076-NLR-NLR-V-77-MUNICIPAL-COUNCIL-OF-COLOMBO-Appellant-and-Mrs.-R.-SUBRAMANIAM-Respondent.pdf
Municipal Council of Colombo v. Subramaniarh
377
1974 Present : Walgampaya, J., Ismail, J., and Walpita, J.
MUNICIPAL COUNCIL OF COLOMBO, Appellant, andMrs. R. SUBRAMANIAM, Respondent
S. C. 256/67—D. C. Colombo, 62249/M
Municipal Councils Ordinance (Cap. 252)—Sections 230, 231, 232, 240,242, 243, 252, 327—“ Annual value ”—Rent-controlled premises—Computation of their annual value—Relevancy of the controlledor authorised rent prescribed in the Rent Restriction Act—Rates—Primary liability of the landlord-
The term “ annual value ” is defined in section 327 of the Munici-pal Councils Ordinance as follows : —
“ ‘ Annual value ’ means the annual rent which a tenantmight be reasonably expected, taking one year with another, topay for any house, building, land or tenement if the tenantundertook to pay all public rates and taxes, and if the landlordundertook to bear the cost of repairs, maintenance and upkeep,if any, necessary to maintain the house, building, land, ortenement in a state to command that rent… ”
Held, that when the annual value of rent-controlled premises iscalculated, the provisions in the Rent Restriction Act determiningthe rent for the premises cannot be ignored or considered as irrele-vant and must be taken into consideration in computing the rentwhich a tenant might reasonably be expected to pay.
Inasmuch as the Municipal Councils Ordinance imposes theprimary liability for the rates of any premises on the owner or thelandlord and not on the occupant, it is the value or benefit of thepremises to the former that has to be considered, and it is obviousthat the Rent Restriction Act places a limitation on that value orbenefit.
378
WALPITA, J.—Municipal Council of Colombo v. Subramaniam
Appeal
from a judgment of the District Court, Colombo.
M. Tiruchelvam, with M. Sivarajasingham, for the defendant-appellant.
C. Ranganathan, with K. Shanmugam, for the plaintiff res-pondent.
Cur. adtf. mitt.July 31, 1974. Walpita, J.—
The appellant council had assessed the annual value of thepremises No. 2, Wolfendhal Street, Colombo, for the year 1963 atRs. 5,500. The respondent filed this action challenging thatassessment. On this, the learned District Judge reduced theassessment and fixed it at Rs. 1,500. This appeal is from thatOrder.
The decision in this case rests on the interpretation to be givento the term “ Annual value ”. It is defined in Section 327 of theMunicipal Council Ordinance, Chap. 252, Vol. IX of the Legisla-tive Enactments as follows : “ annual value ” means the annualrent which a tenant might reasonably be expected, taking oneyear with another, to pay for any house, building, land or tene-ment if the tenant undertook to pay all public rates and taxes,and if the landlord undertook to bear the cost of repairs, main-tenance and upkeep, if any, necessary to maintain the house,building, land, or tenement in a state to command that rent:
Provided that in the computation and assessment of annualvalue no allowance or reduction shall be made for any period ofnon-tenancy whatsoever.
In determining the meaning of “ annual value ” have we toconsider the effect the Rent Restriction Act has on the rentpayable in respect of any premises ? It is not denied that theRent Restriction Act applies to these premises. The MunicipalCouncil Assessor did not take it into consideration as he thoughtit irrelevant. The appellant contended that the Rent RestrictionAct must be ignored and the hypothetical rent only calculated.The respondent’s argument was, however, that the Rent Restric-tion Act must be taken into consideration in determining therent which a tenant might reasonably be expected to pay.
The appellant has contended in this case that the “ annualvalue ” is based on the rent a hypothetical tenant pays, and theRent Restriction Act which determines the rents for thesepremises should be ignored. It is the contention of the respon-dent that the rent determined or controlled by the Rent Restric-tion Act cannot be ignored and must be taken into considerationwhen determining what a tenant might reasonably be expected
WALPITA, J.—Municipal Council of Colombo v. Subromaniam
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to pay for a house and must be considered from that point ofview.
The appellant submitted that the rent that is contemplated inthe definition is a hypothetical rent, a rent that a hypothetical orimaginary tenant can reasonably be expected to pay. That inconsidering this question the Rating Authority must consider thereality of the case and not a rent artificially controlled by law.That is what the appellant has done in this case because accordingto the evidence of the Municipal Assessor he did not take intoconsideration the authorised rent as fixed by the Rent Act butwhat tenants were actually paying for similar premises in thearea and these were very much higher. The question is whetherhe is entitled to do this in terms of the definition of annual value.
Under the Rent Restriction Act Section 3 (1) and Section 3 (2)declares it unlawful for a landlord to receive or recover any rentin excess of the authorised rent of any premises or for a tenantto pay or offer to pay any rent in excess of such authorised rent.Contravention of the provisions of Section 3 (1) and (2) ispunishable as an offence—vide Section 23 of the said Act.
It is contended on behalf of the respondent that it would beunreasonable to expect a tenant in these circumstances to payany rent in excess of the authorised rent nor can the landlordreceive any such rent. There is much force in this argument. Touse the words of Atkin, L.J.
“To suggest that in the present time the mind of anintending tenant of a house to which the Rent (Restriction)Act applies would not be reasonably affected by the provi-sions of the Rent (Restriction) Act appears to me to borderupon the ridiculous. ”
“ If no higher rent than the standard rent and the statutoryincreases is enforceable, as a matter of common sense thatseems to be the limit of the rent a tenant can be reasonablyexpected to give. ”
The English Act did not prohibit a tenant paying a higherrent or the landlord from receiving such and therefore it wasargued in the case Lord Atkin was considering that the Assess-ment Committee may consider the realities where tenants dopay excess rent willingly. To this argument Lord Atkin said:
“ I think that when the Valuation Act speaks of rent, itmeans rent, a sum legally enforceable ; and is not contem-plating a sum legally enforceable plus a voluntary gift, stillless a voluntary gift which after payment can at any timebe recovered back. ”
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WA1.PITA, J.—Municipal Council of Colombo v. Subramaniam
Under our Rent Act, however, payment of rent in exceflh ofthe authorised rent or receipt of such by the landlord is besidesa punishable offence and a tenant cannot therefore reasonablybe expected to pay anything more than controlled or authorisedrent. The Rent Restriction Act must therefore be taken intoconsideration in determining such rent and from it the annualvalue of the premises calculated.
This would really dispose of this question but it has been con-tended by the appellant here, that what is contemplated in theassessment of property (Sec. 230, Municipal Councils Ordinance,Chap. 252) is an estimate of the value of the beneficial occupancyof a hypothetical tenant. In support of this the appellant reliedon the decision of the House of Lords in Assessment Committeeof Poplar v. Roberts1 (1922) 2 A. C. page 93 (referred to herein-after as the Poplar case). In this case the principal questionwhich had to be decided was whether the Rent (Restriction)Act 1920 in its application to a hereditament had to be takeninto account in arriving at the valuation of the said heredita-ment for the purposes of the Valuation (Metropolis) Act 1869.Under Section 4 of the Valuation (Metropolis) Act, 1869 “ grossvalue ” is defined as the annual rent which a tenant mightreasonably be expected, taking one year with another, to payfor an hereditament, if the tenant undertook to pay all usualtenant’s rates and taxes and the landlord undertook to bear thecost of the repairs and insurance This is similar to the defini-tion of annual value in our Municipal Councils Ordinance, Sec.327. The House of Lords held that it is the benefit to the tenantthat has to be considered. Lord Buckmaster said :
“ So far as the occupier is concerned the provisions of theRent Restriction Act have not in any way made his occupa-tion beneficial. It is the landlord who is affected and he aslandlord is not the subject of assessment nor can his interestin the property be considered for the purpose of deter-mining what that assessment should be. If, however, therent which has to be ascertained under the Section is thereal rent, then the fact that that cannot be increased willhave a material effect on the valuation. ”
“ From the earliest time it is the inhabitant who has to betaxed. It is in respect of his occupation that the rate islevied, and the standard in the Act is nothing but a meansof finding out what the value of that occupation is for the
* (1920) 2 A. C. 93.
WALPITA, J.—Municipal Council of Colombo v. Subramaniam
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purposes of assessment. In my opinion, the rent that thetenant might reasonably be expected to pay is the rentwhich, apart from all conditions affecting or limiting itsreceipt in the hands of the landlord, would be regarded as areasonable rent for the tenant who occupied under theconditions which the Statute of 1869 imposes. ”
The House of Lords decision was, therefore, that in arrivingat the valuation for purposes of the Valuation Act of 1869 of ahereditament to which the Rent Restriction Act, 1920, applies,the maximum gross value to be assigned to that hereditamentis not limited to the standard rent of the hereditament togetherwith the additions thereto permitted by the latter Act.
The value to an occupier is not affected or controlled by thefact that a landlord cannot enforce as against a tenant, renthigher than the statutory standard rent in operation at the time.The House of Lords disagreed with the view of Atkin, L. J. whichI have quoted earlier, as they were of the view that he was con-sidering the effect on the landlord. In the Poplar case—LordCarson disagreed with the majority view and agreed with theview taken by Atkin L.J. and added—
“ I am of opinion that the only rent we have to consideris a rent de jure recoverable and not a voluntary promisewhich cannot be enforced. ”
The question we have to consider in this case is whether it isin respect of the occupation that the rate is levied or whetherthe landlord is the subject of assessment and his interest orbenefit considered for purposes of determining what thatassessment should be.
The respondent contended that the Poplar case had noapplication to the situation here. He relied on a decision of thePrivy Council in the case of Port of Spain Corporation v. Gordon& Co. Ltd.1 (1952) 2 Weekly Law Reports, page 723. There toothe question was whether the rent restriction law had any, andif so what effect, on the determination of the rateable value.Lord Somervell in that case said that the Poplar decision had noapplication, that under Trinidad law, regard must be had to theRent Restriction Ordinance which affects the annual rent payableand exigible by the landlord. In Trinidad according to therelevant legislation the annual rateable value had to be deter-mined, whether the hereditament be actually rented or not byconsidering in every case what amount of annual rent a tenantmay be reasonably expected to pay for such hereditament,having regard to the purposes for which such hereditament is
(1952) 2 W. L. B, 723.
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WALPITA, J.—Municipal Gouncil of Colombo o. Subramaniam
actually used. This is somewhat similar though not the same asthe definition of annual value in our Ordinance. Further theTrinidad Ordinance provided that the annual rate or tax hadto be borne or paid by the owner of such hereditament though ifthe tenant or occupier pay such rate, it may be deducted by himfrom the rent payable. There was further provision for therecovery of rates by action in Cotut against the owner. ThePrivy Council held in the circumstances that the basis of taxdiffers from that of rating under English Law. Lord Somervellsaid :
“ Under the latter the rate is imposed on the occupier.There must be an occupier or there is no rate. Not only isit not imposed on the owner but it is not a charge on theland. If the rate is not paid the authority’s remedy is bydistress and sale of the goods of the occupier. In Trinidadthe rate is borne by the owner ; it is a charge on the rateablehereditament. This is exigible if there is no occupier. ”
In determining the rateable value of such premises thereforethe Privy Council held that regard must be had to the TrinidadRent Restriction Ordinance, 1941, which affects the annual rentpayable to and exigible by the landlord, and the value of thehereditament for rating purposes is the amount of the “ standardrent ” which has been fixed in accordance with the RentRestriction Ordinance.
The respondent’s counsel maintained that the position is thesame here as it is the landlord who is liable for the rates. Therespondent also referred us to the decision in (1952)2 A. E. R. 535Rawlence v. Croydon Corporation.1 There, the Court of Appealconsidered the meaning of the term “ The full net annual value "under the Housing Act of 1936, Lord Denning stated that thePoplar case had no application.
“ Rating concerns the value to the occupier, whereas weare here concerned with the value to the landlord.”
“ The ‘ full net annual value ’ of the house is not to becalculated as if the Rent Acts do not exist. It is the fullamount which a landlord can reasonably be expected to getfrom a tenant. He cannot reasonably be expected to getmore than the Rent Acts permit ”
In the case of Rangoon Municipality v. Surati Co." A.I.R. 1924Rangoon p. 194 the Court distinguished the Poplar case on theground that the House of Lords in that case (i.e. the Poplar case)
(1952) 2 A. E.R. 535.
A. I. R. 1924 Rangoon 194.
WALPITA, J.—Municipal Council of Colombo v. Subramantam
383
was dealing only with the beneficial occupation of the occupierand also because the Rent Restriction Act they had before themdid not make it an offence as the Rangoon Rent Restriction Actdoes, to take more than the standard rent. Robinson, C.J. said :
“ It is no doubt the case that the Rangoon Rent Act wasnot intended to affect assessment. It was not passed for thatpurpose, but with an entirely distinct and settled object.But it is the law of the land at present, and it cannot betreated as non-existent if it does affect the question thathas to be decided in these cases. In all ordinary cases it willbe necessary to consider what rent the landlord couldreasonably expect to get for the premises. The landlord,the standard rent having been fixed by the Controller, couldnot reasonably expect to get any higher rent for thepremises. Did he attempt to do so, he would be guilty ofan offence for which he would be liable to a heavy fine.”
Therefore we have to see here, whether under our law, therate is imposed on the occupier or whether it is borne by theowner. To determine who is under liability to pay the rates anexamination of the relevant Sections of the Municipal CouncilsOrdinance is necessary. Under Section 242 movable property ofthe occupier can be seized for the payment of arrears of ratesup to two quarters unless such movable property belongs tothe owner or joint owner of the premises. Under Section 243 theoccupier or tenant of such premises whose movable property hasbeen seized can pay such rates and deduct the sum from therent due to the landlord. Under Section 240 there is a provisionfor a remission of a proportionate part of the rates when thepremises remain untenanted. Under Section 252 in the case ofnon-payment of rates the Municipal Council can seize themovable or immovable property of the proprietor or jointproprietor of the premises.
From these Sections it seems clear that the liability for therates is on the owner of the premises. Even if the MunicipalCouncil has the right to seize the property of the occupier, whois not the owner, for arrears of rates up to two quarters, thesearrears if paid in the first instance by the occupier could bededucted by him from the rent payable to the landlord. It isclear that the ultimate liability remains with the landlord orthe owner of the premises occupied. Liability being on theowner or proprietor and not on the occupier, who is not theowner, it is therefore the benefit that accrues to the owner orlandlord that counts and not that of the occupier or tenant. In
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WALPITA, JMunicipal Council of Colombo v. Subramaniam
Frewin & Co. Ltd. v. Municipality1 59 N.L.R. page 355 thereis an observation by Fernando, C.J. as follows : —
“This contention would be reasonable if the Ordinanceimposed on tenants the liability or the responsibility for thepayment of rates, but the provisions of the Ordinance areto the contrary effect. For instance Section 243 gives to anoccupier who is not an owner the right to deduct from therent any amount which he pays as rates or the value of anyof his movables which may be seized for non-payment, andeven in regard to the seizure of movables, Section 242protects the movables of a tenant from seizure for arrearsof rates beyond the two quarters next preceding the seizure.The principal sanction for the levy of rates is that containedin Section 252 which confers on the Council the right tosell property of an owner who is in default.”
The decision in Ceylon Turf Club v. Municipal Council1 37N. L. R. 393 has no application here because there the ownerof the premises was the Crown and the Ceylon Turf Club was thelessee from the Crown and under Sections 231 and 232 the Crownis not liable for rates and the Crown property cannot be sold forthe recovery of rates. Liability for rates in that case was on thelessee. That case can therefore be distinguished. Under theMunicipal Councils Ordinance, therefore the primary liability forthe rates is on the owner and the benefit to the occupier cannotbe taken into consideration.
The liability for the rates being therefore on the owner or thelandlord, it is the value or benefit to him of the premises that hasto be considered and it is obvious that the Rent Restriction Actplaces a limitation on that value or benefit. In determining the“ annual value ” under Sec. 327 of the Municipal Councils Ordin-ance, therefore, the Rent Restriction Act cannot be ignored orconsidered as irrelevant ; it must be taken into consideration.
We are of the view therefore that the learned District Judgewas correct in the view he took in this case. The appeal musttherefore be dismissed. The respondent is entitled to costs ofappeal.
Walgampaya, J.—I agree.
Ismail, J.—I agree.
Appeal dismissed.
169 N. L. R. 366.
* 37 N. L. R. 393.