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Supreme Court Of India
Municipal Corporation of Greater Bombay
Versus
Royal Western India Turf Club Limited
Decided On : September 13, 1967
BOMBAY MUNICIPAL CORPORATION ACT - SECTION 154 - RATABLE VALUE - PROFITS BASIS METHOD - DEDUCTIONS - EXPENSES FOR UPKEEP AND REPAIRS OF RACE-COURSE, TOTALISATOR, SAND AND MORUM, SALARIES AND CHARGES OF EMPLOYEES, MOTOR LORRY EXPENSES, STORES AND CHARGES FOR MAINTENANCE OF HORSES AND BULLOCKS, MANURE AND GARDEN EXPENSES, SPARES OF TRACTORS AND OTHER MACHINERY, WHEEL TAX AND WATER TAX - LICENCE FEES - INTERPRETATION.
Fact of the Case:
The Bombay Municipal Corporation appealed a High Court decision that reduced the rateable value of the Royal Western India Turf Club's (RWITC) racecourse in Bombay. The RWITC ran two racecourses, one in Bombay and one in Poona, and the Bombay course was the subject of the appeal. The RWITC leased the land from the Corporation for 30 years at an annual rent of Rs. 3,75,000 and had built structures on the property. The RWITC held race meetings at both courses and paid a license fee of Rs. 13 lacs to the government, allocating Rs. 8,66,666 to the Bombay course. The RWITC's accounts for the relevant year showed a loss of Rs. 7 lacs, but the Deputy Municipal Commissioner disallowed expenses totaling Rs. 22 lacs, determining the gross annual rent at Rs. 13,22,430 and the net rateable value at Rs. 11,90,187. The RWITC appealed to the Small Cause Court, which allowed some expenses but upheld the disallowance of others. The High Court agreed with the Small Cause Court's disallowance of certain expenses but reduced the net rateable value to Rs. 1. 94,175.
Finding of the Court:
The Court held that the profits basis method was properly employed to determine the annual rent and rateable value of the racecourse. The Court found that the expenses for upkeep and repairs of the racecourse, totalisator, sand and morum, salaries and charges of employees, motor lorry expenses, stores and charges for maintenance of horses and bullocks, manure and garden expenses, spares of tractors and other machinery, wheel tax, and water tax were all properly deductible expenses incurred by the RWITC in the ordinary course of its business. The Court also held that the RWITC was entitled to deduct the entire amount of the license fee as an expense incurred to earn receipts.
Issues: 1. Whether the profits basis method was properly employed to determine the annual rent and rateable value of the racecourse. 2. Whether the expenses for upkeep and repairs of the racecourse, totalisator, sand and morum, salaries and charges of employees, motor lorry expenses, stores and charges for maintenance of horses and bullocks, manure and garden expenses, spares of tractors and other machinery, wheel tax, and water tax were properly deductible expenses incurred by the RWITC in the ordinary course of its business. 3. Whether the RWITC was entitled to deduct the entire amount of the license fee as an expense incurred to earn receipts.
Ratio Decidendi: 1. The profits basis method is a well-established method for determining the annual rent and rateable value of premises that are not public utilities, such as racecourses. This method involves ascertaining the net annual value of the premises based on the profits that are made or capable of being made from the premises. 2. The expenses incurred by the RWITC for the upkeep and maintenance of the racecourse and its facilities were properly deductible expenses because they were necessary to maintain the premises in a state to command the hypothetical rent. These expenses were not the landlord's burden but rather the tenant's burden, as the tenant would be responsible for maintaining the premises in good condition during the term of the lease. 3. The license fee paid by the RWITC was also a properly deductible expense because it was a necessary expense incurred to earn receipts. The license fee was required to obtain permission to conduct race meetings on the racecourse, which was the RWITC's business.
Final Decision: The Court dismissed the appeal, holding that the High Court's decision was correct in allowing the deductions claimed by the RWITC and in reducing the net rateable value of the racecourse.
Judgment
J. M. SHELAT, J.
( 1 ) THIS appeal by certificate obtained from the High Court at Bombay involves the question as to the true meaning of S. 154 of the Bombay Municipal Corporation AC, II of 1888 and the correct rateable value to be assessed thereunder.
( 2 ) THE resident Club runs two race courses, one in Bombay and the other at Poona. We are concerned in this appeal with the Bombay race-course which is comprised of land and certain structures standing thereon. The said land is the property of the appellant-corporation given on lease to the C1ub for a period of 30 years commencing from 1/06/1944 at an annual rent of Rs. 3,75,000. The said structures thereon have been built by and belong to the Club. The Club has obtained a licence from the Government of Maharashtra permitting the Club to hold race-meetings at both the Courses and for which it paid a sum of Rs. 13 lacs for the relevant year. The Club distributed the said licence fees between the two Courses in the ratio of 2: l and thus share of the Bombay Course came to Rupees 8,66,666. The rating year in question is 1954-55. The assessment was made on the basis of the Clubs accounts for the year 1953-54 that being the year concluded before the assessment. According to these accounts the gross receipts of the Club came to Rs. 117 1acs and odd and the expenses to Rs. 124 lace and odd; the accounts thus showed a loss of Rs. 7 lace and odd. The Deputy Municipal Commissioner who is the assessing authority disallowed expenses totalling Rs. 22 lacs and odd as having been wrongly included in the working expenses and determined Rs. 13,22,430 at the gross annual rent and deducting therefrom the 10 per cent deduction allowable under Sec. 154 of the Act assessed the net rateable value at Rs. 11,,90,187. The respondent-Club thereupon filed an appeal before the Small Cause Court, Bombay, under S. 217 of the Act. The Club claimed in all 19 items of expenses which according to it ought to have been allowed. The Club, however, conceded that items 1, 2, 4, 5, 15, 16 and 18 were rightly disallowed. The remaining items were :
( 3 ) BOMBAY Course upkeep and repairs6. Track sand and murum7. Legal charges8. Licence fee9. Totalisator upkeep and repairs10. Bombay Course salaries and wages11. Motor lorry expenses12. Grass and charges for maintenance of horses and bullocks13. Insurance and garden expenses14. Spares for tractors and machineryl9. Painting. 3. Out of these, items 3, 9 and 19 were wholly disallowed by the Deputy Municipal Commissioner while the rest were partially allowed. As regards Item 19, that is, painting, Counsel for the Club stated before us that he would not press that item. We are therefore no longer concerned with that item. The Small Cause Court agreed with the Deputy Municipal Commissioner in totally disallowing expenses under Items 8 and 9. It allowed however item 7, that is, loyal charges which were disallowed by the Deputy Municipal Commissioner. Regarding Item 6, the view of the Small Cause Court was that only 7/12th and not 50 per cent deducted by the assessing authority ought to have been allowed. It was also of the view that only 7/12th and not 50 per cent of the expenses under Items 10, 11, 12, 13 and 14 ought to have been allowed by the assessing authority. As regards the licence fees the Club had, as aforesaid, allotted Rs. 8,66,666 to the Bombay Race Course. The Small Cause Court confirmed the deduction of 50 per cent only of this amount allowed by the assessing authority. So far as water tax and wheel tax were concerned the Small Cause Court confirmed the deduction of 3/4th of these taxes made by the authority. The Small Cause Court held that the profits basis method employed by the assessing authority was properly employed and further held that the Club had failed to prove that the net rateable value of Rs. 11,90,185 determined by the assessing authority was excessive.
( 4 ) BEFORE the High Court the Club agitated the same objections. The High Court was of th
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