The Court laid down the following principles for
determining rateable value in respect of four categories of
properties involved in these appeals and writ petitions.
[452D]
(A) Where the properties arc self-occupied i.e.
Occupied by the owners:
4. 1. Where the premises are self-occupied and have
not been let out to any tenant, it would still be possible
to determine the standard rent of the premises on the basis
of hypothetical tenancy. The question in such a case would
be as to what would be the standard rent of the premises if
they were lot out to a tenant. Obviously, in such an
eventuality the standard rent would be determinable on the
principles set out in sub-section (1) (A) (2) lb) of Section
6 of the Rent Act. The standard rent would be the rent
calculated on the basis of 7 1/2 per cent or 8.1/4 per cent
per annum of the aggregate amount of the reasonable cost of
construction and the market price of the land comprised in
the premises on the date of commencement of the
construction- [462H; 463A]
4. 2. It is difficult to see how the provision enacted
in sub-section (2) (b) of Section 6 can be applied for
determining the standard rent of the premises when the
premises have not been actually let out at any time. Sub-
section (2) (b) of Section 6 clearly contemplates a case
where there is actual letting out of the premises as
distinct from hypothetical letting out, because under this
provision, the annual rent agreed upon between the landlord
and the tenant at the time of first letting out is deemed to
be the rent for a period of five years from the date of such
letting out and it is impossible to imagine how the concept
of first letting out can fit in with anything except actual
letting out and how the period of five years can be computed
from the date of any hypothetical letting out. It is only
from the date of first actual letting out that the period of
five years can begin to run and for this period of five
years, the annual rent agreed upon between the landlord and
the tenant at the time of first actual letting out would be
deemed lo be the standard rent. Sub-section (2) (b) of
Section 6 can have no application where there is no actual
letting out and hence in case of premises which are
constructed on or after 9th June, 1955 and which have never
been let out at any time, the standard rent would be
determinable on the principles laid down in sub-section (1)
(A) (2) (b) of Section 6. So also in case f premises which
have been constructed before 9th June, 1955 but after 2nd
June, 1951 the standard rent would, for like reasons, be
determinable under the provisions of sub-section (1) (A) (2)
(b) of Suction 6 if they have not been actually let out at
any time since their construction. But if these two
categories of premises have been actually let out at some
point of time in the past, then in the case of former
category, the annual rent agreed upon between the landlord
and the tenant when the premises were first actually let out
shall be deemed to be the standard rent for a period of
five years from the date of such letting out and in the case
444
of the latter category, the annual rent calculated with
reference to the rent at which the premises were actually
let for the month of March 1958 or if they were not so let,
with reference to the rent at which they were last actually
let out shall be deemed to be the standard rent for a period
of seven years from the date of completion of the
construction of the premises. However, even in the case of
these two categories of promises the standard rent after the
expiration of the period of five years or seven years as the
case may be, would be determinable on the principles set out
in sub-section (1) (A) (2) (b) of Section 6. Thus in the
case of self-occupied residential premises, the standard
rent determinable under the provisions of sub-section (2)
(a) or (2) (b) of Section 6 in cases falling within the
scope and ambit of those provisions and in other cases, the
standard rent determinable under the provisions of Sub-
section (1) (A) (2) (b) of Section 9 would constitute the
upper limit of the rateable value of the premises Similarly,
on an analogous process of reasoning, the standard rent
determinable under the provisions of sub-section (2) (a) or
(2) (b) of Section 6 in cases falling within the scope and
ambit of those provisions and in other cases, the standard
rent determinable under the provisions of sub-section (1)
(A) (2) (b) of Section 6 would constitute the upper limit of
the rateable value so far as self-occupied non-residential
premises are concerned. The rateable value of the premises,
whether residential or non-residential, cannot exceed the
standard rent, but, it may in a given case be less than the
standard rent.
[463E-H; 464A-F]
(B) Where the properties are partly self-occupied
and partly tenanted:
5.1. It is the premises as a whole which is liable
to be assessed to property tax and not different parts of
the premises as distinct and separate units. But while
assessing the rateable value of the premises on the basis of
the rent which the owner may reasonably expect to get if the
premises are let out, it cannot be overlooked that where the
premises consist of different parts which are intended to be
occupied as distinct and separate units the hypothetical
tenancy which would have to be considered would be the
hypothetical tenancy of each part as a distinct and separate
unit of occupation and the sum total of the rent reasonably
expected from a hypothetical tenant in respect of each
distinct and separate unit cannot obviously exceed the
standard rent of such unit and the assessing authorities
would therefore have to determine the standard rent with a
view to fixing the upper limit of the rent which can
reasonably be expected by the owner on letting out such unit
to a hypothetical tenant. [466DF]
5.2. Where the case falls within sub-section (2) (a)
or (2) (b) of Section 6, no problem arises, because whether
the distinct and separate unit of which the standard rent is
to be determined is self-occupied or .enanted makes no
difference, for in either case, the standard rent would be
governed by one or the other of these two provisions. So
also in cases falling outside sub-section (2) (a) and (2)
(B) of Section 6, it would make no difference whether the
distinct and separate unit of which the standard rent is to
be determined is self-occupied or tenanted; for in either
case, the standard rent would be determinable under the
provisions of sub-section (1) (A) (2) (b) or (1) (B) (2) (b)
of Section C. But the question is, how is the formula set
out in sub-section (1) (A) (2) (b) or (1) (B) (2) (b) of
Section 6 to be applied? Obviously there would be no
difficulty in applying the
445
formula, if the premises of which the standard rent is to be
determined consist of the entire building. Then the
reasonable cost of construction of the building can be taken
and it can be aggregated with the market price of the land
comprised in the building on the date of commencement of
construction of the building and 7 1/2 percent of such
aggregate amount would represent the standard rent of the
building. But whore the building consists of more than one
distinct and separate units and the standard rent to be
determined is that of any particular unit, the formula may
present some difficulty of application if it is sought to be
applied literally in relation to that particular unit alone
and by itself, because even if the reason able cost of
construction of that particular unit can be ascertained, it
would not be possible to determine "the market price of the
land comprised in the premises on the date of the
commencement of construction" since the entire building and
not merely that particular unit would be standing on the
land and the land on which the building is standing would be
land comprised in the building and it would be irrational
and absurd to speak of it as land comprised in that
particular unit. The formula can, however, be applied for
determining the standard rent of a particular unit by
computing the standard rent of the building in accordance
with the formulas and then apportioning the standard rent so
computed amongst the different units of occupation comprised
in the building on the basis of floor area, taking into
consideration differences, if any, on account of the
situation and condition of the various units and the
amenities provided in such unit. This would be the most
rational way in which the market price of the land comprised
in the building on the date of commencement of construction
can be spread ever amongst the different units of Occupation
comprised in the building. The standard rent of each unit
would have to be determined on the principles set out above
and within the upper limit fixed by the standard rent, the
assessing authorities would have to determine the rent which
the owner may reasonable expect get if such unit were let
out to a hypothetical tenant and in arriving at this
determination, the assessing authorities to take into
account the same factors which have already been discussed
in this judgment while dealing with the question of
assessment of self occupied properties. The sum total of the
rent which the owner may reasonably expect to Bet from a
hypothetical tenant in respect of each distinct and separate
unit o' occupation calculated in the manner aforesaid, would
represent the reasonably value of the building. This formula
for determination of rateable value would apply irrespective
of whether any of the distinct and separate units of
occupation comprised in the building are self occupied or
tenanted.[466G-H; 467A-H; 468A-B]
(C) Where the land on which the property is
Constructed is lease hold land with a restriction that the
lease-hold interest shall not be transferable without the
approval of the lessor:
6.1. Some of these writ petitions and appeals are
concerned with eases where premise have been constructed by
the owners on land taken on sub-lease from a Cooperative
House Building Society which has in its turn taken a lease
from the Government. One of the clauses in the sub-lease
executed by the Cooperative House Building Society in favour
of each of its members provided that the owner who has
constructed pre-
446
mises on the plot of land sub-leased to him cannot sell,
transfer or assign his lease-hold interest in the plot of
land to any one except a member of the Cooperative House
Building Society and even so far as sale, transfer or assign
to a member of the cooperative House Building Society is
concerned, it can not be made except with the previous
consent in writing of the Government which the Government
may give or refuse in its absolute discretion, and in case
the Government choose to give its consent, the Government
would be entitled to claim 50% of the unearned increase in
the value of the land at the time of such sale, transfer or
assignment and moreover, if-the Government so desires, it
would have a pre-emotive right to purchase the plot of land
after deducting 50 per cent of the unearned increase in the
value of the plot of land. This co-tenant in the sub-lease
is clearly a covenant running with the land and even where
hale, transfer or assignment of the plot of land has taken
place with the previous consent in writing of the
Government this covenant would continue to bind the
purchaser, transferee or assignee. [469F-H]
Commissioner of Wealth Tax V. P. N Sikand [1977] 2 SCC
798 referred to.
6.2. Merely because the plot of land on which the
premises are constructed cannot be sold, transferred or
assigned except to a member of Cooperative House Building
Society and without the prior consent of the Government, it
does not Necessarily mean that those can be no market price
for the plot of land. It is not as if there is total
prohibition on the sale, transfer or assignment of the plot
of land, so that in no conceivable circumstance, it can be
sold, transferred or assigned. The plot of land can be sold,
transferred or assigned but only to one from amongst a
limited class of persons namely, those who are members of
the Cooperative House Building Society and subject to the
Rules and Regulations, any eligible person can be admitted
to the membership of the Cooperative House Building Society.
There is also a further restriction, namely that the sale,
transfer or assignment can take place only with the prior
Consent of the Government. But subject to these
restrictions, the sale transfer or assignment can take
place. It cannot. therefore be said that the market price of
the plot of land cannot be ascertained. [470G-H; 471A-B]
6.3. To determine what would be the market price of
the plot of land on the date of commencement of construction
of the premises, one must proceed on the hypothesis that the
prior consent of the Government has been given and the plot
of land is available for sale, transfer or assignment and on
that footing, ascertain what price it would fetch on such
sale, transfer or assignment. Of course when the class of
potential buyer, transferees or assignees is restricted, the
market price would tend to be depressed. But even so, it can
be ascertained and it would not be correct to say that it is
incapable of determination. There is also one other factor
which would to depress the market price and that stems from
the clause in the sub-lease which provides that on sale,
transfer or assignment of the plot of land, the Government
shall be entitled to claim 50% of the unearned increment in
the value of the plot of land and the Government shall also
be entitled to purchase the plot of land at the price
releasable
447
in the market after deducting therefrom 50% of the unearned
increment. since the leasehold interest of the sub-lease in
the plot of land is cut down by this burden or restriction,
the market price of the plot of land cannot be determined as
if the leasehold interest were free from this burden or
restriction This burden or limitation attaching to the
leasehold interest must be taken into account in arriving at
the market price of the plot of land, because any member of
the Cooperative House Building Society who takes the plot of
land by way of sale, transfer or assignment would be bound
by this burden or restriction which runs with the land and
that would necessarily have the effect of depressing the
market price which be would be inclined to pay for the plot
of land. This mode of determination of the market price has
the sanction of the decision of this Court in N.S.. Sikand's
Case (Supra). [471C-H]
In the instant case, therefore, the market price of
the plot of land at the date of commencement of construction
of the premises was ascertainable on the basis of the
formula indicated above notwithstanding the restriction on
transferability contained in the sub-lease and the standard
rent of the premises constructed on the plot of land was
determinable under the pro visions of sub-section (1) (A)
(2) (b) or [1) (B) (2) (b) of Section 6. The argument of the
Delhi Municipal Corporation that in all such cases resort
has to be made to the provisions of sub-section (4) of
Section 9 for determination of the standard rent of the
premises must be rejected [472C-D]
(D) Where the property has been constructed in stages-
(7) When any adulation is made to the premises at a
subsequent stage, three different situations may arise.
Firstly, the addition may not be of a distinct and separate
unit of occupation but may be merely by way of extension of
the existing premises which are self-occupied. In such a
case the original premises together with the additional
structure would have to be treated as a single unit for the
purpose of assessment and its rateable value would have to
be determined on the basis of the rent which the owner may
reasonably expect to get, if the premises as a whole are lot
out, subject to the upper limit of the standard rent
determinable under the provisions of sub.section (1) (A) (2)
(b) of Section 6. Secondly, the existing promises before be
addition might be tenanted and the addition might be to the
tenanted premises so that the additional structure also
forms part of the same tenancy. Where such is the case, the
standard rent of the premises as a whole and within the
upper limit fixed by such standard rent the assessing
authority would have to determine the rent which the owner
may reasonably expect to get if the premises as a whole are
let out as a single unit to a hypothetical tenant and in
such a case, the actual rent received would be a fair
measure of the rent which the owner may reasonably expect to
receive from such hypothetical tenant unless it is
influenced by extra. commercial considerations. Lastly, the
addition may be of a distinct and separate unit of
occupation and in such a case, the rateable value of the
premises would have to be determined on the basis of the
formula laid down for assessing the rateable value of
premises which are partly self-occupied and partly tenanted.
The same principles for determining of rateable value would
obviously apply in case of subsequent additions to the
existing premises. [474C-G]
448
(8) The formula set out in sub-section (1) (A) (2) (b)
and (1) (B) (2) (b) of Section 6 cannot be applied for
determining the standard rent of an addition, as if that
addition was the only structure standing on the land. The
assessing authorities cannot determine the standard rent of
the add structure by taking the reasonable cost of
construction in the additional structure and adding to it
the market price the land and applying the statutory
percentage of 7 1/2 to the aggregate amount. The market
price of the land cannot the added twice over, once while
determining the standard rent of the original structure and
again while determining the standard rent of the additional
structure. Once the addition is made, the formula set out in
sub-section (1) (A) (2) (b) and (1) (B) (2) (b) of Section 6
can be applied only in relation to the premises as a whole
and where the additional structure consists of a distinct
and separate unit of occupation, the standard rent would
have to be apportioned in the manner indicated in the
earlier part of the judgment. [475A-C]
9. Merely because the owner does not produce
satisfactory evidence showing what was the reasonable cost
of construction of the promises or the market price of the
land at the date of commencement of the construction, it
cannot be said that it is not possible to determine the
standard rent on the principles set out in sub-section (I)
(A) (2) (b) or (1) (B) (2)(b) of Section 6. [473]
Supreme Court of India
Dr. Balbir Singh And Ors. vs Municipal Corporation, Delhi And
... on 12 December, 1984
Equivalent citations: 1986 AIR 345, 1985 SCR Supl. (3) 812
Bench: Ray, B.C. (J)
Read full judgment here:click here
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