TMI Blog2011 (4) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... rd rent as workable under the Rent Control Act but the fair rental value shall have to be determined. The fair rental value determined by the AO however is not reasonable. Infact it is clear from the order of AO that the AO has not even made an attempt to determine the fair rent u/s 23(1)(a). Hence, we set aside the order of the AO for determination of the fair rent to be adopted as the annual letting value. Whether income from licensing of premises is assessable as profits and gains of business because the assessee is not the owner of the property in question - Held that:- It is clear that the assessee acquired the property under the provisions of Maharashtra Ownership Flats Act, 1963 and even otherwise, the assessee falls under the provisions of section 27(iiia). Further, the legal position is well settled that even under the common law the assessee may not have a legal title over the property but in the context of section 22 the owner is the person who is entitled to receive income from the property in his own right. There is no dispute about the right of the assessee to receive the income from the property in question, therefore, such income would be taxable under head 'Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The purchase consideration for acquiring the property in question was shown at Rs.21,85,663. The assessee stated that till date no lease has been granted as agreed between the parties vide agreement dated 26-6-1982. On 29-11-1988, the assessee entered into three agreement with the CITI Bank in respect of the property in question. The first agreement was agreement for granting leave and license and thereby the property in question was let out to the CITI Bank. Vide second agreement the assessee received the interest free security deposits of Rs.1,54,00,000 from the CITI Bank. The third agreement was for availing an overdraft facility upto Rs.51,00,000 from CITI bank. The assessee also executed a Special Power of Attorney in favour of the CITI bank and whereby CITI Bank was authorised to give the said property in question on sub-license. In the year 1989 the owners/occupiers of the building form a co-operative society in the name of Sakhar Bhavan Premises Co-operative Society Limited and registered on 5-5-1998. 4. The assessee filed the return of income declaring total income of Rs.6,90,990 and Rs.7,70,668 for the assessment years 1992-93 and 1993-94 respectively along with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the annual value under section 23(1) of the Act. The CIT(A) confirmed the action of the AO vide impugned orders. 5. It is pertinent to note that the identical issue came up before this Tribunal in the assessee's own case for the assessment years 1990-91 and 1991-92 and this Tribunal vide order in Asstt. CIT v. Star Ferro Alloys (P.) Ltd. [2004] 90 ITD 163 (Delhi) (TM) considered and decided the issue against the assessee in paragraphs 10 to 25 as under: "(10) Adverting to section 23(1)(a) of the Act, we find that the language of this section provides that 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, it is pertinent to note that the word used is "might" and not "can" or "is". It is thus a notional income to be gathered from what a hypothical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not. (11) The Municipal valuation and annual valuation is assessed after taking into consideration all relevant factors, e.g. the prevailing rate of rent in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed on the basis of the sum for which the property might reasonably be let from year to year under section 23(1)(a) of the Act. (15) As per the scheme of the section, it is imperative on the part of the AO to first compute the value of the property as per section 23(1)(a) of the Act, which prescribes that ALV shall be deemed to be the sum for which the property might reasonably be expected to let from year to year, because sub-section (b) of section 23(1) stipulates that where the annual rent received or receivable is in excess of the sum referred to in clause (a), the actual sum is to be taken into consideration, meaning thereby that higher of the two value is to be adopted. As such, even for arriving at the value under clause (b), it is mandatory to make computation under clause (a) to find out the sum for which the property might reasonably be expected to let from year to year. (16) The order of section 23 of the Act is to determine the ALV in respect of the house property. If the income is derived from the exploitation of the property, it is to be charged under the head "Income from house property". As the assessee did not reflect the rental income, as such the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common facilities are not considered as part of the rent and added to the annual value. Accordingly there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. This view was taken by the Hon'ble Calcuatta High Court in the case of CIT v. Satya Co. Ltd. [1994] 75 Taxman 193. (19) Hon'ble jurisdictional High Court in the case of CIT v. J.K. Investors (Bom.) Ltd. [2001] 248 ITR 723 (Bom.) took the similar view. It was held that the notional interest would not form part of actual rent received or receivable under section 23(1)(b) of the Act. (20) Now the question arises that what the actual rent in the present case? As per the concise Oxford Dictionary the term "actual" connotes existing in fact, real. What is the actual rent or real rent of the property in question? It is not stipulated in the agreement. It transpires from the perusal of different clauses that the amount of Rs.9,825 is only reimbursement. The Citibank is required to pay this amount towards the present taxes and outgoings. It is not towards the licence fee. Therefore, the question arises that what the assessee is getting is out of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey of course belongs to the Citibank. They have given the tree of money to the assessee in consideration of the user of the assessee's property. The assessee is not the owner of the tree. He has the right to get the fruits of that tree and the fruits of that tree are signified by term "usufructus". That is the consideration for the user for exploiting the premises No. 72 at the Sakhar Bhavan. We find no merit in the contention of the assessee that the amount of reimbursement received by the assessee towards the payment of taxes, etc. is the consideration for the user of the property. While computing the income under the head "House property", it is incumbent on the AO to find out that what consideration the assessee did receive for the user of the property. (22) In the case of J.K. Investors (Bom.) Ltd. (supra), it was found that the actual rent received by the assessee was more than the fair rent even without taking into account the notional interest. In the present case the assessee received only the deposit and Rs.9,825 per month towards the payment of taxes and outgoings. No separate amount of licence fee of rent is anywhere stipulated in the agreement. This amount cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact or insist, at different times, on the truth of each two conflicting allegations, according to the promptings of his private interest. This in inculcated in the common law dictum: 'ALLEGANS CONTARIA NON EST AUDIENDUS' (he is not to be heard who alleges things contradictory to each other). (25) As the ALV on the basis of rateable value was not correctly mentioned, as such the AO proceeded to determine the value as per the mandate of the decision of the Hon'ble jurisdictional High Court rendered in the case of M.V. Sonavala (supra), wherein it is laid down that the income from house property has to be computed on the basis of the sum for which the property might reasonably by let from year to year. In determining such value, the AO adopted the rent paid by the same tenant to the landlord. Thereafter he calculated the usufructus and determined the ALV. Various precedents were placed before us. We have considered all the precedent. Examined the text and context. A close similarity between one case and another is not enough. Even a single significant detail may alter the entire aspect. The facts of the present case are totally different from the facts of the cases referred. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Harsha Achyut Bhogle v. ITO [2008] 114 TTJ (Mum.) 266/171 Taxman 108, where this Tribunal has taken a view that when the matter is already pending before the jurisdictional High Court, the Special Bench of this Tribunal is not to be constituted to consider the issue which has already been decided by the Tribunal in assessee's own case. The Special Bench after hearing both the parties, on the letter of the revenue for withdrawal of the Special Bench, had recommended to the Hon'ble President, ITAT to consider the withdrawal of the reference matter from the Special Bench vide recommendation dated 23-6-2009. Subsequently, due to transfer of one of the Member of the Special Bench and re-nomination of the substituting Member of the Special Bench, the Special Bench again found it is a fit case to be considered by the Hon'ble President, ITAT for withdrawal of the Special Bench vide note-sheet dated 6-9-2010. Accordingly, the Hon'ble President vide order dated 7-9-2010 withdrawn the reference to the Special Bench in the case of the assessee for the assessment years under consideration. Thus, the appeals have been placed before the regular Division Bench for hearing and disposal in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for interest free deposits and submitted that as per clause (2) of the said agreement the bank agreed to pay the assessee a sum of Rs.1,54,00,000 as security deposit for due fulfilment and observance of the terms and conditions and covenants of the leave and license agreement. Thus, the ld. Sr. Counsel submitted that the amount of Rs.1,54,00,000 was refundable deposits as a security by the bank to the assessee for ensuring the fulfilment of the terms and conditions of lease and license agreement for getting back the possession of the premises in question. The ld. Sr. Counsel thus submitted that when it is clear from the terms and conditions of the agreement under which the deposits received by the assessee that the deposit was made only as a security for ensuring the proper fulfilment of the terms and conditions of the leave and license agreement as well as getting back vacant possession of the premises at the end of the term of the leave and license then it cannot be treated as deposit against the occupancy of the premises and part of the income from house property. 9. The learned Sr. Counsel has referred various decisions and submitted in the written synopsis as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fetched Rs.60,000 per month. (f) also relied upon the decision of Bombay High Court dated 29-8-2009 in Bhansali International (P.) Ltd. v. ITO in [Income-tax Appeal Nos. 758, 759 and 866 of 2008] unreported. (2) Municipal rateable value should be the basis for determining the annual value under section 23(1)(a) of the Act, Standard rent can be adopted as the annual value under the said clause only if it is lower than the municipal rateable value-Park Paper Industries (P.) Ltd. v. ITO 25 SOT 406 (Mum.) and the other decisions mentioned therein including Prabhabati Bhansali's case mentioned above, which decision has been followed by the Bombay High Court in Sonavala's case. It was pointed out that normally determined at 6% of the investment in the land and 82/3% of the building investment or about 7% of the total cost. (3) Municipal rateable value has been accepted as the annual value under section 23(1)(a) of the Act even in case where the landlord had accepted interest free security deposit from the tenant: (a) ITO v. Cygnus Negri Investment (P.) Ltd. (unreported) where the assessee was receiving Rs.5 per sq. ft. while another unit in the same building was fetchin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of the property. 11. Thus, the learned senior counsel submitted that the conclusion reached by the Division Bench of this Tribunal in the assessee's case for the assessment years 1990-91 and 1991-92 does not lay down the correct law and is contrary to the law as laid down by the Bombay High Court and the Apex Court for the following reasons; (a) Firstly, there is an inherent contradiction in the Tribunal's order. In paragraphs 18 and 19 of the order Tribunal has clearly held that no addition can be made in respect of notional interest on interest free security deposits either under section 23(1)(a) or 23(1)(b) and yet ultimately a view adverse to the assessee was taken; (b) Under section 23(1)(a) once it is held that municipal rateable value is to be regarded as the annual value, then, the Tribunal erred in disregarding the same on the ground that in its opinion no credence can be given to the certificate issued by the builder as assessment of Municipal Corporation was not appended thereto and that the value was ridiculously low. If it was not clear as to what was the municipal rateable value then it is respectfully submitted that the Tribunal ought to have laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en at the time of hearing of the appeal of the assessee by the Division Bench of this Tribunal has expressed its reservation in following the decision of the Co-ordinate Bench of this Tribunal in assessee's own case for the assessment years 1990-91 to 1991-92. The Tribunal has recommended for Constitution of Special Bench of this Tribunal by noting down the decision of this Tribunal reported in assessee's case reported in Gagan Trading Co. Ltd. v. Asstt. CIT [2005] 93 ITD 426 (Mum.) and the decision of the jurisdictional High Court in the case of J.K. Investors (Bom.) Ltd. (supra). Since the reference to the Special Bench has already been withdrawn, this Tribunal now should take an independent view without following the earlier decision of this Tribunal in assessee's own case. Since the Tribunal's earlier decision is contrary to the decision of the Hon'ble Supreme Court and the High Court, therefore, this Tribunal is not bound to follow the earlier decision in assessee's own case. The ld. Sr. counsel has submitted that annual value as per section 23(1)(a) shall be standard rent or Municipal value whichever is low. If the standard rent is more than the municipal value then only muni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent received or receivable. As regards in the statement of Shri Vaidyanathan recorded by the AO, the learned Sr. Counsel submitted that the statement does not alter the treatment of the agreement between the parties and the nature of the receipt as per the agreement. The ld. Sr. Counsel then referred the Income-tax Bill, 1997 wherein there was a proposal to include the notional interest but the proposal was dropped and therefore the intention of the legislature is clear that while computing the income of the property no notional interest can be added. 13. On the other hand, the learned DR has submitted that the issue involved in the appeals of the assessee has been considered and adjudicated upon by this Tribunal in assessee's own case for the assessment years 1990-91 and 1991-92. Therefore, as per Rule of consistency this Tribunal should follow the earlier decision of this Tribunal in assessee's own case and decide the appeals as covered against the assessee. The learned DR has submitted that the leave and license is the same and no change in the facts and circumstances between both the cases i.e. case in hand and decided by this Tribunal in assessee's own case. The facts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the Larger Bench. One co-ordinate bench finding fault with another co-ordinate bench is not healthy practice. Judicial discipline and legal propriety demands that the bench which does not agree with the decision of co-ordinate bench should refer the matter to a Larger Bench. The ld. DR has referred the decision of Full Bench of the Hon'ble Andhdra Pradesh High Court in the case of CIT v. B.R Construction [1993] 202 ITR 222/[1994] 73 Taxman 437 and submitted that the Hon'ble AP High Court has discussed the issue of decision giver per incurium in detail and held that the Rule per incurium has limited application and is applicable only in the rarest of rare cases. The decision of the co-ordinate Bench of this Tribunal is a binding precedent and if the subsequent Bench doubts the correctness of the decision then it would be referred to the proper Bench of the Larger Bench. 15. On merits, the learned DR has submitted that the decision in the case of Mrs. Sheila Kaushish (supra) and the decision in the case of Dewan Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 (SC) has been considered by the Hon'ble Jurisdictional High Court in the decision rendered in the case of M.V Sonava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has then relied upon the reference of the Hon'ble Delhi High Court for Constitution of Larger Bench in the case of CIT v. Moni Kumar Subba [IT Appeal Nos. 803 of 2007, 499 and 1113 of 2008, dated 16-8-2010] and submitted that the Division Bench of the Hon'ble Delhi High Court did not agree with the decision of the Hon'ble Calcutta High Court in the case of CIT v. Satya Co. Ltd. [1994] 75 Taxman 193 and the decision of the Delhi High Court in the case of CIT v. Asian Hotels Ltd. [2008] 168 Taxman 59. The Hon'ble Delhi High Court observed that the AO might ultimately formed an opinion that there would be reasonable expectation that the property would fetch higher rent than the contractual rent even when the contractual rent is more than the annual value fixed by Delhi Municipal Corporation. Accordingly, the issue has been referred to the Hon'ble Chief Justice for constitution of Full Bench and to consider the issue. 16. She has also relied upon the orders of the lower authorities as well as the decision of this Tribunal in assessee's own case for the assessment years 1990-91 and 1991-92. 17. In rebuttal, the learned Sr. Counsel submitted that even the jurisdictional High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual value for the purpose of section 22 of the IT Act, 1961. 18. We have considered the rival contentions and relevant record. For the purpose of taxation of income from house property, section 22 prescribes the annual value of the property consisting of building or land appurtenant thereto of which the assessee is owner. Thus, income from house property is measured as annual value of the property section 23 contemplates the manner in which the annual value of the property has to be determined. As per sub-section (1) of section 23 the AO has to first determine the sum for which the property might reasonably be expected to fetch the rent from year to year and then if the property is let out compare the same with the annual/actual rent received or receivable. Thus, as per clause (a) of sub-section (1) of section 23 the reasonable rent expected to be fetched by the property by letting out from year to year has to be determined. Clause (b) of sub-section (1) of section 23 deals with the cases where the property is let out. It is pertinent to note that prior to amendment with effect from 1-4-1996 there was no such clause (b) in sub-section (1) of section 23. The provisions was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received by the landlord from the tenant. Finally the Hon'ble Supreme Court has observed as under: "We accordingly answer question No. 1 in favour of the assessee by holding that the standard rent of different portions of the warehouse determinable under the provisions of the Rent Act, as indicated above, and not the actual rent received by the assessee from the American Embassy should be taken to be the annual value of the warehouse within the meaning of sub-section (1) of section 23 of the I.T. Act, 1961. On this view taken by us, the assessee did not press question No. 2 and hence it is not necessary to answer it. We allow the appeals of the assessee to this limited extent and direct that the revenue will pay the costs of the appeals to the assessee" 20. Thus, it is clear from the decision of the Supreme Court in the case Mrs. Sheila Kaushish (supra) , that for determination of Annual value, the standard rent should be the basis and the actual rent received by the landlord is not relevant. In the case of Dewan Daulat Rai Kapoor (supra), the issue was computation of ratable value of the property which though covered under the Rent Control Act, but standard rent was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be the safest guide for this purpose and the rent actually received would not be of any relevance." 21. The Hon'ble Calcutta High Court has considered the decision of the Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra) and Mrs. Sheila Kaushish (supra) as it was held by the Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra), that the annual value of the property for the purpose of municipal taxes should be computed as per the provisions of Rent Control Act for computing the standard rent and therefore, the Municipal value should not be above the standard rent. Accordingly, the Hon'ble High Court in the case of Smt. Prabhabati Bansali (supra) has held that the annual value of the property must be computed on the basis of the sum which might reasonably be expected to let from year to year and with the annual municipal value, provided such a value is not above the standard rent receivable and that would be the safest guide for this purpose and the rent actually received would not be of any relevance. This findings of the Hon'ble. Calcutta High Court has to be understood in the context of decision of the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rent but if we consider the statutory definition of the term "standard rent" in rent control legislations and the mode and manner of calculating municipal rateable value, situations can be countenanced where the standard rent of a given premises might be more or different than the sum for which a house might reasonably be expected to be let from year to year as calculated by the local municipal authority for the purpose of arriving at the municipal rateable value. This possibility was noticed by this Court in the case of Nirlon Synthetic Fibres and Chemical v. Municipal Corporation [2002] 104 (1) Bom. L.R. 762 wherein in para 20 this Court observed as under: 'It is therefore to be held that the authorities, while determining the rateable value under section 154 of the said Act, have to bear in mind the provisions of the Rent Act and while deciding the rateable value have to take into consideration the provisions of the said Act as well as the Rent Act and considering the facts and materials placed before them have to arrive at the figure pertaining to the rateable value of the premises. While doing so, in cases where the Court under the Rent Act has already fixed the standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sum for which the property might reasonably expected to be let out from year to year under section 23(1)(a) in accordance with the provisions as laid down under the Rent Control Act or Municipal Act. If the property is governed by the Rent Control Act then certainly the provisions of Rent Control Act has to be followed for determination of the sum for the property might reasonably expected to be let out from year to year under section 23(1)(a). Thus, the AO is not bound to strictly substitute fair and reasonable rent expected to be fetched under section 23(1)(a) by municipal value or standard rent. The Hon'ble Jurisdictional High Court in the case of J.K. Investors (Bom.) Ltd. (supra) has observed as under: "4. In this matter, we are required to consider the scheme of taxation of income from house property section 22 says that the measure of income from house property is its annual value. The annual value is to be decided in accordance with section 23. Sub-section (1) of section 23, by virtue of the amendment with effect from the assessment year 1976-77, has two limbs, namely, clauses (a) and (b). Clause (a) states that the annual value is the sum for which the property might ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 1975-76. However, after the amendment of section 23(1) by the Taxation Laws (Amendment) Act, 1975. The Legislature has clearly laid down under section 23(1)(b) that when the actual annual rent received or receivable is in excess of the fair rent determinable under section 23(1)(a), then such higher actual annual rent would constitute the annual value of the property. It is important to bear in mind that under section 22, the measure of income from house property is its annual value. The annual value is to be decided in accordance with section 23(1). By virtue of the amendment, clause (a) states that the annual value is the sum for which the property might reasonably be expected to be let from year to year whereas clause (b) covers a case where the property is let and the actual rent is in excess of the sum for which the property might reasonably be expected to be let from year to year. In our view, this later insertion of clause (b) by the Taxation Laws (Amendment) Act, 1975, is meant to cover a case where the rent per annum actually received by the owner is in excess of the fair rent or the standard rent under the rent control legislation. Now, in this case, the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 23(1)(b) that when the real annual rent received or receivable is in excess of fair rent determined under section 23(1)(a) then such higher actual annual rent would constitute annual value of the property. The Hon'ble Jurisdictional High Court has further observed that this later insertion of clause (b) by Taxation Law Amendment Act, 1975 is meant to cover the cases where the rent per annum actually received by the owner is in excess of fair rent or standard rent under the Rent Control Act. The AO has to decide the fair rent of the property by taking into consideration various factors. In such cases various method like contractor method could be taken into account. Since the issue of notional interest forming part of the actual rent as contemplated under section 23(1)(b) was the issue involved in the said case, the Hon'ble High Court has left upon the issue of notional interest should form part of fair rent under section 23(1)(a). The Hon'ble Patna High Court in the case of Kashi Prasad Kataruka (supra) has held as under: "(10) Taking into consideration the test to be applied in the instant case and even applying the test laid down in the cases which had arisen before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Mrs. Shiela Kaushish (supra) on account of similarity in the provisions under the municipal enactments and section 23 of IT Act, 1961. Thus the rateable value, if correctly determined, under the municipal laws can be taken as ALV under section 23(1)(a) of the Act. To that extent we agree with the contention of the learned counsel of the assessee. However, we make it clear that rateable value is not binding on the AO. If the AO can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT 1976 CTR (Pat.) 95: [1975] 101 ITR 810. (15) The above discussion leads to the conclusions that: (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances, (ii) an inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii) actual rent received, in normal circumstances, would be a reliable evidence unless the rent is infla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstance which may inflate/deflate the fair rent under section 23(1)(a) of the Act. If such rent is less than the standard rent, then the same shall be taken as fair rent, otherwise the standard rent shall be considered as fair rent under section 23(1)(a) of the Act. Once the fair rent is so determined, then the applicability of section 23(1)(b) would have to be considered. If the actual rent received/receivable is higher than the fair rent, then the actual rent would be treated as ALV, otherwise the fair rent so determined shall be taken as ALV." 26. An identical issue had come up before this Tribunal in case of Baker Technical Services (P.) Ltd. (supra) and this Tribunal held as under: "(17) However, whereas I agree with the learned AM that in this case the fair rental value was to be determined by considering various factors, I do not agree with him about the quantum of the fair rent determined by the AO, which has been approved by the learned AM. It is pertinent to mention that the AO in this case has adopted the rent received by the assessee from non-resident company in the previous year relevant to asst. yr. 2000-01 for a period of four months. Whereas the rent re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside and restored to AO for determination of the fair rent to be adopted as the annual letting value. (19) The majority view can be formed on the basis of the above decision. So however, in case the Division Bench of the Tribunal considers it difficult to form the majority opinion as per the orders in this case, it is suggested that a reference may be made to the Hon'ble President for making a further reference to a Member or Members for resolving the difference of opinion in accordance with law." 27. Averting to the facts of the present case, it is evident from the record that the AO has not made any inquiry or done any exercise in order to determine the fair rent or sum for which the property might reasonably be expected to let from year to year. For determining the annual letting value of the property, it is incumbent upon the AO to first determine the fair/reasonable rent expected to be fetched by the property under section 23(1)(a) and then it is to be compared with the annual rent received or receivable by the owner/assessee. If the annual rent received or receivable is in excess of fair rent determined under section 23(1)(a) such higher annual rent would be the ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court held that the actual rent received by the assessee from the tenant should not be taken to be the annual value within the meaning of sub-section (1) of section 23. In the case of J.K. Investors (supra), the Hon'ble High Court has observed that while deciding the fair rent various factors should be taken into account. In such case various method like contractor method could be taken into account. As held by the Third Member decision of this Tribunal in the case of Baker Technical Services (P.) Ltd. (supra) that the annual letting value cannot be limited to standard rent but the standard rent is one of the various factors to be taken into account for determination of the fair rent. In the recent decision dated 30-3-2011, Full Bench of the Hon'ble Delhi High Court, in the case of Moni Kumar Subba (supra), after considering the decision of the Division Bench of the Hon'ble High Court in the case of Asian Hotels Ltd. (supra) observed and held in paragraphs 13 to 22 as under: "13. We approve the aforesaid view of the Division Bench of this Court and Operative words in section 23(1)(a) of the Act are "the sum for which the property might reasonably be expected to let from ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of adopting annual letting value for the purposes of section 23 of the Act. This question was answered in affirmative by the Calcutta High Court in Satya Co. Ltd. (supra) on the ground that the provisions contained in the Delhi Municipal Corporation Act for fixing annual letting value is pari materia with section 23 of the Act. The Court opined that the fair rent fixed under the Municipal laws, which takes into consideration everything, would form the basis of arriving at annual value to be determined under section 23(1)(a) and to be compared with actual rent and notional advantage in the form of notional interest on interest free security deposit could not be taken into consideration. It is clear from the following discussion therein: "6. With regard to question Nos. (5) and (6) which are only for the asst. yrs. 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-clause (a) of sub-section (1) of section 23 with reference to the fair rent then to such value no further addition can be made. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case, the CIT (A) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi vide its assessment order dated 31-12-1996 and on this basis, opined that the actual rent was more than the said rateable value and therefore, as per section 23(1)(b), the actual rent would be the income from house property and there could not have been any further additions. 18. Since the provisions of fixation of annual rent under the Delhi Municipal Corporation Act are pari materia of section 23 of the Act, we are inclined to accept the aforesaid view of the Calcutta High Court in Satya Co. Ltd. (supra) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income-tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent." 19. We may also add that in place like Delhi, this has now become redundant inasmuch as the very basis of fixing property tax has undergone a total change with amendment of the Municipal Laws by Amendment Act, 2003. Now the property tax is on unit method basis. 20. In the present case, the AO added notional interest on the interest free security for arriving at annual letting value. Since that was not permissible, the effect would be that such assessment was rightly set aside by the CIT(A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the AO to fix annual letting value was wrong and therefore, no further exercise in fact is required by us in these appeals. 21. We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the "fair rent". The question would, therefore, be as to what would be circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard rent. If the standard rent is not fixed then the procedure provided under the Rent Control Act for fixation of standard rent has to be taken into consideration. We may mention that municipal value or standard rent itself is not sole binding factors on the AO but these are only guiding factor for determining the reasonable expected rent to be fetched by the property as contemplated under section 23 (1)(a). If in the given case, the AO finds that the Municipal Value is not based on relevant material for determining fair rent in the market and there is a sufficient material on record for taking different valuation then the AO can determine the fair rent by inflating or deflecting the Municipal Value or Standard Rent as the case may be by taking into account the relevant material in this regard. As observed by the Hon. Delhi High Court if the ratable value is correctly determined under the Municipal law the same can be taken as annual letting value under section 23(1)(a) of the Act. However, the ratable value is not a binding on the AO if the AO can show that the ratable value under Municipal law does not represent the correct fair rent. If the AO finds that the actual rent rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel Shri Dastoor as well as the learned DR and considered the relevant record. The Learned Senior Counsel has submitted that this is a legal ground and no new facts are required to be examined or verifed, therefore, the same may be admitted for adjudication on merits. He has further submitted that since the property in question was allotted by the Government of Maharashtra to Maharashtra Rajya Sahakari Sakhar Karkhana Sangh Cooperative Society on lease basis and the owner of the said land is wasted with the Government. Therefore, the assessee is not the owner of the property in question and accordingly the license fee received by the assessee cannot be charged to tax under the head income from house property and is liable to be taxed as income from business and profession. 35. On the other hand, the learned DR explained the facts and submitted that the assessee has purchased the constructed area which is the property in question. She has thus submitted that as per the provisions of section 27 of the Act, the assessee is deemed to be a owner of the property in question because the assessee has retain the possession of the building and has been purchased through the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may not have a legal titled over the property but in the context of section 22 the owner is the person who is entitled to receive income from the property in his own right. There is no dispute about the right of the assessee to receive the income from the property in question, therefore, in view of the decisions of the Hon'ble Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541, there is no merit or substance in the additional ground raised by the assessee. The Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. (supra) has laid down as under: "From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987 (see [1987] 165 ITR (St.) 161), it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word "owner" in section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act, it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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