1964 (6) TMI 55 - HC - Income Tax

High Court corrects Tribunal's error in computing property value under Income-tax Act, directs parties to bear costs.

The High Court determined that the computation of the bona fide annual value by the Tribunal was incorrect as it wrongly assumed the rent paid by a tenant ... - Issues Involved:1. Determination of the bona fide annual value of the property.2. Applicability of Section 9(1)(i) versus Section 9(1)(ii) of the Indian Income-tax Act.3. Legality of adding the cost of repairs to the actual rent for computing the annual value.4. Jurisdiction of the High Court in answering the referred question of law.Detailed Analysis:1. Determination of the Bona Fide Annual Value of the Property:The primary issue in the case was the determination of the bona fide annual value of the property located at No. 8, India Exchange Place, Calcutta, for the assessment years 1951-52, 1952-53, 1953-54, and 1956-57. The property was occupied by tenants, with the ground floor rented to M/s. Kothari & Sons for Rs. 36,000 per annum and the upper floors rented to M/s. Birla Brothers Ltd. for Rs. 81,000 per annum.2. Applicability of Section 9(1)(i) Versus Section 9(1)(ii) of the Indian Income-tax Act:The Tribunal had to decide whether Section 9(1)(i) or Section 9(1)(ii) of the Indian Income-tax Act applied to the computation of the annual value. Section 9(1)(i) applies where the landlord undertakes the cost of repairs, while Section 9(1)(ii) applies where the tenant undertakes the cost of repairs. The Tribunal found that for the ground floor, Section 9(1)(i) applied since the landlord bore the cost of repairs. However, for the upper floors, the Tribunal initially agreed with the income-tax authorities that Section 9(1)(ii) applied because the tenant undertook the cost of repairs.3. Legality of Adding the Cost of Repairs to the Actual Rent for Computing the Annual Value:The Income-tax Officer added 1/5th of the rent to the actual rental paid by M/s. Birla Brothers Ltd. to account for the cost of repairs borne by the tenant. This was done to arrive at what was termed the 'fair annual letting value.' The Appellate Assistant Commissioner confirmed this addition but revised the calculations under Section 9(1)(ii). The Tribunal, however, disagreed with this method, stating that there was no provision in the Income-tax Act to warrant adding the cost of repairs to the rent to determine the annual value. The Tribunal emphasized that the rent agreed upon in the lease should be considered the rent payable, and there was no basis for increasing it by adding the cost of repairs.4. Jurisdiction of the High Court in Answering the Referred Question of Law:The High Court examined whether it had the jurisdiction to answer the question of law referred to it. The question was whether the method of computation of the bona fide annual value adopted by the Tribunal was in accordance with Section 9 of the Indian Income-tax Act. The High Court concluded that the question was broad enough to allow it to consider whether Section 9(1)(i) or Section 9(1)(ii) applied. The Court found that the Tribunal's computation was incorrect because it was based on the assumption that the rent of Rs. 81,000 paid by M/s. Birla Brothers Ltd. was low without any evidence to support this assumption. The Court held that Section 9(1)(i) should apply since the landlord undertook substantial repairs.Conclusion:The High Court answered the question in the negative, stating that the bona fide annual value and the taxable income as computed by the Tribunal were not in accordance with Section 9(1)(ii) of the Income-tax Act. Instead, Section 9(1)(i) should apply. The Court directed that each party bear its own costs.