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Judgment
N.V. Balasubramanian, J.—An interesting question of law on the scope and interpretation of Rule 5 of the Schedule III to the WT Act,
1957, hereinafter referred to as ''the WT Act'' arises in the tax case reference. The Income Tax Appellate Tribunal, hereinafter referred to as ''the
Appellate Tribunal'' has stated a case and referred the following three questions of law in relation to the assessments of the assessee for the asst.
yrs. 1989-90 and 1990-91 under the WT Act :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the fair rent determined by the Small
Causes Court vide order dt. 28th Jan., 1988, should not be taken as the basis for computation of gross maintainable rent?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee''s right to receive rent as
fixed by the Small Causes Court crystallised only when the SLP filed by the tenant was dismissed by the apex Court?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to exemption
u/s 5(1)(iv) of the WT Act in respect of the godown owned by her?
Notice was ordered in the tax cases to the respondent (assessee). The assessee was served, but there is no representation for and on behalf of
the assessee. Mrs. Pushya Sitharaman, learned senior standing counsel for Income Tax cases, in her fairness, has brought to the attention of this
Court all the aspects of the case including certain decisions which are against the Revenue.
Necessary facts for the consideration of the tax cases are that the assessee is the owner of the property, viz., a godown at No. 50, Vaidyanatha
Mudali Street, Chennai. The assessee let out the said godown on a monthly rent of Rs. 7,812 in favour of the Central Warehousing Corporation.
The date of entering into the lease is not very clear, but the assessee filed a petition u/s 4 of the Tamil Nadu Buildings (Lease and Rent Control)
Act, 1960, before the Small Causes Court, Chennai, on 24th Sept., 1985, for fixation of fair rent at Rs. 39,143 per month. The Rent Controller in
R.C.O.P. No. 3975 of 1985, by order dt, 28th Jan., 1988, has fixed the fair rent of the building at Rs. 22,408 per month from the date of the
petition. Aggrieved by the order of the Rent Controller, the assessee as well as the tenant filed appeals before the Rent Control Appellate
Authority and the appellate authority, by order dt. 20th Sept., 1989, in R.C.A. No. 320 of 1988, held that the fair rent of the building would be
Rs. 25,182. The tenant preferred a revision petition before this Court and this Court, by order dt. 3rd Aug., 1990, upheld the order of the
appellate authority and dismissed the revision petition. The tenant thereafter filed a SLP before the Supreme Court seeking special leave to file
appeal before the Supreme Court and the Supreme Court, by order dt. 14th Feb., 1991, dismissed the SLP confirming the judgment of this Court.
The assessment years with which we are concerned are 1989-90 and 1990-91 and the relevant valuation dates are 31st March, 1989, and 31st
March, 1990, respectively. The WTO applied r. 5 of the Schedule III to the WT Act and determined the gross rent of the building at the rate of
Rs. 25,182 per month for both the years. It is needless to mention herein that the sum of Rs. 25,182 was the amount of fair rent fixed by the Rent
Control Appellate Authority by order dt. 20th Sept., 1989. It is found as a fact that the assessee had received a sum of Rs. 7,33,462 in
September, 1991, that is, during the previous year relevant to the asst. yr. 1992-93 and another sum of Rs. 9,41,902 in the month of September,
1992, that is, during the previous year relevant to the asst. yr. 1993-94 being arrears of rent for the period from 24th Sept., 1985, to 31st Aug.,
1992.
The assessee did not accept the proposal of the WTO and according to him (her) the matter regarding fixation of fair rent did not reach finality
till the Supreme Court decided the matter in the year 1991 as the tenant had pursued the matter in successive stages up to the level of Supreme
Court. The matter regarding fixation of fair rent came to be concluded only when the Supreme Court dismissed the SLP, by order dt. 4th March,
1991. The case of the assessee was that till the matter reached finality by the order of the Supreme Court, the assessee did not have any right to
receive the fair rent as determined by the rent control authorities and therefore, the value of the property under Rule 5 of Schedule III to the WT
Act should be determined on the basis of actual rent received under the lease agreement during the previous years relevant to the assessment years
in question. The WTO did not accept the contention raised by the assessee and he held that the assessee had actually received the additional rent
for the period from 24th Sept., 1985, to 31st Aug., 1992, and hence, the additional rent received has to be taken into account for fixing the value
under Rule 5 of Schedule III to the WT Act. The CIT(A) confirmed the orders of the AO and held that the fair rent for the property determined by
the judicial forum was much higher than what was actually received by the assessee and disclosed in the wealth-tax returns. He, therefore, held that
the WTO was correct in taking into account the additional rent received by the assessee in the computation of gross maintainable rent of the
building, and dismissed the appeal preferred by the assessee.
The assessee carried the matter before the Tribunal and the Tribunal held that the rent as increased on a future date in Court proceedings cannot
be taken as actual rent to be received on the relevant valuation date and the expression, ''actual'' which qualifies the rent received or receivable
would connote only the amount of rent paid by the tenant to the landlord during the relevant previous year and, therefore, the actual rent would not
be the rent fixed by the Court on a future date. The Tribunal relying on the decision of the Supreme Court in Commissioner of Income Tax, West
Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd., held that the tenant had taken proceedings against the decision of
the lower authorities and persued the matter from one forum to another forum and till the SLP was dismissed by the Supreme Court which shows
that there was denial of liability on the part of the tenant to pay the increased rent and as such, the right to receive the additional rent had not
accrued to the assessee either in part or in full during the pendency of the rent control proceedings. The Tribunal, therefore, held that the right to
receive the additional rent had not accrued till the SLP filed by the tenant was dismissed by the Supreme Court and hence, the WTO and the
CIT(A) were not correct in taking the enhanced rent in the computation of gross maintainable tent. The Tribunal, therefore, held that the
computation of gross maintainable rent should be on the basis of original rent agreed between the landlord and the tenant. One other point also
arose in the wealth-tax proceedings and the question was whether the assessee is entitled to exemption u/s 5(1)(iv) of the WT Act in respect of the
godown in question. The WTO rejected the contention of the assessee on the ground that it was not a house, which was confirmed by the CIT(A).
But, the Tribunal held that the godown would come within the meaning of ''house'' u/s 5(1)(iv) of the WT Act and hence, the assessee would be
entitled for exemption u/s 5(1)(iv) of the WT Act. It is against the order of the Tribunal, the present reference has been made.
Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue, submitted that the view of the Tribunal is not legally correct as the
assessee has the right to receive the fair rent which was quantified by the authorities constituted under the Tamil Nadu Buildings (Lease and Rent
Control) Act and the order of the Rent Control Appellate Authority was confirmed by this Court and ultimately by the Supreme Court. Learned
senior standing counsel therefore, submitted that the amount of fair rent fixed by the rent control authorities would represent the actual rent
receivable by the landlord/assessee and that should be taken as the basis for determination of the market value of the property under Rule 5 of
Schedule III to the WT Act. Learned senior standing counsel also submitted that when the WTO made the assessment, the Supreme Court has
decided the matter ''in favour of the assessee and hence, it is only on the basis of the decision of the Supreme Court, the fair market value of the
property should be determined. Learned senior standing counsel, therefore, submitted that the Tribunal was wrong in its view that the market value
of the property should be determined on the basis of the rent payable under the agreement entered into between the parties after the decision of the
Supreme Court. Learned senior standing counsel submitted that the decision of the Supreme Court in the case of CIT v. Hindustan Housing and
Land Development Trust Ltd. (supra), far from supporting the case of the assessee, supports the case of the Revenue in the sense that the right to
receive the rent is admitted and the quantification only of the amount payable is left to be determined in accordance with the settled or accepted
principles. Learned senior standing counsel relied upon the decision of the Supreme Court in The K.C.P. Limited Vs. Commissioner of Income
Tax, Bangalore, . Babulal Narottamdas and others Vs. Commissioner of Income Tax, Bombay, , K.S. Krishna Rao Vs. Commissioner of Income
Tax, Andhra Pradesh, and Commissioner of Income Tax Vs. New Horizon Sugar Mills Ltd., and submitted that on the basis of the above
decisions, the order of the Tribunal is not legally correct. Learned senior standing counsel, in her fairness, has brought to the attention of this Court
the decisions of this Court in Commissioner of Wealth-tax Vs. M. Appuswamy, and Commissioner of Wealth-tax Vs. R. Ariff and Others, and
submitted that this Court held that the commercial establishment owned by the assessee has also to be taken as ''house''.
We heard learned senior standing counsel for the Revenue and also perused the records carefully. Schedule III to the WT Act contains the rules
for determining the value of assets other than cash. Part-B of Schedule III provides for the valuation of immovable property, viz., buildings and
land appurtenant thereto whether the building is let out or in owner''s occupation. The relevant rule for the purpose of this tax cases is Rule 5, and
Rule 5 deals with the computation of gross maintainable rent and the rule insofar as it is relevant for the purpose of this case reads as under :
For the purposes of Rule 4, ''gross maintainable rent'' in relation to any immovable property referred to in Rule 3, means :
(i) where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the local authority in
whose area the property is situated for the purposes of levy of property tax or any other tax on the basis of such assessment, whichever is higher;
(ii) xxxx
Explanation : In this rule-
(1) ''annual rent'' means,--
(a) where the property is let throughout the year ending on the valuation date (hereinafter referred to as ''previous year''), the actual rent received
or receivable by the owner in respect of such year;
(b) xxxx
A close reading of the rule shows that where the property was let out, the amount received or receivable by the owner of the property as annual
rent or the annual value determined by the local authority for the purposes of levy of property tax or any other tax on the basis of such assessment,
whichever is higher, has to be taken as gross maintainable rent. The expression, ''annual rent'' is defined in the Explanation to mean that where the
property is let throughout the year ending on the valuation date, the actual rent received or receivable by the owner in respect of such year.
There is no difficulty in holding that the gross maintainable rent should be determined on the basis of the actual rent received or receivable for the
building which is let out. The actual rent receivable ''by the owner of the building may be the amount, either fixed in the agreement between the
parties, or by an award or decree or orders of the Court. Insofar as the agreement is concerned, the amount of actual rent fixed as the rent would
be the relevant criterion for determination of the gross maintainable rent. The legislature has used the expression, ''received or receivable'' probably
to cover the cases where the tenant has defaulted in the payment of rent or has not paid the full rent as determined in the agreement. Therefore, in
cases where the landlord receives the full rent fixed in the agreement, that would constitute the basis for determination of the gross maintainable rent
in such cases and in cases where the amount fixed under the agreement is not received in full and where the tenant commits default in the payment
of rent or makes part-payment of the rent, then, the gross maintainable rent is to be determined not on the basis of actual rent received by the
landlord, but on the basis of the amount payable under the agreement. The legislature has, therefore, contemplated cases and provided for cases
where there is a right on the part of the landlord to receive rent, but failed to receive the entire rent, and, therefore, used the expression that the rent
actually received or receivable by the landlord would be the basis for determination of gross maintainable rent in such cases. The beauty of the
language, of the statute is that it would encompass not only the situations which the legislature might have thought of, but also the transactions which
the legislature might not have thought of, provided the language of the statute can be reasonably and logically extended to cover such cases also.
The situation here is one where the landlord has filed application for determination of fair rent and the Rent Controller has actually determined
the fair rent of the building in question which was slightly modified by the Rent Control Appellate Authority. There was a further revision by the
High Court and the order of the High Court was also confirmed by the Supreme Court. So far as the decisions of this Court and the Supreme
Court in the rent control proceedings are concerned, they came to be rendered after the end of the valuation dates relevant to the assessment years
in question. We are of the view that though the decision of the Supreme Court was rendered subsequent to the valuation date, the decision of the
Supreme Court would relate back to the date of filing of the petition by the assessee for determination of fair rent and the landlord-assessee herein
has the right to receive the fair rent, as held by the Supreme Court, right from the date of the petition itself. Therefore, during the previous years
relevant to the assessment years in question, the assessee had the right to receive the fair rent, and that amount is the actual rent receivable by the
assessee during the previous years.
Further, on the facts of the case, the decision of the Supreme Court upholding the orders of this Court in the rent control proceedings was
available at the time of finalisation of the assessment under the WT Act by the WTO. Therefore, the WTO has not committed any error in taking
the amount of fair rent fixed by the Rent Control Appellate Authority which was ultimately upheld by the Supreme Court as the actual rent received
by the assessee. We are of the view that if the WTO had ignored the judgment of the Supreme Court, then, he would have committed a serious
mistake in the determination of the market value of the property, and the determination of the market value of the property on the basis of the lease
agreement would not reflect the correct market value and the amount so determined would be different and divorced from the actual reality of the
situation. We are, therefore, of the view that the WTO was perfectly justified in taking the fair rent as finally determined by the Supreme Court. He
was also justified in taking the ground reality of the situation in fixing the market value of the property in question.
As far as the decision of the Supreme Court in CIT v. Hindustan Housing & Land Development Trust Ltd. (supra) relied on by the Tribunal is
concerned, we are of the view that the decision really supports the case of the Revenue. The Supreme Court, in the above decision, has held that
there is a clear distinction between cases where the right to receive payment is in dispute and in such cases, there will not be any question of
quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is
left to be determined in accordance with settled or accepted principles. The Tribunal was carried away by the fact that the tenant has challenged
the orders of the Rent Controller and the Appellate Authority up to the level of the Supreme Court, and therefore, the Tribunal held that the
assessee''s right to receive payment of rent itself was in dispute. We are of the view that the view of the Tribunal is not legally sustainable as the
right of the landlord/assessee to receive fair rent for the godown flows from the statute, viz., Tamil Nadu Buildings (Lease and Rent Control) Act
and it is a statutory right and the rent control authorities have only quantified the fair rent in accordance with the principles laid down in the Tamil
Nadu Buildings (Lease and Rent Control) Act. We are of the view that merely because the tenant has challenged the orders of the Rent Controller
and the Rent Control Appellate Authority up to the level of the Supreme Court, does not mean that the assessee did not have any right to receive
the fair rent for the building let out. We have already observed that the right to receive rent flows from the statute and it is a statutory right, and
merely because the tenant has disputed the quantification of the fair rent, would not mean that the assessee did not have any right to receive the fair
rent for the building in question. We therefore, hold that the assessee had the right to receive the fair rent which is statutory one and the rent control
authorities have quantified the fair rent for the building in question.
The decision of the Supreme Court in CWT v. Hindustan Housing & Land Development Trust Ltd. (supra) was considered by the Supreme
Court in K.C.P. Ltd. v. CIT (supra) wherein the Supreme Court noticed the facts in Hindustan Housing & Land Development Trust Ltd''s. case
(supra) as under :
The facts of the case before the Supreme Court were that certain lands belonging to the assessee-company were first requisitioned and then
compulsorily acquired by the State Government. On an appeal preferred by the respondent-company, the arbitrator made an award directing
compensation to be paid for requisition and acquisition. The arbitrator''s award was promptly challenged by the State Government before the High
Court. Pending the appeal, the State Government deposited the amount in the Court which the assessee-company was permitted to withdraw on
furnishing a security bond for refunding the amount in the event of the appeal preferred by the State Government being decided in its favour. This
Court found that the entire amount was in dispute in the appeal filed by the State Government; that the dispute was ''real and substantial'' and that
the amount deposited by the State Government was permitted to be withdrawn by the assessee subject to a security bond for refunding the amount
in the event of the appeal being allowed.
On these facts, the Supreme Court in Hindustan Housing and Land Development Trust Ltd. ''s case (supra) held that there was no absolute right to
receive the enhanced amount at that stage and if the appeal was allowed in its entirety, the right to payment of enhanced amount would have fallen
altogether. However, the Supreme Court in K.C.P. Ltd. case held that the principle laid down in Hindustan Housing and Land Development Trust
Ltd. case has to be read in the light of the facts of that case. We, therefore, hold that the decision of the Supreme Court in Hindustan Housing and
Land Development Trust Ltd. (supra) has no application to the facts of the case.
We are of the view that the decision of the Supreme Court in Babulal Narottamdas v. CIT (supra) would apply to the facts of the case. In that
case, the assessee was a managing agent of the company and a resolution was passed for payment of additional remuneration to the assessee. The
validity of the resolution was challenged by some of the shareholders in a civil suit as well as in appeal. The Tribunal held that no income accrued to
the assessee during the years from 1949 to 1952 and the income accrued only when the High Court pronounced its judgment. The Supreme
Court, however, did not agree with the view of the Tribunal and held that the resolution created a right in favour of the assessee to receive extra
remuneration at agreed rate and the assessee''s right to receive income accrued by virtue of agreement and not by virtue of judgment which held
that the resolution is valid. We, therefore, hold that the principle laid down by the Supreme Court in Babulal Narottamdas'' case would apply as
the right to receive the fair rent accrued to the assessee by virtue of the Tamil Nadu Buildings (Lease and Rent Control) Act and not by virtue of
the judgment which quantified the amount of fair rent payable by the tenant. The Supreme Court, in that case, also noticed the decision of the
Calcutta High Court in Commissioner of Income Tax Vs. Hindusthan Housing and Land Development Trust Ltd., which was the subject-matter of
consideration by the Supreme Court in Hindustan Housing and Land Development Trust Ltd. (supra), and held that the assessee''s right to receive
extra remuneration was not unsettled and the principle laid down in Hindustan Housing and Land Development Trust Ltd. (supra) would not apply.
We hold that the ratio of the decision in Babulal Narottamdas (supra) would apply as the right of the assessee to receive the fair rent is not
unsettled and there was only quantification of the fair rent. Further, it must be remembered that the assessee as the landlord has the right to receive
the rent and there are no two separate rights; one to receive the rent under the contract and another to receive the rent under the Tamil Nadu
Buildings (Lease and Rent Control) Act. The right of the landlord to receive the rent is a single right and not two rights as wrongly assumed by the
Tribunal.
We also find support for our view from the decision of the Supreme Court in K.S. Krishna Rao v. CIT (supra). In that case, certain lands
were acquired compulsorily and the compensation awarded was subject-matter of reference and ultimately it was settled by the higher Court. The
question arose whether the interest on the enhanced compensation awarded by the Court could be taxed in a lump sum as having accrued on the
date on which the Court passes the order for enhanced compensation. The case of the Revenue was that the interest accrued in the year in which
the higher Court passed the decree regarding the enhanced compensation. The case of the assessee was that the interest accrued from year to year
on a time basis from the date of delivery of possession till the date when the amount was paid. The Supreme Court held that the interest cannot be
taxed in one lump sum in the year when the Court ordered enhancement of the compensation, but the interest paid on compensation awarded u/s
28 of the Land Acquisition Act, 1894, has to be spread over on an annual basis right from the date of delivery of possession till the date of order
of the Court on a time basis. We are of the view that the principle laid down by the Supreme Court in Krishna Rao''s case (supra) would apply
here also. Therefore, when the Court passed the order fixing the fair rent, the assessee had the right to receive the fair rent from the date of the
petition and the fair rent accrued each year on a time basis from the date of filing the petition. We hold that the Tribunal was not correct in holding
that the gross maintainable rent under Rule 5 of Schedule III to the WT Act should be determined on the basis of the rent fixed under the
agreement. We hold that the amount received by the assessee on the basis of the judgment of the Supreme Court would be the actual rent
receivable during the previous years relevant to the assessment years in question and that should form the basis for determination of the fair market
value of the building.
No doubt, it is true that there may be some hardships where the order of the Rent Controller is set aside or reversed by the apex Court and by
that time when the apex Court delivers the judgment, the time-limit for completion of assessment under the WT Act gets expired or where the
assessment has already been made on the basis of the orders of the Rent Controller, there is no time-limit available either for rectification or
revision under the WT Act. In such situation, we are of the view that the interest of the assessee would be protected by taking the date of judgment
of the final Court as the starting point for rectification of the wealth-tax assessment and if there is any lacuna in the Act, we think that the legislature
should remedy the situation. Accordingly, the questions 1 and 2 are liable to be answered against the assessee.
As far as the third question is concerned, learned senior standing counsel for the Revenue fairly submitted that the issue raised in the third
question is covered against the Revenue by the decisions of this Court in CWT v. Thavamani (1999) 237 1TR 152 and CWT v. R. Ariff (supra)
wherein this Court has held that though, the building was a commercial building, the assessee could be entitled to exemption u/s 5(1)(iv) of the WT
Act. Following the two decisions of this Court, we hold that the Tribunal was correct in holding that the assessee is entitled to exemption in respect
of the godown owned by the assessee.
Accordingly, we answer the questions of law as under:
Questions 1 and 2 :
Answered in the negative, against the assessee and in favour of the Revenue.
Question No. 3:
Answered in the affirmative, against the Revenue and in favour of the assessee.
There will be no order as to costs.