Can license fee be equated with hypothetical rent for fixing rateable value under Sec. 154 of B.M.C. Act

By S.B.Rathore., Advocate High Court

Posted on 26 July 1999

Every property owner has normally right to enjoy this property to the exclusion of others. If we need and accommodation in anybody's house we have usually to pay the owner in return some consideration which we call "rent")

This rental value would however very with Probable benefit that would accrue to occupier. Greater the benefit higher would be the rent paid. No occupier would agree to pay rent for a property from which no benefit could be derived by him,. Therefore, what the property owner receives is according to the value beneficial occupation. This value of occupation of a property would serve as a good measure of the value of a property for the purpose of rating.

However the concept of actual rent or contractual rents in the circumstances stated above is not in all cases a reliable test or guide for arriving at the assessment of a property and it would come in conflict with one of the important principles of the fair ratings namely uniformity of

Assessment.

While fixing the rateable value the figure obtained by deducting this amount (10 p.c. of gross value from the gross value of a property fives us the Rateable value on which rates and taxes are calculated at a certain percentage.

Section 154 (1) of the Bombay Municipal Corporation Act 1888 does not say about the "gross value" but mentions about "Rateable Value".

The statement of a property for the purpose of rating depends upon the rent fetching capacity of hereditments, However rent of a property depends largely on the common economic law of demand and supply and hence the fair and reasonable rent is also called market between the landlords and tenants.. There are several other factors such as amenities offered by a property or its site, situation and location have influence on the rent. It is joint operation of all these rent influencing factors which is rounded up in the expression of "higgling of the makers" while arriving at the figure , awe need not restrict ourselves to the actual landlords letting out the property or to the actual tenant seeking to take up the property or premises therein. We must consider all probable and possible tenants who would occupy the property as it stands and for he purpose of which it is intended to be occupied. In other words we have to find the rent which a hypothetical or imaginary tenants would pay to a hypothetical or imaginary landlord for the property in its present state and condition. The figure so arrived at is "Hypothetical Rent" in the gross value of the property provided other conditions laid down in the definitions are fulfilled.

Concept of Standard rent and rateable value

The basis for determining the Annual Value is not the actual rent paid by the Tenant but the value that may have to be determined is the value which the owner may be expected reasonably to get as rent in respect of his premises which are 1st or expected to 1st. In considering what rent may reasonably be expected for certain, premises, the operation of Rent Restriction Law in the locality or where the fair rent has been fixed under the Rent Act, such fair Rent is factor which cannot be ignored altogether. In corporation of Calcutta V/s. Life Insurance Corporation of India (AIR 1970 SC/417) it was decided that it was not the rent received by a Tenant from the sub-tenant but the rent realisable y the owner namely the standard rent was the criteria of assessment. in case of Guntur Municipal Council it was held that "As there is no distinction between the buildings fair rent of which has actually bee fixed by the rent controller and then in respect of which no such rent has been fixed Municipality will have to arrive at their own figure of fair rent in accordance with the principles laid down in Rent Control Act.

Principle of Reasonable rent

Can the License Fee or the Compensation be equated with the amount of Hypothetical Rent for fixing the rateable value ? Answer is no. The Cardinal and marked distinction between Lease and Licence is that in a lease or letting, there is a transfer of interest in land, whereas in cases of Licence there is no transfer of interest. A lease creates an interest in the property and the lessee may transfer that interest in the property to another person because \he holds exclusive possession of the property. With the Licensee it is not so, he holds only personal rights which are not transferable. A licensees merely enjoys the right to use the property without its exclusive possession and thus right being personal it is neither transferable nor heritable. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property which is the subject matter of an Agreement. Khalik V/s. Tufal Hussain (Air 1988) Supreme Court 184/190. The Bombay High Court in (1972) B.L.R. Supreme Court page 144 held that the test of exclusive possession is an important test whether a transaction is lease or licence. since there is marked distinction between a losses and a Licence, the question arises whether amount of compensation of Licence fee paid by a lease can be the criteria for assessment. In the Mahad Municipality V/s. Divisional Controller, Bombay statue Road Transport Corporation 163 Bombay Law Reporter 174 and Padma Devi's case (Air Sc151) it was held that rateable value should be fixed on the basis of the Hypothetical rent which is most reasonable taking into consideration the fact of the value of the property to an owner and not to an occupier. The hypothetical rent which is most reasonable taking into consideration the fact of the value of the property to an owner and not to an occupier, The hypothetical rent in view of the Rent restrictions could not be higher than the standards rent and the amount of compensation or licence fees cannot form the basis for the fixation of rateable value under section 154 if the Bombay Municipal Corporation act, 1888. However, with the passage of time the solder theory of Hypothetical rent exploded and became obsolete giving rise to the theory or standard rent by reason of the statutory restricted placed on the freedom of every property owner in the matter of meaning and extracting rent as he wishes. The Supreme Court in Dewan Daulat Rai Kapoor V/s. Delhi Municipal Committees (AIR 1989 SC 541) observed that - "Even if the standards rent has not been fixed by the Controller the Assessing Authority would in either case have to arrive at its own figure of the Standards Rent Act by applying principles laid down in the Delhi Rent Control Act, 1958 and fix the annual value on the basis of such figure of standard rent."

A Society under the Co-operative Societies Act is the virtual owner of the property and its members are mere Tenant - members holding interest in flats allotted to them under share certificate and there is nothing in the cooperative Societies Act to indicate that there is relationship of landlord and the tenant in respect of flats allotted to its members. In fact they are mere licensees holding shares or right of membership in flats which are liable to be attached or soled in execution of decree against them as held in R.N. Shah V./s., H.J. Joshi (AIR 1975) Supreme Court - 1470. Even the Compensation paid by a subsequent or Licensees to a tenant member of the flat cannot be equated with the amount of Hypothetical rent for fixation of the rateable value of the Co-operative Society's building. Soc BMC V/s. Jeevan Jyot Premises Cooperative Society in First Appeal No. 393/75 of High Court of Bombay, In Sohanlal Naraindas V/s. Laxmidas (68 Bombay Law Reporter 400) it was held that what is assessable is reasonable rent and the compensation recoverable from the Licencsees cannot be mistake for such reasonable or hypothetical rent.

Since the Rent act does not recognises the contractual rent as an ad-interest standards Rent and puts prohibition to claim, or receive any rent in excess of standard rent even though standards rent has not bee. fixed by any competent court such standard rent has to be the base for the purpose of computation of rateable value of a property. in case of non fixation of Standards Rent statutorily. The assessing authority has to arrived at its own figure of standards rent on the basis of the modalities laid down in the act or guide lines given by the Courts in various judgements delivered from time to time. (case of Padmadevi AIR 1962 SCI 51 Case of LICE AIR 11970 Sc 1417 Case of Cuntur Air 1971 Sc 353 Case of Ratna Prabha Air 1977 Sc 308 and case of Dr. Bal Bir Singh and JT-1995 (6) S 245 Bhagwat Ri V. State of Punjabi.

However inspite of various judgement delivered by the apex Court of Indian relating to the mode and method of fixing rateable value, the assessment Authorities .are not honoring ratios in good faith and in proper prospective but property owners are driven to the Appellate Courts for their relieves and they are forced to deposit despite amount of Municipal taxes as a condition precedent and have to go on depository the same at 80 p.c. in the light of Ordinance No. ;____ of 19998 declared by the Government of Maharashtra lately.

Remedies available Tax payers in such circumstances, are be vehemently challenge the Tabulated ward report for revision of ratable value due process of law as appellate stage and to file correct state rent of actual rent being recovered from the tenants excluding. service charged for amenities rendered to them as laid down in Section 155 of B.M.C. Act.

Secondly in case of revision or increase in existing rateable value it is the right of every property owner to insist upon the detailed particulars and grounds on which such increase is proposed by efficiently ceiling for copies of Tabulised must respect from assessing Authority.

Thirdly on receipt of special Notices for such revision or increase in rateable value of property written objection should be made within the stipulated period and should call for personal hearing in the matter. At the time of hearing before Enquiry Officer investigating complaint it is the right of tax payers to call for the documentary evidence on which proposed revision is sought for by Assessing Authority to enable Tax Payers to put up and affective defense thereto by way of written submission. On receipt of final order fixing the ratable value there is an appeal under Section 217 of B.M.C. Act and thereafter further appeal to High Court under section 217 of B.M.C. Act.

Every property owner including Tenant Member of Co-operative society is further entitled to lodge a general complicant against the Rateable Value for next coming year in pursuance of publication of Notice in local newspapers and the same can be lodged during 20th November and 14th December every year, as provided under Section ____________ of B.M.C. Act.

At the subject matter of fixing rateable Value involves scientific knowledge of valuation of a property it should be meticulously handled by production of Valuation Report from an experienced Architect -cum-Valuer and with the help of expert counsel who can shatter the evidence of assessing authorities by cross examination of their witness proposing the revision in rateable value. So you may hitch your wagon to the Star with the best of your ability by leaving it to your luck and sincere labour of your lawyer.