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1964 Supreme(Cal) 134
High Court of Calcutta
S.P. Mitra, S.A. Masud, JJ.
Commissioner of Income Tax Calcutta – Appellant
Versus
Parbutty Charan Law – Respondent
Decided On : Jun 12, 1964
B. Gupta, Balai Pal, Parbutty Charan, Sampat Lyangar
The annual value of property for the purpose of income tax is to be determined in accordance with the provisions of section 9 of the Income-tax Act, 1922.
Headnote:
INCOME TAX - Annual value of property - Determination - Addition of cost of repairs to stipulated rent - Legality - Income-tax Act, 1922, sec. 9 (1) (i), (ii).
Fact of the Case:
The assessee, Parbutty Churan Law, owned a five-storied building at no. 8, India Exchange Place, Calcutta. The ground floor was occupied by M/s. Kothari and Sons, and the remaining four floors were let out to M/s. Birla Brothers Ltd. The deed of lease between the assessee and M/s. Birla Brothers Ltd. provided that the tenant would bear the costs of petty repairs, maintain drainage pipes, water taps, fittings, latrines, water closets, sanitary arrangements, electrical installations, etc., in good repair at all times. The landlords, including the assessee, undertook to execute structural repairs, keep the premises wind and water tight, maintain the exterior of the building, and provide a suitable staff for the working of the lifts. The Income-tax Officer added 1/5th of the actual rental paid by M/s. Birla Brothers Ltd. to the stipulated rent to arrive at the annual value. The Appellate Assistant Commissioner confirmed the addition but held that the annual value of the ground floor and the annual value of the first to fourth floors should be calculated separately to determine the total annual value of the property. The Tribunal agreed with the Income-tax authorities that sec. 9 (1) (ii) would govern the valuation of the first to fourth floors and that the ground floor would fall within sec. 9 (1) (i) of the Act. However, the Tribunal held that the addition of 1/5th of the actual rent to determine the bonafide annual letting value was not justified.
Finding of the Court:
The Court held that sec. 9 (1) (i) of the Income-tax Act applies where the landlord has undertaken to bear the cost of substantial repairs, and sec. 9 (1) (ii) applies where the tenant has undertaken to bear the cost of substantial repairs. In the instant case, the Court held that sec. 9 (1) (i) would apply because the landlord had undertaken to do substantial repairs. The Court also held that there is no legal bar to the jurisdiction of the Court taking into consideration the applicability of section 9 (1) (i) in this reference as the main contention of the assessee before the Tribunal was that no amount should be added to the rent payable by M/s. Birla Brothers Ltd. to arrive at the bonafide annual value.
Issues: 1. Whether sec. 9 (1) (i) or sec. 9 (1) (ii) of the Income-tax Act applies to the facts of the case. 2. Whether the addition of 1/5th of the actual rent to determine the bonafide annual letting value is justified.
Ratio Decidendi: 1. Section 9 (1) (i) of the Income-tax Act applies where the landlord has undertaken to bear the cost of substantial repairs, and sec. 9 (1) (ii) applies where the tenant has undertaken to bear the cost of substantial repairs. 2. In the instant case, the landlord had undertaken to do substantial repairs, therefore, sec. 9 (1) (i) would apply. 3. There is no legal bar to the jurisdiction of the Court taking into consideration the applicability of section 9 (1) (i) in this reference as the main contention of the assessee before the Tribunal was that no amount should be added to the rent payable by M/s. Birla Brothers Ltd. to arrive at the bonafide annual value.
Final Decision: The Court answered the question in the negative and held that on the facts of the case the bonafide annual value and the taxable income as computed by the Tribunal in respect of the property at no. 8, India Exchange Place, for the assessment years 1951-52, 1953-54 and 1956-57 should not be in accordance with the provisions of section 9 (1) (ii) of the Income-tax Act and that section 9 (1) (i) should be made applicable to the facts of this case.
1. IN this reference under sec. 66 (1) of the Income-tax Act, 1922 the following question of law arises out of the appellate order of the Tribunal:
"whether on the facts of the case the bonafide annual value and the taxable income as computed by the Tribunal in respect of the property at no. 8, India Exchange Place, for the assessment years 1951-52 to 1953-54 and 1956-57 are in accordance with the provisions of sec. 9 of the Indian Income Tax Act?"
The facts of the case may be stated as follows: -The house property at no. 8, India Exchange Place, Calcutta a five-storied building belongs to the assessee, Parbutty charan Law and his co-shares. The entire building is occupied by tenants, the ground floor being in the possession of M/s. Kothari and Sons and the remaining four floors having been let out to M/s. Birla Brothers Ltd. There of the ground floor is Rs. 36,000/-per annum and the rent of the remaining floors payable by m/s. Birla Brothers Ltd. is Rs. 81,000/ -. The tenancy of M/s. Birla Brothers is held under a deed of lease dated November 16, 1950. Under the terms of the said deed of lease M/s. Birla Brothers Ltd. undertook to bear the costs of such petty repairs as are necessary to keep the demised premises in good tenantable condition. The deed of lease also provides that the tenant is to maintain at their own cost the drainage pipes, water taps, fittings, latrines, water closets, sanitary arrangements, electrical installations etc. in good repairs at all times. The landlords including the assessee, Parbutty Churn Law undertook to execute at their own cost and expense "such structural repairs which may necessitate replacements" and to keep the premises wind and water tight and to maintain the exterior of the building and all common passages, halls, entrance, lights, etc. in good condition. The lessors further agreed to provide a suitable staff for the working of the lifts and also to pay all municipal rates and taxes. As regards the ground floor of the building in the occupation of M/s. Kothari and Sons, the landlord including the assessee, Parbutty Churan Law, had agreed to bear the cost of all necessary repairs. The Income-tax Officer, in determining the fair annual letting value of the premises, held that the rent of first, second, third and fourth floors of the said premises amounting to Rs.81,000/- had been fixed at a rate lower than the property would have otherwise fetched. According to Mm the said rent of Rs.81,000/-was fixed at a rate lower than the rent of Rs.36,000/- in the occupation of M/s. Kothari and Sons, because, unlike M/s. Kothari and Sons, M/s. Birla Brothers Ltd. had undertaken to do the repairs which ordinarily should have been done by the landlords. Accordingly, the Income-tax Officer estimated the cost of repairs at l/5th of the actual rental paid by M/s. Birla Brothers Ltd. and, added it to the actual rental for the purpose of arriving at the annual value. The Income-tax Officer then deducted from the amount thus arrived at the municipal taxes and the expenses for maintenance of the lift to arrive at what he called the bonafide annual letting value. The appellate Assessment Commissioner confirmed the addition, made by the Income-tax Officer, of 1 5th of the actual rent to get the annual letting value. But the appellate Assessment Commissioner found that the annual value of the ground floor and the annual value of the first to fourth floors should be calculated separately to determine the total annual value of the property. He held that, as the landlords have undertaken to bear the cost of repairs in the case of the ground floor the bonafide annual value of the property shall be determined under sec. 9 (1) (i) of the Income tax Act, or in other words, shall be subject to an allowance of a sum equal to l/6th of such bonafide annual value after necessary deductions for tenant's share of tax and costs of maintenance of lift etc. He further held that in the case of M/s. Birla Brothers Ltd., as
