JUDGMENT: (Per Sandeep V. Marne, J.)

1) The issue involved in these two Appeals is whether it is permissible for the Assessing Officer to determine annual value of the property for the purposes of taxation under Section 22 of the Income Tax Act, 1960 (the Act) higher than the rateable value determined under the Municipal laws. The issue arises in the light of challenge raised by the Assessee to the order dated 30 June 2003 passed by the Income Tax Appellate Tribunal (ITAT) pertaining to the Assessment Years 1990-91 and 1991-92, by which the orders passed by the Commissioner of Income Tax (Appeals) and Assessing Officer are upheld. The Assessing Officer has determined the gross annual letting value of the property under the provisions of Section 23(1)(a) of the Act at Rs.22,00,000/- and has subjected the same to tax under Section 22 of the Act. The Assessee insists that the annual rateable value determined under the municipal laws could at best be treated as the sum for which the property might have reasonably be expected to be let under the provisions of Section 23(1)(a) of the Act.

2) Brief factual background of the case is as under :

The Assessee purchased office premises bearing No.72 admeasuring 3275 sq.ft. on 7th floor of the building ‘Sakhar Bhavan’ at Nariman Point, Mumbai for consideration of Rs.21,85,664/-, which is the value reflected in the Fixed Asset Schedule in the Assessee’s Balance Sheet. On 29 November 1988, the Assessee entered into Leave and License Agreement and other connected agreements with Citi Bank for letting out the office premises for a period of 10 years from 1 April 1989 to 31 March 1999. The agreed license fees were Rs.9,825/- per month. Citi Bank paid interest free security deposit of Rs.1,54,00,000/- to the Assessee. For the year ending 31 March 1990 (Assessment Year 1990-91), the Assessee offered rental income of Rs.1,17,900/- calculated on the basis of license fees of Rs.9,825/- per month to be taxed under the head ‘Income from Business’. The Assessing Officer passed Assessment Order dated 30 November 1992 determining the gross annual rateable value of the property under Section 23(1)(b) of the Act at Rs.22,00,000/- treating the same as the amount for which the property might have reasonably be let out from year to year. This was done by taking into consideration the rent received in respect of the first and ground floor premises in the same building from the same licensee-Citi Bank as well as the factum of Assessee paying 15% interest on overdraft facility secured from Citi Bank.

3) The Assessee challenged the Assessment Order by filing Appeal before the Commissioner of Income-Tax (Appeals) V, Bombay [CIT(A)] which has upheld the order of the Assessing Officer by order dated 29 March 1993. The Assessee preferred further Appeal before the ITAT which has not interfered with the order of the Assessing Officer qua income from house property by its order 30 June 2003. The Assessee has accordingly filed Income Tax Appeal No.62/2004 challenging the order of the ITAT dated 30 June 2003.

4) In respect of Assessment Year 1991-92, the Assessing Officer adopted similar course of action by determining the gross annual letting value of the property at Rs. 22,00,000/- vide Assessment Order dated 30 March 1993. The assessment qua income from the said property was confirmed by the CIT(A) by order dated 4 March 1994 and by ITAT by order dated 30 June 2003. The Assessee has filed Income Tax Appeal No.5/2004 challenging the order passed by the Assessing Officer, CIT(A) and ITAT qua Assessment Year 1991-92.

5) Both the Appeals have been admitted by orders dated 2 December 2004 by formulating the following common question of law :-

Whether on the facts and circumstances of the case and in law the Tribunal was justified in holding that the assessee was assessable to the income of Rs.22,00,000/- as ‘income from house property’?

6) Mr. Joshi, the learned counsel appearing for the Assessee would submit