TMI Blog1997 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ee at Rs. 9,394 per annum. This amount included a sum of Rs. 2,389 in respect of furniture and Rs. 7,005 in respect of the accommodation exclusive of furniture. While making the assessment of the income of the assessee from salary and computing the value of the rent-free residential accommodation provided to him by the employer for the purpose of computing the income chargeable under the head " Salaries ", the Income-tax Officer did not accept the value of the perquisite in respect of rent-free residential accommodation determined by the assessee and his employer as the fair rental value of the accommodation. He, therefore, himself computed the fair rental value thereof by taking into account the prevailing rent in that area at Rs. 2,560 per month and included the same in the computation of the salary income of the assessee under section 17 of the Income-tax Act, 1961 (" the Act "). The assessee appealed to the Appellate Assistant Commissioner who did not approve the valuation made by the Income-tax Officer and held that the valuation of the perquisite of rent-free accommodation at Rs. 9,394, as disclosed by the assessee, was correct. The Revenue appealed to the Income-tax Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a sum equal to the amount by which the fair rental value exceeds 20 per cent. of the salary; so, however, that the Income-tax Officer may, having regard to the nature of the accommodation, determine the sum by which 10 per cent. of the salary is to be increased, as a percentage (not exceeding 100 per cent.) of the amount by which the fair rental value exceeds 20 per cent. of the salary; (2) where the assessee claims, and the Income-tax Officer is satisfied that the sum arrived at on the basis provided above exceeds the fair rental value of the accommodation, the value of the perquisite to the assessee shall be limited to such fair rental value; (B) where the accommodation is furnished, the value of rent-free residential accommodation shall be the aggregate of the following sums, namely :--- (1) the fair rental value of the accommodation arrived at in accordance with the provisions of sub-clause (iii)(A) as if the accommodation were not furnished; and (2) the fair rent for the furniture (including television sets, radio sets, refrigerators, other household appliances and air conditioning plant or equipment) calculated at 15 per cent. per annum of the original cost of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the prevailing rent of similar accommodation, which also was approved by the Tribunal. The controversy is whether the " prevailing rent " or the " standard rent " payable under the rent control legislation can be the basis for determination of the fair rental value of the accommodation. According to the assessee, the prevailing rent can never form the basis for determination of the fair rental value of accommodation. Mr. P. Kaka, learned counsel for the assessee, submits that the fair rental value of the accommodation for the purpose of rule 3(a)(iii) cannot be more than the fair rent determinable under the Rent Control Act. According to him, the rent for accommodation in Bombay is governed by the provisions of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947 (" the Rent Control Act "), and the fair rental value of the accommodation for all purposes including rule 3(a)(iii) of the Income-tax Rules has to be limited to the measure of standard rent determinable on the principles laid down in the said Act. According to him, the Tribunal has committed a manifest error of law in affirming the fair rental value of Rs. 30,000 per annum determined by the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on " rent which a similar accommodation would realise in the same locality " appearing in Explanation 2 to rule 3(a)(iii) has to be construed only to mean the " standard rent ", because no property can be expected to realise any rent higher than the standard rent as that would be in breach of the provisions of the Rent Control Act. Moreover, the expression used in rule 3(a)(iii) is " fair rental value ". The use of the word " fair " is a clear indicator that it is not the prevailing market rent but the " fair rent " which can never be more than the " standard rent ". The expression used in rule 3(a)(iii) is " fair rental value " of the accommodation. Explanation 2 enables the Assessing Officer either to accept the municipal valuation which admittedly has to be fixed on the basis of the standard rent under the Rent Control Act or to ascertain on the basis of the fair rental value himself by ascertaining the rent which similar accommodation would realise in the same locality. The " rent which similar property would realise in the same locality " cannot be more than the standard rent that can be realised by a landlord under the Rent Control Act. This expression cannot be interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oller, the landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent determinable under the Act and this would be so equally whether the building has been let out to a tenant who has lost his right to apply for fixation of the standard rent or the building is self-occupied by the owner. The assessing authority would, in either case, have to arrive at its own figure of the standard rent by applying the principles laid down in the Delhi Rent Control Act, 1958, for determination of the standard rent and determine the annual value of the building on the basis of such figure of standard rent. " The Supreme Court also referred to its earlier decision in Guntur Municipal Council v. Guntur Town Rate Payers' Association [1971] 2 SCR 423; AIR 1971 SC 353, wherein it was held that there was no distinction " between buildings the fair rent of which has actually been fixed by the Controller and those in respect of which no such rent has been fixed ". The following observations from the above decision were quoted with approval (page 355 of AIR 1971 SC) : " It is perfectly clear that the landlord cannot lawfully expect to get more rent than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable under the Rent Control Act. If no standard rent has been fixed in respect of particular premises either because it is in the occupation of the owner or his employees or for any other reason and the Assessing Officer wants to adopt a figure other than the municipal valuation, he will have to determine the standard rent himself by applying the principles laid down in the Rent Control Act and if that figure is higher than the municipal valuation, it will be within his powers to accept the same and to determine the value of the perquisite under rule 3(a)(iii) of the Rules at such higher rate. In the instant case, even according to the assessee, the fair rental value was higher than the municipal valuation. It was, therefore, open to the Income-tax Officer to accept the same. If, according to him, the determination of the fair market value by the assessee was not correct, it was open to him to determine the fair rental value by applying the principles laid down in the Rent Control Act for determination of the standard rent. In the instant case, the Income-tax Officer has not done so. He has taken the prevailing market rate in the neighbourhood as the measure without ascertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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