Judgment

BHAGWATI, J.:- These appeals by special leave raise a common question of law relating to the determination of annual value of a building for the purpose of chargeability to tax under the Indian Income-tax Act, 1961 where the building is governed by the provisions of the Rent Control legislation but the standard rent has not yet been fixed. The facts giving rise to these appeals are few and may be briefly stated as follows;

The assesseee constructed a warehouse in Delhi sometime in 1961 at a total cost of Rs. 4,13,000. The warehouse consisted of two portions on the ground floor, one on the north and the other on the south and also a mezzanine floor and a first floor. On 19th March, 1962, the assessee let out the whole of the first floor to the American Embassy at the rent of Rupees 5,810 per month and subsequently on 1st April, 1964 she let out the northern portion of the ground floor together with the mezzanine floor to the same tenant at the rent of Rs. 6,907 per month and on 7th December, 1964 the northern portion of the ground floor was let out to the same tenant at the rent of Rs. 6,640 per month. Thus the entire warehouse was let out by the assessee to the American Embassay with different portions let out under different tenancies commencing on different dates. On 17th July, 1967, however, a new lease was entered into between the assessee and the American Embassy for letting out of the entire warehouse at the rent of Rs. 34,797 per month and this lease came into effect from 1st April, 1968. The assessee thus started receiving rent at the rate of Rs. 34,797 per month in respect of the entire warehouse from 1st April, 1968.

2. The question arose in the course of assessment of the assessee to income-tax for the assessment years 1969-70 and 1970-71 as to how the annual value of the warehouse should be determined for the purpose of chargeability to income-tax under the head "Income from house property". Now income from house property chargeable to tax is computable under Section 22 which provides that the annual value of property consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, shall be chargeable to income-tax under the head "Income from house property". Where, therefore, the assessee owns a building, the annual value of such building is chargeable to income-tax under the head "Income from house property" under Section 22. But the question immediately arises: how is the annual value to be determined? The answer is provided by S. 23 which lays down the mode of determination of annual value. Sub-s. (1) of that section as it stood at the material time provided that "for the purposes of, S. 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". The assessee therefore claimed that on a proper construction of sub-section (1) of S. 23, it was not the actual rent received by the assessee for the warehouse that was material for determining the annual value of the warehouse but the hypothetical amount for which the warehouse might reasonably be expected to let from year to year and since the Delhi Rent Control Act 1958 (hereinafter referred to as the Rent Act) was applicable in the area in which the warehouse was situate the warehouse could not reasonably be expected to let from year to year at a rent exceeding the standard rent determinable under the provisions of that Act. The Income-tax officer however, took the view that the actual rent received by the assessee provided the most accurate and satisfactory measure of the amount for which the warehouse might reasonably be expected to let from year to year and the annual value of the warehouse must therefore be taken to be the actual rent received by the assessee and he accordingly assessed the assessee to tax on the basis of the actual rent received by her. The assessee preferred an appeal to the Appellate Assistant Commissioner for each of the