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TMI Blog2002 (11) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... N J.-An interesting question of law on the scope and interpretation of rule 5 of Schedule III to the Wealth-tax Act, 1957 (hereinafter referred to as "the Wealth-tax Act"), arises in the tax case reference. The Income-tax Appellate Tribunal (hereinafter referred to as "the Appellate Tribunal"), has stated a case and referred the following three questions of law in relation to the assessments of the assessee for the assessment years 1989-90 and 1990-91 under the Wealth-tax Act: "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the fair rent determined by the Small Causes Court vide order dated January 28, 1988, should not be taken as the basis for computation of gross maintainable rent? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee's right to receive rent as fixed by the Small Causes Court crystallised only when the SLP filed by the tenant was dismissed by the apex court? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,182 was the amount of fair rent fixed by the Rent Control Appellate Authority by order dated September 20, 1989. It is found as a fact that the assessee had received a sum of Rs. 7,33,462 in September, 1991, that is, during the previous year relevant to the assessment year 1992-93 and another sum of Rs. 9,41,902 in the month of September, 1992, that is, during the previous year relevant to the assessment year 1993-94 being arrears of rent for the period from September 24, 1985, to August 31, 1992. The assessee did not accept the proposal of the Wealth-tax Officer and according to him (her) the matter regarding fixation of fair rent did not reach finality till the Supreme Court decided the matter in the year 1991 as the tenant had pursued the matter in successive stages up to the level of the Supreme Court. The matter regarding fixation of fair rent came to be concluded only when the Supreme Court dismissed the special leave petition, by order dated March 4, 1991. The case of the assessee was that till the matter reached finality by the order of the Supreme Court, the assessee did not have any right to receive the fair rent as determined by the Rent Control authorities and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dismissed by the Supreme Court and hence, the Wealth-tax Officer and the Commissioner of Income-tax (Appeals) were not correct in taking the enhanced rent in the computation of gross maintainable rent. The Appellate Tribunal, therefore, held that the computation of gross maintainable rent should be on the basis of original rent agreed between the landlord and the tenant. One other point also arose in the wealth-tax proceedings and the question was whether the assessee is entitled to exemption under section 5(1)(iv) of the Wealth-tax Act in respect of the godown in question. The Wealth-tax Officer rejected the contention of the assessee on the ground that it was not a house, which was confirmed by the Commissioner of Income-tax (Appeals). But, the Appellate Tribunal held that the godown would come within the meaning of "house" under section 5(1)(iv) of the Wealth-tax Act and hence, the assessee would be entitled for exemption under section 5(1)(iv) of the Wealth-tax Act. It is against the order of the Appellate Tribunal, the present reference has been made. Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue, submitted that the view of the Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We heard learned senior standing counsel for the Revenue and also perused the records carefully. Schedule III to the Wealth-tax Act contains the rules for determining the value of assets other than cash. Part B of Schedule III provides for the valuation of immovable property, viz., buildings and land appurtenant thereto, whether the building is let out or in the owner's occupation. The relevant rule for the purpose of this tax case is rule 5, and rule 5 deals with the computation of gross maintainable rent and the rule in so far as it is relevant for the purpose of this case reads as under: "5. For the purposes of rule 4, 'gross maintainable rent', in relation to any immovable property referred to in rule 3, means: (i) where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, whichever is higher;...... Explanation: In this rule- (1) 'annual rent' means,-- (a) where the property is let throughout the year ending on the valuation date (hereinafter referred to as ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Legislature might have thought of, but also transactions which the Legislature might not have thought of, provided the language of the statute can be reasonably and logically extended to cover such cases also. The situation here is one where the landlord has filed application for determination of fair rent and the Rent Controller has actually determined the fair rent of the building in question which was slightly modified by the Rent Control Appellate Authority. There was a further revision to the High Court and the order of the High Court was also confirmed by the Supreme Court. So far as the decisions of this court and the Supreme Court in the rent control proceedings are concerned, they came to be rendered after the end of the valuation dates relevant to the assessment years in question. We are of the view that though the decision of the Supreme Court was rendered subsequent to the valuation date, the decision of the Supreme Court would relate back to the date of filing of the petition by the assessee for determination of fair rent and the landlord/assessee herein has the right to receive the fair rent, as held by the Supreme Court, right from the date of the petition itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that the view of the Appellate Tribunal is not legally sustainable as the right of the landlord/assessee to receive fair rent for the godown flows from the statute, viz., Tamil Nadu Buildings (Lease and Rent Control) Act and it is a statutory right and the rent control authorities have only quantified the fair rent in accordance with the principles laid down in the Tamil Nadu Buildings (Lease and Rent Control) Act. We are of the view that merely because the tenant has challenged the orders of the Rent Controller and the Rent Control Appellate Authority up to the level of the Supreme Court, that does not mean that the assessee did not have any right to receive the fair rent for the building let out. We have already observed that the right to receive rent flows from the statute and it is a statutory right, and merely because the tenant has disputed the quantification of the fair rent, that would not mean that the assessee did not have any right to receive the fair rent for the building in question. We therefore, hold that the assessee had the right to receive the fair rent which is statutory one and the rent control authorities have quantified the fair rent for the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neration to the assessee. The validity of the resolution was challenged by some of the shareholders in a civil suit as well as in appeal. The Appellate Tribunal held that no income accrued to the assessee during the years from 1949 to 1952 and the income accrued only when the High Court pronounced its judgment. The Supreme Court, however, did not agree with the view of the Appellate Tribunal and held that the resolution created a right in favour of the assessee to receive extra remuneration at the agreed rate and the assessee's right to receive income accrued by virtue of agreement and not by virtue of judgment which held that the resolution is valid. We, therefore, hold that the principle laid down by the Supreme Court in Babulal Narottamdas's case [1991] 187 ITR 473 would apply as the right to receive the fair rent accrued to the assessee by virtue of the Tamil Nadu Buildings (Lease and Rent Control) Act and not by virtue of the judgment which quantified the amount of fair rent payable by the tenant. The Supreme Court, in that case, also noticed the decision of the Calcutta High Court in CIT v. Hindusthan Housing and Land Development Trust Ltd. [19771 108 ITR 380 which was the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to receive the fair rent from the date of the petition and the fair rent accrued each year on a time basis from the date of filing the petition. We hold that the Appellate Tribunal was not correct in holding that the gross maintainable rent under rule 5 of Schedule III to the Wealth-tax Act should be determined on the basis of the rent fixed under the agreement. We hold that the amount received by the assessee on the basis of the judgment of the Supreme Court would be the actual rent receivable during the previous years relevant to the assessment years in question and that should form the basis for determination of the fair market value of the building. No doubt, it is true that there may be some hardships where the order of the Rent Controller is set aside or reversed by the apex court and by that time when the apex court delivers the judgment, the time-limit for completion of assessment under the Wealth-tax Act gets expired or where the assessment has already been made on the basis of the orders of the Rent Controller, there is no time-limit available either for rectification or revision under the Wealth-tax Act. In such a situation, we are of the view that the interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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