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Singanallur Municipality v. Vasantha Mills Ltd.
Factual and Procedural Background
Three mills (the plaintiffs in separate suits O.S. Nos. 1278 of 1968, 1402 of 1968 and 1192 of 1968) were assessed to property tax by the Singanallur Municipality through its Special Officer. The mills challenged the assessments as illegal and void on the ground that the assessments did not comply with the provisions of the Tamil Nadu District Municipalities Act, 1920. They sought declarations that the basis of taxation was illegal.
The Municipality defended the assessments on the basis of the proviso to S. 82(2) of the Act, asserting that the buildings were of a class not ordinarily let and that the gross annual rent could not, in the opinion of the Executive Authority, be estimated; accordingly the proviso formula (six percent of estimated land value plus estimated present cost less depreciation) was invoked.
At trial the suits were dismissed on the ground that the rating authority had wide discretion in choosing the method of determining annual rental value and that courts would not substitute their own view for that discretion. On appeal, the third Additional Subordinate Judge, Coimbatore, allowed the appeals, holding that the Municipality could not successfully contend that the buildings belonged to a class not ordinarily let and that the assessment on the basis of capital value did not comply with S. 82 in substance and effect.
The Municipality filed three second appeals. After initial consideration by Ismail, J., who considered the question required determination by a larger Bench, the matters were placed before this Full Bench for authoritative clarification because the question was of frequent occurrence and importance.
Legal Issues Presented
- How should the proviso to S. 82(2) of the Tamilnadu District Municipalities Act, 1920, be interpreted — specifically whether the proviso applies when (i) the building is of a class not ordinarily let, and (ii) the gross annual rent of such buildings cannot, in the opinion of the Executive Authority, be estimated?
- Whether the correct test for determining whether a building falls within the proviso is (A) whether the building "belongs to a class not ordinarily let" (a purpose-based class test) or (B) whether the building is "capable of being let" (a capability test)?
Arguments of the Parties
Mills (Plaintiffs)
- The assessments were not carried out in accordance with the provisions of the Tamil Nadu District Municipalities Act and were therefore illegal and void.
- Implicit in the lower appellate court's reasoning was the contention that the Municipality had failed to comply with the statutory method (S. 82) in substance and effect, and that assessing on the basis of capital value was not proper.
Singanallur Municipality
- The assessment was valid because the proviso to S. 82(2) applied: the buildings (mills) were of a class not ordinarily let, and the gross annual rent could not, in the opinion of the Executive Authority, be estimated, permitting use of the alternative formula prescribed by the proviso.
- Relied on the opinion and evidence of the Special Officer (D.W.1) that mills in that area were never let and no similar buildings were leased, so annual rental value could not be worked out except on the basis of capital value.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| General Committee, Madras Club v. City Municipal Council | Construction of proviso to S. 100(2) of the Madras City Municipal Act (in pari materia with S. 82(2)); held that mere fact that a building is not actually let is not sufficient to bring it within "a class not ordinarily let"; the class is determined by purpose (examples: temples, memorials). | The Full Bench accepted this decision as correctly laying down the law: the correct test is whether a building "belongs to a class not ordinarily let" judged by its purpose and use, and the examples given are illustrative, not exhaustive. |
| Addison Paints and Chemicals Ltd. v. Commissioner, Corporation of Madras (1954-1-M.L.J 671) | Applied a test whether the building is capable of being let (the Court of Small Causes' finding was criticized for focusing on capability). | The Full Bench held that the capability test is erroneous and does not reflect the correct position of law under S. 82(2); the Addison formulation misled subsequent decisions. |
| Rajalakshmi Mills Ltd. v. Singanallur Municipality (1962-2-M.L.J 440) | Applied a test whether the building is capable of being let (the learned single judge rejected class-not-ordinarily-let characterization for mills, reasoning mills could be leased in liquidation proceedings). | The Full Bench overruled this decision as erroneous, holding that its application of the capability test was mistaken. |
Court's Reasoning and Analysis
The court proceeded in two main strands: (A) statutory interpretation and application to the facts; and (B) reconciliation and correction of earlier authorities.
A. Statutory interpretation and application to facts
- The court set out S. 82(1) and S. 82(2) and the proviso in full as the statutory framework governing assessment methods.
- It identified two discrete requirements for the proviso to apply: (i) the building must be "of a class not ordinarily let" and (ii) the gross annual rent of such a class must be such that "in the opinion of the Executive Authority" it cannot be estimated. Both conditions must be satisfied before the alternative valuation formula in the proviso can be invoked.
- The court examined the evidence of the Special Officer (D.W.1). The officer stated (in direct evidence) that the mills were never let out, that in that area no mill was at any time leased out, no similar buildings were let out, and that it was not possible to work out annual rental value except on the basis of capital value. In cross-examination he denied that the mills were leasable at a small rent and acknowledged adjacent premises were of a different type.
- The court treated this testimony as explicit compliance with the language of the proviso — the officer expressed the relevant opinion of the Executive Authority that the buildings belong to a class not ordinarily let and that gross annual rent could not be estimated. The court saw no reason to reject that evidence.
- Applying the statutory test to these facts, the court found both requirements of the proviso satisfied and therefore concluded that the Municipality was entitled to apply the proviso-based method of valuation. On this factual application, the court allowed the second appeals in favour of the Municipality.
B. Treatment of prior decisions
- The court reviewed the decision in General Committee, Madras Club v. City Municipal Council: it adopted that decision's exposition that a building not actually let does not automatically fall within "a class not ordinarily let"; instead the classification depends on the purpose for which the building was erected and used. The General Committee's examples (temples, memorials) were held to be illustrative, not exhaustive.
- The court found that a later decision (Addison Paints and Chemicals Ltd. v. Commissioner, Corporation of Madras) had applied a different test — whether a building is capable of being let — and concluded that this capability test was erroneous and inconsistent with the statutory language of S. 82(2).
- The court observed that the erroneously formulated capability test had influenced the single-judge decision in Rajalakshmi Mills Ltd. v. Singanallur Municipality, which had held mills were capable of being let (citing liquidation-lease practice) and therefore not within the proviso. The Full Bench held that Rajalakshmi had been misled by the Addison approach and that Rajalakshmi was wrongly decided.
- Consequently, the court reaffirmed General Committee as the correct statement of law, declared Addison's capability test erroneous, and overruled Rajalakshmi.
Holding and Implications
Holding: The Full Bench allowed the three second appeals in favour of the Municipality. The court held that the proviso to S. 82(2) applies where (i) a building belongs to a class not ordinarily let (a class determined by purpose and use) and (ii) the gross annual rent of that class cannot, in the opinion of the Executive Authority, be estimated. The court accepted the Special Officer's evidence that both conditions were satisfied for the mills in question. There will be no order as to costs in the circumstances of the case.
Implications:
- The decision confirms that the correct statutory test for the proviso to S. 82(2) is whether a building "belongs to a class not ordinarily let" — a purpose-based classification — and not whether the building is merely "capable of being let." The court described the latter test as erroneous.
- The Full Bench expressly affirmed the General Committee, Madras Club decision as correctly laying down the law, declared the Addison Paints and Chemicals formulation (the capability test) to be erroneous, and overruled Rajalakshmi Mills Ltd. v. Singanallur Municipality insofar as it applied the capability test.
- Direct effect: the Municipality's assessment method invoking the proviso to S. 82(2) was lawful in these cases and the second appeals were allowed; the court did not impose costs. The opinion also serves to clarify and settle the legal approach to the proviso for future cases (the Bench noted the question was of frequent occurrence and required clarification).
The Chief Justice:
1. These three second appeals raise an important question of law concerning the interpretation of the proviso to S. 82(2) of the Tamilnadu District Municipalities Act, 1920. The plaintiffs in the three suits, who are Mills, were assessed to property tax by the Singanallur Municipality by its Special Officer. According to the Mils, the assessment of property tax was not in accordance with the provisions of the Tamil Nadu District Municipalities Act, and therefore, the assessment was illegal and void. They filed the suits, O.S Nos. 1278 of 1968, 1402 of 1968 and 1192 of 1968 praying for a declaration that the basis of the taxation was illegal as the provisions of the Act had not been complied with. The Municipality contended that tax was assessed according to the proviso to S. 82(2) of the Act as the buildings in question were of a class not ordinarily let, the gross annual rent of which could not, in the opinion of the Executive Authority, be estimated. The trial court dismissed the suits, holding that the rating authority was given wide discretion in choosing any of the methods of determining the annual rental value and that the court would not be entitled to question that discretion and give a finding of its own whether the building was capable of being let out or could be ordinarily let out. On appeal by the three mills, the third Additional Subordinate Judge, Coimbatore, allowed the appeals on the ground that the Municipality could not successfully contend that the buildings belonged to a class not ordinarily let. The lower appellate court observed that the provisions of S. 82 must be complied with by the Municipality in substance and in effect, that judged by that standard, the assessment made In the cases on the basis of the capital value was not proper, and that on that account the Municipality had failed to comply with the provisions of the Act.
2. Thereupon, the Municipality preferred the above three second appeals. In the first instance they came up before Ismail, J., who, after referring to the relevant decisions, found himself unable to agree with the view taken by a single Judge of this Court in Rajalakshmi Mills Ltd. v. Singanallur Municipality . 1973-2-M.L.J 136 and, as he was of the opinion that the question required to be considered by a larger Bench he directed the appeals to be posted before a Bench. They were accordingly placed before this Full Bench, as the question is of great importance and of frequent occurrence and the decisions on the point have to be clarified.
3. S. 82(1) of the Act deals with the method of assessment of the property. It runs as follows:
“Every building shall be assessed together with its site and other adjacent premises occupied as an appurtenance thereto unless the owner of the building is a different person from the owner of such site or premises.”
S. 82(2) states—
“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 the adjacent lands occupied as an appurtenance thereto, and the said deduction shall be in lieu of all allowance for repair 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 per cent of such cost”.
4. The point that arises for determination is whether the buildings in question belong to a class not ordinarily let the gross annual rent of which cannot in the opinion of the Executive Authority be estimated. Two requirements have to be fulfilled before the proviso can apply; (i) the building should, be of a class not ordinarily let, and (ii) the grabs annual rent of which cannot, in the opinion of the Executive Authority, be estimated. The buildings in question are mills in Coimbatore district. The evidence of the Special Officer examined as D.W 1, is as follows:—
“The Mills were never let out. In that area no mill was at any time leased out. No buildings in the premises are let out. No similar buildings are let out in that area. It was not possible to work out the annual rental value except on the basis of the capital value.”
In cross-examination he stated:
“There may be buildings ajacent to this leased out But they are not of similar type. It is not true to say that it can be leased out, and if leased out, it will fetch only Rs. 5,000 per month.”
This evidence of the Special Officer clearly complies with the requirements of the proviso to S. 82(2) of the Act, for he states that the buildings belong to a class not ordinarily let out, the gross annual rent of which cannot, in his opinion, be estimated. We see no reason for not accepting this evidence of the Special Officer that the buildings belong to a class not ordinarily let, the gross annual rent of which cannot, in opinion of the Executive Authority, be estimated. On the facts, themselves, we have to find in favour of the Municipality, and allow the second appeals.
5. We however, find it necessary to deal with the decisions which have been rendered by this court and the misunderstanding of those decisions by the lower appellate court. In the General Committee, Madras Club v. City Municipal Council a bench of this court had to construe the proviso to S. 100(2) of the Madras City Municipal Act which is In pari materia with the language of S. 82(2) with which we are now concerned. The question before the Bench was whether the building of the Madras Club would fall within the proviso to S. 100(2). The Chief Judge of the Court of Small Causes found that the building could be leased out both for residential and business purposes. It was not contended before him that the building could not be let out, if so desired. The Bench of this court observed—
“In our opinion, the building does not fall within the scope of sub-S.(2) of S. 100 and does not fall within the scope of proviso (a) (ii) to sub-S. (2).”
The Bench observed that the proviso laid down a particular method of valuation for any building of a class not ordinarily let, the gross annual rent of which cannot in the opinion of the Commissioner be estimated. In construing these words, the Bench observed—
“We are clearly of the opinion that the building in question cannot be held to he a building of a class not ordinarily let. It is not sufficient that a building has been not let to bring it within the category. So many buildings in which the owners reside are 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 are buildings like temples, memorial buildings, etc.”
With respect, we feel that the above observations correctly lay down the law. The question whether a building belongs to a class not ordinarily let out has to be decided with reference to the purpose for which it was put up and the purpose for which it is used. The two examples given by the Bench are illustrative, and not exhaustive. Buildings like temples and memorial buildings are buildings of a class not ordinarily let, but certainly they are capable of being let and the question whether they are capable of being let or not is irrelevant.
6. In purporting to follow the above decision, a later Bench of this court in Addision Paints and Chemicals v. Commissioner Corporation of Madras 1. 1954-1-M.L.J 671 stated as follows—
“In this case unfortunately the learned Chief Judge of the Court of Small Causes has based his conclusion on the short ground that the building is not actually let. He has not considered whether the building is capable of being let.”
This test, whether the building is capable of being let out or not, is erroneous and does not reflect the correct position of law as laid down in S. 82(2) of the Act. The observations of the Bench have misled a single Judge of the Court in Rajalakshmi Mills Ltd. v. Singanallur Municipality 2. 1962-2-M.L.J 440 at 442 to apply the test whether a building is capable of being let. The building in that case was also mills, and the learned Judge, after referring to the General Committee, Madras Club v. City Municipal Council 3. 1973-2-M.L.J 116 observed—
“It may be seen that in liquidation proceedings of companies like that of the plaintiffs (mills) 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”.
The learned Judge proceeded to construe the Bench decision as restricting ‘the class of buildings not ordinarily let’ to temples and memorial buildings. We are of the opinion that this decision has been erroneously rendered, as the test is not whether a building is capable of being let, but whether it belongs to a class not ordinarily let.
7. In the result we hold that the decision in the General Committee, Madras Club v. City Municipal Council, Madras has correctly laid down the law and that the test applied in Addison Paints and Chemicals Ltd. v. Commissioner, Corporation of Madras whether a building is capable of being let or not is erroneous. We also overrule the decision in Rajalakshm Mills Ltd. v. Singanallur Municipality.
8. The second appeals are allowed. But, in the circumstances of the case, there will be no order as to costs.
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