THE ITO 10(3)(4), MUMBAI V. M/S. MITHA ESTATE P. LTD, NAVI MUMBAI

ITA 3313/MUM/2008

• Counselvise Citation: 331319914 RSA 2008
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 09-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 12-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: CHETAN KARIA
• Keywords: Business income; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3313/MUM/2008 (ASSESSMENT YEAR: 2004-05) INCOME TAX OFFICER - 10(3)(4) M/S. MITHA ESTATE PVT . LTD. ROOM NO. 452, 4TH FLOOR 206, BIG SPLASH, SECTOR - 1 7 AAYAKAR BHAVAN, M.K. ROAD VS. VASHI, NAVI MUMBAI MUMBAI 400020 PAN - AAACM 2793 F APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI CHETAN KARIA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY REVENUE IS AGAINST THE ORDER F THE C IT(A) X, MUMBAI DATED 10.03.2008. 2. THE A.O., WHILE COMPUTING THE ANNUAL VALUE FOR THE PURPOSE OF COMPUTING THE INCOME UNDER THE HEAD INCOME FROM HO USE PROPERTY, ADDED A SUM OF ` 83,82,396/- BEING 15% OF THE ADVANCE LEASE RENT REC EIVED OF ` 5.59 CRORES. ASSESSEE OBJECTED TO THE SAID VALUATION ON THE GROUND THAT THE ADVANCE LEASE RENT WAS RECEIVED FROM VARIOUS TENANT S AND ASSESSEE HAS OFFERED THE LEASE RENT AMOUNT OF ` 14,32,888/- WHICH WAS ALSO TREATED BY THE A.O. UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME OFFERED. ASSESSEE ALSO CONTESTED THE ISSUE O F OWNERSHIP OF THE PROPERTY BUT THE CIT(A), FOLLOWING HIS ORDERS IN AS SESSMENT YEARS 1997-98 AND 1998-99 ALLOWED ASSESSEES APPEAL FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS BOM BAY LTD. 168 CTR 189. REVENUE IS AGGRIEVED AND RAISED THE GROUND ACCORDIN GLY. 3. THE LEARNED D.R. SUBMITTED THE FACTS AND STATED THA T THE ISSUE WAS DETERMINATION OF ANNUAL LETTING VALUE OF THE PROPER TY UNDER SECTION 23(1)(A) AND NOT ADDITION OF NOTIONAL INTEREST AS WAS CONSID ERED BY THE CIT(A). HE ITA NO. 3313/MUM/2008 M/S. MITHA ESTATE PVT. LTD. 2 SUBMITTED THAT THE DECISION OF THE CIT(A) IS NOT CO RRECT AS THE MATTER IS YET TO ACHIEVE FINALITY. 4. THE LEARNED A.R., HOWEVER, SUBMITTED THAT THE FACTS IN THIS CASE ARE THAT ASSESSEE HAD TAKEN THE PROPERTY FROM CIDCO ON A 60 YEAR LEASE AND CONSTRUCTED A COMMERCIAL COMPLEX AND IS CONSTRUCTIN G A HOTEL AND OTHER COMMERCIAL ESTABLISHMENTS AND CLUB AS PER THE ORIGI NAL AGREEMENT. ASSESSEE HAD LEASED OUT THE COMMERCIAL PROPERTIES TO VARIOUS TENANTS FOR A PERIOD OF 59 YEARS 9 MONTHS AND HAD RECEIVED ADVANCE RENT FRO M THE TENANTS. HE REFERRED TO THE STATEMENT FILED ON RECORD ABOUT THE VARIOUS LEASE AMOUNTS RECEIVED FROM VARIOUS PARTIES, PARTICULARLY THE STA TEMENT FROM A.Y. 1995-96 ONWARDS IN PAGE 40 & 41 OF THE PAPER BOOK. IT WAS S UBMITTED THAT ASSESSEE WAS FOLLOWING THE PRACTICE OF TAKING ADVANCE RENT F ROM TENANTS AND NO SECURITY DEPOSIT AS CONSIDERED BY THE A.O. OUT OF T HE ADVANCES RECEIVED ASSESSEE WAS OFFERING THE YEARLY LEASE RENT ON THE BASIS OF THE AMOUNT RECEIVED AND THE BALANCE OF THE LEASE PERIOD PROPOR TIONATELY. THUS IT WAS SUBMITTED THAT IN THE YEAR 1995-96 ASSESSEE HAS ` 4.82 CRORES OF ADVANCE RENT OUT OF WHICH INCOME HAS SHOWN AT ` 9,84,732/- ON THE BASIS OF THE TOTAL AMOUNT DIVIDED BY 48 YEARS. THE NEXT YEAR, AFTER AD JUSTING THE REFUND, ASSESSEE HAS SHOWN THE INCOME AT ` 9,80,477/-. IN THE IMPUGNED YEAR AY 2004-05 ASSESSEE HAS SHOWN ` 14,32,888/- AS INCOME OUT OF THE TOTAL ADVANCE RECEIVED DIVIDED BY 40 YEARS, WHICH IS THE BALANCE PERIOD OF LEASE. IT WAS ALSO SUBMITTED THAT IF ANY TENANT VACATES THE P REMISES HIS AMOUNT FOR THE BALANCE PERIOD WAS REFUNDED AND FRESH LEASE REN T FOR THE SAME AMOUNT WAS ACCEPTED FROM A NEW TENANT THEREBY THERE ARE AD JUSTMENTS BY WAY OF RECEIPTS AND REFUNDS DURING THE YEAR, AS CAN BE SE EN FROM THE STATEMENT. IT WAS HIS SUBMISSION THAT THE ASSESSEE HAS NOT RECEIV ED ANY DEPOSITS AND WHATEVER AMOUNT WAS REFUNDED, ONLY THE RENTS WHICH ARE RECEIVED IN ADVANCE WERE REFUNDED AND NOT THE DEPOSITS AS THE CASE IN ACCEPTANCE OF A DEPOSIT IN LIEU OF RENT IN MANY CASES. IT IS THE CA SE OF RECEIPT OF ADVANCE RENT COMPLETELY FOR THE ENTIRE PERIOD AS ASSESSEE IS INT ERESTED IN THE PROPERTY BY CIDCO AS LESSEE FOR 60 YEARS AND ASSESSEE WAS ENTIT LED FOR CLAIM OF RENT FOR ITA NO. 3313/MUM/2008 M/S. MITHA ESTATE PVT. LTD. 3 A PERIOD OF 59 YEARS 9 MONTHS AND ACCORDINGLY ASSES SEE WAS RECEIVING THE RENT IN ADVANCE AND ADJUSTING THE RENT FOR THE PERI OD OF OCCUPATION. IN VIEW OF THIS, THE LEARNED COUNSEL SUBMITTED THAT THE QUE STION OF ESTIMATING THE NOTIONAL RENT ON THE ADVANCE RENT RECEIVED DOES NOT ARISE. ASSESSEE PLACED ON RECORD THE APPLICATION UNDER RULE 27 SUPPORTING THE ORDER OF THE CIT(A) STATING THAT THE A.O. ERRED IN ASSESSING THE LEASE RENT AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME AS OFFERED IN T HE RETURNED INCOME. FURTHER IT WAS ALSO CONTESTED THAT THE A.O. ERRED I N TREATING ASSESSEE AS OWNER OF THE SAID PREMISES THEREBY ASSESSING TO TAX UNDER SECTION 22 IN RESPECT OF THE PROPERTY. IT WAS SUBMITTED THAT PROV ISIONS OF SECTION 22 ARE NOT ATTRACTED IN RESPECT OF THE SAID PROPERTY IN TH E CASE OF THE ASSESSEE AS IT HAS IN TURN LEASED OUT TO VARIOUS TENANTS ON THE SA ME LONG TERM BASIS. 5. WE HAVE CONSIDERED THE ISSUE. WHILE AGREEING WITH T HE ORDERS OF THE CIT(A) THAT NOTIONAL INCOME CALCULATED ON PERCENTAG E OF DEPOSIT RECEIVED, CANNOT BE BROUGHT TO TAX, WE ARE OF THE OPINION THA T BOTH THE A.O. AND THE CIT(A) WRONGLY CONSIDERED THE ADVANCE RENT RECEIVED AS SECURITY DEPOSIT. AS SEEN FROM THE AGREEMENT ASSESSEE WAS GIVEN POSSESSI ON OF THE PROPERTY BY CIDCO FOR A PERIOD OF 60 YEARS AND ASSESSEE WAS IN TURN ENTERED INTO AGREEMENT WITH VARIOUS TENANTS TAKING TOTAL LEASE P ERIOD AVAILABLE TO IT AT 59 YEARS 9 MONTHS. THIS INDEED IS NOT THE FIRST YEAR O F ENTERING INTO SUCH AGREEMENTS AS ASSESSEE HAS PLACED ON RECORD THE DET AILS FROM 01.04.1995 ONWARDS. THE A.O. HAS NEITHER EXAMINED WHETHER ASSE SSEE IS THE OWNER OF THE PROPERTY UNDER SECTION 22 AS THE ASSESSEE HAS I N TURN LEASED OUT THE PROPERTY ON LONG TERM BASIS TO TENANTS AND THERE CA NNOT BE TWO OWNERS FOR THE SAME PROPERTY AS CONTESTED BY ASSESSEE. FURTHER , THE A.O. ALSO HAS NOT EXAMINED WHETHER THE PROPERTY IS CONTROLLED BY THE RENT CONTROL ACT AND WHAT IS THE ALV TO BE CONSIDERED, IN CASE INCOME IS TO ASSESSED UNDER THE HEAD 'HOUSE PROPERTY'. THE INCOMES WAS OFFERED UNDE R THE HEAD BUSINESS INCOME WHEREAS THE A.O. ALSO HAS NOT DISCUSSED WHE THER THE INCOME IS TO BE CONSIDERED AS BUSINESS INCOME OR HOUSE PROPERTY INCOME OR EVEN FROM 'OTHER SOURCES' IN CASE THE PROPERTY IS NOT OWNED BY ASSESSEE. IN VIEW OF ITA NO. 3313/MUM/2008 M/S. MITHA ESTATE PVT. LTD. 4 THIS, WE ARE OF THE OPINION THAT THE MATTER CAN BE RE-EXAMINED BY THE A.O. AS THE LEARNED COUNSEL INFORMED THAT THE ISSUE IN A .Y. 2005-06 WAS RESTORED TO THE FILE OF THE A.O. BY THE CIT(A) AND HE HAS NO OBJECTION IF THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE A.O. THEREFORE, WI THOUT GOING INTO THE MERITS ON THE ISSUE THE MATTER IS RESTORED TO THE FILE OF THE A.O. TO EXAMINE VARIOUS FACTORS AND DETERMINE THE HEAD OF INCOME AND THEN W HETHER THE PROVISIONS OF SECTION 23(1)(A) ARE APPLICABLE OR NOT, IF SO, W HAT WOULD BE THE ANNUAL LETTING VALUE. IT IS TO BE PLACED ON RECORD THAT TH E ASSESSEE HAS ALREADY OFFERED THE INCOME OF ` 14,32,888/- AS LEASE RENT WHICH ALSO SHOULD BE KEPT IN MIND WHILE CONSIDERING THE ISSUE. THEREFORE, ISS UES IN THIS APPEAL ARE ACCORDINGLY RESTORED TO THE FILE OF THE A.O. THE A. O. SHOULD GIVE PROPER OPPORTUNITY TO ASSESSEE TO PLACE ON RECORD ITS SUBM ISSIONS AND CONSIDER THEM ACCORDING TO FACTS AND LAW ON THE ISSUE. 6. IN THE RESULT, APPEAL IS CONSIDERED ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) X, MUMBAI 4. THE CIT X, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.