Standard rent controls annual letting value for rent-controlled property; later purchase price cannot justify upward revision.

For a rent-controlled property, annual letting value under section 23(1) of the Income-tax Act is governed by the rent a property may reasonably fetch, but cannot exceed the standard rent fixed or determinable under the applicable rent law. In this analysis, the Delhi Rent Control Act was treated as capping reasonable rent at standard rent, which could not be revised merely because the assessee later purchased the property at a higher price. Expenditure on additions or alterations also could not justify an upward revision where the landlord did not incur the expense. On those principles, the declared annual letting value based on municipal valuation and standard rent was accepted.

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Issues: Whether the annual letting value of the property at 14-16, Aurangzeb Road, New Delhi was rightly enhanced by the tax authorities or whether the assessee's declared annual letting value based on municipal valuation and standard rent was to be accepted.

Analysis: The annual value of a let property under section 23(1) of the Income-tax Act, 1961 is the sum for which the property may reasonably be expected to let from year to year, subject to comparison with the actual rent received. In a rent-controlled property, the standard rent determinable under the Delhi Rent Control Act, 1958 represents the ceiling for such reasonable rent. The standard rent fixed in 1971 could not be revised on the basis of the assessee's purchase price, because section 6(1)(A)(2)(b) of the Delhi Rent Control Act, 1958 looks to the original cost of construction and land value at commencement of construction, not to a later acquisition cost. The expenditure relied upon by the Revenue for additions and alterations could not justify an increase under section 7 of the Delhi Rent Control Act, 1958, because that provision permits increase only where the landlord himself incurs such expenditure. Section 6A of the Delhi Rent Control Act, 1958 also did not support a compulsory upward revision in the facts of the case. The municipal valuation accepted by the assessee was higher than the standard rent correctly determinable under the rent law, and no material change justified departure from the view earlier taken in the assessee's own case.

Conclusion: The Revenue was not justified in enhancing the annual letting value, and the assessee's declared annual letting value was to be accepted.

Ratio Decidendi: For a rent-controlled property, annual letting value under section 23(1) of the Income-tax Act, 1961 cannot exceed the standard rent determinable under the applicable rent law, and later purchase cost or tenant-incurred improvements cannot be used to rewrite that standard rent.

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