TaxTMI 
TaxTMI 
2006 (9) TMI 207
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....e deposit of Rs. 3.75 crores from the bank. In the return, the assessee declared the ALV at Rs. 6,00,000/-. The Assessing Officer was of the view that ALV declared by assessee could not be accepted considering the facts (i) the property was situated in the prime location, (ii) that flat was purchased in May 1991 for Rs. 1,94,35,409/- and as per price index, its value in this year would be Rs. 3,23,27,238/-, and (iii) the huge amount of interest-free deposit of Rs. 3.75/- crores was received. According to him, the notional interest on such deposit would form part of the rent which the assessee could fetch by letting out the property in the open market. The decision of Hon'ble Bombay High Court in the case of CIT v. J.K. Investors (Bombay) Ltd. [2000] 112 Taxman 107 relied on by assessee was distinguished by him by observing that the High Court itself did not express any opinion as to whether notional interest could be considered as part of ALV under section 23(1)(a) of the Act. Accordingly, he determined the ALV at Rs. 51,00,000/- being Rs. 6,00,000/- received by assessee as rent and notional interest of Rs. 45,00,000/-. 3. In assessment year 1999-2000, it appears that Addl. CI....
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....n view of these facts, Assessing Officer was of the opinion that interest on deposit had a direct bearing on the determination of the rent payable. Accordingly, he adopted the rent of Rs. 20,40,000/- for the flat as per the rent paid by the British Dy. High Commissioner in the same building and increased the same by sum of Rs. 45,00,000/- being the interest on interest-free deposit. Accordingly, the ALV for this year was taken at Rs. 64,45,000/-. 5. The matter was carried in appeal for all the years before the, Learned CIT (Appeals), before whom, following submissions were made: (i) That, there is no provision under the Act for determining the ALV by taking into consideration the notional interest on the interest-free deposits. It is only under the Wealth-tax Act, 1957, that the Legislature, in its wisdom, has specifically provided for taking into account the notional interest @ 15 per cent on the amount of deposit received by the assessee for the purpose of determination of the value of the property based on ALV. Had the Legislature intended for similar treatment under the Income-tax Act, it could have easily provided. Therefore, in the absence of any such provision under secti....
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.... excess of the sum of Rs. 6 lakhs disclosed by the appellant is erroneous." In view of the above observations, the Learned CIT (Appeals) directed the Assessing Officer to re-compute the income from house property in accordance with the observations made by him. Similar orders were passed for all the years. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 7. The order of the Learned CIT (Appeals) assailed by the Learned D.R. by making various submissions. At the outset, he agreed that in view of the judgment of Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd, the notional interest on interest-free deposit cannot form part of the actual rent received if the case falls under section 23(1)(b). However, it has been contended that section 23(1) provides that first reasonable rent of the property has to be ascertained at which property can be let out from year to year. According to him, a property can be let out, for example, at monthly rent of Rs. 10,000/-, or Rs. 2,000/- p.m. plus interest-free advance of Rs. 8 lakhs considering 12 per cent rate of interest per annum. Therefore, if the parties choose the later method, then the Assessing Off....
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....n the other hand, the Learned Counsel for the assessee has vehemently supported the order of the Learned CIT (Appeals) by contending that notional interest cannot be added to the actual rent received in view of the judgment of the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. and the judgment of the Hon'ble Calcutta High Court in the case of Satya Co. Ltd. Proceeding further, it was submitted by him that in any case, the notional rent under section 23(1)(a) cannot exceed the standard rent as held by the judgment of the Hon'ble Supreme Court in the case of Mrs. Shiela Kaushish as well as in the case of Dewan Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 (SC). He also drew our attention to the later judgment of the Apex Court in the case of Dr. Balbir Singh v. MCD [1985] 152 ITR 388, wherein it has been held that standard tent is the upper limit. So, whatever be the method of ascertaining the fair rent under section 23(1)(a), it cannot exceed the standard rent. Reliance was also placed on the decision of the Tribunal, Mumbai Benches, in the case of Joint CIT v. Mrs. Gita Mirchandani [2005] 4 SOT 353. 9. Coming to the municipal ratable value, it was....
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....e rent though not expressly called rent". Such approach is not supported by any case law. On the contrary, the Hon'ble Calcutta High Court judgment in the case of Satya Co. Ltd. clearly holds that notional interest cannot be added to the amount received. This judgment has been usefully referred and impliedly approved by the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. Therefore, the decision of the Assessing Officer in determining the ALV after taking into consideration the notional interest was contrary to the binding judgment of the High Court. He also failed to consider the effect of various judgments of the Hon'ble Supreme Court to the effect that ALV under section 23(1)(a) cannot exceed the standard rent where the property is governed by the Rent Control Legislation applicable to such property. [Mrs. Shiela Kaushish 's case and Dewan Daulat Rai Kapoor's case]. On the other hand, the Learned CIT (Appeals) allowed the appeal of the assessee merely by following the High Court decisions in the cases of J.K. Investors (Bombay) Ltd. and Satya Co. Ltd. which are relevant when ALV is to be determined under section 23(1)(b) of the Act. The A....
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....flated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness." On the same page, it was further observed as under: "A combined reading of the said provisions leaves no room for doubt that a contract for a rent at a rate higher than the standard rent is not only not enforceable but also that the landlord would be committing an offence if he collected a rent above the rate of the standard rent. One may legitimately say under those circumstances that a landlord cannot reasonably be expected to let a building for a rent higher than the standard rent. A law of the land with its penal consequences cannot be ignored in ascertaining the reasonable expectations of a landlord in the matter of rent. In this view, the law of the land must necessarily be taken as one of the circumstances obtaining in the open market placing an upper limit on the rate of rent for which a building can reasonably be expected to let." From the above observations, it is. clear that the Municipal Committee could not determine the annual value over and above the standard rent. Similar view was taken in the subsequent judgmen....
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....n be taken as ALV under section 23(1)(a) of the Act. To that extent we agree with the contention of the ld. counsel of the assessee. However, we make it clear that ratable value is not binding on the Assessing Officer. If the Assessing Officer can show that ratable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810. 15. The above discussion leads to the conclusions that -(i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances (ii) an inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii) actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration, (iv) such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property, (v) if standard rent has not been fixed by the Re....
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....en as fair rent, otherwise the standard rent shall be considered as fair rent under section 23(1)(a) of the Act. Once the fair rent is so determined, then the applicability of section 23(1)(b) would have to be considered. If the actual rent received/receivable is higher than the fair rent, then the actual rent would be treated as ALV, otherwise the fair rent so determined shall be taken as ALV. 18. Now, the only issue, which remains for our consideration is, how to determine the ALV where the property let out is exempt from the provisions of rent control legislation. In such cases, in our opinion, the fair rent would be determined in accordance with guidelines provided by us in this order and the same would be considered as the reasonable rent under section 23(1)(a). If actual rent is more than the fair rent then, actual rent would be considered as ALV otherwise the fair rent so determined shall be treated as ALV. 19. In view of the legal position discussed above, we are of the view that orders of the lower authorities cannot be upheld. The learned CIT (Appeals) has simply held that notional interest on interest-free deposit cannot be added to the actual rent received. The Assess....
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....ch was erroneous being contrary to the principle of natural justice. Further, no exercise was made to determine the standard rent. Apart from this, no enquiry has been made whether the property in question was exempt from the application of the provisions of Maharashtra Rent Control Act, 1999, to which, the Learned D.R. drew our attention. Similarly, in assessment year 2002-03, no opportunity was given to the assessee to rebut the material procured by him for determining the ALV at Rs. 20.40 lakhs under section 23(1)(a). In these circumstances, we are of the view that the entire matter requires fresh adjudication in accordance with the legal position discussed by us in the preceding paragraphs. Accordingly, the orders of the learned CIT (Appeals) are, therefore, set aside on this issue and consequently, the matter is restored to the file of Assessing Officer for fresh adjudication in accordance with the legal position mentioned by us. A reasonable opportunity of being heard shall be given to the assessee who shall also be at liberty to furnish any material/evidence in support of its claim. 20. Now, coming to the appeal of the assessee for assessment year 1998-99, the only effectiv....