R.M.LODHA,J. - (1.) THE Income Tax Appellate Tribunal, Jaipur Bench, Jaipur has referred the following question for our answer: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the claim of Rs. 33,074 on account of stamp duty and registration charges from the annual letting value by holding that the provisions of Section 23(l)(fe) contemplates annual rent received or receivable by the owner of the property?
(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. Section 23 of the Income Tax Act, 1961 provides for the mode and manner of determination of annual value of the property for the purposes of Section 22, i.e., income from the property. Section 23 has under gone amendments from time to time. The relevant portion of the then existing Section 23 may be reproduced by us. It reads thus: 23. Annual value how determined. -(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 is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable: ** ** ** Provided that where the properly is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him: Explanation 1. -For the purposes of this sub -section, 'annual rent' means - (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b)** ** **
(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: If the lessee were to pay the lessor a sum of Rs. 25,000 per month with instruction from the lessee to pay Rs. 5,000 to the lessee's son for his education, Rs. 2,000 to incur some other expenditure from the lessee and another Rs. 3,000 to pay the lessee's wife on some account, the net amount of rent received by the lessor would be only Rs. 25,000 - 5,000 -2,000 - 3,000, ie., the net amount of Rs. 15,000 and this being the real income this has to be treated as rent having come into the hands of the assessee as net figure of money. ;