JALDHARA PROPRTIES & TRADING P.LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 2103/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5128 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 29-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 29-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Notional interest

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K TS U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI JH JH JH JH IH IHIH IH- -- - ,E ,E ,E ,E- -- - TXRKI] YS[KK LNL; ,OA TXRKI] YS[KK LNL; ,OA TXRKI] YS[KK LNL; ,OA TXRKI] YS[KK LNL; ,OA MK MKMK MK- -- - ,L ,L ,L ,L- -- - VH VH VH VH- -- - ,E ,E ,E ,E- -- - IKOYU] U;KF;D LNL; IKOYU] U;KF;D LNL; IKOYU] U;KF;D LNL; IKOYU] U;KF;D LNL; BEFORE SHRI P.M. JAGTAP, ACCOUNTATNT MEMBER AND DR. S.T.M.PAVALAN, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.2103 /MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2008-09 VK;DJ VIHY LA[;K /ITA NO.2104 /MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR:- 2006-07 JALDHARA TRADING & PROPERTIES P. LTD. 309, DALAMAL TOWER, PLOT NO. 211, NARIMAN POINT, MUMBAI 400 021. CUKE@ VS. DEPUTY COMMISSIONER OF INCOME TAX, 3(2) MUMBAI. PAN:- AAACJ0927A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI PRAKASH K. JOTWANI IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI SHEKHAR L. GAJBHIYE VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER P.M. JAGTAP, AM THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS OF LD. CIT-(A)-4, MUMBAI DATED 20/1/2012 FOR ASSESSMENT YE ARS 2006-07 AND 2008-09, INVOLVE COMMON ISSUES AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. LQUOKBZ DH RKJH[K@ DATE OF HEARING 30-10-2013 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 20-12-2013 - 2 - 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCE BROKERAGE. DURIN G THE YEARS UNDER CONSIDERATION, IT HAD LET OUT A HOUSE PROPERTY AT N ARIMAN POINT, MUMBAI, TO M/S BANK OF NOVASCOTIA ON A MONTHLY RENT OF RS. 15,000 /- PER MONTH. IT HAD ALSO ACCEPTED THE INTEREST FREE DEPOSIT OF RS. 2,75,00,0 00/- FROM THE TENANT. RELYING ON THE PROVISIONS OF SECTION 23(1)(A) OF THE I.T. ACT, THE ANNUAL VALUE OF THE PROPERTY WAS ESTIMATED BY THE AO AT RS. 1,80,000/- ON ACCOUN T OF RENT ACTUALLY RECEIVED PLUS RS. 27,50,000/- BEING NOTIONAL INTEREST AT 10% ON T HE INTEREST FREE DEPOSIT OF RS. 2,75,00,000/- TAKEN BY THE ASSESSEE FROM THE TENANT . ACCORDINGLY THE ALV OF THE ASSESSEE PROPERTY WAS WORKED OUT BY THE AO AT RS. 2 9,30,000/- SUBJECT TO DEDUCTION ON ACCOUNT OF MUNICIPAL TAXES AND STATUTO RY DEDUCTION OF 30%. 3. THE ADDITION MADE BY AO TO ITS TOTAL INCOME FROM HOUSE PROPERTY BY ESTIMATING THE ALV OF THE PROPERTY ON HIGHER SIDE I N BOTH THE YEARS UNDER CONSIDERATION WAS DISPUTED BY THE ASSESSEE IN THE A PPEALS FILED BEFORE THE LD CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE O N BEHALF OF THE ASSESSEE AS WELL AS THE CASE LAWS CITED IN SUPPORT, THE LD. CIT (A) HELD THAT NO ADDITION ON ACCOUNT OF NOTIONAL INTEREST ON DEPOSIT COULD BE MA DE TO THE ANNUAL VALUE OF THE PROPERTY. FOR HIS CONCLUSION, HE INTER ALIA RELIED UPON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. MONI KUMAR SU BBA ( 333 ITR 38) AND ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN CASE OF M.V. SONAVALA VS. COMMISSIONER OF INCOME-TAX (177 ITR 246) . HE HOWEVER REJECTED THE CONTENTION OF THE ASSESSEE THAT THE RENT OF RS. 1,80,000/- ACT UALLY RECEIVED BY IT BEING MORE THAN THE MUNICIPAL VALUATION, THE SAME SHOULD BE TA KEN IN TO CONSIDERATION FOR DETERMINING THE ALV OF THE PROPERTY. HE HELD THAT A LV OF THE PROPERTY COULD BE DETERMINED AT A RENT WHICH IT COULD FETCH IN THE OP EN MARKET OR A SIMILAR PROPERTY COULD FETCH UNDER THE SIMILAR SITUATION. IN THIS RE GARD HE NOTED THAT THE ASSESSEE COMPANY ITSELF HAS RENTED THE SAME PROPERTY IN THE SUBSEQUENT YEARS VIDE - 3 - AGREEMENT DATED 31.3.2008 FOR A RENT OF RS. 1,00,00 0/- PER MONTH. TAKING THE SAID RENT AS BASIS AND ALLOWING A REDUCTION OF 10%, HE D ETERMINED THE ALV OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION AT RS. 9 0,000/- PER MONTH I.E. AT RS. 10,80,000/- AND DIRECTED THE AO TO ADOPT THE SAME A S ALV OF THE ASSESSEES PROPERTY SUBJECT TO FURTHER DEDUCTION ON ACCOUNT OF MUNICIPAL TAXES AND STANDARD DEDUCTION OF 30%. STILL AGGRIEVED BY THE ORDERS OF CIT (A), THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND AL SO PERUSED THE MATERIAL ON RECORD. IT IS OBSERVED THAT AN IDENTICAL ISSUE INVO LVING THE SIMILAR FACTS HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ITO VS. M/S TIP TOP TYPOGRAPHY VIDE ITS ORDER RECENTLY PASSED ON 27 TH NOVEMBER 2013 IN ITA NOS. 5888/MUM/2011 AND 6953/MUM2010. IN THE SAID ORDER, THE TRIBUNAL AFTER CONSIDERING ALL THE RELEVANT JUDICIAL PRONOUNCEMENT S, HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARAGRAPH NOS. 5.1 A ND 5.2, WHICH READ AS UNDER;- 5.1 THE TRIBUNAL, IN THE CASE OF DY. CIT VS. RECLA MATION REALITY INDIA LTD. [2011] 9 TAXMANN.COM 35 (MUM.) HAS OBSERVED THAT AS PER THE AMENDED PROVISIONS OF SECTION 23(1)(B) MADE APPLICABLE FROM ASSESSMENT YEAR 1976-77, THE ACTUAL RENT RECEIVED HAS TO BE TREATED TO REPRE SENT THE ANNUAL VALUE OF THE PROPERTY PROVIDED THE SAME IS HIGHER THAN THE SUM F OR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. TH E LEGISLATIVE INTENTION OF THE SAID AMENDMENT HAS BEEN EXPLAINED BY THE CBDT IN CI RCULAR NO.204 DATED 24- 7-1976 AND AFTER TAKING NOTE OF THE SAID CIRCULAR, THE TRIBUNAL HELD THAT THE POSITION OF LAW PRIOR TO INTRODUCTION OF SECTION 23 (1) (B) AS CLARIFIED BY THE BOARD ITSELF IS THAT THE ANNUAL VALUE IS EQUAL TO THE MUN ICIPAL VALUATION OF THE PROPERTY. THE TRIBUNAL HELD THAT THIS IS HOW THE BOARD SOUGHT TO INTERPRET THE EXPRESSION 'THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR' USED IN SECTION 23(1)(A). THE SAME PROPOSI TION IS SUPPORTED BY VARIOUS DECISIONS OF THE HONBLE BOMBAY HIGH COURT. - 4 - 5.2 AS REGARDS THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA (SUPRA) RELIED ON BY THE LD.AR, IT IS RELEVANT TO STATE THAT THE ISSUE RAISED BEFORE THE HIGH COURT PERTAINS TO THE VALIDITY OF DETERMINING THE ALV BY ADDING NOTIONAL INTEREST ON THE INTEREST FRE E DEPOSIT, WHICH THE COURT HAS HELD AS NOT PERMISSIBLE. IN THIS CONTEXT, THE HIGH COURT IN THE SAID DECISION HAS OBSERVED THAT THE ANNUAL VALUE FIXED BY THE MUNICIP AL AUTHORITIES CAN BE A RATIONALE YARDSTICK. HOWEVER, IT WOULD BE SUBJECT T O THE CONDITION THAT THE ANNUAL VALUE FIXED BEARS A CLOSE PROXIMITY WITH THE ASSESSMENT YEAR IN QUESTION IN RESPECT OF WHICH THE ASSESSMENT IS TO BE MADE UN DER THE INCOME-TAX LAWS. IF THERE IS A CHANGE IN CIRCUMSTANCES BECAUSE OF PASSA GE OF TIME, VIZ.,THE RATEABLE VALUE FIXED BY THE MUNICIPAL AUTHORITIES IS MUCH EA RLIER IN POINT OF TIME ON THE BASIS OF RENT THAN RECEIVED, THIS MAY NOT PROVIDE A SAFE YARDSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO B E MADE UNDER INCOME-TAX ACT. THUS , THE AO IN A GIVEN CASE CAN IGNORE THE M UNICIPAL VALUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT T HE SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING THE FAIR RENT I N THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFEREN T VALUATION. IT IS PERTINENT TO MENTION THAT THE OBSERVATION OF THE DELHI HIGH COUR T, IN ITS LETTER AND SPRIT, IS NOT INTENDED TO DETERMINE THE FAIR MARKET RENT IN E ACH AND EVERY CASE BY IGNORING THE RATEABLE VALUE DETERMINED BY THE MUNIC IPAL AUTHORITIES RATHER IN THE CASES WHERE THERE IS ANY DOUBT/SUSPICION AS TO THE QUANTUM OF ACTUAL RENT CLAIMED BY THE ASSESSEE OR THE SAME DOES NOT SEEM O THERWISE JUSTIFIED IN THE NORMAL CIRCUMSTANCES. HOWEVER, WHERE ACTUAL RENT CL AIMED IS JUSTIFIED IN THE NORMAL CIRCUMSTANCES WHICH IS SUPPORTED BY ACTUAL D OCUMENT SUCH AS LEASE AND LICENSE AGREEMENT AND ALSO IN THE ABSENCE OF ANY HI GHER RENT RECEIVED BY THE ASSESSEE THAN THAT CLAIMED BY THE ASSESSEE, IN OUR VIEW, THE QUESTION OF ASSESSMENT BY RESORTING TO FAIR MARKET VALUE BY IGN ORING THE RATEABLE VALUE DOES NOT ARISE. HAVING NOTED THAT THE ACTUAL RENT DECLAR ED BY THE ASSESSEE (RS.30,000/- PER MONTH) IS MORE OR LESS TEN TIMES H IGHER THAN THE RATEABLE VALUE FIXED BY THE MUNICIPAL AUTHORITIES (RS.3,298/- PER MONTH) FOR WHICH WE DO NOT FIND REASONS TO DISBELIEVE THE ACTUAL RENT CLAIMED/ DECLARED BY THE ASSESSEE AND HENCE IT IS NOT WARRANTED ON THE PART OF THE AO TO DETERMINE THE INCOME BY TAKING THE FAIR MARKET RENT OF COMPARABLE PROPERTIE S LET OUT IN THE LOCALITIES BY - 5 - IGNORING THE RATEABLE VALUE FIXED BY THE MUNICIPAL AUTHORITIES FOR ARRIVING AT THE ALV. IN VIEW OF THE AFOREMENTIONED DISCUSSION, WE D O NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE DECISION OF THE LD.CIT (A) DIRECTING THE AO TO ACCEPT THE ACTUAL RENT DECLARED/CLAIMED/RECEIVED AS THE IN COME FROM HOUSE PROPERTY AS THE SAME IS HIGHER THAN THE MUNICIPAL VALUE AND THE SAME IS UPHELD. 5. AS HELD BY THE TRIBUNAL IN THE CASE OF M/S TIP T OP TYPOGRAPHY (SUPRA) , WHEN THE ACTUAL RENT DECLARED BY THE ASSESSEE IS MO RE THAN THE RATABLE VALUE FIXED BY THE MUNICIPAL AUTHORITIES, THERE IS NO REASON TO DISBELIEVE THE ACTUAL RENT DECLARED BY THE ASSESSEE AND IT IS NOT WARRANTED ON THE PART OF THE AO TO DETERMINE THE INCOME BY TAKING THE FAIR MARKET RENT OF COMPAR ABLE PROPERTIES LET OUT IN THE LOCALITIES BY IGNORING THE RATABLE VALUE FIXED BY T HE MUNICIPAL AUTHORITIES FOR ARRIVING AT THE ANNUAL LETTING VALUE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE DIRECT THE A O TO TAKE THE RENT ACTUALLY RECEIVED BY THE ASSESSEE FOR BOTH THE YEARS UNDER C ONSIDERATION AS THE ALV OF THE PROPERTY BEING MORE THAN THE RATABLE VALUE FIXED BY THE MUNICIPAL AUTHORITIES FOR THE PURPOSE OF DETERMINING THE INCOME OF THE ASSESS EE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 20 -12-2013. SD/- SD/- (DR. S.T.M PAVALAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 20-12-2013 - 6 - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI