Case: Municipal Corporation Of Greater Bombay Vs. Royal Western India Turf Club

right in allowing the deduction of these expenses also.10. For the relevant year the Club had allotted Rs. 8,66,666/- out of the licence fee of Rs. 13 lacs to the Bombay race-course. Counsel urged that the Club was entitled to a deduction of Rs. 4,33,333/- only as the licence was for a dual purpose, viz., for the premises as a race course and for permission to conduct race meetings on the race-course. It was argued that for the first the burden would be on the lessor and for the second on the tenant. The licence Ex. B shows that it was granted to the Committee of the respondent Club. The licence is not a joint licence in favour of the Corporation and the Club. The application for it was made by the Committee on behalf of the Club and not by the Municipal Corporation. If the licence was for a dual purpose prima facie the landlord would either apply separately or join the Club in the application. The licence shows that the application was for "horse racing in the race courses leased by them" at Mahalaxmi, Bombay and in the Cantonment at Poona. The licence is "granted to the licencees" . "to hold horse races on the said race courses" Condition 1 of the licence prescribes that the Club could hold only 36 race meetings in a year out of which not more than 16 should be allotted to the Poona race-course. The licence is clearly permission to run race meetings on the two race-courses and not an instrument licensing the premises as a race-course. It is manifest that since it is the tenant who would hold the race-meetings the fees payable for the licence is his burden and not that of the lessor. Mr. Desai, however, contended that the scheme of the Bombay Race-Courses Licensing Act, III of 1912 is to license the premises and then to licence the person who runs races on such premises. He relied strongly on the long title of the Act which states that it was an Act to provide for the licensing of race-courses in the State of Bombay. Reliance was also placed on Section 3 (1) which provides that no horse-race shall be held on a race-course for which there is no licence for horse-racing in force. But the charging section is Section 4 under which the owner, the lessee or the occupier of a race-course can apply for a licence for horse racing on a race-course.The licence for horse racing and the obligation to obtain it and to pay the fees therefor is on the person who conducts the business of running the race-course for horse-racing. Such a person can be either the owner, the lessee or the occupier of such a race -course. What Section 3 does is to prohibit horse racing on a race-course unless a licence for horse racing has been obtained in accordance with the provisions of the Act. There is no provision in the Act which Mr. Desai could point out which lays down any licence fee for a race-course. There is therefore nothing in the Act to warrant the construction that the licence obtained under Section 4 has a dual purpose-as contended.Therefore there can be no justification for dividing the burden of the licence fees between the tenant and the landlord. Mr. Desai, however, argued that even so, the respondent-Club was not entitled to claim the deduction of the licence fees because it was not the Club but its Committee which applied for and obtained the licence. The Articles of Association empower the Committee to act in all matters on behalf of the Club. The Committee applied for and obtained the licence on behalf of and as the agent of the Club. The fees were expended on behalf of the Club and as expenses of its business and it is the Club and not the Committee which is licensed to run horse racing on the race course. The Club was therefore entitled to treat the licence fees as its own expenses and claim deduction therefor on the footing that the fees were expenses incurred by it to earn the receipts.11. As regards the wheel tax and the water tax there is no justification in distributing them on the ground that during the time the race-meetings were not held in Bombay it would be the landlords obligation to pay those taxes. In our view there is no basis for disallowing a part of these taxes. These again were expenses incurred by the Club in the ordinary course of its business and were as necessary as other expenses in connection with its business.12. Counsel for the Corporation lastly urged that if these expenses were allowed to be deducted the net rateable value arrived at would be less than the actual rent of Rs. 3,75,000/- payable by the Club to the Corporation and that such a result cannot be contemplated under any method of assessing the rateable value. It is true that the net rateable value as calculated by the High Court comes to Rs. 1, 94, 175/- but the rateable value need not always be equal to the actual rent. As aforesaid, the measure is what a hypothetical tenant is expected to pay for a lease from year to year taking the property as it exists with all its privileges, advantages and burdens. The leased premises no doubt consist of a large tract of land but it must be remembered that under Cl. (1) (f) of the lease the Club is in exclusive possession of only certain portions and the remainder has to he kept open to the public except on race days and when training of horses is held. A large portion of the land has thus to be kept open for being used as playgrounds for the public. It is therefore not surprising that the rateable value determined by the High Court comes to an amount less than the actual rent payable by the Club.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The profits basis method which the assessing authority has adopted in the present case consists in ascertaining the net annual value of the premises which has to be worked out from the profits which are made or which are capable of being made out of the premises. The gross receipts form the starting point of the calculation and they are those shown in the assessees accounts for the account year concluded last before the making of the proposal. When these have been ascertained, the next step is to deduct therefrom the expenses of earning those receipts, the cost of repairs, insurance and other expenses necessary to maintain the premises in a state to command the hypothetical rent. The remaining balance is divisible between the tenant, that is, the tenants share, the landlord, that is, the hypothetical rent or net annual value and rates. The tenants share is often estimated by applying a percentage to the tenants capital or it. may be directly taken as a proportion of the divisible balance or by applying a percentage to the receipts. (See Halsburys Laws of England, 3rd ed. Vol. 3a, 87-88). It must be remembered that it is not the profits which are rateable; they serve to indicate the rent at which the premises might reasonably be expected to let, particularly where profit is the motive of the hypothetical tenant in taking the hereditament.In the instant case, the profits basis method has been adopted for the last several years and approved by the Small Cause Court in several appeals by the respondent-Club. It appears that at one stage the respondent-Club raised an objection regarding its application to the present case. We need not go into the comparative merits of the different methods or into the question whether it can suitably be applied in the present case or not, as Counsel for the Club stated before us that he was not pressing that objection.We therefore proceed on the footing that this method was properly adopted by the assessing authority. But that does not end the controversy, for, even though the principles on which the profits basis method is worked out are fairly well understood, there is nevertheless bound to be controversy in regard to actual working expenses shown in the assessees accounts. A question would often arise whether these expenses are the hypothetical landlords burden or that of the hypothetical tenant. If they are of the former class, they cannot obviously be claimed as deductible expenses for the hypothetical tenant would not take them into account while offering the rent at which he would take the premises onif 10% statutory deduction were considered inadequate looking to the present rate-of prices the legislature has fixed that percentage as a matter of policy and if it is found to be inequitable or otherwise it is for the legislature and not for the Court to alter it. The question, however, is not the inadequacy of deduction allowed in Section 154 (1) but as to which are the costs of repairs contemplated by theis therefore no question of any duplication if expenses incurred by the Club for the maintenance of the Course were to be allowed as a proper deduction. The High Court was therefore right in deducting those expenses from the gross receipts.8. Next is Item 9 which comprises expenses for the upkeep and repairs of the totalisator set up by the Club. The totalisator is an apparatus or a mechanical device for registering and showing the total operations and the number of tickets sold to betters on each horse in a race. Obviously it is maintained to ensure efficient and expeditions working of the races. It does mechanically the work which if done by human labour would necessitate employment of a large number of persons. It is almost an indispensable adjunct of a modern race course and is necessary to declare within the short time available to the betters which are the horses on which heavy betting has been done in a particular race and the total amount of betting on each of the competing horses in that race.The expenses incurred in the upkeep and repair of such an adjunct necessary to an efficient race course must necessarily be regarded as the outgoings of the business. The Corporations contention that it is a machinery and its value therefore is not to be included in rating under Section 154 (2) has no merit as it is part of the necessary equipment of a good race course and its upkeep goes to the making ofis nothing in the lease which would show that the lessor had to maintain the track during the time that race meetings were not held in Bombay.Since it is the Turf Club which ran the race meetings it would be the Clubs obligation and not that of the lessor to look after the tracks upkeep and maintenance and therefore it would be the Club which would bear the costs of its maintenance even during the period when race meetings were not held in Bombay. The distribution of these expenses between the tenant ant the landlord made by the assessing authority and the Small Cause Court cannot therefore be supported on any principle nor can it be sustained on the mere ground that race meetings were held in Bombay only for part of the year. The measure in arriving at the net rateable value under Section 154 (1) is what a hypothetical tenant would pay as rent and that would depend upon the amount of profits earned from race-meetings held on the race-course. To arrive at the correct amount of such profit all expenses reasonably and properly incurred which go to the making of the receipts have to be deducted from the grosserceipts. There was no challenge at any stage that these expenses were not properly incurred for the upkeep and maintenance of the race -course. The High Court therefore was right in allowing the deduction of these expensesis manifest that since it is the tenant who would hold the race-meetings the fees payable for the licence is his burden and not that of thethe charging section is Section 4 under which the owner, the lessee or the occupier of a race-course can apply for a licence for horse racing on a race-course.The licence for horse racing and the obligation to obtain it and to pay the fees therefor is on the person who conducts the business of running the race-course for horse-racing. Such a person can be either the owner, the lessee or the occupier of such a race -course. What Section 3 does is to prohibit horse racing on a race-course unless a licence for horse racing has been obtained in accordance with the provisions of the Act. There is no provision in the Act which Mr. Desai could point out which lays down any licence fee for a race-course. There is therefore nothing in the Act to warrant the construction that the licence obtained under Section 4 has a dual purpose-as contended.Therefore there can be no justification for dividing the burden of the licence fees between the tenant and theArticles of Association empower the Committee to act in all matters on behalf of the Club. The Committee applied for and obtained the licence on behalf of and as the agent of the Club. The fees were expended on behalf of the Club and as expenses of its business and it is the Club and not the Committee which is licensed to run horse racing on the race course. The Club was therefore entitled to treat the licence fees as its own expenses and claim deduction therefor on the footing that the fees were expenses incurred by it to earn the receipts.11. As regards the wheel tax and the water tax there is no justification in distributing them on the ground that during the time the race-meetings were not held in Bombay it would be the landlords obligation to pay those taxes. In our view there is no basis for disallowing a part of these taxes. These again were expenses incurred by the Club in the ordinary course of its business and were as necessary as other expenses in connection with itsis true that the net rateable value as calculated by the High Court comes to Rs. 1, 94, 175/- but the rateable value need not always be equal to the actual rent. As aforesaid, the measure is what a hypothetical tenant is expected to pay for a lease from year to year taking the property as it exists with all its privileges, advantages and burdens. The leased premises no doubt consist of a large tract of land but it must be remembered that under Cl. (1) (f) of the lease the Club is in exclusive possession of only certain portions and the remainder has to he kept open to the public except on race days and when training of horses is held. A large portion of the land has thus to be kept open for being used as playgrounds for the public. It is therefore not surprising that the rateable value determined by the High Court comes to an amount less than the actual rent payable by the Club.