Delhi H.C : the petitioner-assessee seeks quashing of the assessment order (annexure “P4”) dt. 28th Feb., 1975, passed by the ITO, PSC VII, in respect of the asst. yr. 1972-73

High Court Of Delhi

Bal Kishan Kapoor vs. Income Tax Officer

Section 23(1)

Asst. Year 1972-73

Anil Dev Singh, J.

CWP No. 561 of 1975

24th January, 1996

Counsel Appeared

Vijay Kishan with Vikram Jaitley, for the Petitioner : Rajindra with Ms. Prem Lata Bansal, for the Respondent

ANIL DEV SINGH J.:

By this writ petition, the petitioner-assessee seeks quashing of the assessment order (annexure “P4”) dt. 28th Feb., 1975, passed by the ITO, PSC VII, in respect of the asst. yr. 1972-73 and notice of demand under s. 156 of the IT Act, 1961 (annexure “P-5”) of the same date issued pursuant thereto by the same authority asking the petitioner to pay the assessed amount of tax as per annexure “P-4”.

The petitioner claims to be the owner of the ground floor of the property No. 36, Faiz Bazar, Delhi. The construction of the building is said to have started in the year 1947-48 and was completed in or around 1949-50. It appears that on 22nd Nov., 1951, the Rent Controller at the instance of the tenants fixed the standard rent of different portions of the house property standing on plot No. 35-36, Faiz Bazar, Darya Ganj, Delhi, under s. 7 of the Delhi-Ajmer Merwara Rent Control Act, 1947. The petitioner claims that the standard rent for his portion of the property came to be Rs. 1,331 per month as reflected in the return annexure `P-1’filed by him for the asst. yr. 1972-73. It is not disputed that the actual rent of the property which the petitioner received from the tenants was Rs. 24,089 per month. However, the petitioner claimed that house property was liable to tax on its annual value based on standard rent. Therefore, the petitioner claimed that a sum of Rs. 22,758 (Rs. 24,089 (actual rent) – Rs. 1,331 (standard rent)) was not taxable. It appears that the ITO by the impugned order, annexure “P-4”, did not agree with the contention of the petitioner and calculated the annual value of the property on the basis of the actual rent received by the petitioner for the house property. The petitioner has impugned the assessment order, annexure “P-4” as well as notice of demand annexure “P-5” issued under s. 156 of the IT Act, 1961.

Learned counsel appearing for the petitioner submitted that the annual value of the house property has to be taken to be the sum for which the property might reasonably be expected to be let from year to year and the computation has not to be made on the basis of actual rent received by the petitioner.

It is a common ground that income from house property chargeable to tax is computable under s. 22 of the IT Act, 1961, which provided that the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, shall be chargeable to income-tax under the head “Income from house property” The mode of determination of annual value as given under sub-s. (1) of s. 23, as it existed at the material time, is as follows : “For the purposes of s. 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 : Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property : Provided further that in the case of a building comprising one or more residential units the erection of which is begun and completed after the 1st day of April, 1961, the annual value as determined under this sub-section shall, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of— (i) in respect of any residential unit whose annual value as so determined, does not exceed six hundred rupees, by the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, by an amount of six hundred rupees ; so, however, that the income in respect of any residential unit is in no case a loss.”

5. Learned counsel for the petitioner submitted that the aforesaid s. 23 of the IT Act is in pari materia with s. 116 of the Delhi Municipal Corporation Act, 1957. He pointed out that in Dewan Daulat Rai Kapoor vs. New Delhi Municipal Committee (1980) 122 ITR 700 ; AIR 1980 SC 541 (SC), the question which arose for determination of the apex Court in the appeals was as to how the annual value should be determined for the levy of house-tax, where the building is governed by the provisions of the Rent Act, but the standard rent had not been fixed. One of the appeals related to the case where the building was situate within the jurisdiction of the New Delhi Municipal Committee and was liable to be assessed to house-tax under the Punjab Municipal Act, 1911, while the other two related to the cases where the building was situate within the limit of the Corporation of Delhi and was assessable to house-tax under the Delhi Municipal Corporation Act, 1957. The house-tax under both the Acts was levied with reference to the annual value of the building. The term “annual value” was defined in both the statutes in almost the same terms. In none of the cases before the Supreme Court standard rent had been fixed in respect of the premises. According to the definition given in both the Acts, the annual value of the building meant the gross annual rent at which the building might reasonably be expected to be let from year to year. The apex Court held that even if the standard rent of a building has not been fixed by the Controller under s. 9 of the Rent Act, the landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent determinable under the provisions of the Rent Act and this would be so equally where the building had been let out to a tenant who had lost his right to apply for fixation of the standard rent by reason of expiration of the period of limitation prescribed by s. 12 of the Rent Control Act or the building is occupied by the owner. The Supreme Court concluded that in either class according to the definition of the annual value given in both the statutes, the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant would constitute the correct measure of the annual value of the building. This decision in Daulat Rai Kapoor’s case (supra)was followed by the Supreme Court in Mrs. Sheila Kaushish vs. CIT (1981) 24 CTR (SC) 351 : (1981) 131 ITR 435, 442 ; AIR 1981 SC 1729, 1732. The Supreme Court construing the provisions of s. 23 of the IT Act in the aforesaid appeals by special leave held as follows : “Now, this was a decision given on the interpretation of the definition of `annual value’in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911, for the purpose of levy of house-tax, but it would be equally applicable in interpreting the definition of `annual value’ in subs. (1) of s. 23 of the IT Act, 1961, because these definitions are in identical terms and it is impossible to distinguish the definition of `annual value’in sub-s. (1) of s. 23 of the IT Act, 1961, from the definition of that term in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911. We must, therefore, hold, on an identical line of reasoning, that even if the standard rent of a building has not been fixed by the Controller under s. 9 of the Rent Act in respect of a building governed by the Rent Act and the period of limitation prescribed by s. 12 of the Rent Act for making an application for fixation of the standard rent having expired, it is no longer competent to the tenant to have the standard rent of the building fixed. The annual value of the building according to the definition given in sub-s. (1) of s. 23 of the IT Act, 1961, must be held to be the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant.”

6. It may be pointed out that, like the instant case, the Supreme Court in the aforesaid appeals was concerned with a matter which arose before the Taxation Laws (Amendment) Act, 1975. However, after the amendment the position has changed. By virtue of s. 6 of the Taxation Laws (Amendment) Act, 1975, sub-s. (1) of s. 23 has been amended and it has been clarified by the introduction of cl. (b) in that section that where the property is let and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to be let from year to year, the amount so received or receivable shall be deemed to be the annual value of the property. This position has been clarified by the Supreme Court in Sheila Kaushish vs. CIT (supra) itself and in this regard, it is observed as follows : “The newly added cl. (b) clearly postulates that the sum for which a building might reasonably be expected to be let from year to year may be less than the actual amount received or receivable by the landlord from the tenant. We are, therefore, of the view that in the present case the standard rent of the warehouse determinable under the provisions of the Rent Act must be taken to be the annual value within the meaning of sub-s. (1) of s. 23 of the IT Act, 1961, and the actual rent received by the assessee from the American Embassy cannot of itself be taken as representing the correct measure of the annual value.”

Thus, the position is that after the coming into force of the Taxation Laws (Amendment) Act, 1975, the sum for which a building is let out will be regarded as the annual value of the building. Since in the present case the assessment year is 1972-73, the matter will not be governed by the Taxation Laws (Amendment) Act, 1975, and the annual value of the property for the said year must be held to be the standard rent determinable under the provisions of the Delhi Rent Control Act, 1958.

Accordingly, the writ petition succeeds and the rule is made absolute. The impugned order dt. 28th Feb., 1975 (annexure “P-4”), passed by the ITO, PSC VII, in respect of the asst. yr. 1972-73 and notice of demand under s. 156 of the IT Act, 1961 (annexure “P-5”), of the same date, are hereby quashed. The ITO will make an order of assessment in accordance with the decision of the Supreme Court in Mrs. Sheila Kaushish vs. CIT (supra).

[Citation: 219 ITR 141]

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