SHAH, ACTING C. - (1.) THE Judgment of the court was delivered by
(2.) . The Legislature of the State of Madras enacted the Madras Buildings (Lease and Rent Control) Act, 1960. Section 4 of the Act (in so far as it is relevant) provides : "(1) The Controller shall, on application by the tenant or the landlord of a building and after holding such inquiry as the Controller thinks fit fix the fair rent for such building in accordance with the principles set out in Ss. (2) or in Ss. (3), as the case may be, and such other principles as may be prescribed. (2) X x x x (3) (a) The fair rent for any non-residential building shall be at nine per cent. gross-return per annum on the total cost of such building. (b) The total cost referred in clause (a) shall consist of (i) the cost of construction as calculated according to such rates for such classes of non-residential building as may be prescribed less the depreciation at such rates as may be prescribed ; (ii the market value of that portion of the site on which the nonresidential building is constructed : and shall include such allowances as may be made for considerations of locality in which the non-residential building is situated, features of architectural interest, accessibility to market, nearness to the Railway Station and such other amenities as may be prescribed and of the purpose for which the non-residential building is used : Provided that such allowances shall not exceed twenty-five per cent. of the cost of construction as calculated in the manner specified in sub claused)." Section 34 confers upon the State government power to make rules to carry out the purposes of the Act. Pursuant to the authority conferred by the Act, the State government has published rules. Rules II to 14 deal with classi- fication of non-residential buildings, calculation of the cost of construction of the different classes of non-residential buildings; allowance for amenities in respect of non-residential buildings and calculation of depreciation of nonresidential buildings. Rule 11 provides : Rule 11.-"(l) Non-residential buildings shall be classified into two categories, namely :- 467 (i) Factories and godowns ; and (H) other non-residential buildings. (2) The non-residential buildings belonging to the category specified in sub-rule (l)(ii) shall be classified into four different classes according to the classifications laid down in Rule 8 in respect of residential buildings." Rule 12.-"(1) The cost of the construction of non-residential buildings belonging to/the category specified in Rule 11(1) (i) shall be calculated at the rate of 62 Naye Paise per cubic foot of the cubical content of the building. (2) The cost-of construction of the different classes of non-residential buildings belonging to the category specified in Rule 11(1) (H) shall be calculated at the rates specified below : JUDGEMENT_465_2_1969Html1.htm Note.-In case of every additional floor higher up, the rate per square foot shall be one rupee less than the rate per square foot for the floor immediately below." Rule 13.-"When calculating the cost of construction of non-residential buildings, allowances shall be made for the following amenities in addition to those specified in Section 4(3) : (1) air-conditioning; (2) lifts; (3) electric fans; (4) tube-lights; (5) number of electric points ; (6) fans; (7) ventilators; (8) electric pump for water ; (9) flush-outs; (10) fixed wash-basins; (11) stair-cases; (12) out-houses; (13) cattle-sheds; (14) garden or vacant ground appurtenant to the building enjoyed by the tenant: and (15) usufructs of trees, if any, enjoyed by the tenant." Rule 14-"The depreciation of buildings shall be calculated at the rates specified in Schedule II." 468 . Dr. K. C, Nambiar is the tenant of 2/137, Piirasawalkam High Road, Madras at a monthly rental of Rs. 187-50. He conducts a nursing home in the premises. The landlord o" the premises applied to the Controller claiming that fair rent of the premises in the occupation of Dr. Nambiar be fixed at Rs. 2,575.00 per month. Dr. Nambiar applied to the High court of Madras for a writ of prohibition against the Controller from proceeding with the application.for fixation of fair rent. He pleaded that the "rules framed by the State government in exercise of the power vested in them by Section 4, were incolysistent with the intention and ambit of the Act" and were on tliat account invalid. The petition was heard by a single Judge with several other petitions in which the validity of the rules was challenged. The learned Judge passed an order dismissing the petition, and the order was confirmed in appeal by the High court. Dr. Nambiar has appealed to this court with certificate granted by the High court. . It was urged on behalf of Dr. Nambiar before the High court that the expression "cost of production" in Ss. (3) of Section 4 means the cost of the original construction and the landlord was not entitled to claim that the fair rent be fixed on the basis of cost which may be estimated to be incurred for reproducing a similar building at the date of the application or the date on which the Act was brought into force. The learned Single Judge rejected the contention. He observed that. "the statutory sense in which the word 'cost' or the phrase 'total cost' is used in subsection (2) {a) is not the original cost or the original expenditure incurred for the construction of the building. 'Total cost' in Section 4(2) is a composite concept consisting of three components out of which the cost of construction for the purpose of arriving at the total cost is to be calculated acrording to the rates prescribed for each class of 'building prescribed and not tlic initial expenditure incurred in the construction". The learned Judge proceeded then to observe: "Normally, the notion of depreciation is a subsequent fall in value or reduction of worth due to deterioration arising from age, use and other causes and it is deducted from the last value of the building as reduced by previous depreciation. But the depreciation calculated at the prescribed rates is under Section 4(2)(b) to be deducted frorm the cost of the construction as calculated according the rates prescribed. when the cost of construction is arrived at on such basis, the deprecialion at the prescribed rate is to be deducted therefrom backwards, This mode of deduction of depreciation is no doubt a reverse process. Bill there seems to be nothing strange in such a manner of arriving at i In-cost of construction X X X." The High court in appeal observed : "In the first place we are of the opinion that the language of Section 4, ilself is clear that what the legislature has in mind on the question of the cost of construction, is what has been specified under the rules and Schedule 1. The very fact that Section 4(2)(b)(i) provides that the cost of construction is to be according to such rates for such class of residential buildings as may be prescribed shows that it is not actual cost of construction, but it is the cost of construction which can be determined on the basis of rates as may be specified. The words "such rates for such classes of residential buildings as may bo prescribed" clearly carry with it the conception of the fixing of a statutory rate which may or may not have any relation to or connection with the actual investment. Again the provisions of allowance with regard to considerations 469 of locality, featlures of' archililectuiral interest and such other matters for which allowance is made at a percentage not exceeding 10% of the cost of construction is to be determined as on the date when the Act came into force and not the actual original investment.'. X X X We see no warrant to hold that the legislature intended to make a vital difference between the valuation of the site, which is the market, value, and the cost of constr.uction of the building which is the original cost of construction or investment as contended for by Mr. Nambiar." These observations interpreting Ss. (2) of Section 4 apply also to the interpretation of Ss. (3) of Section. I, because the relevant provisions in regard to determination of the coi.t of construction of non-residential buildings are identical.
(3.) . By Ss. (1) of Section 4, the Controller is invested with authority to fix fair rent of buildings in respect of which an application is made in accordance with the principles set out in Ss. (2) and (3) and such other principles as may be prescribed. Under sub-seclion (3) fair rent of any non-residential building is to be computed at nine per cent. of the gross return per annum on the total cost of such building and the total cost of the building is to consist of three components-(i) the cost of construction ; (ii) the market value of the portion of tlie site on which tlie lionresidential building is constructed ; and (in) such allowances not exceeding 25% of the cost. of construction as may be made for locality, features of architectural interest, accessibility to market, nearness of a Railway Station and other amenities as may be prescribed. . On behalf of Dr. Nambiar it is urged that the "cost of construction" only means cost incurred for constructing the building when it was put up. and the cost of such additions as may have been subsequently made. On behalf of the landlord and the State of Madras it is urged that the expression "Cost of Construction" means the cost of reproducing a similar building at the date on which the Act was brought into force and therefore in determining fair rent the Controller must determine for the purpose of Section 4 (3)(b)(i) the cost of such reproduced building according to rules in that behalf and deduct therefrom the depreciation at the prescribed rate. In other words, it is intended to determine under Ss. (3)(b)(i) the market value of the structure at the date of the enactment of the Act.;