Income-tax---

----House property---Annual value---Property which is let out---Covered by Rent Control-Law ---Agreed rent being fair rent under Rent Control Law---To be taken as annual value---Indian Income Tax Act, 1961, S.23---U.P. (Temporary) Control of Rent and Eviction Act, 1947.

The assessee-company had constructed residential quarters in 1948, the letting of which was governed by the U.P. Rent Control Act. It had let three-fourths of these quarters to another company and the rest were in the possession of the assessee and had been allotted by it to its employees. The other company had let the three-fourths of the quarters either to its employees or to some others. For the assessment years 1965-66 to 1967-68, the Appellate Tribunal held that, since under the provisions of the U.P. Rent Control Act, the rent which had been first agreed to be paid by the tenant could not be increased, the actual rent which was received alone could be regarded as the fair market value or the notional value on which the assessee could be taxed. On a reference:

Held, affirming the decision of the Appellate Tribunal, that it was not the contention of the Department that the rent agreed between the assessee and the tenants was not a fair and reasonable rent at the time when the property was let and that it was not disputed that the provisions of the U.P. Rent Control Act were applicable. The income from the quarters let to the other company and to outsiders should be assessed on the basis of the rent actually received or receivable and not on any notional value. [p. 14181 A

CIT v. Modi Spinning and Manufacturing Mills Co. Ltd. (1980) 125 ITR 361 (All.) fol.

Mr. Rajendra, R.K. Chaufla and D.N. Malhotra for the Commissioner.

S.K. Aggarwal for the Assessee.

JUDGMENT

B.N. KIRPAL, J: --This judgment will dispose of the aforesaid reference. Income-tax Reference No.74 of 1982 is in respect of the assessment years 1965-66 and 1966-67, while I.T.R. No.71 of 1982, is in respect of the year 1967-68. The point involved in both the cases pertains to the computation of the annual

letting value, though the questions of law have been differently worded. In respect of the assessment years 1965-66 and 1966-67 (I.T.R. No.74 of 1982), the question of law referred is as follows:

"Whether, on the facts and in the circumstances of the case; the Tribunal was legally right in coming to the conclusion that the bona fide annual letting value of the property in question was Rs.9,133 in the assessment y6ar 1965-66 and Rs.11,741 in the assessment year 1966-67?"

In respect of the assessment year 1967-68 (I.T.R. No.71 of 1982), the question of law referred is as follows:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from quarters let out to M/s. Modi Spinning and Weaving Mills Co. Ltd. and to outsiders should be assessed on the basis of rent actually received or receivable by the assessee and not at Rs.49,397?"

The facts as found by the Tribunal, in both the references, are similar as they pertain to the same property. It appears that some residential quarters were constructed by the assessee in the year 1948. Three-fourths of those quarters were let out to M/s. Modi Industries Limited sometime in the year 1949. The balance one-fourth of the quarters were in the possession of the assessee and had been allotted by it to its employees. It is the Modi Industries Limited which had let out the three-fourths of the quarters either to their employees or to some outsiders. Be that as it may, the fording of fact recorded by the Tribunal is that all these quarters had been let out a number of years ago.

The assessee claimed before the Income-tax Officer that the actual rent received by it should be taxed. The Income-tax Officer, however, came to the conclusion that the assessment should be at the notional value and not at the figure of the actual rent received by the assessee.

The Appellate Assistant Commissioner allowed the appeal- of the assessee by following the decision of the Tribunal, dated June 25, 1975, given in an appeal filed by Modi Spinning and Weaving Mills Co. Ltd., where a similar question had been raised. In the case of Modi Spinning and Weaving Mills Co. Ltd. also the residential quarters had been constructed in the year 1948 and had been let out to Modi Industries Limited in the year 1949 and the Tribunal dame to the conclusion that keeping in view the provisions of the U.P. Rent Control Act; it is the actual rent received which could be taxed and not the notional rent arrived at by the Income-tax Officer.

The Appellate Assistant Commissioner having allowed the appeals in respect of all the three assessment years, the Department came up in appeal before the Income-tax Tribunal. Following its early decision in the case of Modi Spinning and Weaving Mills Co. Ltd. the Income-tax Tribunal reiterated that under the provisions of the U.P. Rent Control Act, the rent which had been first agreed to be paid by the tenant could not be increased. The Income tax Tribunal, therefore, came to the conclusion that the actual rent which was received alone could be regarded as the fair market value or the notional value on which the assessee could be taxed.

While the Income-tax Tribunal passed a common order in respect of the assessment years 1965-66 and 1966-67, a separate order was passed for the assessment year 1967-68, where it followed its earlier order in the case of the assessee. At the instance of the Department, thereafter, the aforesaid two questions were referred to this Court.

It appears to us that the conclusion arrived at- by the Tribunal, in the instant case, was correct. As has already been noticed, a similar question had arisen in the case of a sister concern of the assessee, namely, that of the Modi Spinning and Weaving Mills Co. Ltd. After the decision of the Tribunal in that case, a question of law had been referred and the Allahabad High Court in the case of CIT v. Modi Spinning and Manufacturing Mills Co. Ltd. (1980) 125 ITR 361 upheld the decision of the Tribunal and came to the conclusion that under the provisions of the U.P. Rent Control Act, if a property is let out under an agreement, then the fair rent would be the rent agreed upon between the parties. It was a lso noticed by the Allahabad High Court that it had not been contended that the agreed rent was not a fair and reasonable rent at the time when the property was let out. Therefore, it came to the conclusion that where the letting out of a property was subject to the limitation provided under the Rent Control enactment and there was nothing on the record to show that the agreed rent is not fair and reasonable, then the actual rent received by the assessee should be regarded as the fair annual letting value of the property concerned.

We are in respectful agreement with the aforesaid decision of the Allahabad High Court. In the present case also, it is not the contention on behalf of the Department that the rent which was agreed between the assessee and the tenants was not a fair and a reasonable rent at the time when the properties were let out. It is also not disputed that the provisions of the U.P. Rent Control Act were applicable and this being so, the ratio of the decision of the Allahabad High Court in Modi Spinning and Manufacturing Mills Co.'s case (1980) 125 ITR 361) is clearly applicable.

In our opinion, therefore, the questions of law have to be answered in the affirmative and against the Department.

There will be no order as to costs.

M.BA./2385/TQuestions answered.