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R.K.K.R. International (P.) Ltd. Vs. Assistant Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Reported in(1998)65ITD512(Delhi)
AppellantR.K.K.R. International (P.) Ltd.
RespondentAssistant Commissioner of
Excerpt:
1. these cross appeals rotate round the identical issues. for the sake of convenience, there are consolidated and disposed of by a common order.2. the various arguments placed before us by both the parties, resemble so many radii of a circle starting from different points on its circumference but all oriented towards the determination of the annual value of the house property situated at 12, aurangzeb lane, new delhi.all the assessee-companies were registered as pvt. limited companies under the companies act, 1956, having their registered office within the union territory of delhi.2.2 shri kulwant rai, the common director of the companies, purchased on behalf of the companies, a fully constructed residential house on land admeasuring 6,500 sq. yds. at 12, aurangzeb lane, new delhi, vide.....
Judgment:
1. These cross appeals rotate round the identical issues. For the sake of convenience, there are consolidated and disposed of by a common order.

2. The various arguments placed before us by both the parties, resemble so many radii of a circle starting from different points on its circumference but all oriented towards the determination of the annual value of the house property situated at 12, Aurangzeb Lane, New Delhi.

All the assessee-companies were registered as Pvt. Limited companies under the Companies Act, 1956, having their registered office within the Union Territory of Delhi.

2.2 Shri Kulwant Rai, the common Director of the companies, purchased on behalf of the companies, a fully constructed residential house on land admeasuring 6,500 Sq. yds. at 12, Aurangzeb Lane, New Delhi, vide indenture dated 18th November, 1971, for a consideration of Rs. 8 lakhs. The amount of consideration was paid through cheques at various stages.

2.3 All the three companies who were the co-owners of the property executed a perpetual lease agreement with Shri Vinay Rai, Shri Jaswant Rai and Shri Kulwant Rai. The lease deed stipulated monthly payment of rent of Rs. 600, Rs. 825 and Rs. 825 respectively. All the rights and privileges attached to the land were given to the lessees. The property was continuously and exclusively used for the residential purposes of Shri Kulwant Rai and his family members. The occupants of the property had carried out renovation and improvement consequent upon taking possession of the same.

2.4 In the assessment year 1988-89, Assessing Officer examined the veracity of the lease agreement. Taking into consideration the totality of facts Assessing Officer concluded that all the transactions by the assessee-companies with the members of the family of Shri Kulwant Rai were collusive in nature. It was found that the benefit which flowed from the ownership of the property was exclusively utilised by the persons who had substantial interest in the affairs of the companies.

It was noticed that the rent was not actually paid. The amount was only credited in the books of the assessee-companies. Ratio laid down by the Apex Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 146/22 Taxman 11 was applied.

2.5 Having held that the transaction in question was collusive in nature, Assessing Officer declined to consider the actual rent received for determining the annual letting value (hereinafter referred to as ALV). In his opinion the monthly rent which the property might fetch within the meaning of section 23 of the Income-tax Act, 1961 (hereinafter called the Act) could not be less than Rs. 7 lakhs per months. He, therefore, estimated the ALV on that basis.

3. Being aggrieved, assessee preferred appeal against the determination of the ALV before the Commissioner of Income-tax (Appeals). It was argued that Assessing Officer was not correct in changing the ALV from the actual amount received by the assessee to a notional figure of Rs. 7 lakhs per month. It was stated that in the preceding years the returned income had been accepted in all the cases, except in the case of Allied Finance Pvt. Ltd. 3.1 For the assessment year 1974-75 Assessing Officer made variation in ALV of Allied Finance Pvt. Ltd. Assessing Officer took 10 per cent. of the investment of Rs. 8 lakhs as fair return to the three companies and substituted the figure of Rs. 80,000 against the declared rental income. Appellate Assistant Commissioner modified the order and directed the Assessing Officer to take the amount of ALV as fixed by the Municipal Corporation. Against this order there was appeal by the assessee before the Tribunal. It was argued that the gross ALV could not exceed the actual rent agreed between the parties. The Tribunal for the assessment year 1974-75 in the case of Allied Finance (P.) Ltd. [IT Appeal No. 1785 of 1976-77] held as under :- "It is not known whether there is any written agreement of lease between the three companies and their three tenants specifying the terms and conditions of tenancy for this property. The Income-tax Officer had also not examined the two Directors and Shri Vinay Rai who are the tenants in the present case to ascertain the true and correct position and also to find out whether there was any collusion or fraud as alleged by him in the assessment order. In order to ascertain the entire facts it is necessary that the matter must go back to the Income-tax Officer. We therefore set aside the order of the authorities below and restore the matter to the Income-tax Officer for making a fresh assessment in accordance with law, after considering the various points mentioned above and after giving an opportunity to the assessee to substantiate its case." 3.2 In consonance with the directions rendered by the Tribunal in the aforesaid order, Assessing Officer completed the assessment and passed a very cryptic order. It is reproduced here as under :- "Original assessment in this case was made on 25-7-70 which was later on set-aside by the Tribunal. Return of income was filed on 25-6-74 declaring loss of Rs. 7,276. In response to notice under section 143(2) Sh. Bansal, C.A. appeared with whom the case was discussed.

The assessee-company is a co-owner in the property No. 12-Aurangzeb Lane, New Delhi, with two other co-owners having 1/3rd share. The assessee-company derives property income.

After discussion total income/loss is computed as under :-Property Income :Rental income.

Rs. 9,000Less : Assessed; Issue Necessary Farms. Loss of Rs. 4,737 is allowed to be carried forward." 3.3 It is not known that how the Assessing Officer carried out the directions given in the said order.

3.4 Till the assessment year 1988-89 there was no variation in the returned income in respect of the said property. Each of the three companies declared gross rental income at Rs. 9,000 each.

3.5 For the relevant assessment years Assessing Officer determined ALV at Rs. 7,00,000 per month, being the amount which the property might reasonably expect to fetch from year to year. It was reduced to Rs. 3,21,000 per annum by the Commissioner of Income-tax (Appeals). Both the parties are in appeal.

4. Shri C. S. Aggarwal along with Smt. Indra Bansal appeared before us.

Relevant documents and papers were filed. The case was argued at length. It was submitted by the learned counsel that the genuineness of the agreement was examined in the initial year. The bona fide of the transaction was not doubted. On this premises it was argued that unless fresh material is not brought on record, it is not open to the Assessing Officer to examine the same issue again. According to Shri Aggarwal, the issue attained finality in the assessment year 1974-75.

Reference was made to the doctrine of res judicata. Reliance was placed on some precedents to buttress the point that the issue in question cannot be re-examined.

4.1 It was vehemently contended that the case assessee is not falling within the mischief of the rule propounded by the Apex Court in the case of McDowell & Co. Ltd. (supra). Assessing Officer did not have any material to hold the view that the transaction in question was of collusive nature. This conclusion was drawn purely on the basis of surmises. There was no cogent evidence to support this finding. The onus probandi rests on the Department. It was not discharged. It is sine qua non on the part of Department to prove the factum of collusiveness beyond the shadow of doubt. If Department fails to prove the fact of collusiveness, the basis for determination of the ALV cannot be altered. The actual rent received must be the basis for determining the ALV. Reliance was placed on the decision of Addl. CIT v. Mrs. v. Leela Govindan (1978) 113 ITR 136 (Mad.). It was also submitted that even if the rent agreed was lower, it is the amount received under the deeds of lease which is to be adopted as the ALV.Learned counsel relied on CIT v. H. P. Sharma (1980) 122 ITR 675 (Delhi).

4.2 It was further contended that the expression "reasonably" occurring in section 23(1)(a) of the Act, connotes, what the owner might reasonably expect to get from hypothetical tenant if the building is let from year to year and though the word "reasonably" may not be capable of precise definition, but it signifies "in accordance with reasons". It was submitted that the annual rent payable by tenant to the landlord would in the normal circumstance afford a reliable evidence of what might reasonably a landlord may expect to get from a hypothetical tenant. Learned counsel contended that where the rent of the building is subject to rent control legislation, such approximation also gets displaced. He relied on the decisions of Dewan Daulat Rai Kapoor v. N.D.M.C. (1980) 122 ITR 700 (SC); Mrs. Sheila Kaushish v. CIT (1981) 131 ITR 435 (SC). Reference was made to some other decisions also in the same stream.

4.3 On the basis of these decisions it was argued that annual value for the purposes of section 23(1) of the Act only means standard rent as calculated under the Rent Control Act. It was specifically stated that standard rent has to be calculated as per Rent Control Act. Reference was made to the decision of CIT v. L. Bansi Dhar & Sons (1994) 209 ITR 465 (Delhi). Learned counsel further stated that in the case of CIT v.Bhasker Mittar (1994) 73 Taxman 437 (Cal.) it was held that annual letting value under section 23 of the Act has to be taken on the basis of standard rent to be calculated under the Rent Control Act even when the same is lower than the figure shown by the assessee in his return of total income.

4.4 Next it was argued that standard rent cannot be determined on the basis of the market value from year to year. Reliance was placed on the decision of the Gujarat High Court rendered in the case of CIT v. M. K.Shivraj Singhji (1991) 192 ITR 120 (Guj.) and CIT v. Modi Industries Ltd. (No. 4) (1993) 200 ITR 350/67 Taxman 360 (Delhi). It was stated that the term "standard rent" is missing in the Income-tax Act. This is a term of the Rent Control Act. It was, therefore, argued that it is to be calculated in accordance with the provisions of section 6(1)(b) of the Delhi Rent Control Act, 1958. Shri Aggarwal also placed reliance on an unreported decision of the Delhi High Court dated 19-3-1993 in the case of Delhi Paints & Chemicals. It was argued that once the annual value has been fixed on the basis of the standard rent, it cannot be enhanced until there is structural change in the property. Further annual value has to be determined on the basis of the standard rent which is applicable in rem and not in personam. Learned counsel also referred to the decision of Satish Chandra & Sons v. M.C.D.(unreported).

4.5 Alternatively it was argued that ALV could in no circumstance exceed to the figure of Rs. 80,000, as the property was purchased for Rs. 8 lakhs only. Our attention was invited on the provisions of Delhi Municipal Corporation Act. Learned counsel also invited our attention on some cases in order to demonstrate that assessee charged the rent as per the prevailing rates.

4.6 Learned counsel submitted that proceedings before the N.D.M.C. has got no nexus with the present case. Department should not be allowed to use the material connected with the said proceedings as because these documents were not made the basis of assessment. Therefore these cannot be regarded as evidence which can be admitted and examined. Learned counsel relied on a good number of precedents to support the various arguments raised in this appeal.

5. Shri P. K. Sahu, learned Senior Departmental Representative appeared before us. Relevant documents and papers were filed. Our attention was invited on the order of the Tribunal in the case of Allied Finance (P.) Ltd. (supra) for the assessment year 1974-75. Tribunal observed : "there is no dispute that the shareholders in all the three companies are the same persons." Shri Sahu stated that the shareholding position at the time of purchase of the property for all the three companies indicated that the companies were closely held companies and the entire shareholding was in the names of Kulwant Rai and their family members.

It was felt that the question whether the letting out of the property by lease agreement was a genuine exercise and not really been examined by the Assessing Officer. The order passed by the Assessing Officer pursuant to the direction of the Tribunal does not give any indication that he had applied his mind to the matter at all. Therefore, the apprehensions entertained apropos the veracity of the transactions entered into by the three companies with their so-called tenants remained. Our attention was invited on the lease deed dated 1-3-1974.

This was signed by Shri Vinay Rai action on behalf of Shri Kulwant Rai and Shri Jaswant Rai, who was his father and uncle. It is not known why Shri Vinay Rai acted on their behalf when the two persons were very much available. Thereafter perpetual lease was granted in respect of the said property to the so-called tenants. Permission of the land development authority transferring all the rights and interests in the property was not obtained. The right of the President of India for re-entering the property was eclipsed by this agreement by which the tenants acquired all rights of perpetual lease. It transpires from the perusal of the lease deed that tenants were authorised to use the building, renovation, altering and/or construction on the demise land for residential purposes only and for no other purpose expect with the permission in writing of the landlord previously obtained in this behalf. It is indeed very seldom that any landlord would allow the tenant not only to renovate, alter or modify the structure, but even to construct the building on demised land at the inception of tenancy.

5.1 Entire claim of the assessee regarding letting out this property is based on the fact before this property was purchased it has been let out to a foreigner on a monthly rent of Rs. 2,000 per month. The assessee-company after conducting extensive renovation of the property determined the rent it was going to charge from its shareholders who were also Directors at Rs. 2,250 per month. Hence entire claim rests on the fact that market rent was charged from the so-called tenant. This alone is the bedrock of the claim that the property was let out on fair rent by the owner companies to the Rai family. There is absolutely no evidence in regard to letting out of the property to the foreigner. The claim of the assessee is mere ipse dixit.

5.2 It was further stated that the list of shareholders of these three companies is almost identical with the persons, who were actually residing in the house. Hence the relationship of the landlord and tenant did not exist and would not have been claimed, but for the fact that it was advantageous to do so in respect of tax liability on individual wealth. At that point of time it could not have been foreseen that the situation regarding provision of wealth-tax will change one day. In fact it was with a view to plug such tax evasion only that the provisions were enacted in section 40 of the Finance Act, 1983.

5.3 It was argued that since true rent is not reflected in the deed it is open for the Assessing Officer to take the amount of rent in consideration which the property might fetch from year to year.

Considering the locality in which the property situated and other surrounding circumstances, Assessing Officer was correct in ascertaining the value of the property at Rs. 7 lakhs per month.

Learned Departmental Representative placed heavy reliance on the decision rendered in the case of McDowell.

5.4 Reliance was also placed on the decision of the Supreme Court rendered in the case of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89. It was prayed that the case if assessee should be tested on the touchstone of the ratio decidendi of the Apex Court apropos the human probabilities. Reference was also made to the decision of the Apex Court in the case of Esthuri Aswathiah v. CIT [1967] 66 ITR 478 wherein it was held that the Tribunal may act upon probabilities, and presumptions may supply gap which may not on account of delay or the nature of transactions or for other reasons be settled from independent sources. On that basis it was submitted that collusive rent as shown in the deed be fairly substituted. Learned Departmental Representative also made a proposal for the inspection of the property. On that it was submitted by the learned counsel for the assessee that in subsequent years much improvement was done by the tenants on the said property, therefore, it would not be possible for the Tribunal to ascertain the correct position as existed for the years under consideration.

5.5 Coming to the applicability of doctrine of res judicata learned Departmental Representative submitted that the Tribunal did not decide the case for the assessment year 1974-75 on merits. The matter was restored to the file of the Assessing Officer. Assessing Officer did not pass speaking order. Reference was made to the decision of M. M.Ipoh (supra) and CIT v. Brij Lal Lohia & Mahavir Prasad Khemka (1972) 84 ITR 273 (SC). It was stated that the doctrine of res judicata does not apply so as to make a decision on a question of fact or law in proceeding for assessment in one year binding in another year. Shri Sahu invited our attention on the case of Jewels of India v. State (1990) 67 Comp. Case 391, 392-93 (Delhi) wherein it was held was that the doctrine of res judicata will be applicable only if the earlier order is on merits as in that event there would be a speaking order in existence. In the present case, no speaking order was in existence.

Tribunal did not conclude the issue. Assessee, therefore, cannot put his case under the umbra of the doctrine of res judicata.

5.6 Learned Departmental Representative submitted that there is no estoppel against the statute. Where the Revenue authorities took a particular view of the statutory provisions in the income-tax assessment, and later on realised that it was a mistaken view, they cannot be estopped from taking a correct view of the statutory provisions later on. Reference was made to the decision of CWT v.Mattles (P.) Ltd. [1985] 156 ITR 569 (Delhi). Learned Departmental Representative took us through the various precedents to show that the doctrine of res judicata cannot be applied in the facts and circumstances of the present case.

5.7 On the backdrop of the facts narrated hereinbefore it was argued that the question of fixation of standard rent will not arise in this case as the property was never genuinely let out. Only a charge of letting out had been created so that the ownership of the property remained with the assessee-companies. The market value of the property was artificially reduced by alleged fixed amount of rent for which the property was claimed to be let out. It is, therefore, essential to penetrate the veil and find out the real purpose for which the companies were incorporated. ALV of the property cannot be worked out on the basis of rent shown. Because of the collusive nature of transaction it cannot be considered as real rent. ALV is to be considered after taking into consideration the entire gamut of the case. Factors like area of the house, constructed area, the value of the land in the vicinity of the property as well as the ALV fixed by the N.D.M.C. is to be considered.

5.8 Learned Departmental Representative invited our attention on the valuation as done by the N.D.M.C. ALV on which the property was proposed to be assessed for the year 1987 was Rs. 7,33,771, 1988 - Rs. 7,77,300. These values were stated to be the basis of comparable market rents up to Aurangzeb Lane as on 1-4-1973 and 11-B, Aurangzeb Road as on 1-4-1990. The intermediary values were worked out on the basis of average difference.

6. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The principle of res judicata is based on two maxims, namely :- (It is to the interest of the State that there should be an end of litigation); 6.1 Section 11 of the Code of Civil Procedure provides that no court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigation under the same title in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court. The basic principle of the doctrine of res judicata is that the cause of action for the second suit or action being merged in the judgment of the first, it does not any more survive.

6.2 It is now well-settled that the principle of res judicata or estoppel by record, which applies to decisions of Civil Courts, has no application to decisions of income-tax authorities so as to preclude the determination of a question in a previous assessment order from being reopened in proceedings relating to the subsequent assessment year. This view was taken by the Apex Court in the cases of New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR 137 and ITO v. Murli Dhar Bhagwan Dass [1964] 52 ITR 335. The reasons are, firstly, that the income-tax authorities including the Appellate Tribunal are not courts; and secondly, that the purpose and the subject-matter of the proceedings in a subsequent year are not the same as those in a previous year.

6.3 There are catena of cases in the same stream wherein it is laid down that as a general rule the principle of res judicata is not applicable to the decisions of Income-tax authorities, an assessment for a particular year is final and conclusive between the parties only in relation to that year. Decisions given in an assessment for an earlier year are not binding either on the assessee or on the Department in a subsequent year.

6.4 The rule of res judicata is subject to some limitations. There should be finality and certainty in all litigations including litigation arising out of Income-tax Act. An earlier decision of the same question cannot be re-opened if that decision is not arbitrary or perverse, and it had been arrived at after due enquiry, and no fresh facts are placed before the Income-tax authority in the later decision and the Income-tax authority in the earlier decision has taken into consideration all material evidence. This view was taken in the case of CIT v. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 (Punj.). The other limitation is that the effect of revising the earlier decision should not lead to injustice and the court may prevent an assessing authority from doing something which could be unjust and inequitable - CIT v.Belpahar Refractories Ltd. [1981] 128 ITR 610 (Ori.).

6.5 In the case of M. M. Ipoh v. CIT [1968] 67 ITR 106 (SC) it was held that the assessment and the facts found are conclusive only in the year of assessment; the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in the other year, but they are not binding and conclusive.

6.6 We have examined the order of the Tribunal rendered for the assessment year 1974-75. It is abundantly clear from the perusal of the same that issues raised before the Tribunal were not finally adjudicated as because the factum of collusiveness was not properly examined by the Assessing Officer. Tribunal directed the Assessing Officer that effort should be made to find out whether there was any collusion or fraud as alleged by the Assessing Officer in the assessment order. The order passed by the Assessing Officer dated 29-11-1980 is reproduced in para 3.2. It does not give any indication that Assessing Officer had applied his mind to the matter at all. The order of the Assessing Officer is a non-speaking order.

The issues involved in the appeal were not decided by the Tribunal. In these circumstances, the doctrine of res judicata cannot be applied.

7. We have considered the human probabilities. It was found that some person avoid personal Wealth-tax liability by forming closely held companies. They transfer many items of their wealth such as real estate, etc., to such companies. Companies were beyond the ken of Wealth-tax Act. Hon'ble Finance Minister took cognizance of this fact while piloting the Finance Bill, 1983. To plug this loophole, section 40 of the Finance Act, 1983 was enacted. In the present case property was acquired before the insertion of section 40. There is possibility that this arrangement was being done to avoid the liability for personal Wealth-tax.

7.1 It is clear from records that the benefit which flowed from the ownership of the property was exclusively utilised by the persons who had substantial interest in the affairs of the companies. The amount of rent was also not regularly paid. It was said to be only credited in the books of assessee-companies by means of book entries. That too was also not on regular basis. Lessee invested substantial amount on the renovation and construction. This in conjunction with other facts discussed hereinbefore indicate that the tenant-landlord relationship did not exist. It was only an arrangement to get some tax advantage. It was a scheme of tax avoidance which consisted of a series of transactions each of which was individually genuine, but the result of all was avoidance of tax.

7.2 There is no evidence on record to show that the property in question as alleged by the assessee was let out to a foreigner on a monthly rent of Rs. 2,000 per month. In the absence of evidence the claim of the assessee in regard to the same cannot be examined.

8. Section 23(1)(a) of the Act provides that for the purposes 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. The word used is "might" and not "can" or "is". It is thus a notional income.

8.1 Prior to the 1975 amendment, i.e., up to assessment year 1975-76 actual rent received or receivable was not decisive in the determination of the annual value of the property, although it was an important piece of evidence therefor. After the 1975 amendment, if actual annual rent received or receivable is in excess of the notional annual value, the actual annual rent shall be deemed, under section 23(1)(b), to be the annual value, for and from assessment year 1976-77.

8.2 Ordinarily a bargain between a willing lessor and willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness. This view was taken by the Apex Court in the case of Corporation of Calcutta v. Smt. Padama Debi AIR 1962 SC 151. The word "reasonably" in section 23(1)(a) of the Act is very significant. What the owner might reasonably expect to get from a hypothetical tenant, if the house was let from year to year, affords the statutory yardstick for determining the annual value. Though the word "reasonably" is not capable of precise definition, it signifies "in accordance with reason". In the ultimate analysis, what is reasonable is a question of fact and it would depend on the facts and circumstances of a given situation. The actual rent payable by tenant to the landlord would, in normal circumstances, afford reliable evidence of what the landlord might reasonably expect to get from a hypothetical tenant. But where the rent of the house is subject to Rent Control Legislation, this approximation may and often does get displaced. This view was taken by the Apex Court in the case of Dewan Daulat Rai Kapoor (supra). It is abundantly clear from the perusal of the decision that the Hon'ble Supreme Court excluded the cases which are based on fraud, emergency, relationship and such other considerations. In the present case, we find that normal relationship between tenant and landlord did not exist. Therefore, what assessee receives from the tenant cannot be construed to be the actual rent for the premises in question.

8.3 In the case of Mrs. Sheila Kaushish (supra) the Hon'ble Supreme Court at page 439 observed as under :-M. M. Chawala v. J. S. Sethi [1970] 2 SCR 390 that, in the absence of fixation of standard rent, the agreed rent which is legally recoverable and not tainted by fraud, relationship or any other consideration must be taken to be the standard rent and hence the actual rent received by the assessee was rightly taken as the annual value of the warehouse." 9. Good many precedents were relied upon to stress the point that actual rent or standard rent should be the basis for determining the ALV. But the precedents relied upon do not match with the facts of the present case. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a simple significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo by matching the colour of one case against the colour of another. Heraclitus said : "You never go down the same river twice". What the great philosopher said about time and flux can relate to law as well. Hon'ble Supreme Court in the case of Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455 (at page 1467), has held that a ruling of a superior Court is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial-lamp plays the legal-flame.

10. Verily, for the determination of ALV, no particular system is prescribed under the Act. ALV under section 23(1)(a) of the Act is the deemed amount for which the property might reasonably be expected to let from year to year. It is the notional figure. If the actual rent received is in excess of this notional figure, only then it can be taken as ALV under section 23(1)(b) of the Act.

10.1 Annual rent received is one of the guiding factor for determining the ALV. The agreed amount of rent which is legally recoverable and not tainted by relationship or any other consideration may be considered to find out the correct ALV.10.2 Apex Court has fixed the parameters for determining the ALV. In the case of Dewan Daulat Rai Kapoor (supra), the annual value was determined for Municipal tax purposes. The property was subject to the rent restricting laws. It was held in that context that landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent determinable under the Act. In the case of Sheila Kaushish (supra) it was held that standard rent determinable under the provisions of law would be the annual value even though the standard rent is not determined. But this rule cannot be extended to a case where the agreement is tainted by relationship or any other consideration.

10.3 In the case of Delhi Paints & Chemicals [CWP 1032 of 1992] the question was in regard to the determination of annual value under the Municipal Act. Earlier the properties were assessed on the basis of standard rent as per the provisions of Delhi Rent Control Act, 1958.

There was proposal for enhancement. In view of the amount of rent received, Delhi Rent Control Act was found not to be applicable. On this factual backdrop it was held that annual value would continue to be the same. The facts of the case of Satish Chandra [CW No. 2078 of 1984] are not the same. In that case it was held that rateable - value has to be adopted year after year unless changed. This rule is also subject to some limitations. It cannot be applied when there is fresh construction or improvement, causing change in value.

10.4 In the case of CIT v. R. Dalmia [1987] 163 ITR 525 (Delhi) it was held that Municipal valuation can be taken as ALV. For determining the Municipal taxes payable, the local authority makes a periodical survey of all buildings within its area. The surveyor determines the amount of rent receivable from the property. Such ALV is assessed after taking into consideration all the relevant factors. It affords an indication as to the reasonable ALV of the property.

10.5 We have also examined the value adopted by the Assessing Officer.

He took the value at Rs. 7 lakhs per month. There is no basis for the same. It rests purely on surmises. Therefore, this cannot be a correct guide to determine the ALV. Similarly Commissioner of Income-tax (Appeals) also did not appreciate the factual background of the case.

The valuation as done by him also suffers from infirmity.

10.6 We have perused the various precedents cited before us. We have considered the facts that emerged from the records and stated at the time of hearing. In our opinion, in the present case, Municipal valuation only could give a true indication as to the correct ALV of the property in question. Accordingly, we set aside the impugned order on this count and direct the Assessing Officer to determine the ALV of the property with reference to its rateable value as determined by the Municipal Corporation. The value determined by the N.D.M.C. was stated to be under dispute. We direct the Assessing Officer to substitute the figure as determined by the Court on production of the copy of judgment to this effect.

10.7 Next issue in assessee's appeals relates to the allowability of expenditure. Nothing was placed before us to show that the expenditure incurred by the assessee-companies was incidental to the carrying of business. We have perused the impugned order. We find no infirmity in the same. Accordingly, we uphold the order of Commissioner of Income-tax (Appeals) on this count.

10.8 Assessee-companies in the grounds of appeal raised grounds relating to proceedings under section 143(1)(a) and levy of interest.

These grounds were not pressed at the time of hearing. We dismiss the same as not pressed.


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