TaxTMI 
TaxTMI 
2017 (9) TMI 427
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....t out at Rs. 13,06,61,131/-. 4. That the appellant craves leave to add, modify and/or rescind any of the ground(s) of appeal at the time of hearing of the case." 3. The Assessee is a Company. Its main source of income is income from house property and income from business. For A.Y.2010-11, the assessee filed return of income declaring a loss of Rs. 8,34,181/-. The assessee was the owner of a palatial bungalow in New Delhi namely Premises No.22 Aurangzab Road, New Delhi. The property was let out to Shri L.N. Mittal on a monthly rent of Rs. 5 lakhs under an agreement dated 08.09.2006. As per the terms of the agreement, the Assesse was also required to provide the tenant various amenities in the premises given on lease like telephone, electricity, swimming pool, car, furniture and fittings, gym etc. For providing various services Shri L.N.Mittal, the tenant has to pay Rs. 1 lakh to the assessee. The rental income received by the assessee from letting out the premises namely Rs. 60 lakhs (Rs.5 lakhs x 12) was declared under the head "Income from house property". The income of Rs. 1 lakh per month received from Shri L.N.Mittal for providing various services was declared under the head....
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....x the difference between the sum of Rs. 12,94,61,131 and Rs. 60 lacs as Annual Value of the property chargeable to tax under the head "Income from House property" and allowed statutory deduction of 30% on the sum so arrived at and added the same to the "Income from House Property" declared by the Assessee. 7. The AO has also referred to the fact that Municipal Valuation (New Delhi Municipal Council) had on 27.03.2012 valued the property in question w.e.f 26.04.2006 at Rs. 1,80,15,700/- P.A. This was much higher than the actual value taken by assesee which was Rs. 60,00,000/- P.A. According to the AO his claim that the income from house property declared by the Assessee was low, stood corroborated by the fact that even the Municipal Valuation of the property was much higher at Rs. 1,80,15,700/-. For the above reasons, the AO added a sum of Rs. 12,34,61,131/- to the income from house property declared by the Assessee. 8. The AO was also of the view that the income in the form of service fee declared by the Assessee was in fact part of the rent and the Assessee's claim that provision of services was a separate transaction was again a devise to avoid payment of tax. He was of the vie....
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....mission put forward by the appellant along with the case laws relied upon, perusing the facts of the case including the observation of the AO in the assessment order and. other materials on record, this ground of the appeal is decided in favour of the appellant for the following reasons:- i) The appellant apart from providing the property on rent is also providing services like- car, furniture and fixture, telephone, electricity, gymnasium, swimming pool etc., and is charging tenant separately for these services. ii) There is considerable force in, the su8bmission of the Ld. A/R that the factual position of the case of Sultan Brothers P. Lid, Chitpore Golabar Co. Ltd differs from the case of the appellant. In these cases the letting out was on inseparable. In the case of the appellant the letting out is not inseparable. iii) The factual position of the case of the appellant is similar to the following cases relied by the Ld. A/R:- - Karnani Properties Lld V CIT (82 ITR 547) (SC) (Page 130 to 138) - CIT V Russell Properties P.Ltd(13l ITR 473)(Cal)(page 139 to 148) - CIT Vs. Sarabhai P.Lld (263ITR 197)(Guj)(Page 149 to 158) -CIT V Surat Textile Market Co-operative Shops and Wa....
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.... the expenses were disallowed by the AO for the main reason that the services charges are assessable under the head "Income from House Property" and since he has already held the services charges to be assessable under the head "Income from Business", the disallowance of expenses in providing service charges cannot be sustained. The CIT(A) also found that on the same issue was decided by his predecessor while deciding assessee's appeal for AY 2006-07. In the assessment order for AY 2006-07 the AO had similarly disallowed the entire expenditure claimed in relation to income by way of service charges. The CIT(Appeals) however held that the assessee was entitled for depreciation allowance under Section 32 of the Act on the actual cost of assets used for providing services. He also allowed the assessee's claim for deduction of expenses as were claimed in the original return. The CIT(A) therefore held that the issue of allowability of expenses was also no longer res integra. The CIT(A) also found that no further appeal had been preferred by the revenue against the order of the CIT(A) for AY 2006-07. In the circumstances following the appellate order for AY 2006-07, the CIT(A) he....
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....an by the holding company to the Assessee was to compensate the low rent charged by the Assessee from Shri.L.N.Mittal. It was also highlighted that the interest free loan was given prior to the tenancy between the Assessee and L.N.Mittal. 16. The CIT(A) agreed with the submission of the Assessee that the loan which the assessee received had no connection with the tenancy of Shri L.N. Mittal. He held that the amount in question was received by the assessee from the holding company and not from the tenant. Interest free loan was received during the period when construction of the property was in progress. The loans were received from the holding company in order to meet the cost of construction and cost of acquisition of the property. Therefore the receipt of interest free loan from the holding company was an event which had occurred prior to grant of tenancy and as such these two events apparently did not have any connection. The CIT(A) therefore held that the very basis on which the AO concluded that the interest free loan was in the nature of interest free deposit from the tenant was factually unfounded. 17. The CIT(A) thereafter went into the question as to whether even in a ca....
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....aking addition to the actual rent received equivalent to 10% of the interest free loan received by the assessee from its holding company. The addition made by the AO was therefore held by the CIT(A) to be unsustainable in view of the decision of the Full Bench of the Delhi High Court in the case of CIT Vs M.K. Subba (supra.) 19. The CIT(A) thereafter went into the question as to what should be the correct annual value of the property for the purpose of determination of income under the head "Income from House Property. The CIT(A) found that the Hon'ble Calcutta High Court in the case of Satya & Co. Ltd 146 CTR 569, CIT Vs Bhaskar Mitter 73 Taxman 437, CIT Vs Poddar Bros. Pvt Ltd 240 ITR 925, CIT Vs Prabhavati Bhansali 141 ITR 419 has consistently held that the annual value of a House Property under Section 23 is to be assessed at higher of the actual rent or the annual value determined by the municipal/local authority. The Full Bench of the Delhi High Court in the case of CIT Vs M.K. Subba (supra) in principle accepted the ratio laid down by the Calcutta High Court and held that in arriving at the annual value of the property the annual value determined by the municipal authoritie....
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....01- has suffered tax in AYs 2010-11 & 2013-14. He therefore held that no further adjustment to the. disclosed annual value was necessary in the assessment for AY 2010-11. The CIT(A) therefore directed the AO to assess the income from house property at 22, Aurangzeb Road, New Delhi taking its annual value at Rs. 60 lacs and recompute the assessee's income under the head "House Property" accordingly. 22. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. 23. The learned DR reiterated the case of the AO that the entire arrangement of giving interest free loans by the holding company to the subsidiary(Assessee) and the use of those funds for construction of the property by the Assessee and the ultimate letting out of the property on rent to Mr.Mittal at a low rent clearly showed that there was a motive to evade tax and the Tribunal should look through the transaction and take note of the real intent behind the web of transactions and uphold the stand taken by the AO in the order of Assessment. The learned counsel for the Assessee reiterated contentions put forth by the Assessee before CIT(A) and relied on the order of the CIT(A). 24. We have give....
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....sions 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 expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub section (1) of section 23 has been amended to provide that the where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of....
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....rent consequent to revision in the annual rent between the parties amounting to Rs. 3,54,31,400/- was offered as income of the assessee in AY 2013-14 in conformity. Sec.25B of the Act, provides as follows: "Special provision for arrears of rent received. 25B. Where the assessee- (a) is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and (b) has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting a sum equal to thirty per cent of such amount], shall be deemed to be the income chargeable under the head "Income from house property" and accordingly charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property in that year or not." Thus ultimately the entire annual value as determined by NDMC amounting to Rs. 1,17,00,000/- has suffered tax in AYs 2010-11 & 2013-14. The conclusion of the CIT(A) that no further adjustment to the disclosed annual value was necessary in the assessment for AY 2010-11, in our view is fully justified and call....
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....e 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, " 32. We are of the view that the in the light of the judgments of the Calcutta, Bombay & Delhi High Court, in arriving at the annual value of a house property for the purposes of Section 23 of the Income-tax Act, 1961, notional interest on the interest free loan or deposit cannot be considered to be a relevant factor. Such notional interest cannot be included in the fair rent of the property. In the circumstances, the CIT(A) was fully justified in holding that AO was not justified in enhancing the annual value of the property by making addition to the actual rent received equivalent to 10% of the interest free loan received by the assessee from its holding company. The addition made by the AO was therefore rightly held by the CIT(A) to be unsustainable in view of the decision of the Full Bench of the Delhi High Court in the case of CIT Vs M.K. Subba (supra.). We hold accordingly. 33. On the question whether the parties have arranged their affairs in such a manner that the taxes payable are avoided and the....