PETITIONER: MOTICHAND HIRACHAND & ORS Vs. RESPONDENT: BOMBAY MUNICIPAL CORPORATION DATE OF JUDGMENT: 15/09/1967 BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. SHAH, J.C. SIKRI, S.M. CITATION: 1968 AIR 441 1968 SCR (1) 546 CITATOR INFO : D 1974 SC1779 (17) ACT: Bombay Municipal Corporation Act (Bom. 3 of 1888), S. 154(i) Income from display of advertisement-If can be included in rateable value. HEADNOTE: The respondent municipal Corporation increased the rateable value of a building assessed the actual rent recovered by Appellant--owner, by adding the income derived by the owner under an agreement entitling a Company to display an advertisement on the roof of the building. The owner successfully filed a complaint against the increase which was upheld by the Small Cause Court to the High Court, and its confirmed the enhancement In appeal, this Court: HELD: The High Court was right in confirming the enhancement of the annual rent. If a building or a part of it yields an extra income over and above the actual rent derived from it, such income on the terms of, s. 154 (i) of the Bombay Municipal Corporation Act, can legitimately be taken into consideration by the assessing authority while determining the annual rent on the ground that a hypothetical tenant would take such extra income into account while considering what rent he can afford to offer for such building. [553B] The hypothetical tenant includes all persons who might possibly take the property including the persons 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. Therefore, the mere fact that the income from the agreement is not rent but licence fee does not justify on any principle of rating ,or any construction of s. 154 of the Act, disregard of it, while estimating the rent which the property would be expected to fetch. [549B; C; 550G-H] Though the owner of the building could not charge rent over and above that which was permissible under the provisions of the Rent Act, there was nothing in that Act which prohibited him from charging an amount from an advertiser in consideration of displaying his advertisement. [551D] Mahad Municipality v. Bombay S.R.T. Corporation, LXIII Bom- bay Law Reporter, 174; Cartwright v. Sculoates Union, [1900] A.C. 150; Robinson Bros. v. Houghton and Chester-le-Street Assessment Committee, [1937] 2 K.B. 445, Taylore v. Overseers of Pandleton, (1887) 19 Q.B.D. 239, Wilson v. Tavender (1901) 1 Ch. 578, Corporation of Calcutta v. Anil Prakash Basu A.I.R. 1958 Cal. 423, referred to. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 378 of 1965.
Appeal from the Judgment and decree dated April 9, 1963 of
the Bombay High Court in First Appeal No. 616 of 1961.
Rai Bahadur and B. R. Agarwala, for the appellants.
S. T. Desai, O. P. Malhotra and 0. C. Mathur, for the res-
pondent.
547
The Judgment of the Court was delivered by
Shelat, J. Whether in determining the rateable value of a
building the assessing authority under s. 154(1) of the
Bombay, Municipal Corporation Act, III of 1888 can take into
consideration income derived by the owner under an agreement
entitling an advertisement hoarding to be put up on the roof
of such building is the question arising in this appeal.
For consideration of this question a few relevant facts may
first be recited. The appellants are the owners of
“Fulchand Nivas”, a building situate at the corner of what
was known at the relevant time as Marine Drive and Sandhurst
Road opposite Chowpatty Sea Face, Bombay. The building
consists of ground and five upper floors and a terrace. The
ground floor and five upper floors of the building were and
are let out. For the last few years the Municipal
Corporation has been assessing the rateable value of the
building as equivalent to the actual rents recovered by the
owners. After the rateable value for the year 1956-57 was
assessed it was found that the terrace of the building was
used for advertising Tata Mercedes-Benz Automobile Trucks
and Buses by means of a neon-sign. This was done under an
agreement dated February 5, 1957 entered into by the
appellants under which the Tata Locomotive and Engineering
Co. Ltd., had a reed to pay to the appellants Rs. 800 per
month in consideration of their being allowed to display the
said advertisement and a further sum of Rs. 700 in
consideration of the owners agreeing not to allow any one
else to use-any portion of the said building for displaying
any advertisement save those of the tenants on the ground
floor not above the level of the height of the ground floor.
The agreement provided also that it would be the owners who,
during the continuance of the agreement, would pay all
existing and future rates, taxes etc., which would be
assessed, imposed, charged or become payable in respect of
the said building or the said advertisement except the
Municipal Licence fee in respect of the said advertisement
which would be borne by the Company. On March 3, 1958 the
respondent corporation issued a notice under section 167 of
the Act informing the owners that the assessment book had
been amended and that the amount of the rateable value of
the building was increased from Rs. 44,320 to Rs. 64,685.
The appellants thereupon filed a complaint under section
163(2) of the Act against the said increase and the
assessing authority by an order dated February 21, 1959
reduced the rateable value from Rs. 64,685 to Rs. 59,600.
In maintaining the increase from Rs. 44,320 to Rs. 59,600
the assessing authority took into account the additional
income arising from the said agreement and received by the
appellants. The appellants thereupon filed an appeal before
the Chief Judge, Small Cause Court, Bombay, objecting to the
said increase. The Chief Judge disallowed the said increase
and directed that the rateable value should be Rs. 44,320.
The Chief Judge held that under the said agreement
548
there was no demise or transfer of an interest in the said
property in favour of the Committee, that the said agreement
amounted merely to a licence revocable at any time though
subject to the express terms of the agreement and was no
more than a grant of ‘a right in gross to display neon-sign
outside the property and that the, only user of the property
was that of a small portion of the terrace used as a base
for the said advertisement. He held that it was not any
inherent or intrinsic quality ‘of any portion of the
property which commanded such a high consideration as the
sum of Rs. 1,500 per month. Aggrieved by this order, the
respondent Corporation filed an appeal before the High Court
at Bombay. The High Court held that the Chief Judge was in
error in holding that the Municipal Corporation was not
entitled to take into account income earned by the owners
under the said agreement, set aside his order and restored
the original value assessed by the assessing authority at
Rs. 59,600. The High Court analysed section 154 of the Act
and after consideration of the rules as to rating recognised
by several decisions both English and that of the High Court
itself in Mahad Municipality v. Bombay S.R.T. Corporation(1)
held that the said increase was justified. The appellants
then applied for and obtained a certificate under Art.
133(1)(a) of the Constitution and filed this appeal.
Counsel for the owners challenged the correctness of the
High Court’s judgment and order and contended that in deter-
mining the annual rent of the building the assessing
authority can, take into account the rent at which the.
building is expected to be let, that therefore the income
derived from an agreement which amounts to a mere licence
and not a demise cannot be added to such rent, such income
being totally irrelevant to the concept t of annual rent
envisaged in rating. -To appreciate the contention it is
necessary first to examine s. 154(1) of the Act. The
section provides that 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 percentum of the
said annual rent and, the said deduction shall be in lieu of
all allowances for repairs or on any other account whatever.
The assessing authority for the purpose of fixing to
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 percent 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 property. 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
(1) LXIII Bombay Law Reporter, 174.
549
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 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 hypo-
thetical 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 evidence 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. In other
words, in estimating the hypothetical rent “all that could
reasonably affect the mind of the intending tenant ought to
be considered.” (Cartwright v. Sculcoates Union(1). Scott,
L. J. Robinson Bros. v. Houghton and Chester-le-Street
Assessment Committee(‘) observed: –
“It is the duty of the valuer to take into
consideration every intrinsic quality and
every other circumstances which tends to push
the rental value up or down, just bec
ause it
is relevant to the valuation and ought there-
fore to be cast into the scales of the
balance… The ‘objective being the real value
of the actual hereditament, the inquiry is
primarily economic and not legal-, it is only
legal in so far as logical relevance is the
measure of legal admissibility.” (See also
Ryde on Rating, 11th ed., 385, 387).
The measure for purposes of rating is therefore the rent
which a hypothetical tenant, looking at the building as it
is, would be prepared to pay. Though the tenant is
hypothetical and the rent
(1) [1900] A.C. 150.
(2) [1937] 2 K.B. 445 at 469.
550
too is, hypothetical, the property in respect of which he
would estimate that which he would offer as rent is not
hypothetical but concrete. While estimating the rent which
he would be prepared to pay he would naturally take into
consideration all the advantages, together with the
disadvantages attached to the property, that is, the maximum
beneficial use to which he would be able to put the
property. In doing so he is bound to take into
consideration the fact of the property being situated at an
unique place as the instant property undoutedly is, viz., at
the juncture of two of the most prominent roads with the
additional advantage of Chowpatty Sea Face being opposite to
it where in the evenings and on week-ends, it cannot be
questioned, large crowds usually gather. Coupled with this
would be the’ advantage that a neon-sign advertisement can
be vividly seen if fixed on the top of the building by
people, pedestrians and those in vehicles, from fairly long
distances in all directions, especially as the advertisement
happens to be a rotating one. There can therefore be no
doubt that if a property possesses such an amenity, such
amenity is bound to add to its beneficial value and the
tenant who desires to take it on lease is bound to take into
consideration while making up his mind as to the rent which
he can profitably offer as to how much income he would be
able to derive from exploiting such an amenity. The measure
of the hypothetical rent which such a tenant would offer
would thus be the extent of the beneficial use to which he
would be able to put the property on its being demised’ to
him.
That being so it seems to us that the question whether an
agreement under which such a tenant would be able to exploit
the advantageous situation in which the property is situate
amounts to a lease or licence is totally irrelevant for the
purpose of assessing the rateable value. Equally irrelevant
is the question whether the income arising from such an
agreement is rent or licence fee. To consider such income
as irrelevant in the process of rating on the ground that it
does not amount to rent but to licence fee is to misconstrue
the true measure of the rent expected from the prospective
tenant. The tenant would not only take into consideration
the actual rent derived from the property but also such
other income which he would be able to extract from the
situation of the property by exploiting as best as he can
the beneficial use to which the property is capable of being
put. Therefore, the mere fact that the income from the
agreement is not rent but licence fee and therefore cannot
be added to the actual rent fetched by the property does not
justify on any principle ‘of rating or any construction of
section 154 of the Act, disregard of it while estimating the
rent which’ the property would be expected to fetch.
It is true that the rating was so far made including the
year in question on the basis of the actual rent derived
from
551
the property. That appears to have been done because ‘of
the restrictions under the Bombay Rent Act by reason of
which the property cannot be leased at rent higher than the
standard rent allowed under the provisions of that Act.
Since no hypothetical tenant would pay rent higher than such
standard rent the actual rent would ordinarily be the rent
expected’ from a hypothetical tenant. The question would be
whether the Corporation would be justified in enhancing the
rateable value by adding the said sum of Rs. 1500 per month
arising from the said amount? It is true, as ‘observed
earlier, that -the hypothetical rent cannot be in view of
the rent restrictions higher than the actual rent. But the
income arising under the said agreement is not rent realised
from letting out any part of the property to the Company but
is in consideration of the exclusive privilege granted to it
of displaying its neon-sign advertisement. It is manifest
that the user thereunder of part of the terrace adds to the
beneficial value of the building. For such user the owner
can legitimately expect something extra over and above the
standard rent of the building. Though the owner of the
building cannot charge rent over and above that which is
permissible under the provisions of the Rent Act, there is
nothing in that Act which prohibits him from charging an
amount from an advertiser in consideration of the privilege
of displaying his advertisement. A hypothetical tenant,
therefore, would take into consideration such extra income
arising from the special advantage attached to the building
and would be prepared to pay over and above the actual rent
something in respect of such an additional advantage.
Counsel for the appellants relied upon certain decisions
which we may now examine. Taylor v. Overseers of Pendle-
ton(1) is a case where the question was whether the
advertising agent was a tenant or a licensee. If he was a
licensee it would be the owner who would be the- occupier;
if a tenant it would be the advertising agent who would be
the occupier. Since under the English law it is the
occupier and not the owner who is liable for rates it was
held that the agent being the tenant was the occupier and it
was he and not the owner who was liable to pay rates. In
Wilson v. Tavener(2) the defendant agreed by an agreement to
let the plaintiff erect a hoarding upon the forecourt of a
cottage and to allow him the use of a gable end for a bill
posting station at yearly rent. It was held the agreement
did not amount to tenancy from year to year but was a
licence and a quarter’s notice terminating at the end of the
year of the currency of the agreement was a reasonable
notice. These decisions cannot be appropriately brought to
aid by the appellants as under the English law it is the
occupier who is liable for the tax and it is for that reason
that the court had to determine in each case whether the
agreement in question create
(1) [1887] 19 Q.B.D. 289.
(2) [1901] 1 Ch. 578.
552
a demise or a licence. But whether the advertiser was a
lessee or a mere licensee, the income arising from
advertisement hoardings has always been rated irrespective
of the question as to who was liable to pay the tax.
Reliance was placed both before the High Court and also
before us on the decision in Corporation of Calcutta v. Anil
Prakash Basu(1). The building there was let out to the
tenant at Rs. 64 / 14 / -. per month. On the roof of it,
however, the Calcutta. Street Advertising Company had
displayed a neon sign board of Capstain cigarette for which
the owner was paid Rs. 125 per month. The question was
whether the Calcutta Corporation was right in treating this
income as rent within the meaning of s. 127(a) of the
Calcutta Municipal Act, 1923 and take it into account while
determining the annual letting value of the building.
Section 127(a) is as follows.:
“For the purpose of assessing land and
building to the consolidated rate the annual
value of land and the annual value of any
building erected for letting purposes or
ordinarily let shall be deemed to be the gross
annual rent at which the land or building
might at the time of assessment reasonably be
expected to let from year to year less in the
case of a building an allowance of 10% for the
cost of repairs and for all other expenses
necessary to maintain the building in a state.
to command such gross rent.”
The High Court held that the roof of the building on which
the, sign board was put up could not be said to have been
demised, that the amount paid to the owner by the
advertising agency was therefore not rent and that the use
of the roof for putting up the sign board amounted to a
licence and therefore could not be treated as rent for the
purpose of assessing the annual value of the building. The
High Court relied on certain English decisions and also on
its own earlier’ decisions for deciding whether the
agreement between the owner and the advertising agency
amounted to a lease or licence. Having held that the
agreement amounted to a licence and not lease and, the
income was licence fee and not rent it rejected the
contention of the Municipal Corporation that it was entitled
to treat the amount of Rs. 125 a month as rent over and
above the actual rent of the building., It may be observed
that it was never argued before the High Court that the
agreement, whether the said amount was rent or licence fee,
added to the beneficial value of the building, that though
the roof ‘on the terms of that agreement could not be said
to have been demised, what had to be considered under s.
127(a) for assessing the- annual rent of the building was
the,, rent which a hypothetical tenant was expected to pay
and not the actual rent, and whether such hypothetical
tenant would or
(1) A.I.R. 1958 Cal. 423.
553
would not take into consideration the extra income derived
from the use of the roof for the advertising hoarding over
and above the actual rent while deciding what rent he can
profitably offer for the building. Such a question not
having been raised or decided this decision also cannot
assist the appellants.
In our view if the building or a part of it yields am extra
income over and above the actual rent derived from it such
income on the terms of s. 154(1) of the Act can legitimately
be taken into consideration by the assessing authority while
determining the annual rent on the ground that a
hypothetical tenant would take such extra income into
account while considering what rent he can afford to offer
for such building. That being the correct position under s.
154(1) of the Act the High Court, was right in confirming
the enhancement of the annual rent from Rs. 44,320 to Rs.
59,600.
The appeal fails and is dismissed with costs.
Y. P.
n Appeal dismissed.
554