Case: Dr. K.C. Nambiar Vs. Rent Controller, Madras and Ors

(ii) and (iii) of sub-s. (3) (b) 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 allowance is not included in the cost of building.7. Amenities such as air-conditioning, lifts, electric fans, tube-lights, number of electric points, fans, ventilators, electric pump for water, flush-outs, fixed wash-basins, staircases, 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).8. 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 Rule 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 the Act, but an artificial value related to the assumed cost of construction on the date on which the Act was enacted.9. 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 P. W. D. 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 P.W.D. 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 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.10. It was also urged that allowing depreciation at the rates prescribed in Schedule 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 on 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.11. We are accordingly unable to agree with the High Court that the Legislature intended by the use of the expressions "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.12. Some argument about the true meaning of Note (2) to Schedule II which provides for the standard rates of depreciation was raised before us. The language used in the Note, even as explained by the illustrations, is obscure.13. We are in this case not called upon to determine the meaning of that clause.If the expression "cost of construction" in sub-section (3) (b) (i) means the cost of construction of the building as originally created 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.

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

Explanation:
1[ds]4. By sub-s. (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-ss. (2) and (3) and such other principles as may be prescribed. Under sub-s. (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 - (i) the cost of construction; (ii) the market value of the portion of the site on which the non-resident building is constructed; and (iii) such allowances not exceeding 25 per cent 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.The Legislature has used in sub-section (3) (b) (i) the expression "cost of construction" and in sub-s. (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 9is, 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-s. (3) (b) (i) for determining the first component when used in juxtaposition with the expression "market value" in sub-s. 3 (b) (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-s. (3) (b) 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 allowance is not included in the cost of building.7. Amenities such as air-conditioning, lifts, electric fans, tube-lights, number of electric points, fans, ventilators, electric pump for water, flush-outs, fixed wash-basins, staircases, 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 thelearned 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 componentd 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 componentthat argument cannot support an interpretation which the plain words used by the statute do not, warrant.for the appellant pointed out, that P. W. D. 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 P.W.D. rates which would form a fairly reliable basis for determining, what the cost of construction of a particular type of buildingargument 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 excessiveit has been a common feature of rent restriction legislation all over India that the landlord is not allowed the benefit of unearned increment on 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.11. We are accordingly unable to agree with the High Court that the Legislature intended by the use of the expressions "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.12. Some argument about the true meaning of Note (2) to Schedule II which provides for the standard rates of depreciation was raised before us. The language used in the Note, even as explained by the illustrations, is obscure.13. We are in this case not called upon to determine the meaning of that clause.If the expression "cost of construction" in sub-section (3) (b) (i) means the cost of construction of the building as originally created 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(iii).8. 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 Rule 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 the Act, but an artificial value related to the assumed cost of construction on the date on which the Act wast 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 excessivedelegation. If the Legislature has sought to confer authority upon the executive to fix the rates and 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.