1997 (4) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Determination of "annual value" u/s 23(1)(a) of the Income-tax Act, 1961.
2. Whether the actual rental receipts or the municipal valuation should be considered as the annual value.

Summary:

Issue 1: Determination of "annual value" u/s 23(1)(a) of the Income-tax Act, 1961

The core issue was whether the assessing authority was correct in determining the "annual value" of the house property based on municipal valuation (Rs. 1,22,850) instead of the actual rent received (Rs. 1,18,582). The Appellate Assistant Commissioner and the Tribunal favored the assessee, treating the actual rent received as the annual value. However, the High Court, after reviewing relevant Supreme Court decisions, concluded that the "reasonable rent" under section 23(1)(a) should be the standard rent determinable under the Rent Control Act, even if not fixed by the Rent Controller. The court emphasized that the fair rent under section 4 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, should be considered, and if not fixed, the assessing authority must determine it.

Issue 2: Whether the actual rental receipts or the municipal valuation should be considered as the annual value

The High Court referred to the Supreme Court rulings in Mrs. Sheila Kaushish v. CIT and Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee, which established that the standard rent under rent control laws should be the "reasonable rent" for determining the annual value. The court noted that the actual rent received is irrelevant if it is less than the reasonable rent. The High Court disagreed with the earlier Division Bench judgment in CIT v. M. Ratanchand Chordia, which had favored the actual rent received as the annual value. The court reframed the question and answered it in the negative, remanding the matter back to the Tribunal to determine the fair rent and compute the annual value accordingly.

Conclusion:

The High Court concluded that the annual value u/s 23(1)(a) should be based on the fair rent determinable under the Rent Control Act, not the actual rent received. The matter was remanded to the Tribunal to determine the fair rent and compute the annual value and income from house property accordingly.