M/S.tarapore & Co., Madras v. The Commissioner Of Income-Tax, Tamilnadu Iv, Madras

In the High Court of Judicature at Madras Dated: 28/08/2002 Coram The Honourable Mr.Justice R.Jayasimha BabuandThe Honourable Mr.Justice K.Raviraja Pandian Tax Case No.596 of 1995 and Tax Case No.597 of 1995 M/s.Tarapore & Co.,Madras. ..... Applicant -Vs- The Commissioner of Income-tax,Tamilnadu IV, Madras. ..... Respondent References made under Section 256(1) of the Income-tax Act, 1961 bythe Income-tax Appellate Tribunal, C Bench, Madras, in RAs. No.592 and593/Mds/1992 in ITAs No.2059 & 2060/Mds/1988 for the assessment year 1980-81and 1981-82. !For Applicant : No appearance For Respondent : Mr.T.Ravikumar,Jr. Standing Counsel for IT :JUDGMENT (Judgment of the Court was delivered by 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, theTribunal is right in law in holding that the receipts from service charges areliable to be assessed as income from "other sources" and not income from houseproperty?" 2. 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. Theassessee also received certain sum from the tenants as service charges whichwere not regarded as part of rent, but as representing the value of theservices provided by the assessee to his tenants. The assessee claimed thatthose service charges also should be assessed under the head 'income fromhouse property'. It was not in dispute that it was only the amount of therent received by the assessee which was taken into account for computing the 3. 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 furt appeal, restored the order of the assessing officer. 4. 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 theproperty. 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 whichthe 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 annualvalue if that sum is in excess of the sum referred to in clause (a). Explanation (1) to Section 2 3 defines 'annual rent' for the purpose of thatsub 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 tothe amount of the actual rent, received or receivable by the owner for theperiod for which the property is let, as the period of twelve months bears tosuch period." 5. 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 amountof the actual rent received or receivable by the owner is known, that wouldconstitute the basis for determining the annual value and it is that valuewhich will have to form the basis for determining the income from houseproperty and for allowing the deduction from income from house property to theextent permitted under the other provisions of the Act. 6. In making such computations, there is no room for adding other amounts received by the owner of the building as representing the value of theservice charges rendered by him to his tenants as income from house property,when neither the tenant nor the owner intended payment of such service chargesto be a part of rent payable for the occupation of the premises by thetenants. 7. The question referred to us is answered in favour of the revenueand against the assessee. (R.J.B.,J.) (K.R.P.,J.)Index : Yes mf Copies to 1. The Assistant Registrar,Income-tax Appellate Tribunal, 6. In making such computations, there is no room for adding other amounts received by the owner of the building as representing the value of theservice charges rendered by him to his tenants as income from house property,when neither the tenant nor the owner intended payment of such service chargesto be a part of rent payable for the occupation of the premises by thetenants. 7. The question referred to us is answered in favour of the revenueand against the assessee. (R.J.B.,J.) (K.R.P.,J.)Index : Yes mf Copies to 1. The Assistant Registrar,Income-tax Appellate Tribunal, Rajaji Bhavan, Besant Nagar,Chennai 600 090. (Five copies with records) 2. The Secretary,Central Board of Direct Taxes,New Delhi. (Three copies) 3. The Commissioner of Income-tax,Tamil Nadu IV, Madras. 4. The Commissioner of Income-tax (Appeals III),Madras 34. 5. The 9th Income-tax Officer,City Circle V, Madras 34. 6. The 1st Income-tax Officer,City Circle, Madras 34.�