COMMISSIONER OF INCOME TAX Vs. SATYA CO LTD

JUDGEMENT

(1.) IN this reference under s. 256(2) of the IT Act, 1961 ('the Act') made at the instance of the Revenue the following questions have been referred by the Tribunal for the opinion of this Court: Asst. yrs. 1982-83 & 1983-84 :

(2.) THE facts as found by the Tribunal are as under: The assessee is the owner of the house property at No. 10, Sarat Chatterjee Avenue, Calcutta- 700029. The flats in the said house were let out to the sons of director of the assessee-company at low rent. The assessee in its return showed the rental income at Rs. 14,140 with reference to the actual rent received from such tenants. The municipal valuation of the said premises was Rs. 21,600. The AO estimated the gross rental income at Rs. 96,000 alleging that in an adjoining building the ground floor flat had been let out at Rs. 1,800 per month. For the asst. yrs. 1984-85 and 1985-86 the AO made addition to such estimated rental of Rs. 96,000 of further sum on account of notional interest on the interest-free deposit of Rs. 10,40,000 received during the relevant period from a sister concern, Vinit Traders & Investment Ltd. to whom a flat had been let out. On appeal by the assessee, the CIT(A) held that even after the amendment made to the provisions of s. 23(1) of the Act w.e.f. 1st April, 1976 by the Taxation Laws (Amendment) Act, 1975, the rental value of the property for the purposes of assessment should be calculated on the basis of the municipal valuation after adding 1/9th thereto. So far as further addition on account of notional interest for the interest-free deposit for the asst. yrs. 1984-85 and 1985-86 was concerned, the CIT(A) held that there was no scope for making any such further addition since the fair rental of the premises was to be computed with reference to the municipal valuation. The Department preferred an appeal against the said order of the CIT(A) before the Tribunal which upheld the said order of the CIT(A). The aforesaid questions have been referred to this Court arising out of the said order of the Tribunal.

(3.) AFTER the amendment of s. 23 w.e.f. 1st April, 1976, the annual value of the property for determining the income from house property is deemed to be the sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable is in excess of such sum, the amount so received or receivable. The annual value for the purpose of assessment under s. 23(1) is a deemed value as the section itself says 'For the purpose of s. 22 of the Act, the annual value of any property shall be deemed to be". The annual value for determining the income from house property has to be strictly computed as provided in s. 23(1) since it is a fictional or deemed value. Prior to the amendment w.e.f. 1st April, 1976 such deemed value was the sum for which the property could reasonably be expected to let from year to year. The fair rent as postulated in s. 23 was similar and/or akin to the provisions of the municipal laws for levy of municipal taxes and that such municipal valuation afforded a proper guide. Such fair rent could not be more than what was the fair rent under the relevant rent control legislations even though the actual rent received was much higher than such fair rent. The law was amended w.e.f. 1st April, 1976 to provide that where the actual rent was higher, then such actual rent could be taken into consideration.