M/S MAYUR RECREATIONAL & DEV.LTD

In the present case, the question of law framed by the Court on 10.12.2002 was as follows : 2015:DHC:1490-DB

The facts briefly are that the assessee, a limited company, deals in real estate business and owned two properties : 14-16, Aurangzeb Road, which had been given to the Directors to use as residence. The properties were thereafter sold to the appellant company. Thereafter, M/s DLF Universal Ltd acquired the properties on rent from the appellant and its Directors continued to occupy the said property for the residence. The lessee i.e. DLF made some alterations in the properties at their cost in the earlier years. In AY 1990-91 and 1991-92 the assessee included Rs.43,345/- in their returns as annual letting value (‘ALV’) of the properties based upon municipal valuation and for the subsequent years the ALV returned was Rs.52,540/- again based on municipal valuation. The AO, inter alia, adopted the ALV of Rs.4,72,496/- for all the three AYs. This was based on the cost of the construction of the property and value of the land to the assessee. The CIT(Appeals) by common order of 25.5.1995 allowed the assessee’s plea and followed his previous orders. Those orders had been ultimately upheld by the ITAT for several previous years. The revenue appealed the ITAT contending that the determination of annual letting value was incorrect as it departed from the previous years for which the matters stood finally settled. Besides, the assessee relied upon decision of the Supreme Court i.e. Sheila Kaushish V. CIT [1981] 131 ITR 435 and certain other decisions. The ITAT however, upset the findings of the CIT and accepted the revenue’s contention. 2015:DHC:1490-DB

During the pendency of these appeals and after the question of law was framed for other subsequent periods, the ITAT apparently controverted its previous views – which had favoured the assessee. It therefore, decided to refer the precise question, having regard to the facts of this case to a special bench. The question referred was as follows : “Whether, on the facts and in the circumstances of the case, and having regard to all the earlier orders of the Tribunal, the IT authorities were justified in estimating the ALV of the property at Nos. 14-16, Aurangzeb Road, New Delhi at Rs. 9,32,888 as against Rs. 5,12,932 declared by the assessee in the return?”

After due consideration of the relevant case law including the judgment of the Supreme Court in Dewan Daulat Rai Kapoor V. New Delhi Municipal Committee [1980] 122 ITR 700 etc., the Special Bench in its decision (reported as Assistant Commissioner of Income Tax V. Mayur Recreational and Development Ltd. 301 ITR (AT) 324 held as follows : “20. We have considered the rival submissions in the light of material available on record and the judicial pronouncements cited at the Bar. The issue before us as raised in the question referred to this Special Bench is relating to the determination of ALV of the property belonging to the assessee and situated at No. 14-16, Aurangzeb Road, New Delhi in accordance with law. The relevant provisions governing the determination of ALV are contained in Section 23 and Sub-section (1) thereof, being relevant in the present context, the provisions thereof are extracted below for ready reference: “23. (1) For the purposes of Section 22, the annual value of any property shall be deemed to be:

Thereafter, the Special Bench dealt with and considered Dewan Daulat Rai Kapoor (supra) and summarised its conclusions as follows : “22. In the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee (supra), it was held by the Hon'ble Supreme Court that even though there would ordinarily be in a free market close approximation between the actual rent received by the landlord and the rent which he might reasonably expect to receive from a hypothetical tenant, where the rent of the building is subject to rent control legislation, this approximation may and often does get displaced. It was also held that the determination of standard rent is not left to the unfettered and unguided discretion of the Rent Controller and he is required to fix the standard rent in accordance with formula laid down in Section 6. It was also held that the compulsive force of the formula laid down in Section 6 for the determination of standard rent is not in any way fettered down by Section 9(2), but the marginal discretion is given to the Controller to mitigate the rigour of the formula where the circumstances of the case so require. It was held that the amount calculated in accordance with the relevant formula set out in Section 6 would, therefore, ordinarily represent the standard rent of the building unless the landlord or the tenant as the case may be can persuade the Controller that there are circumstances requiring adjustment in the amount so arrived at. The annual value of a building as governed by the Delhi Rent Control Act, 1958 must be limited to the measure of standard rent determinable under that Act and the landlord cannot reasonably expect to get more than the standard rent payable in accordance with the principles laid down in the 2015:DHC:1490-DB

It is thus evident that the reasoning contained in the impugned order has been discarded and in effect overruled. This Court notices that the impugned order had directed as follows : “We are of the view that on the facts and in the circumstances of the case and for the reasons given in the impugned appellate order the Ld. CIT(A) was justified in holding that swimming pool was not plant but was part of the building and as such depreciation was allowable at 10% and not 33.33% as claimed by the assessee. The facts and circumstances of the case as mentioned in detail in the impugned order clearly show that the facilities of the swimming pool and health club were provided to the Chairman and the Directors residing in the aforesaid bungalows. The swimming pool and health club were not business apparatus and were not used for carrying on business of trading or manufacturing or professional activities. Hence, the swimming pool could not be treated as plant. The Ld. CIT(A) correctly relied on the supreme court decision in Anand Theatre reported in 244 ITR 192. We do not see any infirmity in the order of the Ld. CIT(A) for the assessment year under consideration.”

As a consequence of the above discussion, since the impugned order has been effectively overruled and the earlier view affirmed, the remand order should not be only in terms of para 24 but on due examination of the decision of the Special Bench and a due application of the principles therein. This Court noticed that in the revenue’s appeal before the ITAT, remand was in terms of para 17 and 18 of the impugned order. The rights and contentions of the parties are kept open. The AO shall proceed to determine the annual letting value (ALV) of the suit property in respect of the years 1990-91 and 1992-93 in terms of the above directions. 13. The appeal is allowed in the above terms.