SHRI KRIPAL SINGH, MUMBAI V. THE ACIT CEN CIR-40, MUMBAI

ITA 154/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49008 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 07-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Fair market value

Judgement Text

1 ITA NOS.154 & 155/M/2008 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI A AA A BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R S SYAL, AM R S SYAL, AM R S SYAL, AM R S SYAL, AM & SHRI & SHRI & SHRI & SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 154/MUM/2008 (ASST YEAR 2002 154/MUM/2008 (ASST YEAR 2002 154/MUM/2008 (ASST YEAR 2002 154/MUM/2008 (ASST YEAR 2002- -- -03) 03) 03) 03) SHRI KRIPAL SINGH B 203 POORNIMA APARTMENTS 23 PEDDAR ROAD, MUMBAI VS THE ASST COMMR OF INCOME TAX CENCIR 40 MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAKPS5890C AAKPS5890C AAKPS5890C AAKPS5890C ITA NO. ITA NO. ITA NO. ITA NO. 155/MUM/2008 (ASST YEAR 2002 155/MUM/2008 (ASST YEAR 2002 155/MUM/2008 (ASST YEAR 2002 155/MUM/2008 (ASST YEAR 2002- -- -03) 03) 03) 03) SHRI MANJIT K SINGH B 203 POORNIMA APARTMENTS 23 PEDDAR ROAD, MUMBAI VS THE ASST COMMR OF INCOME TAX CENCIR 40 MUMBAI (APP (APP (APP (APPELLANT) ELLANT) ELLANT) ELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAQPS 4841R AAQPS 4841R AAQPS 4841R AAQPS 4841R A SSESSEE BY SHRI M SUBRAMANIAN REVENUE BY SHRI R S ARNEJA PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, , , , JM JMJM JM THESE TWO APPEALS FILED BY THE TWO DIFFERENT ASSES SEES ARE AGAINST THE SEPARATE ORDERS PASSED BY THE CIT(A) CENTRAL VII, M UMBAI BOTH DATED 5.11.2007 RELATING TO AY 2002-03. 2 SINCE THE ASSESSEE ARE CO-OWNERS OF THE PROPERTY IN QUESTION, ISSUE INVOLVED IN THESE APPEALS ARE IDENTICAL AND THE CIT (A) TOOK IDENTICAL VIEW IN BOTH THESE CASES; THEREFORE, FOR THE SAKE OF CONVENIEN CE, BOTH THESE APPEALS HEARD TOGETHER AND DISPOSE OF THE SAME BY THIS COMMON ORD ER. 2 ITA NOS.154 & 155/M/2008 3 THE ASSESSEE HAS RAISED VARIOUS COMMON GROUNDS IN THESE APPEALS. HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATIO N AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) IS JUSTIFIED IN ENHANCING THE ASSESSMENT BY TAKING INTO CONSIDERATION 10% OF THE AMOUNT SPENT ON REPAIRS AND RENOVATION WHILE COMPUTING THE ALV OF THE PROP ERTY IN QUESTION. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE BOTH THE ASSESSEE ARE INDIVIDUAL AND CO-OWNER OF A PROPERTY. THE PROPERTY UNDER RE FERENCE IS SITUATED AT D 1/141 VASANT VIHAR, NEW DELHI. THE ASSESSES ENTERED INT O A LEASE AGREEMENT WITH THE BRITISH HIGH COMMISSIONER ON 12 TH JUNE 2001 TO LET OUT THE PREMISES FOR A PERIOD OF TWO YEARS ON A MONTHLY RENT OF RS. 1 LAC. THE BRITISH HIGH COMMISSIONER WANTED CERTAIN ALTERNATIONS AND RENOVATIONS TO BE C ARRIED OUT TO THE PREMISES TO SUIT THEIR REQUIREMENTS. IT WAS STATED BY THE ASSES SEE THAT SINCE THE TENANT WAS NOT CONVERSANT WITH THE LOCAL LAWS AND CONDITIONS; THEREFORE, THEY DID NOT WANT TO TAKE UP THE RESPONSIBILITY OF REPAIRS AND RENOVA TIONS ON THEMSELVES AND, THEREFORE, REQUESTED THE LESSORS TO CARRY OUT THE S AME FOR THEM AND ON THEIR BEHALF. THE COSTS OF REPAIRS AND RENOVATIONS WERE E STIMATED AND IT WORKED OUT TO RS. 22,50,000/- JOINTLY. THE BRITISH HIGH COMMISSIO NER WAS WILLING TO REIMBURSE THE COST OF REPAIRS AND RENOVATIONS. THE ASSESSEE E NTERED INTO AN AGREEMENT FOR THE REIMBURSEMENT OF THE COST OF THE RENOVATIONS WI TH THE BRITISH HIGH COMMISSIONER EXECUTED ON 13 TH JUNE 2001. IT WAS STATED THAT ON THE BASIS OF THE ABOVE, THE ASSESSEE PROCEEDED TO REPAIR AND RENOVAT E THE PLACE AS PER THE REQUIREMENTS OF THE BRITISH HIGH COMMISSIONER AND I NCURRED AN EXPENDITURE OF RS. 23,58,595/ JOINTLY. OUT OF THE ABOVE RS. 20,04, 194/ WERE PAID BY CHEQUES AND THE BALANCE OF RS. 3,54,400.70 WERE EXPENDED IN CAS H. SINCE THE ACTUAL EXPENSE 3 ITA NOS.154 & 155/M/2008 INCURRED WAS MORE THAN THE REIMBURSEMENT AMOUNT REC EIVED, THE ASSESSEE FOUND NO JUSTIFIABLE REASON TO DECLARE THE SAME. 3.2 THE ASSESSING OFFICER TREATED THE REIMBURSEMENT OF THE REPAIRS AND RENOVATION EXPENSES AS INCOME FROM OTHER SOURCES AN D ADDED THE RESPECTIVE AMOUNTS AFTER GIVING EXEMPTION U/S 10(3) IN EACH CA SE BEING CASUAL INCOME IN THE TOTAL INCOME OF THE ASSESSEE. 4 ON APPEAL, THE CIT(A), THOUGH DELETED THE ADDITIO N OF THE SAID AMOUNT OF REIMBURSEMENT MADE BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES HOWEVER, THE CIT(A) HAS ENHANCED THE ASSESSMENT BY MAKING AN ADDITION TO THE EXTENT OF RS. 1 LACS EACH BEING 10 % OF THE RENOVATION AND REPAIRS EXPENSES OF RS. 20,04,000/- IN THE ALV DETERMINED U /S 23 OF THE I T ACT. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFFI CER TO REWORK THE INCOME FROM HOUSE PROPERTY BY ADOPTING THE ALV AT 3 LACS P ER MONTH RESULTING THE ENHANCEMENT IN THE INCOME FROM HOUSE PROPERTY IN TH E HANDS OF THE ASSESSEE. 5 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT BOTH THE ASSESSES ARE CO-OWNERS AND HAVE RECEIVED AN AMOUNT OF RS. 22 ,50,000/- TOWARDS REIMBURSEMENT OF COST OF RENOVATION. THE ASSESSEE E NTERED IN TO AN AGREEMENT DATED 12.6.2001 FOR LETTING OUT OF THE PROPERTY WIT H BRITISH HIGH COMMISSIONER IN INDIA. AS DESIRED BY THE TENANT I.E. BRITISH HIGH COMMISSIONER, THE ASSESSEE CARRIED OUT THE RENOVATION WORK IN THE SAID PROPERT Y AS PER THE REQUIREMENT AND SPECIFICATION OF THE TENANT. FOR THIS PURPOSE, AN A GREEMENT DATED 13.6.2001 WAS 4 ITA NOS.154 & 155/M/2008 EXECUTED BETWEEN THE ASSESSEE AND THE LESSEE. THE RENOVATION WAS CARRIED OUT TO MAKE THE PREMISES IN QUESTION IS FIT PRIOR TO OC CUPATION OF THE TENANT. THE TENANT AGREES TO REIMBURSEMENT THE COST OF THE RENO VATION TO THE ASSESSEE. SINCE THE TENANT WANTED CERTAIN CHANGES IN THE PREM ISES AFTER IT WAS LET-OUT AND TO AVOID LEGAL HURDLES, THE TENANT REQUESTED THE AS SESSEE TO CARRY OUT THE RENOVATION WORK. MOST OF THESE RENOVATION WORKS ARE IN THE NATURE OF TILING, PAINTING, WOODEN WORK, PARTITION, CURTAIN, TOUGHENE D GLASS, REPLACEMENT OF FANS CHANDELIERS, REPLACEMENT OF BATHROOM FITTINGS, NEW FRIDGE, REPLACEMENT OF WATER HEATER ETC. THUS, THE ASSESSEE HAS CARRIED OUT THE WORK AS PER THE TERMS OF AGREEMENT. HENCE, REIMBURSEMENT EXPENSES WILL NOT GO TO CONSTITUTE THE INCOME OF THE ASSESSEE. HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS MONI KUMAR SUBBA & OTHE R REPORTED IN 333 ITR 38 (DELHI) (FB) AND SUBMITTED THAT NO ADDITION CAN BE MADE IN THE ALV ON ACCOUNT OF NOTIONAL INCOME. 5.1 ON THE OTHER HAND, THE LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY, THE RENOVATION AN D REPAIRS WORK WERE CARRIED OUT BY THE ASSESSEE AT THE INSTANCE AND REQUIREMENT OF THE TENANT. MOST OF THE REPAIRS WERE IN THE NATURE OF REPLACEMENT OF NATURE OF TILING, PAINTING, WOODEN WORK, PARTITION, CURTAIN, TOUGHENED GLASS, REPLACEM ENT OF FANS CHANDELIERS, REPLACEMENT OF BATHROOM FITTINGS, NEW FRIDGE, REPLA CEMENT OF WATER HEATER ETC. , FOR FURNISHING AND TO MAKE CERTAIN CHANGES IN THE PREMISES ACCORDING TO THE REQUIREMENT AND SPECIFICATION OF THE TENANT. THE AS SESSING OFFICER STATED IN THE 5 ITA NOS.154 & 155/M/2008 ASSESSMENT ORDER THAT THE ASSESSEE WAS NOT UNDER AN Y OBLIGATION TO CARRY OUT THE RENOVATION AND REPAIRS WORKS AS PER THE RENT AG REEMENT AND THEREFORE, THE ASSESSEE CARRIED OUT THE SAID WORKS ON THEIR OWN. T HUS, THE ASSESSING OFFICER HELD THAT REIMBURSEMENT EXPENSES RECEIVED BY THE AS SESSEE, IS THE INCOME OF THE ASSESSEE. 6.1 IT IS PERTINENT TO NOTE THAT WHEN THE ASSESSEE WAS NOT UNDER THE OBLIGATION TO CARRY OUT ANY WORK IN THE PREMISES AS IT WAS NOT REQUIRED BY RENT AGREEMENT DT 12.6.2001. THE ASSESSEE AND THE TENANT ENTERED I NTO ANOTHER AGREEMENT DT 13.6.2001 FOR RENOVATION AND REPAIRS TO BE CARRIED OUT BY THE ASSESSEE AND THE EXPENDITURE WAS TO BE REIMBURSED BY THE TENANT. THU S THE RENOVATION AND REPAIRS WORK GOT CARRIED OUT BY THE ASSESSEE FOR AN D ON BEHALF OF THE ASSESSEE. IT APPEARS THAT SUCH ARRANGEMENT WAS MADE TO AVOID ANY SCOPE OF DISPUTE BETWEEN THE LANDLORD AND THE TENANT ON THE ISSUE OF ALTERNATIONS OR DAMAGES OF THE PROPERTY. SO FAR AS THE AMOUNT RECEIVED BY THE ASSESSEE TOWARDS REIMBURSEMENT OF EXPENSES ON ACCOUNT OF RENOVATION AND REPAIRS, THE SAME CANNOT PARTAKE THE CHARACTER OF ANY INCOME OR OTHE R BENEFIT OR RECEIPT IN LETTING OUT THE PROPERTY. THE RENOVATION AND REPAIRS WORK I S SEPARATE AND SUBSEQUENT TO THE LETTING OUT OF THE PREMISES. 6.2 EVEN OTHERWISE, NO ADDITION CAN BE MADE IN ALV U/S 23(1)(A) OF THE ACT FOR A SUM BEING THE PERCENTAGE OF ANY DEPOSIT OR OTHER BENEFIT RECEIVED BY THE OWNER OF THE PROPERTY FROM THE TENANT. FAIR MARKET RENT U/S 23(1)(A) HAS TO BE DETERMINED BY TAKING INTO CONSIDERATION THE VARIOU S ASPECTS AND APPLYING VARIOUS METHODS OF COMPUTATION OF FAIR MARKET RENT. IF THE ASSESSING OFFICER FINDS 6 ITA NOS.154 & 155/M/2008 THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR MARKET RENT BECAUSE OF THE REASONS THAT THE ASSESSEE HAS RECEIVED ABNORMALLY HIGHER BENEFITS. THEREFORE, IF THE ASSESSING OFFICER FINDS THAT THE ACTUAL RENT R ECEIVED HAS BEEN DEFLATED BECAUSE THE ASSESSEE HAS RECEIVED ABNORMAL INTEREST FREE DEPOSITS OR OTHER BENEFITS, THEN HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF AND DETERMINE THE FAIR MARKET RENT U/S 23(1)(A). HOWEVER, NO NOT IONAL BENEFIT ON ANY SUM RECEIVED BY THE ASSESSEE CAN BE TAKEN AS DETERMINAT IVE FACTORS TO ARRIVE AT THE FAIR MARKET RENT. 6.3 THE POWERS OF THE CIT(A) IS CO-TERMINUS WITH TH E POWER OF THE ASSESSING OFFICER ; THEREFORE, NO DOUBT, CIT(A) COULD HAVE CONDUCT AN ENQUIRY TO DETERMINE THE FAIR MARKET VALUE AFTER TAKING INTO CONSIDERATION ALL THESE ASPECTS. BUT IN THE CASE IN HAND, THE CIT(A) HAS NOT MADE AN Y ENQUIRY TO FIND OUT WHETHER THE ACTUAL RENT RECEIVED HAS BEEN DEFLATED BY TH E REASON OF REIMBURSEMENT OF THE RENOVATION AND REPAIRS EXPENSES FROM THE TENANT . 7 IN VIEW OF THE DECISION OF THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MONI KUMAR SUBBA & OTHER (SUPRA), SUCH AN ADDITION IS NOT WARRANTED AND LIABLE TO BE DELETED. ACCORDINGLY, WE DELETE T HE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 8 IN THE RESULT, THE APPEALS FILED BY BOTH THE ASSE SSEE ARE ALLOWED. ORDER PRONOUNCED ON THE 27 TH DAY OF MAY 2011. SD/ SD/- ( (( ( R S SYAL R S SYAL R S SYAL R S SYAL ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 27 TH , MAY 2011 RAJ* 7 ITA NOS.154 & 155/M/2008 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI