Commissioner of Income Tax v. Parasmal Chordia — 1997 DIGILAW 500 (MAD)

Judgment :- ABDUL HADI J. The question of law referred to this court by the Tribunal under section 256(2) of the Income-tax Act, 1961, (hereinafter referred to as "the Act"), in relation to the assessment year 1977-78, in this tax case reference, preferred by the Revenue against the respondent-assessee, who is an individual, is as follows: "Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 23 of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that only the actual rental receipts should be treated as annual letting value though the municipal authorities have fixed the annual value at a higher figure than the actual rent received?" The only dispute before the Tribunal was whether the assessing authority was right in determining the "annual value" spoken to in section 23(1)(a) of the Income-tax Act, 1961, of the house property at No. 38-C, Mount Road, Madras, at Rs. 1, 22, 850 on the basis of the municipal valuation, as against Rs. 1, 18, 582, returned by the assessee as the actual rent received by him. The Appellate Assistant Commissioner allowed the appeal by the assessee holding the abovesaid Rs. 1, 18, 582 as the said annual value under section 23 of the Act. The appeal by the Revenue to the Tribunal was dismissed and hence this tax case reference In this tax case reference, the respondent-assessee remains ex parte. However, learned counsel for the Revenue fairly brought to our notice the unreported judgment dated August 22, 1996 of this court in CIT v. M. Ratanchand Chordia (T. C. No. 1120 of 1984), which is in favour of the respondent. The material facts therein are also similar to the present one and it also related to the assessment year 1977-78. The municipal valuation for the house property in question therein was Rs. 68, 578, though the actual rental received by the assessee therein was Rs. 51, 150. There too, the Tribunal adopted the actual rent received by the assessee as the abovesaid annual value under section 23 of the Act. The municipal valuation for the house property in question therein was Rs. 68, 578, though the actual rental received by the assessee therein was Rs. 51, 150. There too, the Tribunal adopted the actual rent received by the assessee as the abovesaid annual value under section 23 of the Act. The Division Bench, in which one of us (viz., N. V. Balasubramanian J.) was also a party, which heard the said tax case, held that there was no infirmity in the order passed by the Tribunal and accordingly answered the similar question referred to itAfter going through the said decision and after going through the relevant provision, viz., section 23(1) of the Act, as amended by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, and after going through the relevant decisions of the Supreme Court, we are, with due respect, of the view that the conclusion reached in the abovesaid Division Bench judgment is not in accordance with the relevant observations in the decisions of the Supreme Court, about which reference is made below. (In other words, N. V. Balasubramanian J. also now feels to correct his earlier view in the light of the abovesaid observations of the Supreme Court.) At any rate, in view of the fact that the respondent remains unrepresented, we requested learned counsel, Mrs. Chitra Venkataraman, to assist the court as amicus curiae on behalf of the respondent. She readily agreed and rendered valuable assistance by advancing elaborate arguments Thus, we heard both learned counsel for the Revenue and Mrs. Chitra Venkataraman. Learned counsel for the Revenue, despite his abovesaid fair reference to the abovesaid Division Bench judgment dated August 22, 1996, CIT v. Ratanchand Chordia reiterated that in the present case, the abovesaid question should be answered in the negative and in favour of the Revenue, holding that only the abovesaid municipal value of Rs. 1, 22, 850 has to be taken as the annual value under the abovesaid section 23(1) and not the abovesaid sum of Rs. 1, 18, 582, the actual rent received by the assessee. 1, 22, 850 has to be taken as the annual value under the abovesaid section 23(1) and not the abovesaid sum of Rs. 1, 18, 582, the actual rent received by the assessee. According to him, pursuant to clause (b) of the abovesaid section 23(1), which came into force from April 1, 1976 (and thus applicable to the abovesaid assessment year 1977-78), only where the annual rent received by the owner is in excess of the reasonable rent spoken to in clause (a) of the abovesaid sub-section, the amount so received shall be the annual value and in all other cases, the reasonable rent spoken to in clause (a) alone would applyOn the other hand, Mrs. Chira Venkataraman submits that even though on the interpretation of section 23(1)(a) and (b), in the present situation the abovesaid clause (a) alone will apply, the actual rent received by the assessee should be taken into consideration, in computing the reasonable rent spoken to in the abovesaid clause (a), that the Tribunal or the lower authorities have not bestowed their consideration in the above angle and that this court, while exercising its present advisory jurisdiction, should remand the matter back to the Tribunal for such consideration by it Both counsel relied on several decisions, which would be adverted to in the course of our discussion below We have considered, the rival submissions in the light of the abovesaid clauses (a) and (b) of section 23(1) and the relevant decisions. Section 23(1) of the Act, after the abovesaid amendment with effect from April 1, 1976, runs as follows : (The provisos and Explanations thereto are not extracted since they are not relevant for the purpose of this case.) "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 of thereof is in excess of the sum referred to in clause (a), the amount so received or receivable :" * (emphasis supplied) First of all, it must be stated that prior to the abovesaid amendment in section 23(1), the present clause (b) was not there and what is contained in the present clause (a) was alone there as section 23(1) itself. Now on the language used in the present section 23(1)(a) and (b) and in view of the expression "or" used between clause (a) and clause (b), it is clear that any case falling not under clause (b) has necessarily to fall only under clause (a). If the case falls under clause (b), the amount of annual rent received or receivable is the annual value spoken to in section 23(1). But, in order to conclude that a case falls under clause (b), it has to be seen whether the case conjointly fulfils both the requisities spoken to in clause (b), that is (1) the property is let out, and (2) the annual rent received or receivable by the owner in respect of the said property is in excess of the sum referred to in clause (a). No doubt, in the present case, the first requisite is satisfied, that is the property in question is one that is let out. Then, in so far as the second requisite is concerned, the annual rent received is known, viz., the abovesaid Rs. 1, 18, 582. But, in order to find out whether it is in excess of "the sum referred to in clause (a)", "the sum for which the property might reasonably be expected to let from year to year"(shortly, hereafter referred to as" reasonable rent"), first of all, the meaning of the said" reasonable rent" * has to be seenIn Mrs. Sheila Kaushish v. CIT the Supreme Court (P. N. Bhagwati and Baharul Islam JJ.), dealt with a case prior to the abovesaid amendment to section 23(1) and in giving out the meaning of the abovesaid reasonable rent, followed the earlier Supreme Court decision in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee , (P. N. Bhagwati, V. D. Tulzapurkar and R. S. Pathak JJ.), which, though did not deal with an income-tax case, dealt with the meaning of an identical terminology used in relation to the abovesaid reasonable rent, in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911. In both these Supreme Court decisions, it was held that the standard rent (or fair rent) determinable under the provisions of the rent control law, would be the abovesaid "reasonable rent", even though the said standard rent has not been determined. The relevant observations of the Supreme Court in Mrs. In both these Supreme Court decisions, it was held that the standard rent (or fair rent) determinable under the provisions of the rent control law, would be the abovesaid "reasonable rent", even though the said standard rent has not been determined. The relevant observations of the Supreme Court in Mrs. Sheila Kaushish v. CIT are as follows: "Now this Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee was a decision given on the interpretation of the definition of 'annual value' in the Delhi Municipal Corporation Act, 1957 * (emphasis supplied) In the light of the abovesaid two decisions of the Supreme Court, Addl. CIT v. Mrs. Leela Govindan of this court relied on by Mrs. Chitra Venkataraman, must be deemed to have been impliedly, overruled by the said Supreme Court decisions, since it viewed contra in relation to the abovesaid section 23(1) prior to the abovesaid amendment holding that where the lessee of a house property sub-lets it for a higher rent, than what he pays to the landlord, the annual value under section 23(1), for assessment of the landlord-assessee, should be based on actual rent received by him and not on municipal valuation In this connection, the above referred to Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee may also be seen in some further detail. The said decision, inter alia, considered the earlier Supreme Court decisions including Guntur Municipal Council v. Guntur Town Ratepayers' Association and Municipal Corporation v. Smt. Ratnaprabha which were also referred to by Mrs. Chitra Venkataraman. These two decisions also did not actually deal with cases under the Income-tax Act. The former, Guntur Municipal Council v. Guntur Town Ratepayers' Association was a case under section 82(2) of the Madras District Municipalities Act, 1920, where also practically the same expression as used in section 23(1)(a) of the Act has been used. The latter case, Municipal Corporation v. Smt. Ratnaprabha related to a building under the Madhya Pradesh Municipal Corporation Act, 1956. The relevant provision therein stated that the annual value of any building shall "notwithstanding anything contained in any other law for the time being in force" * be deemed to be the gross annual rent at which such building, might reasonably be expected to be let from year to year. The relevant provision therein stated that the annual value of any building shall "notwithstanding anything contained in any other law for the time being in force" * be deemed to be the gross annual rent at which such building, might reasonably be expected to be let from year to year. But since the said building in that case was a self-occupied one, there was no occasion to have its abovesaid standard rent fixed by the Rent Controller under the relevant rent control law (Madhya Pradesh Accommodation Control Act, 1961). In Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee the Supreme Court pointed out that in Guntur Municipal Council v. Guntur Town Ratepayers' Association it was held that : there was no distinction "between buildings the fair rent of which has been actually fixed by the Controller and those in respect of which no such rent has been fixed." (emphasis supplied). Further, the Supreme Court quoted the following passage in Guntur Municipal Council v. Guntur Town Ratepayers' Association presumably with implied approval "It is perfectly clear that the landlord cannot lawfully expect to get more rent than the fair rent which is payable in accordance with the principles laid down in the Act. The assessment of valuation must take into account the measure of fair rent as determinable under the Act. It may be that where the Controller has not fixed the fair rent the municipal authorities will have to arrive at their own figure of fair rent but that can be done without any difficulty by keeping in view the principles laid down in section 4 of the Act for determination of fair rent." Then in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee reference to Municipal Corporation v. Smt. Ratnaprabha was made thus: "... we must refer to a recent decision of this court in Municipal Corporation v. Smt. Ratnaprabha which apparently seems to strike a different note.... we must refer to a recent decision of this court in Municipal Corporation v. Smt. Ratnaprabha which apparently seems to strike a different note.... Now, it would appear that the decision in Guntur Municipal Council's case was clearly applicable on the facts of this case and in Municipal Corporation v. Smt. Ratnaprabha and following that decision the court ought to have held that the annual value of the building could not exceed the standard rent determinable under section 7 of the Act and the assessing authority should have arrived at its own estimate of the standard rent by applying the principles laid down in that section and determine the annual value on the basis of such standard rent. But the court in Municipal Corporation v. Smt. Ratnaprabha negatived the applicability of the decision in Guntur Municipal Council's case and the earlier two cases by relying on the words 'notwithstanding anything contained in any other law for the time being in force' in section 138(b)." (emphasis supplied)Then, the Supreme Court in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee observed thus: "The court in Municipal Corporation v. Smt. Ratnaprabha leaned heavily on the non obstante clause in section 138(b) and distinguished the decision in Guntur Municipal Council's case and the earlier two cases on the ground that in none of the three Municipal Acts which came up for consideration before the court in those cases, there was any such non obstante clause. We are not at all sure whether this decision represents the correct interpretation of section 138(b) because it is rather difficult to see how the non obstante clause in that section can possibly affect the interpretation of the words 'the annual value of any building shall... be deemed to be the gross annual rent at which such building... might reasonably... be expected to be let from year to year'. The meaning of these words cannot be different in section 138(b) from what it is in section 127(a) of the Calcutta Municipal Corporation Act, 1923, and section 82(2) of the Madras District Municipalities Act, 1920, and the only effect of the non-obstante clause would be that even if there is anything contrary in any other law for the time being in force, that should not detract from full effect being given to these words according to their proper meaning. But it is not necessary for the purpose of the present appeals to probe further into the question of correctness of this decision, since there is no non obstante clause either in section 3(1)(b) of the Punjab Municipal Act, 1911, or in section 116 of the Delhi Municipal Corporation Act, 1957, and this decision has therefore, no application." * (emphasis supplied) In the present case, the relevant provision under the municipal law is section 100(2) of the Madras City Municipal Corporation Act, 1919. There too, just as in the above referred to section 82(2) of the Madras District Municipalities Act, 1920, a more or less similar expression as found in section 23(1)(a) of the Act is found. (The relevant expression is, "reasonably be expected to let from month to month or from year to year".) At any rate, here, there is no non obstante clause as in the relevant provision under the above referred to Madhya Pradesh Municipal Corporation Act, 1956, dealt with in Municipal Corporation v. Smt. Ratnaprabha. So it is clear that here also the decisions in Guntur Municipal Council v. Guntur Town Ratepayers' Association, 1970 AIR(SC) 353, Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee and Mrs. Sheila Kaushish v. CIT would alone apply and what is stated in Municipal Corporation v. Smt. Ratnaprabha need not be taken note ofWe may also reiterate that the provisions of section 23(1)(a) apply to both owner-occupied property and property which is let out and that the measure of valuation to determine the said annual value must be the same for both the cases, viz., the standard or fair rent as mentioned above. Therefore, while in self occupied property---where the rent received and receivable is nil---the standard or fair rent shall be the annual value, under section 23(1)(a), it (the said annual value) cannot be the actual rent received or receivable in the case of a property let out and where the actual rent received or receivable is less than the said standard or fair rent; but it can be, in the said case also, only the standard or fair rent. That apart, clause (b) of section 23(1) provides that if the actual rent received is more than the abovesaid clause (a)---reasonable rent (that is, the abovesaid standard or fair rent) the annual value should be determined on the basis of the actual rent received. That apart, clause (b) of section 23(1) provides that if the actual rent received is more than the abovesaid clause (a)---reasonable rent (that is, the abovesaid standard or fair rent) the annual value should be determined on the basis of the actual rent received. From this also it can be inferred that the intention of the Legislature is to tax in all cases, the higher of the two amounts, viz., the actual rent received or receivable or, the abovesaid reasonable rent spoken to in section 23(1)(a). Though the Supreme Court in Mrs. Sheila Kaushish's case dealt with the situation where the actual rent received was more than the reasonable rent, in the interpretation placed by the Supreme Court on the expression, "the sum for which the property might reasonably be expected to let" would apply even in a case where the actual rent received or receivable is less than the said reasonable rent The net result is, irrespective of the actual rent received or receivable by the landlord, the fair rent under section 4 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, alone would be the reasonable rent, spoken to in section 23(1)(a) of the Act, with reference to the building in question, whether such a fair rent has been fixed by the Rent Controller or not, in respect of the said building. If not so fixed, it has to be fixed in the light of the said section 4. In the present case, it has not been fixed by the Rent Controller. So, the assessing authority has to fix it pursuant to the abovesaid section 4. If not so fixed, it has to be fixed in the light of the said section 4. In the present case, it has not been fixed by the Rent Controller. So, the assessing authority has to fix it pursuant to the abovesaid section 4. For this purpose, the matter has only to be sent back to the Tribunal for it to call for the necessary finding from the assessing authority and see whether such fair rent arrived at pursuant to the abovesaid section 4, is in excess or less than the amount of rent actually received or receivable by the assessee from the tenant and accordingly compute the abovesaid "annual value" under section 23(1) of the Act (and consequently the income from the house property), in the light of the abovesaid observationsIn the light of the above referred to observations in the Supreme Court decisions, we are unable to follow the conclusion reached in the above referred to judgment dated August 22, 1996, in T. C. No. 1120 of 1984 (CIT v. M. Ratanchand Chordia holding that there is no infirmity in the order of the Tribunal therein that the actual rent received by the assessee therein should be adopted as the "annual value" spoken to in section 23(1) of the Act. We may also respectfully point out that even the passage extracted from Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee in the above referred to unreported judgment dated August 22, 1996 in CIT v. M. Ratanchand Chordia runs as follows: "There would ordinarily be in a free market close approximation between the actual rent received by the landlord and the rent which he might reasonably expect to receive from a hypothetical tenant. But, where the rent of the building is subject to rent control legislation, this approximation may and often does get displaced. It is, therefore, necessary to consider the effect of rent control legislation on the determination of annual value." (emphasis supplied) Further, the said unreported decision makes the following observation: "There is also no evidence on record to show that the rent received by the assessee is low because of any extraneous considerations, like relationship between the landlord and the tenant or any other contract. In the absence of such evidence, we are not in a position to reject the conclusion arrived at by the Tribunal that the actual rent received by the assessee would form the fair rent, as contemplated under the Rent Control Act." In the light of the above referred to observations of the Supreme Court and the elaborate rules prescribed for fixation of fair rent under section 4 of the Tamil Nadu Buildings (Lease and Rent Control) Act, how the above referred to conclusion reached in T. C. No. 1120 of 1984 (CIT v. M. Rathanchand Chordia in the above extracted passage, could be correct, we are unable to see In the light of the above discussion, there is no necessity to refer the decisions of the different High Courts, relied on by learned counsel for the Revenue, viz., CIT v. Prabhabati Bansali, M. V. Sonavala v. CIT and CIT v. Alagappan (M. R.), except to point out that in CIT v. Prabhabati Bansali (Sabyasachi Mukharji J. as he then was and C. K. Banerji J.) also held that the rent actually received would not be of any relevance (emphasis supplied) The net result is we reframe the above referred to question, thus "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that only the actual rental receipts should be treated as annual value spoken to in section 23(1)(a) of the Income-tax Act, 1961" * , and answer the said question as reframed, in the negative and in favour of the Revenue and remit the matter back to the Tribunal for it to call for a necessary finding from the assessing authority regarding the 'fair rent' for the building in question pursuant to the above section 4 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, and see whether such fair rent is in excess or less than the amount of rent actually received or receivable by the assessee from the tenant and accordingly compute the abovesaid "annual value" under section 23(1) of the Act in the light of the abovesaid observations and consequently, compute the "Income from house property" under the ActWe gratefully record our appreciation for the very valuable assistance given by Mrs. Chitra Venkataraman, who has taken very great pains to bring to our notice the relevant observations in several decisions.