TaxTMI 
TaxTMI 
2017 (6) TMI 292
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....solidated order for the sake of convenience. First we take up ITA No. 2186/Ko/2014 for A.Y. 10-11 of Revenue's appeal. 3. Solitary issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 96 lakh on account of rent free accommodation provided to the assessee which was valued u/s. 28(iv) of the Act. 4. Briefly stated facts are that assessee is an individual and has field his return of income declaring total income of Rs. 7,90,500/-. The AO in the assessment order has observed the business of the assessee as interest income. The assessee was also inter alia a part-time Director of M/s Prabhukripa Overseas Ltd. (POL for short). It was observed that POL is owner of a flat having 3551.12 sq. ft. area located at 11/12 Buckley Court, Nathalal Parekh Marg, next to Electric House, Colaba, Mumbai-400005. M/s POL has assigned the task to look after the export business of it. The assessee has not drawn any salary from the company during his tenure from 01.04.2005 to 31.05.2011 as evident from the audited report of POL. However, POL has provided rent free accommodation to assessee by giving its flat as discussed abov....
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..... to provide the liquidity to the subsidiary company. Therefore the rent by the holding company cannot be the guiding factor for determining the perquisite value in the hands of the assessee. The assessee further submitted the rental valuation as determined by Brinhan Mumbai Mahanagarpalika for the financial year 2009-10 which comes out to Rs. 1,21,500/- only. Similarly, the promoters of the building namely, Balkrishna Developer Pvt. Ltd. valued the apartment for Rs. 2,74,364/- under the municipal valuation for the purpose of municipal tax. The assessee also submitted that on the maximum side after taking all the location advantages the annual residential letting value determined by the Brinhan Mumbai Maha nagar palika was at Rs. 5.06 lakh only. The assessee also submitted that there was no rent fixed under the Rent Control Act. Thus, in the absence of Rent Control Act, the municipal valuation will be the guiding factors for the valuation of perquisites i.e. rent free accommodation. Therefore the value determined by the Brinhan Mumbai Mahanagarpalika should be taken as annual letting value at which the property might be expected to let on year-to-year basis. The Ld. CIT(A)....
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....e annual letting out value of the flat u/s 28(iv) of the IT Act." The Revenue, being aggrieved, is in appeal before us. 9. Ld. DR vehemently relied on the order of AO whereas Ld. AR for the assessee filed paper book which is running pages from 1 to 31 and he reiterated the arguments that were made before the Ld. CIT(A). 10. We have heard rival contentions of the parties and perused the material available on record. The issue before us in the instant case relates to the taxability of rent free accommodation provided by POL to the assessee. The assessee is a part-time director in the company from 01.04.2005 and he was not given any salary by POL. Admittedly the assessee was given rent free accommodation by POL in the capacity of director. From the submission of Ld. AR, we find that assessee was acting as a part-time director as well as employee in the company as evident from the meeting of Board of Directors which is placed on pages 7 and 8 of the paper book filed along with CO No.3/Kol/2015. As the assessee was not drawing any salary from POL then in our considered view the perquisites cannot be determined in terms of the provision of Sec. 17(2) r.w.r. 3 of the Rules. The r....
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....ch reads as under:- "Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- (i) ... ... (ii) ... ... (i) ... .. [(iv) the value of any benefit or perquisite, whether convertible to money or not, arising from business or the exercise of a profession;] 10.1 On perusal of the above provision of Sec. 28(iv) of the Act it is revealed that a value of benefit/perquisites can be brought to tax if it is arise from the business or from the exercise of the profession. In the case before us both the elements as mandated under the provision of Sec. 28(iv) of the Act are missing therefore, we are inclined not to tax the rent free accommodation provided by POL to the assessee under section 28(iv) of the Act. However, as per the provision of Sec. 2(24)(iv) of the Act requires to bring the benefit of perquisites receive by a director under the net of taxes. The relevant extract of the provision of Sec. 2(24)(iv) reads as under:- Definitions 2. In this Act, unless the context otherwise requires,- (24) "inco....
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....per municipal guidelines. In holding so we rely in the order of Hon'ble ITAT in case of DCIT Vs Recalamation Realty Pvt. Ltd. in ITA No.1411/Mum/2007 for the AY 2004- 05 vide order dated 26-11-2010. The relevant extract of the order is reproduced below:- "17. We have considered the rival submissions. Originally provisions of section 23 of the Act provided for determination of annual value of house property only on the basis of sum for which, the property might reasonably be expected to be let from year to year. The actual receipt of rent was irrelevant. By the Taxation Laws (Amendment) Act, 1975 w.e.f. 1.4.1976, Section 23(1)(b) was introduced, whereby it was provided that if the actual rent received by an assessee is in excess of the sum for which, the property might reasonably be expected to let from year to year, annual value will be the rent received. 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 expecte....
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....sub-section (1) of section 23 of the I.T. Act, 1961, because these definitions are in identical terms and it was impossible to distinguish the definition of 'annual value' in sub-section (1) of section 23 of the IT. Act, 1961, from the definition of that term in the Delhi Municipal Corporation Act, 1957 and the Punjab Municipal Act, 1911. We must, therefore, hold on an identical line of reasoning, that even if the standard rent of a building has not been fixed by the Controller under section 9 of the Rent Act and the period of limitation prescribed by section 12 of the Rent Act for making an application for fixation of the standard rent having expired, it is no longer competent to the tenant to have the standard rent of the building fixed, the annual value of the building according to the definition given in sub-section (1) of section 23 of the IT. Act, 1961, must be held to be 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,....
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....'ble Calcutta High Court has been followed by Hon'ble Bombay High Court in the case of M.V. Sonavala Vs. CIT, 177 ITR 246 (Born); wherein Hon'ble Bombay High Court has observed as follows :- "However, the questions posed to us are not whether the annual value of the property for the purpose of section 23(1)(a) should be taken at the actual compensation received or on the basis of standard rent. The question is whether the annual value should be taken at the amount which is actual compensation received or at the amount fixed as municipal rateable value. Obviously, Municipal rateable value cannot be equated to standard rent. In this context, it may be desirable to refer to the Calcutta High Court's decision in the case of CIT Vs. Prabhabati Bansali, (1983) 1411TR 419. One of the questions involved in that case was whether the Tribunal was justified in directing the Income Tax Officer 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 comp....
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....TO Vs. Makrupa Chemicals (P) Ltd. 108 ITO 95 (Mumbai). In the case of Makrupa Chemicals, in para-14 of the decision it has been clearly held that rateable value, if correctly determined under the municipal laws can be taken as ALV u/s.23(1}(a} of the Act and in this regard the decision of the Hon'ble Supreme Court in the case of Sheila Kaushish(supra} has been followed. It has further been observed that the rateable value is not binding on the AO, if the AO can show that rateable value under the municipal law does not represent the correct fair rent. In coming to the above conclusion, the Bench has followed the decision of the Patna High Court in the case of Kashi Prasad Katarvka Vs. CIT 101 ITR 810 (Patna). We find that the Bombay High Court which is the jurisdictional High Court has held that the rateable value under the municipal law has to be adopted as annual value u/s.23(1)(a) of the Act and therefore the decision in the case of Makrupa 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....