M/s. DRIZZLE MARKETING P. LTD., MUMBAI V. ITO - 3(1)(2), MUMBAI

ITA 2847/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48753 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 12-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: D V LAKHANI
• Keywords: Business income; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.2847/MUM/2007 A.Y 2003-04 DRIZZLE MARKETING PVT. LTD., 83, JOLLY MAKER CHAMBER II, 8 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. PAN: AAACD5345 E VS. THE INCOME TAX OFFICER 3(1)(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.V.LAKHANI. RESPONDENT BY : SHRI JITENDRA YADAV. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL ASSESSEE HAS RAISED FOUR GROUNDS, O UT OF WHICH GROUND NO.1 WAS NOT PRESSED. THEREFORE, SAME IS DIS MISSED AS NOT PRESSED. THE OTHER GROUNDS ARE AS UNDER: 2. THE CIT[A] HAS FAILED TO APPRECIATE THAT IF THE TOTAL INCOME OF THE ASSESSEE CANNOT BE ASSESSED UNDER THE HEAD INC OME FROM BUSINESS, IT HAS TO BE ASSESSED UNDER THE HEAD IN COME FROM OTHER SOURCES. 3. THE CIT[A] HAS ERRED IN LAW AND ON FACTS BY HOLD ING THAT THE ASSESSING OFFICER IS JUSTIFIED IN ADDING TO THE TO TAL INCOME OF THE ASSESSEE, NOTIONAL INTEREST OF ` `` ` .6,41,250/- CALCULATED @ 8% P.A. ON SECURITY DEPOSITS. 4. THE CIT[A] HAS ERRED IN LAW AND ON FACTS BY UPHO LDING THE ACTION OF THE ASSESSING OFFICER OF LEVYING INTERES T U/S.234B AND 234C OF THE ACT. 2. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE S ONLY SOURCE OF INCOME WAS RENTAL INCOME AGAINST WHICH SOME EXPENSE S HAVE BEEN CLAIMED. IN RESPONSE TO THE QUERY AS TO WHY RENTAL INCOME SHOULD NOT 2 BE TREATED AS INCOME FROM HOUSE PROPERTY, IT WAS MA INLY CONTENDED THAT ASSESSEES BUSINESS WAS TO GIVE PREMISES ON LE AVE AND LICENSE BASIS. THEN RELIANCE WAS PLACED ON SOME CASE LAWS. THE AO NOTED THAT ASSESSEES MAIN BUSINESS WAS THAT OF INVESTMENT AS STATED IN THE RETURN. HE THEN CONSIDERED THE DECISION OF THE HON' BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SHAMBHU INVESTMENT PVT . LTD. [249 ITR 47] AND SOME OTHER CASE LAWS AND CONCLUDED THAT REN TAL INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. 3. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT[A]. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE REFERRED TO PAGES 5 TO 23 OF THE PAPER BOOK, WHICH IS A COPY OF THE AGREEMENT OF LEAVE AND LICENSE. HE INVITED OUR ATTENTION TO PAGE-7 WHERE I N THE RECITATION IT IS CLEARLY MENTIONED THAT THE PREMISES WERE BEING LET OUT TOGETHER WITH FIXTURES WHICH HAVE BEEN LISTED IN SCHEDULE I. THIS CLEARLY SHOWS THAT PREMISES WERE LET OUT ALONG WITH THE FIXTURES. ONCE THE PREMISES WERE LET OUT WITH THE FIXTURES, THEN SAME IS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IN THIS REGARD, HE RELIE D ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SULTAN BRO THERS PVT. LTD. VS. CIT [51 ITR 353] AND ASSAM BISCUIT MFG. CO. LTD. VS . CIT [185 ITR 535] (GAU) AND CIT VS. SMT. P. ANDAL AMMAL AND ANOT HER [243 ITR 715] (MAD.) 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE AO HAS CLEARLY NOTED THAT BUSINESS OF THE ASSESSEE WAS OF INVESTME NT AS PER THE RETURN OF INCOME. HE THEN REFERRED TO THE LEAVE AND LICENSE AGREEMENT 3 WHICH HAS BEEN PLACED IN THE PAPER BOOK AND POINTED OUT THAT SAME IS NOT REGISTERED AND EVEN NOT PROPERLY SIGNED ALSO. T HEN HE REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF SULTAN BROTHERS PVT. LTD. VS. CIT [SUPRA] AND POINTED OUT THAT IN THAT CASE THE ASSESSEE HAD FITTED VARIOUS FURNITURE AND FIXTURES ALONG WITH SOME PLANT IN THE PREMISES TO CARRY OUT THE BUSINESS OF HOTEL, WHEREAS IN THE CASE BEFORE US ASSESSEE HAS ONLY PROVIDED AIR CONDI TIONERS WHICH HAVE BEEN DESCRIBED AS FIXTURES. HE REFERRED TO SCHEDULE I IN THE LEAVE AND LICENSE AGREEMENT AND POINTED OUT THAT APART FROM A IR CONDITIONERS NO OTHER SEPARATE INDEPENDENT FIXTURES SEEM TO BE THER E. FOR EXAMPLE, IT IS MENTIONED THAT IN THE CASE OF HALL WITH A DINNIN G ROOM THE SAME IS PROVIDED WITH AIR CONDITIONER/BATH AND TOILET WITH FITTINGS TO THE TOILET AND FITTING IS PART OF THE BUILDING AND CANNOT BE C ALLED SEPARATE FITTING. SIMILARLY, IN THE CASE OF TWO BED ROOMS, IT IS MENT IONED THAT THERE ARE BUILT IN WARDROBES. BUILT IN ALMIRAH OR WARDROBE W OULD BE PART OF THE BUILDING OR HOUSE AND CANNOT BE CALLED SEPARATE FIX TURES AND, THEREFORE, THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF SULTAN BROTHERS PVT. LTD. VS. CIT [SUPRA] IS TOTALL Y DISTINGUISHABLE. IN THE CASE OF CIT VS. SMT. P. ANDAL AMMAL AND ANOTHER [SUPRA], TWO SEPARATE AGREEMENTS WERE ENTERED INTO AND IN THAT C ASE A LODGING HOUSE WAS GIVEN ON RENT WHICH WAS MEANT TO BE USED LODGING HOUSE FOR VARIOUS GUESTS AND VARIOUS FIXTURES WERE ALSO P ROVIDED, THEREFORE, THE SAID DECISION IS ALSO DISTINGUISHABLE. HE SUBMI TTED THAT IN THE CASE BEFORE US THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF IN THE CASE OF SHAMBHU INVESTMENT PVT. 4 LTD. VS. CIT [263 ITR 143], WHEREIN THE HON'BLE SUP REME COURT HAS CONFIRMED THE ORDER OF THE CALCUTTA HIGH COURT REPO RTED AS CIT VS. SHAMBHU INVESTMENT PVT. LTD 249 ITR 47. IN THAT CAS E ASSESSEE HAD SOME PREMISES WHICH WERE FURNISHED BY THE ASSESSEE AND THE SAME WERE LET OUT ALONG WITH THE FURNITURE AND FIXTURES, LIGHT, AIR CONDITIONER AND ONLY A TABLE SPACE WAS LET OUT, STILL THE INCOM E FROM LETTING OUT WAS HELD TO BE INCOME FROM HOUSE PROPERTY. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT ASSESSEE HAS LET OUT ITS PREMISES TO SANOFI-SYNTHEL ABO (INDIA) LTD. VIDE AN AGREEMENT DATED MAY 22, 2002, COPY OF WHICH HAS BEEN PLACED AT PAGES 5 TO 23 OF THE PAPER BOOK. THE RECITATION CLAUSE READS AS UNDER: A) THE LICENSORS REPRESENT THAT THE LICENSORS ARE ABSOLUTELY SEIZED AND POSSESSED OF OR OTHERWISE WELL AND SUFFICIENTLY ENTITLED TO AS THE OWNERS OF A RESIDENTIAL FLAT NO.3A/3B (THE SAID FL AT) ON THE THIRD FLOOR OF THE BUILDING KNOWN AS BENREEZA APARTMENT (THE SAID BUILDING) SITUATED AT PLOT NO.24, KHAN ABDUL GAFAR KHAN ROAD, WORLI, MUMBAI 400 018, TOGETHER WITH TWO COVERED PA RKING SPACES (THE SAID CAR PARKINGS) AND FIXTURES (THE SAID F IXTURES)AS PER PARTICULARS PROVIDED IN SCHEDULE I (THE SAID FLAT, THE SAID CAR PARKINGS, THE SAID FIXTURES ARE HEREINAFTER COLLECTIVELY CALL ED THE SAID PREMISES. THE LICENSORS FURTHER REPRESENT THAT THE SAID PREMI SES ARE NOT SUBJECT TO ANY MORTGAGE OR CHANGE AND THE LICENSORS ARE ENT ITLED TO GRANT THE SAID PREMISES ON LEAVE AND LICENSE BASIS AS HEREINA FTER PROVIDED. SCHEDULE I MENTIONED IN THE ABOVE RECITATION CLAUSE HAS BEEN GIVEN AT THE END OF THE AGREEMENT AND READS AS UNDER: SCHEDULE- 1 LIST OF FIXTURES IN STUDY ROOM AIRCONDITIONER O GENERAL SPLIT UNIT IN HALL WITH DINING ROOM AIRCONDITIONERS, BATH/TOILET WITH FITTINGS AND TAP. IN PIANO ROOM AIRCONDITIONER, SPLIT UNIT 5 IN TWO BED ROOMS BUILT-IN WARDROBE, AIRCONDITIONER, SPLIT UNIT WITH ATTACHED BATHROOM AND TOILET IN MASTER BED ROOM FULL LENGTH INBUILT WARDROBE WIT H ATTACHED BATHROOM TOILET AND DRESSING ROOM AND SPLIT AIRCONDITIONER IN KITCHEN & PANTRY TWO PLATFORMS WALL UNIT, SINK A ND SPLIT UNIT AIRCONDITIONER IN ONE SERVANTS ROOM WITH ATTACHED BATH AND TOILET AND TWO BUILT-IN CUPBOARDS AND 1 FAN. THE ABOVE CLEARLY SHOWS THAT AIR CONDITIONERS HAVE BEEN FIXED IN ALL THE ROOMS. APART FROM THAT, IT HAS BEEN MENTIONED, FOR EXAMPLE, THAT HALL IS FITTED WITH BATH/TOILET WITH FITTINGS. NOW A BAT HROOM OR A TOILET IS A STANDARD PART OF THE ROOM AND CANNOT BE TERMED AS F IXTURE SEPARATELY. SIMILARLY, INBUILT WARDROBES ARE PART OF THE BED RO OMS AND AS SUCH CANNOT BE CALLED SEPARATE FIXTURES. THEREFORE, THE INTENTION IS TO LET OUT THE BUILDING. THE LD. COUNSEL OF THE ASSESSEE HAD H EAVILY RELIED ON THE DECISION OF THE HON'BLE SULTAN BROTHERS PVT. LTD. V S. CIT [SUPRA]. IN THAT CASE THE ASSESSEE COMPANY WAS OWNER OF A BUILD ING AND FITTED THE SAME WITH FURNITURE AND FIXTURES FOR BEING RUN AS A HOTEL. THE ASSESSEE HAD ENTERED INTO TWO SEPARATE AGREEMENTS TO LEASE O UT THIS BUILDING WHICH PROVIDED A MONTHLY RENT OF ` .5950/- FOR THE BUILDING AND ` .5000/- FOR HIRING OF FURNITURE AND FIXTURES. ON TH ESE FACTS IT WAS HELD BY THE HON'BLE APEX COURT THAT IT WAS INSEPARABLE L ETTING OUT AND THAT IS WHY SAME WAS HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. LATER ON, THIS DECISION WAS CONSIDE RED BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SHAMBHU INVESTMENT PVT. [SUPRA], WHEREIN ASSESSEE WAS OWNER OF A BUILDING I N NARIMAN POINT, MUMBAI. THE SAID PREMISES HAD BEEN FURNISHED BY THE ASSESSEE AND HAD BEEN LET OUT TO VARIOUS PERSONS AND/OR FIRMS AN D/OR ORGANIZATIONS 6 WITH ALL FURNITURE AND FIXTURES, LIGHT, AIR CONDITI ONERS BEING USED AS A TABLE SPACE. FURTHER, THE ASSESSEE WAS UNDER AN AGR EEMENT WITH THE OCCUPIERS TO PROVIDE SERVICES LIKE, LIGHT, ELECTRIC ITY, WATER AND OTHER COMMON AMENITIES. ON A QUESTION WHETHER SUCH RENT R ECEIPTS WERE ASSESSABLE AS INCOME FROM BUSINESS OR INCOME FROM H OUSE PROPERTY, THE HON'BLE COURT OBSERVED AS UNDER: TO DECIDE SUCH AN ISSUE THE APEX COURT GAVE A GUID ELINE THAT TO COME TO A CONCLUSION ONE HAS TO FIND OUT THE ANSWER ON T HREE ISSUES, NAMELY : (A)WAS IT THE INTENTION IN MAKING THE LEASE-AND IT MATTERS NOT WHETHER THERE IS ONE LEASE OR TWO, I.E., SEPARATE LEASES IN RESPECT OF THE FURNITURE AND THE BUILDING-THAT THE TWO SHOULD BE ENJOYED TOG ETHER ? (B) WAS IT THE INTENTION TO MAKE THE LETTING OF THE TWO PRACT ICALLY ONE LETTING ? (C) WOULD ONE HAVE BEEN LET ALONE, AND A LEASE OF IT A CCEPTED, WITHOUT THE OTHER ? IF THE ANSWERS TO THE FIRST TWO QUESTIONS ARE IN TH E AFFIRMATIVE AND THE LAST IN THE NEGATIVE, THEN IT HAS TO BE HELD THAT T HE LETTINGS WOULD BE INSEPARABLE. AFTER DISCUSSING SOME CASE LAWS, IT WAS FURTHER OBS ERVED AS UNDER: TAKING A SUM TOTAL OF THE AFORESAID DECISIONS IT C LEARLY APPEARS THAT MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY THAT CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH I NCOME AS INCOME FROM PROPERTY. WHAT HAS TO BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND APPLYING SUCH TEST THAT THE MAIN INTENTION IS FOR LETTING OUT TH E PROPERTY OR ANY PORTION THEREOF THE SAME MUST BE CONSIDERED AS RENTAL INCO ME OR INCOME FROM PROPERTY. IN CASE IT IS FOUND THAT THE MAIN INTENT ION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL AC TIVITIES IN THAT EVENT IT MUST BE HELD AS BUSINESS INCOME. THEN THE COURT HELD THAT SINCE IN THE PRESENT CASE THERE WERE NO TWO SEPARATE AGREEMENTS IN RESPECT OF FURNITURE AND BUI LDING, THEREFORE, THE ONLY INTENTION COULD BE INFERRED WAS TO LET OUT THE PORTION OF THE PREMISES TO THE RESPECTIVE OCCUPANTS. AFTER FURTHER DISCUSSION, IT WAS ULTIMATELY HELD THAT THE INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THIS DECISION HAS BEEN CONFIRMED B Y THE HON'BLE SUPREM COURT IN THE CASE OF IN THE CASE SHAMBHU INV ESTMENT PVT. LTD. 7 VS. CIT REPORTED AT 263 ITR 143. SINCE THE HON'BLE SUPREME COURT HAS PASSED A SHORT ORDER BUT BY DOCTRINE OF MERGER THE DECISION OF THE HON'BLE SUPREME COURT IS REQUIRED TO BE READ ALONG WITH THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT. 7. IN THE CASE BEFORE US ALSO THERE ARE NO TWO SEPA RATE AGREEMENTS FOR LETTING OUT THE FIXTURES AND BUILDIN G SEPARATELY. IN FACT, AS OBSERVED BY US THERE IS HARDLY ANY FIXTURES FITT ING IN THE BUILDING EXCEPT FOR THE AIR CONDITIONERS AND, THEREFORE, FOL LOWING THE RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SHAMBHU INVESTMENT PVT. LTD. VS. CIT [SUPRA], WE ARE OF THE VIEW THAT INCOME FROM BUILDING HAS TO BE ASSESSED AS INCOME FROM HOU SE PROPERTY. 8. THE LD. COUNSEL OF THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF THE HON'BLE GAUHATI HIGH COURT IN THE CASE OF AS SAM BISCUIT MFG. CO. LTD. VS. CIT [SUPRA]. BUT IN THAT CASE THE BENEFIT OF DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENT PVT. LTD. VS. CIT [SUPRA] WAS NOT AVAILABLE AND, THEREFORE, I S OF NO HELP. THE LD. COUNSEL OF THE ASSESSEE HAD ALSO RELIED ON THE DECI SION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SMT. P. AN DAL AMMAL AND ANOTHER [SUPRA]. IN THAT CASE ALSO THERE WERE NO TW O SEPARATE AGREEMENTS AND, THEREFORE, DECISION ALSO STANDS DIS TINGUISHED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SHAMBHU INVESTMENT PVT. LTD. VS. CIT [SUPRA]. IN ANY CASE, THE DECISION IN THE CASE OF CIT VS. SMT. P. ANDAL AMMAL AND ANOTHER [SU PRA] HAS BEEN CONSIDERED BY THE HON'BLE MADRAS HIGH COURT ITSELF LATER ON IN THE CASE OF CIT VS. CHENNAI PROPERTIES AND INVESTMENT LTD. [ 266 ITR 685]. IN 8 THIS CASE THE DECISION OF SULTAN BROTHERS PVT. LTD. VS. CIT WAS ALSO CONSIDERED, BUT ULTIMATELY IT WAS CONCLUDED THAT IN COME FROM PROPERTY HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. T HEREFORE, WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. BEFORE US THE LD. COUNS EL OF THE ASSESSEE HAD ALSO FIELD A COPY OF THE ASSESSMENT ORDER IN TH E CASE OF M/S AIPITA MARKETING PVT. LTD. WHILE ARGUING THE SECOND GROUND IN THIS APPEAL. HOWEVER, INTERESTINGLY WHEN IT WAS OBSERVED THAT IN THAT CASE ALSO INCOME HAD BEEN ASSESSED AS INCOME FROM HOUSE PROPE RTY AND A QUERY WAS RAISED BY THE BENCH AS TO WHAT HAPPENED IN THAT CASE, HE FAIRLY CONCEDED THAT NO APPEAL HAS BEEN FILED IN THAT CASE . THE DIRECTORS IN THE ASSESSEE COMPANY BEFORE US AND THE DIRECTORS IN M/S AIPITA MARKETING PVT. LTD. ARE COMMON WHICH MEANS THESE CO MPANIES ARE IN THE SAME GROUP. IT IS STRANGE THAT ASSESSEE IN THE CASE OF M/S AIPITA MARKETING PVT. LTD. HAS ACCEPTED THE DECISION OF TH E REVENUE THAT INCOME CAN BE ASSESSED AS INCOME FROM HOUSE PROPERT Y, THEN WE FAIL TO UNDERSTAND WHY ASSESSEE HAS CHALLENGED THE ASSES SABILITY OF INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN THE PRESENT CASE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT[A] . 9. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS RECEIVED A SUM OF ` `` ` .45 LACS AS INTEREST FREE SECURITY DEPOSIT FOR LETT ING OUT THE ABOVE NOTED PROPERTY. THE AO WAS OF THE VIEW THAT A HUGE INTEREST FREE DEPOSIT HAS BEEN TAKEN AND, THEREFORE, IT IS OBVIOU S THAT RENT HAS BEEN UNDERSTATED BY THE ASSESSEE. ACCORDINGLY, HE ADDED NOTIONAL INTEREST 9 ON SECURITY DEPOSIT TOWARDS THE RENT AND ULTIMATELY THE ANNUAL VALUE WAS TAKEN AT ` `` ` .27,41,250/-. 10. BEFORE THE CIT[A] IT WAS MAINLY ARGUED THAT SEC URITY DEPOSIT WAS REFUNDABLE, THEREFORE, INTEREST ON NOTIONAL BASIS C OULD NOT BE ADDED TO THE ANNUAL LETTING VALUE AND RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J. K.INVESTORS [248 ITR 723]. HOWEVER, THE LD. CIT[A] CONFIRMED THE ACT ION OF THE AO ON THE BASIS OF THE DECISION OF THE HON'BLE BOMBAY HIG H COURT IN THE CASE OF M. V. SONAWALA VS. CIT [177 ITR 246] WHEREIN IT WAS HELD THAT INCOME FROM HOUSE PROPERTY HAS TO BE COMPUTED ON TH E BASIS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY LET FRO M YEAR TO YEAR AT THE ANNUAL MUNICIPAL RATEABLE VALUE 11. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT WAS LATER DECIDED THROUGH A MOU THAT PART OF THE SECURI TY DEPOSIT WOULD BE REFUNDED BY THE ASSESSEE AND IN THIS CONNECTION FIL ED A COPY OF THE LETTER DATED MAY 22, 2002. ADMITTEDLY, THIS LETTER WAS NOT FILED BEFORE THE AO OR CIT[A]. HE ARGUED THAT A LESSER AMOUNT OF SECURITY REMAINED OUTSTANDING AFTER REFUND OF SOME PART OF THE SECURI TY DEPOSIT AND, THEREFORE, NOTIONAL INTEREST COULD NOT HAVE BEEN AD DED TO THE ANNUAL VALUE. HE FURTHER ARGUED THAT IN ANY CASE THE CO-OR DINATE BENCH IN THE CASE OF RECLAMATION RELATY INDIA PVT. LTD. IN I.T.A .NO.1411/MUM/07 & ORS. WHEREIN IT HAS BEEN HELD NOTIONAL INTEREST ON SECURITY DEPOSITS COULD NOT BE ADDED TO THE ANNUAL VALUE. LASTLY, HE RELIED ON THE DECISION OF FULL BENCH OF HON'BLE DELHI HIGH COURT IN THE CASE OF MONI 10 KUMAR SUBBA & ORS. IN I.T.A.NO.499 OF 2008 & ORS., WHEREIN SIMILAR VIEW HAS BEEN TAKEN. 12. ON THE OTHER HAND, LD. DR RELIED ON THE DECISIO N OF HON'BLE DELHI HIGH COURT ON THE SAME CASE AND POINTED OUT THAT TH E HON'BLE COURT HAS MADE VARIOUS OBSERVATIONS AT PARAS 10 TO 19 THR OUGH WHICH IT HAS BEEN CLEARLY OBSERVED THAT REVENUE HAS A RIGHT TO E STIMATE THE FAIR RENT U/S.23(1)(A) AND IF SUCH FAIR RENT IS MORE THAN THE ACTUAL RENT RECEIPT, THEN SUCH FAIR RENT HAS TO BE ASSESSED AS ANNUAL VA LUE. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT APPLICATION OF SECTION 23 OF THE I.T. ACT HAS TO BE CONSIDERED IN THE BACK DROP OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME TAX VS. J. K. INVESTORS (BOMBAY) LTD. , [(2001) 248 ITR 723 (BOM.)]. IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD. ( ITA. NO. 1411/2007 & BATCH DT 26/11/2010) , THE ITAT, D BENCH, MUMBAI HELD THAT SO LONG AS RENT RECEIVED BY THE ASSESSEE IS MORE TH AN THE MUNICIPAL RATEABLE VALUE MERELY BECAUSE ASSESSEE CO ULD HAVE RECEIVED A HIGHER RENT (FAIR RENT) IT CANNOT B E TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ESTIMATING TH E FAIR RENT UNDER SECTION 23 (1) (A) OF THE ACT. THE SAID BENCH WAS OF THE OPINION THAT THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF J.K. INVESTORS (SUPRA) HAD RESTRICTED T HE SCOPE AND AMBIT OF THE EXPRESSION RECEIVED AND FAIR RE NT TO LIMIT TO THE RENT ACTUALLY DETERMINED BY THE MUNICI PAL 11 AUTHORITIES OR BY THE RENT CONTROLLER. HOWEVER, REC ENTLY THE FULL BENCH OF THE HONBLE DELHI HIGH COURT HAD AN O CCASION TO ANALYSE THE WHOLE GAMUT OF THE CASE LAW ON THE I SSUE AND IN PARTICULAR, EXPLAINED THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (SU PRA) TO NOTICE THAT THE HONBLE BOMBAY HIGH COURT HAD NEVER RESTRICTED SCOPE AND AMBIT OF THE EXPRESSION RECEI VED TO LIMIT IT TO THE MUNICIPAL RATEABLE VALUE. IN THE CA SE OF MONI KUMAR SUBBA (2011) 333 ITR 38 (DEL.) (F.B.) THE HON BLE COURT EXTRACTED THE RELEVANT OBSERVATIONS OF THE HO NBLE BOMBAY HIGH COURT TO HIGHLIGHT THAT IN DETERMINING THE FAIR RENT VARIOUS FACTORS COULD BE TAKEN INTO ACCOUNT. IN OTHERWORDS, IT NEED NOT NECESSARILY BE RESTRICTED T O THE MUNICIPAL RATEABLE VALUE (SEE PAGE 58 OF THE REPORT ). NO DOUBT, NOTIONAL INTEREST CANNOT FORM PART OF ACTUAL RENT. THE ASSESSEE IS DUTY BOUND TO FURNISH RELEVANT INFO RMATION TO ENABLE THE A.O. TO ARRIVE AT THE STANDARD RENT. AS COULD BE NOTICED FROM PAGE 56 OF THE REPORT THE HONBLE D ELHI HIGH COURT, FULL BENCH, OBSERVED THAT IF THE A.O. CAN SHOW THAT THE RATEABLE VALUE UNDER MUNICIPAL LAWS DOES N OT REPRESENT THE CORRECT FAIR RENT, THEN HE MAY DETERM INE THE SAME ON THE BASIS OF MATERIAL/EVIDENCE PLACED ON RE CORD. THIS IS BASED ON THE PREMISE THAT ANNUAL VALUE FIXE D BY THE MUNICIPAL AUTHORITIES MAY NO DOUBT BE A RATIONAL YA RDSTICK BUT IF THE SAME IS NOT IN CLOSE PROXIMITY WITH THE 12 ASSESSMENT YEAR IN QUESTION, ON ACCOUNT OF CHANGE O F CIRCUMSTANCES BECAUSE OF PAUCITY OF TIME ANNUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES MAY NOT DEPICT T HE FAIR RENT AND UNDER THE CIRCUMSTANCES IT MAY NOT PROVIDE A SAFE YARDSTICK. THE DELHI FULL BENCH, APART FROM AGREEI NG WITH THE VIEW TAKEN BY THE HONBLE BOMBAY HIGH COURT, HA S ALSO TAKEN NOTE OF THE DECISION OF THE APEX COURT IN THE CASE OF CORPORATION OF CALCUTTA VS. SMT. PADMA DEVI AIR 196 2 (S.C.) 151. HONBLE DELHI HIGH COURT THUS OBSERVED, AT PAGE 56 AS UNDER : A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AF FORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DE FLATED RATE OF RENT BASED UPON FRAUD, EMERGENCY, RELATIONS HIP AND SUCH OTHER CONSIDERATIONS MAY TAKE IT OUT OF THE BO UNDS OF REASONABLENESS. THUS THE RATEABLE VALUE, IF CORREC TLY DETERMINED, UNDER THE MUNICIPAL LAWS CAN BE TAKEN A S ALV UNDER SECTION 23(1)(A) OF THE ACT. TO THAT EXTENT W E AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE A SSESSEE. HOWEVER, WE MAKE IT CLEAR THAT RATEABLE VALUE IS NO T BINDING ON THE ASSESSING OFFICER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS D OES NOT REPRESENT THE CORRECT FAIR RENT, THEN HE MAY DE TERMINE THE SAME ON THE BASIS OF MATERIAL/ EVIDENCE PLACED ON RECORD. THIS VIEW IS FORTIFIED BY THE DECISION OF P ATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810 . 14. AT THIS POINT, IT DESERVES TO BE NOTICED THAT T HE LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSEE, HAS STRONGLY C ONTENDED THAT THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF TH E ITAT, MUMBAI BENCH IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD. (SUPRA) WHICH IN TURN IS BASED ON THE DECISION OF THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF J. K. INVESTORS [SUPRA]. IT IS TRITE LA W THAT A DECISION OF THE 13 JURISDICTIONAL HIGH COURT IS BINDING ON ALL THE LOW ER AUTHORITIES FUNCTIONING WITHIN THE JURISDICTION AND IN A PECULI AR CASE OF THIS NATURE WHERE THE DECISION OF THE JURISDICTIONAL HIGH COURT REQUIRES TO BE INTERPRETED - IN THE EVENT OF CONFLICT OF INTERPRET ATION BETWEEN A LOWER FORUM SUCH AS THE APPELLATE TRIBUNAL AND INTERPRETA TION BY A FULL BENCH OF ANOTHER HIGH COURT WITH REGARD TO THE OPIN ION EXPRESSED BY THE JURISDICTIONAL HIGH COURT - THE INTERPRETATION OF A HIGHER FORUM DESERVES TO BE TAKEN NOTE OF. UNDER THESE CIRCUMSTA NCES, WE RESPECTFULLY FOLLOW THE DECISION OF HONBLE BOMBAY HIGH COURT AS UNDERSTOOD BY THE FULL BENCH OF THE HONBLE DELHI H IGH COURT. SINCE TAX AUTHORITIES HAVE NOT CONSIDERED THE ISSUE IN THE PR OPER PERSPECTIVE. IN THE INTEREST OF SUBSTANTIAL JUSTICE, WE SET ASIDE T HIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO IS DIRECTED TO RECONSIDER THE MATTER AND RE- DETERMINE THE FAIR RENT IN LINE WITH THE VIEW EXPRE SSED BY THE HONBLE BOMBAY HIGH COURT - AS EXPLAINED BY THE HONBLE DEL HI HIGH COURT (FULL BENCH) (SUPRA). 15. FROM THE DECISION OF THE HON. FULL BENCH OF THE HON. DELHI HIGH COURT, IT IS CLEAR THAT FOR DETERMI NATION OF THE FAIR RENT, THE AO HAS TO TAKE INTO ACCOUNT VARI OUS FACTORS INCLUDING STANDARD RENT. WE MAY MENTION TH AT MUNICIPAL VALUE OR STANDARD RENT FIXED BY MUNICIPA L OR OTHER AUTHORITIES, IN ITSELF, MAY NOT BE A BINDING FACTOR AS THE A.O. HAS TO DETERMINE THE REASONABLENESS OF R ENT BY TAKING INTO ACCOUNT VARIOUS OTHER FACTORS, AS HELD BY THE HONBLE BOMBAY HIGH COURT. 14 17 GROUND NO.3 REGARDING LEVY OF INTEREST IS OF CON SEQUENTIAL NATURE AND WE DIRECT THE AO TO LEVY THE INTEREST IN ACCORDANCE WITH THE LAW. 18 IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 6 /5/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 6/5/2011. P/-*