TaxTMI 
TaxTMI 
2011 (12) TMI 299
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....Subsequently, the rental income in respect of the office premises in question let out to M/s Indokem Ltd was assessed under the head 'income from house property' for the Assessment Year 2005-06 in the assessment order passed u/s 143(3). Consequently, the Assessing Officer issued notice u/s 148 on 10th Aug 2007 on the reasons recorded by the Assessing Officer as under: "In this connection, I have to bring to your kind notice that when a notice u/s 148 is issued, the proper course for the notice is to file a return and, if he so desires, to seek reasons for issuing the notice. There is a widely prevalent view, that the reasons need not be disclosed prior to the filing of return, but it cannot be denied after the return is filed. During the course of scrutiny proceedings for the Assessment Year 2005-06, it is learnt that the assessee company has acquired one lease office premises in Khatau House, Mahim, Mumbai consisting of the abasement having a total build up area of 5100 sq.ft and the ground floor having a total built up area of 3700 sq.ft both located in the building standing on the portion of the property from Carona Ltd on 30th March, 1995 for which it had paid the lease p....
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....urning lesser income, issue of notice under section 148 was held justified in the case of Aditya & Co. v. CIT [2005] 279 ITR 47 (P&H). In view of the factual and legal position brought out above, the reopening of assessment is upheld and this ground is dismissed." 5. Before us, the ld AR of the assessee has submitted that the income returned by the assessee was treated as income escaped while issuing the notice u/s 148. There was no allegation in the reasons recorded by the Assessing Officer that the expenditure is not allowable. He has further submitted that no new material or information came to the knowledge of the Assessing Officer to form the opinion that the income assessable to tax has escaped assessment. He has relied upon the decision of the Hon'ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1/123 Taxman 433 (FB) and submitted that even if the claim of the assessee is accepted u/s 143(1), the Assessing Officer cannot revise the order by invoking the provisions of sec. 147. The said decision of the Hon'ble Delhi High Court has been confirmed by the Hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxma....
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....or exercising the powers u/s 147 is existence of reasons to believe that there is escapement of income from assessment. It is further pertinent to note that the reopening of these years fall under Explanation 2(b) to sec. 147 which creates deeming fiction. 6.1 During the assessment proceedings for the AY 2005-06, the Assessing Officer made a detailed enquiry and particularly examined and verified the lease agreement. When a detailed enquiry was made and the Assessing Officer found that the assessee vested with ownership rights in the property in question and therefore, by virtue of provisions of sec. 27(iiib), the Assessing Officer treated the assessee as deemed owner of the property and consequently assessed the rental income as income from house property in the said proceedings u/s 143(3) for the Ay 2005-06. 6.2 Further, the Assessing Officer observed that the assessee has not engaged in any business activity except earning lease rent from the said property. The material gathered during the enquiry made in the course of assessment proceedings for the AY 2005-06, in our opinion constitute a tangible material for forming a belief that the income assessable to tax has escaped ....
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....ruth of the claim of the assessee, then the requirement of reasons to form the opinion that the income assessable to tax has escaped assessment for reopening of the assessment of the earlier year is prima facie satisfied. 6.5 The Hon'ble jurisdictional High Court also discussed the case of Supreme Court in the case of Ess Ess Kay Engg. Co (P.) Ltd. v. CIT [2001] 247 ITR 818/[2002] 124 Taxman 491 and noted that the Supreme Court has held that it would be open to the Assessing Officer to reopen the assessment, based on the finding of fact made on the basis of fresh material gathered in the course of assessment proceedings for a subsequent year. 6.6 The Hon'ble High Court has also discussed a decision in the case of Anusandhan Investments Ltd. v. Dy. CIT [2006] 287 ITR 482 (Bom.) and noted that in the said decision a division Bench has held that it is a well established position of law that an assessment can be reopened on the basis of information contained in an assessment of a subsequent year. The Hon'ble Jurisdictional High Court, while deciding the issue also considered the decision of the Supreme Court in the case of Kelvinator of India Ltd. (supra). 7. In view of the ab....
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.... c Ltd entered into an agreement of leave and license dt 10.1.2004 with M/s Pif .. for a lump sum fee of Rs. 1,66,500 per month for ground floor portion of the building. 9.1 As regards the basement of the premises, the same was lying vacant from April 2002 to Aug 2004 and was given for leave and license in parts to two different parties vide agreements dated 10.8.2004, 11.8.2004 and 2.5.2005. 9.2 The Assessing Officer after considering the terms and conditions of the agreement dated 30.3.1995 whereby the assessee took the premises on lease and particularly clause 2(d) of the said agreement which empowered the assessee to further assign, transfer, sublet and give leave and license basis or any other basis arrangements. The Assessing Officer viewed that it appears beyond doubt that the ownership rights of the said property is vested with the assessee company. Accordingly, following the decision of the Hon'ble Supreme Court in the case of CIT v. Podar Cements (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541, the Assessing Officer held that the assessee is the owner of the said property as defined in sec 27 for the purpose of sec. 22. 10. On appeal, the CIT(A) confirmed the action o....
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....signing of this agreement the payment and receipt whereof the lessor doth hereby admit and acknowledge); and (b) Rs. 1,75,00,000 within a period of 90 days from the date of the execution of this agreement; and (ii) the monthly rent of Rs. 4,400/- for the premises net payable by the lessee to the lessor the first of such payment shall be made simultaneously with the execution of this agreement and subsequent payment shall be made on or before 15th day of each succeeding English Calendar month thereafter for the entire period of the lessee; (c) The lessee shall be entitled to use the said premises for commercial purpose or for any other purpose as may be permitted by the Municipal Corpn of Greater Bombay or other concerned authorities. (d) The lessee shall have the full right power and authority to further assign, transfer, sublet, mortgage , sub-lease and/or give on leave and license basis or on any other basis or arrangement the said premises or any part or portion thereof or its interest therein, either at one time or at different intervals without requiring any further consent of the lessor and in any even the said consent is hereby expressly granted and the assignee ....
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....emained with the assessee therein and, therefore, section 9(1) of the old Act was attracted. This contention was repelled by this court. Hegde J., speaking for the Bench, observed at page 575 of 82 ITR: "The question is who is the 'owner' referred to in this section ? Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property ? It must be remembered that section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right." The learned judge observed that "it is true that equitable considerations are irrelevant in interpreting tax laws. But, those laws, like all other laws, have to be interpreted reasonably and in consonance with justice". Again at page 577, it was held that "for determining the person liable to pay tax, the test laid down by the court was to find out the person entitled to that income". Again at page 578 it was observed:....
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....see [1987] 165 ITR (St.) 161), it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word "owner" in section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act, it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it relates to section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan, and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts is not good law. We are conscious of the settled position that under the common law, "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and ....
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....rty. Accordingly, this ground of the assessee is dismissed. 14. Next issue is regarding determination of the Annual Letting Value (ALV). This ground is common in all these appeals. 14.1 The Assessing Officer noticed that the assessee rented out the premises in question to M/s Indoken Ltd for a monthly rent of Rs. 26,400/- and shown the rental receipt of Rs. 3,16,800/- The Assessing Officer further observed as under: "Thereafter M/s Indokem Ltd has further rented out the under mentioned area of the said premises to M/s Mudra Communications Pvt Ltd for the following rent: Sr. No. Total Area Rate per Sq. Ft. Rent per month Rent per annum 1. 1900 sq.ft. on the ground floor Rs. 85/- Rs. 1,61,500/- Rs. 19,38,000/- 2. 4300 sq. ft. in the basement Rs. 70/- Rs. 3,01,000/- Rs. 36,12,000/- Total Rs. 55,50,000/- As can be seen from the above, the assessee company has received a rent of Rs. 3,16,800/- for 12 month. However, M/s. Indokem Ltd. received a rent @ of Rs.70/-per sq. ft. in the basement and Rs.85/-per sq. ft. on the ground floor for the same premises. This appears to be rather ridicu....
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....iness income and the same has been accepted in the assessment year after year. (vii) The rents of properties have gone up astronomically in Mahim, where the property of the company is situate during the last two years only. 2.2 House Property Without prejudice to the stand that the rental income cannot be assessed as: "Income from 1wserty" if at all the income has to be assessed under the said head, annual value of the property has be determined as per the provisions of sec. 23(1) of the Act which say that the annual value of any property shall be the higher of the following: (i) the sum for which the property might reasonably be expected to let from year to year (normally speaking, it is the standard rent of the property) and (ii) actual rent received (not the rent that could have been received). 15.1 He has further submitted that the Assessing Officer took future agreements into consideration while computing the ALV in the years under consideration. 15.2 The ld DR on the other hand has relied upon the orders of the lower authorities and submitted that when the property can be reasonably let out and fetch the rent which was received by the sub-tenant,....
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.... as determined u/s 23(1)(a) the amount so received or receivable would the annual value for the purpose of section 22 of the Act. 16.1 From the various judicial pronouncements of the Hon'ble Supreme Court as well as High Courts, it is clear that the standard rent or the municipal value, as case may be, is the one of the various factors to be taken into account by the AO while determining the fair rent expected to be fetched for letting out the property from year to year u/s 23(1)(a). 16.2 Recently, the Full Bench of the Hon'ble Delhi High Court in the case of Moni Kumar Subba (supra) after considering the decision of the Division Bench of the Hon'ble High Court in the case of CIT v. Asian Hotels Ltd. [2008] 168 Taxman 59 (Delhi) observed and held in paragraph 13 to 22 as under : "13. We approve the aforesaid view of the Division Bench of this Court and Operative words in Section 23(1)(a) of the Act are "the sum for which the property might reasonably be expected to let from year to year". These words provide a specific direction to the Revenue for determining the "fair rent". The AO, having regard to the aforesaid provision is expected to make an inquiry as to what would b....
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....supra) on the ground that the provisions contained in the Delhi Municipal Corporation Act for fixing annual letting value is pari materia with Section 23 of the Act. The Court opined that the fair rent fixed under the Municipal laws, which takes into consideration everything, would form the basis of arriving at annual value to be determined under Section 23(1)(a) and to be compared with actual rent and notional advantage in the form of notional interest on interest free security deposit could not be taken into consideration. It is clear from the following discussion therein: "6. With regard to question Nos. (5) and (6) which are only for the asst. yrs. 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-cl. (a) of sub-s. (1) of s. 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Under sub-cl. (b) of s. 23(1) only the actual rent rec....
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.... actual rent was more than the said rateable value and therefore, as per Section 23(1)(b), the actual rent would be the income from house property and there could not have been any further additions. 18. Since the provisions of fixation of annual rent under the Delhi Municipal Corporation Act are pari materia of Section 23 of the Act, we are inclined to accept the aforesaid view of the Calcutta High Court in Satya Co. Ltd. (supra) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if in the Assessment Year in question when assessment is to be made under Income Tax Act. The property is let-out at a much higher rent. Thus, the AO in a given case can ignore the municipal valuation for dete....
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....asis of fixing property tax has undergone a total change with amendment of the Municipal Laws by Amendment Act, 2003. Now the property tax is on unit method basis. 20. In the present case, the AO added notional interest on the interest free security for arriving at annual letting value. Since that was not permissible, the effect would be that such assessment was rightly set aside by the CIT(A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the AO to fix annual letting value was wrong and therefore, no further exercise in fact is required by us in these appeals. 21. We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the "fair rent". The question would, therefore, be as to what would be circumstances which can be taken into consideration by the AO while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may ....
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....ndard rent itself is not sole binding factors on the AO but these are only guiding factor for determining the reasonable expected rent to be fetched by he property as contemplated u/s 23(1)(a). If in the given case, the AO finds that the Municipal Value is not based on relevant material for determining fair rent in the market and there is a sufficient material on record for taking different valuation then the AO can determine the fair rent by inflating or deflecting the Municipal Value or Standard Rent as the case may be by taking into account the relevant material in this regard. As observed by the Hon. Delhi High Court if the ratable value is correctly determined under the Municipal law the same can be taken as annual letting value u/s 23(1)(a) of the Act. However, the ratable value is not a binding on the AO if the AO can show that the ratable value under Municipal law does not represent the correct fair rent. If the AO finds that the actual rent received is less than the fair market rent/market rent because of the reason that the assessee has received abnormally high interest free security deposits and because of that reason actual rent received is less than the rent which the ....
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....owings used for paying the premium of the property in question is common only in assessment years 2001-02 and 2002-03. 18.2 The Assessing Officer disallowed the claim of expenses relating to the interest paid on the borrowed funds utilised for payment of lease premium and lease rent paid by the assessee. On appeal, the CIT(A) confirmed the disallowance made by the Assessing Officer. 19. We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. As per the agreement dated 30.3.95, we find that the assessee acquired the lease rights in the property by paying non refundable premium of Rs. 3.75 crores and lease rent of Rs. 4,400/- per month. When the rental income has been assessed as income from house property and the assessee being the deemed owner of the property u/s 27(iiib), then, lease premium paid by the assessee is only for acquiring the leasehold rights of the property. Further when the premium is not refundable and is paid by utilising the borrowed funds, then the interest paid or payable on such borrowed capital is allowable u/s 24(b) of the I T Act. 19.1 As regards the lease rent expenses is concerned, since there i....
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....t u/s 234D. This issue is common for all the assessment year except for the AY 2005-06. 23. We have heard both the parties and perused the relevant record. We find that the Hon'ble Jurisdictional High Court in the case of CIT v. Bajaj Hindustan Ltd., in the Income Tax Appeal no. 198 of 2009 vide order dated 15.4.2009 held that the provisions of section 234D cannot be applied prior to 1.6.2003. The hon. Jurisdictional High Court has observed in paragraph 5 as under: "5. So far as the last question is concerned, it is seen that the subject provision came on statute book w.e.f 1.6.2003. If that be so, the said provision does not have retrospective effect. In this view of the matter, we do not see appeal giving rise to any substantial question of law. Appeal is, therefore, dismissed in limine with no order as to costs" .... 24. In view of the above decision of the hon. Jurisdictional High Court, we direct the A.O. to levy the interest under section 234D only for the assessment years covered by the said provision. 25. Next ground raised by the assessee for the Assessment Year 2005-06 is as under: "The ld CIT(A) erred in confirming the assessment of sundry balances written....