Annual letting value under rent control must follow fair rent rules, with standard rent as the ceiling.

For property income under section 23 of the Income-tax Act, 1961, annual letting value must be determined by reference to reasonable or fair rent under the applicable rent control law, not by municipal rateable value where the property is subject to rent control. Standard rent operates as the upper ceiling, and where standard rent has not been fixed, it must be ascertained in accordance with the rent control enactment. If fair rent is lower than standard rent, the lower fair rent applies. Actual rent may be relevant evidence, but figures distorted by extraneous circumstances cannot control the valuation.

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Issues: Whether, for computing property income under section 23 of the Income-tax Act, 1961, the annual letting value of the property was to be taken with reference to standard rent under the rent control law or municipal rateable value.

Analysis: The assessment and appellate authorities had adopted standard rent as the basis for annual value. The controlling principle applied was that annual letting value must reflect the amount for which the property may reasonably be let, but it cannot exceed the ceiling of standard rent under the applicable rent control legislation. Where standard rent has not been fixed, the assessing officer must determine it in accordance with the rent control enactment. If the fair rent is lower than the standard rent, the fair rent governs. The guidelines reiterated were that actual rent may be relevant evidence, but inflated or deflated figures due to extraneous circumstances cannot determine annual letting value.

Conclusion: The annual letting value is not to be based on municipal rateable value where the property is subject to rent control; it must be determined in accordance with the rent control framework, with standard rent operating as the upper limit and fair rent prevailing if lower.

Ratio Decidendi: For property income under section 23 of the Income-tax Act, 1961, annual letting value must be determined on the basis of reasonable/fair rent, subject always to the ceiling of standard rent under the applicable rent control law.

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