AJAY AGGARWAL, MUMBAI V. ACIT (OSD) CITY-2, MUMBAI

ITA 2115/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7292 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 15-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: A L SHARMA
• Keywords: Notional interest
• Section: 131; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.2115/MUM/2010 ASSESSMENT YEAR 2006-07 SHRI AJAY AGGARWAL, 18, MAKER BHAVAN-II, NEW MARINE LINES, MUMBAI-400 020 PAN-AABPA 7537P VS. THE ACIT, (OSD)1, CITY-2, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.L. SHARMA RESPONDENT BY: SHRI P.K.B. MENON DATE OF HEARING : 6.9.2011 DATE OF PRONOUNCEMENT: 7.10.2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 12.01.2010 PASSED BY THE LD. CIT(A)- 5 FOR TH E ASSESSMENT YEAR 2006- 07. 2. THE ASSESSEE IS AN INDIVIDUAL. HE FILED THE RET URN OF INCOME ON 29.7.2006 DECLARING TOTAL INCOME AT RS. 42,93,271/- . 3. THE ASSESSING OFFICER WORKED OUT THE FAIR RENTAL /ANNUAL VALUE OF THE COLABA PROPERTY AS UNDER: RENT RECEIVED BY THE ASSESSEE RS. 31,000X12 RS. 3, 72,000/- ADD INTEREST ON DEPOSITS AS WORKED OUT ABOVE RS. 6 ,80,000/- -------------------- TOTAL RS.10.52.000/- ITA NO. 2115/M/10 2 4. BEFORE THE LD. CIT(A), THE AR SUBMITTED AS FOLL OWS: THE LEARNED ASSESSING OFFICER ERRED IN ADOPTING TH E RENTAL INCOME FROM CITI BANK AT RS.12,60,000/- AS AGAINST RS.3,72,000/- RECEIVED BY THE APPELLANT. THE LEARNED ASSESSING OFFICER ERRED IN CALCULATING THE ANNUAL VALUE AT HIGHER OF MARKET RENT OR BANK INTER EST AND THEREBY ARRIVING AT THE MARKET RENT AT RS.12,60,000 /-. THE LEARNED ASSESSING OFFICER ERRED IN DETERMINING THE RENTAL INCOME FROM CITI BANK ON THE BASIS OF RENT O F SIMILAR PROPERTY IN THE NEIGHBORHOOD NOT WITHSTANDING THE F ACT THAT THE RENT OF SIMILAR PROPERTY CANNOT BE THE BASIS OF WORKING OUT THE ANNUAL VALUE OF THE PROPERTY. . THE LEARNED ASSESSING OFFICER ERRED IN NOT APPREC IATING THE FACT THAT : I) THE ANNUAL VALUE OF THE PROPERTY IS TO BE LIMITED T O HIGHER OF THE MUNICIPAL VALUATION, FAIR RENT OR THE ACTUAL RENT RECEIVED BY THE ASSESSEE. II) THE APPELLANT HAS SUBMITTED A COPY OF THE MUNICIPAL RATEABLE VALUE SHOWING THE RATEABLE VALUE AT RS.6,298/- WHICH WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT IT WAS ISSUED BY TWIN ST AR JUPITAR CO-OP. HSG. SOC. AND NOT FROM BOMBAY MUNICIPALITY, NOT APPRECIATING THE FACT THAT THE RATEABLE VALUE CERTIFICATE IS ISSUED BY BOMBAY MUNICIPALITY TO THE SOCIETY WHO IN TURN SUBMITS, TH E SAME TO THE MEMBERS OF THE SOCIETY. THE APPELLANT CLAIMS THAT THE ANNUAL VALUE OF THE PROPERTY GIVEN ON RENT TO CITI BANK, SHOULD BE RESTRICTED TO RS.5,72,000/- AND NOT RS.12,60,000/- AS DETERMINED BY THE ASSESSING OFFICER. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED ASSESSIN G OFFICER ERRED IN ADOPTING THE BANK INTEREST RATE FO R THE PURPOSE OF WORKING THE ANNUAL VALUE, NOT APPRECIATING THE FACT THAT THE INCOME FROM DEPOSIT FROM THE TENANT HAS BEEN OFFERED TO TAX FROM YEAR T O ITA NO. 2115/M/10 3 YEAR AND THAT HIS OBSERVATION THAT RENT AMOUNT IS LOW AS A RESULT OF HUGE INTEREST FREE DEPOSIT RECEI VED IS IN CORRECT. 5. THE LD. CIT(A) AFTER DISCUSSING AT PARA 4 TO 5.2 HA S HELD THAT THE AO WAS JUSTIFIED IN ADOPTING ANNUAL LETTING VALUE BY T AKING INTO CONSIDERATION VARIOUS RELEVANT FACTORS INCLUDING NOTIONAL INTERES T ON DEPOSITS. THEREFORE, HE UPHELD THE ACTION OF THE AO. 6. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF MUMBAI ITAT B BENCH IN ITA NOS. 1401 & 1402/M/2010 FOR ASSESSMENT YEARS 2005-06 & 2006-07 BY ORDER DT. 4 TH MAY, 2011 WHEREIN IT HAS BEEN HELD AS FOLLOWS: WE FIND THAT THIS ISSUE HAS NOW BEEN DECIDED BY TH E MUMBAI TRIBUNAL IN THE CASE OF M/S. ADVACADO PROPERTIES & TRDG. (I) PVT. LTD., IN ITA NOS. 2347 & 2348/M/2010 VIDE ORDER DT. 25 TH FEBRUARY, 2011 WHEREIN THE TRIBUNAL HAS FOLLOWED THE ORDER IN THE CASE OF M/S. EVEREST KANTO INVESTMENT & FINANCE LTD. WHICH IS REPRODUCED AS UND ER: AS ALREADY MENTIONED, THE A.O. AS WELL AS THE LD. CIT(A) HAS RELIED ON THE PROVISIONS OF SECTION 23(1)(A) TO TAK E THE ANNUAL VALUE OF THE ASSESSEES PROPERTY AT A HIGHER AMOUNT THAN THE RENT ACTUALLY RECEIVED BY THE ASSESSEE HOLDING THAT THE SAME REPRESENTED THE SUM FOR WHICH THE PROPERTY OF THE ASSESSEE MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR. IT IS PERTINENT TO NOTE HERE THAT AS PER THE RELEVANT PRO VISIONS OF SECTION 23(1) AS APPLICABLE UP TO A.Y. 1975-76, THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FR OM YEAR TO YEAR ALONE REPRESENTED ACTUAL VALUE OF THE PROPERTY FOR THE PURPOSE OF COMPUTING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THEREAFTER, AMENDMENT WAS MADE AND AS PE R THE AMENDED PROVISIONS OF SECTION 23(1)(B) MADE APPLICA BLE FROM A.Y. 1976-77, THE ACTUAL RENT RECEIVED WAS TREATED TO RE PRESENT THE ANNUAL VALUE PROVIDED IT EXCEEDS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR. THE LEGISLATIVE INTENTION OF THE SAID AMENDMENT WAS EXP LAINED BY CBDT IN CIRCULAR NO. 204 DTD. 24.7.76 AND AFTER TAK ING NOTE OF THE SAID CIRCULAR AND AFTER REPRODUCING THE RELEVANT PO RTION THEREOF IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA), THE TRIBUNAL HELD THAT THE POSITION OF LAW PRIOR TO INTRODUCTION OF SECTION 23(1)(B) AS CLARIFIED BY TH E BOARD ITSELF WAS ITA NO. 2115/M/10 4 THAT THE ANNUAL VALUE WAS EQUAL TO THE MUNICIPAL VA LUATION OF THE PROPERTY. THE TRIBUNAL HELD THAT THIS IS HOW THE B OARD SOUGHT TO INTERPRET THE EXPRESSION THE SUM FOR WHICH THE PRO PERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR US ED IN SECTION 23(1)(A). 12. THE TRIBUNAL ALSO TOOK NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DIWAN DAULAT KAPOOR VS . NEW DELHI MUNICIPAL COMMITTEE 122 ITR 700 (SC) WHEREIN THE QU ESTION THAT HAD ARISEN FOR CONSIDERATION WAS AS TO WHAT SHOULD BE THE BASIS OF DETERMINING THE ANNUAL VALUE FOR THE PURPOSE OF LEV Y OF PROPERTY TAX. THE EXPRESSION ANNUAL VALUE AS DEFINED IN TH E DELHI MUNICIPAL CORPORATION ACT 1957 AND PUNJAB MUNICIPAL ACT 1911 WAS GROSS ANNUAL RENT AT WHICH SUCH HOUSE OF BUILD ING MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE SUPREME COURT HELD THAT THE ANNUAL VALUE IS ALWAYS RENT REALIZABLE BY LANDLORD AND THAT ACTUAL RENT IS ONLY AN INDICAT OR WHAT THE LANDLORD MIGHT REASONABLY EXPECT TO GET FROM A HYPO THETICAL TENANT. THE HONBLE SUPREME COURT FURTHER HELD THAT WHERE TENANCY IS SUBJECT TO RENT CONTROL LEGISLATION, STA NDARD RENT WOULD BE A PROPER MEASURE AND IN ANY EVENT, ANNUAL VALUE CANNOT EXCEED SUCH STANDARD RENT. 13. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. ALSO TOOK NOTE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MRS. SHEILA KAUSHISH V S. CIT 131 ITR 435 (SC), WHEREIN THE QUESTION AROSE IN THE CON TEXT OF PROVISIONS OF SECTION 23 OF THE INCOME TAX ACT AND IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE RATIO OF ITS DEC ISION IN THE CASE OF DEWAN DAULAT RAI KAPOOR (SUPRA) WOULD BE EQ UALLY APPLICABLE IN INTERPRETING THE DEFINITION OF ANNUA L VALUE GIVEN IN SECTION 23(1) OF THE INCOME TAX ACT. IT WAS HELD THAT THESE DEFINITIONS ARE GIVEN IN IDENTICAL TERMS AND IT WAS IMPOSSIBLE TO DISTINGUISH THE DEFINITION OF ANNUAL VALUE GIVEN IN SECTION 23(1) OF THE INCOME TAX ACT FROM THE DEFINITION OF THAT TERM GIVEN IN THE DELHI MUNICIPAL CORPORATION ACT 1957 AND THE PUNJAB MUNICIPAL ACT, 1911. IT WAS THEREFORE HELD ADOPTING IDENTICAL LINE OF REASONING THAT EVEN IF THE STANDARD RENT OF A BUILD ING HAS NOT BEEN FIXED BY THE CONTROLLER, THE ANNUAL VALUE OF THE BU ILDING AS PER SECTION 23(1) OF THE INCOME TAX ACT MUST BE HELD TO BE A STANDARD RENT DETERMINABLE UNDER THE PROVISIONS OF THE RENT CONTROL ACT AND NOT THE ACTUAL RENT RECEIVED BY THE LANDLORD FROM THE TENANT. THE HONBLE APEX COURT ALSO OBSERVED TH AT THIS INTERPRETATION WHICH WAS BEING PLACED ON THE LANGUA GE OF SECTION 23(1) OF THE INCOME TAX ACT CAN BE SAID TO HAVE REC EIVED LEGISLATIVE APPROVAL BY THE AMENDMENT MADE IN THE SAID PROVISIONS WHEREBY IT WAS PROVIDED IN SECTION 23(1) (B) THAT WHERE THE PROPERTY IS LET AND THE ANNUAL RENT RECEIVED OR RECEIVABLE BY ITA NO. 2115/M/10 5 THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SU M FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR, THE AMOUNT SO RECEIVED OR RECEIVABLE SHALL BE DEEME D TO THE ANNUAL VALUE OF THE PROPERTY. 14. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THEN WENT ON TO REFER TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHABATI BANSALI, 141 ITR 419 WHEREIN IT WAS HELD THAT RELYI NG ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F DEWAN DAULAT RAI KAPOOR (SUPRA) AND MRS. SHEILA KAUSHISH (SUPRA) WHILE DECIDING THE ISSUE RELATING TO DETERMINATION OF ACT UAL VALUE OF THE ASSESSEES PROPERTY IN MUMBAI THE INCOME FROM HOUSE PROPERTY MUST BE COMPUTED ON THE BASIS OF THE SUM WHICH MIGH T REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR AND WITH THE ANNUAL MUNICIPAL VALUE PROVIDED SUCH A VALUE IS NOT ABOVE THE STANDARD RENT RECEIVABLE AND THE SAME COULD BE ADOP TED AS THE SAFEST GUIDE FOR THIS PURPOSE. AS MENTIONED BY THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA), THE SAID DECISION WAS RENDERED BY THE HON BLE CALCUTTA HIGH COURT AFTER TAKING INTO CONSIDERATION THE PROV ISIONS OF SECTION 154 OF THE BOMBAY MUNICIPAL CORPORATION ACT WHEREIN THE MANNER OF DETERMINATION OF RATABLE VALUE WAS LAID DOWN WHI CH WAS BASED ON THE ANNUAL RENT FOR WHICH THE PROPERTY MIGHTY RE ASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE CALC UTTA HIGH COURT HELD THAT THE MUNICIPAL VALUATION AND ANNUAL VALUE U/S 23(1)(A) OF THE INCOME TAX ACT THUS ARE ONE AND SAME. AS NOTED BY THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMA TION REALTY INDIA P. LTD. (SUPRA) THE SAID DECISION OF THE HONB LE CALCUTTA HIGH COURT IN THE CASE OF PRABHABATI BANSALI (SUPRA) HAS BEEN SUBSEQUENTLY FOLLOWED BY THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF M.V. SONAVALA VS. CIT 177 ITR 246 (BOM) WHE REIN THE QUESTION POSED TO THEIR LORDSHIPS WAS WHETHER THE A CTUAL COMPENSATION RECEIVED COULD BE TAKEN AS ANNUAL VALU E OF THE PROPERTY AS AGAINST THE MUNICIPAL RATABLE VALUE AND THE SAME WAS ANSWERED BY THE HONBLE BOMBAY HIGH COURT IN THE NE GATIVE THAT IS AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSE SSEE. 15. IN OUR OPINION, THE ISSUE INVOLVED IN THE PRESE NT CASE THUS IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SU PRA) WHICH IN TURN HAS RELIED ON AND FOLLOWED THE JUDGMENTS OF HONBLE APEX COURT AND JURISDICTIONAL HIGH COURT ON A SIMILAR ISSUE AND RE SPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENTS, WE REVERSE THE IM PUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO ADOPT THE RENT ACTUALLY RECEIVED BY THE ASSESSEE DURING A.Y. 2003- 04 TO 2006-07 AS ANNUAL VALUE OF THE PROPERTY BEING MORE THAN THE MU NICIPAL RATABLE VALUE. THE ADDITIONS MADE BY THE A.O. AND CONFIRME D BY THE LD. ITA NO. 2115/M/10 6 CIT(A) ON THIS ISSUE ARE ACCORDINGLY DELETED ALLOWI NG GROUND NO. 2 OF THE ASSESSEES APPEALS FOR A.Y. 2003-04 TO 2006-07. 9. RECENT DECISION OF THE (DELHI HIGH COURT)-FULL B ENCH IN THE CASE OF CIT VS MONI KUMAR SUBHA (333 ITR 38) HAS HELD THAT IF A SSESSING OFFICER FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAI R MARKET RENT BECAUSE THE ASSESSEE HAS RECEIVED ABNORMALLY HIGH INTEREST FRO M SECURITY DEPOSIT, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. HOWEV ER, BY NO STRETCH OF IMAGINATION THE NOTIONAL INTEREST ON THE INTEREST F REE SECURITY CAN BE TAKEN AS DETERMINATIVE FACTOR TO ARRIVE AT THE FAIR RENT SEC. 23(1)(A) OF THE I.T. ACT, 1961 DOES NOT MANDATE THIS. 10. IN THE CIRCUMSTANCES WE SET ASIDE THE ISSUE TO T HE FILES OF AO FOR DETERMINING THE ALV IN RESPECT OF PROPERTY TAKING A LL FACTORS INTO ACCOUNT BUT NOT INCLUDING ANY NOTIONAL INTEREST ON THE DEPOSIT TAKEN BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 7 TH DAY OF OCTOBER, 2011 (PRAMOD KUMAR ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED OCTOBER, 2011 RJ SD/- SD/- (PRAMOD KUMAR ) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 7 TH OCTOBER, 2011 RJ ITA NO. 2115/M/10 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI