# A.C. 136, the Churchwardens & OversetrS of Lambeth Parish v. The London County

- **Citation:** [1974] 3 S.C.R. 687
- **Court:** Supreme Court of India
- **Decided:** 1974-03-20
- **Bench:** M.H. Beg, Y.V. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-c-136-the-churchwardens-oversetrs-of-lambeth-parish-v-the-london-county-6059
- **Pages:** 16

## Headnote

Bombay Municipal Corporation Act. 3 of 1888-S. 3(r) and S. 154-Scope of.
Principles for detennining rateable value of land on which a building is partly
completed-Doctrine of sterility-Distinction between English and Indian Law.
The respondent company was owner of a large area of land in Bombay, on a
part of which there was a building under construction. The bulk of the remaining
part was lying vacant. The Assessor and Collector of the Municipal Corporation
determined the market value of the whole land on a notional basis and fixed the
hypothetical annual rental value of the portion of land on which a building was
being built as well as the vacant land.
The respondent's appeal to the Small Cause Court was dismissed. ·Applying the
doctrine of sterility the High Court held that although a vacant plot of land was
rateqble under the provisions of the Bombay Municipal Corporation Act and so
was land which had been built UP.on, yet, any part of land which was being actually
built upon was not rateable until the building was finished because no tenant could
take it in that condition.
·
In the appeal to this Court it was con~nded on bellalf of the ~ppellant Corporation
that the High Court erred in applying the doctrine of sterility to land rateable under
the provisions of the Act i. that, the High Court overlooked the essential distinction
between the Indian and i:.nglish law which waS that the basis for determining the
rateable value in India was the value of the property to the owner and not to the
occupier, and, that, every kind of 'land' as defined-by s.3(r) of the Act was rateable
under s.154 of the Act simply because it had a value to the owner of it and not
because it was yielding any income or was usefully or beneficially occupied or
enjoyed by tenant or any other kind of occupant paying for the use of it. Allowing
the appeal.
HELD : The judgment under appeal is erroneous as it was held there that
land which was being rated as vacant ceased to be subject to any ratin~ at all simply
because a buildin~ began to be made on it by the owner. The role of interpretation
that, where two views are reasonably or equally open, the court should adopt the
one which benefits the assessee would enable it to do no more than to treat land which
is actually being built upon on the same footing as vacant land so long as no structure
capable of occupation and letting is completed on it. [702 DPE]
Land which was being built upon should not be rated like ]and on which a building
has been actually constructed unless and. until the construction had reached a stage
at which some occupation of the constructed portion was also le~lly and actually
possible so that it could be taken into account in determining the rateable
value. [701 F]
The doctrine of sterility in the context of the provision$ to be construed could
not apply in this case. In England, land which is in the process of being built uPon
is equated with vacant land which is not yielding any profit, so that it ceases to bo
"rateable'' ]and. ·But, under the statute, all 'land' .whether vacant or in the process
of being built upon is rateable according to well settled principles. (700 A]
West Bromwich Si:hool Board v. Overseers of West Bromwich, 13 Q.B.D,
929 @ 942, Mersey Docks & Harbour Boarq v. Oversem of L/ane///an,14 Q.B.O.
p. 770, The Metropolitan Board of Works v.
The. Overseers of Weil Ham :
688
SUPREME COURT REPORTS
[1'174] 3 s.c.R.
(1870) L.R. 6 Q.B. 193, The Guardians of the Poor of the Sculcoates Union in the
Borough of Kingston- Upon-Hu/Iv. Dock Company at Kingston-Upon-Hull, 1895
A.C. 136, the Churchwardens & OversetrS of Lambeth Parish v. The London County
Council, & 1897 A.C. 625 @ 630-31, London County Council v. Erith (Churchwardens Overseers of Parish; 1893 A.C. 562 @ 591, held inapplicable.
The principles upon which lands are rated in this country have been practically
settled by the decisions of this
Court which held that the mode of assessment in every
case must be directe

## Text

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MUNICIPAL CORPORATION OF GREATER BOMBAY
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v.
M/S POLYCHEM LTD.
March 20, 1974
[M.H. BEG AND Y.V. CHANDRACHUD, JJ.]
Bombay Municipal Corporation Act. 3 of 1888-S. 3(r) and S. 154-Scope of.
Principles for detennining rateable value of land on which a building is partly
completed-Doctrine of sterility-Distinction between English and Indian Law.
The respondent company was owner of a large area of land in Bombay, on a
part of which there was a building under construction. The bulk of the remaining
part was lying vacant. The Assessor and Collector of the Municipal Corporation
determined the market value of the whole land on a notional basis and fixed the
hypothetical annual rental value of the portion of land on which a building was
being built as well as the vacant land.
The respondent's appeal to the Small Cause Court was dismissed. ·Applying the
doctrine of sterility the High Court held that although a vacant plot of land was
rateqble under the provisions of the Bombay Municipal Corporation Act and so
was land which had been built UP.on, yet, any part of land which was being actually
built upon was not rateable until the building was finished because no tenant could
take it in that condition.
·
In the appeal to this Court it was con~nded on bellalf of the ~ppellant Corporation
that the High Court erred in applying the doctrine of sterility to land rateable under
the provisions of the Act i. that, the High Court overlooked the essential distinction
between the Indian and i:.nglish law which waS that the basis for determining the
rateable value in India was the value of the property to the owner and not to the
occupier, and, that, every kind of 'land' as defined-by s.3(r) of the Act was rateable
under s.154 of the Act simply because it had a value to the owner of it and not
because it was yielding any income or was usefully or beneficially occupied or
enjoyed by tenant or any other kind of occupant paying for the use of it. Allowing
the appeal.
HELD : The judgment under appeal is erroneous as it was held there that
land which was being rated as vacant ceased to be subject to any ratin~ at all simply
because a buildin~ began to be made on it by the owner. The role of interpretation
that, where two views are reasonably or equally open, the court should adopt the
one which benefits the assessee would enable it to do no more than to treat land which
is actually being built upon on the same footing as vacant land so long as no structure
capable of occupation and letting is completed on it. [702 DPE]
Land which was being built upon should not be rated like ]and on which a building
has been actually constructed unless and. until the construction had reached a stage
at which some occupation of the constructed portion was also le~lly and actually
possible so that it could be taken into account in determining the rateable
value. [701 F]
The doctrine of sterility in the context of the provision$ to be construed could
not apply in this case. In England, land which is in the process of being built uPon
is equated with vacant land which is not yielding any profit, so that it ceases to bo
"rateable'' ]and. ·But, under the statute, all 'land' .whether vacant or in the process
of being built upon is rateable according to well settled principles. (700 A]
West Bromwich Si:hool Board v. Overseers of West Bromwich, 13 Q.B.D,
929 @ 942, Mersey Docks & Harbour Boarq v. Oversem of L/ane///an,14 Q.B.O.
p. 770, The Metropolitan Board of Works v.
The. Overseers of Weil Ham :
688
SUPREME COURT REPORTS
[1'174] 3 s.c.R.
(1870) L.R. 6 Q.B. 193, The Guardians of the Poor of the Sculcoates Union in the
Borough of Kingston- Upon-Hu/Iv. Dock Company at Kingston-Upon-Hull, 1895
A.C. 136, the Churchwardens & OversetrS of Lambeth Parish v. The London County
Council, & 1897 A.C. 625 @ 630-31, London County Council v. Erith (Churchwardens Overseers of Parish; 1893 A.C. 562 @ 591, held inapplicable.
The principles upon which lands are rated in this country have been practically
settled by the decisions of this
Court which held that the mode of assessment in every
case must be directed towards finding out the annual letting value of land which
is based. on rating of land, and, by definition, "land" includes land which is either
being built upon or has been built upon. A reference to the provisions of the Act
shows that, after a building haS been completed, the letting value of the building
which becomes part of the land will be the primary or determining factor in fixing
the annual rent for which the land which has been built t1pon "might reasonably
- be expec;ted to be let from year to year''. All thats. 154 seems to contemplate by
m,enhoning "land or building" is that land· which is vacant or which has not been
built upon may be treated, for the purposes of valuation, on a different footing from
land which has actually been built upon. The relevant provisions of the Act do
not mention and seem to take no account, for purposes of rating, of any building
which is only in the course of being constructed, although s. 3(r) of the Act makes
It clear that land which is being built upon is also "land". Hence, so long as a building is not completed or constructed to such an.extent that, at least, a partial completion notice can be given so that the corrpleted portion can be occupied or let,
the land can, for purposes of rating, be equated with or treated as vacant land. It
is only when the building which is being put up is in such a state that it is actually
and legally capable of occupation that the letting value of the building can enter
into the computaiion for rating. Although the definition of land, which is rateable
covers three kinds of "land", yet, for the purposes of ratings. 154 recognises only
two categories. Therefore, all land must fall in one of these two categories for
purposes of rating and not outside. {699 D-0]
Corporation of Calcutta v. Sm. Padma Dtbl Ors., {1962] 3 S.C.R. 49, Bengal
Nagpur Railway Co. Ltd. v. c,,rporatlon of Calcutta, 14 Indian Appeals 1, Bengal
Nagpur Railway Co. Ltd. v. Corp,,ration of Calcutta, A.I.R 1942 Cal. 455, Polar
Assessment Committee v. Roberts, {1922] 2 A.C. 93, Patel Gordhandas Hargovindas
v. Municipal Commi"ssioner, Ahmedabad, 11964] 2 S.C.R. 608, Municipal Corporation
of Gr1ater Bombay v. Royal Western India Turf Club, [1968] 1 S.C.R. 525, Motichand
Hirachand
Ors. v. Bombay Municipal Corporati,,n, 11968] 1 $.C.R. 546, Century
Spg.
Mfg. Co. Ltd., v. District Municipality of UlhaJnagar, (1968] 2 S.C.R. 211,
Bombay Municipal Corporation v. L.I.C. of India Bombay, {1971] 1 S.C:R. 335,
Guntur Municipal Council v. Guntur Town Rate Payers' AssoCiation, [1971] 2 S.C.R.
423, referred to.
In the instaD.t case the.land which was being assessed as reteable so long as it
w.a~ v~cant land had b~en treated as entirely outside the scope or sphere of rateab1lity Just because a.building was being erected upon it As theFC is no provision in
the .Act.whic~ has th.e effect of c~riferring such ~n immunity or exemption upon land
which JS being butlt upon, 1t lS not possible to uphold the conclusion which
produces such· a startling result. [700C]
(The case :was sent back to the Assessor and Collector with a direction that the
whole land wtll be valued for the purpase of rating in the relevant year as vacant
land.) ·
of ~
9
~ APPEi.LATE
JURISDICTION
: Civil Appeal
No.
1828
From the Judgment and Order dated the 4th November 1968
of the Bombay High Court in Letters Patent Appeal No. 130 of 1964.
N_~ren De, Y.S. Chita/e, S.K. Kadam, P.C. Bhartari and J.B. Dada
chanp for the appollant.
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A.B.Divao and l.N. Shroff for the respondent.
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M.C. Bhandare, B.R. Agarwala Gagrat and Co., Vinay Bhasin and
Janedra Lal for Intervener No. I.
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MUNIC. CORP. V. POLYCHEM LTD. (Beg, /.)
689
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Anil B. Divan A.J. Rana and Ashok Grover for Intervener No. 2
The Judgment of the Court was delivered by
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BEG, J. This appeal, by certification under Article 133(1) (c) of the
Constitution. is directed against the Judgment of a Division. Bench
of the Bombay High Court holding that although a vacant plot of
land ~s rateable under the provisions of the Bombay Municipal Corporation Act· 3 of 1888 (hereinafter referred to as 'the Act'). and so
is land which has been built upon, yet, any part of land which is being
actually built upon is not rateable until the building is finished because
110 tenant could take it in that condition. In other words the Division
Bench upheld what may be called the doctrine of sterility with which
the land was said to have been-Struck during the period when a building was being actually put upon it. The appellant Corporation questions the applicability of this doctrine to rating tf land fo this country.
Before proceeding further we may briefly give the facts.and circumstances in which the question menticned above arises. The respondent Company is the Owrier of 6652 sq. yds. of land out of which
450 sq. yds. wore deducted for havin• fallen within"the set back line".
Out of the remaining area of 6202 sq~ yds, 1060sq. yds. was being b~ilt
upon at the relevant time whilst the remaining 5142 sq. yds, was lymg
vacant during the period under consideration. As the respondent Company did not lead any evidenee about the hypothetical rent of any part
of land the A8'essor & Collector of Bombay Municipal Corporation determined the market value of the whole land as Rs. 62020/- at Rs. 10/-
per sq. yd. He then calculated the hypothetical rent by taking a rate
of interest of 3t % per annum as the reasonable return on this value
so that the hypothetical annual rental value came to Rs. 2170/-
From
1-1-1962 the Assessor divided the plot notionally into two parts one
of 1060 sq. yds. which was being built upon and the other of 5142 sq.
yds. which was lying vacant. He then assessed the probable market
value of the plot which was being built upon as Rs 10,600/- at Re. 10/-
per sq. yd. but as he considered it better developed the fixed. 5 % per
annum interest as a reasonable return on it for determining its hypothetical rent which came to Rs. 530/-. For the vacant land also valued
at the same rate the market value v.as found to be
Rs. 51,420/-,
but the annual rate of interest to determine reasonable return was
taken as 3! % only, as was done previously for the whole land, so
that its hypothetical annual rent came to Rs. 1800/-. Thus, the total
hypothetical annual rental value of ihe land for the period under consideration came to Rs. 2330/- for both parts according to what is known
as "'the contractor's test".
The respondent company, aggrieved by the assessor's fixation of
rateable value, had appealed to the Small Cause Court of Bombay
which dismissed the 'appeal. The respondent company then appealed
to the Bombay High Court under Section 218(0) of the Act. The
appeal was summarily rejected.by a learned Single Judge of that Court.
On a further appeal, a'Di"<ision Bench of the High Court, after repe!I-
690
SUPREME COURT REPORTS
[1974] 3 S.C.R.
ing a preliminary objection to the maintainability of the appeal to it
by adopting the view that it was not a second appeal for the purpo'e
of the Letters Patent, held that the part of the land which was being
built upon was not rateable at all as no tenant could or would take the
property in that condition. Thus, the Division Bench bad applied
what may be called the "doctrine of sterility". It observed :
" ... if there is no tenant who would be prepared to take the
property from year to year in its then condition, evidently there
cati be no tax on the same".
As this doctrine could not apply to the vacant land, the order cf the
Assessing authority and the principle applied by it for rating that porA
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tion of the land were upheld by the Division Bench. No argument was
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addressed to. us on the question whether an appeal lay to the Division
Bench, in the circumstances of the case. We, therefore, refrain from
considering this question.
Learned Attorney General submitted, on behalf of the appellant
Corporation, that the Divi,ion Bench had erred in applying the English
doctrine of sterility to land rateable under the provisions of the Act.
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It was contended that the essential distinction between the Indian
and the English law, overlooked by the Division Bench, was that the
basis for determining rateable value in this
country was the value
of the property to the owner and not to the occupier. Hence, it was
urged, every kind of 'land, as defined by Sectoin 3(r) of the Act,
was rateable under Section 154 of the Act simply because it had a
value to the owner of it and not because it was yielding any income
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or was. usefully or beneficially occupied or enjoyed by a tenant or any
other kind of occupant paying for the use of it. It was contended that,
in so far as the rent paid by an actual tenant or that which a hypothetical tenant would presumably pay for the land, in the condition it
actually was (i.e. "rebus sic stantibus"), is tO be taken into account,
this could be done only for the purpose of determining the value of the
land to the owner and not, as it had been done in England, to its occuF
pant. This distinction, it was pointed out, logically flows from the
essentially different bases of rateability adopted in India, where even
vacant land was rateable, and, in England, where vacant land was not
rateable at all.
Another contention advanced was that in any case when there is
no evidence about the nature or the extent of the construction on the
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land treated as occupied by a building in the course of construction,
tt was not possible to apply the principle that it was withdrawn from
the sphere of rateable land merely because a building was being constructed over it. The effective reply to this argument was that it was a
matter of admission between the parties that 1060 sq. yds. of the area
was covered by a building in the course of construction. Our attention
was drawn to the statement of facts on behalf of the appellant and also
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to the finding of fact that this was the 11rea which could be treated as
land which was actually being built upon. We, therefore, do not think
that there is any point in remanding the case for any further finding
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MUNIC CORP. V. POLYCHEM LTD. (Beg, /.)
691
upon this question.. We will proceed c n the assumption that the finding
that 1060 sq. ·yds of land is covered by
what is an incomplete
building in the course of construction for the relevant perlod is correct ..
Learned Counsel for the respondent urged that· whatever may be
the other differences the basic principles of rating are the same both
in India··and in England as the annual rent which would be paid by
a hypothetical tenant has necessarily to be determined in order to arrive
at the rateable value ofland. According to the respondent, it followed
logically .from this principle that land which could not have a hypothetical tenant could have no rateable value. The submission was that
the "contractor's test" was only one of the three modes of determining
the annual rateable value. ·This method was, it was urged not available at all as a substitute for determination of the annnual hypothetical rent. It was, according to the respondent and the Intervener,.
only a means adopted for determination of the annual hypothetical
rent. The means could not, the argument proceeds, displace the object
or the end itself and converted into an independent mode· of assesring
rateable value.
The learned Counsel relied upon various provisions of the Act
in an attempt to correlate property taxes of which rates were the primary class to beneficial occupation or in other words to income
yielding capacity as it existed at the time when the taxes were levied,
that is to say, "rebus sic stantibus".
Section 3(r) of the Act says :
"3(r) ''Land" includes land which is being built upon or is
built upon or covered with water banefits to arise out of land,
things attached to the earth or permanently fastened to anything attached to the earth 11nd rights created by legislative
enactment over any street";
and Section 3(s) says :
"3(s) "building" includes a house, out-house stable shed,
hut and every other such structure,-whether of masonry, bricks,
wood, mud, metal or any other material whatever;"
But, section 143 of the Act seems to make a distinction between "build.~
ings and land" when it. says that the gel)Cral tax shall be levied "in res-·
peel ofallbuildingi arid land", and, thereafter, it continues to mention
both. Similarly, Section 144 mentions "buildings" and "land" as.
though they were separate. Section 144(A) goes on to provide :
"144A. (I) Notwithstanding anything contained in Section
140. the gel)Cral tax leviable in respect of any building used for
residential purposes-
·
(a) completed, or first let out or occupied on or after the
!st day of April, 1956 ; and
(b) consisting exclusively of tenements the annual rent of
each of which tenements determil)Cd as provided in sub-·
692
SUPREME COURT REPORTS
[1974) 3 S.C.R.
section (I) of Section 154, does not exceeding Rs. 12
hundered or such lower· sum as may be generally. determined by the Corporation, shall, where an application is made to the Commissioner in that behalf and
for the period specified in. sub-section (2) be-
(i) if such building is owned by or belongs to a "?·
operative society registered or deemed to be registered under the Bombay Co-operative Societies
Act, 1925, seven-tenths of the amount leviable under
Section 140 in respect of any other building excepting those referred to in Section 143 ;
(ii) if such building is owned by or belongs to any
other person, eight-tenths of such amount.
(2) (a) if any such building .was completed, o; first let out
or occupied on or before the date of commencement of
the Bombay Municipal Corporation (Amendment)
Act, 1957, concession in general tax under this Section
shall be available for the period counted from the
said date of commencement upto the !st day of April
1956.
(b) Jn all other cases, concession in general tax under
this section shall be available for the period often years
counted from the date on which any such building
shall be completed, first let out or occupied, whichever shall be the earliest.
Explanation-For the purposes of this section,
a building shall be deemed to be completed on the
date on which the permission for its occupation or use
is given or is deemed to be given under Section
353-A".
Section 353A provides for a notice and completion certificate to
be sent by the builder within one month after the completion of the
building and the procedure for obtaining the permissio1> by the
_Commissioner for occupying such building or for the use of it after he
1s satisfied that the provisions of' the Act and the bye-laws have been
complied with. Section 353A (2) lays down:
"(2) No person shall occupy or permit to be occupied any
such building, or use or permit to be used the building or part
thereof affected by any such work, until-
(a) the permission referred to in proviso (b) to subsection (1) has been received, or
(b) the Commissioner has failed for twenty-one days
after receipt of the notice of completion to intimate as
aforesaid his refusal of the said permission".
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MUN!C CORP .• V. POLYCH~M LTD. (Beg, ],)
693
Section 472 gives a· list ofcontinuing offences with. specified daily fines.
It indicates that a violation of Section 353A involves a fine of Rs. 100/·
per day. Hence, it ·was contended ou behalf of the respondent, there
can be no hypothetical tenant of a building of which the Jaw prohibits
any use or occupation. A building which is in the course of construction would be, it was urged, a buildlng in an incomplete state of which
no occupation was possible by an actual or hypothetical tenant of it.
There is no doubt that rates belong to the category of property
taxes mentioned in Section 139(1) of the. Act. Section. 146 makes
fresh taxes "Leviable primarily from the. actual occupier of the premises
upon which the said taxes are assessed, if such occupier holds the said
premises immediately from the Government or from the corporation
·or from a fazendar". Section 146(2) makes it clear that in other
cases they are leviable as follows :
"(a) if the premises are let, from the lessor;
(b) if the premises are sub-let, from the superior lessor; and
(c) if the. premises are unlet, from the person in whom
the right to let the same vests".
Section 146(3) lays down that :
"if any land has been let for any term exceeding one year
to a tenant; and such tenant or any person deriving title howso-·
ever. from such tenant has built. upon the land, the property
taxes assessed upon the said land and upon the building erected
thereon shall be leviable primarily from the said tenant or such
penon, whether or not the premises be in the occupation of the
l&id tenant or such person".
Secti9n 147 of the Act provides that, in a. case in which the rateable
vall'ie:etcieds the amount of rent actually payable in respect ofland
oi:cuped, the lessor is entitled to receive the difference between th<>
renl which would otherwise be payable .and what is actually payable •
. Similar pr<iVision .is .made in case of sub-tenants.
The actu&l inethOd of valuation is provided by Section 154(1)
which runs:
"1S4(1) in order to fix the rateable. value of any building or
I.and. aisls$&ble to a ptopert_y-tax, there .shall be deducted .from
the amount of the annual rent for which such land or building
mightrtasonably.be expected to Jet t'rom year to year a sum equal
to ten per centumofthe said annual rent and the said deduction
shall be in )ieu of all allowances for repairs ot on any other
account ·whatever".
Section !SS provides :
"155(1). To enable him to determine the rateable value of
any building or land and the person primarily liable for the
paYl!ielit of any property tax leviable in respect thereof the Commissioner inay require· the owner or occupier of such building
~94
SUPREME COURT REPORTS
[1974j ~ S.C.R.
or land, or of any portion thereof, to furnish him, within such
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reasonable period as the Commissioner prescribes in this behalf
with information or with a written return signed by such owner
or occupier-
(•) as to the name and place of abode of the owner or
occupier, or of both the owner and occupier of such
buildin11 or land; and
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(b) as to the dimensions of such building orland, or of
any portion thereof, and the rent, if any, obtained for such
buildin11, or land, or any portion thereof.
(2) Every owner or occupier on whom any such requisition
is made shall be bound to comply with the same and to give true
information or to make a true return to the best of his knowledge
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or belief.
(3) The Commissioner may also for the purpose aforesaid
make an inspection of any such building or land".
5ectioR J 56 requires the maintenance of an assessment book. It says :
"156. The Commissioner shall lccep a book, to be called
D
"the assessment book" in which shall be entered every official
year-
( a) a list of all buildings and lands in greattr Bombay
distinguishing each, either by name or number, ·as he shall
think fit;
(b the rateable value of each such buildina and land
determined in accordance with the foregoing provisions of
this Act;
·
(c) the uame of the person primarily liable for the
payment of the property-taxes, if any, leviable on each
such building or land;
(d) if any such building or land is not liable to be
· assessed to the general tax, the reason of such non-liability;
(e) when the rates of the property-taxes to be levied for
year have been duly fixed by the corporation and the period
fixed by public notice, as hereinafter provided, for the
receipt of complaints against the amount of rateable value
entered in any portion of the assessment-book, has expired,
and in the case ofany such entry which is complained against
when such complaint has been disposed of in accordanc~
with the provisons hereinafter contained, the amount at
which each building or land entered in such ·portion of the
assessment-book is assessed to each of the property-taxes,
jf any, leviable thereon;
(f) if, under Section I 69 or I 70, a charge is made for
water supplied to any building or land by measurement
or the water-tax or charged or water by measurement is
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MUNIC. CORP. V. POLYCHEM LTD. (Beg, J.)
695
compounded for, or if, under section 172, the halalkhortax for any building or land is fixed at a special rate, the
particulars and amount of such charge, composition or rate;"
It is true that the "buildings" and"lands" are mentioned separately
in Sections 154 to 156 of the Act. Section 154(1) implies that the
rateable value of any building or land will be calculated by determining
"the amount of the annual rent for which such land or building might
reasonably be expectec\ to let from year to year".
Section 156(d)
shows that there may be cases in which some building or land may
not be liable to pay any amount as a general tax. Hence, it was urged
on behalf of the respondent, the doctrine of sterility could be applied
in this country just as it was applicable in England.
The principles upon which lands are rated in this country have
been practically settled by the decisions of this Court. But, no case
was brought to our notice in which an application of these principles
to land upon which a building was being constructed was involved.
Jn other words, 1'0 case was cited by any party in which the doctrine
of sterility, as indicated above, was invoked. We will, however, glance
at the cases cited before deciding the question raised before us.
The Cor_,oration of Calcutta vs. S.M. Padma Debi & Ors., (1) involved an interpretation of the provisions of Section 127(a) of the Calcutta
Municipal Act, 1923, in the course of which it was observed that the
criterion for determining the annual value of land for purposes of
rating is : "the rent realisable by the landlord and not the value of the
holdings in the hands of the tenant". A reference was made there to
the decision of the Privy Council in Bengal Nagpur Railway Co. Ltd.
vs. Corporation of Calcutta (2) affirming a decision of the Calcutta
High Court in Bengal Nagpur Railway Co. Ltd. vs. Corporation of Calcutta(') on the construction of Section 127 of the Calcutta
Act. The Privy Council bad indicated the distinction between law
in India and in England as follows :
"The owner of land in England is not chargeable with rates,
as owner, at all. If he leaves land vacant and unoccupied, he
pays no rates. Under the Calcutta Act mere ownership carries
with it a liability to pay one.half of the rate assessed on the
annual value of the land".
In the Calcutta case which went to the Privy Council, a golf club
was making use of some land with a few holes made in it for occasional
practice by persons aspiring to become golfars. The Club used to
pay a nominal amount for the use of the land. This Court also
referred to the decision of the House of Lords in Polar Assessment
Committee vs. Roberts.(4) to indicate : "The distinction between
occupier and owner, in this connection, is of primary importance.
The occupation value of property may be, and often is, distinct from
(1) [1962] 3 S.C.R. 49.
(2) 74 Indian Appeals I.
(3) AIR 1942 Cal.
~55
(4) (1922) 2A.C. 93.
696
SUPREME COURT REPORTS
(1974] 3 S.C.R.
its value to the owner". This Court then cited the "weighty observations of Atkin, L.J., as he then was, which were approved by Lord
Carson in his dissenting judgment" (at page 58) :
"How then is the annual rent to be ascertained? It is
obvious that the definition presupposes that the premises are
deemed to be vacant and are deemed to be capable of being
let".
The respondent, however, relies upon the following passage in the judgment of this Court(!) (at page 56) :
"A Jaw of. the land with its penal consequences cannot
be ignored in ascertaining the reasonable expectations of a landlord in the matter of rent".
It was urged 'on behalf of the respondent th:at the test adopted
by this Court was to find out the annual rent a hypothetical tenant
would pay so as to determine rateable value from the point of view of
the landlord. It did not matter, according to the tespondeni, from
which angle the rateable value was looked at so long as the method of
determining it was really the same as was adopted in England. If
that was S'?, it was submitted, the views expressed by this Court in the
Calcutta Corporation case (supra) did not militate with an application
of the doctrine of sterility where facts warranted it. We think that
this submission overlooks an infirmity in the doctrine of sterility itself;
the assumption that what is not actually yielding rent has no annual
rental value.
The next case cited was Patel Gordhandas Hargovindas V. Municipal Commissioner, Ahmedabad(2), where, after references to legislative history of rating in England and in I.ndia, this Court said : (at
page 628) :
"It would, therefore, be right to say that the word 'rate' had
acquired a special meaning in English legislative history and
practice and also in Indian legislation where that word was
usedanditmeanta taxfC)r local purposes imposed by local
authorities and the basis of the tax was the annual value of the
lands or buildings on or in connection with which it was imposed,
arrived at in one of the three ways which we have already indicated".
The three modes were indicated in the following passage (at page
622):
"It will thus be clear from the various statutes to which
we have referred and the various books on rating in England
that .the rate always had the meaning of a tax on the annual
value or rateable value of lands or buildings and this annual
value or rateable value is arrived at by one of three modes,
namely, (i) actual rent fetched by land or building where it
(I) [1962] 3 S.C.R 49.
(2) [19M] 2 s.c.R. 608.
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MUN!C. CORF. V. POLYCHEM LTD, (Beg,].)
691
is actually let, (ii) where it is not let, rent based on hypothetical
tenancy, particularly in the case of buildings, and (iii)whereeither
of these two modes is not available, by valuation.based on capital
value from which annual value has to be found by applying a
suitable percentage which may not be the same for lands and
buildings, and it was this position which was finally brought out
in bold relief by_ the Rating and Valuation Act, 1925. It is
clear further that it is not the Rating and Valuation Act of 1925
which for the first time applied the concept of net annual value
and rateable value as the basis for levying a rate for purposes of
local taxation; that basis was always there for centuries before
the Act of I 925 was passed".
Here, it was held by a majority of five Judges of this Court, that a rule
imposing a tax called· a "rate", "directly as a percentage of the capitill
value", is ultra vires the Act and "the assessment based on this manner
must be struck down''. The reasoning adopted was : (at pages 633-34):
"If the law enjoins that the rate should be fixed on the
annual value of lands and buildings, the municipality cannot
fix it on the capital value, and then justify it on the ground that
the same result cJu\d be arrived at by fixing a higher percentage
as the rate in case it was fixed in the right way on the annual
value. Further by, fixing the rate as a percentage of the caipta\
value directly, the real incidence of the levy is camouflaged''.
This case links the nature of the property tax called a rate levied for
local Govt. p'1rposes with the mode adop.ted for its levy. Each mode
had nec.ssarily to be directed to finding out the. annual rentel value
of land as that was what was taxed and not either the capital or the
potential valnc of land.
·
Municipal Corporation of Greater Bombay vs. Royal Western India
Turf Club(I) was cited to show that the profit from the actual user, in
that particular case of same land used as a race course, was taken
into account. This Court said (at page 533) :
"The measure in arriving at the net rateable value under
S. 154(1) is what a hypJthetical tenant would pay as rent and
that would depend upon the amount of profits earned from
race-meetings held on the race-course. To arrive at the correct
amount of such profits all expenseo reasonably and properly
incurred which go to the making of the receipts have to be
deducted from the gross-receipts".
In Motichand Hirachand &Ors. vs. Bombay Municipal Corporatioi.(2)
where, as in the Royal Western India Turf Club case (supra), the
provisions of the Act with which we are concerned had come up for
consideration, this Court said (at page 548) :
(I) 11968] 1 S.C.R. 525.
(2) [1968] I S.C'.R. 546.
l6-M4SS 1p.Cl/7S
SUPREME COURT REPORTS
[1J74] 3 S.C.R.
"The assessing authority for the purpose of fixing the rateable
A
value has therefore to determine the annual rent, that is, the
annual rent for which such building might reasonably be expect-
.ed to let from year to year and to deduct the IO per cent statut?rY.
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 proB
perty. 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 in order
to arrive at such hypotheticaf rent. for instance by reference to the
t
actual rent paid for the property.or for others comparable to it
or where there are no rents by reference to the assessments of
c
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 cmdd
afford.to give is calculated rebus sicstantibus,thatis to say, with
reference to the property in its· existing physical condition
and to the mode in which it is actually used. The hypothetical
D
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
prop,.ty affords the opportunity for the carrying on of a gainful·
trade, that fact also must be taken into account. The property
E
. 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 conc)usiveevidence of value, though such actual rent may serve as an indiration as to what a hypothetical tenant can afford to pay. However, if the actual rent is piid on terms which differ from those
of the hypoth,tical tenancy it must be adjusted, if p:issible, ·
F
to the terms of the hypothetical tenancy before it affords evidence of value .. (S'° Halsbury's Laws of England, (3rd ed.)
Vol. 32, p. 60 and onwards).- !Us.also w~ll recognised that
while valuing the property in q!estion every intrinsic quality
and every intrinsic circumstance which tends t.J p~sh the rental
••
.
·:·valu! up or do\vn m11~t .b~ taken into cqnsideration" .
G
The Century Spg. & Mfg. Co. Ltd. vs. District Municipality of
~
Ulhasnagar(I), points out that Section60 oftheB>mbay District Municipal Act 3 of 1901, with which we are not concerned here, has left
l·
open a determination of the· basis for each class of valuation to the.
m~nicipality after defining annual letting value in s,ction 3(11) a• the
rent for which any land or building might reasonably be .exp,cted
H
1--
to be let from year to year. In this case, the imp:isition of a flat rate
'
(I) [l9681 2 S.C.R; 211.
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699
on carpet area was held to be within the provisions of the Act. It
was, however, observed that the assessees could challenge, each on the
facts of his particular case, the application of this method if it results
in a rate not corresponding to "the _annual letting value". Apart
from emphasising that it is the annual letting value which has· to be
determined under the rating enactments, this case does not help us in
deciding the question now before us.
·
Bombay Municipal Corporation v. L.I.C. of India, Bombay,(1)
repeats that the criterion for fixing the rate is "the rent realisable by the
landlord and not the valuation of the holclings in the hands of the
tenant''.
- ·
Guntur J,,funicipal Cowzcil v •. Guntur Tott'n Rate PaJ·ers'. Association(2), relates to the interpretation of the provisions of the Madras
District. Municipalities Act 5 of 1920, where it was held that the assessment must take into account the measure of "fair rent" as determined
under the Act;
The abovementioned authorities of t!iis Court, which were cited
before us, enable us to hold that the mode of assessment in every
case must be directed towards. finding out the annual letting value
of land which is the basis of rating ofland, and, by definition, "land"
includes land which is either being built upon or has been built upon.
Nevertheless, reference to the provisions of the Act shows that, after ·
a building has been completed, the letting value of the buil<ling, which
becomes part oflancl, will be the primaryordetermining factor in fixing
the annual rent for which the land which has been built upon "might
reasonably be expected to be let from year to year". All that Section
154 seems to contemplate, by mentioning "land or building", is that
Janel which is vacant or which has not been built upon may be treated,
for purposes of valuation, on a different footing from land which
has actually been built upon. · But, relevant provisions of the Act
do not mention ancl seem to take no account, for purposes of rating.
of any building which is only in the course of being constructed although Section 3 (r) of the Act makes it clear that land which is being
built upon is also "lam!". Hence, so long as a building is not completed or constructed to such an extent that atleast a partial completion
notice can be given so that the completed portion can be occupied
and let, the land can, for purposes of rating, be equated with or treated
as vacant land. It is only when the building which is being put up
is in such a state that it is actually and legally capable of occupation
that the letting value of the building can enter into the computation
for rating ·"rebus sic stantibus". Although, the definition of land,
which is rateable, covers three kinds of "land", yet, for the purposes
of rating Sec. 154 recognises only two categories. Therefore,. all
"land" must fall in one of these two categories for purposes of rating
and not outside.
The doctrine of sterility, in the context of the P{ovisions we have
to construe, cannot apply here. In England, what happens_ is that
(I) (1971] (I) S.C.R. 335.
(2) ]1971] (2) S.C.Jl.. 423.
700
SUPREME COURT REPORTS
(1974] 3 s.c.R.
when land, which is in the process of being built upon, is equated
with vacant land, which is not yielding any profit, it ceases to be rateable
land. But, under the statute we have before us, all "land", whether
vacant, or in the process of being built upon, or built upon, is rateable
according to the well settled principles. All that can be said is that,
so long as a building being constructed on some land is not in a state
fit for occupation, its rateable value should not be more or less than
that of land which is vacant. That, however, is not the object of the
respondent in invoking the doctrine of sterility.