SWAIKA OIL AND PRODUCE CO. (P.) LTD. VS COMMISSIONER OF INCOME-TAX, 1994 PTD-CALCUTTA-HIGH-COURT-INDIA 44 (1991)

Income-tax...

----Property---Ejectment suit filed against tenant---Rent not being collected-- Owner of property liable to be assessed on annual value of property---Indian Income Tax Act, 1961, Ss.22 & 23.

The word "owner" in section 22 of the Income Tax Act, 1961, refers to the owner of the property itself. Section 23 provides that, for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. It is a notional income. One has to ascertain what a hypothetical tenant would pay. This has to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not. The applicability of the provisions does not depend on the power or capacity of the owner to let the property out. Merely because the assessee has filed an ejectment suit or the, assessee is not collecting rent or occupation charges, as the case may be, which are being deposited by the tenant with the Rent Controller, it cannot be said that the annual value cannot be assessed. Whether the owner is in possession and enjoyment of the property or has let it out to a third person is not a rel9vant consideration for determination of the annual value of the property. The liability does not depend upon the right of the owner to enjoy or let out the property.

Heldaccordingly, that the assessee was liable to be taxed on the annual value of the property irrespective of the fact that the ejectment suit was pending in the relevant accounting year.

S. Murarka for the Assessee.

Sunil Mitra and R.C. Prasad for the Commissioner

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 256(1) of the Income Tax Act, 1961, for the assessment year 1981-82, the following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, the income from house property was assessable in the hands of the assessee?"

The facts leading to this reference are that the assessee, a private limited company, was dealing in gram, Chana and Chuni and it had no manufacturing activities. It was also the owner of a property at 58/2, Ballygunge Circular Road, Calcutta. It filed an ejectment suit against the tenant which was pending during the assessment year under reference. The assessee claimed that, in computing the income from house property, the legal charges of Rs.5,264 spent by it in the course of the ejectment suit should be deducted. The Income-tax Officer taking note of the provisions of section 24(1) of the Act did not allow the same and computed the income from house property after allowing statutory deduction for repairs and collection charges of Rs. 6,089.

On appeal before the Commissioner of Income-tax (Appeals), it was contended that the rent receivable should not have been taken as determined by the Calcutta Corporation. Considering the amendment brought by the Taxation Laws (Amendment) Act, 1975, the Commissioner of Income-tax (Appeals) rejected the claim of the assessee. He also rejected the claim of the assessee for deduction of legal charges of Rs.5,264 on the ground that there was no such provision for deduction under section 24(1) of the Act. Being aggrieved, the assessee moved the Tribunal.

Before the Tribunal, a paper book had been filed on the basis of which it was contended that, as the ejectment suit had been filed against the tenant, the income from house property could not be assessed from the property owned by the assessee, that the annual value should be taken as the value determined by the Calcutta Corporation and the rent receivable should not be the basis, and that the sum of Rs.5,264 spent on legal charges in the course of ejectment suit should be allowed as deduction out of the income from house property. The Departmental representative, on the other hand, supported the orders of the lower authorities urging that the annual value was rightly taken by the Income Tax Officer after considering the amendment in the provision and that the assessee was owning a property and, therefore, the income from the house property could be determined under section 22 of the Act.

The Tribunal, after considering the facts and the submissions advanced by both the sides upheld the view, point of the Commissioner of Income-tax (Appeals).

At the hearing' before us, Mr. Murarka, learned counsel for the assessee, has reiterated the contentions which were raised before the Tribunal. On the facts and in the circumstances of the case, we are, however, unable to accept the contention of the assessee. There is no dispute that the assessee owns the building at No.58/2, Ballygunge Circular Road, Calcutta. Under the scheme of the Act, ownership of the property itself is the criterion for assessment under section 22. The word "owner" refers to the owner of the property itself and not the owner of its annual value. Section 23 provides that, for the purpose of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. It is a notional income.. One has to ascertain what a hypothetical tenant would pay. This has to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not. The applicability of the provisions does not depend on the power or capacity of the owner to let out the property or on its own power to receive rent or income from bona fide annual value. Merely because the assessee has filed an ejectment suit or the assessee is not collecting rent or occupation charges, as the case may be, which are being deposited by the tenant to the Rent Controller, it cannot be said that the annual value cannot be assessed. Whether the owner is in possession and enjoyment of the property or has let it out to a third person is not a relevant consideration for determination of the annual value of the property. The liability does not depend upon the right of the owner to enjoy or let out the property.

In our view, therefore, the Tribunal was right in coming to the conclusion that the assessee was liable to be taxed on the annual value of the properly irrespective of the fact that the ejectment suit was pending in the relevant accounting year. For the reasons aforesaid we answer the question in this reference in the affirmative and in favour of the Revenue.

There will be not order as to costs.

SHYAMAL KUMAR SEN, J.---I agree.

M.B.A./2445/TReference answered