JUDGMENT Rastogi, J.
1. Geep Flashlight Industries Ltd., Allahabad, which has now been changed to Geep Industrial Syndicate Ltd., is a public limited company incorporated under the Indian Companies Act, 1913. It is engaged in the business of manufacture and sale of torches and dry cell batteries. Its factory and administrative offices are situated in the premises No. 28, South Road, Allahabad. The lease of this property expired on 31st of December, 1967. For the quinquennium 1960-65 the Nagar Mahapalika, Allahabad, had estimated the annual value of this property at Rs. 23,531. For the next quinquennium 3965-70 it was determined at Rs. 28,500, which was later raised to Rs. 28,550, on account of some further additions to the buildings. For the next quinquennium 1970-75 the Nagar Mahapalika proposed to determine the annual value of the disputed property at Rs. 95,989 and a notice was issued to the petitioner-company in this behalf. The petitioner-company filed objections to the proposal under Section 209(1) of the Nagar Mahapalika Adhiniyam, 1959, hereinafter referred to as "the Adhiniyam". The executive committee of the Nagar Mahapalika overruled those objections and, by its order dated February 25, 1972, determined the total value of the disputed buildings as on the relevant date at Rs. 21,97,000 and its annual value at Rs. 95,989.
2. Aggrieved, the petitioner-company filed an appeal under Section 472 of the Adhiniyam which was allowed by the judge, Small Causes Court, Allahabad, by his order dated December 17, 1974, fixing the annual value of the disputed property at Rs. 27,925. From that order the Nagar Mahapalika preferred an appeal which came up for hearing before the presiding officer of the Nagar Mahapalika Tribunal, Allahabad, who by his judgment and order dated June 2, 1975, allowed the appeal and fixed the annual value of the disputed property at Rs. 1,07,735.40. The present writ petition has been filed by the petitioner-company for quashing this decision and for restoring the decision given by the judge, Small Causes Court, Allahabad.
3. A counter-affidavit has been filed on behalf of the respondent, Nagar Mahapalika, Allahabad, and the petitioner has filed a rejoinder affidavit.
4. The first submission made before us on behalf of the petitioner-company was that there was absolutely no basis given by the Addl. District Judge, Allahabad, for determining the annual value of the disputed property at Rs. 1,07,735.40. The. second submission was that the learned Addl. District Judge erred in relying upon the evidence of the junior engineer of the Mahapalika, which had been introduced in the case at the stage of the first appeal. According to the learned counsel, that evidence was inadmissible. Apart from these two contentions it was also urged that even the original proposal to enhance the annual value to Rs. 95,989 did not disclose the basis on which it was founded. The learned counsel for the Mahapalika, on the other hand, controverted these contentions and essentially placed reliance on the reasons given by the Addl. District Judge. Thus, the first question which falls for consideration is as to whether a proper basis was adopted for the determination of the annual value by the assessing authority, and, subsequently, by the appellate authorities, or not.
5. Section 174 of the Adhiniyam defines "annual value", it reads as under:
"174. Definition of 'annual value'.--'Annual value' means-
(a) in the case of railway stations, colleges, schools, hostels, factories and other such building, a proportion not below 5 per cent. to be fixed by Rules made in this behalf of the sum obtained by adding the estimated present cost of erecting the building less depreciation at a rate to be fixed by rule, to the estimated value of the land appurtenant thereto, and
(b) in the case of a building or land not falling within the provisions of Clause (a) the gross annual rent for which such building, exclusive of furniture or machinery therein, or such land is actually let, or where the building or land is not let or in the opinion of the assessing authority is let for a sum less than its fair letting value, might reasonably be expected to be let from year to year :
Provided that where the annual value of any building would, by reason of exceptional circumstances, in the opinion of the Mahapalika, be excessive if calculated in the aforesaid manner, the Mahapalika may fix the annual value at any less amount which appears to it equitable :
Provided further that where the Mahapalika so resolves, the annual value in the case of owner-occupied building and land shall, for the purposes of assessment of property taxes, be deemed to be 25 per cent. less than the annual value otherwise determined under this section."
6. Clause (a) of the above definition would be applicable to the building in dispute because it consists of factory and administrative offices of the petitioner-company. The definition of "annual value" given in this section is, in terms, akin to the definition of this expression given in Section 140 of the Municipalities Act, 1916. It will not be out of place to read that definition also. It reads as under :
"140. Definition of annual value.--(1) 'Annual value' means,--
(a) In the case of railway stations, hostels, colleges, schools, hospitals, factories, and other such buildings, a proportion not exceeding five per centum, to be fixed by rule made in this behalf, of the sum obtained by adding the estimated present cost of erecting the building to the estimated value of the land appurtenant thereto, and
(b) in the case of a building or land falling within the provision of Clause (b), the gross annual rent for which such building, exclusive of furniture or machinery therein, or such land is actually let, or, where the building or land is not let or in the opinion of the board is let for a sum less than its fair letting value, might reasonably be expected to be let from year to year:
Provided that where the annual value of any building would, by reason of exceptional circumstances, in the opinion of the board, be excessive if calculated in the aforesaid manner, the board may fix the annual value at any less amount which appears to it equitable."
7. For purposes of buildings falling within Clause (a) of Section 174 of the Adhiniyam or Section 140 of the U.P. Municipalities Act, the basis for determination of the annual value is to estimate the cost of construction of an existing old building of the same type, design and dimension and therefrom to deduct depreciation at the rate to be fixed by the rules. The cost so calculated would represent the present cost of erecting the building and the annual value is to be determined at not below 5 per cent. of the same. Admittedly, the respondent, Nagar Mahapalika, Allahabad, has not framed any rule fixing the rate at which such depreciation is to be allowed. In this connection reference may be made to the decision of a Bench of our High Court in the case of Union of India through E.I. Rly. v. Municipal Board, Lucknow, AIR 1957 All 452. In that case, the words "estimated present cost of erecting the building" occurring in Section 140(1)(a) of the U.P. Municipalities Act had come up for consideration and it was laid down that (p. 453, col. 2):
".....these words connote that the cost of the building should be calculated as if a new building were to be erected on the date of assessment but allowance should be made for depreciation in assessing the value depending upon the condition of the building. There may be buildings which may be only ten years old but their condition may have become very bad because they were not maintained properly while there may be other buildings much older but properly maintained which would have a much lesser depreciation in their value. The assessing authority should, therefore, see that the depreciation depending upon the condition of the building is taken into consideration on the basis of the cost of erection on the date, when the assessment has to be made."
8. It is, thus, entirely a question of fact depending on the condition of the building itself and no hard and fast rule or formula can be laid down for assessing the depreciation. In the present case, the assessing authority did take into consideration the report of its engineer while proposing to increase the annual value of the disputed property to Rs. 95,989, The estimate of the total value of the building made by the Mahapalika's engineer did include the estimated value of the land appurtenant to the building. That record was made available to us for our perusal by the learned counsel for the respondent and we found that the contention of the petitioner-company to the contrary that the proposed estimate did not include the estimated value of the land appurtenant is not correct. An objection was raised before us by the learned counsel for the petitioner-company that we cannot peruse the record of the assessing authority, but we are not inclined to agree with him. Another grievance raised before us on behalf of the petitioner-company was that the material on which the estimate was based, was not disclosed to the petitioner. In this behalf we would like to observe that that material was certainly not confidential or previleged so that it could not have been disclosed to the assessee concerned. However, we do not find anything on record to suggest that any attempt was made on behalf of the petitioner-company to ask for that material and that the request was refused. We, thus, find that certainly there was some basis for the determination of the annual value of the disputed building before the assessing authority but since it did not comply with the legal requirements discussed above, it is not possible to say that that estimate was based on proper legal basis.
9. At the stage of the first appeal by way of additional evidence the respondent, Nagar Mahapalika, filed an affidavit of another engineer. That engineer appears to have made an inspection of the disputed property some time after the order had been made by the assessing authority and an attempt was thus made to justify the estimate relied upon by the Nagar Mahapalika. The petitioner-company filed an objection to that affidavit and also filed an estimate of the total value of the disputed building made by their own engineer. The learned judge, Small Causes, did not rely on this additional evidence produced on behalf of the Nagar Mahapalika and determined the annual value at a figure which was much less than the one determined by the assessing authority. It was also below the figure which had been fixed for the immediately preceding quinquennium. We find that the first appellate court as well did not adopt a proper and legal basis.
10. The second appellate court did not agree with the first appellate court. In a way it also did not agree with the assessing authority and made its own determination of the annual value at a figure higher than the one determined by the assessing authority itself. Apart from the scope of the powers of the second appellate court in an appeal under Section 476 of the Adhiniyarn, we find that again there is no proper basis adopted by the second appellate court. For estimating the present cost of construction the P.W.D. rates had been adopted. It it not possible for us 1o say that the P.W.D. rates cannot form a proper basis for this purpose; but, before referring to those rates, it is necessary to take into consideration the nature and condition of the building, the type of material used and such other things As for allowing depreciation the life of the disputed building has been assumed at 100 years and since it has been in existence for more than 15 years, depreciation has been calculated at 5 per cent. In doing so a reference has been made to Section 32 of the I.T. Act. We do not agree with, the learned appellate court in this behalf because the considerations which weigh in allowing depreciation under Section 32 aforesaid are entirely different. We do not think it necessary to go into this aspect in great detail. Suffice it to say that the general scheme of the I.T. Act is that the income is to be charged regardless of the exhaustion or diminution, in the value of capital. An exception to this principle is afforded by Section 32 and before the benefit of this provision can be claimed there are numerous conditions which have to be fulfilled. The assets in respect of which depreciation allowance is claimed must be either buildings, machinery, plant or furniture. Depreciation is not allowable on the cost of the land on which a building is erected. The allowance is in respect of those buildings, machinery, plant and furniture which are used for the purposes of the assessee's business, the profits of which are being charged. The property should be owned by the assessee before depreciation allowance can be granted under Section 32(1). Apart from these conditions the prescribed particulars must be duly furnished by the assessee. If they are not so furnished, the relief would be disallowed. The aggregate of all the depreciation allowances made year after year including initial depreciation allowed should not, in any case, exceed the actual cost. Under certain circumstances irrespective of the actual wear and tear caused to the assets in question, full amount of the allowance prescribed is allowable. The considerations are thus entirely different and, in our opinion, the reference to Section 32 of the I.T. Act was wholly misconceived. Further, other assumptions made by the learned Additional District Judge were without any proper material. As has been stated above, it is entirely a question of fact depending upon the condition of the building. Unfortunately the condition of the building was not taken into consideration by any of the authorities below and the matter would, thus, require a fresh consideration by the assessing authority itself.
11. It could not be disputed before us that while determining the cost of the building the estimated value of the land appurtenant to it is to be included. Depreciation is to be allowed only in respect of the building and not of the land appurtenant thereto. We may, again, emphasise that the cost of the building is to be calculated on the basis of the present cost in erecting a new building of the same type, design, etc., and from the cost so arrived, depreciation is to be deducted. For determining the rate of depreciation the condition of the building is to be taken into consideration. Thereafter, the estimated value of the land appurtenant to the building is to be added to such estimated cost. The annual value of the building will then be determined at not below 5 per cent. of the cost so calculated.
12. The question that now remains for our consideration is as to whether the second appellate court erred in relying upon the evidence which had been given in the case at the stage of the first appeal, In view of what has been stated above, this question is only of an academic nature. However, since the facts are not in dispute we would like to express an opinion on this question also. As noted above, this additional evidence was given by the respondent, Nagar Mahapalika, at the stage of the first appeal. The court admitted the evidence and allowed the petitioner company to file an objection. It, however, did not rely on this material. The second appellate court took a different view. In our opinion, on an appreciation of the material on record it could have substituted its own finding. It cannot be said that this material was brought on the record for the first time at the stage of the second appeal. It was already there on the record when the second appeal came up for consideration and certainly in deciding the appeal the appellate court could have referred to it. The grievance of the petitioner-company to the contrary is, therefore, without any substance.
13. In view of the foregoing discussion, the matter has to be referred back to the assessing authority for consideration afresh. The petition, hence, succeeds and is allowed in part. The orders of the assessing authority dated February 25, 1972, that of the first appellate court dated December 17, 1974, and that of the second appellate court dated 2nd June, 1975, are quashed and the matter is restored to the assessing authority for decision afresh. We make no order as to costs.