TaxTMI 
TaxTMI 
2018 (6) TMI 1178
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.....ft. on the building known as Venus Apartments situated at 87, Cuffe Parade, Mumbai-400 005,in 1997-98 for a total consideration of Rs. 3,53,24,387/-. During the course of assessment proceedings in the assessee's own case for A.Y. 2012-13, it was observed that assessee company had let out the said flat to its director Shri. Vipin Kumar Jain at a fixed monthly rent; of Rs. 25,000/- p.m. in the year 1998 and had taken security deposit of Rs. 70,00,000/- from him. The director of the assessee company Shri Vipin Kumar Jain continuously resides in the said flat at a fixed monthly rental income of Rs. 25,000/-p.rn. The assessee company had offered this rental income as business income rather than Income from House Property. Other than this rental income of Rs. 3,00,000/-, the assessee has not received any income from business during the said year. On being asked, the assessee has stated that prevailing market rent of the flat was Rs. 1,00,000/- to Rs. 1.,25,000/-. Therefore, after considering all the submissions filed by the assessee and after discussing the facts of the case in detail, the A.O. has passed the Assessment order for A.Y. 2012-13 treating the said rental income as incom....
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....the same, the representative of the assessee company vide his letter dt. 28.11.2016 has stated that it is one of the main objectives of the assessee company to lease the house properties and hence rental income received is treated as business income. It is further stated that "the Hon'ble Supreme Court in the case of M/s. Chennai Properties Vs Investments Ltd vs CIT-Central-III (Civil Appeal No.4494 of 2004) had recently allowed the appeal of the assessee with regard to letting out of house property as its business activity and allowing the income to be treated as income from business and profession as against the treatment by A. O. as Income from House Property." The assessee has also relied on the decisions of the Hon'ble Supreme court in the case of Rayala Corporation (P.) ltd (Appeal no. 6437 to 6441 of 2016 dated. August 11,2016) stating that as per the said decision "Even if the assessee has single property, the income has to be treated under the Business income". 5.2. The above explanation submitted by the representative of the assessee is considered. The explanation could not be accepted in view of the following facts and circumstances of the case. ....
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....0 (lacs approx..) was given by company as loans and advances, Rs. 10 lacs(approx.) invested in shares and an amount of Rs. 13 lacs(approx..) was left as bank balances. The company is not doing any sort of business from many years. The investment in flat ,is shown as Asset of the company and not as stock in trade. The said flat purchased by the assessee after investing all its funds has been given to its director on a fixed rent of Rs. 25,000/- p.m from the year 1998 to till date without citing any reason for not increasing the rent. In support, the copy of the rent agreement dtd. 31.03.1,908 has been submitted by the assessee stating that the said flat is given on rent for a period of one year for a rent of Rs. 25,000/- p.m and in case the agreement is to be extended then the rent of Rs. 30,000/- p.m is to be paid after one year. The agreement was also not registered and it is made on a stamp paper. Further, supplementary agreement dtd. 05.04.1999 is prepared it is agreed to renew the agreement for further period of five years at the same fixed rate of Rs. 25,000/- p.m without citing any reasons. Lease agreement was not submitted for the further period. 5.4. At this junctu....
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....ld that it does not matter any way how the assessee has chosen to show a particular income in the return of income submitted by it. The income is to be charged / taxed under the appropriate head of income. ' In view of the above, it is held that the rent income received by the assessee is to be assessed under the head Income from House Property. 6. Income from House property - Annual value: 6.1. It is a well settled law that where the assessee has taken interest free security deposits from concerns to whom certain assets were leased out by the assessee and the amount of such deposit was abnormally very high vis-a-vis the market practice. The said security deposit is held as a sham device to circumvent the real rent and hence notional interest on such security deposit has to be assessed as income from house property. Reliance in this regard placed on the judgement of Hon‟ble Punjab and Haryana High Court delivered in e case of CIT vs K.Street Light Electric Corporation [2011] '3$$ ITR 8 / 244 CTR 647. Further, it has also been held by the judiciary, that rate of interest on cost can also be the basis for determining; fair .rent, if there is n....
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....te of return on1 the security deposit of Rs. 70.00 lacs received by the assessee for the premises let out. The interest which the assessee has got benefited is worked out @15% per annum on the security deposit of Rs. 70.00 lacs which amounts to Rs. 10,50,000/-. Moreover the assessee 'has credited Rs. 3.00 lacs as annual rent from the said property. Thus, the notional rent for the assessee could be worked out at Rs. 13,50,000/-. 6.6 After taking into consideration the deposit amount received by assessee from the tenant and its expected annual yield of interest it is held that the sum at which the property might reasonably be expected to let out in this instant case is Rs. 14,40,000/- p.a. (24,90,000 - 10,50,000) which is effectively Rs. 1,20,000/- p.m. excluding the notional interest calculated on the deposit received' in view of the provisions of section 23(l)(a) of the Act; The 'said rent income is assessed under the head Income from House Property after giving standard deduction as prescribed u/s 24(a) of the I.T.: Act. However, no deduction on account, of municipal taxes/property taxes is being allowed since no supporting documentary evidence has ,been furni....
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....ncome and the same has been accepted by the department in every year. 9. Learned AR argued that keeping in view the main object clause of the assessee company and applying judicial pronouncements as laid down by the Hon‟ble Supreme Court as discussed above, there is no merit in the action of the lower authorities for treating the rental income as income from „House Property‟. Furthermore, the judicial consistency also requires that there should not be deviation from the conclusions already arrived unless there is a change in the facts and circumstances. However, there is no change in the facts and circumstances during the years under consideration. Accordingly, AO should be directed to assessee rental income so received under the head of income from business and profession. 10. As per learned AR during the years under consideration, AO has changed his opinion and issued notice u/s. 148 treating the rental income as income from „house property‟. During assessment proceedings the AO vide its notice u/s.148(1) dated 08/11/2016 had asked the assessee, why an income received from renting of house property should be taxed under the head "Income from Ho....
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....e after entering into supplementary agreement with the Director on 05/04/1999, even the rental agreement is not made and lease of the property was extended through oral agreement only. While deciding the appeal by the Hon'ble Supreme court in the case of Chennai properties & Investments ltd., it concluded that "merely an object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income form business and such a question would depend upon the circumstances of each case i.e., whether a particular business is letting or not". Further it is pointed out by the hon'ble Supreme court that "each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. A commercial asset is only an asset Used in a business and nothing else, and business may be carried on which practically all things. In the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee." 13. From the above con....