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TMI Blog1964 (6) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... n Law, whose share in the rent is 0-4-6 annas. The ground floor is in the tenancy of Messrs. Kothari&Sons and the remaining four floors have been let out to Messrs. Birla Brothers Ltd. The rent of the ground floor is ₹ 36,000 per annum and the remaining floors payable by Messrs. Birla Bros. Ltd. is ₹ 81,000. The tenancy of Messrs. Birla Bros. Ltd. was created by a deed of lease, dated November 16, 1950, which is made annexure "A" hereto forming part of the case. Under the terms of the lease, the tenants undertook to bear the cost of such "petty repairs" as are necessary to keep the demised premises in good tenantable condition; they were also required to maintain, at their cost, the drainage pipes, water-taps fittings, latrines, water closets, all sanitary arrangements, electrical installations, etc., in good repairs at all times. The landlords including the assessee, Parbutty Churn Law, covenanted under the lease to execute at their own cost and expenses "such structural repairs which may necessitate replacements" and to keep the premises wind and water-tight and to maintain the exterior of the building and all common passages, halls, entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an allowance equal to the difference between the bona fide annual value and the rent paid by the tenant up to but not exceeding one-sixth of the bona fide annual value. The Appellate Assistant Commissioner found that the present case fell within section 9(1)(ii) and revising the calculations of the Income-tax Officer, he computed the annual value of the ground floor and of the 1st to the 4th floors separately and then arrived at the total annual value of the property. The order of the Appellate Assistant Commissioner is annexure "C" hereto forming part of the case. 7. On further appeal the Tribunal concurred with the income-tax authorities that the case fell within clause (ii) of section 9(1), so far as the 1st to the 4th floors are concerned as though the tenant only had undertaken to bear the cost of the repairs. With regard to the ground floor there was no dispute, as already stated, that the landlord, under the terms of the corresponding lease, had agreed to bear the entire cost of repairs and that the allowance for repairs should be granted under clause (i) of section 9(1). The Tribunal pointed out that the amounts of the allowance under clause (ii) of section 9(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual value of the entire building at No. 8, India Exchange Place, for the assessment year 1956-57. The bona fide annual value of the property arrived at by the Tribunal was ₹ 89,453 as against ₹ 1,06,371 computed by the Appellate Assistant Commissioner. The Tribunal directed the Income-tax Officer to proceed on similar lines to compute the bona fide annual value of the building for the other assessment years. The order of the Tribunal is annexure "D" hereto forming part of the case. 9. On the facts, the following question of law arises out of the appellate order of the Tribunal. "Whether, on the facts of the case, the method of computation of the bona fide annual value adopted by the Tribunal in respect of the property at No. 8, India Exchange Place, for the assessment years 1951-52 to 1953-54 and 1956-57 is made in accordance with the provisions of section 9 of the Indian Income-tax Act?" 10. On the 11th April, 1960, the assessee filed an application for referring the question with regard to the legality of the reassessment made by the Income- tax Officer under section 34 for the assessment year 1952-53. The application was filed beyond the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed to bear the cost of all necessary repairs. The Income-tax Officer, in determining the fair annual letting value of the premises, held that the rent of the first, second, third and fourth floors of the said premises amounting to ₹ 81,000 had been fixed at a rate lower than what the property would have otherwise fetched. According to him the said rent of ₹ 81,000 was fixed at a rate lower than the rent of ₹ 36,000 in the occupation of M/s. Kothari & Sons, because, unlike M/s. Kothari & Sons, M/s. Birla Brothers Ltd. had undertaken to do the repairs which ordinarily should have been done by the landlords. Accordingly, the Income-tax Officer estimated the cost of repairs at 1/5th of the actual rental paid by M/s. Birla Brothers Ltd. and added it to the actual rental for the purpose of arriving at the annual value. The Income-tax Officer then deducted from the amount thus arrived at, the municipal taxes and the expenses for maintenance of the lift to arrive at what he called the bona fide annual letting value. The Appellate Assistant Commissioner confirmed the addition made by the Income-tax Officer of 1/5th of the actual rent to get the annual letting value. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner is correct and that of the Tribunal is incorrect: (a) Under section 9(2) of the Income-tax Act the annual value of the property is to be taken as a sum which the property might reasonably be expected to fetch. The annual value is no doubt a hypothetical sum. But what is to be taken into consideration is the whole of the consideration which the landlord receives from the tenant for his right to use and occupy the property. For this purpose the rent paid for the tenancies of comparable units in the same locality or in similar situation affords valuable guidance. He has cited, In the matter of Krishna Lal Seal A.I.R. 1932 Cal. 886 and Lalla Mal Samgham Lal v. Commissioner of Income-tax [1936] 4 I.T.R. 250., for the proposition that the actual terms obtained by the landlord in a particular case are some evidences of "the sum for which the property might reasonably be expected to let from year to year". He has submitted that in the instant case, obligations of the tenant to do repairs under the deed of lease are much greater than the tenant's liabilities under section 108(m) of the Transfer of Property Act and this fact should be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs" and "replacements" and has stated that maintenance of fittings, etc., do not mean "repairs". He has also argued that the point of law raised in this reference is wide enough for us to hold that section 9(1)(i) would apply and not section 9(1)(ii). Mr. Sampath Iyengar, on behalf of the assessee in this reference, namely, Parbutty Churn Law, has supported the order of the Tribunal on the following grounds: (a) The element or the ingredient of the cost of repairs has been taken note of by the legislature only as a deduction from the bona fide annual value to arrive at the chargeable annual value and, therefore, it cannot be used to step up the agreed rent. If the cost of repairs is added to the annual stipulated rent the result will be to reduce the provisions of section 9(1)(i) and section 9(1)(ii) to a nullity. He has analysed the various provisions of section 9 and has submitted that section 9(1) grants seven types of deductions to the assessee because he is the owner of a hereditament and that extraneous considerations should not be allowed to play for denying the owner of the relief granted by the statute. (b) The rent fixed in the ordinary cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 108 of the Transfer of Property Act which sets out the rights and the liabilities of the lessor and lessee in respect of the repairs of the tenanted portion, as follows: "108. In the absence of a contract or local usage to the contrary, the lessor and the lessee of immovable property as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following, or such of them as are applicable to the property leased:--..... B. Rights and liabilities of the lessee.--..... (f) If the lessor neglects to make, within a reasonable time after notice, any repairs which he is bound to make to the property, the lessee may make the same himself, and deduct the expenses of such repairs with interest from the rent, or otherwise recover it from the lessor...... (m) The lessee is bound to keep, and on the termination of the lease, to restore the property in as good a condition as it was in at the time when he was put in possession, subject only to the changes caused by reasonable wear and tear or irresistible forces, and to allow the lessor and his agents at all reasonable times during the term, to enter upon the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brothers Ltd. is not genuine is based on surmises. Thus the fundamental hypothesis or premise in the method of computation of the bona fide annual value and the taxable income, namely, that the rent of M/s. Birla Brothers Ltd. is low, is not correct and, accordingly, section 9(1)(ii) has no application to the present case. Whether section 9(1)(i) or section 9(1)(ii) is made applicable in a particular case, the more fundamental question of law which requires consideration is to examine the legality of arriving at the bona fide annual value by addition of the cost of repairs to the actual rent if such rent is low or has been reduced for some reason or the other. Section 9(1) reads as follows: "Property.--(1) The tax shall be payable by an assessee under the head 'income from property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax, subject to the following allowances, namely:-- (i) Where the property is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Incometax [1936] 4 I.T.R. 250, we reject the contention of the assessee that such addition is not warranted by law under section 9(1) or section 9(2) of the Act. But this basis of computation cannot be made applicable to the facts of the instant case. As stated earlier, the determination of the annual value by addition of a particular sum is permissible in law only when the actual rent has been found to be not the genuine rent. In the case of the tenancy of Messrs. Birla Brothers Ltd., we have no reason to hold that the annual rent, namely, ₹ 81,000, is not genuine or is low. As the rent of Messrs. Birla Brothers Ltd. has been held by us earlier as not being low or reduced, the question of stepping up the said rent by addition of the tenant's cost of repairs to determine the annual value does not arise. Further, the tenant's purported cost of repairs, being 1/6th of the annual value, is a hypothetical sum and based on no material on record. The learned counsel for the Commissioner of Income-tax has submitted in reply that the High Court in exercise of its limited advisory jurisdiction under section 66(1) of the Income-tax Act can only answer the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Steam Navigation Co. Ltd.*: ".....sometimes the questions are framed in such general terms that, construed literally, they might take in questions which were never in issue. In such cases, the true scope of the reference will have to be ascertained and limited by what appears on the statement of the case...Where, however, the question is sufficiently specific, we are unable to see any ground for holding that only those contentions can be argued in support of it which had been raised before the Tribunal. In our opinion, it is competent to the court in such a case to allow a new contention to be advanced, provided it is within the framework of the question as referred." At page 31 of the paper-book the Appellate Tribunal has stated: "The main question in the appeal relates to the computation of the bona fide annual value of the building. The question canvassed before us is whether the deduction for repairs is allowable in clause (i) or clause (ii) of section 9(1). As regards the ground floor of the building in the occupation of M/s. Kothari and Sons, the assessee as the landlord has under the terms of the lease agreed to bear the entire cost of repairs and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of repairs to the stipulated rent. The question of addition to the cost of repairs is not only implicit but also directly connected with the question raised in the reference. In fact, we have been asked to consider the bona fide annual value as computed by the Tribunal on the facts of this case. As referred to earlier, the Tribunal has, at page 33 of the paper-book, stated, "it is necessary, therefore, to ascertain what is the annual value of the property and what is the rent paid by the tenant". The question of addition to stipulated rent payable by M/s. Birla Brothers Ltd. by 1/5th of the annual value as cost of repairs in arriving at the bona fide annual value and the taxable income has been raised before the Tribunal and, therefore, this question arises out of the order of the Tribunal. It has been strenuously argued by both Mr. Mitra and Mr. Iyengar on behalf of the assessee that the addition to the rent payable by M/s. Birla Brothers Ltd., i.e., ₹ 81,000, by 1/5th of that value as cost of repairs is wholly illegal and arbitrary. The correctness of the annual rent of M/s. Birla Brothers Ltd. i.e., ₹ 81,000, is a disputed figure from the very beginning a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said sum of ₹ 81,000 as cost of repairs was not only raised before the Tribunal and dealt with by it, but was clearly an issue before the Tribunal. We may, therefore, summarise the conclusions arrived at by us on the points raised as follows: Firstly, section 9(1)(i) of the Income-tax Act applies where the landlord has undertaken to bear the cost of substantial repairs. Secondly, section 9(1)(ii) of the Act applies where the tenant has undertaken to bear the cost of substantial repairs. Thirdly, in the instant case, for the reasons stated above, section 9(1)(i) will apply. Lastly, there is no legal bar to the jurisdiction of this court taking into consideration the applicability of section 9(1)(i) in this reference as the main contention of the assessee before the Tribunal was that no amount should be added to the rent payable by M/s. Birla Brothers Ltd. to arrive at the bona fide annual value. Thus we answer the question in the negative and say that on the facts of the case the bona fide annual value and the taxable income as computed by the Tribunal in respect of the property at No. 8, India Exchange Place, for the assessment years 1951-52, 1953-54 and 1956-57 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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