ivil Appeal No 2225 of 1966
Appeal from the judgment and order dated August 6 1965 of the Madras High Court in Writ Appeal No 356 of 1964
907 KK Venugopal and R Gopalakrishnan for the appellant
Lily Thomas for respondent No 3
section Govind Swaminathan Advocate General for the State of Tamil Nadu ES Govindan and AV Rangam for respondent No 8
The Legislature of the State of Madras enacted the Madras Buildings Lease and Rent Control Act 1960
Section 4 of the Act insofar as it is relevant provides  1 The Controller shall on application by the tenant or the landlord of a building and after holding such inquiry as the Controller thinks fit fix the fair rent for such building in accordance with the principles set out in sub section 2 or in sub section 3 as the case may be and such other principles as may be prescribed
2 3a The fair rent for any non residential building shall be at nine per cent gross return per annum on the total cost of such building
b The total cost referred in clause a shall consist of i the cost of construction as calculated according to such rates for such classes of non residential building as may be prescribed less the depreciation at such rates as may be prescribed ii the market value of that portion of the site on which the non residential building is constructed and shall include such allowances as may be made for considerations of locality in which the non residential building is situated features of architectural interest accessibility to market nearness to the railway station and such other amenities as may be prescribed and of the purpose for which the non residential building is used
Provided that such allowances shall not exceed twenty five per cent
of the cost of construction as calculated in the manner specified in sub clause 1
908 Section 34 confers upon the State Government power to make rules to carry out the purposes of the Act
Pursuant to the authority conferred by the Act the State Government has published rules
Rules 11 to 14 deal with classification of nonresidential buildings calculation of the cost of construction of the different classes of non residential buildings allowance for amenities in respect of non residential buildings and calculation of depreciation of non residential buildings
Rule 11 provides  r 11 1 Non residential buildings shall be classified into two categories namely  i Factories and godowns and ii other non residential buildings
2 The non residential buildings belonging to the category specified in sub rule 1ii shall be classified into four different classes according to the classifications laid down in rule 8 in respect of residential buildings
r 12 1 The cost of the construction of nonresidential buildings belonging to the category specified in rule 111i shall be calculated at the rate of 62 naye Paise per cubic foot of the cubical content of the building
2 The cost of construction of the different classes of non residential buildings belonging to the category specified in rule 111ii shall be calculated at the rates specified below  Class I Ground Floor 
Rs 16 per square foot of plinth area
First Floor 
Rs 13 per square foot of plinth area
Second Floor 
Rs 12 per square foot of plinth area
Class II Ground Floor
Rs 13 per square foot of plinth area
First Floor 
Rs 10 per square foot of plinth area
Second Floor 
Rs 9 per square foot of plinth area
Class III Single Storeyed 
Rs 10 per square foot of plinth area
Class IV Single Storeyed 
Rs 5 per square foot of plinth area
In case of every additional floor higher up the rate per square foot shall be one rupee less than the rate per square foot for the floor immediately below
 r 13 When calculating the cost of construction of non residential buildings allowances shall be made for the following amenities in addition to those specified in section 43 1 air conditioning 2 lifts 909 3 electric fans 4 tube lights 5 number of electric points 6 fans 7 ventilators 8 electric pump for water 9 flush outs 10 fixed wash basins 11 stair cases 12 out houses 13 cattle sheds 14 garden or vacant ground appurtenant to the building enjoyed by the tenant and 15 usufructs of trees if any enjoyed by the tenant
r 14 The depreciation of buildings shall be calculated at the rates specified in Schedule II
Dr KC Nambiar is the tenant of 2137 Purasawalkam High Road Madras at a monthly rental of Rs 187 50
He conducts a nursing home in the premises
The landlord of the premises applied to the Controller claiming that fair rent of the premises in the occupation of Dr Nambiar be fixed at Rs 2575 per month
Dr Nambiar applied to the High Court of Madras for a writ of prohibition against the Controller from proceeding with the application for fixation of fair rent
He pleaded that the rules framed by the State Government in exercise of the power vested in them by section 4 were inconsistent with the intention and ambit of the Act and were on that account invalid
The petition was heard by a single Judge with several other petitions in which the validity of the rules was challenged
The learned Judge passed an order dismissing the petition and the order was confirmed in appeal by the High Court
Dr Nambiar has appealed to this Court with certificate granted by the High Court
It was urged on behalf of Dr Nambiar before the High Court that the expression cost of production in sub section
3 of section 4 means the cost of the original construction and the landlord was not entitled to claim that the fair rent be fixed on the basis of cost which may be estimated to be incurred for reproducing a similar building at the date of the application or the date on which the Act was brought into force
The learned Single Judge rejected the contention
He observed that the statutory sense in which the word cost  or the phrase total cost  is used in sub section 2a is not the original cost or the original expenditure incurred for the construction of the building Total cost  910 in section 42 is a composite concept consisting of three components out of which the cost of construction for the purpose of arriving at the total cost is to be calculated according to the rates prescribed for each class of building Prescribed and not the initial expenditure incurred in the construction
The learned Judge proceeded then to observe  Normally the notion of depreciation is a subsequent fall in value or reduction of worth due to deterioration arising from age use and other causes and it is
deducted from the last value of the building as reduced by previous depreciation
But the depreciation calculated at the prescribed rates is under section 42 b to be deducted from the cost of the construction as calculated according to the rates prescribed
When the cost of construction is arrived at on such basis the depreciation at the prescribed rate is to be deducted therefrom backwards
This mode of deduction of depreciation is No doubt a reverse process
But there seems to be nothing strange in such a manner of arriving at the cost of construction  The High Court in appeal observed In the first place we are of the opinion that the language of section 4 itself is clear that what the legislature has in mind on the question of the cost of construction is what has been specified under the rules and Sch
The very fact that section 42bi provides that the cost of construction is to be according to such rates for such class of residential buildings as may be prescribed shows that it is not actual cost of construction but it is the cost of construction which can be determined on the basis of rates as may be specified
The words such rates for such classes of residential buildings as may be prescribed clearly carry with it the conception of the fixing of a statutory rate which may or may not have any relation to or connection with th e actual investment
Again the provisions of allowance with regard to considerations of locality features of architectural interest and such other matters for which allowance is made at a percentage not exceeding 10 of the cost of construction is to be determined as on the date when the Act came into force and not the actual original investment
We seen no warrant to hold that the Legislature intended to make a vital difference between the valuation of the site which is the market value and the cost of construction of the building which is the original cost of construction or investment as contended for by Mr Nambiyar
 911 These observations interpreting sub section
2 of section 4 apply also to the interpretation of sub section
3  of section 4 because the relevant provisions in regard to determination of the cost of construction of nonresidential buildings are identical
By sub section
1  of section 4 the Controller is invested with authority to fix fair rent of buildings in respect of which an application is made in accordance with the principles set out in sub sections
2  3 and such other principles as may be prescribed
Under sub section
3  fair rent of any non residential building is to be computed at nine per cent of the gross return per annum on the total cost of such building and the total cost of the building is to consist of three components 1 the cost of construction ii the market value of the portion of the site on which the non residential building is constructed and iii such allowances not exceeding 25 of the cost of construction as may be made for locality features of architectural interest accessibility to market nearness of a railway station and other amenities as may be prescribed
On behalf of Dr Nambiar it is urged that the cost of construction only means cost incurred for constructing the building when it was put up and the cost of such additions as may have been subsequently made
On behalf of the landlord and the State of Madras it is urged that the expression cost of construction means the cost of reproducing a similar building at the date on which the Act was brought into force and therefore in determining fair rent the Controller must determine for the purpose of section 43bi the cost of such reproduced building according to rules in that behalf and deduct therefrom the depreciation at the prescribed rate
In other words it is intended to determine under sub section
3 b i the market value of the structure at the date of the enactment of the Act
The Legislature has used in sub section 3 b i the expression cost of construction and in sub section
 3   b   ii  market value
It is difficult to accept that the Legislature has used two different expressions for providing that the market value of the building and market value of the site shall form components of the total cost of a building
In Black section Law Dictionary 4th Edn
at p 415 cost it is stated means the amount originally expended in performing a particular act or operation or for production or construction as of a building
 There is not infrequently great difference between the cost of an article and the value  of an article
Cost of an article in terms
of money is what the owner has
expended to obtain it the value of the article is ordinarily its market value in a market actual or hypothetical
It may be conceded that the expression cost is sometimes used as meaning the value of an article
But the expression cost of construction in sub section 3 bi for determining the first component when used in juxtaposition with LI 5Sup
CI69 14 912 the expression market value in sub section 3b ii is in our judgment used to denote not the market value but the cost of the original construction
There are inherent indications in cls
i ii and iii of sub section
3 which go to prove that the expression cost of construction was not intended to
mean the market value
The expression cost of building includes not only the expenses incurred for constructing the building but also the value of advantages which the site of the building offers such as accessibility to markets nearness to a railway station special amenities and features of architectural interest
If the expression cost of construction is equated with the market value it would necessarily include the special advantages of its situation amenities and its architectural features
But the Legislature has provided for including in the cost of the building apart from the cost of construction the value of allowances for favourable situation amenities and architectural features
That is a ground for holding that the value of allowances is not included in the cost of building
Amenities such as air conditioning lifts electric fans tubelights number of electric points fans ventilators electric pump for water flush outs fixed wash basins stair cases out houses cattle sheds garden or vacant ground appurtenant to the building enjoyed by the tenant and usufructs of trees if any enjoyed by the tenant will also be included in the cost of building as allowances
But many of these amenities would be taken into account in determining the market value of the building
The learned Advocate General appearing on behalf of the State of Madras was unable to explain why the Legislature in the determination of the cost of building for arriving at the fair rent if the view expressed by the High Court is correct enacted that these allowances should be included twice once as part of component i and again as part of component iii
The learned Trial Judge has rightly pointed out that in determining the cost of construction if the contention of the State be accepted in determining the first component of the cost of building will be the cost of reproducing the building at a given time reduced by the depreciation computed on the life of the building a process which reverses the normal method of making allowances for depreciation
Again if the meaning of the expression cost of construction were market value it would mean that the market value having regard to the market conditions of real property which may go on changing year after year
But the State has accepted by r 12 the cost of construction is a fixed quantity related to the date on which the Act was brought into force
Therefore by prescribing the rate at which the cost of construction is to be determined under r 12 the expression cost of construction is neither the original cost nor the value of the building at a given time during the life of 913 the Act but an artificial value related to the assumed cost of construction on the date on which the Act was enacted
The Advocate General however submitted that in respect of old buildings it may not be possible to ascertain what the cost of construction of a particular building was
But that argument cannot support an interpretation which the plain words used by the statute do not warrant
Counsel for the appellant pointed out that PWD rates in respect of different classes of buildings for many years are available and it should not be difficult for the Controller having regard to
the PWD rates which would form a fairly reliable basis for determining what the cost of construction of a particular type of building was
The argument that the cost of construction of a building is to be such cost as may be prescribed invites the answer that a provision which without any guidance leaves it to the executive authority to fix whatever that authority thinks is the cost of construction is invalid on the ground of excessive delegation
If the Legislature has sought to confer authority upon the executive to fix the rates and to call them cost of construction the Legislature has abdicated its authority in favour of the executive which in law is not permissible
This however was not the argument which was advanced before the High Court for it was the case of the State that the rates specified in the rules were rates which were actually prevailing in 1961 in respect of different classes of buildings
It was also urged that allowing depreciation at the rates prescribed in Sch
II to
the rules might unduly depreciate the value of the properties and the landlord may not get a fair return
But it has been a common feature of rent restriction legislation all over India that the landlord is not allowed the benefit of unearned increment of the value of his construction
That is why in practically every statute relating to rent restriction legislation rent is pegged down to either a fixed period or to standard rent which is generally related to the cost of construction originally incurred
We are accordingly unable to agree with the High Court that the Legislature intended by the use of the expression cost of construction and market value used in cls
i and ii of sub section
3 the same concept of determining the value of a building reproduced at the date when the Act came into force and reduced by depreciation at the prescribed rates
Some argument about the true meaning of Note 2 to
II which provides for the standard rates of depreciation was raised before us
The language used in that NOte even as explained by the illustrations is obscure
We are in this case not called upon to determine the meaning of that clause
if the expression cost of construction in sub section
914 3 b i means the cost of construction of the building as originally erected with such additions as may be required to be made for subsequent improvements r 12 which prescribes the rates at which the cost of construction is to be computed plainly goes beyond the terms of the section
The appeal is allowed
The order dismissing the petition is discharged
The Controller will determine the fair rent according to the provisions of the Act uninfluenced by r 12
The appellant will be entitled to his costs in this Court and the High Court
RKPS Appeal allowed


Summary:
By section 4 of the Madras Buildings Lease  Rent Control Act 1960 the fair rent for any non residential building is to be fixed on the total cost of such building and under sub section
3b the total cost is to consist of three components i the cost of construction as calculated according to such rates for such classes of non residential building as may be prescribed less depreciation at such rates as may be prescribed ii the market value of that portion of the site on which the non residential building is constructed and iii such allowances not exceeding 25 of the cost of construction as may be made for locality features of architectural interest accessibility to market nearness to a railway station other amenities as may be prescribed
The State Government framed rules prescribing rates for the calculation of the cost of construction of different classes of non residential buildings
The appellant a tenant of a non residential building applied to the High Court of Madras for a writ of prohibition against the Controller restraining him from proceeding with an application for fixation of fair rent
He contended that the expression cost of construction section 43bi meant the cost of the original construction and not the market value of the structure at the date of enactment of the Act and therefore the rules were inconsistent with the intention and ambit of the Act The High Court dismissed the application
Allowing the appeal HELD The expression cost of construction in sub section
3bi when used in juxtaposition with the expression market value in sub section
3bii is used to denote not the market value but the cost of the original construction
The Legislature could not have used two different expressions for providing that the market value of the building and the market value of the site shall form components of the total cost of a building
If the expression cost of construction is equated with the market value it would necessarily include the special advantages of the situation of the building its amenities and architectural features and there is no reason why these allowances should be included twice
once as part of component i and again as part of component iii
Again if the meaning of the expression cost of construction were market value  it would mean the market value having regard to the market conditions of real property which may go on changing year after year
But the State had accepted by r 12 that the cost of construction was a fixed quantity related to the date on which the Act was brought into force
912 B C G H