Commissioner of Income Tax vs M. Ratanchand Chordia

Thanikkachalam, J.—In pursuance of the direction by this Court in TCP No. 563 of 1982 dt. 11th April, 1983, the Tribunal referred the

following question of law for the opinion of this Court under s. 256(2) of the IT Act, 1961.

Whether, on the facts and in the circumstances of the case and having regard to the provisions of s. 23(1) of the IT Act, 1961, the Tribunal was

right in holding that the annual letting value of the property at No. 35-A, Mount Road, should be taken on the basis of actual rent received and not

on the basis of the value fixed by the Corporation of Madras ?

In the asst. yr. 1977-78, the assessee, an individual deriving income from house property, money lending and other sources, was assessed by

the ITO by computing the property income adopting the annual letting value at the municipal valuation of Rs. 68,578 instead of actual rental receipt

of Rs. 51,150 adopted by the assessee. On appeal, the AAC accepted the assessee''s contention that the annual actual rental value of Rs. 51,150

should be adopted. The aggrieved Department went in appeal before the Tribunal. The Tribunal, considering the decision of this Court in Addl.

CIT vs. Leela Govindan (1978) 113 ITR 136 , and that of the Delhi High Court in CIT vs. H. P. Sharma (1980) 122 ITR 675 , and that of the

Supreme Court in Dewan Daulat Rai Kapoor and Others Vs. New Delhi Municipal Committee and Others, and in the absence of any evidence on

the side of the Department, that the rent charged by the assessee is on the low side, accepted the actual rent received by the assessee as the fair

rent and accordingly, confirmed the order passed by the First Appellate Authority/AAC.

Learned standing counsel for the applicant/Department submitted that the annual letting value should be determined in accordance with the

provisions contained in s. 23 of the IT Act, 1961. It was submitted that the annual letting value determined by the Municipality should be taken into

account, since the same was fixed under s. 100 of the Madras City Municipal Corporation Act. In the present case, the annual letting value fixed

by the Municipal Corporation is higher than the actual rent received by the assessee. As per the amended provisions of s. 23 of the IT Act, if the

actual rent paid is more than the Municipal Valuation, then the actual rent should be taken into consideration. For this reason, it was submitted that

the Tribunal was not correct in adopting the actual letting value received by the assessee, as the fair rent in the matter of determining the annual

rental value.

We have heard learned standing counsel for the Department and perused the records carefully. The actual rent received by the assessee was

Rs. 51,150 and the annual letting value determined by the Corporation was Rs. 68,578. In the matter of determining the annual letting value, we

are guided by the decision of the Supreme Court in Dewan Daulat Rai Kapoor''s case (supra), wherein the Supreme Court has held as under :

The actual rent payable by a tenant to the landlord would, in normal circumstances, afford reliable evidence of what the landlord might reasonably

expect to get from a hypothetical tenant, unless the rent is inflated or depressed by reason of extraneous consideration such as relationship,

expectation of some other benefit, etc. There would ordinarily be in a free market close approximation between the actual rent received by the

landlord and the rent which he might reasonably expect to receive from a hypothetical tenant. But, where the rent of the building is subject to rent

control legislation, this approximation may and often does get displaced. It is, therefore, necessary to consider the effect of rent control legislation

on the determination of annual value.

Similarly, in Mrs. Shiela Kaushish Vs. Commissioner of Income Tax, Delhi, , the Supreme Court held that the fair rent has to be determined on the

basis of the cost of construction and market value of the land under s. 6(1)(v)(ii) of the Delhi Rent Control Act. In view of the above said-Supreme

Court decisions, the annual letting value of the premises should be determined in accordance with the Rent Control legislation, where the property

is situated in a place covered the Rent Control legislation. Under s. 4 of the Tamil Nadu Buildings (Lease & Rent Control) Act, 1960, fair rent has

got to be fixed on the basis of the value of the land the value of the building. In the present case, it is not known whether the Madras Corporation

has fixed the annual letting value as per the provisions of s. 4 of the Tamil Nadu Buildings (Lease & Rent Control) Act. The presumption would be

that the Municipal Corporation would have followed only the Municipal Corporation Act. Under s. 100 thereof, there is no rule for determining the

annual letting value on the basis of the value of the land and the building. Therefore in view of the above said two decisions of the Supreme Court,

it is not possible to accept the contention put forward by the Department that the annual letting value as fixed by the Municipality, should be

accepted. There is also no evidence on record to show that the rent received by the assessee is low because of any extraneous considerations, like

relationship between the landlord and the tenant or any other contract. In the absence of such evidence, we are not in a position to reject the

conclusion arrived at by the Tribunal that the actual rent received by the assessee would form the fair rent, as contemplated under the Rent Control

Act. Therefore, there is no infirmity in the order passed by the Tribunal in accepting the annual letting value as given by the assessee. Accordingly,

we answer the question referred to us in the affirmative. No costs.