Sri. M.L. TANDON, MUMBAI V. ACIT Rg. - 8(1), MUMBAI

ITA 2368/MUM/2006

• Counselvise Citation: 236819914 RSA 2006
• Duration Of Justice: 5 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 18-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K B MENON
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER I.T.A NO.2368/ MUM/2006 ASSESSMENT YEAR: 2002-03 M.L.TANDON, .. APPELLANT 37, MERRY NIKETAN, MOUNT MARY ROAD, BANDRA(W), MUMBAI-50 PA NO.AAAPT 2929 F` VS ACIT RANGE 8(1) .. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: RAHUL H HAKANI, FOR THE APPELLANT P.K.B. MENON , FOR THE RESPONDENT DATE OF HEARING : 29.8.2011 DATE OF PRONOUNCEMENT : 29 -08-2011 O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN UPHOLDI NG THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE DEPOSITS RECE IVED BY THE ASSESSEE WHILE RENTING OUT THE PROPERTY. THE NOTIONAL INTEREST SO WORKED OUT HAS BEEN ADDED TO THE RENTAL INCOME RECEIVED BY THE ASSESSEE. THE ASSESSMENT YEAR INVOLVED 2 IS 2002-03, AND THE IMPUGNED ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE ACT. 2. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IS COVERED BY THE DECISION OF THE TRIBUNAL SMC BENCH IN THE CASE OF CO-OWNER OF THIS PROPERTY. WE HAVE NOTED THAT IN COMING TO THIS CONCLUSION, TH E SMC BENCH HAS RELIED UPON THE DECISION OF A DIVISION BENCH OF THIS TRIBU NAL IN THE CASE OF DCTI VS. RECLAMATION REALITY INDIA PVT LTD. AND OTHER GROUP CONCERNS VIDE ITA NO.1411/MUM/2007 AND OTHERS FOR A.Y 2004-05, WHICH WAS CO-AUTHORED BY ONE OF US, AND OBSERVED AS FOLLOWS: 7 I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOO K FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. THERE IS NO DISPUTE TO THE FACT THAT THE FLAT IN WHICH THE ASSESSEE IS THE CO-OWNER HAS BEEN LET OUT FOR A MONTHLY RENT OF RS. 40,000/- WITH INTEREST FREE DEPOSIT OF RS. 2.25 CRORES. THERE IS ALSO NO DISPUTE TO THE FACT TH AT THE FLAT IN THE SAME BUILDING AND THE SAME AREA HAD BEEN LET OUT FOR A MO NTHLY RENT OF RS. 2.75 LACS BY GACL; WHO HAD NOT ACCEPTED ANY INTEREST FREE DEPOSIT. ACCORDING TO THE ASSESSING OFFICER, MONTHLY RENT OF THE SAID PROPERTY SHOULD BE RS. 2.75 LACS WHICH HAS BEEN UPHELD BY THE CIT(A), WHO HAS ALSO HELD THAT THE SAME HAS BEEN WORKED OUT BY THE ASSESSING OFFICER U/S 23(1)(A) OF THE ACT. 7.1 IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT INTEREST ON INTEREST FREE DEPOSIT CANNOT BE TAKEN INTO ACCOUNT FO R SEC. 23(1)(A) OF THE ACT AND MUNICIPAL RATEABLE VALUE HAS TO BE ADOPTED FOR T HE PURPOSE OF ALV. I FIND THE TRIBUNAL IN THE CASE OF RECLAMATION REALITY IND IA PVT LTD (SUPRA) AT PARA 25 OF THE ORDER HAS HELD AS UNDER: 25. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE A NNUAL VALUE (ALSO REFERRED TO AS MUNICIPAL VALUATION/RATEABLE VALUE AD OPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY AT R S. 27,50,835/- SHOULD BE THE DETERMINING FACTOR FOR APPLYING THE PR OVISIONS OF SEC. 23(1)(A) OF THE ACT. SINCE THE RENT RECEIVED BY TH E ASSESSEE WAS MORE THAN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, THE ACTUAL RENT RECEIVED SHOU LD BE THE ANNUAL VALUE OF THE PROPERTY U/S 23(1)(B OF THE ACT. NOTION AL INTEREST ON INTEREST FREE SECURITY DEPOSIT/RENT RECEIVED IN ADVANC E SHOULD NOT E ADDED TO THE SAME IN VIEW OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF J K INVESTORS (BOMBAY LTD (SUPRA) . WE HOLD ACCORDINGLY. THE APPEAL OF THE REVENUE IS DISMISSED. 7.2 I FIND THE TRIBUNAL IN THE CASE OF VAISHNAV S PUR I (HUF) (SUPRA) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF RECLAMATI ON REALITY INDIA PVT LTD 3 (SUPRA) AT PARA 13 OF THE ORDER HAS HELD AS UNDER: 13.WE MAY NOW TAKE UP GROUND NO.3 BECAUSE IT IS CONNECTED TO THE COMPUTAT ION OF PROPERTY INCOME. IN RESPECT OF THE OWNED PROPERTIES, WE HAVE ALREADY NO TICED THAT THE ASSESSING OFFICER INCLUDED 10% OF THE SECURITY DEPOSIT AND AD VANCE RENT IN THE INCOME AND HIS ACTION WAS DISAPPROVED BY THE CIT(A). THE R EVENUE IS IN APPEAL TO CONTEND ON THE BASIS OF THE ORDERS OF THE MUMBAI BE NCHES OF THE TRIBUNAL IN THE CASE OF TIVOLI INVESTMENT & TRADING CO. (P) LTD. VS . ACIT (2004) 84 TTJ 198 (MUM) AND ITO VS. BAKER TECHNICAL SERVICES (P) LTD. (2009) 126 TTJ 455 (MUM) (TM) AND THE ORDER OF THE DELHI BENCH OF THE TRIBUN AL IN THE CASE OF FIZZ DRINKS LTD. VS. DCIT (2005) 95 TTJ 429 (DEL), THAT THE NOTI ONAL INCOME WAS RIGHTLY ADDED SINCE THE INCOME FROM THE PROPERTY IS COMPUTE D UNDER SECTION 23(1)(A) OF THE ACT. THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT ORDER DATED 26.11.2010 PASSED BY THE MUMBAI BENCH D IN THE CASE OF DCIT VS. RECLAMATION REALTY INDIA PVT. LTD. (ITA NO: 1411/MU M/2007 AND CONNECTED APPEALS) (ASSESSMENT YEAR: 2004-05), A COPY OF WHIC H WAS FILED BEFORE US ON BEHALF OF THE ASSESSEE. IN THIS ORDER, AFTER CONSID ERING THE ENTIRE LEGAL POSITION AND WITH PARTICULAR REFERENCE TO SECTION 23(1)(A) A ND ALSO AFTER CONSIDERING THE THREE ORDERS CITED BEFORE US ON BEHALF OF THE DEPAR TMENT, THE TRIBUNAL CAME TO THE CONCLUSION THAT EVEN FOR THE PURPOSE OF SECTION 23(1)(A) THE NOTIONAL INTEREST INCOME ON THE SECURITY DEPOSIT / ADVANCE R ENT CANNOT BE INCLUDED IN THE INCOME FROM PROPERTY. RESPECTFULLY FOLLOWING THE SA ID ORDER, WE AFFIRM THE DECISION OF THE CIT(A) FOR ALL THE THREE YEARS. THU S GROUND NO.3 FOR THE ASSESSMENT YEAR 2003-04 AND GROUND NO.2 FOR THE ASS ESSMENT YEARS 2004- 05 AND 2005-06 ARE DISMISSED. 8 RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS, I A M OF THE CONSIDERED OPINION THAT ALV ADOPTED BY THE MUNICIPAL AUTHORITI ES SHOULD BE THE DETERMINING FACTOR FOR APPLYING PROVISIONS OF SEC. 23( 1)(A) OF THE ACT. NO NOTIONAL INCOME ON INTEREST FREE DEPOSIT/RENT RECEIVE D IN ADVANCE SHOULD BE CONSIDERED FOR DETERMINING THE MUNICIPAL VALUE OF TH E PROPERTY. SINCE THE RENT RECEIVED BY THE ASSESSEE IN THE INSTANCE CASE IS MO RE THAN THE MUNICIPAL RATEABLE VALUE; THEREFORE, THE SAME HAS TO BE TAKEN A S ALV OF THE PROPERTY. HOWEVER, SINCE THE MUNICIPAL RATEABLE VALUE WAS NOT B EFORE THE ASSESSING OFFICER AND SINCE THE CIT(A) HAS NOT CONSIDERED THE SAM E, WHICH WAS GIVEN BEFORE HIM FOR THE FIRST TIME, I DIRECT THE ASSESSING OF FICER TO VERIFY THE MUNICIPAL RATEABLE VALUE OF THE PROPERTY AND IF THE ACTUAL RENT RECEIVED BY THE ASSESSEE AS DISCLOSED BY IT, IS MORE THAN THE MUNICIPAL RA TEABLE VALUE THEN TO ADOPT THE ACTUAL RENT AS THE ALV OF THE PROPERTY. I HOLD AND DIRECT ACCORDINGLY. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED, 3. WE HAVE ALSO NOTED THAT SINCE IN THE CASE OF CO -OWNER OF THE PROPERTY, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY CONCL UDING AS ABOVE, IT COULD NOT BE APPROPRIATE TO TAKE ANY OTHER VIEW OF THE MATTER IN THE CASE OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE VIEWS OF CO-OR DINATE BENCH AS ALSO THE SMC BENCH, WE, UPHOLD THE GRIEVANCE OF THE ASSESS EE AND DIRECT THE AO TO 4 DELETE THE IMPUGNED ADDITION IN RESPECT OF NOTIONAL INTEREST ON INTEREST FREE DEPOSITS. 4. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH AUGUST, 2011 SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH AUGUST, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),VIII, MUMBAI 4. COMMISSIONER OF INCOME TAX, MC VIII , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI