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Issues Involved:
1. Suitability of the comparative method for rateable value assessment. 2. Inclusion of specific construction costs in the rateable value: air-conditioning machinery, false ceiling, wooden partitions, mural figure, ground rent, and notional interest. Issue-wise Detailed Analysis: 1. Suitability of the Comparative Method for Rateable Value Assessment: The High Court found the comparative method unsuitable due to the absence of comparable buildings in the area, making it impossible to determine the rent if the building were let out. This view was not contested by any party. The focus shifted to whether the contractor's method was correctly applied in fixing the rateable value at Rs. 11,81,450. 2. Inclusion of Specific Construction Costs in the Rateable Value: (a) Cost of Air-Conditioning Machinery and (b) Cost of False Ceiling: The air-conditioning machinery, which cost Rs. 5,91,767.50, and the false ceiling, which cost Rs. 7,80,289, were installed to enhance the building's utility. The machinery was embedded in the building, making it an integral part. The High Court's decision to include these costs in the rateable value was contested. It was argued that under section 154(2) of the Act, machinery that becomes an integral part of the building should not be included in the rateable value. The Court held that the fact that machinery is embedded or integral to the building is irrelevant for the exemption under section 154(2). Thus, the cost of air-conditioning machinery and the false ceiling should be excluded from the rateable value. (c) Cost of Wooden Partitions: The wooden partitions, costing Rs. 3,45,032.10, were used to divide floor spaces and were part of the building's design as an office space. Despite being easily removable, they were considered part of the construction cost. The Court upheld the inclusion of these costs in the rateable value. (d) Cost of Mural Figure: The appellant did not press for the exclusion of the Rs. 15,000 cost for the mural figure, so it remained included in the rateable value. (e) Ground Rent: The appellant argued that including the ground rent of Rs. 1,94,065.60 would result in double taxation. However, since the land was government-owned, section 146(1) of the Act applied, allowing property tax to be realized from the actual occupier. The Court found no issue with including the ground rent in the rateable value, ensuring no double taxation. (f) Notional Interest on Deposited Amount and (g) Notional Interest on Construction Cost: The appellant argued that notional interest, amounting to Rs. 1,61,721.28 and Rs. 14,38,589.83 respectively, should not be included as they were not actual expenses. The Court agreed, stating that notional interest cannot form part of the cost of fixed assets, referencing the decision in Challapalli Sugar Ltd. v. C.I.T. The inclusion of notional interest was deemed impermissible. Conclusion: The appeal was allowed, ordering the exclusion of costs under items (a), (b), (f), and (g). The rateable value was to be recalculated accordingly. No order as to costs was made. The appeal was thus allowed.
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