DEENA ASIT MEHTA, MUMBAI V. DCIT 4(1)(1), MUMBAI

ITA 3549/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0632 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMLATHA DR LAST
• Keywords: Business income; Notional interest
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3549 /MUM/ 2016 ASSESSMENT YEAR: 2012 - 13 MRS. DEENA ASIT MEHTA 67, 3 RD BLOCK, PODDAR CHAMBERS, S.A. BRELVI ROAD, FORT, MUMBAI - 400001 VS. DCIT - 4(1)(1) MUMBAI. PAN NO. AABPM6683L APPELLANT RESPONDENT ASSESSEE BY : MR. SATISH MODI , AR REVENUE BY : MR. PURUSHOTTAM KUMAR , DR & MS. N.HEMLATHA, DR LAST D ATE OF HEARING : 02 /0 2 /201 8 D ATE OF PRONOUNCEMENT : 09/02/2018 ORDER PER N.K. PRADHAN, AM WHETHER THE RECEIPT OF INTEREST - FREE SECURITY DEPOSIT BY A TAXPAYER CAN BE IGNORED WHILE COMPUTING ANNUAL LETTING VALUE OF A PROPERTY LET OUT TO A COMPANY WHERE SHE IS THE MANAGING DIRECTOR ? THIS IS WHAT THIS CASE IS ALL ABOUT. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 1 3 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 9, MUMBAI AND ARISES OUT OF THE MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 2 ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE (I) THE LD. CIT(A) ERRED IN STATING THAT THE ASSESSEE RECEIVED RS.2,75,00,000/ - AS INTEREST - FREE DEPOSIT IN RESPECT OF THE OFFICE PREMISES GIVEN ON RENT AND LEAVE AND LICENCE BASIS; WHEREAS THE ASSESSEE HAS RECEIVED RS.1,00,00,000/ - AS DEPOSIT IN RESPECT OF PODDA R CHAMBERS OFFICE PREMISES GIVEN ON LEAVE AND LICENCE BASIS FROM LAST MANY YEARS, (II) THE LD. CIT(A) ERRED IN OVERLOOKING THE FACT THAT THE ASSESSEE HAD RECEIVED ANOTHER DEPOSIT OF RS.1,75,00,000/ - IN MARCH 2012 IN RESPECT OF GRANTING LEAVE AND LICENCE OF RESIDENTIAL PREMISES SITUATED IN ABHILASHA BUILDING, (III) THE LD. CIT(A) ERRED IN ESTIMATING OF RS.27,50,000/ - CALCULATED AT 10% ON THE ABOVE AMOUNT OF RS.2,75,00,000/ - INTEREST - FREE DEPOSIT AND CONFIRMING THE SAME AS INCOME OF THE ASSESSEE, (IV) THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER ( AO ) TO DETERMINE THE ANNUAL VALUE OF THE PROPERTY U/S 23 OF THE ACT AND (V) THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE WAS NOT THE OWNER OF THE PROPERTY GIVEN ON LEAVE AND LICENCE BASIS AND THAT THE PROVISIONS OF SECTION 23 EMPOWERING THE AO TO DETERMINE THE ANNUAL LETTING VALUE OF THE PROPERTY ARE NOT APPLICABLE TO HER. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HA S DECLARED LEAVE AND LICENSEE FEE OF RS. 4,80,000/ - RECEIVED BY HER FROM THE OFFICE PREMISES SITUATED IN PODDAR CHAMBERS, UNDER THE HEAD INCOME F ROM OTHER S OURCES. THE ASSESSEE HAS RECEIVED INTEREST - FREE SECURITY DEPOSIT OF RS. 2,75,00,000/ - FROM THE LICENSEE. THE AO HELD THAT MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 3 SECTION 23 IS APPLICABLE TO THE ASSESSEE AND THAT NOTIONAL INTEREST IS REQUIRED TO BE WORKED OUT ON SUCH DEPOSIT. W HILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE , THE AO CALCULATED NOTIONAL INTEREST @ 10% ON THE SAID INTEREST - FREE DEPOSIT OF RS.2,75,00,000/ - AND ADDE D THE RESULTANT FIGURE OF RS.27,50,000/ - TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THERE IS NO DISPUTE THAT THE ASSESSEE RECEIVED LICENCE FEES OF RS.4,80,000/ - FROM ONE OF THE PROPERTIES I.E. IN RESPECT OF PODDAR CHAMBERS. SHE, HOWEVER, RECEIVED RS.2,75,00,000/ - AS INTEREST - FREE SECURITY DEPOSIT. EVEN THOUGH , THE ASSESSEE WAS NOT THE OWNER OF THE ABOVE REFERRED PROPERTY AND WAS A TENANT, THE LD. CIT(A) FOUND THAT SHE HAD RECEIVED RS.2,75,00,000/ - FOR LETTING THE PART OF ASSET TO BE USED BY OTHER WHICH AMOUNTS TO SUB - LETTING OF THE PROPERTY. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS NOT SUBSTANTIATED AS TO WHETHER THE LICENCE FEE CHARGED BY HER WAS AS PER PREVAILING MARKET RATE IN THAT AREA/LOCALITY . THE LD. CIT(A) ALSO DID NOT ACCEPT THE OTHER ARGUMENT OF THE ASSESSEE THAT THE INTEREST FREE SECURITY DEPOSIT WAS USED FOR BUSINESS PURPOSE AND WHATEVER INCOME COULD BE EARNED IS REFLECTED IN THE SUM TOTAL OF BUSINESS INCOME. THE REASONS GIVEN BY THE LD. CIT(A) ARE THAT THE SECURITY DEPOSIT PROVIDED BY ANY TENANT IS GENERALLY KEPT READY IN FIXED DEPOSIT OR IN CURRENT ACCOUNT OR ANY SUCH ACCOUNT BECAUSE THE TENANT CAN ALWAYS CANCEL THE LEAVE & LICENCE AGREEMENT BY GIVING NOTICE MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 4 OF PERIOD 1 - 1 MONTH. THE SECURITY MONEY DEPOSIT HAS TO BE KEPT ALWAYS READY FOR REFUNDING TO THE TENANT AND IN CASE ANY LICENSOR WANTS TO USE THAT MONEY FOR BUSINESS OR OTHER PURPO SE, STILL THEY HAVE TO MAKE ALTERNATIVE ARRAN GEMENT TO MEET SUCH EXIGENCIES. THIS HAS NOT BEEN EXPLAINED BY THE ASSESSEE . ALSO THE ASSESSEE ARGUED BEFORE THE LD. CIT(A) THAT THE MONEY WA S USED FOR THE BUSINESS PURPOSE . THE LD. CIT(A) OBSERVED THAT IT WAS FOR THE ASSESSEE TO DEMONSTRATE AND SUBSTANTIATE AS TO HOW THE INCOME WAS DERIVED AND WHAT WAS THE QUANTUM OF INCOME OFFERED ON THE USE OF RS.2,75,00,000/ - BY CO - RELATING SUCH USE BUT THE SAME WAS NOT SUBSTANTIATED. THEREFORE, THE LD. CIT(A) UPHELD ESTIMA TED INCOME OF RS.27,50,000/ - ON RS.2,75,00,000/ - WHICH IS ONLY 10% OF THE AMOUNT. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HA S DECLARED AN AMOUNT OF RS.4,80,000/ - BEING LEAVE AND LICENCE FEE FROM OFFICE PREMISES SITUATED IN PODDAR CHAMBERS. THE ASSESSEE IS NOT AN OWNER OF THE SAID PODDAR CHAMBERS PREMISES . SHE IS A TENANT OF THE SAID PREMISES AND HA S GRANTED LEAVE AND LICENCE RIG HTS TO THE LICENSEE. THEREFORE, SHE HAS DECLARED LEAVE AND LICENCE FEES OF RS.4,80,000/ - RECEIVED BY HER UNDER THE HEAD INC OME FROM OTHER SOURCES. SHE HAS NOT CLAIMED 30% DEDUCTION AVAILABLE TO THE OWNERS OF PREMISES WHEN THE INCOME IS DECLARED AS INCOM E FROM HOUSE PROPERTY. HAD SHE BEEN THE OWNER OF THE OFFICE PREMISES, THEN THE INCOME FROM LEAVE AND LICENCE FEES WOULD HAVE BEEN DECLARED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 5 AS PER THE LD. COUNSEL , IT IS TRUE THAT THE ASSESSEE HAD RECEIVED SECU RITY DEPOSIT OF RS.2,75,00,000/ - FROM THE LICENSEE. HOWEVER, SINCE T HE ASSESSEE WAS NOT THE OWNER OF THE OFFICE PREMISES, PROVISIONS OF SECTION 23 ARE NOT APPLICABLE TO HER. THERE ARE NO SIMILAR PROVISIONS AVAILABLE IN THE ACT PARTICULARLY IN SECTION 56 EN ABLING THE AO TO WORK OUT THE NOTIONAL INTEREST. 5.1 THE LD. COUNSEL FILES A PAPER BOOK (P/B) CONTAINING (I) STAY ORDER BY ITAT IN THE MATTER OF SA NO. 288/M/2017, (II) ORDER BY CIT(A) FOR AY 2012 - 13, (III) APPEAL FORM 35, (IV) INCOME TAX ASSESSMENT ORDER FOR AY 2012 - 13, (V) BANK OF INDIA - SAVING BANK ACCOUNT, (VI) DEPOSIT ACCOUNT FOR ABHILASHA PREMISES, (VII) DEPOSIT ACCOUNT FOR PODDAR PREMISES, (VIII) DETAILS OF DEPOSIT AND ANALYSIS, ( IX) LEASE AGREEMENT PAPERS, (X) RETURN OF INCOME ALONG WITH COMPUTATION AND BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE AY 2012 - 13 AND (XI) ORDER OF THE CIT(A) FOR AY 2006 - 07. 6. PER CONTRA , THE LD. D R S SUPPORT THE ORDER PASSED BY THE LD. CIT(A). A COPY OF THE DECISION IN THE CASE OF CIT VS. STREETLITE ELECTRIC CORPORATION (2011) 336 ITR 348(P&H) IS FILED . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. THE ASSESSE E HAS DECLARED RS.4,80,000/ - BEING LEAVE AND LICENCE FEES FROM OFFICE PREMISES SITUATED IN PODDAR CHAMBERS UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE IS A TENANT OF THE SAID PREMISES AND HA S GRANTED LEAVE AND LICENCE RIGHTS TO THE LICENSEE. THE MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 6 ASSESSEE HAD ALSO RECEIVED SECURITY DEPOSIT OF RS.2,75,00,000/ - FROM THE LICENSEE. WE NOW TURN TO THE RELEVANT DOCUMENTS FILED BY THE LD. COUNSEL IN THE P/B. THE LEASE AGREEMENT ( PAGE 52 - 65 OF P/B ) IS MADE ON 31.03.2012 AND THE TERM OF THE SAID LEASE IS FROM 1.4.2012 TO 31.03.2015. SO IT IS NOT RELEVANT FOR THE FINANCIAL YEAR 2011 - 12 RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE LEAVE LICENCE AGREEMENT ( PAGE 61 - 64 OF THE P/B ) IS MADE ON 18.11.2004 BETWEEN THE ASSESSEE AND ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD. THIS HAS BEEN RENEWED BY THE ASSESSEE FROM TIME TO TIME. THE ASSESSEE HAS RENEWED IT VIDE LETTER DATED 31.01.2012 FOR THE IMPUGNED FINANCIAL YEAR. THE RELEVANT CLAUSES OF THE ORIGINAL L EAVE AND L ICENCE A GREEMENT ARE EXTRACT ED BELOW: LEAVE AND LICENSE AGREEMENT THIS LEAVE AND LICENSE AGREEMENT IS MADE AT MUMBAI THIS 18 TH DAY OF NOVEMBER, TWO THOUSAND AND FOUR BY AND BETWEEN: DEENA A. MEHTA , RESIDING AT 17, ABHILASHA, AUGUST KRANIT MARG, MUMBAI - 4 00036, HEREINAFTER CALLED THE L ICENSOR: [WHICH EXPRESSION SHALL UNLESS IT BE REPUGNANT TO THE CONTEXT OR MEANING THEREOF BE DEEMED AND INCLUDE HEIRS, EXECUTORS, ADMINISTRATORS AND ASSIGNEES] OF THE ONE PART : AND ASIT C. MEHTA INVESTMENT INTERMEDIATES LIMITED, A COMPANY INCORPORAT ED WITH LIMITED LIABILITIES UNDER THE INDIAN COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE AT NUCLEUS HOUSE, 5 TH FLOOR, SAKI VIHAR ROAD, MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 7 ANDHERI (E), MUMBAI 400072, ACMIIL HEREINAFTER CALLED THE LICENSEE [WHICH EXPRESSION SHALL UNLESS IT BE REPU GNANT TO THE CONTEXT OR MEANING THEREOF TO MEAN AND INCLUDE ITS ASSIGNEES OF THE OTHER PART . WHEREAS 1. THE LICENSOR IS A TENANT OF G.R. PODAR FOUNDATION HAVING OFFICE AT PODAR CHAMBERS, S.A. BRELVI ROAD, MUMBAI 400001 HEREINAFTER CALLED THE FOUNDATION. 2. TH E FOUNDATION OWNS A BUILDING KNOWN AS PODAR CHAMBERS SITUATION AT S.A. BRELVI ROAD, MUMBAI 400001. 3. THE L ICENSOR AS SUCH TENANT IS ENTITLED TO USE AND OCCUPY AN OFFICE UNIT ADMEASURING APPROX. 850 SQ. FT. ALONG WITH L I FT OF 100 SQ. FT. BEARING OFFICE NO. 6 7A ON THE THIRD FLOOR OF THE SAID BUILDING [HEREAFTER REFERRED TO AS THE PREMISES] 4. THE L ICENSE E HAS REQUESTED THE LICENSOR TO GRANT TO IT THE TEMPORARY LICENSE TO USE AND OCCUPY PART OF THE PREMISES FOR A PERIOD OF 33 (THIRTY THREE) MONTHS ONLY WHICH TH E LICENSOR HAS AGREED TO DO ON CERTAIN TERMS AND CONDITIONS MUTUALLY ARRIVED AT BY AND BETWEEN THEM: 5. MRS. DE E N A A. MEHTA OF THE ONE PART AND M/S ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD. ON THE OTHER PART HAVE AGREED TO ENTER INTO AN AGREEMENT WITH REGA RD TO THE ABOVE REFERRED OFFICE PREMISES TO BE EFFECTIVE FROM APRIL 1, 2004. 6. M/S ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD. HAS AUTHORIZED MR. KIRIT H. VORA, WHOLE - TIME DIRECTOR, TO SIGN AND EXECUTE THE AGREEMENT TO BE EFFECTIVE FROM APRIL 1, 2004. 7. WHER EAS BOTH THE PARTIES ARE DESIROUS OF REDUCING THE TERMS AND CONDITIONS INTO WRITING SO AS TO SAFEGUARD THEIR MUTUAL BENEFITS AND UNDERSTAND THEIR OBLIGATIONS AND RESPONSIBILITIES. MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 8 NOW THIS AGREEMENT WITNESSTH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: ..... ..... ..... ..... ..... ..... ..... ..... 4. THE LICENSE HEREBY GRANTED SHALL EFFECTIVE FROM APRIL 1, 2004 AND SHALL REMAIN IN FORCE FOR A PERIOD OF 33 MONTHS, I.E. UPTO AND INCLUDING DECEMBER 31, 2006 AND WILL END ON THAT DAY UNDER ANY CIRCUMSTANCES. 5. THE LICENSEE SHALL PAY TO THE LICENSOR A LUMP SUM LICENSE FEE AT THE RATE OF RS.40,000/ - PER MONTH BEING THE MONTHLY FEES FOR THE USE OF SAID PREMISES AND FOR THE FURNITURE, FIXTURES, FITTING AND EQUIPMENTS IN THE SAID PREMISES. THIS HOWEVER, WILL NOT CREATE ANY RIGHT, TITLE OR INTEREST IN THE LICENS ED PREMISES IN FAVOUR OF THE LICENSEE WHATSOEVER. THE LICENSEE SHALL NOT UNDER ANY CIRCUMSTANCES CHALLENGE THE SAME IN ANY COURT OF LAW AS NOT BEING FAIR FEES IN RESPECT OF THE LICENSED PREMISES. IT IS ALSO AGREED THAT THE LICENSE FEE DOES NOT INCLUDE ANY TAXES PAYABLE TO ANY STATUTORY OR OTHER AUTHORITIES. S UCH TAXES IF ANY, WILL BE RE - IMBURSED BY LICENSEE TO THE LICENSOR. 6. THE L ICENSEE AGREES TO KEEP WITH THE LICENSOR THE SUM OF RS.75,00,000/ - AS SECURITY DEPOSIT, INTEREST FREE, WHICH WILL BE REFUNDABLE TO THE LICENSEE ON VACATING THE SUBJECT LICENSED PRE MISES AND ON THE LICENSOR BEING GIVEN PEACEFUL POSSESSION THEREOF. THE LICENSOR SHALL BE ENTITLED TO DEDUCT THERE FROM SUCH AMOUNT AS MAY BE DUE TO THE LICENSOR ON ACCOUNT OF O UTSTANDING BILLS, REPAIRS AND REPLACEMENT OF FURNITURE AND FIXTURES, FEES FOR OV ERDUE STAY ETC. 7. IT IS AGREED THAT THE FEES SHALL BE PAID BY THE LICENSEE TO THE LICENSOR DURING THE EACH MONTH. MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 9 7.1 THE FIRST STATUTE WHICH IS RELEVANT FOR A LEAVE AND LICENCE IS THE INDIAN EASEMENT ACT, 1882. SECTION 52 OF THE SAID ACT DEFINES A LI CENCE AS A RIGHT GRANTED BY ONE PERSON TO ANOTHER TO DO SOMETHING IN OR UPON THE GRANTORS IMMOVEABLE PROPERTY, WHICH ACT WOULD, IN THE ABSENCE OF SUCH A RIGHT, BE UNLAWFUL. IT FURTHER STATES THAT A LICENCE MUST NOT AMOUNT TO AN EASEMENT OR AN INTEREST IN THE PROPERTY. THUS, A LICENCE IS ONLY PERMISSION OR A RIGHT TO DO SOMETHING UPON AN IMMOVEABLE PROPERTY. IT IS SOLELY A PERSONAL RIGHT OR PRIVILEGE GRANTED TO THE LICENSEE BY THE LICENSOR. A LICENCE DOES NOT CONFER ANY INTEREST IN THE IMMOVEABLE PROPERTY. IT IS FOR THIS REASON THAT A LICENSEE CANNOT MAINTAIN AN ACTION FOR POSSESSION OF THE PROPERTY IN HIS OWN NAME. THUS THE CRUX OF A LICENCE IS THAT IT IS ALWAYS A RIGHT OR A PERMISSION AND NEVER TRANSFERS OWNERSHIP OF THE PROPERTY. UNDER THE LEAVE AND LIC ENSE AGREEMENT, THE LEGAL OWNERSHIP AND THE POSSESSION OF THE PROPERTY REMAINS WITH THE LICENSOR , THE ASSESSEE IN THE INSTANT CASE . 7 .2 LET US NOW TURN TO THE RECEIPT OF INTEREST - FREE SECURITY DEPOSIT BY THE ASSESSEE IN THE INSTANT APPEAL. A SIMILAR ISSUE AROSE IN STREELITE ELECTRIC CORPORATION (SUPRA). THE FACTS IN THAT CASE ARE THAT THE ASSESSEE EARNED RENTAL INCOME FROM LETTING FACILITIES OF FACTORY, LAND, BUILDING AND OFFICES. THE ASSESSEE HAD TAKEN INTEREST - FREE SECURITY OF RS.35 LAKHS FROM TWO PARTIES TO WHOM THE ASSET S WERE LEASED OUT, BUT THE ASSESSEE SHOWED A VERY LOW RENTAL INCOME OF RS.1.50 LAKHS AS ANNUAL LETTING VALUE IN RESPECT OF THOSE PROPERTIES. THERE WAS NO PROVISION IN THE AGREEMENT FOR INCREASE IN RENT FROM YEAR TO YEAR. T HE ASSESSING OFFICER DETERMINED MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 10 THE ANNUAL VALUE OF RS.7,80,000 BY ADDING NOTIONAL INTEREST OF RS.6,30,000 CALCULATED AT THE RATE OF 18% PER ANNU M ON RS.35 LAKHS TAKEN AS SECURITY DEPOSIT, TO THE VALUE OF RS.1.50 LAKHS SHOWN BY THE ASSESSEE. THE COMMISSION ER (APPEALS) DELETED THE NOTIONAL INTEREST OF RS.6,30,000. THE TRIBUNAL AFFIR MED THE ORDER OF THE COMMISSIONER (A PPEALS). ON FURTHER APPEAL, THEIR LORDSHIPS OF THE HONBLE PUNJAB AND HARYANA HIGH COURT HELD AS UNDER : A PERUSAL OF THE LEASE DEEDS AND ON A CONJOINT READING OF ALL THE DOCUMENTS AND AN ANALYSIS OF FACTUAL ASPECT, THE IRRESISTIBLE CONCL USION IS THAT THE SECURITY DEPO SIT OF RS.35,00,000 WAS DISPROPORTIONATE TO THE ACTUAL CONTRACTUAL RENT OF RS.25,000 PER MONTH, I.E. TOTAL R S.12,500 PER MONTH FOR LAND AND BUILDING ETC. AND RS.12,500 PER MONTH FOR FURNITURE, FIXTURE, PLANT AND MACHINERY ETC. WHICH AMOUNTS TO 140 TIMES OF MONTHLY RENT AND HAS NO RATIONALE WITH THE A G REED R E N T AND THE ASSESSEE HAD ADOPTED A DEVICE TO C I RCUMVENT ITS TAXABLE INCOME. FU RTHER, RENT DEED DID NOT CONTAIN ANY PROVISION FOR INCREASE OF RENT FROM YEAR TO Y EAR. STILL FU R THER, THE SECURITY DEPOSIT OF RS.35 ,00,000 WHERE THE VALUE OF THE PROPERTY LET OUT WAS RS. 17.62 LACS, PLA NT AND M A C HINERY OF RS.1.69 LACS AND FURNITURE OF RS.48,673 / - CANNOT BE HELD TO BE JUSTIFIED AS GEN UINE TRANSACTION OF THE SECURITY DEPOSIT. THUS, THE SECURITY DEPOSIT WAS A SHAM DEVICE TO AVOID TAX AND HAD NO REAL BASIS WITH THE ACTUAL RENT THAT WAS RECEIVED BY T H E ASSESSEE . (PARAS 12 & 13) THE ANNUAL VALUE OF THE PROPERTY IS DEEMED TO BE THE RENT WHICH PROPERTY MIGHT BE EXPECTED TO LET FROM YEAR TO YEAR OR WHERE THE PROPERTY IS LET AND ANNUAL RENT RECEIVED OR RECEIVABLE IS IN EXCESS OF THE SUM, THE AMOUNT SO REC EIVED OR RECEIVABLE. ACCORDING TO SECTION 23(1)(B) WHERE THE PROPERTY IS ACTUALLY LET OUT, THE ACTUAL AMOUNT OF RENT RECEIVED OR RECEIVABLE SHALL FO R M MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 11 PART OF THE INCOME FROM HOUSE PROPERTY. ORDINARILY, THE NOTIONAL INTEREST THAT MAY ACCRUE ON SECURITY DEPOSIT WOULD NOT FORM P ART OF INCOME FROM HOUSE PROPERTY. HOWEVER, WHERE PAYMENT OF TH E SECURITY DEPOSIT IS TO CIRCUMV ENT REAL RENT, THE SAME SHALL FALL WITHIN ITS AMBIT AS INCOME FROM HOUSE PROPERTY. INTEREST ON THE SECURITY AMOUNT OF RS.35,00,000 WILL BE TREATED AS INCOME OF T HE ASSESSEE. THUS, IN THE FACTS, AS NOTICED ABOVE, IT IS CONSIDERED APPROPRIATE TO HOLD THAT INTEREST @ 9% PER ANNUM ON THE SECURITY AMOUNT OF RS.35,00,000 WOULD BE JUST TO MEET THE ENDS OF JUSTICE AND THE SAME WILL BE TREATED AS TAXABLE INCOME OF THE ASSE SSEE UNDER THE HEAD I NCOME FROM HOUSE PROP ERTY RELATING TO THE LAND AND BUILDING. (PARAS 17 & 1 9 ) THEIR LORDSHIPS CONCLUDED THAT W HERE THE SECURITY DEPOSIT IS TO CIRCUMVENT REAL RENT, THE SAME SHALL FALL WITHIN ITS AMBIT AS INCOME FROM HOUSE PROPERTY; IN THE FACTS AND CIRCUMSTANCES, INTEREST @ 9% PER ANNU M ON SECURITY DEPOSIT OF RS.35,00,000, WHICH WAS RECEIVED BY THE ASSESSEE FROM THE TENANT, WOULD BE TREATED AS TAXABLE INCOME OF THE ASSESSEE UNDER THE HEAD I NCOME FROM HOUSE PROPERTY . 7.3 WE FIND THA T THE INSTANT CASE THE SECURITY DEPOSIT OF RS.2,75,00,000/ - IS HUGELY DISPROPORTIONATE TO THE LEAVE AND LICENSE FEES OF RS.4,80,000/ - SHOWN BY THE ASSESSEE. THAT SAID FEES OF RS.40,000/ - PER MONTH IN THE FINANCIAL YEAR 2004 - 05 STILL REMAINS SAME IN THE ASS ESSMENT YEAR 2012 - 13. 7.4 AT THIS JUNCTURE, LET US EXAMINE WHETHER THE CLAUSES RELATING TO LEAVE AND LICENSE FEE AND SECURITY DEPOSIT IN THE LEAVE & LICENCE AGREEMENT IN THE INSTANT CASE ARE TO BE READ SEPARATELY OR TOGETHER. THE MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 12 HONBLE SUPREME COURT VIDE ORDER DATED 23.03.2009 IN VIMAL CHAND GHEVARCHAND JAIN & ORS. VS. RAMAKANT EKNATH JAJOO, [CIVIL APPEAL NO. 1784 OF 2009] , WHILE DEALING WITH THE CONSTRUCTION OF A COMMERCIAL CONTRACT OBSERVED : 'A DOCUMENT, AS IS WELL KNOWN, MUS T BE CONSTRUED IN ITS ENTIRETY'. IN ASSESSING THE TRUE NATURE AND CHARACTER OF A TRANSACTION, THE LABEL WHICH PARTIES MAY ASCRIBE TO THE TRANSACTION IS NOT DETERMINATIVE OF ITS CHARACTER. THE NATURE OF THE TRANSACTION HAS TO BE ASCERTAINED FROM THE COVENAN TS OF THE CONTRACT AND FROM THE SURROUNDING CIRCUMSTANCES. IN NATIONAL CEMENT MINES INDUSTRIES LTD. V S . CIT [1961] 42 ITR 69 , JUSTICE J.C. SHAH (AS HIS LORDSHIP THEN WAS) SPEAKING FOR THE HONBLE SUPREME COURT EMPHASIZED THE FOLLOWING PRINCIPLES OF INTERPRETATION TO BE ADOPTED BY THE CO URT IN CONSTRUING A COMMERCIAL TRANSACTION : ' THE COURT HAS, ON AN APPRAISAL OF ALL THE FACTS, TO ASSESS WHETHER A TRANSACTION IS COMMERCIAL IN CHARACTER YIELDING INCOME OR IS ONE IN CONSIDERATION OF PARTING WITH PRO PERTY FOR REPAYMENT OF CAPITAL IN INSTALMENTS. NO SINGLE TEST OF UNIVERSAL APPLICATION CAN BE DISCOVERED FOR SOLUTION OF THE PROBLEM. THE NAME WHICH THE PARTIES MAY GIVE TO THE TRANSACTION WHICH IS THE SOURCE OF THE RECEIPT AND THE CHARACTERIZATION OF THE RECEIPT BY THEM ARE OF LITTLE MOMENT, AND THE TRUE NATURE AND CHARACTER OF THE TRANSACTION HAVE TO BE ASCERTAINED FROM THE COVENANTS OF THE CONTRACT IN THE LIGHT OF THE SURROUNDING CIRCUMSTANCES.' 7.5 THE TRANSACTIONS MUST BE VIEWED AS A WHOLE. IT IS NOT ENOUGH TO EXAMINE THE SEPARATE INGREDIENTS OF A TRANSACTION; FOR THE TOTALITY OF A TRANSACTION MAY BE DIFFERENT FROM THE SUM OF ITS PARTS. VIEWED AS A WHOLE, THE TRANSACTION ADOPTED BY THE ASSESSEE IN THE INSTANT CASE WAS A MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 13 DEVICE TO REDUCE THE TAX BURDEN. THIS IS THE GERM OF THE PRE - ORDAINED SERIES OF TRANSACTIONS. THE TWO ISSUES I.E. LEAVE AND LICENSE FEE AND SECURITY DEPOSIT IN THE INSTANT APPEAL ARE INTERCONNECTED AND PART OF THE SAME TRANSACTION. TO PERSUADE THE TRIBUNAL TO ADOPT, IN RELATION T O CLOSELY INTEGRATED SITUATION, A STEP BY STEP, DISSECTING APPROACH, WOULD BE A DENIAL RATHER THAN AN AFFIRMATION OF THE TRUE JUDICIAL PROCESS . 7.6 WE FIND FROM THE LIST OF DIRECTORS OF ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD , GIVEN TO US BY THE LD. C OUNSEL IN RESPONSE TO A QUERY BY US, THAT THE ASSESSEE (LICENSOR) IS THE MANAGING DIRECTOR IN ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD (LICENSEE). THE RECEIPT OF RS.2,75,00,000/ - BY THE ASSESSEE AS INTEREST - FREE SECURITY DEPOSIT FROM THE LICENSEE - COMPANY IN WHICH SHE HERSELF IS THE MANAGING DIRECTOR CANNOT BE IGNORED WHILE COMPUTING THE ANNUAL LETTING VALUE. 7.7 RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT RENDERED BY THEIR LORDSHIPS OF THE HONBLE PUNJAB AND HARYANA HIGH COURT NARRATED AT PARA 7. 2 HER EINBEFORE , WE ARE OF THE CONSIDERED VIEW THAT THE SECURITY DEPOSIT IN THE INSTANT CASE IS TO CIRCUMVENT REAL RENT AND THE SAME SHALL FALL WITHIN THE AMBIT OF INCOME FROM HOUSE PROPERTY. HOWEVER, TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE AGAINST THE BACKDROP OF INTEREST RATE ON TERM DEPOSITS OFFERED BY PUBLIC SECTOR BANKS DURING THE RELEVANT PERIOD, WE DIRECT THE AO TO ESTIMATE INTEREST ON SECURITY DEPOSIT @ 9% IN PLACE OF 10% ON THE AMOUNT OF MRS. DEENA ASIT MEHTA ITA NO. 3549/MUM/2016 14 RS.2,75,00,000/ - DONE BY HI M AND BRING THE RESULTANT AMOUNT AS WELL AS THE LEAVE AND LICENSE FEES TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY . 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/02/2018 . SD/ - SD/ - ( D.T. GARASIA ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 09/02/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI