Madras High Court
N. Nataraj vs Deputy Commissioner Of Income-Tax on 4 April, 2003
Equivalent citations: (2004)188CTR(MAD)388, [2004]266ITR277(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, K. Raviraja Pandian
JUDGMENT R. Jayasimha Babu, J.
1. The assessee owns a building known as "Nataraj building" which consists of ground floor, first floor and second floor with vacant space for parking cars situate at Dr. Nanjappa Road (Jail Road), Cbimbatore. The building was constructed in the year 1981 by the assessee. Immediately after its completion, a lease deed was entered into between the assessee and the firm, Lakshmi & Co., consisting of the wife and daughter of karta of the assessee Hindu undivided family and a trusted employee of the kartha as partners, under which the entire building was leased out to the firm on a monthly rent of Rs. 6,250. The firm, in turn, entered into several agreements of lease with different tenants in respect of several portions of the building. The building was occupied immediately after its completion by such tenants. A lease deed dated December 9, 1982, was entered into between the firm and Indian Bank which is on record. That lease deed shows that the tenant had to occupy the portion that was leased out on December 11, 1981, within three months from the date of completion of construction of the building. The rental received by that firm from its tenants was nearly three times the rent stipulated in the lease agreement between the assessee and the firm.
2. For the assessment year 1982-83, the Tribunal held that the firm so constituted was a genuine firm as the capital was brought in by the wife and the daughter and the other partner not having brought in any capital, but having declared that he had worked and received certain sum from the firm. The firm was assessed to tax on the income received by it by letting out the property. For the assessment year 1988-89, the Assessing Officer held that the amount which was received by the firm from its tenants was, in fact, the amount that was reasonably to be expected to be received from letting out the property and, therefore, the amount was required to be taken into account for the purpose of determining the annual value of the building under Section 23(1)(a) of the Act. The Assessing Officer took note of the amount of rental actually received by the firm, Laskhmi & Co., in which the wife and the daughter of the kartha of the assessee-Hindu undivided family are partners. The rent of Rs. 3,61,864 received by the firm was included as the attributed income of the assessee. The rent received by the assessee for the year from the firm, Lakshmi & Co. was Rs. 75,000. The amount which the assessee claims to be assessable as income from property was thus less than one-fourth of the amount of rent that the property was capable of yielding, and did yield.
3. That order of the Assessing Officer was affirmed by the Commissioner and the assessee was unsuccessful in persuading the Tribunal to reverse the order of the Commissioner.
4. Learned counsel for the assessee submitted that under Section 23(1)(b) of the Act, it is only the rent actually received by the owner that is relevant and the Tribunal was in error in considering the actual rent received by the assessee's lessee, namely, the firm, Lakshmi & Co. This submission is misconceived. Section 23(1)(b) of the Act is applicable only to cases where the actual rent received is in excess of the sum which can reasonably be expected to be received from letting out the property from year to year. As to what is the amount that can be reasonably expected to be received from letting out is always a question of fact having regard to all the circumstances of the case. In this case, there is enough material on record regarding the actual rent that could reasonably be expected to be received from the property. There is no need to resort to any speculation or guess work.
5. As noticed earlier, the building was occupied by tenants within three months from the date of completion of construction and the amount agreed to be paid by such tenants as rental can be regarded, without any difficulty, as the amount which can reasonably be expected to be received by way of rental. The rent paid by them during the assessment year is, thus, required to be regarded as the amount, which can be reasonably expected to be received from letting out the building. The fact that the amount was paid not directly to the owner who is the assessee, but to the lessee, the firm, Lakshmi and Co. does not make any difference, having regard to the fact that the other parties to the lease agreement are the wife, daughter and a trusted employee of the kartha of the assessee.
6. Learned counsel for the assessee submitted that the burden is heavy upon the Revenue to show that the actual rent received by the assessee is not the assessable value. Counsel in this context referred to the decision of the Supreme Court in the case of S. G. Mercantile Corporation Pvt. Ltd. v. CIT [1972] 83 ITR 700, wherein it was held that when the Revenue seeks to contend that the apparent state of affairs is not the real, the burden is on the Revenue to establish the same.
7. Learned counsel also relied on the following decisions ;
8. The case of CIT v. M. Ratanchand Chordia , wherein it was held that the annual value has to be determined on the basis of the actual rent, as there was no evidence in that case to show that the rent received was low because of any extraneous consideration,
9. CIT v. Parasmal Chordia , it was held that the standard rent has to be taken as assessable value.
10. In the case of T. V. Sundaram Iyengar and Sons Ltd. v. CIT , wherein the court upheld an order of remand made by the Tribunal to ascertain the reasonable rent as it had been found that the letting was to an associate company, and that that rental could not be regarded as the fair rent for the premises.
11. CIT v. Sampathammai Chordia , wherein it was held that the actual rent received should be taken as the basis and not the value noted in the municipal records which in that case was found to be higher.
12. In Zenith Tin Works Ltd. v. CIT [2003] 259 ITR 238, wherein the High Court of Bombay held that if the standard rent had been fixed the annual value must be determined taking the same into account.
13. Learned counsel for the Revenue relied upon the decision of the Supreme Court in the case of Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315, wherein the court upheld the validity of Section 23(2) of the Income-tax Act, 1961, and held that the artificial computation of income from a self-occupied house was nevertheless income chargeable to tax under the Act. Reliance was also placed on the decision of this court in the case of C. H. Kesava Rao v. C1T [1985] 156 ITR 369, wherein it was found that the lease granted by the assessee to his wife could not be taken as the basis for determining the annual value and that the higher figure determined by the Assessing Officer as the reasonable rate of rent was upheld.
14. In this case, the assessee has not placed before the court any material to show as to what the standard rent is. What was contended by the assessee was that the annual value as far as the assessee was concerned was the actual rent received by the assessee and no more. When the documents placed before the Assessing Officer clearly showed that the letting effected by the assessee was to a firm of which his wife and daughter were partners that letting was rightly not regarded by the Assessing Officer as a reliable record for determining the reasonable rent.
15. What is required to be ascertained for the purpose of determining the annual value as provided in Section 23(1)(a) of the Act is the sum for which the property might "reasonably be expected to be let" from year to year. In this case, the rent realised by the firm from the tenants was a figure which could, and has rightly been adopted by the Assessing Officer as the sum daughter which the property could reasonably be expected to be let from year to year.
16. The Tribunal was, therefore, right in rejecting the claim of the appellant that the rent received by it from the firm comprising of the wife and daughter should be taken as the annual value. The appeal is dismissed. T. C. M. P. No. 199 of 1999 is consequently dismissed.