1986 (10) TMI 58 - AT - Income Tax

Summary

Issues:
1. Standard deduction under section 16(1) of the IT Act for car usage and driver's salary.
2. Annual letting value (ALV) determination for self-occupied property.

Standard Deduction Issue:
The Revenue appealed against the AAC's direction to allow full deduction under section 16(1) for a Managing Director provided with a car and driver. The ITO initially restricted the deduction to Rs. 1,000 based on the second proviso to section 16(1). The AAC disagreed, allowing full deduction. The ITAT reversed the AAC's decision, citing the clear application of the second proviso as the car was used for non-duty purposes. The ITAT upheld the ITO's decision, restoring the Rs. 1,000 deduction.

ALV Determination Issue:
Regarding the ALV determination for a self-occupied property's first floor, the Revenue contested the AAC's reduction of ALV to Rs. 3,000, ignoring the municipal ALV of Rs. 6,000. The ITO argued for an ALV of Rs. 10,800 based on actual rent received and commercial potential. The AAC supported the assessee's claim, considering the lack of commercial potential of the first floor and Rent Control Act limitations. The Revenue contended that municipal valuation should not dictate ALV, referencing legal precedents. The ITAT agreed with the Revenue, setting the ALV at Rs. 9,500 considering the property's commercial potential. The ITAT partially allowed the Revenue's appeal, modifying the AAC's order accordingly.