Law:

Section:

Section 23 of the Income-tax Act, 1961 – Income from house property – Annual value – Assessment years 1968-69 and 1969-70 - At time of purchase of properties by assessee there was a subsisting lease on a fixed rent with an option for lessee to extend lease for a further period of 15 years - Lessees sublet properties for higher rent – However, assessee was entitled, under terms of original lease deed only fixed rent which by persuasion of subsequent owners of property had been slightly raised – Whether it was not open to revenue to ignore rent actually received by assessee and contend that income should be computed on basis of annual value of property which appeared to have been arrived at by local authority, probably on basis of rent for which lessees had sublet properties to others – Held, yes FACTS At the time of the purchase of the properties by the assessee in 1961 there was a subsisting lease for a period up to 1-5-1969, on a rent of Rs. 225 per mensem with an option for the lessee to extend the lease for a further period of 15 years and the tenancy continued in spite of the change in the ownership. The lessees sublet the properties at a higher rent. Though the rent fixed in the lease deed was Rs. 225 per mensem, the subsequent owners had persuaded the lessees, to payextra rent at 25 per cent of the agreed rent, amounting to Rs. 675 per annum, together with Rs. 225 towards annual repairs and a sum of Rs. 2,626 per annum towards municipal taxes, in addition to the agreed rent, and they were thus getting a total sum of only Rs. 6,226 per annum from the lessees and that that was the position when the assessee bought the properties in 1961. The ITO adopted the annual municipal value as the income from the properties, as had been done by her for the previous assessment year 1968-69. On second appeal, the Tribunal held that the income from the house properties should not be computed on the basis of their annual municipal value notionally irrespective of the actual rent received by the assessee. On reference: HELD The revenue did not dispute the fact that the properties had been let by a registered lease deed by the predecessor-in-title of the assessee as early…

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