TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 409
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....the admissibility as well as merit of the additional evidences submitted by the Assessee despite calling for a remand report from the AO. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in making addition of an amount of Rs. 36,33,966/- under the head 'Income from House Property'. (ii) That the Learned Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the order of the Assessing Officer that the transaction of leasing out of the Appellant's flat at No. 77, Poorvi Marg, Vasant Vihar, New Delhi to M/s Bennett, Coleman & Co. Ltd. was a colourable device or that it was meant to evade due tax. 5(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in estimating the Annual Letting Value of the flat at Rs. 51,91,380/- on the basis of notional interest at the rate of 10.75% on the security deposit given by lessee. . (ii) That the learned CIT(A) has erred both on facts and in law in confirming the above action of the AO, despite the fact that the same has been arrived at by th....
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....of natural justice, and also inspite of having no jurisdiction over the case of the husband of the Appellant. 11(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in making addition of an amount of Rs. 3,28,385/- on account of interest income. (ii) That the above addition has been confirmed ignoring the fact that the same has been made by the AO adopting accrual method of accounting as against the cash method of accounting regularly followed by the assessee. 12. That the Learned Commissioner of Income Tax (Appeals) has erred in not giving the credit of TDS amounting to Rs. 11,549/- deducted by Core Moulding Pvt Ltd and claimed by the Appellant through the revised Return of Income filed by her while at the same time bringing to tax the income declared by the Appellant in her revised Return of Income." 3. Assessee is an individual who is and income from house property, business income, capital gain and income from other sources. She filed return of income showing income of Rs. 4 058004/- on 28th of July 2008. The issue involved in the Phillies regarding the determination of annual legible va....
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....er section 143 (3) of the act wide order dated 29th of December 2010. Aggrieved by the order of the Ld. assessing officer assessee preferred an appeal before the Ld. CIT (A) who confirmed the action of the Ld. assessing officer in making an addition of an amount of Rs. 3 60 3966/- under that income from house property. He also confirmed the addition of Rs. 3 28385/- on account of interest income. Assessee being aggrieved with the order of the Ld. CIT (A) has preferred an appeal before us raising several grounds of appeal mainly on the 2 issues of (1) determination of income from house property and (2) disallowance of interest. 4. Ground No. 1 to 3 of the appeal of the assessee are general in nature and therefore same are dismissed. 5. With respect to ground No. 4 to 10 , The Ld. authorized representative with respect to the income from house property submitted that annual letable value of the house property is Rs. 113400/- as per the MCD, he opposed that no such adjustment can be made. 6. We have carefully considered the rival contentions and also per used the orders of the Ld. assessing officer as well as the 1st appellate authority. The Hon'ble Delhi High Court in case of CIT ....
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....nterest free security deposits is not rent liable to be included in the income from house property under the Income-tax Act, 1961?" The same substantial question of law also arose in the subsequent assessment years 2002-03 and 2003-04. 3. Section 22 of the Act deals with income from house property and states that annual value of the property of the description specified therein shall be chargeable under the head of „Income from house property‟. Section 23 of the Act provides the manner in which annual value of any property is to be determined for the purposes of computing the income from house property. Thus section 23 provides the formula for ascertaining the annual value of property in the following manner : "23. Annual value how determined.-(1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a)The sum for which the property might reasonably be expected to let from year to year; or (b)Where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable : Provided that where the property is in the occ....
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....pees; (d)In the case of a building comprising one or more residential units, the erection of which is completed after the 31st day of March, 1982 but before the 1st day of April, 1992, for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of - (i)In respect of any residential unit whose annual value as so determined does not exceed three thousand six hundred rupees, the amount of such annual value; (ii)In respect of any residential unit whose annual value as so determined exceeds three thousand six hundred rupees, an amount of three thousand six hundred rupees. Explanation.-For the purposes of this sub-section, "annual rent" means - (a)In a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b)In any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period. Explanation 2.-For the removal of doubts, it is hereby declared that where a deduction in respect of ....
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....ction (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit. (3) Where the property referred to in sub-section (2) consists of one residential house only and it 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 house shall be taken to be nil : Provided that the following conditions are fulfilled, namely :- (i)Such house is not actually let, and (ii)No other benefit therefrom is derived by the owner. ** ** ** 5. According to the Assessing Officer, in the normal course of letting out of property, the advance rent/security deposits varies from six months to three years. Even if three years‟ security deposit is to be taken into consideration, the amount would be much lower than the actual amount of Rs. 8.58 crores in respect of the property at Masjid Moth. The same would be the position in respect of Adhichini property. He also relied upon the by....
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....ereof. Applying the principle enumerated by it and as mentioned above, on the basis of various judgments, to the facts of the present case, the learned Tribunal held that notional income on account of interest free security deposits received by the assessee could not be considered for determining the ALV of the property." 2. Clause (c ) of section 23(1) of the Act admittedly does not apply to the facts of these appeals, as none of these properties remained vacant during the whole or any part of the previous year. Properties remained let out during the entire year. Therefore, clause (b ) of section 23(1) of the Act comes into play. It was also conceded that clause (a) of section 23(1) is applicable in those cases where property is not let-out at all during the entire year. In such cases, the exercise is to be done to ascertain as to what would be the sum, i.e., the rent which the property might fetch if let-out from year to year. It would mean that „fair rent‟ which the property can fetch, when if let-out, is to be arrived at. However, learned counsel for the Revenue before the Division Bench and also before us submitted that even while ascertaining the annual letting ....
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.... address this issue and straightway proceeded to add notional interest on the interest free security deposit. On the other hand, the CIT(A) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi vide its assessment order dated 31-12-1996, as per which the rateable value of the property in question was fixed at the rate of 2,02,240 with effect from 1-4-1994, in the absence of any further assessment order having been passed by the MCD resulting in any enhancement in rateable value. The Tribunal, on the other hand, has observed that the fair rent of the property under section 23(1)(a) can be decided on the basis of fair rent fixed by the local Municipal Corporation laws or under the Delhi Rent Control Act." 5. The Division Bench thereafter discussed the case law cited before it and summed up the position as under : "16. The reading of the aforesaid case law brings out the following position insofar as considering of notional interest under section 23(1)(a) of the Act is concerned :- (i)The Bombay High Court in J.K. Investors (supra) left this question open. However, it categorically held that the Assessing Officer was required to determine....
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....otional interest to arrive at the same which the property might reasonably be accepted to let for year to year? If so, the next question would be whether it can be done in all cases or in some glaring cases like the present one where security deposit is not equivalent to six months to three years of rent but completely disproportionate to the actual contractual rent? Even if the notional interest is not to be added, can such a huge interest free security deposit (which does not appear to have any rationale with the agreed rent) be totally ignored while determining the "fair rent" which the property might reasonably be expected to yield? Or else, in a case like this, can it be inferred that the tenant paid part rent by giving interest free deposit and agreed rent is not what reflected in the lease deed, but part of it is hidden in the form of security?" 7. Before we proceed to answer the aforesaid questions, we may recapitulate here the admitted position in these appeals : (a)In all these cases in addition to contractual rent, substantial amount by way of interest free security is given. The security deposit is many times more than the annual rent received by the assessee. (b)....
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....y the Assessing Officer could convert the depression in the rate of rent into money value by assuming the market rate of interest on the deposit as the further rent received by way of benefit of interest-free deposit. But section 23, as already noted, does not permit such calculation of the value of the benefit of interest-free deposit as part of the rent. This situation is, however, foreseen by Schedule III to the Wealth-tax Act and it authorises computation of presumptive interest at the rate of 15 per cent as an integral part of rent to be added to the ostensible rent. No such provision, however, exists in the Act. That being so, the act of the Assessing Officer in presuming such notional interest as integral part of the rent is ultra vires the provision of section 23(1) and is, therefore, unauthorised. Though what has been urged on behalf of the revenue is not to be brushed aside as irrational, yet the contention is not acceptable as the law itself comes short of tackling such fact-situation." 10. This view of the Calcutta High Court has been accepted by a Division Bench of this Court as well in the case of CIT v. Asian Hotels Ltd. [2008] 168 Taxman 59 holding that the notion....
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.... 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 the 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‟. Provisions of section 23(1)( a) do not mandate this. The Division Bench in Asian Hotels Ltd.‟s (supra), thus, rightly observed that in a taxing statute it would be unsafe for the Court to go beyond the letter of the law and try to read into the provision m....
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.... any notional interest on the deposit made by the tenant. When the annual value is determined under sub-clause (a) of sub-section (1) of section 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-clause (b) of section 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit, etc., in the definition of the income under section 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits or perquisites as income while computing income under those heads, e.g., salary, business. The computation of the income under the head house property is on a deemed basis. The tax has to be paid by r....
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.... 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 Assessing Officer in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the „fair rent‟ in the market and there is sufficient material on record for taking a different valuation. We may profitably reproduce the following observations of the Supreme Court in the case of Corpn. of Calcutta v. Smt. Padma Debi AIR 1962 SC 151 : "A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other consid....
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....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 Assessing Officer 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 observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand v. Bombay Municipal Corpn. AIR 1968 SC 441 : "It is well-recognized principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year, various methods of valuation are applied in order to arrive at such hypothetical rent, for instan....