RAJ OIL MILLS, MUMBAI V. ITO 20(2)(4), MUMBAI

ITA 1305/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54835 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 26-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Business income; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI D.MANMOHAN, VICE PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.1305/MUM/2009 A.Y 2004-05 M/S RAJ OIL MILLS, MILITARY ROAD, MAROL, ANDHERI, MUMBAI 400 059. PAN: AAAFR 2719 P VS. THE INCOME TAX OFFICER 20(2)(4) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY PARIKH. RESPONDENT BY : SHRI A.K.NAYAK. DATE OF HEARING: 03/08/2011 DATE OF PRONOUNCEMENT: 10/8/2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BU T AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT THE CIT(A) HAD DECIDED VARIOUS ISSUES ON THE BASIS OF ORDER FOR A. Y 2003-04 AND THE SAME HAS NOT BEEN APPEALED BY THE ASSESSEE. THEREFO RE, HE DOES NOT WISH TO PRESS MOST OF THE ISSUES EXCEPT ONE. THEREF ORE, ALL THE GROUNDS RAISED BY THE ASSESSEE, EXCEPT THE FOLLOWING, ARE D ISMISSED AS NOT PRESSED. THE GROUND RAISED BY THE ASSESSEE IS AS UN DER: B NOTIONAL INTEREST ON DEPOSIT WHILE COMPUTING ANNUAL VALUE OF PROPERTY 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPH OLDING THE ORDER OF THE AO ADDING NOTIONAL INTEREST AT 10% ON DEPOSITS OF RS.2.50 CRORES WHILE COMPUTING THE ANNUAL VALUE OF THE PROPERTY. 2. THE LEARNED CIT(A) AND AO FAILED TO APPRECIATE THAT THE NOTIONAL INTEREST ON DEPOSITS COULD NOT BE ADDED WH ILE COMPUTING THE ANNUAL VALUE OF PROPERTY. ITA NO.1305/M/09 2 3. THE APPELLANT PRAYS THAT THE ADDITION OF RS.25 LACS MADE BY THE AO AND UPHELD BY THE CIT(A) WHILE COMPUTING THE ANNUAL VALUE OF PROPERTY MAY BE DELETED. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS GIVEN FACT ORY PREMISES AT MAROL ADMEASURING APPROXIMATELY 30,000 SQ. FT. TO M /S. RAJ OIL MILLS ON LEAVE & LICENSE BASIS FOR A CONSIDERATION OF RS.30, 000/- P.M. FURTHER, ASSESSEE HAD ALSO TAKEN A SUM OF RS.2.5 CRORES AS I NTEREST FREE SECURITY. THIS INCOME WAS CLAIMED TO BE ASSESSABLE AS BUSINESS INCOME, BUT AFTER DETAILED DISCUSSION SAME WAS HELD TO BE ASSESSABLE AS INCOME FROM HOUSE PROPERTY. SIMILAR DECISION WAS TAKEN BY THE CIT(A) IN A.Y 2003-04 WHICH HAS NOT BEEN CHALLENGED . THEREFORE, AS FAR AS NATURE OF INCOME IS CONCERNED, SAME WAS CONC EDED TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . AO FURTHER NOTED THAT RENT INCOME WAS SHOWN VERY LOW PARTICULA RLY IN THE LIGHT OF THE FACT THAT ASSESSEE HAS TAKEN THE INTEREST FREE SECURITY DEPOSIT OF RS.2.5 CRORES. IN THIS REGARD ASSESSEE MADE VARIOUS SUBMISSIONS AND IT WAS ALSO CONTENDED THAT RATEABLE VALUE AS PER MUNIC IPALITY WAS ONLY RS.86,258/-. HOWEVER, AO FOUND THAT BILL PRODUCED F ROM THE MUNICIPALITY DOES NOT INDICATE THAT RATEABLE VALUE IS RS.86,258/-. HE ALSO NOTED THAT ASSESSEE HAS GIVEN SIX GALAS MEASUR ING 30,000 SQ.FT. TO M/S. RAJ OIL MILLS AND THE MUNICIPAL BILL DID NOT I NDICATE EVEN THE AREA OF THE PROPERTY. FURTHER, THE PROPERTY WAS SITUATED IN A PRIME AREA OF ANDHERI EAST AND, THEREFORE, SAME WOULD NOT HAVE AN NUAL VALUE OF ONLY RS.1,72,700/-. HE ALSO OBSERVED THAT ANNUAL VALUE O F THE PROPERTY HAS ITA NO.1305/M/09 3 TO BE FIRST DETERMINED U/S.23[1][A]. ACCORDINGLY, H E ADDED THE NOTIONAL INTEREST ON THE SECURITY DEPOSIT TO THE ANNUAL VALU E. 3. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A) BY FOLLOWING EARLIER YEARS ORDER. 4. BEFORE US THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT THOUGH IN EARLIER YEAR THE ISSUE WAS DECIDED AGAINST THE A SSESSEE, BUT HE STILL WISHES TO ARGUE THIS GROUND BECAUSE NEW DEVELOPMENT S HAVE TAKEN PLACE PARTICULAR IN THE LIGHT OF THE DECISION OF HO N'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA [323 ITR 38 ]. HE ALSO RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S TIP TOP TYPOGRAPHY VS. ITO [2010-TIOL-230-ITAT-MUM]. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT PROPERT Y HAS BEEN LET OUT TO THE SISTER CONCERN OF THE ASSESSEE AND IT HA S BEEN PURPOSELY UNDER VALUED BY TAKING INTEREST FREE SECURITY DEPOS IT, THEREFORE, AO WAS JUSTIFIED IN ASSESSING THE VALUE U/S.23[1][A] O F THE ACT. IN THIS REGARD HE RELIED ON THE DECISION OF THE HON'BLE DEL HI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA]. 6. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA] IS CONCERNED, SAME WAS HELD TO BE NOT INCLUDIBLE IN THE ANNUAL VALUE. HOWEVER, HE HAS NO OBJECTION IF THE M ATTER WAS REMANDED TO THE FILE OF THE AO FOR RECONSIDERATION IN THE LIGHT OF THE DECISION OF THE HON'BLE DELHI HIGH COURT. ITA NO.1305/M/09 4 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT RENT RECEI PT WAS MORE THAN RATEABLE VALUE BECAUSE MUNICIPAL BILL FOR RATEABLE VALUE WAS FOUND TO BE NOT VERY CLEAR AND THIS FACT WAS ADMITTED EVEN B EFORE US. HOWEVER, AT THE SAME TIME THE HON'BLE DELHI HIGH COURT IN TH E CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA] HAS HELD THAT AO HAS A RIG HT TO DETERMINE THE ANNUAL VALUE U/S.23[1][A] BY LOOKING AT SURROUN D CIRCUMSTANCES BUT IN NO CASE INTEREST ON INTEREST FREE SECURITY CAN B E SIMPLY ADDED TO THE ANNUAL VALUE. THE HON'BLE DELHI HIGH COURT, IN FACT , MADE THE FOLLOWING RELEVANT OBSERVATIONS: WE APPROVE THE AFORESAID VIEW OF THE DIVISION BENC H OF THIS COURT AND THE OPERATIVE WORDS IN SECTION 23(1)(A) OF THE ACT ARE 'THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR'. THESE WORDS PROVIDE A SPECIFIC DIRECTION TO THE REVENUE FOR DETERMINING THE 'FAIR RENT'. THE ASSESSING OFFICER, HAVING REGARD TO THE AFORESAID PROVISION IS EXPECTED TO MAKE AN INQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH. T HUS, IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE 'FAIR/MA RKET RENT' BECAUSE OF THE REASON THAT THE ASSESSEE HAS RECEIVED ABNORMAL LY HIGH INTEREST-FREE SECURITY DEPOSIT AND BECAUSE OF THAT REASON, THE A CTUAL RENT RECEIVED IS LESS THAN THE RENT WHICH THE PROPERTY MIGHT FETCH, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF . HOWEVER, BY NO STRETCH OF IMAGINATION, THE NOTIONAL INTEREST ON THE INTEREST- FREE SECURITY CAN BE TAKEN AS THE DETERMINATIVE FACTOR TO ARRIVE AT A 'F AIR RENT'. THE PROVISIONS OF SECTION 23(1)(A) DO NOT MANDATE THIS. THE DIVISION BENCH IN ASIAN HOTELS LIMITED [2010] 323 ITR 490 (DELHI), THUS, RIGHTLY OBSERVED THAT IN A TAXING STATUTE IT WOULD BE UNSA FE FOR THE COURT TO GO BEYOND THE LETTER OF THE LAW AND TRY TO READ INTO THE PROVISION MORE THAN WHAT IS ALREADY PROVIDED FOR. WE MAY ALSO REC ORD THAT EVEN THE BOMBAY HIGH COURT IN THE CASE OF CIT V. J. K. INVE STORS (BOMBAY) LTD. [2001] 248 ITR 723 (BOM) CATEGORICALLY REJECT ED THE FORMULA OF ADDITION OF NOTIONAL INTEREST WHILE DETERMINING TH E 'FAIR RENT' IN THE FOLLOWING MANNER (PAGE 727) : 'BEFORE CONCLUDING WE MAY POINT OUT THAT UNDER SECT ION 23(1)(B), THE WORD `RECEIVABLE' DENOTES PAYMENT OF ACTUAL ANNUAL RENT TO THE ASSESSEE. HOWEVER, IF IN A GIVEN YEAR A PORTION OF THE ACTUAL ANNUAL RENT IS IN ARREARS, IT WOULD STILL COME WITHIN SECT ION 23(1)(B) AND IT IS FOR THIS REASON THAT THE WORD `RECEIVABLE' MUST BE READ IN THE CONTEXT OF ITA NO.1305/M/09 5 THE WORD `RECEIVED' IN SECTION 23(1)(B). IN THE LIG HT OF THE ABOVE INTERPRETATION, NOTIONAL INTEREST CANNOT FORM PART OF THE ACTUAL RENT AS CONTEMPLATED BY SECTION 23(1)(B) OF THE ACT. WE ONC E AGAIN REPEAT THAT WHETHER SUCH NOTIONAL INTEREST COULD FORM PART OF T HE FAIR RENT UNDER SECTION 23(1)(A) IS EXPRESSLY LEFT OPEN.' SINCE THE PROVISIONS OF FIXATION OF ANNUAL RENT UND ER THE DELHI MUNICIPAL CORPORATION ACT ARE IN PARI MATERIA WITH SECTION 23 OF THE ACT, WE ARE INCLINED TO ACCEPT THE AFORESAID VIEW OF THE CALCUTTA HIGH COURT IN SATYA CO. LTD. [1997] 140 CTR (CAL) 569 T HAT IN SUCH CIRCUMSTANCES, THE ANNUAL VALUE FIXED BY THE MUNIC IPAL AUTHORITIES CAN BE A RATIONAL YARDSTICK. HOWEVER, IT WOULD BE SUBJE CT TO THE 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. IF THERE IS A CHANGE IN CIRCUM STANCES BECAUSE OF PASSAGE OF TIME, VIZ., THE ANNUAL VALUE WAS FIXED B Y THE MUNICIPAL AUTHORITIES MUCH EARLIER IN POINT OF TIME ON THE BA SIS OF RENT THAN RECEIVED, THIS MAY NOT PROVIDE A SAFE YARDSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO BE MADE UNDE R THE INCOME-TAX ACT, THE PROPERTY IS LET OUT AT A MUCH HIGHER RENT. THUS, THE ASSESSING OFFICER IN A GIVEN CASE CAN IGNORE THE MUNICIPAL VA LUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT T HE SAME IS NOT BASED ON THE RELEVANT MATERIAL FOR DETERMINING THE 'FAIR RENT' IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAK ING A DIFFERENT VALUATION. WE MAY PROFITABLY REPRODUCE THE FOLLOWING OBSERVA TIONS OF THE SUPREME COURT IN THE CASE OF CORPORATION OF CA LCUTTA V. SMT. PADMA DEBI, AIR 1962 SC 151, 153. 'A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AFFORD A GUIDIN G TEST OF REASONABLENESS. AN INFLATED OR DEFLATED RATE OF REN T BASED UPON FRAUD, EMERGENCY, RELATIONSHIP AND SUCH OTHER CONSIDERATIO NS MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS.' THUS THE RATEABLE VALUE, IF CORRECTLY DETERMINED, U NDER THE MUNICIPAL LAWS CAN BE TAKEN AS ALV UNDER SECTION 23(1)(A) OF THE ACT. TO THAT EXTENT WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT RATEABLE V ALUE IS NOT BINDING ON THE ASSESSING OFFICER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRES ENT THE CORRECT FAIR RENT, THEN HE MAY DETERMINE THE SAME ON THE BASIS O F MATERIAL/EVIDENCE PLACED ON RECORD. THIS VIEW IS FORTIFIED BY THE DE CISION OF THE PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CONCLUS IONS: (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLU ENCED BY ANY EXTRANEOUS CIRCUMSTANCES. ITA NO.1305/M/09 6 (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCES , WOULD BE RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED/DEFLATED BY RE ASON 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 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 F AIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI, THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY THE AMENDMENT ACT, 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. (V) IF STANDARD RENT 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 F AIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI, THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY THE AMENDMENT ACT, 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. WE WOULD LIKE TO REMARK THAT STILL THE QUESTION REM AINS AS TO HOW TO DETERMINE THE REASONABLE/FAIR RENT. IT HAS BEEN IND ICATED BY THE SUPREME COURT THAT EXTRANEOUS CIRCUMSTANCES MAY INF LATE/DEFLATE THE 'FAIR RENT'. THE QUESTION WOULD, THEREFORE, BE AS T O WHAT WOULD BE CIRCUMSTANCES WHICH CAN BE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER WHILE DETERMINING THE FAIR RENT. IT IS NOT NECESSARY FOR US TO GIVE ANY OPINION IN THIS BEHALF, AS WE ARE NOT CALLED UP ON TO DO SO IN THESE APPEALS. HOWEVER, WE MAY OBSERVE THAT NO PARTICULAR TEST CAN BE LAID DOWN AND IT WOULD DEPEND ON THE FACTS OF EACH CASE. WE WOULD DO NOTHING MORE THAN TO EXTRACT THE FOLLOWING PASSAGE FROM THE SUPREME COURT JUDGMENT IN THE CASE OF MOTICHAND HIRACHAND V. BOMBAY MUNICIPAL CORPORATION, AIR 1968 SC 441, 442 : 'IT IS WELL-RECOGNIZED PRINCIPLE IN RATING THAT BOT H GROSS VALUE AND NET ANNUAL VALUE ARE ESTIMATED BY REFERENCE TO THE RENT AT WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR. VARIOUS METHODS OF VALUATION ARE APPLIED IN ORDER T O ARRIVE AT SUCH HYPOTHETICAL RENT, FOR INSTANCE, BY REFERENCE TO TH E ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHERS COMPARABLE TO IT OR WHER E THERE ARE NO RENTS BY REFERENCE TO THE ASSESSMENTS OF COMPARABLE PROPE RTIES OR TO THE PROFITS EARNED FROM THE PROPERTY OR TO THE COST OF CONSTRUCTION.' ITA NO.1305/M/09 7 THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO TO DECIDE THE ANNUAL V ALUE IN THE LIGHT OF THE ABOVE DIRECTIONS OF THE HON'BLE DELHI HIGH COUR T IN THE CASE OF CIT VS. MONI KUMAR SUBBA [SUPRA]. 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 0/08/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 10/08/2011. P/-*