Tarapore and Co. vs The Commissioner of Income Tax

R. Jayasimha Babu, J.—The question referred to us at the instance of the assessee is,

"Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the receipts from service charges are liable to be assessed as income from "other sources" and not income from house property?"

The assessee owned a plot known as ''Dhun building'' at Mount Road, Madras, which had been let out and from which he realised rental income. The assessee also received certain sum from the tenants as service charges which were not regarded as part of rent, but as representing the value of the services provided by the assessee to his tenants. The assessee claimed that those service charges also should be assessed under the head ''income from house property''. It was not in dispute that it was only the amount of the rent received by the assessee which was taken into account for computing the annual value of the building for the purpose of levy of tax.

The amount realised by the assessee towards service charges was assessed by the Income Tax Officer under the head ''income from other sources''. The assessee''s appeal to the Commissioner was successful, but was short-lived. The Tribunal, on further appeal, restored the order of the assessing officer.

Section 22 of the Income Tax Act deals with income from house property which is to be computed with reference to the annual value of the property. The mode of determining that annual value is set out in Section 23. Section 23(1)(a) deems annual value of the property to be the sum for which the property might reasonably be expected to let from year to year. Clause (b) deems the actual rent received or receivable by the owner to be the annual value if that sum is in excess of the sum referred to in clause (a). Explanation (1) to Section 23 defines ''annual rent'' for the purpose of that sub section. That explanation reads as under:

Explanation 1: For the purpose of this sub-section ''annual rent'' means,

(a) in a case where the property is let through out the previous year, the actual rent received or receivable by the owner in respect of such year; and

(b) in any other case the amount which bears the same proportion to the amount of the actual rent, received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period."

The annual rent in case where the property is let through out the year is the actual rent received or receivable by the owner. When the amount of the actual rent received or receivable by the owner is known, that would constitute the basis for determining the annual value and it is that value which will have to form the basis for determining the income from house property and for allowing the deduction from income from house property to the extent permitted under the other provisions of the Act.

In making such computations, there is no room for adding other amounts received by the owner of the building as representing the value of the service charges rendered by him to his tenants as income from house property, when neither the tenant nor the owner intended payment of such service charges to be a part of rent payable for the occupation of the premises by the tenants.

The question referred to us is answered in favour of the revenue and against the assessee.