Skip to content


Second Income-tax Officer Vs. N. Rajan and Sons - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)14ITD168(Mad.)
AppellantSecond Income-tax Officer
RespondentN. Rajan and Sons
Excerpt:
.....to him, there was no justification for examining the.reasonableness or otherwise of the rent received with reference to extraneous factors.4. on behalf of the assessee, it was submitted by the learned counsel that there was valid consideration for the reduction in the rent which was actually charged. the assessee stood to benefit by receiving deposits at a low rate of interest and the interest obtained by lending out such amounts was duly shown by the assessee. therefore, it was pleaded that the annual letting value of the property could be computed with reference to the rent actually received.5. we have set out the rival submissions. in our view, the decision of the supreme court in the case of mrs.. sheila kaushish v. cit [1981] 131 itr 435 provides a complete answer to the.....
Judgment:
1. These appeals filed by the revenue relates to the assessment years 1981-82 and 1982-83. The assessee is a HUF. The assessee had built a house. A portion of the house was retained for the purposes of business of the assessee. The other portion was let out on lease. The lease deed was executed on 1-9-1980. The lessee was the karta of the HUF, Shri N.Rajan, a chartered accountant. The agreement was for a period of three years. The rent fixed was Rs. 1,000 per month. This rent was to be maintained subject to the condition that the lessee deposited with the assessee an amount of Rs. 2 lakhs for a period of three years on which interest was payable only at 4 per cent per annum up to 31-3-1981 and thereafter at 6 per cent per annum. The repair expenses of above Rs. 5,000 were to be borne by the lessor and below Rs. 5,000 by the lessee.

The lease could be extended before three months of its expiry. Taxes were to be borne by the lessor. The assessee in a letter dated 10-8-1981 addressed to the ITO has conceded that the fair market rent of the portion leased out may be Rs. 2,000 but it was let out on condition of the lessee making a deposit at a nominal rate of interest and that the rent charged was only Rs. 1,000 per month which was concessional. It was also pointed out that actually the deposit had been made and that for outsiders, who made deposits, interest had to be paid at 12 per cent to 18 per cent per annum. The ITO, however, did not agree to the concessional rent of Rs. 1,000 per month being taken for computing the annual letting value. He took the fair market rent at Rs. 2,000 per month and, accordingly, computed the annual letting value.

2. The assessee appealed and succeeded before the A AC. The A AC took the view that if the benefit received by the assesssee by advancing funds out of the deposit of Rs. 2 lakhs at higher interest rates, viz., the assessee had to pay only 6 per cent interest but interest receivable on utilisation of the money deposited was much higher, was taken into consideration then that could be considered to be the fair market rent as obtained by the assessee partly under the head 'Income from house property', i.e., the rent of Rs. 1,000 per month and partly as income from money-lending. The AAC, therefore, directed that in respect of income from house property only the rent of Rs. 1,000 per month should be taken for computing the annual letting value.

3. Before us, the learned departmental representative submitted that Section 23 of the Income-tax Act, 1961 ('the Act') required that rent at which a property could reasonably be let out from month to month should be taken as the basis for computing the annual letting value.

According to him, there was no justification for examining the.

reasonableness or otherwise of the rent received with reference to extraneous factors.

4. On behalf of the assessee, it was submitted by the learned counsel that there was valid consideration for the reduction in the rent which was actually charged. The assessee stood to benefit by receiving deposits at a low rate of interest and the interest obtained by lending out such amounts was duly shown by the assessee. Therefore, it was pleaded that the annual letting value of the property could be computed with reference to the rent actually received.

5. We have set out the rival submissions. In our view, the decision of the Supreme Court in the case of Mrs.. Sheila Kaushish v. CIT [1981] 131 ITR 435 provides a complete answer to the issue involved. Section 23(1)(a) and (b) read as under : (1) For the purposes of Section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable : In the case before the Supreme Court, which related to an assessment year before the introduction of Section 23(I)(b), the question arose whether the actual rent received by the owner could be considered for arriving at the annual letting value or only the standard rent which could be fixed. The conclusion was that though the time for applying for standard rent fixation was over, the standard rent which could be fixed under the Delhi Rent Control Act, 1958 could be taken as the fair rent for which the property could be expected to be reasonably let out from year to year. Their Lordships also referred to the amendment introduced by Clause (b) to Section 23(1) and pointed out that the interpretation placed by the Court had received legislative approval by the introduction of Section 23(1)(b) which provided that where the property is let and the annual rent received or receivable by the owner in respect of the same is in excess of the sum for which the property might reasonably be expected to be let out from year to year the amount so received or receivable could be deemed to be the annual value of the property. The learned counsel sought to rely on the Explanation to Section 23(1), which reads as under : Explanation : For the purposes of this sub-section, 'annual rent' means- (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year ; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months beats to such period.

The expression 'annual rent' occurs only in Section 23(1)(i). It does not occur in Section 23(1)(a). So, the receipt of actual rent as a criterion is confined to those cases which fall under Section 23(1)(ii), which is in excess of the amount referred to in Section 23(1)(a), i.e., the amount for which the property might reasonably be expected to be let out from year to year. Reliance on the definition of the term 'annual rent', therefore, does not help the contention of the assessee. We have, therefore, come to the conclusion that since on the basis of the material on record, as at present, the amount of Rs. 2.000 per month is the figure of rent for which the property leased out could reasonably be ex pected to be let out from year to year, that figure has to be treated as the correct figure for the purpose of determining the annual letting value of the property leased out. Accordingly, the orders of the AAC are set aside and the findings of the ITO are restored.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //