2022 (11) TMI 77 - AT - Income Tax

Notional interest on deposits excluded from ALV for House Property income calculation by ITAT. AO's additions deleted.

The ITAT ruled that notional interest on deposits cannot be included in the ALV for the computation of 'Income from House Property.' Consequently, the ... Chargeability of notional interest on deposits under Income from House Property - ALV determination - assessee as owner is given a substantial amount as deposit and Rent received by assessee is meagre - HELD THAT:- We have also carefully perused the order of the co-ordinate Bench in assessee’s own case [2020 (12) TMI 869 - ITAT MUMBAI] as held CIT(A) has rightly concluded that estimation of ALV on the basis of notional interest could not be upheld in the eyes of law. However, the same time, the findings that the property would not be subjected to Rent Control Legislation is bereft of any evidence on record. The income so earned notwithstanding the nomenclature of rental / lease rental or license fees, all are assessable under the head Income from House Property and subjected to similar computations. No difference has been carved out in law in all these different streams of income. The assessee nowhere denied the applicability of Rent Control Act to the stated stream of income. Therefore, the facts of the case are squarely covered by the earlier decision of the Tribunal in assessee’s own case for AYs 1996-97 & 1997-98. There is no change in material facts. No contrary decision is on record. Nothing has been shown that the aforesaid decision of the Tribunal has ever been reversed or not applicable, in any manner. Therefore, respectfully following the consistent stand of the Tribunal, we are inclined to quash the directions given by Ld. CIT (A). The additions, thus made by Ld.AO, stand deleted. Thus we allow ground no.1 to 6 of the appeal in this case and direct the learned Assessing Officer to delete the addition made under income from house property. Issues Involved:1. Computation of 'Income from House Property' for AYs 2000-01, 2005-06, and 2006-07.2. Determination of annual letting value (ALV) of the property.3. Applicability of the Maharashtra Rent Control Act, 1999.4. Granting of credit for tax paid.Detailed Analysis:1. Computation of 'Income from House Property' for AYs 2000-01, 2005-06, and 2006-07:The primary issue involved the computation of income from house property for the assessee's flat in Mumbai. The assessee had shown nil income from the property, claiming that the municipal taxes and society charges exceeded the rent received. The Assessing Officer (AO) determined the annual letting value (ALV) based on notional interest on interest-free deposits received by the assessee, resulting in higher computed income.2. Determination of Annual Letting Value (ALV) of the Property:The AO initially computed the ALV at Rs. 24 lakhs based on notional interest on deposits. The CIT (A) and ITAT previously directed the AO to use the Comparative Method of Valuation. Consequently, the AO determined the ALV at Rs. 2,52,000 per month, estimating a reasonable monthly rent of Rs. 2 lakhs, leading to an annual income of Rs. 24 lakhs. After deductions, the net income was computed at Rs. 18 lakhs. The CIT (A) upheld this determination, considering the property's prime location and the large interest-free deposit received by the assessee.3. Applicability of the Maharashtra Rent Control Act, 1999:The assessee contended that the provisions of the Maharashtra Rent Control Act should apply, arguing that the municipal rateable value should be binding. However, the CIT (A) held that the Rent Control Act was not applicable in this case, as the arrangement was a leave and license agreement, not a lease, and the rent of Rs. 5,000 per month was not reasonable for the property in question.4. Granting of Credit for Tax Paid:The assessee claimed a credit of Rs. 8,15,756 for taxes paid, which the AO was directed to verify and grant if found in accordance with the law.Separate Judgments:For AY 2000-01:The ITAT followed its own earlier decisions and the Bombay High Court's decision in CIT v/s Tip Top Typography, concluding that the notional interest on deposits could not be included in the ALV. The ITAT directed the AO to delete the addition made under income from house property, allowing grounds 1 to 6 of the appeal. Ground 7 was directed for verification, and ground 8 was dismissed as not pressed. The appeal was partly allowed.For AY 2005-06:The facts and circumstances were similar to AY 2000-01. The ITAT directed the AO to delete the addition made by the AO, allowing grounds 1 to 6. Ground 7 was dismissed as not pressed. The appeal was partly allowed.For AY 2006-07:The issue was identical to AY 2000-01. Following the same reasoning, the ITAT directed the AO to delete the addition under the head income from house property. The appeal was allowed.Conclusion:The ITAT consistently followed its earlier decisions and the Bombay High Court's ruling, concluding that notional interest on deposits could not be included in the ALV. Consequently, the additions made by the AO were deleted for all the assessment years in question. The appeals for AY 2000-01 and 2005-06 were partly allowed, and the appeal for AY 2006-07 was fully allowed.