- (1.) Some tax-payers of the appellant-Morvi Municipality [the 'Municipality'] had filed a writ petition in the High Court challenging the validity of the rules made by it for the levy of consolidated property tax on lands and buildings and also the assessment lists prepared and authenticated by the Municipality for the year 1967-68, 1968-69 and 1969-70. There is no dispute that the concerned rules have been made by the Municipality under Sec. 271(1) read with Sec. 99(1) of the Gujarat Municipalities, Act, 1963 [the 'Act']. The relevant contentions of the writ petitioners who are the respondents before us, before the High Court were as follows : 1. Rule 2(7), 4 and 5 of the rules of the consolidated property tax on the lands and buildings were ultra vires Sec. 99(l)(i) and proviso (e) to it read with Sec. 2(1) of the Act.
(2.) The assessment lists for the years 1967-68, 1968-69 and 1969-70 were invalid since they were prepared without following the procedure laid down in Secs. 105 to 112 of the Act. The High Court upheld the validity of Rules 2(7) and 4. No appeal is preferred against that part of the High Court's decision. We are, therefore, concerned in this appeal only with the validity of Rule 5 which has been struck down by the High Court. The High Court has also declared that the tax collected by the Municipality for the assessment years 1968-69 and 1969-70 in excess of the amounts which may he determined in accordance with the principles laid down by it in the judgment under appeal, was without the authority of law. So far as the assessment lists for the said two years are concerned, we are concerned in this appeal only with the validity of the excess amount. However, as far as the assessment list for the year 1967-68 is concerned, it has been struck down in its entirety by the High Court also on the ground that it was not prepared in compliance with the procedure laid down in Secs. 105 to 112 of the Act, Hence we have to consider the validity of the entire assessment for the said year. Rules 4 and 5 have obviously been made by the Municipality to give effect to Sec. 99(l)(i) which provides for imposition of taxes on buildings or lands situate within its limits. That Section reads as follows : '"99. Taxes which may be imposed : (1) Subject to any general or special orders which the State Government may make in this behalf and to the provisions of Secs. 101 and 102, a Municipality may impose for the purposes of this Act any of the following taxes, ramely : (i) a tax on buildings or lands situate within the Municipal borough to be based on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both." Further, clause (e) of the second proviso to sub-sec, (1) of Sec. 99 reads as follows : "(e) the Municipality in lieu of imposing separately any two or more of the taxes described in clauses (i), (vii), (ix) and ix) except a special water rate may impose a consolidated tax assessed as a tax on buildings or lands or both situated within the Municipal borough." Since the Municipality has chosen to impose the tax on the basis of the 'annual letting value' of the buildings and lands and not on the basis of the capital value or percentage of capital value, we have to ascertain in the present case the precise connotation of the expression 'annual letting value'. Section 2(1) of the Act defines the expression 'annual letting value' ay follows : "(I) 'annual letting value" means the annual rent for which any building or land, exclusive of furniture or machinery contained or situate therein or thereon might reasonably be expected to let from year to year, and shall be include all payments made or agreed to be made by a tenant to the owner of the building or land on account of occupation, taxes under any law for the time being in force, insurance or other charges incidental to his tenancy;" The crucial expressions in the above definition are 'might reasonably be expected to let' and 'all payments made or agreed to be made by a tenant to the owner on account of occupation'. Shri Mehta, the learned Counsel for the Municipality contended that the said expressions unmistakably indicate the actual rent received by the landlord from his tenant. According to him, the reasonable rent means the rent which a willing tenant will pay to the willing owner and the agreement between the parties would indicate the same and no more and no less. He further argued that the standard rent under the rent restriction legislation was only one of the factors relevant for the estimation of the reasonable expectation of the rent from the property and was not the sole basis of such rent and hence the assessment can be made on the basis of the actual rent received. 2. It is not necessary for us to go into a detailed discussion of the pros and cons of the question since the question is no longer res Integra. The decisions of this Court rendered in the Corporation of Calcutta v. Smt. Padma Debt & Ors., 1962 (3) SCR 49, Corporation of Calcutta v. Life Insurance Corporation of India, 1971 (1) SCR 248, Guntur Municipal Council v. Guntur Town Rate Payers' Association, 1971 (2) SCR 423 and Dewan Daulat Rai Kapoor & Ors. v. New Delhi Municipal Committee & Ors., 1980 (1) SCC 685 have consistently held that it is not the value of occupation of the property to the tenant, but the rental income from it to the owner which is to be taken into consideration while estimating the reasonable return that a landlord can expect from his property. It has also been held there that wherever the rent is restricted on account of the operation of the rent restriction legislation, the outer limit of the reasonable rent that can be expected from the property stands defined by such restriction. Hence, while estimating or calculating the annual rent which might reasonably be expected from such property, the provisions of such legislation have to be taken into consideration. Different rent restriction legislations have described the maximum rent recoverable under them differently such as standard, rent, fair rent, etc. Hence the annual letting value of the building or land or both to which the rent restriction legislation is applicable cannot exceed the annual standard or fair rent. It is the annual standard/fair rent which alone, therefore, can form the basis of the assessment of the property tax by the local authority. It is true that although a four-Judge Bench of this Court as early as in Padma Debt's case (supra), had taken this view which has been reiterated in the other decisions cited above, a three Judge Bench of this Court in a decision in Municipal Corporation, Indore v. Smt. Ratnaprabha & Ors., 1976 (4) SCC 622 has held that the actual annual rent received by the owner of the property notwithstanding the application of the rent restriction legislation can provide a basis for assessment of the property tax. However, this view taken in the above case has been explained in Dewan Daulat Rai Kapoor's case (supra), which is the latest decision of this Court on the point. It has been pointed out there that the said view in the case of Municipal Corporation, Indore [supra] turned on the presence of the non-obslunte clause - 'notwithstanding anything contained in any other law' in the provisions of the Act levying the property tax there- Since in the present Act, namely, the Gujarat Municipalities Act, 1963, there is no such non-obstante clause, the view taken there would not apply to the present case. Shri Mehta, learned Counsel appearing for the Municipality did not press his further contentions that the presence or the absence of such non-obstante clause would not make any difference to the proposition laid down there that the annual letting value should always be based upon the actual annual rent received and not on the standard or fair rent under the rent restriction legislation. We, therefore, refrain from going into the said question in the present case and leave the point open for consideration, if necessary, in future cases. For our purpose, it is sufficient to proceed on the footing that the annual letting value has to be determined, as held in the aforesaid three decisions of this Court, keeping in mind the outer limit laid down in the rent restriction legislation. Rule 4 of the Municipality is as under : "4, The tax on open lands and buildings shall be levied in accordance with the following rate : 1. The buildings which are used for residential purpose shall be levied on the annual letting value by the percentage as follows: XXX XXX XXX 2. The buildings which are used for non-residential purpose shall be levied on the annual letting value by the percentage as follows : XXX XXX XXX " It merely prescribes that the tax that may be levied on buildings used both for residential and non-residential purposes will be on the basis of the annual letting value by the percentages prescribed therein. Hence if the expression "annual letting value" in the said rule is read as the annual letting value as determined by the outer limit prescribed by the standard or fair rent under the rent restriction legislation applicable to the premises, which in the present case is the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the validity of the said rule cannot be assailed. The High Court has, therefore, rightly upheld it.
(3.) However, Rule 5 with the validity of which we are concerned here, reads as follows : "5 (a) The rental actually realised in each case of the buildings, shops and lands which are let, shall be considered to be the. annual letting value, but if the assessment officer has reasons to believe that the rent shown in the rent note or in account, does not represent the correct letting value, then the case of such properties he [officer] shall assess the reasonable annual letting value according to his own decision. (b) In the case of buildings which are sublet, the rent paid by the occupier shall be taken as annual letting value. (c) In the case of the buildings used by the owner himself, the annual letting value, shall be Fixed with the rent derived from the properties [buildings] which are let nearby. The assessment officer will not assess the annual letting value more than 6-1/ 4% of the capital value in the case of the properties noted in sub-rule C." It will be apparent that the rule seeks to lay down the mode of working out the annual letting value of the property. According to the rule, it is to be worked out by taking the actual rental realised as the basis. However, where the assessment officer has reason to believe that the rent shown in the rent note or in the accounts docs not represent the correct letting value, the rule permits the officer to assess the reasonable annual letting value according to his own decision. In clause (c) the rule states that so far as the buildings used by the owner himself are concerned, the annual letting value should be fixed with reference to the rent derived from the properties which are let nearby. It is clear that to the extent the rule mandates the actual rent received to be taken into consideration for fixation of the annual letting value, even if it is in excess of the standard rent fixed under the rent restriction legislation, it is contrary to the interpretation placed by this Court on the expression "annual letting value." It is for this reason that the High Court has struck down the whole of the said rule. Shri Mehta does not dispute the premise that where the rent restriction legislation is applicable, Rule 5 will have to be read down to mean that the annual letting value is to be fixed only on the basis of the annual standard rent. However, he contends that it is not necessary to strike down the said rule for there may be properties which are not governed by the rent restriction legislation and their annual letting value can be determined unrestricted by the provisions of the rent restriction legislation. His grievance is that since the High Court has struck down the rule, instead of reading it down to bring it in conformity with the judicial decisions, the Municipality is hampered in assessing the properties to which the rent restriction legislation does not apply. Shri Mehta may be right there, if there are such properties within the limits of the Municipality. The correct mode of getting over the difficulty is to amend Rule 5 itself suitably to take care of such properties instead of keeping it on the rule book as it is. There is nothing to prevent the Municipality from introducing a new rule in place of the said rule. Even without Rule 5 and on the basis of Rule 4 as it is, the annual letting value can be calculated on the basis of the standard rent where the rent restriction legislation is applicable. Where it is not applicable, nothing prevents the Municipality from assessing the properties on the basis of the actual rent received, under the same Rule 4 itself. However, pending the framing of the new rule, Rule 5 as it is can be interpreted as being applicable only to such properties which are not governed by the rent restriction legislation. Hence the decision of the High Court will have to be modified to the extent the High Court has struck down the said rule instead of allowing it to remain on the rule hook confining its operations only to those properties which arc not governed by the Rent Control Act.;