# MUNICIPAL CORPORATION OF GREATER BOMBAY v. ROYAL WESTERN INDIA TURF CLUB September 13. 1967

- **Citation:** [1968] 1 S.C.R. 525
- **Court:** Supreme Court of India
- **Decided:** 1968
- **Bench:** J. C. Shah, S. M. Sikri, J. M. Shelat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/municipal-corporation-of-greater-bombay-v-royal-western-india-turf-club-4134
- **Pages:** 11

## Headnote

Bombay Municipal Corporati01t Act Ill of 1888. •. 154-Scope·
of-Determination of annual rateabl;e value-Nature of deductions
that can be allowed when profits basis method used.
The respondent club ran a race course and had built certain
structures on land in Bombay which it had leased from the appellant corporation at an annual rent of Rs. 3.75 lakhs. It had obtained
C a licence from the State Government to hold race meetings on its
course in Bombay as well as on another course owned by it in
Poona for which it had paid a licence fee of Rs. 13 lakhs for the·
relevant year and had apportioned the fee in the ratio of 2: l
between the Bombay and the Poona courses.
For assessment of the correct rateable value of the propert)· for
the rating year 1954-55 the assessing authority made an assessment
by the profits basis method on the basis of the Club's accounts for
D the year 1953-54 and, in doing so. disallowed certain expenses claimed by the .Club in determining the ne~ rateable value at Rs. 11.90,187.
The respondent club thereupon filed an
appeal before the small
Causes Court under s. 217 of the Act and although that Court made
a few adjustments, it held the Club had failed to prove that the
net rateable value determined by the assessing authority \Vas excessive. The High Court however, in appeal, upheld the Club's objecE tions as regards the disallov:ance of several items of expenditure
and held that the gross annual value of the property would. after
the deductions to be allowed, come to Rs. 2,15.750; and after deductc
ing the~efrom the statutory allowance of IO per· cent under s. 154
on account of allo\vances for repairs etc.. the net anni1al value
would come to Rs. 1.94,175.
In the appeal to this Court it was contended on behalf of the
F appellant. inter a!ia, (i) that the 10 per cent statutory deduction
allowed by s. Hi4(1) covers all expenses for repairs and therefore
deduction of costs of repairs and upkeep of the course, if allowed, would mean a duplicate deduction; (ii) that the totalisator maintained by the Club being machinery. its value was not to be included in rating under s. 154(2); (iii) that the Club was entitled to
a deduction of only half of the licence fee apportioned to the
Bombay Course because that fee covered dual purpose i.e. for the
G
premises as a race course and for permission to conduct race meetings on the race course; for the first the burden would be on the
lessor and for the second on the tenant; that this was borne out
by the scheme of the Bombay Race Courses Licencing Act 3 of 1912
which was to licence the premises and then to licence the person
who runs races on such premises; and (iv) that if the expenses
claimed were allowed to be deducted, the net rateable value arrived
at would be less than the actual rent of Rs. 3,75,000 payable by the
H Club to the Corporation and that such a result cannot be contemplated under any method of assessing the rateable value.
HELD: Dismissing the appeal:
(i) The expenses in question were for the maintenance in
good repair of the race-track which is the source of
-026
SUPREME COUR'l' REPORTS
[1968) l s.O.B
receipts earned by the Club, Disbursements for the up- A
keep of the course and all its adjuncts consequently are
proper out-goings incurred for earning the receipts. They
are not the landlord's obligation and are not part of or
included in the statutory deduction of 10 per cent in
s. 154(1), which is in lieu of the cost of repairs, insurance,
etc. incurred by the lessor. The High Court was therefore
right in deducting such expenses from the gross receipts.
(ii) Similarly the expenses incurred for the upkeep and repair of the totalisator were incurred on an adjunct necessary to an efficient race course and must necessarily be
regarded as the outgoings of the business. The contention
that as it was machinery its value could not be included
in rating under s. 154(2) had no merit.
B
'(iii) The High Court had rightly allowed the deduction of the C
entire amount o

## Text

A
MUNICIPAL CORPORATION OF GREATER BOMBAY
B
v.
ROYAL WESTERN INDIA TURF CLUB
September 13. 1967
[J. C. SHAH, S. M. SIKRI AND J. M. SHELAT, JJ.]
Bombay Municipal Corporati01t Act Ill of 1888. •. 154-Scope·
of-Determination of annual rateabl;e value-Nature of deductions
that can be allowed when profits basis method used.
The respondent club ran a race course and had built certain
structures on land in Bombay which it had leased from the appellant corporation at an annual rent of Rs. 3.75 lakhs. It had obtained
C a licence from the State Government to hold race meetings on its
course in Bombay as well as on another course owned by it in
Poona for which it had paid a licence fee of Rs. 13 lakhs for the·
relevant year and had apportioned the fee in the ratio of 2: l
between the Bombay and the Poona courses.
For assessment of the correct rateable value of the propert)· for
the rating year 1954-55 the assessing authority made an assessment
by the profits basis method on the basis of the Club's accounts for
D the year 1953-54 and, in doing so. disallowed certain expenses claimed by the .Club in determining the ne~ rateable value at Rs. 11.90,187.
The respondent club thereupon filed an
appeal before the small
Causes Court under s. 217 of the Act and although that Court made
a few adjustments, it held the Club had failed to prove that the
net rateable value determined by the assessing authority \Vas excessive. The High Court however, in appeal, upheld the Club's objecE tions as regards the disallov:ance of several items of expenditure
and held that the gross annual value of the property would. after
the deductions to be allowed, come to Rs. 2,15.750; and after deductc
ing the~efrom the statutory allowance of IO per· cent under s. 154
on account of allo\vances for repairs etc.. the net anni1al value
would come to Rs. 1.94,175.
In the appeal to this Court it was contended on behalf of the
F appellant. inter a!ia, (i) that the 10 per cent statutory deduction
allowed by s. Hi4(1) covers all expenses for repairs and therefore
deduction of costs of repairs and upkeep of the course, if allowed, would mean a duplicate deduction; (ii) that the totalisator maintained by the Club being machinery. its value was not to be included in rating under s. 154(2); (iii) that the Club was entitled to
a deduction of only half of the licence fee apportioned to the
Bombay Course because that fee covered dual purpose i.e. for the
G
premises as a race course and for permission to conduct race meetings on the race course; for the first the burden would be on the
lessor and for the second on the tenant; that this was borne out
by the scheme of the Bombay Race Courses Licencing Act 3 of 1912
which was to licence the premises and then to licence the person
who runs races on such premises; and (iv) that if the expenses
claimed were allowed to be deducted, the net rateable value arrived
at would be less than the actual rent of Rs. 3,75,000 payable by the
H Club to the Corporation and that such a result cannot be contemplated under any method of assessing the rateable value.
HELD: Dismissing the appeal:
(i) The expenses in question were for the maintenance in
good repair of the race-track which is the source of
-026
SUPREME COUR'l' REPORTS
[1968) l s.O.B
receipts earned by the Club, Disbursements for the up- A
keep of the course and all its adjuncts consequently are
proper out-goings incurred for earning the receipts. They
are not the landlord's obligation and are not part of or
included in the statutory deduction of 10 per cent in
s. 154(1), which is in lieu of the cost of repairs, insurance,
etc. incurred by the lessor. The High Court was therefore
right in deducting such expenses from the gross receipts.
(ii) Similarly the expenses incurred for the upkeep and repair of the totalisator were incurred on an adjunct necessary to an efficient race course and must necessarily be
regarded as the outgoings of the business. The contention
that as it was machinery its value could not be included
in rating under s. 154(2) had no merit.
B
'(iii) The High Court had rightly allowed the deduction of the C
entire amount of expenditure in connection with the cost
of sand and morum, salaries and charges of empolyees,
motor lorry expenses, stores and charges for maintenance
of horses and bullocks, manure and garden expenses,
spares of trac\prs and other machinery and the wheel tax
and water tax. The distribution of these expenses between the tenant and the landlord made by the assessing
authority and the small Cause Court could not be sus- D
tained on the ground that race meetings were held in
Bombay only for part of the year. There was nothing to
show that the lessor had to maintain the track during the
time when race meetings were not held in Bombay,
The measure in arriving at the net rateable value under
s. 154(1) is what a hypothetical 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 E
the correct amount of such profit all expenses reasonably
and properly incurred which go to the making of the
receipts have to be deducted from the gross-receipts.
[533D]
(iv) The licence obtained by the Club was clearly permission
to run race meetings on the two race-courses and not an
instrument licensing the premises as a race course. Since F
it is the tenant who would hold the race meetings, the
fee payable for the licence is his burden and not that
of the lessor. Furthermore there was no provision in
Bombay Act 3 of 1912 to warrant the construction that
the licence obtained under s. 4 had a dual purpose as
contended. [533H; 534D]
(v) The rateable value need not always be equal to the actual G
rent. The measure is what a hypothetical tenant is expected to pay for a lease from year to year taking the
property as it exists with all its advantages and burdens.
In view of the fact that the Club was only in exclusive
possession of some portions of the land and the remainder
had to be kept open to the public except on race days
it was not surprising that the rateable value came to less
than the actual rent. [534H; 535C]
B
R. v. Vera!! [1875) Q.B.D. 9, Sanddown Park, Case, (1954] 47 R.
& T. 351 (CA). (quoted in Ryde on Rating, 11th ed,, 523); Port of
London Authority v. Assessment Committee, [1920] AC. 273 at
l). 281, referred to.
MUNIC. CORP. V. RWITC (Slie!at, J.)
527
A
CIVIL APPELLNTE JURISDICTION: Civil Appeal No.
15 of
1965.
Appeal from the judgment and decree dated
April 15/ 16,
1963 of the Bombay High Court in Appeal No. 216 of 1961 from
Original Decree.
S. T. Desai, 0. P. Malhotra and O. C. Mathur for the
ll appellant.
S. V. Gupte, Solicitor·General and Rameshwar Nath, for the
respondent.
The Judgment of the Court was delivered by
Shelat, J. This appeal by certificate obtained from the High
-0 Court at Bombay involves the question as to the true meaning
of s. 154 of the Bombay Municipal Corporation Act, III of 1888
and the correct rateable value to be assessed thereunder.
The respondent.Club runs two race courses, one in Bombay
and the other at Poona. We are concerned in this appeal with the
~ombay race-course which is comprised of land and certain
D structures standing thereon. The said land is the. property of the
appellant-corporation given on lease to the Club for a period of
30 years commencing from June 1, 1944 at an annual rent of
Rs. 3,75,000. The said structures thereon .have been built by and
belong to the Club. The Club has obtained a licence from the
Government of Maharashtra. permitting the Club to hold raceE meetings at both· the Courses and for
which it paid a sum of
licence fees between the two Courses in the ratio of 2: 1 and thus
licence fees between the two Courses in the ratio of 1 : 2 and thus
the share of the Bombay Course came to Rs. 8,66,666. The rating
year in question is 1954-55. The assessment was made on the basis
of the Club's accounts for the year 1953-54 that being the year
G concluded before the assessment. According to these accounts the
gross receipts of the Club came to Rs. 117 lacs and odd and the
expenses to Rs. 124 lacs and odd; the accounts thus showed a
loss of Rs. 7 lacs and odd. The Deputy Municipal Commissioner
who is the assessing authority disallowed expenses totalling Rs. 22
lacs and odd as having been wrongly included in the working
expenses and determined Rs. 13,22.430 as the gross annual rent
G and deducting therefrom the 10 per cent deduction allowable under
s. 154 of the Act assessed the net rateable value at Rs. 11,90,187.
The respondent-Club thereupon filed an appeal before the Small
Cause Court. Bombay, under s. 217 of the Act. The Club claimed
in all 19 items of expenses which according to it ought to have
been allowed. The Club, however, conceded that items 1, 2, ·4, 5,
B 15, 16 and 18 were rightly disallowed. The remaining items were:
3. Bombay Course upkeep and repairs
6. Track sand and Murum
7. Legal charges
528
llUPllD!lo: COUllT UPOllPS
8. Licence fee
9. Totalisator upkeep and repairs
10. Bombay Course salaries and wages
I !. Motor lorry expenses
[19681 1 1.0.• ..
A
12.
Gra~s and charges for maintenance of horses and
bullocks
B
13. Insurance and garden expenses
14. Spares for tractors and machinery parts
19. Painting.
Out of these. items 3. 9 and 19 were wholly disallowed by the
Deputy Municipal Commissioner while the rest were partially C
allowed. As regards Item 19, that is, painting, Counsel for the
Club stated before us that he would not press that item. We are
therefore no longer concerned with that item. The Small Cause
Court agreed with the Deputy Municipal Commissioner in totally
disallowing expenses under Items 3 and 9. It allowed however
item 7, that is, legal charges which were disallowed by the Deputy D
Municipal Commissioner. Regarding Item 6, the view of the Small
Cause Court was that only 7/12th and not 50 per cent deducted
by the assessing authority ought to have been allowed. It was
also of the view that only 7 /12th and not 50 per cen~ of the
expenses under Items 10, 11, 12. 13 and 14 ought to have been
allowed by the assessing authority. As regards the licence fees E
the Club had, as aforesaid, allotted Rs. 8.66.666 to the Bombay
Race Course. The Small Cause Court confirmed the deduction of
50 per cent only of this amount allowed by the assessing authority. So far as water tax and wheel tax were concerned the Small
Cause Court confirmed the deduction of 3 /4th of the these taxes
made by the authority. The Small Cause Court held that the profits basis method employed by the assessing authority was properly F
employed and further held that the Club had failed to prove that
the net ra.teable value of Rs. 11,90,185 determined by the assessing authority was excessive.
Before the High Court the Club agitated the same objections.
The High Court was of the view that considering the unique nature
of the use of the premises by the Club, the proper method for deter- G
mi nation of the aonual ..rent was the profits basis method but upheld the Club's objections as regards the disallowance of the
several items of expenditure. The High Court held that the gross
rateable value of the property would after these deductions be
Rs. 2,15,750 and ?fter deducting therefrom the statutory deduction
of 10 per cent. then.et rateable value would come to Rs. 1.94,175 H
a figure, no doubt, less than the actual annual rent of Rs. 3,75,000
payable by the Club under the said lease. The appellant-corporation challenges the correctness of these deductions allowed
by the High Court.
llUNW. CORP. V RWITC. (Slielal, J.)
529
A
.Before we proceed tb consider the contentions urged before
us on behalf of the Corporation, we may first look at some of the
provisions of the Act. Under s. 139 the Corporation is required
to levy property taxes, tax. on vehicles and animals, theatre tax
and octroi. Section 140 provides that property taxes mean water
.tax, halalkhor-tax and general tax of not Jess than 8 per cent. and
not more than 26 per cent. of the rateable value of lands and
11 buildings, education cess and betterment charges. Section 154 is
concerned with the valualion of property assessable to property
taxes .and provides how the rateable value of such property is to
be determined. Sub-section (I) runs as follows:-
·
c
"In order to fix the rateable value of any building
or land assessable to a property tax, there shall be deducted from the amount of the annual rent for which such
land or bullding might reasonably be expected to let from
year to year a sum equal to ten percentum of the said
annual rent and the said deduction shall be in lieu of all
allowances for repairs or on any other account what-
.ever."
D
The section provides only for the determination of the annual
rent (not the actual rent paid by the tenant) for which such land
or building might reasonably be expected to let from year to year
and. then to fix the rateable value after deducting therefrom 10
per cenf. of such annual rent in lieu of all allowances for repairs
or any other account whatever. The annual rent has to be worked
B out on the basis of what a hypothetical tenant would be willing
to pay as rent for the premises to a hypothetical landlord who is
prepared to let the premises from year to year as they stand having
regard to all the advantages and disadvantages relating to such
premises, such as, the situation, the nature of the property, the
obligations and liabilities attached thereto and other features, if
any, which enhance or decrease their value to such a, tenant. The
I' section simply enjoins upon the Municipal Corporation to determine the annual rent and the rateable value of the property therefrom bnt does not provide for any particular method of rating out
of the several well known methods usually followed in such assessments, such as the comparative method, the contractor's method,
the unit method and profits basis method, that is, profit-making
G capacity or valuation· by reference to receipts and expenditure.
(See Ryde on Rating 11th ed., 398 and Faraday on Rating 5th ed.
p. 24) The profits basis method which the assessing authority has
adopted in the present case consists in ascertaining the net annual
value of the premises which has to be worked out from the profits
which are made or which are capable of being made out of the
premises. The gross receipts form the starting point of the calculaB tion and they are those shown in the assessee's accounts
for the account year concluded last before. the making of the
-proposal. When these have been ascertained, the nexi step is to
.deduct therefrom the expenses of earning those receipts, the cost
L!J(N)6SCl--8
630
BUl'REME COUllT BEPOBTB
(1968] l B.C,B..
of repairs, insurance and other expenses necessary to maintain the A
premises in a state to command the hypothetical rent. The remaining balance is divisible between the tenant, that is, the tenant's
share, the landlord, that is, the hypothetical rent or net annual
value and rates. The tenant's share is often estimated by applying
a percentage to the tenant's capital or it may be directly taken as
a proportion of the divisible balance or by applying a percentage 8
to the receipts. (See Halsbury's Laws of England, (3rd ed.), Vol.
32, 87-88). It must be remembered that it is not the profits which
are rateable; they serve to indicate the rent at which the premises
might reasonabJy be expected to let, particularly where profit is
the motive of the hypothetical tenant in taking the hereditament.
This method at one stage used to be adopted in the case of public
utilities only. But there are a number of decisions which show 0
that at a later stage it began to be employed to other premises
also such as foot ball stadia, markets, race-courses, etc. One of the
earliest cases where this method was applied to undertakings
which are not public utilities is the case of R. v. Veral/(') which
was a case of a race-course. In Sanddown Park Case(') the Court
of Appeal held that in cases where actual receipts <1nd expenditure D
are accepted as relevant factors for the ascertainment of gross
value, sums reflecting the tenant's reasonable profit, risk and
interest on capital should be together treated as a charge on the
divisible profits in priority to other deductions. The profits basis
method has also been applied to such premises as grey hound
race tracks. Briefly stated, the profits basis method is no more
than a calculation based on the profit earning capacity of the pre- E
mises and as stated by Lord Birkenhead L.C. in Port of London
Authority v. Assessment Committee('):
"By this reckoning the amount of the gross receipts
is ascertained, and from such amount are deducted the
expenses of earning such receipts, the deductions provided for by statute, interest on tenant's capital and the
estimated amount of tenant's profit. The figure so ascertained would give the rating authority a valuable indication as to the rent which the hypothetical tenant would
be likely to give for the right to occupy the hereditament
in question and therefore would enable them to form an
opinion as to the correct amount of the net annual value
for the purpose of rating."
In the instant case, the profits basis method has been adopted
for the last several years and approved by the Small Causes
Court in several appeals by the respondent-Club. It appears that
at one stage the respondent-Club raised an objection regarding
F
G
its application to the present case. We need not go into the comparative merits of the different methods or into the question whether K
-----
(') [1875] Q.B.D. 9.
('l (1954) 47 R&T 351 (CA) (quoted in Ryde on Rating. 11th ed.
523.)
(') (1920] A.C. 273 at p. 281.
I
4
MUNIC. CORP. '1. RWiTO. (Shelat, J.)
A it can suitably be applied in the present case or not, as Counsel
for the Club stated before us that he was not pressing that objection. We therefore proceed on the footing that this method was
properly adopted by the assessing authority. But that does not
end the contloversy, for, even though the principles on which the
profits basis method is worked out are fairly
well-understood,
8 there is nevertheless bound to be controversy in regard to actual
working expenses shown in the assessee's ifccounts. A question
would often arise whether these expenses are the hypothetical
landlord's burden or that of. the hypothetical tenant. If they are
of the former class, they cannot obviously be claimed as deductible expenses for the hypothetical tenant would not take them into
account while offering the rent at which he would take the preC mises on lease.
We now proceed to examine the conteniions in regard to the
items of expenses in contloversy in the light of these principles.
The first of these items is Item No. 3 of Rs. 1,07,414 for expenses
for upkeep and repairs of the race-course. The contention on behalf of the Municipal Corporation was that the 10 per cent staD tutory deduction allowed by s. 154(1) covers all expenses for
repairs and therefore deduction of costs of repairs and upkeep,
if allowed, would mean a .duplicate deduction. Even if 10%.
statutory deduction were consild,ered inadequate looking to the
present rate of prices, the legislature has fixed that percentage
as a matter of policy and if it is found to be inequitable or
B otherwise it is for the legislature and not for the Court to alter it.
The question, however, is not the inadequacy of deduction allowed
in section 154(1) but as to which are the costs of repairs
contemplated by the sub-section. Under s. 108(m) of the Transfer
of Property Act the lessee is required to use the leased premises
as a person of ordinary prudence would use them if they were
1
his own and must keep them in as good a condition as he found
them and must yield them up in the same condition subject only
to fair wear and tear and irresistible force. There would thus
be two implied covenants in a lease: (1) to keep in repair and
!2) to restore in repair. It would therefore be the obligation of
the tenant to maintain the premises in good repair and in the
same condition at all times during the term of the lease. The
G lessor bears the burden only in
respect of dilapidation to· the
premises caused by reasonable wear and tear and extraordinary
causes such as storm, flood or accidental fire. It will however be
seen that the deed of lease under which the respondent-Club took
the land on lease expressly excludes the applicability of cl. (m) of
section 108. That being so the question as to whether it is the
B lessor or the lessee who would be liable to pay for repairs cannot
be resolved by the provisions of section 108(m). But the expenses
in question are not expenses for the upkeep and repairs of either
the land or the structures standing on it which have been put up
by the Club. Costs of these repairs may conceivably be the land~
532
SUPREME COURT REPORTS
[1968] l S.C.R•
lord's burden. Item 3 represents expenses for the maintenance in A
good repair of the track which is the source of receipts earned
by the Club. it is manifest that the track together with all its fitments has to be maintained properly if the Club were to earn
the receipts and secure. the largest possible attendance of persons
willing to bet at the races and to attract likewise as many horses
and their owners to participate in the race meetings held by the
Club. A well maintained track is obviously one of the principal B
attractions inducing as large an attendance as possible. Therefore
it would be in the interest of the tenant who takes on lease a race
course with profit.making motive to maintain the course efficiently
and in good order. Disbursements for the upkeep of the course
and all . its adjuncts consequently are proper outgclings incurred
for earmng the receipts. They are thus not the landlord's liability C
and are not part of or included in the
statutory deduction of
10 pet cent. The statutory deduction in section 154(1) is in lieu
of the cost of repairs, insurance, etc. incurred by the lessor. There
is therefore no question of any duplication if expenses incurred by
the Club for the maintenance of the Course were to be allowed
as a proper deduction. The High Court was therefore right in D
deducting those expenses from the gross receipts.
Next is Item 9 which comprises expenses for the upkeep and
repairs of the totalisator set up by the Club. The totalisator is an
apparatus or a mechanical device for registering and showing the
total operations and the number of tickets sold to betters on each
horse in a race. Obviously it is maintained to ensure efficient and E
expeditious working of the races. It does mechanically the work
which if done by human labour would necessitate employment of
a large number of persons. It is almost an indispensable adjunct
of a modern race course and is necessary to declafe within the
short time available to the betters which are the horses on which
heavy betting has been done in a particular race and the total
amount of betting on each of the competing horses in that race. F
The expenses incurred in the upkeep and repair of such an adjunct
necessary to an efficient race course must necessarily be regarded
as the outgoings of the business. The Corporation's
contention
that it is a. machinery and its value therefore is not to be included
in rating under s. 154(2) has no merit as it is part of the necessary
equipment of a good race course and its upkeep goes to the G
making of receipts.
The next items in controversy are items 6, 10, 11, 12, 13 and
14, that it cost of sand and moorum, salaries. and charges of employees, motor lorry expenses, stores and charges for maintenance
of horses and bullocks, manure and garden expenses. spares of
traciots and o:hcr machinery and lastly the wheel tax and waterH
tax. The only ground on which the Small Cause Court partially
allo\Yed these expenses wa? ·that since race-meetings were h~ld
in Bombay for 6 months m a year only, these expenses would
partly be borne by the Club and partly by the lessor. The High
MUNIO, CORP, V, BWITC. (Shela!, J.)
533
A Court disagreed with this view and rightly allowed the deduction
of the entire amount. In our view, it is not possible to find any
principle on which it would be possible to hold that if the race
meetings are held for 6 months only in Bombay the burden of
these disbursements woutd be on the tenant for 6 months and for
the remainder on the lessor. There is nothing in the lease which
would show that the lessor had to maintain the track during the
1' time that race meetings were not held in Bombay. Since it is the
Turf Club which ran the race meetings it would be the Club's
obligation and not that of the lessor to "look after the track's upkeep and maintenance and therefore it would be the Club which
would bear the costs of its maintenance even during the period
when race meetings were not held in Bombay. The distribution
C of these expenses between the tenant and the landlord made by
the assessing authority and the Small Cause Court cannot therefore
be supported on any principle nor can it be sustained on the mere
ground that race meetings were held in Bombay only for part of the
year. The measure in arriving at the net rateable value under
s. 154(1) is what a hypothetical tenant would pay as rent and that
D would depend upon the amount of profits· earned from race-meetings held on the race-course. To arrive at the correct amount of
such profit all expenses reasonably and pr()perly incurred which go
to the making of the receipts have to be deducted from the grossreceipts. There was no. challenge at any stage that these expenses
were not properly incurred for the upkeep and maintenance of the
race course. The High Court therefore was right in allowing the
E deduction of these expenses also.
For the relevant year the Club had allotted Rs. 8,66,666 out
c,f the licence fee of Rs. 13 lacs to the Bombay race-course; Collnsel.
urged that the Club was entitled to a deduction of Rs. 4,33,333
only as the licence was for a dual purpose, viz .. for the premises
as a race course and for permission to conduct race meetings on
P the race-course. It was argued that for the first the burden would
be on the lessor and for the second on the tenant. The licence Ex.
B shows that it was granted to the Committee of the respondent
Club. The licence is not a joint licence in favCIUr of the Corporation
and the Club. The application for it was madj: by the Committee on
behalf of the Club and not by the Municipal Corporation. If the
G licence was for a dual purpose prima facie the landlord would either
apply separately or join the Club in the application. The licence
shows that the application was for "horse racing in the race courses
leased by them" at Mahalaxmi, Bombay and in the Cantonment
at Poona. The licence .is "granted to the Iicencees" ......... "to hold
horse races on the said race courses." Condition 1 of the licence
prescribes that the Club could hold only 36 race meetings in a year
B out of which not more than 16 should be allotted to the Poona racecourse. The licence is clearly permission to run race meetings on
the two race-courses and not an instrument licensing the premises
as a race-course. It is manifest that since it is the tenant who would
hold the rac;~meetings the fees pJyable for the licence is his burden
liM
BUPRl!KB COURT REPORTS
[1968] 1 s.o ...
and not that of the lessor. Mr. Desai, however, contended that the A
scheme of the Bombay Race-Courses Licensing Act, III of 1912
. is to license the premises and then to licence the person who runs
races on such premises. He relied strongly on the long title of the
Act which states that it was an Act to provide for the licensing of
race-courses in the State of Bombay. Reliance was also placed on
section 3(1) which provides that no horse-race shall be held on a B
race-course for which there is no licence for horse-racing in force.
But the charging section is section 4 ·under which the owner, the
lessee or the occupier of a ra.ce-course can apply for a licence for
horse racing on a race-course. The licence for horse racing and the
obligation to obtain· it and to pay the fee therefor is on the person
who conducts the business of running the race-course for horseracing. Such a person can be either the owner, the lessee or the C
occupier of such a race-course. What section 3 does is to prohibit
horse racing on a ra.ce-course unless a Iicenee for horse racing has
been obtained in accordance with the provisions of the Act. There
is no provision in the Act which Mr. Desai could point out which
lays down any licence fee for a race-course. There is therefore
nothing in the Act to warrant the construction that the licence D
obtained under section 4 has a dual purpose as contended. Therefore there can be no justification for dividing the burden of the
licence fees between the tenant and the Iandk>rd. Mr. Desai, however, argued that even so, the respondent Club was Rot entitled to
claim the deduction of the licence fees because it was not the Club
but its Committee which applied for and obtained the licence. The
Articles of Association empower the Committee to act in all matters B
on behalf of the Club. The Committee applied for and obtained
the licence on behalf of and as the agent of the Club. The fees were
expended on behalf of the Club and as expenses of its business
and it is the Club and not the Committee which is licensed to run
horse racing on the race-course. The Club was therefore entitled
to treat the licence fees as its own expenses and claim deduction 'I'
therefor on the footing that lhe fees were expenses incurred by
it to earn the receipts.
As regards the wheel tax and the- water tax there is no justification in distributing them on the ground that during the time racemeetings were not held in Bombay it would be the landlord's obligation to pay those taxes. In our view there is no basis for disallow- G
ing a part Qf these taxes. These again were expenses incurred by
the Club in the ordinary course of its business and were as necessary
as other expenses in connection with its business.
Counsel for the Corporation lastly urged that if these expenses
were allowed to be deducted the net rateable value arrived at
would be less than the actual rent of Rs. 3,75,000 payable by the B
Club to the Corporation and that· such a result cannot be contemplated under any method of .assessing the rateable value. It is true
that the net rateable value as calculated by the High Court comes
io Rs. 1,94,175 but the rateable value need not always be equal
I
. MUXIC. CORPS. V. RWITC. (Shelat,, J.)
11311
.A to the actual rent. As aforesaid, the measure is what a hypothetical
tenant is expected to pay for a lease from year to Year taking the
property as it exists with all its privileges, advantages and burdens.
The leased premises no doubt consist of a large track of land but
it must be remembered that under cl. (i)(f) of the lease the Club
is in exclusive possession of only certain portions and the remainder
8
has to be kept open to the public except on race days and when training of 'horses is 'held. A large portion of the land has thus to be kept
open for being used as playgrounds for the public. It is therefore
not surprising ·that the rateable value as determined by the High
Court comes to an .amount less than the actual rent payable by the
C Club.
The appeal ;fails .and is dismissed with costs .
.R.K.P.S.
Appeal dismissed.