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TMI Blog1979 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 1911, defines " annual value " to mean, in the case of any house or building, " the gross annual rent at which such house or building ...... may reasonably be expected to let from year to year " subject to certain specified deductions, and the same definition of " annual value " is to be found in s. 116 of the Delhi Municipal Corporation Act, 1957, with only this difference that there is a second proviso to s. 116 which is absent in s. 3(1)(b). That proviso reads : " Provided further that in respect of any land or building the standard rent of which has been fixed under the Delhi and Ajmer Rent Control Act, 1952, the rateable value thereof shall not exceed the annual amount of standard rent so fixed. " It was, however, common ground between the parties that this proviso is immaterial and, in fact, it was so held in Corporation of Calcutta v. Life Insurance Corporation [1970] 2 SCC 44; AIR 1970 SC 1417. We may, therefore, ignore the existence of this proviso and deal with both the categories of appeals on the basis of the same definition of " annual value ". " Annual value " of a building, according to this definition, would be the gross annual rent at which the building may reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sm.Padma Debi [1962] 3 SCR 49. The question which arose in that case was whether the "annual value " of a building governed by the West Bengal Premises Rent Control (Temporary Provisions) Act, 1950, could be determined at a figure higher than the standard rent fixed under the provisions of that Act. The definition of " annual value " in s. 127(a) of the Calcutta Municipal Act, 1923, under which the house tax was being levied was the same as in s. 3(1)(b) of the Punjab Municipal Act, 1911, or s.116 of the Delhi Municipal Corporation Act, 1957, without the second proviso and hence in order to determine the "annual value " of the building it was necessary to find out what was the rent at which the building might reasonably be expected to let from year to year. The court, speaking through Subba Rao J., emphasized the use of the word reasonably in the definition and pointed out that since it was penal for the landlord to receive any rent in excess of the standard rent fixed under the Act, the landlord could not reasonably expect to receive any higher rent in breach of the law. It is the standard rent alone which the landlord could reasonably expect to receive from a hypothetical tenant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm. The question which arose for consideration was whether the annual value of the building was liable to be determined on the footing of this standard rent or it could be determined by taking into account the higher rent received by the tenant from its sub-tenants. The principle of the decision in Padma Debi's case [1962] 3 SCR 49 was invoked by the assessee for contending that the annual value of the building could not be determined at a figure higher than the standard rent and this contention was upheld by the court, though there was no fixation of standard rent by the Controller under s. 9 and the statutory prohibition was only against receipt of rent in excess of the standard rent fixed under the Act. The court pointed out that the standard rent stood defined by the latter part of s. 2(10)(b) and by virtue of that provision it was statutorily determined at Rs. 2,800 per month though not fixed by the Controller under s. 9 and proceeded to hold, by applying the principle of the decision in Padma Debi's case [1962] 3 SCR 49, that the landlord could not reasonably expect to receive any rent higher than the standard rent from a hypothetical tenant and the annual value of the build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payers' Association [1971] 2 SCR 423 ; AIR 1971 SC 353, which extended still further the principle of the decision in Padma Debi's case [1962) 3 SCR 49. This was a case where the annual value was to be determined under the Madras District Municipalities Act, 1920, which applied in the City of Guntur. Section 82, sub-s. (2) of the Act gave a definition of "annual value " practically in the same terms as s. 3(1)(b) of the Punjab Municipal Act, 1911, and s. 116 of the Delhi Municipal Corporation Act, 1957, without the second proviso. There was also in force in the city of Guntur, the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960, which provided, inter alia, for fixation of fair rent of buildings. It is necessary to refer to a few material provisions of this Act. Section 4, sub-s.(1), conferred power on the Controller, on application by the tenant or landlord of a building, to fix the fair rent for such building after holding such inquiry as he thought fit and sub-ss. (2) to (5) of s. 4 laid down the formulae for determination of fair rent in different classes of cases. Sub-section (1)(a) of s. 7 gave teeth to the determination of fair rent by providing that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities will have to arrive at their own figure of fair rent but that can be done without any difficulty by keeping in view the principles laid down in section 4 of the Act for determination of fair rent. " It will thus be seen that even though fair rent had not been fixed under the Act as in Padma Debi's case [1962] 3 SCR 49, nor was statutorily determined as in the Life Insurance Corporation's case, AIR 1970 SC 1417, (there being no provision in the Andhra Pradesh Rent Act similar to the latter part of s. 2(10)(b) of the West Bengal Rent Act) and it was clear from the provisions of the Rent Act that it was only after the fair rent of a building was fixed by the Controller that the prohibition against receipt of any amount in excess of fair rent became applicable and so long as the fair rent was not fixed by the Controller it was open to the landlord to receive the agreed rent even though it might be higher than the fair rent, yet it was held by the court that in view of the provisions in the Rent Act in regard to fair rent, the landlord could not reasonably expect to receive from a hypothetical tenant anything more than the fair rent payable in accordance with the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. This argument was sought to be supported by relying on the three decisions to which we have already made a reference. Now, it would appear that the decision in Guntur Municipal Council's case [1971] 2 SCR 423 was clearly applicable on the facts of this case and following that decision the court ought to have held that the annual value of the building could not exceed the standard rent determinable under s. 7 of the Act and the assessing authority should have arrived at its own estimate of the standard rent by applying the principles laid down in that section and determine the annual value on the basis of such standard rent. But the court negatived the applicability of the decision in Guntur Municipal Council's case [1971] 2 SCR 423 and the earlier two cases by relying on the words "notwithstanding anything contained in any other law for the time being in force " in s.138(b). The court pointed out that while " the requirement of the law is that the reasonable letting value should determine the annual value of the building, it has also been specifically provided that this would be so 'notwithstanding anything contained in any other law for the time being in force ' ", and obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy of decisions referred to earlier has thrown light on the solution of the problem before us. We may first refer to the relevant provisions of the Delhi Rent Control Act, 1958, for that was the law in force at the material time relating to restrictions on rent of buildings situate within the jurisdiction of the Delhi Municipal Corporation and the New Delhi Municipal Committee. Section 2(k) defined " standard rent " in relation to any premises to mean " the standard rent referred to in section 6 or where the standard rent has been increased under section 7, such increased rent ". Sub-section (1) of s. 4 provided that, subject to a single narrow exception which is not material for our purpose, " no tenant shall, notwithstanding any agreement to the contrary, be liable to pay to his landlord for the occupation of any premises any amount in excess of the standard rent of the premises " and sub-s. (2) of s. 4 declared that, subject to provisions of sub-s. (1), " any agreement for the payment of rent in excess of the standard rent shall be construed as if it were an agreement for the payment of the standard rent only ". Section 5, sub-s. (1), enacted a prohibition injuncting that " no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. These provisions of the Delhi Rent Control Act, 1958, came up for consideration before this court in M. M. Chawla v J. S. Sethi [1970] 2 SCR 390, where the question was whether in answer to a suit for eviction filed by the landlord, the tenant was entitled by way of defence to ask the Controller to fix the standard rent of the premises and to resist eviction by paying or depositing the standard rent so fixed even though on the date of the filing of the defence, the period of limitation for making an application for fixation of the standard rent had expired. The argument of the tenant was that by reason of the prohibition enacted in s. 4, and sub-s. (1) of s. 5, it was not competent to the landlord to claim or receive any amount in excess of the standard rent and even though the period of limitation prescribed for making an application for fixation of standard rent had expired, the tenant was entitled to ask the Controller by way of defence to fix the the standard rent, since the period of limitation was applicable only where a substantive application was made for fixation of standard rent and it had no application where the fixation of standard rent was sought by way of defence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the standard rent fixed by the Controller and would continue to be liable to pay the contractual rent to the landlord. The revenue relied heavily on this decision and contended that, since in each of the present appeals the building was let out to the tenant, but its standard rent was not fixed by the Controller under s. 9 and the period of limitation for making an application for fixation of the standard rent had expired, the landlord was entitled to continue to receive the contractual rent from the tenant without any legal impediment and hence the annual value of the building was not limited to the standard rent determinable in accordance with the principles laid down in the Act, but was liable to be assessed by reference to the contractual rent recoverable by the landlord from the tenant. The argument of the revenue was 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 of the 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, therefore, provided a correct measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as to affect the applicability of the decision in the Life Insurance Corporation's case, AIR 1970 SC 1417, because in that case too, the prohibition against the landlord to receive any rent in excess of the standard rent was operative only after the fixation of the standard rent by the Controller and, so long as the standard rent was not fixed, it was not unlawful or penal for the landlord to receive any rent in excess of the standard rent. If the standard rent, though not fixed and hence not legally enforceable, could provide the measure for the reasonable expectation of the landlord to receive rent from a hypothetical tenant in the Life Insurance Corporation's case, AIR 1970 SC 1417, there is no reason why it should not equally be held to provide such measure in the present cases ; as in the one case so also in the other. The upper limit of the standard rent, though yet to be fixed by the Controller, would enter into the determination of the reasonable rent. Moreover, it is not correct to say that under s. 9, sub-s. (2), of the Delhi Rent Control Act, 1958, it is left to the unfettered and unguided discretion of the Controller to fix any standard rent which he considers reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard rent having regard to, (a) the prevailing rates of rent in the locality for the same or similar accommodation in similar circumstances during the 12 months prior to 5th April, 1944 ; (b) the rental value entered in the property tax assessment book of the concerned local authority relating to the period mentioned in clauses (a) and (e) and the circumstances of the case, including any amount paid by the tenant by way of premium or any other like sum in addition to rent after 5th April, 1944, with a provision for allowance of increase depending on the quantum of the rent so arrived at. The discretion left to the Controller to fix the fair rent was thus much larger than that under the Delhi Rent Control Act, 1958, and yet it was held that, even though the fair rent was not fixed by the Controller, the annual value was limited by the measure of the fair rent determinable under the Act. The view taken was that there was no material distinction between buildings, fair-rent of which has been actually fixed by the Controller, and those in respect of which no such rent has been fixed and even if the fair rent has not been fixed by the Controller, the upper limit of the fair rent payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to receive the same amount of rent from a hypothetical tenant. The existing tenant may be barred from making an application for fixation of the standard rent and may, therefore, be liable to pay the contractual rent to the landlord, but the hypothetical tenant to whom the building is hypothetically to be let would not suffer from this disability created by the bar of limitation and he would be entitled to make an application for fixation of the standard rent at any time within two years of the hypothetical letting and the limit of the standard rent determinable under the Act would, therefore, inevitably enter into the bargain and circumscribe the rate of rent at which the building could reasonably be expected to let. This position becomes absolutely clear if we take a situation where the tenant goes out and the building comes to be self-occupied by the owner. It is obvious that in the case of a self-occupied building, the annual value would be limited by the measure of standard rent determinable under the Act, for it can reasonably be presumed that no hypothetical tenant would ordinarily agree to pay more rent than what he could be made liable to pay under the Act. The anomalous s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troller, the landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent determinable under the 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 the standard rent or the building is self-occupied by the owner. The assessing authority would, in either case, have to arrive at its own figure of the standard rent by applying principles laid down in the Delhi Rent Control Act, 1958, for determination of standard rent and determine the annual value of the building on the basis of such figure of standard rent. It is, therefore, clear that in each of the present cases, the annual value of the building must be held to be limited by the measure of the standard rent determinable on the principles laid down in the Delhi Rent Control Act, 1958, and it cannot exceed such measure of standard rent. We, accordingly, allow Appeals Nos. 1143 and 1144 of 1973 and declare in each of these two cases that the assessment of the annual value of the building in excess of the standard rent determinable on the principles laid down in the Delhi Rent Control Act, 1958, was illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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