Managing Director, Parur Tourist Home vs State of Kerala and Others

T.L. Viswanatha Iyer, J.—The Petitioner, which is a Firm, had constructed a three storied commercial building in Paravur Municipality, in Ernakulam, District. The construction was completed by December, 1986. The annual value was fixed at Rs. 87,500 in the first instance by the Paravur Municipality, but that was reduced in revision to Rs. 75,000. The assessing authority functioning under the Kerala Building Tax Act, 1975 (the Act), completed an assessment, Ext. P-1 under the Act, fixing the capital value of the building at Rs. 10,59,098 with a liability for tax of Rs. 79,659. Ext. P-1 did not disclose the reason why the assessing authority chose to depart from the annual value fixed by the local authority, or the capital Value based thereon namely Rs. 7,50,000. The Petitioner filed an appeal before the Revenue Divisional Officer u/s 11 of the Act. But it was dismissed by an order, which was not communicated to the Petitioner. The Petitioner filed a revision petition before the District Collector u/s 13 of the Act, which was also dismissed by the proceedings, Ext. P-5, dated 9th November 1990. All that the District Collector did was to state in the order, Ext. P-5, that the capital value of the building fixed by the assessing authority, the Tahsildar, was "fair and reasonable" and that the Petitioner did not produce sufficient evidence to justify its claim for "a reconsideration of the assessment". The Petitioner challenges these proceedings under the Act.

The learned Government Pleader who appeared for the Respondents, stated that on the filing of the return by the Petitioner, he was called for a hearing by the Tahsildar, at which he produced a valuation statement from his Architect-Engineer disclosing the cost of construction as Rs. 10,43,500. Thereupon the Tahsildar fixed the capital value at Rs. 10,59,098 making some addition for the Value of the land as well. Government Pleader submits that since the capital value, has been fixed after notice to the Petitioner, there is no scope for interference by this Court with the orders in question.

The order of assessment, Ext. P-1, is blank so far as the basis of the assessment is concerned. The annual value fixed by the local authority being Rs. 75,000 the capital value should normally have been Rs. 7,50,000 u/s 2(f) read with Section 6(1) of the Act. But the assessing authority is vested with a power u/s 6(2) to fix the annual value of the building if he is of opinion that the annual value fixed by the local authority is too low, but he could re-fix the annual value only after affording the owner of the building an opportunity of being heard. What the assessing authority has done in Ext. P-1 is not to fix the annual value afresh under the power vested in him u/s 6(2), but simply to fix the capital value at Rs. 10,59,098 without disclosing the basis thereof. The basis of this valuation was not disclosed even in the revisional order, Ext. P-5, where the District Collector merely chose to observe that the capital value fixed by the Tahsildar was fair and reasonable. It was only in this Court that the Government Pleader purported to give some colour of explanation for the capital value fixed. An order of assessment, being the culmination of a quasi judicial process, should disclose, On its face, the basis on which it is made. The materials on which the assessing authority chooses to depart from the annual value fixed by the local authority should be disclosed in the order of assessment itself. The assessment should be self contained, containing the reasons for it and the basis thereof. This requirement is all the more imperative since the order of assessment is subject to appeal and revision under the Act, an effective appeal or revision is not possible unless the person affected knows the reasons for the adverse verdict against him. The Act contemplates the capital value on which the tax is levied to be a multiple of the annual value fixed by the local authority. The power of the assessing authority to depart from this value is an extraordinary one, based on his opinion, that the annual value fixed by the local authority is too low. The formation of such an opinion has, as in the case of any other assessment to tax, to be based on material available, with the assessing authority. The owner of the building is entitled to be apprised of these materials as otherwise the opportunity of hearing afforded by Section 6(2) will be ineffective and an empty formality. In so fixing the annual value, the assessing authority has to be guided by the factors (a) to (h) mentioned in Sub-section (4) of Section 6. The order of assessment will be defective if it does not comply with the above requirements of an assessment to tax. This was the purport of the decision in Karunakaran v. Tahsildar 1990 (1) KLT 869 (Paragraphs 8 and 9). The order of assessment, Ext. P-1 which is lacking in any of these details, is on the face of it illegal and liable to be struck down on this ground alone. If so, the revisional order, which is equally blank, is also unsustainable, a copy of the appellate order not having been served on the Petitioner.

No counter affidavit has been filed in this case. But the Government Pleader explained that the capital value was fixed by relating it to the cost of construction which the Petitioner had itself disclosed before the assessing authority at the time of the personal hearing. In other words, it is admitted that it was the cost of construction that formed the sole basis of the assessment of the capital value of the building. But then, this method of fixing the capital value is riddled with serious infirmities. For one thing, the assessing authority has ignored the mandate of Section 6(2). What he is entitled to do u/s 6(2) is to fix the annual value of the building, which in turn leads to the capital value, as a multiple thereof u/s 2(f). He cannot straightaway fix the capital value ignoring the annual value, which is the gross annual rent which the building may, at the time of completion be expected to let from month to month of year to year. The assessing authority should therefore address himself in the first instance on the question of annual value for which the factors made mention of in Section 6(4) are made relevant, and then fix the capital value based thereon, instead of leapfrogging to fix the capital value itself at the first stage.

Secondly the cost of construction is not the sole criterion for fixing the annual value of a building. It is only one of the factors made relevant. The capital value of the building is not the cost of construction, but a multiple of the annual value, which will necessarily vary from place to place depending upon the importance of the location of the building, its accessibility and other factors. No doubt, the cost of construction also goes into the reckoning of the annual value as one of the factors, but it must be remembered that the rent that may be fetched is not always proportionate to the cost. Therefore the proper, and the only, course open to the assessing authority is to fix the annual value with reference to the rent Which it would fetch if it were let out keeping in mind the various factors made relevant by Section 6(4).

The assessing authority has in this case fixed the capital value without any reference to the annual value at all. This is plainly illegal. When an authority is directed to do a certain thing in a certain way, it is well established that he must do it only in that way, and no other. Being so, the only course possible for an assessing authority, if he wants to proceed u/s 6(2), is to fix the annual value in the first instance under that Sub-section read with Sub-section (4) and then fix the capital value. It cannot reverse the process and determine the capital value without reference to the annual value. The order of assessment Ext. P-1 is unsustainable for these reasons as well.

This is sufficient to allow the Original Petition and to quash the impugned orders. I do so. Exts. P-1 and P-5 and the intermediate order of the Revenue Divisional Officer are quashed. It will be open to the assessing authority, the 4th Respondent, if so advised, to make a fresh assessment on the Petitioner in accordance with law after affording the Petitioner a reasonable opportunity of being heard. No costs.