Annual value computation: agreed rent cannot be stepped up by notional repairs unless the rent is shown to be understated.

In computing annual value under section 9 of the Indian Income-tax Act, the court held that an addition to agreed rent is permissible only where the rent is shown to be unreal or artificially low. Because the lease required the landlord to undertake structural and other substantial repairs and maintain the exterior and common parts, section 9(1)(i) governed the upper floors. As there was no material showing that the tenant's rent was reduced or understated, the Tribunal had no basis to add an estimated repairs element to the stipulated rent, and section 9(1)(ii) was inapplicable on the facts.

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Issues: Whether, in computing the bona fide annual value of the property, the Tribunal was right in applying section 9(1)(ii) and in adding an estimated cost of repairs to the stipulated rent, or whether section 9(1)(i) applied because the landlord had undertaken the substantial repairs.

Analysis: The relevant annual value had to be determined under section 9(2) as the sum for which the property might reasonably be expected to let from year to year, but the court held that an addition to the stipulated rent is permissible only where the rent is shown to be not genuine or artificially low. On the deed of lease, the landlord had covenanted to carry out structural and other substantial repairs and to maintain the exterior and common parts of the building, which brought the case within section 9(1)(i) for the upper floors. The court further found no material to show that the rent of the tenant occupying the upper floors was low or reduced, and therefore the premise on which the Tribunal had stepped up the rent by an estimated repairs element was unsupported. Section 9(1)(ii) was thus inapplicable on the facts.

Conclusion: The Tribunal's method of computation was not upheld. Section 9(1)(i) applied, and the annual value could not be increased by adding an estimated cost of repairs to the agreed rent.

Ratio Decidendi: Under section 9 of the Indian Income-tax Act, the annual value may be estimated by reference to comparable letting only where the actual rent is shown to be unreal or understated; where the landlord has undertaken substantial repairs and the agreed rent is not proved to be low, section 9(1)(i) governs and no notional addition for repairs can be made to the rent.

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