Law:

Section:

Section 23 of the Income-tax act, 1961 [as it stood prior to 1-4-1976]- Income from house property-Annual value-Assessee owned property in bombay-Two-third of said property was let out on rent and one-third was inoccupation of licensees under "leave and licence" system in vogue in Bombay-Whether aggregate of rent and licence fees received by assessee could be taken to be annual value of said property-Held, on facts, no-Whether annual value of said property had to be computed under section 23(1) with reference to its rateable value as determined by the municipal corporation-Held, on facts, yes, provided such value was not above standard rent receivable Facts The assessee was one of the co-owners of a house property having one-eighth share therein. Two-third of the house property had been in occupation of the tenants under certain lease agreements and the remaining one-third of the building had been in occupation of the licensees under "leave and licence" system which was in vogue in Bombay. During the accounting year relevant for the assessment year 1970-71, the co-owners derived the sum of Rs. 86,036 from the tenants by way of rent and Rs. 1,98,511 from the licensees by way of licence fees. The ITO, however, took the actual receipt of Rs. 2,84,548, i.e., the aggregate of the aforesaid rent and licence fees, as the annual value of the building and after giving the statutory deductions assessed the sum of Rs. 21,356, being one-eighth share in the hands of the assessee. On appeal, the assessee contended that what was paid by the licensees for the portion in their occupation was in the nature of compensation and it could never be equated with the fair rent and thus the net rateable value of the building as fixed by the Bombay Municipal Corporation should form the basis of computation of the annual value of the building. The AAC accepted the assessee's contention and directed the ITO to complete assessment accordingly. On further appeal by the revenue, the Tribunal upheld the AAC's order. On reference: Held Income from house property must be computed on the basis of section 23. Hence, income from house property must be computed on the basis of sum for which it might…

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