Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs Mayur Recreational And Development ... on 28 March, 2008
Equivalent citations: [2008]113ITD181(DELHI), (2008)115TTJ(DELHI)433
ORDER
P.M. Jagtap, A.M.
1. This Special Bench has been constituted by the Hon'ble President under Section 255(3) to consider and decide the following question:
Whether, on the facts and in the circumstances of the case, and having regard to all the earlier orders of the Tribunal, the IT authorities were justified in estimating the ALV of the property at Nos. 14-16, Aurangzeb Road, New Delhi at Rs. 9,32,888 as against Rs. 5,12,932 declared by the assessee in the return?
2. The relevant facts of the case giving rise to the aforesaid question referred to this Special Bench are as follows. The assessee in the present case is a company which is mainly engaged in the business of purchase of agricultural land and development thereof in collaboration with its holding company M/s DLF Universal Ltd. It is also engaged in selling the developed plots to the holding company or to the nominees of the holding company. Apart from this the assessee company also derives income from house property and hiring of motor vehicles. A return of income for the year under consideration i.e. asst. yr. 1993-94 was filed by it on 24th Dec, 1993 declaring a total income of Rs. 13,64,610. In the said return, income from house property situated at 14-16, Aurangzeb Road, New Delhi was declared by the assessee under the head 'Income from house property' at Rs. 5,07,021. The said income was worked out as under:
Municipal ALV of 14, Aurangzeb Road, New Delhi 31,021
Municipal ALV of 16, Aurangzeb Road, New Delhi 21.519 52,540
Rent received from annexies and staff quarters 4,60,392
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(1st April, 1992 to 31st March, 1993) 5,12,932
Less : House-tax paid 5,911
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5,07,021
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3. During the course of assessment proceedings, it was noticed by the AO that income from the aforesaid house property as declared by the assessee in the earlier years was not accepted in the assessments. He, therefore, required the assessee to explain as to why the income shown by it in respect of the aforesaid house property should not be enhanced as done in the earlier years. In reply, it was submitted on behalf of the assessee company that the income from the said property has been declared by it on the basis of municipal valuation as in the earlier years and the basis so adopted in the earlier years has already been accepted by the appellate authorities including Tribunal in the earlier years. It was pointed out that even the reference applications filed by the Department under Section 256(1) on this issue have been dismissed by the Tribunal in asst. yrs. 1981-82 and 1984-85 to 1987 88. It was further pointed out that there was an increase shown in the income from the said property (on the basis of increase in municipal valuation) on account of additions of Rs. 9,63,419 made in the previous year relevant to asst. yr. 1988-89 and the said increase shown by the assessee for the first time in asst. yr. 1988-89 as well as in the subsequent year has been accepted by the Tribunal in asst. yrs. 1988-89 and 1989-90 vide its common order dt. 10th Feb., 1995 in ITA Nos. 6096/Del/1991 and 2032/Del/1993. It was also brought to the notice of the AO that the similar issue has been decided by the learned CIT(A) in favour of the assessee in the remaining three years i.e. asst. yr. 1990 91 to 1992-93 vide his common order dt. 25th May, 1995 following the order of the Tribunal for asst. yrs. 1988-89 and 1989-90 (supra).
4. According to the AO, there was, however, a change in the facts involved in the assessee's case for the year under consideration as compared to the facts involved in the earlier years. He noted that in addition to the sum of Rs. 9,63,419 spent on additions to the house property during the previous year relevant to asst. yr. 1988-89, the assessee has spent a further amount of Rs. 79,27,356 during the previous year relevant to asst. yr. 1989-90 for the following addition to the said property:
(i) Annexy at 14, Aurangzeb Road : 27,00,424
(ii) Annexy at 16, Aurangzeb Road : 24,22,030
(iii) Staff quarters : 7,61,857
(iv) Health club and swimming pool : 20,45,045
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Total : 79,27,356
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5. The AO also noted that the aforesaid staff quarters and annexies have also been given on rent to M/s DLF Builders & Developers Ltd. w.e.f. 1st June, 1989 and the assessee was receiving rent for the same from M/s DLF Health Centre. According to the AO, even the amount of Rs. 9,63,419 spent by the assessee on additions to the house property of the assessee in asst. yr. 1988-89 was liable to be taken into account for determining the ALV of the said property. He thus worked out the total cost of the property in respect of which ALV had to be determined as under:
Cost of the property to the assessee : 37,61,541
Additions and alterations in asst. yr. 1988-89 : 9,63,419
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Total : 47,24,960
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6. The AO noted that the appeal of the assessee for the immediately preceding years on this issue was allowed by the learned CIT(A) observing that the fair and reasonable rent in accordance with Section 23(1)(a) will be the standard rent fixed by NDMC and the change of ownership does not have any bearing on determination of such ALV of the property. According to him, no valuation of the property, however, had been done by the Controller under the Rent Control Act for the purpose of determining the standard rent after the improvement was effected to the premises. He held that the standard rent determined in respect of the said property in the earlier years without taking into consideration the improvements could not be relied upon. He also noted that Section 6A of Delhi Rent Control Act, 1958 provides for increasing the standard rent and Section 7 of the said Act also provides that where landlord had incurred expenditure for any improvement, addition or structural alteration in the premises and the cost of this improvement, addition or alteration has not been taken into account in determining the standard rent of the premises, the landlord may lawfully increase the standard rent by an amount not exceeding 10 per cent of cost of improvement/addition/alteration. He held that improvements to the building in the present case had been frequently carried out by the assessee and therefore, repetition of standard rent year after year had no justification. He also held that annual value under Section 23(1)(a) in any ease is the sum which the property might reasonably be expected to let from year to year and therefore, the concept of standard rent was irrelevant.
7. As regards the contention raised on behalf of the assessee that protection of Delhi Rent Control Act is available to the tenant, he observed that the same was not justified since Section 14 of Rent Control Act specifies the circumstances under which the landlord can ask for the eviction of the tenant. He, therefore, held that the stand of the assessee regarding adoption of standard rent fixed in 1971 as the ALV is not tenable and in the absence of any other guiding factor, he proceeded to work out the ALV of the property on the basis of percentage of cost method. In this regard, he referred to the provisions of Section 6 of the Delhi Rent Control Act wherein such percentage was given at 10 per cent of the cost of construction plus the market price of the land comprised in the premises on the date of commencement of the construction. Since such total cost as already worked out by him was Rs. 47.24,960, the rental value was taken by him at Rs. 4,72.496 (10 per cent of Rs. 47.24,960) and the income from house property was worked out at Rs. 7,41,582 as given hereunder:
ALV as discussed above 4,72,496
Rent received for annexies and staff quarters as shown 4,60,392
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9,32,888
Less : House-tax paid 5,911
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9,26,977
Less : 1/5 for repairs 1,85,395
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7,41,582
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8. The AO thus assessed the income of the assessee from house property situated at 14-16, Aurangzeb Road. New Delhi on a higher side taking the ALV of the said property at Rs. 9,32,888 as against Rs. 5,12,932 adopted by the assessee. The matter was carried before the learned CIT(A) and after considering the submissions made on behalf of the assessee before him as well as the material available on record, the learned CIT(A) held that there was no change in the relevant facts involved in the year under consideration as compared to the earlier years, He held that the issue thus is squarely covered by the appellate order of the Tribunal in assessee's own case for asst. yrs. 1989-90 and 1990-91 and respectfully following the same, he directed the AO to accept the ALV of the property as declared by the assessee and to delete the addition made on this issue.
9. Aggrieved by the aforesaid order of the learned CIT(A) for the year under consideration i.e. asst. yr. 1993-94, an appeal was preferred by the Revenue before the Tribunal. Meanwhile, the appeals filed by the Revenue against the consolidated order passed by the learned CITTA) for asst. yrs. 1990-91 to 1992-93 deciding a similar issue in favour of the assessee relying on the order of the Tribunal in assessee's own case for asst. yrs. 1988-89 and 1989 90 came to be heard and disposed of by the Tribunal vide its consolidated order dt. 28th March, 2002 in 1TA Nos. 5481 to 5483/Del/1995. During the course of the said hearing, the following submissions were made on behalf of the Revenue before the Tribunal:
(i) Lease agreement was between the two closely related parties inasmuch as the assessee company is 100 per cent subsidiary of the lessee company M/s DLF Universal Ltd.
(ii) Keeping in view the location of the properties, the total built-up area, the comparable rent etc., the rent at which these properties were let out by the assessee to its holding company was not fair and reasonable. The standard rent determined in 1971 could not be fair and proper basis for determining the ALV under the IT Act especially when concerned authorities had failed to revise the standard rent even after substantial additions and alterations to the properties.
(iii) The assessee could not be given advantage of the failure of the authority to determine the proper and fair standard rent in accordance with the provisions of law.
(iv) Delhi Rent Control Act also provides that if the standard rent is continuous for a long period say more than 5 years, it should be determined on the basis of cost of construction of building and the market value of the land on the date of commencement of construction by applying a rate of 10 per cent.
On the basis of the aforesaid submissions, it was pleaded on behalf of the Revenue that the matter may be restored to the file of the AO for determining the ALV of the property afresh as per the provisions of Section 23(1).
10. The aforesaid submissions made on behalf of the Revenue in the light of material placed on record were found acceptable by the Tribunal and the matter was restored by the Tribunal to the file of the AO for the following reasons given in para No. 18 of its appellate order:
From the material on file and the submissions of the CIT-Departmental Representative we find that besides above stated additions and alterations there were other investments of substantial magnitude in the properties. Again substantial investments were also made in swimming pool and health club attached to these properties. All these further enhanced the value of properties. It is necessary that all facts are taken into account for the purpose of determining the ALV. We also find that in the earlier years important facts and legal aspects were not brought to the consideration of the appellate authorities. We are of the view that for fair and just order all the relevant facts must be verified and brought on record. Fresh order should be passed after giving reasonable opportunity to the assessee. We, therefore, in the interest of justice and fair play set aside the matter to the AO. He should redetermine the ALV after considering the standard rent determinable in the case after taking into account the comparable cases various additional investments made, facilities like swimming pool and health club provided. He should get in touch with the Departmental Valuation Cell and the municipal authorities and ascertain the correct standard rent determinable in the case and then determine the ALV. Accordingly, we set aside the issue of the ALV to the AO for asst. yrs. 1990-91 to 1992-93.
11. The Tribunal thus took a different view on the issue of determination of ALV of the assessee's property situated at 14-16, Aurangzeb Road, New Delhi in its appellate order for asst. yrs. 1990-91 to 1992-93 than the one taken in assessee's own case for asst. yrs. 1988-89 and 1989-90. Since there was no appeal preferred by the Revenue before the Hon'ble High Court against the order of the Tribunal for asst. yrs. 1988-89 and 1989-90 on the similar issue and according to the assessee company, there was no change in the relevant facts of the case as involved in 1988-89 and 1989-90 with that of 1990-91 to 1992-93, a miscellaneous application was moved on its behalf before the Tribunal. The said miscellaneous application, however, was dismissed by the Tribunal which made the assessee company to approach the Hon'ble President with a request to refer the issue for consideration of a larger/Special Bench in view of the orders of the Tribunal taking a contradictory view on a similar issue. Acceding to the said request, the Hon'ble President has constituted this Special Bench to consider and decide the question incorporating the said issue.
12. The learned Departmental Representative submitted before us that the standard rent was determined way back in the year 1971 and despite substantial changes/additions made to the property subsequently, there was no fresh valuation done after 1971. He contended that the said changes/additions made by the assessee to its subject property thus were not considered for the purpose of determining standard rent. Referring to the relevant portion of the assessment order, he submitted that the ALV declared by the assessee on the basis of valuation done in 1971 thus was rightly not accepted by the AO and the same was increased taking into consideration the expenditure incurred for the changes/additions made to the subject property subsequent to the valuation done in 1971. Referring to the relevant portion of the AO's order, he explained the basis as well as the reasonableness of increase made by the AO in the annual value of the property for determining the income of the assessee from the said property for the year under consideration. He submitted that whether the said changes/additions were made by the assessee as an owner or by its tenant was not relevant in this context of determining ALV since the same, in any case, had resulted in increase in the value of property having direct bearing on the annual value thereof.
13. The learned Departmental Representative then invited our attention to the copy of the Tribunal's order for asst. yrs. 1990-91 to 1992-93 placed at page No. 21 of the assessee's paper book and read out the various contentions raised on behalf of the Revenue in order to show that all the material facts relevant to the issue under consideration were not duly considered in the earlier years in assessee's own case for asst. yrs. 1988-89 and 1989-90. He submitted that these contentions raised on behalf of the Revenue were found acceptable by the Tribunal in the light of material placed on record and accordingly, the Tribunal instead of following its earlier order for asst. yrs. 1988-89 and 1989-90, preferred to restore the matter back to the AO for examining the issue afresh after taking into consideration all these material facts which were relevant in the context. He further submitted that even the facts involved in the assessee's ease for asst. yrs. 1988-89 and 1989-90 were different from the facts involved in asst. yrs. 1990-91 to 1992-93 as well as in asst. yr. 1993-94 as pointed out on behalf of the Revenue before the Tribunal during the course of appellate proceedings for asst. yrs. 1990-91 to 1992-93 as well as by the AO in his assessment order for the year under consideration i.e. asst. yr. 1993-94 and the Tribunal, therefore, was fully justified in taking a different view on the issue than the one taken in asst. yrs. 1988-89 and 1989-90.
14. Relying on the decision of Mumbai Bench of Tribunal in the case of Tivoli Investment & Trading Co. (P) Ltd. v. Asstt. CAT . he contended that if the ALV on the basis of ratable value is not correctly declared, the AO can always compute the same on the basis of the sum for which the property might reasonably be let from year to year. He also placed reliance on the decision of Hon'ble Kerala High Court in the case of CIT v. Kalpetta Estates Ltd. wherein it was held that a different view can be taken on same set of facts in the subsequent years on closer examination of the facts and legal position. He also placed reliance on the decision of Hon'ble Rajasthan High Court in the case of CAT v. Foss Electronic to contend that a wrong order even if accepted does not create any vested right in favour of the assessee. He also contended that the rental values of property all over the country are increasing from year to year and when these facts are staring at us, the low annual value of the property situated in a prime location in a city like Delhi as declared by the assessee should not be accepted. In support of this contention, he placed reliance on the decision of Hon'ble Gujarat High Court in the ease of Gujco Carriers v. CAT .
15. The learned Counsel for the assessee, on the other hand, submitted that the cost of acquisition of the property by the assessee is not relevant for determining the standard rent thereof under the Delhi Rent Control Act, 1958. He submitted that what is relevant in this context is the cost of construction to the original owner and the same is not subject to change as a result of change in ownership. He submitted that the standard rent of the subject property was fixed in the year 1971 itself i.e. prior to the date on which the property was purchased by the assessee. He further submitted that all the relevant aspects of the matter as pointed out on behalf of the Revenue before the Tribunal in the appellate proceedings for asst. yrs. 1990-91 to 1992-93 had already been considered by the Tribunal in its order passed in assessee's own case for earlier years including asst. yrs. 1988-89 and 1989-90. In this regard, he took us through the orders of the Tribunal passed in assessee's case for the earlier years and pointed out that even the fact of having spent an amount of Rs. 9,63,490 for additions and alterations to the subject property was duly taken note of by the Tribunal. He pointed out that the Tribunal, however, found that the expenditure on the said additions or alterations was made by the tenant and not by the landlord. He pointed out that this aspect of the matter was considered by the Tribunal in the light of the relevant provision of Delhi Rent Control Act and it was held that revision of rent could not be made on this count.
16. The learned Counsel for the assessee submitted that even the stand taken by the Revenue and apparently accepted by the Tribunal in its order for asst. yrs. 1990-91 to 1992-93 that there was no revision of municipal valuation by MCD after 1971 is not factually correct since there was such a revision made by MCD w.e.f. 1st April, 1976 as well as again w.e.f. 1st April, 1989. In this regard, he invited our attention to the relevant documentary evidence placed in the paper book to point out that the municipal valuation done by MCD of the property situated at 14, Aurangzeb Road at Rs. 14,000 in 1971 was revised to Rs. 28,436 w.e.f. 1st April, 1976 and again to Rs. 31.021 w.e.f. 1st April. 1989. He pointed out that similarly the municipal valuation of the property at 16, Aurangzeb Road was increased from Rs. 17,145 as made in 1971 to Rs. 19,726 w.e.f. 1st April, 1976 and again to Rs. 21,519 w.e.f. 1st April, 1989. He contended that there was thus no change in the facts and circumstances of the case as involved in the year under consideration or even for that matter in asst. yrs. 1990-91 to 1992-93 from the facts as involved in asst. yrs. 1988-89 and 1989-90 wherein the issue was decided by the Tribunal in favour of the assessee. He contended that the said decision was rendered by the Tribunal in asst. yrs. 1988-89 and 1989-90 after taking into consideration all the relevant facts and even the reference filed by the assessee against the said order under Section 256(1) was rejected by the Tribunal. He pointed out that the Department has not gone in reference under Section 256(2) against the order of the Tribunal for asst. yrs. 1988-89 and 1989-90 and the said order of the Tribunal thus has become final. He contended that, if at all, all the relevant facts were not taken into consideration by the Tribunal in asst. yrs. 1988 89 and 1989-90, as sought to be contended in the subsequent years including the year under consideration, the Department ought to have filed a reference under Section 256(2) before the Hon'ble High Court. He submitted that the Department has not only accepted the order of the Tribunal for asst. yrs. 1988-89 and 1989-90 but the AO himself has followed the said order in asst. yrs. 1995-96 and 1996-97 and even in asst. yr. 2000-01 and onwards while accepting the ALV declared by the assessee of the subject property. He submitted that since there is no material change in the facts and circumstances of the case involved in the subsequent years including the year under consideration, the order of the Tribunal passed in asst. yrs. 1988-89 and 1989-90 deciding the similar issue in favour of the assessee deserves to be followed. He pointed out that the order of the Tribunal passed for asst. yrs. 1990-91 to 1992-93 taking a different view on a similar issue has been challenged by the assessee in the appeals filed before the Hon'ble Delhi High Court and their Lordships have admitted the same vide an order dt. 10th Dec, 2002 holding that a substantial question of law is involved therein.
17. As regards the reliance of the Revenue placed on the provisions of Section 23(1)(a), he contended that the said provisions cannot be applied in the facts of the present case as held by Hon'ble Delhi High Court in the case of John Tinson & Co. (P) Ltd. and Ors. v. CIT and Ors. (2007) 207 CTR (Del) 423 : (2006) 157 Taxman 410 (Del) and by Delhi Bench of Tribunal in the case of Midland International Ltd. v. Dy. CIT (2007) 112 TTJ (Del) 210 : (2007) 13 SOT 149 (Del). He also contended that actual rent would be relevant only if it is higher than the standard rent w.e.f. 1976 and since the actual rent received by the assessee in the present case was lower than the standard rent, the same was not relevant for the purpose of determining the ALV. In support of this contention, he relied, inter alia, on the decisions of Hon'ble Delhi High Court in the cases of CIT v. Raghubir Saran Charitable Trust , L. Bansidhar & Sons v. CIT , CIT v. Vinay Bharat Ram & Sons (HUF) (2003) 179 CTR (Del) 31 : (2003) 261 1TR 632 (Del) and that of Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee and Amolak Ram Khosla v. CIT .
18. The learned Counsel for the assessee also contended that even though the principle of res judicata does not apply to income-tax proceedings, the rule of consistency is required to be followed in the income-tax proceedings. He also contended that the theory of precedent of the earlier pronouncement applies to quasi judicial and judicial * authorities and where the Revenue has accepted the status and correctness of the earlier decisions, it is not open to them to challenge its correctness in other cases without any just cause. In support of this . contention, he relied, inter alia, on the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT as well as the decisions of Hon'ble Delhi High Court in the cases of Director of IT (Exemption) v. Guru Nanak Vidya Bhandar Trust , CIT v. Akash Deep Promoters & Developers (P) Ltd. (2005) 196 CTR (Del) 99 and CWT v. Allied Finance (P) Ltd. (2005) 195 CTR (Del) 528.
19. We have considered the rival submissions in the light of material available on record and the judicial pronouncements cited at the Bar. The issue before us as raised in the question referred to this Special Bench is relating to the determination of ALV of the property belonging to the assessee and situated at No. 14-16, Aurangzeb Road, New Delhi in accordance with law. The relevant provisions governing the determination of ALV are contained in Section 23 and Sub-section (1) thereof, being relevant in the present context, the provisions thereof are extracted below for ready reference:
23. (1) For the purposes of Section 22, the annual value of any property shall be deemed to be:
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in el. (a), the amount so received or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in Clause (a), the amount so received or receivable;
20. The relevant property belonging to the assessee in the present case was undisputedly given on rent during the year under consideration and as such, the provisions as contained in Clause (b) of Sub-section (1) of Section 23 are applicable for determining its ALV. A perusal of the said provisions shows that 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. It thus follows that the determination of the annual value is to be made at a sum for which the property might be reasonably expected to let from year to year and the same is to be compared with the actual rent received. If the rent so received or receivable is higher than the amount at which it would be reasonably expected to let from year to year, then the actual rent received will be adopted as an annual value. As held by Hon'ble Delhi High Court in the case of John Tinson & Co. (P) Ltd. v. CAT (supra), the standard rent of a property is synonymous to "the sum for which the property might reasonably be expected to let from year to year" and the AO, therefore, is duty-bound to calculate such standard rent. It was also held by the Hon'ble Delhi High Court that it is not necessary that standard rent should be fixed by the Rent Controller under the Rent Control Act for it to be taken into reckoning for the purposes of Section 23(1) and even the AO can fix the same adopting the principles and methodology laid down in the relevant rent laws. In the case of CIT us. Raghubir Saran Charitable Trust (supra), it was held by the Hon'ble Delhi High Court that market rent could not be more than the standard rent and in a case where rent actually paid was more than the standard rent, the same has to be adopted as an ALV of the property irrespective of the fact that the market rent was actually more than the rent received by the assessee.
21. In the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee (supra), it was held by the Hon'ble Supreme Court that even though there would ordinarily be in a free market close approximation between the actual rent received by the landlord and the rent which he might reasonably expect to receive from a hypothetical tenant, where the rent of the building is subject to rent control legislation, this approximation may and often does get displaced. It was also held that the determination of standard rent is not left to the unfettered and unguided discretion of the Rent Controller and he is required to fix the standard rent in accordance with formula laid down in Section 6. It was also held that the compulsive force of the formula laid down in Section 6 for the determination of standard rent is not in any way fettered down by Section 9(2), but the marginal discretion is given to the Controller to mitigate the rigour of the formula where the circumstances of the case so require. It was held that the amount calculated in accordance with the relevant formula set out in Section 6 would, therefore, ordinarily represent the standard rent of the building unless the landlord or the tenant as the case may be can persuade the Controller that there are circumstances requiring adjustment in the amount so arrived at. The annual value of a building as governed by the Delhi Rent Control Act, 1958 must be limited to the measure of standard rent determinable under that Act and the landlord cannot reasonably expect to get more than the standard rent payable in accordance with the principles laid down in the Delhi Rent Control Act, 1958. It was held that in a case where the standard rent of a building is not fixed by the Controller, the assessing authority would have to arrive at its own figure of standard rent by applying the principles laid down in the Delhi Rent Control Act, 1958 for determination of standard rent. It was clarified that when the assessing authority arrives at its own figure of standard rent by applying the principles laid down in the relevant Rent Control Act, it does not usurp the function of the Controller because it does not fix the standard rent which would be binding on the landlord and the tenant which can be done only by the Controller under the Act. What the assessing authority thus arrives at is merely its own estimate of standard rent for the purpose of determination of ALV of the building and it is the perfect legitimate function within the scope of the jurisdiction of the assessing authority.
22. The position which thus emerges from the reading of the relevant provisions of Section 23 and the ratio laid down in their judgments by the Hon'ble apex Court as well as Hon'ble jurisdictional High Court is that the annual value of the property which is let out during the relevant year would be the highest of the following three sums:
(i) Municipal valuation.
(ii) The fair rent determined by the Rent Control Act.
(iii) The actual rent received by the owner.
23. Insofar as the facts of the present case are concerned, there is no dispute that the rent actually received by the assessee from the property in question was Rs. 4,91,537. Out of the said amount, a sum of Rs. 4,60,392 was received towards rent for annexies to the properties situated at 14-16, Aurangzeb Road as well as staff quarters etc. attached thereto and the ALV of this portion of the property as shown by the assessee on the basis of actual rent received is not disputed even by the AO. The ALV of remaining portion i.e. the main house property situated at 14 and 16, Aurangzeb Road, New Delhi was shown by the assessee at Rs. 52,540 on the basis of municipal valuation fixed by NDMC and the dispute is about the determination of ALV of this portion of the property. In this regard, the AO has not disputed the fact that the annual rent of Rs. 31,145 only was received by the assessee during the year under consideration in respect of the said property and it was never his case that the rent actually received by the assessee was more than Rs. 31,145. As regards the municipal valuation of the said portion of the property, it is observed that such valuation was not only made by NDMC at Rs. 31,145 initially upto 31st March, 1976, but the same was revised to Rs. 48,162 during the period 1st April, 1976 to 31st March, 1989 and further enhanced to Rs. 52,540 from 1st April, 1989 onwards. Since the revised municipal valuation done by the NDMC as applicable to the year under consideration at Rs. 52,540 was higher than the actual rent of Rs. 31,145 received by the assessee as well as the standard rent of Rs. 31,145 determined by the Controller under the Rent Control Act, the same was adopted by the assessee as the ALV of the property.
24. Insofar as the quantum of rent claimed to be actually received by the assessee as well as the municipal valuation done by the NDMC is concerned, the Revenue has not raised any objection. Their objection is mainly about the standard rent of the subject property as per the Delhi Rent Control Act, 1958. According to the AO, the said standard rent in respect of the property in question was fixed by the Controller of Rent way back in the year 1971 and thereafter, there being no revision of the said rent despite various factors including especially the expenditure incurred for construction/modification/additions carried to the said property, the rent was required to be worked out afresh as per the relevant provisions of the Delhi Rent Control Act, 1958. Accordingly, he added the cost of additions and alterations made to this properly in asst. yr. 1988-89 amounting to Rs. 9,63,413 to the balance value of the property shown by the assessee as on 1st June, 1986 at Rs. 37,61,541 and applied a rate of 10 per cent to the said cost aggregating to Rs. 47,24,960 to work out the standard rent of the said property at Rs. 4,72,496 as against Rs. 31,145 determined by the Controller in 1971 and the said amount being higher than the rent actually received by the assessee and municipal valuation of the property, the same was adopted by him as ALV of the property.
25. It is no doubt true that if the standard rent of the property is not fixed/revised by the Controller, the assessing authority is at liberty to arrive at its own figure of standard rent by applying the principles laid down in the Delhi Rent Control Act. 1958 for determination of standard rent as held by Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor us. New Delhi Municipal Committee (supra). The question in the present ease, however, is that whether the Controller having fixed the standard rent in respect of the property in question in 1971, any revision thereof was warranted in the facts and circumstances of the case as per the relevant provisions of the Delhi Rent Control Act as held by the AO and whether such revision made by him was in accordance with the principles of valuation laid down in the Delhi Rent Control Act, 1958?
26. In this regard, it is observed that the principles relating to determination of standard rent are laid down in Section 6 of the Delhi Rent Control Act, 1958 whereas the provisions of Sections 6A and 7 deal with the revision/increase of standard rent. These provisions being relevant in the present case are extracted below:
6. Standard Rent-(1) Subject to the provisions of Sub-section (2), 'standard rent', in relation to any premises, means:
(A) in the case of residential premises:
(1) where such premises have been let out at any time before the 2nd day of June, 1944,:
(a) if the basic rent of such premises per annum does not exceed six hundred rupees, the basic rent; or
(b) if the basic rent of such premises per annum exceeds six hundred rupees, the basic rent together with ten per cent of such basic rent;
(2) where such premises have been let out at any time on or after the 2nd day of June, 1944,:
(a) in any case where the rent of such premises has been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947 (19 of 1947), or the Delhi and Ajmer Rent Control Act, 1952 (38 of 1952),:
(i) if such rent per annum does not exceed twelve hundred rupees, the rent so fixed; or
(ii) if such rent per annum exceeds twelve hundred rupees, the rent so fixed together with ten per cent of such rent;
(b) in any other case, the rent calculated on the basis of ten per cent per annum of the aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction:
(B) in the case of premises other than residential premises:
(1) where the premises have been let out at any time before the 2nd day of June, 1944, the basic rent of such premises together with ten per cent of such basic rent:
Provided that where the rent so calculated exceeds twelve hundred rupees per annum, this clause shall have effect as if for the words 'ten per cent', the words 'fifteen per cent' had been substituted;
(2) where the premises have been let out at any time on or after the 2nd day of June, 1944:
(a) in any case where the rent of such premises has been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947 (19 of 1947) or the Delhi and Ajmer Rent Control Act. 1952 (38 of 1952):
(i) if such rent per annum docs not exceed twelve hundred rupees, the rent so fixed; or
(ii) if such rent per annum exceeds twelve hundred rupees, the rent so fixed together with fifteen per cent of such rent;
(b) in any other case, the rent calculated on the basis of ten per cent per annum of the aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction.
(2) Notwithstanding anything contained in Sub-section (1):
(a) in the case of any premises, whether residential or not, constructed on or after the 2nd day of June, 1951, but before the 9th day of June, 1955, the annual rent calculated with reference to the rent at which the premises were let for the month of March, 1958, or if they were not so let, with reference to the rent at which they were last let out, shall be deemed to be the standard rent for a period of seven years from the date of the completion of the construction of such premises;
(b) in the case of any premises, whether residential or not, constructed on or after the 9th day of June, 1955. including premises constructed after the commencement of this Act but before the commencement of the Delhi Rent Control (Amendment) Act, 1988, the annual rent calculated with reference to the rent agreed upon between the landlord and the tenant when such premises were first let out shall be deemed to be the standard rent for a period of five years from the date of such letting out.
(c) in the case of any premises, whether residential or not, constructed on or after the commencement of the Delhi Rent Control (Amendment) Act, 1988 and to which the provisions of this Act are made applicable by virtue of Clause (d) of Section 3, the rent calculated on the basis of ten per cent per annum of the aggregate amount of the actual cost of construction of the premises and the market price of the land comprised in the premises on the date of commencement of the construction, of the premises shall be deemed to be the standard rent.
(3) For the purposes of this section, residential premises includes premises let out for the purposes of a public hospital, an educational institution, a public library, reading room or an orphanage.
6A. Revision of rent.-Notwithstanding anything contained in this Act, the standard rent, or, where no standard rent is fixed under the provisions of this Act in respect of any premises, the rent agreed upon between the landlord and the tenant, may be increased by ten per cent every three years.
7. Lawful increase of standard rent in certain cases and recovery of other charges.-(1) Where a landlord has at any time, before the commencement of this Act with or without the approval of the tenant or after the commencement of this Act with the written approval of the tenant or of the Controller, incurred expenditure for any improvement, addition or structural alteration in the premises, not being expenditure on decoration or tenantable repairs necessary or usual for such premises, and the cost of that improvement, addition or alteration has not been taken into account in determining the rent of the premises, the landlord may lawfully increase the standard rent per year by an amount not exceeding (ten per cent) of such cost.
(2) Where a landlord pays in respect of the premises any charge for electricity or water consumed in the premises or any other charge levied by a local authority having jurisdiction in the area which is ordinarily payable by the tenant, he may recover from the tenant the amount so paid by him; but the landlord shall not recover from the tenant whether by means of an increase in rent or otherwise the amount of any tax on building or land imposed in respect of the premises occupied by the tenant:
Provided that nothing in this sub-section shall affect the liability of any tenant under an agreement entered into before the 1st day of January, 1952, whether express or implied, to pay from time to time the amount of any such tax as aforesaid.
27. In the present case, the property in question is a residential premises and the same having been let out by the assessee after 2nd June, 1944 and no rent thereof having been fixed under the Delhi and Ajmer-Merwara Rent Control Act, 1947 or the Delhi and Ajmer Rent Control Act, 1952, the determination of standard rent is required to be done by applying the provisions of Sub-clause (2)(b) of Clause (A) of Sub-section (1) of Section 6 of the Delhi Rent Control Act, 1958. It stipulates that the standard rent in case of the properties like the one in the present case would be the rent calculated on the basis of 10 per cent per annum of the aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction. In the present case, the land was purchased and construction of building thereon was done by the previous owner prior to 1971 and thus, the standard rent fixed in 1971 of the said property could be taken as determined by the Controller taking into consideration the actual cost of construction incurred by the previous owner as well as the market price of the land comprised in the premises on the date of the commencement of the construction. At the relevant time, the rate to be applied to such cost for determining the standard rent was 7.5 per cent which has been subsequently increased w.e.f. 1st Dec, 1988 to 10 per cent and the Controller thus would have applied the said rate of 7.5 per cent to such cost for determining the standard rent of the property in the year 1971. It is observed that the AO, however, adopted a value of Rs. 37,61.541 paid by the assessee for the purchase of the said property from the previous owner as appearing in the accounts as on 1st June, 1986 and added a further sum of Rs. 9,63,419 incurred on additions and alterations made to the property in asst. yr. 1988-89 in order to apply a rate of 10 per cent to determine the standard rent. In our opinion, this method adopted by the AO is not in accordance with the relevant provisions of Section 6(1)(A)(2) as applicable in the present case. The rate of 10 per cent applied by the AO no doubt was correct but. the cost of the property to the assessee as taken by him as basis for applying the said rate was wrong because as per the Sub-clause (2)(b) of Clause (A) of Section 6(1), the aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of commencement of the construction was to be taken as the basis for applying the said rate in order to calculate the standard rent. What is relevant for this purpose, therefore, was the cost of construction actually incurred by the previous owner or moreso by the original owner as well as the market price of the land on the date of the commencement of the construction and not the cost of the property to the assessee. As already observed, the standard rent was determined by the Controller in the year 1971 and the land having been acquired by the previous owner prior to the year 1971 as well as the construction having been done by the said owner before 1971, the value to be taken as basis as per Clause (A)(2)(b) of Section 6(1) ought to have been already considered by the Controller while determining the standard rent in the year 1971 itself. This being so, it was not permissible as per the relevant provisions of Section 6 of the Delhi Rent Control Act, 1958 to substitute the said base price with the cost of the property to the assessee in order to determine/revise the standard rent and the said cost thus was entirely irrelevant in the context of determining the standard rent of the property.
28. Undisputedly, an expenditure of Rs. 9,63,419 was incurred on additions and alterations made to the property in the previous year relevant to asst. yr. 1988-89. However, as submitted on behalf of the assessee before the authorities below as well as before us and remained uncontroverted by the Revenue authorities, the said expenditure was incurred by the tenant and not by the assessee. As per the provisions of Section 7(1) which are already extracted hereinabove, where a landlord has incurred with the written approval of the tenant or of the Controller, expenditure for any improvement, addition or structural alteration in the premises and the cost of that improvement, addition or alteration has not been taken into account in determining the rent of the premises, the landlord may lawfully increase the standard rent per year by an amount not exceeding 10 per cent of such cost. In order to lawfully increase the standard rent under Section 7(1) by an amount not exceeding 10 per cent of the cost of improvement, addition or alteration to the property, the prerequisite condition is that the said cost must be incurred by the landlord himself. It, therefore, follows that if such cost is incurred by the tenant, the owner cannot claim any lawful increase in the standard rent under Section 7(1) of the Delhi Rent Control Act, 1958. As already noted, the expenditure of Rs. 9,63,419 on alteration and additions to the property was incurred by the tenant and not by the assessee as an owner and this being the undisputed position, we are of the view that the assessee was not entitled lawfully to claim any increase in the standard rent on this account and the AO was not justified in taking into account the said expenditure for determining the standard rent of the property. His action on this count thus was not in accordance with the relevant provisions of Section 7(1) of the Delhi Rent Control Act, 1958.
29. As regards the periodic revision of standard rent already fixed by the Controller under the Delhi Rent Control Act, 1958, it is observed that the relevant provisions allowing such revision are contained in Section 6A which has been inserted in the statute only w.e.f. 1st Dec, 1988. Moreover, a perusal of the said provisions shows that the expression used therein is "may be increased by 10 per cent every three years" which, as rightly submitted by the learned Counsel for the assessee, clearly shows that it is not mandatory. The discretion is given to the parties and if there is no agreement between them to revise the rent already fixed, such revision cannot be thrust upon them under the Delhi Rent Control Act, 1958.
30. As such, taking into consideration all the facts of the case as well as keeping in view the relevant provisions of Delhi Rent Control Act, 1958 as discussed above, we are of the view that standard rent of the property in question belonging to the assessee can be determined by applying a rate of 10 per cent to the base value i.e. aggregate amount of the actual cost of construction and the market price of the land comprised in the premises on the date of the commencement of the construction. Since the said base value as taken while determining standard rent in the year 1971 was Rs. 4,15,267 (i.e. Rs. 31,145 x 100/7.5), the standard rent of the property by applying the rate of 10 per cent to the said base value in accordance with the principles laid down in Section 6 of the Delhi Rent Control Act, 1958 would come to Rs. 41,527. As the standard rent so determined at Rs. 41,527 is lower than the ALV of the relevant portion of the property declared by the assessee at Rs. 52,540 on the basis of the municipal valuation fixed by NDMC, we hold that no adjustment/ addition to the ALV of the property declared by the assessee as done by the AO is called for. We, therefore, agree with the view taken by the Tribunal on this issue in assessee's own case for asst. yrs. 1988-89 and 1989-90 accepting the ALV of the property declared by the assessee which has been followed by the AO himself subsequently in asst. yrs. J 995-96, 1996-97 and even in asst. yr. 2000-01 and onwards.
31. Accordingly, the question referred to this Special Bench is answered in negative i.e. in favour of the assessee. The matter will now go back to the Division Bench for disposing of the appeal of the Revenue being ITA No. 6101/Del/1996 in conformity with the aforesaid decision of this Special Bench.