I. T. AS. NOS. 263, 264 AND 269/ KB OF_1983-84, DECIDED ON 18TH OCTOBER, 1987. Versus I. T. AS. NOS. 263, 264 AND 269/ KB OF_1983-84, DECIDED ON 18TH OCTOBER, 1987.
ORDER
These ?? three departmental appeals are directed against consolidated order of Commissioner of Income-tax (Appeals) recorded by him on 30th March, 1983 relating to assessment years 1975-76, 1976-77 and 1977-78. Since the identical question is involved in all the three assessment years we, therefore, also propose to dispose them ? by single order.
2. The brief facts giving rise to these appeals are that the respondent, an individual, declared his income, inter alia, from property at Rs.28,657 in each assessment year and the assessments were framed on 17-12-1975, 25-1-1977 and 29-3-1978 regarding assessment years 1975-76, 1976-77 and 1977-78 under section 23(3) for both assessment years 1975-76 and 1976-77 and under section 23(1) of the repealed Income Tax Act, hereinafter referred to as "the Act" for assessment year 1977-78. However, subsequently the I.T.O. learnt that the respondent was deriving Rs.59,616 as actual rent from his tenants. He, therefore, served notice under section 65 of the income-tax Ordinance, hereinafter referred to as 'the Ordinance". The respondent vide his letter dated 13th February, 1980 replied to the notice of the I. T .O. issued for each assessment year involved as under:- ,
"A return of income relating to the assessment year 1975-76 was filed under protest in response to your notice under section 65 of the Ordinance. The return was filed under protest because the provisions of Section 65 were not applicable inasmuch as the income from property was correctly declared according to the provisions of Section 9 of the repealed Income-tax Act, 1922. It is true that the rent receipts are more than annual letting value fixed by the Excise and Taxation Officer but Section 9(2) of the repealed Act defines the annual value and in the said definition actual rent receipts are not to be considered for working out the annual letting value. However, in the Income-tax Ordinance, 1979 if the rent receipts are more than annual letting value, the rent receipts would be deemed to be the annual letting value. It is significant that this provision of the Income-tax Ordinance, 1979 were absent from Section 9(2) of the repealed Income-tax Act, 1922. The assessment framed originally by the then I. T. O. was according to law. Thus, there is no escapement or under assessment of income so as to warrant to reopen the completed assessment. Moreover, the assessment relating to the assessment year 1975-76 is barred by limitation."
The I.T.O., however, was not impressed by this explanation. He, therefore, assessed the income of the appellant at Rs.59,610 which was the amount of rent actually received by the respondent with the following observations:-
"It is most surprising to note that the assessee has made an attempt to unnecessarily define the annual value as the value determined by the Excise and Taxation authorities and not actual rent received by the assessee in respect of the same property. Reference is made to subsection (2) of Section 9 of the repealed Act. 1922 which defines annual value as 'the sum which the property might reasonably be expected to let from year to year."
This explicitly means in this case the annual value as the rent actually received by the assessee. Nowhere in the Income-tax law has it been mentioned that the I.T.O. should adopt the annual value as determined by the Excise and Taxation authorities.
Reference in this context is made to proviso to sub-clause (b) of subsection (2) of Section 19 of the Income-tax Ordinance, 1979 which reads as under:-
(b) ??????? Provided that where the property is let out on rent the annual value shall not be less than the rent payable by the tenant.'
In view of the above proviso as well as subsection (2) of Section 9 of the repealed Act it is abundantly clear that the actual rent received by the assessee in this has to be adopted as annual rental income ...."
3. Needless to say that the I.T.O. recorded the same order in each assessment year involved. Having been aggrieved and dissatisfied the respondent went up in appeal. Firstly, it was contended before learned C .I. T . (Appeals) that the provisions of the Ordinance did not apply in the case of the respondent in view of subsection (d) of Section 166(2) of the Income-tax Ordinance, 1979. The learned C.I.T. (Appeals) upheld this contention. It was further argued before learned C.I.T. (Appeals) that subsection (2) of section 9 of the Act did not refer to actual receipts but to annual letting value which meant the sum for which the property might reasonably be expected to let from year to year and that it was that which was determined by Excise and Taxation department. The learned C.I.T. (Appeals) also accepted this contention and ordered deletion of the additions made by the Assessing Officer in each assessment year. This time the department feels aggrieved and has come up in second appeal before us.
4. Mr. Mohammad Farid, the learned D.R. did not dispute before us, we think quite rightly, the finding of learned C.I.T. (Appeals relating to applicability of the Ordinance. He, however, vehemently argued that it was for the I.T.O. to determine the annual value of a property under the Act and not for Excise and Taxation authorities. He vociferously contended that the actual rent received could conveniently be taken by the I.T.O. as the sum for which the property might reasonably be expected to let from year to year. In order to fortify his submission the learned D.R. invited our attention to a decision of this Tribunal recorded in ITAs Nos. 715 and 716/KB of 1966-67 dated 22nd January, 1968. He, therefore, prayed that we should allow the departmental appeals and after vacating the impugned order should restore the assessment orders of each assessment year involved. Mr. M. D. Gangat, the learned A.R. of the respondent, on the other hand, invited our attention to the following decisions reported as: -
???????????
(i) ???????? 1987 P T D 503 C.I.T. v Sind Club;
??????????? (ii) ??????? (1979) 39 .Tax 30 (Trib.) 1, and
(iii) ????? (1964) 9 Tax 90 (Trib,).
5. We have heard both the learned D.R. as well as learned Counsel for the respondent at length and have also perused not only the relevant law but also the rulings cited at Bar together with several other rulings which we laid our hands upon during our research. However, before reverting to the arguments of Mr. Mohammad Farid, of sect ? D.R. let us reproduce the provisions of subsection (2) 9 of the Act which admittedly applies in the case of the respondent. It reads:-
"For the purpose of this section the expression 'annual value' shall be deemed to mean the same for which the property might reasonably be expected to let from year to year."
6. Now turning to argument of the learned D.R. we, feel inclined to agree with him that actual rent payable by a tenant to his landlord would in normal circumstances, furnish the I.T.O. with reliable evidence of what the landlord could reasonably be expected to get as rent from a hypothetical tenant unless it was established that it was either inflated or understated for some extraneous considerations. We also respectfully agree with him that it is for the I.T.O. to determine the annual value under section 9(2) of the Act. However, the difficulty arises when reasonable annual letting value is also to be determined by some other authorities acting under some other statutes. If on one hand, it is for the I.T.O. to determine the reasonable annual letting value of a property for purposes of Income-tax assessed under the Act on the other hand, the other officer acting under any other legislation also does the same thing. Since presumption of law is that unless there is evidence to the contrary, an officer who discharges any function or duty under a statute does not honestly and to the best of his capability. Thus, we have been called upon to deal with this issue in some details.
7. Since the same provision of Section 9(2) of the Act remained in force in India also and since in India as well as in Pakistan there are various authorities working under various statutes who are called upon to determine the reasonable annual letting value of a particular property when occasion arises, we have plethora of case law on the point under discussion. Such authorities exercise their powers either under rent legislations or under local bodies legislation or under the laws relating to excise and taxation. From time to time the question has been arising as to whether the annual letting value determined by such authorities could be taken to be the annual letting value on which a property could reasonably be expected to let out from year to year. The first case on this point, which we would like to start with is reported as AIR (1962) S C 151. The Municipal Corporation of Calcutta v. Shirimati Padma Devi and others. In this case the Calcutta Municipal Corporation exercising its power under section 127(9) of Calcutta Municipal Act fixed the annual value of the building for which it was reasonably expected to be let out. The Corporation determined its letting value at Rs.1,450 per month but its fair rent under relevant rent laws was determined at Rs.632 and Annas 8. The controversy of this case finally came up before the Indian Supreme Court and it was held by their Lordships that the correct criterion should be the rent realisable by the owner and not the notional value on which it would be let out.
8. The other case again coming from Indian Supreme Court is reported as AIR 1971 (SC) 353, Guntur Municipal Council v Guntur Rent Payers Association in which the Madras Municipal Act came up for interpretation so as to find out method of assessment of amounts of lands and buildings and their Lordships reiterated their point of view which was propounded in Padma Devi's Case (Supra).
9. However, in another case reported as (1981) 131 ITR 435, Mrs. Sheila Kaushiks v CIT. the annual rental value of a property was to be determined by their Lordships of Indian Supreme Court for purposes of Indian Income-tax Act. Section 23(1) of the Indian Act as it then stood laid down that the annual rental value of a property should be deemed that value for which a property might reasonably be expected to be let out from year to year. It was canvassed before their Lordships for the assessee that it was not the actual rent received but the notional amount on which the property could be let out under relevant rent restriction laws. The I.T.O had repelled this argument while taking actual rent received as the standard rent in the absence of any fair rent having been determined under the relevant rent laws. On appeal his finding found approval of both A.A.C. and the Tribunal. Both appellate forums relied upon Indian Supreme Court cases reported as (1972) SCR 390, M.M. Chawla v Sethi. The Supreme Court of India, however, granted leave to appeal to consider the issue involved afresh in the light of its later decision reported as (1980) 122 ITR 700, Dewan Daulatraj Kapur v New Delhi Municipal Committee and which was finally relied upon. In Kapur's case the question which had cropped up before their Lordships of Indian Supreme Court was as to how the annual value of a building should be determined for levy of house tax where the building was covered by the provisions of rent laws and the standard rent was not yet fixed. It was held in this case that the landlord could not reasonably be expected to receive from a hypothetical tenant anything more than the standard rent determinable under the relevant laws. It was observed that the position would remain the same whether the building was given to a tenant on a higher rent or its fair rent was not determined within the prescribed period. Relying upon this decision their Lordships of Indian Supreme Court extended the same principle to the determination of annual letting value under the Income-tax Act as well. The main burden of all these decisions appears to be that the reasonable annual rent is that which is expected to be received notionally from a notional tenant and in a notional market and not actual rent which is received in fact. Their Lordships of Indian Supreme Court in Kapur's case (supra) have enunciated this principle in the following words at page 716:----
"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 dies so because it considers the measure of the standard prescribed by it to be reasonable. It lays down the norms of reasonableness in regard to the rent payable by the tenant to the landlord. Any rent which exceeds its norms 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 exploitation 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 receive any rent in excess of the standard or norms of the reasonableness laid down by the legislature and would such expectation be countenanced by the Court as reasonable."
10. Thus from all this discussion it appears to us that the reasonable annual letting value of a property under the Act would ordinarily be that which is determined to be reasonable annual letting value of such property by an assessing officer who is called upon to determine it under the Act provided he collects some material on record. We also feel that in view of the case law discussed above if the I. T .O. does not collect any evidence on record in support of the annual value determined by him but the assessee relies on the annual letting value as determined by some other authority acting under some statute it is binding on I. T .O. that we however do not mean that it would be reasonable annual letting value binding on an assessing officer under all circumstances. To be precise we are of the view that such reasonable annual letting value as determined by some statutory authority shall be a prima facie evidence for the purpose of assessment to be framed under section 9 of the Act. If, however, the I.T.O. is of the view that such annual letting value was not reasonable the burden would be on him to collect material on record and then determine it. Let us specifically mention here that in Shaela's case (supra) the argument of the I.T.O. was same which Mr. Mohammad Farid, the learned D.R. has advanced before us but the same was repelled by' the Indian Supreme Court.
11. With this discussion if we revert to the facts of these appeals it appears to us that by his reply dated 13th February, 1980 the respondent informed the I.T.O. that the reasonable annual letting value according to him was that which was determined by Excise and Taxation Department. Thus, he made out a prima facie case and the initial burden of proof, which rested on his shoulders stood discharged. The ball now came to the Court of the I.T.O. Under the facts and circumstances of these appeals it was his duty to collect some material on record in support of his finding regarding annual letting value of the property in dispute. Instead of discharging this burden, which rested indeed very heavily on his shoulders he relied upon the rent actually received by the respondent. We have discussed at length that the rent, which is actually received cannot be held to be the rent on which the property could reasonably be let out. We, therefore, under the fact and circumstances of these appeals do not find any force in these departmental appeals.
12. However, before parting with these appeals let us point out that as early as 1979 a Division Bench of this Tribunal has pointed out in the case reported as (1979) 39 Tax 30 (Trib) 1 that unless the legislature filled in the lacuna in the Act or unless the rentals were equated to the annual letting value the excess could not be exposed to exigency of tax under the Act. It is perhaps in the wake of these observations of the Tribunal that proviso to Section 19(2)(b) of the Ordinance has since been enacted. Be it as it may, since we are not concerned with the provisions of the Ordinance, we, therefore, refrain ourselves from dilating on this point anymore.
13. Let us also point out that since we have discussed the issue in some detail we need not discuss the decisions of this Tribunal referred to by both the learned D.R. as well as learned counsel for the respondent. In our judgment all three decisions of this Tribunal revolve round their own facts. Let us, nevertheless, observe that the earlier decisions of this Tribunal relied upon by the counsel for the respondent lay down the same principle of law as we have discussed in some details. Similarly, the case relied upon by the learned D.R. also, in effect, enunciate the same principle of law. In this case two conflicting decisions of this Tribunal were cited but the learned Bench disposed of the issue with the following observations:-
"The correct legal position as explained in the latter case is that valuations made by the Municipal Authorities and the Excise t, Taxation Department is a relevant factor as such a piece of evidence to be taken into consideration by the Income Tax Officer while determining annual letting value of a property but this evidence does not form the sole basis for deciding unit. The ITO may justifiably ignore such valuation if the circumstances warrant his departure therefrom."
14. We respectfully agree with this propositions of law but would like to reiterate once again that unless the I.T.O. brings some additional material on record he would not be justified in discarding E the annual letting value as determined by other statutory authorities. The evidence that actually the rent received is different would not be, as discussed above, such evidence which the I.T.O. could rely upon for making a departure from past history.
15. Now as far as the case of Sind Club (Supra) is concerned, we think that it again supports the case of the respondent. Their Lordships have made the following important observation:-
"Admittedly the respondent's income from the disputed property was assessed in the previous years on the basis of the annual letting value of the said property assessed by the Excise and Taxation Authorities, but in the year under review the Income Tax officer proceeded to change that practice and decided to arrive at the figure of actual income from the chambers and he adopted a particular method in reaching the same. The Income Tax Officer did not give any particular reasons as to why he was departing from the usual practice, but the underlying idea seems to be that the actual gross receipts appear to be much more than the annual letting value and, therefore, he departed from the practice."
16. In the instant case also the I.T.O. has been accepting same annual letting value which was determined by the Excise & Taxation Department since assessment year 1961-62 and when he made departure from past history he did not collect any new material in support of his findings.
17. To conclude all the three departmental appeals stand disposed of accordingly.
M.B.A./431/T ????????????????????????????????????????????????????????????????????????? Appeals dismissed.