Holding

The market value of leasehold land, after appropriate discount for lease restrictions, must be taken into account for fixing the annual value under s.3(1)(c) of the Punjab Municipal Act.

Summary

The New Delhi Municipal Committee appealed against a Delhi High Court decision that excluded the market value of leasehold land from the calculation of annual value for house tax under the Punjab Municipal Act. The respondents, including the Gymkhana Club, argued that their leasehold interest, subject to restrictive covenants, could not have a market value. The Supreme Court held that even leasehold land possesses a market value, which must be determined by considering the conditions of the lease and discounting for any restrictions. Accordingly, the market value of the site and land must be taken into account under section 3(1)(c) of the Punjab Municipal Act when fixing annual value. The Court allowed the appeal, setting aside the High Court judgment.

Issues considered

Whether the market value of leasehold land should be considered in determining the annual value of a building for house tax under the Punjab Municipal Act, s.3(1)(c).
How the market value of leasehold land subject to restrictive covenants is to be ascertained.
Whether lease restrictions preclude the existence of a market value for leasehold land.

Legislation cited

Subjects

house taxannual valuemarket valueleasehold landvaluationPunjab Municipal Actlease restrictions

Judgment

..... NEW DELHI MUNICIPAL COMMITTEE A
v.
M/S. GYMKHANA CLUB LTD. AND ORS.

APRIL 8, 1994

[B.P. JEEVAN REDDY AND BL HANSARIA, JJ.] B

Municipalities : Punjab Municipal Act-Provisions applied to New
t
Delhi Municipal Committee-S.3(1)(c)-House tax-Annual Value-Es-
timated market value of the site and land attached to the house or build-
ing-Whether to be taken into consideration while determining Annual c
Value-Held : Yes.·

In this appeal against the Delhi High Court's judgment, the appel-
Ian! Committee raised the question as to the inclusion of the value of land
in determining the annual value of the buildings for the purpose of
assessing house tax. D
'·
Some of the respondents contended that they have only leasehold

.!- interest in the land; that the land cannot be transferred without sanction in
writing of the authority and the use of the land has also been restricted by
some covenants and therefore there cannot be any market value for such
~ E
land.

Allowing the appeal, this Court

HELD : 1.1. Even a land taken on lease can have market value; what
would be market value would, of course, be determined by the 'conditions F
governing the grant oflease; and after taking into account the limitation or
~
} restriction placed on the lease as incorporated in the lease deed, the market
value would be reduced or discounted appropriately. Before adverting to
the conditions of grant of lease in the present cases, it may be pointed out
that though Balbir Singh's case [1985] 2 SCR 439 dealt with valuation of
land taken on sub-lease from cooperative house Building Society by its G
members, which Society had taken lease from the Government, what has
been stated about the market value of the sub-leased land would proprio
vigore apply to leased land and this aspect of that case does not make a
difference in principle insofar as the present cases are concerned regarding
determination of market value of leased land. [432-H; 433-A-C] H
429

__,---
430 SUPREME COURT REPORTS [1994] 3 S.C.R.

A 1.2. For fixing the annual value of the premises at hand, it is the
market value of the site and lane! attached to the house or building which
has to be taken note of. As to what would be the market value is, however,
a matter which has to be worked out by the concerned authority keeping
in view the restrictive clauses of each of the lease deeds, bearing in mind
what has been stated in this regard in Balbir Singh's case. The notional
B market value shall have to be discounted appropriately, as the restrictions
subject to which leases were granted, would undoubtedly depress the same.
[435-H, 436-A-B]
Balbir Singh v. Municipal Corporation Delhi, (1985] 2 SCR 439, relied
on.
c
Dewan Dau/at Rai Kapoor v. New Delhi Municipal Committee, [1980]
1 SCC 685 and Commissioner of Wealth Tax v. PN Sikand, (1977] 2 SCC
798; Halsbury's Laws of England, Fourth Edn., Vol. 39 Paras 97 and 98 and
R.E. Megarry's 'The Rent Act' p.119, referred to.
D CIVIL APPELLATE JURISDICTION : Civil appeal No. 2705 of
1982 etc. etc.

From the Judgment and Order dated 30.9.81 of the Delh High Court
in Court Writ Petition No. 528 & 529 of 1976.
E B. Sen and R.K. Maheshwari for the Appellants.
•

S.S. Chadha, H.K. Puri, S.K. Mehta, Vikramjeet Sen and Mukul
M udgal for the Respondents.

The Judgment of the Court was delivered by
F
HANSARIA, J, Leave granted. (
New Delhi Municipal Committee is the appellant in all the cases. It
has felt aggrieved at the judgmenl of the High Court of Delhi passed in
the writ petition filed by it which was taken up for hearing alongwith some
G other writ petitions filed, inter a/ia, by Delhi Gymkhana Club Limited, who
is the principal respondent in some of the appeals. The subject matter of
the writ petitions before the High Court related to the fixation of 'annual
value' for the purpose of determining house tax to be paid by the respon-
dent herein. The stand of the Municipal Committee before the High Court
H was that in fixing annual value under the provisions of section 3 of th~
>-·
N.D.M.C. v. GYMKHANA CLUB [HANSARIA,J.] 431

Punjab Municipal Act, the provisions of which Act admittedly apply, the A
estimated market value of the site and land attached to the house or
building has also to be taken into consideration as required by clause (c)
of sub-section (1) of the aforesaid section. This contention has not been
accepted by the High Court, the result of which is that the annual value of
the buildings has come down considerably which has affected the ultimate
amount to be realised as house tax from the respondents.
B

t 2. The short point for consideration, therefore, is whether while
determining the annual value of the buildings, market value of the land has
also to be taken into consideration. According to the contesting respon-
dents, who are, apart from the aforesaid Gymkhana Club, Chelmsford Club c
and Young Mens' Christian Association (YMCA), market value cannot be
taken into consideration as they have only leasehold interest in the land
which has no market value. It has been contended on behalf of these
respondents by their respective counsel that all the lease deeds, to which
we shall advert a little later, show that the land is not transferable without
sanction in writing of the concerned authority and use of the land has also
D
been restricted by some terms of the covenants. The contention, therefore,
~
is that such a leasehold land cannot have market and so there cannot be
) any market value for such a land.

3. The aforesaid question is not res integra in asmuch as a three-judge E
Bench of this Court itself had examined this question in Balbir Singh v.
Municipal Corporation Delhi, [1985] 2 SCR 439. That case had however
dealt with many categories of properties situate in Union Territory of Delhi
and the question of law which this Court was called upon to decide was as
j how to determine their rateable value. One of the categories of the proper- F
ties, which was described as third category in that case, was the one where
. ..,
I the land on which premises had been constructed were leasehold land,
relating to which category discussion finds place at pages 468-473 of the
Report. Prior to noting as what was stated relating to such premises, it may
be pointed out that on earlier occasion in Dewan Dau/at Rai Kapoor v. New
Delhi Municipal Committee, [1980] 1 SCC 685, it had been held that annual G
value for the purpose of house tax would be governed by Rent Control Act
and must be limited by the measure of standard rent determinable under
that Act.
....
4. The question for determination in Balbir Singh's case was which H
432 SUPREME COURT REPORTS [1994] 3 S.C.R.

A provision of the Rent Act was relevant to determine the standard rent. The
relevant provisions of Rent Act were sections 6 and 9 which have been
quoted at pages 457-58 and 459-60 of the Report. The stand of the Delhi
Municipal Corporation then was that as the plot of land on which the
premises stood could not be transferred without the previous consent of
the Government, it had no market value; and so, standard rent of the
B premises could not be determined on the principles set out in sub-sections
(l)(A)(2)(b) or (l)(B) (2)(b) of section 6; and consequently the provision
in sub-section (4) of section 9 applied. This contention was not accepted -l;
by the Balbir Singh Bench by pointing out that despite the aforesaid
condition of the lease it did not necessarily mean that there could be no
C market price for the land. It was pointed out that there was no total
prohibition of sale, transfer of assignment, so that in no conceivable cir-
cumstance the land could be sold, transferred or assigned. It was held that
the aforesaid condition was in the nature of restriction on the sale, transfer
or assignment. There were some other conditions in the lease deed which
D had come for consideration in that case, to wit, the Government's entitle-
ment to claim 50% of the unearned increment in the value of plot of land
and Government's right to purchase the land. As to these factors it 'Y•S
stated that they would depress the market price.

5. On the question of as to how the market price of such a land has
E to be determined, the Bench observed that it should be first determined as
to what would be the Market price of the plot of land proceeding on the
hypothesis that prior consent of the Government has been given and the
land was available for sale, transfer of assignment; and on that footing to
ascertain what price it would fetch on sale, transfer or assignment. There-
after the limitations or burden attached to the leasehold interest would be
F
required to be taken into account in arriving at the market price of the plot
, of land. The market price would be discounted keeping in view the restric- l
tion or limitation imposed by the lease deed. '
6. In coming to the aforesaid conclusion the Bench referred to the
G decision in Commissioner of Wealth Tax v. PN Sikand, [1977] 2 SCC 798
which had dealt with valuation of leasehold interest for the purpose of
assessing wealth tax. In that case the aforesaid method had been adopted.

7. This shows that even a land taken on lease can have market value; ~
H what would be market value would, of course, be determined by the

_,1
N.D.M.C. v. GYMKHANA CLUB [HANS.A.RIA, J.] 433

conditions governing the granting of lease; and after taking into account A
I
the .limitation or restriction placed on the lease as incorporated in the lease
deed, the market. value would be reduced or discounted appropriately.
Before adverting to the conditions of grant of lease in the present cases, it
may be pointed out that though Balbir Singh's case dealt with valuation of
land taken on sub-lease from Cooperative House Building Society by its B
members, which Society had taken lease from the Government, what has
been stated about the market value of the sub-leased land would proprio
vigore apply to leased land and this aspect of that case does not make a
difference in principle insofar as the present cases are concerned regarding
determination of market value of leased land. We have mentioned about
this aspect because Shri Mehta appearing for Gymkhana Club faintly C
submitted that what was stated in Balbir Singh's case may not apply to the
cases at hand for the aforesaid reason.

8. Let us now come to the facts of the present case. At first, we may
note the definition of "annual value" as given in section 3 of the Punjab
Municipal Act, the relevant part of which reads as below : D
'
,.
t·
"3. In this Act, unless there is something repugnant in the subject
or context-

(1) !!Annual value 11 means- E
xxxx xxxx xxxx

(b) in the case of any house or building the gross annual rate at
which such house or building, together with its appurtenances,
and/any furniture that may be let for use of enjoyment therewith, F
may reasonable by expected to let from year to year subject to the
following dedu~tions.

(c) in the case of any house or building, the gross annual rent of
which cannot be determined under clause (b ), 5 per cent on the G
sum obtained by adding the estimated present cost of erecting the
building less such amount as the committee may deem reasonable
to be deducted on account of depreciation (if any) to the estimated
market value of the site and land attached to the house or building:

(The proviso is omitted being not relevant) H
434 SUPREME COURT REPORTS [1994] 3 S.C.R.

A 9. It is not in dispute that in the present cases, the annual value of
the property has to be calcu!ated under the provision of section 3(1)(c)
which speaks, inter alia, about "the estimated market value of the site and
land attached to the house or building". As to the covenants governing the
leases in the present cases the main restriction to which our attention has
B been drawn relates to'the non-permissibility of the transfer or assignment
"without the sanction of the lessor or the Chief Commissioner of Delhi in
writing", a law clause 2(11) of the Lease Deed (infra) granted to Gymkhana
Club. This was the very restriction which had come up for consideration
in Balbir Singh's case; and so, what has been stated in this regard in that
case has to be accepted on principle. Shri Sen appearing for the appellant,
C is fair in drawing our attention to certain other restrictions placed in the
lease, one of which is that the land would not be used or permitted to be
used for any purpose other than as a Club and purposes like holding of
banquets, concerts and dances and the lodging and boarding of members
resident in the premises. This is what finds place in clause 2(6) of the
D Perpetual Lease entered on the Twenty Eighth day of February, Nineteen
hundred and twenty eight between Secretary of State for India in Council
and the Imperial Delhi Gymhkana Club Limited. Sub-Clause (10) requires
the lessee to peaceably yield the demised premises and the Club building
to the lessor on determination of the lease. Clause 3 gives power of re-entry
to the Lessor or Chief Commissioner of Delhi on being satisfied that the
E demised premises have ceased to be used for the purpose of a Club. Clause
4 is pressed into service by the counsel for the respondents in contending
that market value of such a leasehold land cannot be taken into considera-
tion, because that clause has stated that in case the demised premises
would be required for public purpose, the lessor could re-enter the
F premises and the only liability fastened is to pay compensation to the
Lessee "which would not exceed the amount or the proportionate part, as
the case may be, of the premium paid before the execution of these
presents", together with the cost or the then value, whichever be less, of
the buildings erected on the resumed tand by the lessee in accordance with
the terms of the lease.
G
10. The terms of the lease in case of Chelmsford Club are also
similar. In case of YMCA, however, the lease conditions are different and
Shri Vikrarnjeet Sen appearing for this Association has drawn our attention
to sub-clause (10) of clause 2, which speaks that the Lessee will manage
H the Association to the satisfaction of the Lessor and at all reasonable time
N.D.M.C. v. GYMKHANA CLUB [HANSARIA,J.] 435

would grant access to the demised premises to such officers as the Lessor A
or the Chief Commissioner of Delhi may designate for the purpose of
inspecting the building. This condition is not relevant according to us, in
so far as the point under consideration is concerned.

11. Relying on the condition as incorporated in clause 4 of the B
Gymkhana Club Lease Deed, the submission of the learned counsel for the
respondents is that the leasehold should be valued by relating it only to
"-
' premium paid. We are unable to accept this contention, because clause 4
speaks about payment of proportionate part of premium in the case of
Lessor re-entering the premises on the same being required for public
purpose. This cannot be taken as the market value of the land, though C
under the general law of acquisition, market value is paid as compensation.
That however relates to freehold land; and in case of leasehold land, the
compensation payable to the lessee is relatable to the interest of lessee,
which is required to be determined as per the principles contained in the
concerned acquiring enactment. We would not be justified in departing D
from the principle laid down by the three-Judge Bench in Balbir Singh's
case because of what has been stated in clause 4.

12. A little foray in a foreign land may not be out of place. This
foreign land has to be United Kingdom, as our laws were tailored to the
laws of that country. The rateable value of the dwelling houses under the E
English Law is also determined by reference to the rent at which the
hereditament might reasonably he expected to let from year to year. For
this purpose various methods of valuation are applied to arrive at the
hypothetical rent in case of those buildings which have not actually been
let out. This was the provision in the Rent Act of 1968 and similar is the F
i position in the Rent Act 1977. To facilitate matters, Valuation Lists are
I
prepared by concerned Local Governments as per the provisions of Local
Government Act, 1948 read with Rating and Valuation Act_, 1959. But it is
the rent even in case of leasehold properties which determines the rateable
value and the annual value. (See Paras 97 and 98) of Hqlsbury's Law of
England, Fourth Edn., Vol. 39 and page 119 of R.E. Megarry's 'The Rent G
Act')

13. We would, therefore, conclude by saying that for fixing the annual
value of the premises at hand, it is the market value of the site and land
attached to the house or building which has to be .taken not of. As to what H
. 436 SUPREME COURT REPORTS [1994] 3 S.C.R

A would be the market value is, however, a matter which has to be worked
out by the concerned authority keeping in view the restrictive clauses of
each of the lease deeds, bearing in mind what has been stated in this
regard in Balbir Singh 's case. The notional market value shall have to be
discounted appropriately, as the restrictions subject to which leases were
granted, would undoubtedly depress the same.
B
14. The appeals are allowed accordingly by setting aside the im-
pugned judgments. In the facts and circumstances of the cases, we leave
the parties to bear their own costs.

G.N. Appeals allowed.