- (1.) IN this reference under sec. 66 (1) of the Income-tax Act, 1922 the following question of law arises out of the appellate order of the Tribunal: "whether on the facts of the case the bonafide annual value and the taxable income as computed by the Tribunal in respect of the property at no. 8, India Exchange Place, for the assessment years 1951-52 to 1953-54 and 1956-57 are in accordance with the provisions of sec. 9 of the Indian Income Tax Act?" The facts of the case may be stated as follows: -The house property at no. 8, India Exchange Place, Calcutta a five-storied building belongs to the assessee, Parbutty charan Law and his co-shares. The entire building is occupied by tenants, the ground floor being in the possession of M/s. Kothari and Sons and the remaining four floors having been let out to M/s. Birla Brothers Ltd. There of the ground floor is Rs. 36,000/-per annum and the rent of the remaining floors payable by m/s. Birla Brothers Ltd. is Rs. 81,000/ -. The tenancy of M/s. Birla Brothers is held under a deed of lease dated November 16, 1950. Under the terms of the said deed of lease M/s. Birla Brothers Ltd. undertook to bear the costs of such petty repairs as are necessary to keep the demised premises in good tenantable condition. The deed of lease also provides that the tenant is to maintain at their own cost the drainage pipes, water taps, fittings, latrines, water closets, sanitary arrangements, electrical installations etc. in good repairs at all times. The landlords including the assessee, Parbutty Churn Law undertook to execute at their own cost and expense "such structural repairs which may necessitate replacements" and to keep the premises wind and water tight and to maintain the exterior of the building and all common passages, halls, entrance, lights, etc. in good condition. The lessors further agreed to provide a suitable staff for the working of the lifts and also to pay all municipal rates and taxes. As regards the ground floor of the building in the occupation of M/s. Kothari and Sons, the landlord including the assessee, Parbutty Churan Law, had agreed to bear the cost of all necessary repairs. The Income-tax Officer, in determining the fair annual letting value of the premises, held that the rent of first, second, third and fourth floors of the said premises amounting to Rs. 81,000/- had been fixed at a rate lower than the property would have otherwise fetched. According to Mm the said rent of Rs. 81,000/-was fixed at a rate lower than the rent of Rs. 36,000/- in the occupation of M/s. Kothari and Sons, because, unlike M/s. Kothari and Sons, M/s. Birla Brothers Ltd. had undertaken to do the repairs which ordinarily should have been done by the landlords. Accordingly, the Income-tax Officer estimated the cost of repairs at l/5th of the actual rental paid by M/s. Birla Brothers Ltd. and, added it to the actual rental for the purpose of arriving at the annual value. The Income-tax Officer then deducted from the amount thus arrived at the municipal taxes and the expenses for maintenance of the lift to arrive at what he called the bonafide annual letting value. The appellate Assessment Commissioner confirmed the addition, made by the Income-tax Officer, of 1 5th of the actual rent to get the annual letting value. But the appellate Assessment Commissioner found that the annual value of the ground floor and the annual value of the first to fourth floors should be calculated separately to determine the total annual value of the property. He held that, as the landlords have undertaken to bear the cost of repairs in the case of the ground floor the bonafide annual value of the property shall be determined under sec. 9 (1) (i) of the Income tax Act, or in other words, shall be subject to an allowance of a sum equal to l/6th of such bonafide annual value after necessary deductions for tenant's share of tax and costs of maintenance of lift etc. He further held that in the case of M/s. Birla Brothers Ltd. , as the latter had undertaken to bear the cost of repairs the net annual value, is to be determined under section 9 (1) (ii) and shall be, therefore, subject to an allowance equal to the difference between the bonafide annual value and the rent paid by the tenant up to but not exceeding l/6th of the bonafide annual value. On further appeal the Tribunal agreed with the Income-tax authorities that sec. 9 (1) (ii) would govern the valuation of the first to fourth floors and that the ground floor would fall within sec. 9 (1) (i) of the Act.
(2.) THE Tribunal, however, was unable to sustain the addition to the stipulated rent of Rs. 81,000/- by l/5th of that amount adjudged by the Income-tax Officer, and the Appellate Assistant Commissioner to determine the bonafide annual letting value. Accordingly, the bonafide annual value of the property for the assessment year 1956-57, the Tribunal held, was Rs. 89,453/- as against Rs. 1,06,37/ - computed by the Appellate Assistant Commissioner. The Tribunal also directed the Income-tax Officer to proceed on similar lines to compute the bonafide annual value of the building for the other assessment years. Mr. Balai Pal, on behalf of the Commissioner of Income-tax, Calcutta, has challenged the bonafide annual value of the property arrived at by the Tribunal and has submitted that on the facts and circumstances of the case the addition to the stipulated rent of Rs. 81,000/- by l/5th of that amount by the Income-tax Officer as costs of repairs is the correct method to adopt for arriving at the fair annual letting value.
(3.) HE has urged the following grounds to substantiate his contention that the basis of computation of the Appellate Assistant Commissioner is correct and that of the Tribunal is incorrect: (a) Under sec. 9 (2) of the Income-tax Act the annual value of the property is to be taken as a sum which the property might reasonably be expected to fetch. The annual value is no doubt a hypothetical sum. But what is to be taken into consideration is the whole of the consideration which the landlord receives from the tenant for his right to use and occupy the property. For this purpose the rent paid for tenancies of comparable units in the same locality or in similar situation affords valuable guidance. He has cited, In the matter of Krishna Lai Seal and another assessee, (1) A. I. R. 1932 Cal. 886: 36 C. W. N. 1144 and Lalamull Sanghan Lal v. Commissioner of Income-tax, Punjab, (2) A. I. R. 1930 Lah. 762: 4 I. T. R. 250 for the proposition that the actual terms obtained by the landlord in a particular case are some evidences of "the sum for which the property might reasonably be expected to let from year to year". He has submitted that in the instant case, obligations of the tenant to do repairs under the deed of lease are much greater than the tenant's liabilities under sec. 108 (m) of the Transfer of Property Act and this fact should be taken as a consideration for letting out the property at comparatively lower rent. He, therefore, has concluded that the basis of computation of the Appellate Assistant Commissioner, namely, the addition of the tenant's cost of repairs to the actual stipulated rent payable by the tenant for arriving at the annual value is correct. (b) He added that, in any event, the Tribunal's computation is wholly defective for in computing the annual letting value the Tribunal has deducted the tenant's share of the municipal rates and the cost for maintenance of lifts and the staff, and yet in computing the actual rent paid by the tenant the Tribunal has deducted the charges for maintenance of the lifts etc. but not the tenant's share of the municipal taxes.;