Supreme Court clarifies property tax as rent for eviction under Delhi Rent Control Act: Atma Ram Properties vs. Oriental Insurance (2017) INSC 989 (06 December 2017)

Date of the Judgment: 06 December 2017
Citation: (2017) INSC 989
Judges: J. Chelameswar, S. Abdul Nazeer
Can a landlord use the non-payment of property tax by a tenant, which the landlord is entitled to recover as rent, as grounds for eviction under the Delhi Rent Control Act, 1958? The Supreme Court of India addressed this question, clarifying the interplay between the New Delhi Municipal Council Act, 1994 and the Delhi Rent Control Act, 1958. The Court held that while property tax can be recovered as rent, it cannot be used to circumvent the protections against eviction provided to tenants under the Delhi Rent Control Act. The judgment was delivered by a two-judge bench comprising Justice J. Chelameswar and Justice S. Abdul Nazeer, with the opinion authored by Justice S. Abdul Nazeer.

Case Background

Atma Ram Properties Pvt. Ltd., the appellant, owns a building in New Delhi where the Oriental Insurance Co. Ltd., the respondent, is a tenant. The monthly rent for the tenanted premises was Rs. 1,438, excluding electricity and water charges, with an additional service tax of Rs. 148, bringing the total to Rs. 1,586 per month. Following amendments to the New Delhi Municipal Council (Determination of Annual Rent) Byelaws, 2009, the property tax on the building was assessed using the Unit Area System, resulting in a substantial increase to Rs. 9,64,710 per annum, or Rs. 80,392.50 per month.

The appellant contended that the respondent was liable to pay this increased property tax. After the respondent failed to pay the tax despite notices, the appellant paid the tax to the New Delhi Municipal Council (NDMC) and then issued a notice to terminate the tenancy, arguing that the total rent, including the property tax, exceeded Rs. 3,500 per month, thereby removing the premises from the protection of the Delhi Rent Control Act, 1958. The respondent denied liability, asserting that the property was governed by the Delhi Rent Control Act and that the house tax could not be treated as part of the rent for eviction purposes.

Timeline

Course of Proceedings

The trial court granted a decree of possession in favor of the appellant on 12.08.2013. However, the High Court set aside the trial court’s order on 30.05.2016 and remanded the matter back to the trial court. The appellant then appealed to the Supreme Court challenging the High Court’s decision.

Legal Framework

The case revolves around the interpretation of Section 67(3) of the New Delhi Municipal Council Act, 1994 and Section 7(2) of the Delhi Rent Control Act, 1958.

Section 67(3) of the New Delhi Municipal Council Act, 1994 states:

“Any person entitled to receive any sum under this section shall have, for the recovery thereof, the same rights and remedies as if such sum were rent payable to him by the person from whom he is entitled to receive the same.”

This section allows landlords to recover property tax from tenants as if it were rent.

Section 7(2) of the Delhi Rent Control Act, 1958 states:

“Where a landlord pays in respect of the premises any charge for electricity or water consumed in the premises or any other charge levied by a local authority having jurisdiction in the area which is ordinarily payable by the tenant, he may recover from the tenant the amount so paid by him; but the landlord shall not recover from the tenant whether by means of an increase in rent or otherwise the amount of any tax on building or land imposed in respect of the premises occupied by the tenant.”

This section prohibits landlords from recovering property tax from tenants as part of the rent.

Section 2(i) of the Delhi Rent Control Act, 1958 defines “premises”. Section 3(c) of the same act states that the act does not apply to any premises whose monthly rent exceeds Rs 3,500. Section 50 of the Delhi Rent Control Act, 1958 bars civil courts from entertaining suits related to standard rent fixation or eviction of tenants under the act.

Section 411 of the NDMC Act states:

“Save as provided in this Act nothing contained in this Act shall be construed as authorising the disregard by the Council or the Chairperson or any municipal officer or other municipal employee of any laws for the time being in force.”

This section ensures that the NDMC Act does not override other existing laws.

Arguments

Appellant’s Arguments:

• The appellant argued that after the 2009 amendment, the property tax was assessed on the unit area system, leading to a substantial increase.
• The appellant contended that the respondent failed to pay the house tax despite repeated requests, forcing the appellant to deposit the entire amount.
• The appellant argued that the total rent, including the property tax, exceeded Rs. 3,500 per month, thus removing the premises from the protection of the Delhi Rent Control Act.
• The appellant relied on the Full Bench decision of the Delhi High Court in Ganga Ram v. Mohd. Usman [ILR (1978) 1 Delhi page 139], which held that the amount of tax on a building or land becomes part of the rent.
• The appellant argued that Section 67(1) of the NDMC Act fictionally treats property tax as rent to ensure landlords are not burdened with the entire tax liability.
• The appellant relied on Karnani Properties Ltd. v. Augustine [(1957) SCR 20], Bombay Municipal Corporation v. Life Insurance Corporation, Bombay [(1970) 1 SCC 791], Raju Kakara Shetty v. Ramesh Prataprao Shirole [(1991) 1 SCC 570], D.C. Bhatia v. Union of India [(1995) 1 SCC 104] and Calcutta Gujarati Education Society v. Calcutta Municipal Corpn. [(2003) 10 SCC 533] to support their claim that the tax component becomes part of the rent.

Respondent’s Arguments:

• The respondent argued that the contractual rent was Rs. 1,586 per month, and the Delhi Rent Control Act is a special enactment with a non-obstante clause.
• The respondent contended that the NDMC Act is a general enactment without a non-obstante clause, and Section 411 of the NDMC Act specifies that other laws should not be disregarded.
• The respondent argued that Section 67(3) of the NDMC Act only allows recovery of rent, not eviction for non-payment of tax.
• The respondent argued that even if the NDMC Act prevails, the provisions must be harmoniously construed to avoid violating the Delhi Rent Control Act.
• The respondent contended that tax cannot be added to rent to determine if the tenant loses protection under the Delhi Rent Control Act.

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

1. Whether property tax recoverable from the tenant under Section 67(3) of the New Delhi Municipal Council Act, 1994, as arrears of rent by the landlord/owner can be considered to be forming part of the rent for the purpose of seeking eviction or ejectment of such tenant who defaults in payment of such recoverable tax as rent and when the rent including recoverable tax in respect of the tenanted premises exceeds Rs.3500/- per month, thereby losing protection of the Delhi Rent Control Act, 1958.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Court considered the following authorities:

Judgment

How each authority was viewed by the Court:

• The Court distinguished Ganga Ram v. Mohd. Usman [ILR (1978) 1 Delhi page 139], stating that it did not consider the question of eviction under the Rent Act.
• The Court noted that Karnani Properties Ltd. v. Augustine [(1957) SCR 20], Bombay Municipal Corporation v. Life Insurance Corporation, Bombay [(1970) 1 SCC 791], Raju Kakara Shetty v. Ramesh Prataprao Shirole [(1991) 1 SCC 570], D.C. Bhatia v. Union of India [(1995) 1 SCC 104] and Calcutta Gujarati Education Society v. Calcutta Municipal Corpn. [(2003) 10 SCC 533] did not deal with the specific issue of eviction under the Delhi Rent Control Act in relation to property tax.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect tenants from arbitrary eviction, as intended by the Delhi Rent Control Act, 1958. The Court emphasized that the Rent Act is a special enactment designed to curb the tendency of landlords to evict tenants for higher rents. The Court also considered that the NDMC Act, while allowing landlords to recover tax as rent, does not override the specific protections granted to tenants under the Rent Act.

The court’s reasoning was heavily based on the legal interpretation of the statutes involved, giving more weight to the legal aspects of the case than to the factual details.

Logical Reasoning

The Court considered the arguments of both sides, and emphasized the importance of harmoniously construing both the Acts.

The Supreme Court rejected the appellant’s arguments, stating that:

“Section 67(3) of the NDMC Act merely gives a right to recover the tax in respect of the premises as rent. It does not override the Rent Act insofar as obviating the effect of Section 7(2) of the Rent Act.”

The Court further clarified that:

“In our opinion, the tax recoverable from the tenant under Section 67(3) of the NDMC Act as arrears of rent by the appellant cannot be considered to be forming part of the rent for the purpose of seeking eviction/ejectment of the respondent who defaults in payment of such recoverable tax as rent.”

The Court emphasized that the Delhi Rent Control Act is a special enactment designed to protect tenants from arbitrary eviction.

“The object of the Rent Act is to provide protection to tenants who under common law, including Transfer of Property Act could be evicted from the premises let out to them at any time by the landlord on the termination of their tenancy. It restricts the right of the landlord to evict the tenant at their will. It is a special law in relation to landlord and tenant issue. Therefore, the Rent Act has to prevail insofar as landlord and tenant issue is concerned.”

The Court held that Section 67(3) of the NDMC Act does not override the specific bar in Section 7(2) of the Delhi Rent Control Act.

There were no dissenting opinions in this case.

Key Takeaways

• Property tax recoverable from a tenant cannot be considered part of the rent for the purpose of eviction under the Delhi Rent Control Act.
• The Delhi Rent Control Act is a special enactment that protects tenants from arbitrary eviction.
• The New Delhi Municipal Council Act, 1994, does not override the protections provided to tenants under the Delhi Rent Control Act.
• Landlords cannot use the non-payment of property tax as grounds for eviction if the premises are protected under the Delhi Rent Control Act.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that while property tax can be recovered as rent under Section 67(3) of the New Delhi Municipal Council Act, 1994, it cannot be considered part of the rent for the purpose of eviction under the Delhi Rent Control Act, 1958. This clarifies that the protections granted to tenants under the Delhi Rent Control Act cannot be circumvented by treating property tax as rent. This judgment reinforces the primacy of the Rent Act in matters of landlord-tenant disputes, particularly regarding eviction.

Conclusion

The Supreme Court dismissed the appeal, holding that property tax recoverable from a tenant cannot be considered part of the rent for eviction purposes under the Delhi Rent Control Act. The Court emphasized the protective nature of the Delhi Rent Control Act and clarified that the New Delhi Municipal Council Act does not override these protections. This judgment ensures that tenants cannot be evicted by treating property tax as rent, thereby maintaining the balance between the rights of landlords and the protection of tenants.