Tribunal orders reassessment for deemed rent calculation under rent control laws

The Tribunal remanded the issue to the Assessing Officer (AO) for determining the annual letting value in accordance with rent control legislation, as the AO and Commissioner of Income Tax (Appeals) did not consider the applicable laws in calculating the deemed rent. The decision was based on previous rulings emphasizing the need to determine rent based on municipal rateable value or actual rent received. The appeal by the assessee was allowed for statistical purposes.

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Issues Involved:
1. Addition of notional income on a vacant property.
2. Determination of annual letting value under rent control legislation.

Issue-wise Detailed Analysis:

1. Addition of Notional Income on a Vacant Property:
The assessee challenged the addition made by the Assessing Officer (AO) on account of notional income from a vacant flat, calculated at 8.5% of the cost price of the flat. The assessee argued that the condition of the building and the flat, as well as the rent control legislation in Mumbai, were not considered. The maximum yield of residential properties in Mumbai is 3.5 to 4%, and the rental income should be based on the actual rent that could be received, supported by a certificate from the society's secretary indicating a rental range of Rs. 30,000 to Rs. 50,000 per month.

2. Determination of Annual Letting Value Under Rent Control Legislation:
The AO computed the deemed rent for the flat at Bandra Breeze by considering 8.5% of the value of the flat as appearing in the balance sheet. The learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld this determination, following its decision for the assessment year 2012-13. However, the assessee argued that the lower authorities did not determine the rent as per the rent control legislation applicable to the property. The Hon'ble Jurisdictional High Court in CIT vs Tip Top Typography emphasized that the annual letting value should be determined based on the municipal rateable value or actual rent received, and the AO must have cogent and satisfactory material before deviating from these values. The AO should undertake the exercise of fixing the standard rent in terms of the applicable rent control legislation or leave it to the court or tribunal under that legislation.

Judgment:
The Tribunal found that the AO did not follow the applicable rent control legislation while determining the deemed rent at 8.5% of the value of the flat. The CIT(A) also did not undertake the exercise to fix the standard rent as per the rent control legislation. The Tribunal remanded the issue to the AO for determination of the annual letting value in terms of the applicable rent control legislation, in light of the decisions of the Hon'ble Jurisdictional High Court in Tip Top Typography and Smt. Kokilaben D. Ambani v/s CIT. The appeal by the assessee was allowed for statistical purposes.

Order Pronounced:
The appeal was allowed for statistical purposes, and the order was pronounced in the open Court on 03/01/2023.

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