V.S. Deshpande, C.J.
(1) Can the damages or penalty payable by the Lesser to the head-landlord for using the residential premises for non-residential purposes contrary to the head-lease be regarded as a part of the rent merely because the lessee agrees to reimburse the Lesser by paying these misuse charges to him along with the rent This is the question of first impression which arises in this writ petition.
(2) The High Commission for Canada in India is the tenant of No. 13, Golf Links, New Delhi, of which the respondents are the landlords. 'The premises were leased for the following monthly consideration from 1-4-1967 to 31-1-1970 : -
(1) Rs. 5,000.00 for the entire premises ;
(2) House tax on the premises to be paid by the lessee; and
(3) the lessee to pay also all the additional charges, ground rent, damages, penalty or other impositions levied by the land & Development Office of the Government of India or other appropriate authority for the breach of the conditions of the head-lease due to the use of the premises or any part thereof for office purposes or any purpose other than residential purposes. The annual additional charges will be deposited with the Lessers in advance along with the rent in the first week of April every lease year calculated at the rate at which the last additional charges were demanded, subject to adjustment either way on the basis of the actual demand made by the Land & Development Office.
(3) In the head-lease of the land given by the Land & Development Office of the Government to the respondents-Lessers, it is expressly stipulated that the land would be used for residential purposes only and in case the premises are used for a purpose other than the residential, the Government as the super-landlord would be entitled to forfeit the lease or receive the misuse charges from the landlord as compensation for the breach of the terms of the head-lease.
(4) It is this payment of damages or penalty payable by the Lessers to the head-lessee for the misuse of the residential premises which is agreed to be paid by the lessee.
(5) Under section 61(1)(a) of the Punjab Municipal Act, 1911 (hereinafter referred to as the Act) which applies to New Delhi where the property No. 13 Golf Links is situated, the New Delhi Municipal Committee is empowered to impose a tax payable by the owner on buildings and lands not exceeding a certain percentage per annum of the annual value of the premises. Under section 3(1) (b) of the Act, 'annual value' means 'in the case of any house or building, the gross annual rent at which such house or building xx. xx. xx. may reasonably be expected to let from year to year.' The petitioner took into account the total payment agreed to be paid by the lessee to the Lessers per year as the annual letting value of the premises. The respondents contended that the amount of damages or penalty livable by the Government on the Lessers for allowing the premises to be used for a purpose other than the residential were payable by the tenant only as charges for the misuse which would be payable to the Government out of the total consideration received from the lessee. Such misuse charges would not be a part of the rent which alone would be retained by the landlord. The rent would thus be the total consideration for the lease minus the misuse charges.
(6) This contention of the Lessers was upheld by the Additional District Magistrate by his order dated 12-9-1969 who accordingly reduced the assessment of house tax made on the premises by the petitioner. The petitioner thereupon filed the writ petition challenging the validity of the order of the Additional District Magistrate passed under section 84 of the Act. The straight question for decision is whether the damages or penalty charges livable on the landlord by the Government for the misuse of the premises are a part of 'the gross annual rent at which such house or building xx. xx. may reasonably be expected to let' within the meaning of section 3(1) (b) of the Act.
(7) Mr. Bkramajit Nayyar, learned counsel for the petitioner, submits that the fair letting value of the premises varies according to the purpose for which the premises are used. We agree that the letting value of the premises is increased when instead of being used for a residential purpose, the premises are used for the purpose of an office or for a commercial purpose. In determining the fair letting value, the purpose for which the premises are used may legitimately be taken into consideration. The Canadian High Commission has agreed to pay Rs. 5,000.00 per month plus the annual house tax which would be payable by the landlord on the annual letting value and ordinarily both these items would be part of the annual gross rent at which the premises may be expected to be let. The only reason why the amount paid by the tenant to the landlord to reimburse the latter for the house tax payable by the landlord to the petitioner is not included in the gross annual rent is statutory. Explanationn Ii to section 3(l) (b) of the Act expressly states that 'the term 'gross annual rent' shall not 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) .'
(8) Mr. Nayyar further argues that the damages or penal charges for misuse which the landlord is liable to pay to the head-landlord as compensation for the breach of the terms of the head-lease which forbids the use of the premises for a purpose other than the residential must be regarded as a part of the rent for the premises. The very fact that the tenant is willing to pay the whole of the consideration for taking a lease of the premises would show that the whole of the consideration is the rent for the premises. He argues that there is no justification for separating the misuse charges from the rest of the rent. He is right in saying that if the tenant had not agreed to reimburse the landlord for the misuse charges in addition to the rent, the landlord would not have given the premises on lease to the tenant. thereforee, the gross annual rent at which the premises were expected to be let must include the whole of the consideration including the misuse charges.
(9) Normally, the whole of the consideration payable by the lessee to the Lessers for the lease would be regarded as the rent (Section 3 of the Delhi Rent Control Act and Section 105 of the Transfer of Property Act) . Similarly, the consideration for the contract as a whole is to be taken into account even though a separate consideration may be agreed to in respect of a particular term of the contract. When, thereforee, the Lessers would not have been willing to lease No. 13 Golf Links unless the lessee agreed to reimburse them for the damages which would be payable by the Lessers to the head-Lesser, it is arguable that the whole of the consideration payable by the lessee to the Lessers including the amount by way of reimbursement should be regarded as 'gross rent' within the meaning of section 3(1) (b) of the Act.
(10) There may be an exceptional situation, however, as the present one, in which a distinction is to be drawn between what the Lessers really get as consideration for the demise of the premises and what is the real value of the premises to the tenant. If such a difference exists, then, it is the profit which actually accrues to the landlord and not what it costs the tenant that is to be taken as the rent. This was why it was observed by the Supreme Court in the as follows :
'THE criterion, thereforee, is the rent realisable by the landlord and not the value of the holding in the hands of the tenant.'
This observation was followed in the subsequent decision of the Supreme Court in.
(11) This is also in consonance with the law stated in Woodfall on Landlord and Tenant, 27th Edition, Vol. I, Chapter 7, paragraph 704, that rent is a retribution or compensation for the lands demised. Rent must always be a profit.
(12) A distinction between what is a part of the total consideration for the lease so as to become rent and what does not become rent even though it may be a part of the total consideration of the lease is this :
(A) If a pre-existing liability of the landlord which the landlord is obliged to discharge from before the lease or independently of the lease, e.g., liability to pay taxes etc., is taken over by the tenant, then the landlord gets the profit of it. For, what would have been payment out of his pocket is kept by him in the pocket because the tenant has agreed to pay it.
(B) On the other hand, if a certain liability is created against the landlord only by the terms of the lease and for the benefit of the tenant, then it is but right that such a liability should be discharged by the tenant himself. It was created for the benefit of the tenant and was to be discharged by the tenant even though the landlord under law would be primarily liable to pay it. In these circumstances, the landlord does not get any profit. The liability is created for the benefit of and is discharged by the ten ant. The landlord remains where he was before. In this case, the landlord is not the beneficiary.
(13) In at paragraph 14, Fazi Ali, ]., brings out the distinction between rent and this kind of reimbursement in the following words :
'IT is important to note that the lessee did not agree to pay such additional revenue to the landlord but only made himself 'responsible' for its payment, the landlord having 'nothing to do with it.' The Installments fixed for the payment of Rs. 4,500 were not made applicable to this new revenue nor was the agreement to pay interest in case of default. It seems to me, in these circumstances, that the stipulation referred to above amounts to no more than a covenant to pay the additional revenue to the Government and to keep the landlord indemnified against any loss caused to him in consequence of its imposition. The iqrarname whereby the Lesser agreed subsequently to extend the time fixed for the payment of the 'fixed stipulated rent' by one month after 30th Chaitra B. S. every year (the last day fixed in the kabuliyat for the payment of the entire sum of Rs. 4,500) also points to that sum alone being regarded by the parties as the stipulated rent of the tenure.'
(14) The same distinction is also made by a Full Bench of the Bombay High Court in re Gangaram Narayanadas Teli (AIR 1915 Bombay 49) (5) following the law statedWoodfall on Landlord and Tenant, referred to above. In at page 37, the Judicial Committee of the Privy Council makes the same distinction in the following words :
'HAD the question turned entirely upon the Kabulyat of 1885, the matter would, in their Lordships' opinion, have been clear. The payment by the putnidar of the Government revenue is no doubt a part of the consideration to be. rendered by her for the enjoyment of the tenure, but it is not money payable to the landlord. Nor is it provided in that document that it is to be dealt with in the same manner as rent, as is provided in the case of cesses. And what is most significant of all, a special mode of enforcing the obligation to pay Government revenue is provided, namely the cancellation of the tenure in case of default; and that is the precise sanction which the law has forbidden by the terms of the Regulation in the case of rentBut the argument for the appellant was based mainly on the second kabulyat, that of 1893. It was contended that the words 'on the condition of paying to you a putni jumma of Rs. 6,000 per year, and of Rs. 40,156.14 into the collectorate, year by year, kist by kist, as Government revenue for the said 8-anna share,' had the effect of making the Government revenue a part of the jumma. But even if those words had been used of the new arrangement then being entered into, they would not, in their Lordships' opinion, have properly borne the construction contended for. But in fact those words form part of a mere recital of the arrangement previously existing, and the nature of that previous arrangement is properly to be ascertained from the kabulyat of 1885.'
(15) Finally, in also a Division Bench of that Court has made the same distinction at pages 225 and 226.
(16) A legislative recognition of this distinction is to be found in clause (k) to the proviso to section 14(1) read with section 14(11) of the Delhi Rent Control Act. A non-residential user of the premises being for the benefit of the tenant alone, the liability to pay damages to the head-Lesser is put by law on the tenant and not on the landlord. The reason for such a legal provision appears to be that even before the enactment of such a law this was the legal position under the law of landlord and tenant.
(17) For the above reasons, we hold that the misuse charges cannot be included in the normal concept of rent which is embodied in the expression 'gross rent' in section 3(1) (b) of the Act. The writ petition is, thereforee, dismissed with no order as to costs.