PETITIONER: GODHRA BOROUGH MUNICIPALITY Vs. RESPONDENT: GODHRA ELECTRICITY CO. LTD. DATE OF JUDGMENT: 20/03/1968 BENCH: MITTER, G.K. BENCH: MITTER, G.K. SHAH, J.C. CITATION: 1968 AIR 1504 1968 SCR (3) 481 ACT: The Bombay Municipal Boroughs Act, 1925, s. 73-Rules 4 and 5'Rate' leviable under s. 73 on lands and buildings-Certain lands and buildings to be taxed under r. 4(1) on capital basis-Method of evaluations of capital value-English law relating to 'rates', relevance of- Contractors' method of evaluation recommended-Data in company's balance sheet whether 'reliable data' for purpose of r. 5. HEADNOTE: Under s. 73 of the Bombay Municipal Boroughs Act, 1925 read with rr. 4(1) and 5 made thereunder a -rate on nonresidential buildings belonging to factories and mills was leviable on a capital basis, and the capital value for this purpose was to be worked out, if 'reliable data' were furnished by the assessee, on the basis of such data. The respondent company owned certain buildings on which rat- was leviable under r. 4(1) on the basis of capital value. The respondent company claimed that the actual cost of construction of the buildings in 1920 ought to be taken -as the capital value. The Municipality of Godhra however made its own estimate of the capital value. Thereafter the Judicial Magistrate and the Sessions Judge made valuations taking into account the rise in the cost of building materials since 1920. The High Court in revision upheld the view that the actual cost minus depreciation thereon should be the capital value; it observed that the English law and practice as to levy of rates was not relevant in the Indian context. The Municipality appealed. HELD: (i) When legislatures in this country enact statutes which closely resemble statutes in England and have the same purpose and object in view, then unless the expressions used in the Indian Statutes are defined courts of law cannot go wrong in interpreting them in the way English judges have done. Further, the words which have acquired a particular shade of meaning in England may be given the same meaning unless there is anything in the statute its,--If which would be contraindicative. [486-F-G] (ii) Section 73 empowered the municipality to impose a rate on buildings or lands. The word 'rate' had not been defined in the Act but it has a well known meaning. In Patel Gordhandas,s, case this Court examined various statutes bearing on the English rating law and held that the word 'rate' was used with respect to a tax which was levied on the -net annual value or rateable value of lands and buildings and not on their capital value, but capital value could be adopted as the basis for working out the annual value. [485G-486E] (iii) Rule 4 of the Godhra Municipal Rules shows what properties are to be valued on capital basis. What the capital basis is not defined. The capital value however can be determined in the way laid down in Patel Gordhandasg case by adopting the contractor's method. [487B]. (iv) The figures given in the balance sheet of the company could not be regarded as 'reliable data' for the purpose of r. 5. The figures given in the balance sheet are merely statements in terms of the form given in 482 Schedule VI. They have no relevance in determining the capital value of property for the purpose of assessment to a rate. [488 B-C] [Case remanded to District Judge for determining capital value by adopting contractors method in the -light of the observations made by this Court.] Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad, [1964] 2 S.C.R. 608, relied on. R. v. School Board for London, (1885) 55 L.J.M.C. 33, referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 631 and 632
of 1965.
Appeals by special leave from the judgment and order dated
January 7, 8, 1963 of the Gujarat High court in Civil
Revision Applications Nos. 116, 117, 173 and 174 of 1961.
Purshottam Trikamadas and I. N. Shrojj for the appellant (in
both the appeals).
S. S. Shukla, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Mitter, J. These are two appeals by special leave against
the judgment and order dated January 8, 1963 of the Gujarat
High Court dismissing Civil Revision Applications 116 and
117 of 1961 filed by the appellant and all-owing similar
applications Nos. 173 and 174 of 1961 filed by the
respondent against the common judgment dated December 1,
1960 passed by the District and Sessions Judge of
Panchmahals.
The matter arises out of assessments made by the appellant
constituted under the Bombay Municipal Boroughs Act, 1925 on
the respondent under section 73 of the Act. The respondents
are an electricity company owning inter alia properties
bearing several numbers in the municipal borough of Godhra.
For the years 1956-57 and 1957-58 the appellant had fixed
the valuation of the properties belonging to the respondent
at Rs. 3,25,000/-. On appeal by the respondent, the
Judicial Magistrate fixed the valuation of the properties at
Rs. 90,000/-. On the appellant going in revision, the
Sessions Judge fixed the valuation at Rs. 1,25,000/-. As a
result of the High Court’s decision the valuation stood
reduced to Rs. 90,000/-. The present appeals are by the
Municipality.
Under s. 73(1) of the Bombay Municipal Boroughs Act, 1925
(hereinafter referred to as the ‘Act’)
“Subject to any general or special orders
which the State Government may make in this
behalf and to the provisions of sections 75
and 76, a municipality may impose for the
purposes of this Act any of the following
taxes, namely-
483
(i) a rate on buildings or lands or both
situate within the municipal borough.”
The procedure preliminary to imposing tax is laid down in s.
75 and s. 78 deals with the preparation of an assessment
list. Section 58 empowers the municipality to make rules
prescribing the taxes to be levied in a municipal brought
for municipal purposes etc. Rules 4, 5 and 7 relevant for
our purpose read as follows:
“4. Modes of valuation: (1) For the purpose of
detennining tax the following properties shall
be valued on the capital basis :-
(a) All open lands, buildings and yards
belonging to the Railway Administration.
(b) All buildings and lands other than those
which are actually used for residential
purposes belonging to Mills and Factories to
which the Indian Factories Act, is applied.
(2) All properties other than those mentioned
above shall be valued on the basis of the
annual letting value as defined in section
3(1) of the Act.
5. Mode of determining capital value: The
capital value of properties mentioned in rule
4(1) shall, in each case, be determined on
such reliable data as the Railway Authorities
and the Agents of the mills and the factories
may furnish when called upon from time to time
to do so and in the absence of any such trust-
worthy reliable data, it shall be determined
by the Chief Officer or by expert valuers
employed by the municipality for that purpose.
6…………………………
7. Amount of tax : (1) in case of properties
which as stated above, are valued on the
capital basis the tax to be levied shall be
assessed at Rs. 0-8-0 per cent of the capital
value and it shall be a direct tax thereon
provided however that any fraction of hundred
in excess of fifty rupees shall be taken as
the next higher hundred and any fraction of
fifty rupees or less be taken as the lower
hundred.
(2) In case of properties which, as stated
above, are valued on the annual letting value
the tax to be levied shall be assessed as
-shown in the appendix annexed hereto.”
484
Under rule 4(1) (b) above, the buildings of the respondent
had to be valued on the capital basis. Under r. 5 the
capital, value of properties had to be determined on such
reliable data as the respondent might furnish and in the
absence thereof, it would be the duty of the Chief Officer
to determine the same. Before the Judicial Magistrate, one
R. R. Tewari, an Assistant Secretary of the respondent who
had affirmed an affidavit showing that the approximate value
of the seven items of property on which tax was sought to be
imposed as per the books of the company was Rs. 41,541-12-9.
He sought to rely on the balance sheets and accounts of the
company audited under the Companies Act for the purpose.
The Judicial Magistrate observed that the properties were 40
years old and according to Tewari the life of the office
buildings was 50 years while that of others was only 30
years. Acting on the admission of Tewari that the price of
building materials had increased three times the original
figures in 195657 and taking, into Consideration the
properties were over 40 years old, the Magistrate assessed
the capital value at Rs. 90,000/-.
The Sessions Judge dealt with the matter in greater detail
and noted that neither party had given him real assistance
in determining what should be the proper assessment.
According to him the assessment papers preceding the bills
had not been produced and neither party had led any evidence
as to how the capital value was to be arrived at. He
however felt that the capital value could not mean merely
the book value shown in the books of account ,of the
assessee. He noted that according to the balance sheet for
1955-56 the property and assets under the head”buildings”
was shown as below:
Buildings.
Cost up to 31st March 1955 Rs. 1,72,866-5-11
Additions during the year 12,398-10- 3
Total Rs. 1,85,265-0-2
The said figure included the value of all the buildings of
the ,company but those which were to be assessed were only
seven ,out of which two residential bungalows and servants
quarters’ were to be assessed on the rental value. The
Sessions Judge therefore inferred from the above figures
that Rs. 1,85,265/- included at least Rs. 1,00,000/- as the
cost up to 31st March, 1955 of the factory buildings in
question. The Sessions Judge found himself unable to accept
the contention that the depreciated selling value of the
property was the capital value for the purpose of assessment
of house tax. He also did not accept the municipality’s
,contention that the cost of construction of buildings had
gone up
485
five times since 1920. Considering the rival contentions he
fixed the capital value at three times the figure shown by
the company, viz., Rs. 41,541/- and rounded the same off to
Rs. 1,25,000/-.
Taking the view that it was not open to “a Judge in India to
base his judgment as a whole or in part or his conclusion
upon either Halsbury’s Laws of England or Bean and Lock
wood’s book on Rating Valuation Practice” on the ground that
these books were irrelevant under the Indian Evidence Act,
the learned Judge of the High Court held that “capital
value” in night possibly bear four different meanings but
the meaning given to the expression in Halsbury’s Laws of
England was “not appropriate in the context of -the Indian
enactment and the Indian Rules”. Referring to the rules
made by Godhra Municipality he observed that it could not be
said that the municipality had adopted the capital value as
one of the methods of ascertaining the rental value or that
the municipality had adopted the rental value as one of the
methods of ascertaining the capital value. According to the
learned Judge,
“capital value’ has to be treated as meaning
the value of the building treated as capital
at the time of the assessment; in other words,
the original cost of construction minus the
depreciation or at the most the original cost
of construction without depreciation.”
Accepting the figure of Rs. 41,541-12-,9 as the cost of
construction of the building in 1920 as found by the courts
below, he observed that the capital value should be “either
Rs. 41,541-12-9 or something less after deducting
depreciation.” According to him “the assessee has not come
in revision against the order of the Magistrate fixing the
value at Rs. 90,000/-. Both the courts have erred in
considering the probable cost of construction of a new
building.” He therefore held that the courts below had
committed a material mistake in the exercise of jurisdiction
in relying upon the probable cost of constructing a new
building of a similar type in order to estimate the capital
value as contemplated by Godhra Municipality and accordingly
reduced the capital value fixed by the Sessions Judge to Rs.
90,000/-.
We find ourselves unable to accept the views expressed or
the reasoning given in the judgment of ‘the High Court.
Section 73 empowered the municipality to impose a rate on
buildings or lands. Now the word ‘rate’ had not been
defined in the Act but it has a well known meaning. As
observed in Patel Gordhandas Hargovindas v. Municipal
Commissioner, Ahmedabad(‘) the word has come to our country
for the purpose of local taxation from England.” In that
case this Court examined Various statutes bearing on the
English Rating Law and held that the word “‘rate’ was
(1) [1964] 2 S.C.R.608 at 616.
486
used with respect to a tax which was levied on the net
annual value or rateable value of lands and buildings and
not on their capital value. It would therefore not be wrong
to say that in the legislative history and practice in
England up to 1925, ‘rate for the purpose of local taxation
meant a tax on the annual value of lands and buildings
liable to such taxation.”
The Court went on to examine the methods in use for the
purpose of ascertaining the rateable value which were
generally three. It was said :
“Where the land or building was actually let,
the valuation was based on the rent at which
it was let. Where, however, the land -or
building was not let, two methods were evolved
for the purpose of finding out the rateable
value. The first was to assume a hypothetical
tenancy (such as where the same person is the
owner and occupier) and find out the rent at
which the premises would be let. The second
was based on the capital value of the
premises. But the tax was not levied on the
capital value itself.; the capital value was
determined on the structural value of the
building to be assessed by what was known to
be contractors method or contractor’s test in
addition to the market value of the land.
Sometimes the words “effective capital value”
were also used since in most cases the actual
capital cost of the building plus the market
value of land might for some reason or the
other be in effective i.e., it might not be
rent producing. Having arrived at the
effective capital value it was necessary to
apply percentages thereto in order to arrive
at the annual value.”
When legislatures in this country enact statutes which
closely resemble statutes in England and have the same
purpose and object in view, then unless the expressions used
in the Indian Statutes are defined, courts of law cannot go
wrong in interpreting them in the way English Judges have
done. Further, the words which have acquired a particular
shade of meaning in England may be given the same meaning
unless there is anything in the statute itself which would
be contra indicative. In Patel Gordhandas’s case(‘) the
statute which this Court had to interpret was the same Act
which is before us in this case. Consequently, that
decision affords us a good guide in forming our own
conclusions in this case. Section 75 of the Act has an
Explanation introduced in 1966 which reads as follows :
“Explanation-For the purposes of a rate on
buildings or lands, the basis of valuation may
be-
(i) the annual letting value;
(1) [1964] 2 S.C.R. 608.
487
(ii) the annual value;
(iii) the floor area, in the case of Mills,
Factories and buildings and lands connected
therewith;
(iv) the capital value, in the case of vacant
lands.”
The Explanation is deemed always to have been substituted
for the original by Maharashtra Act 3 of 1966, s. 3(b).
Rule 4 of Godhra Municipal Rules shows what properties are
to be valued on the capital basis. What the capital basis
is not defined. The capital value however can be determined
in the way laid down in Patel Gordhandas’s case(‘) by
adopting the contractor’s method. What that method is has
been explained in Ryde on Rating (Eleventh Edition) Chapter
20. In R. v. School Board for London(‘) Cave, J. applied
the contractor’s test to schools. Ryde points out that it
was tacitly recognised as applicable in various other cases.
The principle on which the contractor’s basis rests are
given by the author at page 439 and the method of its
application is given at page 442. The learned author notes
that in “applying the contractor’s basis it is possible to
discern five stages. The first stage is the estimation of
the cost of construction of the building.” There is a
difference of view as to whether it is better to take the
cost of relacing the actual building. as it is, or,the cost
of a substitute building on the same plan as the actual
building but otherwise in an up-to-date form. The second
stage is “to make deductions from the cost of construction
to allow for age, obsolescence and any other factors
necessary to arrive at the I effective capital value. “The
third stage is to estimate the cost of the land. The fourth
stage is to apply the market rate or rates at which money
can be borrowed or invested to the effective capital value
of the building and the land. The fifth stage is to con-
sider whether the result of the fourth stage really
represents what the hypothetical tenant would pay for the
annual tenancy on the statutory terms, and to make any
adjustments necessary to ensure that no higher rent is fixed
as the basis of assessments than that which it is believed
the owner would really be willing to pay for the occupation
of the premises.
Rule 5 of the Godhra Municipal Rules lays down that the
capital value is to be determined in each case on reliable
data furnished by the Mills and the Factories when called
upon to do so and in the absence thereof is to be determined
by the Chief Officer or expert valuer. The learned counsel
for the respondent contended that here there were reliable
data in that the balance sheet of the company showing the
value of these properties for the purpose of the Companies
Act and there was no reason why the same figures should not
be adopted as the capital value of the lands
(1) [1964] 2 S. C.R. 608.
(2) (1885) 55 L.J.M.C. 33; 17 Q.B.D. 738 C.A.
488
and buildings within the jurisdiction of Godhra
municipality. This clearly is fallacious as under section
211 of the Companies Act, 1956 the balance sheet of a
company has to be drawn up in the form prescribed by
Schedule VI. Under the said Schedule, Part 1, the value of
fixed assets has to be shown “distinguishing as far as
possible between expenditure upon (a) good-will, (b) land,
(c) buildings, (d) leaseholds, (e) railway sidings, (f)
plant and machinery, (g) furniture and fittings’. (h)
development of property etc. The fourth column of the form
which gives the instructions in accordance with which assets
should be made out shows under each head “the original cost
and ‘ the additions thereto and deductions therefrom during
the year, and the total depreciation written off or provided
up to the end of the year is to be stated.” It will there-
fore be noticed that the figures given in the balance sheet
are merely statements in terms of the form given in Schedule
VI. They have no relevance in determining the capital value
of property for the purpose of assessment to a rate.
It appears to us therefore that the true method of
determination of the capital value was not adopted in the
courts below. We therefore set aside the judgment and order
of the High Court and remand the matter back to the District
Judge for him to determine the capital value in the light of
the observations made by us after giving an opportunity to
the parties to adduce evidence on the subject. The costs
will abide by the decision of the District Judge.
G.C. Appeal allowed and case remanded.
489
