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Smt. Indumati V. Adya Vs. Ninth Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)4ITD349(Mum.)
AppellantSmt. Indumati V. Adya
RespondentNinth Income-tax Officer
Excerpt:
.....the assessee returned income from the house property at rs. 840 computing it by taking the annual value of the property on the basis of the municipal ratable value. the ito computed the income from house property at rs. 8,821, taking the licence fee of rs. 12,000 per annum as the rent received and, hence, the bona fide annual value. on appeal, the aac upheld the ito's order, holding incidentally that the provisions of section 23(1)(b) of the income-tax act, 1961 ('the act'), apply to the assessee's case. the present appeals are laid against the above orders of the aac.2. the learned counsel for the assessee has pointed out that the property in the present case is not let but is only subject to the incidents of a leave and licence agreement. computation of property income,.....
Judgment:
1. The assessee-individual was the owner of flat Nos. 7 and 8 in 'Manjiri' of Makarand Co-op. Housing Society Ltd. Under an agreement dated 11-9-1973, the assessee entered into a leave and licence agreement with the Dharamsi Morarji Chemical Co. Ltd., according to which the assessee was to get a licence fee or compensation for the use of the premises at the rate of Rs. 800 per month and Rs. 200 per month for the garage attached to the premises. The assessee returned income from the house property at Rs. 840 computing it by taking the annual value of the property on the basis of the municipal ratable value. The ITO computed the income from house property at Rs. 8,821, taking the licence fee of Rs. 12,000 per annum as the rent received and, hence, the bona fide annual value. On appeal, the AAC upheld the ITO's order, holding incidentally that the provisions of Section 23(1)(b) of the Income-tax Act, 1961 ('the Act'), apply to the assessee's case. The present appeals are laid against the above orders of the AAC.2. The learned counsel for the assessee has pointed out that the property in the present case is not let but is only subject to the incidents of a leave and licence agreement. Computation of property income, therefore, should be made under the provisions of Section 23(1)(a) and not under Section 23(1)(6). In support of this, he has referred to the meaning of the expressions 'let' and 'licence' as judicially interpreted both under the Rent Acts as well as other statutes. There is an essential difference between letting and the position of a licencee. In particular, according to the learned counsel, the authorities excluded any interest for the lessee in the property in the case of a licence, whereas the tenant as such has an interest. Referring to Section 23(1)(a), it is further pointed out that on the strength of the decision of the Supreme Court in the case of Dewan Dault Rai Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700, the municipal value fixed should be the basis for fixing the bona fide annual value. The assessee has returned her income on this basis.

3. For the department stress is laid on the orders of the authorities below. Even granting that Section 23(1)(a) applies to the case, according to the learned counsel for the department, there is no justification for fixing the bona fide annual value on the municipal valuation fixed. The ITO is not precluded from going behind such fixation and determine the bona fide annual value on the basis of the clear terms of Section (23)(1)(a). In the locality where the property in the present case is situated and having regard to the attendant circumstances, the rental fixed by the ITO, if at all, is on the low side. The difference between the concept of letting and licensing may be important for other purposes but, according to the learned counsel, is not relevant for the purposes of fixing the property income. After 1973, it is also pointed out, that a licencee becomes a statutory tenant under the Rent Act.

4. In law, there is a distinction between 'letting' and 'licence'. The latter has been explained as excluding any interest in the property which a tenant acquires. A licence is associated with an exclusive use of the premises where there is a concurrent right reserved for the lessor also to avail of the benefit from the premises. In my view for the purposes of determining the property income in any particular case it may not be necessary to draw a distinction between the technical meaning of 'letting' and 'licence'. In the present case the assessee has under the agreement handed over possession of the premises to the Dharamsi Morarji Chemical Co. Ltd. for the purposes of occupation of the premises by one of its employees. As it is, neither under the agreement nor as a matter of conduct can the assessee interfere with the quiet possession of the premises which the employee of the company has been granted it is not as if the assessee can run into the 'licensed' out premises as the proprietor of a hotel or a lodging house stated to have concurrent ownership in the room, could do. Even though, therefore, the legal relationship between the parties as can be gathered from the agreement is one of a licence, in effect this is a manner of letting the premises for the occupation of the company's employee. In fact such letting is not, as is usual in such circumstances, for less than a year but for as long a period as 3 years. As a matter of fact, therefore, the relationship between the parties here can only be regarded as letting out of the property for the benefit of the tenant, in this case the employee of the company. At any rate, after amendment of 1973 even a licenced becomes a statutory tenant thus effacing any conceptual difference between the two positions. It cannot, therefore, be stated that the provisions of Section 23(1)(b) do not apply to the case.

5. That apart even if Section 23(1)(a) applies, it is competent for the ITO to fix the property income on the basis of the rent at which the property can be let out from year to year. The decision in Dewan Daulat Rai Kapoor's case (supra), primarily lays down that the annual value cannot exceed the measure of standard rent There is no obligation to be bound by the valuation given by the municipality, though that would be an important circumstance in fixing the annual rent. The property in the present case was constructed somewhere in 1965. There is no question of its being occupied or giving out for letting at a period the Bombay Rent Control Act came into force. The property is situated in a crowded busy area in Dadar where the usual rents people are prepared to pay for such accommodation are quite high. In fact, the assessee herself has indicated a compensation of Rs. 200 for the garage. Obviously, the rent for which the garage could be let out even on the basis of the concept of letting out explained by the assessee's learned counsel would be much more. It could safely be assumed that if a right of a lessee is a lesser right than that of a tenant, his having no interest in the property as such, the amount for which a property can be let out would certainly be much more than the amount for which it could be licensed off. There is no indication that in the present case the transaction between the assessee and Dharamsi Morarji Chemical Co. Ltd, is not one at arm's length. If, therefore, the licence fee for the premises could be Rs. 800, the reasonable rent even according to the assessee, for a higher right like letting be would be more than Rs. 800. In any case having regard to the facts, I see no reason to put the benefit of the annual value even if one acts under the provisions of Section 23(1)(a) at an amount lesser than the one adopted by the ITO.The appeals are dismissed on this ground.

6. For the assessment year 1978-79, another ground raised relates to the levy of interest under Section 217(1A) of the Act. The AAC upheld the interest levied on the ground that the assessee has not filed an estimate under Section 212(3A) of the Act, such an estimate being not available on the file. The learned counsel for the assessee has pointed out before me the acknowledgement produced of such estimate having been filed before the ITO on 27-2-1978, the acknowledgement being noted on a copy thereof. In view of this clear evidence verified by the learned counsel for the department, there is no case for levy of interest. The appeal for 1978-79 is partly allowed.


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