Holding

Under s.3(1)(b) of the Punjab Municipal Act, 1911, the annual value of a house must be measured by the reasonable standard rent expected under the Rent Act, not by the actual rent received, and no estoppel can override this statutory requirement.

Summary

The appellants owned a house in Sangrur that was assessed for the 1987‑88 year at a rateable value of Rs 1,50,472.50, calculated on the basis of the actual rent of Rs 12,687 per month received from the State Bank of India, after deductions under s.3(1)(b) of the Punjab Municipal Act, 1911. The respondents argued that the actual rent received should be the measure for determining the annual value, relying on the appellants' admission that they would pay tax on that basis. The Supreme Court held that, under the Act, the annual value must be measured by the reasonable standard rent that could be expected under the applicable Rent Act, not by the actual rent received, and that no estoppel can defeat this statutory rule. Consequently, the appeal was allowed and the assessing authority was directed to recompute the annual value using the standard rent approach.

Issues considered

Whether the actual rent received by a landlord can be used as the basis for determining the annual rateable value under s.3(1)(b) of the Punjab Municipal Act, 1911.
Whether the doctrine of estoppel can prevent the assessing authority from applying the statutory standard of reasonable expected rent.

Legislation cited

Punjab Municipal Act, 1911s. 3(1)(b)

Subjects

rateable valueannual valuemunicipal taxstandard rentRent Actestoppelstatutory interpretationPunjab Municipal Act

Judgment

A BHAGWANT RAI AND ORS.
v.
STATE OF PUNJAB AND ORS.-

AUGUST 17, 1995

B (K. RAMASWAMY AND B.L. HANSARIA, JJ.)

The Punjab Municipal Act, 1911

Ss.3(1)(b), 61-House Tax-Assessment-Annual Value-Basis of-
C Held; should be reasonable standard rent and not actual rent received-Ad-
mission wrongly made by landlord, not a ground to deny statut01y benefit.

The respondents, for the assessment year 1987-88, assessed the
rateable value of appellants' house at Rs. 1,50,472.50 on the basis of the
rent received in respect thereof, after giving standard deductions under
D s3(1)(b) of the Punjab Municipal Act, 1911.

In the appeal before this Court, it was contended by the respondents
that in view of the admission of the appellants that they were prepared to
pay the tax on the basis of the actual rent received from the tenant, ~he
respondents had rightly made the rent as a measure of assessing the
E rateable value.

On the question : whether the actual rent received by the landlord
from the tenant would be the measure for determining annual value.

Allowing the appeal, this Court
F
HELD : 1. The actual rent received from a tenant is not the measure
for determination of the annual rateable value, but the reasonable stand-
ard rent expected to be received under the relevant Rent Act. [802-D]

G Diwan Daulat Rai Kapur v. New Delhi Municipal ~ommittee, [1980]
2 SCR 607; Mrs. Shiela Kaushish v. Cl. T., [1981] 4 SCC 121; New Delhi
Municipal Committee v. M.N. Soi and Anr., [1976] 4 SCC 535 and Balbir
Sil~gh v. Mis. M.C.D., AIR (1985) SC 339- relied on.

2. There is no estoppel against the statute. When the statute
H prescribes particular mode to determine the annual rental value, it has to
798
BHAGWANTRAI v. STATE 799

be done in that manner. Admission wrongly made by the landlord or the A
owner would not be a ground to deny the statutory benefit. [802-F]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7511 of
1995.

From the Judgment and Order dated 22.7.92 of the Punjab & B
Haryana High Court in W.P. No. 19209 of 1991.

Anant Palli, Atul Sharma, Mrs. Rekha Palli and Ms. Purnima Bhat
for the Appellants.

S. Ujagar Singh, Davendra Verma and Mrs. Naresh Bakshi for the C
Respondents.

The following Order of the Court was delivered :

Leave granted.
D
The appeal by special leave arises from the order of the High Court
of Punjab and Haryana in Civil W.P. No.19209/91 dismissing the writ
petition in limine.

The admitted facts are that the appellant is having a house in
Sangrur. For the assessment year 1987-88, the respondents have assessed E
the rateable value of the house at Rs. 1,50,472.50 after giving standard
deductions under s.3(1)(b) of the Punjab Municipal Act, 1911 (for short,
'the Act'). The basis on which the property was assessed was the rent being
received by the appellant from State Bank of India to whom they had let
out at Rs. 12,687 per month. The question is whether the actual rent F
received by the appellants from the tenant would be the measure for
determining annual value. Section 3(1)(b) of the unamended Act reads
thus:

"3(1) "annual value" means -
G
xxxxxxxxxxxxxxxxxxxxxx
(b) in the case of any house or building, the gross annual rent at
which such house or building together with its appurtenances and
any furniture that may be left for or enjoyment therewith, may
reasonably be expected to let from year to year subject to the H
800 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A following deductions :

xxxxxxxxxxxxxxxxxxxxx"

This provision was subject of interpretation by this Court in Diwan
Daulat Rai Kapur v. New Delhi Municipal Committee, [1980] 2 SCR 607,
B
which was followed in Mrs. Shiela Kaushish v. C.l.I., [1981] 4 SCC 121. The
question therein was whether the actual rent received from the tenant
would form basis to determine the annual value. This court considered the
controversy and held thus :

c "The argument ·of the municipal authorities was that since the
standard rent of the building was not fixed by the Controller under
Section 9 of the Rent Act in any of the cases before the Court and
in each of the cases the period of limitation prescribed by Section
12 of the Rent Act for making an application for fixation of the
D standard rent had expired, the landlord in each case 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 Rent Act, but was liable to be
assessed by reference to the contractual rent recoverable by the
E 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 of the -Rent Act, it would not
be incorrect to say that the landlord could reasonably expect to let
F the building at the contractual rent and of the contractual rent
therefore provided a correct me_asure for determination of the
annual value of the building. 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 by the Controller under Section 9 of
the Rent Act, the landlord cannot reasonably expect to receive
G from a hypotectical tenant anything more than the standard rent
deteminable 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 the standard rent by
reason of expiration of the period of limitation prescribed by
H Section 12 of the Rent Act or the building is self-occupied by the
BHAGWANTRAI v. STATE 801

owner. Therefore, in either case according to the definition of A
"annual value" given in both statutes, the standard rent deter-
minable 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 annual value of the building. The Court
pointed out that in each case the assessing authority wou\d have B
to arrive at its own figure of the standard rent by applying the
principles laid down in the Rent Act for determination of tlie
standard rent and determine the annual value of the building on
the basis of such figure of the standard rent. The Court, on this
view, negatived the attempt of the municipal authorities each of
the cases to determine the annual value of the building on the basis C
of the actual received by the landlord and observed that 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
Rent Act and it could not exceed such measure of the standard
rent."
D
.,.. When similar contention was raised that the actual rent received will
form the basis to determine annual value of the building, another bench of
this Court in New Delhi Municipal Committee v. M.N. Soi and Anr., [1976]
4 SCC 535 held thus as stated in the Headnote :
E
"It is not the actual rent received by the landlord but the "hypotheti-
cal rent which can reasonably be expected if the building is to be
let", which has to be the legal yardstick of a "reasonable expecta-
tion" in an "open market". The municipal authorities cannot take
advantage of the defiance of the law by the landlord. Rating cannot
operate as a mode of sharing the benefits of illegal rackrenting F
indulged in by rapacious landlords for whose activities the law
prescribes condign punishment. The prudence of the landlord has
to be assumed and judged by normal standard to determine his
"reasonable expectation".
G
Hence rating is to be governed by the fixation of rent by rent
control authorities and not by the test of actual income derived by
the landlord.

The concept of reasonableness of expectation of rent must take
the penal law of the State into account. It is not the expectation H
802 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.

A of a landlord who taken the risk of prosecution and punishment
which the violation of the law involves, but the expectation of the
landlord who is prudent enough to abide by the law that serves as
the standard of reasonableness for purpose of rating."

This question was further examined by a bench of three Judges in
B Balbir Singh v. M/s. M.C.D., AIR (1985) SC 339. The Court said that "The
ratable value of a building, whether tenanted or self occupied, is limited by
the measure of standard rent arrived 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 authority. The
C standard rent determinable on the principles set out in the Rent Act is the
upper limit of the rent which the landlord may except to received from a
hypothetical tenant, but it may in a given case be less than the standard
rent having regard to various attendant circumstances and consideration."

Thus, it is settled law that the actual rent received from a teuant is
D not the measure for determination of the annual ratable value, but the
reasonable standard rent expected to be received under the relevant Rent
Act. The view taken by the authorities is, therefore, clearly illegal.

It is contended by the respondent that in view of the admission by
E the. appellants in their letter that they are prepared to pay the tax on the
basis of the actual rent received from the Bank, they are estopped to go
back from the admission and the resp'ondents are right to adopt that as a
measure of assessing ratable value. We fail to appreciate the contention as
there is no estoppel against the statute. When the statute prescribes
particular mode to determine the annual rental value, it has to be done in
F that manner. Admission wrongly made by' the landlord or the owner would
not be a ground to deny the statutory benefit.

The appeal is accordingly allowed. The order of the assessing
authority and the appellate authority are set aside and they are directed to
G determine the annual value, to determine the amount of tax, as indieated
hereinabove. No costs.

R.P. Appeal allowed.