HANSARIA, J.

1. The appellant is liable to property tax leviable under Bombay Municipal Corporation Act, 1888 (the Act). It constructed a building on two plots bearing Nos. 165 and 166. The construction started in February 1962 and was completed by December 1964. The Bombay Municipal Corporation, for short the Corporation, asked the assessee to show cause as to why the rateable value should not be raised to Rs. 17, 36, 420 with effect from 16-6-1963. The assessee raised objection to the enhancement. After considering the objection, the Corporation fixed the rateable value at Rs. 12, 16, 285 by adopting a method styled as comparative. The assessment as finalised by the Corporation came to be challenged by the assessee-appellant before the Chief Judge of the Small Cause Court under Section 217 of the. One of the contentions advanced by the assessee was that instead of the comparative method adopted by the Corporation, the suitable basis for assessment was contractors method. Both the parties led evidence and the Chief Judge came to the conclusion that the comparative method was not unsuitable. It was secondly held that even if the contractors method was to be adopted, the result would not have been different. After gong through the merits of the controversy the Chief Judge reduced the rateable value to Rs. 9, 97, 555. Both the Corporation and the assessee appealed before the High Court of Bombay and by the impugned judgment the High Court has accepted the appeal of the Corporation by enhancing the rateable value to Rs. 11, 81, 450. The appeal of the assessee was dismissed. This appeal by special leave is by the assessee

2. A perusal of the impugned judgment shows that the comparative method was held to be unsuitable inasmuch as there being no other building within the area comparable in all respects to the building in question, that method could not apply, as, what would have been the rent of the building if let out to a tenant could not be known. This view taken by the High Court is not assailed before us by any of the parties. We would, therefore, see whether while adopting the contractors method, any wrong has been committed in fixation of the rateable value At Rs. 11, 81, 450

3. According to the appellant, the High Court erred in including the following items in the cost of construction

(a) Cost of air-conditioning machinery amounting to Rs. 5, 91, 767.50

(b) Cost of false ceiling amounting to Rs. 7, 80, 289

(c) Cost of wooden partitions dividing the floor spaces amounting to Rs. 3, 45, 032.10

(d) Cost of mural figure on the outside wall amounting to Rs. 15, 000

(e) Amount of ground rent for 4 years and 4 months @ Rs. 59, 000 per year - the total of which comes to Rs. 1, 94, 065.60

(f) A sum of Rs. 1, 61, 721.28 being the interest on Rs. 2, 98, 562.50 which the appellant had deposited with the Corporation while undertaking the construction of the building

(g) A sum of Rs. 14, 38, 589.83 representing interest @ 6 1/2% on Rs. 82, 99, 557.07 which was the total cost of construction

4. We would express our views on the aforesaid objections as listed

Items (a) and (b)

5. Both these items have been taken together as they relate to air- conditioning of the building. The type of air-conditioning device put up has been well explained in the impugned judgment at pages 54 and 55 of the paper-book. It is embedded and mounted on a concrete foundation and the building has been so designed as to have the whole of it centrally air-conditioned. For this purpose, a provision was made for concrete cooling towers on the terrace and steel pipes have been laid to ensure the circulation of the cooling water from the tower to the ground floor and then back to the tower. To ensure this false ceiling on each floor was required which costed Rs. 7, 80, 289 in all, which is more than the cost of the machinery which was Rs. 5, 91, 767.50

6. The aforesaid leaves no manner of doubt that the air-conditioning machinery had been installed for the purpose of better enjoyment of the building itself increasing its utility. Relying on this factor as well as on the type of air-conditioning done in the building, it is contended by Shri Nariman, appearing for the Corporation, that the case is not covered by Section 154(2) of the Act, as per which the value of any machinery contained in or situate upon any building is not be included in the rateable value. According to learned counsel, this provision of the which alone has been pressed into service by the appeal to get excluded the valuation of items (a) and (b), takes care of that machinery only which has its separate existence and about which it cannot be said that it is embedded to (sic in the building to become its integral part. It is also urged that the type of apparatus and contrivance used in air-conditioning the building, has made the device more a plant than a machinery; and what has been exempted by the aforesaid provisions is machinery and not a plant

7. Sir Nariman has strenuously urged that when a chattel becomes a part of hereditament, the value of the same has to be included in fixing rateable value of a building, as was opined in London County Council v. Wilkins (Valuation Officer) which view of the Court of Appeal was upheld by the House of Lords in London County Council v. Wilkins which decision was subsequently relied upon by the Court of Appeal in Field Place Caravan Park, Ltd. v. Harding (valuation Officer) and Dick Hampton (Earth Moving) Ltd. v. Lewis (Valuation Officer). The learned counsel then draws our attention to some of the decisions of the High Courts of the country where moveable properties like Kolhu, powerloom and furniture were held to have become part of land, as defined in Section 3 of the Transfer of property Act. (The definition of land in the is similar). These decisions are Musai Kurmi v. Sub Karan Kurmi. Industrial Weavers Coop. Society. Ltd. v. Collector; Poona Municipal Corpn. v. Shankar Ramkrishna Jabade and Haji Dawood v. Municipal Commr

8. In Poona Municipal Corpn. case the Bombay High Court had examined the question with reference to the at hand and so what was opined therein is more material for our purpose. The Bench speaking through Chagla, C.J., opined that to decide whether a fixture like furniture has become part of the building two tests are required to be applied. these are : (1) nature and extent or degree of annexation of the property; and (2) object, intention or purpose of the annexation. On the first question what has to be considered is how permanent is the annexation and qua the second test the question to be examined is whether the furniture is for the permanent enjoyment of itself or permanent enjoyment of that to which it is attached. In Haji Dawood case the Bombay High Court was called upon to decide as to whether the cost incurred in electric fittings would be excluded from the rateable value in view of what has been provided in Section 154(2) of the. The Bench, in the short judgment, felt that when electric fittings become part of the premises and as such necessary for the user of the premises, deduction cannot be claimed under Section 154(2). A perusal of the judgment shows that this view was taken as a matter of first impression, after stating that the Bench had not been referred to any authority under which it is said that electric fittings in residence come within the term machinery. This decision is, therefore, not really relevant. Shri Nariman referred to the same, nonetheless, because, according to him, that is the only decision of the Bombay High Court known to him dealing with the scope of Section 154(2)

9. Relying on Chagla C.J.s judgment in Poona Municipal Corpn. case and the aforesaid English decisions, Shri Nariman submits that as the air-conditioning machinery in the present case had been embedded in the building and became its integral part, the same must be deemed to become a part of the building, the value of the same has to be included in fixing rateable value of the building. To put it differently, the submission is that the machinery which is exempted by Section 154(2) is one which has its separate existence, which submission has been advanced because of the use of the expression "contained in" or "situate upon" in the sub-section. We cannot accept this contention, because in that case this provision would be rendered otiose, as rightly urged by Shri Ganesh, inasmuch as the type of machinery which Shri Nariman has in mind cannot in any case form part of rateable value. When the legislature sought to exclude the value of machinery of the type mentioned in sub-section (2) from forming a part of rateable value, some meaning has to be ascribed to the provision, otherwise the intention of the legislature would get frustrated. We, therefore, state that the fact that a machinery gets embedded to a building or becomes an integral part of it has no relevance while deciding the question of applicability of the exemption provision

10. Shri Nariman has not left the matter at that. He has further argued that the contrivance at hand had ceased to be machinery, and become plant; and so, sub-section (2) would not apply in any case. That plant is different from machinery is sought to be brought home to us by referring to the decisions of this Court rendered in CIT v. Mir Mohd. Ali. A perusal of that judgment shows that the assessee claimed depreciation allowance for new diesel engines costing Rs. 18, 544 which had been purchased to replace the petrol engines in two of his buses. The allowance was claimed under the second para of clause (vi) and clause (via) of Section 10(2) of the Income Tax Act, 1922, apart from normal depreciation allowance under the first para of clause (vi). The assessee was granted depreciation only under the first para of clause (vi) and not under other provisions because it was held that the engine was only part of an equipment and could not by itself become machinery. On appeal to this Court, the majority, however, held that the assessee was entitled to extra depreciation allowance as well, because the definition of machinery given by the Privy Council in the cased of Corpn. of Calcutta v. Chairman, Cossipore and Chitpore Municipality was applicable and satisfied. Shri Nariman has drawn our attention to that part of the majority judgment in which it was held that as the diesel engine had not been installed in any vehicle they could not be regarded as plant. It is contended that in the case at hand, however, the machines had been embedded in the building and as such ceased to be machines and became plant; and the cost of such a machinery would not get excluded on the language of Section 154(2)

11. Learned counsel for the appellant, however, submits that the ratio of the aforesaid case has no application because a perusal of the relevant section of the Income Tax Act shows that it has used two expressions, namely, machinery and plant and it is because of this that the Court treated the two differently. According to us, this dichotomy may not be applied to Section 154(2), as it could not have been intended by the legislature that, say, only unembedded air-conditioners used for cooling a building would get the exemption, but not if the apparatus gets embedded and central air-conditioning is provided in the building. In any case, as we are concerned with a taxing provision, an interpretation beneficial to the assessee, in case two interpretations be reasonably possible, has to be given. This is a well-settled position in law

12. We, therefore, hold that the High Court erred in law in not excluding the cost incurred by the appellant in items (a) and (b). We would, therefore, order for the exclusion of the same

Item(c)

13. The wooden partitions in question do not apparently attract the provision of Section 154(2) of the. They having been used to divide each of the floors into parts and even ceiling columns having been designed with such partition in mind, we entertain no doubt that the value of these partitions did constitute and were rightly regarded as part of construction cost. The fact that the partitions are fixed on sockets and are easily removable does not make any difference as the building was from the inception conceived as an office building and it being spacious, division into separate blocks and cabins was conceived from the beginning for which purpose the partitions were used. We, therefore, hold that the value of wooden partitions was rightly included in calculating rateable valueItem (d)

14. Learned counsel for the appellant does not press for the exclusion of the cost of mural figure

Item (e)

15. Insofar as the ground rent is concerned, the contention of Shri Ganesh is that as the property tax under the is imposed both on land and building; to include the ground rent which the appellant was paying would be double tax option. The land in question, however, being Government land, Shri Nariman refers is to Section 146(1) of the Act, according to which if the premises be of the Government, the property tax is realised from the actual occupier. Therefore, on facts of this case, we find no infirmity in the inclusion of the amount of ground rent in determining the rateable value, as the proviso to the sub-section has no application. It is apparent that the appellant would not be asked to pay the tax on the land (sic all) over again

(Items (f) and (g)

16. There is no dispute on facts that all amounts of interest covered by these items represent notional interest inasmuch as the appellant had in fact not paid interest. This being the position, it is strenuously urged by the learned counsel for the appellant that notional interest cannot in any case form part of the cost of fixed assets. That was the decision of this Court in Challapalli Sugars Ltd. v. CIT. It is brought to our notice that the view of the Institute of Chartered Accountants, which was also noted in the aforesaid decision, is still the same as would appear from what has been stated in the recent circular of the Institute under the heading "Financial Expenses", a Xerox copy of which is made a available to us by the learned counsel

17. In rebutting the aforesaid contention, Shri Nariman urges that in case a builder actually pays interest, he would definitely regard that as a cost of construction and charge rent from the tenant accordingly. If that be so, the counsel contends, loss of interest which accrues on investment of ones own capital in construction of a building has also to be regarded as a cost, which the builder would like to realise from a future tenant. As per the submission of the learned counsel, there can be no distinction between actual interest paid and accrual notional interest

18. We are unable to concede to this submission. According to us, no tenant would be prepared to pay to a landlord who makes construction from his own fund but would like to charge higher rent on the ground that if he would have invested the amount elsewhere he would have earned interest. As the landlord would be earning rent on the investment made by him in the construction of the building, we are of the view that it would not be acceptable to a tenant to pay higher rent on the ground of loss of interest

19. We are, therefore, of the view that the inclusion of Items (f) and (g) as cost of construction was not permissible

Conclusion

20. The appeal is, therefore, allowed by ordering for exclusion of the costs incurred under Items (a), (b), (f) and (g). The rateable value would be fixed accordingly. In the facts and circumstances of the case we make no order as to costs.