Basic principle for computation of property tax in respect of rented property?

These three first appeals filed by the Municipal Corporation of the city of Ahmedabad functioning under the provisions of the Bombay Provincial Municipal Corporations Act, 1949 ('the Act' for short) raise a common question and are ordered to be heard together, they are referred to a Full Bench, for resolution of the common question. The common question involved in these first appeals is as to whether municipal tax paid directly by the tenant to the Corporation can be included in the annual letting value as defined by Section 2(1A) of the Act, for the purpose of computing gross ratable value of the rented premises for the purpose of levying property tax by the Corporation under the Act. 

 A similar situation obtains in the present cases. Property tax liability is primarily on the landlord. When by contract of tenancy, a tenant is made to bear the burden of property tax, the tenant bears the burden not as tax payer simpliciter but as occupier of the premises and as part of consideration for such occupation and, therefore, that burden borne by him becomes component of rent. What a landlord collects from the tenant directly or what a tenant pays directly to the Corporation by way of tax, would nevertheless remain in the domain of rent which the tenant pays or becomes out of pocket to that extent and that is the consideration for occupying the tenanted premises. The property tax is thereafter worked out on the basis of annual rent which is comprising of both components, viz. annual rent plus tax burden borne by the tenant and on that basis, primary liability of the landlord to pay property tax is worked out. As in the case of entertainment duty, the duty components borne by a spectator remains part of payment for entertainment. Similarly, tax components borne by the tenant also remains part and parcel of rent paid by him to the landlord for the purpose of occupying rented premises. As in the former case, duty can be levied on the total amount paid by the spectator for getting entry in the cinema hall, similarly in the present cases, tax components of the rent for continuing to occupy rent for rented premises could also legitimately be taken into consideration for computing the property tax leviable primarily from the landlord by the municipal authorities. In the former case, as there is no duty on duty, similarly in the present cases also, there would not be tax on tax but it is tax for the first time to be levied by the Corporation from the person primarily liable to pay tax by correctly computing the annual rent of such premises and, therefore, consequential annual letting value for the purpose of property tax. The last submission of Mr. Modi is, therefore, without any substance and is rejected.

32. These were the only contentions canvassed by the learned Advocates of respondents and Mr. Modi and as there is no substance in any of them, the result is that these contention fail and stated rejected.

33. The upshot of this discussion is that taxes which are paid directly by the tenant to the corporation or paid through the landlord to the corporation authorities can rightly be treated an components of annual rent and, therefore, can form part of annual letting value as defined by Section 2(1A) of the Act. 

IN THE HIGH COURT OF GUJARAT

First Appeal Nos. 859, 976 and 1984 of 1991

Decided On: 19.06.1992

Appellants: Municipal Corporation of the City of Ahmedabad

Vs.

Respondent: Canara Bank

Hon'ble Judges/Coram:

S.B. Majmudar, Actg. C.J., Y.B. Bhatt and Akbar Nanjibhai Divecha, JJ.

1. These three first appeals filed by the Municipal Corporation of the city of Ahmedabad functioning under the provisions of the Bombay Provincial Municipal Corporations Act, 1949 ('the Act' for short) raise a common question and are ordered to be heard together, they are referred to a Full Bench, for resolution of the common question. The common question involved in these first appeals is as to whether municipal tax paid directly by the tenant to the Corporation can be included in the annual letting value as defined by Section 2(1A) of the Act, for the purpose of computing gross ratable value of the rented premises for the purpose of levying property tax by the Corporation under the Act. The occupants contend that such directly paid tax by the tenant cannot be taken into consideration to swell the annual letting value for the purpose of property tax. The Corporation-authorities contend to the contrary.

2. It would be necessary to have a look at a few relevant facts leading to these three appeals. Being aggrieved by the stand taken by the authorities, the concerned tenants had moved the Small Cause Court at Ahmedabad under Section 406 of the Act. The Small Cause Court, Ahmedabad took the view that for the purpose of computation of annual letting value of the leased premises, the amount of tax paid by the tenant to the owner was required to be taken into consideration while calculating the gross ratable value. But if the tenant pays the tax not to the owner but to the local authority directly, then tax cannot be included for computing gross rental value. Accordingly, the Small Cause Court, Ahmedabad reduced the computation of gross ratable value as fixed by the concerned authorities and excluded the tax components therefrom and the appeals were partly allowed. Dissatisfied the Corporation has preferred these three appeals in this Court against the said decision of the Small Cause Court, Ahmedabad.

3. First Appeal No. 976 of 1991 had reached admission before the Division Bench consisting of B.S. Kapadia and K.J. Vaidya, JJ. on 25-10-1991. It was found that the said Division Bench earlier while disposing first appeal No. 645 of 1991 moved by the Ahmedabad Municipal Corporation and raising the same point had taken the view that when taxes are directly paid by the tenant to the authorities the amount of taxes cannot be included in the annual letting value for the purpose of fixing gross ratable value of the premises on which property tax can be levied. That decision was rendered by the Division Bench on the construction of the relevant provisions of the Act. However, it was pointed out to the Division Bench that there were contrary decisions of the Division Benches of the Bombay and Gujarat High Courts and hence, the decision rendered in First Appeal No. 645/91 by the said Bench on 3-10-1991 was required to be reconsidered. Having agreed with the said submission, the Division Bench by its order dated 25-10-1991 referred first appeal No. 976 of 1991 to a larger bench. Along with this appeal, are also referred companion appeals raising identical contentions and that is how, all the three appeals were placed before us for decision.

4 to 6. xxx xxx xxx

7. In the light of the rival contentions canvassed by the learned Advocate of the respective parties, the following points arise for our determination:-

(1) When under the contract of tenancy, taxes are agreed to be paid by the tenant to the Municipal authorities directly, whether the amount of these taxes can be included in the term 'annual rent' as contained in Section 2(1A) defining 'annual letting value' for the purpose of computing gross ratable value of the leased premises on the basis of which municipal property tax can be levied as per the Act and the Rules.

(2) What final order?

8. Point No. 1:-

Before dealing with the rival contentions on this point, supported by various authorities to which our attention was invited, it will be apposite to have a quick glance at the relevant statutory settings in the light of which this dispute is required to be resolved.

9. Statutory setting:-

Chapter 11 of the Act deals with Municipal taxation. Section 127 is the first section in the said chapter. Sub-Section (1) thereof provides that for the purpose of the Act, the corporation shall impose the following taxes, namely - (a) property taxes x x x x. We are concerned in these appeals with property taxes. Section 129 lays down that for the purpose of sub-Sec. (1) of Section 127, property taxes shall comprise the following taxes which shall, subject to the exceptions, limitations and conditions hereinafter provided, be levied on buildings and lands in the city. The property taxes are of four types, (a) water tax, (b) conservancy tax, (c) general tax and (d) betterment charges. Water tax is to be charged at such percentage of the ratable value as the Corporation shall deem reasonable. Similarly, conservancy tax is also to be charged at such percentage of the ratable value as will, in the opinion of the Corporation suffice to provide for the collection, removal and disposal by the municipal agencies, of all excrementitiously and polluted matter, etc. while the general tax is to be charged at not less than 12% but not more than 30 % of the ratable value. It becomes obvious that these property taxes have to be charged on the basis of fixed percentage of ratable value of land and buildings in the city. Section 132 deals with general tax which is part of property tax and provides for exceptional cases in which general tax cannot be chargeable. We are not concerned with such exceptional cases in the present cases. It is not in dispute that lands and buildings involved in these appeals are liable to charge property tax. The only questions as to how the ratable value thereof for the purpose of municipal tax has to be computed.

10. Before we discuss the relevant provisions in Chapter XI, we may refer to sections in the said chapter which deal with liability to property tax. As per Section 139(1), if the premises are not held immediately from the Government or from the Corporation, from the actual occupier thereof, the property tax assessed shall be primarily leviable from the lessor if the premises are let. Thus, the lessor or landlord of the premises is primarily liable to pay property tax. Section 139-A deals with apportionment of responsibility for property tax when the premises assessed are let or sublet, while Section 140 deals with liability of the occupiers for payment of property taxes. Sub-Sec. (1) thereof laid down that-

"(1) If the sum due on account of a property tax remains unpaid after a bill for the same has been duly served under the rules, upon the person primarily liable for the payment thereof and the said person be not the occupier for the time being of the premises in respect of which the tax is due, the Commissioner may serve a bill for the amount upon the occupier of the said premises, or, if there are two or more occupiers thereof, may serve a bill upon each of them for such portion of the sum due as bears to the whole amount due the same ratio which the rent paid by such occupier bears to the aggregate amount of rent paid by them both or all in respect of the said premises."

As per sub-Sec. (4), if any sum is paid by, or recovered from an occupier under this section, he shall be entitled to credit therefore in account with the person primarily liable for the payment of the same. As per the aforesaid provisions even though the lessor is primarily liable to pay the tax and if he failed to pay and if the occupier is made to pay the said tax, on such payment, the tenant will be entitled to get the necessary credit of the said amount from the landlord whose primary liability gets discharged by such payment by the tenant. We have already dealt with the provision regarding appeal to the Small Cause Court against the decision of taxing authorities and further appeal to the High Court in earlier part of this judgment. We may now turn to the relevant definitions which are found in Section 2 of the Act. Term 'ratable value' is defined by Section 2(54) to mean the value of any building or land fixed whether with reference to any given premises or otherwise, in accordance with the provisions of this Act and the rules for the purpose of assessment to property taxes. Ratable value is to be fixed as laid down by the relevant rules framed under the Act. Schedule A of the Act contains relevant rules. This Schedule is framed under Section 453 of the Act which lays down that the rules in the Schedule A as amended from time to time shall be deemed to be part of this Act. This Schedule contains various chapters. We are concerned with Chapter VIII which deals with Taxation Rules. Rule 7 of the Taxation Rules is relevant for the urgent purpose. It lays down as to how ratable value is to be determined. Sub-Rule (3) of Rule 7 provides-

"(3) In order to fix ratable value of any building or land, or premises assessable to a property tax, there shall be deducted from the amount of the annual letting value of such building, land or premises a sum equal to ten per cent of such annual letting value and the said deduction shall be in lieu of all allowances for repairs or an any other account whatever."

Thus, ratable value for the purpose of property tax would be annual letting value of such building, land or premises minus 10 % thereof and this net ratable value would constitute the basis of computation of property tax of such premises. It is provision of sub-Rule (3) of Rule 7 that brings in the concept of annual letting value of the building or land. Accordingly, we have to turn to the term 'annual letting value' as defined by Section 2(1A) of the Act. The said provision along with its relevant provisions (a), (aa) and (aaa) reads as under:-

(1A) 'annual letting value' means-

(i) in relation to any period to 1st April 1970, the annual rent for which any building or land or premises exclusive of furniture or machinery contained or situate therein or thereon, might, if the Bombay Rents Hotel and Lodging House Rates Control Act, 1947 were not in force, reasonably be expected to let from year to year with reference to its use;

(ii) in relation to any other period, the annual rent for which any building or land or premises exclusive of furniture or machinery contained or situate therein or thereon, might reasonably be expected to let from year to year with reference to its use;

and shall include all payments made or agreed to be made to the owner by a person (other than the owner) occupying the building or land or premises on account of occupation, taxes, insurance or other charges incidental thereto:

Provided that, for the purpose of sub-Clause (ii)-

(a) in respect of any building or land or premises, the standard rent of which has been fixed under Section 11 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the annual rent thereof shall not exceed the annual amount of the standard rent so fixed;

(aa) in respect of any building or land or premises, the standard rent of which is not fixed under Section 11 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the annual rent received by the owner in respect of such building or land or premises shall, notwithstanding anything contained in any other law for the time being in force, be deemed to be the annual rent for which such building or land or premises might reasonably be expected to let from year to year with reference to its use;

(aaa) clause (aa) shall not apply to a case where the annual rent received by the owner in respect of such building or land or premises is in the opinion of the Commissioner less than the annual rent for which such building or land or premises might, notwithstanding anything contained in any other law for the time being in force, reasonably be expected to let from year to year with reference to its use."

11. The aforesaid statutory scheme makes it clear that before deciding tax liability of the concerned lands and buildings, it has to be found out when such buildings and lands are let to tenants, as to what is the use and of occupation value of these premises and for dealing with the same, we have to turn to the question of finding out annual letting value of such premises and while determining the said annual letting value, the moot question arises as to whether taxes agreed to be paid by the tenant directly to the Corporation would form part of annual letting value of such premises.

Relevant Rules of Construction: At the outset, we may refer to certain well settled principles of construction in the light of which this question will have to be answered. It is well settled by a catena of decisions of various High Courts and the Supreme Court that, if the language of the statute is clear and unambiguous, full effect has to be given to the language used and while interpreting such provisions, the Court cannot add to the statute or delete any part thereof. We may usefully refer to a few of the judgments on the point. In the case of I.T. Commissioner, Patiala v. Shahzada Nand and Sons, MANU/SC/0113/1966 : AIR 1966 SC 1342, the Supreme Court has laid down as under:

"In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. In a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The underlying principle is that the meaning and intention of a statute must be collected from the plan and unambiguous expression used therein rather than from any notions which may be entertained by the Court as to what is just or expedient. The expressed intention must guide the Court."

In the case of Martin Burn Ltd. v. Calcutta Corporation, MANU/SC/0281/1965 : AIR 1966 SC 529, majority of the Supreme Court consisting of Sarkar and Raghubar Dayal, JJ. observed as under:

"A result flowing from a statutory provision is never an evil. A Court has no power to ignore that provision to relieve what it considers a distress resulting from its operation. A statute must of course be given effect to whether a Court likes the result or not."

In the case of State of Punjab v. Jullundur Vegetable Syndicate, XVII STC 326, the Supreme Court speaking through Subbaro, J. laid down as under:-

"In interpreting a fiscal statute the Court cannot proceed to make good the deficiencies, if there be any, in the statute. It shall interpret the statute as it stands and in case of doubt it shall interpret it in a manner favourable to the tax payer. In interpreting a taxing Act, the Court is not justified in straining the language in order to hold a subject liable to tax."

In the case of M/s. Keshavji Ravji and Co. v. I.T. Commissioner , MANU/SC/0702/1990 : AIR 1991 SC 1806, Venkatachaallah, J. speaking for the Supreme Court has made the following pertinent observations in that connection:

"As long as there is no ambiguity in the statutory language resort to any interpretative process to unfold intention of the legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature.

Artificial and unduly latitudinarian rules of construction which, with their general tendency to 'give the tax payer the breaks', are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an 'impertinent intrusion into the sacred rights of private property' and it is now increasingly regarded as a potent fiscal tool of State Policy to strike the required balance - required in the context of the felt needs of the times - between citizens' claim to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain social services and purposes on the other."

In the case of Union of India v. Deoki Nandan Aggarwal, MANU/SC/0013/1992 : AIR 1992, SC 96, V. Ramaswami, J. speaking for the Supreme Court has laid down the following guidelines in connection with the Court's power in connection with interpretation of a statute:

"It is not the duty of the court either to enlarge the scope of the legislation or the intention of the legislature when the language of the provision is plain and unambiguous. The Court cannot rewrite, recast or reframe the legislation for the very good reason that it has no power to legislate. The power to legislate has not been conferred on the Courts. The Court cannot add words to a statute or words into it which are not there. Assuming there is a defect or an omission in the words used by the legislature the Court could not go to its aid to correct or make up the deficiency. Courts shall decide what the law is and not it should be. The Court of course adopts a construction which will carry out the obvious intention of the legislature but could not legislate itself. But to invoke judicial activism to set at naught legislative judgment is subversive of the constitutional harmony and comity of instrumentalities."

On the same lines is the decision of this Court in the case of C.T.T. v. Gautam Sarabhai Trust, MANU/GJ/0023/1988 : 173 I.T.R. 216. R.C. Mankad, J. speaking for the division bench in that case observed:

"The elementary rule of interpretation of statute is that the words used in a section must be given their plain grammatical sense. Language which is plain and easily understood should be looked at without extensive aid for the meaning intended."

12. Discussion on the point:-

Keeping in view the aforesaid settled legal position, we have to find out answer to the question posed for our consideration in the light of the express language employed by the legislature while defining annual letting value. A mere look at Section 2(1A) defining 'annual letting value' shows that for any period subsequent to 1-4-1970, Section 2(1A)(ii) will have to be given its full effect and as laid down by the said provision, annual rent for which any building or land or premises exclusive of furniture or machinery contained or situate therein or thereon, might reasonably be expected to let from year to year with reference to its use, would be annual letting value of such premises. It is obvious that annual rent will have to be determined with reference to the monthly rent of such premises and it will depend upon assessment of reasonable rent at which such premises are expected to be let from year to year with reference to their use, meaning thereby, what the landlord would expect hypothetical tenant to pay for use and occupation of such premises would be the determinative of the monthly or annual rent of such premises. Now, it is obvious that where a landlord decides to let out his premises to a hypothetical tenant, he would expect him to pay reasonable rent as consideration for its use and occupation and would also expect him to bear the municipal taxes if the earlier tenant had so borne them. If the landlord is prepared to bear burden of municipal taxes, it is obvious that rent would be not for mere use and occupation of the premises by the tenant. But normally an average landlord would like to shift the burden of municipal taxes to his tenant. Therefore, the total consideration for use and occupation of rented premises by a tenant would consist of two parts: (i) actual rent for use and occupation of the premises which he pays to the landlord plus (ii) burden of municipal taxes on account of such occupancy by the tenant. Both these amounts jointly would constitute total consideration which a hypothetical tenant would pay to the landlord for getting use and occupation of these premises. Consequently, under Section 2(1A)(ii), annual rent will consist not only of rent for use and occupation which is likely to be paid by a hypothetical tenant to the landlord but also municipal tax burden of such premises which is borne by tenant. On the clear language employed by Section 2(1A)(ii), this conclusion is inevitable and it logically flows therefrom. Computation of such annual rent will have nothing to do with the further question whether taxes which are being borne by the tenant as part of consideration for use and occupation of the premises are paid by the tenant to the landlord who in his turn would pass them on to the Corporation or the amount of taxes which a tenant bears is paid by him directly to the Corporation instead of paying it through the landlord. In both these cases, burden of tax payment by the tenant as part of consideration for use and occupation of the premises would form part and parcel of the concept of annual rent and that would from part of annual letting value of the premises occupied by such tenant and on the basis of which gross rateable value would be worked out as per Rule 7 of the rules. This conclusion of ours is clearly discernible from the express language of Section 2(1A)(ii) of the Act but the difficulty arises on account of inclusive part of the said definition which has given rise to the present reference to this Full Bench. Relying on this inclusive part, it is urged by the learned Advocates of the respondents as well as Mr. Modi appearing as intervener that as the inclusive part talks of taxes and other charges incidental to the enjoyment of the land or building or premises, it by necessary implication indicates that the parent part would not cover such taxes agreed to be borne by the tenant for occupying the land, building or premises. It is not possible to agree with this interpretation put up on the inclusive part by the learned Advocates of the respondents as well as by Mr. Modi. It is well settled that whenever the legislature used the word 'include' in any provision, the legislative intention is to add to the existing provision and its sweep and not to curtail it to what is covered by the inclusive part. In the case of Regional Director, BSIC v. High Land Coffee Works of PFX Saldanha and Sons, MANU/SC/0025/1992 : AIR 1992 SC. 129, the Supreme Court was concerned with the definition of 'Seasonal factory' as amended by Section 2(12) of the Employees' State Insurance Act, 1948. By the said amended definition, the definition of 'seasonal factory' was divided into two parts. The first part defined 'Seasonal factory' to mean a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortications of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes, and the second part was inclusive part and it stated: Seasonal factory would include a factory which is engaged for a period not exceeding seven months in a year (a) in any process of blending, packing or repacking of tea or coffee; and (b) in such other manufacturing process as the Central Government may, by notification in the Official gazette, specify. The question was whether the inclusive part of definition found in the latter part of definition had any effect of curtailing the sweep of the first part of definition which defined the seasonal factory to mean a factory as laid down under the first part. The High Court had taken the view that the second part curtailed the scope of the first part. Disagreeing with the view of the High Court, the Supreme Court speaking through Jagnnatha Shetty J. laid down as under:-

"The amendment, therefore, was clearly in favour of widening the definition of 'seasonal factory'. The amendment is in the nature of expansion of the original definition as it is clear from the use of the words 'include a factory'? The amendment does not restrict the original definition of 'seasonal factory' but makes addition thereto by inclusion. The word 'include' in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include."

13. Applying the well settled rule of interpretation of the term 'include' as found in the definition part of annual letting value, it becomes clear that the inclusive part would cover only those matters which are otherwise not covered in the main parent part. As noted earlier, the main part of the definition found in Section 2(1A) would cover, as part and parcel of annual rent, all the amounts paid by the tenant for use and occupation of the rented premises forming part of total consideration for which the tenant is allowed to occupy the rented premises. All the outgoings from the tenant for remaining as tenant would be covered by the sweep of annual rent. Therefore, if the tenant has to bear tax burden as per the agreement, money equivalent of tax component would clearly be covered by the parent part of Section 2(1A)(ii). It is, therefore, not possible to agree with the contention of the learned Advocates of the respondents and Mr. Modi that if municipal taxes which are borne by the tenant and are paid directly to the Corporation are included by the term of 'annual rent' as defined in the parent provision of Section 2(1A)(ii), then, taxes which are mentioned in the second part would become superfluous. On the contrary, the inclusive part seeks to bring in all other types of taxes and other charges which are to be borne by the tenant occupying building, land or premises on account of such occupation even though they may not form part of original contract of lease and by some statutory force, they may be required to before the burden of such taxes. Example on the point is payment of education cess by the tenant. This payment has to be made by the tenant only because he is a tenant and is covered by the provisions of the Gujarat Education Cess Act. Thus, at the time of original tenancy, the tenant may not have visualised that he will have to bear burden of additional tax because he is occupying tenanted premises but by force of a statute, he is made to pay Education Cess. That would also be covered by the term 'annual letting value' because of inclusive part of definition. It is obvious that by the original contract of tenancy, such payment of tax would not have been covered by the parent provision of Section 2(1A)(ii). It is also necessary to note that 'occupier' as used in the inclusive part may include persons other than tenant as found in definition of 'occupier' in Section 2(41) which states:

"2(41): 'occupier' includes-

(a) any person who for the time being is paying or is liable to pay to the owner the rent or any portion of the rent of the land or building in respect of which such rent is paid or is payable.

(b) an owner living in or otherwise using his land or building,

(c) a rent free tenant,

(d) a licensee in occupation of any land or building, and

(e) any person who is liable to pay to the owner damages for the use and occupation of any land or building."

Such persons are also covered by the definition of 'occupier'. When we analyse the scope and ambit of inclusive part of definition of 'annual letting value', we find that in that inclusive part, the legislature advisedly has not used the word 'tenant' but the word 'occupier' with a view to covering all these persons who are other than tenant and who occupy the premises being other than owner. When they pay any amount to the owner on account of occupation, including taxes and other charges, the said payment by the occupier covered by the sweep of inclusive definition, will also be reflected in the computation of annual letting value. It is, therefore, not possible to agree with the contention of the learned Advocates of the respondents and Mr. Modi that taxes paid by the tenant as a part of contract for occupying premises as per the terms of the contract with the landlord, can be included in annual letting value if at all by inclusive part of the definition and not by its parent part, viz. Section 2(1A)(ii) itself. It is true that if such taxes could have squarely arisen whether payment of such taxes made or agreed to be made to the owner would cover payment directly made by such occupier to the Corporation for and on behalf of the owner. It may be noted that Division Bench of this Court which decided Special Civil Application No. 645 of 1991 had proceeded to deal with only inclusive part of definition of the term 'annual letting value' and had assumed, with respect, incorrectly, that the main part would not cover payment of taxes made by the tenant for use and occupation of the rented premises. In fact, it was not necessary for the Division Bench to take resort to inclusive part and then to try to find out whether inclusive part would cover those payments which were not made to the owner but were made directly to the corporation by the occupier. On the interpretation placed by us on the parent provisions of Section 2(1A)(ii), the observations made by the Division Bench on the interpretation of the inclusive part of the definition are clearly rendered obiter and as the main part of the definition is bypassed by the Division Bench, we must hold, with respect to the Division Bench, that it was in error in coming to the conclusion to which it reached on the applicability of definition of 'annual letting value'; to the facts of the case before it. The ratio of the decision rendered by the Division Bench in First Appeal No. 645 of 1991 on 3rd October 1991, therefore, will stand overruled. The aforesaid conclusion of ours rendered in the light of the express language of Section 2(1A)(ii) is required to be tested in the light of various decisions of High Court and the Supreme Court, having bearing on the point.

14. Discussion about decided cases: In the case of Navnitprasad v. Ahmedabad Municipality, MANU/MH/0146/1957 : AIR 1957, Bombay 163, a Division Bench of the Bombay High Court consisting of Dixit and Vyas, JJ. interpreted rule 7(1) of the taxation rules which was in pari maleria with the present Rule 7(3) read with Section 2(1A)(ii). The Division bench interpreted the very same provisions of the Act in connection with property taxation. The short question with which we are concerned was answered by them in the light of the rules and statutory provisions and it was held that tax paid by the tenant for use and occupation of rented premises would be included in computing gross rateable value for the purpose of determining the municipal property tax for rented premises. The following pertinent observations in this connection made by Dixit, J. speaking for the Division Bench deserve to be noted:-

"Under S. 139, the primary liability to pay municipal taxes is upon a landlord and not upon a tenant. Where there is a covenant between the landlord and the tenant, and under the covenant, the tenant is to pay the rent in addition to the municipal taxes to the landlords, the position is that the landlord is saved the amount and it may well be that that was a consideration while granting the lease. To the extent that a tenant pays these taxes, the landlord undoubtedly gets benefit so far as the tenant is required to pay the municipal taxes, it may well be that that was a consideration which influenced the landlord in fixing the amount of the rent. The payment of municipal taxes may well be in the nature of rent though not the rent, strictly so called. The expression 'in lieu of all allowances for repairs or on any other account whatever' in Rule 7(1) shows that once ten per cent deduction is made, then there is no other allowance permissible according to Rule 7(1). The expression 'on any other account whatever' means obviously that the municipal taxes cannot be omitted from consideration in determining the ratable value of a property."

We respectfully concur with the aforesaid reasoning of the Division Bench of the Bombay High Court and we approve the same. It is obvious that from the point of view of tenant, consideration for use and occupation of rented premises would include every amount by which he becomes out of pocket while remaining as tenant. Whether the amount which he pays goes directly to the landlord and through him to the corporation or is directly paid to the corporation, so that the landlord's primary liability to pay taxes is reduced, would make no difference. All such amounts will partake the character of consideration which a tenant pays for use and occupation of the rented premises and in broad sense of the term, would be treated as rent. In this connection, we may also refer to two earlier decisions of this Court. In the case of Mohanlal v. Maheshwari Mills Ltd. 3 GLR 574, P.N. Bhagwati, J. (as he then was) considered the question whether rent payable by tenant to the landlord can be said to be payable by month for the purpose of Section 12(3)(a) of the Bombay Rents, Hotel and lodging House Rates Control Act, 1947 (hereinafter referred to as the 'Rent Act') if part of amount included taxes which the tenant had to pay for remaining in occupation as tenant. The learned Judge took the view that when the tenant pays taxes as part of consideration for remaining as tenant, taxes enter the computation of rent and if they are payable yearly, part of rent can be said to be not payable monthly. In this connection, the following pertinent observations were made:-

"The consideration payable by the tenant to the landlord for the transfer of right to enjoy the premises was twofold: one was the payment of an amount described as rent, viz. Rs. 326/- per month and the other was the payment of municipal taxes and property taxes in respect of the premises. The payment of the municipal taxes and property taxes which could only happen at the end of every year, was as much part of the consideration as the amount described as rent and both formed part of the rent payable by the tenant to the landlord.

The rent payable by the tenant to the landlord in respect of the premises consisted of two parts, of which one part was payable by the month while the other part was not payable by the month."

The learned Judge also noted that the word 'rent' was not defined in the Rent Act and it must, therefore, be given the same meaning which is given to it in the Transfer of Property Act, which embodies the ordinary law of landlord and tenant. Rent has been defined in Section 105 of the Transfer of Property Act to mean money, share of crops, service or other thing of value to be rendered periodically or on specified occasions by the tenant to the landlord in consideration of the transfer of the right to enjoy the premises. By the lease the landlord transfers to the tenant the right to enjoy the premises for a certain time, express or implied in perpetuity in consideration of a price paid or promised or of money, a share of crops, services or any other thing of value to be rendered periodically or on specified occasions to the landlord by the tenant and the money, share, service or of her thing to be so rendered is called rent. Rent is in other words consideration for the transfer of the right to enjoy the premises. Whatever forms the consideration for the transfer of the right to enjoy the premises would, therefore, be rent whether it be money or a share of crops or service or any other thing of value. It was further observed:

"In every case, therefore, where the question arises as to what is the rent, the test must be: what is the consideration for the transfer of the right to enjoy the premises, that is, for the demise and whatever be the consideration and howsoever it be described that would be the rent. As observed by Sir Dinshaah Mulla in his commentary on the Transfer of Property Act, 4th edition, at page 609 - "In Indian Law, any payment by the lessee that is part of the consideration of the lease, is rent."

Applying this test, the learned Judge observed:

"It is clear that the municipal taxes, property taxes and Government taxes in respect of the premises payable by the defendant to the plaintiffs under Clause (9) of the deed of lease formed part of the rent."

15. We concur with the aforesaid test for deciding the correct sweep of the term 'rent' whenever it is used in the contract of lease and whether such sweep of the term 'rent' has to be used for the purpose of the Rent Act or the Municipalities Act for determining the gross ratable value of the rented premises. It is not possible to agree with the respondents and Mr. Modi that the aforesaid observations of P.N. Bhagwati, J. should be confined to cases under the Rent Act for determining the liability of the tenant to pay rent to the landlord for remaining possession and cannot be utilised for deciding the liability to pay property taxes under the Corporation Act. Legal effect of the term 'rent' as per the contract of lease has to be one and uniform and it may give rise to different liabilities under different Acts like the Rent Act determining liability and rights of landlord and tenant and under the Municipal Act for determining the liability to pay property taxes so far as rented premises are concerned.

16. Another learned Single Judge of this Court, J.M. Shelat, C.J. in the case of Khemchand v. Mohmadbhai, 6 GLR 829, has also taken the same view and has held that the tax payable by the tenant to the landlord formed part of rent and if tenant is in arrears of taxes, distress warrant can be issued by the Small Cause Court under the Rent Act against such tenant for recovery of taxes which formed part of rent. In fact, the ratio of the aforesaid decision flows as a sequitur from the decision of the learned Single Judge in 3 GLR 574 (supra). In this connection, we may profitably refer to the decision of the Supreme Court in the case of Raju Kaakara Shetty v. Ramesh Prataprao Shirole and Another, MANU/SC/0516/1991 : 1991 (1) SCC 570, where Ahmadi, J. has taken the very same view and has held that when taxes are payable by a tenant as consideration for use and occupation of the premises and if tax liability is determined on monthly basis the taxes would form part of rent but that would be payable monthly to the extent of such computation and the case would be covered by Section 12(3)(b) and not Section 12(3)(a). This decision also accepts the legal position that taxes to be paid by the tenant for use and occupation of the premises would form part of rent and to that extent, the said decision runs parallel to the decision rendered by the aforesaid two learned Judges of this Court in 3 GLR 574 and 6 GLR 829 (supra).

17. We may now refer to other pronouncements of the Supreme Court on the point. In the case of Karnani Properties Ltd. v. Miss Augustine, MANU/SC/0084/1956 : AIR 1957, SC 3309, the Supreme Court was concerned with the question whether electric charges to be borne by the tenant for use and occupation of the rented premises governed by the West Bengal Premises Rent Control Act under the contract of lease can be considered to be part of rent payable by the tenant to the landlord which would be considered by the rent controller for the purpose of deciding whether rent charged is excessive or not. Answering the question in the affirmative, the Supreme Court speaking through Sinha, J. made the following pertinent observations:-

"The term 'rent' has not been defined in the Act. Hence, it must be taken to have been used in its ordinary dictionary meaning. The term 'rent' is comprehensive enough to include all payments agreed by the tenant to be paid to his landlord for the use and occupation not only of the building and its appurtenances but also of furnishing, electric installations and other amenities agreed between the parties to be provided by and at the cost of the landlord. Therefore, all that is included in the term 'rent' is within the purview of the Act and the Rent Controller and other authorities have the power to control the same."

18. In the case of Corporation of Calcutta v. Sm. Padma Debi, MANU/SC/0284/1961 : AIR 1962 SC 151, the Supreme Court was concerned with the question of ascertainment of gross annual rent for the purpose of property tax under the Calcutta Municipal Act. Section 127(a) of the said Act provided that 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 ten per cent for the cost of repairs and for all other expenses necessary to maintain the building in a state to command such gross rent. The question was whether gross annual rent at which the land or building may reasonably be expected to let from month to month would include any amount which exceeded the standard rent. Answering this question in the negative, the Supreme Court speaking through Subba Rao, J. held after noting the combined effect of the relevant provisions of the Rent Act that a contract for a rent at a rate higher than the standard rent is not only not enforceable but also that the landlord would be committing an offence if he collected rent above the rate of the standard rent. One may legitimately say under those circumstances that a landlord cannot reasonably be expected to let a building for a rent higher than the standard rent. The law of the land with its penal consequences cannot be ignored in ascertaining the reasonable expectations of a landlord in the matter of rent. In this view, the law of the land must unnecessarily be taken as one of the circumstances obtaining in the open market placing an upper limit on the rate of rent for which a building can reasonably be expected to let. When we turn to the provisos to Section 2(1A) of the present Act, we find that they deal with the question of interplay of the provisions of the Rent Act in connection with fixation of standard rent on the one hand and taxing provisions contained in the Act on the other. For the time being, it is sufficient to note that while going in search of a hypothetical tenant, the question of reasonable rent that can be expected by the landlord for the leased premises would be governed by the ceiling, if any, put by the Rent Act in the form of standard rent as ascertainable under the concerned Rent Control Act.

19. In the case of Motichand v. Bombay Municipal Corporation, MANU/SC/0278/1967 : AIR 1968, S.C. 441, the Supreme Court was concerned with the question of determination of annual rent of a building for the purpose of properly tax under the provisions of the Bombay Municipal Corporation Act, 1888. In the case, apart from rent, extra income was being obtained from the rented premises. The question was - whether that extra income can enter the computation of property tax by being included in the concept of annual rent of the building. Answering this question in the affirmative, the Supreme Court speaking through J.M. Shelat, J. made the following observations:-

"If the 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 Section 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.

The measure for purposes of rating is the rent which a hypothetical tenant, looking at the building as it is, would be prepared to pay. Though the tenant is hypothetical and rent 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 consideration the fact of the property being situated at an unique place."

It is, therefore, obvious that while determining the annual rent of the building the total amount which a hypothetical tenant is prepared to pay for use and occupation of the rented premises would form part and parcel of the composition of annual rent for the purpose of deciding gross rental value for the purpose of property tax under the Act. This decision of the Supreme Court runs parallel to the decision of the Bombay High Court in MANU/MH/0146/1957 : AIR 1957 - Bom. 163 (supra) and strengthens the ratio laid down by the aforesaid Bombay decision.

20. In the case of Bombay Municipality v. L.I.C. Bombay, MANU/SC/0393/1970 : AIR 1970 S.C. 1584, the Supreme Court considered the very same provision of Section 154(1) of the Bombay Municipal Corporation Act, 1888 and held that the amount of education cess recoverable by the landlord from the tenant was includible for the purpose of valuation of the properly for levying property tax. It was held:

"Permitted increase becomes part of the rent. The building can well be said to reasonably expected to be let at the figure arrived at by adding the permitted increase to the standard rent. The valuation has, therefore, to be arrived at after taking into account the amount of educational cess levied by the Corporation. Even if it leads to some kind of inconvenience of variation in valuation at frequent intervals that can be no consideration for not giving full effect and meaning to the provisions of the Act of 1888 and the Rent Act."

21. In the case of Delhi Municipality v. M.N. Soi, AIR 1970 S.C. 302, the Supreme Court was dealing with assessment for rating under Punjab Municipal Act, 1911. The words in the statute which were to be interpreted were "may reasonably be expected to let from year to year". Interpreting these words, it was held:-

"Where rent is higher than that which can be legally demanded by the landlord and actually paid by a tenant despite the fact that such violation of the restriction on rent chargeable by law is visited by penal consequences, the municipal authorities cannot take advantage of this defiance of the law by the landlord. Rating cannot operate as a mode of sharing the benefits of illegal rack renting indulged in by landlord for whose activities the law prescribes condign punishment."

22. We may now turn to the later decision of the Supreme Court in the case of Devan Daulat Rai Kapoor v. New Delhi Municipality, MANU/SC/0393/1979 : AIR 1980, S.C. 541, on which reliance was placed by both the sides. In that case, the Supreme Court speaking through Bhagwati, J. was concerned with the common question of law relating to assessment of annual value of the land and building for rating purpose. The question arose in connection with the Punjab Municipal Act, 1911. Analysing the definition of annual value of building for the purpose of rating which required computation of gross annual rent at which the building may reasonably be expected to let from year to year, it was held:-

"It is obvious from this definition that unlike the English Law where the value of occupation by a tenant is the criterion for fixing annual value of the building for rating purposes, here it is the value of the properly to the owner which is taken as the standard for making assessment of annual value. The criterion is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. The rent which the landlord might realise if the building were let is made the basis for fixing the annual value of the building. What the landlord might reasonably expect to gel from a hypothetical tenant, if the building were let from year to year, affords the statutory yardstick for determining the annual value."

It was, further, held that a landlord was not expected to realise from a hypothetical tenant any amount which was in excess of the standard rent as he cannot reasonably be expected to receive any higher amount in breach of law.

23. The aforesaid decisions clearly indicate that, when annual letting value is to be fixed for the purpose of property tax on the basis of annual rent at which any building or land or premises may reasonably be expected to let from year to year with reference to its use, a hypothetical tenant would be expected to pay to the landlord as a total consideration for such use and occupation, the amount which should in no case exceed the standard rent and which would in turn including the permissible increases including taxes which a tenant may be required to pay on account of such use and occupation. Thus, taxes which the tenant under contract of tenancy is required to pay for occupying leasehold premises would form component of annual rent at which such building may reasonably be expected to let in future. These decisions of the Supreme Court clearly support the view which we are inclined to take on the express language of Section 2(1A)(ii) main part 1.

24. In this connection, it is also necessary to keep in view one salient aspect of the matter. Section 127 is, as noted earlier, charging section which imposes charge on property taxes on houses and buildings and other premises within the limits of the Corporation. So far as assessment and valuation for property taxes are concerned, they are dealt with by the relevant taxation rules and for assessing such property taxes, concept of ratable value as defined by Section 2(54) becomes relevant and that concept in its turn attracts determination of annual letting value as per Section 2(1A) read with Rule 7(3) of the taxation rules. It, therefore, becomes obvious that the provision regarding annual letting value as given in Section 2(1A) deals with machinery provision for assessing property taxes and such determination has nothing to do with the charging provision. It is well settled that while interpreting charging section, strict interpretation of the words used has to be adopted but the said rule of strict construction will not apply while interpreting machinery provision like Section 2(1A) which itself is a definition provision. If any authority were needed to buttress this proposition, it is supplied by the Supreme Court in the case of ACC Ltd. v. Commercial Tax Officer, Kola, MANU/SC/0401/1981 : AIR 1981, S.C. 1887, wherein it has been laid down by majority of the Supreme Court speaking through E.S. Venkataramiah, J.:-

"A distinction has to be made by Court while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are pot generally subject to a rigorous construction. The Courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated."

Keeping this settled Rule of construction in view, it is easy to visualise that the clear language employed by Section 2(1A)(ii) - would cover all monetary liabilities incurred by the tenant for use and occupation of his premises and being part and parcel of the total consideration which the tenant pays for use of such leased premises and hence, municipal taxes undertaken to be borne by the tenant under the contract of lease would form part and parcel of the term 'annual rent' as employed in the said provision and the mode of payment of such taxes by the tenant either directly to the landlord and through him to the Corporation or directly to the Corporation for discharging prime liability of the landlord would make no difference. With respect, the Division Bench while deciding First Appeal No. 645 of 1991 made this difference resorting to the language employed by the inclusive part which was not required to be resorted to as seen earlier. We may mention at this stage before parting with this discussion that two Division Bench judgments of this Court in the case of Modern Bobbin Company v. Bilimora Municipality, 22, GLR, 642and Bai Nani v. Baroda Municipal Corporation, 25, GLR 526 have also taken a similar view in connection with property taxation under the Gujarat Municipalities Act and this very Act respectively. We respectfully concur with the said view expressed by the Division Benches in these two judgments. The decision to the contrary rendered in connection with U.P. Nagar Palika Adhiniyam, 1983 in the case of Nagar Mahapalika, Agra v. Nagar Mahapalika Tribunal 1983, Allahabad, 201, does not commend itself to us as it runs counter to the decisions in AIR 1957 Bom. as well as decisions of the Supreme Court in AIR 1957 S.C. 209 and AIR LR 1968 SC 441 (supra).

25. This would have put an end to the present controversy but for the fact that our attention was invited to provision to (a), (aa) and (aaa) to Section 2(1A). It is true that for the purpose of Section 2(1A)(ii), provisos (a), (aa) and (aaa) have to be kept in view, as they are engrafted to the parent sub-clause (ii) of Section 2(1A). We have, therefore, to turn to the discussion on these provisos. Before proceeding to interpret these provisos, we may mention one argument of Mr. Modi appearing as intervener that question of vires of these provisos especially proviso (aa) is pending before a Division Bench and hence we may either defer discussion on interpretation of this proviso or we may decide the question of vires ourselves. It is not possible to accede to this request for obvious reasons. Firstly, matters which are referred to us in the Full Bench have nothing to do with the vires of these provisos. The vires question is pending before another Division Bench. All that we are to do in the present reference is to interpret these provisos in the light of rival contentions placed before us by the learned Advocates of the respective parties. Our interpretation on these provisos will have nothing to do with the question of vires of these provisos which obviously cannot be gone into by us and is, therefore, kept open by us. Whatever might be our interpretation on these provisos if the Division Bench ultimately upholds the challenge to the provisos, then these provisos would be struck down. If on the other hand, the provisos are upheld, then the interpretation put by us would govern the rights and liabilities of the parties as the provisos themselves will remain operative. Consequently, there is no question of postponing the consideration of interpretation of these provisos by us. Now, coming to the provisos themselves, it becomes obvious that the said provisos are enacted for the purpose of sub-clause (ii). Sub-clause (ii) itself deals with computation of annual rent and lays down a yardstick therein for the purpose, viz. annual rent for which such building might reasonably be expected to let from year to year with reference to its use, would be considered to be annual rent for the purpose of fixing annual letting value of such building under Section 2(1A). So far as proviso (a) is concerned, it need not detain us because it lays down that annual rent shall not exceed the annual amount of standard rent being fixed under Section 11 of the Act. In none of the present cases, standard rent is so fixed and, therefore, proviso (a) is out of picture. We are directly concerned with proviso (aa). This provision creates a legal fiction to the effect that annual rent received by the landlord from his tenant would be deemed to be annual rent for which the building may reasonably be expected to let from year to year with reference to its use. Thus, it draws an equation between annual rent received by the owner in respect of the building on the one hand and annual rent at which such building can be let in future to hypothetical tenant from year to year with reference to its use and this equation is to be drawn in case standard rent is not fixed under the Rent Act. It has to be kept in view that there is non-obstante clause in the provision (aa) which would exclude operation of any other law even including the Rent Act, so far as this equation is concerned. But even apart from that, so far as the Rent Act is concerned, standard rent is defined by Section 5(10) and it has been laid down that:-

(10). 'Standard Rent' in relation to any premises means-

xxx xxx xxx

(b) Where the standard rent is not so fixed:

(iii) Where they were first let after the first day of September 1940, the rent at which they were first let."

It is not in dispute that all the premises in the present cases are premises which were first let after 1-9-1940. The amount for which they were first let, therefore, would be standard rent under the Act. Same concept seems to have been adopted by the legislature while enacting proviso (aa). But even that apart, as per the mandate of the proviso, annual rent received by the owner in respect of the building is to be treated to be equivalent to annual rent which, in future, the landlord may receive from the hypothetical tenant and that would be treated to be annual rent for the purpose of fixing annual letting value under Section 2(1A)(ii). The submission of the learned Advocates of the respondents and Mr. Modi was that even if the proviso is to be pressed in service by the corporation, actual words used must be given their full effect being annual rent received by the owner. That if part of rent consisting of taxes is directly paid by the tenant to the corporation, it cannot be said that at least that part of rent was received by the owner and hence on the express language of the proviso, taxes will get excluded from the term annual rent for the purpose of fixing annual letting value of the demised premises. It is not possible to agree with this contention for the simple reason that annual rent received by the owner in respect of building would consist of the entire consideration which a tenant pays for occupying such building, land or premises and that will be the annual rent which can be said to have been received by the owner. Whether he receives the amount actually or constructively would make no difference, as in our view, the term 'receive' would in its sweep cover actual receipts as well as constructive receipts, otherwise, an absurd result will follow. For example, if the owner is out of town and his wife receives rent, can it be said that the owner has not received the rent? Similarly, if the owner-landlord is indebted to the creditor, say in a sum of Rs. 1,000.00 and if he instructs his tenant who has to pay monthly rent of Rs. 1,000.00, to pay monthly rent for the first month not to him but to his creditor towards his dues, and if the tenant pays that amount to the creditor who in his turn credits the landlord's account accordingly, can it be said that the landlord has not received rent of Rs. 1,000/-? Therefore, in our view, the phrase 'annual rent received' as employed by the legislature in proviso (aa) includes both types of receipts, either actual or constructive and can be said to mean received actually or constructively by the owner. This would not amount to adding any words in the proviso but only interpreting the meaning of the term 'annual rent received' as employed by the legislature. If this broad interpretation is not given to this term an absurd result would follow as demonstrated above. While if such broad interpretation is given, the real purpose of letting buildings to tenants would be fructified and the provision would become workable from all angles. We, therefore, reject the narrower construction sought to be put on this term by the learned Advocate of the respondents and Mr. Modi. It is obvious that when the tenant pays taxes undertaken by him to be paid as part of consideration for use and occupation of the rented premises, directly to the corporation, the prime liability to pay such taxes which rests on the landlord gets diminished pro tanto and, therefore, payment of taxes by the tenant to the corporation directly instead of through the landlord, does amount to receipt of annual rent to that extent by the landlord constructively. Accordingly, it must be held that term 'annual rent received' as employed in proviso (aa) would cover cases in which taxes which are agreed to be paid by the tenant as part of consideration for use and occupation of rented premises, are paid directly to the corporation by the tenant, and would provide a yardstick for computing annual letting value on that basis. This question can also be viewed from another angle. The phrase 'annual rent received' employed by proviso (aa) can also be interpreted to include in its sweep 'annual rent received by the owner or received on behalf of the owner'. The word 'by' in the context of the proviso (aa) can reasonably be interpreted to include for and on behalf of. A Division Bench of the Allahabad High Court in the case of Jwala Prasad v. Official Liquidator, MANU/UP/0121/1962 : AIR 1962 All. 486 was concerned with interpretation of the words by the Company as found in Section 45-0 of the Banking Companies Act, 1949. Under the said provision, it was provided that in computing the period of limitation prescribed for a suit or application by a banking company which is being wound up, the period commencing from the date of the presentation of the petition for the winding up of the banking company shall be excluded. The question was whether an application made by the liquidator under Section 235 of the said Act can be said to be an application made by the banking company for earning benefit of exclusion of limitation as provided by Section 450. Answering the question in the affirmative, it was held that the liquidator does not Act for his own benefit but for or on behalf of the company. These words were to be read in the words 'by the company' in the context of provisions with which the Court was concerned. Similarly, in the present cases, when the legislature used the words 'annual rent received by the owner' in proviso (aa), it must mean annual rent received by the owner actually or constructively or by some one on his behalf. The test is that annual rent paid by the tenant must come out of his pocket being use and occupation charges and the amount which the tenant parts with due to such contract must benefit the owner directly or indirectly. It cannot be disputed that primary liability is of the owner to pay municipal taxes. If that liability is discharged by the tenant as consideration for use and occupation of the rented premises, the owner necessarily benefits to that extent. The corporation, therefore, receives payment of taxes from the tenant on behalf of the owner or the owner can be said to have constructively paid that part of rent.

26. We have already shown earlier that if this interpretation is not accepted, absurd results may follow. We may high-light this aspect a little further. Suppose, a landlord is owner of two shops adjoining each other and being of the same size and constructed at the same time. He may lease out shop A at a monthly rent of Rs. 350/- plus Rs. 150/- taxes, in all Rs. 500/-. He may equally let out shop B at the same rent. However, the tenant of shop A may give Rs. 500/- to the landlord and the landlord may part with Rs. 150/- by way of taxes to the corporation preserving Rs. 350/- at his net rent: while the other tenant of shop B pays Rs. 350/- to the landlord and by an agreement with the landlord, or even otherwise to accommodate him, he pays Rs. 150/- as taxes directly to the corporation which covers the tax liability of the landlord in respect of the shop premises. Now, if the interpretation canvassed by the learned Advocates of the respondents and Mr. Modi is accepted, annual letting value of shop A for the purpose of municipal taxation would be Rs. 500 x 12 = 6000 while the annual letting value of shop B would be Rs. 350 x 12 = 4,200 only because Rs. 150/- by way of taxes are paid directly by the tenant and not through the landlord though the landlord does benefit to that extent as otherwise he would have been required to part with Rs. 150/- from the rent of Rs. 350/- and the net rent which he would have received would have been reduced to Rs. 200/- per month. Such a situation would be totally arbitrary and discriminatory. In fact, the landlord himself in such a situation would find himself to be discriminated qua his own properties identically situated and identical in nature so far as property taxation goes. The argument put forward by the respondents in this connection that such a result has to follow because of wordings of proviso (aa) cannot be accepted if such a result can be avoided by adopting the interpretation which is more in consonance with the real purpose and intent of the legislature underlying the enactment of the said provision and if such an absurd result can be avoided by putting up reasonable construction as indicated by us earlier on the words 'annual rent received by the owner' as found in proviso (aa).

27. Another absurd result conceivable, as submitted by Mr. Soparkar and Mr. Shelat for the Corporation, could be inclusion of the component in the ratable value in the case of the premises the standard rent of which has come to be fixed and exclusion thereof in respect of a premises the standard rent of which is not fixed. For instance, there could be two shops, identical in every respect. In the case of one shop its standard rent is fixed at Rs. 350 as rent and Rs. 150 as municipal taxes. Let us assume that in view of the agreement between the parties the tenant would pay the municipal taxes directly to the Corporation. By virtue of proviso (A) to Section 2(1A) of the Act, the tax component in the sum of Rs. 150 per month would be included for the purpose of ascertaining the ratable value for the premises in question. The agreed rent of the second shop is also accepted to be Rs. 350 per month by way of rent and Rs. 150 per month by way of municipal taxes. Let us assume that under the agreement the tenant pays the municipal taxes directly to the Corporation. Let us assume that its standard rent is not fixed. If the submission urged before us on behalf of the learned Advocates for the respondents and Mr. Modi as the intervener is accepted, the tax component in the present case cannot be included in the ratable value. The question then would be: Should the tenant of the premises of which the standard rent is fixed suffer simply because he has got the standard rent of the premises fixed under the rent control legislation prevalent in the State? Should the assessment of the ratable value depend on the fact whether or not the standard rent of a rented premises is fixed so far as the tax component is concerned? An absurd result with respect to inclusion of the tax component in the ratable value in respect of these two premises is bound to ensue if the interpretation canvassed by and on behalf of the respondents and Mr. Modi is accepted.

28. One additional aspect also deserves to be kept in view. If this interpretation of the term 'annual rent received' is not put and if narrower and literal interpretation of the term 'received' is adopted, the entire proviso (aaa) would be rendered otiose and inoperative. A mere look at provisos (aa) and (aaa) shows that both of them use the same terminology annual rent received by the owner in respect of a building, land or premises. Proviso (aaa) in terms provides that if such annual rent is in the opinion of the Commissioner less than the annual rent for which such building or land or premises might reasonably be expected to let from year to year with reference to its use, then proviso (aa) would not apply. If the interpretation canvassed by the learned Advocates of the respondents and Mr. Modi on the phrase 'annual rent received by the owner' as employed in proviso (aa) is accepted, the illustration which we have given earlier may project the following picture:

Shop B is let out by the owner at monthly rent of Rs. 500/- consisting of two parts: Rs. 350/- rent + Rs. 150/- municipal taxes per month. Let us proceed on the basis that for the purpose of proviso (aa), annual rent received by the owner would be Rs. 350 x 12 = 4200 per year, as Rs. 150/- by way of taxes are directly paid by the tenant to the Corporation and which may be presumed not to enter as component of annual rent as submitted by the learned Advocates of the respondents. In the light, if we read - proviso (aaa), we must give the same meaning to the words 'annual rent received by the owner' as employed by proviso (aaa). If that happens, annual rent received for shop B by the owner would be Rs. 4,200/-. That would always be less than the annual rent for which such building, land or premises may be reasonably expected to let by the owner to the hypothetical tenant from year to year. It is obvious that if a new tenant is to be inducted, the landlord would insist that he gets at least Rs. 500/- by way of rent so that he can take Rs. 350/- net for himself and Rs. 150/- can go to the corporation by way of taxes, and that part will be borne by the future tenant. If that is not so, then in future, the landlord may get only Rs. 200/- net by way of rent if he leased out premises at Rs. 350/- as rent per month and Rs. 150/- are spent by him by way of tax. Therefore, if for the sitting tenant, the owner insists on Rs. 500/- as use and occupation charges or rent to be paid by the tenant, for a future tenant, it cannot be expected that a reasonable and rational landlord who is a man of world would suffer any cut in the rent and would be satisfied with Rs. 350/- all told. Therefore, for a future hypothetical tenant, he would expect at least Rs. 500/- per month which he was getting from the sitting tenant. If that is so, the rent which building or premises can be reasonably expected to let from year to year with reference to its use, would be at least Rs. 500/- per month, that is Rs. 6,000/- per year so far as the second part of proviso (aaa) is concerned. If the first part of proviso (aaa) on the interpretation put forward by the learned Advocates of the respondents would make annual rent received being only Rs. 4,200/- per year, then Rs. 4,200 per year would always be less than Rs. 6,000/- at which the same premises can reasonably be expected to let from year to year by the owner. Consequently, as per proviso (aaa), proviso (aa) would get excluded if part of rent which is directly paid by the tenant by way of taxes to the Corporation, is excluded from the phrase 'annual rent received by the owner' as employed in the first part of proviso (aa) as well as proviso (aaa) and there would not be a single case in which such an eventuality, clause (aa) can ever apply and almost automatically the Commissioner will have to form the opinion that annual rent received by the owner is less than rent at which premises are reasonably expected to let from year to year with reference to its use by the landlord to a future hypothetical tenant. Such construction which makes the provisions of proviso (aaa) totally otiose has to be avoided. This is the additional reason why we are not in a position to accept the narrow construction canvassed by the learned Advocates of the respondents and Mr. Modi for the phrase 'annual rent received' as employed by the legislature while enacting provisions (aa) and (aaa) to Section 2(1A).

29. This leaves out consideration of one submission canvassed by Mr. Modi for the intervener. He submitted that if annual letting value has to include tax component on which property tax is to be levied, it would amount to double taxation and even on that ground, the construction canvassed by him should be accepted. It is not possible to agree with this contention for the simple reason that as interpreted by a catena of Supreme Court decisions, decisions of this Court and also by Bombay High Court, noted earlier of 'annual letting value' takes in its sweep the total consideration which a tenant pays to the landlord for occupying the said premises. That would be annual rent at which the premises are let or are reasonably expected to let. Once that yardstick is determined, property tax is to be worked out in the light of annual letting value based on annual rent. The charge of property tax levied on the premises under Section 127 gets fastened on the premises in the light of its annual letting value, so computed. This is the property tax levied on the premises for the first time. On that property tax, so determined, there is no question of levying any further tax on such tax. It is true that for determining annual letting value, the tax burden which the tenant bears does enter consideration, but that enters as part of the rent which the tenant pays to the landlord and not as tax as such. Consequently, there will never arise any occasion for living property tax on property tax, as submitted by Mr. Modi for the respondents. In this connection, we may usefully refer to a Division Bench judgment of this Court in the case of Liberty Talkies v. State, 8 GLR 609. In that case, the Division Bench consisting of P.N. Bhagwati and N.G. Shelat, JJ. had to consider the term 'payment for admission' as employed by Sections 2(b)(iv), 3, 4(1) and 4(2) of the Bombay Entertainments Duty Act. Entertainment duty under the said Act was payable being payment for admission to entertainment. The submission before the Division Bench was that when entertainment duty is payable on fees which the cinema owner collected for admission to cinema theatre, the amount collected by the petitioners-cinema owners on account of entertainment duty from the spectators should not be taken into consideration for computing entertainment duty as it would amount to double taxation or duty on duly. Repelling this contention, it was held that under the Act, liability to pay entertainment duty was on the proprietor of a cinema house. Even though on ticket, he mentioned two figures: Re. 1/- for ticket and 20 paise for entertainment duty, in substance, payment of entertainment duty made to the proprietor was Rs. 1.20. That was the total consideration which a cinema goer paid to the proprietor. Therefore, it was payment for entertainment and on that total figure of Rs. 1.20 entertainment duty was payable and it was not duty on duty. The argument of the petitioners that the proprietor was acting as agent of the Government for collecting the entertainment duty from the purchaser and that the payment made by the purchaser was, therefore, a payment of the entertainment duty and it was accordingly not liable to be regarded as payment for admission so as to attract the charge of entertainment duty under Section 3 of the Act was not accepted and it was held that he was primarily liable to pay duty to the government for having conducted entertainment programmes, but so far as spectator was concerned, he was paying Rs. 1.20 for taking admission to entertainment and, therefore, entertainment tax can be paid on the entire amount of Rs. 1.20 In para 3 of the report, Bhagwati, J. highlighted this position and observed:

"The amount charged by the proprietor on account of the entertainment duly is an amount which has to be paid by the purchaser for securing admission to the entertainment and it is, therefore, a payment for admission within the plain natural connotation of the expression. Taking the illustration given in the course of the argument, where the proprietor charges one rupee 20 paise to the purchaser, out of which rupee one is specifically for admission to the entertainment and 20 paise is on account of the entertainment duty, not only is rupee one a payment for admission but 20 paise is also a payment for admission, for without payment of 20 paise the proprietor would not admit the purchaser to the entertainment and the payment of 20 paise is made by the purchaser for securing admission to the entertainment. Both the payments, one of rupee one and the other of 20 paise are, therefore, payments for admission and under Section 3 entertainment duty would be leviable on both the payments. It is also possible to regard payment on account of the entertainments duty as a payment falling within Section 2(b)(iv). Section 2(b)(iv) refers to a payment for any purpose whatsoever connected with an entertainment which a person is required to make as a part of attending or continuing to attend the entertainment in addition to the payment, if any, for admission to entertainment. Now entertainment duty is certainly connected with the entertainment and a payment made by the purchaser on account of the entertainment duly would, therefore, be a payment for a purpose connected with the entertainment and since the purchaser is required to make such payment as a condition of attending the entertainment, it would be a payment for admission within the meaning of Section 2(b)(iv). Moreover, it may be noticed that if the amount charged on account of entertainment duty is not shown separately but is merged in the price of admission and the price of admission is fixed as one single composite amount, the whole of it would admittedly be a payment for admission; then the principle why should it make any difference if the price of admission is split up and the amount charged on account of entertainment duty is separately shown. The character of the payment cannot change according as it included as part of the price of admission or is shown as a separate item. If it is payment for admission in the one case, it must be payment for admission in the other."

30. In para 5 of the report, the argument by the petitioners that levy of duty on Rs. 1.20 would amount to duty on duty was sought to be repelled by the State authorities by submitting that the liability to pay entertainment duty which is levied on payments for admission, is not that of the purchaser vis-a-vis the State but it is that of the proprietor and when the proprietor recovers an amount from the purchaser the latter is liable to pay the same merely as apart of the price for admission which he pays to the proprietor in order to cover the entertainment duty payable or paid by him. The said argument of the State authorities was accepted in para 7 of the report on the conjoint reading of the section and rules and it was held that:

"When the proprietor recovers such amount from the purchaser, he does not levy or collect entertainment duty from the purchaser but what he does is to increase the price for admission so as to ensure that he will not be the loser by having to pay entertainment duty levied upon him by the Act. He passes on the entertainment duty to the purchaser and the purchaser pays it not as entertainment duty but as part of the price for admission and it is, therefore, chargeable to entertainment duty under Section 3."

In para 10, it was concluded that the entertainment duty was payable by the petitioners not only on the amount shown by them in the tickets as the charge for admission but also on the amount charged by them to the purchasers on account of the entertainment duty.

31. A similar situation obtains in the present cases. Property tax liability is primarily on the landlord. When by contract of tenancy, a tenant is made to bear the burden of property tax, the tenant bears the burden not as tax payer simpliciter but as occupier of the premises and as part of consideration for such occupation and, therefore, that burden borne by him becomes component of rent. What a landlord collects from the tenant directly or what a tenant pays directly to the Corporation by way of tax, would nevertheless remain in the domain of rent which the tenant pays or becomes out of pocket to that extent and that is the consideration for occupying the tenanted premises. The property tax is thereafter worked out on the basis of annual rent which is comprising of both components, viz. annual rent plus tax burden borne by the tenant and on that basis, primary liability of the landlord to pay property tax is worked out. As in the case of entertainment duty, the duty components borne by a spectator remains part of payment for entertainment. Similarly, tax components borne by the tenant also remains part and parcel of rent paid by him to the landlord for the purpose of occupying rented premises. As in the former case, duty can be levied on the total amount paid by the spectator for getting entry in the cinema hall, similarly in the present cases, tax components of the rent for continuing to occupy rent for rented premises could also legitimately be taken into consideration for computing the property tax leviable primarily from the landlord by the municipal authorities. In the former case, as there is no duty on duty, similarly in the present cases also, there would not be tax on tax but it is tax for the first time to be levied by the Corporation from the person primarily liable to pay tax by correctly computing the annual rent of such premises and, therefore, consequential annual letting value for the purpose of property tax. The last submission of Mr. Modi is, therefore, without any substance and is rejected.

32. These were the only contentions canvassed by the learned Advocates of respondents and Mr. Modi and as there is no substance in any of them, the result is that these contention fail and stated rejected.

33. The upshot of this discussion is that taxes which are paid directly by the tenant to the corporation or paid through the landlord to the corporation authorities can rightly be treated an components of annual rent and, therefore, can form part of annual letting value as defined by Section 2(1A) of the Act. The first point, therefore, will have to be answered in the affirmative in favour of the appellant corporation and against the respondents.

34 to 36. 

Order accordingly.

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