2022 (2) TMI 1053 - AT - Income Tax

Tribunal overturns tax assessment, stresses revenue's duty to prove annual letting value

The Tribunal allowed the appellant's appeal in a case concerning the determination of the annual letting value (ALV) of a property for income tax ... Income from house property - computation of standard rent - ALV of the property is the value for which the property might reasonably be expected the let during the year or actual rent receipt whichever is higher - HELD THAT:- We find that the AO was under the wrong impression that equal rate of rent should be charged from all the tenants disregarding the time, location and the facilities enjoyed by each tenants. Once, the revenue comes to a conclusion that the rent received by the assessee is less than the ALV, it is for the revenue to obtain the details of the ALV from the competent authorities to prove that the rent receivable by the assessee is less than the ALV. In this case, the revenue failed to do so instead they have embarked upon a flat rate of determination of rent. CIT(A) also failed to utilize the opportunity of obtaining the details of ALV from the district authorities while denying the standard rent received by the assessee. The entire action of the revenue simmers down to determination of a notional rent without any support of the Uttar Pradesh Urban Building (Regulation of Letting, Rent and Eviction) Act, 1972. Hence, the action of the revenue authorities cannot be sustained. Assessee appeal allowed. Issues:1. Determination of annual letting value (ALV) of property for income tax assessment.2. Interpretation of Section 23 of the Income Tax Act, 1961.3. Consideration of municipal valuation or standard rent for ALV determination.Issue 1: Determination of annual letting value (ALV) of property for income tax assessment:The appellant filed an appeal against the order of the ld. CIT(A)-6, New Delhi regarding the ALV of a property in Noida let out to three tenants. The Assessing Officer (AO) computed the ALV @ Rs. 35 per month per sq. ft. and made additions to the rent receivable from two tenants based on this calculation. The AO contended that the same rent should be charged from all tenants, despite different rates being currently charged. The ld. CIT(A) upheld the AO's decision, prompting the appellant to appeal.Issue 2: Interpretation of Section 23 of the Income Tax Act, 1961:The AO invoked Section 23 of the Income Tax Act, 1961, which states the methods for determining the annual value of a property for tax purposes. The AO concluded that the ALV is the value for which the property might reasonably be expected to let during the year or the actual rent received, whichever is higher. This formed the basis for the AO's computation of ALV and subsequent additions to the rent receivable from the tenants.Issue 3: Consideration of municipal valuation or standard rent for ALV determination:In response to the AO's decision, the appellant argued that the ALV should be based on municipal valuation, standard rent, or actual rent received, whichever is higher. The appellant highlighted the absence of house tax in Noida for municipal valuation and referred to the Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972 for determining standard rent. The appellant requested the District Magistrate of Noida to ascertain the standard rent. The ld. CIT(A) noted the appellant's failure to produce documents supporting the standard rent computation under the said Act, leading to a disagreement with the revenue authorities' approach.In conclusion, the Tribunal found the revenue authorities' determination of a notional rent without proper support from the Uttar Pradesh Urban Building (Regulation of Letting, Rent and Eviction) Act, 1972 to be unsubstantiated. The Tribunal emphasized that if the revenue believes the rent received is less than the ALV, it is their responsibility to obtain ALV details from competent authorities. As the revenue failed to do so and the ld. CIT(A) did not explore this avenue, the Tribunal allowed the appellant's appeal, overturning the previous decisions and emphasizing the need for a proper basis for ALV determination.