1. The question referred to us for the assessment year 1961-62 is in the following terms :
'Whether, on the facts and in the circumstances of the case, the Tribunal erred in treating the municipal valuation as the annual letting value of the properties, 3, Sikandra Road and 9, Mansingh Road, New Delhi ?'
2. The assessed is Shri Dalmia who has since died and we are informed that his legal representatives have been imp leaded.
3. We have also been referred to the judgment of the Supreme Court in Mrs. Sheila Kaushish v. CIT : 131ITR435(SC) wherein it was held that the annual value had to be determined under the Income-tax Act on the basis of the standard rent and if it was not done, then the assessment was erroneous. We may point out that this holds true only till the amendment made subsequently in the provisions of sections 22 and 23 of the Income-tax Act, 1961. As the present case is an old case arising under the Indian Income-tax Act, 1922, the judgment would have full force and accordingly the standard rent would determine the annual value for the purposes of the income-tax. Similarly, the Supreme Court has held in Dewan Daulat Rai Kapoor v. New Delhi Municipal Corporation : 122ITR700(SC) that the valuation for the purposes of the Municipal Act has also to of based on the self-same standard rent. This means that the Supreme Court by two separate judgments has made the basis of the valuation the same to the income-tax law and to the Municipal Act. The result is that we have no difficulty in answering the question referred to us which is whether the value adopted for municipal valuation has also to be adopted for the purposes of income-tax. On the above reasoning, these two have to be the same.
4. Even otherwise, on basic principles, the two valuations have to be the same as for each purpose the two Acts have used similar language in the definition. The annual value for the purposes of income-tax was defined in the 1922 Act as being the amount for which the property could reasonably be let from year to year. The exact definition is in section 9(2) of the Act. A similar definition is to be found both in the Punjab Municipal Act, 1911, and the Delhi Municipal Corporation Act, 1957. Accordingly, the same result would follow when the two Acts are separately applied, i.e., the value fixed by the municipal authorities as the annual value would also be the annual value for the purposes of income-tax, subject to certain variations which are separately provided for in each of the two Acts.
5. As it happens, in the case of the present assessed, the municipal value was accepted as the annual letting value for many years and it was only in the assessment year under consideration that the Income-tax Officer was of the view that there was gross under valuation in respect of the annual municipal valuation for the two houses under consideration. It must be kept in view that the annual letting value is fixed on the basis of a constant expected rent, a hypothetical rent; when that hypothetical rent has been accepted for some period of time, it must be assumed to be a constant figure unless there is factual change. There does not appear to have been any change in fact regarding the utilisation of the properties in question; the only change was that the Income-tax Officer thought that the old rent was now too low. We think the Tribunal was right in coming to the conclusion that the municipal value ought to apply also under the Income-tax Act in the facts and circumstances of the case. There may, however, be cases in which the annual value fixed under the municipal law may be unacceptable to the income-tax authorities for good reason. We have not laid down any general principle that the income-tax authorities must adopt the municipal value as being correct. Normally, the value should be accepted, but if there is an under-valuation, it is certainly open to the Income-tax Officer to fix the value on his own on the basis of the expected reasonable rent. On the facts, the Income-tax Officer in this case did not find out the expected rent, but merely ascertained the cost of the properties to the assessed, which is not necessarily a good test for determining the rent at which the property might reasonably be expected to be let out. Hence, the Tribunal was right in accepting the annual value fixed by the municipal authorities as being correct. One of the effects of the two Supreme Court judgments noted earlier is that the annual value or bona fide letting value, as the case may be, has to be based on the standard rent and the standard rent is constant, not subject to variations on account of rise in prices or market increases in rent. This is, thereforee, an additional reason for accepting the conclusion of the Tribunal.
6. We would answer the question referred to us in the negative, in favor of the assessed, but leave the parties to bear their own costs.