Case ID: 1185

Judgment:
Appeals Nos. 125 to 129 of 1957. Appeals by special leave from the judgment and decree dated October 7	 1952	 of the Bombay High Court in Second Appeals Nos. 601 to 605 of 1952. S.T. Desai	 Avadh Behari and B. P. Maheshwari	 for the appellants. A.V. Viswanatha Sastri and A. G. Ratnaparkhi	 for the respondents. March 14. The Judgment of the Court was delivered by SHAH	 J. These five appeals raise a common question about the validity of Rule 2C framed by the respondent the Municipality of Barsi under section 58(j) of the Bombay Municipal Boroughs Act	 1925 hereinafter called the Act. The Lokmanya Mills hereinafter called the appellants are a company registered under the Indian Companies Act holding an expensive area of land City Survey No. 2554 within the Municipal Borough on which are constructed buildings of the factory	 ware houses	 bungalows and other structures appurtenant to the factory. The respondent	 a Borough Municipality constituted under the Act is by section 73	 308 entitled to levy a rate on lands and buildings and also a water rate. Under the rules framed by the Municipality house tax and water tax were levied on buildings and non agricultural lands on their annual letting value at uniform rates whether the purpose was residential	 business or manufacturing. In 1944	 the Municipality resolved to enhance the assessment of lands and buildings within its area. After some correspondence with the Commissioner	 Central Division	 the General Body of the Municipality resolved that the rental value for leaving rates on mills and factories within its limits be fixed at Rs. 40 for every 100 square feet. Notices of this resolution under section 75(b) of the Act were issued and objections to the proposed enhancement were invited from the taxpayers and after obtaining the approval of the Government of Bombay	 the new rules were made operative from April 1	 1947. The rules relevant for the purposes of these appeals are: Rule 2A: "The assessment of house tax on all lands	 buildings and non agricultural lands	 other than Government	 buildings coming under Proviso A of section 73 of the Bombay Boroughs Act of 1925	 at rates mentioned in the Schedule attached to these rules." Rule	 2B: In case Government buildings coming under Proviso A of section 73 of the Bombay Boroughs Act are used beneficially	 the assessment of such buildings shall be made as specified in sub section 2 and 3 of section 74. Rule 2C: As regards Mills	 factories and buildings relating thereto	 the annual letting value shall be fixed at Rs. 40 per 100 square feet or part thereof for every floor. 	 ground floor or cellar and the tax shall be assessed on the said annual letting value	 at the ordinary rate. Explanation: The words "buildings pertaining thereto" include buildings in the compound of the Mills such as ware houses	 godowns	 shops of the mills etc. but does not include residential buildings that is to say bungalows and out houses. Note: Assesstnent shall be made at the ordinary 309 rate on buildings which are not taxed under rule 2C above. The Municipality prepared an assessment list under the new scheme of taxation in respect of factory buildings and buildings relating thereto and issued notices of demand calling upon the appellants to pay house tax and water tax newly assessed thereon. The appellants paid under protest the tax demanded	 and filed five suits in the 'court of the	 Civil Judge	 Junior Division of Barsi to recover the amounts levied by the Municipality in excess of the amounts due under the old scheme. In all these suits	 the principal issue raised was about the validity of rule 2C framed by the Municipality for levy of rates "on Mills	 Factories and other buildings relating thereto". The trial court held that rule 2C was valid and within the competence of the Municipality and dismissed the suits for refund of house tax and water tax. The District Court at Sholapur in appeal declared rule 2C "illegal and ultra vires" and by injunction restrained the Municipality from making any claim or demand for house tax and other taxes from the appellants on the basis of them rule. The High Court of Judicature at Bombay	 set aside the decree of the District Court disagreeing with the view that rule 2C was ultra vires. In these appeals filed with special leave against the judgments of the High Court	 the only question which falls to be determined is whether by rule 2C the Municipality is entitled to collect tax leviable as a rate after computing the annual letting value solely on the area of the factory and buildings related thereto. By section 73	 the Municipality is authorised subject to any general or special orders which the State Government may make in that behalf and to the provisions of as. 75 and 76	 to impose for the purposes of the Act any one or more of the classes of taxes	 amongst which are included a rate on buildings or lands or both situate within the municipal borough and general water rate which may be imposed in the form of a rate assessed on buildings or lands or in any other form. Section 75 prescribes the procedure preliminary to imposing a tax. The procedure for assessing the 310 liability to rates on lands and buildings is prescribed by sections 78 to 84 of the Act which provide for preparation of the assessment list	 its authentication and amendment. When a rate on building or lands or both is imposed	 the Chief Officer causes ail assessment list of all buildings or lands or lands and buildings in the municipal borough to be prepared containing inter alia the names of the owner	 the valuation based on capital or annual letting value as the case may be on which the property is assessed and the amount of tax assessed thereon. The expression "Annual; letting value" is defined in section 3(1) of the Act as meaning the annual rent for which any building or land	 exclusive of furniture or machinery contained or situate therein or thereon might reasonably be expected to let from year to year	 and shall include all payments made or agreed to be made by a tenant to the owner of the" building or land on account of occupation	 taxes	 insurance or other charges incidental to his tenancy. By section 78 sub section (1) cl. (d) and Explanation to section 75	 the rate to be levied on lands and buildings may be assessed on the valuation of the lands and buildings based on capital or the annual letting value. By the rules in operation prior to April 1	 1947	 house tax and water tax were levied as rates in respect of all lands	 buildings and non agricultural lands on the annual letting value (except Government buildings). Even under the new rules	 house tax and water tax continued to be levied in respect of all buildings and	 non agricultural lands as rates: but the rate in respect of buildings falling within rule 2C was assessed on a valuation computed on the floor area of the structures	 and not on the capital value nor on the annual rent for which the buildings may reasonably be expected to let. This was clearly not a tax based on the annual letting value	 for "Annual letting value" postulates rent which a hypothetical tenant may reasonably be expected to pay for the building if let. A rate may be levied under the Act on valuation made on capital or on the annual letting value. If the rate 311 is to be levied on the basis of capital value	 the building to be taxed must be valued according to some recognised method of valuation: if the rate is to be levied on the basis of the annual letting value	 the building must be valued at the annual rental which a hypothetical tenant may pay in respect of the building. The Municipality ignored both the methods of valuation and adopted a method not sanctioned by the Act. By prescribing valuation computed on the area of the factory building	 the Municipality not only fixed arbitrarily the annual letting value which bore no relation to the rental which a tenant may reasonably pay	 but rendered the statutory right of the tax. payer to challenge the valuation illusory. An assessment list prepared under section 78	 before it is authenticated and finalised	 must be published and the taxpayers must be given an opportunity to object to the valuation. By the assessment list in which the valuation is not based upon the capital value of the building or the rental which the building may fetch	 but on the floor area	 the objection which the tax payers may raise is in substance restricted to the area and not to the valuation. Counsel for the Municipality sought to rely upon The Madras and Southern Mahratta Railway Co.	 Ltd. vs The Bezwada Municipality (1) decided by the Judicial Committee of the Privy Council	 in support of the plea that the rate based on valuation in proportion to the floor area is validly levied. By section 81 sub section (2) of the Madras District Municipalites Act	 1920	 a tax for general purposes and a water and drainage tax were to be levied at such fractions of the annual value of lands or buildings or both as may be fixed by the Municipal Council. By section 82 Sub section (2) of that Act	 the annual value of lands and buildings was to be the gross annual rent at which they may reasonably be expected to let	 but by the proviso	 it was enacted that in the case of any Government or Railway building	 the annual value of the premises shall be deemed to be 6% of the total of the estimated value of the land and the estimated present cost of erecting the (1) I.L.R. 312 building subject to certain deductions. The Municipality of Bezwada levied property tax on a piece of vacant land belonging to the Madras and Southern Mahratta Railway Company on the annual value computed at 6% of its capital value. This method of taxation was challenged by the Railway Company on the contention that all methods of valuation other than the method prescribed by the proviso to section 82(2) were by necessary implication prohibited. This contention was rejected because the generality of the sub. stantive enactment was left unqualified except in so far as it concerned the particular subjects to which the proviso related. Open lands were not covered by the proviso and it was competent to the municipality to levy the tax under section 82(2) on the annual value and that value would be determined by any of the recognised methods of arriving at the rent which a hypothetical tenant 'may reasonably be expected to pay for the lands in question. This case has in our judge ment no relevance to the present case. If the Municipality of Barsi had adopted any of the recognised methods of valuation for assessing the annual letting value	 the tax would not	 be open to challenge	 but the method adopted was not a recognised method of levying the rate. ' The High Court relied upon its earlier judgment in The Borough Municipality of Amalner vs The Pratap Spinning Weaving and Manufacturing Co.p Ltd.	 Amalner (1). In that case	 the court negatived the challenge to the validity of the rules similar to those impugned in these appeals. The Amalner Municipality had by rules framed under the Bombay Municipal Boroughs Act sought to levy a rate equal to a per centage of the annual letting value which was computed on the floor area of "mills and factories". The court held that the method of taxation adopted by the Municipality had remained unchallenged for a long time		 that the rules had been sanctioned by the Government and they were not shown to be "capricious	 arbitrary and unreasonable and that the valuation of the property by reference to the floor area was (1) I.L.R. 313 not altogether unknown to the law of rating. The High Court also observed that in assessing the rent 2 which a hypothetical tenant may pay several methods are open to the Municipality and if on examining the cases of all the factory buildings within their jurisdiction	 the Municipality concluded that the rent which the hypothetical tenant may reasonably be expected to pay for those buildings fits in with the rent which they had fixed by adopting the flat and uniform rate the principle of fixing the annual letting value on the basis of the floor area would not be open to challenge. It was assumed in that case that all factory buildings within the area of the Amalner Municipality were. alike in essential features and were intended to be used for purposes which were alike	 and that probably the Municipality may have been satisfied that the principle enunciated in the rule impugned worked out on the whole as a fair basis for determining the valuation of the building in question. In our view	 this approach to a rating problem arising under the Act is not permissible. In any event	 there is no evidence on the record of this case that the factories and "buildings relating thereto" such as ware houses	 godowns and shops of the Mills situate in the compound of the mills	 may be separately let at the uniform rate prescribed ' by the Municipality. The vice of the rule lies in an assumed uniformity of return per square foot which structures of different classes which are in their nature not similar	 way reasonably fetch if let out to tenants and in the virtual deprivation to the rate payer of his statutory right to object to the valuation. Another judgment of the Bombay High Court in Motiram Keshavdas vs Ahmedabad Muncipal Borough (1) calls for reference. It was held in Motiram 's case that a water tax imposed by the Ahmedabad Municipality as a rate not depending upon the value of the property assessed but in lump sum was not a rate for the purpose of section 73(x) of the Bombay Municipal Boroughs Act	 1925 and the rule which authorised the levy of such a lump sum was ultra vires (2) (1942) Bom. L. R.280 40 314 These appeals must be allowed and the decrees passed by the High Court set aside and the decrees passed by the District Court of Sholapur restored with costs in this court and the High Court. One hearing fee. Appeals allowed.

Summary:
The Bombay Municipal Boroughs Act	 1925	 empowered a municipality to levy rates on lands and buildings which were to be assessed on the valuation based on the capital or the annual letting value. The Act defined the annual letting value inter alia as the annual rent for which any building or land might reasonably be expected to let from year to year. The General Body of the Municipality of Barsi framed new rules under section 58 of the Act for levying rates: for all buildings and non agricultural lands the rate was to be levied on the annual letting value	 but for mills and factories and buildings relating thereto it was provided by r. 2C that the annual letting value was to be fixed on the floor area. The Municipality issued notices of demand under the new r. 2C calling upon the appellant (which is a company owning a textile mill) to pay house and water taxes which were assessed as rates which was paid by the appellants under protest. The question to be determined was whether by r. 2C the Municipality was entitled to collect tax leviable as a rate after computing the annual letting value solely on the area of the factory and building relating thereto. Held	 that a rate may be levied by a municipality under the Bombay Municipal Boroughs Act	 1925	 on the valuation made on the basis of capital or on the annual letting value of a building and not on a valuation computed merely on the floor area of the structures	 such a rate was clearly not a tax based either on the capital value or on the annual letting value	 for "annual letting value" postulates rent which a hypothetical tenant may reasonably be expected to pay for the building if let. The Municipality had no power under the Act to ignore the methods of valuation prescribed by the Act	 and to adopt a method not sanctioned by the Act. By prescribing valuation computed on the area of the factory building the Barsi Municipality not only fixed arbitrarily the annual letting value which bore no relation to the rental which a hypothetical tenant may reasonably be expected to pay but rendered the statutory right of the tax payer to challenge the valuation illusory as the objection which the tax payer could raise thereto was in substance restricted to the area of the building and not to its valuation. 307 The rule adopting a flat and uniform rate on the assumption that all factory buildings within the area of a municipality were not alike in essential features and were not intended to be used for purposes which were alike was not permissible under the Act. The vice of the rule lies in an assumed uniformity of return per square foot which structures of different classes in their nature not similar	 may reasonably fetch if let out to tenants and in the virtual deprivation to the rate payer of his statutory right to object to the valution. Rule 20 by the Barsi Borough Municipality under section 58 of the Bombay	 Municipal Boroughs Act	 1925	 was illegal and ultra vires. The Madras and Southern Mahratta Railway Co. Ltd. vs The Bezwada Municipality I.L.R. 	 not applicable. The Borough Municipality of Amalner vs The Pratap Spinning Weaving and Manufacturing Co. Ltd.	 Amalner	 I.L.R. 	 not approved. Motiram Keshavdas vs Ahmedabad Municipal Borough	 	 referred to