2023 (1) TMI 1209 - AT - Income Tax

Tribunal orders reassessment for deemed rent calculation under rent control laws

Mohd. Saleem Mohd. Nazir Shaikh Versus Dy. Commissioner of Income Tax Circle–5 (1), Mumbai

The Tribunal remanded the issue to the Assessing Officer (AO) for determining the annual letting value in accordance with rent control legislation, as the ... Income from house property - Addition of notional income on property [flat which was vacant, calculated @8.5% of the cost price of the flat - determination of annual letting value of the property - As the assessee owned a flat at Bandra Breeze in addition to its self-occupied property in Capri Tower AO computed the deemed rent from the 2nd property by considering 8.5% of the value of the flat as appearing in the balance sheet - HELD THAT:- In the present case, it is evident that the lower authorities have determined the annual letting value by considering 8.5% of the value of the flat as appearing in the balance sheet. CIT(A) also upheld the findings of the AO on the basis that standard rent under the Bombay Rent Control Act is to be fixed @8.5% of the total investment. As noted above, in Tip Top Typography [2014 (8) TMI 356 - BOMBAY HIGH COURT] held that the AO either must undertake the exercise to fix the standard rent himself and in terms of rent control legislation, if the same is applicable or leave the parties to have it determined by the court or tribunal under the said legislation - Also held until then the AO may not be justified in applying any other formula or method and determine the ‘fair rent’. In the present case, it is evident that the AO did not follow the applicable rent control legislation while determining the deemed rent of the property @8.5% of the value of the flat. Further, nothing has been brought on record to support that the findings of the learned CIT(A) were reached after undertaking the exercise to fix the standard rent in terms of applicable rent control legislation. Thus, we deem it appropriate to remand this issue to the file of the AO for determination of annual letting value in terms of the applicable rent control legislation in light of aforesaid decisions of the Hon’ble Jurisdictional High Court. Accordingly, grounds raised in assessee’s appeal are allowed for statistical purposes. 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.