Inadequate rent and section 263 revision: Tribunal upheld trust exemption where fair letting value was not disproved.

A trust's leasing of property to a later substantial contributor did not, on the facts, establish inadequate rent or automatic denial of exemption under section 11. The Tribunal treated municipal valuation, the age and condition of the building, rent control limits, and the tenant's bearing of repairs and house tax as relevant to fair letting value, and held that annual value could not exceed fair rent or standard rent where rent control applied. It also faulted the Commissioner for assuming the whole land formed part of the tenancy and for relying on material not supplied to the assessee. The revision under section 263 was therefore unsustainable.

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Issues: Whether the Commissioner was justified in exercising revisionary jurisdiction under section 263 and directing denial of exemption under section 11 on the ground that the assessee trust had let out its property to a contributor at inadequate rent so as to attract section 13(3)(b).

Analysis: The trust had let out the property before the tenant made any contribution, though the later contribution brought the tenant within the description of a substantial contributor for the relevant assessment year. The decisive question was whether the rent of Rs. 650 per month was inadequate. In determining adequacy, the Tribunal considered the age and nature of the building, the municipal valuation, the effect of the local rent control legislation, and the fact that repairs and house tax were borne by the tenant. It held that municipal valuation was a relevant indicator of reasonable letting value, that the annual value could not exceed fair rent or standard rent where rent control applied, and that the Commissioner had proceeded on an erroneous basis by treating the entire land as part of the tenancy and by relying on material not supplied to the assessee.

Conclusion: The rent charged was not shown to be inadequate, the assessee trust did not lose exemption under section 11 on this ground, and the Commissioner's order under section 263 was not sustainable.

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