Case: Municipal Corpn. Of Greater Mumbai  Vs. Kamla Mills Ltd

The prolonged general strike the textile workers in Bombay affected financial position of all the textile mills in Mumbai and a policy decision was taken by the Government of Maharashtra to permit construction of residences in the industrial zone in the Bombay Metropolitan Region. As a result of the newly adopted policy, textile mills which had extensive land, and were hitherto not permitted to build thereupon, were granted permission to demolish old structures upon the land and construct residential buildings and sell them on condition that the finances thereby generated would be utilised for paying off the dues of the textile employees. Taking advantage of this liberalised industrial policy, the respondent company demolished some of the old structures standing on a part of its land in or about June, 1995 and got plans approved for construction of a new building complex thereupon consisting of three wings A, B and C.4. On 31st January, 1996, the Investigating Officer of themade a Tabulated Ward Report (TWR) 441 proposing a revision of the assessable value of theproperty. The appellant was of the view that the land under the demolished structures forms a suitable buildable plot of land whereupon construction work of the building in phases had been started, and considering the building potential of the land which had become available, the appellant bifurcated the entire plot of land falling within Ward No.G/S 1955(1) into two plots. By another Tabulated Ward Report No. 442 of 31.1.1996 it was proposed that the land under the demolished structures formed from June, 1995 a buildable vacant plot of 15014 sq. mtrs. on which construction had commenced. It was proposed to "treat the whole plot of land admeasuring 15014 sq.mtrs. as plot of land under construction" and to revise its rateable value to Rs. 53,50,990/by adopting a rate of Rs. 3300/per sq. mtr. Consequently, the rateable value of the residual plot was reduced from Rs. 3,70,505/The respondent filed complaints objecting to the proposed revision of the rateable value in respect of both the plots. These complaints were heard by the appropriate officer. By an order made on 12.2.1998, the concerned officer reduced the rateable value by adopting the rate at Rs. 3,300/per sq. mtr. He also accessed the property in two parts i.e.Wing "as plot of land under construction" andWings "as plot of land". He adopted the uniform rate of Rs. 3,000/w.e.f. 1.12.1995. By another order made on 11.3.1998, the appropriate officer of the appellantCorporation fixed the rateable value w.e.f. 1.10.1996. The order made by the appropriate officer of therecords that during the hearing of the complaints though the respondent suggested that the value of the land be determined by taking the rate of Rs. 2500/per sq. mtr., the respondent did not adduce any evidence or reasons for reducing the market rate of the buildable vacant land from Rs. 3000/per sq. mtr. to Rs. 2500/w.e.f. 1.6.1995 by adopting the market rate of land at Rs. 3000/per sq.mtr.5. The respondent filed two appeals before the Small Causes Court. Municipal Appeal No. 367 of 1998 was directed against the order of the Investigating Officer dated 11.3.1998 passed in Complaint No. 140 of 1996/97 fixing the rateable value w.e.f. 1.10.1996. Municipal Appeal No. 370 of 1998 was directed against the order of the Investigating Officer dated 12.2.1998. The Small Causes Court heard the appeals and by a common judgment held that the appellantCorporation was not entitled to revise the rateable value by adopting the market value. It was also held that the Investigating Officer had failed to follow the principle laid down by this Court in the case of The Municipal Corporation of Greater Bombay and M/s. Polychem Ltd. 1974(2) SCC 198), that the rate adopted by the Investigating Officer was excessive and exorbitant, and that the proper rate of assessment should be Rs. 654/per sq. mtr.6. After setting aside the order of the Investigating Officer dated 11.3.1998, the Small Causes Court determined the rateable value of wingw.e.f. 1.10.1996, and for wingw.e.f. the same date. The appellants were directed to issue fresh bills accordingly with a direction to refund the excess amount paid after adjusting against taxes due.7. The appellantCorporation challenged the judgments of the Small Causes Court before the High Court by filing two appeals. First Appeal No. 660/99 against the judgment in Municipal Appeal No. 370/98 was summarily rejected on the ground that no interference was called for. First Appeal No. 659/99 directed against the judgment of the Small Causes Court in Municipal Appeal No. 367/98 was also rejected by taking the view that in Dewan Daulat Raj Kapoor vs. New Delhi, Municipality (AIR 1980) SC 541 ) this Court has laid down that the annual value at which the building can reasonably be expected to let must be limited to the measure of standard rent determined under the Rent Act and cannot be determined on the basis of the higher rent actually received by the landlord from the tenant.8. Being aggrieved by the said two judgments of the High Court, the appellant is before this Court. The appellant filed an application for producing certain additional documents before this Court vide I.A. No. 2 of 2000. It was pointed out that in response to notices issued by the appellantCorporation under Section 155 of the Bombay Municipal Corporation Act, the letters dated 16.12.1999 and 24.12.1999 were received from National Stock Exchange of India Limited and National Securities Depository Ltd., respectively, indicating the actual amounts paid by them for occupation of certain portions of the building known as "Trade World" which had been constructed by the respondent after demolition. Since these documents became available after the High Court had delivered its judgment, the appellants craved leave to rely upon them. This application was allowed by an order dated 3.4.2000 made by this Court.

Court's reasoning:
In our view, the argument is untenable. What we are required to consider is what would a hypothetical tenant be willing to offer as reasonable rent for the premises in question. Upon the premises being offered to be let, there would be a hypothetical tenant; that hypothetical tenant would look at the restrictions applicable under the rent legislation and make a reasonable offer. Section 6 inof the Mumbai Rent Act, therefore, is hardly of relevance. We may examine the question from another angle. It surely cannot be contended that no rateable value can be fixed in respect of the premises occupied by the owner himself. In fact, Section 154(1) of Mumbai Municipal Corporation Act would apply equally to such premises. Even in such a situation, the rateable value has to be ascertained on the basis of what a hypothetical tenant would offer for it as reasonable rent. If Mr.t that Section 6(1) of the Mumbai Rent Act makes the provisions ofe to such premises is accepted, then no taxes would be payable by any owner for. We, therefore, reject thisour view, the contention is unsustainable. No doubt the Bombay Municipal Corporation Act is a legislation for fixing of the rateable value and imposing of property tax, but it nowhere defines what ‘rateable, except in general terms under Section 154(1). If the statute had defined ‘rateablen specific terms, the argument may have been sustainable, as sustained in Griha Yajmanule Samkhya and others (supra). It must be remembered that the principle of ‘standardhas not been invoked by reason of any requirement or declaration under the Municipal Corporation Act, but by reason of the fact that if the rateable value is the reasonable annual rent at which the property may be expected to be let, then we must consider what a hypothetical tenant would be willing to offer as rent for the property let. As has been pointed earlier, the concept of reasonableness would necessarily include the concept of an owner and a tenant who are both law abiding and do not indulge in ‘blackIf there is a rent restriction legislation which imposes a limit on the rent which can be charged, then the concept ofd include that restriction also. This is the reason why in a serious of judgments of this Court it has been laid down that the rateable value is limited by the standard rent determined or determinable under the provisions of the Rent Restriction Legislation. The only exception made was in a situation like Griha Yajmanule Samkya and others (supra), where the Municipal Corporation Act has a detailed method to fix the rateable value. As already noticed by the judgments of this Court, barring the two exceptional cases of Municipal Legislation containinge or deeming clause with regard to the rateable value, it must necessarily be held to be limited by the standard rent determined or determinable under the applicable rent control legislation.We are unable to accept the contention of Shri Singhvi that his case falls within the ratio of Griha Yajmanule Samkya and others (supra). In that case the municipal legislation in Hyderabad specifically contained detailed provisions for fixation of monthly or yearly rent. Examining the statute before it, this Court took the view that the statutory provisions required the tax to be levied on the basis of rateable value as fixed by the Corporation and there was further provision in the Act as to the method or manner of determination of the rateable value. Hence, this Court observed (vide paragraph 35), "the Act mandates that the Commissioner shall determine the tax to be paid by the person concerned in the manner prescribed under the statute and the rules. It is our view that the Act and the Rules provide a complete code for assessment of the property tax to be levied upon buildings within the Municipal Corporation. There is no provision in the statute that the fair rent determined under the Rent Control Act in respect of a property is binding on the Commissioner. The legislature has wisely not made such a provision because determination of annual rent depends on several criteria". We are, therefore, unable to accept the contention of Shri Singhvi in thisthe present case the respondent failed to lead any evidence to show why Rs. 3,000/per sq.mtr. was not a reasonable market value, nor did it adduce any evidence to show that Rs. 2500/per sq. mtr. was the reasonable market value. In the circumstances, Shri Singhvi contends that taking the market value at Rs. 3,000/per sq.mtr. was perfectly justified for assessing the rateable value.Section 11 read with Section 5 (10) (b) of the Bombay Municipal Act, 1947 makes it clear that where premises were let before, on or after the first September, 1940 the first letting rate shall be the standard rent subject to the provisions of Section 11.35. In the present case, as to whether the premises in question were let before first September, 1940, or thereafter, and, if so, what was the first letting rate, is not ascertainable from the record. In the circumstances, Shri Singhvi submits that the other alternative method of finding out the standard rent is "contractors method" which has been judicially approved. Under this method the market value of the land has to be ascertained and reasonable return fixed thereupon to determine the standard rent. This is precisely what was done by the assessor and Collector by taking the market value Rs. 3,000/per sq. mtr. as a fair value with a reasonable return of 12% thereupon. In fact, even the respondent suggested only Rs. 2500/per sq.mtr. as the fair market value and did not raise any dispute with regard to the fair return. The Bombay High Court in Harilal Parekh vs. Jain Coop. Housing Society [AIR 1957 Bom. 207 ] and Saipansaheb Wd. Dawoodsaheb vs. Laxman Venkatesh Naik [57 BLR 413], pointed out that under Section 5 (10) (b) (1) the first letting on first September, 1940 becomes the standard rent subject to the provision of Section 11 of the Act and, when the occasion arises, the Court has the jurisdiction toit under Section 5 (10) (b) (1), where the case falls under Section 11(1)(e) of the Bombay Rent Act. It was also pointed in Harilal Parekh (supra) that the premises were first let after first September, 1940 and the rent shall be equivalent to 6% on the valuation of land and 8.2/3% on the valuation of building.36. It is true that Section 11 of the Rent Act provides that even standard rent can be altered andif there is any structural alteration or change in the amenities. It is urged by Shri Singhvi that demolition of the building and increasing the building potential of the land is one such change contemplated by Section 11 (a). This contention, we are unable to accept. Section 11(a) is intended to enable the Court, upon an application in any suit or proceeding, to modify the standard rent as a result of structural alteration or change in the amenities involving further capital investment of the owner. We do not think that demolition of a building is one such contingency contemplated by Section 11(a) of the Act.37. In the result, though we accept the proposition urged by the respondent that in the facts of the present case the standard rent would be the limit of the rateable value, we find that there was no material produced on record at any stage by the respondent to show what the standard rent was either in respect of the vacant land or in respect of the land on which the building was constructed and demolished, or in respect of the building after it was constructed. We accept the contention of the appellant that the burden of proving this fact, while objecting to the rateable value fixed by the Commissioner, is always on theWe also accept the contention of the appellant that the respondent was less than fair to the appellant in not disclosing that its property had been occupied by National Stock Exchange of India Ltd. and National Security Depository Ltd. and in not disclosing the amounts paid by them. The respondent ought to have disclosed the fact, fairly and fully, and urged the legal contentions open to it based thereupon. These facts would have justified our allowing the appeal fully and restoring the assessment orders made by the appellant officers. However, we are not inclined to do so for the reason that the attention of the parties has not been focused on the core issue, as a result of which, perhaps, there was failure to produce relevant material before the assessor to show what was the standard rent. The interests of justice would require that the issue be reconsidered after giving an opportunity to the respondent to discharge the burden placed upon it under law.