1. MUHAMMAD YAQUB ALI, J.--These twelve certificated appeals arise out of assessment of annual value of certain hotels in the City of Karachi for levy of property taxes under the City of Karachi Municipal Act, 1933.
2. Under section 97 (2) of the aforesaid Act "annual value" means annual rent (less a deduction of 10 per cent.) for which any building or land exclusive of furniture or machinery contained or situate therein might reasonably be expected to let from year to year. Until 1954, the assessments were made on the basis of rent fixed under agreements of lease between owner and occupier, but in 1955 the Chief Assessor and Collector adopted the formula that 30 % of the charges fixed by the Controller under the Karachi Hotels and Lodging Houses Control Act, 1950, constituted bare rental of each room which multiplied by the total number of rooms x 365 days of the year represented the annual rental value of the hotels which resulted in substantial increase in assessments.
3. Against the assessm ent made by the Chief Assessor and Collector the owners/occupiers raised a number of objections before the Municipal Commissioner, such as, that a certain percentage of rooms remains vacant in hotels; that the occupiers were entitled to a fair percentage of profit on the bare rental of each room and that under the Karachi Rent Restriction Act, 1953, a ceiling was fixed on rents which was determinative of the annual value under the City of Karachi Municipal Act, 1933. For reasons to be seen later on, the objections were brushed aside and the Chief Judge, Small Causes Court, to whom an appeal lay under the aforesaid Act upheld the assessments. The appellants herein then moved the High Court of West Pakistan for quashment of the assessments as illegal and erroneous on their face, but for reasons given in Writ Petition No, 313 of 1960 in the case of Beach Luxury Hotel, the learned Judges found: (i) that the mode in which the Municipal Commissioner had assessed the annual value of the hotels was not beyond the scope of subsection (2) of section 97 of the City of Karachi Municipal Act, 1933 ; and (ii) that it was for the petitioners before them to establish that the Municipal Commissioner had included something which by law he was not entitled to include or excluded something which he should not have by law excluded. The ceilings on rent fixed in the Karachi Rent Restriction Act, 1953, were also considered to have no impact on the assessment of annual value for the purpose of levy of property tax.
4. As we are disposing of all the twelve appeals by this order and in some of them certain ancillary questions also arise for determination it appears necessary that before dealing with the validity of the impugned assessm ents the facts of each case may be set out briefly.
5. In Civil Appeal No, K-1 of 1965 Abdullah Mohammad Peermohamed is the owner in occupation of the Mona Lisa Hotel situated near Cantonment Station, Karachi. The premises were constructed in 1954 at a cost of Rs, 1,50,000 to which may be added the cost of the land Rs, 26,000. It has 24 rooms in all (six double+18 single rooms). It is a three-storeyed hotel having no public conveniences, such as, dining hall for outsiders, cabaret or floor shows. It is said that on average 60 % of the rooms remain vacant. In the return submitted by the appellant under Schedule VIII, Chapter If, Rule 2 of the City of Karachi Municipal Committee Rules the monthly gross rent of the premises was worked out as Rs, 597 which was in conformity with the annual value heretofore assessed at Rs, 600 per month.
6. On 4-7-1955 the Chief Assessor and Collector raised the rental value to Rs, 3,265 per month which on appeal was set aside by the Municipal Commissioner and the earlier assessment at Rs, 600 per month restored. The Chief Assessor and Collector again by order dated 2-1-1957 raised the assessm ent to Rs, 3,150 per month with effect from 1-4-1965 and the appeal preferred from the assessm ent on this occasion was dismissed by the Municipal Commissioner. The appellant then preferred a second appeal before the Chief Judge, Small Causes Court, Karachi, which too was by order dated 1-9-1959 dismissed. He then filed a writ petition in the High Court for quashment of the said order which for reasons given in Writ Petition No, 313 of 1960 was dismissed on 20-8-1962.
7. In support of the assertion that the Chief Assessor and Collector had arbitrarily increased the assessm ent of the Mona Lisa Hotel the appellant produced before the Chief Judge, Small Causes Court, a comparative table which was very instructive, but was ignored completely by the learned Chief Judge. The table appears at page 329 of the record and shows that while the North Western Hotel covering an area of over 4000 square yards and having 41 rooms including 27 double rooms +2 suites was assessed at annas 3.397 per square foot and the Carlton Hotel covering an area of over 5,000 square yards and having 37 rooms including 6 floor bedded family rooms was assessed at annas 3.595 per square foot, the Mona Lisa Hotel covering an area of 287 square yards only was on no visible point of distinction assessed at annas 33.287 per square foot. Another comparative statement in relation to two properties in the immediate vicinity of the Mona Lisa Hotel appears at page 331 marked Exh. H/1 and may be reproduced in full: "Comparative Statement for Assessment in Civil Lines Market Area, Karachi {{TABLE}} Name of the PropertyMarketia Firdous Malah Mona Lisa Plot No. Area of Plot38 CL 8 62 sq. yds. Or 558 sq. feet46 CL 8 419 sq. yds.
8. Or 3771 sq. feet41 CL. 8 287 sq. yds.
9. Or 2583 sq. feet Built up area on ground and three upper stories558 * 4 ---sq. feet 22322511*4 ----sq. feet 100442583 * 4 ----sq. feet 10332 Open area of compoundNil 1260 sq. feet Nil Rs.As.Ps.Rs. As.Ps.Rs. As.Ps.
10. Rental value per month as per K.M.C. order.1900 0 1,0000 0 3,1500 0 Average rent per sq. feet of built up area0 1 4 0 1 7 0 4 10- 1/2 {{TABLE}} Average rate of rent of Marketia and Firdous Mahals works out at Rs, 0-1-6 per sq. foot per month.
11. On that basis the rent of Mona Lisa should be Rs, 968-10-0 only per month."
12. The next case is that of the Beach Luxury Hotel owned by Messrs Beach Luxury Hotel Limited. For the year 1949 the premises were first assessed at Rs, 5,000 per month. In the following year the assessm ent was raised to Rs, 7,000 per month and in 1953 to Rs, 9,000 per month mainly due to the reason that during these years fresh additions were made to the hotel building. The assessments were accepted by the owners, namely, Mr. Dinshaw B. Avari and his wife Mrs. Khorshed D. Avari and there was no dispute about annual value between them and the Corporation when on 21-5-1955 they leased out the premises to Messrs Beach Luxury Hotel by a registered deed. The terms of the agreement relevant for our purpose are: (i) that the lessee was: "To have and to hold the hereditament from the 1st day of March 1955, as monthly tenants yielding and paying during the period of tenancy a rent of Rs, 17,000 per month" ; and (ii) that the lessor was : "To pay regularly all rates, taxes, assessm ents, rents and other outgoings." Accordingly, from 1st April 1955, the Chief Assessor and Collector assessed the annual value of the hotel at Rs, 17,000 per month. On the 14th January 1957, the Chief Assessor and Collector by a demand bill informed the lessee that with effect from 1-1-1957 the assessm ent had been raised to Rs, 44,940 against which the owners on the 11th February 1957, filed an appeal before the Municipal Commissioner which was partially allowed and by order dated 26th July 1957, the assessment was reduced to Rs, 43,421 per month with the following break-up : {{TABLE}} Rs. As. Ps.
13. 6 rooms x 22 132 0 0 Per day 115 rooms x 38 4,3700 0 Per day 3 Suites x 40-8-0 121 8 0 Per day 6 Ambassadors suites x 54324 0 0 Per day 11 Spanich suites x 59649 0 0 Per day 6 Double rooms in annexe x 31-8-0189 0 0 Per day {{TABLE}} The total rental for the month comes to Rs, 5,785-8-0 x 30----Rs, 1,73,565. The Municipal Assessm ent therefore works out to: {{TABLE}} Rs. As.Ps.
(1) 25% of the total room rent of Rs. 1,73,565.43,3910 0 (2)Post office premises rented at Rs. 3030 0 0 43,4210 0 {{TABLE}} This is how the final figure of Rs, 43,421 per month was worked out. The agreement of lease relied upon by the owners was ruled out as fictitious and the formula of "rent on which the building or land might reasonably be expected to let from year to year" was held to be applicable. An appeal preferred from the order of the Municipal Commissioner was dismissed by the Chief Judge, Small Causes Court, and Writ Petition No, 313 of 1960 filed in the High Court for quashment of the assessm ent was dismissed on 20-8-1962. The assessment for the subsequent years was made by the Chief Assessor on the same annual value and upheld by the Municipal Commissioner. The owners therefore filed a further appeal in the Court of Chief Judge, Small Causes Court, which remained pending for about four years. In the meantime coercive steps were being taken for recovery of the taxes as a result of which the owners on 4-4-1964 entered into a compromise with the Corporation agreeing thereby :-- "(1) That the formula of assessm ent evolved by Mr. S. H. Qureshi in 1956-57 and subject-matter of above appeal is accepted by the appellants to be correct for the purposes of this compromise and the parties further agree that the said formula of assessment shall also hold good for another 5 years, from the date of the record of this compromise, with the definite condition that the Corporation will not make any addition or increase in the existing assessment of the property in question within the said period of 5 years except when an addition or alteration is made in the building and the assessment of the said added portion shall be carried out on the basis of the said formula of Mr. S. H. Qureshi.
(2) That having assessed the area occupied by the management of the hotel at the rate of 8 annas per sq. ft. per month and fixing the assessment of the building used for hotel purposes on the basis of the formula of assessm ent evolved by Mr. S. H. Qureshi referred in the foregoing para. the total assessm ent of the premises in question is fixed at Rs, 36,000 per month with effect from 1- 1-1957 and the parties further agree that this existing assessment of the property shall hold good till such time as it is not amended for reasons recorded in para. 1 of this compromise.
(3) That this compromise shall hold good between the parties irrespective of the judgment that may be delivered by the Supreme Court in appeal or appeals preferred by other hotelliers of Karachi on this very issues.
(4) That the above appeal may be disposed of in terms of this compromise with no order as to costs."
14. The compromise was allowed by the Chief Judge and Municipal Appeal No, 15 of 1960 disposed of in accordance with its terms.
15. The third case is of the Hotel Metropole. This hotel is owned by the Karachi Properties Investment Company Limited and leased out to the Metropole Hotel Limited at Rs, 28,436-11.0 per month.
16. Annexure "E" at page 421 of the printed record discloses that prior to 4-8-1952 the hotel was assessed at monthly rental value of Rs, 44,340-6-0 but on appeal by the owners the Municipal Commissioner had reduced the assessment as from 1-4-1951 to Rs, 27,217 per month. In the year 1954-55 the assessm ent was increased to Rs, 28,436-11-0 and the same rental value was maintained in the succeeding two years, but from 1-5-1956 it was again increased to Rs, 66,061-11-6 per month. In appeal the Municipal Commissioner with reference to a comparative chart showing the monthly rental value of eleven other properties in the vicinity (page 381 of the printed record) found that the monthly rental value of Hotel Metropole at annas 8 per square foot would work out to Rs, 1,23,984 but considering that it was not practicable to determine the assessment of a Hotel strictly on the pattern of a commercial building he set out in search of a formula on the basis of which the reasonable letting value in respect of the hotel of the type of Metropole could be assessed. He found no well defined yardstick to assess the amount, but with reference to the charges fixed by the Controller of Hotels and Lodging Houses and the decision of the Commissioner of Sales Tax that in normal cases it may be assumed that out of hotel charges inclusive of board and lodging half is attributable to board and half to residence and allowing 20% on account of charges for furniture, lighting, other equipment and services determined the balance of 30% as the bare rental value of the rooms. The margin for vacancies in the rooms was set off against the income from non-residential diners, hiring of dining hall/banquet hall, bar and reception hall and cabaret and floor shows, etc. The rental of 207 rooms at Rs, 38 per day and of 9 suites at Rs, 85 per day was thus worked out to Rs, 8,631 per day and multiplied by 30 yielded a notional income of Rs, 2,58,930 per month while at 25 % on the concessional side yielded rental value of Rs, 64,732-8-0 per month to which was added the sum of Rs, 15,213 as monthly rent of show rooms and office rooms hired out for commercial purposes at 8 annas per square foot thus rendering a total of Rs, 79,945-8-0 per month. The contention that the assessment should be made at the rent actually fixed under a registered agreement of lease at Rs, 28,367 or in the alternative at 7i% on the cost of construction as provided in the Karachi Rent Restriction Act, 1953, was rejected on the view that the proper criterion under section 97(2) of the Karachi Municipal Act was the rent on which the building or land might reasonably be expected to let from year to year. The agreement of tenancy was further found to be not genuine as most of the shareholders of the lessor and the lessee companies were common. Lastly the objection raised by the owners that the liability to pay enhanced tax could not be enforced retrospectively was overruled as under rule 7, Schedule VIII, Chapter II of the Karachi Municipal Committee Rules the Chief Officer was empowered inter alia to amend at any time the list "if any building or land has been erroneonsly valued through fraud, accident or mistake". It was held "that the assessment of Rs, 28,436-11-0 made last year which was based on the actual rent paid by the tenants (Messrs Hotel Metropole Limited) to the landlords (Messrs Karachi Properties Investment Co. Ltd.) was for the reasons already stated above, erroneously valued and, therefore, it has to be revised so as to make it conform to the provisions of section 97(2) of the City of Karachi Municipal Act, 1933." The correct assessment of the Hotel Metropole was determined at Rs, 79,945-8-9 per month, but since notice given to the party mentioned the sum at Rs, 66,061-11-0 the same was confirmed as the revised assessment for the year 1956-57. However, for the succeeding year 1957-58 the Chief Assessor in terms of the order of the Municipal Commissioner increased the assessment to Rs, 79,194 per month. This assessment is the subject-matter of Civil Appeal No, K-4 of 1965. CIVIL APPEAL No, K-5 OF 1965 The next case is of the Central Hotel, Karachi. It is situated in Survey Plots Nos, 5 to 10 in Civil Lines area. Plot No, 5 which was partly built upon belonged to one Mr. Jehangir P. Dubash. In 1945 the appellant No, 2 and his deceased brother Haji Abdul Karim now represented by his heirs at Nos, 1(a) to 1(k) took on lease Plot No, 5 along with the building standing on it from Mr. Dubash for 20 years at Rs, 1,050 p. m. In the same year they took on lease the adjoining building on Plots Nos, 6 to 10 from its Hindu owners Mohanlal Khewalram Punjabi for a period of 10 years at Rs, 1,300 per month. Haji Abdul Karim and the appellant No, 2 thereafter formed a private limited company under the name and style of Messrs Karachi Syndicate Limited, Karachi, which runs Central Hotel in the said premises. In 1951 the lessee put up more construction on the remaining open space of Plot No, 5 and the entire premises on Plots Nos, 5 to 10 were assessed by the Corporation to property taxes as follows:-- (i)Rs, 1,050 per month for the premises which existed on Plot No, 5 as per lease deed: (ii)Rs, 3,515 per month for the new construction by the lessees on the remaining area of Plot No, 5; and (iii)Rs, 1,300 p. m , for the premises on Plots Nos, 6 to 10 plus Rs, 180 being rent of other tenements of the same building.
17. Up to 1957 property taxes were levied on the basis of monthly rental value of Rs, 6,045 as worked out above. In that year Haji Abdul Karim and the appellant No, 2 purchased proprietary rights in Plot No, 5 and the original building standing on it. In the succeeding year the Chief Assessor and Collector increased the monthly rental value of the premises on Survey Plot No, 5 to Rs, 10,630 and of the premises on Plots Nos, 6 to 10 to Rs, 6,658-8-0 with the result that the property taxes for the first named premises were increased from Rs, 14,658-10-0 per annum to Rs, 39,033-6-0 and for the second named premises from Rs, 6,656-8-0 to Rs, 24,888-14-0 per annum. In the meantime Mohanlal Khowalram, etc. having migrated to India the premises on Plots Nos, 6 to 10 became evacuee property and the Custodian continued the tenancy in favour of Haji Abdul Karim and the appellant No, 2 on the same rental of Rs, 1,300 per month.
18. Aggrieved by the inordinate increase in the property taxes the appellants in March 1958 filed objections with the Municipal Commissioner who kept them pending up to July 1960. In the meantime the Chief Assessor and Collector adopted coercive methods including threat to cut off the water supply of the premises and attach the goods lying therein whereupon the appellants under protest paid the sum of Rs, 1,27,964 as taxes for the years 1957-58 and 1958-59 and again moved the Municipal Commissioner for disposal of the appeals filed by them against assessment.
19. While the appeals for the previous years were pending fresh bills for the years 1958-59 and 1959-60 at the aforesaid rates were served on the appellants who then filed Writ Petition No, 135 of 1960 in the High Court and obtained an interim stay order against the levy of the impugned taxes. CIVIL APPEAL No, K-6 OF 1965 'The next case is of the New Standard Hotel situated on Bunder Road, Karachi. The premises belong to Messrs Karimji and Ibrahimji & Sons, appellant No, 1, and since 26th January 1948, in part leased out to Abdul Hamid Khan & Sons, appellant No, 2, at a monthly rental of Its. 350. Later, on an application made by the lessee the Controller under section 4 of the Karachi Rent Restriction Act reduced the rent to Rs, 325 per month. Up to 1957 the entire building was assessed at Rs, 963 per month which included Rs, 325 as the assessment for the New Standard Hotel, but by demand bill dated 19-3-1958 the assessm ent with effect from 1-4-1957 was raised to Rs, 1,803 per month. On appeal by the owners the Municipal Commissioner by order dated 22-3-1958 reduced the assessm ent to Rs, 963 per month, but in the subsequent year the Chief Assessor and Collector again raised the assessm ent in respect of the New Standard Hotel to Rs, 1,222-8-0. It is said that an appeal was preferred from the order of the Chief Assessor and Collector to the Municipal Commissioner on which no order was to the knowledge of the appellants passed. However, demand for payment of enhanced taxes was pressed and threats to take coercive methods held out consequent upon which the appellants moved the High Court in writ jurisdiction on the ground that the enhancement was illegal, ultra vires and not warranted by the provisions of the Municipal Act, 1933.
20. Apart from the reasons given in Writ Petition No, 313 of 1959 in the case of the Beach Luxury Hotel, the High Court dismissed the writ petition in the present case also on the ground that the petitioners had misrepresented in the petition that in spite of several adjournments the appeals filed by them before the Municipal Commissioner had not been disposed of. It, however, appeared from the affidavit filed in opposition that both the appeals had been dismissed on the 27th of June 1960, and the 20th of July 1960, respectively. The writ petition having been filed earlier on the 5th of May 1960, we fail to see how such a conclusion could be reached. It may be added that there was no evidence of any collusion between the owners and the lessees in the present case. On the contrary as mentioned above the latter had by applying to the Rent Controller got the fair rent fixed at Rs, 325 per month and thereafter the owners were, under section 7 of the Karachi Rent Restriction Act, 1953, debarred from increasing the rent. CIVIL APPEAL No, K- 7 OF 1965 The next case of the Grand Hotel situated in a portion of the building on Plot No, 1/16-RY. 9 McLeod Road, Karachi. Before the appellants 1 to 3 purchased the building on 1-4-1948 for a sum of Rs, 1,83,010 Abdul Majid, appellant No, 4, was running a hotel in a portion of the ground floor, second floor, and third floor as a tenant at a monthly rent of Rs, 910. The remaining portion is also let out to various tenants at Rs, 610 per month regarding which there has been no enhancement of Municipal Taxes so far. However, the Chief Assessor and Collector by demand bill dated 21-12-1957 enhanced the assessment of the hotel portion of the building from Rs, 910 to Rs, 12,540 per month, but on objections filed by the owners reduced the assessment to Rs, 2,830 per month. Aggrieved by the enhancement the owners filed an appeal before the Muncipal Commissioner who by order dated the 10th September 1960 instead of reducing the assessment enhanced it to Rs, 3,030 per month.
21. Thereupon the owners filed a second appeal to the Chief Judge, Small Causes Court, which was not yet disposed of when the Chief Assessor and Collector issued a demand bill for Rs, 47,940.75 and in default of payment threatened to cut off the water supply and take other coercive methods.
22. In the result the owners filed a writ petition in the High Court on 5-5-1961 succeeded in obtaining a stay order which was along with other similar petitions dismissed on 20-8-1962. It may be pointed out that in all, the Grand Hotel has 12 rooms and a public dining hall. It has no bar licence and does not stage floor shows or cabaret, etc. CIVIL APPEAL No, K-8 OF 1965 The next case is of the Bristol Hotel situated on Plot No, 37, Civil Lines, Karachi. The building was owned by Yusaf Ali Hassanali and one Mr. N. V. Thadani who in 1957 let it out to Mrs. Muqadissa Begum, appellant No, 2, at a monthly rent of Rs, 1,80J. It was assessed by the Corporation at Rs, 1,842-8-0 per month till6-2-1961 when a demand bill was served by the Chief Assessor and Collector on the owners for the assessment amount of Rs, 4,973-2-0. The formula applied was as in the case of other hotels 25 % of the daily charges of the total number of rooms in the hotel.
23. Appeals preferred to the Municipal Commissioner and the Chief Judge, Small Causes Court, Karachi, against consequent enhancement of municipal taxes from Rs,4,973-2-0 to Rs, 11,495-12-0 per month having failed Hatimbhai Lohani son of Yousaf Ali Hassanali and Muqadissa Begum filed a writ petition in the High Court which apart from the reasons given in the case of the Beach Luxury Hotel was dismissed for the reasons that the petitioners were not shown to be the owners of the property and as such did not have the locus standi to move against the orders of assessment. CIVIL APPEAL No, K-9 OF 1965 The next case is of the Nazli Hotel situated on the Lawrence Road, Karachi. The building is owned by Mrs. Sartaj Begum and the hotel was run in a part of the premises by her husband Sultan Ahmad Japanwala. On 1-1-1959 the hotel portion was leased out to the Government for use as a rest house for its employees at a monthly rent of Rs, 2,500 including the rent for the use of the furniture and fixtures, etc. The lease terminated on 31-12-1959 and since then they are said to be lying unoccupied. Up to the year 1956-57 the whole building was assessed to property taxes at Rs, 1,170 per month (Rs, 670 for the portion in occupation of the owner and Rs, 50 for the portion occupied by the hotel). In 1957 the assessm ent for the hotel portion was raised by the Chief Assessor and Collector to Rs, 4,600 per month and thereby with effect from 1-4-1957 increased the property taxes to Rs, 15,687 per annum. Appeals filed by the owner before the Municipal Commissioner and Chief Judge, Small Causes Court, against the assessment failed, but for the subsequent year 1958-59 the Chief Assessor and Collector in view of the rent fixed by the Government at Rs, 2,500 per month reduced the rental value to Rs, 2,775 per month. It was, however, ignored that the rent paid by the Government was not for bare premises, but also included the value of furniture, etc. CIVIL APPEAL No, K-10 of 1965 The next case is of the Memon Guest House, situated on Plot No, BR-6/5, Newnham Road, Karachi. It belonged to Hindu owners and on their migration to India became evacuee property. The first and second floors were leased out by the appellant from the Rehabilitation Department at Rs, 20 per month and used as guest house since then. The ground floor consisting of 7 shops and 2 godowns is in occupation of other persons, but it is not known whether it is separately assessed to taxes or not. It is a misnomer to describe Memon Guest House as a hotel or a lodging house. It is run on the pattern of a serai having no public facilities or hotel service. It contains a few dormitories and one or more small rooms which furnished with 72 bare cots are hired to visitors at annas 10 to Re. 1 per day. These charges were fixed on the 30th October 1954, by the Additional Controller of Hotels & Lodging Houses, Karachi. A photostat copy of the order was produced by the appellant's counsel at the hearing of the appeal and the counsel for the Corporation on instructions has confirmed it to be correct. On 1-10-1959 the Chief Assessor and Collector raised a demand for property tax amounting to Rs, 3,754-4-0 and ordered the sum to be paid within three days. The appellant thereupon filed a suit to challenge the legality of the demand which was on 8-8-1960 dismissed. A fresh demand bill of Rs, 8,485-7-0 was thereafter served on the appellant as under:-- {{TABLE}} Assessment period Assessed amount Total amount
1. 1957-58 1,766-8-0 215-5-0 Difference598-3-0 Rs. 2,850-0- 0
2. 1958-59 1,985-12-0 Difference598-3-0 Rs. 2,583-15- 0
3. 1-4-1959 to 30-6-1959 496-5-0 Difference152-3-0 Rs. 468-8-0
4. 1-7-1959 to 30-6-1960 2,054-3-0 Difference618-13-0 Rs. 2,673-0- 0 Grand total Rs. 8,485-7- 0 {{TABLE}} Against the earlier assessm ent the appellant had on 15-2-1960 filed an appeal before the Municipal Commissioner, but it was dismissed. Though the order of assessment is not before us, but we presume that the same formula of 25% of the charges fixed for each cot regardless of vacancy was applied in the case. The writ petition filed for quashment of the assessment and demand bill was dismissed for the reasons given in the case of the Beach Luxury Hotel. CIVIL APPEAL No, K-11 OF 1965 The next case is of the Taj Hotel situated on Plot No, 2/1, CL. 9, Civil Lines, Karachi. On 20-3-1948 Mst.
24. Hajra Bai, appellant, purchased this property for Rs, 1,50,000 and constructed 3 more storeys on it at a further cost of Rs, 1,50,000. On the 27th December 1951, she leased it out to the Taj Hotel (Pakistan)
25. Limited at monthly rent of Rs, 2,500 for 10 years. Subsequently, the appellant put up some more construction and in lieu thereof the rent was raised to Rs, 2,800 per month from 1-4-1954. The property was assessed by the Corporation at the monthly rate of Rs, 2,800 up to 1956-57 when on the 26th December 1957, the Chief Assessor and Collector applying the formula of 25 % increased the valuation to Rs, 11,977.8-0 per month. Consequent thereupon demand bills in the sum of Rs, 43,982-5-0 for the years 1957-58 and 1958-59 were issued against which the owner filed an appeal to the Municipal Commissioner. As in the other cases coercive methods for realization of the demand were adopted during the pendency of the appeal, a sum of Rs, 71,500-7-0 was actually realized. A number of other writ petitions having been admitted by the High Court in the meantime against similar assessm ents the appellant simultaneously moved the High Court for quashment of the assessm ent as illegal and beyond the scope of section 97 (2) of the Karachi Municipal Act. CIVIL APPEAL No, K-63 of 1964 The last case is of the Hotel De Lux. The building standing on Survey No, 2/1.PCL 9 in the City of Karachi originally belonged to Muhammad Istifa Khan, deceased, who in his lifetime made it wakfalal aulad. The appellants are the beneficiaries and mutawallis of the wakf. On 22-2-1956 the building was leased out to Asif Ali Luckman who was already in possession at a monthly rent of Rs, 2,000. Up to 1956-57 the property taxes were levied on the monthly assessment of Rs, 2,000 per month, but by demand bill dated 26-12-1957 the Chief Assessor and Collector raised the tax from Rs, 6,547-7-0 to Rs, 17,736-12-0 and on revised assessment of Rs, 4,830 per month further increased it to Rs, 18,257. Aggrieved by the excessive increase in the assessment the owner filed an appeal before the Municipal Commissioner which was heard on 1-3-1958, but no order was passed on that date. On 15-3-1948 the following order was made : "Heard. The assessm ent as calculated on the basis laid down for hotels comes to Rs, 4,830.
26. Confirmed at Rs, 4,830.
27. (Sd.) S. H.
28. Qureshy 15/3 Municipal Commissioner."
29. 'An appeal preferred from the above order was dismissed by the Chief Judge, Small Causes Court, as barred by time. It was urged that the appellants had for the first time come to know about the order of the Municipal Commissioner on 13-11-58 when they received demand bill for payment of Rs, 4,830 but the plea did not find favour with the learned Judge. The learned Judges in the High Court did not advert to the question whether there was sufficient cause for condoning the delay in filing the appeal in the Court of Chief Judge, Small Causes, Karachi, but for the reasons given in the case of Beach Luxury Hotel dismissed the writ petitions filed by the appellants for quashment of the assessm ents.
30. The common features of all these cases are that instead of levying property taxes on rental value on the principle what a hypothetical tenant might reasonably be expected to pay from year to year for bare premises, the Corporation has on the principle of beneficial occupation or "Trade Earnings" basis taxed hypothetical and not actual gross takings of the occupier. This resulted in manifold increase in the assessm ents from 1955 onwards. The shortfall on account of vacancy of rooms was set of against unascertained income from non-resident diners, etc., and the rule applied uniformally even to cases in which the hotels concerned did not provide any such public facility.
31. Finally no margin for profit or interest on capital outlay was allowed.
32. The stage has been reached now to take stock of the legal issues arising in these appeals, namely,
(i) what is the appropriate method for assessing the annual value of a building used as a hotel premises for purposes of levying property taxes under the City of Karachi Municipal Act, 1933; and
(ii) whether the ceilings on rent fixed in the Karachi Rent Restriction Act, 1953, have any impact on the assessm ent of annual value under the last mentioned Act. We must first refer to the relevant provisions in the City of Karachi Municipal Act, 1933. Section 96 provides that for the purposes of this Act the Corporation shall impose taxes on property. In addition to such taxes the Corporation may impose taxes at specified rates on all vehicles and animals, a terminal tax on goods imported into or exported from the terminal tax limits and a tax on dogs kept within the city. The Corporation may also impose any other tax which the Provincial Legislature had power under the Government of India Act, 1935, then in force. Subsection (3) placed a positive bar by providing that nothing in this section shall authorise the imposition of any tax which the Provincial Legislature has no power to impose in the Province under the Government of India Act, 1935. There was no provision in the last mentioned Act empowering the Provincial Legislature to impose taxes on income. The authority of the Corporation was, therefore, limited to levying taxes on annual rental value of property and not on the income derived by the use and occupation of the premises by the owner or occupier as the case may be. Section 97 which makes provision for levy) of property taxes may be reproduced in full : "97. (1) For the purposes of subsection (1) of section 96, the following taxes hereinafter called 'property-taxes' shall subject to the limitation hereinafter provided, be levied on buildings and lands in the City, namely : (a)a general-tax of not less than seven and not more than twelve per cent. of their annual value, to which may be added a fire brigade tax at such percentage not exceeding two per cent. of their annual value, as will in the opinion of the Corporation, suffice to provide for the expenses necessary for fulfilling the duties of the Corporation arising under clause (15) of section 34; (b)conservancy-tax at such percentage of their annual value as will, in the opinion of the Corporation, suffice to provide for the collection, removal and disposal by municipal agency, of all sewerage, offensive matter and rubbish and for efficiently constructing, maintaining and repairing municipal drains for the reception and conveyance of any such matter ; and (c)a water tax at such percentage of their annual value, or at such rates (depending upon the size of the water connection with the Municipal mains and the purpose for which water is supplied) as, in the opinion of the Corporation, shall suffice to meet the expenses of providing a water supply and drainage for the city : Provided that the Chief Officer with the approval of the Standing Committee may direct that instead of levying the water-tax in respect of any buildings or lands liable thereto under sub- clause (c) the water supplied for domestic or non-domestic purposes to such buildings, lands, shall be paid for by measurement at such rates per thousand gallons as do not exceed by more than ten per cent. the actual average cost to the Corporation of supplying one thousand gallons of water in the City, and on such terms and conditions as he may deem reasonable i Provided also that in cases in which water is paid for by measurement the Chief Officer, with the approval of the Standing Committee, may compound with the owner or occupier of any such building or land for the payment of a lump sum for any period not exceeding one year at a time in lieu of any amount which such owner or occupier would otherwise have been liable to pay on account of the water so supplied.
(2) In this chapter 'annual value' means the annual rent (less a deduction of ten per cent.) for which any building or land, exclusive of furniture or machinery contained or situate therein or thereon might reasonably be expected to let from year to year, and shall include all payments made or agreed to be made by a tenant to the owner of the building or land on account of occupation, taxes, insurance or other charges incidental to his tenancy."
33. Under section 101 (2) the responsibility for payment of property tax is primarily on the lessor, if the premises are sub-let from the superior lessor and if the premises are unlet from the person in whom the right to let the same vests. Subsection (4) provides that during the period of actual occupation the liability of the owner and occupier for payment of property tax shall be joint and several. Under subsection (5) general tax and the fire brigade tax paid by the occupier shall be recoverable by him from the owner and the conservancy and water tax paid by the owner is recoverable by him from the occupier. Under section 103 the Corporation may for special reasons exempt any building or land from all or any of the property taxes. One of the reasons prescribed in section 104 is that if any building or land has been vacant or unproductive for at least sixty consecutive days the Chief Officer shall remit two-thirds of the general tax which includes the fire brigade tax and the whole of the water tax and conservancy tax during such period. Section 107 (1) requires the Assessor to determine the annual value of the buildings and lands for the purpose of assessm ent in accordance with the principle prescribed under subsection (2) of section 97. Under subsection (2) of section 107 an appeal against any determination made by the Assessor shall lie to and be heard and determined by the Municipal Commissioner and under subsection (3) when any question arises as to the liability of any building or land to assessment, or as to the basis or principle of assessm ent, an appeal shall lie from the decision of the Municipal Commissioner to the Judge of the Karachi Small Causes Court. Under section 110 all Corporation claims including property tax may be recovered by a warrant signed by the Chief Officer by distress and sale of the movable property or by attachment and sale of the immovable property of the defaulter. Section 118 provides that all sums due on account of any tax imposed on buildings or lands shall subject to prior payment of land revenue be a first charge upon the building or land and upon the movable property if any found within or upon such building or land and belonging to any person.
34. The broad principle underlying subsection 97 (2) is to determine rent on which any building or land exclusive of furniture or machinery might reasonably be expected to let from year to year, but "if the building or land be in occupation of a tenant the annual value shall include the rent, taxes and insurance or other charges incidental to his tenancy agreed to be paid to the owner by the tenant" which means that annual value shall not be less than the amount payable to the owner. The yardstick therefore is what amount the owner would get by letting the property and not what benefit the occupier derives from its use and occupation. The Corporation is, however, not bound by the rent reserved under an agreement of lease as a building or land may on a compassionate basis or otherwise be leased out at a nominal rent. There can also be cases of collusion between landlord and tenant to deprive the Corporation of full property taxes or cases in which the owner sets up a subsidiary concern and leases out the premises to it at less than the market rate. In Civil Appeals Nos, K- 2, 3 and 4 of 1965 it was urged that the lessees being incorporated companies were independent legal entities although the owners were also the shareholders and directors of those companies. In the eye of Company law the lessees are no doubt separate entities, but if the income and receipts of the lessees are eventually appropriated by the owners the Chief Assessor and Collector may ignore the rent agreed to be paid by the lessee to the owner and determine rent on which the premises might reasonably be expected to let.
35. The other considerations which follow from the provisions of the City of Karachi Municipal Act reproduced above are that : (i) "annual value" is letting value of a building or land having no direct nexus with the income made by its use and occupation by the owner or occupier for even during the period of vacancy or unproductivity one-third of general tax and fire brigade tax shall be charged if the Chief Assessor by an express order grants partial exemption; (ii) as the liability of the owner and occupier to pay property taxes is joint and several, either of them may appeal under section 107 and a fortiori move the High Court in writ jurisdiction for quashment of an illegal assessm ent. This has bearing in the case of the Bristol Hotel wherein as seen above the writ petition was dismissed by the High Court on the view that the petitioners had no locus standi though Mst.
36. Muqadissa Begum the occupier was one of the petitioners ; (iii) annual value is to be fixed of bare premises that is to say enhancement of the rental value of a premises by furniture, machinery and plant installed in it is to be excluded from consideration; (iv) the hypothetical tenancy is from year to year and as such the rent paid by a lodger to the occupier of a hotel cannot be the basis of "annual value"; and (v) as observed by Lord Buckmaster in the case of Poplar Assessment Committee v. Roberts "although the tenant is imaginary, the conditions in which his rent is to be determined cannot be imaginary. They are the actual conditions affecting the hereditament at the time when the value is made".
37. It was conceded on behalf of the Corporation in the Courts below that the proper criterion for assessing value is what a hyphthetical tenant might reasonably be expected to pay from year to year for the bare premises and that the earnings of the occupier could not be the basis for assessm ent, but it was maintained that in determining what rent a hypothetical tenant might reasonably be expected to pay all the prevailing circumstances including the rent charged by the occupier from the visitors of a hotel are relevant considerations. The Municipal Commissioner found no particular yardstick for assessing the annual value of a hotel and arbitrarily fixed 25% of the daily charges fixed by the Controller for board and lodging under the Karachi Hotels and Lodging Houses Control Act LXV of 1950 which multiplied by the total number of rooms furnished the daily rent and multiplied by 365 provided the annual rental value. The relevant portion of the order of the Municipal Commissioner in the case of Metropole Hotel reads as follows : "The sole criterion, therefore, is the rent for which the building, exclusive of furniture or machinery, might reasonably be expected to let from year to year. We have to find out as to what should be the reasonable letting value of this hotel. The Hotel Metropole is a new construction. At the time1 when it was built, there was no other new construction in the immediate surroundings with which to compare the rental value of the hotel, but a few comparable buildings have since been built where the present rent which is being actually charged from the tenants is on an average as. 0-8-0 per sq. ft. A statement of such cases is given below."
38. (The statement shows that the monthly rate of rent of twelve properties in the vicinity of the Metropole Hotel varied between annas 0-7-6 and annas 0-8-0 per square foot per month). The order continues : "4. Hotel Metropole occupies a more advantageous situation and therefore in comparison is expected to obtain a still better rent. The total built space in the Hotel Metropole is 2,47,968 sq. ft.
39. Calculating, however, at the rate of as. 0-8-0 per sq. ft. of built up area, I find that the rental comes to Rs, 1,23,984 per month.
5. I, however, consider that it will not be practicable to work out the assessment of a hotel strictly on the pattern of a commercial building : (a)Firstly because some of the space such as the Dining Hall, Lodge and office etc. is used for Hotel purpose, i,e, it is normally meant for use of the lodgers and to that extent the hotel does not receive anything extra except when it is hired for parties or functions.
40. (b)Secondly because room rent is charged from the lodgers for the actual occupation of the rooms. All the rooms therefore, may not be occupied throughout the month. A margin has, therefore, to be given for such casual vacancies.
6. In view of the above, formula has to be worked out on the basis of which the reasonable letting value in respect of the hotels of the type of Hotel Metropole can be assessed. There is no well- defined yardstick to assess this amount. The hotel charges its visitors certain sum which inter alia necessarily includes the bare rental. It has to be determined as to what portion of hotel charges can be termed as the letting value. Of the room rent fixed by the Controller of Hotels, Karachi, 50% is considered to be the charges for food etc. by the Sales Tax Department, vide extract from letter No, STM-5/52 from the Commissioner of Sales Tax, Karachi, Sind and Baluchistan, Karachi, to the Assessor and Collector 'D' Division, Municipal Corporation, Karachi, reading as follows : `With a view, however, to remove any possible hardship in respect of estimates for these charges, it has been decided that while it is not possible to lay down any hard and fast rule, but in normal cases it may generally be assumed that out of a hotel inclusive charges for board and residence, half is attributable for board and half to residence.'
41. 50% is thus to be allowed as charge for board. Out of the remaining 50% the charges for furniture, lightings, other equipments and services, which, in the case of a big hotel like the Hotel Metropole can be from 15% up to 20% has to be excluded. Then there is the question of giving a margin for the casual vacancies of the rooms. At the same time one must also account for the recoveries made by the hotel over and above the room charges from :
(I) Non-residential diners.
42. (ii)Hiring of the Dining Hall/Banquet Hall.
43. (iii)Bar and Reception Hall.
44. (iv)Cabaret and floor show, etc. A certain portion of these recoveries must be rent for use of the premises which should be added to the letting value of the building. This sum in respect of Hotel Metropole is more than sufficient to off set any short-fall on account of the casual vacancies. There are the godowns, out-houses, etc., which are also liable to assessm ent. If a margin for casual vacancies in rooms is allowed, the extra letting value which has been left out must then be taken in account. No margin for casual vacancies is, therefore, justified.
7. After thus deducting 50% for food charges and 20% for furniture etc. the remaining balance i,e, 30% of the room rents must constitute the bare rental value which can be termed as the reasonable letting value."
45. The Chief Judge, Small Causes Court, agreed with the formula applied by the Municipal Commissioner and the High Court as seen below unreservedly upheld the assessments based on it.
46. The learned Judges found that "the annual value has been determined on the basis of the rent which the lodgers paid and not on the basis of the profits or receipt of the income of the hotel". The contention that the method for determining the annual value was not legal as the Municipal Commissioner had not given margin for the profit was also ruled out on the view that "the Municipal Commissioner is not fettered by any rule of law in determining the annual value of any building within the meaning of subsection (2) of section 97" meaning thereby that under section 97
(2) the Chief Assessor and Collector could fix any annual value and no principle of law controlled his discretion in this behalf. Reliance in support of this proposition was placed on the observations of Earl of Halsbury L. C., in the case of Mersey Docks & Harbour Board v. Birkenhead Assessment Committee In the Parochial Assessm ent Act, 1836, "annual value" was defined as follows : "Upon an estimate of the net annual value of the several hereditaments rated thereunto --that is to say, of the rent at which the same might reasonably be expected to let from year to year free of all usual tenant's rates and taxes and to the commutation rent-charge, if any, and deducting therefrom the probable average cost of the repairs, insurance and other expenses, if any, necessary to maintain them in a state to command such rent."
47. Referring to the definition of "annual rate" reproduced above the Lord Chancellor observed : "That is the position which is put before the Parish Officers, that is, the question which they have to answer ; and they are to arrive at that value, so far as I know, unfettered by any statute as to the way in which they can do it. I am not aware of any rule of law or any statute which has limited them as to the mode in which they shall arrive at it. It is not a question of law at all it is a question of fact."
48. What the Lord Chancellor apparently meant was that no particular mode for determining the annual value in the Parochial Assessment Act was laid down, but he did not say that mode even outside the scope of section 1 could be adopted by the Parish Officers. For instance if the Parish Officers did not exclude the usual tenant's rates and taxes and to the commutation rent-charge or allow deduction of average cost of repairs, insurance and other expenses in determining "net annual value" the Lord Chancellor undoubtedly would have set aside the assessment as illegal. In the present case even if the mode in which the Municipal Commissioner arrived at the annual value was accepted it is obvious that by failing to allow a margin of profit to the occupier he acted illegally as no hypothetical tenant is reasonably expected to offer rent which does not leave him some margin of profit.
49. In support of the Trade Earnings formula the learned Judges relied on the following observations of the Lord Chancellor in the same case (Mersey Docks & Harbour Board v. Birkenhead Assessment Committee) : "What you are to find out is what a tenant will reasonably give looking, surely, at all the circumstances of the particular occupation including therein the business that has been done on the premises. I think I had occasion to say in a former case that it would be a very extraordinary thing if, although you can give evidence by expert testimony as to what kind of business might be done, you are not at liberty in point of law to ascertain what business has been done. It seems to me that no such proposition could reasonably be maintained. To go into the amounts of profits and losses as if you were finding out what a man's income is would be absolutely irrelevant ; but for the purpose of ascertaining what a tenant would be likely to give, to suggest that that is something which In point of law you have no right to inquire into would be equally absurd. All the circumstances of the particular occupation, the mode in which the trade is being carried on, and the circumstances affecting either the restriction or the amplitude of the trade, are all legitimate2 subjects of inquiry, and the only question of law is whether the particular tribunal has followed the line I have indicated or not. Surely those who are complaining of what has been done by the tribunal must establish either that something has been excluded from the calculation which by law ought to be included, or that something has been included which by law ought not to have been included. The question is a question of fact, and the only way in which you get in a question of law at all is with regard to the mode in which the question of fact has been dealt with."
50. In support of the formula learned counsel for the Corporation relied on the following remarks in Modern Methods of Valuation of Land, Houses and Buildings by Davis M. Lawrence & W. H. Rees, page 272 :- "Trade earnings basis.--This method is chiefly used in the case of public houses, racecourses and water supply undertakings. It is also applied to other properties where consideration of profits earned is likely to be a more practical guide to annual value than any of the methods previously described.
51. The gross profits of the undertaking are first ascertained and from these are deducted working expenses to arrive at the average net profit. A further deduction is then made for interest on the capital which the tenant has sunk in the undertaking and for tenant's profit. The balance is assumed to be the rent which a hypothetical tenant of the undertaking could reasonably afford to pay from year to year. As a quick check, a percentage (often 4-8 per cent.) may be taken on the gross takings to arrive at the gross value of the property direct."
52. The learned Judges also noticed in this context the remarks in para. 77, Volume 32 (Third Edition), Halsbury's Laws of England :- "In the absence of rental evidence of value, the accounts, receipts or profits of the occupier of the hereditament may be relevant. The profits themselves are not rateable, but they may serve to indicate the rent at which the hereditament might reasonably be expected to let, particularly where profit is the motive of the hypothetical tenant in taking the hereditament, or where the trade can only be carried on upon that hereditament. Profits have been taken into consideration in the valuation for rating of, for instance, public utility undertakings, such as water-works, docks and harbours, licensed premises, railway refreshment rooms, hotels, etc."
53. Two propositions were considered to follow from the observations quoted above : (i) that the mode in which the Municipal Commissioner had assessed the annual value viz. with reference to the income of the occupier, was not beyond the scope of section 97 (2) ; and (ii) that it was for the petitioners to establish that the Municipal Commissioner had included v. something which by law he was not entitled to include. The final. conclusion was :-- "I would hold that the learned Advocates for the petitioners Yaqub Ali, J have failed to substantiate their argument that the conclusion of the Municipal Commissioner that 25 per cent. of the charges was not the rent of the space occupied by the visitors. The petitioners had ample opportunity before the Municipal Commissioner, and the Small Causes Court Judge to show that 25% of the charges was not the rent of the space occupied by the lodgers. They did not challenge this. All that they urged was that the formula adopted was beyond the scope of section 97(2) of the Act. These arguments, it seems, suggested themselves to the learned Advocates when they filed these writ petitions. They cannot be allowed now to urge them as they are based on facts."
54. We find ourselves unable to agree with the conclusions reached by the learned Judges in the High Court. Their judgment was mainly influenced by the decision in the case of Mersey Docks & Harbour Board v. Birkenhead Assessment Committee, which was clearly distinguishable. In England the occupier is taxed to rates on annual value inclusive of the value of the machinery and plant in or on the hereditament and no tax is payable if the hereditament remains vacant or unproductive.
55. The concept of "beneficial occupation" and valuation on Trade Earnings basis is, therefore, germane to the English law. There is reference to such a formula in section 24 of the Rating and Valuation Act, 1925. Subsection (1) of section 24 provides :- "For the purpose of the making or revision of valuation lists the following provisions shall have effect with respect to the valuation of any hereditament other than a hereditament the value of which is ascertained by reference to the accounts, receipts or profits of the undertaking carried on therein."
56. On the contrary under the City of Karachi Municipal Act the owner is liable for the general tax even if the premises remain vacant or unproductive. Consequently the rental value is fixed of the bare premises excluding furniture, machinery, plant, etc. The concept of "Trade Earnings" applicable in England cannot, therefore, be imported into section 97(2) of the City of Karachi Municipal Act which seeks to tax the owner for the annual rental value of his building or land regardless of the use to which it is put or the income made by its use and occupation. But even if such a mode is adopted then according to the aforesaid formula the gross profits of the undertaking should first be ascertained and from these are deducted working expenses to arrive at the average net profit. A further deduction should be made for interest on the capital outlay. The balance may then be assessed to be the rent which a hypothetical tenant might reasonably pay for the premises from year to year.
57. The learned Judges were, therefore, not right in relyingon the formula of "Trade Earning basis" but even if it was to be applied by analogy 4-8 per cent. on the gross takings could be considered as gross value of the hotel premises. The Municipal Commissioner has in the instant cases, however, fixed 30% of the imaginary takings of the occupier at a miximum figure to be the gross annual rental value. We say 'imaginary' because no inquiry at all was made as to what in fact were the gross takings or trade earnings of the occupiers in all these cases. Nor has the Municipal Commissioner taken into consideration "all the circumstances of the particular occupation" mentioned in the Mersey Docks & Harbour Board's case, such as, "the mode in which the trade is being carried on and the circumstances affecting either the restriction or amplitude of the trade".
58. As seen above the Municipal Commissioner did not even allow any margin of profit or interest on capital outlay. It is, therefore, plain that the mode in which "annual value" has been assessed in these cases was unwarranted by section 97(2) of the City of Karachi Municipal Act, 1933.
59. Notice may now be taken of the next contention raised on behalf of the appellants viz. that the "annual rental value" of a building could not be fixed in excess of fair rent fixed by the Karachi Rent Restriction Act, 1953. The relevant definition of "fair rent" in section 2(2) is to the effect :
(2) 'fair rent' means- (c)in relation to all premises, residential or otherwise, constructed after the 15th day of August 1947, such rent as shall secure to the landlord a net return of six per centum (and in the case of premises first let on or after the twentieth of October 1959, eight per centum per annum on the total cost, after deducting the taxes, insurance premium for insurance against fire and earthquake, but not otherwise and an amount equal to one and a half per centum per annum of the total cost by way of expenses for maintenance and repairs. The total cost shall include the value of the land and the cost of the construction of the premises ;"
60. Section 4 under which fair rent is fixed provides :"The Controller-- (a)shall, in the case of premises in respect of which an application is made by the landlord or the tenant, on such application, and (b)may in the case of any other permises, of his own motion, determine after making such inquiry as he deems fit, the f air rent in accordance with the provisions of this Act : Provided that the Controller shall not-- (a)entertain any application, or (b)take any action on his own motion for determining the fair rent after the lapse of a period of four months next after the date on which the premises are first occupied : Provided further that the foregoing proviso shall not have effect until the expiry of a period of four months from the commencement of this Act."
61. Section 7 which contains the embargo on unauthorised increase in rent inter alia lays down : "Where the fair rent of any premises has been determined in accordance with this Act--
(a) the landlord shall not claim and shall not be entitled to any rent in excess of the fair rent ;
(b) any agreement for the payment of rent in excess of the fair rent shall be null and void in respect of such excess and shall be construed as an agreement for the payment of the fair rent ;
(c) when the fair rent of any premises has been determined before the commencement of this Act, any sum in excess of the fair rent paid, before the commencement of this Act in respect of any use or occupation of the premises- (i)after the first day of April 1942, in the case of residential premises ; or (ii)after the first day of October 1943, in the case of premises other than residential premises, shall be refunded to the person by whom it was paid, or, at the option of such person, otherwise adjusted ;
(d) Where the fair rent of any premises has been determined under this Act after the commencement of this Act, any sum paid in excess of the fair rent for the period commencing from the date of the application for the fixation of the fair rent shall be refunded to the person by whom it was paid or, at the option of such person, otherwise adjusted."
62. Section 8 dealing with increase in taxes during the subsistence of tenancy provides:-- "Where the landlord pays any municipal rates cesses or taxes in respect of any premises, an increase of the rent thereof shall not be deemed to be an increase for the purposes of this Act and the landlord shall be entitled to the amount thereof in addition to the fair rent if such amount does not exceed any increase in the amount for the time being payable by the landlord in respect of such rates, cesses or taxes over the amount paid, in respect of residential premises in the period of assessm ent which included the first day of December 1941, and, in the case of premises other than residential premises, in the period of assessment which included the first day of December 1942."
63. The learned Judges construed the above-mentioned provisions as laying down that unless a tenant approaches the Controller within 4 months for determination of fair rent the bar contained in section 7(a) that "the landlord shall not claim and shall not be entitled to any rent in excess of the fair rent prescribed in section 2(2) does not become applicable. In other words the landlord could subject to the risk that the tenant may approach the Rent Controller for fixation of fair rent within four months charge any rent in excess of the ceilings prescribed in section 2(2).
64. A lengthy argument was addressed on the construction of the words : "in accordance with this Act" in the opening part of section 7 and it was argued that "fair rent" could be determined without applying to the Controllar, such as, by agreement between the landlord and tenant. We were not impressed by the argument, because the word 'determined' connotes adjudication and cannot be equated with private treaty. It was possible to argue that fair rent may be determined by an arbitrator to whom such a dispute is referred or by a civil Court in an action for recovery of rent, but it would not be "determination in accordance with this Act" which words prima fade refer to the machinery provided in section 4 of the Rent Restriction Act. The contention that no determination by a Rent Controller was necessary to fix rent was, therefore, rightly ruled out by the learned Judges in the High Court.
65. Reliance was also placed on section 8 for the proposition that as any increase in municipal rates and taxes could be passed on to a tenant the bar in section 7(a) was not attracted in these cases.
66. Section 8 is inartistically worded. But on their own construction of section 7 the learned Judges ought to have discounted it for in their view the bar in section 7(a) applies only if the Controller has fixed the fair rent under section 4 while they were dealing with the situation in which no recourse to section 4 has been made. But there is another provision in the Rent Restriction Act relevant in this context, namely, section 12 under which the Controller may in the cases enumerated in clauses (a),
(b) and (c) fix the fair rent at such amounts as having regard to the provisions of the Act and the circumstances of the case he deems just. Clause (a) provides for case where : (i) by reason of any premises having been let at one time as a whole and at another time in part ; (ii) or where a tenant has sublet or sublets a part of any premises ; and (iii) or for any other reason, any difficulty arises in giving effect to the Act. In Civil Appeal No, K-38 of 1964 (Seth Byramji D. Mama v. Abdul Qadir and others) decided on 30th May 1967, the condition "for any other reason" was construed as independent of the conditions mentioned in the preceding sub-clauses. On this view even if the period of four months has expired an application for fixation of fair rent may on certain conditions be made to the Rent Controller. Mr. A. K. Brohi learned counsel for the Metropole Hotel relied strongly on the case of Port of Spain Corporation v. Gordon Grant & Company Ltd. . It was held in that case that in determining reteable value of any hereditament regard must be had to the Rent Restriction Ordinance which affects the annual rent payable to and receivable by the landlord. In distinguishing the case of Poplar Assessment Committee v. Roberts, on which the learned counsel for the Corporation placed reliance before us their Lordships of the Privy Council proceeded to observe: - "Under English law the rate is imposed upon the occupier. There must be an occupier or there is no rate. Not only is it not imposed on the owner, but it is not a charge on the land. If the rate is not paid the Authority's remedy is by distress and sale of the goods of the occupier. In Trinidad the rate is borne by the owner ; it is a charge on the rateable hereditament ; it is exigible if there is no occupier."
67. It is unnecessary to pursue the argument any further for even if the Karachi Rent Restriction Act, 1953, in terms did not apply to assessment under the City of Karachi Municipal Act, 1933, its provisions constituted a relevant consideration in determining what a hypothetical tenant might reasonably be expected to pay for a building or land from year to year. We agree, however, in the view that in the absence of any mode prescribed in the statute the Chief Assessor and Collector is not bound to apply any particular formula for determining the "annual value" and that in terms the provisions of the Karachi Rent Restriction Act, 1953, did not apply to the assessm ent of "annual value" under the City of Karachi Municipal Act, 1933. But as required by section 107(1) the Municipal Commissioner must act in accordance with the principle prescribed in section 97(2) and determine annual rent (less a deduction of 10 per cent.) for which any building or land exclusive of furniture or machinery contained or situate therein might reasonably be expected to let from year to year. In arriving at this conclusion he should take all the circumstances into consideration one of them being the ceilings fixed in the Karachi Rent Restriction Act, 1953, since replaced by the West Pakistan Rent Restriction Ordinance VI of 1959. As observed earlier a hypothetical tenant would not be acting reasonably in offering or agreeing to pay rent at a rate forbidden by law. We were shown copies of the orders passed by Mr. S. M. Owais, Additional Commissioner, Karachi, on 7th December 1967, in appeals by the Beach Luxury Hotel and the Metropole Hotel against assessment of their "annual value" under the West Pakistan Urban Immovable Property Tax Act which also governs now the assessment of "annual value" under the municipal laws. As both these hotels were built after the 15th August 1947, he applied the formula of 6 % of the present value of land and cost of construction as annual value for purposes of taxation.
68. In the case of the Beach Luxury Hotel it worked out at less than Rs, 17,000 per month and in the case of the Metropole Hotel at Rs, 50,000 per month. We were informed that these assessments too are under challenge by the owners and we express no opinion about their validity. It must, however, be said that the mode in which Mr. Owais assessed "annual value" was in conformity with section3 97(2) of the City of Karachi Municipal Act, 1933 and section 64(a) of the Cantonments Act, 1924, which prescribes 6% of the present cost of construction plus the value of land as the "annual value" of schools, railway stations and hotels, etc., for the purposes of levying cantonment taxes. Being a statute in pari materia and operating in areas adjacent to the City of Karachi its provisions could also be usefully taken into consideration by the Chief Assessor and Collector of the Corporation in assessing the annual value in these cases. It may be added that as section 97(2) provides that "annual value" shall include the rent, taxes and insurances, etc., agreed to be paid to the owner by the tenant the Municipal Commissioner is not bound to treat the "fair rent" as "annual value" if what the tenant./ has agreed to pay to the owner is more than the "fair rent" under the Rent Restriction Act. It would indeed be anomalous to say that though the owner recovers more than what the law permits the "annual value" shall be assessed in accordance with the law.
69. It now remains to deal with certain ancillary arguments raised in some of the appeals. As seen above a few of the appellants did not prefer appeals to the Chief Judge, Small Causes Court, but directly filed writ petitions in the High Court. It was objected on behalf of the Corporation that unless the remedy available under the City of Karachi Municipal Act, 1933, was exhausted it could not be said that no other adequate remedy was provided by law in order to invoke Article 98 of the Constitution. It must be remembered in this context that the Corporation was threatening to take coercive steps for recovery of the impugned taxes and the Chief Judge, Small Causes Court, had in other similar cases upheld the formula applied by the Municipal Commissioner and declined to grant stay orders. However, a number of writ petitions arising in similar circumstances had been admitted in the meantime by the High Court and recovery of taxes stayed in those cases. In the circumstances it would have been a futile exercise on the part of these appellants to approach the Chief Judge, Small Causes Court. On this view it could not be said that another adequate remedy was available to the appellants and having failed to make resort to it they had disentitled themselves to invoke the writ jurisdiction of the High Court.
70. It was next urged in the case of Bristol Hotel that the appellant No, 1 having failed to establish that his father who in partnership with Mr. N. Thandani owned the premises had died and that he was his sole heir the writ petition filed by him to impugn the assessment of annual value was not competent in law. In other words he was not a person aggrieved within Article 98 of the Constitution. Whatever be the merit in the contention it was overlooked that Mst. Muqadissa Begum, the occupier of the hotel premises as a tenant, had an independent right to challenge the "annual value" as she was liable for payment of water tax and conservancy tax on the basis of the impugned assessm ent. She was also an appellant before the Chief Judge, Small Causes Court, and a co-petitioner with Hatimbhai son of Yousafali before the High Court. The writ petition was, therefore, competent in law and a decision on merits merits was called for.
71. Lastly in the case of the Beach Luxury Hotel (Civil Kar. Muni. Appeal No, K-2 of 1965) it was urged that the appeal has become Corpn. infructuous as the owners have in an appeal against subsequent Yaqub Ali, J assessm ent for 1957-58 pending in the Court of the Chief Judge, Small Causes Court, entered into a compromise with the Corporation accepting the formula applied by Mr. S. H. Qureshi, Municipal Commissioner, for determining "annual value" for 1956-57 as correct and agreeing further that the said formula under which the monthly rental value was reduced from Rs, 43,421 to Rs, 36,000 shall also hold good for another five years from the date of the recording of the compromise. Under section 251 of the City of Karachi Municipal Act, 1933, "for the purposes of any appeal, inquiry, or proceedings under this Act, the Court of the Judicial Commissioner of Sind or the Judge of the Karachi Small Causes Court may exercise all the powers conferred on them by the Code of Civil Procedure, 1908, the Provincial Small Causes Courts Act, 1887, or the Sind Courts Act, 1866, as the case may be and shall observe the procedure prescribed in the said enactment so far as it is not inconsistent with the provisions of this Act." Order XXIII, rule 3, C. P. C. was, therefore, applicable in the appeal so far as it related to the assessment for 1956-57, but in regard to the earlier assessm ent for 1955-56 which is the subject-matter of the present appeal and for five years from 4-4-1964 to 4-4-1969 the compromise could be assimilated to an agreement between the owners of the Beach Luxury Hotel and the Corporation by which it was sought to fix the "annual value" of the hotel premises for a certain period. It was urged that the compromise was not acted upon and the owners had felt constrained to subscribe to it as coercive methods were being applied by the Corporation for recovery of the impugned taxes, So long as it is admitted that the appellants did enter into an agreement with the Corporation and in accordance with it the appeal before the Chief Judge, Small Causes Court, has been disposed of it is not open to them to plead against the validity of the compromise in the present proceedings emanating in writ jurisdiction of the High Court. We, however, refrain from expressing any opinion as to the validity of the compromise for the counsel suggested that the appellants might take legal steps to avoid, the compromise. It is enough for the purposes of this order to say that by entering into agreement with the Corporation the appellants have disentitled themselves from obtaining any relief in writ jurisdiction. Civil Appeal No, K-2 of 1965 must, therefore, fail and is hereby dismissed.
72. In the above view all the appeals except Civil Appeal No, K-2 of 1965 are allowed and the assessm ents of "annual value" by the Municipal Commissioner, Karachi, respondent No, 2, are set aside. He will proceed afresh in the light of this order to dispose of the objections filed by the appellants against the preliminary assessments made by the Chief Assessor and Collector and to determine the annual value of the premises concerned in accordance with law. In the circumstances there shall be no order as to costs in all the twelve appeals. (1922) 2 A C 103 1901 A C 175 PLD 1957 P C 81