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TMI Blog1997 (12) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... aid through cheques at various stages. 2.3 All the three companies who were the co-owners of the property executed a perpetual lease agreement with Shri Vinay Rai, Shri Jaswant Rai and Shri Kulwant Rai. The lease deed stipulated monthly payment of rent of Rs. 600, Rs. 825 and Rs. 825 respectively. All the rights and privileges attached to the land were given to the lessees. The property was continuously and exclusively used for the residential purposes of Shri Kulwant Rai and his family members. The occupants of the property had carried out renovation and improvement consequent upon taking possession of the same. 2.4 In the assessment year 1988-89, Assessing Officer examined the veracity of the lease agreement. Taking into consideration the totality of facts Assessing Officer concluded that all the transactions by the assessee-companies with the members of the family of Shri Kulwant Rai were collusive in nature. It was found that the benefit which flowed from the ownership of the property was exclusively utilised by the persons who had substantial interest in the affairs of the companies. It was noticed that the rent was not actually paid. The amount was only credited in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the authorities below and restore the matter to the Income-tax Officer for making a fresh assessment in accordance with law, after considering the various points mentioned above and after giving an opportunity to the assessee to substantiate its case." 3.2 In consonance with the directions rendered by the Tribunal in the aforesaid order, Assessing Officer completed the assessment and passed a very cryptic order. It is reproduced here as under: - "Original assessment in this case was made on25-7-70which was later on set-aside by the Tribunal. Return of income was filed on25-6-74declaring loss of Rs. 7,276. In response to notice under section 143(2) Sh.Bansal,C.A.appeared with whom the case was discussed. The assessee-company is a co-owner in the propertyNo. 12-Aurangzeb Lane,New Delhi, with two other co-owners having 1/3rd share. The assessee-company derives property income. After discussion total income/loss is computed as under: - ---------------------------------------------------- Property Income: Rental income Rs. 9,000 Less: 1/6th for repairs. Rs. 1,500 Interest. Rs. 12,237 Rs. 13,737 --------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that even if the rent agreed was lower, it is the amount received under the deeds of lease which is to be adopted as the ALV. Learned counsel relied on CIT v. H.P. Sharma [1980] 122 ITR 675 (Delhi). 4.2 It was further contended that the expression "reasonably* occurring in section 23(1)(a) of the Act, connotes, what the owner might reasonably expect to get from hypothetical tenant if the building is let from year to year and though the word "reasonably" may not be capable of precise definition, but it signifies "in accordance with reasons". It was submitted that the annual rent payable by tenant to the landlord would in the normal circumstance afford a reliable evidence of what might reasonably a landlord may expect to get from a hypothetical tenant. Learned counsel contended that where the rent of the building is subject to rent control legislation, such approximation also gets displaced. He relied on the decisions of Dewan Daulat Rai Kapoor v. N.D.M.C. [1980] 122 ITR 700 (SC); Mrs. Sheila Kaushish v. CIT [l98l] 131 ITR 435 (SC). Reference was made to some other decisions also in the same stream. 4.3 On the basis of these decisions it was argued that annual value f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment. Therefore these cannot be regarded as evidence which can be admitted and examined. Learned counsel relied on a good number of precedents to support the various arguments raised in this appeal. 5. Shri P.K. Sahu, learned Senior Departmental Representative appeared before us. Relevant documents and papers were filed. Our attention was invited on the order of the Tribunal in the case of Allied Finance (P.) Ltd for the assessment year 1974-75. Tribunal observed: "there is no dispute that the shareholders in all the three companies are the same persons." Shri Sahu stated that the shareholding position at the time of purchase of the property for all the three companies indicated that the companies were closely held companies and the entire shareholding was in the names of Kulwant Rai and their family members. It was felt that the question whether the letting out of the property by lease agreement was a genuine exercise and not really been examined by the Assessing Officer. The order passed by the Assessing Officer pursuant to the direction of the Tribunal does not give any indication that he had applied his mind to the matter at all. Therefore, the apprehensions enterta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat point of time it could not have been foreseen that the situation regarding provision of wealth-tax will change one day. In fact it was with a view to plug such tax evasion only that the provisions were enacted in section 40 of the Finance Act, 1983. 5.3 It was argued that since true rent is not reflected in the deed it is open for the Assessing Officer to take the amount of rent in consideration which the property might fetch from year to year. Considering the locality in which the property situated and other surrounding circumstances, Assessing Officer was correct in ascertaining the value of the property at Rs. 7 lakhs per month. Learned Departmental Representative placed heavy reliance on the decision rendered in the case of McDowell. 5.4 Reliance was also placed on the decision of the Supreme Court rendered in the case of Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89. It was prayed that the case of assessee should be tested on the touchstone of the ratio decidendi of theApex Courtapropos the human probabilities. Reference was also made to the decision of the Apex Court in the case of Esthuri Aswathiah v. CIT [1967] 66 ITR 478 wherein it was held that the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated hereinbefore it was argued that the question of fixation of standard rent will not arise in this case as the property was never genuinely let out. Only a charge of letting out had been created so that the ownership of the property remained with the assessee-companies. The market value of the property was artificially reduced by alleged fixed amount of rent for which the property was claimed to be let out. It is, therefore, essential to penetrate the veil and find out the real purpose for which the companies were incorporated. ALV of the property cannot be worked out on the basis of rent shown. Because of the collusive nature of transaction it cannot be considered as real rent. ALV is to be considered after taking into consideration the entire gamut of the case. Factors like area of the house, constructed area, the value of the land in the vicinity of the property as well as the ALV fixed by the N.D.M.C. is to be considered. 5.8 Learned Departmental Representative invited our attention on the valuation as done by the N.D.M.C. ALV on which the property was proposed to be assessed for the year 1987 was Rs. 7,33,771, 1988 - Rs. 7,77,300. These values were stated to be the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther on the assessee or on the Department in a subsequent year. 6.4 The rule of res judicatah subject to some limitations. There should be finality and certainty in all litigations including litigation arising out of Income-tax Act. An earlier decision of the same question cannot be reopened if that decision is not arbitrary or perverse, and it had been arrived at after due enquiry, and no fresh facts are placed before the Income-tax authority in the later decision and the Income-tax authority in the earlier decision has taken into consideration all material evidence. This view was taken in the case of CIT v. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 (Punj.). The other limitation is that the effect of revising the earlier decision should not lead to injustice and the court may prevent an assessing authority from doing something which could be unjust and inequitable - CIT v. Belpahar Refractories Ltd. [1981] 128 ITR 610 (Ori.). 6.5 In the case of M.M. Ipoh v. CIT [1968] 67 ITR 106 (SC) it was held that the assessment and the facts found are conclusive only in the year of assessment; the findings on questions of fact may be good and cogent evidence in subsequent years, when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no evidence on record to show that the property in question as alleged by the assessee was let out to a foreigner on a monthly rent of Rs. 2,000 per month. In the absence of evidence the claim of the assessee in regard to the same cannot be examined. 8. Section 23(1)(a) of the Act provides that 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. The word used is "might" and not "can" or "is". It is thus a notional income. 8.1 Prior to the 1975 amendment, i.e., up to assessment year 1975-76 actual rent received or receivable was not decisive in the determination of the annual value of the property, although it was an important piece of evidence therefor. After the 1975 amendment, if actual annual rent received or receivable is in excess of the notional annual value, the actual annual rent shall be deemed, under section 23(1)(b), to be the annual value, for and from assessment year 1976-77. 8.2 Ordinarily a bargain between a willing lessor and willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use even a simple significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo by matching the colour of one case against the colour of another. Heraclitus said: "You never go down the same river twice". What the great philosopher said about time and flux can relate to law as well. Hon'ble Supreme Court in the case of Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455, has held that a ruling of a superior Court is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial-lamp plays the legal-flame. 10. Verily, for the determination of ALV, no particular system is prescribed under the Act. ALV under section 23(1)(a) of the Act is the deemed amount for which the property might reasonably be expected to let from year to year. It is the notional figure. If the actual rent received is in excess of this notional figure, only then it can be taken as ALV under section 23(1)(b) of the Act. 10.1 Annual rent received is one of the guiding factor for determining the ALV. The agreed amount of rent which is legally recoverable and not tainted by relationship or any other cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m also suffers from infirmity. 10.6 We have perused the various precedents cited before us. We have considered the facts that emerged from the records and stated at the time of hearing. In our opinion, in the present case, Municipal valuation only could give a true indication as to the correct ALV of the property in question. Accordingly, we set aside the impugned order on this count and direct the Assessing Officer to determine the ALV of the property with reference to its rateable value as determined by the Municipal Corporation. The value determined by the N.D.M.C. was stated to be under dispute. We direct the Assessing Officer to substitute the figure as determined by the Court on production of the copy of judgment to this effect. 10.7 Next issue in assessee's appeals relates to the allowability of expenditure. Nothing was placed before us to show that the expenditure incurred by the assessee-companies was incidental to the carrying of business. We have perused the impugned order. We find no infirmity in the same. Accordingly, we uphold the order of Commissioner of Income-tax (Appeals) on this count. 10.8 Assessee-companies in the grounds of appeal raised grounds relating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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