1. The Turf Club holds a lease from the Corporation of the racing grounds at Mahalaxmi. The total yardage of the land comprised in the lease is 10,22,806 sq. yds. and the Club pays annual rent of Rs. 3,75,000 for the privilege of using the premises for the purpose of races and for other connected purposes. During the period that it is not required by the Club for racing purposes, under the terms of the lease the grounds have to be kept open for the use of the public for sports and games. The rating year in question in this appeal for which the Turf Club is assessed is 1954-55 and the assessment for that year is made on the basis of their accounts for the year 1953-54. The Assessment Committee fixed the gross rental value of the premises at Rs. 13,22,430-12-3 and net at Rs. 11,90,187-12-3 after allowing the statutory deduction of 10 per cent. under Section 154 and the Corporation called upon the Turf Club to pay the assessment on the basis of this rental value. The Turf Club appealed to the Chief Judge of the Small Cause Court in accordance with the provisions of the Act who confirmed the assessment.
2. The questions raised are of importance and also of principle. The method employed by the Corporation for finding out the annual letting value is what is known as the profit basis, the method being to determine the profits which are made by the tenant and then to determine what a hypothetical tenant would pay as rent for the premises to earn the profits which are being made by the tenant. The questions that are raised are what deductions should be made towards the expenses while determining the profits which the tenant makes.
3. There is no dispute that in the present case the total gross receipts are Rs. 1,17,68,243-15-8. On the expenditure side the Club claimed deductions in respect of 19 items of expenditure out of which those wholly disallowed are (1) rent, rates and taxes, (2) capital expenditure written off, (3) Bombay Course upkeep and repairs, (4) Insurance, (5) Donations to Clubs, (9) Totalisator upkeep and repairs, (15) Provision for gratuities, (16) Donations, (18) Provision for taxation and (19) Painting. There is no dispute that out of these, (1), (2), (4), (5), (15), (16) and (18) are rightly disallowed. The only items, therefore, now claimed as deductions are item No. 3 which consist of a sum of Rs. 1,07,414-14-4, item No. 9 for to tailsator upkeep and repairs which comes to Rs. 16,488-1-9 and item No. 19 regarding painting which consists of Rs. 89,922-8-0. In respect of items Nos. 6, 8, 10, 11, 12, 13 and 14, only half the amount has been allowed and not the whole. It is claimed for the Turf Club that the entire amount ought to be allowed. It is also claimed for the Turf Club that the wheel tax and the water tax paid by the Turf Club as expenses should have been wholly allowed and not to the extent of th only as has been done. The Corporation attempts to sustain the confirmation of the assessment in relation to these items.
4. Section 154 of the Act lays down the method of computing the net rateable value for the purposes of taxes mentioned in the Act. According to this section, the net rateable value is to be determined by deducting 10 per cent. as and by way of allowances for repairs or on any other account whatever from the gross rent which is 'an amount of the annual rent for which such land or building might reasonably be expected to be let from year to year'. This definition of the 'gross annual value' is somewhat similar to the definitions contained in corresponding English statutes for assessments under Parochial Assessments Act and also Poor Rate Assessment & Collection Act except for some small variations. The definition clearly suggests that it is such rent as a tenant would pay with the expectation of a lease from year to year and not only for one year, though of course terminable by the usual notice. It is also now well-settled under the English law that the test to be applied in these cases is that of a willing tenant who is prepared to take the lease but is not compelled to take it and of a willing landlord who is willing to let the premises but is not compelled to let them. It is equally well-settled that in determining the rent that a tenant would give, all circumstances as to situation, advantages, privileges and disabilities attached to the premises have to be taken into account. These principles have been applied while fixing the rateable value of premises under the Municipal Acts obtaining in our State. (See Mahad Municipality v. Bombay S.R.T. Corporation (1960) 63 Bom. L.R. 174.
5. Though the definition that the annual value is such rent as a willing tenant would pay from year to year to a willing landlord having due regard to all the circumstances may appear to be simple, it has created a large number of difficulties as shown by a large number of cases in connection with rateable value. Different kinds of properties are involved and different circumstances exist in relation to them with the result that various methods had to be devised for determining a fair annual value to form the basis of rates so that there should be no injustice to the rating authority nor any injustice to the rate-payer. The four methods usually employed in this connection are well summarised in Faraday on Rating, 5th edn., at p. 24:
1. The 'competitive or comparative method', which consists of finding out rents actually paid for the hereditament in question and/or others of a similar kind, adjusting them to bring them into line with, the statutory conditions, and thus arriving directly at an estimate of rent. Whenever such comparison is possible, this method is preferred.
2. The 'profits basis' i.e. calculation by reference to receipts and expenditure and finding from the profits earned what a tenant would pay for premises to earn those profits as rent.
3. The 'contractor's method' where the estimated rent is determined by finding the figure for which a contractor would provide him with premises similar to the one in question for a purpose for which they are let.
4. The 'unit method' where the valuation is made by so much per bed etc.
In Ryde on Rating, 10th edn., at p. 441, it is pointed out that it is difficult to extract with certainty general principles determining the precise nature of premises to which profit basis is applied. It is said, however, that before the method can be employed.there should be vested in the landlord something in the nature of a monopoly, as respects the site, so that it cannot be said that the hypothetical tenant, when negotiating the rent, is free to select another site if the rent demanded appears too high (Surrey County Valuation Committee v. Chessington Zoo Ld.  1 K.B. 640 :  all E.R. 154 and in approaching this problem two matters, already referred to, call for consideration, (a) is the hereditament the only place in which the profits can be earned; (b) is the occupier, considered as the hypothetical tenant, the only person likely to earn those profits.
Authorities also show that the method of profit basis for determination of the rateable value has been suitably applied to public undertakings as well as Race Courses in England and we do not see why, since the two fundamental conditions for the application of this method are applicable in the present case, that method should not be adopted. In fact, for the last several years this method has been applied successfully and there can be no possible reason to depart from the same.
5. The next question then is, what it means and what it involves? In this connection the general principles were pointed out by Lord Birkenhead in the leading case Port of London Authority v. Assessment Committee of Orsett Union  A.C. 273 where he says (p. 281):.By this reckoning the amount of the gross receipts is ascertained, and from such amount are deducted the expense of earning such receipts, the deductions provided for by statute, interest on tenants capital and the estimated amount of tenant's profit. The figure so ascertained would give the rating authority a valuable indication as to the rent which the hypothetical tenant would be likely to give for the right to occupy the hereditament in question and therefore would enable them to form an opinion as to the correct amount of the 'net annual value' for the purpose of rating.
6. While referring to the profit basis, Lord Atkinson in Kingston Union v. Metropolitan Water Board  A.C. 331 pointed out the fundamental principles thus (p. 348):
In my view there is only one method by which the rateable value of a hereditament, the occupation of which is valuable, can be legally ascertained, and that is by the method prescribed by Section 1 of the Parochial Assessments Act of 1836-namely, by the ascertainment of the rent at which the hereditament might reasonably be expected to be let from year to year to a hypothetical tenant, free from the rates and charges, etc., 'rebus sic stantibus'. By these three latter words I mean to express the considerations which are expanded in the following passage in the judgment of Lord Buckmaster in the case of Port of London Authority v. Assessment Committee of Orsett Union  A.C. 273. He said that the hereditament the reasonable rent of which is to be ascertained must be that hereditament 'as it stands, with all its privileges, opportunities and disabilities created or imposed either by its natural position or by the artificial conditions of an Act of Parliament'.
He then pointed out in reference to the profit learning basis that (p. 349):
the profits derived or derivable from the occupation of the hereditament are helps to the measurement of it, because the hypothetical tenant would naturally consider what rent he would afford to pay to secure the chance of making these profits by the occupation of it. And the assessing authority, on its side, would naturally consider what the chance of realising that profit by the occupation of it was reasonably worth.
7. While referring to this system, Lord Atkin in St. James' and Pall Mall Electric, Light Co. v. Westminster Assessment Committee  A.C. 33, without defining the method in detail roughly pointed out the method of calculation. He said (P.42):.The system roughly speaking is that the gross receipts, of the undertaker are taken for the year of calculation; from them are deducted the expenses of earning those receipts; from the residue a tenant's share is subtracted, a hypothetical sum which represents what the tenant might reasonably be satisfied with for his 'profits', which will include interest on capital remuneration for his industry and compensation for risk; and the residue will be the landlord's share of rent.
He made it clear that he was not proposing to restate the judicial definitions of the profits basis but was merely indicating its general principle.
8. Some indication is to be found regarding the deductions to be made from the case of Sheffield United Gas Light Company v. Overseers of Sheffield (1863) B.S. 135 : 122 E.R. 410 where the rateable value of the company's works was determined by taking the sum of annual gross receipts for the sale of gas, of residuary products left-after the gas was extracted, from the hire of gas meters and fittings and for work done etc. and deducting from the same the gross expenditure for the same year incurred in producing such receipts and the result gave the net receipts for that year. From this was deducted the tenant's profits and interest on capital which the Court determined at 20 per cent., then a sum on account of tenant's rates and taxes and the annual average cost of the repairs and renewal and insurance of the buildings of the stations and of plant, as necessary to maintain them in a state to ensure the above receipts-this would in our view have no reference to such repair charges and other charges which are to be borne by the landlord under the statute here as well as in England-then a sum on account of the renewal of the whole of the mains, and the balance which remained in the hands of the company was taken to be the rent for which the works might reasonably be expected to let from year to year and as such the true estimate of the net annual value thereof.
9. These cases show that all such expenses as are necessary to be incurred for learning the gross receipts which the Club earned must be deducted before it can be said that the residue was the annual value. The entire dispute centres round the items which the Club says ought to be deducted and which the Corporation says ought not to be deducted. If we are right in stating the above principles when profit basis is employed, their application should not be very difficult in the present case.
10. The first item in dispute is item No. 3, the amount being Rs. 1,07,414-14-4 representing the expenses incurred for upkeep and repairs of Bombay Courses. The reasoning adopted by the learned Judge and sought to be supported in this Court is that this is a deduction permitted to the landlord under Section 154 of the Act, which is in respect of all outgoings for repairs or for any other reason whatsoever. It is argued that this expense cannot be considered as necessary for the business and in any case if any part of it falls within Section 154 it cannot be allowed. For this purpose the terms of Section 154 have to be considered.
11. The section does not clearly lay down all the conditions under which the rent is to be determined. Under the English Acts net annual value is the rent at which the hereditament may reasonably be expected to be let from year to year, free of all usual tenants rates and taxes and deducting therefrom the probable average annual costs of the repairs, insurance and other expenses, necessary to maintain them in a state to command such rent. Under the present Act there is no guidance whatever. If 10 per cent, deduction permitted is to be taken as any indication then it could include only such costs as a landlord is bound to incur. The respective liabilities of landlord and tenant are governed by Section 108 of the Transfer of Property Act. There is no obligation on the landlord to repair the property. It is the tenant's obligation to keep it in proper repair and in as good a condition as he found it in and yield it up in the same condition subject only to fair wear and tear and irresistible force. It would, therefore, seem that the statutory 10 per cent. would include insurance, charges of collection, costs of repair of such damage as is caused by natural wear and tear and the elements. In modern days of high costs 10 per cent, would by no means appear to be adequate. That however is a different matter. But all other expenses in connection with the maintenance of the property for earning the particular profits must be deducted from the gross receipts.
12. It is true, therefore, that if the expenses incurred were for repairs of buildings constructed by the Turf Club and/or such items as are fixed to the land, and which were necessary by reason of natural wear and tear of the property, then they would be included within the 10 per cent, of the gross rental allowed by Section 154. The standard is whether this expense or any part of it was necessary for the earning of the income which the Turf Club made. In order to attract large number of owners of horses to run their horses, it is necessary for the Club to maintain the Course in perfect order so that no horse might be injured while on the Course. It would also appear that in order to attract the largest number of visitors to the club it is necessary to maintain all the fitments including the premises in attractive condition. If these premises are allowed to be derelict and left to be repaired by the landlord when and how he chooses, the Club could not attract the quantum of business under the restrictive conditions imposed by the licence.
13. It is argued that the item with regard to repairs to the buildings cannot in any case be deducted. Item No. 3 consists of two Sub-items (i) upkeep of the Race Course and (ii) repairs which may as well include repairs to the buildings about which we have no data. Since the accounts are not before us it would be necessary to direct an enquiry for finding out what sum out of Rs. 1,07,414-14-4 represented the cost of repairs such as would be required to be done normally by a landlord under the Transfer of Property Act. The balance of the amount will represent the expenses spent for the upkeep of the Race Course and for other necessary purposes and be deducted from the receipts.
14. The next item is item No. 9 for the Totalisator upkeep and repairs which consists of a sum of Rs. 16,486-1-9. The Totalisator in question is a mechanical device and it is admittedly a necessary adjunct for an efficient Race Course. It is argued on behalf of the respondent that since for the purposes of rateable value the doctrine of 'rebus sic stantibus' i.e. the property as it exists for the purpose for which it is used must be applied, the Totalisator must be considered as part and parcel of the property to be provided by the landlord and any expenses involved in either the maintenance or the repairs of the same cannot be allowed. In the first place, machinery is excluded from the lands and buildings which arc to be taxed, even if attached to the lands or buildings. Therefore, the doctrine cannot be applied in the fullest sense as in England. In England it has been held that machinery must be taken to form part of the hereditament and rateable value of the entire property must be determined, for the understandable reason that the incidence of the rate is on the occupant while under our Acts it is on the owner as explained by me in Mahad Municipality v. Bombay S.R.T. Corporation. This device is employed by the Club in order to reduce the number of employees who would otherwise be required to work at the Race Course. It also introduces better efficiency and earlier disposal of the work. In the absence of such machinery, a very large number of persons would have been required to be employed and it could not possibly have been contended on behalf of the Corporation that the amount spent for their salaries and allowances must not be allowed, since in any event the land and buildings would not include the landlord also furnishing human labour required to run business. It was argued that the words 'Totalisator upkeep and repairs' may include repair to the building where it is situated. We are not prepared to accept the suggestion. The words used clearly indicate that this expenditure relates to the repairs and upkeep only of the Totalisator, that is the mechanical device. This item, according to the principles stated by us, must, therefore, be deducted out of the gross earnings, as necessary business expenses.
15. Item No. 19, which is wholly disallowed is of Rs. 89,922-8-0 relating to the painting. The data furnished does not make it clear as to how and for what purpose this painting expense was incurred. It may as well be the cost of painting the buildings and the railings of the Race Course and also probably some furniture. In view of this, after some discussion Mr. Kotwal did not insist on this deduction for this year. This disposes of all the three items which have been totally disallowed by the learned Judge.
16. We then come to the items which are allowed only in part. These items are 6, 8, 10, 11, 12, 13 and 14 out of which we will deal with Item No. 8 which involves half the licence fees in relation to the Bombay Course later. Item No. 6 involves an expense of Rs. 22,367-7-0 for track sand and murum required to be refilled during the time that the races are run. Item No. 10 consists of salaries and wages of the employees of the Bombay Course. Item No. 11 consists of motor lorry expenses; Item No. 12 consists of stores and charges for maintenance of horses and bullocks; Item No. 13 consists of manure and garden expenses and Item No. 14 is in regard to expenses for spares for powers, tractors and machinery parts. The basis for allowing only a part of these items is given by the learned Judge in para. 24 where the learned Judge accepts the reasoning of the assessing authority to the following effect : Out of the 12 months, racing season in Bombay is only about 6 months; for the 6 months during which the racing is done these expenses would be the tenant's outgoings while for the rest of the period they would be landlord's burdens and, therefore, only half of such expenses can be allowed. We do not see any reason for holding that for the period during which race meetings are not held in Bombay the expenses enumerated are the landlord's burden. There is no principle behind this reasoning except the one for increasing the rateable value. The permanent employees of the Turf Club are partly employed for the Bombay races and partly for the Poona races. The total expenses of such employees have been divided in the fixed proportion in which the races are run and the Bombay expenses are determined. There is no undertaking by the landlord that during the time that race meetings are not held in Bombay, the landlord would bear the burden of these expenses nor are they in fact borne by the Corporation nor is there any statute which provides for this burden. While considering the question of deducting this or that figure, we must also remember the warning given by Viscount Cave in the cases above referred to not to confuse the measure for that which is measured since the ultimate aim is what would a hypothetical tenant pay as rent for the amount of profit which is earned from this business. In order to arrive at the correct amount of profit, all expenses properly incurred have to be deducted. As a matter of fact, the learned Counsel for the Corporation was in difficulties in formulating the reasons why part of these expenses are not allowed. Undoubtedly one strong argument he made and that was that for years together only half of these expenses were permitted. But then it does not estop the Turf Club to-day as it would not estop the Corporation tomorrow from contending that certain expenses have been wrongfully disallowed or allowed in the past. It may be that in the past the Club was making huge profits and it did not bother what taxes it paid. It may be that it had not realised its rights in the matter. Be that as it may, if in principle these expenses must be allowed as outgoings there can be no reason why they should not be allowed in arriving at the net profits. Since no part of the item was challenged as being not necessary for the purposes of the Race Course at Bombay, it would not be proper now at this stage to direct an enquiry even about Item No. 11 in respect of which Mr. Mistree contended that except such expenses as were actually incurred for the purposes of the Club nothing could be allowed. We, accordingly, differ from the finding made by the learned Judge and direct that these expenses also should be deducted.
17. The last item is regarding the licence fee. The total licence fee imposed by the State Government is Rs. 15,00,000 per year. The terms of the licence provide that if in any year the net profits of the Club are not sufficient to pay off the said fee, the Government may at its discretion reduce the licence fee but in no case below Rs. 10,00,000. The fee of Rs. 15,00,000 has been apportioned by the Club between the races run at Poona and Bombay. Under the licence the Club is permitted to hold in all 36 race meetings out of which not more than 14 have to be held at Poona. The Club holds 12 race meetings in Poona and 24 in Bombay and the licence fees are therefore divided in proportion of 1:2. For the relevant year the Government charged a fee of Rs. 13,00,000. Bombay share of the licence fee therefore comes to Rs. 8,66,666-10-8 of which only half viz. Rs. 4,33,333-5-4 is allowed as deductible expenses. The reason given by the learned Judge is contained in para. 23 of his judgment. The learned Judge says that if the fees are payable to enable the tenant to conduct race meetings then it is the tenant's burden and if the fees are payable for the premises to be let as a Race Course, it would be the landlord's burden. He seems to be of the view that as the licence exh. B permits the use of the premises as Race Course and permits the Turf Club to run the races thereon, the burden must be considered to be both of the landlord and of the tenant, and the apportionment therefore is justified. In our view, it is wrong to consider the lease and the licence for this purpose. The lease permits the Race Course to he used as a Race Course for the obvious reason that the Corporation does not want the Turf Club to convert it into building plots or to put it to any other use but to the use for which alone it is let. It has not been licenced as licenced premises for a particular purpose. This restriction to use it for the purposes of Race Course is such as is contained in any lease between a landlord and a tenant who restricts the user of the premises for a particular purpose only. It is erroneous to infer from such a term that the premises were licensed to be used in a particular manner and therefore the use was restricted. It is also erroneous to draw such inference from the terms of the licence given by Government for running the races. In order to ascertain on whom the burden is, one has to go to the Licensing Act itself and then determine on whom the burden lies.
18. This brings us to the Bombay Race-Courses Licensing Act, 1912, being Bombay Act III of 1912. Mr. Mistree contends that the scheme of the Act is first to licence the premises and then to licence the person who runs the races. He relies on the heading of the Act as well as Sections 3, 5, 6 and 7. The heading is 'licensing of Race-Courses in the State of Bombay'. Section 3 is the prohibiting section and says that no horse-race shall ,be held save on a racecourse for which a licence for horse-racing is granted in accordance with the provisions of the Act. Prom this section and from Section 5 which makes it penal for any one taking part in the horse-races for which there is no licence as provided by Section 4 of the Act and similar provisions in Sections 6 and 7 it is contended that the intention is to licence the premises and also to licence any person who wants to hold race meetings. In our view, that is not a reasonably possible interpretation. The main provision is Section 4 which has been referred to in Sections 5, 6 and 7 and also with sufficient directness in Section 3, since the requirement is that there should be a licence as required by Section 4. Section 4 says that the owner, lessee or occupier of any race-course may apply to the State Government for a licence for horse-racing on such race-course. It is clear from the section that the person who wants to hold races on the premises has to make the application for the licence in reference to the Race Course. If it is the owner, then the owner must apply, if it is the lessee, then the lessee must apply and if it is the occupier, then the occupier must apply. When Section 4 refers to the word 'owner', 'lessee' or 'occupier' it means any such owner, lessee or occupier of a race-course who wants to run horse-races on such race-course and none other. A reading of the provisions makes it impossible to hold that the Act intended licensing of the two separately and, therefore, the burden must be apportioned as contended for by the Corporation. The passage at p. 460 in Ryde on Rating where, after referring to the decisions in some of the cases, the learned author points out that the existence of the licence in respect of the premises must be taken into account in determining the amount of rent that a hypothetical tenant would pay was relied upon. In the first place, these observations have been made in connection with public houses which may under the statutes in force in England require to be licensed for doing a particular kind of business as premises intended for the business. Since this particular requirement is absent, no such question arises in the present case. Apart from it, since the burden has been laid on the tenant, and when we are only determining the profits for the purposes of arriving at the rent which a hypothetical tenant would pay, it cannot be argued that a portion of the licence fee should be disregarded while determining the profits. In our view, the partial disallowance of the licence fee was not justified.
19. [The rest of the judgment is not material to this report.]