The annual letting value for the purpose of levying rates on mills and factories must be based on the rent that a hypothetical tenant would reasonably pay for the building and cannot be arbitrarily fixed by the Municipality based on the floor area.

Judgment

SHAH, J. : These five appeals raise a common question about the validity of R. 2C framed by the respondent-the Municipality of Barsi under S. 58(j) of the Bombay Municipal Boroughts Act,1925-hereinafter called the Act. The Lokmanya Mills- hereinafter called the appellants-are a company registered under the Indian Companies Act holding an extensive area of land City Survey No. 2554 within the Municipal Borough on which are constructed buildings of the factory, warehouses, bungalows and other structures appurtenant to the factory. The respondent, a Borough Municipality constituted under the Act is by S. 73, entitled to levy a rate on lands and buildings and also a water-rate. Under the rules framed by the Municipality, house-tax and water-tax were levied on buildings and non-agricultural lands on their annual letting value at uniform rates whether the purpose was residential, business or manufacturing.

2. In 1944, the Municipality resolved to enhance the assessment of lands and buildings within its area. After some correspondence with the Commissioner Central Division, the General Body of the Municipality resolved that the rental value for levying rates on mills and factories within its limits be fixed at Rs. 40/- for every100 square feet. Notices of this resolution under S. 75(b) of the Act were issued and objections to the proposed enhancement were invited from the tax-payers, and after obtaining the approval of the Government of Bombay, the new rules were made operative from April 1, 1947. The rules relevant for the purposes of these appeals are:

Rule 2A:- The assessment of house-tax on all lands, buildings and non-agricultural lands, other than Government buildings coming under Proviso A of S. 73 of the Bombay Boroughs Act of 1925, at rates mentioned in the Schedule attached to these rules.

Rule 2B:- In case Government buildings coming under Proviso A of S. 73 of the Bombay Boroughs Act are used beneficially, the assessment of such buildings shall be made as specified in sub-secs. 2 and 3 of S. 74.

Rule 2C :- As regards Mills, factories and buildings relating thereto, the annual letting value shall be fixed at Rs. 40/- per 100 square feet or part thereof for every floor, ground floor or cellar and the tax shall be assessed on the said annual letting value, at the ordinary rate.

Explanation:- The words "buildings pertaining thereto" include buildings in the compound of the Mills such as ware-houses, godowns, shops of the mills etc. but does not include residential buildings that is to say bungalows and out-houses.

Note:-Assessment shall be made at the ordinary rate on buildings which are not taxed under R. 2C above.

3. The Municipality prepared an assessment list under the new scheme of taxation in respect of factory buildings and buildings relating thereto and issued notices of demand calling upon the appellants to pay house-tax and water-tax newly assessed thereon. The appellants paid under protest the tax demanded, and filed five suits in the court of the Civil Judge, Junior Division of Barsi, to recover the amounts levied by the Municipality in excess of the amounts due under the old scheme. In all these suits, the principal issue raised was about the validity of R. 2C framed by the Municipality for levy of rates "on Mills. Factories and other buildings relating thereto." The trial court held that R. 2C was valid and within the competence of the Municipality and dismissed the suits for refund of house-tax and water-tax. The District Court at Sholapur in appeal declared R. 2C "illegal and ultra vires and by injunction restrained the Municipality from making any claim or demand for house-tax and other taxes from the appellants on the basis of that rule. The High Court of Judicature at Bombay set aside the decree of the District Court disagreeing with the view that R. 2C was ultra vires.

4. In these appeals filed with special leave against the judgments of the High Court, the only question which falls to be determined is whe