Full Judgment Text
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PETITIONER:
MUNICIPAL CORPORATION OF GREATER BOMBAY
Vs.
RESPONDENT:
M/S POLYCHEM LTD.
DATE OF JUDGMENT20/03/1974
BENCH:
BEG, M. HAMEEDULLAH
BENCH:
BEG, M. HAMEEDULLAH
CHANDRACHUD, Y.V.
CITATION:
1974 AIR 1779 1974 SCR (3) 687
1974 SCC (2) 198
CITATOR INFO :
RF 1977 SC 302 (6,7)
ACT:
Bombay Municipal Corporation Act. 3 of 1888--S. 3(r) and S.
154--Scope of.
Principles for determining rateable value of land on which a
building is partly completed--Doctrine of sterility-
Distinction between English and Indian Law.
HEADNOTE:
The respondent company was owner of a large area of land in
Bombay, on a part of which there was a building under
construction. The bulk of the remaining part was lying
vacant. The Assessor and Collector of the Municipal
Corporation determined the market value of the whole land on
a notional basis and fixed the hypothetical annual rental
value of the portion of land on which a building was being
built as well as the vacant land.
The respondent’s appeal to the Small Cause Court was
dismissed. Applying the doctrine of sterility the High
Court held that although a vacant plot of land was rateable
under- the provisions of the Bombay Municipal Corporation
Act and so was land which bad been built upon, yet, any part
of land which was being actually built upon was not rateable
until the building was finished because no tenant could take
it in that condition.
In the appeal to this Court it was contended on behalf of
the appellant Corporation that the High Court erred in
applying the doctrine of sterility to land rateable under
the provisions of the Act ; that, the High Court overlooked
the essential distinction between the Indian and English law
which was that the basis for determining the rateable value
in India was the value of the property to the owner and not
to the occupier, and, that, every kind of ’land’ as defined
by s.3(r) of the Act was rateable under s. 1 54 of the Act
simply because it had a value to the owner of it and not
because it was yielding any income or was usefully or
beneficially occupied or enjoyed by tenant or any other kind
of occupant paying for the use of it. Allowing the appeal.
HELD : The judgment under appeal is erroneous as it was held
there that land which was being rated as vacant ceased to be
subject to any rating at all simply because a building began
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to be made on it by the owner. The rule of interpretation
that, where two views are reasonably or equally open,. the
court should adopt the one which benefits the assessee would
enable it to do no more than to treat land which is actually
being built upon on the same footing as vacant land so long
as no structure capable of occupation and letting is
completed on it. [702 D-E]
Land which was being built upon should not be rated like
land on which a building has been actually constructed
unless and until the construction had reached a stage at
which some occupation of the constructed portion was also
legally and actually possible so that it could. be taken
into account in determining the rateable value. [701 F]
The doctrine of sterility in the context of the provisions
to be construed could not apply in this case. In England,
land which is in the process of being built upon is equated
with vacant land which is not yielding any profit, so that
it ceases to be "rateable" land. But, under the statute,
all ’land’ whether vacant or in the process of being built
upon is rateable according to well settled principles. [700
A]
West Bromwich School Board v. Overseers of West Bromwich, 13
Q.B.D. 929 @ 942, Mersey Docks & Harbour Board v. Overseers
of Llaneilian,14 Q.B.D. p. 770, The Metropolitan Board of
Works v. The Overseers of West Ham
688
(1870) L.R. 6 Q.B. 193, The Guardians of the Poor of the
Sculcoates Union in the Borough of Kingston- Upon-Hull v.
Dock Company at Kingston-Upon-Hull, 1895 A.C. 136, the
Church wardens & Overseers of Lambeth Parish v.The London
County Council, & 1897 A.C. 625 @ 630-31, London County
Council v. Erith (Churchwardens Overseers of Parish, 1893
A.C. 562.591, held inapplicable.
The principles upon which lands are rated in this country
have been practically settled by the decisions of this Court
which held that the mode of assessment in every case must be
directed towards finding out the annual letting value of
land which is based on rating of land, and, by definition,
"land" includes land which is either being built upon or has
been built upon. A reference to the provisions of the Act
shows that, after a building has been completed, the letting
value of the building which becomes part of the land will be
the primary or determining factor in fixing the annual rent
for which the land which has been built upon "might
reasonably be expected to be let from year to year". All
that s 154 seems to contemplate by mentioning "land or
building" is that land which is vacant or which has not been
built upon may be treated, for the purposes of valuation. on
a different footing from land which has actually been built
upon. The relevant provisions of the Act do not mention and
seem to take no account, for purposes of rating, of any
building which is only in the course of being constructed,
although s. 3(r) of the Act makes it clear that land which
is being built upon is also "land". Hence, so long as a
building is not completed or constructed to such an extent
that, at least, a partial completion notice can be given so
that the completed portion can be occupied or let, the land
can, for purposes of rating, be equated with or treated as
vacant land. It is only when the building which is being
put up is in such a state that it is actually and legally
capable of occupation that the letting value of the building
can enter into the computation for rating. Although the
definition of land, which is rateable covers three kinds of
"land", yet, for the purposes of rating s. 154 recognises
only two categories. Therefore, all land must fall in one
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of these two categories for purposes of rating and not
outside. [699 D-G]
Corporation of Calcutta v. Sm. Padma Debi Ors., [1962] 3
S.C.R. 49, Bengal Nagpur Railway Co. Ltd. v. Corporation of
Calcutta, 74 Indian Appeals 1, Bengal Nagpur Railway Co.
Ltd. v. Corporation of Calcutta, A.I.R 1942 Cal. 455, Polar
Assessment Committee v. Roberts, [1922] 2 A.C. 93, Patel
Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad,
[1964] 2 S.C.R. 608, Municipal Corporation of Greater Bombay
v. Royal Western lndia Turf Club, [1968] 1 S.C.R. 525,
Motichand Hirachand Ors. v. Bombay Municipal Corporation,
[1968] 1 S.C.R. 546, Century Spg. Mfg. Co. Ltd., v.
District Municipality of Ulhasnagar, [1968] 2 S.C.R. 211,
Bombay Municipal Corporation v. L.LC. of India Bombay,
[1971] 1 S.C.R. 335, Guntur Municipal Council v. Guntur Town
Rate Payers’ Association, [1971] 2 S.C.R. 423, referred to.
In the instant case the land which was being assessed as
reteable so long as it was vacant land had been treated as
entirely outside the scope or sphere of rateability just
because a building was being erected upon it. As there is
no provision in the Act which has the effect of conferring
such an immunity or exemption upon land which is being built
upon, it is not possible to uphold the conclusion which
produces such a startling result. [700C]
(The case was sent back to the Assessor and Collector with a
direction that the whole land will be valued for the purpose
of rating in the relevant year as vacant land.)
JUDGMENT:
CIVIL APPELLATE JURISDICTION : CiVil Appeal No. 1828 of
1969.
From the Judgment and Order dated the 4th November 1968 of
the Bombay High Court in Letters Patent Appeal No. 130 of
1964.
Niren De, Y.S. Chitale, S.K. Kadam, P.C. Bhartari and J.B.
Dada chanji for the appellant.
A.B.Divan and LN. Shroff for the respondent.
M.C. Bhandare, B.R. Agarwala Gagrat and Co., Vinay Bhasin
and Janedra Lal for Intervener No. 1.
689
Anil B. Divan A.J. Rana and Ashok Grover for Intervener No.2
The Judgment of the Court was delivered by
BEG, J. This appeal, by certification under Article 133(1)
(c) of the Constitution, is directed against the Judgment of
a Division Bench of the Bombay High Court holding that
although a vacant plot of land is rateable under the
provisions of the Bombay Municipal Corporation Act 3 of 1888
(hereinafter referred to as ’the Act’). and so is land which
has been built upon, yet, any part of land which is being
actually built upon is not rateable until the building is
finished because no tenant could take it in that condition.
In other words the Division Bench upheld what may be called
the doctrine of sterility with which the land was said to
have been struck during the period when a building was being
actually put upon it. The appellant Corporation questions
the applicability of this doctrine to rating of land in this
country.
Before proceeding further we may briefly give the facts and
circumstances in which the question mentioned above arises.
The respondent Company is the Owner of 6652 sq. yds. of land
out of which 450 sq. yds. were deducted for having, fallen
within "the set back line". Out of the remaining area of
6202 sq. yds, 1060 sq. yds. was being built upon at the
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relevant time whilst the remaining 5142 sq. yds, was lying
vacant during the period under consideration. As the
respondent Company did not lead any evidence about the
hypothetical rent of any part of land the Assessor &
Collector of Bombay Municipal Corporation determined the
market value of the whole land as Rs. 62020/- at Rs. 10/per
sq. yd. He then calculated the hypothetical rent by taking
a rate of interest of 31 % per annum as the reasonable
return on this value so that the hypothetical annual rental
value came to Rs. 2170/- From 1-1-1962 the Assessor divided
the plot notionally into two parts one ,of 1060 sq. yds.
which was being built upon and the other of 5142 sq. yds.
which was lying vacant. He then assessed the probable
market value of the plot which was being built upon as Rs
10,600/- at Rs. 10/per sq. yd. but as he considered it
better developed the fixed 5 % per annum interest As a
reasonable return on it for determining its hypothetical
rent which came to Rs. 530/-. For the vacant land also
valued at the same rate the market value was found to be
Rs., 51,420/-, but the annual rate of interest to determine
reasonable return was taken as 31 % only, as was done
previously for the whole land, so, that its hypothetical
annual rent came to Rs. 1800/-. Thus, the total
hypothetical annual rental value of the-land for the period
under consideration came to Rs. 2330/- for both parts
according to what is known as "the contractor’s test".
The respondent company, aggrieved by the assessor’s fixation
of rateable value, had appealed to the Small Cause Court of
Bombay which dismissed the appeal. The respondent company
then appealed to the Bombay High Court under Section 218(D)
of the Act. The appeal was summarily rejected by a learned
Single Judge of that Court. On a further appeal, a Division
Bench of the High Court, after repell-
690
ing a preliminary objection to the maintainability of the
appeal to it by adopting the view that it was not a second
appeal for the purpose of the Letters Patent, held that the
part of the land which was being built upon was not rateable
at all as no tenant could or would take the property in that
condition. Thus, the Division Bench had applied what may be
called the "doctrine of sterility". It observed
"....if there is no tenant who would be
prepared to take the property from year to
year in its then condition, evidently there
can be no tax on the same".
As this doctrine could not apply to the vacant land, the
order of the Assessing authority and the principle applied
by it for rating that portion of the land were upheld by the
Division Bench. No argument was addressed to as on the
question whether an appeal lay to the Division Bench, in the
circumstances of the case. We, therefore, refrain from
considering this question.
Learned Attorney General submitted, on behalf of the
appellant Corporation, that the Division Bench had erred in
applying the English doctrine of sterility to land rateable
under the provisions of the Act. It was contended that the
essential distinction between the Indian and the English
law, overlooked by the Division Bench, was that the basis
for determining rateable value in this country was the value
of the property to the owner and not to the occupier.
Hence, it was urged, every kind of ’land, as defined by
Sectoin 3(r) of the Act, was rateable under Section 154 of
the Act simply because it had a value to the owner of it and
not because it was yielding any income or was usefully or
beneficially occupied or enjoyed by a tenant or any other
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kind of occupant paying for the use of it. It was contended
that, in so far as the rent paid by an actual tenant or that
which a hypothetical tenant would presumably pay for the
land, in the condition it actually was (i.e. "rebus sic
stantibus"), is to be taken into account, this could be done
only for the purpose of determining the value of the land to
the owner and not, as it had been done in England, to its
occupant. This distinction, it was pointed out, logically
flows from the essentially different bases of rateability
adopted in India, where even vacant land was rateable, and,
in England, where vacant land was not rateable at all.
Another contention advanced was that in any case when there
is no evidence about the nature or the extent of the
construction on the land treated as occupied by a building
in the course of construction, it was not possible to apply
the principle that it was withdrawn from the sphere of
rateable land merely because a building was being cons-
tructed over it. The effective reply to this argument was
that it was a matter of admission between the parties that
1060 sq. yds. of the area was covered by a building in the
course of construction. Our attention was drawn to the
statement of facts on behalf of the appellant and also to
the finding of fact that this was the area which could be
treated as land which was actually being built upon. We,
therefore, do not think that there is any point in remanding
the case for any further finding
691
upon this question. We will proceed on the assumption that
the finding. that 1060 sq. yds of land is covered by what is
an incomplete building in the course of construction for the
relevant period is correct.
Learned Counsel for the respondent urged that whatever may
be the other differences the basic principles of rating are
the same both in India and in England as the annual rent
which would be paid by a hypothetical tenant has necessarily
to be determined in order to arrive at the rateable value of
land. According to the respondent, it followed logically
from this principle that land which could not have a hypo-
thetical tenant could have no rateable value. The
submission was that the "contractor’s test" was only one of
the three modes of determining. the annual rateable value.
This method was, it was urged not available at all as a
substitute for determination of the annual hypothetical
rent. It was, according to the respondent and the
Intervener,only a means adopted for determination of the
annual hypothetical rent. The means could not, the argument
proceeds, displace the object or the end itself and
converted into an independent mode of assesing rateable
value.
The learned Counsel relied upon various provisions of the
Act in an attempt to correlate property taxes of which rates
were the primary class to beneficial occupation or in other
words to income yielding capacity as it existed at the time
when the taxes were levied, that is to say, "rebus sic
stantibus".
Section 3(r) of the Act says
"3(r) "Land" includes land which is being
built upon or is built upon or covered with
water banefits to arise out ’of land, things
attached to the earth or permanently fastened
to anything attached to the earth and rights
created by legislative enactment over any
street";
and Section 3(s) says
3(s) "building" includes a house, out-house
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stable shed, hut and every other such
structure, whether of masonry, bricks, wood,
mud, metal or any other material whatever;"
But, section 143 of the Act seems to make a distinction
between "buildings and land" when it says that the general
tax shall be levied "in respect of all buildings and land",
and, thereafter, it continues to mention both, Similarly,
Section 144 mentions "buildings" and "land" as though they
were separate. Section 144(A) goes on to provide :
"144A. (1) Notwithstanding anything contained
in Section 140, the general tax leviable in
respect of any building used for residential
purposes-
(a) completed, or first let out or occupied on
or after the 1st day of April, 1956 ; and
(b) consisting exclusively of tenements the
annual rent of each of which tenements
determined as provided in sub-
692
section (1) of Section 154, does not exceeding
Rs.12 hundered or such lower sum as may be
generally determined by the Corporation,
shall, where an application is made to the
Commissioner in that behalf and for the period
specified in sub-section (2), be-
(i) if such building is owned by or belongs to
a cooperative society registered or deemed to
be registered under the Bombay Co-operative
Societies Act, 1925, seven-tenths of the
amount leviable, under Section 140 in respect
of any other building excepting those referred
to in Section 143 ;
(ii) if such building is owned by or belongs
to any other person, eight-tenths of such
amount,
(2) (a) if any such building was completed, or
first let out or occupied on or before the
date of commencement of the Bombay Municipal
Corporation (Amendment) Act, 1957, concession
in general tax under this Section shall be
available for the period counted from the said
date of commencement upto the 1st day of April
1956.
(b) in all other cases, concession in general
tax under this section shall be available for
the period of ten years counted from the’ date
on which any such building shall be completed,
first let out or occupied, whichever shall be
the earliest.
Explanation-For the purposes of this section,
a building shall be deemed to be com
pleted on
the date on which the permission for its
occupation or use is given or is deemed to be
given under Section 353-A".
Section 353A provides for a notice and completion
certificate to be sent by the builder within one month after
the completion of the building and the procedure for
obtaining the permission by the commissioner for occupying
such building or for the use of it after he is satisfied
that the provisions of the Act and the bye-laws have been
,Complied with. Section 353A.(2) lays down:
"(2) No person shall occupy or permit to be
occupied any such building, or use or permit
to be used the building or part thereof
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affected by any such work, until-
(a) the permission referred to in proviso
(b) to sub-section(1) has been received, or
(b) the Commissioner has failed for twenty-one
days after receipt of the notice of completion
to intimate as aforesaid his refusal of the
said permission".
693
Section 472 gives a list of continuing offences with
specified daily fines.. It indicates that a violation of
Section 353A involves a fine of Rs. 100/-per day. Hence, it
was contended on behalf of the respondent, there can be no
hypothetical tenant of a building of which the law
prohibits. any use or occupation. A building which is in
the course of construction would be, it was urged, a
building in an incomplete state of which. no occupation was
possible by an actual or hypothetical tenant of it.,
There is no doubt that rates belong to the category of
property taxes mentioned in Section 139(1) of the Act.
Section 146 makes, fresh taxes "Leviable primarily from the
actual occupier of the premises upon which the said taxes
are assessed, if such occupier holds the said’. premises
immediately from the Government or from the corporations or
from a fazendar". Section 146(2) makes it clear that in
other cases they are leviable as follows :
"(a)- if the premises are let, from the lessor;
(b) if the premises are sub-let, from the superior lessor;
and
(c) if the premises are unlet, from the person in whom the
right to let the same vests".
Section 146(3) lays down that :
"if any land has been let for any term
exceeding one year to a tenant, and such
tenant or any person deriving title howsoever
from such tenant has built upon the land, the
property taxes assessed upon the said land and
upon the building erected thereon shall be
leviable primarily from the said tenant or
such person, whether or not the pre
mises be
in the occupation of the said tenant or such
person".
Section 147 of the Act provides that, in a case in which the
rateable value exceeds the amount of rent actually payable
in respect of land’ occupied, the lessor is entitled to
receive the difference between the rent which would
otherwise be payable and what is actually payable.Similar
provision is made in case of sub-tenants.The actual method
of valuation is provided by Section 154(1), which runs :
" 154(1) in order to fix the rateable value of
any building or land assessable to a property-
tax, there shall be deducted from the amount
of the annual rent for which such land or
building might reasonably be expected to let
from year to year a sum equal to ten per
centum of the said annual rent and the said
deduction shall be in lieu of all allowances
for repairs or on any other account whatever".
Section 155 provides
"155(1). To enable him to determine the rate
able value of any building or land and the
person primarily liable for the payment of any
property tax leviable in respect thereof the
Commissioner may require the owner or occupier
of such building.
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694
or land, or of any portion thereof, to furnish him, within
such reasonable period as the Commissioner prescribes in
this behalf with information or with a written return signed
by such owner or occupier-
(a) as to the name and place of abode of the owner or
occupier, or of both the owner and occupier of such building
or land; and
(b) as to the dimensions of such building or land, or of any
portion thereof, and the rent, if any, obtained for such
building, or land, or any portion thereof.
(2) Every owner or occupier on whom any such requisition ,is
made shall be bound to comply with the same and to give true
information or to make a true return to the best of his
knowledge or belief.
(3) The Commissioner may also for the purpose aforesaid make
an inspection of any such building of any such building or
land".
Section 156 requires the maintenance of an assessment book.
It says
"156. The Commissioner shall keep a book, to be called "the
assessment book" in which shall be entered every official
year-
(a) a list of all buildings and lands in
greater Bombay distinguishing each, either by
name or number, as he shall think fit;
(b) the rateable value of each such building
and land determined in accordance with the
foregoing provisions of this Act;
(C) the name of the person primarily liable
for the payment of the property-taxes, if any,
leviable on each Such building or land;
(d) if any such building or land is not liable
to be ,assessed to the general tax, the reason
of such non-liability;
(e) when the rates of the property-taxes to be
levied for year have been-duly fixed by the
corporation and the period fixed by public
notice, as hereinafter provided, for
the .receipt of complaints against the amount
of rateable value entered in any portion of
the assessment-book, has expired, and in the
case of any such entry which is complained
against when such complaint has been disposed
of in accordance with the provisions
hereinafter contained, the amount at ’which
each building or land entered in such portion
of the assessment-book is assessed to each of
the property-taxes, if any, leviable thereon;
(f) if, under Section 169 or 170, a charge is
made for water supplied to any building or
land by measurement ,or the water-tax or
charged or water by measurement is
695
compounded for, or if, under section 172, the
halalkhortax for any building or land is fixed
at aspecial rate, the particulars and amount
of such charge, composit ionorrate;"
It is true that the "buildings" and" lands" are mentioned
separately in Sections 154 to 156 of the Act. Section
154(1) implies that the rateable value of any building or
land will be calculated-by determining "the amount of the
annual rent for which such land or building might reasonably
be expected to let from year to year". Section 156(d) shows
that there may be cases in which some building or land may
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not be liable to pay any amount as a general tax. Hence, it
was urged on behalf of the respondent, the doctrine of
sterility could be applied in this country just as it was
applicable in England.
The principles upon which lands are rated in this country
have been practically settled by the decisions of this
Court. But, no case was brought to our notice in which an
application of these principles to land upon which a
building was being constructed was involved. in other words,
no case was cited by any. party in which the doctrine of
sterility, as indicated above,was invoked. We will,
however, glance at the cases cited before deciding the
question raised before us.
The Corporation of Calcutta vs. S.M. Padma Debi & Ors., (1)
involved an interpretation of the provisions of Section
127(a) of the Calcutta Municipal Act, 1923, in the course of
which it was observed that the criterion for determining the
annual value of land for purposes of rating is : "the rent
realisable by the landlord and not the value of the holdings
in the hands of the tenant". A reference was made there to
the decision of the Privy Council in Bengal Nagpur Railway
Co. Ltd. vs. Corporation of Calcutta (2) affirming a
decision of the Calcutta High Court in Bengal Nagpur Railway
Co. Ltd. vs. Corporation of Calcutta(3) on the construction
of Section 127 of the Calcutta Act. The Privy Council had
indicated the distinction between law in India and in
England as follows
"The owner of land in England is not
chargeable with rates, as owner, at all. If
he leaves land vacant and unoccupied, he pays
no rates. Under the Calcutta Act mere
ownership carries with it a liability to pay
one-half of the rate assessed on the annual
value of the land".
In the Calcutta case which went to the Privy Council, a golf
club was making use of some land with a few holes made in it
for occasional practice by persons aspiring to become
golfars. The Club used to pay a nominal amount for the use
of the land. This Court also referred to the decision of
the House of Lords in Polar Assessment Committee vs.
Roberts.(4) to indicate : "The distinction between occupier
and owner, in this connection, is of primary importance.
The occupation value of property may be, and often is,
distinct from
(1) [1962] 3 S.C.R. 49.
(2) 74 Indian Appeals 1.
(3) AIR 1942 Cal. 455
(4) (1922) 2A.C. 93.
696
its value to the owner". This Court then cited the "weighty
observations of Atkin, L.J., as he then was, which were
approved by Lord Carson in his dissenting judgment" (at page
58) :
" How then is the annual rent to be
ascertained? It is obvious that the
definition presupposes that the premises are
deemed to be vacant and are deemed to be
capable of being let".
The respondent, however relies upon the following passage in
the judgment of this Court(l) (at page 56) :
"A law of the land with its penal consequences
cannot be ignored in ascertaining the
reasonable expectations of a landlord in the
matter of rent".
It was urged on behalf of the respondent that the test
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adopted by this Court was to find out the annual rent a
hypothetical tenant would pay so as to determine rateable
value from the point of view of the landlord, It did not
matter, according to the respondent, from which angle the
rateable value was looked at so long as the method of
determining it was really the same as was adopted in
England. If that was so, it was submitted, the views
expressed by this Court in the Calcutta Corporation case
(supra) did not militate with an application of the doctrine
of sterility where facts warranted it. We think that this
submission overlooks an infirmity in the doctrine of
sterility itself; the assumption that what is not actually
yielding rent has no annual rental value.
The next case cited was patel Gordhandas Hargovindas V.
Municipal Commissioner, Ahmedabad(2), where, after
references to legislative history of rating in England and
in India, this Court said : (at page 628) :
"It would, therefore, be right to say that the
word ’rate’ had acquired a special meaning in
English legislative history and practice and
also in Indian legislation where that word was
used and it meant a tax for local purposes
imposed by local authorities and the basis of
the tax was the annual value of the lands or
buildings on or in connection with which it
was imposed, arrived at in one of the three
ways which we have already indicated".
The three modes were indicated in the following passage (at
page 622)
"It will thus be clear from the various
statutes to which we have referred and the
various books on rating in England that the
rate always had the meaning of a tax on the
annual value or rateable value of lands or
buildings and this annual value or rateable
value is arrived at by one of three modes,
namely, (i) actual rent fetched by land or
building where it
(1) [1962] 3 S.C.R 49.
(2) [1964] 2 S.C.R. 608.
697
is actually let, (ii) where it is not let,
rent based on hypothetical tenancy,
particularly in the case of buildings, and
(iii) where either of these two modes is not
available, by valuation based on capital value
from which annual value has to be found by
applying a suitable percentage which may not
be the same for lands and buildings, and it
was this position which was finally brought
out in bold relief by the Rating and Valuation
Act, 1925. It is clear further that it is not
the Rating and Valuation Act of 1925 which for
the first time applied the concept
of net
annual value and rateable value as the basis
for levying a rate for purposes of local
taxation; that basis was always there for
centuries before the Act of 1925 was passed".
Here, it was held by a majority of five Judges of this
Court, that a rule imposing a tax called a "rate", "directly
as a percentage of the capital value", is ultra vires the
Act and "the assessment based on this manner must be struck
down". The reasoning adopted was :(at pages633-34):
"If the law enjoins that the rate should be
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fixed on the annual value of lands and
buildings, the municipality cannot fix it on
the capital value, and then justify it on the
ground that the same result could be arrived
at by fixing a higher percentage as the rate
in case it was fixed in the right way on the
annual value. Further by, fixing the rate as
a percentage of the capital value directly,
the real incidence of the levy is
camouflaged".
This case links the nature of the property tax called a rate
levied for local Govt. purposes with the mode adopted for
its levy. Each mode had necessarily to be directed to
finding out the annual rentel value of land as that was what
was taxed and not either the capital or the potential value
of land.
Municipal Corporation of Greater Bombay vs. Royal Western
India Turf Club(l) was cited to show that the profit from
the actual user, in that particular case of same land used
as a race course, was taken into account. This Court said
(at page 533) :
"The measure in arriving at the net rateable
value under S. 154(i) 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 profits all
expense,. reasonably and properly incurred
which go to the making of the receipts have to
be deducted from the gross-receipts".
In Motichand Hirachand & Ors. vs .Bombay Municipal
Corporation(2) where, as in the Royal Western India Turf
Club case (supra), the provisions of the Act with which we
are concerned had come up for consideration, this Court said
(at page 548)
(1) [1968] 1 S.C.R. 525.
(2) [1968] 1 S.C.R. 546.
698
"The assessing authority for the purpose of
fixing the rateable value has therefore to
determine the annual rent, that is, the annual
rent for which such building might reasonably
be expected to let from year to year and to
deduct the 10 per cent statutory
allowance
therefrom and arrive at the net rateable value
which would be equivalent to the net annual
rent. The rateable value is thus taken to be
the same as the net annual rent of the pro-
Perty. It is a well recognised principle in
rating that both gross value and net annual
value are estimated by reference to the rent
at which the property might reasonably be
expected to let from year to year. Various
methods of valuation are applied in order to
arrive at such hypothetical rent. for instance
by reference to the actual rent paid for the
property or for others comparable to it or
where there are no rents by reference to the
assessments of comparable properties or to the
profits earned from the property or to the
cost of construction. The expression "gross
value" means the rent at which a hereditament
might reasonably be expected to let from year
to year. The rent which a tenant could afford
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to give is calculated rebus sic stantibus,that
is to say, with reference to the property in
its existing physical condition and to the
mode in which it is actually used. The
hypothetical tenant includes all persons who
might possibly take the property including the
person actually in occupation, even though he
happens to be the owner of the property. The
rent is that which he will pay in the
"higgling of the market", taking into account
all existing circumstances and any relevant
future trends. if the Property affords the
opportunity for the carrying on of a gainful
trade, that fact also must be taken into
account. The property is assumed to be vacant
and to let and the material date for the
valuation is that of the proposal which gives
rise to the proceedings. The actual rent paid
for the property is not conclusive evidence of
value, though such actual rent may serve as an
indication as to what a hypothetical tenant
can afford to pay. However, if the actual
rent is paid on terms which differ from those
of the hypothetical tenancy it must be
adjusted, if possible, to the terms of the
hypothetical tenancy before it affords evi-
dence of value. (See Halsbury’s Laws of
England, (3rd ed.) Vol. 32, P. 60 and
onwards). It is also well recognised that
while valuing the property in question every
intrinsic quality and every intrinsic
circumstance which tends to push the rental
value up or down must be taken into
consideration".
The Century Spg. & Mfg. Co. Ltd. vs. District Municipality
of Ulhasnagar(l), points out that Section 60 of the Bombay
District Municipal Act 3 of 1901, with which we are not
concerned here, has left open a determination of the basis
for each class of valuation to the municipality after
defining annual letting value in Section 3(11) as the rent
for which any land or building might reasonably be expected
to be let from year to year. In this case, the imposition
of a flat rate
(1) [1968] 2 S.C.R. 211.
699
on carpet area was held to be within the provisions of the
Act. It was, however, observed that the assessees could
challenge, each on the facts of his particular case, the
application of this method if it results in a rate not
corresponding to "the annual letting value". Apart from
emphasising that it is the annual letting value which has to
be determined under the rating enactments, this case does
not help us in deciding the question now before us.
Bombay Municipal Corporation v. L.LC. of India, Bombay,(,)
repeats that the criterion for fixing the rate is "the rent
realisable by the landlord and not the valuation of the
holdings in the hands of the tenant".
Guntur Municipal Council v. Guntur Town Rate Payers’
Association(2), relates to the interpretation of the
provisions of the Madras District Municipalities Act 5 of
1920, where it was held that the assessment must take into
account the measure of "fair rent" as determined under the
Act.
The above mentioned authorities of this Court, which were
cited before us, enable us to hold that the mode of
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assessment in every case must be directed towards finding
out the annual letting value of land which is the basis of
rating of land, and, by definition, "land" includes land
which is either being built upon or has been built upon.
Nevertheless, reference to the provisions of the Act shows
that, after a building has been completed, the letting value
of the building, which becomes part of land, will be the
primary or determining factor in fixing the annual rent for
which the land which has been built upon "might reasonably
be expected to be let from year to year". All that Section
154 seems to contemplate, by mentioning "land or building",
is that land which is vacant or which has not been built
upon may be treated, for purposes of valuation, on a
different footing from land which has actually been built
upon.- But, relevant provisions of the Act do not mention
and seem to take no account, for purposes of rating, of any
building which is only in the course of being constructed
although Section 3 (r) of the Act makes it clear that land
which is being built upon is also "land". Hence, so long as
a building is not completed or constructed to such an extent
that atleast a partial completion notice can be given so
that the completed portion can be occupied and let, the land
can, for purposes of rating, be equated with or treated as
vacant land. It is only when the building which is being
put up is in such a state that it is actually and legally
capable of occupation that the letting value of the building
can enter into the computation for rating "rebus sic
stantibus". Although, the definition of land, which is
rateable, covers three kinds of "land", yet, for the
purposes of rating Sec. 154 recognises only two categories.
Therefore,. all "land" must fall in one of these two
categories for purposes of rating and not outside.
The doctrine of sterility, in the context of the provisions
we have to construe, cannot apply here. In England, what
happens is that
(1) [1971] (1) S.C.R. 335.
(2) [1971] (2) S.C.R. 423.
700
when land, which is in the process of being built upon, is
equated with vacant land, which is not yielding any profit,
it ceases to be rateable land. But, under the statute we
have before us, all "land", whether vacant, or in the
process of being built upon, or built upon, is rateable
according to the well settled principles. All that can. be
said is that, so long as a building being constructed on
some land is not in a state fit for occupation, its rateable
value should not be more or less than that of land which is
vacant. That, however, is not the object of the respondent
in invoking the doctrine of sterility. What has happened in
the case before us is that the land which was being assessed
as rateable so long as it was vacant land has been treated
as entirely outside the scope or sphere of rateability just
because a building is being erected upon it. As we find no
statutory provision which has the effect of conferring such
an immunity or exemption upon land which is being built
upon, we cannot uphold a conclusion which produces such a
startling result.
The English authorities where the doctrine of "sterility"
was were : West Bromwich School Board v. Overseers of West
Bromwich;(1) Mersey Docks & Harbour Board v. Overseers of L
laneilian;(2) The Metropolitan Board of works v. The
Overseers of West Ham; (3) The Guardians of the Poor of the
Sculcoates Union in the Borough of Kingston-Upon-Hull v.
Dock Company at Kingston-Upon-HUlI;(4) and, the Church
wardens & Overseers of Lambeth Parish v. The London County
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Council.(5) In the last mentioned case of The London County
Council relating to a park maintained by a County Council
for public benefit, Lord Herschell, L.C., after holding that
the public was not a rateable "occupier", said;
"Once it has been found, as in this case, that
the occupation cannot as a matter of law be a
beneficial occupation, there is an end of the
question. I say as matter of law, because
that it does not give a beneficial occupation
as matter of fact is nothing to the purpose.
Here there is no possibility of beneficial
occupation to the county council; they are
incapable by law of using it for any
profitable purpose; they must allow the public
the free and unrestricted use of it".
These cases are not helpful or really applicable at all
because they are based upon the concept of rating
exclusively by reference to the beneficial occupation or of
the income enjoyed by an occupier.
It was, however, pointed out by the respondent that in
London County Council v. Erith (Churchwardens & Overseers of
Parish), (6) Lord Herschell, L.C., expressed some
dissatisfaction with the rather wide application of the
doctrine of sterility in some cases in England and explained
it as follows (at page 591)
(1)13 Q.B.D. 929 @ 942.
(2)14 Q.B.D. p. 770.
(3)(1870) L.R. 6 Q.B. 193.
(4)1895 A.C. 136.
(5)1897 A.C. 625 @ 630-631.
(6)1893 A.C. 562 @ 591.
701
Now, if land is "struck with sterility in any and every-
body’s hands", whether by law or by its inherent condition,
so that its occupation is, and would be, of no value to any
one, I should quite agree that it cannot be rated to the
relief of the poor. But I must demur to the view that the
question whether profit (by which I understand is meant
pecuniary profit) can be derived from the occupation by the
occupier is a criterion which determines whether the
premises are rateable, and at what amount they should be
assessed; and I do not think that a building in the hands of
a school board is incapable of being beneficially occupied
by them and is not so occupied because they are prohibited
from deriving pecuniary profit from its use. Fry L.J., in
the case of Reg. v. School Board for London (I 7 Q.B.D. 738)
said : "The term ’sterility’ has been introduced into the
cases because, as a general rule, a profit is produced; but
it does not by any means follow that because there is no
profit there is no value. There could be no better
illustration of this than in the present case", I think the
learned Judge here points to the true test; whether the
occupation be such as to be of value. This is the language
used by Lord Blackburn, and I have already said that the
possibility of making a pecuniary profit is not in my
opinion the test whether the occupation is of value".
We do not think, for reasons already given, that it is
necessary to examine English cases or authorities on the
application of doctrine of sterility in England to land
which is being built upon, because, after examining the
relevant provisions of the enactment before us, we have
reached the conclusion that land on which a building is
being constructed does not cease to be rateable simply
because a construction is going on upon it. The difference
between English law and the position which emerges from the
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statute before us is vital for deciding the question before-
us. The most that can be said is that land which is being
built upon should not be rated like land on which a building
has been actually constructed unless and until the
construction has reached a stage at which some occupation of
the constructed portion is also legally and actually
possible so that it could be taken into account in
determining the rateable value. On this aspect, we have not
found any material to indicate the state of the building on
land on which it was being constructed. Evidence would, no
doubt have been there if the building had reached a stage at
which any part of it was completed so as to be permitted to
be occupied. Therefore, we think that the land upon which a
building was under construction could and should be rated in
the same way as vacant land. No appeal has been preferred
against the rating of the vacant land. We, therefore,
assume that the rental value reached, even by employing "the
contractor’s test", correctly determines what a hypothetical
tenant would be reasonably expected to pay from year to year
for the vacant land. The question whether the owner himself
or a tenant is actually occupying the land is not relevant
for the purpose of determining the rateable value by a
reference to the hypothetical tenant. Here, the basis of
rating is not the actual income from bene ficial occupation,
as it may be in England (even there a tendency to shift
702
the former or traditional base is discernable), but of
ownership of land which is capable of beneficial occupation.
In other words, the concept of annual value of the land to
the owner, though obviously linked up with its utility or
annual letting value, is more comprehensive than and
different from the test of the actual income yielded which
has been applied in England in a number of cases.
Where,the landlord is in actual occupation the land does not
cease to have, rateable value. In such a case, rateable
value would be determined by asking the question : What
would or could be reasonably expected to pay from year to
year if he was not the owner but wanted to take it on rent?
The standard of reasonable expectation from a hypothetical
tenant, applied by contemplating a hypothetical bidding or
higgling in a market, however difficult and unsatisfactory
as a method of valuation, has to be resorted to in a case
beset with such difficulties as the one before us. In no
case, however, could the rental value of land being built
upon be less than that of the same land when it was vacant.
We find the judgment under appeal to be erroneous as it held
land which was being rated as vacant to have ceased to be
subject to any rating at all simply because a building began
to be made on it in 1961 by its owner. The rule of
interpretation, that, where two views are reasonably or
equally open, we should adopt the one which benefits the
assessee, would enable us to do no more than to treat land
which is actually being built upon on the same footing as
vacant land as long as no structure capable of occupation
and letting is completed on
The result is that we allow this appeal, and we set aside
the judgment and order of the Division Bench. We also set
aside the assessment order with regard to 1060 sq. yds.,
which was being built upon, and the orders of the Small
Cause Court and a learned Judge of the High Court dismissing
appeals with regard to this area of land. We send back the
case to the assessor and Collector of Bombay Municipal
Corporation and direct that the whole land will be valued,
for purposes of rating in the relevant year, as vacant land
just as it was being done in the period immediately
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preceding 1962. In the circumstances of the case, which is
not free from difficulties, the parties will bear their own
costs.
P. B. R. Appeal allowed.
703