COMMISSIONER OF INCOME TAX v. M. K. MODI — 1992 DIGILAW 517 (DEL)

B. N. Kirpal, J. ( 1 ) THE Income-tax Tribunal lias referred, undersection 256 (1) of the Income-tax Act, the following questions of law inrespect of Assessment Years 1970-71 to 1972-73 : "whether on the facts and in the circumstances of the case thei. T. A. T. was right in directing that the value of perquisites inrespect of residential accommodation be limited to the value fixedby the local authority under Section 9 of the U. P. Urban Buildingact, 1929?" ( 2 ) BRIEFLY stated, the facts are as follows :the assessee is the Managing Director of M/s Modi Industries Ltd. ,modinagar and hod been assessed as an individual for the assessment years1970-71 to 1972-73 under reference. The company provided the assesseewith rent free accommodation in Modi Bhavan No. 1. Modinagar. Therent free accommodation consisted of two bed rooms with attached bath anddressing rooms, a living room, a store, a dining room and a kitchen. Thevalue of this rent free accommodation was declared by the assessee andestimated by the Income-tax Officer and the Appellate Assistant Commis-sioner for the three years under appeal as follows :the Income-tax Officer based the estimate of the value of the rent freeaccommodation at 12. 5% of the salary received by the assessee in each of thethree years as a Managing Director of Modi Industries Ltd. ( 3 ) THE assessee preferred appeals to the Appellate Assistant Commissioner of Income-tax. The Appellate Assistant Commissioner confirmedthe estimate of the Income-tax Officer on the ground that the decision ofthe Income-tax Officer and the Appellate Tribunal, Delhi Bench c dated 30/04/1974 in the case of Shri M. L. Modi taking the value of theperquisite at 12. 5o of the salary was made in identical circumstances forthe assessment years 1970-71 and 1971-72. In regard to the assessmentyear 1972-73, the Appellate Assistant Commissioner further observed thatthe Income-tax Officer had worked out the value of the perquisites as perrule 3 (a) of the Income-tax Rules, 1962 which action was also according tohim approved by the tribunal in the said case of Shri M. L. Modi. Forthese reasons, the Appellate Assistant Commissioner held that the Income-taxofficer was perfectly justified in taking the value of the perquisite in theshape of rent free accommodation at 12. 5% of the salary received by theassessee. ( 4 ) THE assessee brought the matter in appeal to the Appellate Tribunal. Forthese reasons, the Appellate Assistant Commissioner held that the Income-taxofficer was perfectly justified in taking the value of the perquisite in theshape of rent free accommodation at 12. 5% of the salary received by theassessee. ( 4 ) THE assessee brought the matter in appeal to the Appellate Tribunal. The Tribunal found that the standard rent of similar accommodation occupied by Shri K. . K. Modi had been fixed by the prescribed authority u/sec. 9of the U. P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act,1972 (Act No. 13 of 1972) at Rs. 4uo. 00 p. m. Following the decisions of thesupreme Court in Corporation of Calcutta v. Smt. Padma Devi and Others, air 1962 SC 151 and Guntur Municipal Committee v. Gunturtownratepayers Associnlion, AIR IQ71 SC 35 and the decision of the Patna Highcourt in an income-tax case of Kaslu Prasad v. Commissioner of Income-tax,101 ITR 810, the Tribunal held that the said two decisions of the Supremecourt not only support the proposition that, where fair rent had been fixedby the Rent Controller, it is not open to treat the profits which the propertycan fetch to be anything more than on the basis of the fair rent fixed by therent Controller, but also go to support the principle which is involved in theconstruction of Section 23 of Income-tax Act, 1961 namely, what is hypothetical rent which may be presumed for the premises in question. The Tribunalfurther held that the same principle would apply in determining thevalue of the perquisites in the shape of rent free accommodation. On thebasis of the standard rent fixed by the prescribed authority at Rs. 400. 00p. m. the Tribunal reduced the value of the rent free accommodation tors. 1418. 00 for the assessment year 1970-71, as it was for a limited period. As regards the remaining two assessment years 1971-72 and 1972-73, thetribunal limited the value of the rent free accommodation to the rent fixedby the prescribed authority under Section 9 of the U. P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 (Act No. 13 of 1972)in the case of Shri K. N. Modi. ( 5 ) WHILE coming to the aforesaid conclusion the order of the Rentcontroller in the case of K. K. Modi whereby, standard rent of Rs. 400. 00per month had been fixed on an application filed under Section 9 of theu. ( 5 ) WHILE coming to the aforesaid conclusion the order of the Rentcontroller in the case of K. K. Modi whereby, standard rent of Rs. 400. 00per month had been fixed on an application filed under Section 9 of theu. P. Urban Building (Regulation of Letting, Rent, and Eviction) Act, 1972. was referred to. In the said order it was mentioned that the Inspector hadconsidered all the relevant facts which had to be taken into considerationunder Section 9 and had recommended that standard rent should be fixed atrs. 200. 00 per month. This report of the Inspector was dated 28/08/1973. The Sub-Divisional Magistrate, however, himself considered the factsof the case and came to the conclusion that the prevailing market rate ofrent at Modi Nagar was such that the reasonable rent should be Rs. 400. 00per month. A contention was raised before the Tribunal, in the preseatcase, that the order of the Sub-Divisional Magistrate, fixing the standardrent, was obtained by collusion b. ;tween members of the Modi family. Thetribunal, ho A ever, came to the conclusion that there was no material onthe record to support such an argument. It accordingly accepted Rs. 400. 00per month as a fair rent and this amount was taken to be the value of theperquisites. ( 6 ) IT had been contended by Shri Gupta that in view of the decisionof the Delhi High Court in the case of Murli Dhar Dalmia v. CIT, 129 ITR67 the income-tax Tribunal ought not to have taken into consideration thestandad rent which had been determined by the Sub-Divisional Magistrate. Inmurli dhar Dalmiu s case this Court came to the conclusion that the asscsseewas an officer of the company and, therefore, he was not a tenant but amere licencee. The rent laws were thus not applicable and, what isimportant, is that the premises had been given to him at a concessional rate. It is pertinent to note, that in this decision, the attention of the Beach wasnot drawn to the decision of the Supreme Court in the case of Dewandaulat Rai Kapur v. M. C. D. , 122 ITR 700. ( 7 ) BE that as it may, the finding of fact which was taken into coasideration by the Court in Murlidhar Dulinia s case (supra) was that the premises had been given to the assessee at a concessional rate. ( 7 ) BE that as it may, the finding of fact which was taken into coasideration by the Court in Murlidhar Dulinia s case (supra) was that the premises had been given to the assessee at a concessional rate. In the presentcase however, the report of the Inspector in the year 1973 was that the fairrate of rent should be Rs. 200. 00 per month. The Sub-Divisional Magistrateapplied his own mind and keeping in view the market rents which wereprevalent in Modi Nagar he came to the conclunion that the fair rent shouldbe Rs. 400. 00 and not Rs. 200. 00 per month. This is a finding of fact whichwas not challenged and the Tribunal having come to the conclusion that theorder of the Sub-Divisional Magistrate was not collusive and no question oflaw in relation thereto having oeun sought we have to proceed on the basisthat the fair market rent in respect of the premises in question in the case ofk. K. Modi was only Rs. 400. 00 per month. ( 8 ) TAKING into consideraion the extent of accommodation whichwas available with the assessee and applying the rate of rent which wasdetermined in the case of K. K. . Modi, the Tribunal in the present case cameto the conclusion that the value of perquisites in the assessee s case inrespect of the assessment year 1970-71 worked out to Rs. 1418. 00while inrespect of the subsequent years it came to be Rs. 4808. 00 which was declaredby the assessee. This figure of Rs. 4808. 00 consisted of Rs. 2808. 00 as rent,rs. 1500. 00inrespectof furniture and Rs. 500. 00 in respect of electricity. This conclusion of the Income-tax Tribunal is a finding of fact and the samecannot be disputed in this reherence before the Court. It is not necessary,because of the finding of fact, to go into larger question as to whether thedetermination of standard rent under the provisions of the Rent Controlact is final and binding on the Income-tax authorities. As already observedhereinabove the Sub-Divisional Magistrate gave a finding of fact that thefair market rent of the premises in question with regard to K. K. Modi wasrs. 400. 00 per month and it is the market rent which was made the basis ofthe order under the U. P. Rent Control Act. As already observedhereinabove the Sub-Divisional Magistrate gave a finding of fact that thefair market rent of the premises in question with regard to K. K. Modi wasrs. 400. 00 per month and it is the market rent which was made the basis ofthe order under the U. P. Rent Control Act. It is this determination of themarket rent which is, in effect, the basis of the order of the Income-taxtribunal in the present case. ( 9 ) BEFORE concluding we may refer to the decision of J. Dalmtav. CIT, 138 ITR 653 in which a Division Bench of this Court came to theconclusion that when the property belonging to the company is allowed tobe used by a Director then even though it may not be a case of letting out,the value of the rent free accommodation has to be determined as per thedecision of the Supreme Court in the case of Dewan Daulat Rai Kapur s case (supra) and the standard rent will determine the value. To this extent thedecision of a Division Bench of this Court in J. Dalmia s case (supra) is atvariance with the decision in Murlidhar Dalmia s case. ( 10 ) FOR the aforesaid reasons the question of law is answered in theaffirmative and in favour of the assessjee. There will be no order as to costs. Question of law answered in favour of assessee.