M.Y. Eqbal, J. - (1.) THIS is a reference under Section 256(2) of the Income Tax Act, 1961 whereby the following questions of law have been referred to this Court - 1. Whether on the facts and circumstances of the case and in law, the Ld. Tribunal was justified in deleting the addition made under the head "Income from House Property" arising out of determining the annual value in respect of portion of the house property rented out to M/s Wool House on the basis of rent received in respect of similar portion of the house property -rented out to a third party?
(2.) WHETHER in the facts and circumstances of the case and in law, the Ld. Tribunal was justified in directing that Annual value of the property in respect of portion rented to M/s Wool House should be determined obo actual rent received from M/s Wool House, when because of the close relationship between the assessee and M/s Wool House, the annual value should be determined on the consideration of rent receivable indicated by the rent received by the assessee from a similar portion of the building from a third party? Whether on the facts and circumstances of the case and in law, the Ld. Tribunal was justified in holding that the provision of Section 23(1)(b) would be applicable and reasonableness of rent agreed upon could have been examined when the rent was initially fixed, but not subsequently, considering the fact that each year's assessment proceeding is separate and that annual value of a house property is to be determined separately each year in accordance with the provision of Income Tax Act? 2. The assessee owns a house property in Main Road, Ranchi. She received rent income of Rs. 1,06,800/ - from the tenant, namely, Canara Bank for the 1st and 2nd floor of the building and Rs. 4800/ - from M/s Wool House for the underground portion, ground floor and mezzanine floor of the building. The assessee alleged to have received Rs. 4800/ - being a annual rent from the tenant M/s Wool House. The Assessing Officer held that for the purpose of determination of annual value, the rent received should not be taken into consideration as the assessee herself is a partner in M/s Wool House and M/s Wool House is a tenant in the building for more than 25 years, hence at least, the rent which is being received from Canara Bank for the 1st and 2nd floor should have been rent for the portion occupied by M/s Wool House. Consequently, the Assessing Officer determined the rent of the portion of the building occupied by M/s Wool House at the same rate of rent received from Canara Bank in respect of 1st and 2nd floor of the building premises. Accordingly, assessment was made under Section 143(2) of the said Act. 3. Aggrieved by the said order of assessment, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). The appellate authority was of the view that there was no basis for raising the rent income on the ground that higher rent was being received from other tenants. The appellate authority further held that the Assessing Officer should have considered that M/s. Wool House was an old tenant and that the rent was being enhanced from time to time. Consequently, the assessment order was set aside by the C.I.T. (Appeals).
(3.) AGAINST the said order, the Revenue preferred Second Appeal before the Income Tax Appellate Tribunal. The tribunal considering the provisions of Section 23(1)(a) and Section 23(1)(b) of the Act, held that Sub -section (1b) of Section 23 will apply so far the premises in occupation of the old tenant - -Wool House is concerned. The tribunal, therefore, held that C.I.T. (Appeals) rightly deleted the addition under the head "Income from House Property" by estimating the higher rent. This is how, reference has been made under Section 256(2) of the Act to this Court for answering the questions quoted hereinabove.;