# MILLS CO. LTD. AND ORS v. MUNICIPAL CORPORATION OF THE CITY OF AHMEDABAD AND ORS

- **Citation:** [1967] 2 S.C.R. 679
- **Court:** Supreme Court of India
- **Decided:** 1967-02-21
- **Bench:** K. SuBBA RAO C. J, J. C. Shah, J. M. Shelat, V. Bhargava, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mills-co-ltd-and-ors-v-municipal-corporation-of-the-city-of-ahmedabad-and-ors-4170
- **Pages:** 24

## Headnote

Bombay Provincial Municipal Corporation Act ( 49 of 1949)-Levy
of pr()[Jerty tax on textile factories a~ fl.at
rate per 100 sq. ft. of floor
areas-Method whether
permissible under
Act-Whether violative of
Constitution of India, Art. 14-Machinery specified by Commissioner to
be included in the term 'land' for the purpose of taxation-Rules 7(2) and
(3) giving power to Commissioner to specify such machinery without giving guidance-Rules whether suffer from excessive delegation.
The petitioners were certain textile mills of Ahmedabad. They filed
writ petitions under Art. 32 of the Constitution against assessment to
property tax by the Corporation of the City of Ahmedabad under the
provisions of the Bombay Provincial Municipal
Corporation A~t, 1949.
The following contentions fell for consideration :
( i) The method of
adopting a flat rate for a floor area for determining the annual value
adopted by the Corporation was against the provisions of the Act, as well
as against all recognised principles of valuation for the purpose of rating;
it was also violative of Art. 14; (ii) Rules 7(2) and (3) made under the
Act gave unguided power to the Commissioner to specify machinery to be
treated as part of the 'land' for the purpose of
taxat:on and therefore
were bad due to excessive delegation. They also fell beyond the ambit
of Entry 49 of List II of the Seventh Schedule.
HELD : (i) The method of levy of tax on the basis of tloor area was
against the provisions of the Act and the Rules made thereunder.
lbe
latter clearly laid down that the rateable value of the property must be
assessed after determining the rack rent or the
annual rental value in
respect of each premises which is to be computed on the basis of the
annual rent for which the property might reasonably be expected to let
from year to year. It did not lie in the mouth of the municipality to say
that the irregularity was open to correction. [693 G-H; 694 A-B; 684 G-H]
(ii) It had not been established that condition prerequisite for determination of annual value of textile factories at Ahmedabad on the basis
of the rental value per foot super of floor area existed at the relevant
time, nor had it been shown that the so-called contractor's method was
adopted by the Municipal authorities of Abmedabad. The method was
also not one which is generally recognised by authorities on rating. [693E]
(iii) Applied indiscriminately-as it appeared to have been done in
ihe present case-the method of taxation on the basis of tloor area was
sure to give rise to inequalities as there had been no classification of fac·
tories on any rational basis.
Further there did not· seem to be any basis
for diving the factories and the buildings thereof under two
general
classes as buildings for processing and buildings for non-processing purposes Article 14 was therefore clearly violated. [693 F-G]
680
SUPREMI! COURT REPORTS
(1967] 2 S.C.R.
Lokmanya Mills v. The Barsi Borough Municipality, [1962] 1 S.C.R.
A
306, relied OD.
Bhuvaneswarlah v. Stale, A.I.R. 1950 Mys. 170 aod N. Kunha/i Hail
v. State of Kerala, AI.R. 1966 Ker. 14, referred to.
(iv) Rules 7(2) and (3) were invalid OD account of excessive delegation of powers by the Legislature.
UDder these rules the specifica1ion of
the classes of machinery for the purpose of taxation is doDe by the ComB
mi..;sioner with the approval of lhe Corporation irrespective of the ques·
tion as to where they arc to be found.
It therefore depends on the arbi.
tr.ary will of the Commissioner as to what machinery he
would specify
:-n<l what he would not.
Moreover. he is the.
only
person
who
can
e<dmine this question as there is no right of appeal. [701 D-F]
(v) Entry 49 in List II of !he Seventh Schedule only perm;ttcd levy
of tax on land and buildings.
It did not permit the levy of tax on machiC
nery contained in or situate on the building even
though the machinery
was there for the use of the building for a particular
~rrpose. Ru! ..
7(2) which levied such a tax was theref

## Text

_Characters 0–39,888 of 65,238. This is a partial read: ask again with offset=39888 for what follows._

A
NEW MANEK CHOWK SPINNING AND WEAVING
B
c
D
E
F
G
H
MILLS CO. LTD. AND ORS.
v.
MUNICIPAL CORPORATION OF THE CITY OF
AHMEDABAD AND ORS.
February 21, 1967
[K. SuBBA RAO C. J., J. C. SHAH, J. M. SHELAT, V. BHARGAVA
AND G. K.
MITTER, JJ.]
Bombay Provincial Municipal Corporation Act ( 49 of 1949)-Levy
of pr()[Jerty tax on textile factories a~ fl.at
rate per 100 sq. ft. of floor
areas-Method whether
permissible under
Act-Whether violative of
Constitution of India, Art. 14-Machinery specified by Commissioner to
be included in the term 'land' for the purpose of taxation-Rules 7(2) and
(3) giving power to Commissioner to specify such machinery without giving guidance-Rules whether suffer from excessive delegation.
The petitioners were certain textile mills of Ahmedabad. They filed
writ petitions under Art. 32 of the Constitution against assessment to
property tax by the Corporation of the City of Ahmedabad under the
provisions of the Bombay Provincial Municipal
Corporation A~t, 1949.
The following contentions fell for consideration :
( i) The method of
adopting a flat rate for a floor area for determining the annual value
adopted by the Corporation was against the provisions of the Act, as well
as against all recognised principles of valuation for the purpose of rating;
it was also violative of Art. 14; (ii) Rules 7(2) and (3) made under the
Act gave unguided power to the Commissioner to specify machinery to be
treated as part of the 'land' for the purpose of
taxat:on and therefore
were bad due to excessive delegation. They also fell beyond the ambit
of Entry 49 of List II of the Seventh Schedule.
HELD : (i) The method of levy of tax on the basis of tloor area was
against the provisions of the Act and the Rules made thereunder.
lbe
latter clearly laid down that the rateable value of the property must be
assessed after determining the rack rent or the
annual rental value in
respect of each premises which is to be computed on the basis of the
annual rent for which the property might reasonably be expected to let
from year to year. It did not lie in the mouth of the municipality to say
that the irregularity was open to correction. [693 G-H; 694 A-B; 684 G-H]
(ii) It had not been established that condition prerequisite for determination of annual value of textile factories at Ahmedabad on the basis
of the rental value per foot super of floor area existed at the relevant
time, nor had it been shown that the so-called contractor's method was
adopted by the Municipal authorities of Abmedabad. The method was
also not one which is generally recognised by authorities on rating. [693E]
(iii) Applied indiscriminately-as it appeared to have been done in
ihe present case-the method of taxation on the basis of tloor area was
sure to give rise to inequalities as there had been no classification of fac·
tories on any rational basis.
Further there did not· seem to be any basis
for diving the factories and the buildings thereof under two
general
classes as buildings for processing and buildings for non-processing purposes Article 14 was therefore clearly violated. [693 F-G]
680
SUPREMI! COURT REPORTS
(1967] 2 S.C.R.
Lokmanya Mills v. The Barsi Borough Municipality, [1962] 1 S.C.R.
A
306, relied OD.
Bhuvaneswarlah v. Stale, A.I.R. 1950 Mys. 170 aod N. Kunha/i Hail
v. State of Kerala, AI.R. 1966 Ker. 14, referred to.
(iv) Rules 7(2) and (3) were invalid OD account of excessive delegation of powers by the Legislature.
UDder these rules the specifica1ion of
the classes of machinery for the purpose of taxation is doDe by the ComB
mi..;sioner with the approval of lhe Corporation irrespective of the ques·
tion as to where they arc to be found.
It therefore depends on the arbi.
tr.ary will of the Commissioner as to what machinery he
would specify
:-n<l what he would not.
Moreover. he is the.
only
person
who
can
e<dmine this question as there is no right of appeal. [701 D-F]
(v) Entry 49 in List II of !he Seventh Schedule only perm;ttcd levy
of tax on land and buildings.
It did not permit the levy of tax on machiC
nery contained in or situate on the building even
though the machinery
was there for the use of the building for a particular
~rrpose. Ru! ..
7(2) which levied such a tax was therefore bevond the legislative competence of the State. [70 I A-CJ
In re. The Central Provinces and Berar Act No. XIV of 1938, [1939)
F.C.R. IR. Diamond Sugar Mill< Ltd. & An,. v. State of Uttar Pradesh
& Anr. [1961) 3 S.C.R. 242, Ra/la Ram v. The Province of East Puniab,
D
[ 1948) F.C.R. 207. R. v. St. Nicholas,
Gloucester.
(1783) l.T.R. 723,
Kirhy v. Huns/et Union [1906) A.C. 43 and Smith v. Wi/lesd•n Unwn,
[1919) 89 L.J.K.B. 137, considered.
ORIGINAL JURISDICTION: Writ Petitions Nos. 133, 156 &
157, 159-171, 178, 184, 206-210 and 234 of 1966.
Writ Petitions under Art. 32 of the Constitution of India f"r
E
enforcement of fundamental rights.
S. T. Desai, K. M. Desai, and Ravinder Narain, for the
petitioners (in all the petitions).
M. C. Setalvad, Purshottam Trikamdas, Vithal Bhai B. Patel
aud I. N. Shroff, for respondents Nos. I and 2 (in W.P. No. 133
F
of 1966.
Purshottam Trikamdas . Vitlralbhai B. Patel and /. N. Shroff,
correspondents Nos. I and 2 (in W. Ps. Nos. 156 and 206 of 1966).
Vitlralbhai B. Patel nnd I.N . Shroff, for respondents Nos. I
and 2 (in W.P. Nos. 157, 159-171, 178, 184, 207-210 a11d 234
of 1966.
G
B. Sen and R. H. Dhebar, for respondent No 3 (:n all the
petitions).
The Judgment of the Court was delivered by
Mitt-.r, J. This is a group of Wr't Petitions under Art. 32 of
the Constitution challenging the validity of the assessment book
relating to special Property section prepared and published by the
Municipal Corporation of the City of Ahmedabad by which the
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NEW MANEK CHOWK MILLS V. MUNIC. CORP. (Mitter, I.) 681
Municipality seeks to impose or has imposed property tax on
properties described as Special Properties like textile mills, factories,
buildings of the universities, etc. on the basis of a flat rate per I 00
sq. ft. of the floor area of the property situate within the municipal
limits uf the city. In Writ Petitions Nos. 133, 156-157, 159-171,
178, 184 and 234of1966, the challenge relates to the validity of the
assessment book relating to the year 1966-67; in Writ Petitions No.
206 and 210 of 1966 the challenge relates to the years i964-65 and
1965-66 while in W.P. Nos. 207, 208 and 209 of 1966 the challenge
relates only to the year 1965-66. The difference lies in this. So
far as the assessments for the year 1966-67 are concerned, there
has been no authentication of the assessment book after the disposal of all complaints relating to the entries made in the book,
while tiie challenge relating to the years 1964-65 and 1965-66 is
made at a stage after such authentication an" in respect of which
attachments of property belonging to the assessees have already
been leviec;. In W. P. No. 234 of 1966 filed in October 1966, the
issue of a distress warrant and the levy of attachment are also
challenged.
Several textile mills in the city of Ahmedabad are
before this Court in these petitions and they have a common complaint against the assessments.
To appreciate the points raised in these petitions, it is necessary
to take a bird's eye view of the relevant provisions of the Bombay
Provincial Municipal Corporations Act (LIX of 1949) under which.
the assessments were purported tc be made. Section 127(1) of the Act
makes it obligatory on the Corporation of the City of Ahmedabad
to impose, among other taxes, a property tax. Sub-s. (3) of the
section provides that municipal taxes shall be assessed and levied in
accordance with the provisions of the Act and the rules and sub-s. (4)
lays down that n.:.thing in this section shall authorise the imposition of any tax which the State Legislature has no power to impose
in the State under the Constitution; (it is needless to add that the
Act has been amended after tb.e Constitution came into force). Section 128 empowers the Corporation to recover the tax by the processes
laid down in the section in the manner prescribed b) rules. These
are inter alia (I) by presenting a bill; (2) by serving a written notice
of demand; (3) by distraint and sale of the defaulter's movable
property; and (4) by the attachment and sale of a defaulter's immovable property. Section 129 lays down that for the purposes of sub-s.
(I) of s. 127 property taxes shall comprise the taxes mentioned which
shall, subject to the e'lceptions, limitations and conditions provided,
be levied on buildings and lands in the city. One of these mentioned in cl. (c) is a general tax of not less than 12 per cent of their
rateable value which may be levied, if the Corporation so determines, on a graduated scale. A building has been defined in s. 2
sub·s. (5) and land in s. 2 sub-s. (30). 'Land' under this definition
includes land which is being built upon or is built upon or covered
682
SU?RJ!Kll COURT lll!POR TS
[1961) 2 S.C.R.
with water, benefits to arise out of land, things attached to the
.:arth or permanently fastened to anything attached to the earth and
rights created by legislative enactment over any street. Under s. 2
(49) 'property tax' means a tax on buildings and lands in the city.
Section 2(53) defines 'rack rent' as t~.e amount of the annual rent for
which the premises with reference to which the term is used might
reasonably be expected to let from year to year as ascertained for
the purpose of fixing the rateable value of such premises and under
s. 2(54) 'rateable value' means the value c,f any building or land
fixed ;n accordance with the provisions of the Act and the rules for
the pcrpose of assessment to property taxes. Under s. 453 the rules
in the Schedule as amended from time to time shall be deemed to
be part of the Act. The relevant taxation rules are to be found in
Chapter VIII of the rules.
Rule 7(1) provides that
"111 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 per cent of the said annual rent,
and the said deduction shall be in lieu of all allowances
for repairs or on any other account whatever."
Under r. 7(2) all plant and machinery contained or situate in or
upon any building or land and belonging to any of the claS>CS
specified from time to time by public notice by the Commissioner,
with the aoproval of the Corporation, shall be deemed to form part
of such building or land for the purpose of fixing the rateable value
thereof under sub-r. (I) but, save as afo•.:said, no account shall be
taken of the value of any plant or machinery contained or situated
in or upon any such building or land. Ruic 7(3) runs:
"A statement setting out clnrly the classes of plant and
machinery specified from time to time by the Commissioner
under sub-rule (2) and describing in detail what plant and
machinery falls within each such class shall be prepared by
the Cornmissic ner under the directions of the Standing
C'om."Ilittee and shall be open to inspection at all reasonable
hours by members of the public at the chief municipal
office."
Rule 9 provides inter a/ia:
"The Commissioner shall keep a book, to be called
"the assessment-book", in which shall be entered every
o~ciaJ year-
(a) a list of all buildings and lands in the city,
distinguishing each either by name or number as
he shall think fit, and containing such particulars
regarding the location or nature of each as will, in
his opinion, be sufficient for identification;
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NEW MANEK ;;HOWK MILLS v. MUNIC. CORP. (Mitter, /.) 683
(b) the rateable value of each such building and
land determined in accordance with the provisions of
this Act and the rules;
(c) the name of the person primarily liable for the
payment of the property taxes, if any, !eviable 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 nonliability;
(e) when the rates of the property-taxes to be levied
for the year have been duly fixed by the Corporation
and the period fixed by public notice, as hereinafter
provided, or the receipt of complaints against the
amount of rateable value
entered in any portion
of the assessment book has expired, and in the case of
any such entry which is complained against, when
such complaint has been disposed of in accordance
with the provisions hereinafter contained, the amount
at which each building or land ;:ntered in such portion
of the assessment book is assessed to each of the
property-taxes, if any, leviable thereon;
Rule I 0 provides for preparation of ward assessment books for
each of the wards into which the city is for the time being divided
for the purpose of election and the ward assessment books and their
respective parts shall collectively constitute the assessment book.
Under r. 13(1) when the entries required by els. (a), (b), (c) and (d)
of rule 9 have been completed, as far as practicable, in any ward
assessment book, the Commissioner shall give public notice thereof
and of the place where the ward assessment book or a copy of it
may be inspected. Under r. 15(1) the Commissioner must, at
the time and in the manner prescribed in r. 13, give public notice
of a day, not being less than 15 days from the publication of such
notice, on or before which complaints against the amount of any
rateable value entered in the ward assessment book -.;ill be received
in his office. Rule 16 provides for the time and manner of filing complaints against valuation. Rule 17 lays down that the Commissioner
must gjve notice to each complainant of the time and place when his
complaint will be investigated. Rule 18 prescribes for the investigation and disposal of the complaint in the presence of the complainant by the Commissioner. Under r. 19(1) when all such complaints, if any, have been disposed of and the entries required by
cl. (e) of r. 9 have been completed in the ward assessment book
the said book shall be authenticated by the Commissioner who shall
684
SUPIU!MB COU&T UPOlll'S
(1967) 2 Le.a.
certify under his signature that except in the cases, if any, in which
amendments have been made as shown therein, no valid objection
had been
made to the rateable value entered in the said book.
Under sub-r. (2) of the said rule, the ward assessment book shall
thereupon, subject to such alterations as may be made under the
provisions of r. 20, be accepted as conclusive evidence of the amount
of -:ach property tax leviable on each building r.nd land in the ward
in the official year to which the book relates. Rule 21(1) lays down
that it shall not be necessary to prepare a new assessment book
every official year and that subject to the provi~ions of sub-r. (2)
the Commissioner may adopt the entries in tl..~ last preceding year's
book with such alterations as he thinks fit, as the entries for each
new year. Under sub-r. (2) a new assessment book has to be prepared at least once in every four years.
The writ petition of which the papers were placed in detail
b~fore the Court is No. 133of1966 preferred by the New Manek
Chowk Spinning and Weaving Mills Ltd. The respondents are:
( 1) the Municipal Corporation of the City of Ahmedabad, (2) the
Deputy Municipal Commissioner of the same city and (3) the State
of Gujarat. The challenge in thi; case relates to the validity of the
assessment book for the year 1966-67. The complaint is that respondent No. 1 by the said book imposed property tax on the petitioner on the basis of a fiat rate per 100 sq. ft. of the floor area
of the petitioners' property as also of all other textile mills, factories, university buildings etc. under r. 9 of the Taxation Rules.
Annexure 'A' to the petition gives a synopsis of the entries relating
to the year of assessment 1966-67.
It is divided into three parts,
the first being headed 'buildings', the second 'additional land' and
Lhe third 'machinery'. :;" far as 'buildings' are conceL.•d, there
are three columns, the first being the area of the building in square
feet, th~ second monthly rental per 100 sq. ft. and the third the
annual rental. The building is again divided into two classes,
one for processing and the other non-processing.
The
mont~Jy
rental for the proces•ing part of the building is taken at Rs. 6-10--0
per !00 sq. ft. while that for the non-processing portion ,s Rs. 5-4-0
per 100 sq. ft.
With regard to the additional land, the valuation
is on the basis of the market rate per sq. ft. nf land and as regards
machinery the valuation is taken to be effective value of which the
annual rental at 71 % is taken as the annual value. The petitioner's
complaint i> that while under the provisions of the Act and the
rules made thereunder it was clear that the rateable value c,f the
property must be arrived at after determining the rack rent or the
annual rental value :n respect of each premises which is to be computed on the basis of the annual rent for which the property might
reasonably be expected to let from year to year, the municipal
corporation of Ahmedabad had adopted the method of determining
the annual rent on a flat rate method according to the floor area.
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NEW MANBK CHOWK MILLS v. MUNIC. CORP. (Mitter, /.) 685
irrespective of the locality, quality, age and nature of the property
which was not a recognised method and was not permissible in
law. According to the petition, a formula on the flat rnte method
of a fixed amount per 100 sq. ft. for arriving at the rental wa~ not
only against the express provisions of the Act but was also against
the recognised concepts of valuation in the Law of Rating. The
method adopted by respondent No. 1 in this case was arbitrary and
repugnant to the petitioner's right guaranteed under Art. 14 of
the Constitution. It was said that the buildings of the textile mills
were situate in different localities some of which were in the heart
of the city and some on its outskirts. There was no uniformity
in the floor area of the mills concerned nor was the age of the buildings in all cases the same. It was further ::omplained that buildings in respect of the properties covered by the special property
section included textile mills taxed on the fixed rate method whereas
buildings other than those of textile mills were taxed on the basis
of annual rent for which such premises were reasonably expected
to let from year to year. A further complaint was ~ade that
respondent No. 1 had assessed the property tax apart from buildings
and lands on the plant and machinery of the petitioner. It was
submitted that the imposition of property tax on plant and machinery
was beyond the legislative competence of the State. Sub-r. (3) of
r. 7 was challenged as giving the Commissioner arbitrary and
unguided power to set out the classes of plant and machin~ry and
to describe what plai.t and machinery foll within each such class
for the purpose of assessment of property tax. Moreover, such
classification by the Commissioner was made final and binding and no
right was given to any person affected thereby tc object to the same
nor was any right of appea1 against such decision of the Commissioner provided. A complaint was also made that respondent No. I
had not prepared any ward assessment books for the year 1966-67. It
is the petitioner's case that the figures in the assessment book for the
year 1966-67 were adopted from those of the previous year 1965-66,
under r. 21 of the Taxati011 Rules. It was submitted that such adoption was invalid and improper inasmuch as the assessment books
for the previous years were bad in law. The asses:ment books for
the previous years were also bad in law inasmuch as the same
were authenticated under r.
19 by
the Deputy Municipal
Commissioner and not by the Commissioner as contemp!akd in
the said rule. The complaints were not considered by the Municipal Commissioner himself. It was said that the action of the Deputy
Municipal Commissioner under a purported delegation of power by
order dated November 20, 1964 was invalid as a quasi-judicial
function could not be delegated. In this connection, reference was
made to s. 49(1) of the Act. It was further contended that even in
the year 1966-67 the power ;,f conducting proceedings under rr.13,
15, 16, 17, 18 and 19 of the Taxation Rules had been deputed by
the Municipal Commissioner in favour of the Deputy Municipal
SUPREME COURT REPORTS
[1967] 2 s.c.R.
Commissioner and as such
deputation was
bad in law.
Finally, the petition proceeded on the basis that the imposition of
property tax on the flat rate method on textile mills as under the
special property section was u/rra 1·ires the Act and the rules
made therein and was violative of the fundamental rights of the
petitioner guaranteed under Arts. 14, 31(1) and 19 of the Constitution and the procedure adoptt:d in pre~aring the assessment book
was ultra vircs the procedure laid down by the Act and the rules.
The grounds of challenge arc formulated in paragraph 35 of the
petition. Among the prayers are a writ of mandamus or any
similar writ directing respondent No. l to forbear from taking any
steps for the imposition and re.Ilisation of the property tax pursuant
to the preparation of 1he assessment book for the year 1966-67
relating to the Srecial Property section; a writ of certiorari or other
similar writ to quash the assessment book for the said year; a writ
of prohibition or other order restraining respondent No. 2, the
Dep"ty Municiral Commissioner from acting under deputation
under s. 49 (I) and other reliefs.
The roints raised in the counter affidavit are as follows :-{I)
The tax being based on the amount of rent fo; which the property i~
or may he let from year to year, such rent has got to be ascertained
from either the actual or the hyrothetical rer:t for which the propert}
along with all the equipment like plant and machinery and amenities
that it contains, is or may be let and such annual rent where the
rropcrty i' let as a factory equirped as a factory would he the rent
that it would fetch as a factory aud not as a bare building. (2)
Rule 7(2) only gives power to the Corporation to include such plant
and machinery as it may determine from time to time taking into
consideration various factors like the situation of tr.~ city, its facilities
for transport to other parts of the State and the country,
whether the industry is well established or is just being developed
etc. (3) Although under r. 9(b) the amount of the rateah!e value of
the property in the previous year is to be entered, it is open to the
Corporation to take any fresh circumstances into rnnsideration before adopting the entry from the earlier year. Er.try in col. (b)
is neither the imposition of the tax nor the final amount on the basis
whereof the tax is leviable. It is in the nature of a proposal by the
·Corporation and is subject to objection by the assessce and the
tax becomes leviable after the objections have been disposed of and
the amount is entered in column (e). (4) After the t'.lX has become
Jeviable under the Rules, the assessec is entitled, if he so desires,
to file an appeal under s. 406 against either the rateable value or the
tax fixed or charged under the Act. The Court of Small Causes can
hear and determine the appeal. Under s. 410 there is a provision
for a reference to the District Court ands. 411 provides for an appeal
to it. The High Court would have the power of revision of the
order of the District Judge.
(5) The fixing of the rateable value on
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NEW MANEK CHOWK MILLS v. MUNIC. CORP. (Mitter, /.) 687
floor area basis is in accordance with the accepted principles and
methods in the Law of Rating. In various cities it is common to
let out premises on the basis of the floor area. The computation
of rateable value by this means depends on the estimate of the annual
rent at which the property may be reasonably expected to let from
year to year. The situation of the building, the age of the building,
th<: material used for the building are not relevant for, if the mill
containing all plant and ma~hinery and other equipment is let, it
is let as a factory for carrying on a business of manufacture of
textiles. The grievance of the petitioner is open to redress under
s. 406 and the other sections mentioned. (6) It is not incumbent on
respondent No. I to maintain any ward asses~ment books, and (7)
under s. 49(1) the power to dispose of complaints against the fixing
of rateable value was duly deputed to the Deputy Commissioner and
there was nothing illegal about it.
The points formulated by Mr. S. T. Desai are as follows:-(!)
The method of adopting a fiat rate for a floor area for determining
the annual value adopted bythe Municipal Corporation of Ahmedabad was against the express provisions of the Act. (2) The method
was also in violation of all recognised concepts and principles of
valuation for the purpose of rating. (3) The imposition of tax on
a fiat rate method was violative of Art. 14 of the Constitution. (4)
Rule 7(2) and r. 7(3) were ultra vires the Constitution a, beyond the
legislative competence and entry 49 of List II.
(5) The delegation
of powers of the Commissioner to the Deputy Commissioner was
bad as it involved the delegation of quasi-judicial power, and (6)
Rule 7(3) suffered from excessive delegation and was violative of
Art. 14 of the Constitution.
The first,
second and third points may be taken together.
In the forefront of his argument Mr. Desai relied on a decision of
this Court in The Lokmanya Mills v. The Barsi Borough Munici
pality.(1)
There the common question in the appeals related to the
validity of r. 2C framed under the Bombay Municipal Boroughs Act,
1925. Under s. 73 of the Act the Municipality was entitled to levy a
rate on lands and buildings. In 1947 new rules were made after
obtaining the approval of the Government of Bombay for the
purpose of enhancing the assessment of lands and buildings within
the area of the Municipality. Rule 2C of the new rules provided
that:
"As regards Mills, factories and buildings relating
thereto, the annual letting value shall be fixed at Rs. 40/-
per 100 square feet or part thereof for every floor, ground
floor or cellar and the tax shall be asse~<ed on the said
annual letting value, at the ordinary rate.
"
(ll (1962] I S.C.R. 306.
688
SUPll!MI! COURT Rl!PO'RTS
(1967) 2 S.C.11..
The Municipality prepared an assessment list under the new scheme
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of taxation in respect of factories and buildings
relating thereto
and issued notices of demand calling upon the appellants to pay
house tax and water tax so assessed. The question before this
Court was whether rule 2C was ultra vires. This Court examined
th~ provisions of the Act under which the rate could he levied on
lands and buildings assessed on the valuation thereof based on
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.annual letting value.
It was said:
"If the rate is to be levied on the basis of capital
value, the building to be taxed must be valued according to
some recognised method of valuation: if the rate is to be
levied on the basis of the annual letting value, the building
must be valued at the an:.Jal rental which a hyrothctical
tenant may pay in respect of the building. The Municipality ignored both the methods of valuation and adopted a
method not sanctioned by the Act.
By prescribing valuation cumputed on the area of the factory building, the
Municipality not only fixed arbitrarily the annual letting
value which bore no relation to the rental which a tenant
may reasonably pay, but rendered the statutory right of
the tax-payer to challenge the valuation illusory. An
assessment lis; prepared under s. 78, before it is authenticated and finalised, must be published and the taxpayers must be given an opportunity to object to the valuation.
By the assessment list in which the valuation is not
based upon the capital value of the building or the rental
which the building may fetch, but on the floor area, the
objection which the tax-payers may raise is in substance
restricted to the area and not to the valuation."
lt was further observed that if the Municipality had adopted any
<lf the recognised methods of valuation for assessing the annual
Jetting value, the tax would not be open to challenge. The Court
further noted:
"In any event, there is no evidence on the record of this
case that the factories and "buildings relating thereto" such
as warehouses, godowns and shops of the Mills situate in
the compound of the mills, may be separately let at the
uniform rate prescribed by the Municipality. The vice of
the rule lies in an assumed uniformity of return per square
foot which structures of different classes which are in their
nature not similar, may reasonably. fetch if let out to
tenants and in the virtual deprivation to the rate-payer of his
statutory right to object to the valuation."
It may be interesting to note that an Act was passed to validate the said imposition. On a Writ Petition No. 1476 of 1966 the
Bombay High Court held the Validating Act to be ultra 1·ires. The
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NEW MANEK CHOWK MILLS V. MUNIC. CORP. (Mitter, /.) 689
contention put forward before the Bombay High Court was inter
alia that the levy of a tax on buildings and lands on the basis of
floor area was necessarily arbitrary and capricious in that the valuation of buildings and lands so arrived at could have no relation to
their actual value, for the value of buildings depended, among
other things, upon location, age, mode of construction, material
used etc. A uniform rate on buildings and lands of widely differing
values was clearly discriminatory because of lack of classification
leading to inequality. It was further argued that there was violat;.on
of Art. 14 in that the owners of mills and factories were discriminated
against as compared to the o•vners of other buildings and lands.
These grounds were upheld by the Bombay High Court.
Reierence was made by Mr. Desai to decisim1s of other High
Courts
wherein similar observations were made. In Bhuvanes-
. wariah v. State('), the Mysore Buildings Tax Act, 1963 and Schedule
II thereto were challenged before the High Court of Mysore. It was
pointed out that under the scheme of the Act a cow-shed and an
ultra modem cinema house in the best locality would be charged
with the same amount of tax if the extent of fioorage of both were
the same. The High Court held that the Act suffered from lack of
rational classification because:
"The fioorage basis is not only unscientific, it is something arbitrary and mechanical. It does not conform to
any of the known principles of taxation. In the very
nature of things, under that basis the incidence of tax
must fall unevenly on things similar."
N. Kunhali Haji v. State of Kerala(2) was a case where under the
Kerala Buildings Tax Act, 1961 (19 of 1961) tax was sought to be
imposed not on the basis of letting value but on the floor area of
buildings. It was held that the lack of classification had resulted in
inequality with the rr1ult that the pr<'visions of the Act were held
to be invalid. Reiying on the above decisions, Mr. Desai argued
that the method adopted by the Municipal Corporation of Ahrnedabad was against all known principles of rating and was violative
of Art. 14 of the Constitution. He submitted that there were a
number of textile mills situated in different parts of the city some of
which
were old and some were of fairly recent origin. Their
method of construction was not the same, some being more permanent in the nature of things than others. Apart from the question
of the valuation of plant and machinery, Mr. Desai argued, it was
impossible to suggest that a hyj'lothetical tenant would be agreeable
to take on rent the building of a mill which was well-built and of
recent origin as another which was fairly old and not constructed
with the same kind of material. Mr. Desai further argued that the
situation of t~e mill was another factor which any tenant would
(1) A.I.ii.. 1965 Mysoro page 170.
(2) A.l.R. 1966 Kcrala 14.
690
SUPltEMI! COUit T REPORTS
(1967] 2 S.C.R.
take into consideration and even if the buildings _of the two mills
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were otherwise similar, a tenant would not agree to pay for one
situated on the outskirts of the city the same rent as he would be
willing to pay for the one in the heart of it. In these circumstances.
he argued it was wholly unreasonable to think that a tenant would
be willing to pay Rs. 6-10-0 per 100 sq. ft. of the floor area whether
it was in the heart of the city or in the outskirts of it, whether the
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building was old or whether it was new and whether it was well
constructed or ill-constructed.
Mr. Sctalvad tried to argue that such a method of valuation was
not unknown and in any event a person who wanted to take on
rent a textile factory would only be concerned with what profits he
could make out of it and that it did not matter to him as to where it
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was situate in the city, whether the building was old or whether it
was new or whether it was constructed properly with first class
material or not. According to Mr. Sctalvad. the tenant would only
go by the use to which the building could be put. So far as the
methods of valuation arc concerned, we may refer to certain wellknown textbooks on the subject.
Halsbury in Vol. 32 (page 76,
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Art. 106::-Third Edition) points out:
"Except in the case of public utility undertakings which,
in the absence of special circumstances, must as a matter
oflaw be valued on the profits basis, there is no rule of law
as to the method of valuation to be adopted for rating."
This does not however mean that it is open to municipal authorities
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to fix upon any scale and say that they will adopt it. They must
show, if challenged, that the sca.e adopted by them allows the
fixing of an annual value and provides a basis for determination of
the same as that which a hypothetical tenant might be expected to
pay for the building. All th<; textbooks lay down certain methods
of valuation. As Halsbury points out at page 77, Art. 108:
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"In the absence of rental evidence of value,
the
accounts, receipts or profits of the occupier of the hercditament may be relevant. The profits themselves are not
rateable but they may serve to indicate the rent at which
the hereditament might reasonably be expected to let,
particularly whether profit is the motive of the hypothetical
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lenant in taking the hercditament, or where the trade can
only be carried on upon that hereditamenl."
In Article 109, the learned author points out :
"Where neither actual rents nor the profits of trade
afford evidence of annual rental value, a percentage of the
cost of construction of structural value of the hereditament,
or CJf a suitable hereditament, is sometimes taken as
evidence."
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NEW MANEK CHOWK MILLS V. MUNIC. CORP. (Mitter, J.) 691
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This is referred to loosely as "the contractor's method". The
value taken is sometimes called the "effective" capital value, that
is to say, the capital value leaving out of account expenditure on
unnecessary ornamentation, or accommodation surplus to requirements and after allowing, if necessary, for age and obsolescence.
The percentage to be applied to capital value is that prevailing in
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the market, and not necessarily that at which the actual occupier
can borrow or obtain money. Mr. Setalvad placed reliance on
Faraday on Rating (5th Edition) where the learned author gives
four recognised methods of arriving at the annual value of a hereditament at page 24 of the book, these being-
!. The "competitive or comparative method" i.e.
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by finding out rents actually paid for the hereditament in
question and/or others of a similar kind, adjusting them
to bring into line with the statutory conditions, and thus
arriving directly at an estimate of the rent ......... .
2. The "profits basis," or calculation by reference to
receipts and expenditure, which is now required to be
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applied to certain public utility undertakings, and may
properly be applied to any other hereditament on which a
business is carried on which enjoys privileges in the nature
of a monopoly. . . . . . . . . . . .
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3. The "contractor's method," by which it is assumed,
in the absence of any other better way of estimating the
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rent, that the tenant would arrive at it by finding the figure
for which a contractor would provide him with premises
neither more nor less suitable for his purrose, and the rate
of interest on that cost which the contractor would charge
him as rent.
4. The "unit method" by which schools may be valued
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at so much a place, hospitals at so much a bed, or certain
industrial premises at so much a furnace, or other unit of
output.
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Mr. Setalvad laid particular stress on a passage at page 164 reading :
"Modern factories are frequently found in groups due
to Town Planning
or in some cases because Trading
Estates have been developed.
Under these conditions it
is often possible to arrive at the rental value per foot super
of floor area by applying the contractor's basis to typical
factories or because there are sufficient rents or by a combination of the two methods."
This is followed by an illustration of a bakery and warehouse which
goes to show that different portions of the building which were
of different nature were measured and valued differently and then
M2Sup.Ci/67-15
692
SUPREME COURT REPOl\.TS
[1967] 2 s.c.R.
on the valuation of the total the floor area method was adootcd
for the purpose of similar buildings.
As the learned author himself points out at page 165:
"The floor area method of valuation is usuallv used
where there arc numerous factories in an area, mostly similar and used for the same trade.
In the North mills arc
frequently valued on this method."
The learned author also stresses that great care must be taken in
applying the price per square foot which will vary according to the
character of the factory or mill.
Lower down in the same page,
the learned author points out that a factory put u;:> years ago May
contain machinery which has become old fashioned and modern
machines for the same purpose might occupy far more or less space,
and therefore, require larger or smaller buildings, and probably
reduce the wages bill and effect other ccoi1omies whilst at the same
time giving more output than the old cumbersome undertaking.
According to the author, the value of the old factory. from a rental
point of view, would be less than that of a new one with the same
power of production, since it would be impossible to
find
a
tenant who would give the same rent for h•.>th concerns inasmuch
as he could obviously operate in the new buildings more economically than in the old one.
There is nothing in the counter affidavit to show that conditions
in the City of Ahmedabad with regard to textiles mills are such as
would make the method laid down at p. 164 of Faraday's book
applicable. The affidavit docs not purpcirt to show that the factories
were constructed at or about the same time or in groups or were
so similar in their operation that their rental value wuld be determined at per foot super of floor area applying the contractor's
basis. There is nothing to show that ar1y textile factory was valued
on the contractor's basis and that from the figures of valuation so
worked out, the rental value per foot super of floor area was determined. On the other hand, the affidavit suggests that because
in various cities it was common to let out premises on the basis
of floor area, the municipal authorities of Ahmcdabad had resorted
to this method for fixing the rateable value.
We can take judicial
notice of the fact that sometimes god owns or buildings constructed
for office purposes are let out on the basis of floor area; but even
then.