TaxTMI 
TaxTMI 
2002 (10) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....lease for 30 years which had been executed in that year in respect of the property. No doubt it is an admitted position that the lease was executed in favour of the wife of a director of the assessee-company. We shall have something to say about the low nature, even or the extremely low nature, of this rental at a later portion of the judgment, but we have to decide the principal question of law on which the reference was entertained. Section 23 as it stood at the material time, and in so far as it concerns our case is set out below: "23. Annual value how determined.--(1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable." The rest of this section is not set out as the later parts do not concern our case materially. The principal point of controversy in law in this case is, if an assessee owns some property and has let it out at a certain rent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the assessment years in question, as the genuine return on the assessee's property, as a genuine deed of lease entered into by the parties at arms length. Were the factual situation, as per the finding of the departmental decisions, otherwise, were the deed a sham one, or a mere eyewash, the property would have to be treated as vacant property for tax purposes, and the decisions in that regard are all unanimous. It is unnecessary for us to refer to the decisions which deal with such deeds, which are not genuine or are fraudulent. But even in the case of genuine lettings out, is the assessee's property to be valued at the actual rental received, or at the higher potential annual value (if the property were vacant) in the assessment year in question? Three Supreme Court cases were relied on in this regard before us, and where this issue arises those cases are generally referred to in every well considered decision. One was the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700 (SC). That dealt with a piece of property in Delhi and a provision regarding house tax provided that the rateable value thereof shall not exceed the annual amount of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....walla cited several cases supporting the case of the Department before us. He gave us the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC), submitting that if section 23 of the Income-tax Act is clear in its wording, then it must be followed, even if it causes hardship to the assessee. In the same line is the case of CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 (SC). No doubt an assessee, who has let out his property under a lease, can get only the rent for his property, but if the law requires the property to be valued notionally as a vacant one, then such law must be followed, even if the assessee would thereby have to pay tax on an income, which he has not earned, but is still taken as income in his hands by the express words of a section of the Income-tax Act. We are given by Mr. Agarwalla the case of Smt. Pratima Roy v. CIT [1989] 175 ITR 107 (Cal), a very short one page decision of the Division Bench wherein, following the case of the same assessee, reported at Smt. Protima Roy v. CIT [1982] 138 ITR 536 (Cal), the Division Bench opined, that the rent receivable should be taken into consideration and not the amount actually supposed to have been received....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g produced actually by the property in question. Clause (a) of section 23(1), applies not only to property which is vacant and not under any lease deed, but is also applicable to property which is already tenanted and subject to a continuing fixed rental; but in the latter case, the property is to be treated as tenanted property; the word "vacant" is not to be read into the section, nor any notion of the property being treated as vacant. Clause (b) of section 23(1) refers to a situation where the rent received or receivable by the assessee is higher than the expected rental market value of the property itself. It would, today, cover a situation like the one in the case of Mrs. Sheila Kaushish [1981] 131 ITR 435 (SC), mentioned above. The higher rental would wipe out the expected lower rental value of the warehouse. But this does not mean, that because of the presence of clause (b), clause (a) of section 23(1) must refer to, and only to, vacant property which is not let out. If a property is actually let out, then the expectation of its letting out becomes an actual reality, and the proof of the expectation, can be made in the best manner possible, by producing evidence of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Nos. 3 and 4 follow suit. The letting value being the value for the purposes of section 23(1)(a), it is the correct yardstick (thus answering question No. 3) and the yardstick of municipal valuation is not the correct one (thus answering question No. 4). We now come to a very disturbing aspect of this case. A search has been mentioned in the order of the Assessing Officer. Mr. Agarwalla, appearing for the Department, told us that there has been a later search in 1991 also. The reports of that search are not in the papers before us but Mr. Agarwalla read out from it in open court for the benefit of all. He said that the report mentions that the inspecting officer went into the property in question at Ballygunge Park (which is one of the best, if not the best residential area in our town) and he found several acres of land, two perfectly maintained bungalows, manicured gardens and a cow shed. It also appears that the residents of this nice haven are the director, the director's good house wife, and their four obedient children, who have their own prosperous families now. Although we cannot base our decision on these conclusions, yet we feel no doubts in our minds, that if t....