This is a reference by the Commissioner of Income Tax under Section 66 (2) of the Indian Income Tax Act. The reference came before a Bench of this High Court, but in view of a conflict of authorities it was referred by the Bench to the Chief Justice for formation of a Full Bench. As the questions referred to had already been decided by a Full Bench of five Judges this Bench has been formed consisting of seven Judges none of whom have expressed an opinion upon the point.
The assessee is the owner of certain houses in Delhi for which house tax is payable under Section 61 of the Punjab Municipal Act. By a written agreement between the assessee and a tenant, the tenant agreed in addition to the sum reserved as "rent" to pay the amount of tax which under the provisions of the Municipal Act is a tax payable by the owner, that is in this case the assessee. The Income Tax Officer has assessed the property of the landlord under Section 9 of the Income Tax Act. The material portion of Section 9 (1) runs as follows:—
"9. (1) The tax shall be payable by an assessee under the head 'property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner." Section 9 (2) is as follows:—
" 9. (2) For the purposes of this section, the expression ‘annual value’ shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year :
Provided that, where the property is in the occupation of the owner for the purposes of his own residence, such sum shall, for the purposes of this section, be deemed not to exceed ten per cent of the total income of the owner."
The Assistant Commissioner for Income Tax included both amounts, that is the amount reserved as rent and the municipal tax paid by the tenant on behalf of the landlord for the purpose of ascertaining the annual value of the premises. The assessee objected to this procedure on the authority of the Full Bench decision of this Court in Chunnamal Saligram v. Commissioner of Income Tax AIR 1931 Lah. 320.
Two questions were referred to this Court. The first question was submitted at the request of the assessee and Rai Bahadur Badri Das on his behalf now does not press this point and withdraws the reference with regard to it.
The second question on which we are invited to express an opinion is as follows :—
"Whether the house tax paid by the tenants of petitioner on account of Delhi Municipal house tax is to be included to arrive at ‘the annual value' ? "
In our opinion the question to be answered is a simple one. We have merely to construe Section 9 (2) of the Act. Annual value "in the sub-section is clearly denned as" the sum for which the property might reasonably be expected to let from year to year," that is, the sum for which the landlord could let the premises having regard to local conditions and the demand for house in that particular district. (The strongest evidence of the sum for which the property might reasonably be expected to let is clearly in. our opinion the sum which a tenant would be prepared to pay. It would make no difference what the amount paid to the landlord, or to his use, by the tenant for the right to use the premises was termed No tenant would in ordinary circumstances pay more than the actual letting value of the premises. If for example there were two houses situated in the same district on the same kind of land and built in the same way, for one the landlord might demand Rs. 110 rent per month ; for the other the landlord might demand Rs. 100 rent and insert a condition in the lease that the tenant should pay Rs. 10 per month, the amount due by the landlord to the Municipality. It appears to us that there can be no distinction between the two cases. In both Rs. 110 a month would be the sum for which the property might reasonably be expected to let.
It is argued in this case that the amount specified to be paid on account of the Municipal tax cannot be included in the sum for which the property might reasonably be expected to let as it was a tax payable by the landlord and that the " annual value " would be the net profit which the landlord actually kept in his own pocket. The basis of the arguments is taken from the judgment of Mr. Justice Tek Chand in the Full Bench case already referred to where he quoted the words used by Mr. Justice Wilson in 1885 in Nundo Lal Bose v. Corporation of Calcutta, that the "annual value of a house" must mean the " annual money benefit derivable from it by the owner." In our opinion, this definition of "annual value" can have no relation to the question before us. "Annual value" in Section 9 of the Income Tax Act is clearly defined. It is not said there that the "annual value" means the "annual money benefit derivable from the property." On the contrary it says that it is the sum for which the property might reasonably be expected to let from year to year If we may respectfully say so, it appears to us that the decision of the majority of the previous Full Bench of this Court was arrived at by considering other Acts or expressions of judicial opinion which had nothing to do with the construction of this sub-section of the Income Tax Act.
If the argument of counsel is correct that the amount payable to the Municipality on behalf of the landlord by the tenant cannot be included for the purpose of arriving at the annual value there would be nothing to prevent the landlord making an arrangement for the tenant to pay other liabilities of his and so further to reduce the " annual value." There does not appear to us to be any distinction between the tax payable to the Municipality and the land revenue payable in respect of the property. The land revenue is by Section 9 (v) an authorized deduction. It is clear that if the Legislature had meant to authorise any other deduction of the same kind, it would expressly have been included in the allowances."
We have been referred to a case where the same point arose in a reference to the Calcutta High Court and which is reported in Krishna Lai Seal, In re [1932] 1 LR 60 Cal. 357 which supports our opinion on this question. The reasoning of the learned Chief Justice of the Calcutta High Court in that case appears to us to be un-assailable. The same view was expressed by Addison, J., in the dissenting judgment of our own Full Bench referred to above.
We therefore, answer the reference submitted to us as follows:—
"That in estimating the sum for which the property might reasonably be expected to let from year to year, the amount paid by the tenant of the petitioner on account of the Delhi Municipal house tax should be Ucluded, that is, should be treated as a part of the rent payable by the tenant to the landlord."
It must, however, be understood that[the amount of rent payable by the tenant to the landlord is only prima facie evidence or " annual value, " and a consideration of the rents paid for similar and similarly situated properties' in the locality may show the j " annual value" in any particular instance to be less or more than the rent actually paid.