Pendse, J.:— Shri M.C Chagla, former Chief Justice of Bombay High Court, passed away on February 9, 1981 leaving behind a will dated January 5, 1978 appointing the petitioners — his two sons — as the executors of the said will. The deceased, at the time of his death, owned a flat being ‘C’ Block on the third floor of “Pallonji Mansion”, 43 Cuffe Parade, Bombay and was residing there along with petitioner No. 2 and his family members. The building in which the flat is situated was constructed in the year 1936 and the land on which the building is erected is Government lease-hold land, the lease being for a duration of 99 years commencing from February 12, 1935. Shri Chagla was in occupation of the flat as a tenant from the year 1961 till the year 1971 and the contractual rent paid was Rs. 270/- per month. In the year 1971, the tenants with the consent of the owners formed a housing co-operative society and the deceased who was one of the tenants joined the society and became the owner of the flat which was in his occupation. The deceased paid consideration of Rs. 31,500/- towards the purchase price of the flat and purchased five shares of the face value of Rs. 50/- each, of the society. The membership of the society was held by the deceased jointly with petitioner No. 2.

2. On July 11, 1973, the deceased filed his return of net wealth for the assessment year 1973-1974, the relevant valuation date being March 31, 1973. In the said return of wealth, the deceased showed the value of the flat at Rs. 54,700/- in accordance with the valuation report dated October 12, 1972 prepared by Shri Liloowalla. By assessment order dated September 26, 1973, the Wealth Tax Officer completed the assessment for the assessment year 1973-1974 accepting the value of the flat as stated by the deceased. The Wealth Tax Officer gave relief under s. 5(1)(iv) of the Wealth Tax Act in respect of the flat to the deceased. For the assessment years 1974-1975 to 1980-1981, same valuation was accepted by the Wealth Tax Officer and the relief was granted to the deceased under s. 5(1)(iv) of the Wealth Tax Act. On August 6, 1981, the petitioners as legal representatives and heirs and accountable persons within the meaning of Estate Duty Act, 1953 filed accounts of all the properties in accordance with the provisions of s. 55 of the Estate Duty Act. In the said accounts, the petitioners valued the flat at Rs. 1,09,000/- on the basis of the valuation report dated May 6, 1981 prepared by Shri Liloowalla. The Additional First Assistant Controller of Estate Duty — respondent No. 1 — referred the valuation of the flat to the Valuation Officer, Unit 1, Bombay — the 2nd respondent to the petition. By letter dated January 27, 1983, the respondent No. 2 called upon the petitioners to furnish the documents set out in the notice and in accordance with the direction, the petitioners furnished the requisite documents on February 12, 1983. The petitioners claimed that in view of the amendment of s. 36 by the Estate Duty (Amendment) Act, 1982, the flat should be valued in accordance with the amended, provisions of s. 36 of the Act. The petitioners claimed that the value of the flat should be determined at Rs. 15,500/- in accordance with the report dated January 19, 1983 prepared by Messrs Sykes Patkar & Divecha. The valuers arrived at the figure of Rs. 15,500/- in accordance with the provisions of r. 1BB of the Wealth Tax Rules. On June 3, 1983, the petitioners received a letter from respondent No. 2 communicating that the value of the flat was determined at Rs. 7,50,000/-. The value was determined on the basis of land and building method for arriving at the fair market value of the flat on the date of death of the deceased. The respondent No. 1 thereafter took up the assessment proceedings and the petitioners reiterated their claim that the value of the flat should be determined in accordance with r. 1BB of the Wealth Tax Rules or on principles analogus to the provisions of the said Rule. The respondent No. 1 passed the assessment order on August 26, 1983 and the accounts filed by the petitioners were accepted save and except in respect of two items of the estate left behind by the deceased. The main dispute was in respect of the value of the flat and the respondent No. 1 held that the claim of the petitioners cannot be accepted because sub-s. (3) of s. 36 of the Estate Duty Act has no application and is attracted only in pases where death occurs after March 1, 1981. The respondent No. 1 did not accept the valuation report tendered by the petitioners and held that it was defective as the market rate as on the date of death of the deceased was not taken into consideration. The other minor dispute before respondent No. 1 was in respect of the quantum of royalty to be received in respect of book— “ROSES IN DECEMBER” — written by late Shri Chagla. The dispute in respect of that item no longer survives and the present petition under art. 226 of the Constitution of India is filed on October 13, 1983 to challenge the legality of that part of the assessment order whereby the value of the flat was determined at Rs. 7,50,000/-. The petitioners also challenge the legality of the notice of demand issued by respondent No. 1 on September 19, 1983 calling upon the petitioners to pay additional estate duty of Rs. 3,92,820/-.

3. Shri Seervai, learned counsel appearing in support of the petition, submitted that the value of the flat shall be estimated to be the price, which it would fetch, if sold in the open market at the time of the deceased's death. The Controller, who is required to determine the value, says the learned counsel, must be guided by the provisions of the Wealth Tax Rules. Though sub-s. (3) of s. 36 of the Estate Duty Act was not on the statute book on the date of demise of Shri Chagla, it was urged that principles analogous to the provisions of r. 1BB of the Wealth Tax Rules are applicable and the value of the flat must be determined by adopting rental method of valuation. The learned counsel also submitted that sub-s. (3) of s. 36 of the Estate Duty Act, merely declares the correct principle of valuing property for the purpose of estate duty and thus its operation cannot be restricted only to those cases, where death has occurred after March 1, 1981, otherwise the date selected for giving retrospective effect to sub-s. (3) being purely arbitrary and without rational basis, would result into sub-s. (3) being violative of art. 14 of the Constitution of India. Shri Joshi, learned counsel appearing on behalf of the Revenue, on the other hand, urged with reference to return dated July 30, 1984 sworn by Shri P.L Davis, 1st Additional Assistant Controller, that the petitioners have alternate efficacious remedy of filing appeal under the Estate Duty Act and, therefore, the petition should not be entertained. Shri Joshi submitted that the petitioners have already preferred Estate Duty Appeal No. 147 of 1983-1984 and the same is pending. Shri Seervai countered the sub-mission by urging that constitutional validity of sub-section (3) cannot be determined by authorities under the Estate Duty Act and, in any event, the petitioners are withdrawing the appeal unconditionally. The preliminary objection, therefore, loses all its force and Shri Joshi, on merits, submitted that the value of the flat requires to be ascertained without any reference to r. 1BB of the Wealth Tax Rules. It was urged that value of the fiat is determined on hypothetical basis of price, which it would fetch, if sold in the open market and on assumption that flat is vacant at the time of sale. The land and building method of valuation adopted by respondent No. 2, says Shri Joshi, is the correct and the only method for ascertaining the value of the flat for the purpose of Estate Duty Act and the valuation made by the deceased and accepted by the authorities for the purpose of Wealth Tax should be totally ignored.

4. The flat was in occupation of the deceased as contractual tenant between the years 1961 and 1971 and the tenancy rights were protected by the provisions of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which, inter alia, provide that it shall not be lawful to claim or receive on account of rent any amount in excess of standard rent. The standard rent is the rent at which the premises were let on September 1, 1940 or the rent at which they were first let subsequent to that date. Section 18 of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 makes it an offence punishable with imprisonment, when any amount in excess of standard rent is received, in any form. The standard rent of the flat was Rs. 270/- per month and the rateable value was settled by the Municipal Corporation for the purpose of payment of municipal taxes by taking this amount as the basis. The rateable value is assessed by determining the value of the property and it is now well-settled that while determining the value, regard must be had to provisions of law which control the fixation of rent as well as those regulating the powers of the landlord to take possession from the tenant. The assessing authorities have to determine the value of the property by applying the principles laid down in the rent legislation for fixation of the standard rent or fair rent, irrespective of the fact, whether the property is in occupation of a tenant or self-occupied by the owner. The reference can be usefully made in this connection to the decisions of the Supreme Court in The Corporation of Calcutta v. Smt. Padma Debi and New Delhi Municipal Committee v. M.N Soi. It is, therefore, clear that value of every building in Bombay for the purpose of payment of municipal taxes, whether in occupation of the owner or in occupation of the tenant, can be determined only on the basis of letting value, hypothetical in the case of owner occupied, and such value can be ascertained with reference to standard rent.

5. In the year 1972, on constitution of housing co-operative society, the deceased became the purchaser of the flat and continued to remain in occupation along with petitioner No. 2 and his family members. Under charging s. 3 of the Wealth Tax Act, the deceased was required to pay tax on his wealth, which included the residential flat of which he became owner. Under s. 7 of the Wealth Tax Act, the officer is required to estimate the value of the flat which is the price it would fetch if sold in the open market on the date of valuation. The valuation of Rs. 54,700/- given by the deceased was accepted by the valuation officer in the year 1973. The provisions of s. 5(1)(iv) of the Wealth Tax Act provided that tax is not payable in respect of one house belonging to the assessee provided the value of such house does not exceed one hundred thousand Rupees and, therefore, the value of the flat was not included in the total assets. Sub-section (4) to s. 7 of the Wealth Tax Act was introduced by Finance Act, 1976 with effect from April 1, 1976 and in view of that the value of the flat for assessment years 1976-1977 to 1980-1981 was assessed at the same figure as one determined on March 31, 1973. By Wealth Tax (Amendment) Act, 1964, which came into force from April 1, 1965, the power of Wealth Tax Officer to estimate the value of assets under s. 7(1) was made subject to any rules made in that behalf. Rule 1BB was inserted by the Wealth Tax (Amendment) Rules, 1979 with effect from April 1, 1979 and reads as follows:

“1BB. (1) For the purposes of sub-section (1) of Section 7, the value of a house which is wholly or mainly used for residential purposes shall be the aggregate of the following amounts, namely:—

(a) the amount arrived at by multiplying the net maintainable rent in respect of the part of the house used for residential purposes by the fraction 100/8; and

(b) the amount arrived at by multiplying the net maintainable rent in respect of the remaining part of the house, if any, by the fraction 100/9:

Provided that in relation to a house which is built on leasehold land, this sub-rule shall have effect as if for the fraction 100/8 in clause (a) or, as the case may be, the fraction 100/9 in clause (b), the fractions 100/9 and 103/10, respectively, had been substituted.

Explanation: For the purpose of this sub-rule, a house shall be deemed to be mainly used for residential purposes, if the built-up floor area thereof used for residential purposes is not less than sixty-six and two-third per cent of its total built-up floor area.

(2) For the purposes of this rule,—

(a) “gross maintainable rent”, in relation to a house, means—

(i) the sum for which the house might reasonably be expected to let from year to year; or

(ii) where the house is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in sub-clause (i), the amount so received or receivable:

Provided that where the house is in the occupation of a tenant and the taxes levied by any local authority or any expenditure on repairs in respect of the house is borne wholly or partly by the tenant, the sum referred to in sub-clause (i) or, as the case may be, the annual rent referred to in sub-clause (ii) shall be increased by the amount of the taxes or, as the case may be, the expenditure on repairs so borne by the tenant.

Explanation: For the purposes of this clause, “annual rent” means—

(a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and

(b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period;

(b) “house” includes an independent residential unit;

(c) “net maintainable rent”, in relation to a house, means the amount of the gross maintainable rent as reduced by—

(i) the amount of taxes levied in the previous year by any local authority in respect of the house;

(ii) a sum equal to one-sixth of the amount by which the gross maintainable rent exceeds the amount referred to in sub-clause (i), in respect of the repairs of the house;

(iii) any sums spent during the previous year to collect the rent from the house, not exceeding six per cent of the amount by which the gross maintainable rent exceeds the amount referred to in sub-clause (i);

(iv) the amount of any premium paid during the previous year to insure the house against risk of damage or destruction;

(v) the amount of ground rent payable during the previous year, where the property is subject to ground rent; and

(vi) any sum paid in the previous year on account of land revenue or any other tax levied in the previous year by the State Government in respect of the house;

(d) “previous year” means the period which would be the previous year if an assessment of the income from the house were to be made under the Income-tax Act, 1961 (43 of 1961) for the assessment year.”

6. The perusal of this rule makes it clear that the value of the house property for the purpose of wealth tax would depend upon the sum for which the house might reasonably be expected to let from year to year, if in occupation of the owner and upon the annual rent received or receivable in case in occupation of the tenant. The receipt of actual rent or sum which could be expected on hypothetical letting could never be in excess of standard or fair rent fixed by the rent legislation. In ss. 22 and 23 of the Income Tax Act, identical method is provided for ascertaining annual value of the building for charging Income-tax under the head “Income from House Property”. The value of the flat in accordance with r. 1BB of the Wealth Tax Rules was only Rs. 15,521.11, as demonstrated in the report dated January 19, 1983 prepared by the Valuer Sykes, Patkar & Divecha. The deceased did not feel it necessary to reduce the value of Rs. 54,700/- assessed prior to the enactment of r. 1BB, as the house property of value of less than Rs. 1,00,000/- was exempted.

7. Section 5 of the Estate Duty Act, 1953 is the charging section and prescribes that in the case of every person dying after the commencement of the Act, a duty, called ‘estate duty’, shall be levied upon the principal value of all the property which passes upon death of such a person. The principal value is to be ascertained in accordance with s. 36 of the Estate Duty Act and sub-s. (1) provides that the value shall be estimated to be the price which it would fetch if sold in the open market at the time of deceased's death. Sub-section (3) which was inserted by Amendment Act, 1982 and with retrospective effect from March 1, 1981 reads as under:

“36.(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), the principal value of one residential house or part thereof belonging to the deceased (which the accountable person may at his option specify in writing in this behalf) shall be,—

(a) where the value of such house or part is included in computing the net wealth of the deceased for the purposes of making an assessment under the Wealth-tax Act, 1957 (27 of 1957) (hereafter in this sub-section referred to as the Wealth-tax Act) in respect of his net wealth on the valuation date immediately preceding the date of his death, the value as taken by the Wealth-tax Officer for the purposes of such assessment; and

(b) in any other case, the value of such house or part,—

(i) on the said valuation date; or

(ii) where such house or part was constructed, acquired or otherwise became the property of the deceased after the said valuation date, on the date of his death, as determined by the Controller in accordance with the provisions of the Wealth-tax Act and the rules made thereunder; and, for this purpose, in a case where the provisions of sub-section (4) of Section 7 of that Act apply, the provisions of that sub-section shall have effect as if the words “throughout the period of twelve months immediately preceding the valuation date”, occurring therein, had been omitted and as if the references therein to the option of the assessee had been references to the option of the accountable person.”

8. As Shri Chagla expired on February 9, 1981, it was contended on behalf of Revenue that advantage of sub-s. (3) is not available and principal value of flat cannot be determined in accordance with r. 1BB of the Wealth Tax Rules but on estimated price which it would have fetched, if sold in the open market on the date of death. It was claimed that the flat must be valued on the basis that vacant possession is available to purchaser and the method of valuation should be land and building valuation, employed by respondent No. 2. In support of the sub-mission that the flat must be valued on the basis of vacant possession, reliance is placed on the observations in Para 163 on Page 78 of Halsbury's Laws of England. Third Edition, Volume 15. The observations are based on the decision in Welby Dawson v. Inland Revenue Commissioners, a decision which is not available for appreciation. In my judgment, valuation cannot be on the basis of vacant possession for several reasons. In the first instance, such assumption is not warranted by the provisions of the Estate Duty Act. Secondly, the flat was occupied by deceased with his son — petitioner No. 2—and the members of his family at the time of death and petitioner No. 2 has continued to occupy the flat even thereafter as legal representative. The petitioner No. 2 was jointly holding the membership rights of the society with the deceased, and the flat was bequeathed in favour of petitioner No. 2 under the will. In these circumstances, it is futile to claim that valuation should be on the basis of vacant possession. The hypothetical sale in the open market could only be on the basis that actual possession is not possible. Even in England, the hardship caused by the rule to beneficiaries, who would have to pay duty on inflated value that could not be realised, because they must continue to reside in the house, has been mitigated by extra-statutory concessions. Any increase in the value on the basis of vacant possession is disregarded where a near relation of the deceased was ordinarily resident with him at the date of death and intends to remain in house and has no other place of residence available.

9. The sub-mission of Shri Josh that to ascertain the price of the flat if sold in the open market, the respondent No. 2 could have applied only land and building method of valuation is also not accurate. There are principally, two methods of valuation of buildings: (1) land and building method, and (2) Annual value or rental method. In the first method, which is commonly known as “Contractors' Method”, the market value of the land is separately ascertained and to that is added the value of the building determined by ascertaining the prime cost of the building and deducting therefrom depreciation. By far the more prevalent, especially in urban areas, is the annual value method, where the net notional annual rental value of the property is determined in the manner done for income-tax purposes. The amount is then capitalized by a multiplier depending on the economic factors prevalent at the relevant time. Annual value method is entirely based on the rent realised from the property and the rent is standard or fair rent when it is regulated by rent legislation. The annual value method is statutorily recognised method for valuation of houses for the purpose of municipal tax, income-tax and wealth-tax and there is no rational explanation why the said method should not be adopted for ascertaining the value of the flat for estate duty. The Supreme Court in the decision in the case of Patel Gordhandas Hargovindas v. The Municipal Commissioner, Ahmedabad held that the word ‘rate’ in Municipal Acts have acquired special meaning and meant a tax for local purposes imposed by local authorities and the basis of the tax is the annual value of lands and buildings. The annual value is arrived in three ways, namely: (1) actual rent fetched by land or building where it is actually let, (2) where it is not let, rent based on hypothetical tenancy, and, (3) where either of these two modes are not available, by valuation based on capital value from which annual value has to be found by applying a certain per centage which may not be same for lands and buildings. Sections 22 and 23 of the Income Tax Act and Rule 1BB of the Wealth Tax Rules recognise the same method and in my judgment, the harmonious construction demands that the identical method should be employed while determining the value under s. 36(1) of the Estate Duty Act, even in cases where death has occurred prior to March 1, 1981. To accept the claim of the Revenue that the only method of valuation is land and building would lead to a very anomalous result, like a fiat would be valued for the purpose of Wealth Tax under r. 1BB and in case the assessee dies on the day next to valuation, then the accountable person would be required to pay duty based on different method and by which the valuation of flat would be far in excess than that determined for the purpose of Wealth Tax. The Legislature therefore to give effect to this harmonious construction inserted sub-s. (3) of s. 36 in the Estate Duty Act and in my judgment, the method recognised under r. 1BB for valuation is the only method available to the Controller for valuation of the flat under s. 36(1) of the Estate Duty Act. It was faintly contended that the rental method has no validity in determining the valuation of self-occupied residential house. The sub-mission is not correct because the valuation of such house can be determined by capitalising the rent, which such house would fetch, if let out.

10. Shri Seervai submitted that as there were no rules under Estate Duty Act for determining the value of the flat on the basis of the price it would fetch if sold in open market, the method provided by r. 1BB of the Wealth Tax Rules should be applied and in support of sub-mission, relied on the decision of the Single Judge in the case of Madhusudan Dwarkadas Vora… v. Superintendent Of Stamps….. In that case one Dwarkadas Vora died on December 29, 1979 and in the proceedings for probate of his will, half share in self-occupied house was valued at Rs. 1,64,000/-. The Collector and Superintendent of Stamps opined that it was undervalued and determined value of Rs. 3,70,787/- ascertained on land and building method. The learned Judge held that the same method provided under r. 1BB of the Wealth Tax Rules must be applied for the purpose of ascertaining the value for payment of estate duty and drew support for the conclusion from the decision of Karnataka High Court in the case of Controller of Estate Duty, Mysore v. J. Krishna Murthy. Shri Joshi urged that the question before the learned Judge was about the payment of stamp duty and the passing observations are not the ratio decidiendi of the case. The sub-mission is not correct and I am in respectful agreement with the conclusion reached by the learned Judge.

11. It was contended on behalf of the petitioners that sub-s. (3) of s. 36 is made applicable with retrospective effect only from March 1, 1981 by amending Act and amendment is violative of art. 14 of the Constitution of India as the date selected is arbitrary and has no reasonable basis. The division which classifies persons who died prior to March 1, 1981 and those on subsequent date for the purpose of valuation of properties and application of sub-s. (3) is artificial and no nexus to the object sought to be achieved by harmonising the provisions of the Income Tax Act, Wealth Tax Act and Estate Duty Act, says the learned counsel, and reliance is placed on the decision of the Supreme Court in the case of D.S Nakara v. Union of India. The sub-mission is of considerable merit but need not be examined in detail in view of my conclusion that method provided by r. 1BB of the Wealth Tax Rules is the only permissible method for determination of the value of the flat of the deceased under s. 36 of the Estate Duty Act, inspite of the fact that death has occured prior to March 1, 2981.

12. The impugned order of assessment is based on valuation report submitted by respondent No. 2 and where the value of the flat is ascertained by ignoring the method provided under r. 1BB of the Wealth Tax Rules and applying land and building method. The assessment order pertaining to the valuation of the fiat is, therefore, required to be quashed and set aside, and the respondent No. 1 must pass fresh assessment order by determining the value of the flat in accordance with the principles under r. 1BB of the Wealth Tax Rules. The notice of demand issued in pursuance of the Assessment Order dated August 26, 1983 must fall and is quashed. Rule is made absolute accordingly. In the circumstances of the case, there will be no order as to costs.

13. Rule made absolute.