TMI Blog2008 (3) TMI 363X X X X Extracts X X X X X X X X Extracts X X X X ..... y the previous owner prior to the year 1971 as well as the construction having been done by the said owner before 1971, the value to be taken as basis as per clause (A)(2)(b) of section 6(1) ought to have been already considered by the Controller while determining the standard rent in the year 1971 itself. This being so, it was not permissible as per the relevant provisions of section (6) of the Delhi Rent Control Act, 1958 to substitute the said base price with the cost of the property to the assessee in order to determine/revise the standard rent and the said cost thus was entirely irrelevant in the context of determining the standard rent of the property. Periodic revision of standard rent already fixed by the Controller under the Delhi Rent Control Act, 1958, it is observed that the relevant provisions allowing such revision are contained in section 6A which has been inserted in the statute only with effect from 1-12-1988. Moreover, a perusal of the said provisions shows that the expression used therein is may be increased by 10 per cent every three years which, as rightly submitted by the learned counsel for the assessee, clearly shows that it is not mandatory. The disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eb Road, New Delhi at Rs. 9,32,888 as against Rs. 5,12,932 declared by the assessee in the return? 2. The relevant facts of the case giving rise to the aforesaid question referred to this Special Bench are as follows. The assessee in the present case is a company which is mainly engaged in the business of purchase of agricultural land and development thereof in collaboration with its holding company DLF Universal Limited. It is also engaged in selling the developed plots to the holding company or to the nominees of the holding company. Apart from this, the assessee company also derives income from house property and hiring of motor vehicles. A return of income for the year under consideration i.e., assessment year 1993-94 was filed by it on 24-12-1993 declaring a total income of Rs. 13,64,610. In the said return income from house property situated at 14-16, Aurangzeb Road, New Delhi was declared by the assessee under the head 'Income from house property' at Rs. 5,07,021. The said income was worked out as under:- Municipal ALV of 14, Aurangzeb Road, New Delhi 31,021 Municipal ALV of 16, Aurangzeb Road, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was, however, a change in the facts involved in the assessee's case for the year under consideration as compared to the facts involved in the earlier years. He noted that in addition to the sum of Rs. 9,63,419 spent on additions to the house property during the previous year relevant to assessment year 1988-89, the assessee has spent a further amount of Rs. 79,27,356 during the previous year relevant to assessment year 1989-90 for the following addition to the said property:- (i) Annexy at 14, Aurangzeb Road : Rs. 27,00,424 (ii) Annexy at 16, Aurangzeb Road : Rs. 24,22,030 (iii) Staff Quarters : Rs. 7,61,857 (iv) Health club Swimming pool : Rs. 20,45,045 ------------- Total : Rs. 79,27,356 ------------- 5. The Assessing Officer also noted that the aforesaid staff quarters and annexes have also been given on rent to M/s. DLF Builders Developers Limited with effect from 1-6-1989 and the assessee was receiving rent for the same from M/s. DLF Health Centre. According to the Assessing Officer, even the amount of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that protection of Delhi Rent Control Act is available to the tenant, he observed that the same was not justified since section 14 of the Rent Control Act specifies the circumstances under which the landlord can ask for the eviction of the tenant. He, therefore, held that the stand of the assessee regarding adoption of standard rent fixed in 1971 as the annual letting value is not tenable and in the absence of any other guiding factor, He proceeded to work out the AL V of the property on the basis of percentage of cost method. In this regard, he referred to the provisions of section 6 of the Delhi Rent Control Act wherein such percentage was given at 10 per cent of the cost of construction plus the market price of the land comprised in the premises on the date of commencement of the construction. Since such total cost as already worked out by him was Rs. 47,24,960, the rental value was taken by him at Rs. 4,72,496 (10 per cent of Rs. 47,24,960) and the income from house property was worked out at Rs. 7,41,582 as given hereunder:- ALV as discussed above 4,72,496 Rent received for annexies staff quarters as shown 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent etc., the rent at which these properties were let out by the assessee to its holding company was not fair and reasonable. The standard rent determined in 1971 could not be fair and proper basis for determining the ALV under the Income-tax Act especially when concerned authorities had failed to revise the standard rent even after substantial additions and alterations to the properties. (iii) The assessee could not be given advantage of the failure of the authority to determine the proper and fair standard rent in accordance with the provisions of law. (iv) Delhi Rent Control Act also provides that if the standard rent is continuous for a long period say more than 5 years, it should be determined on the basis of cost of construction of building and the market value of the land on the date of commencement of construction by applying a rate of 10 per cent. On the basis of the aforesaid submissions, it was pleaded on behalf of the revenue that the matter may be restored to the file of the Assessing Officer for determining the ALV of the property afresh as per the provisions of section 23(1). 10. The aforesaid submissions made on behalf of the revenue in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, however, was dismissed by the Tribunal which made the assessee-company to approach the Hon'ble President with a request to refer the issue for consideration of a Larger/Special Bench in view of the orders of the Tribunal taking a contradictory view on a similar issue. Acceding to the said request, the Hon'ble President has constituted this Special Bench to consider and decide the question incorporating the said issue. 12. The learned DR submitted before us that the standard rent was determined way back in the year 1971 and despite substantial changes/additions made to the property subsequently, there was no fresh valuation done after 1971. He contended that the said changes/additions made by the assessee to its subject property thus were not considered for the purpose of determining standard rent. Referring to the relevant portion of the assessment order, he submitted that the ALV declared by the assessee on the basis of valuation done in 1971 thus was rightly not accepted by the Assessing Officer and the same was increased taking into consideration the expenditure incurred for the changes/additions made to the subject property subsequent to the valuation done in 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n always compute the same on the basis of the sum for which the property might reasonably be let from year to year. He also placed reliance on the decision of Hon'ble Kerala High Court in the case of CIT v. Kalpetta Estates Ltd. [1995] 211 ITR 635 wherein it was held that a different view can be taken on same set of facts in the subsequent years on closure examination of the facts and legal position. He also placed reliance on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Foss Electronic [2003] 263 ITR 125 to contend that a wrong order even if accepted does not create any vested right in favour of the assessee. He also contended that the rental values of property all over the country are increasing from year to year and when these facts are staring at us, the low annual value of the property situated in a prime location in a city like Delhi as declared by the assessee should not be accepted. In support of this contention, he placed reliance on the decision of Hon'ble Gujarat High Court in the case of Gujco Carriers v. CIT [2002] 256 ITR 50. 15. The learned counsel for the assessee, on the other hand, submitted that the cost of acquisition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith effect from 1-4-1989. He contended that there was thus no change in the facts and circumstances of the case as involved in the year under consideration or even for that matter in assessment years 1990-91 to 1992-93 from the facts as involved in assessment years 1988-89 and 1989-90 wherein the issue was decided by the Tribunal in favour of the assessee. He contended that the said decision was rendered by the Tribunal in assessment years 1988-89 and 1989-90 after taking into consideration all the relevant facts and even the reference filed by the assessee against the said order under section 256(1) was rejected by the Tribunal. He pointed out that the department has not gone in section 256(2) against the order of the Tribunal for assessment years 1988-89 and 1989-90 and the said order of the Tribunal thus has become final. He contended that, if at all, all the relevant facts were not taken into consideration by the Tribunal in assessment years 1988-89 and 1989-90, as sought to be contended in the subsequent years including the year under consideration, the department ought to have filed a reference under section 256(2) before the Hon'ble High Court. He submitted that the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedent of the earlier pronouncement apply to quasi-judicial and judicial authorities and where the revenue has accepted the status and correctness of the earlier decisions, it is not open to them to challenge its correctness in other cases without any just cause. In support of this contention, he relied, inter alia, on the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 as well as the decisions of Hon'ble Delhi High Court in the cases of Director of Income-tax (Exemption) v. Guru Nanak Vidya Bhandar Trust [2005] 272 ITR 379, CIT v. Akash Deep Promoters Developers (P.) Ltd. [2005] 196 CTR (Delhi) 99 and CWT v. Allied Finance (P.) Ltd. [2005] 195 CTR (Delhi) 528. 19. We have considered the rival submissions in the light of material available on record and the judicial pronouncements cited at the bar. The issue before us as raised in the question referred to this Special Bench is relating to the determination of annual letting value of the property belonging to the assessee and situated at No. 14-16, Aurangzeb Road, New Delhi in accordance with law. The relevant provisions governing the determination of ALV are contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol Act for it to be taken into reckoning for the purposes of section 23(1) and even the Assessing Officer can fix the same adopting the principles and methodology laid down in the relevant Rent Laws. In the case of Raghuvir Saran Charitable Trust, it was held by the Hon'ble Delhi High Court that market rent could not be more than the standard rent and in a case where rent actually paid was more than the standard rent, the same has to be adopted as an ALV of the property irrespective of the fact that the market rent was actually more than the rent received by the assessee. 21. In the case of Dewan Daulat Rai Kapoor, it was held by the Hon'ble Supreme Court that even though 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, where the rent of the building is subject to Rent Control legislation, this approximation may and often does get displaced. It was also held that the determination of standard rent is not left to the unfettered and unguided discretion of the Rent Controller and he is required to fix the standard rent in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the owner. 23. Insofar as the facts of the present case are concerned, there is no dispute that the rent actually received by the assessee from the property in question was Rs. 4,91,537. Out of the said amount, a sum of Rs. 4,60,392 was received towards rent for Annexes to the properties situated at 14-16, Aurangzeb Road as well as staff quarters etc. attached thereto and the ALV of this portion of the property as shown by the assessee on the basis of actual rent received is not disputed even by the Assessing Officer. The ALV of remaining portion i.e. the main house property situated at 14-16, Aurangzeb Road, New Delhi was shown by the assessee at Rs. 52,540 on the basis of municipal valuation fixed by NDMC and the dispute is about the determination of ALV of this portion of the property. In this regard, the Assessing Officer has not disputed the fact that the annual rent of Rs. 31,145 only was received by the assessee during the year under consideration in respect of the said property and it was never his case that the rent actually received by the assessee was more than Rs. 31,145. As regards the municipal valuation of the said portion of the property, it is observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Controller having fixed the standard rent in respect of the property in question in 1971, any revision thereof was warranted in the facts and circumstances of the case as per the relevant provisions of the Delhi Rent Control Act as held by the Assessing Officer and whether such revision made by him was in accordance with the principles of valuation laid down in the Delhi Rent Control Act, 1958. 26. In this regard, it is observed that the principles relating to determination of standard rent are laid down in section 6 of the Delhi Rent Control Act, 1958 whereas the provisions of sections 6A and 7 deal with the revision/increase of standard rent. These provisions being relevant in the present case are extracted below:- 6. Standard Rent.-(1) Subject to the provisions of sub-section (2), standard rent , in relation to any premises, means- (A) in the case of residential premises- (1) where such premises have been let out at any time before the 2nd day of June, 1994,- (a) if the basic rent of such premises per annum does not exceed six hundred rupees, the basic rent; or (b) if the basic rent of such premises per annum exceeds six hundred rupees, the basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not so let, with reference to the rent at which they were last let out, shall be deemed to be the standard rent for a period of seven years from the date of the completion of the construction of such premises; (b) in the case of any premises, whether residential or not, constructed on or after the 9th day of June, 1955, including premises constructed after the commencement of this Act [but before the commencement of the Delhi Rent Control (Amendment) Act, 1988], the annual rent calculated with reference to the rent agreed upon between the landlord and the tenant when such premises were first let out shall be deemed to be the standard rent for a period of five years from the date of such letting out; [(c) in the case of any premises, whether residential or not, constructed on or after the commencement of the Delhi Rent Control (Amendment) Act, 1988 and to which the provisions of this Act are made applicable by virtue of clause (d) of section 3, the rent calculated on the basis of ten per cent per annum of the aggregate amount of the actual cost of construction of the premises and the market price of the land comprised in the premises on the date of commencement of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be done by applying the provisions of sub-clause (2)(b) of clause A of sub-section (1) of section 6 of the Delhi Rent Control Act, 1958. It stipulates that the standard rent in case of the properties like the one in the present case would be the rent calculated on the basis of 10 per cent per annum of the aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction. In the present case, the land was purchased and construction of building thereon was done by the previous owner prior to 1971 and thus, the standard rent fixed in 1971 of the said property could be taken as determined by the Controller taking into consideration the actual cost of construction incurred by the previous owner as well as the market price of the land comprised in the premises on the date of the commencement of the construction. At the relevant time, the rate to be applied to such cost for determining the standard rent was 7.5 per cent which has been subsequently increased with effect from 1-12-1988 to 10 per cent and the Controller thus would have applied the said rate of 7.5 per cent to such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1988-89. However, as submitted on behalf of the assessee before the authorities below as well as before us and remained uncontroverted by the revenue authorities, the said expenditure was incurred by the tenant and not by the assessee. As per the provisions of section 7(1) which are already extracted hereinabove, where a landlord has incurred with the written approval of the tenant or of the Controller, expenditure for any improvement addition or structural alteration in the premises and the cost of that improvement, addition or alteration has not been taken into account in determining the rent of the premises, the landlord may lawfully increase the standard rent per year by an amount not exceeding 10 per cent of such cost. In order to lawfully increase the standard rent under section 7(1) by an amount not exceeding 10 per cent of the cost of improvement, addition or alteration to the property, the prerequisite condition is that the said cost must be incurred by the landlord himself. It, therefore, follows that if such cost is incurred by the tenant, the owner cannot claim any lawful increase in the standard rent under section 7(1) of the Delhi Rent Control Act, 1958. As already n ..... 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