Rama Rao, J.
1. The defendants are the appellants. This appeal arises out of a suit filed for recovery of a sum of Rupees 34,304.04 p. Including the warrant fee of re. 0.12p. being the house tax due from the defendants on the suit schedule building for the years 1968-69 to 1971-72. The break-up for the said years is:
1968-69 ....... Rs. 4,096.901969-70 ...... Rs. 4,596.901970-71 ....... Rs. 4,229.081971-72 ....... Rs. 4,229.08
The averments in the plaint are that the plaintiff is entitled to assess and collect the property tax in respect of houses and lands within the Municipal limits of visakhapatnam. The defendants are the owners of a house situated in ward No. 20 and the schedule property was assessed to municipal tax for the years 1968-69 to 1971-72. As the defendants are the owners of the house, they are under an obligation to pay the tax but failed to pay the amounts in spite of demand and a warrant.
2. The 1st defendant filed a written statement and the 2nd defendant adopted the same. The 1st defendant admitted that the defendants are the owners of the plaint schedule building but averred that the assessment made by the plaintiff for payment of property tax is devoid of any basis and invalid. The defendants leased out the said building and the appurtenant site to M/s. Bajaj Hotels (private) limited for 98 years at an annual rent of Rs. 9,000/- and the assessment of th property tax has to be made only on rental basis and calculated on the basis of the rent received the plaintiff is not competent to levy the yearly tax more than Rs. 2,400/- it is also further averred that the assessment is wrong illegal and excessive and the method of levy of tax appears to be on the basis of the income said to have been received by the lessees. Further, the sum of Rs. 4,000/- paid by the defendants is not given credit to and the plaintiff is not entitled to a decree for the sale of the plaint schedule property.
3. Basing upon these pleadings, the following issues are framed:-
(1) whether the assessments made by the plaintiff for payment of property tax in respect of the defendant's building is baseless, Arbitrary and invlaid?
(2) whether the suit claim is not maintainable?
(3) To what relief?
4. On issue No. 1 the learned subordinate Judge visakhapatnam held that the provisions of the Andhra pradesh Municipalities Act do not contemplate that the lease amount should be the basis for fixing the annual rental value of the building and the assessment made by the municipality is not arbitrary and invalid as the suit building consisted of 30 rooms and the rent ranges from Rs. 25/- to rs. 80/- per day. On issue No. 2 it is held that the suit claim is maintainable. In view of the findings arrived at on issues 1 and 2 preliminary decree is passed.
5. The learned counsel for the appellants contended that in respect of the house leased out, the basis for the levy of municipal tax is the rental amount received from the tenant and as such the levy of tax based upon the amount or income that could have been received by the tenant is not contemplated by the provisions of the Act and as such, the levy of tax is devoid of basis. Further, it is always open to the defendants to resist the claim for recovery of the municipal tax if such tax is not in conformity with the provisions of the Act. The learned counsel for the respondent contended that in the case of houses let out the lease amount is not invariably the basis for the levy of municipal tax and the potential rent or income that is likely to fetch can be made the basis for levy of municipal tax. It is also further contended that the suit questioning the legality or validity of the assessmetn is barred under S. 356 of the District Municipalities Act and a fortiori the plea that the levy is not sustainable is also not open to the defendants in a suit filed by the Municipality.
6. The central section that controls this decision is S. 87 of the Andhra pradesh district (?) Municipalities Act, 1965 prevailing during the assessment years in question. Section 87 may be extracted:
'87. (1) Every building shall be asessed 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.
(2) (a). The capital value of lands and buildings shall be determined in such due regard to the prevailing market value of the building and the land on which it stands.
(b) The annual rental value of lands or buildings shall be determined in such manner as may be prescribed having due regard to the rent received in respect thereof:
Provided that in respect of any building and the land appurtenant thereto, the fair rent of which has been fixed under S. 4 of the Andhra pradesh buildings (lease, rent and Eviction) control Act, 1960 (Andhra pradesh Act 15 of 1960), the gross annual rent shall be the annual amount of the fair rent so fixed'.
xx xx xx
Section 87 postulates two situations for the levy of tax. Sub-sec (2) (a) pertaining to the capital value as the basis provides that the capital value shall be determined having due regard to the prevailing having due regard to the prevailing market value of the building and the land on which it stands. Sub-sec. (2) (b) is cncerned with a situation when the building is let out and the rental value should be determined. The rental value should be determined having due regard to the rent received in respect of the building. The proviso pertaining to sub-sec. (2) (b) envisages that in the event of fixation of the rent under S. 4 of the Andhra pradesh Buildings (lease rent and Eviction) control Act, 1960 the rental value under subsec. (2) (b) should not exceed the actual amount of the rent fixed under the rent control Act. Though sub-sec (2) (a) and (b) provide the manner of determination of the tax by prescription, no Rules have been framed pursuant to S. 87 (2) (a) or (b). To get at the real content of this provision, it will be profitable to advert to the legislative antecedent and succession to this provision. The analogus predecessor provision i.e., S. 82 (2) of the Municipalities Act, 1920 provides for the fixation of annual value according to the rent at which lands and buildings may reasonably be expected to be let from month to month or from year to year less the specified deduction. The latter amended provision as a result of Act XXIII of 1975 is as follows:-
'87 (2) Tha annual rental 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 per cent 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 repairs or an any other account whatever:
Provided that in respect of any building and the land appurtenant thereto, the fair rent of which has been fixed under S. 4 of the Andhra pradesh Buildings (lease, Rent and Eviction) control Act, 1960, the gross annual rent shall be the annual amount of the fair rent so fixed.'
7. It is patent that the amendment brought by Act No. XXIII of 1975 reverted to the earlier provision prevailing under the District Municipalities Act, 1920 wherein the rent at which the premises may reasonably be expected was provided. During the periods relevant for the purpose of this appeal, the provision then prevailing and applicable is S. 87 (2) (b) before amendment in 1975, A close scrutiny of S. 7 reveals that three modes of assessments are visualised. In the event of premises under self-occupation or not let out the capital value is the basis for arriving at the market value of the building on the basis of which the Municipal tax has to be levied. In the event of leasing out the premises the rental value is postulated as the basis for assessment of tax and two modes have been modulated for arriving at the rental value. The criterion of the receipt of rent is evolved for the determination of the annual rental value. The proviso to sub-sec. (2) (b) seeks to determine the rental value with reference to fair rent fixed under S. 4 of the Andhra pradesh Buildings (lease, rent and Eviction) control Act, 1960 in respect of buildings covered by the Rent control Act.
8. The essence of the contention of the learned counsel for the respondent is that even in a situation where the premises is let out, the annual rental value can be fixed up on the amount of rent that the premises is reasonably expected to fetch. It is stressed by the learned counsel that in this case the lessee gets a fabulous amount of Rupees 25/- to Rs. 80/- per day and that amount should be the basis and further this is a case where the owners leased out to himself because M/s. Bajaj Hotels (private) Limited is a company wherein the owners are having a substantial share holding and the abnormal low rent of Rs. 9,000/- per annum and grant of lease for a period of 98 years at the same rent appears to be nominal and collusive.
9. S. 87 (2) (b) at the relevant time made a departure from the analogous provision of S. 82 (2) under the district Municipalities Act of 1920 and thereafter this provision is again amended by Act No. XXIII of 1975 and by this amendment the original tenor of the provision is restored. By Act No. XXIII of 1975, 'reasonably expected to be received' has been substituted for the expression ' having regard to the rent received in respect thereof'. The expression ' having regard to the rent received in respect thereof'. The expression 'reasonably expected to be received' is in the realm of estimation on a consideration of several factors and this expression was substituted by 'having regard to the rent received' with an obvious intention of the basis of annual rent to be in close proximity to the actual receipt of rent if not equal to the rent fetched. The difference in the language employed and the subsequent reversion to the original expression clearly indicates that different connotation was sought to be credited to as otherwise there is no necessity for the latest amendment. The receipt of either rent or profit or otherwise by the lessee in the building let out cannot be the basis for levy of tax on the owner. The owner is not concerned with the amount that the lessee manages to get by dint of his ability or resources or otherwise; and the owner cannot be mulcted with the liability to pay the tax on the basis of the rents or profits received by the lessee. This approach leads to an incongruous result and a situation can be visualised wherein the lessee can get more rent or return in th event of subletting or doing business and if levy on the basis of the said amount is done the rent realised will not be sufficient to meet the liability of tax.
10. The learned counsel for the respondent relied upon the decision of the Supreme Court in Guntur Municipal council v. Guntur Town Rate payers' Association, : 2SCR423 . In this decision the Supreme Court is concerned with the interpretation and applicability of S. 82 (2) of the Madras district Municipalities Act 1920 where it is provided that 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. The question that came up for consideration is whether before the fixation of fair rent on the premises under the Rent control Act, the Municipality was bound to make assessment in the light of the provisions contained in the rent acts. In the context of considering this issue, th Supreme Court held as follows:-
'We are unable to agree that on the language of S. 82 (2) of the Municipalities Act any distinction can be made between buildings the fair rent of which has been actually fixed by the controller and those in respect of which no such rent has been fixed. It is perfectly clear that the landlord cannot lawfully expect to get more rent than the fair rent which is payable in accordance with the principles laid down int eh Act. The assessment of valuation must take the assessment of valuation must take into account the measure of fair rent as determinable under the Act. It may be that where the controller has not fixed the fair rent the municipal authorities will have to arrive at thier own figure of fair rent but that can be done with out any difficulty by keeping in view the principles laid down in S. 4 of the Act for determination of fair rent'.
In this decision, the interpretation is with regard to the expression 'may reasonably be expected' used in S. 81 of the Act.
11. In Lokmanya Mills Barsi Ltd v. Barsi borough Municipality, Barsi, : 1SCR306 , R. 2C framed by the Barsi Municipality under S. 58 (j) of the Bombay municipality Boroughs Act for asessing house tax and water tax for factory buildings was held to be illegal and ultra vires of the Act. This decision is not directly concerned with the issue involved in the instant case.
12. In corporation of calcutta v. Smt. Padma debi, : 3SCR49 , the Supreme Court is concerned with section 127 (a) of the calcutta Municipal Act, 1923 wherein the provision to the extent relevant is:
'........... the gross annual rent at which a building or land might reasonably be expected to let from month to month'.
In this context, it is held as follows (p. 154):
'It is said that S. 127 (a) does not contemplate the actual rent received by a landlord but a hypothetical rent which he can reasonably be expected to receive if the building is let. So stated the proposition is unexceptionable. Hypothetical rent may be described as a rent which a landlord may reasonbly be expected to get in the open market, But an open market cannot include a 'back market', a term euphemestically used to commercial transactions entered into between parties in defiance of law. In that situation a statutory limitation of rent circumscribes the scope of the bargain in the market. In no circumstances the hypothetical rent can exceed that limit'.
13. In guntur Town Ratepayers' Association v. Guntur Municipal council (1978) 1 APLJ (High Court) 356, Chinnappa Reddy, J. Considered the applicability of S. 87 (2) which at the relevant time stated that the annual value of the building has to be determined on the basis of 'the gross annual rent at which a building has to be determined on the basis of 'the gross annual rent at which a building may reasonably the expected to let from month to month or year to year'. In the context of considering this issue it is held:
'The gross annual rent at which a building may reasonably be expected to let from month to month or year to year' is not the actual rent which a landlord may receive from a tenant, but the hypothetical rent which a landlord may lawfully receive. Where there is no statute controlling the rent which a landlord may receive from a tenant, the actual rent received from a tenant the actual rent received by a landlord from his tenant may possibly afford the best evidence of the hypothetical rent. But where the rent which a landlord may receive from a tenant is statutorily controlled. The hypothetical rent has to be determined by the municipal authorities in each case, keeping in view the principles found in the statute controlling the rent. It makes no difference whether fair rent' or ' standard rent' has in fact, been fixed by the Court, the Municipal authorities are not absolved from the duty of determining the rent at which the building may reasonably be expected to let from month to month or year to year on the basis of the principles found in the Rent control statute'.
This decision is again concerned with the amplitude of the expression 'reasonably expected'.
14. In Sattenapalli panchayat Board v. Yekkala Lakshmi Kantham, : AIR1973AP156 the impact of Cl. (2) of R. 2 of the Rules for the assessment of house tax framed under S. 64 (1) of the Gram panchayats Act is considered. The said clause states that the annual value of a house shall be deemed to be the gross annual rent at which the house may reasonably be expected to let from month to month. In the context of considering this aspect Madhava Reddy, J., held that whatever rent may be actually realised by the owner of a house or whatever rent the owner of a house occupied by him if it were to be let out, if the house if situate in a place to which the provisions of the Rent control Act are applicable the basis for determining the annual rental value would be the fair rent that may be fixed under the provisions of the rent control Act. It is further held:
'The test is what rent the house can lawfully fetch if let out to a hypothetical tenant'.
The annual value should not be arbitrary but should be the standard rent which is payable for a particular house under the Rent control Act and even in a situation where fair rent is not fixed under the Rent Control Act, absolute discretion is not conferred upon the taxing authority and the fair rent alone would form the basis for determining the annual rent; and for that purpose, the annual rent; and for that purpose,the Gram panchayat has to keep in view the provisions of the rent control Act.
15. In Guntur Municipality v. Gadde subba Rao, (1968) 2 Andh WR 94, the Municipality revised the property tax assessmetn on the basis of hypothetical rents ignoring the rents actually received by the owner of the house. Thereupon the owner of the house. Thereupon the owner of the house filed a suit challenging the validity and legality of the assessment on the ground that the enhancement is not in conformity with the provisions of the District Municipalities Act. Section 82 (2) applied to the years under consideration in this decision. Obul Reddy, J. Held that the revision and enhancement of rent is based on hypothetical rent and this is not in consonance with the provisions of hte Act; and the revision should have relationship to the standard rent and not to the hypothetical rent. It is also further held that it may be that the hypothetical rent fixed by the special revision officer is correct, but the hypothetical rent, in no circumstances. Can exceed the reasonably expected rent which the landlord has been getting. Even on an interpretation of the expression 'reasonably expected', obul Reddy, J. Held that the actual rent received by the landlord is the criterion for determining the annual rental value and the hypothetical rent cannot be resorted to. In this decision it is also held that the jurisdiction of the civil Court is not taken away by the Act where the action taken by the Municipality is not in conformity with th provisions of the Act. It is held that when the Municipality fixed a hypothetical rent which is remote from the actual rent which is remote from the actual rent realised by the landlord is in issue, that can be canvassed in a suit at the instance of the owner questioning th validity and legality of such an assessment.
16. In. C. Padmaraju v. Panchayat Board, samalkot. (1960) 1 Andh WR 63, the enhancement of the assessment of house tax under the Madras village panchayats Act was questioned on the ground that the assessment is not in consonance with the rules framed under the panchayats Act. Rule 2 (2) of the house Tax Rules framed by the Government provides:
'The annual value of a house should be deemed to be the gross annual rent at which the house may reasonably be expected to let from month to month or from year to year, less a deduction of ten per centum of such annual rent and the said deduction shall be in lieu of all allowances for repairs or on any other account whatever'.
In the context of considering this aspect, a Division bench consisting of Chandra Reddy, C.J. and Jaganmohan Reddy, J. Held that the annual value has to be measured by the amount of rent which the landlord is likely to realise having regard to the law applicable to the letting of house and it will be necessary to consider what rent the landlord can reasonably demand and also what rent a tenant can be reasonably expected to pay. The principles set out in S. 4 of the Rent control Act have to be borne in mind in assessing the rental value.
17. The learned counsel for the respondent contended that the expression 'having regard to' occurring in S. 87 (2) (b) is not equivalent to the actual rent paid by the tenant and this provision empowers the taxking authority to assess the rental value taking into consideration or having in view the rent paid by the tenant and this does not exclude the element of estimate. Even considering from this point of view, the expression 'having due regard to' must be construed as having very close proximity to the rent paid by the tenant and in the context of the set up of this provision and as distinct from the preceding and subsequent provision, Having due regard to' has to be considered as equivalent to in the circumstances sub cl. (A) is concerned with the capital value and it is not concerned with the estimate of rent at all as it is concerned only with the value of the buildings and lands. The subsequent provision is relatable to the rent fixed by the authorities under the rent control Act. The area reserved for this provision is the actual rent that has been paid. The element of guess work or estimate is excluded and in any event the annual rental value should (not) be fare removed from inforced by the legislative hisotry. Before this provision was introduced in the 1965 Act, S. 82 which is the analogous provision to this section, contained the expression 'reasonably expected'. The departure from this expression by substituting 'having regard to' must necessarily bear a different connotation. If the intention is to reiterate what is contained in the earlier enactment, there is absolutely no necessity for employing a different language therefore, it is explicitly clear from the language employed that a different object is sought to be achieved. Further in the subsequent amendment brought in by Act No. XXIII of 1975, probably having realised the implications of the expression 'having regard to' and probably with an intention to revert to the original content of that section. The old provision is again substituted. It cannot be controverted that the expression reasonably expected' comprehends the estimate and objective assessment based upon facts and circumstances and by the substituation of the words 'having regard to' the element of estimate is sought to be eliminated. Therefore, the contextual set up unequivocally indicates that tha actual rent realised form the tenant is the basis for assessing the rental value. The expression 'having regard to' has been considered by the Supreme Court in Mysore state Electricity board v. Bangalore wollen cotton and silk Mills LTd, : AIR1963SC1128 after adverting to the decision of the privy council in Ryots of garabandho v. Zamindar of parlakimedi AIR 1943 pc 164, it is held that
'This expression requires that the provisions must be taken into consideration'.
18. The learned counsel for the respondent finally contended that S. 376 of the Municipalities Act bars the suit questioning the levy and assessment of municipal tax; and assuch the plea of the defendants that the assessment cannot be enforced is not maintainable.
19. S. 376 of the Municipalities Act, to the extent relevant isas follos:
(1) No assessment or demand made, and no charge imposed under the authority of this Act shall be quesitoned or affected by reason of any clerical error or by reason of any mistake (a) in respect of the name, residence, place of business or occupation of any person or (b) in the description of any property or thing or (c) in respect of the amount assessed, demanded or charged, provided that the provisions of this Act have been, in substance and effect complied with and no proceedings under this Act shall, merely for defect in form be quashed, or set aside by any Court:
xx xx xx xx
Section 376 bars the filling of the suit in respect of the procedure adopted and also any defect in form and mistakes with respect to the amount assessed, demanded or charged; but however, saves the disputes regarding the non-compliance or deviation of the provisions of the Act. In a situation where there is an infraction of the provisions of the Act, it cannot be said that the suit is not maintainable. Further in a suit is not maintainable. Further in a suit for recovery of tax, it is open to the defendant to plead that both the levy and collection of tax are illegal. The plea of the defendants in this case is that the levy of assessment of tax deviates from the provisions of S. 87 of the Act. The essence of the plea is that the assessment is not in conformity with S. 87 (2) (b) which says that the rent received is the basis for assessing the rental value the estimate of value or the assessment on the basis of rent by the leesee or the tenant is far remote from the intention of S. 87 (2) (b) and as such the plea in defence is maintainable.
20. The learned counsel for the appellant relied upon the decision in Vizianagaram Municipality v. Bhaskara rao, : AIR1965AP326 where a Division Bench of this Court consisting of Satyanarayana Raju J. And Kumarayya. J. Held that the ouster of civil court's Jurisdiction under S. 364 of the Madras District Municipalities Act is only partial and is confined to the language and intendment of the provisions. The impeachment of the assessment or demand is not permissible on the ground that there is a clerical error or mistake in respect of the amount assessed. But in a situation where the provisions of the Act have not in substance and effect, complied with by the authority while making the assessment, the jurisdiction of the civil Court is unaffected.
21. The learned counsel for the respondent contended that in any event the amount of rent that is said to have been received by the defendants cannot be considered as correct or final. The defendants are having a substantial share-holding in the Limited company and they are the directors and the company was floted at their instance; and as such it is tantamount to the defendants leasing the suit building to themselves. This contention is untenable the factum of the defendants being shareholders or directors in theLimited company does not deflect the fundamental issue that the Limited company is a separate and distinct legal entity different from the persons who are share holders of the company. A limited company, when it is registered under the companies Act has a distinct corpus and personality and as such collusion or otherwise cannot be permitted to be contended further S. 87 (2) (b) is converned with the rent that has been received and does not extend to the position of piercing the corporate veil and discern the substance of the matter.
22. It is also contended that the remedy is open to the defendants by way of an appeal under R. 22 of Sch. I of the Municipalities Act; and as such this plea is not maintainable. It must be borne in mind that the defendants have not initiated action and they are defending themselves against the onslaught of the illegal and invlaid assessment and collection pursuant to the same. They are not questioning the quantum of assessment as such; but the basis of assessment. In the circumstance,s the suit is not barred; much less the plea in defence against, the suit filed by the Municipality.
23. In the circumstances the judgment and decree of the Court below is set aside. Appeal allowed. No costs throughout. This does not preclude the municipality to make a fresh assessmetn on the basis of the rent received as indicated above.
24. The learned counsel for the respondent moved an oral application for leave to appel to Supreme Court. There is no substantial question of law much less any question of law of general importance which requires to be decided by the Supreme Court. Hence we cannot certify that it is a fit case and the and the oral leave is refused.
25. Appeal allowed.