Holding

Costs of air‑conditioning machinery, false ceiling and notional interest (items a, b, f, g) are to be excluded from the rateable value, while wooden partitions and ground rent are includable.

Summary

Hindustan Lever Ltd. constructed a building on two plots in Bombay and was assessed for property tax under the Bombay Municipal Corporation Act, 1888. The corporation fixed the rateable value at Rs.12,16,285 using the comparative method, which the company contested, leading to a reduction by the Small Cause Court and a subsequent increase by the High Court to Rs.11,81,450 by including costs of air‑conditioning machinery, false ceiling, ground rent and notional interest. The company appealed to the Supreme Court, raising issues of whether such costs should be excluded under Section 154(2) and whether the valuation method was appropriate. The Court held that the cost of air‑conditioning machinery, false ceiling and the notional interest on deposited sums and on the total construction cost must be excluded from the rateable value, while the wooden partitions and ground rent are includable. Consequently, the appeal was allowed in part and the rateable value was reduced accordingly.

Issues considered

The applicability of Section 154(2) of the Bombay Municipal Corporation Act, 1888 to exclude the cost of air‑conditioning machinery and false ceiling from the rateable value.
Whether the cost of wooden partitions should be included in the rateable value.
The inclusion of ground rent in the calculation of rateable value under the Act.
The treatment of notional interest on deposited sums and on total construction cost in the rateable value.
The appropriate method of valuation (contractor's method vs comparative method) for fixing rateable value.
The interpretation of a taxing provision where two reasonable constructions exist, and whether the interpretation beneficial to the assessee should be adopted.

Legislation cited

Bombay Municipal Corporation Act, 1888s. 146(1) proviso, s. 154(2)

Subjects

property taxrateable valuevaluation methodSection 154(2)air‑conditioning machineryfalse ceilingground rentnotional interesttaxing provision interpretationcontractor's method

Judgment

~ MIS HINDUSTAN LEVER LTD. A
v.
THE MUNICIPAL CORPORATION OF
GREATER BOMBAY AND ORS.

APRIL 26, 1995
B
[K. RAMASWAMY AND B.L HANSARIA, JJ.]
. .J
Bombay Municipal Corporation Act, 1888: Sections 146(1) Proviso and
154(2)
c
Property tax-Building-Rateable value-Detennination of-COst of Air
Condition machinery and false ceiling-Held should be excluded while deter'
mining rateable value-Embedding of machinery held not a relevant factor
while deciding the applicability of exemption provision.

Cost of wooden panition used to divide each floor into parts-Held D
·--+ rightly included in calculating rateable value.

Ground renHnclusion in detennination of rateable value-Held valid.

Notional interest on amount deposited by assessee with Corporation for E
undertaking constrnction as well as on total cost of construction-Inclusion
in reteable value held not valid.

Taxing Provision-Two reasonable interpretation possible-lnterpreta-
~ lion beneficial to the assessee should be given.
F
A building constructed by the appellant-Company was assessed by
the respondent-Corporation under the Bombay Municipal Corporation
Act, 1988 for levy of property tax. Its rateable value was fixed at Rs.
U,16,285 by adopting comparative method. instead of contractor's method.
The Small Cause Court held that the comparative method was not un-
suitable but reduced the rateable value to Rs.9,97,555. The High Court held G
that comparative method was unsuitable and that while determining the
rateable value (i) cost of air condition machinery and false ceiling; (ii)
ground rent and (iii) notional interest on amount deposited by assessee
with corporation as well as on total cost of construction were to be taken
into account. Accordingly, it enhanced the rateable value to Rs. 11,81,450. H
807
808 SUPREME COURT REPORTS [1995] 3 S.C.R.

A In assessee's appeal to this Court on the question whether while
adopting the contractor's method any wrong !tave been committed in
fixation of the rateable value:

Allowing the appeal in part, this Court

B HELD : 1. The High Court erred in law not excluding the cost
incurred by appellant on air condition machinery and on false ceiling.
[810-F]
2. When the legislature sought to exclude the value of machinery of
the type mentioned in sub-section (2) of Section 154 of the Bombay
C Municipal Corporation Act from forming a part of rateable value, some
meaning has to be ascribed to the provision, otherwise the intention of the
legislature would get frustrated. The fact that a machinery gets embedded
to a building or becomes an integral part of it has no relevance while
deciding the question of applicability of the exemption provision. It contd
not have been intended by the legislature that, say, only ~embedded
D air-conditioners used for cooling a building would get the exemption, but
not if the apparatus gets embedded and a central air-conditioning is
provided in the building. [813-D-E, 814-D]

Haji Dawood v. Municipal Commissioner, Pune, AIR (1922) Born. 386,
E held inapplicable.

Commissioner of Income Tax, Madras v. Mir Mohd. Ali, [1964] 7 SCR
846; Corporation of Calcutta v. Chairman,, Cossipore and Chitpore
Municipality, 48 I.A. 435; Poona Municipal Corporation v. Shankar
Ramkrishna Jabade, (1957) Born. Law Reporter 25; London County Council
F v. Wilkins (Valuation Officer), (1955) 2 All E.L.R. 180; London County
Council v. Wilkins, [1956] 3 All E.L.R. 38; Field Place Caravan Park Ltd. v.
Harding (Valuation Officer), [1966] 3 All E.L.R. 247; Dick Hampton (Earth
Moving) Ltd. v. Lewis (Valualion .Officer), (1975) 3 All E.L.R. 946; Industrial
Weavers Cooperative Society Ltd. v. Collector, Hardo~ I.L.R. (1976) 2 Al-
G lababad 161 and Musai Kurmi v. Sub Karan Kurm~ AIR (1914) Allahabad
176 (2), referred to.
+
3. The value of wooden partitions was rightly included in calculating
reteable value. The wooden partitions in question do not apparently attract
the provision of section 154(2) of the Act. They having been used to divide
H each of the floors into parts and even ceiling columns having been designed
HINDUSTAN LEVER LTD. v. MUN!ClPALCORPORATION OF GREATER BOMBAY [HANSARIA, J.] 809

with such partition in mind, there is no doubt that the value of these A
partitions did constitute and were rightly regarded as, part of construction
cost. The fact that these partitions are fixed on sockets and are easily
removable do to make any difference, as the building was from the incep-
tion conceived as an office building and it being spacious, divisiOn in
separate blocks and cabins was conceived from the beginning for which B
purpose the partitions were nsed. (814-G-H]

4. There is no infirmity in the inclusion of the amount of ground rent
in determining the reteable value, as the proviso to the sub-section (1) of
section 146 has no application. However, the appellant would not be asked
to pay the tax on the land over again. (815-D] C
5. All amount of interest covered by items in question represent
notional interest inasmuch as the appellant had in fact not paid interest.
Its inchASion as cost of construction was not permissible. [815-E]

Challapalli Sugar Ltd. v. CL T., (98) I.T.R. 167, referred to. D
6. In a taxing provision, an interpretation beneficial to the assessee,
in case two interpretations be reasonably possible, has to be given. This is
a well settled position in law. [814-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2312 of E
1979.

From the Judgment and Order dated 19/27.4.79 of the Bombay High
Court in F.A Nos. 617 & 618 of 1979.

S. Ganesh and C.S. Srinivasa for the Appellant. F

R.F. Nariman, D.N. Mishra for JBD & Co. for the Respondents.

The Judgment of the Court was delivered by

HANSARIA, J. The appellant is liable to property tax leviable under G
the Bombay Municipal Corporation Act, 1888 (the 'Act'). It .constructed a
building on two plots bearing nos. 165 and 166. The construction started
in February, 1962 and was completed by December, 1964. The Bombay
Municipal Corporation, for short the 'Corporation', asked the assessee ,to
show-cause as to why the rateable value should not be rais.rd to Rs. H
I
1'

810 SUPREME COURT REPORTS [1995] 3 S.C.R.

A 17,36,420 with effect from 16th June, 1963. The assessee raised objection
to the enhancement. After considering the objection, the Corporation fixed
the rateable value at Rs. 12,16,285 by adopting a method styled as com-
parative. The assessment as finalised by the Corporation came to be
challenged by the assessee-appellant before the Chief Judge of the Small
B Cause Court, under section 217 of the Act. One of the contentions ad··
vanced by the assessee was that instead of the comparative method adopted!
by the Corporation, the suitable basis for assessment was contractor's
method. Both the parties led evidence and the Chief Judge came to the
conclusion that the comparative method was not unsuitable. It was secondly
held that even if the contractor's method were to be adopted, the result
C would not ho.ve been different. After going through the merits of the
controversy the Chief Judge reduced the rateable value to Rs . 9,97,555.
Both the Corporation and the assessee appealed before the High Court of
Bombay and by the impugned judgment the High Court has accepted the
appeal of the Corporation by enhancing the reteable value to Rs. 11,81,450.
D The appeal of the assessee was dismissed. This appeal by special leave is
by the assessee.

2. A perusal of the impugned judgment shows that the comparative
method was held to be unsuitable inasmuch as there being no other
building within the area comparable in all respects to the building in
E question, that method could not apply, as, what would have been the rent
of the building if let out to a tenant could not be known. This view taken
by the High Court is not assailed before us by any of the parties. We would,
therefore, see whether while adopting the contractor's method, any wrong E
have been committed in fixation of the rateable value at Rs. 11,81,450.
~ II
F 3. According to the appellant the High Court erred in including the .II
following items in the cost of construction :

{a) Cost of air-condition machinery amounting to Rs. 5,91,767.50.
•
{b) Cost of false ceiling amounting to Rs. 7,80,289.
G
(c) Cost of wooden partitions dividing the floor spaces amounting to
Rs. 3,45,032.10.

(d) Cost of mural figure on the outside wall amounting to Rs. 15,000.

H (e) Amount of ground rent for 4 years and 4 months @Rs. 59,000
HINPUSfAN LBVERL1D. v. MUNIOPAL CORPORATION OF GREATER BOMBAY [HANSARIA, J.] 811

per year - the total of which comes to Rs. 1,94,065.60. A
(f) A sum of Rs. 1,61,721.28 being the interest on Rs. 2,98,562.50
which the appellant had deposited with the Corporation while undertaking
.. the construction of the building.

(g) A sum of Rs. 14,38,589.83 representing interest @6-1/2 % on Rs. B
82,99 ,557 .07 which was the total cost of construction.

4. We would express our views on the aforesaid objections as listed:

Items (a) and (b)
c
Both these items have been taken together as they relate to air-
conditioning of the building. The type of air-conditioning device put up has
been well explained in the impugned judgment at pages 54 and 55 of the
paper book. It is embedded and mounted on a concrete foundation and
the building has been so designed as to have the whole of it centrally D
air-conditioned. For this purpose, a provision was made for concrete
cooling towers on the terrace and steel pipes have been laid to ensure the
circulation of the cooling water from the tower to the ground floor and
then back to the tower. To ensure this, false ceiling on each floor was
required which costed Rs. 7,80,289 in all, which is more than the cost of E
the machinery which was Rs. 5,91,767.50.

5. The aforesaid leaves no mauner of doubt that the air-conditioning
machinery had been installed for the purpose of better enjoyment of the
building itself increasing its utility. Relying on this factor as well as on the
type of air-conditioning done in the building, it is contended by Shri F
Narirnan, appearing for the Corporation, that the case is not covered by
section 154(2) ;f the Act, as per which the valne of any machinery con-
tained in or situate upon any building is not to be included in the rateable
value. According to learned counsel, this provision of the Act which alone
has been pressed into service by the appellant to get excluiled the valuation
of items (a) and (b), takes care of that machinery only which has its G
separate existence and about which it caunot be ,said that it is embedded
to the building to become its integral part. It is also urged that the type of
apparatus and contrivance used in air-conditioning the building, has made
the device more a plant than a machinery; and what has been exempted by
the aforesaid provision is a machinery and not a plant. H
812 SUPREME COURT REPORTS [1995) 3 S.C.R.

A 6. Shri Nariman has strenuously urged that when a chattel becomes
a part of hereditament, the value of the same has to be included in fixing
rateable value of a building, as was opined in London County Council v.
Wilkins (Valuation Officer), [1955) 2 All E.L.R. 180, which view of the
Court of Appeal was upheld by the House of Lords in London County
B Council v. Wilkins, [1956) 3 All E.L.R. 38, which decision was subsequently
relied upon by the Court of Appeal in Field Place Caravan Park Ltd. v.
Harding (Valuation Officer), [1966] 3 All E.L.R. 247 and Dick Hampton
(Earth Moving) Ltd. v. Lewis (Valuation Officer), [1975] 3 All E.L.R. 946.
The learned counsel then draws our attention to some of the decisions of
the High Courts of the country where movable properties like Kolhu,
C powerloom and furniture were held to have become part of "land", as
defined in section 3 of the Transfer of Property Act. (The definition of
"land" in the Act is similar). These decisions are Musai Kurmi v. Sub Karan
Kurmi, AIR (1914) Allahabad 176 2,lndustrial Weavers Co-operative Society
Ltd. v. Collector, Hardoi, I.L.R. (1976) 2 Allahabad 161, Poona Municipal
D Corporation v. Shankar Ramkrishna Jabade, (1957) Bombay Law Reporter
25 and Haji Dawood v. Municipal Commissioner, Pune, AIR (1922) Bom-
bay 386.

7. In Poona Municipal Corporation's case, the Bombay High Court
had examined the question with reference to the Act at hand and so what
E was opined therein i.< more material for our purpose. The Bench speaking
through Chagla, CJ., opined that to decide whether fixture like furniture
has become part of the building two tests are required to be applied. These
are : (1) nature and extent or degree of annexation of the property; and
(2) object, intention or purpose of the annexation. On the first question
F what has to be considered is how permanent is the annexation and qua the
second test the question to be examined is whether the furniture is for the
permanent enjoyment of itself or permanent enjoyment of that to which it
is attached. Haji Dawood's case, the Bombay High Court was called upon
to decide as to whether the cost incurred in electric fittings would be
excluded from the rateable value in view of what has been provided in
G section 154 (2) of the Act. The Bench, in the short judgment, felt that when
electric fittings become part of the premises and as such necessary for the
+
user of the premises deduction cannot be claimed under section 154(2). A
perusal of the judgment shows that this view was taken as a matter of first
impression, after stating that the Bench had not been referred to any
H authority under which it is said that electric fittings in residence come
' j
'

HINDUSTAN LEVERL1D. v. MUNIOPALCORPORATION OF GRE.A.1ER BOMBAY [HANSARIA,J.] 813

~
within the term "machinery". This decision is, therefore, not really relevant. A
Shri Nariman referred to the same, nonetheless, because, according to him,
that is the only decision of the Bombay High Court known to him dealing
with the scope of section 154(2).

8. Relying on Chagla CJ's judgment in Poona Municipal
Corporation's case, and the aforesaid English decisions, Shri Nariman B
submits that as the air-conditioner machinery in the present case had been
~ embedded in the building and became its integral part, the same must be
-ot deemed to become a part of the building, the value of the same has to be
included in fixing rateable value of the building. To put it differently, the
submission is that the machinery which is exempted by section 154 (2) is c
one which has its separate existence, which submission has been advanced
because of the use of the expression "contained in" or "situate upon" in the
sub-section. We cannot accept this contention, because in that case this
provision would be rendered otiose, as rightly urged by Shri Ganesh,
inasmuch as a type of the machinery which Shri Nariman has in mind
D
keynote in any case form part of rateable value. When the legislature
sought to exclude the value of machinery of -the type mentioned in sub-
section (2) from forming a part of rateable value, some meaning has to be
ascribed to the provision, otherwise the intention of the legislature would
get frustrated We, therefore, state that the fact that a machinery gets
embedded to a building or becomes an integral part of it has no relevance E
while deciding the question of applicability of the exemption provision.

9. Shri Nariman has not left the matter at that. He has further argued
~ that the contrivance at hand had ceased to be machinery, and become
plant; and so, sub-section (2) would not apply in any case. That 'plant' is F
different from machinery is sought to be brought home to us by referring
to the decision of this Court rendered in Commissioner of Income Tax,
Madras v. Mir Mohd. Al~ (1964] 7 SCR 846. A perusal of that judgment
shows that the assessee claimed depreciation allowance for new diesel
engines costing Rs. 18, 544 which had been purchased to replace the petrol
engines in two of his buses. The allowance was claimed under the second G
.).
para of clause (vi) and clause (vi a) of section 10(2) of the Income Tax
Ac~ 1922, apart from normal depreciation allowance under the first para
of clause (vi). The assessee was granted depreciation only under the first
para of clause (vi) and not under other provisions because it was held that
the engine was -0nly part of an equipment and could not by itself become H
'r

814 SUPREME COURT REPORTS [1995] 3S.C.R.

A machinery. On appeal to this Court, the majority, however, held that the
assessee was entitled to extra depreciation allowance as well, because the
definition of machinery given by the Privy Council in the case of Corpora-
tion of Calcutta v. Chairman, Cossipore and Chitpore Municipality, 48 IA.
435 was applicable and satisfied. Shri Nariman has drawn our attention to
B that part of the majority judgment in which it was held that as the diesel
engine had not been installed in any vehicle they could not be regarded as
plant. It is contended that in the case at hand, however, the machines had
been embedded in the building and as such ceased to be machines and
became plant; and the cost of such a machinery would not get excluded on
the language of section 154(2).
c 10. Learned counsel for the appellant, however, submits that the ratio
of the aforesaid case has no application because a perusal of the relevant
section of the Income Tax Act shows that it had used two expressions,
namely, machinery and plant and it is because of this that the Court treated
the two differently. According to us, this dichotomy may not be applied to
D section 154(2), as it could not have been intended by the legislature that,
say, only unembedded air-conrtitioners used for cooling a building would
get the exemption, but not if the apparatus gets embedded and a central
air-conditioning is prmided in the building. In any case, as we are con-
cerned with a taxing provision, an interpretation beneficial to the assessee,
E in case two interpretations be reasonably possible, has to be given. This is
a well settled position in law.

11. We, therefore, hold that the High Court erred in law in not
excluding the cost incurred by the appellant in items (a) and (b). We
would, therefore, order for the exclusion of the same.
F
Item (c)

12. The wooden partitions in question do not apparently attract the
provision of section 154 (2) of the Act. They having been used to divide
each of the floors into parts and even ceiling columns having been designed
G with such partition in mind, we entertain no doubt that the value of these
partitions did constitute and were rightly regarded as, part of construction +
cost. The fact that the partitions are fJXed on sockets and are easily
removable do not make any difference, as the building was from the
inception conceived as an office building and it being spacious, division in
H separate blocks and cabins was conceived from the beginning for which
' l

HINDUSTAN LE\m_.RLTD. v. MUNICJP AL CORPORATION OF GREATER BOMBAY [HAN5ARIA.J.] 815

purpose the partitions were used. We, therefore, hold that the value of A
w~oden partitions was rightly included in calculating rateable value .
•
Item (d)

13. Learned counsel for the appellant does not press for the exclusion
of the cost of mural figure. B
Item (e)

14. In so far as the ground rent is concerned, the contention of Shri
Ganesh is that as the property tax under the Act is imposed both on and
and building, to include the ground rent, which the appellant was paying, C
would be double tax option. The land in question, however, being Govern-
ment land, Shri Nariman refers us to section 146(1) of the Act, according
to which if the premises be of the Government, the property tax is realised
from the actual occupier. Therefore, on facts of this case, we find no
infirmity in the inclusion of the amount of ground rent in determining the D
rateable value, as the proviso to the sub-section has no application. It is
apparent that the appellant would not be asked to pay the tax on the land
over again.

Items (f) and (g)
E
.15. There is no dispute on facts that the all amounts of interest
covered by these items represent notional interest inasmuch as the appel-
lant had in fact not paid interest. This being the position, it is strenuously
urged by the learned counsel for the appellant that notional interest carmot
in any case form part of cost of fixed assets. That was the decision of this
Court in Challapalli Sugar Ltd. v. C.I. T., (98) !TR 167. It is brought to our F
notice that the view of the institute of Chartered Accountants, which was
also noted in the aforesaid decision, is still the same, as would appear from
what has been stated· in the recent circular of the Institute under the
heading 'Financial Expenses', a xerox copy·of which is made available to
us by the learned counsel. G
16. In rebutting the aforesaid contention, Shri Nariman urges that in
case a builder actually pays interest, he would definitely regard that as a
cost of construction and charge rent from the tenant accordingly. If that
be so, the counsel contends, loss of interest which accrues on investment
of one's own capital in construction of a building has also to be regarded H
816 SUPREME COURT REPORTS (1995) 3 S.C.R.

A as a cost, which the builder would like to realise from a future tenant. As
per the submission of the learned counsel, there can be no distinction /.
between actual interest paid and accrual notional interest.

17. We are unable to concede this submission. According to us, no
tenant would be prepared to pay to a landlord, who makes construction
B from his own fund, but would like to charge higher rent on the ground that
if he would have invested the amount elsewhere he would have earned
interest. As the landlord would be earning rent on the investment made by
him in the construction of the building, we are of the view that it would
~-
...
not be acceptable to a tenant to pay higher rent on the ground of loss of
C interest.

18. We are, therefore, of the view that the inclusion of items (t) and
(g) as cost of construction was not permissible.

CONCLUSION

D 19. The appeal is, therefore, allowed by ordering for exclusion of the
cost incurred under items (a), (b), (t) and (g). The rateable value would
be fixed accordingly. In the facts and circumstances of the case we make
no order as to costs.

T.NA. Appeal allowed.

+