TaxTMI 
TaxTMI 
2017 (3) TMI 265
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.... finalized u/s. 143(3) of the Act, the total income has been assessed at Rs. 25,09,774/- after making certain additions/disallowances. The appeal preferred by the assessee before the CIT(A) was partly allowed and not being satisfied with the order of the CIT(A), the assessee is in further appeal before us. 3. In so far as the first issue is concerned, the same relates to determination of income under the head "income from house property", wherein the AO has determined income at Rs. 14,81,130/-. In this context, the relevant facts are that the appellant company leased out its premises at 801- Shaudeep, Altamount Road, Mumbai, to M/s. Deutsche Bank vide leave and license agreement dated 17.09.2005. For the assessment year under consideration, it had credited rental income of Rs. 2,58,667/-. The AO noted that the monthly rent was to the tune of Rs. 40,000/-, which was low; and, that the assessee had also taken interest free deposit from the tenant i.e. Deutsche Bank of Rs. 4,28,29,693/-. In this background, the AO required the assessee to show cause as to why the notional rent on the deposit received from the tenant should not be taxed u/s. 24 of the Act. In response, the assessee co....
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....n adopting the notional interest on the deposit for the purpose of calculation of annual value of the property is quite unjustified and contrary to the provisions of the Act. It has been pointed out that the legislature has not envisaged such a situation while determining the annual value in terms of section 23 of the Act and that wherever required, such aspect has been specifically incorporated in the relevant statute. In this context, the learned representative pointed out that Schedule III to the Wealth Tax Act, 1957 specifically provides for consideration of notional rent while determining the gross maintainable rent in terms of Rule 5 in part B of Schedule III. It was pointed out that there is no such specific provision in section 23 of the Act and, therefore, the lower authorities are not justified in adding notional interest as a part of the annual value of the property. Further, the learned representative for the assessee pointed out that the annual letting value fixed by the municipal authorities is a good basis to determine the annual letting value for the purpose of section 23 of the Act. In support of the said proposition, he placed reliance on the judgment of the Hon'b....
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....with approval by Hon'ble jurisdictional High Court in the case of Tip Top Typography (supra). The following discussion by the Hon'ble Bombay High Court is relevant in this context : "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 Assessing Officer, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the 'fair/market rent' because of the reason that assessee has received abnormally high interest-free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest-free security can be taken as determinative factor to arrive at a 'fair rent'. The provisions of section 23(1)(a) do not mandate this. The....
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.... for determining the annual value, the Hon'ble High Court noted that whatever benefit or advantage which is derived from the deposit in the shape of saving of interest or earning of interest or making profits would be reflected in computing the income of the assessee under other heads; and, thus negated the action of the Revenue. In the facts of the present case before us, it is clear that the deposit received from the tenant has been kept in fixed deposit by the assessee which has yielded interest income of Rs. 10,28,644/- and such sum is lying credited to the Profit and loss account of the assessee, therefore, the benefit derived from the deposit received from the tenant is very much part of the total income declared by the assessee. Hence, there is no scope for making any addition on account of so called notional interest on the deposit while determining the annual value of the property for the purpose of section 23 of the Act. 9. Thus, in conclusion we set aside the order of the CIT(A) and direct the AO to delete the impugned addition and accept the income as declared by the assessee under the head "income from house property" on account of rent earned on the property leased t....