Annual value under rent control law must follow standard rent principles, not mechanical municipal valuation, for proper assessment.

Annual value of a let-out property governed by rent control law must be determined under section 23 by the rent it may reasonably fetch, subject to the statutory ceiling of standard rent where rent control applies. The assessing authority cannot mechanically adopt municipal rateable value or the leave and licence rent without applying the rent control principles. As the record did not show exemption from the Bombay Rent Act or judicial fixation of standard rent, and the assessee was not clearly met with comparable material, the appellate order was not sustainable and fresh determination was required.

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Issues: Whether the annual value of a let out property governed by rent control law could be determined merely by adopting municipal rateable value or the rent shown in the leave and licence agreement, and whether the appellate authority had correctly applied the principles governing standard rent under the rent control statute.

Analysis: Section 23 of the Income-tax Act, 1961 requires the annual value to be the sum for which the property might reasonably be expected to let from year to year, unless the actual rent received or receivable is higher. Where a rent restriction statute applies, the expected rent cannot exceed the standard rent determinable under that statute, but the assessing authority must itself apply the statutory principles and cannot mechanically adopt a municipal figure. The record did not establish that the property was exempt from the rent control law, nor did it show any judicial fixation of standard rent under the Bombay Rent legislation. The appellate authority also did not examine whether the Assessing Officer's estimate accorded with the principles of section 11 of the Bombay Rent Act or whether the assessee had been given a proper opportunity to meet the comparable material relied upon in assessment.

Conclusion: The appellate order could not be sustained and the matter had to be sent back for fresh determination in accordance with law.

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