1. This is an appeal under Section 217 of the Bombay Municipal Corporation Act III of 1888 which we will hereafter call 'the Act'. The respondents own a building at the corner of what was known as Marine Drive and Sandhurst Bridge. The whole of the building is tenanted and till 1956-57 the Municipal Corporation was assessing the annual rateable value at the actual rent realised from the tenants for the purposes of municipal taxes. On February 5, 1957, the owners entered into an agreement with the Tata Locomotive and Engineering Co. Ltd. which entitled that company to instal, maintain and display a neon sign on the clock tower of the building and one other sign for the purposes of advertisement in respect of Tata-Mercedes-Benz Automobile trucks and buses. This was done with the sanction of the Bombay Municipal Corporation and also that of the Commissioner of Police. Under this agreement, the owners became entitled to a sum of Rs. 800 for the actual occupation of a portion of the terrace by the neon signs and Rs. 700 for what they called a negative covenant preventing the owners or anyone else in the manner stated from putting up any other advertisement thereon. The Municipal Corporation increased the rateable value from the sum of Rs. 44,320 per annum to Rs. 64,685 per annum taking into account the amount earned by the owners for this advertisement. On appeal to the Assessor and Collector, he reduced the rateable value to Rs. 59,600 per annum. The respondents took an appeal to the Chief Judge of the Small Causes Court as provided under the statute who upheld their contentions and directed that the amount earned by reason of the advertisement should be omitted from consideration in assessing the rateable value. The Municipal Corporation challenges that decision by this appeal.
2. The question is of some importance inasmuch as looking to the present day notions of business advertisements a large number of buildings specially adapted for this purpose are earning by way of returns extra amounts over and above-the rents from the tenants.
3. Section 140 of the Act enables the Corporation to levy on all buildings and lands in Greater Bombay the 'property taxes' enumerated in that section. Section 146 concerns the incidence of the taxation which is on the owner of the property, though the word 'occupier' is used. The section makes the occupier liable if he holds directly from the Government or the Corporation. But if the premises are let, the lessor, and if they are sub-let, then the superior lessor are liable. Section 154 prescribes the method by which the rateable-value has to be determined. It does not, however, actually lay down how the gross annual value has to be determined and what deductions are to be given, but only says that in order to fix the rateable value, 10 per cent, of the amount of the annual rent for which such land or building may reasonably be expected to let from year to year shall be deducted in lieu of all allowances for repairs, or on any other account whatever. In Mahad Municipality v. Bombay S.R.T. Corp. (1960) 63 Bom. L.R. 174, sitting singly, I had occasion to consider almost similar provisions in the Bombay District Municipal Act (Bombay Act III of 1901) and on a consideration of several cases the principles underlying the determination of rateable value were stated by me as follows:
In determining the annual letting value, all factors, that either enhance or decrease the value to a tenant, are to be taken into account. The question is not what, to the Court would appear to be reasonable rent for particular premises, but what any tenant expecting to utilise the premises for the purpose for which they are being used with all their advantages and disadvantages would reasonably pay for them.
The duty of the Court is to determine the amount of rent that a hypothetical tenant may reasonably pay for the premises bearing in mind all the circumstances connected with the premises including the amenities or the conveniences and the extent of profit that he might reasonably be expected to make by the use of the premises.
The test is what rent would a tenant who is ready to take the premises but is not compelled to take it pay to a landlord who is ready to let and is not yet compelled to let. A tenant free to choose would certainly measure up all the advantages of the property including its special adaptability for making gains and would be prepared to pay higher price than for a similar place not so well situated. Similarly, in some cases because of the disadvantages he may as well pay less. Since the test is what a tenant would reasonably pay if the premises were let from year to year it may happen that some times the rent actually earned is not the correct measure of the rateable value under the Act. In some cases it may be shown that the actual rent paid is higher than the rateable value and in some others it may be shown that the actual rent paid is less than the annual value.
4. In the present case it is undoubtedly true that all those tenants who were using the premises as residential premises and also as shops were during the relevant period paying a total rent of Rs. 44,320 per annum. If the Bombay Rent Restriction Act were not applicable to these premises the rents would have perhaps been much higher, but it is now settled by the authority of the Supreme Court in the Corporation of Calcutta v. Sm. Padma Debi : 3SCR49 that while determining the annual letting value the restrictions placed by the Rent Control Act must be taken into account since the Court has to determine the value of the premises to the landlord and not the tenant, unlike under English Acts where the person in actual occupation is rated.
5. The learned trial Judge did not allow this extra amount to be added to the gross annual rents on the ground that the amount that was earned by the owners was not earned as rent but it was merely a charge for a licence given to the Tatas in order to enable them to install and display these signs and also for the negative covenant and as that amount cannot be classified as rent it cannot be taken into account in assessing the annual rateable value.
6. In our view, the learned Judge is in error in so holding. Section 154 does not say that what the landlord actually realises from a building is the annual letting value of that building. The section as has been pointed out above requires the gross annual value to be determined at an amount which a tenant may reasonably pay from year to year for the premises having due regard to all the benefits of the property including that of its situation, and if the property is capable of making this extra earning it goes without saying that any tenant who offers to take the lease of the building would be prepared to pay this amount or even probably a higher amount depending upon the business conditions of the moment. It may also be that a hypothetical tenant may not pay even the full amount which the landlord is earning under the agreement. The test is what the building is capable of producing and since the amount is actually earned because of the situation of the building it has to be taken into account.
7. The analogy of English Law may not also be very appropriate. Under the English Act the actual occupant is liable to the rates. After the Advertising Stations Rating Act, 1889, the question has been comparatively simpler. Prior to that the liability to rating depended upon the question whether the person could be regarded as occupier. In The Queen v. St. Pancras Assessment Committee (1877) 2 Q.B.D. 581 an advertiser who had affixed hoardings with the permission of the owner but not in such a way that intention of permanent occupation could be gathered, was held not to be rateable. In Taylor v. Overseers of Pendleton (1887) 19 Q.B.D. 288 the agreements were construed to be leases and the advertisers were held rateable. It is probable that in the first case the owner himself could have been rated as he could be said to be in beneficial occupation.
8. Reliance was placed in the Court below and also here by Mr. Chagla on the decision in Calcutta Corporation v. Anil Prokask A.I.R.  Cal. 423 which was a case under Section 127(a) of the Calcutta Municipal Act III of 1923. The Court held that a person who is permitted to put up an advertisement hoarding on, a building is a mere licensee and not a tenant, that the income derived from the licence cannot be treated as rant within the meaning of Section 127(a) and it cannot, therefore, be taken into account in determining the annual value of the building to be rated. The learned Judges sought to point out the distinction between a lease and a licence and then held that the amount earned was not rent, and while dealing with the nature of the receipt in para. 7 they expressely said,.We do not think that, in the circumstances, it would be correct to say that the roof has been let out to the aforesaid company within the meaning of Section 127(a) of the Act, quoted above.
The decision is founded on the special provision of the Calcutta Municipal Act, Under Section 124 of that Act the Municipal Corporation was permitted to levy a consolidated rate of 23 per cent, on the annual valuation of all lands and buildings, but for the purpose of determining the annual value it laid clown a different scheme. It divided the land and buildings into two classes (1) lands or buildings which were erected for letting purposes or were ordinarily let where the usual test of the rent at which the buildings or the land might be given from year to year was laid down; (2) buildings which were not ordinarily let or which, were not erected for the purposes of letting, the annual value was to be determined at 5 per cent, on the sum obtained by adding the estimated cost of the building less the depreciation to the estimated value of the land which was to be valued with the building as part of the same premises. It was in view of the special provisions of Section 127(a) that the Court came to the conclusion that what was earned was in the nature of a licence fee and, therefore, it could not be included in the annual letting value and was not liable to be rated. Even then, we, with respect, doubt if on principle the decision can be sustained. Any tenant realising the possibility of use for this purpose would haw paid higher rent. However, in view of the provisions of Section 154 of the present Act, we find it difficult to follow that authority even on the assumption that it is correctly decided.
9. It was argued by Mr. Chagla that what the Municipal Corporation is proposing to do is to determine the rateable value of the terrace which cannot even be let out without the permission of the Municipal Corporation, and if it cannot be let out without such permission there can be no question of a hypothetical tenant who will be prepared to take the terrace and pay any rent. It is not possible to uphold this contention. The Municipal Corporation is not determining the rateable value of separate portions of the building and the Act, too, does not permit it to he done. What the Municipal Corporation is doing is to take into account the entire beneficial use to which the building can be put by a prospective tenant and what he would pay for such use, and while doing so, it is also taking into account what is being earned in respect of beneficial uses of a portion thereof as means of advertisement because of its special situation. The second part of Mr. Chagla's argument, therefore, that if the rateable value of the terrace is to be determined it will be subject to the provisions of the Rent Control Act and no more than the standard rent can be taken as the letting value, does not, in our opinion, survive.
10. The learned trial Judge said that it was not any inherent or intrinsic quality of any portion of the property which commanded such a high sum of Rs. 800 or Rs. 1,500 per month but it was the grant of the right in gross to display the signs outside in the air which earned such a larger return. In our view, there is absolutely no justification for the learned Judge to have assumed what he has assumed in this case. The learned Judge has not, with respect, appreciated the extraordinarily beautiful situation of the building in question which is quite suitable for advertisements and which has produced Rs. 1,500 per month. The building is situated on the corner of two very heavily used roads and is at such a place that the attention of every driver and every pedestrian would be attracted to the site. Over and above this, a large number of visitors to the Chowpatty Sands are also in a position to see the advertisement at the site. It is the extraordinary position of this building that has produced this heavy return. The learned Judge further observed that if every portion of the terrace was invested with the intrinsic quality of possessing the potentiality for the display of advertisements, the terrace will have to be given fabulously high hypothetical value and the rateable value will have to be increased to figures verging on absurdity. This fear on the part of the learned Judge, in our view, is also unjustified. If there is a maize of advertisements at any one place, value thereof as advertisement would be considerably lost as few people would care to notice the same. They have value only if they are prominently displayed at a fairly considerable distance from each other. If the owner of a building were to permit more of such advertisements to be displayed, the advertiser would refuse to pay such high price and might even stop putting up such signs altogether. It is for these reasons that the Tatas agreed in the present case to pay to the owners a further sum of Rs. 700 so that the owners may not allow any other portion of the terrace to be used for any further advertisements with neon signs or otherwise.
11. It was then argued that in any case Rs. 700 has no connection with the use of the building but is paid for the negative covenant contained in the agreement. The covenant is that the owner shall not permit any one else to display on any part of the building any other such sign or advertisement. In our view in the absence of this covenant, if the owner had permitted some others to put up such signs-though only a few-the total value obtained for this kind of beneficial use would have been equal to Rs. 800 plus Rs. 700. We are of the opinion that this amount also ought to be taken into account.
12. The learned Judge was, therefore, in error in holding that the Corporation was not entitled to take into account the returns earned because of this advertisement in determining the annual letting value. Order accordingly. The respondents will pay the costs of this appeal and also of the lower Court.