of rent  restriction  legislation  all  over  India  that   the landlord is not allowed the benefit of unearned increment of the  value of his construction.  That is why in  practically every statute relating to rent restriction legislation  rent is pegged down to either a fixed period or to standard  rent which  is  generally  related to the  cost  of  construction originally incurred.      We are accordingly unable to agree with the High  Court that  the Legislature intended by the use of the  expression "cost  of construction" and "market value" used in cls.  (i) and  (ii) of sub-s. (3) the same concept of determining  the value of a building reproduced at the date when the Act came into  force  and reduced by depreciation at  the  prescribed

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rates.      Some  argument about the true meaning of Note  (2)  to. Sch.   II   which  provides  for  the  standard   rates   of depreciation  was  raised before us. The ,language  used  in that  NOte,  even  as explained  by  the  illustrations,  is obscure.      We  are in this case not called upon to  determine  the meaning  of  that  clause.   if  the  expression  "cost   of construction" in sub-s. 914 (3)  (b) (i) means the cost of construction of the  building as originally erected with such additions as may be required to  be  made  for  subsequent  improvements,  r.  12   which prescribes the rates at which the cost of construction is to be computed plainly goes beyond the terms of the section.     The appeal is allowed. The order dismissing the petition is discharged.  The Controller will determine the fair  rent according  to the provisions of the Act uninfluenced  by  r. 12.  The  appellant will be entitled to his  costs  in  this Court and the High Court. R.K,P.S.                                     Appeal allowed. 915