ORDER
D.K. Srivastava, AM
In all the aforesaid appeals, the department has raised identical grounds of appeal, which read as under :
“1. On the facts and in the circumstances of the case and as per the law, the learned CIT(A) has erred in directing the assessing officer to recompute the Income from house property as determined by the assessee, holding the Standard Rent as determined by the Municipal Authority to be the correct value.
2. On the facts and in the circumstances of the case, the learned CIT(A) has failed to appreciate the finding of the assessing officer that the assessee had let out the flat to one of its Directors at a rent which is lower than the Fair Market Rent of the flats in the neighbouring area.
3. On the facts and in the circumstances of the case, the learned CIT(A) has further erred on the facts of the case by not taking into cognizance the fact that the Annual Value of the Property declared by the assessee is more than Annual Value as per the Rent Control Act.”
2. Briefly stated, the facts of the case are as follows :
(i) The assessee-company owned, amongst others, a flat, namely, Flat (2005) 4 sot 493 (mum.)No. 132, Urvashi Building at 66, Nepean Sea Road, Mumbai (hereinafter referred to as flat in short) during the previous year relevant to the assessment year under appeal. The flat has carpet area of 2820 sq. ft. and is located on 13th floor of the said building with a view of the sea.
(ii) The flat was let out by the assessee-company to M/s. Global Wool Alliance Ltd. for occupation of its Managing Director (Shri Prem Kumar Melita) who was also a director in the assessee-company on monthly licence fee of Rs. 9,000 under the agreement for leave and licence dated 1-4-1996.
(iii) Though the assessee filed before the assessing officer (hereinafter referred to as assessing officer in short), vide its letter dated 23-12-1998, a certificate dated 18-12-1998 from the Manager of Malabar Co-operative Housing Society certifying that the municipal rateable value of the said flat was Rs. 850.19 per month as per municipal record, there is nothing on record to show that any certificate or document was filed before the assessing officer to show that flat in question was covered by the provisions of the rent control legislation in force and, if so, the standard rent thereof, if any fixed by the competent court under section 11 of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947 (hereinafter referred to as Bombay Rent Actin short).
(iv) It is stated in the assessment order that the assessees representative was asked to give comparative cases of rented flats in the same area and period to substantiate the annual value of the flat shown by it in its return of income but there was no compliance.
(v) The assessing officer noted that a flat bearing No. 184 with carpet area of 3,300 sq. ft. on 18th floor of Tanhee Heights in the same complex was sold for Rs. 9 crores on 3-10-1995 which together with stamp duty, etc., would work out to about Rs. 10 crores. Applying the said yardstick, the assessing officer held that the value of the assessces flat of 2,820 sq. ft. would work out to Rs. 8,54,54,545. The assessing officer also informally ascertained that the vast difference in rents was due to the fact that wherever there was a deposit the rent was low.
(vi) The assessing officer thereafter proceeded to ascertain the Annual Letting Value of similarly situated flats in the same building as also in the same area. He found that there were four buildings (including Urvashi in which the assessees flat was located) which were covered bv the same compound wall in the complex and, hence, he proceeded to make the enquiries about the rents being actually charged in those very buildings including the building in which the flat of the assessee was located. Sample size of data selected by the assessing officer for the purpose of the aforesaid enquiry was fairly large which is evident from the fact that he collected more than 25 instances from all the four buildings where flats were rented out.
(vii) After making detailed enquiries with regard to the prevailing rent of the similarly situated flats in the same locality, the assessing officer held that the Annual Letting Value of the flat as declared by the assessee in the said agreement was low. He also felt that the rent shown in the said agreement for leave and licence was not a true guide for determining the Annual Letting Value of the flat. While rejecting the rent shown in the said agreement, the assessing officer placed reliance on the decision of the Supreme Court in CIT v. Durga Prasad More (1971) 82 ITR 540 (SC).
(viii) Taking into account the prevailing rent in the area, the location of the flat, its market value as also the self-serving nature of the document, namely, the leave and licence agreement executed between inter-connected companies and family members, the assessing officer held that the Annual Letting Value shown by the assessee was low and, hence, adopted the Annual Letting Value of the flat at Rs. 1,00,000 per month.
3. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the learned CIT(A). The factual position was explained by the assessee before the learned CIT(A) as under:
“During the course of the appellate proceedings, it has been submitted that the appellant-company owns a flat situated at Urvashi, Malabar Co-operative Housing Society Ltd., L. Jagmohandas Marg, Mumbai. The flat is situated in an area to which the provisions of Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 are applicable. The cost of acquisition of the flat is Rs. 5,23,000. The flat has been given on leave and licence basis. The leave and licence fees received is Rs. 5,650 per month during the previous year relevant to assessment year 1996-97 and Rs. 9,000 per month during the previous year relevant to assessment years 1997-98 and 1998-99. The licensee during the assessment year 1996-97 was Mrs. Rashmi Mehra whereas during the assessment years 1997-98 and 1998-99 the licensee was Global Wool Alliance Pvt. Ltd. Both the leave and licence agreement were filed during the course of the assessment proceedings. The occupant of the premises is occupying the premises since September 1992, i.e., from date prior to the appellant company acquiring the premises. The annual rateable value determined by the Municipal authorities is Rs. 8,016. The rent received is higher than the municipal rateable value and accordingly, the income from the house property for all the three years has been computed by the appellant on the basis of the rent received.”
4. The assessee had also made the following submissions before the learned CIT(A):
(i) The flat was subject to the provisions of the Bombay Rent Act.
(ii) Annual rent for which the premises might reasonably be expected to let from year to year could not exceed the standard rent or the rateable value as determined by the municipal authorities.
(iii) Standard rent in the present case was Rs. 5,650 being the rent at which the property was first let out.
(iv) The instances gathered by the assessing officer and relied upon by him to arrive at the monthly rent of Rs. 1,00,000 are not indicative of the rent received to be expected from year to year.
(v) The information gathered by the assessing officer was not communicated to the assessee in assessment year 1996-97 and assessment year 1997-98 so as to enable it to refute the conclusion drawn by the assessing officer.
(vi) The assessing officer has not complied with the provisions of section 142(3) of the Income Tax Act, 1961, and the assessment orders passed by him without complying with the provisions of section 142(3) are illegal and null and void.
5. After referring to the provisions of section 23 of the Income Tax Act and reproducing them in his order, the learned CIT(A) passed the following order :
“In the above context the reliance placed by the appellant on the Honble Supreme Court judgment in the case Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee (1980) 122 ITR 700 (SC), is appropriate. It has been held by the Honble Supreme Court that where the Rent Control Act applies, the annual value should be determined on the basis of Standard Rentas determined under that Act. Following the ratio laid down in the above case by the Apex Court, I am of the view that the Standard Rent as determined by the Municipal authorities will be the correct figure. The assessing officer is directed to adopt the same accordingly. The assessing officer will re-compute the income from the house property accordingly.”
6. The learned CIT(A) thus directed the assessing officer to take the Standard Rentdetermined by the Municipal authorities and re-compute the income from house property accordingly without appreciating the provisions of section 23(1)(b) which required that the actual rent received or receivable should be taken as annual value if the amount so received or receivable was higher than the sum for which the property might reasonably be expected to let from year to year.
7. Aggrieved by the order of the learned CIT(A), the department is now in appeal before the Tribunal.
8. In 1upport of the appeal, the learned departmental Representative relied on the decision in Sultan Bros. (P.) Ltd. v. CIT( 1964) 51 ITR 353 (SC).
9. In reply the learned authorized representative for the assessee has relied on the order of the learned CIT(A).
10. We have considered the rival submissions. Section 23 of the Income Tax Act, 1961 provides that the “annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable”. It is, thus, evident on bare perusal of section 23(1)(a) that it is the sum for which the property might reasonably be expected to let from year to year that is required to be taken as the annual value of the property unless the amount of rent received or receivable is higher than the aforesaid sum in which case the amount received or receivable is required to be taken as the Annual Value of the property. What is the reasonable sum, which the property can fetch if let from year to year, has received judicial interpretation. Ordinarily, as pointed out by Honble Subba Rao, J., speaking on behalf of the court in Corporation of Calcutta v. Smt. Padma Debi AIR 1962 SC 151, 153 : “A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness”. The relevant question, in the case before us, therefore, is whether the rent specified in the agreement for leave and licence can be taken to be the sum which the flat would have reasonably fetched if it had been let from year to year in the open market conditions.
11. The assessing officer has placed reliance on the decision in Durga Prasad Mores case (supra) for rejecting the rent shown in the leave and licence agreement as reasonable and genuine. Considering the self-serving nature of the agreement executed between the interested parties and other materials brought on record, the finding of the assessing officer is correct in law and is supported by the decision in Durga Prasad Mores case (supra) in which the Honble Supreme Court has held as under:
“It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents,”
12. Section 11 of the, Bombay Rent Act provides that the determination of standard rent would depend upon (i) the provisions of the Bombay Rent Act; (ii) the circumstances of each case; and (iii) fair and/or just character of the amount involved., In other words, neither the provisions of the Bombay Rent Act nor the circumstances of the case can be ignored while fixing the standard rent. The Bombay Rent Act does not envisage that the standard rent should be fixed at an artificially low figure without having regard to the circumstances of the case which, inter alia, include the rent which similar properties are fetching in the open market conditions in that very area. Section 11 of the said Act specifically requires the court to have regard not only to the provisions of the Bombay Rent Act but also to the circumstances of the case and fix the rent which it deems just. There is no arithmetical formula prescribed by the Bombay Rent Act which can be mechanically applied without considering the peculiar circumstances of the case. There is, therefore, no doubt that it is the court which has to fix the standard rent keeping in view the principles enshrined in section 11I of the Bombay Rent Act. There is nothing on record to show that the assessee-licensor or the licensee approached the competent court for fixation of standard rent or that any standard rent was so fixed by the competent court under section 11 of the said Act. Assuming for a while that the flat was covered by the provisions of the Bombay Rent Act, the short question is whether the assessing officer can step into the shoes of the court and fix the standard rent in conformity with the provisions of section 11 of the Bombay Rent Act in a case where standard rent has not been fixed by the competent court so as to adopt the same for the purpose of assessment of annual value under section .23 of the Income Tax Act. Another related question is whether the annual value fixed by the assessing officer in the present case is in excess of the standard rent that was liable to be fixed by him under section 11 of the Bombay Rent Act. In this connection, we shall now refer to the decision of the Honble Supreme Court in Dewan Daulat Rai Kapoor v. NDMC(1980) 122 ITR 700 (hereinafter referred to as D.R. Kapoor).
13. The learned CIT(A) has also referred to and relied heavily on the decision of the Honble Supreme Court in D.R. Kapoors case (supra) for supporting his view that the “Standard Rent as determined by the Municipal authorities” should be taken to be the correct figure for computing the income from house property. It will, therefore, be useful to have the guidance from the said judgment. In D.R. Kapoors case (supra), the building was located where the rent restriction law was in force. Besides, it was also not in dispute in that case that the property was covered by the rent restriction law in force in that area. In the case before us, the assessing officer has not recorded any finding that the flat was covered by the Bombay Rent Act. Though a plea was taken before the learned CIT(A) that the Bombay Rent Act was applicable, the learned CIT(A) has simply restricted his decision by observing that the said Act was applicable to Bombay. The question here is not whether the Bombay Rent Act was applicable to Bombay. The relevant question here is whether the flat in question was covered by the provisions of the said Act. Secondly, in D.R. Kapoors case (supra), no standard rent or fair rent had been determined under the Rent Law. In the case before us also, the court has not determined, assuming for a while that the flat was covered by the Bombay Rent Act, the standard or fair rent though section 11 of the Bombay Rent Act authorizes the court to do so in appropriate proceedings. It is in the context where no standard rent has been fixed under the Rent Law that the decision of the Honble Supreme Court in D.R. Kapoors case (supra) becomes all the more relevant. The Honble court has held that the assessing authority would have to arrive at its own figure of the standard rent by applying the principles laid down in the Rent Control Act for determination of standard rent and determine the annual value of the building on the basis of such figure of standard rent. The relevant statement of law laid down by the Honble Supreme Court in D.R. Kapoor case (supra) is as under:
“. . . The landlord cannot reasonably expect to get more rent than the standard rent payable in accordance with the principles laid down in the Delhi Rent Control Act, 1958. It is true that the standard rent of the building not having been fixed by the Controller, the assessing authority would have to arrive at its own figure of standard rent by applying the principles laid down in the Delhi Rent Control Act, 1958, for determination of standard rent, but that is a task which the assessing authority would have to perform as a part of the process of assessment and in the Guntur Municipal Councils case (1971) 2 SCR 423, this court has said that it is not a task foreign to the function of assessment and has to be carried out by the assessing authority. When the assessing authority arrives at its own figure of standard rent by applying the principles laid down in the Act, it does not, in any way, usurp the function of the Controller, because it does not fix the standard rent which would be binding on the landlord and the tenant, which can be done only by the Controller under the Act, but it merely arrives at its own estimate of standard rent for the purpose of determining the annual value of the building. That is a perfectly legitimate function within the scope of the jurisdiction of the assessing authority.”
14. After having referred to the decision of the Honble Supreme Court in D.R. Kapoors case (supra), it was indeed the duty of the learned CIT(A) to find out as to whether the rent fixed by the assessing officer was in conformity with the principles contained in section I I of the Bombay Rent Act. The learned CIT(A) did not do so. Instead, he directed the assessing officer to take the standard rent determined by the Municipal authorities as income from the house property. The decision of the learned CIT(A) is, therefore, not in conformity with the decision of the Honble Supreme Courtin D.R. Kapoor case (supra). His decision suffers from the following infirmities:
(i) The learned CIT(A) did not examine and record a categorical finding that the flat was covered by the provisions of the Bombay Rent Act though a plea to this effect was taken before him. He ought to have considered the factual matrix of the case and then recorded a finding not only about the applicability of the said Act to Bombay but also about its apphcability to the flat. This is so because there are many premises in Bombay, which are exempt from the operation of the Bombay Rent Act.
(ii) The learned CIT(A) omitted to give full effect to the decision of the Honble Supreme Court in D.R. Kapoors case (supra) which required the assessing officer to step into the shoes of the Court, and determine the standard or fair rent in the manner laid down in section 11 of the Bombay Rent Act. In this view of the matter, the learned CIT(A) further erred in not appreciating that the assessing officer was not expected to mechanically adopt what the learned CIT(A) calls to be the “Standard Rent as determined by the Municipal authorities” as standard rent under section 11 of the Bombay Rent Act for the purpose of assessment of annual value under section 23 of the Income Tax Act. For the sake of clarity, it may be mentioned that the standard rent under the Bombay Rent Act is fixed by the competent court in terms of the principles contained therein and not by the Municipal authorities. It is on the strength of the law laid down in D.R. Kapoors case (supra) that the assessing officer steps into the shoes of the competent court for fixation of standard rent in order to arrive at the annual value in cases of properties covered by the rent control legislation.
(iii) While disturbing the annual value of the flat as assessed by the assessing officer, the learned CIT(A) has brought no material on record to show as to how the comparative method adopted by the assessing officer for fixing the annual value was defective or inconsistent with the principles contained in section 11 of the. Bombay Rent Act.
(iv) A plea was taken before the learned CIT(A) that the assessee was not confronted with the materials and comparative instances relied upon by the assessing officer in the assessment order with the result that the assessee could not get a chance to rebut them. The learned CIT(A) has not recorded his finding in this behalf. The learned CIT(A) ought to have given an opportunity to the assessee to rebut the materials brought on record by the assessing officer and thereafter deal with this aspect of the matter in his order.
(v) The learned CIT(A) has not made any objective analysis to determine as to what would be the standard rent in terms of the provisions contained in section 11 of the Bombay Rent Act. Learned CIT(A) has also not considered as to who has actually met the maintenance charges, property tax, repairs, etc., in respect of the flat and also its impact on the standard rent. These details have material bearing on the determination of standard rent.
(vi) The learned CIT(A) has directed the assessing officer to take the standard rent fixed by the Municipal authorities and calculate the income from house property accordingly. The learned CIT(A) has omitted to consider that the standard rent is not fixed by the Municipal authorities but by the competent court in terms of section 11 of the Bombay Rent Act and that, in the absence of such determination by the competent Court, the assessing officer himself is expected to step into the shoes of the competent court and determine the standard rent for assessing the annual value of the property under section 23 of the Income Tax Act. Secondly, the learned CIT(A) was well aware that the rent stipulated in the agreement was higher than the rateable value fixed by the Municipal authorities and, hence, it was the actual rent received or receivable that was required to be taken into account for fixing the annual value of the property under section 23 of the Income Tax Act and not the rateable value or, what the learned CIT(A) calls, the “standard rent as determined by the Municipal authorities”.
15. On overall consideration of the materials placed before us, we feel that the assessee, instead of establishing its own case on positive materials, has preferred to point out the defects in the assessment order which the learned CIT(A) has accepted without any objective evaluation of the facts brought on record by the assessing officer and without having regard to the decision in D.R. Kapoors case (supra) and the provisions of law in this behalf. It was the assessee-company which had shown the licence fee as annual value in the return of income. In terms of section 143(2) of the Income Tax Act, it was the assessee who was required to adduce evidence in support of the correctness of the return of income including the annual value of the flat shown therein. The burden was therefore on the assessee to adduce the evidence in support of the correctness and genuineness of the said licence fee as a true indicator of the annual value. The consequences of not discharging the said burden are well-known and, hence, are not being reiterated here. The assessee relied upon the leave and licence agreement which was rightly rejected by the assessing officer for the reasons discussed above. The assessing officer asked the assessee to submit comparable instances but it did not submit the requisite details before the assessing officer. The assessee was well aware about the comparable cases mentioned by the assessing officer in the assessment order but made no attempt to rebut them before the CIT(A). The assessee brought no material on record to show as to what would be the standard rent in terms of the provisions of section 11 of the Bombay Rent Act, It was never the case of the assessee before the departmental authorities that the similarly situated flats compared by the assessing officer were not covered by the Bombay Rent Act. Can it then be said that the assessee had discharged the requisite burden of proof in establishing the correctness or the genuineness of the licence fee shown in the leave and licence agreement or standard rent that was required to be determined in terms of the principles enshrined in section 11 of the Bombay Rent Act? However, the assessee wants the case of the assessing officer to be defeated without bringing any positive material on record in support of its own case. And the learned CIT(A) also agrees with the assessee that the standard rent determined by the Municipal authorities should be adopted as the annual value of the flat under section 23 of the Income Tax Act without objectively examining the relevant provisions of the Bombay Rent Act, Income Tax Act and in utter disregard of the law laid down by the Apex Court in D.R. Kapoor case (supra) which was binding on him as it is on us. It is, therefore, our duty to ensure proper compliance of the decision of the Honble Supreme Court in D.R. Kapoors case (supra). It was indeed the duty of the learned CIT(A) to ensure that the tax liability is correctly determined on an objective consideration of the relevant facts and the law governing them. For this purpose, he has been conferred the powers which are co-terminus with those of the assessing officer. It has been held in V.K. Verrna v. Radhey Shyam AIR 1964 SC 1317, 1320 that omission of counsels in making submissions or drawing the attention of the court to the provisions of law does not absolve the court from the duty of following the clear provisions of law. It was, therefore, the duty of the learned CIT(A) to dispose of the matter in accordance with law. In our opinion, it was a case which required the learned CIT(A) to carefully consider the provisions of the Bombay Rent Act and the Income Tax Act in the light of the decision of the Honble Supreme Court in D.R. Kapoors case (supra) and then to fix the annual value of the flat.
16. In view of the foregoing, the order of the learned CIT(A) is not sustainable in law. His order is, therefore, set aside and the matter is restored to him, i.e., the learned CIT(A) with the direction to pass a fresh order in accordance with law keeping in view the observations made above. He may make the requisite enquiries either himself or through the assessing officer for disposing of the matters. Reasonable opportunity of hearing shall be provided to both the parties. It was submitted by the learned counsel for the assessee that a flat purchased by the assessee was already in occupation of the present tenant when it was purchased and it is due to this reason that the rent of the flat was low. This aspect of the matter should also be examined by the learned CIT(A).
17. Before parting with the matter, it may be mentioned that we have considered the matter in the light of the provisions of the Bombay Rent Act as it is this Act which was in force during the relevant assessment years under appeal. This Act has now been replaced by the Maharashtra Rent Control Act, 1999 which has come into force from 31-3-2000. The new Act broadly follows the Old Bombay Rent Act.
18. In view of the above, all the appeals filed by the revenue are treated as allowed for statistical purposes.