TMI Blog2010 (3) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... security amounting to ₹ 5,25,00,000/- was also received by the assessee. Upon enquiry that how this house rent was justified, it was submitted that the Municipal rateable value for the said premises was ₹ 35,615/- per annum and the gross value would work out to ₹ 39,572/- per annum. Thus, the rent received by the assessee was more than the above rateable value. Some queries regarding security deposit and its utilisation were also made for which the detailed replies were given. Since we are not concerned with that area, therefore, we are not discussing that issue in detail. The rent received was declared as income from house property accordingly. A further query was raised why the rent should not be estimated by referring to the annual value under section 23(1)(a) of the Act. It was also pointed out to the assessee that in some comparable cases the rent is much more. Initially the documents regarding comparable cases were not provided to the assessee and therefore, assessee sought the same. Later on these documents were provided and assessee tried to distinguish that on facts why assessee s rent was reasonable. It was further submitted that once the property was le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year exceeds the Municipal valuation of the property . 7. He emphasized that usage of the term Municipal valuation clearly shows that earlier the sum for which the property might be reasonable expected to let basically referred to Municipal value, otherwise there was no need to use the expression Municipal valuation . The Government realized in some cases the actual rent received was more than such Municipal valuation and that is why the Act was amended by inserting clause (b) through which it was made mandatory that in case where property was let out then such rent would be treated as annual value . Then he referred to the decision in the case of Parkpaper Industries Pvt. Ltd. Vs. ITO (25 SOT 406) wherein the question was what should be the annual value under section 23(1)(a). In that decision on the basis of the above Circular No.204, it was observed that annual value was equal to Municipal valuation of the property (see paras 7 8 of that decision). Then he also referred to the decision of the Hon ble Supreme Court in the case of Dr. Balbir Singh vs. Municipal Corporation of Delhi (152 ITR 388). He particularly referred to the observation made at page 402 of the above de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of municipal tax or because of different facts. While referring to pages 13 and 14 of the assessment order, he submitted that combined reading of section23(1)(a) and 23(1)(b) makes it clear that what has to be seen that annual value is required to be fixed on the basis of either the actual rent received by the assessee or the fair market rent which may be expected from hypothetical tenant. Since the Assessing Officer has already brought on record the comparable examples and, therefore, annual value or rent is to be determined as per the rent being paid in the comparable examples. In any case no evidence regarding rateable value fixed by the Municipal Authorities was produced before the Assessing Officer, therefore, the same could not be adopted. 11. We have considered the rival submissions carefully in the light of the material on record as well as the judgments cited by the parties. Section 23 reads as under: 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sec. 23(1)(b) was introduced, whereby it was provided that if the actual rent received by an assessee is in excess of the sum for which, the property might reasonably be expected to let from year-to-year, annual value will be the rent received. While explaining the aforesaid amendment, CBDT in Circular No. 204, dt. 24th July, 1976 in para 9 has stated as follows : Hitherto, the annual value of house property, chargeable to income-tax under the head Income from house property was deemed to be the sum for which the property might reasonably be expected to let from year-toyear. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub-s. (1) of s. 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property. (Emphasis, italicized in print, supplied) 8. From the aforesaid circular, it is clear that the law prior to introduction of s. 23(1)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no longer competent to the tenant to have the standard rent of the building fixed, the annual value of the building according to the definition given in sub-s. (1) of s. 23 of the IT Act, 1961, must be held to be the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant. This interpretation which we are placing on the language of sub-s. (1) of s. 23 of the IT Act, 1961, may be regarded as having received legislative approval, for, we find that s. 6 of the Taxation Laws (Amendment) Act, 1975 sub-s. (1) has been amended and it has now been made clear by the introduction of cl. (b) in that sub-section that where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum for which the property might reasonably be expected to let from year to year, the amount so received or receivable shall be deemed to the annual value of the property. The newly added cl. (b) clearly postulates that the sum for which a building might reasonably be expected to let from year-to-year may be less than the actual amount received or receivable by the landlord from the tenant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irable to refer to the Calcutta High Court s decision in the case of CIT vs. Smt. Prabhabati Bansali (1982) 29 CTR (Cal) 15 : (1983) 141 ITR 419 (Cal). One of the questions involved in that case was whether the Tribunal was justified in directing the ITO to redetermine the annual value of the property under s. 23(1) afresh with reference to its rateable value as determined by the Municipal Corporation. The question was answered in the affirmative and the Court held that the income from house property had to be computed on the basis of the sum for which the property might reasonably be let from year-to-year and the annual municipal value. Following the Calcutta High Court decision (1982) 29 CTR (Cal) 15 : (1983) 141 ITR 419 (Cal), which we think, has taken the right view, we answer the questions in the negative and against the Department with a direction that the annual value of different properties will now be determined by the Tribunal in accordance with the directions set out above. No order as to costs. 12. Learned counsel for the assessee relied on several other judicial pronouncements in support of his contention that the municipal value should be the basis of determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible under the local municipal law must be added to the ratable value. We thus answer question No. 3 as follows: That while applying provisions of Rule 1BB for valuing the self-occupied property , Municipal ratable value with addition of statutory deductions if any, may be adopted instead of standard rent, for arriving at the gross maintainable rent. Though the decision was rendered under the Wealth-tax Act but the definition of gross Municipal rent given under Rule 1BB(2)(a) reads as under: The sum for which the house might reasonable be expected to let from year to year 14. Thus, it is clear that the definition is almost identical with the definition of annual value given in section 23(1)(a) of the Income-tax Act. Therefore, in our opinion the view the AO has referred to section 23(1)(a) and was right to explore the possibility of assessing income at a higher figure but the annual value under section 23(1)(a) cannot go beyond the Municipal valuation. 15. In the case before us it was claimed before the Assessing Officer that the ratable value fixed by the Municipal Authorities was ₹ 39,573/- per annum whereas the actual rent received under section 23(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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