D.K.Seth, J. - (1.) This appeal has been admitted on the following grounds : "Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in directing the AO to adopt the gross rent received by the assessee being lessor from the let out property for the purpose of computing income from house property in place of much higher rent fetched by the lessee by sub-letting the same property ?"
(2.) Before we embark upon the exercise to answer this question, we may briefly refer to the facts of the case in the context whereof we are supposed to answer the same. The assessee is the owner of the house property since leased out by the assessee to M/s HMP Services Ltd. (HMPS) for a period of 21 years. In terms of the said agreement for lease the assessee was to receive rent @ Rs. 21,000 p.m. The assessee has also received an interest-free loan of Rs. 50 lakhs from the lessee for the period of continuation of the lease. The assessee declared its income from the said house property at an annual rent of Rs. 2,52,000. Whereas, on the basis of the fact that the lessee HMPS let out the said house property at an annual rent of Rs. 18,33,000 to different tenants including a nationalized bank, the AO assessed the annual value at Rs. 18,33,000 as the income of the assessee from the said house property. Admittedly, HMPS is being assessed to tax in respect of its actual receipt of Rs. 18,33,000 under the head "income from other sources". It was also found that apart from the nationalized bank, which was paying a very high rate of rent, all the other tenants are paying rent at a rate that would justify the annual income at Rs. 2,52,000. "The order of AO, however, was reversed by the CIT(A) and this reversal was affirmed by the learned Tribunal, against the order of which the present appeal has been filed. It may also be noted that for the earlier years the annual value of the house property was assessed at Rs. 2,52,000 right from the year 1987-88. This was followed in the assessment under challenge for the years 1991-92 and 1993-94."
(3.) According to Mr. Mallick, Clause (b) of Sub-section (1) of Section 23 of the IT Act, 1961, is applicable in this case and that the actual rent received shall be the income from the house property in case the annual value is less than the actual rent received. Therefore, according to him, the annual value is to be determined. Clause (a) prescribes that a house, which has not been let out, is to be valued at the annual rent expected from the house property if it were let out. According to Mr. Mallick this is to be decided on the basis of the market rate of the rent available. In the present case there is a comparable unit in respect of the selfsame house out of which the HMPS is getting the annual rent of Rs. 18,33,000. Therefore, the valuation was rightly assessed by the AO. He relied on the decision in the matter of Babulal Raj Garhia, In re (1936) 4 ITR 148 (Cal) at p. 150; and Liquidator, Mahmudabad Properties Ltd. v. CIT, since affirmed (sic) in CIT v. H.P. Sharma (1980) 122 ITR 675 (Del) and Smt. Protima Roy v. CIT. (1) In our view, the decision in Smt. Protima Roy (supra) by a Division Bench of this Court proceeded in a situation where the leasing out was a facade and not a genuine one and, therefore, in the said decision the rent shown in the lease deed was ignored and the property was supposed to be assessed on the basis of bona fide annual value as determined under Section 23 of the Act being the. sum at which the property might reasonably be expected to let from year to year. This decision would not help Mr. Mallick in view of the fact of the present case, where the genuineness of the lease was not questioned or doubted and on the other hand the lease was held to be legal and valid. (2) The provisions contained in Section 23 of the IT Act, 1961 are identical with the provisions contained in Section 174 of the Calcutta Municipal Corporation Act, 1980 (CMC Act). For the purpose of arriving at the annual value of a holding (building), the Courts have always adopted the process of municipal valuation as identical with the process to be followed under Section 23. In Mrs. Sheila Kaushish v. CIT, the standard rent determined under the provisions of the Delhi Rent Control Act was held to be the annual value of the building according to the definition given in Section 23(1) of the Act as it stood prior to its amendment in 1975 and not the actual rent received by the landlord from the tenant. (3) By the 1975 amendment, Clause (b) was inserted in Section 23(1) postulating a case in which a building might reasonably be expected to let from year to year may be less than the actual amount received or receivable by the landlord from the tenant. In the said decision in Mrs. Sheila Kaushish (supra), the question, whether the actual rent received by the assessee or the standard rent determined under the Delhi Rent Control Act should be taken to be the annual value of the property within the meaning of Section 23 of the Act, was held to be concluded and covered by the decision in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee. (4) In the said decision in Dewan Daulat Rai Kapoor (supra) the apex Court had held : "In either case, according to the definition of "annual value" given in both statutes, the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant would constitute the correct measure of the annual value of the building. The Court pointed out that in each case the assessing authority would have to arrive at its own figure of the standard rent by applying the principles laid down in the Rent Act for determination of the standard rent and determine the annual value of the building on the basis of such figure of the standard rent. The Court, on this view, negatived the attempt of the municipal authorities in each of the cases to determine the annual value of the building on the basis of the actual rent received by the landlord and observed that the annual value of the building must be held to be limited by the measure of the standard rent determinable on the principles laid down in the Rent Act and it could not exceed such measure of the standard rent. Now, this was a decision given on the interpretation of the definition of "annual value" in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911, for the purpose of levy of house tax, but it would be equally applicable in interpreting the definition of "annual value" in Sub-section (1) of Section 23 of the IT Act, 1961, because these definitions are in identical terms and it was impossible to distinguish the definition of that term in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911. We must, therefore, hold, on an identical line of reasoning, that even if the standard rent of a building has not been fixed by the controller under Section 9 of the Rent Act and the period of limitation prescribed by Section 12 of the Rent Act for making an application for fixation of the standard rent having expired, it is no longer competent to the tenant to have the standard rent of the building fixed, the annual value of the building according to the definition given in Sub-section (1) of Section. 23 of the IT Act, 1961, must be held to be the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant. This interpretation which we are placing on the language of Sub-section (1) of Section 23 of the IT Act, 1961, may be regarded as having received legislative approval for, we find that by Section 6 of the Taxation Laws (Amendment) Act, 1975, Sub-section (1) of Section 23 has been amended and it has now been made clear by the introduction of Clause (b) in that Sub-section that where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum for which the property might reasonably be expected to let from year to year, the amount so received or receivable shall be deemed to be the annual value of the property. The newly added Clause (b) clearly postulates that the sum for which a building might reasonably be expected to let from year to year may be less than the actual amount received or receivable by the landlord from the tenant. We are, therefore, of the view that in the present case the standard rent of the warehouse determinable under the provisions of the Rent Act must be taken to be annual value within the meaning of Sub-section (1) of Section 23 of the IT Act, 1961, and the actual rent received by the, assessee from the American Embassy cannot of itself be taken as representing the correct measure of the annual value." (5) In Dr. Balbir Singh v. Municipal Corporation of Delhi, it was held that even if the assessee was able to show by proof or prevailing circumstances, such as the nature of the building, its situation or state of repair, that he could not reasonably expect to get from a hypothetical tenant an amount of rent up to or equal to even the standard rent, then and in that event, the ratable value of the building need not still be determined at the standard rent. Our High Court in CIT v. Kishanlal and Sons (Udyog) (P) Ltd. by a Division Bench, following Dr. Balbir Singh (supra), held that there may be cases where the lessor may not get the amount of rent expected as standard rent since the assessee was liable to pay tax on the income from the house property even if the house is kept vacant. Therefore, it would be the actual rent received, if it is less than the standard rent, would be the valuation under Section 23(1)(a). In the said decision it was held that because of the presence of Clause (b), Clause (a) of Section 23(1) must refer to, and only to, vacant property, which was not let out. If a property is actually let out, then the expectation of its letting out becomes an actual reality, and the proof of expectation, can be made in the best manner possible, by producing evidence of the rental which is being actually received by the assessee. In the process this decision followed Mrs. Sheila Kaushish (supra) by the apex Court. The reasoning to support this finding, as expressed, was that in considering the annual value of property for any assessment year, that assessment year, as far as practicable, should be taken in isolation, as if that assessment year stood by itself. Property which is already tenanted at the beginning of the assessment year, cannot be expected to be let from year to year at any figure higher than the rent which is being produced actually by the property in question. Clause (a) of Section 23(1) of the IT Act, 1961, applies not only to property which is vacant and not under any lease deed, but is also applicable to property which is already tenanted and subject to the continuing fixed rental; but in the latter case, the property is to be treated as tenanted property; the word "vacant" is not to be read into the section, nor any notion of the property being treated as vacant. Clause (b) of Section 23(1) refers to a situation where the rent received or receivable by the assessee is higher than the expected market rental value of the property itself. But this does not mean that because of the presence of Clause (b), Clause (a) of Section 23(1) must refer to, and only to, vacant property, which is not let out. If a property is actually let out, then the expectations of its letting out become an actual reality and the proof of the expectation, can be made in the best manner possible by producing evidence of the rental which is being actually received by the assessee. In the absence of any finding that the deed was a sham deed, created for the purpose of showing the property as tenanted, though in reality, a vacant property, and the learned Tribunal having accepted the deed as genuine, since the assessee was not receiving the higher standard rent, the expected rent of the property according to Section 23(1)(a) was the rent actually received, for the simple reason that even if the standard rent were assumed to be higher, yet the assessee was not receiving that higher standard rent. (6) Another Division Bench of this Court in CIT v. India Co. Ltd., in a case where none of the agreements was disbelieved or were held to be collusive, the actual receipt by the assessee was held to be the basis of consideration by the Tribunal for the purpose of assessing the income from the house property. The decision in Protima Roy (supra) and Smt Pratima Roy v. CIT were distinguished in the said decision on the ground that in that decision the agreement was found to be ingenuine, which was not the case there. Thus, the two decisions in Protima Roy (supra) and Smt. Pratima Roy (supra) cited by Mr. Mallick would not be of any assistance in the present case where the agreement was held to be genuine. (7) Whether the lessee received higher amount or not is wholly immaterial for the purpose of determining the income from the house property assessed at the hands of the lessor/assessee. Section 23(1) as it stands has two aspects. One is in respect of vacant house, which is not let out, where a notional annual value is to be determined as being expected to be the rent if it were let out. In such case we do not think that there would be any difficulty in determining the income out of such house property on the basis of standard rent or the municipal valuation as the case may be. Since the provisions of Section 23(1) are identical with those of Section 174 of the Calcutta Municipal Corporation Act, 1980 (CMC Act), therefore, it would not be unreasonable to assess the valuation under Section 23(1) of the house property on the basis of the annual value determined under the CMC Act.;