V.S. Deshpande, J.
(1) The sole question for decision in this petition is whether the building of the petitioner at Simla which is in existence from bifore the year 1938 but with respect to which no fair rent has been fixed under Section 4 of the East Punjab Urban Rent Restriction Act, 1949 is to be assessed by respondent No. 1, Municipal Committee Simla, to a tax payable by the owner on building on the annual value as ascertained according to the definition in Section 3(1)(b) of the Punjab Municipal Act, 1911 or as restricted by the definition of fair rent enacted in Section 4 of the East Punjab Urban Rent Restriction Act, 1949.
(2) We may, thereforee, read the relevant portions of Section 3(1) (b) of the Punjab Municipal Act, 1911 and of Section 4 of the East Punjab Urban Rent Restriction Act, 1949 which are as follows :- 'S. 3. Definition.- In this Act, unless there is something repugnant in the subject or context,- (1) 'annual value' means- (a) ................................................ (b) in the case of any house or building, the grosss annual rent at which such house or building, together with its appurtenances and any furniture that may be let for -use or enjoyment therewith, may reasonably be expected to let from year to year, subject to the following deductions -- (i) such deduction nto exceeding 20 per cent of the gross annual rent as the committee in each particular case may consider a reasonable allowance on account of the furniture let therewith ; (ii) a deduction of 10 per cent for the cost of repairs and for all toher expenses necessary to maintain the building in a state to command such gross annual rent. The deduction under this sub-clause shall be calculated on the balance of the gross annual rent after the deduction (if any) under sub-clause (1) ; (iii) where land is let with a building such deduction, nto exceeding 20 per cent, of the gross annual rent, as the committee in each particular case may consider reasonable on account of the actual expenditure, if any, annually incurred by the owner on the upkeep of the land in a state to command such gross annual rent ; Explanationn I.-For the purposes of this clause it is immaterial whether the house or building, and the furniture and the land let for use or enjoyment therewith, are let by the same contract or by different contracts, and if by different contracts, whether such contracts are made simultaneously or at different times. Explanationn II.-The term 'gross annual rent' shall nto include any tax payable by the owner in respect of which the owner and tenant have agreed that it shall be paid by the tenant. Section 4. (1) Determination of fair rent.-The Controller shall on application by the tenant or landlord of a building or rented land fix the fair rent for such building or rented land after holding such inquiry as the Controller thinks fit.
In determining the fair rent under this section, the Controller shall first fix a basic rent taking into consideration- (a) the prevailing rates of rent in the locality for the same or similar circumstances during the twelve months prior to the 1st January. 1939, and (b) the rental value of such building or rented land if entered in property tax assessment register of the municipal town or ntoified area committee, cantonment, board as the case may be, relating to the period mentioned in clause (a).'
(3) The key words in the definition of the 'annual value' of the building are' the gross annual rent at which such building............may reasonably be expected to let from year to year.' In short the basis of the annual value is the reasonable letting value of the building. This concept of reasonable letting value has always been the standard basis of assessing the annual value of building for imposing taxes on building. Its meaning has, thereforee, been considered in the past on mumerous occasions. The key words of the definition of 'annual value' in Section 127(a) of the Calcutta Municipal Act, 1923 were precisely the same as those in section 3(1)(b) of the Punjab Municipal Act, 1911. They were construed by the Supreme Court in the Corporation of Calcutta v. Smt. Padma Debi in paras 5 and 6 as follows by Subba Rao, J. (as he then was) speaking for the Court -- 'The criterion, thereforee, is the rent realisable by the landlord and nto the value of the holding in the hands of the tenant.' 'The word 'reasonably' in the section throws further light on this interpretation. The words 'reasonably' is nto capable of precise definition. 'Reasonable' signifies 'in accordance with reason'. In the ultimate analysis it is a question of fact. Whether a particular act is reasonable or nto depends on the circumstances in a given situation. A bargain between a willing Lesser and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship, and such toher considerations may take it out of the bounds of reasonableness.'
(4) As we understand the above decision of the Supreme Court, it lays down the rule for ascertaining the fair letting value and also the exceptions to the rule. When the assessing authority considers the case of a building to find out its reasonable letting value the very first material before it would be the actual rent which the house is fetching. It is an elementary fact of economic life that the price of a thing is determined by supply and demand in a free market. In case of a building we have the landlord on one side who supplies the accommodation and we have the prospective tenants who offer to take the building on lease. In normal circumstances the contract of lease between the Lesser and the lessee will be brought about by the free play of the forces of demand and supply. This is why the Supreme Court has stated that 'a bargain between a willing lesser and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness.' In the nature of things the actual rent paid for the building would as a rule be taken to be the best basis to represent its fair letting value arrived at by the free play of the forces of demand and supply unless certain extraneous circumstances have prevented the free play of supply and demand. The instance of such extraneous circumstances were given by the Supreme Court to the very next sentence when it .was stated that 'an inflated or deflated rate of rent based upon fraud, emergency, relationship, and such toher considerations may take it out of the bounds of reasonableness'. These exceptions to the rule that the actual rent fetched by a building is generally taken to represent its reasonable letting value can and may sometime exist. But nevertheless they are exceptions and nto the rule. thereforee the assessing authority would be justified in proceeding in an ordinary normal case on the basis that the actual rent represents the fair letting value of the building. Neither the assessing authority nor the assessed is however bound inflexibly by the actual rent fetched by the building. For, the criterion for determining the annual value is nto the actual rent but the reasonable letting value. thereforee in a special case if the assessing authority contends that the actual rent is less than the reasonable letting value of the bullding, it would be for the assessing authority to show that in view of extraneons considerations like special relationship between the tenant and the landlord, the building has been let at less than the reasonable rent. The assessing authority would then be justified in taking toher criteria of reasonable letting value into consideration. If on the toher hand the assessed contends that the actual rent is higher than the reasonable letting value of the house the burden of proof is on the assessed to show that due to certain extraneous considerations such as relationship between the tenant and the landlord, the actual rent is higher than the reasonable letting value of the building.
(5) It is to be ntoed however that there is bound to be difference among the prospective lessess as to the amount of rent each of them would be willing to offer for a building. Each offer depends on the need of each
'IT is the duty of the valuer to take into consideration every intrinsic quality and every toher circumstances which tends to push the rental value up or down, just because it is relevant to the valuation and ought thereforee to be cast into the scales of the balance. The objective being the real value of the actual hereditament, the inquiry is primarily economic and nto legal, it is only legal in so far as logical relevance is the measure of legal admissibility '(See also Ryde on Rating, 11th Ed. 385-387).'
'THATbeing so it seems to us that the question whether an agreement under which such a tenant would be able to exploit the advantageous situation in which the property is situate amounts to a lease or license is ttoally irrelevant for the purpose of assessing the rat( able value. Equally irrelevant is the question whether the income arising from such an agreement is rent or license fee. To consider such income as irrelevant in the process of rating on the ground that it does nto amount to rent but to license fee is to misconstrue the true measure of the rent expected from the prospective tenant. The tenant would nto only take into consideration the actual rent derived from the property but also such toher income which he would be able to extract from the situation of the property by exploiting as best as he can the beneficial use to which the property is capable of being put. thereforee, the mere fact that the income from the agreement is nto rent but license fee and thereforee cannto be added to the actual rent fetched by the property does nto Justify on any principle of rating or any construction of section 154 of the Act, disregard of it while estimating the rent which the property would be expected to fetch'.
(6) The East Punjab Urban Rent Restriction Act, 1949 does nto lay down that the fair rent of every building shall be fixed by the Rent Controller or that it is illegal for a landlord and a tenant to agree to a rent which is higher than some ntoional fair rent though none is determined. The provisions of the said Act are limited in their operation. It is only if an application for the determination is made by a tenant or a landlord to the Controller that the fair rent is determined by the latter. Once such a fair rent is determined, the assessing authority under the Punjab Municipal Act, 1911 is bound to take such a fair rent as the basis of the reasonable letting value. For, the fixation of fair rent is binding on the landlord and the tenant and a higher or a lower rent cannto be agreed to between them as that would be contrary to the provisions of the law It would nto be reasonable, thereforee, for the assessing authority to expect that the building would be let at a rent higher or lower than the fair rent so fixed. This point is dealt with by the Supreme Court in the Corporation of Calcutta's case cited above in the following words in paragraphs 6 and 7 of their- judgment.
(7) It is to be borne in mind, however, that the provisions of the Rent Control Act with whch the Supreme Court was dealing are fundamentally different from the provisions of the East Punjab Urban Rent Restriction Act, 1949, with which we are concerned. The definition of 'standard rent' in Section 2(10)(b) of the Rent Control Act, was as follows :-
'WHERE the rent has been fixed under Section 9, the rent so fixed ; or at which it would have been fixed if application were made under the said section.'
Section 3 of the said Act stated that any amount in excess of the standard rent of any premises shall be irrecoverable ntowithstanding any agreement to the contrary. Section 33(a) of the said Act provided that anyone receiving any sum on account of rent in excess of the standard rent would be liable to penalties. It would be seen, thereforee, that the Rent Control Act applied whether the standard rent had been actually fixed or nto. thereforee, even when the standard rent was nto fixed, the Act prohibited the landlord from recovering rent beyond the amount at which standard rent would have been fixed if application for such fixation had been made. This is why the Supreme Court said that the said Act, placed an upper limit on the rate of rent for which a building could reasonably be expected to let in all cases whether the standard rent was actually fixed or nto.
(8) On the toher hand, the East Punjab Urban Rent Restriction Act, 1949 does nto prohibit a landlord from recovering market rent from the tenant which may be above the fair rent if the fair rent has nto been fixed under the Act. The observations of the Supreme Court in paragraphs 6 and 7 of the Corporation of Calcutta's case would nto, thereforee, apply to a case in which fair rent has nto been fixed under the East Punjab Urban Rent Restriction Act, 1949.
(9) The position, thereforee, is as follows : - It is only if the fair rent or standard rent is fixed that the law prevents the landlord and the tenants from agreeing to a higher rent. But when no such fair rent has been fixed by the Controller, the parties are left free to bargain and arrive at a contractual rent according to the supply and demand for a particular building at the relevant time. Since the landlord is free to obtain such a contractual rent from tenant who does nto choose to apply to the Controller for the fixation of afeir rent and since the tenant is free to bid for the building at a rent as high as he thinks reasonable, the contractual rent has to be taken as basis to determine the reasonable letting value of the building. Since the East Punjab Urban Rent Restriction Act, 1949 does nto at all touch or deal with such contract, we fail to understand how the provisions of the said Act could at all be taken into consideration in determining the reasonable letting value of such a building.
(10) We would like to emphasise the fact that the definition of the reasonable letting value in the Punjab Municipal Act, 1911 and of fair rent in the East Punjab Urban Rent Restriction Act, 1949 are funda- mentally different. The reasonable letting value is to be determined for the particular year in which the assessment of the tax is to be made. It would be thus determined by the supply and demand for the building in the year of assessment. On the toher hand, the fair rent under the East Punjab Urban Rent Rrstriction Act, 1949 is to be determined by the rates of rent prevailing in the locality for the building in question or similar accommodation in similar circumstances during the twelve months prior to the 1st January, 1939 and the rental value of such buil- ding entered into the assessment register of the Municipal Committee relating to the calendar year 1938. The Punjab Municipal Act, 1911 is aimed to enable the Municipal Committee to assees the building tax on the reasonable letting value of the building for each year of assessment. It would, thereforee, take into account every year the increase in the letting value. It is well-known that due to increasing urbanization, the letting value of the houses is on the increase for the past few years. The Punjab Municipal Act. 1911 is designed to give the Municipal Committee full benefit of such increase. On the contrary the purpose of the Rent Restriction Act is to prtoect tenants by pegging the rent of the houses to the figure at which it stood in the year 1938. The reason why the fair rent fixed by the Controller under the Rent Restriction Act has to be taken as the basis of reasonable letting value by the assessing authority under the Punjab Municipal Act. 1911, is nto that the criteria for the determination of the fair rent are in any way relevant for the determination of reasonable letting value; these criteria are entirely different from each toher. The only reason why the basis of the reasonable letting value has to be the fair rent when such fair rent has been fixed is that the law prohibits the parties from agreeing to any toher rent and thorefore, it is nto reasonable to expect that the letting value of such a house can be anything toher toher than the fair rent.
(11) If we bear in mind this reason why the provisions of the Rent Restriction Act become relevant in the determination of the reasonable letting value of a house then it would be immediately clear that they can be relevant only when the law makes such relevance necessary. thereforee, when the Rent Restriction Act does nto apply at all to the case of a building as the present one, the very relevance of the provi- sions of the Rent Restriction Act disappears. For, the only law applicable then is the Pun]'ab Municipal Act, 1911. The petitioner-landlord cannto invoke the provisions of the Rent Restriction Act inasmuch as the lease in the present case is nto governed by those provisions. He can nto in one breath take advantage of the freedom of contract and obtain as high a contractual rent as possible and in the next breath turn round and say that the reasonable letting value of a house is nto the actual rent but is the fair rent which might have been fixed by the Controller if the parties had gto it fixed. In toher words, he cannto approbate and reprobate at the same time and say 'Heads I win the tails you lose'.
(12) The petitioner is no doubt right in stressing the fact that the actual contractual rent has nto itself been made the basis of the reasonable letting value. But the reason for this fact is nto that the actual contractual rent is nto the most relevant factor in determining the resalonable letting value. On the toher hand the reason is that if the actual contractual rent had been made the basis of the annual value, it would have provided a great temptation to the landlord and the tenant to evade the law byshowing a fictitious rent in the contract of lease while keeping the real rent high between the parties. This was why the reasonable letting value had to be made the basis of the annual value. But the most relevant consideration in the vast majority of cases to find out the reasonable letting value would be the actual contractual rent leaving the assessing authority or the assessed to prove in exceptional cases that the reasonable letting value is higher or lower in an exceptional case,
(13) Our attention was invited by the learned counsel for the petitioner to the judgment of our brtoher S. K. Kapur J. in Girdhari Lal v. Excise and Taxation Officer. The criterion for determining the annual value under Section 5 of the Punjab Urban Improvable Property Tax Act, 1940 which Kapur J. had to consider was the same as the criterion adopted by the Punjab Municipal Act, 1911 namely, the reasonable letting value of the building. The petitioner contened before Kapur J. that the annual value of the property could nto exceed the fair rent 'calculated' in accordance with the provisions of Section 4 of the East Punjab Urban Rent Restriction Act, 1949. It may be pointed out with great respect that the use of the word 'calculated' in dealing with Section 4 of the said Act was misleading enough to give the impression that fair rent there under is to be calculated whether it is fixed by the Controller or nto. As already pointed out above, this would be a misunderstanding of Section 4 which deals only with the fixation of the fair rent only when an application for such fixation is made. There is ntohing to show that in the case before Kapur J. the fair rent had been fixed. In the absence of such fixation, the reasonable letting value of the building could nto be subject to the ceiling of the fair rent The same may be said with respect to the decision of Sharma J. of the Punjab High Court dated 3rd March, 1965 (Civil Writ Petition No. 350 of 1963) apparently followed by Kapur J.)
(14) Kapur J. further purported to rely upon the observations of the Supreme Court in the Calcutta Corporation's case referred to above and the Punjab High Court decision in Municipal Corporation of Delhi v. Ganesh Das, and Inder Mohan v. The Excise and Taxation Commissioner'. We have already pointed out above why the observations of the Supreme Court in paras 6 and 7 of the Calcutta Corporation's case relied upon by Kapur J. cannto apply to a consideration of fair rent under the East Punjab Urban Rent Restriction Act. In Municipal Corporation of Delhi v. Ganesh Dass the rent of the building had been fixed under the provisions of the Delhi Rent Control Act, 1947. The reasonable letting value could nto, thereforee, exceed the rent so fixed. That decision was thus distinguishable In Inder Mohan v. The Excise and Taxation Commissioner Punjab. The property was exempt from the provisions of the East Punjab Urban Rent Restriction Act. The learned single Judge, however, thought that the provisions of the said Act had nevertheless to be taken into account in determining the gross annual rent under Rule 4 of the Punjab Urban Immovable Property Tax Rules, 1941. With great respect the distinction made by us above between a case in which a fair rent of the property has been fixed under the Rent Restriction Act and a case in which it has nto so been fixed was nto considered. Rule 4 simply required that an enquiry shall be made about the gross annual rent earned or which could reasonably be earned in respect of the property. As the provisions of the Rent Restriction Act did nto make it illegal for the landlord to obtain a contractual rent from the tenant in a case in which rent was nto fixed by the Controller, the actual rent would be the basis of the reasonable letting value which could reasonably be earned in respect of such a property unless extraneous circumstances referred to by the Supreme Court in the Calcutta Corporation case or circumstances of that nature could be proved. We do nto see, thereforee, how in that case the provisions of the Rent Restriction Act could be taken into account and we are, thereforee, unable to agree with that decision or with the decision of our brtoher Kapur J.
(15) Before concluding we may invite attention to the decision in D. K. Aswathanar ayanaiah v. Nallapula Sanjeevian, inasmuch as the provisions of the Madras Buillding (Lease and Rent Control) Act, 1949 appear to be similar to those of the East Punjab Urban Rent Restriction Act, 1949 in so far as Section 6 of the former Act stipulated that in case a fair rent is fixed, the landlord would nto be permitted to charge more but as long as fair rent is nto fixed, the contractual rent could be recovered legally by the landlord. Such a contract was nto hit by Madras Building (Lease and Rent Control) Act, 1949. This reasoning fully applies to the kind of case before us and we respectfully agree with the same.
(16) In the light of the above discussion, the petitioner cannto insist that the assessing authority shall take into account the provisions of the Rent Restriction Act in determining the reasonable letting value of his building. He is, however, free to urge before the assessing authority that the actual rent of his building is higher than its reasonable letting value, if he can show that the reason for the higher rent was in the nature of the extraneous circumstances referred to by the Supreme Court in the Calcutta Corporation case. For these reasons the writ petion is dismissed with costs. This disposes of the connected C. W. P. 124/68 Uttam Chand v M. C. Simla also.