1. This reference was in compliance with the directions given by this court under s. 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), and poses the following question for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in directing the Income-tax Officer to exclude the portion of a sum of Rs. 5,977 on account of stamp duty, etc., to arrive at the annual letting value of the property ?'
2. The assessed is a registered firm and owns a property at Najafgarh. The case relates to assessment year 1964-65, the relevant previous year of which ended on August 31, 1963. The said property was leased out to M/s. Voltas Ltd. under an agreement dated December 14, 1961, for a period of five years on a monthly rent of 6,100. Under an earlier agreement dated May 1, 1960, M/S. Voltas Ltd. advanced a sum of Rs. 2,19,600 to the assessed to enable the assessed to remodel the building to suit the requirements of M/S. Voltas Ltd. The terms of the agreement provided that the advance was to adjusted towards rent in sixty equal installments. Clause 21 of the lease deed provided that the stamp duty and registration charges in respect of the lease were to be borne by the assessed and M/S. Voltas Ltd., equally. A sum of Rs. 11,953 was spent towards these charges and the assessed's half share therein came to Rs. 5,977.
3. The assessed claimed this sum of Rs. 5,977 as a deduction from its gross annual rental value. The ITO disallowed the claim of the assessed and the same was upheld in appeal by the AAC. The assessed went in second appeal before the Income-tax Appellate Tribunal (for short called 'the Tribunal').
4. The Tribunal came to the conclusion that the sum of Rs. 5,977 was admittedly incurred for the purpose of fixing the income from property. The Tribunal further found that in order to secure the rent which was spread over a considerably long period, execution of a lease deed agreeing to the terms provided therein had become necessary, that if the expenditure had no been incurred, the annual letting value of the property would not be so high as Rs. 6,100 per month, that since s. 23 of the Act laid down that the annual letting value of any property shall be deemed to be let from year to year, the expenditure was necessary for the purpose of earning the income of Rs. 6,100 per month and that the concept of the determination of the annual letting value meant to secure a fair rent. The Tribunal is this view of the matter allowed the deduction of this expenditure of RS. 5,977 from the gross rent in order to arrive at the reasonable annual letting value.
5. The annual value of the property, which is the subject of charge, was originally defined in s. 23(1) as 'The sum for which the property might reasonably be expected to be let from year to year'. The annual value is thus the sum of which a landlord could let the premises having regard to the condition of the property and of the prevailing circumstances as the language suggests. The taxes are charged on the artificial or national income. It is based on the annual value of the property. The authorities under the Act, thereforee, have to make the assessment on the basis of the national annual value. Section 23 lays down how the annual value is to be determined. Section 24 provides that income chargeable under the head 'Income from house property' shall, subject to the provision of sub-s. (2), be computed after making the deductions specified therein. The Legislature has used the word 'namely' and this shows that the heads of expenditure wherefore deduction can be claimed are exhaustive. The expenses incurred in providing the proper stamp paper in the case of a lease or arrangement to lease is by virtue of the provisions contained in s. 29 of the Indian Stamp Act, 1899, and is on the lessee or intended lessee, in the absence of an agreement to the contrary. It may be for this reason the at the Legislature did not include such expenses in the permissible deductions under s. 23 or s. 24. If a particular type of expenditure is not specifically provided to be deductible, deduction thereforee cannot be claimed from out of the annual value. Neither s. 23 nor s. 24 provides for the deduction of the expenses incurred towards stamp duty or registration charges in respect of the lease.
6. In the view of the Tribunal is accepted that the expenditure incurred has to be deducted from the gross rent in order to arrive at the reasonable annual letting value, then the annual letting value would be different in the first year as compared to the subsequent years. The expenditure incurred on a lease for a period of five years towards the stamp duty and registration charges is only in the first year. The annual value of any property is deemed to be the same for which the property might reasonably be expected to let from year to year. It is a national income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis. The annual value cannot be left to fluctuate when the lease is for a period of five years.
7. We, thereforee, answer the reference in the negative, i.e., in favor of the Department and against the assessed. As the assessed has not put in appearance, we have the parties to bear their own costs.