TaxTMI 
TaxTMI 
1981 (5) TMI 54
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....the relevant accounting year ended on 31-3-1974. The assessee, however, declared its perquisite value at Rs. 9,375 only, at the rate of 121 per cent of his salary (12.2 per cent of Rs. 75,000), it being a furnished accommodation. It was submitted by the assessee before the ITO that the Additional Rent Controller had, by his order dated 12-2-1970, fixed the standard rent of the entire 1-Tis January Marg, New Delhi, at Rs. 40,320 per annum for a period of five years up to 15-7-1974, and that the writ petitions filed by the New Delhi Municipal Committee (NDMC) before the High Court against the said order of the Additional Rent Controller had been dismissed. It was further pointed out that in the assessee's appeal against the determination by the NDMC of the rateable value at a higher figure for the financial year 1972-73, the rateable value of the whole property had been reduced by the Additional District Magistrate to Rs. 40,320. It was added that the Rent Controller had, by his subsequent order determined the cost of construction of the entire property at Rs. 10,00,000 and on that basis the rateable value of the entire building could not exceed Rs. 82,500 per annum. On the basis of ....
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....dard rent which was defended only as an outward show. He then referred to the assessment of the owner company, Hari Bros. (P.) Ltd., and noted that on an identical point involved with regard to the reasonableness of the rental value of the entire house property, he had taken the view that fixation of standard rent was not bona fide but a collusive one. 3. The assessee preferred an appeal to the Commissioner (Appeals). The Commissioner (Appeals) dealt with this point briefly. He stated that in disposing of the appeal of the owner company, Hari Bros. (P.) Ltd., he had held that the reasonable estimated annual value of the three flats at 1-Tis January Marg, New Delhi, was Rs. 3,30,000. With that observation he upheld the estimate of the ITO of the fair rental value of the flat in occupation of the assessee at Rs. 1,10,000 and confirmed the resultant addition of Rs. 77,845. The assessee, being aggrieved, is in further appeal to the Tribunal. 4. Shri G.C. Sharma, the learned counsel for the assessee, submitted before us that the standard rent of the three flats at 1-Tis January Marg had been determined under the Delhi Rent Control Act, 1958, at Rs. 82,500 per annum. It was pointed....
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....'s employer, Orissa Cement Ltd., who is the tenant of this building, should be taken as the measure of the perquisite value thereof in the hands of the assessee, as it was equivalent to the loss incurred by the employer in providing it rent-free to the assessee. It was then submitted, it was not necessary that there should be a relationship of landlord and tenant between the assessee and his employer in order to apply the ratio of the Supreme Court decision in Dewan Daulat Rai Kapoor's case. Shri Sharma then took us through the order of the Tribunal in the owner company's case, Hari Bros. (P.) Ltd. v. ITO [IT Appeal No. 3388 (Delhi) of 1978-79, dated 27-1-1980], on which reliance was being placed by the department. He submitted that the Bench in that case admitted that section 3(1)(b) of the Punjab Municipal Act, 1911, and section 23(1) of the Act were in pari materia, but held that the word ' reasonably ' was ambiguous. Shri Sharma urged that after the interpretation of the word ' reasonably ' by the Supreme Court in Dewan Daulat Rai Kapur's case and other cases cited therein, that interpretation must prevail. Shri Sharma also argued that the theory of illegal income adverted to b....
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....nder the head ' Salaries '. Section 16 allows certain deductions in computing the income from salaries. Section 17(2)(i) provides that for the purposes of sections 15 and 16, ' perquisite ' includes, inter alia, the value of rent-free accommodation provided to the assessee by his employer. The valuation of perquisites by way of rent-free accommodation is required to be determined in accordance with the provisions of rule 3, which reads as follows : " For the purpose of computing the income chargeable under the head ' Salaries ', the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely : (a) The value of rent-free residential accommodation shall be determined, on the basis provided hereunder, namely :--- (i) and (ii) (iii) in any other case,---- (A) the value of rent-free residential accommodation which is not furnished shall ordinarily be a sum equal to 10 per cent of the salary due to the assessee in respect of the period during which the said accommodation was occupied by him during the previous year : Provided that--- (1) where the fair rent....
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....vided at a concessional rent shall be determined as the sum by which the value computed in accordance with clause (a), as if the accommodation were provided free of rent, exceeds the rent actually payable by the assessee for the period of his occupation during the relevant previous year." The assessee being an employee in the private sector his case falls under sub-clause (iii) above. An analysis of the provisions of this sub-clause would show that the perquisite value of rent-free furnished accommodation will ordinarily be taken at 121/2 per cent of the salary of the employee in respect of the period during which he occupied the accommodation during the relevant previous year, which in this case is 11 months. If, however, the perquisite value of the accommodation computed on this basis exceeds the ' fair rental value ' of the accommodation, the value of the perquisite will be limited to such fair rental value. 7. In the present case, although the rent-free accommodation in the occupation of the assessee is furnished, there is no dispute about the value of the furniture and fixtures, which has been taken by the ITO as shown by the assessee at Rs. 3,047. The dispute centres ar....
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....7 and 9 and the decided cases on the point that the test is as to what rent is reasonable in respect of a particular premises. The reasonable rent, it seems, would be the rent which can legally be demanded by a landlord and not what may be actually paid by the tenant if the let out property is in an area to which the Rent Control Act applies. In other words, in having a reasonable expectation, a prudent landlord cannot be expected to ignore the limitations placed by the Rent Control legislation which is the law of the land. The limitations on such an expectation are to be found in sections 4, 5, 13 and 48 of the Delhi Rent Control Act. Section 5 lays down that no person shall claim or receive any rent in excess of the standard rent, notwithstanding any agreement to the contrary. Section 4 provides that no tenant shall, notwithstanding any agreement to the contrary, be liable to pay to his landlord for the occupation of any premises any amount in excess of the standard rent of the premises. Section 13 enables a tenant to claim refund of any rent paid in excess of the standard rent. Section 48 prescribes penalties for contravention of the provisions of section 5. The punishment presc....
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....te of rent for which a building can reasonably be expected to let." [Emphasis supplied] 10. In conclusion, the Supreme Court held in Smt. Padma Debi's case that it was not the rent received by the landlord, but the ' hypothetical rent which can be expected if the building is to be let ' which has to be the yardstick of ' reasonable expectation ' in an ' open market '. It was explained : " . . . an open market cannot include a ' black market ', a term euphemistically used to commercial transactions entered into between parties in defiance of law ". 11. The point again came up for consideration before the Supreme Court in NDMC v. M.N. Soi AIR 1977 SC 302. It was held that : ". . if a rent which is higher than that which can be legally demanded by the landlord and actually paid by a tenant, despite the fact that such violation of the restriction on rent chargeable by law is visited by penal consequences, the Municipal authorities cannot take advantage of this defiance of the law by the landlord. Rating cannot operate as a mode of sharing the benefits of illegal rack-renting indulged in by rapacious landlords for whose activities the law prescribes condign punishment." 12. ....
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....respect of the self-occupied property, the Supreme Court reversed the view taken by the Full Bench of the Delhi High Court in Dewan Daulat Ram Kapur v. NDMC [1973] ILR 1 Delhi 363 holding as follows : " When the rent control legislation provides for fixation of standard rent, which alone and nothing more than which the tenant shall be liable to pay to the landlord, it does so because it considers the measure of the standard rent prescribed by it to be reasonable. It lays down the norm of reasonableness in regard to the rent payable by the tenant to the landlord. Any rent which exceeds this norm of reasonableness is regarded by the Legislature as unreasonable or excessive. The Legislature obviously regards recovery of rent in excess of the standard rent as exploitative of the tenant and would it be proper for the Court to say that it would be reasonable on the part of the- landlord to expect to recover such exploitative rent from the tenant ?" 13. It is true that the above cases were decided by the Supreme Court with reference to the language of section 127 of the Calcutta Municipal Corporation Act, 1923, section 3(1)(b) of the Punjab Municipal Act, 1911, as extended to the ND....
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....Municipal Acts would govern the interpretation of section 23(1)(a) which uses identical language. 15. Another argument put forward on behalf of the revenue that the word ' reasonably ' occurring in section 23(1) is ambiguous and, therefore, the subsequent legislation in the form of clause (b) of section 23(1) substituted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976 making ' the rent received or receivable ' as the annual value should be taken as classificatory, is also not, in our opinion, well-founded. That amendment would operate in determining the ' annual value ' only from 1-4-1976. For periods prior to that date, the expression ' annual value ' has to be understood in the sense in which the Supreme Court has interpreted it. The word ' reasonably ' having been judicially interpreted in a series of decisions of the Supreme Court, can no more be regarded as ambiguous. On the other hand, the meaning attributed to the word ' reasonably ' in one pari materia statute is to be taken as the meaning thereof in the other such statute. On this point, we have the classic authority of Lord Mansfield, who in R. V. Loxdale [1758] 1 Bun 445, thus, lays down the rule....
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....essee is a member and the petition to the Rent Controller for fixing the standard rent was a part of the scheme to avoid taxes. The learned departmental representative sought to derive support for this view from the Delhi Bench ' A ' decision in the case of Hari Bros. (P.) Ltd. 18. We, however, find that facts and circumstances on the record do not warrant any such conclusion. The petition for fixation of standard rent in this case was filed before the Rent Controller by the tenants, Orissa Cement Ltd., against Hari Bros. (P.) Ltd. who are the landlords. The agreed rent was Rs. 2,250 per month. The parties led evidence under section 6 of the Delhi Rent Control Act. A report from architect and approved valuer, Shri H.S. Chandha, was filed. He was examined on oath by the Rent Controller. The petitioner also produced another witness, Shri P.T. Hunduja, who corroborated Shri H.S. Chandha. The respondent landlord produced their architect, Shri Om Parkash Goel, and filed his report. Shri H.S. Chandha had estimated the cost of construction of the entire building at Rs. 6,73,561, while Shri Om Parkash estimated it at Rs. 10,28,001. The Rent Controller considered these reports and also l....
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....relationship of landlord and tenant between the employer and the employee, the standard rent fixed under the Rent Control Act cannot be taken into consideration in determining the perquisite value is not, in our opinion, well founded. In determining the perquisite value of rent-free accommodation, the ITO is not required to determine the standard rent. The requirement of law is to determine the fair rental value, which can be determined only by assuming that there is a hypothetical landlord and hypothetical tenant. The actual relationship is not, therefore, relevant. The reliance by the department on the judgment of the Delhi High Court in Murlidhar Dalmia v. CIT [IT Reference Nos. 72 to 76 of 1976, dated 13-1-1981] appears to us to be misplaced. In that case it was admitted on facts that the premises were given by the employer to the employee at a concessional rent of Rs. 25 per month only. The house consisted of 16 rooms fitted with air-conditioners and refrigerators and other costly furniture. The employee was using electricity and water free of charge. In addition, he had a garden attached to the house where he was having the services of a gardener at his disposal free of cost.....