The above batch of second appeals raises an important question of law regarding the method of assessment of buildings owned by the plaintiff in each of the cases within the Municipal limits of the defendant Municipality under S. 82 of the Madras District Municipalities Act, 1920. The pleadings in each of the suits out of which the above batch of second appeals has arisen are of the same pattern and by way of sample, I shall set out the pleadings in S.A No. 1103 of 1970.

2. The plaintiff is a public limited company owning the mill premises in D. Nos. 1125 to 1127 in assessment No. 7936. These buildings belong to a class of buildings which can ordinarily be let out. It was assessed by Uppilipalayam Panchayat Board to property tax of Rs. 10,700 under which assessment the Ginning factory was also included. Now the ginning factory has been separately assessed. The defendant Council was constituted as a Municipality from 1st April 1965 with the areas comprised in Singanallur Panchayat Union by a Notification, dated 4th March 1965 published in the Fort St. George Gazette, Madras. By another Notification of even date it was provided that the Council would consist of 32 councillors. On and from 1st April 1965 a Special Officer was appointed to discharge the functions of the Council, Chairman and the Executive authority. The Council has not been formed and the Special Officer has been functioning as such. The respondent levied property tax from the plaintiff from 1st June 1965 on the premises owned by him. The tax levied included education and library case. The Special Officer for the purpose of levy of property tax assessed the mill premises on a capital value of Rs. 34,49,164, and sought to levy a property tax of Rs. 23,361—22 rot the half year. The plaintiff's case is that the levy of property tax is illegal and arbitrary, that the levy should have; been only on the basis of the annual letting value and not on a percentage of the estimated costs of the land and the estimated present cost of erecting the building after the usual deductions, that the notice of demand for three half years was served on the plaintiff on 29th September 1966, that the assessment made retrospectively is illegal and that there were no notifications authorising the levy of library and education case. The suit was laid for a declaration that the assessment and levy of tax for the three half years demanding from 1st April 1965 is illegal and for issue of a permanent Injunction restraining the demand from taking any action in furtherance of notices of demand issued for the purpose.

3. The Special Offiber filed a written statement contending that it is open to him to adopt either the capital value or the rental value basis for fixing the assessment, that the Education tax as well as the library case were validly levied and that the suit itself was barred under S. 354 of the Madras District Municipalities Act.

4. The District Munsif, Coimbatore, dismissed the suit holding that the method of assessment of tax adopted by the defendant was proper, that there was no bar for the civil court to interfere with the assessment made by the defendant-Munipality and that the assessment of tax was legal.

5. The plaintiff filed A.S 162 of 1968 to the court of the District Judge, Coimbatore and the learned Judge dismissed the appeal. The present second appeal has been filed against the said judgment.

6. The contention raised on behalf of the appellant in each of the appeals is that the properties in question do not fall under the category of buildings not ordinarily let, that they are buildings which can be let out and that the annual value of the lands and buildings should have been determined under the main part of Sub-S. (2) of S. 82 of the Madras District Municipalities Act, 1920, and that the proviso to the said Sub-Section is inapplicable. In other words, the contention is that the annual value of the lands and the buildings of the appellants should be determined on the basis of the gross annual rental at which they may reasonably be expected to let from month to month less a deduction for repairs, and not on the basis of a percentage of the estimated value of the land and the estimated present cost of erecting the building less the depreciation. At this stage, it is necessary to set out the relevant provisions of the Madras District Municipalities Act, 1920. S. 81 deals with levy of tax on all buildings and lands within municipal limits except those exempted by or under this Act or any other law in pursuance of a resolution of the council determining that a property tax shall be lievied. S. 81; of the Act enumerates various components falling under the head ‘property tax’. Sub-S. (2) of S. 81 of the Act states that the taxes mentioned in S. 81(1) shall be levied at such percentages of the annual value of buildings, or lands which are occupied by or adjacent and appurtenant to buildings or both, as may be fixed by the municipal council. We are not concerned with the other Sub-clauses of S. 81 of the Act. S. 82 runs as follows:

“S. 82(1). Every building shall be assessed to gether with its site and other adjacent premises occupied as an appurtenance there to unless the owner of the building is a different person from the owner of such site or premises.

(2) The annual value of lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year (less a deduction in the case of buildings of ten percent, of that portion of such annual rent which is attributable to the buildings alone, apart from their sites and adjacent lands occupied as an appurtenance there to; and the said deduction shall be in lieu of all allowance for repairs or on any other account whatever;

Provided that—

(a) in the case of

(i) any Government or railway building or (ii) any building of a class not ordinarily let, the gross annual rent of which cannot, in the opinion of the executive authority be estimated; the annual value of the premises shall be deemed to be six percent of the total of the estimated value of the land and the estimated present cost of erecting the building after deducting for depreciation a reasonable amount which shall in no case be less than ten percentum of such cost; and

(b) machinery (and furniture) shall be excluded from valuations under this section.

(3) The (State) Government shall have power to make rules regarding the manner in which, the persons by Whom and the intervals at which, the value of the land, the present cost of erecting the building and the amount to be deducted for depreciation, shall be estimated or revised in any case, or class of cases to which Cl. (a) of the proviso to Sub-S. (2) applies, and they may, by such rules, restrict or modify the application of the provisions contained in Sch. IV to such cases or class of cases”.

7. We are here concerned in the above second appeals with buildings owned by the various private limited companies, who are the appellants. What the respondent Municipal Council has done is to arrive at the annual value of the premises at 6 per cent of the estimated value of the land and the estimated present cost of erecting the building after deducting the depreciation straightaway without making any attempt to arrive at the annual value on the gross annual rental at which they may reasonably be expected to let from month to month or from year to year. The question for consideration is whether the Municipal Council is justified in determining the annual value of the premises in the manner they have done. The contention of the learned counsel for the appellant in each of the appeals is that the Municipal Council ought to arrive at the annual value of the lands and buildings on the basis of the annual rental which a hypothetical tenant of the premises in question may pay as rent if let out on hypothetical-tenant-basis, and that the adoption of a percentage of the estimated cost of the land and the building known in the law of Rating as the contractor's method should have been resorted to only as a last resort and only when the hypothetical-tenant-basis for arriving at the annual value of the lands and buildings is not available. There is considerable force in the contention of the learned counsel. The language of S. 82(2) of the Act lends support to this contention. The normal method of arriving at the annual value of the lands and buildings is provided under the main part of S. 82 (2) of the Act. There is a proviso to that Sub-Section and the proviso takes in (a) Government or Railway building; (b) any building of a class not ordinarily let, the gross annual rent of which cannot in the opinion of the executive authority, be estimated and the annual value of the premises covered by the proviso is deemed to be six percent of the estimated value of the land and the estimated cost of the building less depreciation. We are concerned in the present case not with Government or railway buildings. The only question for consideration will be whether the buildings held by the appellants in each of the appeals fall under a class not ordinarily let, the gross annual rental of which cannot be estimated. It is only in such cases that the contractor's method of arriving at the annual value of the premises shall be resorted to The contention of the learned counsel for the appellants is that their buildings can be ordinarily let out and therefore the executive authority of the respondent should have arrived at their annual value on the hypothetical-tenant-basis and only in cases when in the opinion of the executive authority it is impossible to estimate the gross annual rental value the resort to contractor's method should have been made. The language of the proviso that it applies to buildings which are not ordinarily let, itself shows that it is imperative to determine whether the buildings in question fall under the class ‘buildings which can be let out’ before the proviso is relied upon.

8. All Municipal Corporations in India are empowered to levy taxes on all buildings and lands within their local limits subject to certain specific exemptions. The owners are made primarily liable by some municipalities while in others both the owners and the occupiers are made liable. Taxes which they can levy form a fixed percentage on the rateable or annual value of all the said buildings and lands. The percentage varies with the different municipalities and the mode of ascertaining the rateable or annual value also varies. All the Acts prescribes the mode of valuation. The annual value of lands and buildings is the gross annual rent at which the land or building might reasonably be expected to yield from month to month or from year is to year. The annual value is taken as the annual letting value of the premises. There are various methods of arriving at the annual value. Where the building or land is actually let, the rent reserved would generally represent the annual value, but the annual rent may not in many cases represent the real annual value. It is not the amount which the landlord ultimately received, that is the test. Another mode at which the value is ascertained is by estimating the rateable value by putting some percentage on the capital value of land and building. A third method is by taking into account the profits of the trade done upon the premises.

9. I shall refer to few of the cases construing S. 82 of the Madras District Municipalities Act, 1920 and similar provisions enacted in other States. Before I take up the case, I shall refer to few passages from Halsbury's Laws of England, relating to Rating in England In Halsbury's Laws of England, 2nd Edn. Vol. 32. page 79, para 109, it is stated that where neither actual rents nor the profits of trade are available as evidence for the estimation of rental value, a percentage of the capital value of the hereditament is in some cases taken as evidence, although not necessarily conclusive for that purpose. When such a course is taken, the capital value is the value for which a hereditament as effective for the same purpose as the one to be valued could be erected on the site, and not the actual cost, nor the depreciated selling value, of the particular hereditament in question. Hyde on Rating 12th Edn. (1968) page 453, Chapter 24, deals with valuation by reference to rates, it is stated as follows:— “The assessment of such hereditaments as dwelling houses, shops, offices and certain kinds of industry, is usually derived from actual rents. Attempts to value dwelling houses for rating by reference to their capital values or cost of construction have been expressly rejected. The actual occupier must be regarded as a possible hypothetical tenant, but the rent which the occupier actually pays is not necessarily the measure of the net annual value”.

10. Chapter 25 deals with valuation by reference to comparable assessments. Ch. 26 deals with valuation by reference to cost or capital value. At page 472, the following passage occurs—

“Where property is of a kind that is rarely let from year to year, recourse is sometimes had to interest on capital value, or on the actual cost, of land and buildings, as a guide to the ascortainment of the annual value. The measure of net annual value is defined by statute as the rent which might reasonably be expected; interest on cost, or on capital value, cannot be substituted for the statutory measure, but in the absence of the best evidence that is, actual rents, it can be looked as prima facie evidence in order to answer the question of fact what rent a tenant may reasonably be expected to pay”.

Ch. 27 deals with the profits basis, although there is no statutory authority for using the profits basis. Further profits are not rateable. This basis was developed by valuers for the assessment of what are to-day called public utility undertakings.

11. The learned Government Pleader appearing for the Municipal Council, contended very widely that it is open to the authorities to adopt any basis for arriving at the annual value and that the contractor's method adopted by the Municipal Council in valuing the appellants' property is justified. The learned counsel placed considerable reliance upon the judgment of the Privy Council in Madras and Southern Mahratta Ry Co. Ltd. v. Bezwada Municipality(1). The facts in the above case were that the Madras and Southern Mahratta Railway Co. Ltd., owned certain vacant lands within the Municipality of Bezwada and the Municipality in arriving at the annual value of the said lands adopted the contractor's method. The contention of the railway company was that the contractor's method is applicable only to properties referred to in the proviso to Sub-Cl. (2) of S. 82, viz., to any Government or railway building or any building of a class not ordinarily let and that the lands belonging to the railway company falls under the main Sub-Cl. (2) to which the contractor's method was inapplicable. The contention on behalf of the Municipal Council was that the proviso does not impliedly prohibit resort to contractor's method in every case not covered by the proviso. Lord Macmillan in delivering the judgment on behalf of the Board observed as follows—

“Their Lordships cannot accept the appellant's argument which in their opinion involves a misinterpretation of the effect of the proviso. The proviso does not say that the method of arriving at the annual value by taking a percentage of capital value is to be utilised only in the case of the classes of buildings to which the proviso applies. It leaves the generality of the substantive enactment in the sub Section unqualified except in so far as it concerns the particular subjects to which the proviso relates. The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment so as to exclude from it by implication what clearly falls within its express terms.

It follows that in their Lordships' opinion the respondents were not precluded from adopting a percentage of the capital value of the appellants' lands as a method of ascertaining their annual value for the purpose of the imposition of property tax merely by reason of the fact that this method is specifically enjoined in the particular instances mentioned in the proviso and that their lands are not included in those instances'.

12. The above decision is not an authority for the position that the Executive authority can adopt either the hypothetical-tenant-basis or the contractor's basis at its choice. What the Privy Council stated was that the contractors^ method is not confined to the cases falling under the proviso and that it can apply to the lands and buildings which may fall under the main sub Cl. (2) of S. 82 of the Act. It was not contended before the Privy Council that the hypothetical tenant basis should firstly be resorted to and only when it is impossible to apply that basis the resort to contractor's method should be made.

(3) In the General Committee, Madras Cluh by the President, William James Threlfall v. City Municipal Council of Madras,(2) where the corresponding provision to S. 100(2) and proviso to the Madras City Municipal Act, 1919, came up for consideration. Dealing with the method of arriving at the annual value of the then Madras Club, Rajamannar G.J and Venkatarama Ayyar J. held “that the building in question;cannot be held to be a building of a class not ordinarily let. It it not sufficient that a building has actually not been let to bring it within this category. So many buildings in which the owners reside art not ordinarily let nor even ordinarily intended to be let. But they certainly do not belong to the category of buildings of a class not ordinarily let. The buildings which are contemplated as belonging to that class art buildings like temples, memorial buildings, etc. There is also the further fact that in this case there is no evidence of an expression of the opinion of the Commissioner that the gross annual rent of the building cannot be estimated. We hold agreeing with the Chief Judge that the building in question, is not a building which falls within the proviso. It follows that the anaual value of the premises should be fixed according to the method provided in S. 100(2)”

14. In Addison Paints v. Commissioner, Corporation Of Madras,(3) the question which arose therein was whether the annual value of the building belonging to Messrs Addison Paints and Chemicals (P) Ltd., Madras, who were carrying on their industry in paints and chemicals at No. 37-A19 and 37.A20 on the Madhavaram High Road, Madras, should be under the main part of S. 110, sub Cl. (2) of the City Municipal Act or whether the contractor's method could be adopted for arriving at its annual value. Ramachandra Iyer, C.J and Ramakrishnan, J. applied General Committee, Madras Club by its President, William James Threlfall v. City Municipal Council of Madras and held that the buildings belonging to the company fall under the main part of the Section and that the proviso is inapplicable.

15. In Patel Gordhandas Hargovindas and others v. Municipal Commissioner, Ahmedabad,(4) the Supreme Court held that R. 350 A framed by the Municipal Corporation of Ahmedabad for rating open lands read with R. 243 is ultra vies Ss. 23 and 75 of the Bombay Municipal Boroughs Act, 18 of 1925. Wanchoo, J. who delivered the judgment on behalf of the majority traced the history of the Rating Law in England and the history of the use of the word ‘Rate’ for the purpose of local taxation in England and its adoption in the Bombay enactment. The learned Judge held that the legislative history and practice shows that the word ‘Rate’ whenever used up to 1925 with reference to local taxation meant a tax on the annual value of lands and buildings and not a tax on the capital value. Dealing with R. 350 A levying a percentage on the capital value the learned Judge held that the tax in the present case levied directly as a percentage of the capital value and, therefore, ultra vires the Act.

16. The result, therefore, is that on a proper construction of S. 82, sub-Cl. (2) of the Act the Executive authority will first have to determine whether any of the appellats' buildings belong to a class of buildings not ordinarily let in the light of the observations contained in the General Committee, General Committee, Madras Club v. City Municipal Council, Madras. It may be seen that in liquidation proceedings of companies like that of the plaintiffs arising under the Companies Act, 1956, leases to run such companies to safeguard the interests of creditors have frequently been ordered by courts. The assumption that such buildings fall under the category of buildings not ordinarily let is erroneous. Further, the plaintiffs, buildings' do not fall under the category of buildings not ordinarily let like temples, memorial, buildings etc. The executive authority must, therefore, ascertain the annual value of the lands and buildings belonging to the plaintiffs in each of the cases on the basis provided under the main part of Sub-Cl. (2) and not adopt the contractor's method. The executive authority of the defendant-Municipality acted erroneously in assuming that it was in his discretion to adopt any of the methods available to them.”

17. The second appeals are, therefore, allowed. The appellants in each of the cases will be entitled to their costs. No leave.

V.C.S