COMMISSIONER OF INCOME TAX Vs. H P SHARMA

JUDGEMENT

(1.) : This is a reference under s. 256(1) of the IT Act, 1961, arising out of reassessment to income-tax made on the respondent, H. P. Sharma, for the asst. yrs. 1962-63 and 1963-64, for which the corresponding previous years were the financial years which ended on March 31, 1962, and March 31, 1963, respectively.

(2.) FOR the asst. yr. 1962-63, the assessee returned a property income of Rs. 30,356 and income from other sources of Rs. 1,590. The property income of Rs. 30,356 was comprised of an income from a house property at Esplanade Road, Delhi, computed at Rs. 1,782, income from a house in Karol Bagh, computed at Rs. 2,810, and income from a house property in Asaf Ali Road, computed at Rs. 25,764. Similarly, for the asst. yr. 1963-64 the assessee had returned a property income of Rs. 32,073 which comprised of Rs. 1,782 from the house at Esplanade Road, Rs. 2,810 from the house at Karol Bagh, Rs. 311 from a house in Krishan Nagar and Rs. 27,170 from the house in Asaf Ali Road. The ITO completed the original assessments for these two assessment years on November 28, 1962, and March 12, 1964, respectively, accepting the figures of income returned.

(3.) IN our opinion, a lot of confusion and misapprehension is generated by a general assumption that the income from the property assessed for income-tax purposes is a notional income. We think it is a very broad statement. No doubt the statement is correct in the sense that the income from the property is assessed in the hands of the owner irrespective of the fact whether he actually derives any income therefrom or not. It is also true that in certain circumstances the rent actually derived by him may not be capable of being treated as the annual letting value of the property and in such a case the surplus amount realised by him will escape liability to tax altogether. [See Nalinikant Ambalal Mody vs. S. A. L. Narayan Row, CIT [1966] 61 ITR 428 (SC)]. But there is no reason to interpret the section in such a way that there is always or necessarily a gap between the actual rent derived and the reasonable rent which the property can obtain if let from year to year. There is no reason why the actual rent derived on a monthly or annual basis between parties who deal with each other at arms' length should be ignored, although there may be a case for considering the actual rental income to be not sancrosanct where same circumstances exist to justify such an inference. Apart from the other instances which have already been given we may refer, for example, to an assessee owning a number of godowns which are let on a daily basis during the year. Where several godowns are let out at different rents for varying number of days perhaps it could be said that the actual rent derived by an assessee at the end of the year may not necessarily be the letting value of the premises on the assumption that every godown is let from year to year on a reasonable basis. But barring such cases where there is some reason to reject the rent agreed to between the parties, we are of opinion that the ITO is justified in taking the figures, of the actual rent as the reasonable letting value and completing the assessments on that footing. Before we conclude, we may point out that the provisions of s. 23 have been recently amended to make the above position clear. Sec. 23(1) now reads as follows :