TaxTMI 
TaxTMI 
2018 (10) TMI 1173
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....mstances of the case, the CIT (A) has erred in holding that notional interest on interest free security deposit received by the assessee could not be added to the actual rent received / receivable by the assessee while computing annual value under section 23(1) (b) of the Income tax Act, 1961. 3. On the facts and in the circumstances of the case, the CIT (A) has erred in not considering the fact that whether any benefit accrued to the assessee on account of interest free security deposit could be added to the annual value under section 23 of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case, the CIT (A) has erred in not considering the fact that the MCD authorities have not taken into consideration the interest free security deposit of Rs. 10.78 crores obtained by the assessee during the year under consideration because the assessee did not inform the MCD authorities about the said interest free deposit. 5. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition made by the AO of long term capital gain of Rs. 78,81,841/- and short term capital gain of Rs. 13,67,67,379/- arising from tr....
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....03/2007. The case was selected for scrutiny and the scrutiny assessment under section 143(3) of the Income-tax Act, 1961 (in short 'the Act') was completed on 31/12/2008 after making certain additions. On further appeal, the Ld. CIT(A) allowed the appeal partly and, hence, both the Revenue and assessee are in appeal before the Tribunal, raising their respective grounds of appeal as reproduced above. 4. The grounds No. 1 to 4 of the appeal of the Revenue relates to deletion of addition of Rs. 97,02,000/-under the head 'income from house property'. The facts qua the issue in dispute are that in the year 2000-01, the assessee leased its two properties, located at 267, Masjid Moth, Udai Park, New Delhi and 87, Adhichini, New Delhi, to M/s. Subba Microsystems Ltd. (i.e. a related concern, in which substantial investment was made by the assessee and his family members) against monthly rent of Rs. 1,80,000/- and receipt of security money of Rs. 8.58 crores and Rs. 2.20 crore respectively. 4.1 According to the Assessing Officer, in normal course of letting out of properties, advance rent/security deposit varies from six-month to 3 years but in the instant case security deposit of Rs.....
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.... year under reference. It was further observed that addition in respect of notional interest has always been deleted by CIT(A) and ITAT since assessment year 2001-02. Further, it was pointed out that this very issue has again been decided in favour of the appellant in assessment year 2007-08 by Hon'ble ITAT and copy of order of ITAT was placed on record. The Assessing Officer has made addition on same basis as in the past on the ground that appeal u/s 260A has been filed before hon'ble Delhi High Court in respect of assessment year 2001-02. It is further noted that even hon'ble Delhi High Court has dismissed the appeal of revenue, vide order dt. 30/3/1011, 333 ITR 38 (Del.). In view of relevant facts as brought out above, the issue is fully and squarely covered in favour of the appellant and accordingly addition of Rs. 97,02,000/- is not sustainable and same is hereby deleted." 4.2 Before us, the Ld. DR submitted that the Assessing Officer has worked out the fair rent in the case of the assessee following the by-laws of municipal Corporation and added interest at the rate of 9% on security deposit (which was given interest-free to the assessee) for determination of fair....
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....ent has not been fixed by the Rent Controller, then it is the duty of the assessing officer to determine the standard rent as per the provisions of rent control enactment, (vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent. 19. We may also add that in place like Delhi, this has now become redundant inasmuch as the very basis of fixing property tax has undergone a total change with amendment of the Municipal Laws by Amendment Act, 2003. Now the property tax is on unit method basis. 20. In the present case, the AO added notional interest on the interest free security for arriving at annual letting value. Since that was ITA No.499 of 2008 with ITA No.803 of 2007, ITA No.1113 of 2008, ITA No.388 of 2010, not permissible, the effect would be that such assessment was rightly set aside by the CIT (A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the AO to fix annual letting value was wrong and therefore, no fur....
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....han the fair rent determinable as above, then the actual rent shall constitute the annual value under Section (23)(1)(b) of the Act. Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere." 4.6 We also find that the Tribunal in ITA No. 2107/Del/2014 for assessment year 2009-10 in the case of the assessee, has deleted the addition of notional interest on interest-free security deposit for determining Annual Lettable Value (ALV) observing as under: "7. We have carefully considered the rival contentions and we have also perused the order of the Hon'ble Delhi High Court - full bench reported at 333 ITR 38(Del.) dealing with the identical issue with respect to the same properties where issues have been decided by the Hon'ble High court in favour of the assessee. Therefore, respectfully following the decision of the Hon'ble High Court we decide ground no. 1 in favour of the assessee reversing the order of the lower authorities deleting....
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.... 50% shares held by other family members of the assessee and 33% shares were held by other shareholders, mostly foreigners. In subsequent years, the shareholding of the assessee and family was further increased. 5.3 Under the terms of the lease agreement in respect of land at Siliguri, the assessee received Rs. 15 crore as interest-free refundable security for leasing the said land for 30 years, which at the option of the 'lessee' could be further renewed for another 10 years and further extension of the lease was also possible on the basis of mutual agreement of the two parties. Under the lease agreement, the SML was given rights to construct and commercially operate hotel on the said land. The 'lessee' was permitted to mortgage, charge, transfer, assign the demised lease including the additional building and construction in the superstructure as may be erected or made by the lessee over and above the structure, if any, in favour of financial institution/corporations and banks as security for loan and other financial assistance that may be granted by them or any of them to the lessee. The SML was also given right to allow the financial institution to realise their dues from the....
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....other property also such rights are transferred as per the agreement. Can the hotel be removed to give back the possession. Answer is no. Clause 8 of the agreement states that "On expiry of the term or extended term of the agreement" the fixed asset of the hotel property would get transferred to the lessor at the written down value of the same in the books of the company as on 31st March of the last year, unless the parties to the agreement decide to- continue with the agreement. So, agreement cannot be revoked at least before 30 years. After that also it is at the sweet will of the assessee and the company. The question is who is the company? The assessee along with his family members owns 67% shares as on 31-03-2006. After this date, assessee has further increased his share-holding by investing this Rs. 30 Crores in the shares of this company. So, he remains the effective decision maker in both the cases." 5.6 On the issue of consideration against claim of the said transfer, the Assessing Officer held the entire amount of Rs. 31.5 crores received as interest-free security deposit as 'consideration' received against respective lands observing as under: "9.7 In view of ....
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.... purchased on 25.08.1998 i.e. in the Financial year 1998-99. Therefore Long term Capital Gain as well as Short Term Capital Gain would arise in respect of siliguri land and Short Term Capital Gain would arise in respect of Darjiling Land. Long Sale Consideration of 6.25 Kathas of land 150000000 X 6.25 =Rs.85,22,727/- 110 Cost of Acquisition (after Allowing indexation 4,52,618 X 497 =Rs. 6,40,886/- 351 Long term Capital Gain =Rs.78,818441/- Short Term Capital Gain In respect of Siliguri Land Deemed sale consideration of 103.75 Kathas (Rs.15,00,00,000 - Rs. 85,22,757) Rs.14,14,77,273 Cost of Acquisition Rs. 47,09,894 Rs.13,67,67,379/- In respect of Siliguri land Deemed Sale Consideration Rs.20,00,00,000 Cost of Acquisition Rs. 1,39,66,485 Rs. 18,60,33,515/- Total Short Term Capital Gain Rs.32,28,00,894/-" 5.7 The Ld. CIT(A) after considering the submissions and argument of the learned Authorised Representative, upheld the transaction as 'transfer' liable to capital gain, however, as far as consideration for transfer of the right is concerned was held to be equal to st....
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....under section 2(47) of I.T.Act. Therefore, in my view, the transfer of right through the lease deed in question is covered under sub clause (ii) of definition of transfer in relation to capital assets, contained in clause (47) of section 2 of I.T.Act. In my opinion, this view gets strength from the decision of hon'ble Patna High Court in the case of Traders & Miners Ltd. Vs CIT (1955) 27 ITR 341, though the said decision was, in respect of, mining lease. As in the present case, the exploitation of the right property in question is to the extent which is more than only leasing as discussed supra. I agree with various judicial pronouncement relied upon by the Assessing Officer in support of transfer of assets. Accordingly, I confirm the decision to tax the transfer under section 45 as capital gain. Now coming to the consideration for such transfer, I do not agree to the Assessing Officer to take refundable deposit of Rs. 35 crores as consideration. As per the terms of lease agreement, this deposit is refundable in clear terms. The lease agreement has been executed into-to. I do not approve the findings of the assessing officer that the agreement is shame and relianc....
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.... is directed to verify the valuation as per the Stamp Valuation Authority on the date of transfer and take the same as full value of consideration for the purpose of computing long and short term capital gain u/s 45 of I.T. Act. Accordingly, this ground of appeal is partly allowed." 5.8 Before us, the assessee has challenged holding of transaction as "transfer" and without prejudice, also challenged the amount of consideration taken at value as per stamp duty valuation. 5.9 The Ld. counsel relied on the submission filed before the Ld. CIT(A) and submitted that assessee has received only refundable security against least of land for a period of 30 years in addition to the lease rent received by the assessee from month-to-month basis. The Ld. counsel referred to page - 20 of the order of Ld. CIT(A), wherein the terms of lease have been reproduced. The Ld. counsel referred that in clause 5 it has been specifically mentioned that the security deposit would be refundable by the lessor to the lessee at the time of handing over of the actual physical vacant possession of the demised premises by the lessee to the lessor. According to the Ld. counsel, the right to mortgage was allowed....
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....the various decisions relied upon by the Assessing Officer and also the decision of the Hon'ble Supreme Court in the case of R.K. Palshikar (HUF) reported in 172 ITR 311 and the decision of the Hon'ble Kerala High Court in the case of International housing complex reported in 56 DTR 255, wherein the security deposit which was reflected as lease premium, was taken as sale consideration for the purpose of computation of capital gains. 5.14 In the rejoinder, the Ld. counsel distinguished the decision of the RK Palshikar (supra) and submitted that in the said case lease was for 99 years. 5.15 We have heard the rival submissions and perused the relevant material on record. The main issue in dispute is in respect of the land at Drajeeling and Suiliguri leased for a period of 30 years, to the company in which assessee is having substantial interest. The company has been given right to mortgage these properties to financial institution for availing loans and those financial institutions have been given right to take over the properties in case of default by the company in repayment of the loans. In background of the facts narrated in aforesaid paras in respect of the transaction of l....
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....s 45 and 48 unlike the provisions of wealth-tax, do not make provision, providing for any deemed profit or gain to be taxable as a capital gain the mere fact that the Assessing Officer was of the view that the prevalent market interest rate was 18 per cent, or was at any amount above 9 per cent, could not render the assessee liable for being taxed on the difference amount as capital gain." 5.17 The Ld. CIT(A) has distinguished the above decision relied upon by the assessee. It has been pointed out by the Ld. CIT(A) that in said case the security deposit was bearing interest and land was expressly not hypothecated to the lender on the terms that same can be sold in case of default. Moreover we find that the issue whether transfer of rights in property in the entire process of leasing of land has not been came up for discussion before the Hon'ble High Court. In view of the above, we concur with the Ld. CIT(A) that ratio of the said decision of the Hon'ble High Court is not applicable over the facts of the instant case. 5.18 In the case of Balweer Singh Maini (supra) relied upon by the counsel of the assessee, Joint Development Agreement (JDA) fell through for want of permission....
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....preme Court's held that in such circumstances the grant of the lease in question amounted to transfer off capital asset as contemplated under section 12B of the Income Tax Act, 1922. In the instant case, though the initial period of lease has been mentioned for 30 years but same is further extendable. The company to whom, the properties have been leased, has borrowed funds from financial institutions and has constructed hotel buildings. The financial institutions have been given right to sale the land in case of default in payment by the company. In such circumstances, it can safely be said that the assessee has transferred all his rights of enjoyment in property to the company. 5.21 In view of the aforesaid discussion, we do not find any infirmity in the finding of the Ld. CIT(A) of holding the transaction as transfer liable for capital gains under section 45 of the Act. 5.22 The next question, which arises in the case, is the amount of sale consideration liable for capital gains. According to Assessing Officer, the amount of security deposit received of Rs. 35 crore is sale consideration received and he apportioned the sale consideration for computation of short-term capita....
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....free amount for the properties leased. This is the amount, which is actually received by the assessee for transfer of rights in the property. In our opinion, in the given circumstances of the case, for the purpose of computation of the capital gain as laid down in section 48 of the Act, the security deposit received has been rightly treated by the Assessing Officer as full value consideration received as a result of transfer of the capital asset. We, accordingly, set aside the capital gain worked out by the Ld. CIT(A) and restore that of the Assessing Officer. The ground no. 5 and 6 of appeal of the Revenue are accordingly allowed and the grounds No. 1 & 2 of the appeal of the assessee are dismissed. 6. The grounds No. 7 & 8 of the appeal of the Revenue relates to addition of Rs. 2,51,00,871/- made by the Assessing Officer under section 2(22)(e) of the Act. 6.1 The addition in question was proposed by the Assessing Officer alternatively. According to the Assessing Officer, the assessee held 17.6% shares of M/s. Suba Microsystem Limited and, thus, the payment received to the extent of accumulated profit of Rs. 2,51,00, 871/- was liable to be taxed as deemed dividend in terms o....