COMMISSIONER OF INCOME-TAX VS AMALGAMATJOIXS LTD.
2001 P T D 108
[2381 T R 963]
[Madras High Court (India)]
Before R. Jayasimha Babu and N. V. Balasubramanian, JJ
COMMISSIONER OF INCOME‑TAX
versus
AMALGAMATIONS LTD.
Tax Cases Nos. 1655 and 1656 of 1986 (References Nos. 1125 and 1126 of 1986), decided on 22/04/1998.
Income-tax--
‑‑‑‑Revision‑‑‑House property‑‑‑Annual value‑‑‑Property given on rent‑‑ Annual value determined by Assessing Officer on the basis of actual rent in respect of one property and higher rent in respect of another property‑‑‑No material to show that rent was too low‑‑‑Mere assumption by CIT that rent was too low because of an increase in rents in that area‑‑‑Determination of annual value by Assessing Officer could not be termed erroneous‑‑‑Order of revision was not valid‑‑‑Indian Income Tax Act, 1961, Ss.22 & 263.
The assessee‑company had let out two residential properties to two of its subsidiary companies. The assessment years concerned were 1977‑78 and 1978‑79. One of the properties was fetching a rent of Rs.6,000 per annum. The annual letting value of the said property determined by the Corporation of Madras for the purpose of levy of property tax was Rs.5,460. The other property fetched Rs.9,000 per annum whereas the annual letting value determined by the Corporation was Rs.8,190. From the assessment year 1972‑73 onwards, the income from these two properties had been taken at Rs.6,000 and Rs.15,000, 'respectively, without any disturbance. The Commissioner of Income‑tax, on a perusal of the order of the Income‑t4x Officer, was of the prima facie opinion that the annual letting‑value determined at Rs.6,000 and Rs.15,000 in respect of these two properties, without any change from the year 1972‑73 was erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income‑tax felt that there was a steep increase in the rentals of the residential properties in Madras city particularly in the areas like Adyar and Alwarpet and the annual letting value determined was erroneous. He set aside the order of the Income‑tax Officer and directed him to complete the assessment after due inquiry. The Tribunal noticed that the annual letting value was determined by the Income‑tax Officer after making due enquiries and it was not the case of the Revenue that there was any error of law in the order of the assessment and the actual rent received by the assessee in the case of the Adyar property was found to be the same as the value determined by the Corporation of Madras and in the case of the Alwarpet property the actual rent received was higher than the amount determined by the Corporation. It, therefore, cancelled the order of revision. On a reference:
Held, that the Commissioner of the Income‑tax had not determined what would be the fair rental value of the property under the rent control law of the State and on the basis of his own assumption that there was a steep increase in the rental value of the property, it was not possible for him to exercise the power of revision and direct the Income‑tax Officer to conduct further investigation and to determine the annual rental value of the same. The Commissioner of Income‑tax should have some information or material to establish that the rental amount received by the assessee was too law. In the absence of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner of Income‑tax to exercise his power of revision. The order of revision was not valid.
C.V. Rajan for the Commissioner.
P.P.S. Janardhan Raja for the Assessee.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑‑At the instance of the Revenue, the Income‑tax Appellate Tribunal has stated a case and referred the following two questions of law relating to assessment of income of the assessee for two assessment years 1977‑78 and 1978‑79, namely:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in cancelling the order passed by the Commissioner of Income‑tax under section 263 of the Income Tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal had valid materials to hold that the annual value of house properties admitted by the assessee represented the market value of the rent that the property would fetch and hence there was no case for interference by the Commissioner by passing an order under section 263 of the Income‑tax Act directing the Income‑tax Officer to recompute the annual value of the house properties as provided under section 23(1) of the Income‑tax Act?"
The assessee is a company in which the public are not substantially interested. We are concerned with two assessment years, i.e., 1977‑78 and 1978‑79. The assessee is the owner of two residential properties one at No.27, First Main Road, Adyar, and the other at No.25, Kasturi Rangy Iyengar Road, Alwarpet, Madras. The property situate at Adyar was let out to a subsidiary company, India Pistons Repco Limited, for Rs.6,000 per annum. The annual letting value of the said property determined by the Corporation of Madras for the purpose of levy of property tax was Rs.5,460. The Alwarpet property was let out to another subsidiary company, Addison Paints and Chemicals, at Rs.9,000 per annum whereas the annual letting value determined by the Corporation was Rs.8,190.
The assessee, during the course of assessment proceedings for the assessment year 1977‑78, showed the income from the Adyar property at Rs.6,000 being the actual rent received and with reference to the Alwarpet property, the assessee determined the income at 8.15,000 as assessed for the preceding assessment year and claimed the usual deductions for computing the income from that property. The Income‑tax Officer invoked the provision under section 144B of the Income‑tax Act and after adopting the procedure prescribed under that section, he prepared a draft assessment the income‑tax Officer adopted the income as shown by the assessee and determined the income from the said two properties after disallowing certain deductions claimed by the assessee in respect of urban land tax only.
There is no dispute that from the assessment year 1972‑73 onwards, the income from these two properties had been taken at Rs.6,000 and Rs.15,000, respectively, without any disturbance. The Commissioner of Income‑tax, on a perusal of the order of the Income‑tax Officer, was of the prima facie opinion that the annual letting value determined at Rs.6,000 and Rs.15,000 in respect of these two properties, without any change from the year 1972‑73 was erroneous and prejudicial to the interests of the Revenue. He noticed the physical features of the properties and the extent of the land and came to the conclusion that the monthly rent at Rs.500 and Rs.1,250 for the two buildings was abysmally low and the rental worked out to only 16 paise per square foot. The Commissioner felt that there was a steep increase in the rentals of the residential properties at Madras city particularly in the areas like Adyar and Alwarpet and the annual letting value determined at a sum of Rs.15,000 was erroneous and prejudicial to the interests of the Revenue. He, therefore, felt that the determination of the annual letting value arrived at by the Income‑tax Officer should be reappraised on through examination and in this view of the matter, he set aside the assessment orders passed by the Income‑tax Officer and gave a direction to the Income‑tax Officer to complete the assessment after making due enquiry.
The assessee aggrieved by the order of the Commissioner, went on appeal before the Income‑tax Appellate Tribunal. The Income‑tax Appellate Tribunal noticed that the annual letting value was determined by the Income- tax Officer after making due enquiries and it is not the case of the Revenue that there was any error of law in the order of assessment and the actual rent received by the assessee in the case of Adyar property was found to be the same as the value determined by the Corporation‑ of Madras and in the case of Alwarpet property the actual rent received was larger than the amount determined by the Corporation. The Tribunal noticed the value determined by the Corporation of Madras and held that there are no errors in law in the determination of the annual income from these two properties. The Tribunal also found that it is common knowledge there is a steep increase in the rental value of the residential properties in Madras city and it cannot be assumed that fact has been overlooked by the Income‑tax Officer.
The Tribunal further held that the question whether there was a general increase in the rental value of the Adyar property or Alwarpet property between the years 1972 and 1979 and the question as to what is the extent of the increase and whether it will affect the building in question would be a matter of judicial notice and there is evidence to show that there was an actual increase in the rental value of the properties. Therefore, the Tribunal came to the conclusion that the Commissioner of Income‑tax has not exercised his power of revision under section 263 properly and there is no ground for the Commissioner to direct the Income‑tax Officer to review the decision of the Income‑tax Officer to determine the annual rental value of the properties. The Tribunal, therefore, held that the Revenue has not established that the order of the Income‑tax Officer was erroneous and the order passed by the Commissioner was without jurisdiction and cancelled the order of the Commissioner made under section 263. The Revenue then challenged the order of the Income‑tax Appellate Tribunal and at its instance, questions of law set out earlier, have been referred to us by the Tribunal.
We have perused the facts. The contention of the Revenue in this regard is that the Commissioner has noticed the location of the properties, the size of the building, the area of the land and taking into account all those material facts and also taking into account the general increase in the rental value of the property, the Commissioner was of the view that there must be reappraisal or re‑determination of the rental value of the properties. Learned counsel for the Revenue contended that rent was determined for the year 1972‑73 and there was no change in the rental value of the property from the rear 1972‑73 and, therefore, the Commissioner has taken into account the general increase in the rental value of the properties and, therefore, he directed the Income‑tax Officer to examine the matter afresh. According to counsel for the Revenue, the Commissioner has jurisdiction to revise the orders of the Income‑tax Officer as the power of the Commissioner is of wide amplitude and the Commissioner on materials came to the conclusion that the annual value determined was erroneous and prejudicial to the interests of the Revenue.
We have seen the facts of the case. It is no doubt true that the value of the property was determined for 1972‑73 and the same, value was adopted for the assessment years in question. The Commissioner no doubt noticed the area of the building and the extent of the land occupied by the tenant, but there was no investigation or enquiry by him whether there was any actual increase in the rental value of the property and if so what is the extent of increase in the rental value of the properties. The Commissioner, on the basis of his own assumption that there was general increase in the rental value of the property, has directed the Income‑tax Officer to investigate further and determine the rental value of the property. It is no doubt true that the two properties were let out to two sister concerns of the assessee‑company, but the mere fact that they were let out to the sister concerns of the assessee company would not render the property as not tenanted one. Under the Rent Control Act of the State, there is a procedure for the determination of the fair rental value of the properties and it is not possible for the assessee to realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner has not determined what would be the fair rental value of the Property under the relevant rent control law of the State and on the basis of his own assumption that there is a steep increase in the rental value of the property, it is not possible for him to exercise the power of revision and direct the Income‑talc Officer to conduct further investigation and to determine the annual rental value of the same. The Commissioner should have some information or material to establish that the rental amount received by the assessee was too low than‑the fair rent of the properties. In the absence of any material to show that the said property would have fetched a higher rent, it is not possible for the Commissioner to exercise his power of revision. The Tribunal has found that there is no error of fact in the orders of assessment. It is seen that the Income‑tax Officer had completed the assessment after making due enquiry and after grant of certain deductions. The Commissioner has not indicated that there is any error in law in determination of the annual rental value of the property. He has also not indicated anywhere in his order that there is any error of law in determination of the rental value of the properties. In the absence, of am material, the Commissioner has exercised his power of revision and set aside the order of the Income‑tax Officer and directed him to make further investigation in the matter and determine the annual rental value of the properties. The Income‑tax Officer, in the present case, has taken the actual rent received from the two properties and has determined the annual rental value of the properties on the basis of the materials. Unless it is establishes that the materials relied upon by the Income‑tax Officer were not relevant and some irrelevant materials have been taken into consideration before determining the annual value of the properties, it cannot be said that the determination of annual rental value of the properties made by the Income tax Officer was erroneous. Therefore, we are of the opinion that the Commissioner has exercised his power of revision on his own assumption and exercised his power without any material or any evidence on record. As rightly pointed out by the Tribunal the trend was that there was an increase in rental value of the properties in the city it cannot be assumed that the Income‑tax Officer had overlooked or missed the upward trend in the valuation of the city properties. The Income‑tax Appellate Tribunal, in our opinion, has come to the correct conclusion in holding that the determination of annual rental value of the properties in respect of two assessment years, made by the Income‑tax Officer has not been established to be erroneous in law and it cannot be revised under section 263. We find no infirmity in the order of the Tribunal. Accordingly, we answer both the questions of law referred to us in the affirmative and against the Revenue. The assessee is entitled to a cost of Rs.500 in one set.
M. B. A./176/FC
Reference answered.