P L D 1969 Karachi 614 (PLP)

(a) Income‑tax Act (XI of 1922), S. 66(2) read with S. 9(2)

Valuation of annual rental value of property by Municipal or Excise and Taxation authority not available at time of assessment of income‑Income‑tax Officer upon taking other factors into consi deration determining annual letting value of property‑Valuation by Municipal and Excise and Taxation authorities also becoming available at time of appeal before Tribunal‑Tribunal setting aside assessment and directing determination of annual letting value afresh by assessing officer after considering valuation by Municipal and Excise and Taxation authorities‑Question sought to be referred: "whether, in circumstances, Income‑tux Officer within his right to determine bona fide annual letting value of property indepen dently"‑Refusal of Tribunal to refer such inaccurate question to High Court‑Held, just and cannot be disturbed. (b) Income‑tax Act (XI of 1922), S. 9(2)

‑Income from property‑--Annual letting value of property

‑Rent assessed by Municipal bodies‑Only a piece of prima facie evidence of annual letting value. Jamnadas Prabhudas v. Commissioner of Income‑tax, Bombay City (1951) 29 I T R 160 rel. S. A. Nusrat for Applicant. JUDGMENT QADEERUDDIN AHMAD, J.‑

This is an application under sub section (2) of section 66 of the Income‑tax Act, 1922 containing a request that the Income‑tax Appellate Tribunal be directed to state and refer to this Court the two questions which were framed by the Department, but were not referred to this Court by the Tribunal. The questions are as follows: (1) Whether the Income‑tax Officer is within his right to determine the bona fide annual letting value of the property independently under section 9(2) of the Income‑tax Act in the absence of Municipal and Excise and Taxation Authority's valuation? and (2) whether on the facts and in the circumstances of the case, the Tribunal was legally justified in coming to the conclusion that the annual letting value of Rs. 7,680 and Rs. 8,400 for 1958‑59 and 1959‑60, respectively is fair in this case ?"

2. While declining to refer the above questions to this Court, the Tribunal has observed in its order dated the 19th of February 1965, as follows "At the time of assessment, value of this house/property by the Municipal and Excise and Taxation Authorities was not available. The Assessing Officer took other factors into consideration to determine the annual letting value thereof. When the matter came up in appeal before the Tribunal, valua tions for tax purposes by the Municipal and Excise and Taxation Authorities became available and, according to those valuations the annual letting value came to near about the same as disclosed by the respondent. The Tribunal did not wholly accept the valuation by these authorities, nor did it hold that these valuations alone were the only evidence for determining the annual letting value. It merely set aside the assessment order inasmuch as it related to this rental income with the direction that the annual letting value may be determined afresh by the assessing officer after looking also into and considering the valuation for tax purposes of this property by the Municipal, and Excise and Taxation Authorities." The above reasoning of the Tribunal is intended to clarify, as much as it could, that the assessments made by the Municipal bodies and the Excise and Taxation Authorities were not the only possible evidence, on the basis of which bona fide annual letting value of a property could be determined. The word `also' is of particular importance in the last sentence of the above quotation. The rent assessed by public bodies like Municipalities and other local authorities is only a piece of prima facie evidence of annual letting value. As observed by Chagla, C. J. in Jamnadas Prabhudas v. Commissioner of Income‑tax, Bombay City ((1951) 29 I T R 160): " . . . the tax on property is to be paid in respect of the bona fade annual value of the property, and annual value is defined in sub‑clause (2) as meaning the sum for which the property, might reasonably be expected to let from year to year. Therefore, what the law contemplates is not the actual rent received by the owner of the property but a notional rent, and the notional rent is to be gathered from what a hypotheti cal tenant would pay for the property under assessment. Undoubtedly, if actual rent is received, that would be an important factor for the taxing authorities to consider, but that would not in every case be the proper annual value as contemplated by the Act." Further: "Sir Jamshedji says that the Tribunal did not take the trouble to find out for itself what was the proper annual value, but it borrowed the opinion formed by the Municipality of the proper annual value. If the Tribunal had laid down as a principle that in every case Municipal valuation should be the only determining factor, we would undoubtedly have interfered and we would have asked the Tribunal to state a question on which we would have laid down what the correct law was. But as far as this particular case is concerned, it is clear that the municipal valuation by itself has not been the only evidence which the Tribunal has considered. Not only that, but the Tribunal has not laid down that in every case the Municipal valuation should be the only test that should be applied in order to determine what is the annual value of the property. As it happens, in this particular case on a consideration of all the factors the Tribunal has come to the conclusion that the proper annual value of the property is the value fixed by the Municipality. Under these circumstances we do not think any question of law arises which we should ask the Tribunal to refer to us."

3. Counsel for the parties do not dispute that in this case neither a Municipal Body nor the Excise and Taxation Authorities had at the time of the decision of the case by the Income‑tax Officer determined the bona fide annual letting value of the property. The officer had, therefore, taken other evidence into consideration and fixes that value to be between Rs. 24,000 ands Rs. 25,

000. When the appeal of the assessee against that valua tion came before the Tribunal, it was found that the Karachi Municipal Corporation and the Excise and Taxation Authorities had determined that value at Rs. 7,680 and Rs. 8,400, for two different periods. When the Tribunal came to know that this evidence had come into existence, it thought fit that it should be allowed to be taken into consideration, and remanded the case to the Income‑tax Officer for making a re‑assessment.

4. While doing so it has used expressions which can create the impression that the Income‑tax Officer was bound to accept the valuation made by the Municipal or by Excise and Taxation Authorities. It has, for instance, observed as follows: "We have given our consideration to the facts and circum stances of the case and hold that in view of our decision I. T. A. No. 1128 of 1963‑64 of date, the accurate way of determining the annual letting value is to base the same on the municipal valuation or on the determination by the Excise and Taxation Authorities. Since, however, these were not available to the Income‑tax Officer when the assessments in question were made, we shall set aside the present assessments to the extent of the determination of the annual letting value by the Income‑tax Officer, and direct that the same should be computed after taking into consideration the relevant assessments made by the Municipal and Taxation Authorities." In the above observations, the reason for setting aside the assessment is the non‑availability of assessments made by a Municipal Body or the Excise and Taxation Authorities. More over, the words "the most accurate way of determining the annual letting value is to base the same on the Municipal valuation or on the determination by the Excise and Taxation Authorities," appear to attribute to such determinations a quality of accuracy which borders on infallibility.

5. Owing to the above views, the Department could feel the need of clarification. The needed clarification has been given by the Tribunal at the time of rejecting the application of the Department to refer the above‑mentioned two questions to this Court. That clarification is contained in that part of the Tribunal's order which has been reproduced in the second paragraph above.

6. We might have accepted this application of the Department if the questions framed by it were themselves accurately and correctly framed. But on the contrary the first question presumes complete absence of any valuation by a Municipal Body, or by the Excise and Taxation Authorities, which is not correct in the context of this case, because the valuation of the Excise and Taxation Authorities was available at the time of the hearing of the appeal by the Tribunal. The observations of the Tribunal thus relate to such a situation and not to complete absence of evaluation by those authorities. From this point of view, the first question framed by the Department is not accurate, and could be disallowed by the Tribunal.

7. The second question attributes to the Tribunal a view which it has neither expressed in the order by which it accepted the appeal, nor in the order by which it refused to refer the questions to this Court. We do not think that the Tribunal can be said to have given a direction which amounts to saying that "the annual letting value of Rs. 7,680 and Rs. 8,400 for 1958‑59 and 1959‑60 respectively is fair in this case". From this point of view, the refusal of the Tribunal to refer the second question to this Court cannot be disturbed.

8. The application is dismissed. Application dismissed.