RECLAMATION REAL ESTATE (I) P. LTD, MUMBAI V. ITO 10(1)(3), MUMBAI

ITA 1579/MUM/2010

• Counselvise Citation: 157919914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M. JAGTAP AND SHRI R.S. PADVEKAR, JM I.T.A. NO. 1579/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. RECLAMATION REAL ESTATE COMPANY (I) PVT. LTD., MS.SANGEETA MHATRE, ICICI BANK LTD., ICICI BANK TOWERS, 9 TH FLOOR, SOUTH EAST WING, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 51. PAN: AACI 4974 N VS. DY. COMMISSIONER OF INCOME- TAX, RANGE 10(1), AAYAKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ARATI VISSANJI RESPONDENT BY : SHRI JITENDRA YADAV O R D E R PER P.M. JAGTAP, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-21, MUMBAI, DA TED 07.02.2009. 2. THE SOLITARY ISSUE ARISING OUT OF THIS APPEAL RE LATES TO THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROP ERTY BY ENHANCING THE ANNUAL VALUE OF THE PROPERTY. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE. IT IS THE OWNER OF THE PR EMISES SITUATED ON 9 TH FLOOR, MAFATLAL CENTRE, NARIMAN POINT, MUMBAI, ADMEASURING 15,645 S Q.FT. THE SAID PROPERTY ALONG WITH SIX PARKING SPACES WERE LET OUT BY THE ASSESSE E TO J.P. MORGAN CHASE BANK FOR WHICH A SUM OF RS. 2,03,41,631/- WAS RECEIVED AS R ENT FOR THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD RECEIVED A SUM OF RS. 2,87,87,660/- AS RENT ITA NO.1579/M/2010 RECLAMATION REAL ESTATE (I) P.LTD. 2 FOR THE SAME PROPERTY IN THE EARLIER YEAR. HE, THER EFORE, ADOPTED THE ANNUAL LETTING VALUE OF THE ASSESSEES PROPERTY AT RS. 2,87,87,66 0/- AND ADDED A FURTHER SUM OF RS. 18,85,000/- TO THE SAID VALUE ON ACCOUNT OF NOT IONAL INTEREST CALCULATED AT THE RATE OF 7.25% ON THE SECURITY DEPOSIT OF RS. 2,60,0 0,000/- RECEIVED BY THE ASSESSEE FROM THE TENANT OF THE SAID PROPERTY FOR COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON APPEAL, T HE LEARNED CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSUE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS T RIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 AND VIDE ITS O RDER DATED 26.11.2010 PASSED IN ITA NO. 1413/MUM/2007, IT WAS HELD BY THE TRIBUNAL THAT WHEN THE RENT ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN THE MUNICIPAL VALUATION OR STANDARD RENT, THE SAME ALONE HAS TO BE TAKEN AS ANNUAL VALUE FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT WAS HELD THAT NO FURTHER ADDITION ON ACCOUNT OF NOTIONAL INT EREST ON INTEREST FREE DEPOSIT, ETC. CAN BE MADE IN SUCH CASE. THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THIS REGARD HAS CONTENDED, INTER ALIA, THAT THE THIRD MEMBER DE CISION OF THE TRIBUNAL IN THE CASE OF ITO V. DECCAN TECHNICAL SERVICES PVT. LTD. (126 TTJ 453), TAKING A DIFFERENT VIEW IN FAVOUR OF THE REVENUE HAS NOT BEEN TAKEN INTO C ONSIDERATION BY THE DIVISION BENCH OF THE TRIBUNAL WHILE DECIDING THE ASSESSEES CASE INVOLVING SIMILAR ISSUE IN THE ASSESSMENT YEAR 2004-05. IT IS OBSERVED THAT A SIMILAR CONTENTION WAS SOUGHT TO BE RAISED ON BEHALF OF THE REVENUE IN THE ASSESSEE S OWN CASE ON THE SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2004-05, BUT THE SAME HAS B EEN REJECTED BY THE COORDINATE BENCH OF THIS TRIBUNAL AND THE ISSUE HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE VIDE ITA NO.1579/M/2010 RECLAMATION REAL ESTATE (I) P.LTD. 3 ITS ORDER DATED 28.01.2011 PASSED IN ITA NO. 3066/M UM/2008 FOR THE FOLLOWING REASONS GIVEN IN PARA NOS. 5 TO 8 OF THE SAID ORDER . 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D, WE HOLD AS FOLLOWS. 6. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ACT UAL RENT RECEIVED BY THE ASSESSEE, IS IN EXCESS OF THE RATABLE VALUE/ANNUAL VALUE DETERMINED BY THE MUNICIPAL CORPORATION. THE ISSUE IS WHETHER THE ANNUAL VALUE/ RATABLE VALUE DETERMINED IN MUNICIPAL VALUATION, CAN BE DEEMED TO BE THE SUM F OR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHBATI BANSALI (SUPRA) HELD AS FOLLOWS : THE ASSESSEE WAS THE OWNER OF ONE-EIGHTH SHARE OF A HOUSE PROPERTY IN BOMBAY WHICH WAS PARTLY IN THE OCCUPATION OF TENANT S AND PARTLY IN THE OCCUPATION OF LICENSEES UNDER A LEAVE AND LICENCE A GREEMENT. THE TENANTS PAID A RENT OF RS.86,036 FOR AN AREA OF 19,787 SQ.F T. OCCUPIED BY THEM WHEREAS THE LICENSEES PAID RS.1,58,511 AS LICENCE F EE FOR AN AREA OF 11,159 SQ.FT. OCCUPIED BY THEM. THE ITO SOUGHT TO TREAT TH E ACTUAL AMOUNT RECEIVED AS THE ANNUAL VALUE OF THE BUILDING. THE ASSESSEE C LAIMED THAT THE ANNUAL VALUE OF THE PROPERTY SHOULD BE DETERMINED NOT WITH REFERENCE TO THE ANNUAL RECEIPTS BUT SHOULD BE CALCULATED ON THE BASIS OF T HE RENT PAID BY THE TENANTS BUT THIS WAS NOT ACCEPTED BY THE ITO. THE TRIBUNAL DIRECTED THE ITO TO DETERMINE THE PROPERTY INCOME ON THE BASIS OF ITS A NNUAL VALUE WITH REFERENCE TO THE RATABLE VALUE AS DETERMINED BY THE MUNICIPAL CORPORATION. ON A REFERENCE : HELD, THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING TH AT THE AGGREGATE AMOUNT RECEIVABLE FROM THE TENANTS IN OCCUPATION UNDER REGULAR TENANC Y AGREEMENTS AND PARTLY FROM LICENSEES IN OCCUPATION UNDER THE LEAVE AND LICENCE SYSTEM COULD NOT BE TAKEN AS THE ANNUAL VALUE OF THE PROPERTY. THE TRIBUNAL WAS JUST IFIED IN DIRECTING THE ITO TO DETERMINE THE ANNUAL VALUE OF THE PROPERTY AFRESH W ITH REFERENCE TO ITS RATABLE VALUE AS DETERMINED BY THE MUNICIPAL CORPORATION. THIS JUDGMENT WAS FOLLOWED BY THE JURISDICTIONAL HI GH COURT IN THE CASE OF M.V. SONAWALA 177 ITR 246 (BOM.) WHERE AT PARA 5 IT IS H ELD AS FOLLOWS : 5. IN THIS CONTEXT, IT MAY BE DESIRABLE TO REFER TO TH E CALCUTTA HIGH COURTS DECISION IN THE CASE OF CIT VS. PRABHABATI BANSAL (1982) 29 CTR (CAL.) 15: (1983) 141 ITR 419 (CAL.). ONE OF THE QU ESTIONS INVOLVED IN THAT CASE WAS WHETHER THE TRIBUNAL WAS JUSTIFIED IN DIRE CTING THE ITO TO REDETERMINE THE ANNUAL VALUE OF THE PROPERTY UNDER S. 23(1) AFRESH WITH REFERENCE TO ITS RATEABLE VALUE AS DETERMINED BY TH E MUNICIPAL CORPORATION. THE QUESTION WAS ANSWERED IN THE AFFIRMATIVE AND TH E COURT HELD THAT THE INCOME FROM HOUSE PROPERTY HAD TO BE COMPUTED ON TH E BASIS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE LET FROM YEA R TO YEAR OR AND THE ANNUAL MUNICIPAL VALUE. 7. THE WORDING IN SECTION 23(1)(A) HAS NOT CHANGED FROM THE YEAR 1961. THUS, THE PLEA THAT DUE TO SUBSEQUENT AMENDMENTS, T HE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M.V. SONAW ALA IS NOT BINDING, IS DEVOID OF MERIT. WHEN THERE IS A JURISDICTIONAL HIGH COURT J UDGMENT, THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR HAS RIGHTLY FOLLOWED THE SAME. THUS UNDER SECTION 23(1)(A), THE ANNUAL VALUE AS DE TERMINED IN MUNICIPAL VALUATION IS TO BE CONSIDERED AS THE SUM FOR WHICH THE PROPER TY MIGHT REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. AS THE ANNUAL RENTAL VALUE IS LESS THAN THE ACTUAL RENT RECEIVED, SECTION 23(1)(B) COMES INTO OPERATION IN THIS CASE. THUS NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT/RENT RECEIVED, IN ADVANCE, CANNOT BE ADDED TO THE RENT RECEIVED, ON A NOTIONAL BASIS, IN VIEW OF THE DECISION OF THE HONBLE BOMBAY ITA NO.1579/M/2010 RECLAMATION REAL ESTATE (I) P.LTD. 4 HIGH COURT IN THE CASE OF J.K. INVESTORS (BOMBAY) L TD. (SUPRA) WHICH IS CONFIRMED BY THE HONBLE SUPREME COURT. IT IS NOBODIES CASE THAT RENT CONTROL REGULATION APPLIES. 8. IN VIEW OF THE ABOVE DISCUSSION, WE SEE NO REASO N TO DEVIATE FROM THE DECISION OF THE COORDINATE BENCH ON THE VERY SAME I SSUE IN ASSESSEES OWN CASE. WE RESPECTFULLY FOLLOW THE SAME AND DISMISS THIS APPEA L OF THE REVENUE. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06, ON THE SIM ILAR ISSUE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESS EE UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY ENHANCING THE ANNUAL LETTING VAL UE AND DIRECT THE ASSESSING OFFICER TO DELETE THE SAID ADDITION. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS _27 TH DAY OF APRIL, 2011. SD. SD. (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 27 TH APRIL, 2011. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT, M.C. X, MUMBAI. 4. THE CIT(A)-21, MUMBAI 5. THE DR D BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI