ITO 9(3)(2), MUMBAI V. SPEARHEAD PROPERTIES P. LTD, MUMBAI

ITA 3777/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49040 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 10-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: V C SHAH
• Keywords: Notional interest
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 3777/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) DATE OF HEARING: 10.5.2011 INCOME TAX OFFICER, WARD-9(3)(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 .. APPELLANT V/S M/S. SPEARHEAD PROPERTIES P. LTD. 501, KRYSTAL BUILDING 206, N.S. PATKAR MARG BANDRA (W), MUMBAI 400 050 PAN AABSC8585Q .... RESPONDENT REVENUE BY : MR. S.K. SINGH ASSESSEE BY : MR. V.C. SHAH O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED A GAINST THE IMPUGNED ORDER DATED 27 TH APRIL 2009, PASSED BY THE COMMISSIONER (APPEALS)-IX, MUMBAI, FOR ASSESSMENT YEAR 2006-07. 2. THE SOLE ISSUE ARISING IN THIS APPEAL IS, WHETHER O R NOT THE ASSESSING OFFICER IS JUSTIFIED IN ADDING THE NOTIONAL INTERES T ON SECURITY DEPOSITS TO THE ACTUAL RENT RECEIVED BY THE ASSESSEE AND THEREAFTER , HOLDING THAT SUCH AMOUNT IS AN ANNUAL LETTING VALUE (FOR SHORT ALV ), AS DETERMINED UNDER THE PROVISIONS OF SECTION 23(1)(A) OF THE INCOME TA X ACT, 1961 (FOR SHORT 'THE ACT' ). M/S. SPEARHEAD PROPERTIES P. LTD. ITA NO.3777/MUM./2009 2 3. THE FIRST APPELLATE AUTHORITY AT PARA-3.1, HELD AS FOLLOWS:- 3.1 ON IDENTICAL FACTS, THE SIMILAR ISSUE HAS BEEN DEALT WITH IN THE APPELLATE ORDER NO.CIT(A)/X/9(3)(2)/519/2007-08 DAT ED 19.11.2008 FOR THE A.Y. 2005-06. SINCE THERE IS NO CHANGE IN T HE FACTS OF THE CASE, THEREFORE, THE RELEVANT PARA OF THE APPELLANTS ORD ER IS REPRODUCED HERE UNDER:- I HAVE CAREFULLY CONSIDERED THE APPELLANTS ADMISS ION AS WELL AS THE A.OS CONTENTION. IN THIS CASE, THE APP ELLANT COMPANY HAS RECEIVED ` 12 LACS RENT P.A. HOWEVER, THE A.O. HAS DETERMINED THE ALV AT ` 64,50,000 P.A. THE REASON FOR SUCH ESTIMATION IS BASED ON THE PREVAILI NG RENT IN THE SAME LOCALITY WHICH VARIES FROM ` 1,50,000 UPTO ` 2 LACS. BUT AT THE SAME TIME, THE A.O, HAS IGNORED TH E FACT THAT IN THE PRECEDING A.Y. I.E., 2003-04, IN RESPON SE TO NOTICE UNDER SECTION 133(6) ISSUED TO KUBLISQUE CONDOMINIUM I.E., THE APPELLANTS BUILDING, THE MAX IMUM RENT PAID WAS REPORTED AT ` 1 LAC. IT IS ALSO PERTINENT TO MENTION HERE THAT THE ACTUAL RENT RECEIVED BY THE APPELLANT IS MUCH HIGHER THAN THE MUNICIPAL RETEABL E VALUE OF ` 1,49,586. THE DECISION IN THE CASE OF TIVOLI INVESTMENT TRADING CO. P. LTD. RELIED ON BY THE A.O . IS ALSO DISTINGUISHABLE ON FACTS, SINCE IN THAT CASE, NO RENT WAS CHARGED AND ONLY DEPOSITS WERE TAKEN, WHEREAS, IN THE APPELLANTS CASE, ` 1 LAC PER MONTH IS RECEIVED. THUS, IT CAN BE SEEN THAT THE A.O. HAS NOT BEEN ABLE TO B ROUGHT SUFFICIENT MATERIAL ON RECORD TO PROVE THAT THE REN T RECEIVED BY THE APPELLANT WAS LESS THAN THE MARKET RENT OF THAT AREA. UNDER THE CIRCUMSTANCES AND FACTS OF THE CASE, I AM OF THE CONSIDERED VIEW THAT IN SUCH SITU ATION WHERE THE ACTUAL RENT RECEIVED BY THE APPELLANT IS MUCH HIGHER THAN THE MUNICIPAL RATEABLE VALUE AND THE RE NT RECEIVED BY THE APPELLANT HAS BEEN ALSO CONFIRMED B Y THE OCCUPANTS OF THE SAME BUILDING IN RESPONSE TO NOTIC E UNDER SECTION 133(6) OF THE ACT, IN THE PRECEDING Y EAR, THE A.O. IS NOT JUSTIFIED IN ESTIMATING THE ALV UND ER SECTION 23*(1)(A) OF THE ACT. THERE IS NO EVIDENCE ON RECORD ON THE BASIS OF WHICH THE ALV CAN BE DETERMI NED UNDER SECTION 23(1)(A) OF THE ACT. SO, NOT INCLINED TO AGREE WITH THE STAND TAKEN BY THE A.O. THAT WHERE T HE ACTUAL RENT IS RECEIVED, STILL THE ALV CAN ALSO BE DETERMINED UNDER SECTION 23(1)(A) OF THE ACT, BY TA KING THE NOTIONAL INTEREST ON INTEREST FREE DEPOSIT TAKE N BY THE ASSESSEE, SINCE NO EVIDENCE OF MATERIAL HAS BEEN BR OUGHT ON RECORD TO PROVE THAT THE ACTUAL RENT RECEIVED IN THIS CASE IS LESS THAN THE NOTIONAL ANNUAL VALUE. THE APPELLANTS CONTENTION CANNOT BE DISCARDED UNLESS T HERE ARE COGENT REASONS TO THE CONTRARY THAT THE AGREED RENT IS NOT FAIR AND RENT ACTUALLY RECEIVED OR RECEIVABLE. THE APPELLANTS CONTENTION IS ALSO SUPPORTED BY THE HON BLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF J.K. INVE STORS SUPRA, WHEREIN, IT IS CLEARLY HELD THAT NOTIONAL IN TEREST M/S. SPEARHEAD PROPERTIES P. LTD. ITA NO.3777/MUM./2009 3 CANNOT FORM PART OF THE ACTUAL RENT AS CONTEMPLATED BY SECTION 23(1)(B) OF THE ACT. RESPECTFULLY, FOLLOWIN G THE HONBLE BOMBAY HIGH COURT JUDGMENT, THIS GROUND OF APPEAL IS DECIDED IN APPELLANTS FAVOUR. 3.2 FOR THE REASONS DISCUSSED IN THE APPELLATE ORDER FO R THE A.Y. 2005-06, THIS GROUND OF APPEAL IS ALLOWED. 4. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE JUDGMENT OF FULL BENCH OF THE HON'BLE DELHI HIGH COURT RENDERED IN C IT V/S MONI KUMAR SUBBA & ORS., IN ITA NO.499 OF 2008, ETC., VIDE JUD GMENT DATED 30 TH MARCH 2011, WHEREIN THEIR LORDSHIP, VIDE PARA-13, HELD AS FOLLOWS:- HOWEVER, BY NO STRETCH OF IMAGINATION, THE NOTIONAL INTEREST OF INTEREST FREE SECURITY CAN BE TAKEN AS DETERMINATIV E FACTOR TO ARRIVE AT THE FAIR RENT. PROVISIONS OF SECTION 23(1)(A), DO N OT MANDATE THIS. 5. THEREAFTER, THEIR LORDSHIPS VIDE PARA-14, HELD AS F OLLOWS:- 14. IT IS, THUS, MANIFEST THAT VARIOUS COURTS HAVE HELD A CONSISTENT VIEW THAT NOTIONAL INTEREST CANNOT FORM PART OF ACT UAL RENT. HENCE, THERE IS NO JUSTIFICATION TO TAKE A DIFFERENT VIEW THAT WHAT HAS BEEN STATED IN ASIAN HOTELS LIMITED (SUPRA) . 6. NOW, WE COME TO PARAS-18 AND 19 OF THE SAID JUDG MENT, WHICH READS AS FOLLOWS:- 18. SINCE THE PROVISIONS OF FIXATION OF ANNUAL REN T UNDER THE DELHI MUNICIPAL CORPORATION ACT ARE PARI MATERIA OF SECTI ON 23 OF THE ACT, WE ARE INCLINED TO ACCEPT THE AFORESAID VIEW OF THE CALCUT TA HIGH COURT IN SATYA CO. LTD. (SUPRA) THAT IN SUCH CIRCUMSTANCES, THE AN NUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES CAN BE A RATIONALE YARDSTICK. HOWEVER, IT WOULD BE SUBJECT TO THE CONDITION THAT THE ANNUAL VALUE FIXE D BEARS A CLOSE PROXIMITY WITH THE ASSESSMENT YEAR IN QUESTION IN RESPECT OF WHICH THE ASSESSMENT IS TO BE MADE UNDER THE INCOME TAX LAWS. IF THERE I S A CHANGE IN CIRCUMSTANCES BECAUSE OF PASSAGE OF TIME, VIZ., THE ANNUAL VALUE WAS FIXED BY THE MUNICIPAL AUTHORITIES MUCH EARLIER IN POINT OF TIME ON THE BASIS OF RENT THAN RECEIVED, THIS MAY NOT PROVIDE A SAFE YARDSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO BE MADE UNDER INCOME TAX ACT. THE PROPERTY IS LET-OUT AT A MUCH HIGHER RENT. THUS, THE AO IN A GIVEN CASE CAN IGNORE THE MUNICIP AL VALUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT T HE SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING THE FAIR RENT F IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. M/S. SPEARHEAD PROPERTIES P. LTD. ITA NO.3777/MUM./2009 4 WE MAY PROFITABLY REPRODUCE THE FOLLOWING OBSERVATI ONS OF THE SUPREME COURT IN THE CASE OF CORPORATION OF CALCUTT A VS. SMT. PADMA DEBI, AIR 1962 SC 151: 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 TH E BOUNDS OF REASONABLENESS. 16. THUS THE RATEABLE VA LUE, IF CORRECTLY DETERMINED, UNDER THE MUNICIPAL LAWS CAN BE TAKEN AS ALV UNDER SECTION 23(1)(A) OF THE ACT. TO THAT EXTENT WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT RATEABLE VALUE IS NOT BINDING ON THE ASSESSING OFFI CER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRESENT THE CORRECT FAIR RENT, THEN HE MAY DETERMINE THE SAME ON THE BASIS OF MATERIAL/ EVIDENCE PLACED ON RECORD. THIS VIEW IS F ORTIFIED BY THE DECISION OF PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810. 17. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CON CLUSIONS: (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLU ENCED BY ANY EXTRANEOUS CIRCUMSTANCES, (II) AN INFLATED OR DEFLA TED RENT BASED ON EXTRANEOUS CONSIDERATION MAY TAKE IT OUT OF THE BOU NDS OF REASONABLENESS, (III) ACTUAL RENT RECEIVED, IN NORM AL CIRCUMSTANCES, WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INF LATED/DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION, (IV) SUCH ALV, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LE GISLATION APPLICABLE TO THE PROPERTY, (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER, THEN IT IS THE DUTY OF THE ASSESSING OF FICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT, (VI) THE STANDARD RENT IS THE UPPER LIMIT, IF THE FAIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 19. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI, THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY AMENDMENT ACT, 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. 7. IN THE CASE IN HAND, THE COMMISSIONER (APPEALS) HAS CLEARLY HELD THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING SUFFIC IENT MATERIAL ON RECORD TO PROVE THAT THE RENT RECEIVED BY THE ASSESSEE WAS LESS THA N THE MARKET RENT OF THE AREA. HE ALSO OBSERVED THAT THE ACTUAL RENT RECEIVED BY T HE ASSESSEE IS MUCH HIGHER THAN THE MUNICIPAL RATABLE VALUE. THE THIRD FINDING IS T HAT, THE RENT RECEIVED BY THE ASSESSEE HAS ALSO BEEN CONFIRMED BY THE OCCUPANTS O F THE SAME BUILDING IN M/S. SPEARHEAD PROPERTIES P. LTD. ITA NO.3777/MUM./2009 5 RESPONSE TO THE NOTICE UNDER SECTION 133(6) OF THE ACT IN THE PRECEDING YEAR. THERE IS ALSO A CATEGORICAL FINDING THAT THERE IS NO EVID ENCE ON RECORD ON THE BASIS OF WHICH THE ALV CAN BE DETERMINED BY THE ASSESSING OF FICER UNDER THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT. THESE FINDINGS ARE NOT CONTRADICTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE ASSESSING OFFICER HAS NOT FOUND THAT THE MUNICIPAL VALUATION IS NOT BASED ON RELEVANT MATERI AL. UNDER THESE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) A ND DISMISS THE GROUND OF APPEAL. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.5.2011 SD/- N.V. VASUDEVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 20.5.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, J BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI