Fair rent under house-property law must be determined first; notional interest on security deposit cannot replace actual rent.

Annual letting value of let-out property must be computed by first determining fair rent under section 23(1)(a) on relevant evidence and then comparing it with actual rent under section 23(1)(b); notional interest on an interest-free security deposit cannot itself be treated as rent. The Assessing Officer had not independently carried out the fair-rent exercise, so the matter was remitted for fresh computation. On the licensing receipts, the assessee was treated as the owner for house-property purposes because ownership extends to a person entitled to receive the income in its own right, and the income could not be assessed as business income merely because formal title was disputed.

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Issues: (i) Whether the annual letting value of the let-out property could be determined by adding notional interest on the interest-free security deposit received from the tenant and whether the fair rent had to be determined under section 23(1)(a) before applying section 23(1)(b). (ii) Whether the income from licensing of the premises was assessable as business income on the ground that the assessee was not the owner of the property.

Issue (i): Whether the annual letting value of the let-out property could be determined by adding notional interest on the interest-free security deposit received from the tenant and whether the fair rent had to be determined under section 23(1)(a) before applying section 23(1)(b).

Analysis: The computation of income from house property proceeds on the basis of annual value under section 23. The statutory scheme requires the Assessing Officer first to determine the sum for which the property might reasonably be expected to let from year to year under section 23(1)(a) and then, where the property is let, to compare that figure with the actual rent received or receivable under section 23(1)(b). Judicial authorities recognise that municipal rateable value or standard rent may be relevant guides, but they are not the sole or inflexible measure if the Assessing Officer can show that they do not represent fair rent. At the same time, notional interest on an interest-free deposit cannot by itself be taken as actual rent under section 23(1)(b). The record showed that the Assessing Officer had not independently undertaken the exercise of determining fair rent under section 23(1)(a) and had instead proceeded directly on the basis of interest on deposits. The matter therefore required a fresh determination of fair rent by considering all relevant factors, after which the comparison under section 23(1)(b) could be made.

Conclusion: The issue was restored to the Assessing Officer for fresh determination of annual letting value in accordance with section 23, and the assessee succeeded to that extent.

Issue (ii): Whether the income from licensing of the premises was assessable as business income on the ground that the assessee was not the owner of the property.

Analysis: The assessee had acquired the office premises and had entered into the leave and licence arrangement in its own right. For purposes of section 22, ownership is not confined to perfect legal title in the common-law sense; a person entitled to receive income from the property in his own right can be treated as owner. The statutory deeming provisions also supported this position. On the facts, the assessee was treated as the owner for the purposes of house-property taxation, and the income could not be shifted to the head of business income merely by disputing formal title.

Conclusion: The additional ground was rejected and the assessee failed on this issue.

Final Conclusion: The appeals succeeded only to the limited extent that the annual letting value issue was remitted for fresh computation, while the contention that the licence income was business income was declined.

Ratio Decidendi: For house-property income, the Assessing Officer must first determine fair rent under section 23(1)(a) on relevant evidence and cannot adopt notional interest on an interest-free deposit as actual rent under section 23(1)(b); a person entitled to receive income from the property in his own right is treated as owner for section 22 purposes.

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