Vimal R. Ambani v. Deputy Commissioner of Income-tax
[Citation -2015-LL-0320-1]

Citation 2015-LL-0320-1
Appellant Name Vimal R. Ambani
Respondent Name Deputy Commissioner of Income-tax
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 20/03/2015
Assessment Year 1986-87
Judgment View Judgment
Keyword Tags income from house property • municipal rateable value • annual letting value • rent controller • standard rent • annual value • actual rent • fair rent
Bot Summary: The following question of law has been proposed: Whether, on the facts and in the circumstances of the case and in law, the Income-tax Appellate Tribunal was right in holding that in computing the property income under section 23 of the Income-tax Act, 1961, the annual letting value of one-third share in the self-occupied property at Vimal House, Ahmedabad, has to be the sum equivalent to the standard rent under the Rent Control Act and not the municipal rateable value. On behalf of the assessee, it was contended that a more recent decision of the hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee reported in 1980 122 ITR 700 had clearly laid down that, subject to rent control legislation which provided for fixation of standard rent, the standard rent alone could be the basis for fixation of municipal rateable value for the purpose of levy of municipal taxes. If standard rent has not been fixed by the Rent Controller, then it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment. The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent... We would like to remark that still the question remains as to how to determine the reasonable/fair rent. Various methods of valuation are applied in order to arrive at such hypothetical rent by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property or to the cost of construction. ' Accordingly, while determining the annual letting value in respect of properties which are subject to rent control legislation and in cases where the standard rent has not been fixed, the Assessing Officer shall determine the same in accordance with the relevant rent control legislation. If the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent.


JUDGMENT judgment of court was delivered by A. K. Menon J.-By this common order, we dispose of above income-tax reference and income-tax appeal. assessee, along with two others, had purchased premises for consideration of Rs. 17,75,000. assessee claims to have one-third share in property. On September 29, 1986, assessee filed return of income at Rs. 979 in respect of assessment year 1986-87. appellant-assessee also submitted letter, in which, computation of income was explained and same was computed on basis of rateable value as arrived at by Municipal Corporation of Ahmedabad. It was contended that this rateable value should be adopted for purposes of computing property income. Assessing Officer, in his order dated August 22, 1988, under section 143(3) of Income-tax Act, 1961, followed view taken in earlier years in respect of same assessee to effect that annual value should be determined on basis of standard rent and not on basis of rateable value as determined by municipal corporation. He further took view that in determining standard rent, return on investment should be calculated at 12 per cent. and computed income from house property at Rs. 57,760 instead of Rs. 979 as per return filed by appellant-assessee. Being aggrieved by order, appellant preferred appeal to Commissioner (Appeals), who dismissed appeal upholding assessment made. In further appeal before Income-tax Appellate Tribunal, his appeal came to be dismissed by order dated October 20, 1999. It is this order that is subject matter of challenge in above income-tax appeal. following question of law has been proposed: "Whether, on facts and in circumstances of case and in law, Income-tax Appellate Tribunal was right in holding that in computing property income under section 23 of Income-tax Act, 1961, annual letting value of one-third share in self-occupied property at Vimal House, Ahmedabad, has to be sum equivalent to standard rent under Rent Control Act and not municipal rateable value." In meantime, Tribunal, on application of assessee-appellant referred following questions of law, arising out order of Tribunal dated December 23, 1991, in respect of assessment years 1982-83 and 1983-84, for opinion and answer of this court: "1. Whether, on facts and in circumstances of case, Tribunal was right in law in holding that annual letting value of self-occupied property at Ahmedabad has to be sum equivalent to standard rent under Bombay Rent Control Act and not municipal rateable value in computing property income under section 23 of Income-tax Act, 1961? 2. Whether, on facts and in circumstances of case, Tribunal was right in law in confirming that orders of Commissioner of Income-tax under section 263 of Income-tax Act holding that original assessment computing property income on basis of municipal rateable value was erroneous and prejudicial to interests of Revenue?" Tribunal had proceeded on basis of decisions in respect of same assessee in previous years. Before us, Mr. Mistri, learned senior counsel appearing for assesseeappellant, has taken us through decision of this court in matter o f M. V. Sonavala v. CIT reported in [1989] 177 ITR 246 (Bom), in which, this court had occasion to consider various questions (in relation to various assessment years). Division Bench of this court, inter alia, considered issue of computation of annual value of properties within meaning of section 23(1)(a) of Income-tax Act, 1961, as applicable to relevant assessment years. Department and Tribunal had held that annual value of properties requires to be taken at amounts actually received by assessee as compensation in respect of different properties and not at their municipal rateable value. Tribunal relied upon judgment of hon'ble Supreme Court in case of Motichand Hirachand v. Bombay Municipal Corporation reported in [1968] AIR 1968 SC 441. On behalf of assessee, it was contended that more recent decision of hon'ble Supreme Court in case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee reported in [1980] 122 ITR 700 (SC) had clearly laid down that, subject to rent control legislation which provided for fixation of standard rent, standard rent alone could be basis for fixation of municipal rateable value for purpose of levy of municipal taxes. It is submitted on behalf of assessee relying upon decision of hon'ble Supreme Court in case of Mrs. Sheila Kaushish v. CIT reported in [1981] 131 ITR 435 (SC) that annual value of property is required to be determined with reference to standard rent and not actual rent received. While deciding said appeal in M. V. Sonavala's case (supra), Division Bench of this court followed decision of Calcutta High Court in case of CIT v. Prabhabati Bansali reported in [1983] 141 ITR 419 (Cal) and held that for purpose of computing annual letting value, sum for which property might reasonably be let from year to year or annual municipal value is to be taken. Division Bench of this court followed view taken by Calcutta High Court and directed Department to determine annual value of properties accordingly. In another decision of this court in case of Smt. Smitaben N. Ambani v. CWT reported in [2010] 323 ITR 104 (Bom), one of questions raised was, "Whether, on facts and in circumstances of case, Tribunal was right in law in holding that while applying provisions of rule 1BB for valuing self-occupied property, municipal rateable value has to be adopted instead of standard rent?" This court held, in respect of said question, that while applying provisions of rule 1BB for valuing self-occupied property, municipal rateable value with addition of statutory deductions, if any, may be adopted instead of standard rent, for arriving at gross maintainable rent. Mr. Mistri was at pains to submit that although while computing value for purpose of section 22 and while arriving at annual value for purpose of section 23, fair rent receivable in respect of property is to be taken into account, however, same will be limited by standard rent applicable in facts of particular case. In this respect, it will be necessary to refer to later decision of this court in matter of CIT v. Tip Top Typography in Income Tax Appeal No. 1213 of 2011-since reported in [2014] 368 ITR 330 (Bom), to which, one of us (S. C. Dharmadhikari J.) is party, in which decision, this court has followed decision of Full Bench of Delhi High Court (CIT v. Moni Kumar Subba [2011] 333 ITR 38 (Delhi) [FB]) and conclusions in said Full Bench decision are relevant to facts of case at hand, which read as under (page 361): "(i) Annual letting value would be sum at which property may be reasonably let out by willing lessor to willing lessee uninfluenced by any extraneous circumstances. (ii) inflated or deflated rent based on extraneous consideration may take it out of bounds of reasonableness. (iii) Actual rent received, in normal circumstances, would be reliable evidence unless rent is inflated/deflated by reason of extraneous consideration. (iv) Such annual letting value, however, cannot exceed standard rent as per rent control legislation applicable to property. (v) If standard rent has not been fixed by Rent Controller, then it is duty of Assessing Officer to determine standard rent as per provisions of rent control enactment. (vi) standard rent is upper limit, if fair rent is less than standard rent, then it is fair rent which shall be taken as annual letting value and not standard rent... We would like to remark that still question remains as to how to determine reasonable/fair rent. It has been indicated by Supreme Court that extraneous circumstances may inflate/deflate 'fair rent'. question would, therefore, be as to what would be circumstances which can be taken into consideration by Assessing Officer while determining fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract following passage from Supreme Court judgment in case of Motichand Hirachand v. Bombay Municipal Corporation [1968] AIR 1968 SC 441, 442: 'It is well recognised principle in rating that both gross value and net annual value are estimated by reference to rent at which property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to actual rent paid for property or for others comparable to it or where there are no rents by reference to assessments of comparable properties or to profits carried from property or to cost of construction.'" Accordingly, while determining annual letting value in respect of properties which are subject to rent control legislation and in cases where standard rent has not been fixed, Assessing Officer shall determine same in accordance with relevant rent control legislation. If fair rent is less than standard rent, then it is fair rent which shall be taken as annual letting value and not standard rent. This will apply to both, self-acquired properties and general cases where property is let out. While carrying out exercise under section 23(1) of Act, Departmental authorities shall follow these guidelines reproduced above provided in Full Bench decision of Delhi High Court and followed by Division Bench of this court in case of Tip Top Typography (supra). Reference will also have to be made to decision of this court in case of Smt. Kokilaben D. Ambani v. CIT in Income Tax Reference No. 513 of 1997 and connected matters decided on September 11, 2014, wherein, we have dealt with aforesaid questions and guidelines set out in various judgments have been referred to therein. Accordingly, appeal is allowed and impugned order dated October 20, 1999, is set aside. matter stands remanded for consideration in accordance with aforesaid norms. No order as to costs. *** Vimal R. Ambani v. Deputy Commissioner of Income-tax
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