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Liquidator, Mahmudabad Properties Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 45 of 1969
Judge
Reported in[1972]83ITR470(Cal)
ActsIncome Tax Act, 1961 - Sections 22, 23, 24 and 24(1)
AppellantLiquidator, Mahmudabad Properties Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateSukumar Mitra and ;S.C. Roy, Advs.
Respondent AdvocateA.K. Basu and ;S.N. Sen, Advs.
Cases ReferredCartwright v. Sculcoates Union
Excerpt:
- p.b. mukharji, c.j.1. the tribunal has referred in this income-tax reference under section 256(1) of the income-tax act, 1961, the following question for decision by this court:'whether, on the facts and in the circumstances of the case and on the interpretation of sections 22 and 23 of the income-tax act, 1961, the tribunal was right in holding that in computing the income from property the bona fide annual value of the property at 3, gun foundry road, calcutta, has not to be taken and in disallowing the vacancy remission and other deductions in respect of the aforesaid property 'even though the words of the question are not as clear as they could and should be, it is plain what the question asks. the question is whetherthere is an annual value of premises no. 3, gun foundry road,.....
Judgment:

P.B. Mukharji, C.J.

1. The Tribunal has referred in this income-tax reference under Section 256(1) of the Income-tax Act, 1961, the following question for decision by this court:

'Whether, on the facts and in the circumstances of the case and on the interpretation of Sections 22 and 23 of the Income-tax Act, 1961, the Tribunal was right in holding that in computing the income from property the bona fide annual value of the property at 3, Gun Foundry Road, Calcutta, has not to be taken and in disallowing the vacancy remission and other deductions in respect of the aforesaid property '

Even though the words of the question are not as clear as they could and should be, it is plain what the question asks. The question is whetherthere is an annual value of premises No. 3, Gun Foundry Road, Calcutta, and whether it is to be taken into account under Section 22 of the Income-tax Act, 1961. The Tribunal has held that such a property is outside the scope of Section 22 of the Act. The second part of the question is also plain and that is whether the Tribunal was right in disallowing the vacancy remission and other deductions in respect of the said property. It would have been better if instead of using the expression ' other deductions ' the Tribunal had made it clear in the question what are the specific deductions in this case because they are confined to three items: (1) the vacancy remission, (2) the municipal taxes, and (3) the insurance premium, which are claimed as statutory deductions under Sections 23 and 24 of the Income-tax Act, 1961. These deductions are discussed in the order of the Income-tax Officer.

2. The facts giving rise to this question may be stated at the outset. The assessee is a company in voluntary liquidation represented by a liquidator. The assessment year is 1962-63 for which the previous year is the calendar year 1961. The assessee filed a return of a total income on 10th December, 1962, showing a total income of Rs. 2,469 and a loss under the head ' Capital gains ' of Rs. 6,390, and in that computation a loss was shown under the item 'Less: loss under the head 'Property'--Rs. 15,821'. In support of the claim of loss for Rs. 15,821 under the head ' House property' the assessee worked out a total vacancy claim of Rs. 1,23,672, for the premises in this reference, namely, 3, Gun Foundry Road. It is with the premises 3, Gun Foundry Road, that this income-tax reference is concerned.

3. The facts about the property at 3, Gun Foundry Road, are as follows: The property was in the occupation of the West Bengal Government having been requisitioned by the said Government for housing refugees and that requisition, we understand, was made under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947. On the 26th December, 1960, the building was derequisitioned by the Government and since then the property was lying vacant. The correspondence between the assessee and the West Bengal Government shows that the said building was not in a habitable condition because the doors and window frames are stated to have been removed by the refugees and because a letter dated the 28th March, 1961, written by M/s. Talbot & Co., valuers and surveyors, on behalf of the assessee to the Land Acquisition Collector shows that the value of the damages and dilapidation was estimated at Rs. 1,65,203. In these circumstances, the Income-tax Officer found that the property was not in a condition to be let out to tenants and hence the gross value thereof and the vacancy claim should both be ignored for the present computation. The decision of the Income-tax Officer, therefore,was that he did not allow the vacancy remission of Rs. 1,23,672, the municipal taxes amounting to Rs. 7,969, relating to premises No. 3, Gun Foundry Road, and the insurance premium of Rs. 6,089, in connection therewith as deductions.

4. The Appellate Assistant Commissioner by his order found that No. 3, Gun Foundry Road, was 'let' to the West Bengal Government as a result of the requisition order. Incidentally he is not correct in using the expression ' let '. The de-requisition was made on the 26th December, 1960. The Appellate Assistant Commissioner found that during the previous year which was the calendar year 1961 and for the whole period of that time the property was not let. The Appellate Assistant Commissioner finds that the assessee was always ready and willing to let this building but none could be found. He also found that the damages valued at Rs. 1,65,203 was just a little more than a year's rental and if there was some one willing to take the property on rent, the assessee would have effected the repairs immediately and let the building. The conclusion of the Appellate Assistant Commissioner was, 'there is nothing in the Act calling upon the Income-tax Officer to ignore a property of this type.' His conclusion he puts in the following words :

' I do not see anything in the Act which says that the property of this type should be omitted. The assessee is the owner of the property and was always willing to let the property. The bona fide annual value of the property should therefore be considered for assessment and not ignored. Secondly, even in a case where the building is under repairs the vacancy remission can be allowed on the strength of the ruling in Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, [1933] 1 I.T.R. 206 (Pat).'

The Appellate Assistant Commissioner therefore partly allowed the appeal of the assessee and directed the Income-tax Officer to amend the assessment accordingly holding that the assessee was entitled to vacancy remission and the other deductions which had been denied by the Income-tax Officer.

5. Then the department went up in appeal against that decision of the Appellate Assistant Commissioner before the Tribunal. The Tribunal sets out the points of the assessee's letter of the 8th March, 1963, showing the condition of 3, Gun Foundry Road. It was formerly a jute baing press and godown and when possession of the building was handed over to the assessee by the Government the letter shows, (a) there were no windows and gates; (b) the flooring had been very badly damaged; (c) wooden planks were broken and taken out from here and there by the refugees, and (d) making the floors dangerous because of gaps all over. According to the assessee, he took over the building in a deplorable condition. But the Tribunal also notices the further fact mentioned in that letter that the Corporation of Calcutta itself reduced the owner's and occupier's share of taxes to Rs. 1,138, as against Rs. 4,553, and during the year 1961, the Corporation tax assessed was Rs. 7,966. The relevant part of the decision of the Tribunal is expressed in the following terms :

'Whatever may be the position under the 1922 Act, we would be governed by Sections 22 to 27 of the 1961 Act. The subject matter of charge is the annual value which shall be deemed to be the sum 'for which the property might reasonably be expected to let from year to year.' When the building itself is not in a habitable condition, it could (not) be said that the property could be reasonably let out on any particular annual value. We are therefore inclined to agree that such a property is outside the scope of Section 22. We must hold that the Income-tax Officer was right in ignoring the property altogether and in not computing any profit or loss in respect of this property. The Appellate Assistant Commissioner's order on this point is vacated and the order of the Income-tax Officer is restored. '

Those are the facts. The point raised is a case of first impression. It is primarily concerned with the interpretation of Sections 22, 23 and 24 of the Income-tax Act, 1961. We proceed straight to the interpretation of these relevant sections of the Income-tax Act, 1961. These sections appear under Chapter IV of the Income-tax Act, 1961, dealing with 'computation of total income ' and these particular sections appear under a sub-heading under the title ' income from house property ' which is one of the heads of income in Section 14 of the Income-tax Act, 1961. Section 22 of the Income-tax Act, 1961, reads as follows :

' The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head ' income from house property''.

It is followed by Section 23 which deals with the question how to determine annual value. The relevant portion of Section 23 of the Income-tax Act, 1961, is, inter alia, as follows :

'(1) 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 :

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, a deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner.'

(As it stood at the time of the assessment before the new amendment of this proviso was introduced by the Finance Act of 1968).

This Section 23 has certain sub-sections and Explanations to which we shall refer later on in this judgment.

6. It is followed by Section 24 of the Income-tax Act, 1961, dealing with deductions from income from house property and the relevant portions, inter alia, are as follows:

'24. (1) Income chargeable under the head 'income from house property' shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:......

(ii) the amount of any premium paid to insure the property against risk of damage or destruction;...............

(ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied;

(2) The total amount deductible under Sub-section (1) in respect of property of the nature referred to in Sub-section (3) of Section 23 shall not exceed the annual value of the property as determined under Section 23.'

The broad features of these statutory provisions can be emphasised at the beginning to clear the point. What is charged in this context is the annual value of property. That annual value is deemed to be the sum for which the property might reasonably be expected to let from year to year. It follows that this is a deeming provision and is based on the idea of a hypothetical tenancy. It insists on the sum for which the property might reasonably be expected to let from year to year indicating thereby that it is ' the ' property which is to be considered emphasising the well-known principle of rebus sic stantibus in this branch of the law. In other words, the property has to be considered as it is at the time of the valuation for determination of the annual value. The emphasis again is on the expression ' reasonably be expected to let from year to year '. This emphasis leads to two conclusions. First, it is a reasonable expectation and not an actual fact. The frame of reference is ' letting from year to year ' and would therefore exclude considerations of long leases. The whole concept of annual value in Section 23 is hypothetical tenancy as other Sub-sections (2) and (3) thereof also indicate dealing with the cases where the property is in the occupation of the owner for his own residence and where the owner has only one residential house which he cannot actually occupy by reason ofthe condition of his employment, business or profession carried on at any other place. Even in such cases, Sub-sections (2) and (3) of Section 23 provide for the determination of the annual value on the basis of reasonable expectation to let from year to year. The proviso to sub-section (3) of Section 23 uses such expressions as 'the house is not actually let' and ' no other benefit therefrom is derived by the owner ' indicating thereby that Parliament in this context is considering the hypothetical tenancy by providing for cases where there is no ' actual ' letting.

7. The system of deductions enunciated in Section 24 of the Income-tax Act, 1961, also lead to certain broad conclusions. The opening words of Section 24(1) of the Act make it clear that this income chargeable under the head ' income from house property ' shall, inter alia, be computed after making the deductions set out therein which include, apart from the cost that we have already quoted, cost of repairs, collection charges, land revenue and other outgoings set out there. But the point of emphasis at this stage is that the very income has to be computed after making the deductions. The annual value is chargeable to income-tax under Section 22 and that annual value under Section 23 is to be deemed to be the sum for which the property might reasonably be expected to let from year to year. In order to come to that annual value on the basis of reasonable expectation of letting from year to year, the computation shall be arrived at after making the deductions set out in Section 24. While Section 23 denotes the hypothetical concept, Section 24 does not, except perhaps in the case of repairs which can be claimed under Section 24 without actually incurring the same because the cost of repairs is related to an annual value arrived at hypothetically. The words of Section 24(2) of the Income-tax Act, 1961, appears to confine the limit of deductions to the extent of the annual value only in the case of property of the nature mentioned in Section 23(3) thereby apparently seeming to suggest that this limit of deductions up to the annual value would not be available in other cases with regard to other properties not covered by Section 23(3). It will not be necessary for us in this reference to decide this particular point and whether Section 24(2) makes a discrimination between properties under Section 23(3) and other properties.

8. This broad analysis of Sections 22, 23 and 24 of the Income-tax Act, 1961, for the purpose of the present income-tax reference before us, at least indicates a part of the answer to the question asked. Under Section 24(1)(ii) the assessee is certainly entitled to the deduction of the amount of premium paid to insure the property against the risk of damage or destruction. The records show that the assessee paid fire insurance premium in respect of this property amounting to Rs. 689. That, under the law, is clearly deductible by the assessee from the annual value. Secondly, underSection 24(1)(ix) of the Income-tax Act where the 'property is let and was vacant', then the assessee is entitled to deduct that part of the annual value which is proportionate in the manner as set out in this sub-clause. The language ' where the property is let and was vacant during a part of the year ' must be given its ordinary reasonable meaning. That means that, during a part of the year in question, the property ' is let and was vacant'. But, here, under the facts, as we have already seen from the records, the property was not let during the particular year in question. Hence, that deduction for vacancy cannot arise in any event under the express provision of Section 24(1)(ix) of the Income-tax Act, 1961, and the assessee is not entitled to it. Incidentally, we may also point out that requisition by the Government under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947, under which the requisition was made in this case does not mean that the Government becomes the tenant and the owner of the property becomes the Government's landlord. In other words, that does not mean that the Government becomes a tenant paying rent to the assessee who is the owner of the property. What is plain and what the statute says is ' compensation '. No doubt, in determining such compensation a cogent consideration is the rent of such properties. There are other considerations as well as will appear from Section 12 of the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947. Requisition in this context does not mean that thereby the owner ' lets ' the property to the Government.

9. We shall dispose of the question of municipal taxes as deductions at this stage. The relevant provision which governs this question of municipal tax deduction is the proviso to Section 23 of the Income-tax Act, 1961, whose crucial expression is 'provided that where the property is in the occupation of a tenant'. It is only then, when such property is in the occupation of a tenant, that the municipal taxes can qualify for deduction in determining the annual value of the property. The basic fact is wanting in the present reference. This property, 3, Gun Foundry Road, was not in the occupation of a tenant within the meaning of those words in the proviso to Section 23 of the Income-tax Act, 1961. We have already discussed the finding on record that the property was not let at the relevant time. That finding binds us. Besides, the facts show, as we have indicated, that the property was requisitioned by the Government and was derequisitioned before the assessment in question and in any event in the case of such a requisition, under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947, the Government by requisition does not become a tenant and it is not a letting. We would also like to emphasise that both vacancy remission and deduction of municipal taxes cannot be claimed at the same time by reason of the language in the proviso toSection 23 of the Income-tax Act, 1961, as quoted above. That is one of the basic contradictions in the case made by Mr. Mitter, learned counsel for the assessee. The second fundamental contradiction in the assessee's case on this point has been that in one breath the assessee claims vacancy remission and in the other breath claims that there is no annual value for this property. The quantum of vacancy remission will ipso facto or ex hypothesi mean the proportionate amount of rent which would normally, though not conclusively, be the annual value. Therefore, we hold that municipal taxes cannot be deducted in the facts and circumstances of this reference.

10. We shall now come to the more fundamental question raised in this reference. That question arises directly on the Tribunal's conclusion saying that the building itself is not in a habitable condition and, therefore, cannot be said to be a property which could be reasonably let out on any particular annual value and, hence, this property, No. 3, Gun Foundry Road, is outside the scope of Section 22 of the Income-tax Act, 1961. While Section 22 of the Income-tax Act, 1961, makes the annual value of the property chargeable to income-tax, Section 23 of the Act describes how that annual value is determined and the test is ' 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 '. We have already given our interpretation on this language of Section 23 of the Income-tax Act, 1961. The animal value has to be found by considering a hypothetical tenancy and by considering the fact that the property is in the present condition, rebus sic stantibus. In considering this question of the sum for which the property might reasonably be expected to let from year to year it is essential to bear in mind these basic conditions, namely, (1) it is a hypothetical tenancy, (2) that the property must be treated as it is and as it stands in its present condition, and (3) that a hypothetical tenant and a hypothetical landlord may take normal considerations such as getting the property even at a lower rent and making some use of it and in such consideration the question of usual arrangements between landlords and tenants about the burden of the cost of repairs of different kinds as for instance repairs to keep it wind and water tight and other repairs should also be taken into consideration. The Tribunal has not considered these questions at all in coming to their present decision and in fact have upheld the Income-tax Officer's view that the annual value of this property. No. 3, Gun Foundry Road, should be ignored altogether. Merely because the property is in a state of disrepair, it cannot be predicated that this property has no annual value.

11. Before proceeding to discuss the law on this point, it will be appropriate to mention at this stage the provisions of the Calcutta MunicipalAct on this point, for, this property has been assessed to municipal rates and taxes under the Calcutta Municipal Act. Section 168(1) of the Calcutta Municipal Act, 1951, provides, inter alia, as follows:

' For the purpose of assessment to the consolidated rate, the annual value of any land or building shall be deemed to be the gross annual rent at which the land or building might at the time of assessment be ' reasonably expected to let from year to year ', less certain cost of repairs and expenses mentioned there,'

It will be seen that the crucial words ' annual value ', 'annual rent' and ' reasonably be expected to let from year to year ' are almost identical with the language of Section 23 of the Income-tax Act, 1961. The municipal authorities in the very same facts and circumstances of the case have not come to the conclusion that this property has no annual value and cannot be let as the Tribunal has done in the present case. On the contrary, the Corporation of Calcutta only reduced the owner's and occupier's share of taxes to Rs. 1,138 as against Rs. 4,553 having regard to the condition of disrepair of the property. In other words, the municipal authorities think that in finding the annual value and the sum at which it may be reasonably expected to let from year to year, this very property has a certain rental value and therefore a certain annual value, though no doubt reduced, because of the conditions of the property. Theoretically, the determination of the annual value by the income-tax authorities under Section 23 of the Income-tax Act, 1961, and the determination of the annual value by the municipal authorities under Section 168 of the Calcutta Municipal Act, 1951, may not agree. But the municipal valuation on the same test of annual value and reasonable expectation of letting should provide at least a cogent consideration. It will be odd indeed if one finds, as we do find in the present case, that while the income-tax authorities hold that this very property has no annual value, the municipal authorities hold that it has on the very same test of annual value and the test of being reasonably expected to let from year to year. We are therefore of the opinion that the Income-tax Tribunal has failed to take notice of the basic principle of annual value and the test provided by the law on the point.

12. The concept of annual value of a property and the test of its being reasonably expected to let from year to year originate from the law of rating in municipal law. Some of the authorities on rating law indicate and explain the concept of annual value, and the test of reasonable expectation to be let from year to year. We consider this to be relevant even if not binding and it deals with the exposition of these two concepts.

13. We shall now look at some of the authorities in the rating law. The first decision we propose to notice is that of the House of Lords inLondon County Council v. Parish of Erith and the Parish of West Ham, [1893] A.C. 562 (H.L.). Although the language considered by the House of Lords was not exactly the same, yet the basic language of the expression ' annual value ' and ' reasonable expectation of letting from year to year ' was the same. Lord Herschell L.C., at page 588 of the report, enunciates certain broad propositions. The first is when his Lordship observed as follows :

' It has never been doubted that the rent which is actually being paid by the occupier does not necessarily indicate what is the rent which a tenant might reasonably be expected to pay, or that an owner who is in occupation, and who may not be willing to let on any terms, is none the less rateable. The tenant described by the statute has always been spoken by the court as ' hypothetical tenant '. '

After citing some illustrations to explain the point, his Lordship further observed at page 589 as follows :

'The object of the legislature in enacting the provisions of the statute would be defeated if the question what the owner would have given if the premises had been to let and he had been free to take them were discarded from consideration.'

Thirdly, his Lordship, thereafter, at page 590-91, discussed the principle when the property is 'struck with sterility '. The expression 'struck with sterility ' is taken from the judgment of Bowen L. J. in West Bromwich School Board v. Overseers of West Bromwich, [1884] 13 Q.B.D. 929 (C.A.). This doctrine, as pointed out by the learned editors of the 12th edition of Ryde on Rating at page 102 has been modified, if not entirely overruled by London County Council case, which we have just quoted. The pertinent observations of Lord Herschell L.C. in that case at page 591 are as follows:

' Now, if land is ' struck with sterility in any and everbody's hands', whether by law or by its inherent condition, so that its occupation is, and would be, of any value to anyone, I should quite agree that it cannot be rated to the relief to the poor. But I must demur to the view that the question whether profit (by which I understand is meant pecuniary profit) can be derived from the occupation by the buyer is a criterion which determines whether the premises are rateable, and at what amount they should be assessed; and I do not think that a building in the hands of a school board is incapable of being beneficially occupied by them, and is not so occupied because they are prohibited from deriving a pecuniary profit from its use.'

The learned editors of the 12th edition of Ryde on Rating sum up the position on this point at page 102 by observing as follows :

' There is no objection to the phrase 'struck with sterility' if it be not misapplied.'

By this test, we are of the opinion that the Tribunal has misapplied this doctrine of property being ' struck with sterility ' in the present facts and circumstances of the case.

14. The next relevant authority is a recent one of the English Court of Appeal in Wexler v. Playle, [1960] 1 Q.B. 217 (C.A.). There also the expression was ' might reasonably have been expected to let from year to year ' which was being construed by the court. In fact, the whole contention there was that the tenant claimed that he was entitled to a reduction in the valuation for rating on the ground that the property, in that case a flat, was in a state of disrepair, which is the contention also in the present reference before us. Morris L.J., at page 235, discusses this aspect of the case and makes the following observation:

' If, therefore, I make the assumption for which Mr. Glover contends, viz., that on or about June 30, 1939, the flat was in the state in which it actually was on March 30, 1957, and if I assume in his favour that the word ' state ' is wide enough to cover state of repair and state of decoration, it seems to me that Mr. Glover's submission becomes really a most unrealistic one. He submits that what has to be ascertained if premises are in temporary disrepair is what rent would be paid on the basis that the landlord only undertook to do such repairs as would prevent the premises from becoming in a worse state of disrepair. I cannot think that that is right. It runs contrary, as it seems to me, to all reason and does not accord with what could reasonably be contemplated as likely to be the bargain between a landlord and a tenant. I think we must bear in mind the opening words of Sub-section (2) : ' The said rent is that at which the hereditament in question might reasonably have been expected ... to let'. There is, therefore, introduced what might be expected and what might reasonably be expected. When the words of this sub-section are first read, it might seem as though a somewhat illusory test is laid down for the fixing of the rent. If a high rent was fixed, that could command onerous repair obligations and if a very low rent were fixed, that might result from a refusal to undertake any substantial repairs. That rather illusory test will not apply if the construction of Sub-section (2) is the construction contended for, particularly by Mr. Harris. But it seems to me that the section is contemplating that the landlord will do repairs, and it must be remembered that if a landlord is to maintain premises in repair or to keep premises in repair, he has the obligation to put the premises in repair. So, it seems to me, if one postulates that a hypothetical landlord and hypothetical tenant went into a flat which had the defects to which I have referred, such as bad window frames, cracks in the walls and ceilings and dampness and so on, and if we are considering what might reasonably havebeen expected by way of rent, I would say that it would be such rent as would be payable on the basis that the landlord would then do the necessary repairs to make the flat reasonably habitable and would do such later repairs as would be reasonable in all tbe circumstances. I think one must assume that ordinary sensible people are dealing with the situation. I think also that consideration must be given to the class of property with which they are dealing. '

Here is an authority which discussed this question of repair and a case where the window frames were bad and there were cracks in the walls and ceilings. When such a case of disrepair comes up for annual valuation under Section 23 of the Income-tax Act, 1961, these principles should in our view be considered as relevant factors. Here, no relevant factors have been considered by the Tribunal, For instance, neither the terms of the requisition under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947, nor the agreement, which the Government and the assessee signed, and its terms and clauses of repairs, and which the learned counsel, Mr. Mitter, for the assessee told us was a written agreement dated 24th August, 1951, dealing with different clauses bearing on this question of repairs substantially and otherwise, have been examined by the Tribunal. In dealing with the case of a hypothetical tenant and a hypothetical landlord to find out the reasonable letting value expected from year to year, Morris L.J.'s observation about ordinary sensible people and their usual considerations regarding the burden of repair should also be a cogent consideration.

15. Here again it will be relevant to refer to the statement of the law on this point in the 12th edition of Ryde on Rating, specially at page 432 onwards. In explaining the doctrine of rebus sic stantibus on this branch of the law, the learned editors at page 432 observed :

' Another aspect of the rebus sic stantibus rule which must be considered is its application to the state of repair of a hereditament. Here, it has been held that ordinary lack of repair is to be disregarded; though serious defects, particularly of a structural nature, may in some circumstances be taken into account,'

The learned editors at that point quote the above decision in Wexler v. Playle. At page 436, on the authority of the Earl of Halsbury L.C, in Cartwright v. Sculcoates Union, [1899] 1 Q.B. 667, 673 (C.A.), the learned editors of the 12th edition of Ryde on Rating state the law in these terms :

' Not annual value is the rent which a tenant may reasonably be expected to pay; and in estimating this rent all that could reasonably affect the mind of the intending tenant ought to be considered.'

Cartwright's case was affirmed by the House of Lords decision in Cartwright v. Sculcoates Union, [1900] A.C. 150 (H.L.). In article 96 of Simonds' edition of Halsbury, pages 68-69, volume 32, the law is stated in the following terms:

' The hypothetical tenant includes all persons who might possibly take the hereditament, including the person actually in occupation, even though he happens to be the owner of the hereditament. The rent is that which he will pay in the 'higgling of the market', taking into account all existing circumstances and any relevant future trends. If the hereditament affords the opportunity for the carrying on of a gainful trade, that fact must be taken into account. If the occupier is the only hypothetical tenant, his ability to pay is a relevant consideration.'

We, therefore, now proceed to formally record our answer in the light of the observations made above and for reasons already discussed. On the first part of the question we hold that the Tribunal was wrong in holding that there was no annual value of this property, No. 3, Gun Foundry Road, and that it was outside the scope of Section 22 of the Income-tax Act, 1961. We hold and we are of the opinion that this property has an annual value in the facts and circumstances of the case and it should be taken into account in the light of the principles and observations we have made above. We, therefore, set aside that part of the order of the Tribunal and answer the question accordingly. The answer to the first part of the question is in the negative. The answer to the second part of the question follows from the answer to the first part of the question and is that the only deduction in the facts and circumstances of the present reference which the assessee can get is the deduction for insurance premium paid. We hold further on this part of the question that the other deductions, namely, (a) vacancy remission and (b) municipal taxes, are not permissible and the assessee is not entitled to claim them in the present reference. We answer the second part of the question accordingly.

16. The Tribunal, therefore, will dispose of the case conformably to this judgment and the interpretation of the principles enunciated herein under Section 260 of the Income-tax Act, 1961.

17. In the circumstances, there will be no order as to costs in this reference.

T.K. Basu, J.

18. I agree.


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