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Smt. Raj Kumari Nanda Vs. Commissioner of Income-tax, New Delhi - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 124 of 1973
Judge
Reported in[1984]146ITR66(Delhi)
ActsIncome Tax Act, 1961 - Sections 9, 10, 22, 23 and 280-O
AppellantSmt. Raj Kumari Nanda
RespondentCommissioner of Income-tax, New Delhi
Cases ReferredDewan Daulat Rai Kapoor v. New Delhi Municipal Committee
Excerpt:
.....justified in law having regard to provisions of section 23 to adopt actual rent received as annual letting value of property ignoring annual letting value determined by municipal authorities - for purpose of section 23 it is not amount received for property which becomes assessable but sum for which property might reasonably be expected to be let from time to time - rent received for property belonging to assessed taxable under head 'income from property' - municipal assessment of annual letting value as such not relevant for purpose of section 23 unless annual letting value arrived - petitioner to be taxed under head 'income from property' subject to deduction permissible under law. - - cit [1981]131itr435(sc) ,the supreme court has clearly laid down that in areas in delhi..........having regard to the provisions of section 23 of the act to adopt the actual rent received as the annual letting value of the property ignoring the annual letting value determined by the municipal authorities 2. the matter relates to the assessment year 1968-69. the assessed is said to be the owner of property at 16, ring raod, lajpat nagar-iv), new delhi. this property was let out to the singapore embassy at rs. 6000 p.m from june 15, 1967. rent in advance for 8 12 months was received by the assessed amounting to rs. 51,000. on february 9,1968, during the accounting year, the tenant wrote to the assessed that since the front part of the front lawn had been reclaimed by the delhi municipal corporation and the land available to the tenant had been reduced, the rent should be reduced by.....
Judgment:

Prakash Narain, C.J.

1. The question of law referred to the High Court by the Income-tax Appellate Tribunal (Delhi Bench'B'), reads as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law having regard to the provisions of section 23 of the Act to adopt the actual rent received as the annual letting value of the property ignoring the annual letting value determined by the municipal authorities

2. The matter relates to the assessment year 1968-69. The assessed is said to be the owner of property at 16, Ring Raod, Lajpat Nagar-IV), New Delhi. This property was let out to the Singapore Embassy at Rs. 6000 p.m from June 15, 1967. Rent in advance for 8 12 months was received by the assessed amounting to Rs. 51,000. On February 9,1968, during the accounting year, the tenant wrote to the assessed that since the front part of the front lawn had been reclaimed by the Delhi Municipal Corporation and the land available to the tenant had been reduced, the rent should be reduced by Rs. 1,500 per month effective from March 1, 1968. The assessed agreed. Thus, the rent stood reduced from Rs. 6,000 to Rs. 4,500 from March 1, 1968. This rent was effective till 1972 when the premises were vacated. Though the actual rent received by the assessed was more, she claimed that the rental income from June 15, 1967, to March 31, 1968, should be computed at the rate of Rs. 4,500 per month inasmuch as the fair rent as Rs. 42,750. The difference of Rs. 1,500 per month, it was asserted was being charged for some period for property which did not belong to the assessed. The ITO did not accept the contention and framed the assessment at Rs. 55,500, the amount actually received by the assessed during the relvant period. In appeal the AAC held that the annual letting value of the property had been fixed by the Municipal Corporation of Delhi at Rs. 46,061 and so, he directed the ITO to compute the annual letting value of the property at that figure. The Department filed an appeal before the Tribunal. There it was held that where the property is actually let out and the rent is being received no more indication is necessary to ascertain the annual value. The actual receipts have to be regarded as the annual letting value. The Tribunal further held that there was nothing in the language of s. 23 of the I.T. Act, 1961, to suggest that the annual value of the property as received should be ignored and the municipal value only should be adopted even though it was less. Accordingly, the Tribunal held that the Annual letting value of the property for 8 1/2 months should be calculated at the rate of Rs. 6,000 per month anb for the subsequent one month at Rs. 4,500 per month. The assessed being dissatisfied asked for a reference to be made to the High Court. That is how the reference is before us.

3. Section 22 of the Act lays down that the annual value of property consisting of any building or lands appurtenant thereto of which the assessed is the owner, excluding the portion occupied for business or professional purposes, shall be chargeable to income-tax under the head 'Income from house property.' Section 23 of the Act, as it was in force for the relevant period which laid down how the annual value is to be determined read as under :

'23. (1) For the purpose of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year :

Provided that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are under the law authorising such levy, payable wholly by the owner, or partly by the owner and partly by the tenant, deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner. Explanationn. - For the purposes of this sub-section in the case of a property the construction of which was completed before the 1st day of April, 1950, the total amount of such taxes, and in the case of any other property, one-half of the total amount of such taxes shall be deemed to be the tenanat's liability :

Provided further that in the case of a building comprising one or more residential unties the erection of which is begun and completed after the 1st day of April, 1961, the annual value as determined under this sub-section shall for a period of three years form the date of completion of the building, be reduced by a sum equal to the aggregate of - (i) in respect of any residential unit whose annual value as so determined, dose not exceed six hundred rupees, by the amount of such annual value :

(ii) in respect of any residential unit whose annual value as so determined exceed six hundred rupees, by an amount of six hundred rupees;

so, however, that the income in respect of any residential unit is in no case a loss.

(2) Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is lees :

Provided that where the sum so arrived at exceeds ten per cent. of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and before making any deduction under Chapter VI-A or section 280, the excess shall be disregarded. Explanationn :- Where any such residential unit as is referred to in the second proviso to sub-section (1) is in the occupation of the owner for the purpose of his own residence,nothing contained in that proviso shall apply in computing the annual value of that residential unit...'

From a reading of the above section, it was urged, the actual receipt or municipal assessments are not relevant for fixation of the annual letting value for the purpose of s. 22 of the Act. Reliance placed on Chhunna Mal Salig Ram v. CIT [1931] 5 ITC 316, a Full Bench of the Lahore High Court is misplaced. In this case dealing with a similar provision under the Indian I.T. Act, 1922, the Bench observed that the annual value of property u/s. 9 of the Indian I.T. Act of 1922, did not include sums paid by tenants to the owner on account of house tax payable by the owner to the Municipal Committee of Delhi under notification issued pursuant to the provisions of the Punjab Municipal Act, 1911. Commenting further on s. 9, which was the provision for taxation under the head 'Property',it was noticed that under that provision 'the tax shall be payable by an assessed under the head 'Property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner other than such portions of such property as he may occupy for the purposes of his business.' subject to certain allowances, seven in number. sub-section (2) of s. 9 of that Act laid down that for the purposes of this section the expression 'annual value' shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year. Commenting upon this it was held that the words 'bona fide' in sub-s. (1) are thus otiose, the bona fide annual value being defined in sub-s.(2). It was further held that the annual value must be taken to be what the tenants are consistently paying to the landlord, that figure representing the sum for which the property might reasonably be expected to let from year to year. Referring to s. 10 of the Act it was held that the Legislature made no allowance u/s. 9 for the Municipal houses tax payable by the owner, whereas such an allowance was made in the case of taxation under the head 'Business' u/s. 10.

4. In Nalinikant Ambala Mody v. S.A.L. Narayan Raw, CIT : [1966]61ITR428(SC) it was observed that all income included in the total income is not chargeable to tax may be illustrated by referring to income from the sources mentioned in the third head in s. 6 (of the Act of 1922) namely, 'Income from property'. The corresposinding Computing sect ion is s. 9 which says that tax shall be payable on income under this head respect of the bono fide annual value of the proerty. It is conceivable that income actually would certainly be liable to be included in the total income u/s. 4.

5. In Sultan Brothers Private Ltd. v. CIT : [1964]51ITR353(SC) , again a case under the Act of 1922, the principle was reiterated that the owner of the building is liable to tax is not on the actual income received from it but on its annual value, irrespective of whether of has let it out or not.

6. In Ganesh Chandra khan v. ITO [1978] ITR 111 . the Calcutta High Court following the principle enunciated in the Supreme Court cases noticed above, applied the same rule to ss. 22 and 23 of the Act.

7. A Bench of this court in CIT v. H. P. Sharma [1980] 122 ITR 675 , while answering one of the two questions referred to it, namely 'Whether, in assessment of income from property, bona fide annual value under section 23 is the municipal value or the rental value received by the assessed ?', observed as under (p. 691) :

'... that where the figures of actual rent received by the assessed from a house property are available, the assessment of income from property should be based on such figures not on the municipal value determined for the premises which is only a pieces of evidence to arrive at the reasonable letting value.'

8. It was a case in which no basis was available on the recode as to how the municipal valuation had been arrived at and whether the decision of this court in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee , had been followed or not followed in determining the annual retable value under the Municipal Act.

9. In Mrs. sheela Kaushish v. CIT : [1981]131ITR435(SC) , the Supreme Court has clearly laid down that in areas in Delhi where rent control law applies, standard rent determinable under the provisions of the rent control law would be the basis of the annual value even though standard rent had not been fixed. The relevant assessment year in that case was for the accounting years April 1, 1968, to March 31, 1969, and April 1, 1969, to March 31, 1970, the relevant assessment years being 1969-70 and 1970-71. These were years prior to the amendment of s. 23 when the unamended section, read earlier, was applicable. It was held that the annual value of the warehouse, the premises in question there, had to be determined on the basis of standard rent of different portions of the warehouse determinable as follows : (a) since five years had elapsed from the first letting of the first floor its standard rent had to be determined on the basis of cost of construction and market value of land under s. 6(1)(B)(2) of the Delhi Control Act for both years; (b) since five years from the first letting of the northern portion of the ground floor and the mezzanine floor would elapse only on March 31, 1969, the standard rent of those portions would be Rs. 6,907 per month for the accounting period ending March 31, 1969 (the actual rent received) u/s. 6(2)(b) and the standard rent for the assessment year 1970-71 had to be ascertained on the basis of the cost of construction and market value of land under s. 6(1)(B)(2); (C) since five years from the first letting of the southern portion of the ground floor would elapse only on December 6, 1969, the standard rent would be the agreed rent for the whole of the accounting period for the assessment year 1969-70, and for the period up to December 6,1969, for the assessment year 1970-71; and for the period after December 6, 1969, the standard rent would be that ascertainable u/s. 6(1)(b)(2) on the basis of cost of construction and market value of the land. It is strenuously urged that the question referred to us is this settled. The annual value had to be determined in accordance with the principles laid down in sheela kaushish's case : [1981]131ITR435(SC) . In other words, the Revenue had to fix the annual value under s, 23 on the same basis as the Municipal Corporation. The Corporation having fixed the annual letting value at Rs. 46,061, that must be regarded as the annual value under s. 23.

10. The principles deducible on a reading of the above decisions are these :

(a) For the purposes of S. 23,as read earlier, it is not the amount received for a property which becomes assessable but the sum for which the property might reasonably by expected to let from time to time;

(b) What is taxable under the head 'Income from 'property' would be the rent received for the property belonging to the assessed and not any amount that may have been received for property which was not owned by the assessed.

(c) The municipal assessment of annual letting value as such is not relevant for the purpose of s. 23 unless the annual letting value has been arrived at by adhering to the principal enunciated in sheela kaushish's case : [1981]131ITR435(SC) , which has reference to calculating the annual value on the basis of the standard rent recoverable for a property as postulated by the provisions of the Delhi Rent Control Act.

Applying the above principles to the facts of the present case we find that the Tribunal erred in law in restoring the assessment, as made by the ITO. The assessed was, no doubt, recovering Rs. 6,000 p.m. from the tenant to start with up to February 28, 1968, but as is apparent form the facts of the case, Rs, 1,500 p.m. was for land which was not the property of the assessed. thereforee, what the assessed actually received for her property by way of rent was Rs. 4,500 p.m. for the entire period. The balance of Rs. 1,500 p.m. up to February 28, 1968, cannot be regarded as income form property. The income form the property. thereforee, was Rs. 38,250 and not Rs. 55,500. This is the amount on which the petitioner had to be taxed under the head 'Income from property' subject to such deductions as may be permissible under law.

11. We cannot agree, because of the absence of evidence, that the total annual income from the property had to be fixed at the same figure as represented the annual letting value fixed by the Municipality. If there had been evidence to show that the annual letting value had been fixed by the Municipality on the basis of the standard rent then that alone would have been the sum for which the property might reasonably be expected to let from year to year. The AAC, on doubt directed the ITO to compute the income from the property on the basis of the annual letting value, being Rs. 46.061. In law his direction is correct. We however, have no facts on the record to find out whether the annual letting value was fixed on the basis of standard rent.

12. The reference has, accordingly, to be answered in the negative. No costs.


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