1985 (4) TMI 133 - AT - Income Tax

Summary

Issues:
1. Determination of annual letting value based on rent received for leased property.
2. Consideration of fair market rent and interest rates in computing annual letting value.
3. Interpretation of Section 23(1)(a) and (b) of the Income-tax Act, 1961 regarding annual value of property.
4. Application of Supreme Court ruling in Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 to the present case.

Analysis:
1. The appeals before the Appellate Tribunal ITAT MADRAS-B concerned the assessment years 1981-82 and 1982-83, involving a Hindu Undivided Family (HUF) that had built a house, with a portion retained for business purposes and the rest leased out. The lease agreement with the HUF's karta, a chartered accountant, involved a monthly rent of Rs. 1,000 and a deposit of Rs. 2 lakhs at nominal interest rates. The Assessing Officer (AO) disagreed with the rent amount, considering the fair market rent to be Rs. 2,000 per month for computing the annual letting value.

2. The HUF appealed successfully before the Appellate Commissioner (AAC), who considered the benefit received by the HUF from the deposit interest rates and directed that only the rent of Rs. 1,000 per month should be taken into account for computing the annual letting value. The revenue contended that Section 23 of the Income-tax Act required the rent at which the property could reasonably be let out to be the basis for determining annual letting value without considering extraneous factors.

3. The Tribunal analyzed the Supreme Court ruling in Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435, which interpreted Section 23(1)(a) and (b) of the Act. The Court held that the fair rent for which the property could be reasonably let out annually should be considered, even if the actual rent received was lower. The introduction of Section 23(1)(b) further supported this interpretation, allowing the actual rent received to be deemed as the annual value if in excess of the fair rent.

4. The Tribunal noted that the term 'annual rent' in Section 23(1)(b) did not apply to cases falling under Section 23(1)(a), where the property might reasonably be expected to be let out. Therefore, the Tribunal concluded that the fair market rent of Rs. 2,000 per month was the correct figure for determining the annual letting value, overturning the AAC's decision and restoring the AO's findings. Consequently, the revenue's appeals were allowed, emphasizing the importance of considering fair market rent in computing annual letting value.