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TMI Blog1996 (5) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... 16381.70 P.M. on this account. Final amount of damages to be settled by FCI Committee." 2. In support of the claim the assessee had filed a certificate dated 27th December, 1988 from FCI (placed at page 8 of the paper book) certifying that net rent paid to the assessee during the financial year 1987-88 was Rs. 1,31,053 only. The Assessing Officer allowed statutory deductions to the assessee under section 24 but refused to grant deduction of Rs. 65,527 on account of damages paid to FCI on the ground that the said damages had occurred on account of negligence of the assessee of not making repairs to the godowns. The Assessing Officer was of the view that deduction of this amount was not permissible under the head 'Income from House Property'. This being a case of a specified trust, the income was distributed by the Assessing Officer amongst the three beneficiaries at Rs. 42,474 each. 3. The assessee appealed to the CIT(A). On examination of the terms and conditions of the agreement of the assessee with FCI, the CIT(A), Rajasthan, Jaipur vide order dated 4-9-1991 was of the view that as per clause 4 and 13 of the agreement, the assessee was liable to pay damages and the same was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nant as provided under the agreement. The final determination of the damages had been left to the High Power Committee. It was, therefore, wrong on the part of the assessee to plead that the actual rent received was Rs. 1,31,053 for the relevant previous year. The CIT(A) has also unjustifiably accepted the claim of the assessee, it was contended. 9. The learned D.R. further contended that the income from house property has got to be computed in accordance with provisions of section 23 of the Income-tax Act, 1961 and statutory deductions as specified under section 24 are to be allowed. Referring to section 23 of the Act, the learned D.R. contended that after the amendment in the said section the actual rent received or receivable was to be adopted as the annual value of the property and the deductions permissible under section 24 are to be allowed. The deductions as are not specified under section 24 are inadmissible, according to the learned D.R. 10. It was accordingly urged that the decision of the CIT(A) may be set aside and that of the Assessing Officer restored. 11. On the other hand, the learned counsel for the assessee contended that the godowns in question had been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Act was applicable in this case. Referring to sections 3,6 and 8 of the said Act, the learned counsel contended that rent in excess of the standard rent was not to be paid. Shri Ranka further contended that the agreed rent does not automatically become the standard rent and if any party would have gone to the Controller of the Rents, the standard rent would have been assessed at much lower figure than the actual agreement. Shri Ranka contended that had the assessee challenged the action of the FCI making the deductions it was quite likely that the matter would have been taken to the Controller of Rent for fixation of rent. The standard rent as per the working provided in the statute would work out to less than Rs. 60,000 p.a. The balance rent though agreed to be paid would not be recoverable. The learned counsel cited following decisions relevant for the determination of annual letting value: 1. Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) 2. Amolak Ram Khosla v. CIT [1981] 131 ITR 589 (SC) 3. (Dewan) Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 (SC) 4. Dr. Balbir Singh v. MCD [1985] 152 ITR 388 (SC) The learned counsel relying upon the decision of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1988. The property according to Shri Ranka, should be treated as vacant for the said period. The assessee's counsel placed reliance on the decision of the Bombay High Court in the case of Pannalal Silk Mills (P.) Ltd. v. CIT [1994] 194 ITR 270 and the decision of the Supreme Court in the case of Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 at page 39 in support of the contention. 14. The learned counsel further pleaded that if the claim of the assessee is not found allowable it may be considered under clause (x) of section 24 on account of unrealised rent. In this connection, our attention was also invited to Rule 4 of the Income-tax Rules. The learned counsel contended that legal proceedings had not been initiated against the FCI as the same would not have been fruitful. According to the learned counsel, the amount in question could be considered at par with a bad debt and the decisions on account of not initiating legal action in respect of bad debts would be squarely applicable. In this connection reliance was placed on the decision of Calcutta High Court in the case of CIT v. Dunlop India Ltd. [1994] 209 ITR 987. 15. It was accordingly urged tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax shall be chargeable to income-tax under the head 'Income from House Property'. 23. For the purposes of section 22, the annual value of any property shall be deemed to be --- (a) the sum for which the property might reasonably be expected to let from year to year, or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable." As per section 23 as it existed before its amendment by the Taxations Laws (Amendment) Act, 1975, the annual letting value of the house property was deemed to be the sum for which the property might reasonably be expected to let from year to year. In the case of Mrs. Shelila Kaushish, Amolak Ram Khosla and Dr. Balbir Singh it was held that where property let out is governed by the Rent Control Act, the standard rent as defined by or fixed under the relevant Rent Control legislation will have to be taken for determining the bona fide annual value. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting year the whole of the agreed rent was not paid and only Rs. 1,31,054 was paid and there was short payment was not at all decisive or relevant for any of the purposes before us. The issue before us is as to what is the annual value assessable to tax under the provisions of section 23. At this stage, we may clarify that before the Assessing Officer, the assessee had not disputed the assessability of the annual letting value of Rs. 1,96,581. In fact the ALV has been disclosed by the assessee at Rs. 1,96,581. A deduction had been claimed of Rs. 65,527 on account of damages claimed by the FCI. However, before us the issue relating to the determination of annual letting value of the property has been vehemently argued and we, therefore, consider ourselves duty bound to deal with it. 23. Reverting back to the subject, we may refer to section 23(1)(b) which is applicable from assessment year 1976-77 onwards. It provides for adopting the 'actual rent received or receivable' as the annual letting value of the property. The crucial words used in the aforementioned subsection (b) of section 23(1) which has been reproduced elsewhere in this order, are 'rent received or receivable'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from me/us. In case of any damage to the stocks due to my/our abstinance to carry out the repairs within the stipulated time, the losses, if any, sustained by FCI shall be borne by me/us for which I/We shall have no objection whatsoever." Clause 13 reads as under: "If I/We failed to do or comply with any of the terms and facilities provided in the offer, the FCI shall have absolute right to get the things done and the cost of expenses incurred by the FCI would be adjusted against the rent payable to me/us in the manner considered fit by the FCI in its discretion together without elements of interest thereon worked out on the basis of diminishing balances. Cost of expenses incurred by the FCI on my/our account would be accepted by me/us as final without calling them to any question." It is clear from the evidence on record that the FCI had informed the assessee about their stocks stored in the godowns having been damaged because of seepage and other defects. From the correspondence on record it is clear to us that the damages assessed by the FCI had been notified to the assessee and recovery of the damages have been made by the FCI out of the monthly rent due. Such recovery ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a charge on the actual rent received or receivable is inapplicable to the facts of this case. In that case it had been provided as per the rent agreement that the cost of stamp duty shall be borne by the landlord. Since normally the cost of stamp duty is borne by the tenant it was reasonable to deduct the amount spent on stamp duty out of the total amount stated in the agreement and the balance considered to be on account of rent of the property. Similarly, in the case of Parkash Chand Sushil Kumar, the landlord had to provide services to the tenants. In these circumstances, part of the sum stated in the agreement was considered to be towards such services and the balance as the rent payable in respect of the building. These decisions are inapplicable to the facts of the present case. 26. Each case has got to be decided on its own facts. When we refer to section 23 of the Income-tax Act, 1961, it is observed that the Assessing Officer while assessing the annual letting value has got to find out the actual rent received or receivable by the assessee in respect of the property, for the purposes of determination of the annual letting value. It would be permissible for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed terms and conditions. 29. Considering the fact that statutory deduction is allowed to the assessee on account of repairs of the building unrelated to the actual expenditure incurred, the non-allowance of deduction out of the actual rent received/ receivable of the damages recovered by the FCI, cannot be said to be against equity and reasonableness. Moreover, the law has to take its own course. If the Legislature in its wisdom has provided for assessment of actual rent received or receivable as the annual letting value of the property, the same has got to be adopted irrespective of the consequences. We, therefore, are of the considered view that CIT(A) was wrong in directing the Assessing Officer to adopt the annual letting value of the house property at Rs. 1,31,054 as against Rs. 1,96,581. 30. We now proceed to consider the alternative claim of the assessee on account of deduction out of the annual letting value. The assessee has advanced two alternate claims under section 24 of the Income-tax Act, 1961. Firstly, it was claimed that deduction under section 24(1)(ix) is permissible to the assessee on account of vacancy allowance. Let us reproduce clause (ix) of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income, as computed without making this deduction. (7) If after deduction has been allowed in one year, the assessee realises the unpaid rent in a subsequent year, the amount so realised will be brought to tax under the head 'Income from House Property' in the year of receipt, irrespective of whether the assessee continues to be the owner of that property in that year or not." It is seen from the language of clause (x) of section 24 and Rule 4 that deduction is permissible in respect of unrealised rent subject to certain conditions. In this case when the amount of rent payable by the assessee has been applied for satisfying the claim of the FCI on account of damages, it cannot be said that the assessee was unable to realise the rent. The assessee has realised the rent in respect of the property by way of application of the money for settlement of the claim. Therefore, this clause (x) of section 24 is inapplicable in this case. 32. Even otherwise, one of the conditions under Rule 4 is that the defaulting tenant has vacated or the steps had been taken to compel him to vacate the property. Another condition as per the said rule is that the assessee has taken all reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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