Annual value under income tax law must consider relevant valuation evidence, not just contractual rent, when testing reasonable rent.

For computing annual value under sections 22 and 23 of the Income-tax Act, 1961, the notional reasonable rent may differ from the actual contractual rent, and relevant valuation evidence cannot be ignored without proper basis. A local authority's valuation certificate, prepared with reference to the same rent and lease terms, was material to the inquiry under section 23 and provided prima facie support for the assessee's case that the contract rent exceeded the reasonable rent. In the absence of material showing that relevant factors were omitted, the Tribunal erred in refusing to consider that evidence, and its finding was vitiated. The question was answered in the negative, in favour of the assessee.

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Issues: Whether, for computing annual value under section 23 of the Income-tax Act, 1961, the actual contractual rent could be treated as the sum for which the property might reasonably be expected to let from year to year, and whether the Tribunal was justified in ignoring the local authority's valuation certificate.

Analysis: The annual value under sections 22 and 23 is a notional figure and may differ from the rent actually received. The certificate issued by the local authority showed that the building had been valued with reference to the same rent and with knowledge of the lessee and lease terms. That material was relevant to the enquiry under section 23 and could not be rejected merely because of doubts about the timing or because the assessing authority's awareness was not separately proved. In the absence of material showing that other relevant factors were omitted, the certificate furnished prima facie support for the assessee's contention that the contract rent exceeded the reasonable rent. The Tribunal's refusal to take that evidence into account vitiated its finding.

Conclusion: The question was answered in the negative, in favour of the assessee and against the department.

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