Harshamukhi Dasi vs Commissioner of Income Tax

Harries, C.J.—This is a Reference made by the income tax Appellate Tribunal, Calcutta Bench, u/s 66 of the Indian income tax Act in which the following question is referred to the Court for its opinion:

Whether, in the circumstances of the case, in determining the bona fide annual value of the property, as contemplated in Section 9(2) of the income tax Act, the Tribunal was right in coming to the conclusion that the sum of Rs. 64,455 (erroneously stated to be Rs. 55,000 in the statement of case as determined by the Appellate Assistant Commissioner) was a bona fide annual value of the property concerned.

On November 25, 1921, a lease was executed by Kumar Manindra Chandra Singha in favour of John Carapiet Galstaun of certain properties, which were described in the first schedule to the deed. There were in fact fourteen separate properties, which formed the subject-matter of this one lease. The lease was for a period of twenty-five years from November 1, 1921 and a premium of Rs. 25,000 was payable before the execution of the lease. The rent reserved by the lease was Rs. 58,000 payable in twelve equal monthly instalments on the fifteenth day of each month. The lessee was to pay all municipal taxes and assessments, subject to a contribution of Rs. 4,936-2 per annum by the landlord towards such payments. The lessor had to carry out certain repairs, but if the cost exceeded Rs. 150 the lessee had to make a contribution. The liability for general repairs was on the lessee. It was expressly provided that all additions and improvements made by the lessee were to be surrendered intact to the lessor on the termination of the lease.

By another deed executed on February 27, 1922, between the parties the rent of Rs. 58,000 payable under this lease was reduced to Rs. 55,000.

It seems that the lessee Galstaun was unable to pay the rent and a suit was filed by the Assessee in this Court which was eventually compromised and a decree made in terms of the compromise. The Assessee by this compromise undertook to allow a rebate on the rent mentioned in the lease from January 1, 1936, for five years only so as to reduce the annual rent to Rs. 45,000 a year. This decree is dated January 24, 1936.

In the year 1940, there were further proceedings in this Court and again the matter was compromised and the annual rent by the terms of the settlement was reduced to Rs. 45,000 per annum as from August 1, 1940. The Assessee undertook to pay a slightly larger amount towards the taxes than had been provided in the lease.

The years of assessment in this case were 1941-42, 1942-43 and 1943-44 and the Assessee was the executrix of the lessor, Manindra Chandra Singha. The income tax Officer assessed the annual value of the premises subject to this lease for the purposes of taxation at Rs. 64,455. An appeal to the Assistant Commissioner failed and a further appeal to the Appellate Tribunal met with the same fate. The Assessee being dissatisfied with the decision of the Appellate Tribunal asked the Tribunal to state a case to this Court, raising the question as to what was the proper amount to be assessed as the annual value of these premises. The Appellate Tribunal formulated the question which I have already set out for answer by this Court.

Mr. Atul Gupta on behalf of the Assessee has contended that the method employed by the taxing authorities for ascertaining the annual value of the property let by the Assessee was not the proper method. He has contended that the property to be assessed is the consolidated holding, if I may use the phrase, which is the subject-matter of the lease. What the taxing authorities had to ascertain was what was the annual value of that property. Mr. Gupta complains that what the taxing authorities have done is to ascertain the annual value of each item which went to make up the property leased and then determine the annual value of the whole property by totalling up the annual value of each of the items. Mr. Gupta has contended that that is not a fair or a proper way of ascertaining the annual value of the property let. He has contended that, where a number of properties are the subject-matter of one letting, it in no way follows that a reasonable rental for such letting will be equal to the total of the rents which could be obtained if each item which went to make up the property let was let separately.

The assessment had to be made u/s 9 of the Indian income tax Act. Sub-section (1) of that section reads:

The tax shall be payable by an Assessee under the head "Income from 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 any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to the following allowances.

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(2) 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.

It is clear that the owner of property is not assessed to income tax on the actual income which he receives from the property. He is assessed on a notional income, that is, on the bona fide annual value of the property which the Assessee holds. Sub-section (2) of the section defines "annual value" as meaning the sum for which the property might reasonably be expected to let from year to year.

Mr. Gupta contended, in the first place, that what the taxing authorities had to decide was the sum for which the whole of the properties, the subject-matter of the lease, treated as one property might reasonably be expected to let from year to year. In my view, that is right. The subject-matter of the lease must be treated as one property, because it is from that that the Assessee receives an income. The taxing authorities must determine the reasonable -rent which might be expected from such property.

Mr. Gupta contended, in the first place, that the annual value in this case must be taken as the rent payable which was Rs. 45,000. He stressed that the tax is payable on the bona fide annual value of the property and he suggested that rent which is fixed as the result of a business transaction must be regarded as the bona fide annual value of the property. In my view, what is actually paid is of course evidence of the annual value of the property, but it is by no means conclusive. The actual rent received by the owner of property may be more or less than what the property might reasonably be expected to let from year to year. Although what is paid is evidence and is worthy of serious consideration, in determining what the annual value of the premises is, it is by no means conclusive.

I think there is considerable force in Mr. Gupta''s contention that the annual value of a holding, such as was the subject-matter of this case, cannot be ascertained by totalling up the annual value of each of the items that went to make up the holding. The holding made up of a number of items may reasonably be expected to let at less or more than the sum total of the reasonable rents for each of the items. If the taxing authorities had made their assessments by simply totalling up the annual value of each of these items I should have been prepared to interfere. Mr Gupta has urged that that is precisely what they have done. The income tax Officer took the municipal valuations of these properties. Under the Municipal Act each item of property must be valued separately and it seems clear that the sum of Rs. 72,439 which the income tax Officer estimated as the gross rental was arrived at by adding up the annual value of each of the items of property "as shown in the municipal record. As I have said, it in no way follows that the annual value of a number of properties lumped together and let as a consolidated property will be the same as the total of the annual value of these properties if let separately.

I am satisfied, however, that the Appellate Tribunal did not uphold the assessment merely on this ground. The Appellate Tribunal have considered all the relevant factors. The Tribunal in the first place was of opinion that the first rent fixed by the lease, namely, Rs. 58,000 would not correctly represent the annual value. The Tribunal pointed out that the lease in the first place though for a comparatively short period of twenty-five years, provided for the payment of a premium or a selami of Rs. 25,000. Further, the lease provided that, at the end of twenty-five years, all improvements and fixtures and fittings which had been made or fixed by the tenant were to become the property of the landlord and it seems that improvements amounting to over Rs. 1,25,000 were made by the lessee to these premises during the period. Having regard to these advantages, the landlord might well have agreed to accept a somewhat lower rental than he would have otherwise have done.

The Appellate Tribunal also pointed out that the municipal record showed that the annual value of premises had not declined between 1926, the date of this lease and the years of assessment in this case. It is common knowledge that property has increased in value in Calcutta and it certainly has not decreased in value.

The Appellate Tribunal also took into consideration the rent which the landlord was actually receiving from tenants when this lease was executed. At that time the rents payable to the landlord amounted to Rs. 6,135 per month, that is well over Rs. 73,000 per annum.

The Appellate Tribunal then took into account the gross annual value of the various items of property which made up the holding or the property leased and the total came to Rs. 72,439. The Appellate Tribunal simply took the total of the annual values of the items into consideration and found that it roughly agreed with the estimated rental based on other considerations. It appears to me that the Appellate Tribunal took all the relevant factors into consideration when they arrived at the annual value of Rs. 64,445. The finding is of course a finding of fact, as what rent could be reasonably obtained from a property must be a question of fact. However, if the taxing authorities had not taken into consideration all relevant matters, we could have interfered; but as I am satisfied that they took into account all relevant matters and have not based their finding on matters not permitted by law the finding of fact cannot be disturbed. For the reasons which I have given I would answer the question submitted in the affirmative.

The case stated propounds another question. But Mr. Atul Gupta has not addressed any argument to us upon that question. That being so, the answer to that question will be against the Assessee.

The Commissioner of income tax is entitled to the costs of this reference. There will be only one set of costs. Certified for two counsel.

Sinha, J.

I agree.