Annual value of let-out property depends on fair rent under rent control law, not automatic actual receipts.

For section 23(1) of the Income-tax Act, 1961, the annual value of a let-out property is determined with reference to the sum for which it may reasonably be expected to let, and that reasonable rent is measured by the fair rent or standard rent under the applicable rent control law. Actual rent received is relevant only where it exceeds that benchmark under clause (b). If fair rent has not yet been fixed, the proper course is to obtain a finding on that issue from the assessing authority, rather than treating actual receipts as the annual value by default.

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Issues: Whether, for the purpose of section 23(1) of the Income-tax Act, 1961, the annual value of a let-out property is to be determined by reference to the actual rent received or by reference to the fair rent or reasonable rent under the applicable rent control law, and whether the matter must be sent back for fixation of such fair rent.

Analysis: Section 23(1), as amended with effect from 1 April 1976, contemplates two situations: clause (a) fixes the annual value at the sum for which the property might reasonably be expected to let from year to year, while clause (b) applies only where the property is let and the actual rent received or receivable exceeds that reasonable rent. The expression used in clause (a) is construed in light of the rent control statute governing the property. The fair rent or standard rent determinable under the relevant rent control law is the proper measure of reasonable rent, whether or not it has already been fixed by the Rent Controller. Actual rent received is relevant only if it exceeds such fair rent under clause (b). Since the fair rent had not been determined, the proper course was to obtain a finding on that question from the assessing authority.

Conclusion: The question was answered in favour of the Revenue. Actual rental receipts could not automatically be treated as the annual value; the annual value had to be determined by reference to the fair rent under the rent control law, and the matter was remitted for that purpose.

Ratio Decidendi: For section 23(1) of the Income-tax Act, 1961, the annual value of let-out property is the fair rent or standard rent determinable under the applicable rent control law, and actual rent governs only where it exceeds that reasonable rent.

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