2002 (11) TMI 55 - HC - Wealth-tax

Scope and interpretation of rule 5 of Schedule III to the Wealth-tax Act, 1957 - 1. Whether, Tribunal was right in law in holding that the fair rent determined by the Small Causes Court vide order dated January 28, 1988, should not be taken as the basis for computation of gross maintainable rent? - 2. Whether, Tribunal was right in law in holding that the assessee s right to receive rent as fixed by the Small Causes Court crystallised only when the SLP filed by the tenant was dismissed by the apex court? - 3. Whether, Tribunal was right in law in holding that the assessee was entitled to exemption under section 5(1)(iv) of the Wealth-tax Act in respect of the godown owned by her? - Questions Nos. 1 and 2 Answered in the negative, against the assessee and in favour of the Revenue. - Question No. 3 Answered in the affirmative, against the Revenue and in favour of the assessee.

Issues Involved:
1. Determination of gross maintainable rent based on fair rent fixed by the Small Causes Court.
2. Crystallization of the assessee's right to receive rent fixed by the Small Causes Court.
3. Entitlement to exemption under section 5(1)(iv) of the Wealth-tax Act for the godown owned by the assessee.

Issue-wise Detailed Analysis:

1. Determination of Gross Maintainable Rent:
The core issue was whether the fair rent determined by the Small Causes Court should be used as the basis for computing the gross maintainable rent under rule 5 of Schedule III to the Wealth-tax Act. The Wealth-tax Officer used the fair rent of Rs. 25,182 per month, fixed by the Rent Control Appellate Authority, for both assessment years 1989-90 and 1990-91. The assessee contended that the fair rent did not reach finality until the Supreme Court dismissed the tenant's special leave petition in 1991. The Appellate Tribunal sided with the assessee, ruling that the rent determined in future court proceedings could not be considered as actual rent for the relevant valuation date. However, the High Court held that the decision of the Supreme Court would relate back to the date of the petition for fair rent determination, thus the right to receive the fair rent accrued from the date of the petition itself. Therefore, the Wealth-tax Officer was justified in using the fair rent fixed by the Rent Control Appellate Authority, as upheld by the Supreme Court, for determining the gross maintainable rent.

2. Crystallization of the Assessee's Right to Receive Rent:
The second issue revolved around when the assessee's right to receive the rent fixed by the Small Causes Court crystallized. The Tribunal had held that the right crystallized only when the Supreme Court dismissed the tenant's special leave petition, indicating a denial of liability by the tenant. The High Court disagreed, stating that the right to receive fair rent is a statutory right under the Tamil Nadu Buildings (Lease and Rent Control) Act, and not contingent upon the finality of court proceedings. The court emphasized that the right to receive rent flows from the statute and is not negated by the tenant's challenges. Therefore, the right to receive the fair rent accrued from the date of the petition, and the Tribunal's view was legally unsustainable.

3. Entitlement to Exemption under Section 5(1)(iv):
The final issue was whether the assessee was entitled to exemption under section 5(1)(iv) of the Wealth-tax Act for the godown. The Wealth-tax Officer and the Commissioner of Income-tax (Appeals) had rejected the exemption on the ground that the godown was not a house. However, the Appellate Tribunal held that the godown fell within the meaning of "house" under section 5(1)(iv). The High Court upheld this view, citing precedents from CWT v. N. Thavamani and CWT v. R. Ariff, which established that commercial buildings could qualify for the exemption. Consequently, the Tribunal's decision to grant the exemption was affirmed.

Judgment Summary:
The High Court concluded that the fair rent determined by the Rent Control Appellate Authority, as upheld by the Supreme Court, should be used for computing the gross maintainable rent. It held that the right to receive fair rent accrued from the date of the petition, not the final court decision. Additionally, the court confirmed that the assessee was entitled to exemption for the godown under section 5(1)(iv) of the Wealth-tax Act.

Answers to Questions:
1. Negative, against the assessee and in favor of the Revenue.
2. Negative, against the assessee and in favor of the Revenue.
3. Affirmative, against the Revenue and in favor of the assessee.

Order:
No order as to costs.

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