Law: Income Tax Ordinance, 1979

Section: 59(1),66,66A,19(2)(b),65

(a) Income Tax Ordinance (XXXI of 1979)--- ----Ss. 19 & 59(1)---Income from house property---Estimation of annual value and its assessment in the hands of owner---Principle---Where the owners of the property had declared much reduced rate of rent as against the one which the property was admittedly fetching and no rental value was declared by the owners in respect of the space occupied by the lessee company, assessment framed under S.59 (1), Income Tax Ordinance, 1979, held, was both erroneous and prejudicial to the interest of revenue. The provisions of section 19 of the Income Tax Ordinance provide that the "annual value" of a property is chargeable under the head income from house property. The definition of "annual value" under subsection 2(b) of this section makes it further clear that the value so assigned is notional. However, proviso to this subsection clarifies that such notional value cannot be less than the actual rent payable by the tenants. Since the annual value is relatable only to the building owned by an assessee the value assessable shall comprise the amount which even a sub-lettee or a sub-tenant pays for its occupation. Looking at it from another angle it can be safely said that for the purposes of proviso to section 19(2)(b) recipient of the rent does not matter at all when it comes to determine the actual rent being received in respect of a house property. Section 19 of the Income Tax Ordinance, with regard to assessment of annual value does not maintain a distinction between a tenant and a sub­tenant- The value envisaged by this section necessarily being a notional value whatever is received as rent of a building has to be taken into account without regard to the recipient, be it the owner or a middle man, a lessor different from the owner or even a sub-lessor. Use of words "deemed" and "expected" in section 19(2)(b) indicates discretion in the assessing officer while estimating annual value in respect of a house property. Only two restrictions on such discretion are inbuilt in the said subsection and its proviso viz. where the house property is not let on rent the estimated value shall be the sum for which the property might…

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