Supreme Court of India
DR. BALBIR SINGH AND ORS. ETC. ETC.versusMUNICIPAL CORPORATION, DELHI AND ORS.
- Citation
- 1984 INSC 235
- Decided
- 12 December 1984
- Disposal
- Directions issued
- Bench
- P N BHAGWATI
Holding
The rateable value of a property is the annual rent a landlord could reasonably expect from a hypothetical tenant, limited by the standard rent fixed under the Delhi Rent Control Act, and the standard rent must be determined using the formulae of Section 6 (or Section 7) unless it is truly impossible to do so, in which case Section 9(4) may be invoked.
Summary
The Supreme Court examined challenges by several property owners against assessments made by the Municipal Corporation of Delhi under the Delhi Municipal Corporation Act, 1957 and the Punjab Municipal Act, 1911. The core issue was how to determine the rateable value of four categories of properties – self‑occupied, partly self‑occupied/partly tenanted, lease‑hold land with transfer restrictions, and properties constructed in stages – for the purpose of levying property tax. The Court held that rateable value must be the annual rent a landlord could reasonably expect from a hypothetical tenant, but it cannot exceed the standard rent fixed under the Delhi Rent Control Act, 1958. The standard rent, calculated per the principles of Section 6 (and where applicable Section 7) of the Rent Act, serves as an upper limit; the actual rent may be lower based on factors such as condition, location and amenities. The Court rejected the Municipal Corporation’s reliance on Section 9(4) of the Rent Act where the standard rent could be determined under Section 6, and clarified that market value of lease‑hold land can be ascertained despite transfer restrictions. The Court directed that the pending writ petitions and appeals be placed before the Board for disposal applying these principles.
Issues considered
- How should rateable value be determined for self‑occupied residential and non‑residential properties?
- How to assess rateable value for premises that are partly self‑occupied and partly tenanted?
- Whether the standard rent can exceed or be less than the actual rent received by the landlord?
- Whether Section 9(4) of the Delhi Rent Control Act applies when standard rent can be fixed under Section 6?
- How to determine market price and standard rent for properties built on lease‑hold land with transfer restrictions?
- Method of assessing rateable value for properties constructed in stages or with subsequent additions
Legislation cited
- Delhi Municipal Corporation Act, 1957s. 113, s. 114, s. 115, s. 116, s. 120, s. 2(47)
- Delhi Rent Control Act, 1958s. 2(k), s. 6, s. 7, s. 9
- Punjab Municipal Act, 1911s. 113, s. 114, s. 115, s. 116, s. 120, s. 2(47)
Subjects
property taxrateable valuestandard rentDelhi Rent Control Acthypothetical tenancylease‑hold landself‑occupied propertypartly tenanted propertymunicipal assessmentsection 9(4) discretion
Judgment
439
DR. BALBIR SINGH AND ORS. ETC. ETC.
A
v.
MUNICIPAL CORPORATION, DELHI AND ORS.
December 12, 1984
B
[P.N. BHAGWATI, R.S. PATHAK AND AMARENDRA NATH SEN, JJ.]
Deihl Municipal Corporation Act, 1957 and Punjab Municipal Act 1911
-Assessment of property tax-Different categories of properties enumerated
-Rateable value-How to be determined-Criteria for calculating arrn1.al rent
not lo be higher than standard rent-May be even lower lhon standard rent.
c
._. Delhi Rent Control Act J9j8, s. 6-Determinatlon of Standard Rent-
PrlncipleJ explained-Sel!, 9 prescribts only procedure for fixation of standard
r•nl.
Section 2, sub-section (47) of Delhi Municipal Corporation Act, 19S1
defines ~rateable value' to mean "the value of any land or building fixed in D
accordance with the provisions of this Act and the bye .. Jaws made there·
under for the purpese of assessment to property taxes. Sub-secti00 (1) of
Section 116 lays down that the rateable value of any land or building
assessable to property taxes shall be the annual rent at which such Jaud or
building may reasonable be expected to be let from year to year, less a sum
equal to 10% of such annual rent. Sub-section 3 of sec. 120 provides that
'"the liability of the several owners of any building which is, or purports to E
be. severally owned in parts or Oats or rooms, for payment of property taxes
or any instalment thereof payable during the period of such ownership shall
be joint and several.,.
The appellants and petitioners chal1onged in the High Court of Delhi
the assessmoats with regard to property tax made by the Municipal Cor•
poration under the Delhi Municipal Corporation Act, 19S7 and the Punjab F
Municipal Act 1911 in respect of four categories of properties situated in
Delhi and New Delhi areas. The municipal authorities contended that tho
ratio of the decision in Dewan Dau/at Ram v. NDMC [1982] 2 S.C.R. 607
was that whatever be the figure of the standard rent whether determined by
the Controller under Section 9 of the Rent Act or arrived at by the assessing
authority by applying the principles laid down in the Rent Act, must be
taken as the measure of rateable value of the building for the purpose of G
assessability to property tu, irrespective of any other considerations i (2)
that wberc any premises construoted on or after 9th June 1955 have not
been let out at any time and have throughout been self-occupied, tho
standard rent of such promises would be determinable under the provisions
of 1ab section (2) (b) of Section 6 of the Dolbi llool Control Ao1 19S8 and
0
a
440 SUPREME C0t1RT REPORTS (1985) 2 s.c.a.
A any rent which. could be agreed upon between the landlord and the tenant
if the premises were Jet out to a hypothetiCat tenant would be deemed to
be the standard rent of tho premises and the formulae set out in sub.
section (I) (B) (2) (b) of Section 6 would not bo applicable for determining
the standard rent by reason of non·obstante clause contained in the opening
part of sub-seotion (2) of Section 6 ; and (3) that since in some. of the
cases the plot of land on which the premises s:tands, cannot be transferred
B without the previous ,consent of the Government, it· bas no market value
and its market price cannot be ascertained and hence tha standard rent of
the premises cannot be determined on the principles set out in sub-sectioDs
(I) (A) (2) (b) or (1) (Bl (2) (b) of Section 6 and consequnetly, the miduuy
provision in sub-section (4) of Section 9 Would apply and the standard rent
would have· to b(: fixed io accordance with the principles laid down in that
J
provision.
c
On the questfon of determination of rateable value for four categories
of properties for the purpose of assessability to property ta:ii:, the Court,
HELD : 1.1 ~fhc relevant provisions of Delhi Municipal Corporation· Act~
1957 and the Punjab Municipal Act, 1911 in respect of determination of
rateable value 'for the purp0se or assesSability to property talli:"are almost
D identical as· ob~erved by Suvrem1 Court in Diw•n Dau/at Ram v. NDMC
(1980] 2 S.C.R. SOY and it vrould tberofor bo •ulloiont te refer t0 · tlu
provisions of the· Delhi Municipal Corporation Act, 1957 (for short, the
Act). [453E]
It would appear from the provisions of ss. 114 and 1 t S and the Act
E'
'that the general tax is t'eviable on land and building as a whole and separate
pOrtions of large and bu!ldings are not assessable ti> general tax as distinct
alld independent units save and except where aoy portion of the land or
building is liable tO a higher rate of general tax under the, proviso to clause
(di of sub.section (I) of Soctioo 114 or is exempt from tho general ta• by
. '
reasori of its being exclusively occupied or used , for public worship or for· a
cbarit:ible· .Pufposo under. sub-section (4) of Section 1.15 io which case such
poition· of the '13.nd of b.Uilding is deemed to be a separate property for the •
purpose of municipal taxation. [45 l A-Bl
F 1.2. The basic assumption underlying sec. 120 (3) of the Act is
that the buildirig'as·a whole is to be assessed to the property taxes and not
each separate part or flat or room belonging to a separate· owner and tb'e
liability or the se~eral oWners for payment of the- amount of property taxes
,, assessed' on the building is to be joitit and seVcral so that each of thChi
:t would be liable to pay the whole amount of the property taxes assessed on
the·· building· vis~a·vis the Corporation. The amOunt of property taxes
0 assessed on the bllilding't~ would, of course, be liable to be divided amongst
~ the several owners in the proportion·. of the area comprised in the pirt·or
'I 68.t or room belCJ•nging - to ea;;:h owner, but· so far as the Corporatiori is
' concerned the liability of1tbe ·several owners ·will be joint and 1several.
[452B-C]
{
!l; 1.3. UndCi' 'tbC provisions of, the A'Ct, criteria for determining ratCw
' H
.!~
<i<'
able v:itU.ClOf' a buildiii8 ·..is the annua_I · reni · at .whiCh- such bUilding miSlit
rCilSCni8bJC''be" e:ip6i:tCd tCi'bC let ffom year to year'. less certain deductions .
• --i •
~
.
'§.
.-
~·
BALBIR SiNGH v. M.C.D. 441
1
Tho word reasonably 1 in the definition of rateable value ins. llt:i (1) is A
very important. What the owner might reasonably expect to get from a
hypothetical tenant, if the building were let from year to year, afford.~ the
statutory yardstick for determining the rateable value. Now, wiat is
reasonable is a question of fact and it depends on the facts and circumstances
of a given situation. Ordinarily, ~ b'lrgain between a willing lessor aad
a willing le'lsee uninfluenced by any ex.:.ran\l'ous circumstance'i may aff<>rd a
.... guiding test of reasonableness and in no£mal circumstances, the actual rent
payable by a tenant to the landlord would afford reliablo evidence of what
B
the landlord may reasonably expect to get from the hypothetical teoant,
unless the rent is inflated or depress~d by reason of extraneous consider,·,tions
sach as relationship, expectation of some other benefit. There would
ordinarily be a close approximation bL:tween the actual rent received by the
landlord and the rent which he might reasonably expect to receive from a
hypothetical tenant. But in case or a building subject to rent control c
legislation this approximation may and often does get dispiaced, because
under rent control legislation the landlord cannot claim to recover from the
tenant anything more than the standard rent and his reasonable expectation
must, therefore, be limited by the measure of the standard rent lawfully
recoverable by him. [452E-H; 453A]
(I) The '1:oliiltrovcr1y ia Dewan D81tlat Ram's case \supra) was not D
whether the figure of standard rent of a building should be taken as its
rateable value even where the rent which the owner reasonably expects to
got from a hypothetical tenant is less than the figure of the standard rent
but whether the contractual rent receivable by the landlord from the tenant
should be taken to be the rateable value even if it be higher than the
• standard rent determinable under the J)rovisions of the Rent Act. The Court
held (i) that even if the stand:trd rent of a building bas not been fixed by E
tho Court under Section 9 of the Rent Act, the landlord cannot reasonably
expect to receive from a hypothetical tenant anything more than the standard
rent determinible under the provisions of the Rent Act and this would be
so equally whether the building has been let out to a teaan t who has lost
bis right to apply for fixation of the rent by reason of expiration on the
period of limitation prescribed by Section 12 of the Rent Act or the bui!dina:
is self occupied by the owoer arid therefore, in either case, the stand~rd rent F
determinable under the provisions of the Rent Act and not the actual rent
received by the landlord from the tenant, would constitute the correct
measure of the rateable value of the building; (ii) that in each case the
a3Stssing authority would have to arriva at its own figure of the standard
rent by applying the principles laid down in the Rent Act for determination
or the Standard Rent and determine the rateable value of the building OD
the basis of the actual rent received by the landlord and that the rateable G
valoe of the building must be held to be limited by the moasure of the
standard rent determinable on the principl~s laid down in the Rent Act, and
it would oot exceed such measure of the standard rent, (iii) that even if
the 1andlord was lawfully entitled to receive the contractual rent from the
tenant, such contractual rent could not be taken to be the rateable value of
the building, because the reasonable expectation of the landlord to receive
the contractual rent from hypothetical tenant could not possibly exceed the
standard rent determinable in accordance with the provisions laid down io
tho Rent Act and (iv) that tho rateable value of a building cannot exceed tho 11'
442 SllPIU!ME COURT Rl!PORTS [1985) 2 s.c.a.
A ~casure of stands.rd ren.t; whether determined by the Controller under Sec•
.t100 9. of. the :Fte?t 1ct o~ arrived at
by the assessing authority by applyins
the pnnc1ples .laid. down 10 .the Rent Act, but it may in a given case ho 1011
than the standa.rd rent having regard to various attendant circumstances Sod
1onsiderations.[455C·D; 454C-H; 455A] .
3.1. The definition of "standard rent" in S. 2 (kl of Delhi Rent
Control Act, 1958 (for short, the Rent Act) is not an inclusive but an
B exhaustive definition· and it defines the standard rent to mean either the
s-tandard rent r1~ferred to in Section G or the increased standard rent" under
Section 7. It is significant to note that it docs not contain any reference
to Section 9, Sub·sectioo (4). Whenever, therefore any referrence is made to
standard rent it1 any Pi:ovisioo of the Rent Act, it must mean standard rent
as laid down in SeatiOn 6 or incfeased standard rent as provided in Section 7
and nothing more. Section 6 lays down the principles for determination of
c staOdal'd rent in almost all conceivable classes of causes and Section 7 provi·
des for .increase in ihC standard rent where the landlord has in.curred expen ..
,i'iture for any i1oprovCinent, addition or structural alteration in the premises.
(460C-E]
3.2. Section 9, -a~ the definition in sec. 2 (k) clearly suggests and the
marginal note definitely indicates does not define what is standard rent but
D merely lays. down the procedure fof fi11:ation of standard rent. The Coatrel·
ler is entrusted. bJ sub-sections ( 1) and (l) of 11ction 9 with th• ta•k of
fiaigg the standard rCDt of any prelnises having regard to the principles set
Out in section 6 or .the p"rovisions of Section 7 and any other relevant
cfrcumstance~ of the caSC~· The words having regard to ••• '"the circumstances
of ine case" undoub'iedly leave a certain measure of discretion to the Con-
troller in fixing be standard rent. But this discretion is not such an unfet..;.
E tered and unguided discretion as to enabJe the Controller to fillj any
st&ndard rent which he considers reasonable. He is required to fiz the
standard rent in accordanCe with the formula laid down in Section 6 or
Section 7 and he caHnOt ignOre that formula by saying that in the circum..
staoceS of the case he considers it reasonable to do so. The only ,discretion
given to him is to make .adjustments in the result arrived at on the . appJi·
cation of the relevan·t formula, where it is necessary to do so by reason of
the fact that the Jandlord mighi have made som.e alteration or improvement
F in the building or circumstances might have transpired affecting the condi-
tion Or utility of the building or some such circumstances of similar character·
The compulsive fi3rce of tbti formula laid down 'in Section 6 for the deter·
minatiOn of standard rent and the provisions of Section· 7 for increase in
staOdard reOt ia not iO 8Dy way .whittled down by sub·section (2) of '-Section
9. ·but a marginal discretion is given to the Con tr Oller to mitigate the rigour
of the forfuulae Vl'heie ihe circumstances of the case ·so require. HOweverJ
in· .case if it is not possible to determine the standard rent of any premises
on the prinCiples set fof"th in Section 6, then Section 9(4) provides that ·in
sUch a situation the ·"Controller may fix such rent as would be reasonable
having re.gar.cf co ·the situaiion, locality and condition of the premises and
tlio ameD.itiCS provided therein and where there are similar or nearly similar
pI-Cmises in the locali1y, having regard atso to fhe standard rent payable: in
rCspcct Of such pr.cmises: But 'the basic coOdition for the applicability ·'·or
sllb~scclion .(4) of SectiOn 9 is'that it should not be possible to determilie
H the standard'rent ori tbe."Principles set out in Section •· But :eveii while
' ~ ~ ri·
BALBIR SINGH V. M.C.D. 443
fixing such rent, the Controller does not enjoy unfettered discretion to do
what be likes and he is bound to take into account the standard root pay-
A
able in respect of similar or nearly similar premises in the locality. The
standard rent determinable on the principles set out in section 6, therefore,
again becomes a governing consideration. [460E; G·H; 46IA·C; E·F; G]
The Court laid down the following principles for determining rateable
\'alue in respect of four categories of properties involved in these appeals
and writ potitions. [4520]
B
(A) Where the properties are setf-occupied i.e. occupied by the owners:
4. 1. Where the premises are self-occupied and have not been let out
to any tenant, it would still be possible to determine the standard rent of
the premises on the basis of hypothetical tenancy. Tho question in such a
case would be as to what would be the standard rent of tho premises if they
c
were let out to a tenant. Obvioubly, in such an eventuality the standard
rent would be determinable on the principles set out in sub-section (1) (A)
(2) lb) of Section 6 of tho Rent Act. Tho standard rent would be tho rent
calculated on tho buis of 7t per cent or 8.1/4 per cent per annum of tho
aggregate amount of tho reasonable cost of construction and the market
price of the land comprised in the premises on the date of commencement D
of tho construction. [462H; 463A)
4. 2. It is difficult to soo ho'IV tho provision enacted in sub-section (2)
(') ef Section 6 a:an be applied for determining tho stand'ird rent of the
premi1es whoo the premises have not been actually let out at any time.
Su.b-1ection (2) (b) of Section d clearly contemplates a case where there is
actual letting out of tho promises as distinct from hypothetical letting out, E
because under this provision, the annual rent agreed upon between the land ..
lord and tho tenant at the time of first letting out is deemed to be the
rent for a period of five years from the date of such letting ou: and it is
impossible to imagine how the concept of first letting out can fit in with
anythioa except actual letting out aed how the period of five years can be
computed from" the date of any hypothetical letting out. It is only from
tno date or /frst actual letting out that the period of five years can begin to
run and for this period of five years, the annual rent agreed upon between p
tho landlord and the tenant at the time of first actual letting out would be
deemed to be the standard rent. Sub-section (2) (b) of Section 6 can have
no application where there is no actual letting out and hence in case of
premises which are constructed on or after 9th June, 19SS and which have
never been let out at any time, the standard rent would be determinable on
the principles laid down in sub·1oction (I) (A) (2) (b) of Section 6. So
also in case r premises which have been constructed before 9th June, 19SS G
but after 2nd June, 1951 the standard rent would, for like reasons, be
determinable under the provisions of sub-section (1) (A) (2) (b) of Section
6 if they have not been actually let out at any time since their construction.
But if these two categories of premises have been actually let
out at some point of time in the past, then in the case of former category,
the annual rent agreed upon between the landlord and the tenant when the
premises were first actually let out shall be deemed tc be the standard rent
for a period of five years from the date of such letting out and iq the caso
"
444 SUPRBMB COURT,RBORTS (1985] 2 S.C.R.
JA of the latter category, the annual rent calculated with reference to .the rent
at which tllie, premises were actual/_,· let for the month of March t 95s or if
they were not so let, with reference to the rent at which they were .last
actually let out shall be deemed to be the staudard rent for a period of
seven years from the date of completion of the construction of the. premises.
However, even in the case of these two categories of premises the standard
rent after the .expiration of the period of five years or seven years as the
case may be, would be determinable on the principles set _out. in s_ub~sectioo
(1) (A) (2) (b) of Section 6. Thus in the case of self-occupied residential
premises, the standard rent determinable under the provisions of su'b.. sectioo
(2) (a) or (2) (b) ofcSecti(>n 6.in cases falling witbiq tho scope, and ambit of
those proVis"i,oos., S:nd iO other cases, the standard rent determi.nabtC under •
tbo. provision:; or sub-section (I) (A) (2) (b) of Section 9 would constitute
the ui;>per limit (If the rateable· value of, the premises. Similarly, .on an
analogous prtlcess of. r_e_asooing, the standard rent determinable under -the
provisions of sub,;ection (2) (al .or (2) (b) of Section 6 in cases falling
wi.thin. the sc1Jpe and ambit of those prov is_ ions and in other cases, .the
standard ..rent determinable under the provisions of sub-section (II. (Al (2)
(b) of Section 6 _would constitute .the upper limit of the rateable value so >... \.
far as self-occupied non.residential premises are concer_ned. The iateab.le
value of the premiS:es, wbe'.tbef residential or_ non-residential, cannot. ·exceed
the standard rent, but, it _may in a given cas~ be less than the ~ianda~d rerit.
[463E·H; 464A·F]
(B) Where the
. .
properties
. are partly self-occupied and partly tenanted
' ' .
:
S.1. It -is the. premises as a whole· which is li1ble to be assc1sed to
property taJi and not different parts of the. premises as distinct and separate
units. But whiJe 3.ssessing the rateable value of the premises on the _ basis
E or the rent which the owner may reasonably expect to get. if the premises
are let out, it cannot be overlooked that where the premises consist .of
different parts which are intended to be occupied as distinct and separate
units the hyti•othetical. tenancy which would have to be considered would be
the hypothf.ltical tenancy of each part as a distinct and separate unit or
occupation and the. sum total of the rent reasonably expected ~rom a.
hypothetical tenr!nt in respect of each distinct and separate unit cannot
F obviously ex1!eed the standard rent of such unit and the assessing authorities
would ther.efore have to determine the standard rent with a view to. fixing
the upper lirnit of the tent which can reasonably be expected by ,the. owner
on Jetting out such unit to a hypothetical tenant. [466D-F]
5.2. Where ,the case f~lls within. sub-section (2) (a) or (2) (b) of
Section 6, no problem .- arises, because ~hetber the distinct and separate
unit of ~bich the standard rent . is to be determined is , S~lf-occupied or
G. .enanted mnkes_no difference, for in either case, the standard rent woUld be
governed _by one o~ the other of these two , provisions. So also in cases
falling outside. sub-section .(2) (a) .aod (2) (BJ of Section 6, it would make
00: .differen_ce; ':Vhei~_er .the distinct and separate unit . of .which the _standard
rent is to, be determined is self-occupied or tenanted; for in either caSe, the
standard rent would be determinable under the provisions of sub-sectiOn (J)
(A) (2) (b) or (I) (B) (2) (b) of Section 6. But the.question is, bow is,tbo
formula set out in sub-section (I) (A) (2) (b) or (!) (B) (2) (b) of Section
JI.. 6 to be a~plied1;. 01>viouslr , there wo11ld be no 4itljc11Itr in appiyin• tb9
BALBIR SINGH v. M.C.D. 445
formula, if the premises cf which the standard rent is to be determined A
consist of the entire building. Then the reasonable cost of construction of
the building can be taken and it can be aggregated with tbe market price
of the land comprised in the building on the date of commencement of
construction of the building and 7f per cent of such aggregate amount
...." would reprl!sent the standard rent of the building. But where the building
consists of more than one distinct and separate unit!> and the standard rent
to be determined is that of any particular unit, the formula may present
some difficulty of application ir it is sought to be applied literally in rela ..
B
tion to that particular unit alone and by itself, because even if the reason.
able cost of construction of that particular unit can be ascertained, it would
not be possible to determine "the market price of the land comprised in the
piemi11es on the date of the commencement of construction" since the entire
building and not merely that partiaular unit would be standing on the land
and the land on which the buiiding is standing would be land comprised in c
.. the building and it would be irrational and absurd to speak of it as land
comprised in that particular unit. The formula can, however, be applied
•• for determining the standard rent of a particular unit by computing tho
standard rent of the building in accordance with the formula and then
apportioning the standard rent so computed amongst the different units or
occupation comprised in the building on the basis of floor area, taking into
consideration differences, if any, on account of the situation and condition D
of the various units and the amenities provided in such unit. This would
be the most rational way in which the market price of the land com prised
in the building on the date of commencement of construction can be spread
ever amongst tilt dif'ernt anit1 er ••ea•ation comprised in the building.
The standard rent of each unit would have to be determined on the
princi~les set out above and within tho upper limit fixed by the standard
rent, the assessing autboritses would have to determine the rent which the E
owner may reasonable expect to get if such unit were let out to a bypothe.
tical tenant and in arriving at this determination, the assessing authorities
to take into account the same factors which have :1lready been discussed in
this judgment while dealing with the question of assessment of selfoccupied
properties. The sum total of the rent which th°' owner may reasonably
expect to get from a hypothetical tenant in respect of each distinct and
separate unit of occupation calculated in the manner aforesaid, would repre·
sent the rateable value of the building. This formula for determination of
rateable value would apply irrespective of whetner any of the distinct and
separate units of occupation comprised in the building arc self occupied or
tenanted. 466G-H; 467A-H; 468A-B]
( C) Where the land on which the property is constructed Is lease hold
land with a ,estriction that the leaJe·hold interest shall not be transferable
without the approval of t'ie lessor : G
6.1. Some ef these writ petitions and appeals arc concerned with
cases where premises have been constructed by the owners on land taken on
1ub·lcaao from a Cooperative House Building Society which bas
in its tum taken a lease from the Government. One of the clauses in
the sub-lease executed by the Cooperative House Building Society in favour
of ea<:h of its members provided tbat t1-c:: owner who bas cou1tructed pre-
'
446 SUPREMB COURT RBORTS [1!185] 2 s.c.a.
IA mises on the Plot of land sub-leased to him cannot sell, transfer or assign
his 1ease-bo1d interest in the plot or land to any one except a member of
the Cooperativci HouSe Building Society and even so far as sale, transfer or
assignment to a member of the Cooperative House Building Society is . con-
cf::Tned, 1t· cannot be made except witb the previous consent in writing of
the Govern.meat which the Government may give or refuse in . its absolute
discretion, and in case the Government choose to give -its consent, the
_..._.,
B
.
_
Government wc1uld be entitled to claim 50% of the unearned increase in
the . value or 'the land at the time or such sale, transfer or assignment. and
moreover, if th1;, Government so desires, it would have a pre-emptive right
to purchase tbe plot of land after deducting SO per cent of the unearned
increase in the value of toe plot of land. This co-tenant in the' sub-lease is
clearly a cove:tant running with the land and even where sale, transfer or
assignment of the plot' of land has taken place with the previous consent in
c writing of the Government this covenant would continue to bind the pur-
chaser, transferoe or assignee. [469F-H]
Commissioner of Wealth Tax v. P. N. Slkand (197f] 2 SCC' 798
referred to.
D. i 6.2. Morely because the plot of land on which the premises 'Bro
constructed cannot be sold, transferred or assigned except to a member of ,.,
Cooperative House ,Building Society and without the prior consent of thci-
Oovernment, it does not necessarily mean that there can be no market priCe
for the plot of 1and. It ia not aa if there it total prohibition on the sale,
transfer or assignment of the plot of land, so that in no conceivable ciraum.
stance, it can be sold, transferred or assigned. The plot of land can be
sold, transferred or assigned but only tO one from amongst ,a limited class
E of persons; namely, those who are membCrs of the Cooperative H'JuSc II
Building Society and subject to the Rules and Regulations, any eligible
person can be admitted t.o the . membership of the Cooperative House·
Building Society. There is also a further restriction, namely that tbC sale,·
transfer or asE:ignment can tak"e place only with tho prior consent of the
Government.- 'lBut·subject to these restrictions, the sale; transfer or assign-,
ment can tAke place. · It cannot, therefore be said that the market price of
F the plot .of land. cannot be ascertained. [470G-H; 471A-B]
6.3. To determine what would be the market price of the plot of
land on the date of commencement of construction· of the premiSes, ·one
must proceed o.a the ·hypothesis that the prior consent of the Government
,
has becn .. given and the plot of land is ay.ailablo for sale, transfer or assis:n·
ment and on that footing, ascertain·. what price it would fetch on such sale,
.G transfer or assignment. Of course, when the class of potential buyers;
transferees or assignees is restricted, the m6rkct price would tend to bo
depresse'd. But even. so, it can be ascertained and it would not ha correat
to say thafit is·-incapable of determination. There is aho one other:factor
which would g<J1 to depress the market price aad that stems from the clau11 .· r
in the eub~lease which provides that on sale, transfer or assianment of ·the"
plot or ''land,+ thC 9overnmeot shan be entitled to .claim" SO% ~or th• I
unearned increment Jo the value 'Of tho plot of land and the Govemmoot:
sha)! also be entitlc4 to purchase tho plol of land at tho price roaliublo'
-,
BALBIR SINGH v. M.C.D. 447
....., in the market after deducting therefrom 50% of tho unearned increment.
Since the leasehold interest of the sub-lease in the plot of land is cut down
A
by this burden or restriction, the market price of the plot of land cannot
be determined as if the leasehold interest were free from this burden or
restriction. This burden or limitation attaching to the leasehold interest
must be taken into account in arriving at the market price of the plot of
land, because any member of the Cooperative House Building Society who
takes the plot of land by way of sale. transfer or assignment would be B
' ·~ bound by this burden or restriction which runs with the land and that would
necessarily have the effect of depressing the market price which he would be
inclined to pay for the plot or land. This mode of determination of the
market price has the sanction of the decision or this Court in N.S. Sikand's
Case (Supra). [471C-H]
In the instant case, therefore, the market price of the plot of land at c
the date of commencement of construction of the premises was ascertainable
on the basis of the formula indicated above notwithstanding the restriction
on transferability contained in the sub·lease and the standard rent of the
premises constructed on the plot of land was determinable under t be pro·
visions of sub·section (I) (A) (2) (b) or (I) (B) (2J (bl of Section 6. The
arsumeot of the Delhi Municipal Corporation that in all such cases resort
bas to be made to the provi_slons of sub-section (4) of Section 9 for deter.. D
mination of the santdard rent of the premises must be rejected. [472C-D]
(D) Where the property has been constructed In stages--
(7) When any addition is made to the premises at a subsequent
staee, three different situo.tions may arise. Firstly, the addition may not
be of a distinct and separate unit of occupation but may be merely by E
way of extension of tbe existing preinises which arc self-occupied. In such a
case the original premises together with the additional structure wouJd have
to be treated as a siagl'e unit for the purpose of assessment and its rateable
value would have to be determined on tho basis of the rent which the owner
may reasonably expect to get, if the premises as a whole are let out, subject
to the upper limit of tho standard rent determinable under the provisions
of sub-section (11 (A) (2) (b) of Section 6. Secondly, the existing premises F
before the addition might be tenanted and the addition might be to the
tenanted premises so that the additional structure also forms part of the
same tenancy. Where such is the case, the stand3rd rent of the premises
as a whole and within the upper limit fi:111ed by such standard rent the
assessing authority would have to determine tho rent which tho owner may
reasonably expect to get if the premises as a whole are let out as a single
unit to a hypothetical tenant and in aach a case, the actual rent received
would be a fair measure of the rent which the owner may reasonably expect G
to receive from such hypothetical tenant unless it is influenced by e1tra-
commercial consjderations. Lastly, tho addition may be of a distinct and
separate unit of occupation and in such a case, the rateable value of the
premises would have to be determined on the basis of the formula laid down
for assessing the rateable value of premises which are partly self-occupied
and partly tenanted. The same principles for determining of rateable value
would obviously apply in case of subsequent additions to the existing pre-
mises. [474C-G) H
r:
448 SUPREME COURT .REPORTS (1985) 2 S.C.R·
iA (8).The formula set out in sub-section (I) (A) (2) (b) and (I) (B) (2) (b)
· of Section 6 •cannot. be applied for determining the standard rent of an
t8ddition,·as if that addition was the only structure standing.on the.land.
'·The·assessing authorities cannot determine the standard rent ofJhe add
:structure 'bY tatin~ the reasonable cost of construction· in the additional
(structure and adding.to it the market.price the land and applying .the statu-
' tory .-percentrige· Of.·7! to the aggregate amount. The market price. of the
m land cannot·bo added twice over, once while determining the standard rent
of the origiral structure and again ·while determining the standard rent of
: thC additional structure. Once the addition is made, the formula set out in
sub-section (I) (A) (2) (b) and Ul (B) (2) (b) of Section 6 . can be applied
Only.in relatio11 to the premises as a whole and where the additional stCucture
consists of a distinct and separate unit of occupation, the ·standard- rent
would have to be apportioned in the manner indicated in the earlier part of
:c the Judgment.' [475A _;q
9. Merely :because the owner.does not produce satisfactory .evidence
·Maowing what was·the reasonable cost of-construction of the,premises,.or the
market price ·of. the~.Jand ar.the date ,of commencement of the constructionJ
it Cannot•be:sald 'that it is .not possible to determine the standard rent on
\be principles' 'set :out in sub-section (I) (A) (2) (b) or(!) (B) (2) (b) of
D Section'.6.' [473D]
IO. The Court suggested that 20 % self-occupancy rebaie which
was allowed pr.ior .. to ,1980 but was later discontinued should be resumed
and said that self-occupied residential premises shoald be treated oO a more
favourable· basis than tenanted premises for the purpose of assessability to
property tax. [466B- CJ
E ORIGiNAL JURISDICTION : WP. Nos. 483-86, 471 of 1980 ..etc.
(Under Article 32. of the Constitution)
·S. Rangarajan, S.C. Misra, M.S. Batta, Miss .Kai/ash Mehta,
Mrs. 'M. Quamruddin, 'B.B. Tawak/ey, Shrinath Singh, Mohan
F Pandey, R~jiv 'Datta, Miss Renu Gupta, Ii K Garg, 'Mr. S;R. Shri-
vastava, ·D.R. iJJpta, B:R. 'Kapoor, 'B:P. Maheshwari, R.B. 'Dattar,
KB .. Rohtagi and,A. Subba Rao for \he petitioners.
L.N. Sinha, Attorney General of India, B.P. Maheshwari,
R'B.'' Dattar ·and Miss Sieta Vaidlingam, for the respondents.
S.K. Mehta for Municipal. Corporation, Ludhiana,.
G
The Judgment of the Court,was deivered by
'BHJ\GWATI, J. This gronp'Of ·writ petitions and appeals.raise
interesting questions of law in regard to 'determination, of•rateable
value of.~ectai11 eategories ofpr9perties situate in the Unioii'Terri-
tory of Delhi. The questions are of great importance since. they
-
"'·
BALB1R SINGH V. M.C.D. (Bhagwati, /,) 449
..... affect the liability of a large number of property owners in the Union
territory of Delhi to pay property tax under lhe Delhi Mnnicipal
Corporation Act 1957 and the Punjab Municipal Act, 1911. The
appeals before us arise out of writ petitions filed in the High Court
of Delhi challenging assessments made by the Municipal Corporation
while the writ petitions fall broadly into two categories-one cate-
gory consisting of writ petitions which were originally filed in the B
High Court of Delhi but were subsequently transferred to this Court,
while the other consisting of writ petitions which were filed directly
in this Court. We are definitely of the view that the writ petitions
filed directly in this Court are not maintainable under Article 32 of
the Constitution since none of them complains of violation of any
fundamental right and ordinarily we would have rejected them c
straight way without going into the merits, but the parties before us
agreed that in view of the fact that these writ petitions involve iden-
tical questions as the appeals and the other writ petitions transferred
to this Court and those questions would in any event have to be
determined by us, we should not dismiss these writ petitions on the
ground of non-maintainability but should proceed to dispose them of D
on merits on the assumption that they are maintainable.
We are concerned in these appeals and writ petitions with four
different categories of properties namely (I) where the properties
are self-occupied, that is, occupied by the owners (ii) where the
• properties are partly self-occupied and partly tenanted ; (iii) where
E
the land on which the property is constucted is leased bold land
with a restriction that the lease bold interest shall not be transferable
without the approval of the lessor and (iv) where the property bas
been constructed in stages. The question is as to bow the rateaD!e
value is to be determined in respect of those four ·categories of
properties. So far as properties situate in the Union Territory of
Delhi except New Delhi are concerned, the determination of rate- F
able value for tho purpose of assessability to property tax is
governed by the Delhi Municipal Corporation Act, 1957 while the
determination of rateable value for the purpose of assessability to
property tax in respect of properties situate in New Delhi is
governed by the Punjab Municipal Act, 191 !. 1 be relevant provisions
of both these statutes in respect of determination of rateable value G
for the purpose of assessability to property tax are almost idontic:al
as observed by this Court in Dewan Dau/at Ram v. New
Delhi Municipal Committeel and it would therefore be sufficient
if we refer to the provisions of the Delhi Municipal Corpo-
ration Act, 1957. Whatever we say in regard to determination of
~able value under the provisions of the Delhi Municipal Corporoi-
1. (1980] 2 SCR 607 u
•
450 SUPIDlll 00 UIT lEPOll.TS [1985] 2 S.CR.
A tion Act, 1957 would apply euqually in relation to determination of
rateable value under the provisions of the Punjab Municipal Act
1911.
The definitions of the expressions used in the Delhi Municipal
Corporation Act, 1957 are to be found in Section 2 of that Act. Sub-
B section (3) of Section 2 defines building to mean "a house, out-
house, stable,, latrine, urinal, shed, hut, wall (other than a boundary
wall) or any other structure, whether of masonary, bricks, wood,
mud, ·metal or other material but does not include any portable
shelter". 'Rateable Value' is defined in Section 2 sub-section (47)
to mean "the value of any land or building fixed in accordance with
c the provisions of this Act and the bye-laws made thereunder for the
purpose of assessment to. property taxes". Chapter VIII of the Act
deals with th<l 'sub·ject of taxation and it comprises Sections 113 io
184. Clause (a) of sub-section (I) of Section 113 provides that the
Corporation shall, for the purposes of the Act, levy property taxes.
D The subject of property taxes is then dealt with in Sections 114 to
135. Section I l4 sub-section (1) lays down that property taxes shall
be levied on lands and buildings in Delhi and shall consist inter a/ia
of.a general tax of not less than 10 and not more than 30 per cent
of the rateable value of lands and buildings within the urban areas.
There is a proviso to sub-section (I) of Section J 14 which says that
the Corporation may, when fixing · the rate at which the general tax
••
E
shall be levied during any year, determine that the rate leviable in
respect of lands and buildings or portions of lands and buildings in
which a particular class of trade or business is carried on, shall be
higher than the ~ate determined in respect of other lands and
buildings or portions of other lands and buildings by an amount not
F exceeding orni half of the rate so fixed. Then follows an Explana-
tion which provides that where any portion of a land or building
is liable to a higher rate of general tax, such portion shall be deemed
to be a separate property for the purpose of municipal taxation.
Section 115 sub-section (4) lays down that save as otherwise provided
in the Act, the general tax shall be levied in respect of all lands and
buildings in Delhi, except lands and buildings or portions of lands
G and buildings exclusively occupied and used for public worship by
a society or body for a charitable purpose and two other categories
of lands and buildings. Sub-section (6) of Section 115 provides
that where any portion of any land or building is exempt from the
general tax by reason of its being exclusively occupied and used for
public worship or. for a charitable purpose, such portion shall be
...
ff deemed to be a separate PfOP~rty for tlu purpose of mun id pa!
BALDl!l SINGH v. M.C.D, (B/tagwali, I.) 451
taxation. It would appear from these provisions that the general A
•• tax is leviable on land and building as a whole and separate portions
of lands and buildings are not assessable to general tax as distinct
and independent units save and except where any portion of the
land or building is liable to a higher rate of general tax under the
Proviso to clause (d) of Sub-section (1) of Section ll4 or is exempt
from the general tax by reason of its being exclusively occupied or B
used for public worship or for a charitable purpose under sub-
section (4) of Section 115 in which case such portion of the land
or building is deemed to be a separate property for the purpose
of municipal taxation. We may point out that apart from the
general tax, three other categories of taxes, namely water tax, saven·
ger tax and fire tax are include in the property taxes and they too c
are leviable as a percentage of the rateable value of lands and
buildings. Now how is rateable value to be determined. The
answer is provided by Section 116. Sub-section ( J) of Section II6
lays down that the rateable value of any land or building assessable
to property taxes shall be the annual rent at which such land or D
building may reasonably Ile tXJtOektl t• b1 let fr•111 year t• year,
less a sum equal to 10% of such annual rent. Section II6 Sub·
section (2) provides that the rateable value of any land which is
not built upon but is capable of being built upon and any land on
which a building is in process of erection shall be fixed at five per
cent of the estimated capital value of such land. Section 120
• provides for the incidence of property taxes. Sub-sectson I of that
section says that the property taxes shall be primarily leviable, if
the land or building is let, upon the lessor, if the land or building
is sublet, upon the superior le5sor and if the land or buildig is unlet,
upon the person in whom the right to let the same vests. Sub·
section 2 of Section 120 deals with an exceptional case where any
land has been let for a term exceeding one year to a tenant and such F
tenant has built upon the land and in such case, the sub-section
provides that the property taxes shall be primarily leviable upon
the tenant. Sub-section 3 of Section 120 is an important provision
and we may, therefore, reproduce it in extenso ;
"The liability of the several owners of any building
which is, or purports to be, severally owned in parts or flats G
or rooms, for payment of property taxes or any instalment
' thereof payable during the period of such ownership shall
be joint and several."
This provision contemplates a case where there are scvel'&i
owners of a building which is or which purports to be severally H
452 SUPRBMB COURT REPORTS (1985] 2 s.c.R.
A owned in parts or'Jlats or rooms, so that each part or flat or room
in: the building is ·owned by a separate owner and the question arises
as to how the property taxes are to be assessed and who is to be
held liable to pay the same. The basic assumption underlying this
provision is· that the building as a whole is to be assessed ·to the
property taxes and not each separate part' or fiat' or room belonging
·B
ti> ·a separate owner and the liability of the several owners for ·pay-
ment of'the amount of property taxes assessed on the building is to
be joint and ·several so that each of them would be liable to pay the
whole amount o(the property taxes assessed on the building vis·a-
vis the Cor!)oration. The amount of the property taxes assessed on
c the buidling would, of course, be liable to be divided amongst the
several owners in'the proportion of the area comprised in the part or
flat or room belonging to each owner, but so far as the Corporation
is concerned the liability, of the several owners will be joint and
several. Then there are certain other provisions relating to the
machinery for assessment but with them we are not immediately
D concerned in. these appeals and writ petitions.
It will thus be seert that under the provisions of the Delhi
:Municipal Corporation Act 1957, the criteria for determining rate-
alite value of a building is the ~nnual rent at which such building
might reasonably'be expected to be let from year to year less certain
E deductions· which\ are not material for our purpose. The· word
•reasonably' in' this ' definition is very important. What the·owner
mighueasouably ·expect to get from a hepothetical tenant; if the
buildihg were· let' from year to year, affords the statutory oardstick
for deterDiillg'the rateable value. Now, what is reasonable 1s a
question of fact and it depends on the facts and circumstances of.a
F given situation: Ordinarily, "a· bargain between a willing lessor and
a· willin:g lirnseee uninfluenced by any extraneous circumstances may
afford a guidiiig test of reasonableness" and in normal circumstan-
ce$; fae' actual reni payable by a tenant to the landlord would afford
.t reliable· evitl ence of what the landlord may reasonably expect to get
r from the hypothetical tenant, unless the rent is inflated or depressel
I
by reason of extraneous considerations such as relationship, expec- .i
G tation of some other benefit etc. There would ordinarily be a '
close approximation between the actual rent reeeived by the land-
lord .. and .. tli<: rent',wliich he might' reasonably expect to receive from
t
a hypothetical ten~nt. But in case of a building subject to rent
t control legislation, this apprqximation may and often does get ( .
displlloed·,. becal111e ,under rent control legislation the landlord cannot
J clliim to"recover. from: the tenant anything more than the standard
l
l!Al.BIR SINGH v. M.C.D. C8"8gwatl, J.) 4S3
rent and his reasonable expectation must, therefore, be limited by A
the measure of the standard rent lawfully recoverable by him. There
are several decisions where the impact of rent control legislation on
the determination of rateable value has been considered by this
Court and the latest amongst such decisions is that in Dewan Dau/at
Ram v. New Delhi Municipal Committee .1 This decision has
reviewed all the earlier dec'sions given by this Court and as B
of date has spoken the last word on the snbject so far as
this court is concerned and hence it would be instructive and helpful
to refer to it in some detail.
There were three appeals decided by a common judgment in
Dewan Dua/at Ram's (supra) and the question which arose for c
determination in these appeals was as to how the rateable value of a
building should be determined for levy of property tax where the
building is governed by the provisions of the Delhi Rent Control
; -~
Act, 1958 (hereinafter referred lo as the Re.ut Act) but the standard
rent has not yet been fixed. One of these appeals related to a case
where the building was situate within the jurisdiction of the New
Delhi Municipal Committee and was liable to be assessed to property D
tax under the Punjab Municipal Act, 1911, as is the case in many of
the appeals and writ petitions before us, while the other two related
to cases where the buildings were situate within the limits of the
Corporation of Delhi and were assessable to property tax under the
• Delhi Municipal Corporation Act, 1957. The property tax under
both statutes was levied with reference to the rateable value of the
E
building and, as already pointed out by us earlier, the rateabl~ value
was defined in both statutes in the same terms, barring a second
proviso which occurred in Section 116 of the Delhi Municipal
Corporation Act, 1957 but was absent in Section 30)(b) of the
Punjab Municipal Act, 1911 and which was admittedly of no con- F
sequences. The controversy between the parties centred round the
question as to what is the true meaning of the expression "the gross
annual rent at which such land or building ...... might reasonably be
expected to let from year to year" occurring in the definit10n in both
statutes. The argument put forward by the Municipal Authorities
was that since the standard rent of the building was not fixed by the
G
Controller under Section 9 of the Rent Act in any of tbs cases before
the Court and in each of the cases the period oflimitation prescribed
by Section I 2 of the Rent Act for making an application for fixation
of the standard rent had expired, the landlord was entitled to con-
tinue to receive the actual rent from the te.uant without any legal
impediment, and hence the rateable value of the building was uot
J, (1980) 2 S.C.R. 60V.
H
454 SUP!UlldE COURT REPORTS (1985] 2 s.c.1.
A limited to the standard rent determinable in accordance with the
principles laid down in the Rent Act but was liable to be assessed by
.....
•
~ ' ,, '
reference to the contractual rent recoverable by the landlord from the
tenant. The Municipal authorities urged that if it was not penal for
the landlord to receive the contractual rent from the tenant, even if it
be higher than the standard rent determinable under the provisions
B of the Rent Act it would not be incorrect to say that the landlord
could reasonably expect to let the building at the contractual rent
and the contractual rent could, therefore, be regarded as providing a
correct measure for determination of the rateable value of the build-
ing. This argument was, however, rejected by the Court and it was
held that even if the standard rent of a building has not been fixed
c by the Court Contract under Section 9 of the Rent Act, the landlord
cannot reasonably expect to receive from a hypothetical tenant any-
thing more than the standard rent determinable under the provisions of
the Rent Act and this would be so equally whether the building has
been let out to a tenant who has lost his right to apply for fixation of
D the rent by reason of expiration of the period of limitation prescribed
by Section 12 of the Rent Act or ihe building is self occupied by tbe · ·
owner. Therefore, the Court held that in either case, according to
the definition of "rateable value" given in both statutes, the standard
rent determinable under the provisions of the Rent Act and not the
actual · rent received by the landlord from the tenant, would consti-
E
tute the correct measure of the rateable value of the building. The
Court pointed out that in each case the assessing authority would
•
have to arrive at its own figure of the standard rent by applying the
principles laid down in the Rent Act for determination of the stan-
dard Rent and determine the rateable value of the building on the
basis of the actual rent received by the landlord and observed that
the rateable value of the building must be held to be limited by the
F
measure of the ·standard rent -determinable on the principles laid
down in the Rent Act, and it would not exceed such measure of the
standard rent. This decision is, therefore, clearly authority for the·
proposition that the . rateable value of a buildmg, whether tenanted •
or' sei{ occupied; is limited by the measure of standard rent arrived
G at by the assessing authority by applying the principles laid down in
the Rent Act and cannot exceed the figure of the standard rent so
arrived at by the assessing authori.ty. Now, in the course of the
arguments advanced before us; we found that there was some confu·
sion in regard io the true import of this decision. The municipal
authorities contended that the ratio of this devision was that what-
ever be 'the figure of the si~ndard rent whether determined by the
H Controller under Section 9 of the Rent act- or arrived atby,the;
BALBIR SINGH v. M.C.D. (Bhagwati, J.) 455
assessing authority by applying the principles laid down in the Rent
Act, must be taken as the measure of rateable value of the building
for the purpo>e of assessability to property iax, irrespective of any
other considcrat:ons. Even if the owner of the building is able to
show by proJucing satisfactory e'.'idence that having regard to
prevailing circumstances such as the nature of the building, its situa-
tion or state of repair or economic depression or other similar B
. '-• causes, he cannot reasonably expect to get from a hypothetical
tenant even the amount of standard rent detreminable on the princi-
ples laid down in the Rent Act, the rateable value of the building
must still be determined at the figure of the standard rent. So it
was argued on behalf of the Municipal authorities, but we do not
think that this ':s a correct ;nterprewtion of the decision in Dewan
c
Dau/at Ram's case (supra). The controversy in that case was not
whether the figure of standard rent of a building should be taken as
>-
-
-
its rateable value even where the rent which the owner reasonably
expects to get from a hypnthotical koant i< less than the figure of
the standard rent but whotlur tile contrnctual rent receivabk by .the D
landlord from the tenant •hould be rnken to be the r?teable value
even if it be higher than the standard rent determinable under the
provisions of the Rent Act. The Court held that even if the iandlord
was entitled under the law to recover the contractual rent from the
tenant because the standard rent of the building had not yet been
fixed and the time for making an application by the tenant for
• fixation of the standard rent had already expired, such contractual E
rent could not furnish a measure for determination of the rateable
value, because the question had to be judged not with reference to
the actual tenant but with reference to a hypothetical tenant and the
yardstick provided by the Statute for determination of the rateable
value was as to what rent the owner of the building might reasonably
expect to get from a hypothetical tenant, if the building were let
F
from year to year and the hypothetical tenant could not be assllllled
to be willing to pay anything more than the standaad rent, because
after taking the hypothetical tenancy, he could immediately make an
application for fixation of standard rent. The Court, therefor.,
reached the conclusion that even if the landlord was kwful!y
entitled to receive the contractual rent from the tenant, snch G
contractual rent could not be taken to be the rateable value of the
building, because the reasonable expectation of the landlord to
receive rent from a hypothetical tenant could not possibly exceed
the standard rent determinable in accordance with the provisions
laid down in the Rent Act. The standard rent determinable on the
principles set out in the Rent Act was laid down by the Court as the H
"'·'
456 SUPl\EME COURT REPORTS' (1985) 2 S.C.11..
A upper limit of the rent which the landlord may expect to receive
from a hypothetical tenant, if the building were let out to him from
year to year. The Court never said that even if the actual rent
receivable by the landlord from the tenant or the rent which the
owner may reasonably expect to receive from a hypothetical tenant
were lower than the. standard rent determinable in accordance with
B the principles laid•d6wn in the Rent Act, the standard rent must
still be taken to be the rateable value of the building. Such a view
would fly in the face of the definition of 'rateable value' in both
statutes and could not possibly have been taken by the Court in this
case. It is significant to note what the Court said in this case, and
here we are quoting ;from the Judgment delivered by the Court,
c namely, that the rateable value of a building "must be held to be
limited by the measure of standard rent determinable on the princi-
ples laid down in the Delhi Rent Control Act 1958 and it cannot
exceed such measure of standard rent" (emphasis supplied). It is
thus clear from this decision that the rate.able value of a building
cannot exceed the measure of standard rent, whether determined by
Dl
the Controller under Section 9 of the Rent Act or arrived at by the
assessing authority by applying the principles laid down in the Rent
Act, but it may in a giyen case be less than the standard rent having
regard to various attendant circumstances and considerations. If, for
example, the building is not in a proper state of repair or is so situate
E that it has certain disadvantages from the point of view of easy
accessability or means.of transport of any other similar cause, the
actual rent which the owner may reasonably·accept to receive from
a hypothetical tenant may be less than the standard rent· deter-
minable on the principles laid down in the Rent Act. It is also
possible that in case ofa building recently coilstrucled, the standard
F rent determinable according to the principles laid down in the Rent
Act may be very high having regard.to the fantastic inflation .in the
value of land and the abnormal rise in the cost of construction in
the last few years, but it may not be, and perhaps in many cases
would not be, possible for the owner to obtain such high rent from
a hypothetical.tenant. It is equally possible that the building cons-
tructed by the owner. may be so large as a single unit that it may
0
. a
be.difficult. for the owner to find tenant .who will be prepared:to
pay the huge amount of rent which the standard rent is bound to
be if determined on the principles laid down in the Rent Act and
having regard· to the extreme smallness of the number of ·possible
tenants.of.such a building, the rent which the owner may reasonably
expect to receive from a· hypothetical tenant may be very much less
than the standard rent. The test therefore is not what is the standard
BALBIR SINGH v. M.C.D. (Bhagwati, J.) 457
rent of the building but what is the rent which the owner reasonably A
expects to receive from a hypothetical tenant and such reasonable
expectation can in no event exceed the standard rent of the building
determinable in accordance with the principles laid down in the
Rent Act, though it may in a given rn<e he lnwer than such standard
rent.
B
We may now turn to the relevant provisions of the Rent Act
which has been since 9th February, 1959 the law in force relating to
control of rent of building situate within the jurisdiction of the Delhi
Municipal Corporation and the New Delhi Municipal Committee.
Section 2(k) defines 'standard rent' in relation to any premises to
mean "the standard rent referred to rn Section 6 or where the stan- c
dard rent bas been increased under Section 7, such increased rent".
Section 6 lays down deffcrent formulae for determination of standard
rent in different clas.es of cases and each formula gives a precise
} .- and clear cut method of computation yielding a definite figure of
standard rent in respect of building falling within its coverage. We
D
are concerned in these appeals and writ petitions with determination
of rateable value of residential premises and we will, therefore, refer
only to so much of Section 6 as relates to residential premises.
Section 6 sub-section l(A)(l) lays down the formnla for determina-
tion of standard rent in case of residential premises where such
premises have been let out at any time before 2nd June, 1944, but
• this provision is not material for our purpose, since the residential E
buildings with which we are concerned in these appeals and writ
petitions are all buildings constructed after 2nd June, 1944. Sub-
section 1(Al(2)(a) of Section 6 has also no relevance for our purpose
since it deals with the case of residential premises which have been
let ont at any time ou or after 2nd June, 1944 and in respect of
which rent bas been fixed under the Delhi and Ajmer·Merwara F
Rent Control Act, 1947 or the Delhi and Ajmer Rent Control Act,
1952, which is not the case in respect of ~ny of the residential
buildings forming the subject matter of the present writ petitions
and appeals. Section 6 sub-section l(A)(2)(bl is however· material
and we may, therefore set it out in extenso :
0
Section 6 (1) Subject to provisions of sub-section (2) 'standard
rent' in relation to any premises means-
(A) in the case of residential premises-
(2) where sncb premises have been let out at any time
on or after the 2nd day of June, 1944,- I-'
458 SUPREME COURT RllPORt'S.. (1985] 2 S.C.R•
A (b) in any other case, the rent calculated on the basis of
seven and one-half per cent, per annum of the aggre- __....
'
.
gate amount of the reasonable cost of construction and
the market price of the land comprised in the premises
on the date of the commencement of the construc-
tion :
3
Provided that where the rent so calculated exceeds
twelve hundred rupees per annum, this clause shall
have. effect as 1f for the words "seven and one-half per
cent", the words "eight and one-fourth per cent."
had been substituted ;
c Though we are not concerned with non-residential premises
we may point out that in respect of non-residential premises which
have been let out at any time on or after 2nd June, 1944 and in
respect of which rent bas not been fixed under the Delhi and Ajnier-
Merwara Rent Control Act, 1947, or the Delhi and Ajmer Rent
Control Act, 1952, standard reat is required to be salculatcd en tile
D
same basis as set out in sub-section 1(A)(2) (b) of Section 6 with
only this di!ference that instead of the rent being calculated at the
rate of 8-1/4 per cent as laid down in that provision, it is required to
be calculated at the rate of 8.5/8 per cent. Sub-section (2) of Sec-
tion 6 bas also considerable bearing on the controversy between the
E parties and it may, therefore, be set out in full :
•
(2) Notwithstanding anything contained in sub-section (1),-
(a) in the case of any premises, whether residential or not,
constructed on or after the 2nd day of June, 1951, but .
F before the 9th day of June, 1955, the annual rent
calculated with reference to the rent at which the pre-
mises were' let for the month of March, 1958, or if
i they were not so let, with reference to the rent at which
they were last let out, shall be deemed to be the stan·.
dard rent for a period of seven years from the date of
the completion of the construction of such premises ;
and
(b) in the case of any premises, whether residential or not,
constructed on ·or after the 9th day of June, 1955, ·'
including premises constructed after the commence-
ment of this Act, the annual rent calculated with {
· reference to the rent agreed upon between the landlord
and the tenant when such premises were first let out
-?:
BALBIR SINGH v. M.C.D. <Bhagwatl, J.) 459
shall be deemed to be the standard rent for a period of A
five years from the date of such letting out.
Then follows Section 7 of which only sub-section (!) is material
and it runs as follows :
"7(1) Where a landlord has at any time, before the
B
commencement of this Act with or without the approval
of the tenant or after the commencement of this Act with
the written approval of the tenant or of the Controller,
incurred expenditure for any improvement, addition or
structural alteration in the premises, not being expenditure
on decoration or tenantable repairs necessary or usual for c
such premises, and the cost of that improvement, addition
or alteration has not been taken into account in determin·
; ing the rent of the premises, the landlord may lawfully
-~
increase the standard rent per year by an amount not
exceeding seven and one-half per cent, of such cost."
D
The next section which is material for our purpose i11 Secti..n !l
and since considerable argument has turned upon the provisions
•f that Section and particularly sub-section (4) it would be usoful
to set out the releval!.t provisions ef that section which read u
• follows:
"9(1) The Controller shall, on an application made to
him in this behalf, either by the landlord or by the tenant,
in the prescribed manner, fix in respect of any premises-
(i) the standard rent referred to in section 6 ; or
(ii) the increase, if any, referred to in section 7. F
(2) In fixing the standard rent of any premises or the
lawful increase thereof, the Controller shall fix an
amount which appears to him to be reasonable having
regard to the provisions of section 6 or section 7 and
the circumstances of the case.
G
(4) Where for any reason it is not possible to determine
the standard rent of any premises on the principles sot
forth under section 6, the Controller may fix such rent
as would be reasonable having regard to the situation,
locality and condition of the premises and the ameni-
ties provided therein and where there ars aimilar or fl
460 SUPRJlMB COURT REPORTS [1985) 2 s.c.tt.
A nearly similar premises in the locality, having regard
also to the standard rem payable , in respect of such
premises."
These are the only material provisions £Jf the Rent Act which are
relevant for the determination of the controversy which arises in the
present appeals and writ .petitions.
It is clear froin the definition of 'standard rent' contained in
Section 2 (k) that the standard rent ofa building means .the standard ·
rent referred to in Section 6 or where the standard rent has been
increased under Section 7, such increased rent. This definition is
not an inclusive but an exhaustive definition and it defines the
standard rent to me~n either the standard . rent referred to in Section
6 or the.increased standard rent under Section 7. It is significant to
note that it does not 'contain any reference to Section 9, sub-section
(4). · Whenever, the~efore, any reference is made to standard rent
in any provision of the Rent Act, it must mean standard 'rent as laid
" D down in Section 6 or increased standard rent as provided in Section
7.and nothing more. Section 6 lays d.own the principles for deter-
~ination of standard rent in almost all conceivable classes of cases
and Section 7 provides for increase. i.n the standard rent where .the
landlord has incurred.expenditure for any improvement, addition or
structural alteration in the premises. ·section 9, as the definition in
Section 2 (k) clearly suggests and the marginal 'note definiiely indi"
•
cates, does not define what is standard . rent but merely .lays down
the procedure for fixation of standard rent. Sub-section (!) of Sec-
tion 9 provides that the Controller shall, on ..an .application made to
him in that behalf, either by the landlord or by the tenant, in the
orescribed ·manner, fix in respect of ,any ,premises, standard rent
~eferred to in Section 6 or the increase, if any, referred to in Section
7. Sub-section (2) then proceeds to say that in fixing the standard
rent of any premises or the lawful increase thereof, the Controller
shall fix an amount which appears t6 him to be rasonable having
regard to the provisions of Section 6 or Section 7 and the circum- ,
stances of the case. The Controller is thus entrusted by sub-sections
(1' and (2) of Section 9 with the task of 'fixing the standard rent of
any premises having regard to the principles set out in Section 6
or the provision of Section 7 and any other relevant circumstances
of the case. .The words "having regard' to .•. the circumstances of the
case" , undoubtedly . leave .a certain measure of discretion to the
Controller in fixing the standard rent. But this discretion. is not such
an unfettered and unguided discretion as to enable the Controller
to jix any .sta.ndard 'rent which he considers reasonable. He is
tt
BALBIR SINGH v. M.C.D. (Bhagwati, J.) 461
required to fix the standard rent in accordance with the formula laid A
down in Section 6 or Section 7 and he cannot ignore that formula
by saying that in the circumstances of the case he considers it reason-
able to do so. The only discretion given to him is to make
adjustments in the result arrived at on the application of the relevant
formula, where it is necessary to do so by reason of the fact that
the landlord might have made some alteration or improvement in 8
the building or circumstances might have transpired affecting the
condition or utility of the building or some such circumstances of
similar character. The compulsive force of the formulae laid down
in Section 6 for the determination of standard rent and of the pro-
visions of Section 7 for increase in standard rent is not in any way
whittled down by sub-section (2l of Section 9 but a marginal discre- c
tion is given to the Controller to mitigate the rigour of the formulae
where the circumstances of the case so require.
The question, however, may arise as to what is to happen if
it is not possible to determine the standard rent of any premises on
the principles set forth in Section 6. The machinery set out in sub- D
sections (!) and (2) of Section 9 would then fail of application,
because it would not be possible for the Controller to fix the standard
rent having regard to the provisions of Section 6. This contingency
is taken care of by sub-section (4) of Section 9 which provides that
in such a situation the Controller may fix such rent as would be
• reasonable having regard to the situation, locality and condition of
the premises and the amenities provided therein and where there
are similar or nearly similar premises in the locality, having regard
also to the standard rent payable in respect of such premises. But
the basic condition for the applicability of sub-section C4) of Section
9 is that it should not be possible to determine the standard rent on
the principles set out in Section 6. Where snch is the case, the F
Controller is empowered to fix such rent as \~ould be reasonable
having regard to the situation, locali!y and condition of the premises
and the amenities provided therein. But even while fixing such rent,
the Controller does not enjoy unfetterred discretion to do what he
likes and he is bound to take into account the standard rent payable
in respect of similar or nearly similar premises in the locaJ.ty. The G
standard rent determinable on the principles set out in Section 6,
therefore, again becomes a governing consideration. The legislature
<"
obviously did not intend to vest unguided discretion in the Controller
to fix such rent as he considers reasonable without any principles or
norms to guide him and, therefore, it provided that in fixing reason-
able rent, the Controller shall take into account the standard reat
payable in respect of simillar or nearly similar premises. The
ff
462 SUPREME COURT REPORTS [1985] 2 8.C.R.
A Controller must derive guidance from the standard rent of similar
or nearly similar premise> in the locality and apart from discharging
the function of affording guidance to the Controller in fixing reason-
able rent, this requirement also seeks to ensure ·that there is no
wide disparity between the reasonable rent of the premises fixed by
the Controller and the standard rent of similar or nearly similar
B prem ;ses situate in the locality. The process of rearnning which the
Controller would have to follow in fixing reasonable rent would,
therefore, be first to ascertain what is the standard rent payable in
oose of similar or nearly similar premises in the locality and then to
consider how far such standard rent in its application to the pre-
mises, needs adjustment having regard to the sitnation, locality and
c condition of the premises and the amenities provided therein. The
reasonable rent so determined would be the standard rent of the
premises fixed by the Controller. There may, however, be cases
where there are no similar or nearly similar premises in the locality
and in such cases guideline to the Controller wonld not be available
and the Controller wonld have to determine as best as he can what
rent would be reasonable having regard to the situation, locality and
condition of the premises and the amenities provided therein. But
such cases wouid by their very nature be extremely rare and even
there, the Gontroller would not be on n •ncltartcd sea : lie would
have to fix the reasonable rent of the premises taking into account
the standaad rent of similar or nearly similar premises in the adjoin-
ing locality and making necessary adjustments in such standard
rent.
Now, let us take up for consideration the first category · of
premises, in regard to which the question of determination of rate-
•Ill...
;
able value arises, namely, where the premises are self-occupied, that
F is, occupied by the owner. We will first consider the case of resi-
dential premises. It is clear from the above discussion that the
rateable value of the premises would be the annual rent at which
the premises might reasonably be expected to be let to a hypothetical
tenant and such reasonable expectation cannot in any event exceed
the standard rent of the premises, though in a given situation it may
G be less than the standard rent. The standard rent of the premises
would constitute the upper limit of the annual rent which the owner
might reasonably expect to get from a hypothetical tenant if he were
to let out the premises. Even where the premises are self-occupied
.. ,
and have not been let out to any tenant, it would still be possible
to determine the standard rent of the premises on the basis of hypo-
thetical tenancy. The question in such case would be as to what
tt would be the standard rent of the premises if they were out to a
BALBJR ~!NOH v M.C.D. (Bhagwatl, J.) 463
~.
tenant. Obviously, in such an eventuality, the standard rent would A
be determinable on the principles set out in sub-section (I) (a) (2)
'h) of Section 6 of the Rent Act. The standard rent would be the
rent calculated on the ba<i' of 7! per cent or 8.1/4 per cent per
annum of the aggregate amount of the reasonable cost of construc-
·- tion and the market price of the land comprised in the premises on
the date of commencement of the construction. The Delhi Municip3I
Corporation, however. contonded that whero any premises com.truc·
ted on or after 9th June l955-3nd the premises in most of the cases
before us are premises constructed subsequent to 9th June 1955 have
not been let out at any time and have throughout been self occupied,
the standard rent of such premises would be determinable under
the provisions of sub-section (2) (b) of Section 6 and any rent which
c
, could be agreed upon between the landlord and the tenant if the
premises were let out to a hypothetical tenant would be deemed to
' be the standard rent of the premises and the formnla set out in sub·
section ( l )(B)(2) (b) of Section 6 would not be applicable for
determining the standard rent by reason of the non·obstant clause D
contained in the opening part of sub-section (2) of Section 6. This
contention, plausible though it may seem, is in our opinion not well-
founded. It is difficult to see how the provision enacted in sub·
section (2) (b) of Section 6 can bo applied for determining the stan-
• dard rent of the prnnis" when the promises have not been actually
let out at any time. ~ub·section (2) (b) of Section 5 clearly contem. E
plates a c1se whor o thoro is act11al letting 0•1t of the premises as
distinct from lcypothetical Jetting out, because under this provision
the annual rent agreed upon between the landlord and the tenant
at the time of first letting out is deemed to be the standard rent for
a period of five years from the date of such letting out and it is
impossible to imagine how the ::oncept of first letting out can fit in F
with anything except actual letting out and how the period of five
years can be computed from the date of any hypothetical letting
out. It is only from the date of first actual letting out that the
• period of five years can begin to run and for this period of five
years the annual rent agreed upon between the landlord and the
G
tenant at the time of first actual letting out would be deemed to be
the standard rent. Sub-section (2) (b) of Section 6 can have no
application where there is no actual letting out and hence in case of
premises which are constructed on or after 9th June 1955 and which
have never been letout at any time, the standard rent would be deter·
minable on the principles laid down in sub-section (I) (A) (2) (bl
Section 6. So also io case of premises which have been constructed
before 9th June 1955 but after 2nd June 1951 the standard rent would, H
464 SUPREME COURT REPORTS [1985) 2 s.c.R.
A for like reasons,. be determinable under the provisions of sub-section
,/-
....
(l)(A) (2) (b) of Section 6 if they have not been actually let out any ' ···vi
time since their construction. But if these two categories of premises
have been actually let out at some point of time in the past, then in
the case of former category, the annual rent agreed upon between
the landlord and the tenant when the premises were first actually
B
let out shall be deemed to be the standard rent for a period of five
years from the date of such letting out and in the case of the latter
category, the annual rent calculated with reference to the rent at
which the premises were actually let for the month of March 1958
or if they were not so let, with .refererence to the rent at which they
c were last actually let out shall be deemed to be the standard rent
for a period of seven years from the date of completion of the
construction of the premises. However, even in the case of these
two categories of premises, the standard rent after the expiration of
the period of five years or seven years as the case may be, would be
determinable on. the principles set out in sub-section (I) (A) (2) (b)
D of Section 6. Thu.s in the case of self-occupied residential premises,
the standard rent determinable under the provisions of sub-section
(2) (a) or (2) (b) of Section 6 in cases falling within the scope and
ambit of those provisions and in other cases, the standard rent
determinable under the provisions of sub-section (i) IA) (2) (b) of
Section 6 would constitute the upper limit of the rateable value of
E the premises. Similarly, on an analogous process of reasoning, the
standard rent determinable under the provisions of sub-section (2)
(a) or (2) (b) of Section 6 in cases falling within the scope and
ambit of those previsions and in other cases, the standard rent
determinable under the provisions of sub.section (!)(BJ (2J(b) of
Section 6 would constitute the upper limit of the rateable value so
F far as self-occupied non-residential premises are concerned. The
rateable value of the premises, whether residential or non-residential
cannot exceed the standard rent, but, as already pointed out above,
it may in a given 'case be less than the standard rent. The ann.ial
rent which the owner of the premises may reasonably expect to get
if the premises are let out would depend on the size, situation,
G locality and condition of the premises and the amenities provided
therein and all these and other ·relevant factors would have to be
evaluated in determining the rateable value, keeping in mind the
upper limit fixed by the standard rent. If this basic principle is
borne in mind, it would avoid wide disparity between the rateable
value of similar premises situate in the same locality, where some
premises are old. premises constructed many years ago when. the
ff land pric~s w~re not high and th' colt uf coa;truction h1d not
BALBIR SINGH v. M.C.D. (Bhagwati, J,) 465
escalated and others are recently constructed premises when the A
prices of land have gone up almost 40 to 50 times and the cost of
construct ion has gone up almost 3 to 5 times in the last 20 years.
The standard rent of the former category of premises on the princi-
ples set out in sub-section (I) (A) (2) (b) or Cl) (B) (2) (bl of
Section 6 would be comparatively low, while in C3se of latter cate-
gory of premises, the standard rent determinable on these principles B
would be unduly high. If the standard rent were to be the measure
of rateable value, there would be huge disparity between the rateable
value of old premises and recently constructed premises, though
they may be similar and situate in the same or adjoining locality.
That would be wholly illogical and irrational. Therefore, what is c
r required to be considered for determining rateable value in case of
recently constructed premises is as to what is the rent which the
• ..... owner might reasonably expect to get if the premises are let out and
that is bound to be influenced by the rent which is obtainable for
similar premises constructed earlier and situate in the same or adjoin-
ing locality and which would necessarily be !i11Jited by the standard D
rent of such premises. The position in regard to the determination
of rateable value of self-occupied residential and non-residential
premises may thus be stated as follows : The standard rent deter-
minable on the principles set out in sub-section (2) (a) or <2) (b) or
• (I) (Al (2) (b) or (I) (BJ (2) (b) of Section f, as may be applicable,
would fix the upper limit of the rateable value of the premises and
within such upper limit, the assessing authorities would have to E
determine as to what is the rent which the owner may reasonably
expect tu get if the premises are let to a hypothetical tenant and for
the purpose of such determination, the assessing authorities would
bave to evaluate factors such as size, situation, locality and condition
of the premises and the amenities therein provided. The assessing p
authorities would also have to take into account the rent which the
own,ar of similar premises constructed earlier and situate in the same
• or adjoining locality, might reasonably expect to receive from a
hypothetical tenant and which would necessarily be within the upper
limit of the standard rent of snch premises, so that there is no wide
disparity between the rate of rent per squar foot or square yard
G
which the owner might reasonably expect to get in case of the two
premises. Some disparit) is bound to be there on account of the
> size, situation, locality and condition of the premises and the ameni-
ties provided therein. Bigger size beyond a certain optimum would
depress the rate of rent and so also would less favourable situation
or locality or lower quality of construction or unsatisfactory condi-
tion of the premises or absenc~ of nec~ssary amenities and similar u
466 ' SUPREME COURT REPORTS [1985) 2 s.c.R.
A other factors. B,ut after taking into account these varying factors,
the disparity should not be disproportionately large. We may also
point out that until 1981 the assessing authorities were giving a self
occupa1icy rebate of 20% in the property tax assessed on self-
occupied residential premises. We would suggest that, in all fair-
ness, this rob.ate of 20% may be res11mcd by the assessing autho-
n rities, because there is a vital distinction, from the point of view of
the owner, between self-occupied premises and tenanted premises
and the right to shelter under a roof being a basic necessity of every
human bemg, residentiafpremises which are self-occupied must be
treated on a more favourable basis then tenanted premises, so far
as the assessability to property tax is concerned.
c . .
We may now turn to consider the second category of premises
in regard to which the rateable value is required to be determined.
This category comprises premises which are partly self-occupied and
partly tenanted. No;v, as we have pointed out above, it is the pre-
mises as a whole which are liable to be assessed to property tax and
D not different parts of the premi>es as distinct and separate units. But
while assessing tb.e rateable value of the premises on the basis of the
rent which the owner may reasonably expect to get if tb.e premises
are let out, it cannot be over-looked that where the premises consist
of different parts which are intended to be occupied as distinct and
separate units, the hypothetical tenancy which would have to be
E considered would be the hypothotic:t\ tenancy of each part as a
distinct and separate unit of occupation ?.nd the sum total of the rent
reasonably expected from a hypothetical tenant in respect of ·each
distinct and 'Separate unit would ropr .'sent the rateable value of the
premises. Now obviously the rent which the owner of the premises
may reasonably expect, to receive in respect of each distinct and
F separate unit cannot obviously exceed the standard rent of such
unit and tho assessing authorities would therefore have to determine
the standard rent with a view to fixing the upper limit of the rent
which can reasonably be expected by the owner on letting out such
unit to a hypothetical tenant. How is this to be done ?
Where the case falls within sub-section (2) (a) or (2) (bl of
G Section 6, no problem arises, because whether the distinct and '
separate unit of which the standard rent is to be determined is self-
occupied or tenanted makes no difference, for in either case, the
standard rent would be governed by one or the other. of these two
provisions. So also in cases falling outside sub-section (2) (a) and
(2) (h) of Section 6, it would make no difference whether the distinct
BALBIR SINGH v. M.C.D. (Bhagwatl, J.) 467
and separate unit of which the standard rent is to be determined is A
self-occupied or ten anted ; for in either case, the standard rent
woul~ be determinable under the provisions of sub-section
([)(A) (21 (b) or (•)(Bl t2) lb) of Section 6. But the question is,
how is the formula set out in sub-section (!)(Al (2' (bl or (I) <Bl (2)
(b) of Section 6 to he app1'ed '! Obvt0usly thero would be no
B
difficulty in applying the formula, if the premises of which the
standard rent is to be d :tcnnii1cd consist of the entire building. Then
the rea'°nablc cost of consttuc<ion of the building can be taken and
it can be aggregated with the market price of the land comprised in
. the building on the date •1f commencement of construction of the
b 'ilding and 7} per cent of such aggregate am:Junt would represent
the standard rent of the bu'lding. But where the building consists
of more than one distinct and separate units and the standard rent to
be determined is that of any particular unit, the formula may present
some diflicultv of application if it is sought to be appl'ed literally in
J rdation to that particular un't alone and by itself, because even if
'x
the reasonable cost of construction of that paiticular unit can be
ascertained, it would not be possibl' to determine "the market price D
of the land comprised in the premises on the date of the commence-
ment of construction" since the entire building and n0t merely that
particular unit would be standing on the land aad the land on which
the building is standing would be land comprised in the building
and it would be irrational and absurd to speak of it as land com-
E
prised in that particuhr unit The formula can, however, be applied
for determining the standMJ rent of a particular unit by computing
the standard rent of the bu IJ iug ; in accordance with the formula
and then apport'oning th·' standard rent so computed amongst the
different units of occupation comprised in the building on the basis
of floor ar.;a, taking into cqnsideration differences, if any, on account F'
of the situ'<tion and cond'tion of the various units and the amenities
provided in such units. This would be the most rational way in
which the market price of ~he hnd comprised in the building on the
dat-.~ of commencement of construction can be spread over amongst
• the different units of occupation comprised in the building. It wonld
therefore seem that when the rateable value of a building eonsisting G
of distinct and sep3rate units of occupation is to be assessed, the
standard rent of each unit would have to be determined on the
principks set out above and within the upper limit fixed by the
standard rent. the a.ssessin.~! ;1 ulliorities would have to determine the
rent which the owner may reasonably expect to get if such unit were
let out to a hypothetical te11ant and in arriving at this determination,
the assessing authorities would have to take into account the same H
46S SUPREME COVllT REPORTS (1985] 2 s.c.11.
A factors which we have already discussed in the preceeding paragraphs
of this judgment while dealing with the question of assessment of
self-occupied properties. The sum total of the rent which the owner
may reasonably expect to get from a hypothetical tenant in respect of
each distinct and separate unit of occupation calculated in the manner
aforesaid, would represent the rateable value of the building. We
B may point out that this formula for determination of rateable value
would apply, irrespective of whether any of the distinct and separate
units of occupation comprised in the building are self-occupied or
,. tenanted. The only difference in case of a distinct and separate unit
of occupation which is tenanted would be that, subject to the upper
c limit of the standard rent, the actual rent received by the owner '
would furnish a fairly reliable measure of the rent which the owner
may reasonably expect to receive from a hypothetical tenant, unless
it can be shown that the actual rent so received is influenced by
'extra-commercial considerations.
That takes us to the third category of premises where the land
D
on which the premises are constructed is lease-hold land with a
restriction that the leasehold interest shall not be transferable without
the approval of the lessor. There are two classes of cases which fall
within this category. The first is where premises have been cons- F
tructedby the owner on land taken on lease directly from the
E Government and the second is where premises have been constructed
by the owners on land taken on sub-lease from a Cooperative House
Building Society which has in its turn taken a lease from the
Government. The lease in the first class of cases is a lease in per-
petuity and so also are the lease and a sub lease in the second class
of cases. We are concerned in these writ petitions and appeals with
F the second class of cases and we shall, therefore, confine our obser-
vatiom to that class. The sub-lease in this class of cases is executed
by the Cooperative House Building Society in favour of each of its
members in respect of the plot of land sub-leased to him. One of
the clauses in the sub-lease, the standard· form of which is to be
found in clause 6 of the document of sub-lease in Transferred Case
No. 75/82, inter alia provides as under : •
G
(6) (a) The Sub-Lease shall not sell, transfer assign or
otherwise part with the possession of the whole or any
part of the residential plot in any form or manner,
benami or otherwise, to a person who ts not a member
.of the Lessee.
H (b) The Sub-Lessee shall not sell, transfer, assign or
,,
BALBIR SINGH v. M.C.D. (Bhagwati, J.) 469
otherwise part with the possession of the whole or any A
part of the residential plot to any other member of the
Lessee except with the previous consent in writing of
the Lessor which he shall be entitled to refuse in his
absolute discretion.
B
Provided that in the event of the consent being
given, the Lessor may impose such terms and con-
ditions as he thinks fit and the Lessor shall be entitled
to claim and recover a portion of the unearned increase
in the value (i.e. the difference between the premium
paid and the market value) of the residential plot at
c
the time of sale, transfer, assignment, or parting with
the possession, the amount to be recovered being fifty
per cent of the unearned increase and the decision of
) ' " the Lessor in respect of the value shall be final and
binding. D
Provided further that the Lessor shall have the
pre-emptive right to purchase the property after
deducting fifty per cent of the unearned increase as
aforesaid.
E
• It is obvious that by reason of thls clause in the sub-lease, the
owner who has constructed premises on the plot of land sub-leased
to him, cannot sell, transfer or assign his lease-hold interest in the
plot of land to any except a member of the Cooperative House
Building Society and even so far as sale, transfer or assignment to
a member of the Cooperative House Building Society is concerned, F
1t cannot be made except with the previous consent in writing of
the Government which the Government may give or refuse in its
absolute discretion, and in case the Government chooses to give its
consent, the Government would be entitled to claim 50% of the
unearned increase in the value of the land at the time of such sale,
transfer or assignment and moreover, if the Government so desires, G
it would have a pre-emptive right to purchase the plot of fand after
deducting 50 per cent of the unearned increase in the value of the
plot of land. This covenant in the sub-lease is clearly a covenant
running with the land and even where sale, transfer or assignment
of the plot of land has taken place with the previous consent in
writing of the Government, thi< covenant would continue to bind
the purchaser, transferee or assignee, vide Commissioner of Wealth ff
470 SUPREME COURT.REPORTS (1985) 2 s.c.R.
A !Tax v. P.N. Sikand(1).
... .
Relying on this clause in the sub-lease, the Delhi Municipal
Corporation contended that since .the plot of land on which the
premises stands, cannot be transferred without the previous consent
of the Government, it has no market value and its market price
B cannot be ascertaiued and hence the standard rent of the premises
cannot be determined on the principles set out in sub-sections
(I) (A) (2) (b) or (I) (B) (21 (b) of Section 6 and consequently, the
residuary provision in sub-section (4) of Section 9 would apply and
the standard rent would have to be fixed in accordance with the
principles laid down in that provision. This was in fact the ground
c on which. the assessing authorities rejected the objections filed by
several owners of premises contending that the standard rent of
their premises should be determined on the prfociples set out in sub-
sections (I) (Al (2) (b) or (I) (Bl <2) (b) of Section 6. To quote only
cine of the orders made by the asses1ing authority in case of peti-
tioner No. 2 in T.C. No. 75/82 it was said in the order rejecting the
D
objections of that petitioner :
"The property is built upon a lease hold plot. This
. being so it is not feasible to determine the market price Pf
land at the time of start of construction because under the
terms and conditions of the conveyance deed, the land is
E
not open for sale in the open market. As such I am not
in a position to apply S. 6 of the Delhi Rent Control Act
for fixing the standard rent. I have, therefore, to resort to
S. 9 of the Delhi Rent Control Act for fixing the standard
rent."
F
This argument which seems to have prevailed with the assessing
authorities in rejecting the applicability of Sub-Section(!) (A\ (2) (b)
or (!) (Bi 2 (b) of S. 6 and resorting to the provisions of Sub Section
(4) of S. 9 is wholly unfounded. Merely because the plot of land
on which the premises are constructed cannot be sold, transferred or
assigned except to a .:nember of the Cooperative House Building
G Society and without the prior consent of the Government, it does
not necessarily mean that there can be no market price for the plot
of land. It is not as if there is total prohibition on the sale, transfer
or assignment of the plot of land, so that in no conceivable circum-
stance, it can be sold, transferred or assigned. The plot of land can
H 0) (1977) 2 s.c.c. 798.
BALBIR SINGH v. M.c.o. <Bhas:watl, J.) 471
:, ' ; 11 d, transferred or assigned but only to oue from amongst a
limited class of persons, namely, those who are members of the
Cooperative House Building Society and subject to the Rules and
Regulations, any eligible person can be admitted to the membership
of the Cooperative House Building Society. There is also a further
restriction, namely that the sale, transfer or assignment can take
·- place only with the prior consent of the Government. But subject
to th~se restrictions, the sale, tran\)fer or assigniuent can take place.
It cannot, therefore, be said that the market price of the plot of land
"
·'
cannot be ascertained. When we have to determine what would be
the market pcice 0f the plot of land on the date of commencemei1t
of construction of the premises, we must procce,J on the hypothesis
that the prior consent of the Government has been given and the c
plot of land is available for sale, tr.tttsfor or assignment and on that
footing, ascerta:n what price it would fetch on such sale, transfer or
assignment. Of course:, when the chs,; of potential buyers, transferees
or assignees is restricted, the market price would tend to be depressed.
But even so, it can be ascertained and it would not be correct to say
D
that it is incapable of determination. There is also one other factor
which would go to depress the market price and that stems from the
clause in the sub·lease which provides that on sale, transfer or assign-
ment of the plot of land, the Government shall be entitled to
claim 50% of the unearned increment in the value of the plot of
land and the Government shall also be entitled to purchase the plot
of land at the price realisable in the market after deducting there- E
from 50% of the uitearned increment. Since the lease hold interest
of the sub-lease in the plot of land is cut down by this burden or
restriction. the market price of the plot of land cannot be determined
as if the leasehold interest were free from chis burden or rcstric.
ti on This burden or limitation attaching to the leasehold interest
must be taken into account in arriving at the market price of the
plot of land, because any member of the Cooperative House Build- F
ing Society who takes the plot of land by way of sale, transfer or
a>signment would be bound by this burden or restriction which runs
with the land arid that would necessarily have the effect of depres-
sing the market price which he would be inclined to pay for the plot
of land. We must, therefore, discount the value of this burden or
G
restriction in order to arrive at a proper determination of the market
' price of the plot of land and the only way in which this can be done
is by taking the market price of the plot of land as if it were tmaffe-
cted by this burden or restriction and deducting from it, 50% of the
unearned increase in the value of the plot of land on the basis of
the hypothetical sale, as representing the value of such burden or
H
472 SUPRBME COURT REPORTS [1985] 2 s.c.R.
restriction. This mode of determination of the market price has the
sanction of the decision of this Court in P. N. Sikand's case ! supra).
We do not,therefore, think that the asseising authorities were right
in taking the view that because the plot of land could not be sold,
transferred or assigned except to a member of the Cooperative
House Building Society and without the prior consent of the Govern-
8 ment, its market price was unascertainable and hence the standard
rent of the premises could not be determined under sub-section (!)
{A) (2) {b) or(!) (B) (2) (bl of S. 6 and had to be assessed· only
under Sub-s. ( 4) of S. 9. We are firmly of the view that the market
price of ~he plot of land at the date of commencement of construc-
tion of the premises was ascertainable on the basis of the formula
c we have indicated, notwithstanding the restriction on transferability
contained in the sub·lease and the standard rent of the premises
constructed on the plot of land was doterminable under the provi- ·~
sions of sub-section (!) (AJ (21 (bl or 'll IB) (2) (b) of Section 6.
The argument of the Delhi Municipal Corporation that in all such
cases resort has to be made to the provisions of sub-section (4) of
D Section 9 for determination of the standard rent of the premises
must be rejected.
We may also in this connection refer to the statement made
by the \finister of State for Home Affairs on the floor of the Lok
Sabha on 8th April 1981 where the Minister observed:
E '
"The Municipal Corporation of Delhi has intimated '
that 494 general objections for the year 1980-81 filed by the
assessees for the revision of assessment of their properties
in accordance with Supreme Court Judgment were consi-
. dered by the Corporation. The requests for reassessment on
F the basis of standard rent under Section o of the Rent
Control Act, 1958, were considered and not found accept-
able to the Corporation as the assessees failed to produce
documentary evidence as regards the aggregate amount of
the reasonable cost of con;truction and the market price of
the land comprised in the premises on the date of com-
mencement of the construction as provided under Section 6
G (2)(b) ·Of the Delhi Rent Control Act, 1958. Accordingly,
assessments were made as provided uuder section 9 of the ,
Delhi Rent Control Act, 1958. The details of the proper-
ties, locality-wise, are given in the statement attached."
It is i.ndeed strange that the assessing authorities should have
B' declined to assess the rateable value of 494 properties in South
BALBIR SINGH v. M.C.D. ( Bhagwatl, J.) 473
Delhi on the basis of standard rent determinable on the principles
. ,. laid down in sub-section (1) (A) (2) (b) or (ll (Bl (2) <b) of Section
6, merely on the ground that in the opinion of the assessing autho-
A
rities ''the assessees failed to produce the documentary evidence as
regards the aggregate amount of reasonable cost of construction and
the market price of land comprised in the premises on the date of
conimencement of the construction." If the assessees failed to B
produce the· documentary evidenc~ t•"> ·~stablish the reasonabli;; cost
of construction of the premises or the market prico of the land
comprised in the premises, th~ assessing authorities could arrive at
their own estimate of these two constituent items in the applicatic>n
of the principles set out in sub-section (!) (Al (2J (b) or {() (BJ (2)
'bl of Section 6. But on this account, the assessing authorities could
c
not justify res,,rt to sub-section (4l of Section 9. It is only where
for any reason it is not possible to determine the standard rent of
any premises on lhe principles set-forth in Section 6 that the stan-
dard rent may be fixed under sub-section (4J of Section 9 and merely
because the owner does not produce satisfactory evidence showing
D
what was the reasonable cost of construction of the premises or the
market price of rhe land at the date of commencement of the const-
ruction, it cannot be said that ;t is not possible to determine the
standard rent on the principles set out in sub-sectio'1 ([) (Al (2) (b)
or (!) (Bl (2) lb) of Section 6. Take for example a case where the
... owner produces evidence which is found to be incorrect or which
docs not appear to be satisfactory; Can the assessing authorities in E
such a case resort to sub-section( 4) of Section 9 stating that it is not
possible to determine the standard r'nt on the prmciples set out in
sub-section (l) (A) (2) (b) or (I) (BJ (2> (b) of Section 6. The
assessing authorities would obviously have to estim1te for them-
selves, on the basis of such material as may be gathered by them,
the reasonable cost of construction and the market price of the land F
and arrive at their own determination of the standard rent. This is
an exercise with which the assessing authorities are quite familiar
and it is not something unusual for them or beyond their compe-
tence and capability. It may be noted that even while fixing stan-
• dard rent under sub-section (4) of Section (9), the assessing autho-
rities have to rely on such material as may be available with them G
and determine the standard rent on the basis of such material by a
process estimation.
The fourth category of premises we must deal with is the
category where the premises are construded in stages. The discussion
in the preceding paragraph f this Judgment provides an answer to H
474 SUPRJlMll COURT REP OR TS [1985] 2 s.c.R.
" A- the question as to how the rateable value of this category of pre-
mises is to be determined when the premises at the first stage of
construction arc to be assessed for rateable value, the assessing
authorities would first have to determine the standard rent of the
premises under sub.section (2) (a) or 2 (b) or (I) CA) (2) (b) or
(!) (B\ (2) (bl of Section 6 as may ·be applicable and keeping in mind
B the upper limit fixed by the standad rent and taking into account
the various factors discussed above, th" assessing authorities would
have to deiermine the rent which the owner of the premises may
reasonably expect to got if the premises are let out to a hypothetical
tenant and such rent would represent the rateable value of the
premises. When any addition is made to the premises at a rnb-
c_
sequent stage, three different situations may arise. Firstly, the
addition may not be of a distinct and separate unit of occupation
but may be merely by way of extension of the existing prem~ses
which are self-occupied In such a case the original premises
together with the additional structure would have to be treated as a
D single unit for the purpose of assessment and its rateable value
would have to be determined on the basis· of the rent which the
owner may reasonably expect to get, if the premises as a whole are
let out, subject to the upper limit of the standard rent determinable
under the provisions of sub-section (J) (A) (2) (b) of Section 6.
Secondly, the existing premises before the add di ti on might be
tenanted and the addition might be to the tenanted premises so that
E the additional structure also_ form part of the same tenancy. Where
such is the case, the standard rent would be liable to increase under
Section 7 and such increased rent would be the standard rent of the
premises as a whole and within the upper limit fixed by such stan-
dard rent, the assessing authorities would have to determine the rent
which the owner may reasonably expect to get if the premises as a
F whole are let out as a single unit to a hypothetical tenant and in
. such a case, the actua.1 rent received would be a fair measure of the
rent which the owner may reasonably expect to receive from such
hypothetical tenant unless it is influenced by extra-commercial
considerations. .Lastly, the addition may be of a distinct and sepa-
rate unit of occupation and in such a case, the rateable value of the '
G
premises would havo to b; determined on the basis of the formula
laid down by us for assessingthe rateable value of premises which
are partly self-occupied and partly tenanted. The same principles
for determining of rateable . value would obviously apply in case of
subsequent additions to the existing premises. The basic point to
be noted in all these cases is-and _this is_ what we have already
H emphasised earlier-that the formula set out in sub-section
. _, BALBIR SINGH v. M.C.D. (Bhagwatl, J.)
(!)(A) (2) <bl and(!) (B) (2l (b) of Section 6 cannot be applied for
415
A
determining the standard rent of an addition, as if that addition
was the only structure standing on the land The ~ssessing 3uthori-
ties cannot determine the standard rent of the additional structure
by taking the reasonable cost of construction of the additional
structure and add'ng to it the market price of the land and applying
B
the statutory percentage of 7! to the aggregate amount. The market
price of the land cannot be added twice over, once while determining
the standard rent of the original structure and again while determin-
ing the standard rent of the additional structure. Once the addition
is made, the formula set out in sub-section (!)(Al <21 (b) and
(!) (B) (2) (bl of section 6 can be applied only in relation to the
.. premises as a whole and where the additional structure consists of
a distinct and separate unit of eccupation, the standard rent would
have to be apportioned in the manner indicated by us in the earlier
)l
part of this Judgment.
These are the principles on which the rateable value of different
categories of properties is liable to be assessed under the Delhi
Municipal Corporation Act 1957. The same principles would a
fortiorari apply also in relation to assessment of rateable value under
• the Punjab Municipal Act, 1911. Since there are a number of writ
petitions and appeals before us and they involve different fact
situations we do not think it would be convenient to dispose them
c
of finally by one single Judgment. We would therefore direct that
these writ petitions and appeals shall be placed on Board on some
convenient date so that they can be disposed of in the light of the
principles laid down in this Judgment. D
• ML.A .
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