KASHI PRASAD KATARUKA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") made by the Income-tax Appellate Tribunal, Patna Bench, in which the following question of law has been referred to this court for our opinion :

(2.) THE facts giving rise to this reference are very short. THE assessee is an individual and derives income from a firm and commission from the Life, Insurance Corporation of India. He owns a house which is used for residential purposes. For the assessment year 1968-69, the assessee showed the income from the residential house at Rs. 1,500 only. THE Income-tax Officer rejected the amount shown by the assessee and, after considering the area of the building and the possible rent at which it could be let out, took the annual value at Rs. 18,000 and after deducting the municipal taxes and one-sixth for repairs and deduction under Section 23(2) at Rs. 1,800, calculated the net annual value of the building in question at Rs. 11,950. Restricting it within 10% of the total income as provided under proviso (2) to Section 23(2) of the Act, he took Rs. 8,553 as income from the residential house. THE stand taken by the assessee was that the building was situated within Patna Municipal Corporation area where the Rent Control Act, namely, the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1947, was in force. THE fair rent of the building had been fixed by the Rent Controller at Rs. 480 per month. THE annual letting value, in any event, therefore, could not exceed the rate of rent which was fixed by the Rent Controller under the provisions of the Rent Control Act. This argument was rejected by the Income-tax Officer. THE assessee having appealed to the Appellate Assistant Commissioner, the argument regarding the acceptability of the fair rent as fixed by the Rent Controller found no greater favour with the Appellate Assistant Commissioner. But the found that the annual value as estimated by the Income-tax Officer was excessive and, therefore, he reduced it to a figure of Rs. 14,400. THE assessee pursued the matter before the Tribunal. It was urged before the Tribunal on behalf of the assessee that the house was situated in Patna where the Rent Control Act was in force. Under these circumstances it was contended that the income from this source should be determined in accordance with the Rent Control Order. THE assessee also filed a copy of the order of the Rent Controller fixing the fair rent of the building at Rs. 480 'per month only. THE Tribunal rejected the contention of the assessee. Nevertheless, the Tribunal found that there was no basis in support of the valuation taken by the Appellate Assistant Commissioner at Rs. 14,400. To quote the language of the Tribunal itself:

(3.) AFTER the coming into force of the various Rent Control Acts one thing is very clear and that is this, that no landlord is permitted by law to receive anything more than the rate of fair rent fixed by the Rent Controller. For, charging of any higher rent would at once subject the landlord to penal consequences arising out of the infractions of law. There is only one statute regarding rent control, namely, the Bihar Buildings (Lease, Rent and Eviction) Control Act, operative in this State. Whereas most of the various Rent Control Acts and other statutes provide that the municipal valuation of the building shall be fixed by-the municipal authorities on the basis of the provisions as contained in the Rent Control Acts, so far as the Bihar Act is concerned, the position is just the reverse. The Rent Controller is enjoined under the Bihar Act to fix fair rent on the basis of the municipal valuation as fixed by the municipal authorities either under the Bihar and Orissa Municipal Act or under the Patna Municipal Corporation Act. Therefore, with regard to the doubt raised by the Tribunal in the appellate order as to whether fair rent could be duly fixed by the Rent Controller under the Bihar Rent Control Act in respect of the buildings which were used for residential purposes, suffice it to say that the basis of fixation of fair rent under the Rent Control Act is the municipal valuation. It is on that basis that the present rate of rent fixed at Rs. 480 per month should be presumed to have been fixed. In appropriate cases fair rent may have been fixed in respect of buildings which were not actually in occupation of tenants but were being intended to be let out to a prospective tenant under Section 6 of the Bihar Buildings (Lease, Rent and Eviction) Control Act and when once such a rent had actually been fixed and subsequently the tenant quits and the landlord conies into occupation of the building for his residential purposes, it cannot be said that so long as the house was in occupation of the tenant bona fide and reasonable letting value on the basis of the inherent capacity of the hereditament to fetch profits would be on the basis of the rate as fixed by the Rent Controller, but the measure would be different when an erstwhile landlord comes into occupation of such a building for his own residential purposes. In principle I do not see any justification to hold that so long as the building is tenent-ed its inherent capacity to fetch profits is less than when the building comes into use and occupation of the landlord for his residential purposes. Learned counsel for the assessee placed reliance on two decisions of the Supreme Court in the case of the Corporation of Calcutta v. Padma Debi, AIR 1962 SC 151 and the case of Gitntur Municipal Council v. Guntur Town Rate Payers' Association, AIR 1971 SC 353. In the case of Corporation of Calcutta, Subba Rao J. (as he then was), speaking for the court, while dealing with Section 127(a) of the Culcutta Municipal Act, 1923, held as follows :