Annual value of let property must follow reasonable letting value and standard rent, not higher actual receipts under pre-amendment law.

Under the unamended section 23(1) of the Income-tax Act, the annual value of a let property was to be determined by its reasonable expected letting value, not by the actual receipts from tenants or licensees. Where rent control legislation applied, standard rent operated as the controlling ceiling, and municipal rateable value was treated as a safe guide because it was linked to the rent the property might reasonably fetch. The later insertion of clause (b) in section 23(1) was noted as confirming that, before amendment, higher actual rent did not govern annual value. The stated result was that annual value had to be redetermined on the statutory basis, in favour of the assessee.

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Issues: Whether the annual value of a let property, for assessment year 1970-71 and under the unamended section 23(1) of the Income-tax Act, 1961, had to be determined with reference to the municipal rateable value and standard rent rather than the actual receipts from tenants and licensees.

Analysis: For the relevant assessment year, section 23(1) required the annual value to be the sum for which the property might reasonably be expected to let from year to year. In determining that hypothetical letting value, the Court treated the standard rent principle as controlling where rent control legislation applied, and held that actual receipts were not conclusive of annual value. The municipal rateable value under section 154 of the Bombay Municipal Corporation Act, 1888, was considered a safe guide because it was itself linked to the rent for which the property might reasonably be expected to let, subject to statutory deductions, and the Supreme Court authorities on municipal valuation and standard rent supported that approach. The subsequent amendment introducing clause (b) in section 23(1) was noted as confirming that, before the amendment, actual rent was not the statutory test where it exceeded the reasonable letting value.

Conclusion: The annual value could not be taken at the aggregate actual receipts; it had to be redetermined with reference to the municipal rateable value, subject to the statutory scheme of section 23(1). The answer was therefore in favour of the assessee.

Ratio Decidendi: For the pre-amendment section 23(1) regime, annual value is the reasonable expected letting value and, where rent control applies, the standard rent determinable under the rent law is the proper ceiling; actual receipts cannot be substituted merely because they are higher.

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