1. Both the case relate to the same assessee but for two assessment years. The first relates to the assessment year 1971-72, while the second relates to the assessment year 1972-73. The assessee is the owner of a building called 'Giri Bhavan' bearing Door No. 16, Begam Sahib Street, Madras 2. The ITO estimated the annual letting value of the said building at Rs. 36,000 on the basis of the order of the AAC for the earlier assessment year 1970-71, as against the annual value of Rs. 12,000, returned by the assessee. The assessee appealed and the AAC following the Tribunal's order for the preceding year adopted the monthly letting value of the property at Rs. 1,800 and this was confirmed in appeal by the Tribunal. Aggrieved by the order of the Tribunal, the assessee sought for and obtained a reference of the following questions of law to this court for its opinion :
2. Question for decision in T.C. No. 1352 of 1977 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in fixing the bona fide letting value at Rs. 1,800 per month as against Rs. 1,000 per month, as per the lease deed
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is not entitled to the relief under the second proviso to s. 23(1) of the I.T. Act, 1961 ?'
3. Question for decision in T.C. No. 1597 of 1977 :
'Whether, on the facts and in the circumstances of the case, the applicant was not entitled to relief under the second proviso to s. 23(1) of the I.T. Act in respect of each room as claimed by the assessee ?'
4. The case of the assessee is that he has leased out the building to his wife only at Rs. 1,000 per month, as evidenced by the registered lease deed and that the actual rent which he is receiving should alone be taken into account for the purpose of determining the annual letting value. But in this case the ITO, the AAC and the Tribunal have all found as a fact that the rate of rent referred to in the lease deed is too low and that the lease deed which has been executed between the assessee and his wife cannot be taken to be genuine. The Tribunal in this case has, therefore, not chosen to adopt the annual rent as disclosed by the lease deed as the basis for determining the annual letting value of the building. After referring to the three methods adopted by the ITO, the Tribunal taking note of the area of the ground floor occupied by the owner's son and wife and the area occupied by the owner in the first and second floors, which could not have been the subject-matter of the lease, held that a sum of Rs. 21,500 would be a reasonable annual letting value of the building, which works out to Rs. 1,800 per month. Having regard to the fact that on the other methods referred to by the ITO, the rental value was high, the annual letting value determined by the Tribunal appears to be very much in favour of the assessee. We have, therefore, to agree with the finding of the Tribunal that the letting value of the building is Rs. 1,800 per month.
5. Coming to the other question, it is seen that the assessee claims the benefit of reduction under the second proviso to s. 23(1) of the I.T. Act. We have already found that the letting value of the entire building is Rs. 1,800 per month. It is not in dispute that the building has been used as a lodging house and there are 36 rooms therein. The case of the assessee is that every room by itself is a residential unit, since each of rooms is separately let out to different tenants as independent units. According to the assessee, since the building comprises of as many as 36 residential units, the second proviso to s. 23(1) will come into operation and, therefore, there should be a reduction in the annual letting value, as provided therein. It is not in dispute that in the corporation's books there is only one assessment for the entire building and there are not as many assessments as there are rooms in the building. The object of the second proviso to s. 23(1) of the I.T. Act is to provide for a reduction of Rs. 600 per annum from the annual value of new residential units completed after March 31, 1961. We do not see how the assessee can claim each room in the building as a separate residential unit for claiming the benefit of the second proviso to s. 23(1). Normally, a room in a lodge cannot be taken to be a residential unit. The expression 'residence' implies some sort of 'permanency' and it cannot be equated to the expression 'temporary stay as a lodger'. There is no evidence in this case whether each room had separate amenities like lavatory, bath room, etc. Even assuming that each room had such facilities, still we are of the view that the assessee in this case cannot claim the benefit of the second proviso to s. 23(1) treating each room in the building as a separate unit.
6. A reading of s. 23(1) would indicate that two conditions are to be satisfied for claiming the benefit under the second proviso thereto, one is that the building should consist of more than one residential unit and the other is that every residential unit should be such that its annual value is capable of being separately assessed. In this case, as already stated, the building has been assessed by the corporation as a single unit. Only if the residential units are separately assessed to annual value, the question of application of second proviso to s. 23(1) will arise. The said proviso also indicates that the reduction of sum of Rs. 600 is from the annual value of the residential unit and not from the annual value of the building. In this case as there is no separate annual value for each room, the question of application of the second proviso to s. 23(1) will not arise.
7. This view of our finds support from a decision of the Kerala High Court in CIT v. Elizabeth Varghese : 132ITR605(Ker) , which also related to a building comprising of 14 rooms fitted with a bath room-cum-lavatory, but all the rooms had a common entrance and common staircase. The rooms were however let out to different tenants, on a monthly rental. However, the building had been assigned one municipal door number and there was one single assessment for the entire building. There was one electricity meter for the whole building and there was a single water connection with meter for the entire building. The owner of the building claimed benefit of the second proviso to s. 23(1)(b) of the I.T. Act. That claim was rejected by the ITO on the ground that the entire building was one commercial unit and that even otherwise, each room in the building cannot be treated as a separate residential unit. Balakrishna Eradi C.J., speaking for the Bench, expressed the view that the expression 'building comprising one or more residential units' occurring in clause (b) had to be understood as signifying composite structures containing a plurality of residential or dwelling units, such as flats, and that the mere fact that a building had several rooms with attached bath room facility would not render it a 'building comprising as many residential units as there are such rooms'. It was also held in that case that cls. (a) and (b) of the proviso to s. 23(1) would take within their ambit only buildings comprising a plurality of dwelling units like flats, which by themselves would constitute houses or homes, and that each such dwelling unit would ordinarily be a separate house in itself with its own electricity meter and water supply connection, and that sub-cls. (i) and (ii) of the proviso also furnished a clear indication that in order to constitute a residential unit for the purposes of the section, it must have a separate annual value.
8. We have, therefore, to agree with the view of the Tribunal that the assessee is not entitled to claim the benefits of the second proviso to s. 23(1) of the I.T. Act treating each of the rooms in the building as a separate residential unit.
9. In the result, question No. 1 in T.C. No. 1352 of 1977 and question No. 2 in T.C. No. 1352 of 1977 and the only question in T.C. No. 1597 of 1977, are answered against the assessee. There will be no order as to costs.