ACIT, New Delhi V. Sh. Vinit Beriwala, New Delhi

ITA 4361/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58942 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 29-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REENA S PURI
• Assessee Lawyers: RAJESH ARORA
• Keywords: Notional interest
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A.NO.4019/DEL/2011 ASSESSMENT YEAR : 2006-07 ACIT, UMA BERIWALA, CENTRAL CIRCLE-ROOM NO. VS. 10/11, SARVAPRIYA VIHAR, 3 RD FLOOR, ARA CENTRE, NEW DELHI. JHANDEWALAN EXTN. AGBPB2836L NEW DELHI. (APPELLANT) (RESPONDENT) I.T.A.NOS.4360 & 4361/DEL/2011 ASSESSMENT YEARS : 2006-07 & 2007-08 ACIT, SHRI VINIT BERIWALA, CENTRAL CIRCLE-ROOM NO. VS. 10/11, SARVAPRIYA VIHAR, 3 RD FLOOR, ARA CENTRE, NEW DELHI. JHANDEWALAN EXTN. NEW DELHI. (APPELLANT) (RESPONDENT APPELLANT BY : REENA S. PURI, CIT, DR. RESPONDENT BY : SHRI RAJESH ARORA, FCA. O R D E R PER K.D. RANJAN, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE IN THE CASE OF TWO DIFFE RENT ASSESSEES ARISE OUT OF SEPARATE ORDERS OF CIT (A)-III, NEW DELHI. THESE APPEALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVE NIENCE ARE DISPOSED OFF BY THIS COMMON ORDER. 2 2. THE MAIN GROUND OF APPEAL WHICH IS COMMON IN ALL THE THREE ASSTT. YEARS IN THE CASES OF MRS. UMA BERIWALA AND SHRI V INIT BERIWAL ARE REPRODUCED AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF `15,00,000/- MADE BY THE ASSESSING OFFICER ON THE ANNUAL LETTING VALUE ON ACCOUNT OF NOTIONAL INT EREST ON INTEREST FREE SECURITY RECEIVED BY THE ASSESSEE? 3. THE COMMON ISSUE INVOLVED IN THESE APPEALS RELATES TO DELETING THE ADDITION OF ` 15 LACS MADE BY THE AO ON THE ANNU AL LETTING VALUE BEING NOTIONAL INTEREST ON INTEREST FREE SECURITY RECE IVED BY BOTH THE ASSESSEES. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT MRS. UMA BERIWALA AND HER HUSBAND SHRI VINIT BERIWALA HAVING 50% SHARE EACH LET OUT PROPERTY NO. 19/6, K.M. ROAD, FARIDABAD ON RENT @ ` 1,15,000/- P.M TO M/S. VIPUL MOTORS LTD. BOTH THE ASSESSEES RECEIVED INTEREST FREE SECURITY DEPOSITS OF `. 1.25 CRORE EACH. THE AO E STIMATED NOTIONAL RENT ON SECURITY DEPOSIT @ 12% AMOUNTING TO ` 15 LAC AND ADDED THE SAME TOWARDS ANNUAL LETTING VALUE OF THE PR OPERTY. 4, BEFORE LD. CIT(A), IT WAS SUBMITTED THAT MRS. UMA B ERIWALA AND SHRI VINIT BERIWALA WERE HOLDING SHARE IN THE SAID PROPERTY. THE PROPERTY WAS LET OUT TO M/S. VIPUL MOTORS AND INTEREST FREE DEPOSIT OF `. 1.25 CRORE EACH WAS TAKEN.BOTH THE ASSESSEES RECEIVED RENT OF `. 13,80,000/- PER ANNUM (@ ` 115,000/- PER MONTH). IT WAS FURTHER SUBMITTED THAT UNDER SECTION 23 OF INCOME TAX ACT, TH E ANNUAL VALUE 3 OF THE PROPERTY IS TO BE DETERMINED FOR THE PURPOSE O F COMPUTING INCOME FROM HOUSE PROPERTY. AS PER PROVISIONS OF SECTION 23(1) THERE IS NO SCOPE FOR MAKING ANY ADDITION ON ACCOUNT OF NOT IONAL INTEREST ON THE DEPOSIT MADE BY THE TENANT. SECTION 23 DOES NOT P ERMIT SUCH CALCULATION OF THE VALUE OF THE BENEFIT ON NOTIONAL BASIS AS PART OF THE RENT. THE NOTIONAL INTEREST ON THE DEPOSIT IS NOT ACTU AL RENT RECEIVED OR RECEIVABLE. THEREFORE, NOTIONAL RENT COMPUTED BY THE AO CAN NEITHER BE DETERMINING FACTOR NOR A COMPONENT TO BE TAKEN INTO CONSIDERATION FOR DETERMINING THE ANNUAL VALUE FOR A SSESSING THE INCOME FROM HOUSE PROPERTY. UNDER SECTION 23(1) (A) WHAT IS EXPECTED TO BE DONE IS TO DECIDE FAIR RENT FOR WHICH THE PROPERTY IS EXPECTED TO BE LET FROM YEAR TO YEAR WHICH CAN BE D ONE EITHER ON THE BASIS OF FAIR RENT FIXED UNDER THE LOCAL MUNICIPAL CO RPORATION LAWS OR UNDER THE DELHI RENT CONTROL ACT, BUT CERTAINLY NOT BY CONSIDERING ANY NOTIONAL INCOME BEING THE INTEREST ON SECURITY DEPOSI T RECEIVED BY THE OWNER OF THE PROPERTY. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF C IT VS. MONI KUMAR SUBA 333 ITR 38 WHEREIN IT HAS BEEN HELD THAT NOTION AL RENT CANNOT FORM PART OF FAIR RENT U/S 23(1)(A) OF THE ACT. 5. LD. CIT(A) EXAMINED THE CONTENTION OF ASSESSEE IN TH E LIGHT OF PROVISIONS OF SECTION 23(1)(A) AND DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MONI KUMAR SUBA AND OTHER JUDICIAL PR ONOUNCEMENTS ON 4 THE ISSUE AND CAME TO THE CONCLUSION THAT NOTIONAL INT EREST ON INTEREST FREE SECURITY CAN NOT BE TAKEN AS DETERMINATIVE FACTO R TO ARRIVE AT A FAIR RENT AS PROVISIONS OF SECTION 23(1)(A) DO NOT MAND ATE THIS. LD. CIT(A) ACCORDINGLY, DELETED THE ADDITION IN CASE OF BOTH THE ASSESSES. 6. BEFORE US LD. CIT(DR) RELYING UPON THE DECISION O F ITAT MUMBAI BENCH IN THE CASE OF TIVOLI INVESTMENT AND TRADING CO . LTD. VS. ACIT 130 ITD 521 MUMBAI SUBMITTED THAT MATTER SHOULD BE RE STORED TO THE FILE OF AO WITH THE DIRECTIONS TO DETERMINE THE ANNU AL LETTING VALUE FOR WHICH PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. ON THE OTHER HAND LD. AR OF THE ASSESSEE SUBMITTED THAT FAIR RENT OF PROPERTY U/S 23(1)(A) CAN BE DECIDED ON THE BASIS OF FAIR RENT FIXED BY THE LOCAL MUNICIPAL CORPORATION LAWS OR UND ER THE DELHI RENT CONTROL ACT. LD. AR OF THE ASSESSEE FURTHER PLACED RELI ANCE ON THE DECISION OF MUMBAI ITAT IN THE CASE OF DELITE ENTERPR ISES PVT. VS INCOME TAX OFFICER 22 SOT 245 WHEREIN IT HAS BEEN HE LD THAT NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT CAN NOT BE C ONSIDERED WHILE DETERMINING THE ANNUAL LETTING VALUE OF THE PROPERT Y. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA (SUPRA) FOR THE PROPOSITION THAT NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT CANNOT BE CO NSIDERED A CRITERION FOR DETERMINING THE ANNUAL LETTING VALUE OF THE PROPERTY . LD. AR OF THE ASSESSEE RELYING ON DECISION OF HONBLE SU PREME COURT 5 IN THE CASE OF MRS. SHEILA KAUSHISH VS. CIT 131 ITR 435 HAS SUBMITTED THAT STANDARD RENT DETERMINABLE UNDER PROVI SIONS OF RENT CONTROL LAW WOULD BE ANNUAL VALUE EVEN THOUGH STANDA RD RENT HAS NOT BEEN DETERMINED. LD. AR OF THE ASSESSEE THEREFORE SUPPOR TED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE MRS. UMA BERIWALA AND HER HUSBAND SHRI VINIT BERIWALA OWNED HALF SHARE OF THE P ROPERTY WHICH WAS LET OUT TO VIPUL MOTOR ON MONTHLY RENT OF ` 1,15 ,000/-. BOTH THE ASSESSEES RECEIVED INTEREST FREE SECURITY DEPOSITS OF ` 1.25 CRORE. THE AO WHILE DETERMINING THE INCOME FROM HOUSE PROPERTY ADDED NOTIONAL INTEREST @ 12% OF INTEREST FREE SECURITY AMOUNTING TO `. 15,00,000/-. UNDER SECTION 23 (1) ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASON ABLY BE EXPECTED TO LET FROM YEAR TO YEAR ; OR (B) WHERE TH E PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ANNUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCE SS OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIV ED OR RECEIVABLE ;(C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PRO VISIONS THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RE SPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A) THE AMOUNT SO RECEIVED OR 6 RECEIVABLE. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA HAS HELD THAT THE OPERATIVE WORDS IN SECTION 23( 1)(A) OF THE ACT ARE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. THESE WORDS PROVIDE A SPECI FIC DIRECTION TO THE REVENUE FOR DETERMINING THE FAIR RENT. THE AO H AVING REGARD TO THIS PROVISION IS EXPECTED TO MAKE ANY INQUIRY AS TO WH AT WOULD BE THE POSSIBLE RENT THAT PROPERTY MIGHT FETCH. THUS, IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR MARKET RENT BECAUSE THE ASSESSEE HAS RECEIVED AN ABNORMALLY HIGH INTEREST-FREE SEC URITY DEPOSIT AND BECAUSE OF THAT ACTUAL RENT RECEIVED IS LE SS THAN THE RENT WHICH THE PROPERTY MIGHT FETCH , HE CAN UNDERTAKE N ECESSARY EXERCISE IN THAT BEHALF. HOWEVER, THE NOTIONAL INTEREST ON TH E INTEREST FREE SECURITY CANNOT BE TAKEN AS THE DETERMINATIVE FACTOR TO ARRIVE AT A FAIR RENT. THE PROVISIONS OF SECTION 23(1)(A) DO NOT MANDAT E THIS. IN A TAXING STATUE, IT WOULD UNSAFE FOR THE COURT TO GO B EYOND THE LETTER OF THE LAW AND TRY TO READ INTO THE PROVISION MORE THAN WHAT IS ALREADY PROVIDED FOR. 8. IN THE CASE OF ASSESSEE, THE AO HAS NOT ATTEMPTED TO C ARRY OUT ANY EXERCISE AS TO WHAT WAS THE FAIR MARKET RENT. HE HAS SIMPLY ADDED 12% OF SECURITY DEPOSIT AS NOTIONAL RENT U/S 23(1 )(A) OF THE ACT. IN THE CASE OF TIVOLI INVESTMENT & TRADING CO. PVT. L TD (SUPRA) THE ASSESSEE RECEIVED INTEREST FREE SECURITY DEPOSIT AT ` 1.54 CRORES. THE 7 ASSESSEE ALSO RECEIVED REIMBURSEMENT OF TAXES OF ` 9825/- PER MONTH. THERE WAS NO RENT RECEIVED OR RECEIVABLE BY THE ASSESSEE . THE ASSESSEE HAD SHOWN THE RENT RECEIVED I.E. MAINTENANCE CH ARGES RECEIVED FROM CITI BANK AT ` 1,17,900/- WHEREAS THE ASSESSEE HAS REIMBURSED THE SAME AMOUNT TO THE BUILDER FOR THE ABO VE PROPERTY IN QUESTION WHICH SHOWED THAT THE ASSESSEE HAD NOT RECEIVED ANY COMPENSATION IN THE NATURE OF LICENCE CHARGES OR RENT FROM CITIBANK FOR OCCUPYING THE PREMISES IN QUESTION EXCEPT INTEREST FREE ADVANCES AND OVERDRAFT FEES. UNDER SUCH CIRCUMSTANCES. ITAT HAD HELD THAT AS THERE WAS NO RENT PAID AND IN LIEU OF THAT RENT EXCE SSIVE DEPOSIT WAS MADE, THE USUFRUCT OF THAT DEPOSIT COULD BE CONSIDERED AS RENT FOR DETERMINING THE ANNUAL LETTING VALUE. THE FACTS OF T HE ASSESSEES CASE ARE ENTIRELY DIFFERENT FROM THE FACTS OF TIVOLI INVE STMENT AND TRADING CO. PVT. LTD. THEREFORE, THE DECISION OF ITAT MUMBA I BENCH CANNOT BE APPLIED TO THE FACTS OF THE ASSESSEES CASE. THE ISSUE IS SQUA RELY COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT . THE AO HAD NOT CARRIED OUT ANY EXERCISE FOR DETERMINATION OF THE FA IR MARKET VALUE OF THE PROPERTY BUT HAD ADDED THE NOTIONAL RENT @ 12% PER ANNUM ON INTEREST FREE SECURITY DEPOSIT OF ` 1.25 CRORE. THIS IN OUR CONSIDERED OPINION CANNOT BE TREATED AS PART OF ANNUAL LETTING VALUE. WE ACCORDINGLY DO NOT FIND INFIRMITY IN THE ORDER OF L D. CIT(A) DELETING THE ADDITION. 8 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN THE CASE OF MRS. UMA BERIWALA FOR ASSTT. YEAR 2006-07 AND IN THE C ASE OF SHRI VINIT BERIWALA FOR ASSTT. YEAR 2006-07 AND 2007-08 ARE DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON 23 RD MARCH, 2012. SD/- SD/- (U.B.S. BEDI) JUDICIAL MEMBER (K.D. RANJAN ) ACCOUNTANT MEMBER DATED : 23.3.2012 VEENA COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER DEPUTY REGISTRAR, ITAT