G.P. Singh, C.J.
1. The Municipal Council. Satna by this petition under Article 226 of the Constitution, challenges the assessment of property tax for the year 1975-76 on the lands and buildings of M/s Birla Jute ., which has a cement factory at Satna under the privisions of the Madhya Pradesh Nagriya Sthawar Sampatti Kar Adhiniyam, 1964.
2. The property tax under the Adhiniyam is assessed and collected by the State Government. Sixty per cent of the tax realised in respect of the lands or buildings within the limits of a local authority is to be paid to that authority by the Government after deducting collection charges, as is provided in Section 36 of the Adhiniyam. The case of the petitioner Council is that the tax was assessed contrary to the principles set out in the Adhiniyam and was very low and as the Council has to get 60% of the tax realised, it had a sufficient interest to file this petition for challenging the assessment. The fact that the petitioner Council is entitled to 60% of the tax realised for the year 1975-76, in our opinion gives it a standing to challenge the assessment. Indeed, this legal position was not contested by the learned counsel appearing for the respondent company.
3. The Property-tax Officer by order dt. 31st March 1975 (Annexure P-2) imposed Rs. 3.02.782.54 as property tax on the buildings and lands of the company. The company filed an appeal which was allowed by the Assistant Property-tax Commissioner bv his order dt. 5th July 1975 and the case was remanded. After remand, the Property-tax Officer by order dt. 3rd Sept. 1975 reiterated his earlier order. The company again filed an appeal to the Assistant Property-tax Commissioner which was dismissed as time barred on 29th Sept. 1976. The Company then preferred a second appeal to the Deputy Property-tax Commissioner which was allowed on 16th Nov. 1976 and the tax imposed by the Property-tax Officer was reduced to Rs. 66,078.04. The Deputy Property-tax Commissioner has determined the annual letting value of lands and buildings which were not let out on the basis of one-twentieth of their valuation as given in the balance-sheet of the company for the relevant year. Further, the Deputy Property-tax Commissioner excluded from consideration two chimneys on the ground that they were part of the machinery.
4. Learned counsel for the petitioner contends that the authorities in determining the annual letting value purported to act under Section 5 (ii) but they failed to apply the correct principles. According to the learned counsel, the valuation made on the basis of balance-sheet was wholly irrelevant. The learned counsel argues that the factory building should have been valued by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto, and one-twentieth of this valuation should have been adopted as the annual letting value of the factory building. It is also submitted that in case of other lands or buildings which were not let out. the annual letting value should have been determined on the basis of the annual rent at which they could have been let out having regard to the prevailing rent in the neighbourhood. It is also contended by the learned counsel that the chimneys are made of fire bricks and fall within the definition of building as contained in the Adhiniyam and they could not be held to be forming part of the machinery installed in the factory building. Learned counsel for the company in answer submitted that the annual letting value ought to have been determined under Section 5 (i). He further submitted that Section 5 (ii) (a) which required that the factory building should be valued by adding the present cost of erecting the building to the estimated value of the land appurtenant thereto and one-twentieth of this valuatiin should be taken to be the annual letting value is unconstitutional and void. Learned counsel supported the finding that the chimneys were part of the machinery and did not form part of the building.
5. Section 5 of the Adhiniyam reads as follows :--
'5. Determination and revision of annual letting value.-- The annual letting value of a land or building shall for the purposes of the Act be deemed to be an amount equal to:--
(i) Where the annual value or the annual letting value of the land or building has already been determined prior to the 1st day of April 1970 under the law relating to local authority and--
(a) there is no order under Sub-clause (b), the annual value or the annual letting value so determined subject to deduction of 10 per cent of such value in cases where no such deduction was permissible under such law in determining such value :--
Provided that if in the case of any land or building the Property-tax Commissioner is, for reasons to be recorded in writing, of the opinion that the annual value or the annual letting value so determined has become inadequate or excessive subsequent to the determination of the annual value or the annual letting value as aforesaid, he may determine the annual letting value thereof in the manner laid down in Clause (ii); (b) if the State Government, being of opinion that the annual value or the annual letting value determined under the law relating to local authority is generally inadequate or excessive or has not been determined during the last annual letting value of the land or building in that local area be determined in the manner laid down in Clause (ii), the value determined in the said manner; and
(ii) in cases not covered by Clause (i)--
(a) where the building is a hotel, factory, or such other building as may be prescribed, one-twentieth of the sum obtained by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto:
(b) where the land or the building is let out the annual rent or twelve times of the monthly rent, as the case may be, payable therefor to the owner, and (c) where the land or the building not being a building covered by Sub-clause (a), is not let out and is in the actual occupation of the owner or of any other person on his behalf, other than as a tenant, or is lying vacant, the annual rent, or twelve times of the monthly rent at which it could have been let out having regard to the prevailing rents in the neighbourhood and such other factors as may be prescribed :--
Provided that in determining the annual letting value of any land or building under Clause (ii)--
(a) the rent or such amount as can reasonably be assessed to be the rent in respect of any machinery, furniture, or fixtures in such land or buildings; and
(b) in case falling under Sub-clauses (b) and fc), ten per cent of the annual rent as determined therein; shall not be taken into account.'
6. We will first take UP the argument of the learned counsel of the respondent Company that the Property-tax Officer should have applied Section 5 (i) instead of Section 5 (ii). It is true that the annual letting value had been determined prior to 1st April 1970 in accordance with the Municipalities Act but in the instant case, the Property-tax Officer without objection from any party, applied Section 5 (ii) and re-determined the annual letting value. The only mistake committed by the Property-tax Officer was not to record in writing his opinion as required by the proviso to Section 5 (i) that the annual letting value determined prior to 1st April 1970 in accordance with the Municipalities Act had become inadequate. It was obvious that due to increase in the prevailing rates of rent the annual letting value determined prior to 1st April 1970 under the Municipalities Act had become inadequate. It was for this reason that the Company did not object when the Property-tax Officer proceeded to re-determine the annual letting value under Section 5 (ii). Even before the Deputy Property-tax Commissioner the Company did not challenge the assessment made by the Property-tax Officer on the ground that he should have proceeded under Section 5 (i). The Company has also not come up under Article 226 of the Constitution to challenge the order of the Property-tax Officer or the order of the Deputy Property-tax Commissioner on the ground that the correct provisions applicable was Section 5 (i) and not Section 5 (ii). We cannot, therefore, now permit the respondent Company to raise that point and to contend that Section 5 (ii) was not attracted, in any case, under these circumstances, the omission to record the opinion by the Property-tax Officer under the proviso to Section 5 fi) does not invalidate the assessment proceedings taken under Section 5 (ii).
7. We now take up the contention that Section 5 (ii) (a) of the Adhiniyam is ultra vires. This section provides that where the building is a hotel or factory, one-twentieth of the sum obtained by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto shall be deemed to be the annual letting value. The argument of the learned counsel for the respondent Company is that Clause (g) is discriminatory and that a factory building should also be valued in accordance with Clause (b) or (c) of Section 5 (ii). Cl- (b) of Section 5 (ii) applies when the building is let out. Clause (c) applies when the building is not covered by Clause (a) and is not let out and is in the actual occupation of the owner. Jn such a case, the annual rent at which the building could have been let out having regard to the prevailing rent in the neighbourhood is deemed to be the annual letting value. It is now well settled that there are three modes for determining the annual letting value of a building viz., (1) actual rent fetched, (2) where it is not let. rent based on hypothetical tenancy and (3) where either of these two modes is not available, by valuation based on capital value by applying a suitable percentage. Gordhandas v. Municipal Commr.. AIR 1963 SC 1742 at p. 1747. Century Spinning and . v. District Municipality of Ulha.snagar, AIR 1968 SC 359, and Godhara Borough Municipality v. Godhara Electricity Co. AIR 1968 SC 1504 Section 5 (ii) adopts these three modes for determination of annual letting valce. Section 5 (ii) (b) covers cases where the building is let out. Section 5 (ii) (c) covers cases where the building could be let out but has not been ]et out and Section 5 (ii) (a) covers those cases where the building cannot be normally let out. if a building is not let out and if it cannot be easily let out, it is difficult to fix its an-nual letting value by adopting the mode of actual rent or rent based on hypothetical tenancy. In such cases, the annual letting value must be determined on the basis of capital value of the building. It is this method which has been adopted under Section 5 (ii) (a). A hotel building or a factory building cannot be easily let out and. therefore, determination of annual letting value on the basis of hypothetical rent is not possible. Annual letting value of such a building has. therefore, to be fixed on the basis of its capital value. As the classification made by Clauses (a), (b) and (c) of Section 5 (ii) is reasonable and proceeds upon the well recognised modes for determining annual letting value, no fault can be found with it and it. cannot be said that owners of hotel buildings and factory buildings have been discriminated. These persons constitute a class by themselves and, therefore, they are separately dealt with by Section 5 (ii) (a).
8. It was also argued by the learned counsel for the petitioner that there is no reason for deriving the annual letting value with reference to the present cost of erecting the building and ! he Legislature should have made provision, if at all, for determining the annual letting value with reference to the original cost of erection of the building. In our opinion, there is no substance in this argument. It is true that the cost of erection of a building has been continuously rising but speaking generally, the annual letting value of buildings of the same capacity would be the same although they were constructed at different times. To bring about this uniformity, the Legislature under Section 5 (ii) (a) adopts the present cost of erecting the building as the basis and not the original cost of erection. It is well settled that in arranging its tax policy, the Legislature has a wide discretion and the provision cannot be struck down on the ground that if the Legislature had adopted the original cost of erection as the criteria under Section 5 (ii) (a), the tax liabilities of the respondent Company would have been much less.
9. Learned counsel for the respondent Company further submitted that in levying tax on lands and buildings, the Legislature is not competent to tax a factory. The Adhiniyam is a Law falling under List II Entry 49 of the Constitution which permits the Legislature to impose taxes on lands and buildings. The word 'factory' as mentioned in Section 5 (ii) (a) on proper construction refers to the factory buildings. This is clear from proviso (a) to Section 5 (ii) which says that the rent or such amount as can reasonably be assessed to be the rent in respect of any machinery, furniture, or fixtures has to be excluded. So the annual letting value determined in respect of a factory will cover only the annual letting value of the factory building and not of machinery, furniture and fixtures. It cannot, therefore, be said that the Legislature has gone beyond its taxing power under Entry 49 of List II. The point is squarely covered against the respondent Company by the decision of the Supreme Court in Govt. of A. P. v. Hindustan Machine Tools, AIR 1975 SC 2037 : (1975 Tax LR 2013) (Para 14). We may also mention that the validity of the entire Act was earlier upheld by this Court in Seth Devkumarsinghji v. State of M. P. 1967 MPLJ 47 : (AIR 1967 Madh Fra 268).
10. In our opinion, the learned counsel for the petitioner is correct in contending that the annual letting value of the factory building should have been determined in accordance with Section 5 (ii) (a) as one-twentieth of the estimated present cost of erection of the building plus the estimated value of the land appurtenant thereto. There was no scope for taking the valuation given in the balance-sheet with or without depreciations mentioned in it. The figures given in a balance-sheet are on the basis of original cost and depreciation and are wholly irrelevant for assessment of property tax : see Godhara Borough Municipality v. Godhara Electricity (AIR 1968 SC 1504 at p. 1509) (supra). Similarly, annual letting value of other lands and buildings which were not let out should not have been determined under Section 5 (ii) (c). In other words, the property-tax Officer and the Deputy Property-tax Commissioner should have applied Section 5 (ii) (a) to factory ' building. Section 5 (ii) (b) to lands and buildings which were let out and Section 5 (ii) (c) to other lands and buildings. Although the authorities purported to act under Section 5 (ii), they did not correctly apply the provisions of the section.
11. We then come to the question whether the chimneys in the factory building are building within the meaning of the Adhiniyam. The chimneys are structures made of fire bricks. Smoke and gases produced in the factory in the process of manufacture of cement are let put through these chimneys. Section 2 (c) of the Adhiniyam defines building to include 'a house houses, table, shed; hut and ether enclosure or structure whether of masonry, bricks, wood, mud, metal or any other material whatsoever, whether used as a dwelling or otherwise,' and also 'verandahs, fixed platforms, plinths, doorsteps, walls including compound walls and fencing and the like' but not 'a tent and other such portable or temporary structure.' This definition is very wide and it includes a structure whether of masonry, bricks, wood, mud, metal or any other material whatsoever, whether used as a dwelling or otherwise. This wide definition apparently covers the chimneys, which as earlier stated are structures of fire bricks. Learned counsel for the respondent Company relied upon the case of Ghanshiam Das v. Debi Pra-sad, AIR 1966 SC 1998. In this case a brick-kiln which was a pit with some bricks by its side with no structure over the land was not held to be a building within the meaning of Sec, 9 of the Uttar Pradesh Zamindari Abolition and Land Reforms Act. 1951, which did not contain any special definition. Now a pit with some bricks on its side is entirely different from the chimneys with which we have to deal with in the instant case. Moreover, the Adhiniyam contains a very wide definition of 'building' whereas there was no such definition in the Uttar Pradesh Act considered in Ghanshiamdas's case. That case has thus no application here. We may also mention that in State of Bombay v. Ven-katrao, AIR 1966 SC 991 an open platform without any wall or roof was held to be a building in the context of the Madhya Pradesh Abolition of proprietary Rights Act. 1951.
12. Learned counsel for the company then submitted that the chimneys must be held to be machinery within the meaning of proviso (a) to Section 5 (ii) and the rent or such amount as can be reasonably assessed to be rent of the chimneys should not be taken into account in determin;ng the annual letting value of factory building. The Adhiniyam contains no definition of machinery. The Privv Council in Corporation of Calcutta v. Cossipore Municipality, AIR 1922 PC 27 observed that the word machinery when used in ordinary language, prima facie, means 'some mechanical contrivances. which by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.' It was further observed that 'machinery' must mean 'something more than a solid structure built upon the ground, whose parts either do not move at all or if they do move, do not move the one with or upon the other in interdependent action with the object of producing a specific and definite result.' The Privy Council in that case held that a steel tank with its supporting structure for storage of water which was supplied to Calcutta was not 'machinery' excepted from property tax leviable under the Bengal Municipal Act, 1884. The definition of 'machinery' as formulated by the Privy Council was adopted by the Supreme Court in I. T. Commr. v. Mir Mohd. Ali, AIR 1964 SC 1693 and followed by this Court in R. M. E. W. v. Commr. of S. T., M. P., 1976 M. P. L. J. 244 : (1976 Tax LR 1751) (FB). Tested in the light of the Privy Council decision, chimneys which are merely solid structure built upon the ground whose part do not move at all cannot be considered to be 'machinery' within the meaning of the provise (a) to Section 5 (ii) of the Adhiniyam.
13. Before concluding, we must state that both parties agreed before us that as this case relates only to the year 1975-76 and as after this year the Adhiniyam has ceased to apply, it would not be necessary to prepare an assessment list and that the Property-tax Officer should be directed to make the assessment of property-tax for this particular year in respect of the lands and buildings of the company in accordance with Sections 4 and 5 of the Adhiniyam. We have already held that the correct provision applicable is Section 5 (ii). We may also mention that in applying the rate of tax under Section 4 each building has to be taken as a separate unit as held by a Division Bench of this Court in Rao Nihal Karan v. State of M. P., 1977 Jab LJ 712 : (1978 Tax LR (NOC) 77).
14. For the reasons given above, the petition is allowed. The orders passed bv the Property-tax Officer, Assistant Property-tax Commissioner and the Deputy Property-tax Commissioner relating to assessment for the year 1975-76 are quashed and the case is sent back to the Property-tax Officer for making fresh assessment of tax for the year 1975-76 in the light of the observations made above. The petitioner win get costs of this petition from the respondent Company. Counsel's fee Rs. 250/-, if certified. The amount of security deposit be refunded to the petitioner.