TaxTMI 
TaxTMI 
2011 (3) TMI 504
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....ng Officer noticed that the assessee has received interest free deposits of Rs. 1,64,40,000. He was of the view that the assessee had taken interest free deposits from parties to whom property was let out only with a view to understate the rental income and avoid the payment of tax genuinely payable on such income. The Assessing Officer, after considering the explanation and reply of the assessee, added notional interest at the rate of 6 per cent on the deposits which is prevailing on the fixed deposits at the relevant point of time. Accordingly, the Assessing Officer has worked out the notional interest of Rs. 9,84,000, and added the same as income under the head "income from house property". 4. The assessee, being aggrieved by the stand of the Assessing Officer, carried the matter in appeal, wherein the learned CIT(A) deleted the addition made by the Assessing Officer on account of notional interest by following the decision of a co-ordinate bench of this Tribunal, Mumbai Bench, rendered in J.K. Investors (Bombay) Ltd. v. Dy. CIT [2000] 74 ITD 274. The revenue is aggrieved and is in appeal before the Tribunal. 5. Learned Departmental Representative, before us, submitted tha....
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....r which the property might reasonably be expected to let from year to year as per the provisions of section 23(1)(a) of the Act. According to the provisions of section 23(1)(a), for determining the fair rent value, the Assessing Officer has to consider various factors into account which includes the standard rent, the municipal value of the property as the case may be and other effecting factors like the benefit availed by the assessee other than the annual rent received or receivable. Therefore, for computation of annual letting value, the Assessing Officer has to first do the exercise of arriving at the fair rent of the property in question and, thereafter, the same has to be compared with the annual rent received or receivable by the assessee. If the annual rent received or receivable is more than the fair rent as computed under clause (a) than the annual rent received or receivable, will be the annual value for the purpose of section 22 of the Act. Since the Assessing Officer has not done the proper exercise of determining the fair rent as prescribed under section 23(1)(a) of the Act and the learned CIT(A) has also not adjudicated the issue after considering the fair rent and, ....
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....tated hereinabove, in this case, the Department has invoked section 23(1)(b) which, as stated hereinabove, proceeds on the basis that the actual rent received by the assessee is more than the reasonable rent under section 23(1)(a). The Tribunal has also found that the actual rent received by the assessee, even without taking into account the notional interest, was more than the annual value determinable under section 23(1)(a) of the Act. This finding of fact has not been challenged by the Department in this appeal. On the contrary, the Department has contended that in this case section 23(1)(b) was applicable. They have not relied on the provisions of section 23(1)(a). The question as to whether notional interest could have been taken into account under section 23(1)(a) does not arise in this appeal and we do not wish to go into that question in this appeal. However, the moot point which needs to be considered in this case is whether notional interest could form part of the actual rent received by the assessee under section 23(1)(b) of the Income-tax Act. It is important to note that the property is covered by the provisions of the Bombay Rent Act. The scheme of section 23(1)(b), i....
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....1)(a), the Assessing Officer has to decide the fair rent of the property. While deciding the fair rent, various factors could be taken into account. In such cases various methods like contractors method could be taken into account. If on comparison of the fair rent with the actual rent received, the Assessing Officer finds that the actual rent received is more than the fair rent determinable as above, then actual rent shall constitute the annual value under section 23(1)(b). Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere. Before concluding we may point out that under section 23(1)(b), the word 'receivable' denotes payment of actual annual rent to the assessee. However, if in a given year a portion of the actual annual rent is in arrears, it would still come within section 23(1)(b) and it is for this reason that the word 'receivable' must be read in the context of the word 'received 'in section 23(1)(b). In the light of the above inte....
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....the Bombay Bench of the Tribunal in the case of J.K. Investors (Bombay) Ltd. (supra), the benefit derived by the assessee from the interest-free deposit could be taken into consideration for determination of fair rental value under section 23(1)(a) of the Act. In my considered view, the benefit derived by the assessee from the interest-free deposit could not be more than the lending rate at which the deposits were available in the market at the particular point of time. Even if that is taken into account, the fair rental value of the property does not work out to the amount determined by the Assessing Officer and confirmed by the learned AM. I, therefore, partly agree with the learned AM that the ALV in this case cannot be limited to standard rent but I do not agree with him that the fair rent adopted by the Assessing Officer is justified. I partly agree with the learned JM that the matter has got to go back to the Assessing Officer instead of adopting the value determined by the Assessing Officer. I hold accordingly. 18. Since this case is peculiar insofar as I have partly agreed with learned AM and partly with learned JM, I would like to give the following opinion : That in th....