Deputy Commissioner of Income-tax, V. Smt. Nisha Anil Jain, Jalgaon

ITA 1946/PUN/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2242 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 04-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Business income; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1946/PN/2013 ASSESSMENT YEAR : 2005-06 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, JALGAON. . APPELLANT VS. SMT. NISHA ANIL JAIN, JAIN BUNGLOW, SUYOG COLONY, JALGAON. PAN : ACOPJ5461B . RESPONDENT / APPELLANT BY : SHRI DHEERAJ KUMAR JAIN / RESPONDENT BY : SHRI NIKHIL PATHAK / DATE OF HEARING : 08.09.2015 / DATE OF PRONOUNCEMENT: 08.10.2015 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE REVENUE IS AGAINS T THE ORDER OF CIT(A)-2, NASHIK DATED 30.08.2013 RELATING TO ASSES SMENT YEAR 2005-06 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOM E-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES, THE HON BLE CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE U/S 2(24)(IV) BEING TAX ED UNDER THE HEAD INCOME FROM OTHER SOURCES FOR THE RENT RECEIVED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE HONBLE CIT(A), NASHIK HAS ERRED IN DELETING THE ADDITIONS MADE U/S 2(24)(V) FOR NOTIONAL INTEREST. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE AMEND ANY OF THE GROUNDS WITH PRIOR PERMISSION OF THE HONBLE CIT, A S PER THE CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT PRAYS TO FILE ANY OF THE ADDITIONA L EVIDENCE APPROPRIATE TO THE GROUNDS TAKEN IN APPEAL. 2 ITA NO.1946/PN/2013 3. THE RELEVANT FACTS, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL DERIVING INCOME FROM RENT, CAPITAL GAINS AND INTEREST ETC.. THE ASSESSMENT WAS ORIGINALLY COMPLETED UNDER SECTION 143(3) OF THE AC T VIDE ORDER DATED 03.12.2007 WHEREIN THE AMOUNT OF LONG TERM CAPITAL GAIN ON SALE OF AGRICULTURAL LAND WAS ASSESSED AS BUSINESS INCOME. BOTH, THE CI T(A) AS WELL AS PUNE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE. THEREAFTER, RE-ASSESSMENT PROCEEDINGS WERE INITIATED AND THE AS SESSMENT ORDER WAS FRAMED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. TWO AD DITIONS WERE MADE BY THE ASSESSING OFFICER ARE SUBJECT-MATTER OF PRESENT APP EAL. THESE ADDITIONS TO THE RETURNED INCOME COMPRISES OF : (I) RENT RECEIPT OF RS.10,82,121/- TREATED AS BENEFIT UNDER SECTION 2(24)(IV) OF THE ACT AND TAXE D UNDER THE HEAD INCOME FROM OTHER SOURCES AND THUS DENYING THE BENEFIT OF STANDARD DEDUCTION TO THE ASSESSEE AMOUNTING TO RS.3,24,636/- UNDER SECTION 2 4 OF THE ACT; AND, (II) ADDITION TOWARDS NOTIONAL INTEREST OF RS.12,56,210/ - (ON THE UNADJUSTED RENT DEPOSIT) AS BENEFIT IN TERMS OF SECTION 2(24)(IV) O F THE ACT. 4. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS R ELEVANT TO ASSESSMENT YEAR 2005-06, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH THE COMPANY M/S JAIN IRRIGATION SYST EMS LTD. (JISL) ON 20.08.2002 FOR LETTING OUT HER HOUSE PROPERTY ON RE NT. DURING THE RELEVANT YEAR, THE ASSESSEE HAS RECEIVED A RENT OF RS.10,82, 121/-, WHICH WAS ADJUSTED AGAINST INTEREST-FREE DEPOSIT RECEIVED FROM JISL. THE ASSESSING OFFICER ALLEGED THAT THE PROPERTY HAS BEEN LET OUT AN EXORB ITANT RENT OF RS.10,82,121/- PER ANNUM AGAINST WHICH THE ASSESSEE HAS ALSO SIMUL TANEOUSLY OBTAINED INTEREST-FREE DEPOSIT WHICH IS ADJUSTABLE TOWARDS R ENT CHARGES. THE ASSESSING OFFICER OBSERVED THAT M/S JISL IS A LEGAL ENTITY IN WHICH THE HUSBAND OF THE ASSESSEE AND OTHER RELATIVES ARE HOLDING SUBSTANTIA L INTEREST. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE GROSS RENT RECEIPT OF RS.10,82,121/- IS TAXABLE INCOME UNDER SECTION 2(24)(IV) OF THE ACT AS AGAINS T THE AFORESAID INCOME DECLARED UNDER SECTION 22 OF THE ACT BY THE ASSESSE E. AS A CONSEQUENCE, STANDARD DEDUCTION @ 30% ELIGIBLE UNDER S. 24 ON TH E ABOVE RENT WAS DENIED. LIKEWISE, THE NOTIONAL INTEREST @ 12% ON THE BALANC E OF UNADJUSTED INTEREST- FREE DEPOSIT OF RS.1,04,68,422/- AS ON 01.04.2005 C OMPUTED AT RS.12,56,210/- 3 ITA NO.1946/PN/2013 WAS TREATED AS BENEFIT OR PERQUISITE IN TERMS OF SE CTION 2(24)(IV) OF THE ACT BY THE ASSESSING OFFICER. 5. IN APPEAL, THE CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE RENT RECEIVED IS AGAINST THE LETTING OUT OF A BUNGA LOW AT JALGAON AND THEREFORE RENTAL INCOME DERIVED FROM LETTING OUT OF THE OWNER SHIP BUNGALOW IS LIABLE TO BE TAXED UNDER SECTION 22 OF THE ACT AND CONSEQUENT LY RENT INCOME OF RS.7,57,485/- (NET OF DEDUCTION OF RS.3,24,636/-) O FFERED BY THE ASSESSEE IS CORRECT AND THE ACTION OF THE ASSESSING OFFICER IN HOLDING THE RENT INCOME AS BENEFIT OR PERQUISITE UNDER SECTION 2(24)(IV) INSTE AD OF TAXING THE SAME UNDER SECTION 22 OF THE ACT IS CONTRARY TO THE LEGAL PROV ISIONS OF THE ACT. THE CIT(A), ACCORDINGLY, CANCELLED THE ADDITIONS MADE B Y THE ASSESSING OFFICER. 6. AS REGARDS THE ADDITION TOWARDS NOTIONAL INTERES T ON INTEREST FREE DEPOSITS RECEIVED FROM TENANT (JSIL) IN WHICH THE H USBAND OF THE ASSESSEE AND RELATIVES ARE HOLDING SUBSTANTIAL INTEREST, THE CIT (A) OBSERVED THAT THE RENT PAYABLE BY THE TENANT IS BEING ADJUSTED YEAR AFTER YEAR AGAINST SUCH DEPOSIT. THE CIT(A) HELD THAT IN VIEW OF THE VARIOUS JUDICIA L DECISIONS, ONLY REAL INCOME COULD BE TAXED AND NOT HYPOTHETICAL INCOME. THERE IS NO JUSTIFICATION IN MAKING ANOTHER ADDITION TOWARDS NOTIONAL INTERES T ON SUCH INTEREST FREE DEPOSITS. THE CIT(A) ALSO OBSERVED THAT IN THE SUB SEQUENT ASSESSMENT YEAR 2007-08, NO ADDITIONS HAVE BEEN MADE ON ACCOUNT OF NOTIONAL INTEREST BY THE SAME ASSESSING OFFICER IN THE RE-ASSESSMENT PROCEED INGS UNDER SECTION 147 OF THE ACT. HE, THEREFORE, CANCELLED THE ADDITIONS MA DE BY THE ASSESSING OFFICER AS UNCALLED FOR. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT T HE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT IS CLEARLY ATTRACTED IN THE IN STANT CASE. THE LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE PAYM ENT OF RENT IS NOT 4 ITA NO.1946/PN/2013 COMMENSURATE AND EXORBITANT. THE RENT IS BEING RECE IVED FROM A COMPANY IN WHICH THE HUSBAND OF THE ASSESSEE AND ALONG WITH IT S RELATIVES ARE HOLDING SUBSTANTIAL INTEREST. THEREFORE, THE VALUE OF BENE FIT DERIVED FROM COMPANY IN THE FORM OF RENT IS TAXABLE AS INCOME UNDER SECTION 2(24)(IV) OF THE ACT. THEREAFTER, HE SUBMITTED THAT THE INTEREST-FREE DEP OSIT OF STAGGERING AMOUNT HAS BEEN GIVEN IN THE NATURE OF BENEFIT TO THE ASSESSEE FOR WHICH INTEREST EMBEDDED THEREIN IS CHARGEABLE UNDER SECTION 2(24)(IV) OF TH E ACT. ACCORDINGLY, HE PLEADED FOR UPHOLDING THE ACTION OF THE ASSESSING O FFICER ON THIS SCORE ALSO. 9. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED T HAT THERE IS NO WHIFF OF JUSTIFICATION FOR MAKING ADDITION ON THE AFORESAID ACCOUNT. HE CONTENDED THAT THE RENT HAS BEEN COLLECTED AGAINST LETTING OUT OF THE HOUSE PROPERTY WHICH IS TAXABLE INCOME UNDER SECTION 22 OF THE ACT. THE REN T RECEIVED IS IN CONSIDERATION OF LETTING OUT OF HOUSE PROPERTY BELO NGING TO THE ASSESSEE. IN VIEW OF THE SPECIFIC SCHEME OF THE ACT FOR TAXABILI TY OF SUCH INCOME DERIVED FROM HOUSE PROPERTY UNDER THE HEAD INCOME FROM HOU SE PROPERTY, IT CANNOT BE TAXED UNDER ANY OTHER PROVISIONS OF THE ACT INCLUDI NG SECTION 2(24)(IV) OF THE ACT. THE RENT HAS BEEN OFFERED FOR TAXATION UNDER SECTION 22 OF THE ACT AND DEDUCTION HAS BEEN CLAIMED UNDER SECTION 24 OF THE ACT AS ENTITLED TO THE ASSESSEE. THE ASSESSING OFFICER HAS SOUGHT TO DENY THE STATUTORY DEDUCTION UNDER S. 24 BY RESORTING THE SECTION 2(24)(IV) OF T HE ACT, WHICH IS NOT PERMISSIBLE IN LAW. HE NEXT CONTENDED THAT THE ASSE SSING OFFICER ON THE ONE HAND CONTENDS THAT THE RENT PAID BY THE COMPANY TO THE ASSESSEE IS EXORBITANT AND ON THE OTHER HAND SEEKS TO FURTHER ENHANCE THE INCOME BY WAY OF NOTIONAL INTEREST ON THE RENT DEPOSITS WHICH IS SELF-CONTRAD ICTORY. THE PROPERTY HAS BEEN LET OUT FOR LAST MANY YEARS AS PER AGREEMENT FILED IN THIS REGARD. AS REGARDS THE ADDITION TOWARDS NOTIONAL INTEREST ON RENT FREE DEP OSIT, HE RELIED UPON THE DECISION IN THE CASE OF CIT VS. J.K. INVESTORS, 248 ITR 723 (BOM) AND OTHER DECISIONS AS NOTED IN PARA 6.2.2 OF THE CIT(A)S OR DER. HE SUBMITTED THAT IN VIEW OF THE LONG LINE OF JUDICIAL PRECEDENTS, NOTIO NAL INTEREST-FREE DEPOSIT IS NOT TAXABLE IN LAW. THE ACTION OF THE ASSESSING OFFICE R IS CONTRARY TO THEORY OF REAL INCOME. THEREFORE, HE PLEADED THAT THE ORDER OF TH E CIT(A) IS IN ACCORDANCE 5 ITA NO.1946/PN/2013 WITH LAW AND DESERVES TO BE UPHELD. HE FURTHER REL IED UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI BHAV ARLAL HIRALAL JAIN & OTHERS IN ITA NO.735/PN/2013 AND OTHERS, ORDER DATED 28.11 .2014 PLACED IN THE PAPER BOOK. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, ORDERS OF THE AUTHORITIES BELOW AND PERUSED THE CASE LAWS RELIED UPON. LET US FIRST DEAL WITH THE ISSUE, AS TO WHETHER THE RENTAL INCOME DERIVED FROM THE LETTING OUT OF THE HOUSE PROPERTY IS CHARGEABLE UNDER SECTION 22 OR SE CTION 2(24(IV) OF THE ACT. WE FIND THAT THE PROPERTY HAS BEEN LET OUT TO THE C OMPANY IN WHICH THE HUSBAND OF THE ASSESSEE AND THEIR RELATIVES ARE HOL DING SUBSTANTIAL INTEREST AND THEREFORE THE ASSESSING OFFICER HAS INVOKED SECTION 2(24)(IV) OF THE ACT IN PREFERENCE TO SECTION 22 OF THE ACT. 11. FOR THE SAKE OF READY REFERENCE SECTION 2(24)(I V) OF THE ACT IS REPRODUCED AS UNDER :- 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUI RES, XXXXXXXXXX (24) INCOME INCLUDES (I) XXXX (II) XXXX XXXX (IV) THE VALUE OF ANY BENEFIT OF PERQUISITE, WHETHE R CONVERTIBLE INTO MONEY OR NOT, OBTAINED FROM A COMPANY EITHER BY A DIRECTO R OR BY A PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY, OR B Y A RELATIVE OF THE DIRECTOR OR SUCH PERSON, AND ANY SUM PAID BY ANY SU CH COMPANY IN RESPECT OF ANY OBLIGATION WHICH, BUT FOR SUCH PAYME NT, WOULD HAVE BEEN PAYABLE BY THE DIRECTOR OR OTHER PERSON AFORES AID. 12. A BARE READING OF THE PROVISION WOULD SHOW THAT SECTION 2(24)(IV) OF THE ACT SEEKS TO COVER VALUE OF BENEFIT/PERQUISITE DERI VED BY ASSESSEE FROM A COMPANY WHICH WOULD HAVE BEEN PAYABLE THE ASSESSEE OR ITS RELATIVES AGAINST THE OBLIGATION. THE PROVISION IS NOT INTENDED TO RE STRICT THE RIGHT OF THE COMPANY TO ADVANCE SECURITY DEPOSITS TO ITS DIRECTO RS OR RELATIVES AGAINST THE VALUABLE CONSIDERATION I.E. FOR OBTAINING HOUSE PRO PERTY ON RENT. AS PER SECTION 22 OF THE ACT, ON THE OTHER HAND, ANNUAL VALUE OF THE PROPERTY CONSISTING OF 6 ITA NO.1946/PN/2013 ANY BUILDING OR LANDS OF APPURTENANT THERETO OF WHI CH THE ASSESSEE IS THE OWNER IS CHARGEABLE TO INCOME-TAX UNDER THE INCOME FROM H OUSE PROPERTY SUBJECT TO CERTAIN DEDUCTIONS AS PROVIDED UNDER SECTION 24 OF THE ACT. THEREFORE, THE RENTAL INCOME DERIVED FROM OWNERSHIP PROPERTY IS LI ABLE TO BE TAXED IN TERMS OF SECTION 22 OF THE ACT. IT IS AN ADMITTED FACT THAT THE AMOUNT OF RENT HAS BEEN FOUND TO BE EXORBITANT AND EXCESSIVE AND THEREFORE THE ANNUAL VALUE/RENT FROM THE PROPERTY IS NOT IN DISPUTE. IN OUR CONSIDERED VIEW, THE ASSESSEE HAS RIGHTLY OFFERED THE RENTAL INCOME UNDER SECTION 22 OF THE A CT SUBJECT TO STATUTORY DEDUCTION AVAILABLE UNDER SECTION 24 OF THE ACT. S ECTION 2(24)(IV) OF THE ACT DEEMS VALUE OF ANY BENEFIT OF PERQUISITE AS INCOME IN THE HANDS OF THE ASSESSEE ONLY IF IT IS OBTAINED FROM THE COMPANY WHICH WAS O THERWISE PAYABLE BY THE DIRECTOR OR OTHER PERSON. IN SHORT, SECTION 2(24)( IV) OF THE ACT WILL NORMALLY COME INTO PLAY ONLY WHEN THE COMPANY IN WHICH THE D IRECTORS OR ITS RELATIVES HAVE TAKEN ADVANTAGE IN RESPECT OF ANY OBLIGATION W HICH THE DIRECTOR AND THEIR RELATIVES ARE EXPECTED TO DISCHARGE. IN THE PRESEN T FACTS, SECTION 2(14)(IV) HAS NO APPLICATION. THE AGREEMENT HAS BEEN ENTERED INTO WITH THE COMPANY FOR WHICH RENT HAS BEEN PAID AND HENCE THE RENT HAS BEE N DERIVED AS A QUID-PRO- QUO FOR LETTING OUT THE PROPERTY. SUCH RECEIPT OF REN T CANNOT BE CHARACTERIZED AS BENEFIT OR PERQUISITE UNDER S. 2(24)((IV). THIS IS NOT SOME KIND OF BENEFIT BESTOWED GRATUITOUS AND WITHOUT CONSIDERATION. ACC ORDINGLY, WE SUBSCRIBE TO THE VIEW TAKEN BY THE CIT(A) AND DECLINE TO INTERFE RE WITH HIS ORDER CANCELLING THE ADDITION MADE IN TAXING THE RENTAL INCOME UNDER SECTION 2(24)(IV) OF THE ACT. 13. WE ALSO FIND THAT THE INTEREST-FREE DEPOSIT REC EIVED IN TERMS OF LEASE AGREEMENT IS FOR LETTING OUT THE PROPERTY. IT IS NO T THE CASE OF THE ASSESSING OFFICER THAT HEAVY INTEREST-FREE DEPOSIT HAS BEEN P AID IN THE GUISE OF RENT. ON THE CONTRARY, IT IS THE CASE OF THE ASSESSING OFFIC ER, THE EXORBITANT RENT HAS BEEN PAID. INTEREST-FREE DEPOSIT IN LETTING OUT THE PRO PERTY IS NOT ANYTHING UNUSUAL IN COMMON PARLANCE AND IS ATTRIBUTABLE TO DECISION TAK EN BASED ON EXIGENCIES INVOLVED. SUCH ACTION OF THE ASSESSEE CANNOT BE IN FERRED ADVERSELY. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF J.K. INVESTORS (SUPRA) RELIED UPON BY T HE ASSESSEE AND OTHER SPATE OF 7 ITA NO.1946/PN/2013 JUDICIAL DECISIONS. WE ALSO FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI BHAVARLAL HIRALAL JAIN (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON SIMILAR FACTS. RESPECTFULLY FOLLOWING THE BINDING PRECEDENTS, THIS ISSUE REGARDING THE CHARGEABILITY OF NOTIONAL INTER EST ON INTEREST-FREE DEPOSITS IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. IN THIS VI EW OF THE MATTER, WE FIND NO ERROR IN THE VIEW EXPRESSED BY THE CIT(A). ACCORDIN GLY, WE DECLINE TO INTERFERE WITH ITS ORDER. THUS, THE GROUNDS OF APP EAL RAISED BY THE REVENUE ARE DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 08 TH DAY OF OCTOBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 08 TH OCTOBER, 2015. % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-2, NASHIK; 4) THE CIT-2, NASHIK; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE