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PETITIONER: MOTICHAND HIRACHAND & ORS

       Vs.

RESPONDENT: BOMBAY MUNICIPAL CORPORATION

DATE OF JUDGMENT: 15/09/1967

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. SHAH, J.C. SIKRI, S.M.

CITATION:  1968 AIR  441            1968 SCR  (1) 546  CITATOR INFO :  D          1974 SC1779  (17)

ACT: Bombay Municipal Corporation Act (Bom. 3 of 1888), S. 154(i) Income  from display of advertisement-If can be included  in rateable value.

HEADNOTE: The respondent municipal Corporation increased the  rateable value  of a building assessed the actual rent  recovered  by Appellant--owner, by adding the income  derived by the owner under  an  agreement  entitling  a  Company  to  display  an advertisement  on  the  roof  of  the  building.  The  owner successfully  filed a complaint against the  increase  which was upheld by the Small Cause Court  to the High Court,  and its confirmed the enhancement In appeal, this Court: HELD: The High Court was right in confirming the enhancement of the annual rent. If  a building or a part of it yields an extra  income  over and  above the actual rent derived from it, such  income  on the terms of, s. 154 (i) of the Bombay Municipal Corporation Act,  can  legitimately be taken into consideration  by  the assessing authority while determining the annual rent on the ground  that  a hypothetical tenant would  take  such  extra income  into  account  while considering what  rent  he  can afford to offer for such building. [553B] The  hypothetical  tenant  includes all  persons  who  might possibly take the property including the persons actually in occupation,  even though he happens to be the owner  of  the property.   The  rent  is  that which he  will  pay  in  the "higgling  of the market", taking into account all  existing circumstances  and any relevant future  trends.   Therefore, the mere fact that the income from the agreement is not rent but licence fee does not justify on any principle of  rating ,or any construction of s. 154 of the Act, disregard of  it, while  estimating  the  rent which  the  property  would  be expected to fetch. [549B; C; 550G-H] Though the owner of the building could not charge rent  over and above that which was permissible under the provisions of the Rent Act, there was nothing in that Act which prohibited him   from  charging  an  amount  from  an   advertiser   in

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consideration of displaying his advertisement. [551D] Mahad Municipality v. Bombay S.R.T. Corporation, LXIII  Bom- bay Law Reporter, 174; Cartwright v. Sculoates Union, [1900] A.C.  150; Robinson Bros. v. Houghton and  Chester-le-Street Assessment   Committee,  [1937]  2  K.B.  445,  Taylore   v. Overseers  of  Pandleton, (1887) 19 Q.B.D.  239,  Wilson  v. Tavender  (1901) 1 Ch. 578, Corporation of Calcutta v.  Anil Prakash Basu A.I.R. 1958 Cal. 423, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 378 of 1965. Appeal  from the Judgment and decree dated April 9, 1963  of the Bombay High Court in First Appeal No. 616 of 1961. Rai Bahadur and B. R. Agarwala, for the appellants. S.  T. Desai, O. P. Malhotra and 0. C. Mathur, for the  res- pondent. 547 The Judgment of the Court was delivered by Shelat,  J. Whether in determining the rateable value  of  a building  the  assessing authority under s.  154(1)  of  the Bombay, Municipal Corporation Act, III of 1888 can take into consideration income derived by the owner under an agreement entitling an advertisement hoarding to be put up on the roof of such building is the question arising in this appeal. For consideration of this question a few relevant facts  may first  be  recited.   The  appellants  are  the  owners   of "Fulchand  Nivas", a building situate at the corner of  what was known at the relevant time as Marine Drive and Sandhurst Road  opposite  Chowpatty Sea Face,  Bombay.   The  building consists of ground and five upper floors and a terrace.  The ground floor and five upper floors of the building were  and are  let  out.   For  the  last  few  years  the   Municipal Corporation  has  been assessing the rateable value  of  the building as equivalent to the actual rents recovered by  the owners.   After the rateable value for the year 1956-57  was assessed  it was found that the terrace of the building  was used  for advertising Tata Mercedes-Benz  Automobile  Trucks and  Buses by means of a neon-sign.  This was done under  an agreement  dated  February  5,  1957  entered  into  by  the appellants  under which the Tata Locomotive and  Engineering Co.  Ltd., had a reed to pay to the appellants Rs.  800  per month in consideration of their being allowed to display the said  advertisement  and  a  further  sum  of  Rs.  700   in consideration  of the owners agreeing not to allow  any  one else to use-any portion of the said building for  displaying any  advertisement save those of the tenants on  the  ground floor not above the level of the height of the ground floor. The agreement provided also that it would be the owners who, during  the  continuance  of the agreement,  would  pay  all existing  and  future  rates, taxes  etc.,  which  would  be assessed,  imposed, charged or become payable in respect  of the  said  building  or the said  advertisement  except  the Municipal  Licence fee in respect of the said  advertisement which  would be borne by the Company.  On March 3, 1958  the respondent corporation issued a notice under section 167  of the  Act informing the owners that the assessment  book  had been  amended and that the amount of the rateable  value  of the  building was increased from Rs. 44,320 to  Rs.  64,685. The  appellants  thereupon filed a complaint  under  section 163(2)  of  the  Act  against  the  said  increase  and  the assessing  authority  by an order dated  February  21,  1959 reduced  the rateable value from Rs. 64,685 to  Rs.  59,600. In  maintaining the increase from Rs. 44,320 to  Rs.  59,600

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the  assessing  authority took into account  the  additional income  arising from the said agreement and received by  the appellants.  The appellants thereupon filed an appeal before the Chief Judge, Small Cause Court, Bombay, objecting to the said increase.  The Chief Judge disallowed the said increase and  directed that the rateable value should be Rs.  44,320. The Chief Judge held that under the said agreement 548 there  was no demise or transfer of an interest in the  said property in favour of the Committee, that the said agreement amounted  merely to a licence revocable at any  time  though subject  to  the express terms of the agreement and  was  no more than a grant of ’a right in gross to display  neon-sign outside the property and that the, only user of the property was  that of a small portion of the terrace used as  a  base for  the  said advertisement.  He held that it was  not  any inherent  or  intrinsic  quality  ’of  any  portion  of  the property  which commanded such a high consideration  as  the sum  of Rs. 1,500 per month.  Aggrieved by this  order,  the respondent Corporation filed an appeal before the High Court at Bombay.  The High Court held that the Chief Judge was  in error  in  holding that the Municipal  Corporation  was  not entitled  to take into account income earned by  the  owners under  the said agreement, set aside his order and  restored the  original value assessed by the assessing  authority  at Rs. 59,600.  The High Court analysed section 154 of the  Act and after consideration of the rules as to rating recognised by several decisions both English and that of the High Court itself in Mahad Municipality v. Bombay S.R.T. Corporation(1) held  that the said increase was justified.  The  appellants then  applied  for  and obtained a  certificate  under  Art. 133(1)(a) of the Constitution and filed this appeal. Counsel  for  the owners challenged the correctness  of  the High Court’s judgment and order and contended that in deter- mining  the  annual  rent  of  the  building  the  assessing authority  can,  take into account the rent  at  which  the. building  is expected to be let, that therefore  the  income derived  from an agreement which amounts to a  mere  licence and  not a demise cannot be added to such rent, such  income being  totally  irrelevant to the concept t of  annual  rent envisaged  in  rating. -To appreciate the contention  it  is necessary  first  to  examine s. 154(1)  of  the  Act.   The section provides that in order to fix the rateable value  of any  building  or land assessable to a property  tax,  there shall  be deducted from the, amount ’of the annual rent  for which such land or building might reasonably be expected  to let  from year to year a sum equal to ten percentum  of  the said annual rent and, the said deduction shall be in lieu of all allowances for repairs or on any other account whatever. The  assessing  authority  for  the  purpose  of  fixing  to rateable  value has therefore to determine the annual  rent. that  is,  the  annual rent for which  such  building  might reasonably  be  expected to let from year to.  year  and  to deduct  the  10 percent statutory  allowance  therefrom  and arrive at the net rateable value which would be,  equivalent to the net annual rent.  The rateable value is thus taken to be the same as the net annual rent of the property.  It is a well  recognised principle in rating that both gross,  value and net annual, value are estimated by reference to the rent at  which the property might reasonably be expected  to  let from,  year  to  year.  Various  methods  of  valuation  are applied (1) LXIII Bombay Law Reporter, 174. 549 in  order to arrive at such hypothetical rent, for  instance

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by  reference to the actual rent paid, for the  property  or for  others comparable to it or where there are no rents  by reference to the assessments of comparable properties or  to the  profits  earned  from the property or to  the  cost  of construction.   The expression "gross value" means the  rent at which a hereditament might reasonably be expected to  let from year to year.  The rent which a tenant could afford  to give is calculated rebus sic stantibus, that is to say, with reference to the property in its existing physical condition and  to  the mode in which it is actually used.   The  hypo- thetical tenant includes all persons who might possibly take the  property including the person actually  in  occupation, even though he happens to be the owner of the property.  The rent  is  that  which he will pay in the  "higgling  of  the market", taking into account all existing circumstances  and any  relevant  future trends.  If the property  affords  the opportunity  for  the carrying on of a gainful  trade,  that fact  also  must  be taken into account.   The  property  is assumed  to be vacant and to let and the material  date  for the  valuation is that of the proposal which gives  rise  to the  proceedings.  The actual rent paid for the property  is not  conclusive evidence of value, though such  actual  rent may serve as an indication as to what a hypothetical  tenant can  afford to pay.  However, if the actual rent is paid  on terms which differ from those of the hypothetical tenancy it must  be  adjusted,  if  possible,  to  the  terms  of   the hypothetical  tenancy before it affords evidence  of  value. (See  Halsbury’s Laws of England, (3rd ed.) vol. 32,  p.  60 and onwards).  It is also well recognised that while valuing the  property in question every intrinsic quality and  every intrinsic circumstance which tends to push the rental  value up  or  down  must be taken into  consideration.   In  other words,  in estimating the hypothetical rent "all that  could reasonably affect the mind of the intending tenant ought  to be considered." (Cartwright v. Sculcoates Union(1).   Scott, L.  J.  Robinson  Bros. v.  Houghton  and  Chester-le-Street Assessment Committee(’) observed: -               "It  is  the duty of the valuer to  take  into               consideration  every  intrinsic  quality   and               every other circumstances which tends to  push                             the  rental value up or down, just bec ause  it               is relevant to the valuation and ought  there-               fore  to  be  cast  into  the  scales  of  the               balance... The ’objective being the real value               of  the  actual hereditament, the  inquiry  is               primarily economic and not legal-, it is  only               legal  in so far as logical relevance  is  the               measure  of  legal admissibility."  (See  also               Ryde on Rating, 11th ed., 385, 387). The  measure  for purposes of rating is therefore  the  rent which  a hypothetical tenant, looking at the building as  it is,  would  be  prepared  to  pay.   Though  the  tenant  is hypothetical and the rent (1)  [1900] A.C. 150. (2)  [1937] 2 K.B. 445 at 469. 550 too  is, hypothetical, the property in respect of  which  he would  estimate  that which he would offer as  rent  is  not hypothetical but concrete.  While estimating the rent  which he  would  be prepared to pay he would naturally  take  into consideration   all  the  advantages,  together   with   the disadvantages attached to the property, that is, the maximum beneficial  use  to  which  he would  be  able  to  put  the property.    In   doing  so  he  is  bound  to   take   into

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consideration the fact of the property being situated at  an unique place as the instant property undoutedly is, viz., at the  juncture  of two of the most prominent roads  with  the additional advantage of Chowpatty Sea Face being opposite to it  where  in the evenings and on week-ends,  it  cannot  be questioned, large crowds usually gather.  Coupled with  this would  be the’ advantage that a neon-sign advertisement  can be  vividly  seen  if fixed on the top of  the  building  by people, pedestrians and those in vehicles, from fairly  long distances in all directions, especially as the advertisement happens  to  be a rotating one.  There can therefore  be  no doubt  that  if a property possesses such an  amenity,  such amenity  is  bound to add to its beneficial  value  and  the tenant who desires to take it on lease is bound to take into consideration while making up his mind as to the rent  which he  can profitably offer as to how much income he  would  be able to derive from exploiting such an amenity.  The measure of  the  hypothetical rent which such a tenant  would  offer would  thus be the extent of the beneficial use to which  he would  be able to put the property on its being demised’  to him. That  being so it seems to us that the question  whether  an agreement under which such a tenant would be able to exploit the advantageous situation in which the property is  situate amounts to a lease or licence is totally irrelevant for  the purpose of assessing the rateable value.  Equally irrelevant is  the  question whether the income arising  from  such  an agreement  is rent or licence fee.  To consider such  income as irrelevant in the process of rating on the ground that it does not amount to rent but to licence fee is to misconstrue the  true measure of the rent expected from the  prospective tenant.   The tenant would not only take into  consideration the  actual  rent derived from the property  but  also  such other  income  which he would be able to  extract  from  the situation  of the property by exploiting as best as  he  can the beneficial use to which the property is capable of being put.   Therefore,  the mere fact that the  income  from  the agreement  is not rent but licence fee and therefore  cannot be added to the actual rent fetched by the property does not justify  on any principle ’of rating or any construction  of section 154 of the Act, disregard of it while estimating the rent which’ the property would be expected to fetch. It  is  true that the rating was so far made  including  the year  in  question on the basis of the actual  rent  derived from 551 the  property.  That appears to have been done  because  ’of the  restrictions  under the Bombay Rent Act  by  reason  of which the property cannot be leased at rent higher than  the standard  rent  allowed under the provisions  of  that  Act. Since no hypothetical tenant would pay rent higher than such standard  rent the actual rent would ordinarily be the  rent expected’ from a hypothetical tenant.  The question would be whether the Corporation would be justified in enhancing  the rateable value by adding the said sum of Rs. 1500 per  month arising  from  the said amount?  It is  true,  as  ’observed earlier,  that -the hypothetical rent cannot be in  view  of the rent restrictions higher than the actual rent.  But  the income arising under the said agreement is not rent realised from letting out any part of the property to the Company but is in consideration of the exclusive privilege granted to it of  displaying its neon-sign advertisement.  It is  manifest that the user thereunder of part of the terrace adds to  the beneficial  value of the building.  For such user the  owner can  legitimately expect something extra over and above  the

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standard  rent  of the building.  Though the  owner  of  the building  cannot  charge rent over and above that  which  is permissible  under the provisions of the Rent Act, there  is nothing  in  that Act which prohibits him from  charging  an amount from an advertiser in consideration of the  privilege of  displaying  his advertisement.  A  hypothetical  tenant, therefore,  would take into consideration such extra  income arising from the special advantage attached to the  building and would be prepared to pay over and above the actual  rent something in respect of such an additional advantage. Counsel  for  the appellants relied upon  certain  decisions which  we may now examine.  Taylor v. Overseers  of  Pendle- ton(1)  is  a  case  where  the  question  was  whether  the advertising  agent was a tenant or a licensee.  If he was  a licensee  it would be the owner who would be the-  occupier; if  a tenant it would be the advertising agent who would  be the  occupier.   Since  under  the English  law  it  is  the occupier  and not the owner who is liable for rates  it  was held that the agent being the tenant was the occupier and it was  he and not the owner who was liable to pay  rates.   In Wilson v. Tavener(2) the defendant agreed by an agreement to let  the plaintiff erect a hoarding upon the forecourt of  a cottage  and to allow him the use of a gable end for a  bill posting  station at yearly rent.  It was held the  agreement did  not  amount  to tenancy from year to  year  but  was  a licence and a quarter’s notice terminating at the end of the year  of  the  currency of the agreement  was  a  reasonable notice.  These decisions cannot be appropriately brought  to aid  by  the appellants as under the English law it  is  the occupier who is liable for the tax and it is for that reason that  the  court had to determine in each case  whether  the agreement in question create (1) [1887] 19 Q.B.D. 289. (2) [1901]  1 Ch. 578. 552 a  demise  or a licence.  But whether the advertiser  was  a lessee   or  a  mere  licensee,  the  income  arising   from advertisement  hoardings has always been rated  irrespective of  the  question  as  to who was liable  to  pay  the  tax. Reliance  was  placed both before the High  Court  and  also before us on the decision in Corporation of Calcutta v. Anil Prakash  Basu(1).   The building there was let  out  to  the tenant  at Rs. 64 / 14 / -. per month.  On the roof  of  it, however,  the  Calcutta.   Street  Advertising  Company  had displayed a neon sign board of Capstain cigarette for  which the  owner  was paid Rs. 125 per month.   The  question  was whether the Calcutta Corporation was right in treating  this income  as  rent  within the meaning of  s.  127(a)  of  the Calcutta Municipal Act, 1923 and take it into account  while determining  the  annual  letting  value  of  the  building. Section 127(a) is as follows.:               "For   the  purpose  of  assessing  land   and               building  to the consolidated rate the  annual               value  of  land and the annual  value  of  any               building  erected  for  letting  purposes   or               ordinarily let shall be deemed to be the gross               annual  rent  at which the  land  or  building               might at the time of assessment reasonably  be               expected to let from year to year less in  the               case of a building an allowance of 10% for the               cost  of  repairs and for all  other  expenses               necessary to maintain the building in a state.               to command such gross rent." The  High Court held that the roof of the building on  which the,  sign board was put up could not be said to  have  been

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demised,   that  the  amount  paid  to  the  owner  by   the advertising  agency was therefore not rent and that the  use of  the  roof for putting up the sign board  amounted  to  a licence  and therefore could not be treated as rent for  the purpose of assessing the annual value of the building.   The High  Court relied on certain English decisions and also  on its   own  earlier’  decisions  for  deciding  whether   the agreement  between  the  owner and  the  advertising  agency amounted  to  a  lease or licence.   Having  held  that  the agreement  amounted  to  a licence and not  lease  and,  the income  was  licence  fee  and  not  rent  it  rejected  the contention of the Municipal Corporation that it was entitled to  treat  the amount of Rs. 125 a month as  rent  over  and above  the actual rent of the building., It may be  observed that  it  was never argued before the High  Court  that  the agreement, whether the said amount was rent or licence  fee, added  to the beneficial value of the building, that  though the  roof ’on the terms of that agreement could not be  said to  have  been demised, what had to be considered  under  s. 127(a)  for assessing the- annual rent of the  building  was the,,  rent which a hypothetical tenant was expected to  pay and  not  the  actual rent, and  whether  such  hypothetical tenant would or (1) A.I.R. 1958 Cal. 423. 553 would  not take into consideration the extra income  derived from  the use of the roof for the advertising hoarding  over and  above the actual rent while deciding what rent  he  can profitably  offer  for the building.  Such  a  question  not having  been  raised or decided this  decision  also  cannot assist the appellants. In our view if the building or a part of it yields am  extra income  over and above the actual rent derived from it  such income on the terms of s. 154(1) of the Act can legitimately be taken into consideration by the assessing authority while determining   the   annual  rent  on  the  ground   that   a hypothetical  tenant  would  take  such  extra  income  into account  while considering what rent he can afford to  offer for such building.  That being the correct position under s. 154(1)  of the Act the High Court, was right  in  confirming the  enhancement of the annual rent from Rs. 44,320  to  Rs. 59,600. The appeal fails and is dismissed with costs. Y. P.      n                      Appeal dismissed. 554