CIT Vs. PREMNATH MOT

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Jaipur Bench, Jaipur has referred the following question for our answer:

(2.) BEREFT of unnecessary details, the facts set out in the statement of casewould suffice for our opinion to the aforesaid question. The assessee is a private limited company. For the assessment year 1985 -86, in its return, the company claimed a sum of Rs. 33,074 as a deduction on account of payments for stamp duty and registration charges from the income shown under the head 'Income from property'. The assessing officer did not allow the claim of the assessee -company. While doing so, the assessing officer held that the expenses in connection with lease agreement are in the nature of capital expenditure and Section 24 does not provide any allowance of such expenditure from the property income. In appeal before the Commissioner (Appeals), Rajasthan, various grounds were raised against the disallowance of claim of deduction of Rs. 33,074 paid as stamp duty and registration expenses. These arguments were : (one) that the said amount of Rs. 33,074 be allowed as deduction as collection charges provided in Clause (viii) of Sub -section (1) of Section 24 and (two) that while determining the annual letting value the amount spent on stamp duty and registration fee in the sum of Rs. 33,074 be reduced. The Commissioner (Appeals) negatived both the contentions and disallowed the deduction of Rs. 33,074 paid as stamp duty and registration expenses on the lease deed. In further appeal, the Tribunal relied upon its decision in Verma Family Trust v. Sixth ITO (1984) 7ITD 392 (Bom.) and held that based on the said decision the stamp duty charges incurred while giving the property on lease should be deducted from the annual letting value because the provisions of Section 23(1)(6) contemplate actual rent received or receivable by the owner of the property. It is this finding of the Tribunal that has given rise to the aforesaid question of law.

(3.) READING Section 23(l)(b) with Explanation 1(a) makes it very clear that the annual value of the property where the property is let throughout the previous year is the actual rent received or receivable by the owner in respect of such year. The word 'actual' occurring in the Explanation (a) is in contradistinction to the hypothetical rent that may be receivable by the owner. It cannot be construed to mean the rent actually coming into the hands of the owner after various deductions. If it were so, Section 24 would not have been there. Though the Tribunal relied upon its previous decision in Verma Family Trust's case (supra), upon reading thereof we are of the opinion that the said decision is founded on erroneous understanding of law and misconstruction of Section 23(a)/(b), read with Explanation 1(b).While determining annual value under Section 23(1)(b), it is wrong approach to say that the physical receipt of the rent being the basis of the computation, one has to decide what is the actual rent received. It is further erroneous to say that in determining the actual rent receipt, the net amount of money received or receivable by the assessee would be relevant. The Tribunal has given illustration thus: