SHIELA KAUSHISH vs. COMMISSIONER OF INCOME-TAX, DELHI

CIVIL APPEAL No. 2110/1978Supreme Court[1982] 1 S.C.R. 30918 August 1981Bench: 2 JudgesAuthor: P.N. BHAGWATI, BAHARUL ISLAM11 pages
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What were the facts?

The assessee, Shiela Kaushish, constructed a warehouse and let out portions under different tenancies. A new lease for the entire warehouse commenced on April 1, 1968, with rent at Rs. 34,797 per month. For assessment years 1969-70 and 1970-71, the dispute concerned the determination of the 'annual value' of the warehouse for income tax purposes. The assessee argued it should be based on the standard rent determinable under the Delhi Rent Control Act, 1958, as the actual rent received could not exceed this. The Income Tax Officer and the Income-Tax Tribunal disagreed, holding that the actual rent received was the correct measure of annual value, relying on a previous Supreme Court decision. The assessee's applications for reference to the High Court were dismissed.

What did the Supreme Court hold?

The Supreme Court held that the annual value of a building, for the purpose of income tax under Section 23(1) of the Income Tax Act, 1961, is the standard rent determinable under the provisions of the relevant Rent Act, not the actual rent received by the landlord. The Court referred to its earlier decision in Dewan Daulat Rai Kapoor etc. v. New Delhi Municipal Committee [1980] 2 S.C.R. 607, which interpreted the definition of 'annual value' in municipal acts for house tax purposes. The Court found that the definition of 'annual value' in Section 23(1) of the Income Tax Act is identical to those in the municipal acts and therefore the principle laid down in the Dewan Daulat Rai Kapoor case applies. This principle states that even if standard rent is not fixed, a landlord cannot reasonably expect to receive more than the standard rent determinable under the Rent Act. The Court directed that the annual value of the warehouse for the assessment years 1969-70 and 1970-71 should be determined based on the standard rents of its different portions, as determinable under the Delhi Rent Control Act. The appeals were allowed to this extent.

What were the issues?

1. Whether, for the purpose of chargeability to income tax under the head 'income from house property', the 'annual value' of a building governed by the Rent Control Act is the standard rent determinable under that Act, or the actual rent received by the landlord. Assessee's contention: The annual value should be the standard rent determinable under the Delhi Rent Control Act, 1958, as the actual rent received cannot reasonably exceed this hypothetical limit. The assessee relied on the principle that the Rent Control Act limits the reasonable expectation of rent. Revenue's contention: The actual rent received by the assessee is the most accurate measure of the amount for which the warehouse might reasonably be expected to let from year to year. The Revenue relied on the decision in M. M. Chawla v. J. S. Sethi (1970) 2 SCR, 390, which held that in the absence of fixation of standard rent, the agreed rent, if legally recoverable and not tainted, should be taken as standard rent. 2. (Not pressed by the assessee)

Which sections of the Income-tax Act were involved?

Section 23(1),Section 22,Section 6,Section 7,Section 256

AI-generated summary — verify with the full judgment below

' " 309 SHIELA KAUSHISH v. COMMISSIONER OF INCOME-TAX, DELHI August 18, 1981 [P, N. BHAGWATI AND BAHARUL [SLAM, JJ.] Income Tax Act, 1961, S. 23(l)-lnco111efrom house property-Chargeability to income tax-" Annual value" of building-Determination of-fVhether standard rent determinable under provisions of Rent Act or actual rent received by landlord from tenant.

Words and Phrases-" Annual Vafue"-Meaning of-Income Tax Act, 1961, s. 23(1).

The appellant-3.ssessee constructed a warehouse and let out different portions under different tenancies comn1encing on different dates. Later on a new lease was entered into between the assessee and her tenant for letting out of the entire warehouse and the assessee started receiving rent at the rate of Rs. 34,797/- per month in respect of the entire warehouse from 1st April, 1968. In the course of assessment of the assessee for the assessment years 1969-70 and 1970-71 the question arose as to how the "annual value" of the warehouse should be determined for the purpose of chargeability to income tax under the head "income fro1n house property". The assessee claimed before the Income.

Tax Officer that on a proper construction of

The order continues below.

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