B.S. Dhillon, J.
1. This judgment will dispose of Income-tax References Nos. 110 and 111 of 1979. The said references pertain to assessment years 1974-75 and 1975-76, respectively.
2. The common dispute involved in both the references relates to the estimate of the gross annual letting value of building No. 349/13, situate at Mall Road, Amritsar. The building is said to have been constructed in the year 1938. For the years under consideration, the assessee declared the gross annual letting value of the building at Rs. 6,000 each but the ITO valued it at Rs. 12,000. The AAC, in appeal, confirmed the gross annual letting value at Rs. 12,000, as estimated by the ITO. The assessee filed an appeal which was dismissed by the Tribunal. The contention raised on behalf of the assessee before the Tribunal was that in view of the provisions of the East Punjab Urban Rent Restriction Act, 1949, the assessee could not charge more than the fair rent determined under the provisions of the said Act and thus the annual letting value of the house could not be more than what the assessee could, in law, get as rent if the premises were rented out. The Tribunal placing reliance on a judgment of their Lordships of the Supreme Court in M.M. Chawla v. J.S. Sethi : [1970]2SCR390 rejected the contention of the assessee.
3. On an application being made by the assessee, the Tribunal has referred the following question of law to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding, having relied on the Supreme Court Reports, Volume 2 [1970] p. 390 (M.M. Chawla v. J.S. Sethi), that the Income-tax Officer is not bound to consider the fair rent determinable under the provisions of the East Punjab Rent Restriction Act, 1949, for determining the annual letting value of a self-occupied property for which the fair rent was never determined by the Rent Controller, in terms of Section 23 of the Income-tax Act, 1961 '
4. With a view to answer the question referred to us, brief reference may be made to the relevant provisions of the I.T. Act, 1961 (hereinafter called 'the Act'). Section 22 deals with the income from house property. Section 23 makes provisions for determining the annual value of the house property and is as follows :
' 23. (1) For the purposes of Section 22, 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......
(2) Where the property consists of- (i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or one thousand and eight hundred rupees, whichever is less;...... '
5. A bare reading of Section 23 would suggest that 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) of Sub-section (1) of Section 23, the amount so received or receivable shall be deemed to be the annual value of the said property but where the property consists of a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall firstly be determined in the manner as provided in Sub-clause (a) of Section 23(1), that is to say, it shall have to be the sum for which the property might reasonably be expected to let from year to year. It is, therefore, clear that in such cases which fall within the purview of Sub-section (2) of Section 23, the sum for which the property might reasonably be expected to let from year to year will be the annual letting value of the property. From the scheme of the provisions referred to above, it is clear that where the property has actually been let out, in that case the annual rent received or receivable by the owner in excess of the sum referred to in Sub-clause (1) of Section 23 will be chargeable to tax but where theproperty is not actually let out, in that case a notional income has to be calculated keeping in view the amount the property might reasonably be expected to fetch, if it is let out from year to year.
6. We are unable to agree with the contention of Mr. Awasthy that in such a situation the reasonably expected rent would be the market rent. According to the mandatory provisions of the East Punjab Urban Rent Restriction Act, 1949, in case the tenant makes an application to the Rent Controller for the fixation of fair rent, the Rent Controller is bound to fix the same. While considering this matter, the provisions of the said Act, which are mandatory in nature, have to be kept in view. It is no doubt true that in case no order is passed for the fixation of the rent, the market rent may be charged by the landlord from the tenant but if that happens, the income-tax will be charged on the actual income derived as is clear from Sub-clause (b) of Section 23(1) of the Act. For deciding the point in issue we are primarily concerned as to how the notional income, keeping in view the guidelines as provided under Section 23(1)(a) of the Act, is to be worked out. Similar provisions of the Punjab Municipal Act, 1911, came up for consideration before their Lordships of the Supreme Court in New Delhi Municipal Committee v. M.N. Soi, AIR 1977 SC 302. Section 3(1) of the said Act defines ' annual value ' as under (p. 304):
' 3. (1) ' Annual value ' means-
(a) in the case of land, the gross annual rent at which it may reasonably be expected to let from year to year ;......
(b) in the case of any house or building, the gross annual rent at which such house or building together with its appurtenances and any furniture that may be let for use or enjoyment therewith, may reasonably be expected to let from year to year, subject to the following deductions i-
(i) such deduction not exceeding 20 per cent. of the gross annual rent as the committee in each particular case may consider a reasonable allowance on account of the furniture let therewith ;
(ii) a deduction of 10 per cent. for the cost of repairs and for all other expenses necessary to maintain the building in a state to command such gross annual rent. The deduction under this sub-clause shall be calculated on the balance of the gross annual rent after the deduction (if any) under Sub-clause (i);...... '
7. In M.N. Soi's case, AIR 1977 SC 302 (Headnote), their Lordships held as follows I
'Although legislative provisions, for the fixation of standard rent in New Delhi, contained in Section 9 of the Delhi Rent Control Act, 59 of 1958, are comparatively recent and fairly elaborate, yet, the fixation of rates for purposes of assessment of house tax is still governed by the provisions of Section 3(1)(b) of the Punjab Municipal Act of 1911, enacted at a time when there was no machinery for the control of rents.
On a bare reading of the provisions of Section 3(1)(a), no doubt is left that, although annual value, for purposes of rating land, may be linked to the assessment of land revenue, if the State Government so directs, yet, in the cases of houses or buildings, it is the reasonable expectation to let such buildings, subject to certain reasonable deductions, which governs valuation whatever may have been the origin of rating.
Where rent is higher than that which can be legally demanded by the landlord and actually paid by a tenant despite the fact that such violation of the restriction on rent chargeable by law is visited by penal consequences, the municipal authorities cannot take advantage of this defiance of the law by the landlord. Rating cannot operate as a mode of sharing the benefits of illegal rack-renting indulged in by rapacious landlords for whose activities the law prescribes condign punishment.
It is not: the expectation of a landlord who takes the risk of prosecution and punishment which the violation of the law involves, but the expectation of the landlord who is prudent enough to abide by the law that serves as the standard of reasonableness for purposes of rating.
Where 'fair rent' relating to the house in question in New Delhi was fixed in 1941 under the New Delhi House Rent Control Order, 1939, and that fixation continued to be valid notwithstanding the repeal of the Control Order, even after the Delhi Rent Control Act, 59 of 1958, came into force, the fair rent determined the standard rent which still affected the assessment of rates of the house in question for fixation of rates for assessment of house tax under the Punjab Municipal Act, notwithstanding the fact that the landlord was deriving at the time of fixation a much higher rent than the standard rent. '
8. Their Lordships while holding that reasonable rent, contemplated by Section 3(1)(b) of the Punjab Municipal Act, 1911, can, in no case, be above the fair rent or standard rent fixed by the provisions relating to fixation of rent in rent control legislation, an infringement of which is penalised, approved the view expressed in Corporation of Calcutta v. Smt. Padma Debi : [1962]3SCR49 .
9. From what has been stated above, it is obvious that while considering the reasonableness of the expected rent and interpreting the provisions of Section 3(1)(b) of the Punjab Municipal Act, 1911, their Lordships came to the conclusion that the provisions of the Rent Control Act regarding the fixation of fair rent is a relevant factor to be taken into consideration while considering the reasonableness of the expected rent. Similar words have been used in Section 23(1)(a) of the Act and we have no reason to give a differentinterpretation from the one given by their Lordships of the Supreme Court in M.N. Soi's case, AIR 1977 SC 302.
10. The Tribunal has placed reliance on a decision of their Lordships of the Supreme Court in M.M. Chawla's case : [1970]2SCR390 , for basing its finding. The said decision is of no assistance in determining the matter in issue. In that case the tenant's prayer in the written statement in reply to the ejectment application, for fixing the fair rent, was refused. Appeals before the Rent Controller, the Tribunal and the High Court failed. It was contended by the appellant in that case that the order of the Rent Controller was illegal because he failed to fix the standard rent as claimed by the appellant. He also contended that the limitation period prescribed under Section 12 of the Delhi Rent Control Act for an application for the fixation of standard rent did not apply where the claim was made as a defence in a suit for ejectment under Section 14(1)(c) and that in any event he was entitled to the benefit of Section 14(2) of the Delhi Rent Control Act, 1958, These contentions were repelled and in that context to meet the arguments raised on behalf of the tenant it was held that the prohibition in Sections 4 and 5 operates. only after the standard rent of the premises is determined and not till then. We fail to see how this judgment helps in interpreting the provisions of Section 23 (1) and (2) of the Act.
11. Mr. Awasthy has placed reliance on a decision of the Gujarat High Court in Sakarlal Balabhai v. ITO : [1975]100ITR97(Guj) and of the Madras High Court in Addl. CIT v. Mrs. Leela Govindan [1978] 113 ITR 136. Both these decisions are of no help to us for determining the present controversy.
12. For the reasons recorded above, the question of law referred to us is replied in the negative, against the revenue and in favour of the assessee with costs.