GOODVALUE POLYPLAST LTD, MUMBAI V. ITO 16(3)(1), MUMBAI

ITA 1662/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2955 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 26-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBASHIS CHANDRA
• Assessee Lawyers: MITESH SHAH
• Keywords: Business income; Depreciation; Business expenditure; Retrospective amendment; Initiation of penalty proceedings; Fair market value; Notional interest
• Section: 27

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI- G,BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PARTHASAR ATHY CHOUDHURY,JUDICIAL MEMBER /.ITA NO.1662/MUM/2011, /ASSESSMENT YEAR-2006-07 M/S. GOODVALUE POLYPLAST LTD. B/9, TRADE WORLD PREMISES, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013. PAN:AAACG 2237 N VS INCOME TAX OFFICER-6(3)(1) AAYKAR BHAVAN,M K ROAD, MUMBAI-20. ( / ASSESSEE) ( / RESPONDENT) /ASSESSEE BY :SHRI MITESH SHAH / REVENUE BY :SHRI DEBASHIS CHANDRA-CIT-DR / DATE OF HEARING : 26 - 08 -2015 / DATE OF PRONOUNCEMENT : 21 -10-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.03.12.2010 OF CIT(A)-12 TH E ASSESSEE, HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE EFFECTIVE ADDITION OF RS.14,25,479/ - MADE BY THE AO TO THE INCOME OF THE APPELLANT ON ACCOUNT OF NOTIONAL RENT BY ESTIMATING ANNUAL V ALUE OF THE OFFICE PREMISES AT RS.25,28,400/- AS AGAINST ANNUAL VALUE OF RS.25,28,400/- REPRESENTING ACTUAL RENT RECEIVED. B) THE ID. AO FAILED TO APPRECIATE THAT THE APPELL ANT RECEIVED HUGE INTEREST FREE DEPOSIT FROM LICENSEES IN LIEU OF RENT AND THEREFORE USUFRUCTUS FROM SECURITY DEPOSIT SHOULD BE TAKEN INTO CONSIDERATION. C) IN REACHING TO THE CONCLUSION AND CONFIRMING SU CH ADDITION, THE ID. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATIONS, PRINCIPLES AND E VIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FA CTORS. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE ID. CIT(A) ERRED IN UPHOLDING THE VIEW TAKEN BY THE AO IN ASSESSING INC OME FROM PROVIDING AMENITIES AS 'INCOME FROM OTHER SOURCES' AS AGAINST 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AND THEREBY FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES M ADE BY THE AO TO THE EXTENT OF RS.3,45,560/-. B) THE ID. CIT(A) FAILED TO APPRECIATE THAT THE EX PENSES OF RS.3,45,560/- WERE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING INCOME FROM AMENITIES. 3. THE ID. CIT(A) ERRED IN HOLDING THAT LEVY OF INT EREST U/S.234B OF THE INCOME TAX ACT, 1961 IS MANDATORY. THE APPELLANT DENIES ITS LIABILITY FOR S UCH INTEREST. 3. THE ID. CIT(A) ERRED IN HOLDING THAT THE GROUND RAISED DISPUTING INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) IS PREMATURE. THE APPELLA NT DENIES ITS LIABILITY FOR SUCH PENALTY. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. DURING THE COURSE OF HEARING BEFORE US THE AR OF TH E ASSESSEE STATED THAT ONLY GROUND NO.1.(A) AND 2.(A) WERE TO BE ADJUDICATED.THEREFORE, REST OF THE GROUNDS STAND DISMISSED AS NOT PRESSED. 1662/11-GOODVALUE P. 06-07 2 ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF LETTING OUT OFFICE PREMISES WITH ALL NECESSARY AMENITIES FILED RETURN OF INCOME ON 30.10.2006 DECL ARING INCOME OF RS.3.43 LACS.THE ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT ON 10.12.2008,U NDER SECTION143(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSE AT RS.21,14,560/-. 2. FIRST GROUND OF APPEAL IS ABOUT CONFIRMATION OF EFF ECTIVE ADDITION OF 14.25 LACS ON ACCOUNT OF NOTIONAL RENT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSE WAS OWNER OF FOUR UNITS IN A BUILDING SITUATED AT KAMLA MILL COU MPOND,LOWER PAREL MUMBAI,THAT THE ASSESSEE OWNED UNIT NO.910, TO 913 ON THE 9TH FLOOR, THAT VI DE TWO SEPARATE LEAVE AND LICENCE AGREEMENT , DT.01.10.2004,IT LET OUT OFFICE PREMISES TO WELSPUN INDIA LTD.(WIL)AND TO WELSPUN GUJARAT STHAL ROHREN INDIA LTD.(WGSRIL),THAT IT HAD RECEIVED INTE REST FREE DEPOSITS FROM WIL AND WGSRIL OF RS.90 LACS AND RS.1.55 CRORES RESPECTIVELY,THAT THE LICENCE FEE PER MONTH WAS FIXED AT RS.20, 500/-.THE AO HELD THAT THE ASSESSEE HAD GIVEN THE P ROPERTY ON LEAVE AND LICENCE FOR ABYSMALLY SMALL LICENCE FEE, THAT IT HAD ACCEPTED HUGE INTERE ST-FREE-DEPOSITS,THAT THE TOTAL LICENCE FEE RECEIVED WAS RS.41,000/- PER MONTH, THAT IT WORKED OUT TO RS.8.36 PER SQ.FT.,THAT THE ASSESSEE HAD GIVEN ITS PROPERTY ON LEAVE AND LICENSE AT A RATE M UCH BELOW PREVAILING MARKET RATES.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE CERTAIN PORTI ON OF THE INTEREST FREE DEPOSIT SHOULD NOT BE CONSIDERED FOR COMPUTING ANNUAL LETTING VALUE (ALV) OF THE PROPERTY.VIDE ITS LETTER DT.15.9.2008 THE ASSESSEE SUBMITTED THAT THERE WAS NO PROVISION IN THE ACT FOR CONSIDERING NOTIONAL INTEREST ON INTEREST FREE DEPOSIT IN LIEU OF LETTING OUT THE PR OPERTY,THAT THE DEPOSIT HAD BEEN TAKEN TO PROTECT THE INTEREST OF THE ASSESSEE COMPANY,THAT QUANTUM O F DEPOSIT WOULD DIFFER FROM PERSON TO PERSON, THE ASSESSEE FURNISHED A COPY OF LEAVE AND LICENCE AGREEMENT DT.22.1.04 BETWEEN M/S. LALMUL- CHANDANI AND ANJUM MULCHANDANI (LICENSOR) AND WIL ( LICENCEE), THAT AS PER THE SAID AGREEMENT OFFICE PREMISES AT 8TH FLOOR OF THE SAME BUILDING W AS LET OUT AT MONTHLY RENT OF RS.1.00 LACS THAT THE LICENCEE HAD TO DEPOSIT SUM OF RS.27.78 LACS AS INTEREST FREE SECURITY DEPOSIT.THE AO HANDED OVER A COPY OF LEAVE AND LICENSE AGREEMENT DT. 14.5 .2003 ENTERED INTO BETWEEN M/S.MORARJEE GOKULDAS SPNG & WVG.CO.(THE LICENSOR)AND PRANA STUD IOS P.LTD.(THE LICENSEE),WHEREIN THE LICENSOR HAD GIVEN THE PREMISES SITUATED AT BABASAH EB AMBEDKAR MARG, PAREL FOR A MONTHLY COMPENSATION OF RS.43/- PER SQ.FT.THE AO WAS OF THE OPINION THAT PREMISES WERE LOCATED IN THE COMPARABLE AREA AND WERE HAVING SIMILAR INFRASTRUCT URE AND AMENITIES. HE ASKED THE ASSESSEE TO EXPLAIN AS TO HOW THE RENT CHARGED BY THE ASSESSEE COULD BE SAID TO BE IN ACCORDANCE WITH MARKET RATE PREVAILING IN THAT AREA.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE AO HELD THAT WIL,WGSRIL AND THE ASSESSEE WERE GROUP CONCERNS,THA T THE INTEREST FREE DEPOSIT RECEIVED BY THE ASSESSEE HAD BEEN UTILISED FOR SUBSCRIBING THE PREFERENCE SHARE OF ONE OF THE OTHER GROUP CONCERN NAMELY WELSPUN TRADING LTD.,THAT THE ASSESS EE HAD PURCHASED THE PROPERTY FOR A CONSIDERATION OF RS.1.22 CRORES,THAT IT HAD ACCEPTE D INTEREST FREE DEPOSIT OF RS.2.45 CRORES.THE AO FURTHER STATED THAT FOR THE BUILDINGS SITUATED I N COMPARABLE AREAS AND HAVING COMPARABLE AMENITIES THERE WAS A HUGE VARIATION IN THE LICENCE FEE CHARGED AND THE ACCEPTANCE OF INTEREST FREE DEPOSIT. THE AO FURTHER OBSERVED THAT INCOME FROM HOUSE PROP ERTY WAS BASED ON THE ANNUAL VALUE OF THE PROPERTY AND HAD TO BE DISTINGUISHED FROM THE ACTUA L RECEIPT,THAT THE ALV WAS AN AMOUNT WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET OUT FROM YEAR TO YEAR, THAT ALV WAS DIFFERENT FROM LEASE RENTAL DERIVED FROM THE PROPERTY, THAT T HE OWNER OF THE HOUSE PROPERTY WAS LIABLE TO BE TAXED ON THE ANNUAL VALUE AND NOT ON THE ACTUAL INC OME ARISING THEREFROM, THAT THE INTEREST FREE DEPOSIT WOULD PLAY A CRUCIAL ROLE IN DETERMINING TH E RENT CHARGEABLE, THAT THE INTEREST FREE DEPOSIT HAVE TO BE CONSIDERED FOR CALCULATING THE ALV OF A PROPERTY,THAT APART FROM THE ACTUAL RENT 1662/11-GOODVALUE P. 06-07 3 RECEIVED A WEIGHTAGE SHOULD BE GIVEN TO INTEREST FR EE DEPOSIT SO AS TO DETERMINE THE TRUE AND CORRECT ALV.HE REFERRED TO THE PROVISION OF SECTION 22 AND 23(1) OF THE ACT.HE RELIED UPON THE CASES OF BHAGWANDAS JAIN(128 ITR 315),TIVOLI INVEST MENT AND TRADING CO. PVT. LTD.; M.V. SONAWALA(177 ITR 246).HE FURTHER HELD THAT FOR DECI DING THE ALV U/S. 23(1) OF THE ACT THREE FACTORS HAD TO BE LOOKED INTO,NAMELY THE ACTUAL REN T RECEIVED, THE STANDARD RENT AND THE FAIR MARKET VALUE,THAT FOR THE PURPOSE OF DETERMINING TH E STANDARD RENT OF THE PROPERTY THE BOMBAY RENT CONTROL ACT ENVISAGED 15% RETURN OF THE INVEST MENT AS FAIR RENTAL VALUE.APPLYING THE FORMULA OF 15% THE AO WORKED THE STANDARD RENT OF T HE PROPERTY AT RS.18.37 LACS.FOR DETERMINING THE FMV HE HELD THAT THE DECIDING FACTO RS WERE COMPARATIVE INSTANCES OF THE PROPERTIES GIVEN ON LEASE IN SIMILAR AREA, THE PROP ERTY LEASED OUT IN THE COMPARABLE AREA AND HAVING SIMILAR INFRASTRUCTURE AND AMENITIES HAD BEE N GIVEN AT THE RATE OF RS.43 PER SQ.FT. PER MONTH. HE WORKED OUT THE ANNUAL RENT RECEIVABLE AT RS.25.28 LACS (4,900 X 43 X12).THE AO HELD THAT A CERTAIN PERCENT OF INTEREST FREE DEPOSIT HAD TO BE CONSIDERED FOR COMPUTING THE ALV OF THE PROPERTY LET OUT.ON THE ESTIMATE BASIS IT WAS TAKEN AT THE RATE OF 10% OF THE INTEREST FREE DEPOSIT (4.92 LACS +10% OF 2.45 CRORES). FINALLY,HE HELD T HAT THE ALV IN ALL THE ABOVE THREE VALUATIONS WAS FAR MORE THAN THE ACTUAL RENT RECEIVED BY THE A SSESSEE,THAT THE ASSESSEE HAD SHOWN LESSER RENT FROM THE PROPERTY.HE FIXED THE MARKET RATE OF THE P ROPERTY AT RS.43/- PER SQ.FT. PER MONTH FOR COMPUTING THE ALV.HE COMPUTED THE INCOME FROM HOUSE PROPERTY AS UNDER : ALV - RS.25.28 LACS LESS: MUNICIPAL TAXES - RS.3.65 LACS NET ALV - 21.62 LACS LESS: DEDUCTION U/S. 24(A) OF THE ACT- RS.6.46 LACS INCOME FROM HOUSE PROPERTY -RS.15.14 LACS 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, IT WAS ARGUED THAT THE PROPERTY REFERRED TO BY THE AO FOR DETERMINING THE ALV WAS LOCATED IN DIFFERENT AREA, THAT THE PREMISES WAS SITUATED AT THE GROUND FLOOR, THAT IT HAD RECEIVED HUGE SECURITY DEPOSIT, THAT APPLICABILITY OF RENT CONTROL ACT WAS NOT A VITAL FACTOR TO DETERMINE THE ALV, THAT MUNICIPAL V ALUATION OF OFFICE PREMISES WAS ASSESSED AT RS.3.24 LACS BY BOMBAY MUNICIPAL CORPORATION, THAT THE ASSESSEE HAD SHOWN ALV OF RS.4.92 LACS, THAT SAME WAS MORE THAN RATEABLE VALUE FIXED BY THE MUNICIPALITY, THAT ALV WAS ASSESSED AFTER CONSIDERING ALL RELEVANT FACTS.IT REFERRED TO CASE OF PRABHAVATI BANSALI (141 ITR 419) ; BHASKAR MITTER (73 TAXMANN 437); AND STATED THAT NO TIONAL INTEREST FREE DEPOSIT WAS NOT ACTUAL RENT RECEIVED OR RECEIVABLE, THAT ANY ADVANTAGE OR PERQUISITE ACCRUING TO THE ASSESSEE COULD NOT BE TREATED AS RENT, THAT AVAILABILITY OF INTEREST FREE FUNDS ENABLED THE ASSESSEE TO SAVE ON ITS INTEREST COST AND/OR EMPLOY THE FUNDS FOR EARNING MORE, THAT AVAILABILITY OF INTEREST FREE DEPOSIT HAD COMPENSATED FOR CHARGING OF RENT MORE THAN THE RATE ABLE VALUE. 2.2. BEFORE US,THE AUTHORIZED REPRESENTATIVE(AR)ARGUED T HAT THE AO HAD COMPARED A PROPERTY THAT WAS FAR FROM THE PROPERTY LET OUT BY THE ASSESSEE,T HAT THE SAID PROPERTY WAS ON GROUND FLOOR WHEREAS THE PROPERTY LET OUT BY THE ASSESSEE WAS ON NINTH FLOOR,THAT ON THE EIGHT FLOOR OF THE BUILDING ONE OF THE TENANTS HAD TAKEN A PROPERTY ON RENT,THAT THE ASSESSEE HAD LOOKED AFTER ITS COMMERCIAL INTEREST BY TAKING HIGH INTEREST FREE DE POSIT,THAT NOTIONAL INTEREST CANNOT BE THE BASIS OF DETERMINING ALV .HE REFERRED TO THE CASE OF J K INVESTORS (BOMBAY) LTD. (248 ITR 723 ) OF 1662/11-GOODVALUE P. 06-07 4 THE HONBLE BOMBAY HIGH COURT.DEPARTMENTAL REPRESEN TATIVE(DR)CONTENDED THAT THE AO HAD NOT TAKEN THE NOTIONAL INTEREST AS ALV,THAT HE HAD MADE INQUIRIES ABOUT PREVALENT RENT OF NEARBY AREAS,THAT HE HAD DECIDED THE ISSUE BY CONSIDERING VARIOUS FACTORS INCLUDING INTEREST FREE DEPOSITS,THAT THE RENT WAS MISERABLY LOW,THAT IF TH E RENT DISCLOSED BY THE ASSESSEE WAS NOT NEAR TO THE FIGURE THAT A PROPERTY COULD FETCH THE AO WAS F REE TO TAKE IN TO CONSIDERATION SURROUNDING CIRCUMSTANCES. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO DISCUSS THE PRINCIPLES GOV ERNING TAXATION OF HOUSE PROPERTY INCOME. IT IS SAID THAT THE ASSESSMENT OF PROPERTY INCOME UNDER T HE ACT STANDS ON A SLIGHTLY DIFFERENT FOOTING FROM THE ASSESSMENT IN RESPECT OF OTHER CATEGORIES OF INCOME.SO FAR AS PROPERTY INCOME IS CONCERNED,ONCE IT IS ESTABLISHED THAT THE ASSESSEE IS THE OWNER OF THE PROPERTY, HE IS ASSESSABLE ON THE ANNUAL VALUE OF THE PROPERTY AS DETERMINED U/S. 23 TO 27 OF THE ACT. THE PROVISIONS OF SECTION 23(2) OF THE ACT,REQUIRIN G AN AMOUNT ARTIFICIALLY COMPUTED THERE UNDER IN RESPECT OF A HOUSE IN THE OCCUPATION OF THE ASSE SSEE FOR THE PURPOSES OF HIS OWN RESIDENCE,FALL SQUARELY UNDER ENTRY 82 OF LIST I OF SCH.VII TO THE CONSTITUTION AND PARLIAMENT IS COMPETENT TO LEVY THE TAX UNDER THAT ENTRY.SOME OF THE PRINCIPLE S,CULLED OUT OF THE JUDGMENTS OF THE COURTS,CAN BE SUMMARISED AS UNDER: 1. WHERE CLAUSE(A)OF SECTION 23(1)OF THE ACT IS APPLIC ABLE,I.E.IN CASES WHERE THE PROPERTY IS NOT LET AT ALL DURING THE ENTIRE YEAR,THE EXERCISE IS TO BE DONE TO ASCERTAIN AS TO WHAT WOULD BE THE RENT WHICH THE PROPERTY MIGHT FETCH IF LET FROM YEAR TO YEAR,THAT IS,THE FAIR RENT WHICH THE PROPERTY CAN FETCH,IF LET,IS TO BE ARRIVED AT. 2. EVEN WHILE ASCERTAINING THE ANNUAL LETTING VALUE FO R THE PURPOSES OF CLAUSE(B)OF SECTION 23(1),IT IS NECESSARY TO DETERMINE THE FAIR RENT IN TERMS OF CLAUSE(A).THE ACTUAL RENT AT WHICH THE PROPERTY HAD BEEN LET IS TO BE COMPARED WITH TH E FAIR RENT FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR AND THE HIGHER OF THE TWO IS TO BE TAKEN AS THE ANNUAL LETTING VALUE.IF THE RENT ACTUALLY RECEI VED IS MORE THAN THAT,THAT SUM SHALL BE TREATED AS INCOME FROM HOUSE PROPERTY.ON THE OTHER HAND,IF IT IS LESS THAN THE AMOUNT AT WHICH THE PROPERTY CAN REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. 3. THE AO IS EXPECTED TO MAKE AN INQUIRY AS TO WHAT WO ULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH.IF HE FINDS THAT THE ACTUAL RE NT RECEIVED IS LESS THAN THE FAIR/MARKET RENT BECAUSE THE ASSESSEE HAS RECEIVED AN ABNORMALLY HIG H INTEREST-FREE SECURITY DEPOSIT AND BECAUSE OF THAT, THE ACTUAL RENT RECEIVED IS LESS T HAN THE RENT WHICH THE PROPERTY MIGHT FETCH,HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT B EHALF. 4. THE ADDITION OF NOTIONAL INTEREST ON THE INTEREST-F REE SECURITY DEPOSIT TO THE RENT AGREED UPON IS NOT PERMISSIBLE IN LAW. IT IS OPEN TO THE ASSESS ING AUTHORITY TO TAKE NOTE OF THE AMOUNT OF ADVANCE PAID WHICH GIVES AN INDICATION OF THE FAIR RENT WHICH THE PROPERTY FETCHES IN THE MARKET.BUT,THE INTEREST ACCRUED ON SUCH DEPOSIT CAN NOT BE ADDED TO THE AGREED RENT,SO AS TO MAKE A FAIR RENT OR MARKET RENT FOR PURPOSES OF DET ERMINING THE ANNUAL VALUE U/S.23 OF THE ACT. 5. A PLAIN READING OF SECTION 28(IV) INDICATES THAT TH E QUESTION OF ANY NOTIONAL INTEREST ON AN INTEREST FREE DEPOSIT BEING ADDED TO THE INCOME OF AN ASSESSEE ON THE BASIS THAT IT MAY HAVE BEEN EARNED BY THE ASSESSEE IF PLACED AS A FIXED DE POSIT,DOES NOT ARISE.SECTION 28(IV) IS CONCERNED WITH BUSINESS INCOME AND IS DISTINCT AND DIFFERENT FROM INCOME FROM HOUSE PROPERTY.IT TALKS OF THE VALUE OF ANY BENEFIT ON PE RQUISITE,WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM THE BUSINESS OR THE EXERCISE OF A PROFESSION. 1662/11-GOODVALUE P. 06-07 5 6. IF THE PROPERTY IS LET OUT TO A TENANT WHO SUB-LETS IT AND GETS A HIGHER RENT THE SAME CANNOT BE A DETERMINING FACTOR FOR ASSESSING ANNUAL VALUE UNDER SECTION 23(1) AT THE HANDS OF THE LESSOR WHERE THE CREATION OF THE TENANCY OR THE LEA SE IS FOUND TO BE GENUINE. 7. MERELY BECAUSE A PROPERTY IS IN A STATE OF DISREPAI R IT CANNOT BE PREDICATED THAT IT HAS NO ANNUAL VALUE.WHERE PROPERTY IS IN DISREPAIR,IN CONS IDERING WHAT MIGHT REASONABLY BE EXPECTED BY WAY OF RENT,ONE MUST ASSUME THAT ORDINA RY SENSIBLE PEOPLE ARE DEALING WITH THE SITUATION. RENT WOULD THEN BE PAYABLE ON THE BASIS THAT THE LANDLORD WOULD DO THE NECESSARY REPAIRS TO MAKE THE PROPERTY REASONABLY HABITABLE A ND WOULD LATER DO SUCH REPAIRS AS WOULD BE REASONABLE IN THE CIRCUMSTANCES.CONSIDERATION SH OULD ALSO BE GIVEN TO THE CLASS OF PROPERTY DEALT WITH. 8 .THE ONLY EFFECT OF THE WORDS OF LIMITATION FOUND A T THE END OF THE SECOND PROVISO TO SECTION 23(1)OF THE ACT IS THAT AFTER GIVING THE DEDUCTIONS PROVIDED FOR IN THAT PROVISO, THE ANNUAL VALUE WHICH HAD BEEN ASCERTAINED UNDER SECTION 23(1 )(A) OR (B) AS THE CASE MAY BE IS NOT REDUCED TO A NEGATIVE FIGURE.IF THE DEDUCTION PROVI DED FOR IN THE SECOND PROVISO EXCEEDS THE ANNUAL VALUE AS DETERMINED U/S.23(1)(A) OR (B),THE EXCESS IS TO BE IGNORED. THE LIMITATION WITH REGARD TO THE EXTENT OF THE DEDUCTION OF THE ANNUAL VALUE PROVIDED FOR IN THE SECOND PROVISO TO SECTION 23 (1) IS ONLY WITH REFERENCE TO THE ANNUAL VALUE DETERMINED U/S.23(1)(A) OR 23(1)(B) OF THE ACT AND IT HAS NO RELEVANCE WHATEVER FOR DET ERMINING THE EXTENT OF DEDUCTIONS PROVIDED FOR U/S.24 . 9. THE MARKET VALUE OF PROPERTY DISCLOSED IN THE RETUR N FOR PURPOSES OF WEALTH-TAX CANNOT BE ADOPTED AS THE BASIS FOR WORKING OUT THE ANNUAL VAL UE OF THE PROPERTY FOR PURPOSES OF THE ACT. 10. BARRING THE CIRCUMSTANCE COVERED UNDER SUB-SECTION (2) OF SECTION 23,NO EXEMPTION COULD BE CLAIMED UNDER THE ACT FROM CHARGING THE ANNUAL V ALUE OF THE PROPERTY TO INCOME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY.THIS WOULD BE S O EVEN IN THE CASE OF A MORTGAGE WHICH IS SQUARELY COVERED BY SUB-SECTION (3)(B) OF SECTIO N 23 IF ANY ASSET CEASES TO BE COMMERCIAL ASSETS,THEN TH E AO WOULD BE RIGHT TO ASSESS RENTAL INCOME FROM THAT ASSET AS INCOME FROM HOUSE PROPERT Y. 11. BARRING THE CIRCUMSTANCE COVERED UNDER SUB-SECTION (2) OF SECTION 23,NO EXEMPTION COULD BE CLAIMED UNDER THE ACT FROM CHARGING THE ANNUAL V ALUE OF THE PROPERTY TO INCOME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY.THIS WOULD BE S O EVEN IN THE CASE OF A MORTGAGE WHICH IS SQUARELY COVERED BY SUB-SECTION (3)(B) OF SECTIO N 23 12. IF ANY ASSET CEASES TO BE COMMERCIAL ASSETS,THEN TH E AO WOULD BE RIGHT TO ASSESS RENTAL INCOME FROM THAT ASSET AS INCOME FROM HOUSE PROPERT Y. 13. A CLAIM MADE BY A LANDLORD FOR ENHANCEMENT OF RENT CANNOT BE SAID TO BE AN AMOUNT RECEIVABLE WITHIN THE MEANING OF SECTION 23(1) OF T HE ACT.A CLAIM OR A DEMAND BY ITSELF DOES NOT COME WITHIN THE PURVIEW OF THE WORD INCOME RECE IVED OR RECEIVABLE. AN AGREEMENT ENTERED INTO BETWEEN THE PARTIES IN TERMS WHEREOF T HE QUANTUM OF RENT IS DETERMINED WITH RETROSPECTIVE EFFECT, DOES NOT COME WITHIN THE PURV IEW OF ANY OF THE PROVISIONS OF SECTION 5 OF THE ACT.THE AO IS NOT AUTHORISED TO RE-COMPUTE THE INCOME FROM THE HOUSE PROPERTY ON THE BASIS OF ENHANCED RENT SANCTIONED AND AGREED AF TER THE CLOSE OF THE PREVIOUS YEAR TO BE PAID BY THE VARIOUS TENANTS AND TO DETERMINE THE IN COME UNDER THE HEAD ''INCOME FROM HOUSE PROPERTY''. 14. THERE ARE VARIOUS FACTORS WHICH AFFECT THE RENTAL O F PREMISES AND NO HARD AND FAST RULE CAN BE LAID DOWN FOR ALL CASES. THE CRITERION OF REASON ABLE RETURN TO THE LANDLORD FROM THE PROPERTY WOULD BE A FAIR CRITERION AND THE PERCENTA GE OF RETURN ON THE VALUE OF THE PROPERTY 1662/11-GOODVALUE P. 06-07 6 15. IN CONSIDERING THE ANNUAL VALUE OF PROPERTY FOR ANY ASSESSMENT YEAR,THAT AY.,AS FAR AS PRACTICABLE,SHOULD BE TAKEN IN ISOLATION,AS IF THAT YEAR STOOD BY ITSELF.PROPERTY WHICH IS ALREADY TENANTED AT THE BEGINNING OF THE AY.,CANNOT BE EXPECTED TO BE LET FROM YEAR TO YEAR AT ANY FIGURE HIGHER THAN THE RENT WHICH IS BEING PROD UCED ACTUALLY BY THE PROPERTY IN QUESTION. HONBLE DELHI HIGH COURT(FULL BENCH)HAS,IN THE CASE OF MONI KUMAR SUBBA(333 ITR 38)HAS LAID DOWN FOLLOWING PRINCIPLES: (I) THE ANNUAL LETTING VALUE WOULD BE THE SUM AT WH ICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLUENCED B Y ANY EXTRANEOUS CIRCUMSTANCES. (II)AN INFLATED OR DEFLATED RENT BASED ON EXTRANEOU S CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III)ACTUAL RENT RECEIVED,IN NORMAL CIRCUMSTANCES,W OULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATEDDEFLATED BY REASON OF EXTRANEOUS CONSIDERAT ION. (IV)SUCH ANNUAL LETTING VALUE,HOWEVER,CANNOT EXCEED THE STANDARD RENT UNDER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY. (V)IF THE STANDARD RENT HAS NOT BEEN FIXED BY THE R ENT CONTROLLER, IT IS THE DUTY OF THE AO TO DETERMINE THE STANDARD RENT ACCORDING TO THE PROVIS IONS OF THE RENT CONTROL ENACTMENT. (VI)THE STANDARD RENT IS THE UPPER LIMIT, AND IF TH E FAIR RENT IS LESS THAN THE STANDARD RENT, IT IS T HE FAIR RENT WHICH SHALL BE TAKEN AS THE ANNUAL LETTIN G VALUE AND NOT THE STANDARD RENT. (VII).THE ADDITION OF NOTIONAL INTEREST ON THE INTE REST-FREE SECURITY DEPOSIT TO THE RENT AGREED UPON IS NOT PERMISSIBLE IN LAW.IT IS OPEN TO THE ASSESSI NG AUTHORITY TO TAKE NOTE OF THE AMOUNT OF ADVANCE PAID WHICH GIVES AN INDICATION OF THE FAIR RENT OF THE PROPERTY THAT FETCHES IN THE MARKET. BUT THE INTEREST ACCRUED ON SUCH DEPOSIT CANNOT BE ADDED TO THE AGREED RENT,SO AS TO MAKE A FAIR RENT OR MARKET RENT. HERE,WE WOULD LIKE TO DISCUSS CASES OF K.STREETLITE ELECTRIC CORPORATION(336ITR348) DELIVERED BY THE HONBLE P & H HIGH COURT AND IT DEALS WITH T HE ISSUE BEFORE US.FACTS OF THE CASE WERE THAT THE ASSESSEE WAS EARNED RENTAL INCOME FROM LETTING FACILITIES OF FACTORY,LAND,BUILDING AND OFFICES, THAT IT HAD TAKEN INTEREST-FREE SECURITY OF RS.35 L AKHS FROM TWO PARTIES TO WHOM THE ASSETS WERE LEASED OUT,THAT IT SHOWED RENTAL INCOME OF RS.1.50 LAKHS AS ANNUAL LETTING VALUE IN RESPECT OF THOSE PROPERTIES,THAT THERE WAS NO PROVISION IN THE AGREEMENT FOR INCREASE IN RENT FROM YEAR TO YEAR,THAT THE AO DETERMINED THE ANNUAL VALUE AT RS. 7,80,000 BY ADDING NOTIONAL INTEREST OF RS. 6, 30,000/- CALCULATED AT THE RATE OF 18% PER ANNUM ON RS.35 LAKHS TAKEN AS SECURITY DEPOSIT TO THE VALUE OF RS.1.50 LAKHS SHOWN BY THE ASSESSEE,THAT T HE FAA DELETED THE NOTIONAL INTEREST,THAT THE TRIBUNAL AFFIRMED THE ORDER OF THE FAA.ON FURTHER A PPEAL,THE HONBLE COURT HELD AS UNDER: THE SECURITY DEPOSIT OF RS.35 LAKHS WHICH AMOUN TED TO 140 TIMES THE MONTHLY RENT WAS DISPROPORTIONATE TO THE ACTUAL CONTRACTUAL RENT OF RS.25,000 PER MONTH, I.E.,TOTAL RS.12,500 PER MONTH FOR LAND AND BUILDING, ETC.AND RS.12,500 PER MONTH FOR FURNITURE, FIXTURES,PLANT AND MACHINERY, ETC. IT HAD NO RATIONALE WITH THE AGREED RENT AND THE ASSESSEE HAD ADOPTED A DEVICE TO CIRCUMVENT ITS LIABILITY TO TAX. FURTHER, THE RENT DEED DID NOT CONTAIN ANY PROVISION FOR INCREASE OF RENT FROM YEAR TO YEAR. MOREOVER, THE SECURITY DEPO SIT OF RS.35 LAKHS WHERE THE VALUE OF THE PROPERTY LET OUT WAS RS. 17.62 LAKHS, PLANT AND MAC HINERY OF RS.1.69 LAKHS AND FURNITURE OF RS.48,673/-COULD NOT BE HELD TO BE JUSTIFIED AS A G ENUINE TRANSACTION.THEREFORE,THE SECURITY DEPOSIT WAS A SHAM DEVICE TO AVOID TAX AND HAD NO R EAL BASIS WITH THE ACTUAL RENT THAT WAS RECEIVED BY THE ASSESSEE. ACCORDING TO SECTION 23(1 )(B) OF THE ACT WHERE THE PROPERTY WAS ACTUALLY LET OUT, THE ACTUAL AMOUNT OF RENT RECEIVED OR RECE IVABLE WOULD FORM PART OF THE INCOME FROM HOUSE PROPERTY. ORDINARILY, THE NOTIONAL INTEREST T HAT MAY ACCRUE ON THE SECURITY DEPOSIT WOULD NOT FORM PART OF INCOME FROM HOUSE PROPERTY. HOWEVE R, WHERE PAYMENT OF THE SECURITY DEPOSIT WAS TO CIRCUMVENT LIABILITY TO TAX ON THE REAL RENT , IT WOULD FALL WITHIN THE AMBIT OF INCOME FROM HOUSE PROPERTY. THEREFORE THE INTEREST ON THE SECUR ITY DEPOSIT AMOUNT OF RS. 35 LAKHS WOULD BE TREATED AS INCOME OF THE ASSESSEE.INTEREST AT THE R ATE OF 9 PER CENT. PER ANNUM ON THE SECURITY 1662/11-GOODVALUE P. 06-07 7 AMOUNT OF RS.35 LAKHS WOULD BE JUST TO MEET THE END S OF JUSTICE AND IT WOULD BE TREATED AS TAXABLE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM H OUSE PROPERTYRELATING TO THE LAND AND BUILDING. 2.4 NOW,COMING TO THE FACTS OF THE CASE,WE FIND THAT TH E ASSESSEE HAD PURCHASED FOUR OFFICE PREMISES FOR RS.1.25 CRORES,THAT IT RECEIVED RS.2.2 5 CRORES FROM ITS SISTER CONCERNS AS INTEREST FREE DEPOSIT,THAT IT LET OUT THE SAID PROPERTY FOR MONTHLY RENT OF RS.41,000/-,THAT THE INTEREST FREE DEPOSIT WAS MORE THAN FIVE HUNDRED TIMES OF THE MON THLY RENT,THAT IN THE SAME BUILDING AT THE EIGHTH FLOOR ONE OF THE TENANT,NAMELY WIL,HAD TAKEN ONE MORE OFFICE FROM UNRELATED PARTY,THAT FOR THAT OFFICE WIL HAD PAID INTEREST FREE DEPOSIT OF RS.27.78 LAKHS ONLY,THAT THE MONTHLY RENT FOR THE SAID OFFICE PREMISES WAS FIXED AT RS.1 LAKH,THA T THE AO REWORKED THE ALV OF THE PREMISES ON THE BASIS OF THE RENT PAID FOR AN OFFICE PREMISES O F A NEARBY LOCALITY,THAT HE FIXED THE ALV OF THE PROPERTY AT RS. /-,THAT THE FAA UPHELD THE ORDER OF THE AO.FROM THE ABOVE DISCUSSION,IT IS CLEAR THAT THE RENT CHARGED BY THE ASSESSEE WAS VERY LOW. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO HAD EXAMINED THE COST OF ASSETS LEASED/ RENT ED AND THE ADEQUACY OF THE RENT IN COMPARISON TO ITS VALUE.HE ALSO EXAMINED THE ISSUE AS TO WHETHER THE INTEREST FREE DEPOSIT WAS IN LIEU OF RENT WHICH WAS NOT OFFERED BY THE ASSESSEE. BESIDES,HE CALLED FOR THE COMPARATIVE MARKET RATES TO FIND OUT THE APPLICABILITY OF SECTION 23(1 )(A) OF THE ACT.HIS FINDING IS BASED ON INQUIRIES MADE.HE HAD ARRIVED AT THE CONCLUSION THAT THE ACTU AL RENT RECEIVED WAS LESS THAN THE 'FAIR/MARKET RENT' BECAUSE THE ASSESSEE HAD RECEIVED ABNORMALLY HIGH INTEREST FREE SECURITY DEPOSIT. 2.5 IN OUR OPINION THE ALV FIXED BY THE MUNICIPAL AUTHO RITIES CANNOT BE THE SOLE CRITERIA FOR DETERMINING THE FAIR RENT OF THE PROPERTY ESPECIALL Y IN THE CASE WHICH WE ARE DEALING WITH.WE ARE AWARE OF THE DECISION OF THE J K INVESTORS(248ITR72 3)AND HOLD THAT ORDINARILY THE NOTIONAL INTEREST THAT MAY ACCRUE ON THE SECURITY DEPOSIT WO ULD NOT FORM PART OF INCOME FROM HOUSE PROPERTY TO DETERMINE THE FAIR RENT WHICH IS REASON ABLY EXPECTED TO BE FETCHED FROM THE PROPERTY . HOWEVER,IN OUR OPINION,IF THE AO CAN PROVE THAT THE PAYMENT OF SECURITY DEPOSIT WAS TO CIRCUMVENT THE REAL RENT,HE CAN CONSIDER THE INTER EST OF DEPOSIT FOR COMPUTING THE INCOME FROM HOUSE PROPERTY.THESE CASES WILL FALL IN THE CATEGOR Y OF EXCEPTIONAL CASES.THE CASE BEFORE US,IS ONE OF THE EXCEPTIONAL CASES.THE HONBLE JURISDICTI ONAL HIGH COURT HAS,IN THE CASE OF TIP TOP TYPOGRAPHY(368 ITR 330),DEALT,IN DETAILS,THE FUNDAM ENTALS AS HOW TO ASSESS HOUSE PROPERTY INCOME IN SUCH MATTERS.WE ARE REPRODUCING THE RELEV ANT PORTION OF THE JUDGMENT AND IT READS AS FOLLOW: VARIOUS METHODS OF VALUATION ARE APPLIED IN ORDER T O ARRIVE AT SUCH HYPOTHETICAL RENT, FOR INSTANCE, BY REFERENCE TO THE ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHER COMPARABLE TO IT OR WHERE THERE ARE NO RENTS BY REFERENCE TO THE ASSESS MENTS OF COMPARABLE PROPERTIES OR TO THE PROFITS CARRIED FROM THE PROPERTY OR TO THE COST OF CONSTRUCTION. CONSIDERING THE DIFFICULTIES FACED IN EITHER RETRIEVING IMMOVABLE PROPERTIES IN METRO CITIES AND TOWNS, AND THE TIME SPENT IN LITIGATION, IT IS EXPEDIENT TO EXECUTE LEAVE AND LI CENCE AGREEMENTS. THESE ARE USUALLY FOR FIXED PERIODS AND RENEWABLE. IN SUCH CASES AS WELL, THE C ONCEDED POSITION IS THAT THE ANNUAL LETTING VALUE WILL HAVE TO BE DETERMINED ON THE SAME BASIS AS NOTED ABOVE. IN THE EVENT A SECURITY DEPOSIT COLLECTED AND REFUNDABLE INTEREST-FREE AND THE MONT HLY COMPENSATION SHOWS A TOTAL MISMATCH OR DOES NOT REFLECT THE PREVAILING RATE OR THE ATTEMPT IS TO DEFLATE OR INFLATE THE RENT BY SUCH METHODS, THE ASSESSING OFFICER IS NOT PREVENTED FROM CARRYIN G OUT NECESSARY INVESTIGATION AND ENQUIRY. HE MUST HAVE COGENT AND SATISFACTORY MATERIAL IN HIS P OSSESSION WHICH WILL INDICATE THAT THE PARTIES HAVE CONCEALED THE REAL POSITION. HE MUST NOT MAKE A GUESS WORK OR ACT ON CONJECTURES AND SURMISES. THERE MUST BE DEFINITE AND POSITIVE MATER IAL TO INDICATE THAT THE PARTIES HAVE SUPPRESSED THE PREVAILING RATE. THEN THE ENQUIRIES THAT THE ASSESSING OFFICER CAN MAKE, WOULD BE FOR ASCERTAINING THE GOING RATE. HE CAN MAKE A COMP ARATIVE STUDY AND AN ANALYSIS. IN THAT REGARD, TRANSACTIONS OF IDENTICAL OR SIMILAR NATURE CAN BE ASCERTAINED BY OBTAINING THE REQUISITE DETAILS. 1662/11-GOODVALUE P. 06-07 8 SUPPRESSED THE PREVAILING RATE. THEN THE ENQUIRES THAT THE ASSESSING OFFICER CAN MAKE, WOULD BE FOR ASCERTAINING THE GOING RATE. HE CAN MAKE A CO MPARATIVE STUDY AND AN ANALYSIS. IN THAT REGARD, TRANSACTIONS OF IDENTICAL OR SIMILAR NATURE CAN BE ASCERTAINED BY ABTAINING THE REQUISITE DETAILS. HOWEVER, THERE ALSO THE ASSESSING OFFICER MUST SAFEGUARD AGAINST ADOPTING THE RATES STATED THEREIN STRAIGHTAWAY. HE MUST FIND OUT WHETH ER THE PROPERTY WHICH HAS BEEN LET OUT OR GIVEN ON LEAVE AND LICENCE BASIS IS OF A SIMILAR NA TURE, NAMELY, COMMERCIAL OR RESIDENTIAL. HE SHOULD ALSO SATISFY HIMSELF WHETHER THE RATE OBTAIN ED BY HIM FROM THE DEALS AND TRANSACTIONS AND DOCUMENTS IN RELATION THERETO CAN BE APPLIED OR WHE THER A DEPARTURE THEREFROM CAN BE MADE. BEFORE THE ASSESSING OFFICER DETERMINES THE RATE BY THE ABOVE EXERCISE OR SIMILAR PERMISSIBLE PROCESS HE IS BOUND TO DISCLOSE THE MATERIAL IN HIS POSSESSION TO THE PARTIES. HE MUST NOT PROCEED TO RELY UPON THE MATERIAL IN HIS POSSESSION AND DIS BELIEVE THE PARTIES. THE SATISFACTION OF THE ASSESSING OFFICER THAT THE BARGAIN REVEALS AN INFLA TED OR DEFLATED RATE BASED ON FRAUD, EMERGENCY, RELATIONSHIP AND OTHER CONSIDERATIONS MAKES IT UNRE ASONABLE MUST PRECEDE THE UNDERTAKING OF THE ABOVE EXERCISE. THOUGH PRINCIPALLY WE AGREE WITH THE AO THAT THE MA TTER BEFORE US IS AN EXCEPTIONAL CASE AND THEREFORE ALV CAN BE TAKEN ON THE BASIS OF INTEREST RECEIVABL E FROM SECURITY DEPOSITS.BUT,WE ARE OF THE OPINION THAT ACTUAL QUANTIFICATION NEEDS FURTHER INQUIRY.THE COM PARATIVE PROPERTY SELECTED BY THE AO WAS SITUATED A T GROUND FLOOR OF THE NEARBY AREA,WHEREAS THE PROPERT Y IN QUESTION IS ON NINTH FLOOR.THE ASSESSEE HAS GI VEN DETAILS OF OFFICE PREMISES HIRED BY IT ON THE EIGHT H FLOOR.THEREFORE, IN THE INTEREST OF JUSTICE,WE AR E REMITTING BACK THE ISSUE TO FILE OF THE AO FOR FRES H ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE AND TO CONSI DER THE DATA OF SAME BUILDING OR THE ADJACENT BUILD ING FOR ARRIVING AT THE TAXABLE HOUSE PROPERTY INCOME.F IRST EFFECTIVE GROUND OF APPEAL BY THE ASSESSEE IS DECIDED IN ITS FAVOUR IN PART. 3. SECOND GROUND OF APPEAL IS ABOUT ADDITION OF RS.3.4 5 LACS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD RECEIVED AN AMOU NT OF RS.11.04 LACS AS FURNITURE HIRE CHARES AND SAME HAD BEEN SHOWN AS BUSINESS INCOME, THAT VI DE MEMORANDUM OF UNDERSTANDING FOR AMENITIES, DATED 1.10.2004, IT HAD PROVIDED CERTAIN AMENITIES TO WIL AND WGSRIL.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME FOR PR OVIDING AMENETIES SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES.BY ITS LETTER,DATED 22.8. 2008, THE ASSESSEE STATED THAT ASSESSEE WAS RUNNING A BUSINESS CENTRE, THAT IT HAD NEGOTIATED W ITH TWO OTHER COMPANIES TO SET UP A SERVICE CENTRE TO PROVIDE CERTAIN FACILITIES, THAT IT HAD U NDERTAKEN THE FURNISHING AND RENOVATION OF THE ENTIRE PREMISES, THAT IT ACQUIRED FURNITURE, FIXTUR E AND EQUIPMENTS, THAT IT ENABLE THE ASSESSEE TO INCREASE THE UTILITY OF THE AREA AVAILABLE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE TH E AO HELD THAT THAT THE RECEIPT RECEIVED BY IT FOR PROVIDING AMENITIES COULD NOT BE TREATED AS BUS INESS RECEIPTS, THAT IT HAD ENTERED INTO A SEPARATE AGREEMENT FOR PROVIDING THE AMENITIES, THA T IT HAD ALLOWED THE LICENSEE TO USE THE AMENITIES FOR A PERIOD OF 33 MONTHS, THAT THE TRANS ACTION COULD NOT BE TREATED AS BUSINESS.HE REFERRED TO THE CASE OF LOKSHIKSHAK TRUST (101 ITR 234) AND HELD THAT TRANSACTIONS UNDER DISPUTE COULD NOT BE CLASSIFIED AS AN ADVENTURE IN NATURE O F TRADE, THAT SAME HAD TO BE TAXED AS INCOME FROM OTHER SOURCE.HE RELIED UPON THE CASE OF MODEL MANUFACTURING CO. P.LTD. (175 ITR 374). HE FURTHER HELD THAT THE INTEREST INCOME WAS TO BE TAXED AS INCOME FROM OTHER SOURCES, THAT NO EXPENDITURE HAD BEEN LAID OUT WHOLLY AND EXCLUSIVEL Y FOR EARNING THE INCOME, THAT NO DEDUCTION U/S 57 (III) COULD BE GRANTED TO THE ASSESSEE .HOWE VER, HE HELD THAT THE ASSESSEE WAS ENTITLED FOR DEPRECIATION OF RS.5.21 LACS CLAIMED ON FURNITURE A ND FIXTURE U/S. 57(2) OF THE ACT. 3.1 IN THE APPELLATE PROCEEDINGS BEFORE THE FAA THE ASS ESSEE STATED THAT IT HAD CLAIMED DEDUCTION OF EXPENSES OF RS.3.45 LACS FROM SERVICE CHARGES OF RS.11.04 LACS, THAT THE ASSESSEE WAS OWNER AND OTHERWISE POSSESSED FOUR UNITS ON THE NINTH FLO OR, THAT IT HAD PLAN TO RUN A BUSINESS SERVICE CENTRE, THAT IT HAD PROVIDED SEPARATE OFFICES AS WO RK STATION TOO TO TWO OTHER USERS, THAT IT ALSO 1662/11-GOODVALUE P. 06-07 9 PROVIDED INFRASTRUCTURE FACILITIES, THAT THE COMMON EXPENSES WERE TO BE BORNE BY THE RESPECTIVE USERS, THAT INCOME DERIVED BY WAY SERVICE CHARGES W AS RECEIPT FROM EXPLOITATION OF BUSINESS/COMMERCIAL ASSETS OWNED BY IT, THAT THE SE RVICE CHARGES WERE ASSESSABLE AS BUSINESS INCOME U/S. 28, THAT IT WAS NOT A CASE OF MERE LETT ING OUT OF FURNITURE AND FIXTURE, THAT THE CASE RELIED UPON BY THE AO WERE BASED ON DIFFERENT FACTS , THAT ASSESSEE HAD SET UP A BUSINESS CENTRE, THAT VARIOUS ASSETS HAD BECOME COMMERCIAL ASSETS, T HAT SERVICE CHARGES SHOULD BE ASSESSED AS BUSINESS INCOME.AFTER ALLOWING DEDUCTION OF EXPENSE S IN THE P&L ACCOUNT, THAT USE OF USE ALONGWITH THE INFRASTRUCTURE FACILITIES WAS THE BUS INESS CARRIED OUT BY THE ASSESSEE, THAT IT HAD INCURRED VARIOUS EXPENSES UNDER THE HEAD AUDIT FEE, BANK CHARGES, SOCIETY MAINTENANCE CHARGES, LEGAL AND PROFESSIONAL FEE, THAT ALL THE EXPENSES W ERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES, THAT THE AO HAD DENIED DEDUCTION OF THE LEGITIMATE EXPENSES INCURRED FOR EARNING SUCH INCOME, THAT THE EXPENSES HAD A DIRECT NEXUS WITH BUSINESS OF THE ASSESSEE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE FAA HELD THAT THE RENTING OF THE AMENITIES DID NOT INVOLVE COMPLEX COMMERCIAL ACTIVITY, THAT RENTING O UT THE AMENITIES ON A FIXED MONTHLY CHARGE WOULD NOT CONVERT THE RENTAL INCOME INTO BUSINESS I NCOME, THAT SAME HAD TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, THAT THE AO HAD TAK EN INTO CONSIDERATION THE EXPENDITURE THAT HAD BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVEL Y FOR EARNING THE INCOME, THAT HE HAD GRANTED DEDUCTION TO THE ASSESSEE. FINALLY HE UPHEL D THE ORDER OF THE AO. 3.2 BEFORE US,THE AR ARGUED THAT THE EXPENDITURE INCURR ED BY THE ASSESSEE WAS RELATABLE TO BUSINESS ACTIVITY CARRIED OUT BY IT, THAT THE SAME COULD NOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, THAT THOSE EXPENSES WERE DIRECTLY RE LATED TO THE BUSINESS OF THE ASSESSEE I.E., LETTING OUT THE VARIOUS FACILITIES. HE REFERRED TO PAGE NO.8 AND 10 OF THE PAPER BOOK AND TO THE SPECIMEN AGREEMENT ENTERED WITH OTHER PARTIES.DR SUPPORTED THE ORDER OF THE FAA. 3.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL INCLUDING THE MOU SIGNED BY THE ASSESSEE.WE HAVE ALSO GONE THROUGH THE EXPENSES CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT AND THE SCHEDULES ATTACHED TO THE ACCOUNTS. A PERUSAL OF THE EXPENSES REVEAL THAT THEY WERE DIRECTLY RELATED TO THE CARRYING ON OF BUSINES S AND THAT THE ASSESSEE WAS IN THE BUSINESS OF LETTING OUT OF INFRA-STRUCTURE FACILITIES.IN OUR OP INION THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED AS INFRA-STRUCTURE EXPENSES/LEGITIMAT E BUSINESS EXPENDITURE.REVERSING THE ORDER OF FAA WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE . AS A RESULT,APPEAL FILE D BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST ,OCTOBER,2015. 21 ,2015 SD/- SD/- ( / PARTHASARATHY CHOUDHURY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 21.10.2015 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1662/11-GOODVALUE P. 06-07 10 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.