TaxTMI 
TaxTMI 
2010 (10) TMI 489
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....s overlooked by CIT(A) while deciding the appeal." 3. The assessee had claimed deduction of interest at Rs. 24,98,205/- against the property income declared. On being asked the details by the AO, the assessee furnished loan sanction letter from Kotak Mahindra Bank, who had sanctioned a credit facility of Rs. 877 lakhs. The AO was of the view that if the assessee has established that the impugned property is acquired or constructed with the borrowed capital, then, only it could make any claim of interest u/s 24(1)(b) of the Act. Since the assessee's representative did not make out any case to hold otherwise, the AO disallowed the interest claim amounting to Rs. 24,98,205/-. Before the CIT (A) it was submitted that the amount was borrowed as secured working capital loan from Corporation Bank for construction of the premises and interest on the amount borrowed for which deduction was claimed is in respect of loan amount utilised for repayment borrowing from Kotak Mahindra Bank Ltd. being a loan facility in respect of premises given on lease to ICICI Bank Ltd. In other words, the borrowing from Kotak Mahindra Bank was partly utilized to pay off the borrowings from the Corporation Ba....
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....ken from Kotak Mahindra Bank Ltd. Kotak Mahindra Bank, vide their sanction letter dated 30-05-2003, disbursed part of the loan directly to Corporation Bank to release their charge and obtain the title deed. The ld. A.R. submitted that the borrowing from Kotak Mahindra Bank was partly utilized to pay off the borrowing from the Corporation Bank. The balance amount borrowed from the Bank was utilized in meeting the liabilities due to various suppliers etc. and in paying of unsecured loans. The ld. A.R. further submitted that interest on such substitution of loan is allowable in accordance with Circular No.28 dated 20-08-1969 issued by the CBDT. 5. The ld. D.R. relied upon the order of CIT (A) and submitted that the assessee claimed the interest in respect of Corporation Bank which was not utilized for the purpose of construction. Therefore, the assessee is not entitled for deduction. 6. We have heard the ld. representatives of the parties and record perused. In brief, the admitted facts of the case are that the assessee has taken original loan from Corporation Bank which was utilized for construction of the premises. Subsequently, the assessee substituted it by taking a fresh lo....
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....see is allowable, we accordingly allow it. 8. Ground No. 1 raised by the revenue reads as under:- "On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in holding that the TDS certificate did not reflect that additional income by way of rent has been earned for the relevant assessment year by the assessee & thereby deleting the addition made in this regard of Rs. 18,55,886/-, when the TDS certificate filed by the assessee clearly shows that rent for 13 months have been received by the assessee." 9. On comparative scrutiny of the P&L A/c with TDS certificates, the AO noticed that the assessee had credited rent income of Rs. 2,22,70,632/- whereas as per the total of the amount credited in the TDS certificates the same was worked out to Rs. 2,41,26,518/-. The AO was of the view that the assessee had not reconciled this difference with any material or factual contentions, therefore, the difference of Rs. 18,55,886/- was added to the gross rental receipt subject to statutory deduction u/s 24. Before the CIT(A), the learned AR of the assessee had submitted that the lease was entered into with ICICI Bank Ltd on 28/03/2003 and the monthly amount payable i....
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....." 10. We have heard the learned representatives of the parties and perused the record. We find that there is no infirmity in the order of CIT(A) as rental income related to the previous year which should not be more than twelve months, therefore, the order of CIT(A) is hereby confirmed on this issue. 11. Ground No. 2 is that the CIT(A) erred in deleting the addition to rental income of Rs. 8,90,925/- on account of notional interest on the interest free deposit without considering the provisions to section 23(1)(a) of the Act. 12. The brief facts of ground no. 2 are that during the assessment proceedings the AO noticed that ICICI Bank has given an interest free deposit of Rs. 1,11,35,315/- while taking ground & first floor of the building "Crystal". The rent was fixed at Rs. 18,55,886/- for the ground floor and first floor. The AO asked the assessee to explain why an acceptable term deposit rate of interest should not be added as to constitute the annual value as envisaged in sec. 23(1)(a) of the Act. Before the AO, the assessee relied upon a judgment of Hon'ble Bombay High Court in the case of CIT vs. J.K. Investor (Bombay) Ltd. 248 ITR 742. The AO, while considering the ....
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....)(a), the rental income has been increased by adding the notional interest on such deposits which works out to Rs. 8,90,825/- i.e. 8% of deposits, whereas, according to the appellant as has been decided by the jurisdictional High Court in the case of J.K. Investors Ltd. Reported in 248 ITR 742, notional interest cannot form part of the actual rent as contemplated by section 23(1)(b) of the I.T. Act. In any case annual value cannot be more than the Municipal Rateable Value and the Standard Rent. If the annual ;value is taxable u/s.22 then it should be taken on the basis of municipal value and standard rent. In the appellant's case, it is Rs. 60,13,071/- which is much more than the actual rent received. Therefore, the Municipal Value can be taken as the basis of ALV, under the provisions of section 23(1)(a), but in the appellant's case, since the rental income is more than the municipal value, therefore, the fair rent shown by the appellant company should be accepted. The appellant's contention cannot be discarded unless there are cogent reasons to the contrary that the agreed rent is not fair and reasonable. Therefore, the income from the property should be assed on the basis of ren....
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....ation. Now we examine the issue for which we have to see the relevant provisions of taxation of income from house property under the Income Tax Act. Section 22 says that the measure of income from house property is its annual value. The annual value is to be decided in accordance with section 23. Sub-section (1) of section 23, by virtue of the amendment with effect from the assessment year 1976-77, has two limbs, namely, clauses (a) and (b). Clause (a) states that the annual value is the sum, for which the property might reasonably be expected to be let from year to year. Clause (b) covers a case where the property is let and the actual rent is in excess of the sum for which the property might reasonably be expected to be let from year to year. In other words, insertion of clause (b) by the Taxation Laws (Amendment) Act, 1975, covers a case where the rent for a year actually received by the owner is in excess of the lawful rent which is known as the fair rent or standard rent under the rent control legislation. The provisions of section 23(1)(a) of the Income-tax Act apply both to owner-occupied property as also to property which is let out and the measure of valuation to decide th....
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....imilar issue. The question for consideration before jurisdictional High Court was whether notional interest would form part of the actual rent received or receivable u/s 23(1)(b). The facts giving rise to that case, briefly, are that the assessee, during the previous year, relevant to the assessment year 1992-93, purchased premises in the building known as "Mahendra Towers" vide sale, deed dated June 28, 1991. The said premises were let out to Raymond Woollen Mills Limited from October 1, 1991. The lessee agreed to deposit an amount as a security deposit for the due performance of the lease. The assessee was not to pay any interest on the security deposit to the lessees. The premises are covered by the provisions of the Bombay Rent Act, 1947. The Assessing Officer concluded that the annual value of the property under section 23(1)(b) was the sum total of the rent actually received by the assessee as lessor plus notional interest for the interest-free deposit made by the lessee. The Assessing Officer calculated the notional interest at the rate of 21.5 percent per annum, i.e., at the rate at which the assessee borrowed funds. The jurisdictional High Court held that when actual rent ....
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....ngs the AO noticed that during the year construction of second floor of the premises was completed. An amount of Rs. 1,08,97,619/- was recoverable from Mr. Kishore Bajaj on account of allotment of premises bearing Nos.201, 202 and 203 in Crystal building. These premises were given to him in lieu of old premises owned by him for more than 20 years in the old properties which were handed over to the assessee company. Mr. Bajaj is a director of the company with 50% holding. The assessee did not furnish the exact cost of construction of the second floor. In absence of the details, the AO estimated 8% amount of Rs. 1,08,97,619/- as income accrued to the assessee on the completed portion of the construction and added to its business income. The calculation of the amount comes to Rs. 8,07,231/-. The CIT(A) deleted the addition observing as under : "5.3 I have gone through the contention of the appellant and find merit in its case. Merely because the appellant company had made advances to the said Mr. Kishor Bajaj would not automatically allow the AO to make any addition on notional basis unless such notional income is chargeable under the provisions of Income-tax Act. There is nothing ....