ash 1 wp-5279.93 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 5279 OF 1993 The Municipal Corporation of the City of Pune. .. Petitioner Vs Vijay Shrikrishna Behere & Anr. .. Respondents -- Shri A.P. Kulkarni for the Petitioner. None for the Respondents. -- CORAM : A.S.OKA, J. DATE ON WHICH THE SUBMISSIONS WERE HEARD : 19TH NOVEMBER, 2010 DATE ON WHICH THE JUDGMENT IS PRONOUNCED : 18TH JANUARY, 2011. JUDGMENT : . The Petitioner is a Municipal Corporation incorporated under the Bombay Provincial Municipal Corporations Act, 1949 ( hereinafter referred to as “the said Act” ). The dispute in the present Petition relates to a shop being Shop No.2, and a basement ash 2 wp-5279.93 in the building known as “Pradeep Chambers” constructed on the property bearing City Survey No. 813A, Shivaji Nagar, Pune – 411 004. The building was constructed by M/s. Pradeep Constructions in the year 1987-88. After obtaining sanction to the plans, an agreement for sale was executed by M/s. Pradeep Construction in favour of the Respondents. The said Shop No.2 and the basement were agreed to be sold to the Respondents who were placed in possession of the said shop and basement in June, 1988. The area of Shop No.2 which is on the ground floor of the building, according to the Respondents, is 800 sq. ft. and according them, the area of the basement is 900 sq. ft. 2. By an order dated 30 th August, 1988, Annual Rateable Value ( for short “ARV” ) in respect of the basement was fixed by the Petitioner/Corporation at Rs.13,500/-. In the order, it was stated that the area of basement was 736 sq. ft. In the said order, the Petitioner Corporation stated that the area of Shop No.2 was 793 sq. ft. and there was a mezzanine floor admeasuring 354 sq. ft. inside the shop ash 3 wp-5279.93 premises. The ARV of the shop premises was fixed at Rs.21,050/-. On the basis of the said ARV, the bills were directed to be issued to the Respondents with effect from 1 st July, 1988. Being aggrieved by the said order, the Respondents preferred an appeal under Section 406 of the said Act before the Court of the Small Causes at Pune. The Respondents adduced evidence by examining the 1 st Respondent and one Ratnakar Shankar Bodhani, Architect and Valuer. The learned Judge of the Small Causes Court, Pune, by a judgment and order dated 17 th December, 1990 allowed the Appeal by setting aside the order dated 30 th August, 1988 and directed that the ARV of the Shop premises and the basement together will be Rs. 14,900/-. The learned Judge accepted the opinion of Mr. Bodhani, and the cost of construction of the shop and the basement was fixed at Rs.2,15,000/-. The return on the said amount was estimated at 8.25%. After giving statutory deduction for repairs and maintenance at 15% and depreciation at 15%, the ARV was found to be Rs. 14,902/- which was rounded off to Rs.14,900/-. An appeal was preferred by the Petitioner before the District Court for challenging ash 4 wp-5279.93 the said judgment and order. The learned Additional District Judge has dismissed the appeal. 3. The learned Counsel for the Petitioner submitted that the Respondents acquired the shop and the basement at a price of Rs. 8,50,000/- which fact has been ignored by the Courts below. He submitted that Mr. Bodhani whose opinion was accepted has not taken into consideration the cost of the land and that he has taken into consideration only the cost of construction of the basement and the shop which was sold on ownership basis. He submitted that the Valuer had admitted that he has not seen the document of sale in respect of the suit premises. He submitted that the opinion of Mr. Bodhani could not have been accepted and relied upon for calculating the rateable value. He submitted that in any event, the deduction of 15% made for repairs and maintenance while fixing the rateable value is completely erroneous. He placed on record a decision of the Apex Court in Municipal Corporation for Greater Mumbai & Anr v. Kamala Mills Ltd., [ (2003)6 SCC 315 ]. None ash 5 wp-5279.93 appears for the Respondents and the office noting shows that both the Respondents are duly served. 4. Before dealing with the submissions, it will be necessary to make a reference to the relevant provisions of the said Act. Under Section 127 of the said Act, the Petitioner-Corporation is entitled to impose property taxes apart from the other taxes. As far as determination of the ARV is concerned, there are rules framed which form part of the Schedule-D to the said Act. The Taxation Rules form part of Chapter VIII of the Schedule-D. Rule 7 of the Taxation Rules is relevant. Sub-rule (1) of Rule 7 thereof reads thus:- “7(1) In order to fix the rateable value of any building or land assessable to a property tax, there shall be deducted from the amount of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten per cent of the said annual rent, and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever.” ash 6 wp-5279.93 Thus, Sub-rule (1) of Rule 7 contemplates that with a view to fix the rateable value of the building or the land assessable to a property tax, the annual rent for which the land or the building might reasonably be expected to let from year to year is required to be determined. A sum equal to 10% of the said annual rent is required to be deducted in lieu of all allowances for repairs or on any other account whatever. The building has been defined under Clause 5 of Section 2 which reads thus:- “(5) “building” includes a house, out-house, stable, shed, hut and other enclosure or structure whether of masonry, bricks, wood, mud, metal or any other material whatever whether used as a human dwelling or otherwise, and also includes verandahs, fixed platforms, plinths, doorsteps, walls including compound walls and fencing and the like.” The test laid down by the Apex Court in its various decisions is that the standard rent payable in terms of the relevant rent control legislation will be the upper limit of the hypothetical rent contemplated by Sub-rule (1) of Rule 7 of the Taxation Rules. ash 7 wp-5279.93 5. For determining the standard rent or the hypothetical rent in respect of basement and shop premises, one method available is the comparison method. On the basis of the rent in respect of a comparable premises, hypothetical rent of the property in question could have been fixed. The other method which can be adopted is the Capital Value Method which requires estimation to be made of the current value of the property on the basis of the cost of construction. Thereafter, the net return has to be worked out by adopting the appropriate rate of return. After determining the hypothetical rent by one of these two methods, 10% statutory deduction will have to be made as contemplated by Rule 7(1). 6. Now turning to the facts of the present case, the Respondents have relied upon the second method (Capital Value Method ). It must be stated here that the Respondents in the Memorandum of Appeal filed before the Court of Small Causes have come out with a case that the cost of construction was Rs.2,50,000/-. ash 8 wp-5279.93 In the evidence recorded before the Court, the 1 st Respondent stated that the cost of construction was Rs.2,25,000/-. The 1 st Respondent admitted that he paid the price of Rs.8,50,000/- for the shop and basement. Mr. R.S. Bodhani, the Architect and Valuer examined by the Respondents opined that the cost of the construction was Rs. 2,15,000/-. He stated that the construction was of the year 1986-87. He stated that he has calculated the cost of construction on the basis of publication made by the Pune Builders’ Association and the Public Works Department. However, in his evidence, there is no reference made to the nature of construction and the construction material used in the construction of the building in question. In the cross- examination, he stated that the cost of construction material is taken as per the market rate declared by the Builders’ Association, the Public Works Department and the M.E.S. The Courts below have proceeded on the footing that the cost of construction was Rs. 2,15,000/- when the case of the Respondents was that the cost of construction was Rs.2,50,000/-. The Respondents have purchased the shop and basement on ownership basis. Therefore, the question ash 9 wp-5279.93 whether it is necessary to take into account proportionate cost of land is also not considered by the Appellate Court. There is no reasoning recorded as to why the return is taken at the rate of 8.25%. There are no reasons assigned as to why depreciation was taken as 15% and the deduction on account of repairs and maintenance was taken as 15%. Even if the Capital Value Method is adopted, the rateable value will have to be calculated in accordance with the Sub-rule (1) of Rule 7 of the Taxation Rules which contemplates only 10% deduction on all counts from the annual rent. Therefore, the very basis of computation of rateable value by the learned Judge of the Small Causes Court is erroneous. 7. However, this is a case where an order of remand will have to be passed as the Respondents had adduced the evidence and the present Petitioner did not adduce any evidence. Moreover, an opportunity also deserves to be granted to the Respondents to lead further evidence. An opportunity will have to be granted to both the parties to adduce evidence. ash 10 wp-5279.93 8. Hence, I pass the following order : - (i) The impugned judgments and orders are quashed and set aside and Municipal Appeal No.5 of 1990 is restored to the file of the Court of Small Causes. (ii) Both the parties will be entitled to adduce further evidence. (iii) The learned Judge of the Court of Small Causes shall decide the appeal afresh in light of the observations made in the judgment. (iv) The learned Judge will consider the evidence which is already on record and the evidence which will be adduced by the parties after remand. (v) The Appeal shall be decided afresh expeditiously. (vi) Rule is made partly absolute on above terms. (A.S.OKA, J)