Full Judgment Text
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PETITIONER:
DEWAN DAULAT RAI KAPOOR ETC. ETC.
Vs.
RESPONDENT:
NEW DELHI MUNICIPAL COMMITTEE & ANOTHER ETC. ETC.
DATE OF JUDGMENT20/12/1979
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION:
1980 AIR 541 1980 SCR (2) 607
1980 SCC (1) 685
CITATOR INFO :
R 1981 SC1729 (3)
R 1982 SC 16 (2)
E 1985 SC 339 (2,5,6)
ACT:
Delhi Municipal Corporation Act 1957 Section 116 &
Punjab Municipal Act 1911, Section 3(1)(b)-Assessment of
building for municipal tax-Annual value-Standard rent or
contractual rent-Applicability of rent control legislation.
Wolds & phrases-Annual Value Reasonably-Meaning of.
HEADNOTE:
Section 3(1)(b) of the Punjab Municipal Act, 1911
defines "annual value" to mean, in the case of any house or
building "the gross annual rent at which such house or
building.... may reasonably be expected to let from year to
year" subject to certain specified deductions. The same
definition of "annual value" is to be found in section 116
of the Delhi Municipal Corporation Act, 1957 but with only
difference that there is a, second proviso to section 116
which is absent in section 3(1)(b).
One appeal related to a case where the building is
situated within the jurisdiction of the New Delhi Municipal
Committee and is liable to be assessed to house tax under
the Punjab Municipal Act, 1911 while the other two related
to cases where the building is situated within the limits of
the Corporation of Delhi and is assessable to house tax
under the Delhi Municipal Corporation Act, 1957. The house
tax under both statutes was levied with reference to the
"annual value" of the building.
The common question of law arising in the appeals
related to the assessment of annual value for levy of house
tax where the building is governed by the provisions of Rent
Control Legislation but where the standard rent has not yet
been fixed.
The argument of the Revenue was (i) that if it was not
penal for the landlord to receive the contractual rent from
the tenant, even if it be higher than the standard rent
determinable under the provisions of the Act, it would not
be incorrect to say that the landlord could reasonably
expect to let the building at the contractual rent and the
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contractual rent therefore provided n correct measure for
determination of the annual value of the building, and (ii)
the period of limitation for making an application for
fixation of tho standard rent had expired long prior to the
commencement of the assessment years and in each of the
cases, the tenant was precluded by section 12 of the Rent
Control Act from making an application for fixation of the
standard rent with the result that the landlord was lawfully
entitled to continue to receive the contractual rent from
the tenant without any let or hindrance.
Allowing the appeals,
^
HELD: 1. Tho Court would have examined the validity of
this argument first on principle and then turned to the
authorities, hut it proposed to reverse this order because
the decisions in the Life Insurance Corporation’s
608
case and the Guntur Municipal Council’s case (supra)
completely covered the. present controversy and did not
leave any scope for further argument. The decision in Padma
Devi’s case may be said to be distinguishable on the ground
that in the present cases, unlike Padma Devi’s case, the
standard rent of the building was not fixed by the
Controller and hence it could not be said that it was
unlawful or penal for the landlord to receive anything more
than the standard rent. But so far as the decision in Life
Insurance Corporations case is concerned, it is difficult to
sec how its applicability could be disputed, because there
also, as in the present case, the standard rent of the
building was not fixed by the Controller and in the absence
of the standard rent, it was open to the landlord to receive
rent in excess of the standard rent determinable under the
Act. The only distinction was that under the West Bengal
Premises Rent Control (Temporary Provisions) Act, 1950,
which came up for consideration in the Life Insurance
Corporation s case, the standard rent was statutorily
determinable on the application of a mathematical formula
without any discretion being left in the Controller, while
under the Delhi Rent Control Act, 1958 the standard rent was
not a certain and definite figure to be arrived at
mathematically by application of the formula laid down in
section 6 but it was left to the Controller under section 9
sub-section (2) to fix the standard rent at such amount as
appeared to him to be reasonable having regard to the
provisions of section 6 and the circumstances of the case.
Hence, until the standard rent was fixed by the Controller,
it could not be said what would be the standard rent of the
building. [622D-H, 623A]
2. Undoubtedly there is some difference in the
provisions of the two statutes but this difference is not of
such a character as to affect the applicapability of the
decision in the Life Insurance Corporation’s case. In that
case too, the prohibition against the landlord to receive
any rent in excess of the standard rent was operative only
after the fixation of the standard rent by the Controller
and so long as the standard rent was not fixed, it was not
unlawful or penal for the landlord to receive any rent in
excess of the standard rent. If the standard rent though not
fixed and hence not legally enforceable, could provide the
measure for the reasonable expectation of the landlord to
receive rent from a hypothetical tenant in the Life
Insurance Corporation’s case, there is no reason why it
should not equally be held to provide such measure in the
present cases. As in the one case so also in the other? the
upper limit of the standard rent. though yet to be fixed by
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the Controller, would enter into the determination of the
reasonable rent. [623A-D]
3. It is not correct to say that under section 9 sub-
section (2) of the Delhi Rent Control Act, 1958, it is left
to the unfettered and unguided discretion of the Controller
to fix any standard rent which he considers reasonable. He
is required to fix the standard rent in accordance with the
relevant formula laid down in section 6 and he cannot ignore
that formula by saying that in the circumstances of the
case, he considers it reasonable to do so. The only
discretion given to him is to make adjustments in the result
arrived at on the application of the relevant formula, where
it is necessary to do so by reason of the fact that the
landlord might have made some addition, alteration or
improvement in the building or circumstances might have
transpired affecting the condition or utility of the
building or some such circumstances of similar character.
The compulsive force of the formula laid down in section 6
for the determination of the standard rent
609
is not in any way whittled down by section 9 sub-section (2)
but a marginal discretion is given to the Controller to
mitigate the rigour of the formula where the circumstances
of the case so require. The amount calculated in accordance
with the relevant formula set out in section 6 would,
therefore, ordinarily represent the standard rent of the
building, unless the landlord of the tenant., as the case
may be, can persuade the Controller that there are
circumstances requiring adjustment in the amount so arrived
at. There is therefore no material distinction between the
West Bengal Premises Rent Control (Temporary Provisions)
Act, 1950 and the Delhi Rent Control Act, 1050 so far as the
provisions regarding determination of standard rent are
concerned and the decision in the Life insurance
Corporations case must be held to be applicable in
determination of the annual value in the present cases.
[623D-H, 624A]
4. In the Guntur Municipal Council’s case also, as in
the present cases. the standard rent of the building was not
fixed by the Controller and under the Andhra Pradesh Rent
Act which applied to the town of Guntur, in the Absence of
fixation of the fair rent, it was lawfully competent to the
landlord to recover rent hl excess of the fair-rent.
determinable under that Act. [624B-C]
5. The annual value of the building governed by the
Delhi Rent Control Act, 1958 must be limited by the measure
of standard rent determinable under that Act. The landlord
cannot reasonably expect to get more rent than the standard
rent payable in accordance with the principles laid down in
the Delhi Rent Control Act, 1958. It is true that the
standard rent of the building not having been fixed by the
Controller, the assessing authority would have to arrive at
its own figure of standard rent by applying the, principles
laid down in the Delhi Rent Control Act, 1958 for
determination of standard rent, but that is a task which the
assessing authority would have to perform as a part OF the
process of assessment and in the Guntur Municipal Council’s
case, this Court has said that it is not a.. task foreign to
the function of assessment and has to be carried out by the
assessing authority. When the assessing authority arrives at
its own figures of standard rent by applying the principles
laid down in the Act, it does not, in any way, usurp the
function of the Controller, because it does not fix the
standard rent which would he binding on the landlord and the
tenant, which can be done only by the Con- F troller under
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the Act but it merely arrives at its own estimate of
standard rent for the purpose of determining the annual
value of the building. That is a perfectly legitimate
function within the scope of the jurisdiction of the
assessing authority. [624G-H. 625A-C]
6. The existing tenant may be barred from making an
application for fixation of the standard rent and may,
therefore, be liable to pay contractual rent to the landlord
but the hypothetical tenant to whom the building is
hypothetically to be let, would not suffer from this
disability created by the bar of limitation and he would be
entitled to make an application for fixation of the standard
rent at any time within two years of the hypothetical
letting and the limit of the standard rent determinable
under the Act. would therefore, inevitably enter into the
bargain and circumscribe the rate of rent at which the
building could reasonably be expected to he let. [625E-G]
7. It is difficult to sec how the annual value of the
building could vary accordingly as it is tenanted or self
occupied. The circumstance that in each.
610
of the present cases, the tenant was debarred by the period
of limitation from making an application for fixation of the
standard rent and the landlord was consequently entitled to
continue to receive the contractual rent. cannot therefore,
affect the applicability of the decision in the Life
Insurance Corporation’s case and the Guntur Municipal
Council’s case, and it must. be held that the annual value
of the building in each of these cases was limited by the
measure of the standard rent determinable under the Act.
[626B-C]
8. Even if the standard rent has not been fixed by the
Controller, the landlord cannot reasonably expect to receive
from a hypothetical tenant anything more than the standard
rent determinable under the Act and this would be so equally
whether the building has been let out to a tenant who has
lost his light to apply for fixation of’ the standard rent
or the building is self occupied by the owner. The assessing
authority would. in either case, have to arrive at its own
figure of the standard rent by applying principles laid down
in the Delhi Rent Control Act, 1958 for determination of
standard rent and determine the annual value of the building
on the basis of such figure of standard rent. [626G-H, 627A]
9. It is clear therefore that in each of the present
cases the annual value of the building must be held to be
limited by the measure of the standard rent determinable on
the principles laid down in the Delhi Rent Control Act, 1958
and it cannot exceed such measure of standard rent. [627A-B]
Corporation of Calcutta v. Life Insurance Corporation
[1970] 2 SCC 44; Corporation of Calcutta v. Padma Devi
[1962] 3 SCR 49; Guntur Municipal Council v. Guntur Town
Rate payers’ Association [1971] 2 SCR 423: M. M. Chawla v.
J. S. Sethi [1970] 2 SCR 390 referred to.
Municipal Corporation, Indore & Ors. v, Smt.
Ratnaprabha & Ors. [1977] 1 SCR 1017 distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
11431144/73 and 1201 (N) of 1973.
From the Judgment and order dated 16-11-1972 of the
Delhi High Court in C.W. No. 580/71, LPA No. 58/72 and
54/72.
P. N. Lekhi and M. K. Garg for the Appellants in C.A.
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Nos. 1143-44/73 and for Respondents in C.A. No. 1201/73.
F. S. Nariman P. D. Singhania, Homi Ranina, Ravinder
Narain and T. Ansari in C.A. No. 1143/73 for the Intervener.
S. N. kaeker Sol. General and A. V. Ramgam for the
Respondent in C.A. No. 1144/73 and for the Appellant in C.A.
No. 1201/73.
S. N. Kaeker, Sol. General, B. P. Maheshwari, S. Sethi,
Bikramjit Nayyar and E. C. Sharma for Respondent No. 1 in
C.A. Nos. 1143-44/73
S.T. Desai, S. P. Nayyar and Miss A. Subhashini for the
Intervener, C.I.T. Delhi.
611
The Judgment of the Court was delivered by
BHAGWATI, J. These appeals by certificate raise a
common question of law relating to assessment of annual
value for levy of house-tax where the building is governed
by the provisions of Rent Control legislation, but the
standard rent has not yet been fixed. One appeal relates to
a case where the building is situate within the jurisdiction
of the New Delhi Municipal Committee and is liable to be
assessed to house tax under the Punjab Municipal Act, 1911
while the other two relate to cases where the building is
situate within the limits of the Corporation of Delhi and is
assessable to house tax under the Delhi Municipal
Corporation Act, 1957. The house tax under both statutes is
levied with reference to the annual value of the building.
Section 3(1)(b) of the Punjab Municipal Act, 1911 defines
"annual value" to mean, in the case of any house or building
"the gross annual rent at which such house or building
......may reasonably be expected to let from year to year"
subject to certain specified deductions, and the same
definition of "annual value" is to be found in section 116
of the Delhi Municipal Corporation Act, 1957 with only this
difference that there is a second proviso to section 116
which is absent in section 3(1)(b). That proviso reads:
"Provided further that in respect of any land or building
the standard rent of which has been fixed under the Delhi
and Ajmer Rent Control Act, 1952, the rateable value thereof
shall not exceed the annual amount of standard rent so
fixed." It was, however, common ground between the parties
that this proviso is immaterial and, in fact, it was so held
in Corporation of Calcutta v. Life Insurance Corporation(1).
We may, therefore, ignore the existence of this proviso and
deal with both the categories of appeals on the basis of the
same definition of "annual value". "Annual value" of a
building, according to this definition, would be the gross
annual rent at which the building may reasonably be expected
to let from year to year (emphasis supplied).
It is obvious from this definition that unlike the
English Law where the value of occupation by a tenant is the
criterion for fixing annual value of the building for rating
purposes, here it is the value of the property to the owner
which is taken as the standard for making assessment of
annual value. The criterion is the rent realisable by the
landlord and not the value of the holding in the hands the
tenant. The rent which the landlord might realise if the
building were let is made the basis for fixing the annual
value of the
612
building. The word "reasonably" in the definition is very
important. What the landlord might reasonably expect to get
from a hypothetical tenant, if the building were let from
year to year, affords the statutory yardstick for
determining the annual value. Now, what is reasonable is a
question of fact and it would depend on the facts and
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circumstances of a given situation. Ordinarily, as pointed
out by Subba Rao, J., speaking on behalf of the Court in
Corporation of Calcutta v. Padma Devi(1); "a bargain between
a willing lessor and a willing lessee uninfluenced by any
extraneous circumstances may afford a guiding test of
reasonableness. An inflated or deflated rate of rent based
upon fraud, emergency, relationship and such other
considerations may take it out of the bounds of
reasonableness". The actual rent payable by a tenant to the
landlord would in normal circumstances afford reliable
evidence of what the landlord might reasonably expect to get
from a hypothetical tenant, unless the rent is inflated or
depressed by reason of extraneous considerations such as
relationship, expectation of some other benefit etc. There
would ordinarily be in a free market close approximation
between the actual rent received by the landlord and the
rent which he might reasonably expect to receive from a
hypothetical tenant. But where the rent of the building is
subject to rent control legislation, this approximation may
and often does get displaced. It is, therefore, necessary to
consider the effect of rent control legislation on the
determination of annual value
This is fortunately not a virgin field. There are at
least three decisions of this Court which have spoken on
this subject. The first is the decision in Corporation of
Calcutta v. Padma Devi (supra). The question which arose in
that case was whether the "annual value" of a building
governed by the West Bengal Premises Rent Control (Temporary
Provisions) Act, 1950 could be determined at a figure higher
than the standard rent fixed under the provision of that
Act. The definition of "annual value" in section 127(a) of
the Calcutta Municipal Act, 1923 under which the house tax
was being levied was the same as in section 3(1)(b) of the
Punjab Municipal Act, 1911 or section 116 of the Delhi
Municipal Corporation Act, 1957 without the second proviso
and hence in order to determine the "annual value" of the
building it was necessary to find out what was the rent at
which the building might reasonably be expected to let from
year to year. The Court speaking through Subba Rao, J.
emphasized the use of the word "reasonably" in the
definition and pointed out that since it was penal for the
landlord to receive any rent in excess of
613
the standard rent fixed under the Act, the landlord could
not reasonably expect to receive any higher rent in breach
of the law. It is the standard rent alone which the landlord
could reasonably expect to receive from a hypothetical
tenant, because to receive anything more would be contrary
to law. The learned Judge, after analysing the provisions of
the Act, observed:
"A combined reading of the said provisions leaves
no room for doubt that a contract for a rent at a rate
higher than the standard rent is not only not
enforceable but also that the landlord would be
committing an offence if he collected a rent above the
rate of the standard rent. One may legitimately say
under those circumstances that a landlord cannot
reasonably be expected to let a building for a rent
higher than the standard rent. 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. In this view, the law of the
land must necessarily be taken as one of the
circumstances obtaining in the open market placing an
upper limit on the rate of rent for which a building
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can reasonably be expected to let".
It may be noted that in this case the standard rent of the
building was fixed under the Act and since it was penal for
the landlord to receive any rent higher than the standard
rent fixed under the Act, it was held that the landlord
could not reasonably expect to receive anything more than
the standard rent from a hypothetical tenant and the annual
value of the building could not exceed the standard rent.
The next decision to which we must refer in this
connection is the decision of this Court in Corporation of
Calcutta v. Life Insurance Corporation (supra). This case
also related to a building situate in Calcutta which was
governed by the West Bengal Premises Rent Control (Temporary
Provisions) Act, 1950. Section 2(10) (b) of the Act defined
"standard rent" to mean "where the rent has been fixed under
section 9, the rent so fixed, or at which it would have been
fixed if application were made under the said section".
Here, unlike Padma Devi’s case, the standard rent of the
building had not been fixed under section 9 but it was
common ground between the parties that Rs. 2,800 per month
being the amount of the agreed rent represented the figure
at which the standard rent would have been fixed if an
application had been made for the purpose under section 9
and the standard rent of the building was therefore
614
Rs. 2,800 per month within the meaning of the second part of
the definition of that term. The question which arose for
consideration was whether the annual value of the building
was liable to be determined on the footing of this standard
rent or it could be determined by taking into account the
higher rent received by the tenant from its sub-tenants. The
principle of the decision in Padma Devi’s case was invoked
by the assessee for contending that the annual value of the
building could not be determined at a figure higher than the
standard rent and this contention was upheld by the Court,
though there was no fixation of standard rent by the
Controller under section 9 and the statutory prohibition was
only against receipt of rent in excess of the standard rent
fixed under the Act. The Court pointed out that the standard
rent stood defined by the latter part of section 2(10) (b)
and by virtue of that provision it was statutorily
determined at Rs. 2,800 per month though not fixed by the
Controller under section 9 and proceeded to hold, by
applying the principle of the decision in Padma Devi’s case,
that the landlord could not reasonably expect to receive any
rent higher than the standard rent from a hypothetical
tenant and the annual value of the building could not,
therefore, be fixed at a figure than the standard rent. It
will be seen that this decision marked a step forward from
the decision in Padma Devi’s case because here the standard
rent was not fixed by the Controller under section 9 and it
was not penal for the landlord to receive any rent in excess
of the statutorily determined standard rent of Rs. 2.800 per
month and yet it was led by this Court that the standard
rent determined the upper limit of the rent at which the
landlord could reasonably expect to let the building to a
hypothetical tenant. It may be pointed out that an attempt
was made on behalf of the Corporation to distinguish the
decision in Padma Devi’s case by contending that that
decision was based on the interpretation of section 127(a)
of the Calcutta Municipal Corporation Act, 1923 while the
provision which fell for interpretation in this case was
section 168 of the Calcutta Municipal Corporation Act, 1951
which was different from section 127(a), in that it
contained a proviso that "in respect of any land or building
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the standard rent of which has been fixed under section 9...
the annual value thereof shall not exceed the annual amount
of the standard rent so fixed" which was absent in section
127 (a). The argument was that under the proviso the annual
value was limited to the standard rent only in those cases
where the standard rent was fixed under section 9 and since
in the case before the Court the standard rent of the
building was not fixed under section 9, the proviso has no
application and the assessing authority was not bound to
take into account the limi-
615
tation of the standard rent. This argument was negatived by
the Court and it was held that the enactment of the proviso
in section 168 of the Calcutta Municipal Corporation Act,
1951 did not alter the law and by the addition of the
proviso, the meaning of the expression "gross rent at which
the land or building might reasonably be expected to let"
was not changed. It was for this reason that we pointed out
at the commencement of the judgment that the existence of
the proviso in section 116 of the Delhi Municipal
Corporation Act, 1957 is immaterial and we may proceed to
deal with the appeals arising under that Act as if the
definition of "annual value" did not contain that proviso.
That takes us to the third decision in Guntur Municipal
Council v. Guntur Town Rate Payers’ Association(1) which
extended still further the principle of the decision in
Padma Devi’s case. This was a case where the annual value
was to be determined under the Madras District
Municipalities Act, 1920 which applied in the city of
Guntur. Section 82 sub-section (2) of the Act gave a
definition of "annual value" practically in the same terms
as section 3(1)(b) of the Punjab Municipal Act, 1911 and
section 116 of the Delhi Municipal Corporation Act, 1957
without the second proviso. There was also in force in the
city of Guntur, the Andhra Pradesh Buildings (Lease Rent and
Eviction) Control Act, 1960, which provided inter alia for
fixation of fair rent of buildings. It is necessary to refer
to a material provisions of this Act. Section 4, sub-section
(1) conferred power on the Controller, on application by the
tenant or landlord of a building, to fix the fair rent for
such building after holding such inquiry as he thought fit
and sub-section (2) to (5) of section 4 laid down the
formulae for determination of fair rent in different classes
of cases. Sub-section (1)(a) of section 7 gave teeth to the
determination of fair rent by providing that where the
Controller has fixed the fair rent of a building, the
landlord shall not claim, receive or stipulate for the
payment of anything in excess of such fair rent and sub-
section 2(a) of that section recognised that where the fair
rent of a building has not been fixed by the Controller, the
agreed rent could be lawfully paid by the tenant to the
landord and it was only payment of a sum in addition to the
agreed rent that was prohibited by that sub-section. Section
29 made it penal for any one to contravene the provisions of
subsections 1(a) and 2(a) of section 7. Now there could be
no doubt that if the fair rent of a building were fixed
under section 4, sub-section (1), the decision in Padma
Devi’s case would be clearly
616
applicable and the annual value would be limited to the fair
rent so fixed. But, would the same principle apply where the
fair rent were not fixed ? Would the annual value in such a
case be liable to be assessed in the light of the provisions
contained in the Rent Act ? That was the question which
arose before the Court in the Guntur Municipal Council’s
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case. The Guntur Municipal Council urged that the decision
in Padma Devi’s case was not applicable and attempted to
distinguish it by saying that under section 7, sub-section
(1) it was only after the fixation of fair rent of a
building that the landlord was debarred from claiming or
receiving payment of any rent in excess of such fair rent
and since the fair rent of the building in that case had not
been fixed, it was not penal for the landlord to receive any
higher rent and the assessment of annual value was
therefore, not "limited or governed by the measure provided
by the provisions of the Act for determination of the fair
rent." This attempt, however, did not find favour with the
court and it was held that there was no distinction "between
buildings the fair rent of which has been actually fixed by
the Controller and those in respect of which no such rent
has been fixed." The Court pointed out: "It is perfectly
clear that the landlord cannot lawfully expect to get more
rent than the fair rent which is payable in accordance with
the principles laid down in the Act. The assessment of
valuation must take into account the measure of fair rent as
determinable under the Act. It may be that where the
Controller has not fixed the fair rent, the municipal
authorities will have to arrive at their own figure of fair
rent but that can be done without any difficulty by keeping
in view the principles laid down in section 4 of the Act for
determination of fair rent." It will thus be seen that even
though fair rent had not been fixed under the Act as in
Padma Devi’s case, nor was it statutorily determined as in
the Life Insurance Corporation’s case (there being no
provision in the Andhra Pradesh Rent Act similar to the
latter part of section 2(10)(b) of the West Bengal Rent Act)
and it was clear from the provisions of the Rent Act that it
was only after the fair rent of a building was fixed by the
Controller that the prohibition against receipt of any
amount in excess of fair rent became applicable and so long
as the fair rent was not fixed by the Controller it was open
to the landlord to receive the agreed rent even though it
might be higher than the fair rent, yet it was held by the
court that in view of the provisions in the Rent Act in
regard to fair rent, the landlord could not reasonably
expect to receive from a hypothetical tenant anything more
than the fair rent payable in accordance with the principles
laid down in the Rent Act and the annual value was liable to
be determined on the
617
basis of fair rent as determinable under the Rent Act. The
Court observed that the assessing authority would have to
arrive at its own figure of fair rent by applying the
principles laid down in sub-sections (2) to (5) of section 4
for determination of fair rent. This decision clearly
represented a further extension of the principle in Padma
Devi’s case to a situation where no standard rent has been
fixed by the Controller and in the absence of fixation of
standard rent, there is no prohibition against receipt of
higher rent by the landlord.
It is in the light of these decisions that we must
consider whether in case if a building in respect of which
no standard rent has been fixed by the Controller under the
Delhi Rent Control Act, 1958 the annual value must be
limited to the measure of standard rent determinable under
that Act or it can be determined on the basis of the higher
rent actually received by the landlord from the tenant. But
before we proceed to examine this question, we must refer to
a recent decision of this Court in Municipal Corporation,
Indore & Ors. v. Smt. Ratnaprabha & Ors.(1) which apparently
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seems to strike a different note. That was a case relating
to a building situated in Indore and subject to the
provisions of the Madhya Pradesh Accommodation Control Act,
1961. The building was self occupied and hence there was no
occasion to have its standard rent fixed by the Controller.
The annual value of the building was sought to be assessed
for rating purposes under the Madhya Pradesh Municipal
Corporation Act, 1956 and section 138(b) of that Act
provided that the annual value of any building shall,
notwithstanding anything contained in any other law for the
time being in force be deemed to be the gross annual rent at
which such building might reasonably be expected to let from
year to year, subject to certain specified deductions. The
argument of the assessee was that even though no standard
rent in respect of the building was fixed by the Controller,
the reasonable rent contemplated by section 138(b) could not
exceed the standard rent determinable under the Act and it
was incumbent on the Municipal Commissioner to determine the
annual value of the building on the same basis on which its
standard rent was required to be fixed under the Act. This
argument was sought to be supported by relying on the three
decisions to which we have already made a reference. Now it
would appear that the decision in Guntur Municipal Council’s
case was clearly applicable on the facts of this case and
following that decision the Court ought to have held that
the annual value of the building could not exceed
618
the standard rent determinable under section 7 of the Act
and the assessing authority should have arrived at its own
estimate of the standard rent by applying the principles
laid down in that section and determine the annual value on
the basis of such standard rent. But the Court negatived the
applicability of the decision in Guntur Municipal Council’s
case and the earlier two cases by relying on the words
"notwithstanding anything contained in any other law for the
time being in force" in section 138(b). The Court pointed
out that while ’the requirement of the law is that the
reasonable letting value should determine the annual value
of the building, it has also been specifically provided that
this would be so "notwithstanding anything contained in any
other law for the time being in force" and observed that it
would be a proper interpretation of these words "to hold
that in a case where the standard rent of a building has
been fixed under section 7 of the Madhya Pradesh
Accommodation Control Act, and there is nothing to show that
there has been fraud or collusion, that would be its
reasonable letting value, but where this is not so, and the
building has never been let out and is being used in a
manner where the question of fixing its standard rent does
not arise, it would be permissible to fix its reasonable
rent without regard to the provisions of the Madhya Pradesh
Accommodation Control Act, 1961. This view will, in our
opinion, give proper effect to the non-obstante clause in
clause (b), with due regard to its other provision that the
letting value should be "reasonable". The Court leaned
heavily on the non-obstante clause in section 138(b) and
distinguished the decision in Guntur Municipal Council’s
case and the earlier two cases on the ground that in none of
the three Municipal Acts which came up for consideration
before the Court in these cases, there was any such non-
obstante clause. We are not at all sure whether this
decision represents the correct interpretation of section
138(b) because it is rather difficult to see how the non-
obstante clause in that section can possibly affect the
interpretation of the words "the annual value of any
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building shall.................... be deemed to be the gross
annual rent at which such building.. might reasonably
........ be expected to be let from year to year." The
meaning of these words cannot be different in section 138(b)
than what it is in section 127(a) of the Calcutta Municipal
Corporation Act, 1923 and section 82(2) of the Madras
District, Municipality Act, 1920 and the only effect of the
non-obstante clause would be that even if there is anything
contrary in any other law for the time being in force that
should not detract from full effect being given to these
words according to their proper meaning. But it is not
619
necessary for the purpose of the present appeals to probe
further into the question of correctness of this decision,
since there is no non-obstante clause either in section
3(1)(b) of the Punjab Municipal Act, 1911 or in section 116
of the Delhi Municipal Corporation Act, 1957 and this
decision has therefore, no application.
Now let us turn to the present appeals and see how far
the trilogy of decisions referred to earlier throws light on
the solution of the problem before us. We may first refer to
the relevant provisions of the Delhi Rent Control Act, 1958
for that was the law in force at the material time relating
to restrictions of rent of buildings situate within the
jurisdiction of the Delhi Municipal Corporation and the New
Delhi Municipal Committee. Section 2(k) defined ’standard
rent’ in relation to any premises to mean "the standard rent
referred to in section 6 or where the standard rent has been
increased under section 7, such increased rent." Sub-section
(1) of section 4 provided that, subject to a single narrow
exception which is not material for our purpose, "no tenant
shall, notwithstanding any agreement to the contrary be
liable to pay to his landlord for the occupation of any
premises any amount in excess of the standard rent of the
premises" and sub-section (2) of section 4 declared that,
subject to provision of sub-section (1) "any agreement for
the payment of rent in excess of the standard rent shall be
construed as if it were an agreement for the payment of the
standard rent only". Section 5 sub-section (1) enacted a
prohibition injuncting that "no person shall claim or
receive any rent in excess of the standard rent,
notwithstanding any agreement to the contrary." Then,
section 6 proceeded to set out different formulae for
determination of standard rent in different classes of cases
and each formula gave a precise and clear-cut method of
computation yielding a definite figure of standard rent in
respect of building falling within its coverage. Section 9
sub-section (1) provided that the Controller shall, on an
application made to him in this behalf either by the
landlord or by the tenant, fix in respect of any premises
the standard rent referred to in section 6 and sub-section
(2) of section 9 laid down that in fixing the standard rent
of any premises, the Controller shall fix an amount which
appears to him to be reasonable having regard to the
provisions of section 6 and the circumstances of the case.
Sub-section (4) of section 9 provided for determination of
standard rent in a case where for any reason it was not
possible to determine the standard rent on the principles
set forth under section 6 and said that in such a case "the
Controller may fix such rent as would be reasonable having
regard to the situation, locality
620
and condition of the premises and the amenities provided
therein and where there are similar or nearly similar
premises in the locality, having regard also to the standard
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rent payable in respect of such premises". Section 9 sub-
section (7) enjoined the Controller, while fixing the
standard rent of any premises, to specify a date from which
the standard rent so fixed shall be deemed to have effect
and added a proviso that in no case the date so specified
shall be earlier than one year prior to the date of the
application for the fixation of the standard rent. Lastly,
section 12 laid down a period of limitation within which an
application for fixation of the standard rent may be made by
the landlord or the tenant by providing that such
application must be made within 2 years from the date of
commencement of the Act in case of premises let prior to
such commencement and if the premises were let after such
commencement, then within 2 years from the date on which the
premises were let to the tenant. The proviso to section 12
empowered the Controller to entertain the application after
the expiry of the period of limitation if he was satisfied
that the applicant was prevented by sufficient cause from
filing the application in time. These provisions of the
Delhi Rent Control Act, 1958 came up for consideration
before this Court in M. M. Chawla v. J. S. Sethi(1) where
the question was whether in answer to a suit for eviction
filed by the landlord, the tenant was entitled by way of
defence to ask the Controller to fix the standard rent of
the premises and to resist eviction by paying or depositing
the standard rent so fixed even though at the date of the
filing of the defence, the period of limitation for making
an application for fixation of the standard rent had
expired. The argument of the tenant was that by reason of
the prohibition enacted in section 4 and sub-section (1) of
section 5, it was not competent to the landlord to claim or
receive any amount in excess of the standard rent and even
though the period of limitation prescribed for making an
application for fixation of standard rent had expired, the
tenant was entitled to ask the Controller by way of defence
to fix the standard rent, since the period of limitation was
applicable only where a substantive application was made for
fixation of standard rent and it had no application where
the fixation of standard rent was sought by way of defence.
This Court speaking through Shah, J. negatived the
contention of the tenant and construing the scheme of the
Act, pointed out:
".............................. the prohibition in
sections 4 and 5 operate only after the standard rent
of
621
premises is determined and not till then. So long as
the standard rent is not determined by the Controller,
the tenant must pay the contractual rent: after the
standard rent is determined the landlord becomes
disentitled to recover an amount in excess of the
standard rent from the date on which the determination
operates.
We are unable to agree that standard rent of a
given tenement is by virtue of s. 6 of the Act a fixed
quantity, and the liability for payment of a tenant is
circumscribed thereby even if the standard rent is not
fixed by order of the Controller. Under the scheme of
the Act standard rent of a given tenement is that
amount only which the Controller determines. Until the
standard rent is fixed by the Controller the contract
between the landlord and the tenant determines the
liability of the tenant to pay rent. That is clear from
the terms of section 9 of the Act. That section clearly
indicates that the Controller alone has the power to
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fix the standard rent, and it cannot be determined out
of court. An attempt by the parties to determine by
agreement the standard rent out of court is not
binding. By section 12 in an application for fixation
of standard rent of premises the Controller may give
retrospective operation to his adjudication for a
period not exceeding one year before the date of the
application. The scheme of the Act is entirely
inconsistent with standard rent being determined
otherwise than by order of the Controller. In our view,
the prohibition against recovery of rent in excess of
the standard rent applies only from the date on which
the standard rent is determined by order of the
Controller and not before that date."
it was, thus, held that the prohibition in section 4 and
sub-section (1) of section 5 against recovery by the
landlord of any amount in excess of the standard rent was
operative only after the standard rent was fixed by the
Controller under section 9 and until the standard rent was
so fixed, it was lawful for the landlord to receive the
contractual rent from the tenant and if the period of
limitation prescribed for making an application for fixation
of the standard rent had expired, the tenant could not,
thereafter, get the standard rent fixed by the Controller
and would continue to be liable to pay the contractual rent
to the landlord. The Revenue relied heavily on this decision
and contended that since in each of the present appeals the
building was let out to the tenant, but its standard rent
622
was not fixed by the Controller under section 9 and the
period of limitation for making an application for fixation
of the standard rent had expired, the landlord was entitled
to continue to receive the contractual rent from the tenant
without any legal impediment and hence the annual value of
the building was not limited to the standard rent
determinable in accordance with the principles laid down in
the Act, but was liable to be assessed by reference to the
contractual rent recoverable by the landlord from the
tenant. The argument of the Revenue was that if it was not
penal for the landlord to receive the contractual rent from
the tenant, even if it be higher than the standard rent
determinable under the provisions of the Act, it would not
be incorrect to say that he landlord could reasonably expect
to let the building at the contractual rent and the
contractual rent therefore provided a correct measure for
determination of the annual value of the building. This
argument, plausible though it may seem at first blush, is in
our opinion not well founded and must be rejected.
Ordinarily we would have examined the validity of this
argument first on principle and then turned to the
authorities, but we propose to reverse this order because
the decisions in the Life Insurance Corporation’s case and
the Guntur Municipal Council’s case (supra) completely cover
the present controversy and do not leave any scope for
further argument. Of course, the decision in Padma Devi’s
case may be said to be distinguishable on the ground that in
the present cases, unlike Padma Devi’s case, the standard
rent of the building was not fixed by the Controller and
hence it could not be said that it was unlawful or penal for
the landlord to receive anything more than then the standard
rent. But so far as the decision in Life Insurance
Corporation’s case is concerned, it is difficult to see how
its applicability could be disputed, because there also, as
in the present case, the standard rent of the building was
not fixed by the Controller and in the absence of fixation
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of the standard rent, it was open to the landlord to receive
rent in excess of the standard rent determinable under the
Act. The only distinction which could be urged on behalf of
the Revenue was that under the West Bengal Premises Rent
Control (Temporary Provisions) Act, 1950, which came up for
consideration in the Life Insurance Corporation’s case, the
standard rent was statutorily determinable on the
application of a mathematical formula without any discretion
being left in the Controller, while under the Delhi Rent
Control Act, 1958, the standard rent was not a certain and
definite figure to be arrived at mathematically by
application of the formulae laid down in section 6 but it
was left to the Controller under section 9 sub-section (2)
to
623
fix the standard rent at such amount as appeared to him to
be reasonable having regard to the provisions of section 6
and the circumstances of the case and hence, until the
standard rent was fixed by the Controller, it could not be
said what would be the standard rent of the building. Now
undoubtedly there is some difference in the provisions of
the two statutes but this difference is not of such a
character as to affect the applicability of the decision in
the Life Insurance Corporation’s case, because in that case
too, the prohibition against the landlord to receive any
rent in excess of the standard rent was operative only after
the fixation of the standard rent by the Controller and so
long as the standard rent was not fixed, it was not unlawful
or penal for the landlord to receive any rent in excess of
the standard rent. If the standard rent though not fixed and
hence not legally enforceable, could provide the measure for
the reasonable expectation of the landlord to receive rent
from a hypothetical tenant in the Life Insurance
Corporation’s case, there is no reason, why it should not
equally be held to provide such measure in the present
cases; as in the one case so also in the other. The upper
limit of the standard rent, though yet to be fixed by the
Controller, would enter into the determination of the
reasonable rent. Moreover, it is not correct to say that
under section 9 sub-section (2) of the Delhi Rent Control
Act, 1958 it is left to the unfettered and unguided
discretion of the Controller to fix any standard rent which
he considers, reasonable. He is required to fix the standard
rent in accordance with the relevant formula laid down in
section 6 and he cannot ignore that formula by saying that
in the circumstances of the case, he considers it reasonable
to do so. The only discretion given to him is to make
adjustments in the result arrived at on the application of
the relevant formula, where it is necessary to do so by
reason of the fact that the landlord might have made some
addition, alteration or improvement in the building or
circumstances might have transpired affecting the condition
or utility of the building or some such circumstances of
similar character. The compulsive force of the formulae laid
down in section 6 for the determination of the standard rent
is not in any way whittled down by section 9 sub-section (2)
but a marginal discretion is given to the Controller to
mitigate the rigour of the formulae where the circumstances
of the case do require. The amount calculated in accordance
with the relevant formulae set out in section 6 would,
therefore, ordinarily represent the standard rent of the
building, unless the landlord or the tenant, as the case may
be, can persuade the Controller that there are circumstances
requiring adjustment in the amount so arrived at. It would
thus be seen that there is no material distinction between
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the West Bengal Premises
624
Rent Control (Temporary Provisions) Act, 1950 and the Delhi
Rent Control Act, 1958 so far as the provisions regarding
determinations of standard rent are concerned and the
decision in the Life Insurance Corporation’s case must be
held to be applicable in determination of that annual value
in the present cases.
But more than the decision in the Life Insurance case
decision, it is the Guntur Municipal Council’s case which is
nearest to the present case and is almost indistinguishable.
In that case also, so in the present cases, the standard
rent of the building was not fixed by the Controller and
under the Andhra Pradesh Rent Act which applied in the town
of Guntur, in the absence of fixation of the fair-rent, it
was lawfully competent to the landlord to recover rent in
excess of the fair-rent determinable under that Act.
Moreover, the Andhra Pradesh Rent Act did not prescribe any
clear-cut formula to be applied mechanically for statutorily
determining the standard rent, but it was left to the
Controller to fix the standard rent having regard to (a) the
prevailing rates of rent in the locality for the same or
similar accommodation in similar circumstances during the 12
months prior to 5th April, 1944; (b) the rental value
entered in the property tax assessment book of the concerned
local authority relating to the period mentioned in clause
(a) and (c) the circumstances of the case, including any
amount paid by the tenant by way of premium or any other
like sum in addition to rent after 5th April 1944 with a
provision for allowance of increase depending on the quantum
of the rent so arrived at. The discretion left to the
Controller to fix the fair rent was thus much larger than
that under the Delhi Rent Control Act, 1958 and yet it was
held that, even though the fair rent was not fixed by the
Controller, the annual value was limited by the measure of
the fair-rent determinable under the Act. The view taken was
that there was no material distinction between buildings
fair-rent of which has been actually fixed by the Controller
and those in respect of which no such rent has been fixed
and even if the fair-rent has not been fixed by the
Controller, the upper limit of the fair-rent payable in
accordance with the principles laid down in the Act is bound
to enter into the determination of the rent which the
landlord could reasonably expect to receive from a
hypothetical tenant. The principle of this decision applies
wholly and completely in the present cases and following
that principle, it must be held that the annual value of a
building governed by the Delhi Rent Control Act 1958 must be
limited by the measure of standard rent determinable under
that Act. The landlord cannot reasonably expect to get more
rent than the standard rent payable in accordance with the
principles laid down in the Delhi Rent
625
Control Act, 1958. It is true that the standard rent of the
building not having been fixed by the Controller, the
assessing authority would have to arrive at its own figure
of standard rent by applying the principles laid down in the
Delhi Rent Control Act, 1958 for determination of standard
rent, but that is a task which the assessing authority would
have to perform as a part of the process of assessment and
in the Guntur Municipal Council’s case, this Court has said
that it is not a task foreign to the function of assessment
and has to be carried out by the assessing authority. When
the assessing authority arrives at its own figure of
standard rent by applying the principles laid down in the
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Act, it does not, in any way, usurp the functions of the
Controller, because it does not fix the standard rent which
would be binding on the landlord and the tenant, which can
be done only by the Controller under the Act, but it merely
arrives at its own estimate of standard rent for the purpose
of determining the annual value of the building. That is a
perfectly legitimate function within the scope of the
jurisdiction of the assessing authority.
Now it is true that in the present cases the period of
limitation for making an application for fixation of the
standard rent had expired long prior to the commencement of
the assessment years and in such of the cases, the tenant
was precluded by section 12 from making an application for
fixation of the standard rent with the result that the
landlord was lawfully entitled to continue to receive the
contractual rent from the tenant without any let or
hindrance. But from this fact-situation which prevailed in
each of the cases, it does not follow that the landlord
could, therefore, reasonably expect to receive the same
amount of rent from a hypothetical tenant. The existing
tenant may be barred from making an application for fixation
of the standard rent and may, therefore, be liable to pay
the contractual rent to the landlord, but the hypothetical
tenant to whom the building is hypothetically to be let
would not suffer from this disability created by the bar of
limitation and he would be entitled to make an application
for fixation of the standard rent and may, therefore, be
liable to pay the contractual rent to the landlord, but the
hypothetical tenant to whom the building is hypothetically
to be let would not suffer from this disability created by
the bar of limitation and he would be entitled to make an
application for fixation of the standard rent at any time
within two years of the hypothetical letting and the limit
of the standard rent determinable under the Act would,
therefore, inevitably enter into the bargain and
circumscribe the rate of rent at which the building could
reasonably be expected to be let. This position becomes
absolutely clear if we take a situation where the tenant
goes out and the building comes to be self-occupied by the
owner. It is obvious that in case of a self-occupied
building, the annual value would be limited by the measure
of standard rent determinable under the Act, for it can
reasonably be presumed that no hypothetical tenant would
ordinarily agree to pay
626
more rent than what he could be made liable to pay under the
Act. The anomalous situation which would thus arise on the
contention of the Revenue would be that whilst the tenant is
occupying the building the measure of the annual value would
be the contractual rent, but if the tenant vacates and the
building is self-occupied, the annual value would be
restricted to the standard rent determinable under the Act.
It is difficult to see how the annual value of the building
could vary accordingly as it is tenanted or self-occupied.
The circumstance that in each of the present cases the
tenant was debarred by the period of limitation from making
an application for fixation of the standard rent and the
landlord was consequently entitled to continue to receive
the contractual rent, cannot therefore affect the
applicability of the decisions in the Life Insurance
Corporation’s case and the Guntur Municipal Council’s case
and it must be held that the annual value of the building in
each of these cases was limited by the measure of the
standard rent determinable under the Act.
The problem can also be looked at from a slightly
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different angle. When the Rent Control Legislation provides
for fixation of standard rent, which alone and nothing more
than which the tenant shall be liable to pay to the
landlord, it does so because it considers the measure of the
standard rent prescribed by it to be reasonable. It lays
down the norm of reasonableness in regard to the rent
payable by the tenant to the landlord. Any rent which
exceeds this norm of reasonableness is regarded by the
legislature as unreasonable or excessive. When the
legislature has laid down this standard of reasonableness,
would it be right for the Court to say that the landlord may
reasonably expect to receive rent exceeding the measure
provided by this standard? Would it be reasonable on the
part of the landlord to expect to receive any rent in excess
of the standard or norm of reasonableness laid down by the
legislature and would such expectation be countenanced by
the Court as reasonable? The legislature obviously regards
recovery of rent in excess of the standard rent as
exploitative of the tenant and would it be proper for the
Court to say that it would be reasonable on the part of the
landlord to expect to recover such exploitative rent from
the tenant ? We are, therefore, of the view that, even if
the standard rent has not been fixed by the Controller, the
landlord cannot reasonably expect to receive from a
hypothetical tenant anything more than the standard rent
determinable under the Act and this would be so equally
whether the building has been let out to a tenant who has
lost his right to apply for fixation of the standard rent or
the building is self-occupied by the owner. The assessing
authority would, in either case, have to arrive at its own
figure of the standard rent by
627
applying principles laid down in the Delhi Rent Control Act,
1958 for determination of standard rent and determine the
annual value of the building on the basis of such figure of
standard rent.
It is, therefore, clear that in each of the present
cases, the annual value of the building must be held to be
limited by the measure of the standard rent determinable on
the principles laid down in the Delhi Rent Control Act, 1958
and it cannot exceed such measure of standard rent. We
accordingly allow Appeals Nos. 1143 and 1144 of 1973 and
declare in such of these two cases that the assessment of
the Annual value of the building in excess of the standard
rent determinable on the principles laid down in the Delhi
Rent Control Act, 1958 was illegal and ultra vires. So far
as Appeal No. 1201(N) of 1973 preferred by the Municipal
Corporation of Delhi is concerned, it relates to assessment
of annual value of self-occupied building and since we have
held that in case of self-occupied building also the annual
value must be determined on the basis of the standard rent
determinable under the provisions of the Delhi Rent Control
Act, 1958 and there we have agreed with the judgment of the
High Court, that appeal must be dismissed. The assessee in
each case will get his costs throughout.
N.K.A. C.A. Nos. 1143 & 1144/73 allowed.
C.A. 1201 (N)/73 dismissed.
628