TaxTMI 
TaxTMI 
2010 (11) TMI 477
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....the Assessing Officer not to calculate notional interest on advance rent received and security deposit while determining the annual value of the let out property by ignoring the fact that the decision given by the ld. CIT(A) has not been accepted in assessee's own case for the earlier year and further appeal to Hon'ble ITAT has been filed. 3. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the Assessing Officer not to calculate notional interest on advance rent received and security deposit while determining annual value of the let out property by ignoring the fact that the appeal filed on the same issue in the assessee's own case for earlier year is still pending before the Hon'ble ITAT. Thus the issue has not yet reached to its finality." 3. The Assessee is a company. It is engaged in the business of undertaking in one or more activities involving purchase, sale, letting out, investment and dealing in land, preparation of building sites for construction etc. 4. The Assessee owned the entire 9 floor of the premises, Maftalal Centre Nariman Point, admeasuring about 15645 Sq.ft. together with 6 c....
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....y the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such....
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....nd interest free security deposit and arrived at an annual value of Rs. 3,42,23,856. The AO called upon the Assessee to show cause as to why the annual value should not be adopted at Rs. 3,42,23,856. In reply the Assessee submitted that notional interest cannot be added to the interest free security deposit to arrive at the annual value and in this regard referred to the decision of the Hon'ble Calcutta High Court in the case of CIT v. Satya & Co. Ltd. 75 Taxman 193(Cal.) and the decision of the ITAT Mumbai in the case of Gagan Trading Co. Ltd. v. ACIT 93 ITD 426 (mum.). Without prejudice to the above, it was also submitted that it had earned an interest income of Rs. 30,69,314 as interest income on the security deposit and advance rent received from the tenant and the same has been offered to tax as income from other sources and in the event of the annual value is increased as proposed by the AO, then the interest income should not be taxed. 11. The AO however held that he was not adding notional interest on security deposit and rent received in advance to the actual rent received for determining the annual value u/s. 23(1)(b) of the Act, but was treating the same as the su....
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....the Hon'ble Calcutta High Court in the case of CIT v. Smt.Prabhavati Bansali 141 ITR 419(Cal.) & CIT v. Satya & Co. 75 Taxman 193 (Cal.), the Hon'ble Bombay High Court in the case of M.V. Sonalawala v. CIT 177 ITR 246 (Bom.), the Hon'ble Madras High Court in the case of CIT v. M.R. Alagappan 164 ITR 690 (Mad.), the Hon'ble Supreme Court in the case of Dewan Daulat Rai v. NDMC 122 ITR 700 (SC) and Sheila Kaushish v. CIT 131 ITR 435 (SC). The Assessee reiterated its submission that the rent received was Rs. 2,87,87,660 and the annual value/Municipal Value adopted by the municipal authorities in respect of the property was Rs. 27,50,835. The rent received by the Assessee being greater of the two should be adopted as the basis for arriving at the annual value in accordance with Sec.23(1)(b) of the Act. The provisions of Sec.23(1)(a) were therefore not applicable to the case of the Assessee. The Assessee further submitted that notion interest on interest free security deposit cannot be added to the actual rent received as laid down by the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (Supra). 13. The CIT(A) held as follows: "I have caref....
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....er of CIT(A), the revenue is in appeal before the Tribunal. 15. The learned D.R. submitted that the CIT(A) was not correct in following the decision of the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra) because that decision related to determination of annual value u/s.23(1)(b) of the Act. He drew our attention to the penultimate paragraph of the said decision and submitted that the Hon'ble Court has observed therein as follows: "We once again repeat that whether such notional interest could form part of the fair rent under S. 23(1)(a), is expressly left open." He further drew our attention to a third member decision of the ITAT Mumbai in the case of ITO v. Baker Technical Services (P) Ltd. 126 TTJ (Mumbai)(TM) 455 wherein it was held that annual value determined by the Municipal authorities is not binding on the AO while determining the annual value under Sec.23(1)(a), if it can be shown that the rateable value under the municipal laws does not represent the correct fair rent. It was submitted by him that the Rent Control laws are not applicable in the case of the Assessee because the tenant was a Bank with a share capital exceeding ....
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..... Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Smitaben N. Ambani v. CWT 323 ITR 104 (Bom.) wherein the Hon'ble Bombay High Court in the context of Rule 1BB to the Wealth Tax Rules, which uses the same expression "the sum for which the property might be reasonably expected to let from year to year" as is found in Sec.23(1)(a) of the Act, held that rateable value as determined by the Municipal authorities shall be the yardstick. In coming to the above conclusion, the Hon'ble Court followed its own decision in the case of M.V. Sonavala (supra) a decision rendered in the context of Sec.23 of the Act. A reference was made to the CBDT circular No. 204 dated 24/7/1976 wherein it was explained that "the sum for which the property might be reasonably expected to let from year to year" as is found in Sec.23(1) of the Act refers to the rateable value as determined by the Municipal authorities. The learned Counsel for the Assessee also distinguished the case laws relied upon by the learned D.R. It was submitted that the decision in the case of Baker Technical Services (P) Ltd., was a case where the facts were that in the first four months of ....
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....ceived. While explaining the aforesaid amendment, CBDT in Circular 204 dated 24.7.1976 in paragraph 9 has stated as follows :- "Hitherto, the annual value of house property, chargeable to income tax under the head 'income from house property was deemed to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub section (1) of section 23 has been amended to provide that the where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property". 18. From the aforesaid Circular, it is clear that the law prior to introduction of section 23(1)(b) was that annual value was equal to Municipal Valuation of the property. The above circular gives an indication as to how the expression "the sum for which, the property might reasonably be expected to let from year to year" used in section 23(1)(a) hast to b....
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....e the standard rent determinable under the provisions of the Rent Act and not the actual rent received by the landlord from the tenant. This interpretation which we are placing on the language of sub-section (1) of Sec.23 of the IT Act,1961, may be regarded as having received legislative approval, for, we find that Sec.6 of the Taxation Laws (Amendment) Act, 1975 sub-section (1) has been amended and it has now been made clear by the introduction of clause(b) in that sub-section that where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum for which the property might reasonably be expected to let from year to year, the amount so received or receivable shall be deemed to the annual value of the property. The newly added cl.(b) clearly postulates that the sum for which a building might reasonably be expected to let from year to year may be less than the actual amount received or receivable by the landlord from the tenant". 20. Hon'ble Calcutta High Court in the case of CIT v. Prabhabati Bansali, 141 ITR 419 had to deal with a case of a property in Mumbai, where the dispute was with regard to determination of i....
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....r to re-determine the annual value of the property under section 23(1) afresh with reference to its rateable value as determined by the Municipal Corporation. The question was answered in the affirmative and the court held that the income from house property had to be computed on the basis of the sum for which the property might reasonably be let from year to year and the annual municipal value. Following the Calcutta High Court decision (1983) 141 ITR 419, which we think, has taken the right view, we answer the questions in the negative and against the department with a direction that the annual value of different properties will now be determined by the Tribunal in accordance with the directions set out above. No order as to costs". 22. The Hon'ble Bombay High Court in the case of Smitaben N. Ambani v. CWT 323 ITR 104 (Bom.) in the context of Rule 1BB to the Wealth Tax Rules, which uses the same expression "the sum for which the property might be reasonably expected to let from year to year" as is found in Sec.23(1)(a) of the Act, held that rateable value as determined by the Municipal authorities shall be the yardstick. The Learned counsel for the assessee relied on se....
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....rupa Chemicals (supra) to the contrary cannot be followed. Further In para-13 of its decision in the case of Makrupa Chemicals, the Tribunal has very categorically held that if ratable value is less than the standard rent (where the property is subject to rent control laws) then only standard rent has to be taken. In coming to the above conclusion the Tribunal has followed the decision of the Hon'ble Supreme Court in the case of Dewan Daulat Rai kapoor (supra). Thus the decision in the case of Baker Technical Services (P) Ltd. (supra) being contrary to the decision of the Hon'ble Bombay High court in our view cannot be followed. 24. The decision relied upon by the learned D.R. in the case of Fizz Drinks Ltd.(supra), are distinguishable on facts. The facts in that case were that the agreed rent was Re.1 per month and interest free security deposit of Rs. 1,62,36,000 was taken by the owner. It was this factor which weighed in the mind of the Tribunal as is evident from the observations in para-8 of its order where they have held that any fair judicial administration would not allow such things to happen. The decision in the case of Tivoli Investment & Trading Co. (P) Ltd. ....
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....he assessing officer erred on facts and in the circumstances of the case and in law in levying interest under section 234B and 234D of the Act." 29. The grounds of appeal of the Revenue reads as follows: "1. On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred in directing the Assessing Officer to exclude the notional interest on advance rent received and security deposit while computing the annual value of the let out property by ignoring the fact that the Assessing Officer has correctly determined the annual value of the property u/s. 23(1)(a) of the Income Tax Act, 1961 by adding notional interest on advance rent received and interest on security deposit, that being essential component for arriving at such annual value. 2. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the Assessing Officer not to calculate notional interest on advance rent received and security deposit while determining the annual value of the let out property by ignoring the fact that the decision given by the ld. CIT(A)on the same issue in the case of Reclamation Real Estate India Pvt. Ltd. ha....
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....essee should be atleast equal to the rent declared as received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank. He therefore substituted the actual rent received by this Assessee by the rent actually received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank, at Rs. 2,87,87,600 as against actual rent received by this Assessee of Rs. 1,12,64,400. Aggrieved by the relief granted to the Assessee the revenue is in appeal before the Tribunal. Aggrieved by the action of CIT(A) in substituting the actual rent received by it by the rent received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank, the Assessee is in appeal before the Tribunal. 33. We have heard the rival submissions, which are the same as was put forth in the case of M/S. Reclamation Real Estate Company India Pvt. Ltd.,( the Assessee in ITA No.l413/Mum/2007. For the details reasons given in that case, we hold that the annual the annual value (also referred to as municipal valuation/ rateable value) adopted by the municipal authorities in respect of the property at Rs. 27,50,835 should be the determining factor for apply....
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....han what is actually received. The CIT(A) in our view has overlooked this aspect in substituting the actual rent received by this Assessee by the rent actually received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank. We therefore hold that the annual value has to be adopted at the annual rent actually received by the Assessee from ICICI Ltd., viz., Rs. 1,12,64,400-. 36. In the result, appeal by the Assessee is allowed while the appeal by the revenue is dismissed. 37. ITA No.l734/Mum/07 & ITA No. 1411/Mum/07 : 38. ITA No.l734/Mum/07 is an appeal by the Assessee and ITA No. 1411/Mum/07 is an appeal by the Revenue. Both these appeals are directed against the order dated 5.12.2006 of CIT(A)-X, Mumbai, relating to A.Y. 2004-05. 39. The grounds of appeal of the Assessee read as follows: "1. Being aggrieved by the order bearing No. CIT(A) X/IT/318/2005-06 dated December 5,2006 issued by the Commissioner of Income-tax (Appeals) X, Mumbai [hereinafter called the CIT(A)] issued under section 250 of the Income-tax Act, 1961 [hereinafter called The Act] and communicated to the Appellant on December 28, 2006 the Appellant appeals against and o....
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....hich we have decided in the earlier paragraphs. 42. The facts as far as this Assessee is concerned are that the Assessee owned the entire 11th floor of the premises, Maftalal Centre Nariman Point, admeasuring about 15645 Sq.ft. together with 6 car parking space (hereinafter referred to as "the property"). It had let out the property to ICICI Ltd., on an annual rent of Rs. 1,12,64,400. It is not in dispute that income from letting out of the property has to be assessed under the head "Income from House Property". The annual value (also referred to as municipal valuation) adopted by the municipal authorities in respect of the property was Rs. 27,50,835. The Assessee determined "Income from House Property" by adopting the annual value at Rs. 1,12,64,400 which is the actual rent received which is higher than the Municipal valuation. The Assessee had claimed that the annual value has to be determined in accordance with Sec.23(1)(b). 43. The AO after making a reference to the fact that the property owned by this Assessee was located in the same building and is of the same size as that of the Assessee M/S. Reclamation Real Estate Company India Pvt. Ltd., (the Assessee in ITA No. 141....
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....e case of J.K. Investors (Bombay) Ltd. (supra). The revenues appeal is therefore dismissed. 45. As far as Assessee's appeal is concerned, the question is whether the revenue authorities are justified in substituting the actual rent received by this Assessee by the rent actually received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank, at Rs. 2,87,87,600 as against actual rent received by this Assessee of Rs. 1,12,64,400. The argument of the learned D.R. was that since the property is located in the same building and the area leased out are also identical, there was no reason for this Assessee to receive a lesser rent. The learned counsel for the Assessee besides reiterating the arguments as were made in the earlier case for adding notional interest on interest free security deposit further relied on the decision of the Hon'ble Bombay High Court in the case of Akshay Textiles (supra). It was also submitted that the quantum of rent is purely decided on the basis of mutual agreement between the parties. When the annual value is determined u/s.23(1)(b) of the Act, the actual rent received alone should be considered. 46. We have consider....