Annual value of tenanted property follows reasonable expected rent, not depressed related-party rent, under rent control principles.

For tenanted house property, annual value under sections 22 and 23 of the Income-tax Act is computed on the basis of the rent the property might reasonably be expected to fetch, not merely the actual contractual rent. Actual rent is relevant but not conclusive where it is depressed by related-party arrangements or where rent control law limits the permissible rent. Where no standard rent or fair rent has been fixed, the Assessing Officer may determine expected rent by applying the principles of the applicable rent control law. On those facts, the nominal rent from the related tenant could not govern the annual value.

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Issues: Whether, for a tenanted property, the annual value under the Income-tax Act is to be determined on the basis of the actual rent received or on the basis of the rent reasonably expected in accordance with the Rent Control law when no standard rent or fair rent has been fixed.

Analysis: The statutory scheme under sections 22 and 23 of the Income-tax Act requires the annual value of house property to be computed on the basis of the sum for which the property might reasonably be expected to let from year to year. Actual rent is relevant, but it is not conclusive where it is depressed by extraneous considerations or where rent control legislation limits what the landlord can reasonably expect to receive. The Court applied the settled principle that, where standard rent or fair rent has not been fixed, the Assessing Officer may determine the expected rent by applying the principles of the applicable rent control law. The fact that the tenant was a related concern and the contractual rent was much lower than the rent fetched by a similar portion let to an unrelated tenant justified scrutiny of the expected rent.

Conclusion: The annual value was not confined to the actual rent received from the related tenant, and the Assessing Officer was entitled to determine the expected rent in accordance with the Rent Control law. The issue was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Where actual rent is lower than the rent reasonably expected under the applicable rent control regime, the annual value under section 23 must be determined on the basis of the expected rent and not the nominal contractual rent.

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