HIGH COURT OF
Commissioner of Income-tax
v.
Akshay Textiles Tradings Agencies (P.) Ltd.
F. I. Rebellow and J. P. Devadhar, JJ.
IT Appeal No. 607 of 2005
October 17, 2007
Section 23 of the Income-tax Act, 1961 - Income from house property -
Annual value - Whether annual letting value has to be determined with reference
to annual rent received by assessee and not what has been received by its
tenants from ultimate users - Held, yes
The assessee-company let out three properties to the three companies. Those tenants further sub-let the same property to ‘RIL’ for higher consideration. The assessee filed the return showing rent received from three companies. The Assessing Officer, however, held that for the purpose of section 23, the annual value of the property should not be one entered into by the assessee with its tenants but the amount received by the tenant from ‘RIL’. On appeal, the Commissioner, allowed the assessee’s claim. On revenue’s appeal, the Tribunal upheld the order of the Commissioner (Appeals).
Section 23(1)(a) uses the
expression ‘the sum for which the property might reasonably be expected to be
let from year to year’. This has to be considered in the context of the
applicable rent laws. The Courts have construed the rent receivable in such
circumstances to be either the standard rent or the ratable value as fixed by
the local authority. Though the ratable value may also on occasions has to
consider the standard rent in cases where the rent law may be applicable.
Before the amendment brought about to section 23 by the Finance Act, 2001 with
effect from 1-4-2002 even if an assessee had received higher rent than the
standard rent, the additional amount would not be the subject of tax. To over
come this omission the section was substituted to cover also those cases where
rent received was higher than the standard rent or rent based on municipal
ratable value. If the argument of the assessee is to be considered then
expression “reasonable” would have to be given different meaning. It is not
possible to give a meaning wider amplitude than what is contained in section
23(1)(a). The Legislature has substituted the provision and brought in section
23(1)(b) to cover the part of the annual value which otherwise would not fall
within the tax ambit before its amendment. In that context the expression
“receivable” would mean that though the annual value is fixed in terms of the
agreement even though it is not received in the relevant year, yet the same
would be assessable to tax The contention, therefore, as urged by the revenue
on the constitution of expression ‘receivable’ what has to be considered is the
rent which is receivable as rent from the premises and therefore, the rent
which the tenant was receiving from RIL would be the rent receivable, was to be
rejected. [
Further it was not the case of
revenue that the contract between the assessee and the tenant is sham. The
annual value would and be the value in terms of that contract. Therefore, the
annual value was the annual value received or receivable by the owner from the
tenant irrespective whether tenant on such letting had received higher rent
from RIL. [
Thus, the Tribunal was justified
in holding that the annual letting value had to be determined with reference to
the annual rent received by the assessee and not what had been received by its
tenants from the ultimate users.