TMI Blog1981 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... his was confirmed by the AAC and also by the Tribunal. The Tribunal proceeded on the basis that the portion which the assessee was allowed to occupy was the entire first floor of the building. The cost of the building was about Rs. 5,00,000, and hence, the value of Rs. 12,500 taken by the Department could not be treated as excessive. Income-tax Reference No. 12 of 1973, which relates to the assessment years 1963-64 to 1966-67, seeks an answer to the following question: " Whether, in view of the Rent Control Act the quantum of perquisite should be increased from Rs. 4,200 to Rs. 12,500 in spite of the fact that M/s. Hari Brothers (P.) Ltd. had taken the premises on rent since 1952 and were paying the same rent of Rs. 4,200 p.a. thereafter, and there was also no change in the municipal valuation of the property up to 1965 ? " The question referred for the years 1967-68 and 1968-69 is the subject-matter of Income-tax References Nos. 180 and 181 of 1974. There the question referred is: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in fixing the value of the perquisite at Rs. 12,500 per annum ? " The questions referred involve a some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems to us that it must be kept in mind that the annual value relevant for the purposes of computing income from buildings under the I.T. Act, 1961, is based on the reasonable rent which can be realised from year to year. For this purpose, reference to s. 23 of the Act, as it stood at the relevant time, may conveniently be made. Sub-section (1) stated: " 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. " Thus, the annual value had to be determined not on the actual rent received, but on a notional figure based on the reasonable rent of the property. It is common ground before us that this rent or reasonable rent is Rs. 4,200 per annum in the case of Dalmia Cement (Bharat) Ltd. This value has also been taken by the municipal authorities to be the rateable value. If the reasonable rent is Rs. 4,200 per annum for the whole building, we fail to understand how the value can be greater in the hands of the directors. If the sum of Rs. 4,200 is reasonable in one case, then Rs. 12,500 is unreasonable for half the building. This follows almost automatically. This r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n s. 23 that the annual value will be determined either as the reasonable rent for which the premises could be let from year to year, or in case the property was actually let for a greater figure, then that greater figure. In the present case, there is no denying the fact that the entire building is let out to M/s. Hari Brothers (P.) Ltd., for Rs. 4,200 per annum, and that figure, as far as the facts stated before us go, has not been varied in all these years under consideration. It, therefore, follows that the amount actually being spent by the company to obtain the entire house is only Rs. 4,200 per annum. We fail to understand how the value of this house can be greater when a portion of the premises is occupied by the assessee who is a director of the company. To understand the nature of the perquisite or benefit which is made chargeable under s. 2(24)(iv), we must keep in mind the fact that a director can be paid in cash and he can be paid in kind. When he is paid in cash, then the quantum of cash paid determines the value. If he is paid in kind by giving him some facilities like rent-free accommodation, or free servants or a car at the company's expense, and so on, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the law now settled by the Supreme Court in Dewan Daulat Rai Kapoor's case [1980] 122 ITR 700, even in such a case the standard rent will determine the value. It was there Clearly laid down that the concept of reasonable rent has to be read in the light of the rent control law which specifically enacts that no property can be let out for an amount greater than the standard rent. Assuming that there was a contest, the I.T. authorities would have to find out the standard rent if the same had not already been fixed. So, the value of the rent-free accommodation will have to be determined on the basis of the standard rent of the premises. (3) Then there can be the case of rent-free accommodation provided to a share holder In the case of CIT v.. S.. P. Jain [1967] 65 ITR 416 (Pat), it was held that such income could not be taxable. This was followed by an amendment of s., 2(6C) of the Indian I.T. Act, 1922, which introduced the words " whether convertible into money or not " into the definition, thus making a, benefit not convertible into money taxable. It must be kept in view that the normal rule was that a benefit could be taxable only if it could be converted into money bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P). Ltd. Any contention that it was a concessional amount should have been raised in the assessment of either of these parties. We fail to understand how the person who has been given rent-free accommodation can be held responsible for paying (tax on?) a greater amount than was, assessed in the hands of M/s. Dalmia Cement (Bharat) Ltd. , As already mentioned the "annual. value " has to be fixed on the basis of the rent which can reasonably be received from year to year. It is not the actual rent but the reasonable rent which determines that value. It was for the Department, to find out the reasonable rent when the assessee is the owner of the house. We, must accept as a fact that the Department, held Rs. 4,200 annually to be the reasonable rent for this property ; equally the reasonable rent for half of that property cannot be more, than Rs. 4.200 in the, hands of the present assessee. In fact, this question could not be re-opened in the case of the present assessee. In this view of the matter, we would answer the questions referred to us for the several years in favour of the assessee and against the Department. We would hold in ITR No. 12/73 that the quantum of perquisite cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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