Commissioner of Income Tax vs Mehta Harnam Singh

Arijit Pasayat, C.J.

Pursuant to directions given by this court, following question has been referred u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act), by the Income Tax Appellate Tribunal, Delhi Bench C (hereinafter referred to as the Tribunal), for opinion of this court :

"Whether on the facts and in the circumstances of the case, the amount of Rs. 1,000 per month paid by the tenants to the son can be taken into account for determining the annual value of the property ?"

Dispute relates to the assessment year 1971-72.

The controversy lies in a very narrow compass. A sum of Rs. 1,000 was paid to the assesses son for ensuring that the property from which rent was received was kept in good repairs. The assessed claimed the amount of Rs. 1,000 per month paid as an expenditure. The Income Tax Officer included the amount in the annual let out value, treating it as a part of the rent. The Appellate Assistant Commissioner (hereinafter referred to as the AAC'') confirmed the addition. In further appeal before the Tribunal, considering the rival submissions, it came to hold as follows :

"We have considered the submissions placed before us. We are inclined to agree with the submissions of the learned counsel for the assessed. The Income Tax Officer has not examined Shri Mehta and has not found out the purpose for which he was employed and the services which he was required to render. As per the letter, dated 14-6-1966, he was to act as the caretaker of the property and to look after the day-to-day needs of the tenant. The letter further says that Shri Mehta was to see that the property was kept in good repairs by the assessed. That does not mean that either the tenant was paying additional rent to the assessed by way of remuneration to Shri Mehta or that it was going to bear the cost of repairs so as to attract section 24(1)(i)(b) of the Act. The payment was made directly to Shri Mehta for the services rendered by him to the tenant, Besides section 24(1)(i)(b) applies only if the tenant had undertaken to bear the cost of repairs. There is no such understanding in the agreement contained in the letter dated 14-6-1966, that the tenant was to bear the cost of the repairs also. The tenant only employed Shri Mehta as caretaker of the building who might amongst others have been interested to see that the repairs were also carried out to the building by the assessed, being the landlord. We, Therefore, hold that, neither the remuneration of Rs. 1,000 formed part of the bona fide annual value nor any adjustment is required in the statutory deductions for the repairs u/s 24(1)(i)(b) of the Act. We also notice that in all the past years the Income Tax Officer had not included the remuneration of Shri Mehta in the annual value of the property. Besides the municipal valuation of the property even during the year under appeal was only Rs. 42,000 which supports our view that the rent of Rs. 4,000 per month, i.e., Rs. 48,000 per annum was the correct annual letting value of the property. We direct that this value should be adopted and the net income from the property should be reworked out by the Income Tax Officer."

A reference was sought for in terms of section 256(1) of the Act which was rejected. Further, on being moved, this court directed the afore-noted question to be referred.

We have heard learned counsel for the revenue . There is no appearance on behalf of assessed in spite of notice. According to learned counsel for the revenue , the claim was a mala fide move adopted by the assessed to get the benefit of the amount in question. Section 24(1)(i)(b) applies only if the tenant has undertaken to meet the repairs. There was no understanding in the agreement entered into by the assessed and his son to the effect that tenant was to bear the cost of repairs also. That being the position, in view of factual conclusions as noted by the Tribunal and more particularly the fact that there was no agreement between the landlord and the tenant, the conclusions of the Tribunal are in order. The answer to the question referred is in the affirmative, in favor of assessed and against the revenue.