Fair rent under rent control governs house property valuation, and reassessment depends on the correct legal test.

Annual letting value of house property must be determined on bona fide fair rent, and where rent control law applies the actual rent realised cannot be treated as conclusive. The controlling statute must be examined to see whether the lessor could lawfully realise more than the stipulated rent; the Tribunal erred by disregarding rent control provisions. Reassessment under section 147 could arise only if the fair rent determinable under the rent control law exceeded the figure earlier adopted, so the correct legal test had to be applied before any tax adjustment. The matter was therefore remitted for fresh consideration on the basis of fair rent under rent control law.

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Issues: Whether, for the purpose of determining the annual letting value of house property under the income-tax law, the fair rent or standard rent under the rent control legislation must be adopted instead of the actual rent realised by the lessee, and whether reassessment under section 147 could be sustained on the footing that the annual letting value exceeded the amount earlier adopted.

Analysis: The assessment of house property income had to proceed on the basis of the bona fide annual letting value, but where rent control law applied, that value could not be taken mechanically at the actual rent realised by the lessee. The relevant inquiry was what fair rent was determinable under the controlling rent statute and whether, in law, the lessor could realise more than the stipulated rent. The Tribunal erred in treating the rent control provisions as irrelevant. At the same time, the assessee could not resile from the earlier accepted figure of Rs. 20,000 for the purpose of claiming exemption from that amount; the enquiry was only whether the properties could lawfully be taken at a higher figure so as to justify reassessment. If the fair rent determinable under the rent control law exceeded Rs. 20,000, reassessment could arise, but that question had to be decided only after applying the correct legal test.

Conclusion: The Tribunal's approach was legally incorrect, and the matter required fresh consideration on the correct basis of fair rent under the rent control law; the reference was answered accordingly and sent back to the Tribunal for reconsideration.

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