ACIT, CHENNAI V. M/s. Fagun Estates Pvt Ltd., CHENNAI

ITA 1870/CHNY/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57771 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 15-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R MEENAKSHISUNDARAM

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1870/MDS/2008 ASSESSMENT YEAR: 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), 121, MAHATHMA GANDHI ROAD, CHENNAI 600 034. VS. M/S. FAGUN ESTATES PVT. LTD., FAGUN MANSION GROUND FLOOR, 74, ETHIRAJ SALAI, CHENNAI 600108. [PAN: AAACF0440J] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB , SR. DR ASSESSEE BY : SHRI R. MEENAKSHISUNDARAM, ADVOCATE DATE OF HEARING : 09.01.2012 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) III, CHENNAI DATED 26.06.2008 IN ASSESSMENT YEAR 2005-06. SHRI SHAJI P. JACOB, SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI R. MEENAKSHISUNDARAM, ADVOCATE REPRESENTED ON BEHALF O F THE ASSESSEE. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER TO THE RENTAL INCOME OF THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER BY ENQUIRING ABOUT THE PREVAILING RENT IN THE ADJACENT BUILDING ESTIMATED THE RENTAL INCOME I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1870 1870 1870 1870/ // /M/ M/M/ M/08 0808 08 2 AT ` .26,70,936/- AGAINST THE LEASE RENT OF ` .4,00,889/- RETURNED BY THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(A) DELETING THE ADDITION BY OBSERVING AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE BY THE AUTHORIZED REPRESENTATIVE AT THE TIME OF HEARING AS WELL AS BY WAY OF WRITTEN SUBMISSION. I HAVE ALSO GONE THROUGH THE AS SESSMENT RECORDS. HAVING CONSIDERED ALL THE ASPECTS OF THE CASE AND T HE VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER WHILE PA SSING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE AUTHORI ZED REPRESENTATIVE OF THE APPELLANT, I, FOR THE REASONS STATED BELOW, AM OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO SUCCEED IN THIS APPEAL: 3.3 IN THE FIRST PLACE, I FIND THAT THE ASSESSING OFFICER HAS TOTALLY OVERLOOKED THE FACT THAT THE LEASE AGREEMENT WAS EN TERED INTO IN THE YEAR 1985 WITH AN UNDERTAKING WHOLLY OWNED BY THE G OVERNMENT OF INDIA AND THE LEASE AGREEMENT HAS BEEN REGISTERED A ND THE RENT REALIZED BY THE APPELLANT AND OFFERED FOR ASSESSMEN T IS THE RENT STIPULATED IN THE SAID LEASE AGREEMENT. IT MAY ALSO BE RELEVANT TO NOTE THAT UNDER THE TERMS OF THE LEASE AGREEMENT, WHICH IS FOR A PERIOD OF 99 YEARS, THERE IS NO PROVISION WHICH WOULD HAVE EN ABLED THE APPELLANT LANDLORD TO REVISE THE RENT CHARGEABLE DURING THE P ERIOD COVERED BY THE LEASE AGREEMENT AND THE RENT WAS DETERMINED IN THE AGREEMENT ENTERED INTO IN 1985 TAKING INTO ACCOUNT THE PREVAI LING RATES AT THAT TIME. IN THE ABSENCE OF ANY PROVISION ENABLING THE LANDLORD TO REVISE THE RENT, IRRESPECTIVE OF THE MARKET RATE OF RENTAL S, THE LANDLORD IS PROHIBITED BY THE TERMS OF THE CONTRACT ENVISAGED I N THE AGREEMENT FROM REVISING THE RENT UNTIL THE EXPIRY OF THE LEAS E AND ANY REVISION CAN BE ENVISAGED ONLY IF AND WHEN THE LEASE IS RENEWED FOR A FURTHER PERIOD. 3.4 IN THIS CONTEXT, THE ASSESSING OFFICER SHOULD HAVE FOUND THAT IRRESPECTIVE OF THE RENTAL RATE PREVAILING IN THE S URROUNDING AREAS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 1985-86, THE ASSESSEE IS NOT IN A POSITION TO DEMAND A HIGHER RE NT AND CONSEQUENTLY, HE SHOULD HAVE FOUND THAT ON THE FACTS OF THE CASE, THE RENT WHICH THE PROPERTY IS EXPECTED TO FETCH AS ENVISAGED UNDER SE CTION 23(L)(A) OF THE ACT IS THE RENT STIPULATED BY THE AGREEMENT DATED 1 -4-1985 AND NOTHING MORE. 3.5 SECONDLY, THE ASSESSING OFFICER SHOULD HAVE FO UND THAT AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. M. RATANCHAND CHORDIA [228 ITR 626] WHEREIN THE MAD RAS HIGH COURT FOLLOWING THE DECISION OF THE SUPREME COURT IN 122 ITR 700 AND 131 ITR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1870 1870 1870 1870/ // /M/ M/M/ M/08 0808 08 3 435 HAS HELD THAT IN THE ABSENCE OF ANY EVIDENCE ON RECORD TO SHOW THAT THE RENT RECEIVED BY THE ASSESSEE WAS LOW BECA USE OF ANY EXTRANEOUS CONSIDERATIONS LIKE RELATIONSHIP BETWEEN THE LANDLORD AND THE TENANT OR ANY OTHER CONTRACT, THE ACTUAL RENT R ECEIVED BY THE ASSESSEE WOULD FORM THE FAIR RENT. 3.6 APPLYING THE ABOVE PRINCIPLE IN THE PRESENT CA SE, THE FOLLOWING FACTS SHOULD HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER, WHICH HE HAS FAILED TO DO: A. IN THE PRESENT CASE, THE TRANSACTION BETWEEN TH E APPELLANT AND INDIAN BANK, A WHOLLY OWNED GOVERNMENT OF INDIA UNDERTAKIN G IS A TRANSACTION AT ARMS LENGTH. B. THERE IS NO EVIDENCE ON RECORD TO INDICATE THAT EXTRANEOUS CONSIDERATIONS ARE INVOLVED IN THE TRANSACTION, RESULTING IN A LOW RENT. C. THERE IS NO EVIDENCE OR MATERIAL AVAILABLE ON R ECORD THAT THE ASSESSEE HAS RECEIVED ANY RENT HIGHER THAN THE RENT ENVISAGED UN DER THE TERMS OF THE LEASE AGREEMENT AS A MATTER OF FACT I FIND, AS CORRECTLY POINTED OU T BY THE AUTHORIZED REPRESENTATIVE, THAT THE ASSESSING OFFICER HAS IN F ACT ACCEPTED THE FACTUAL SUBMISSIONS OF THE APPELLANT AND HAS STATED THAT THE LEASE AGREEMENT ENTERED BY THE APPELLANT WITH INDIAN BANK IS A GENUINE ONE AND UNDER THE TERMS OF THE LEASE AGREEMENT, THE ASS ESSEE CANNOT RAISE THE RENT DURING THE LEASE PERIOD ENVISAGED UNDER TH E AGREEMENT. HAVING ACCEPTED THIS FACTUAL PROPOSITION, I AM OF T HE VIEW THAT THE ASSESSING OFFICER HAS NO JUSTIFICATION TO INVOKE TH E PROVISIONS OF SECTION 23(L)(A) OF THE ACT AND MAKE AN ADDITION BASED ON T HE PROVISIONS OF SECTION 23(L)(B) OF THE ACT, HE SHOULD HAVE FOUND T HAT SECTION 23(1)(B) WILL COME INTO PLAY ONLY WHEN THE RENT RECEIVED OR RECEIVABLE IS MORE THAN THE ANNUAL VALUE OF THE PROPERTY. IN THE PRESE NT CASE, HAVING ACCEPTED THE FACT THAT THE APPELLANT CANNOT RECEIVE ANY RENT MORE THAN WHAT IS ENVISAGED IN THE LEASE AGREEMENT, THE ASSES SING OFFICER SHOULD HAVE FOUND THAT, THAT IS THE ACTUAL RENT RECEIVABLE BY THE APPELLANT, FOR THE PURPOSE OF TAXATION AND CONSEQUENTLY, UNDER SEC TION 23(L)(A), SUCH RENT ALONE CAN BE BROUGHT TO TAX ESPECIALLY WHEN TH ERE IS NO MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE ASSESSEE HAS RECEIVED OR IS ENTITLED TO RECEIVE A HIGHER REN T THAN WHAT IS STIPULATED UNDER THE LEASE AGREEMENT. IN THE CIRCUM STANCES, I AM OF THE VIEW THAT THE ACTION OF THE ASSESSING OFFICER I N IGNORING THE RENT OF ` .4,00,889/ OFFERED BY THE APPELLANT FOR ASSESSMENT AND ADOPTING AN ESTIMATED AMOUNT OF ` .26,70,936/ BY TAKING RECOURSE TO SECTION 23(1)(B) OF THE ACT IS NOT SUSTAINABLE EITHER IN LA W OR ON FACTS. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1870 1870 1870 1870/ // /M/ M/M/ M/08 0808 08 4 3.7 IN THE PRESENT CASE, ON THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE PROVISIONS OF SECTION 23(1)(B) OF THE ACT ARE NOT ATTRACTED TO THE APPELLANT'S CASE AND THE INCOME FROM THE PROPER TY FOR THE PURPOSE OF ASSESSMENT IN THE HANDS OF THE APPELLANT IS TO B E TAKEN ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT AND UNDER THE SAID SECTION ONLY THE RENT AS ENVISAGED UNDER T HE TERMS OF THE REGISTERED LEASE DEED WHICH THE APPELLANT HAS ENTER ED INTO WITH INDIAN BANK FOR A PERIOD OF 99 YEARS COMMENCING FROM 141 984 AND ENDING ON 3132083 CAN BE BROUGHT TO TAX. IN THE CIRCUMSTANC ES, I DELETE THE ADDITION OF ` .26,70,936/ MADE BY THE ASSESSING OFFICER AND DIRE CT THE ASSESSING OFFICER TO ACCEPT AND ADOPT THE RENTAL OF ` .4,00,889/ OFFERED BY THE APPELLANT AND REWORK THE INCOME FROM HOUSE P ROPERTY ACCORDINGLY. 3.8 INCIDENTALLY, THE ASSESSEE HAS REFERRED TO THE DECISIONS OF VARIOUS OTHER COURTS SUCH AS 268 ITR 481 (CALCUTTA), 298 IT R 407 (DELHI), 214 CTR (BOM) 316 AND 268 ITR240 (CALCUTTA). WHILE I FI ND THAT THESE DECISIONS ALSO SUPPORT THE CONTENTION OF THE APPELL ANT, IN THE LIGHT OF THE DECISION OF THE MADRAS HIGH COURT IN 228 ITR 62 6 IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M. RATANCHAND CHORDI A RELIED ON BY THE APPELLANT AND WHICH IS BINDING ON ME, I DO NOT FIND ANY NECESSITY TO GO THROUGH AND DISCUSS THE APPLICABILITY OR OTHERWI SE OF THOSE DECISIONS RELIED ON BY THE APPELLANT. 3.9 FOR THE REASONS STATED HEREIN ABOVE, I UPHOLD THE CONTENTIONS OF THE APPELLANT AND DELETE THE ADDITION OF ` .26,70,936/ MADE BY THE ASSESSING OFFICER AND DIRECT HIM TO ADOPT IN ITS PL ACE THE SUM OF ` .4,00,889/, THE RENT OFFERED BY THE ASSESSEE AND R EDO THE ASSESSMENT. 5. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 7. THE LD. DR SUBMITTED THAT IF THE FAIR RENT IS H IGHER THAN THE ACTUAL RENT RECEIVED, THEN THE FAIR RENT SHOULD BE TAKEN AS BAS IS FOR ASSESSMENT. HE FURTHER SUBMITTED THAT IN VIEW OF THE RENT FETCHED BY THE ADJOINING PROPERTY, THE ASSESSING OFFICER WAS JUSTIFIED IN ESTIMATING T HE FAIR RENT AT ` .26,70,936/-. 8. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE S UPPORTED THE ORDER OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1870 1870 1870 1870/ // /M/ M/M/ M/08 0808 08 5 THE LD. CIT(A) AND RELIED UPON THE DECISION QUOTED IN THE ORDER OF THE LD. CIT(A). 9. WE FIND THAT THE FAIR RENT OF PROPERTY IN QUEST ION, WHICH WAS SUBJECTED TO AN AGREEMENT ENTERED INTO WITH AN UNDERTAKING BE LONGING TO THE CENTRAL GOVERNMENT UNDER WHICH INITIAL VALUE OF THE PROPERT Y COULD NOT BE ENHANCED FOR 99 YEARS CANNOT BE ESTIMATED ON THE BASIS OF AN OTHER PROPERTY, WHICH IS NOT SUBJECTED TO SIMILAR CONTRACT. THUS, THE ASSESS ING OFFICER WAS NOT JUSTIFIED IN COMPARING THE PROPERTY IN QUESTION WIT H ANOTHER PROPERTY, WHICH WAS NOT SUBJECT TO SUCH AGREEMENT. IN OUR CONSIDERE D VIEW, BECAUSE OF THE AGREEMENT WITH THE UNDERTAKING BELONGING TO THE CEN TRAL GOVERNMENT, GENUINENESS OF WHICH COULD NOT BE IN QUESTION, THE INITIAL FAIR RENT OF THE PROPERTY CANNOT BE ESTIMATED AT ANY AMOUNT MORE THA N ` .4,00,889/-. WE, THEREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED. THE GROUNDS OF APPEAL OF T HE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13.01.2012. SD/ - SD/ - (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 13.01.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.