INCOME TAX OFFICER v. K.N. KHANNA
[Citation -1986-LL-1027-3]

Citation 1986-LL-1027-3
Appellant Name INCOME TAX OFFICER
Respondent Name K.N. KHANNA
Court ITAT
Relevant Act Income-tax
Date of Order 27/10/1986
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags annual letting value • standard deduction • fair market value • managing director • annual value • personal use • monthly rent • actual rent • fair rent • motor car • maharaja • alv
Bot Summary: The first ground of appeal by the Revenue is that the AAC of Income-tax erred in directing the ITO to allow fully standard deduction under s. 16(i) of the IT Act in complete disregard of the fact that the assessee was provided with a car and a driver whose salary was paid by the employer for other than office use and deduction of Rs. 1000 only under the proviso of s. 16(1) would be applicable. The ITO noted in the order that the assessee adopted the value of Rs. 3,000 as ALV for the self occupied portion of the property at Swaroop Nagar, Kanpur. The ITO asked the assessee to explain the basis for the above ALV. The assessee stated that the municipal authorities basis for the above ALV. The assessee stated that the municipal authorities determined the ALV of the whole house at Rs. 9,000. The ITO pointed out that building consisted of three storeys of which the first floor was let out and the second and third are occupied by the assessee. The ITO pointed out that the ALV of the self occupied portion should be at Rs. 6,000 as against Rs. 3,000 shown by the assessee. As held in the case of P.D. Singhania municipal valuation is not the safe guide particularly in the instant case the assessee, as pointed out by the ITO had received more rent from the lower portion than the one determined by the municipal authorities as ALV. In fact, the ITO pointed out the allowances of the assessee's argument that the assessee cannot increase the rent more than one determined by the municipality under the Rent Control Act. As noted earlier, the ITO has adopted the same ALV for the self occupied portion and rented portion, but as pointed out by the AAC the let out portion related to the ground floor in which there are commercial facilities and potentialities as compared with the upper storeys occupied by the assessee.


first ground of appeal by Revenue is that AAC of Income-tax ('AAC' for Short) erred in directing ITO (ITO for short) to allow fully standard deduction under s. 16(i) of IT Act in complete disregard of fact that assessee was provided with car and driver whose salary was paid by employer for other than office use and, therefore, deduction of Rs. 1000 only under proviso (ii) of s. 16(1) would be applicable. ITO in assessment order noted that assessee was Managing Director of company and was provided with free use of car. salary of Rs. 300 per month to driver was also reimbursed by company. For asst. yr. 1979-80 question was similar as car was used by assessee for office as well as for personal purposes. He accordingly asked assessee to explain as to why value of perquisite on motor car and reimbursement of driver salary should not be added as per r. 3(c). ITO also asked assessee whether maintenance of car was met by company or by assessee. assessee submitted that running expenses of car was incurred by company but he denied personal use of car. ITO pointed out that for asst. yr. 1979-80 this issue was decided by AAC in his order dt. 31st dec., 1981 in which it was held that car was used both for private and official purposes. He pointed out that there was no appeal apparently by assessee against earlier order by AAC. He therefore considered that value of perquisite of car will be worked out as per above rule. He also considered that value of driver salary would also be worked out in accordance with above rule. He pointed out that mistake in working out value of perquisite in pursuance of AAC's order for earlier year was rectified. assessee claimed deduction under s. 16(1) for full amount and ITO declined on facts of case, as according to him, second proviso to s. 16(1) would be attracted. He allowed Rs. 1,000/- assessee took up matter before AAC who noted that issue relating to standard deduction of Rs. 1,000 was deleted by his predecessor AAC, who held that provisions of car and reimbursement of drivers salary could not be termed as conveyance allowance and therefore ITO was not justified in restricting claim of assessee at Rs. 1,000. He directed ITO to allow full deduction under s. 16(1). AAC also noted that issue regarding inclusion of value of car and reimbursement of driver salary came up for consideration before his predecessor who held that provisions of r. 3(C) should be applied to case of assessee because car provided for company was being used for both private and official use. AAC declined to interfere with this part of order of ITO. claim of Revenue in present appeal is regarding direction o f AAC to allow full deduction under s. 16(1). We have heard ld. Departmental Representative at length, who highlighted points raised by ITO while disagreeing with findings and arguments advanced in impugned order. It is pointed out that on facts of case deduction allowed by ITO was justified under above proviso. assessee's ld. Counsel, on other hand, supports order of AAC. Reference was made to earlier year, assessment order and appellate order copy of which has been placed before us for our consideration. We have heard both sides and we have gone through orders of authorities below for our consideration. We have taken into account second proviso to s. 16(1), which in our opinion is quite clear and unambiguous. IT is seen that assessee was provided with car by his employer for use of assessee otherwise than wholly and exclusively for performance of his duties in circumstances, we are of opinion that there is substance in appeal by Revenue on this score that standard deduction of Rs. 1000 only was appropriate. We, accordingly reverse order of AAC on this point and restore that of ITO. next ground of appeal is that AAC erred in reducing annual letting value of first floor of self occupied property to Rs. 3,000 completely ignoring annual letting value of first floor fixed by Nagar Mahapalika which was at Rs. 6,000. It is appeal by Revenue that reasoning of AAC was vitiated and under wrong understanding of provision of Rent Control Act that landlord was not in position to charge more rent than municipal annual letting value. ITO noted in order that assessee adopted value of Rs. 3,000 as ALV for self occupied portion of property at Swaroop Nagar, Kanpur. ITO asked assessee to explain basis for above ALV. assessee stated that municipal authorities basis for above ALV. assessee stated that municipal authorities determined ALV of whole house at Rs. 9,000. ITO pointed out that building consisted of three storeys of which first floor was let out and second and third are occupied by assessee. municipal authorities estimated standard monthly rent of self occupied portion as well as let out portion of Rs. 500 each in respect of self occupied portion after giving deduction of 1/2 of letting value net ALV has been taken at Rs. 1,000 and in respect of let out portion value has been taken at Rs. 6,000. Thus value of Rs. 9000 was worked out. ITO pointed out that ALV of self occupied portion should be at Rs. 6,000 as against Rs. 3,000 shown by assessee. That apart, he noted that actual rent of Rs. 10,800 in respect of let out property received by assessee which as per municipal order, is equal to portion self occupied. He observed that there was no indication to say that actual rent received by higher than fair market value and, therefore, ALV of self occupied portion should be taken at Rs. 10,800 as per s. 23(1)(a). He considered submission of assessee that property is governed by Rent Control Act and so no enhancement of rent can be made. He found that contention of assessee was not tenable as assessee himself charged rent higher than one determined by municipality in respect of ground floor. ITO observed that under Rent Control Act, there is no bar for enhancement of rent on agreed basis and rent was agreed at Rs. 10,800 as against Rs. 6,000 determined by municipal authorities relating to let out portion. In circumstances, ITO directed that ALV of self occupied portion should also be taken at Rs. 10,800. assessee took up matter before AAC, who considered contention that ALV of first floor could not be compared with that of ground floor because of lack of potentiality of commercial use of first floor as compared to that of ground floor. He also considered that under Rent Control Act it was not open to landlord to charge more than has been fixed by Municipal Corporation as ALV. AAC found force in submissions made on behalf of assessee as in his view accommodation in first floor cannot be compared with that of ground floor for arriving at annual value. So also facilities and convenience attached to ground floor. He also pointed out that Rent Control Act puts limit on rent and, therefore, he directed ITO that ALV of first floor should be taken to be more as prescribed in ALV by Municipal Corporation, which was only Rs. 250 per month. Hence this appeal by Revenue. It is argued vehemently by learned Departmental Representative that t h e AAC went wrong in mis-appreciating fact of case, vis-a-vis, provisions of IT Act as well as Municipal Corporation Act. IT is also submitted that, as pointed out by ITO there was no force in submission of assessee that there cannot be higher value than what has been determined by Municipality as ALV in respect of first floor. It is urged that municipal valuation is not safe guide in determining ALV for purpose of IT referring to decision of Hon'ble Allahabad High Court in case of P.D. Singhania vs. CWT (1979) 8 CTR (All) 194: (1979) 118 ITR 6 (All). It is also urged that agreed rent could be considered to be fair rent under rent law which should be taken as annual value in case of assessee, relying on decision of Hon ble Allahabad High Court in case reported in CIT vs. Modi Spinning Manufacturing Mills Co. Ltd. (1980) 125 ITR 361 (All). It is urged, therefore, that considering circumstances of case and decision of Hon'ble Allahabad High Court as well as provisions of s.23(1), order of AAC on point may be reversed and that of ITO be restored. assessee's ld. Counsel, on other hand, supports order of A C relying on opinion of 3rd Member, Tribunal, in case of H.H. Maharaja Gaj Singh of Jodhpur vs. ITO (1986) 16 ITD 101 (Jp). He also refers to decision of Hon'ble Supreme Court in case of Diwan Daulat Rai Kapur vs NDMC & Anr. (1980) 122 ITR 700 (SC). It is urged, therefore, that on facts of case, appeal by Revenue may be dismissed. Reference is made to other papers placed in paper-book in support of his contention. We have heard parties at length and we have perused orders of authorities below along with other papers placed before us for out consideration. We have also gone through provisions of s. 23(1) and relevant clauses. As held in case of P.D. Singhania (supra) municipal valuation is not safe guide particularly in instant case assessee, as pointed out by ITO had received more rent from lower portion than one determined by municipal authorities as ALV. In fact, ITO pointed out allowances of assessee's argument that assessee cannot increase rent more than one determined by municipality under Rent Control Act. assessee as pointed out earlier relied on decision of Appellate Tribunal (Third Member) as well as decision of Hon'ble Supreme Court. W e have seen, however, that decision in case of Dewan Rai Kapur (supra) was made on different context and under provisions of Delhi Municipal Corporation Act, 1957 and Delhi Rent Control Act, 1958. There is no way to know that provisions of U.P. Rent Control Act were identical and similar to those of Delhi Rent control Act. decision in case of Dewan Daulat Rai Kapur was given on context and provisions of those enactment. facts of this case before us as enumerated by ITO as well as by AAC, are distinguishable from case relied on by assessee. Having regard to entirety of facts of case, we are of opinion that there is force in submissions made on behalf of Revenue in respect of this point. As noted earlier, ITO has adopted same ALV for self occupied portion and rented portion, but as pointed out by AAC let out portion related to ground floor in which there are commercial facilities and potentialities as compared with upper storeys occupied by assessee. In circumstances of case, we are of opinion that it would be appropriate to reduce ALV of self occupied property keeping in view of fact that upper storeyes have lesser commercial potentialities and commercial facilities, at Rs. 9,500. ITO is, therefore, directed to recompute addition in light of above direction. order of AAC is, therefore, modified, to above extent. In result, appeal by Revenue is partly allowed. *** INCOME TAX OFFICER v. K.N. KHANNA
Report Error