Case: Motichand Hirachand &amp; Ors Vs. Bombay Municipal Corporation

2. For consideration of this question a few relevant facts may first be recited. The appellants are the owners of "Fulchand Nivas", a building situate at the corner of what was known at the relevant time as Marine Drive and Sandhurst Road opposite Chowpatty Sea Face, Bombay. The building consists of ground and five upper floors and a terrace; The ground floor and five upper floors of the building were and are let out. For the last few years the Municipal Corporation has been assessing the rateable value of the building as equivalent to the actual rents recovered by the owners. After the rateable value for the year 1956-57 was assessed it was found that the terrace of the building was used for advertising Tata Mercedes-Benz Automobile Trucks and Buses by means of a neon-sign. This was done under an agreement dated February 5, 1957 entered into by the appellants under which the Tata Locomotive and Engineering Co. Ltd., had agreed to pay to the appellant Rs. 800 per month in consideration of their being allowed to display the said advertisement and a further sum of Rs. 700 in consideration of the owners agreeing not to allow any one else to use any portion of the said building for displaying any advertisement save those of the tenants on the ground floor not above the level of the height of the ground floor. The agreement provided also that it would be the owners who, during the continuance of the agreement would pay all existing and future rates, taxes, etc., which would be assessed, imposed, charged or become payable in respect of the said building or the said advertisement except the Municipal Licence fee in respect of said advertisement which would be borne by the Company. On March 3, 1958 the respondent corporation issued a notice under section 167 of the Act informing the owners that the assessment book had been amended and that the amount of the rateable value of the building was increased from Rupees 44,320 to Rs. 64, 685. The appellants thereupon filed a complaint under section 163 (2) of the Act against the said increase and the assessing authority by an order dated February 21, 1959 reduced the rateable value from Rs. 84,685 to Rs. 59,600. In maintaining the increase from Rs. 44,320 to Rs. 59,600 the assessing authority took into account the additional income arising from the said agreement and received by the appellants. The appellants thereupon filed an appeal before the Chief Judge, Small Cause Court Bombay, objecting to the said increase. The Chief Judge disallowed the said increase and directed that the rateable value should be Rs. 44,320. The Chief Judge held that under the said agreement there was no demise or transfer of an interest in the said property in favour of the Committee that the said agreement amounted merely to a licence revocable at any time though subject to the express terms of the agreement and was no more than a grant of a right in gross to display neon-sine outside the property and that the only user of the property was that of a small portion of the terrace used as a base for the said advertisement. He held that it was not any inherent or intrinsic quality of any portion of the property which commanded such a high consideration as the sum of Rs. 1500 per month. Aggrieved by this order the respondent Corporation filed an appeal before the High Court at Bombay. The High Court held that the Chief Judge was in error in holding that the Municipal Corporation was not enticed to take into account income earned by the owners under the said agreement, set aside his order and restored the original value assessed by the assessing authority at Rupees 59,000. The High Court analysed Sec. 154 of the Act and after consideration of the rules as to rating recognised by several decisions both English and that of the High Court itself in Mahad Municipality v. Bombay S. R. T. Corporation, (1961) 63 Bom LR 174   held that the said increase was justified. The appellants then applied for and obtained a certificate under Art. 133 (1) (a) of the Constitution and filed the appeal.

Court's reasoning:
The measure for purposes of rating is therefore the rent which hypothetical tenant, looking at the building as it is, would estimate that which he would offer as rent is not hypothetical but concrete. While estimating the rent which he would be prepared to pay he would naturally take into consideration all the advantages, together with the disadvantages attached to the property, that, is the maximum beneficial use to which he would be able to put the property.In doing so he is bound to take into consideration the tact of the property being situated at an unique place as the instant property undoubtedly is, viz., at the juncture of two of the most prominent roads with the additional advantage of Chowpatty Sea Face being opposite to it where in the evenings and on week-ends, it cannot be questioned, large crowds usually gather. Coupled with this would be the advantage that a neon-sign advertisement can be vividly seen if fixed on the top of the building by people pedestrians and those in vehicles, from fairly tong distances in all directions, especially as the advertisement happens to be a rotating one. There can therefore be no doubt that if a property possesses such an amenity, such amenity is bound to add to its beneficial value and the tenant who desires to take it on lease is bound to take into consideration while making up his mind to the rent which he can profitably offer as to how much income he would be able to derive from exploiting" such an amenity. The measure of the hypothetical rent which such a tenant would offer would thus be the extent of the beneficial use to which he would be able to put the property on its being demised to him4. That being so it seems to us that the question whether an agreement under which such a tenant would be able to exploit the advantageous situation in which the property is situate amounts to a lease or license is totally irrelevant for the purpose of assessing the rateable value. Equally irrelevant is the question whether the income arising from such an agreement is rent or licence fee. To consider such income as irrelevant in the process of rating on the ground that it does not amount to rent but to licence fee is to misconstrue the true measure of the rent expected from the prospective tenantThe tenant would not only take into consideration the actual rent derived from the property but also such other income which he would be able to extract from the situation of the property by exploiting as best as he can the beneficial use to which the property is capable of being put. Therefore, the mere fact that the income from the agreement is not rent but licence fee and therefore Cannot be added to the actual rent fetched by the property does not justify on any principle of rating or any construction of section 154 of the Act, disregard of it while estimating the rent which the property would be expected to fetch5. It is true that the rating was so far made including the year in question on the basis of the actual rent derived from the property. That appears to have been done because of the restrictions under the Bombay Rent Act by reason of which the property cannot be leased at rent higher than the standard rent allowed under the provisions of that Act. Since no hypothetical tenant would pay rent higher than such standard rent the actual rent would ordinarily be the rent expected from a hypothetical tenant. It istrue, as observed earlier, that the hypothetical rent cannot be in view of the rent restrictions higher than the actual rent. But the income arising under the said agreement is not rent realised from letting out any part of the property to the Company but is in consideration of the exclusive privilege granted to it of displaying its neon signadvertisement.It ismanifest that the user thereunder of part of the terrace adds, to the beneficial value of the building. For such user the owner can legitimately expect something extra over and above the standard rent of the building. Though the owner of the building cannot charge rent over and above that which is permissible under the provisions of the Rent Act, there is nothing in that Act which prohibits him from charging an amount from an advertiser in consideration of the privilege of displaying hisadvertisement.A hypothetical tenant therefore, would take into consideration such extra income arising from the special advantage attached to the building and would be prepared to pay over and above the actual rent something in respect of such an additional advantageIt may be observed that it was never argued before the High Court that the agreement whether the said amount was rent or licence fee, added to the beneficial value of the building, that though the roof on the terms of that agreement could not be said to have been demised, what had to be considered under Section 127 (a) for assessing the annual rent of the building was the rent which a hypothetical tenant was expected to pay and not the actual rent, and whether such hypothetical tenant would or would not take into consideration the extra income de rived from the use of the roof for the advertising hoarding over and above the actual rent while deciding what rent he can profitably offer for the building. Such a question not having been raised or decided this decision also cannot assist the appellants7. In our view if the building or a part of it yields an extra income over and above the actual rent derived from it such income on the terms of S. 154 (1) of the Act can legitimately be taken into consideration by the assessing authority while determining the annual rent on the ground that a hypothetical tenant would take such extra income into account while considering what rent he can afford to offer for such building. That being the correct position under S. 154 (1) of the Act, High Court was right in confirming the enhancement of the annual rent from Rs. 44,320 to Rs. 59.600.