Annual value includes tenant borne municipal tax as part of letting consideration, so such payments count as rent for valuation.

Municipal house tax paid by a tenant on behalf of an owner is part of the consideration the tenant pays for use of the premises and therefore must be included when estimating the sum for which the property might reasonably be expected to let from year to year; components of tenant payments cannot be excluded from annual value merely because they are labelled as taxes, absent an express statutory allowance for deduction, and comparison with rents of similar properties may be used to determine annual value.

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Issues: (i) Whether house tax paid by the tenant on account of municipal house tax is to be included in arriving at the "annual value" under Section 9(2) of the Indian Income-tax Act.

Analysis: Section 9(2) defines "annual value" as the sum for which the property might reasonably be expected to let from year to year. The strongest evidence of that sum is the total consideration a tenant is prepared to pay for the right to use the premises, regardless of how that consideration is described in the lease. Treating a component of tenant payment labelled as municipal tax as outside the letting consideration would permit landlords to recharacterise liabilities payable by them as items to be borne by tenants so as to reduce declared letting value, a result inconsistent with the statutory definition. The provision permits comparison with rents of similar properties in the locality to determine annual value, and recognized deductions (e.g., land revenue) are expressly provided elsewhere; absent express statutory allowance, other components borne by tenants that form part of the letting consideration are to be treated as part of the annual value.

Conclusion: The amount of municipal house tax paid by the tenant on behalf of the owner is to be included in estimating the sum for which the property might reasonably be expected to let from year to year and therefore is to be treated as part of the rent for the purpose of "annual value."

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