TaxTMI 
TaxTMI 
1987 (5) TMI 71
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....property No. 18, DLF Industrial Area,Najafgarh Road,New Delhi. This property was purchased sometime in 1949. This property was let out to as many as 36 tenants. Shri Tirath Ram Sahni HUF held 271/2 per cent share inNajafgarh Roadproperty and Shri Acharaj Lal HUF owned the balance of 271/2 per cent share. For the purpose of wealth-tax asst. yr. 1978-79 this property was valued at Rs. 11,86,200 by capitalising rental income of Rs. 94,898 at 12-1/2 per cent and the share of the assessee Shri Tirath Ram Sahani individual, at 45 per cent was returned at Rs. 5,33,990. The Share of Shri Tirath Ram Sahni, HUF and Shri Acharaj Lal HUF of 271/2 per cent each was returned at Rs. 3.26,105 each. For the asst. yr. 1979-80 the property was valued again by capitalising the net rental income, which amounted this year to Rs. 1,05,281. Capitalising at 12-1/2 per cent the share of Shri Tirath Ram Sahni, Individual, of 45 per cent was returned at Rs. 5,92,200 and the share of Shri Tirath Ram Sahni, Individual, of 45 per cent was returned at Rs. 5,92,200 and the share of Shri Tirath Ram Sahnil HUF and Shri Acharaj Lal HUF was returned at Rs. 3,61,900 each vide papers 1 and 2 of the paper book filed befo....
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....is to come to the conclusion that there was collusion between the assessee and the tenants and since those tenants were in the occupation of these properties for several years, the provisions of Delhi Rent Control Act became applicable, under which it was not possible to evict them and therefore the question of collusion never tenants was accepted by the ITO as proper and correct and assessment was framed on that basis, there was no room to further hold that there was collusion and estimating the rents at imaginary figures. The CIT(A) accepted the assessee's contention in part. He held that in regard to the termination of annual letting value so far as the tenants the than co-owners ware concerned, the could not be any presumption of collusion in regard to rent. He held that there was no evidence to prove collusion. It was not possible for the owner to enhance the rents, when the property was subject to the Rent Control Act. He also did not approve of the assumption made by the Valuation Officer of further increase in the rent on the basis of potentiality for further construction. In regard to portions under the occupation of the co-owners in the names of Sahni Industries and Ameri....
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....erty was let out for a lower rent. It is further seen that this is no the only property let out for that rent and there are also other properties let out at lower rents. The CIT(A) having come to the conclusion that there was no collusion in respect of other properties, where there was lower rent, committed an error in coming to the conclusion that there was collusion in respect of these two properties merely on the ground that the properties were let out to cowers ignoring the fact that even her the rent charged was lower. It is further submitted that the Valuation Officer had not basis to estimate the rent of these properties at such a high rent of 66 paise per sq. ft. as if the was the only standard rent available or applicable in respect of these properties at the time when they were let out. Several arguments were addressed to show how the method adopted by the Valuation Officer to ignore the rent charged and to estimate it at a higher figure was uncalled for backed and was baseless too. The rents which were accepted for the purpose of income-tax should have been accepted for the purposes of wealth-tax and should not have been disturbed. The only basis for disturbing the rent ....
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....to the tenants in charging rents. When the property let out was in the nature of sheds used for industrial purposes in the same locality, normally one would expect the rent charged to be common and uniform. The rent charged here varied from as low as 9 paise per sq.ft. to 88 paise per sq.ft. between 1962 and 1974, This wide variation for almost identical nature of the properties in the same locality showed that there was possibility for negotiations and showing certain favours. Were this true, then the conclusion drawn by the Valuation Officer that there was a possibility of collusion cannot be ruled out and therefore the CIT(A) was wrong in assuming that there was no collusion and he was further wrong in assuming that the Valuation Officer could not prove the collusion by bringing evidence which he is not possibly to expect upon relying certain evidence to draw certain inferences, which is permissible in this case. Thus he stoutly defended the assessments made by the WTO on the basis of the valuation report. 7. We have also heard the Valuation Officer Shri S.C. Mittal. He submitted that except the difference in rents no other evidence was available with him to step up the rents....
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....as well as of the Valuation Officer proceeded on the assumption that there was collusion of rent or concessional rent was charged and those rents did not represent the correct market rent and therefore there existed a case to revise the rents for the purpose of capitalisation to arrive at the market value. This is only an assumption made on the basis of the rents collected from other tenants. That by itself, in our opinion, would not provide a ground to assume that there was collusion although it may provide a strong case for suspicion. Nothing was shown to us by which we can say that the Valuation Officer had tried to establish the collusion between the assessee and the tenants. Mere difference in rents cannot therefore be taken as an evidence of collusion in order to give a right to the Valuation Officer to estimate the rents nor we find any evidence in support of his estimate of 66 paise per sq.ft. in respect of all the properties where the rents charged were low. At page 41 of the paper book the names of the tenants, description of the building let out to them, amount of rent and the rate per sq.ft. was given The statement shows 36 tenants. There are different kinds of tenants ....
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....area e.g., in the case of item No. 10 M/s. Laxmi Corrigated Board the rent charged was 66 paise per sq., ft., for a covered area of 3039 sq., ft. Similarly in the case of American Machine Tools the covered area is 2100 sq., ft., and the open area is 4080 sq. ft. and it was let out at 4 paise per sq., ft. There are also other properties let out 9 paise per sq., ft., in 1966 and 22 paise per sq., ft., in 1975. We are therefore of the opinion that the mere variation in the rent as we have observed earlier cannot be conclusive of the decision reached by the Valuation Officer that there was collusion and in order to establish collusion there ought to be some evidence otherwise we will be permitting an assessment to be made on the basis of suspicion, which we think is not permissible in law. The fact that Shri Acharaj Lal became owner in 1971 bad therefore the rent obtaining at that point of time should be taken is also not relevant because the property was let out to Shri Acharaj Lal in 1968. The rent obtaining at that point should only be considered i.e., in 1968. Once the rents are fixed up under the Rent Control Act, they cannot be varied except by due process of law. That is also a ....
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.... to the statutory control imposed by the Rent Control Act, then the full effect of that control must be given. If under law delivery of vacant possession is not permissible or improvements are again impermissible like the properties situate in Military Cantonment Area, it is not possible to assume that the properties would be offered for sale with vacant possession or after improvements. Since there is no evidence to show that the properties let out to Sahni Industries or American Machine Tools were at all offered on lower rents, it cannot be said that in those two cases also the rent has to be estimated. Even if it is assumed that the rent could be estimated, there is no evidence shown to us that it could be let out for 66 paise per sq., ft., when the property in the same year was let out for must much lower rent. The assumption that these properties should be let out at 66 paise per sq., ft., alone is patently incorrect. The rental income having been accepted for income-tax purposes should not have been disturbed for wealth-tax purposes without there being any evidence to suggest that these rents were manipulated with a view to reduce the market value. Further the values given fo....