Annual value under rent control must follow standard rent, not actual rent, where the ceiling under rent law applies.

For annual value under section 23(1) of the Income-tax Act, 1961, where property is under rent control, the reasonable letting value cannot exceed the standard rent determinable under the Delhi Rent Control Act, 1958, even if standard rent has not yet been formally fixed. The actual rent received is therefore not the governing measure when it is higher than the rent-control ceiling. The later amendment to section 23 is noted as reinforcing that actual rent receivable may exceed the property's reasonable letting value. The annual value was accordingly worked out by reference to the standard rent of the relevant portions of the property for the accounting years.

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Issues: Whether, for the purpose of determining annual value under section 23(1) of the Income-tax Act, 1961, the actual rent received from a tenant or the standard rent determinable under the Delhi Rent Control Act, 1958, must be adopted where the standard rent has not yet been fixed.

Analysis: The annual value under section 23(1) is the sum for which the property might reasonably be expected to let from year to year. Where the property is subject to rent control, the landlord cannot reasonably be expected to receive more than the standard rent determinable under the rent control law, even if standard rent has not yet been formally fixed. The later legislative amendment to section 23 reinforced this interpretation by making clear that the actual rent receivable may exceed the reasonable letting value. Applying the rent-control formulae, the annual value had to be worked out with reference to the standard rent of the different portions of the property for the relevant accounting years.

Conclusion: The annual value had to be determined on the basis of the standard rent determinable under the Delhi Rent Control Act, 1958, and not on the basis of the actual rent received. The question was answered in favour of the assessee.

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