THE ITO RG 3(1)(1), MUMBAI V. M/S. AGNI INVESTMENT & TRADING PVT. LTD, MUMBAI

ITA 4519/MUM/2007

• Counselvise Citation: 451919914 RSA 2007
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 21-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RK GUPTA
• Assessee Lawyers: J D MISTRY
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R.S. SYAL R.S. SYAL R.S. SYAL R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM ) )) ) ITA NO. 4519/MUM/2007 ASSESSMENT YEAR-2004-05 THE ITO, RANGE-3(1)(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. AGNI INVESTMENT & TRADING PVT. LTD., 84-A, MITTAL COURT, 224 NARIMAN POINT, MUMBAI-400 021 PAN-AAACA 3421A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.K. GUPTA RESPONDENT BY: SHRI J.D. MISTRY O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 30.3.2007 PASSED BY THE LD. CIT(A)-III FO R THE ASSESSMENT YEAR 2004-05. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS TH E OWNER OF FLAT NO. 41, VIJAYDEEP, KHAR MUMBAI WHICH WAS RENTED OUT @ `. 9,000/- PER MONTH TO M/S. RELIANCE INDUSTRIES LTD. THE ANNUAL LETTING VALUE OF THE PROPERTY WAS SHOWN BY THE ASSESSEE AT `. 1,08,000/-. THE ASSESSEE HAD ALSO RECEIVED INTEREST FREE SECURITY DEPOSIT O F `. 98,60,000/- FROM THE TENANT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY NOTIONAL INTEREST @ 1 0% ON THE SAID DEPOSIT BE NOT CONSIDERED AS A PART OF THE RENT F OR WORKING OUT THE ITA NO. 4519/M/07 2 INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE SUBMITTED THAT THE DECISION IN THE CASE OF CIT VS J.K. INVESTMENTS LTD. 241 ITR 723(BOM) AND CIT VS SATYA CO. LTD. 75 TAXMAN 193 (CAL), NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT RE CEIVED FROM THE TENANT CANNOT BE CONSIDERED AS A PART OF THE RENTAL I NCOME. THE ASSESSEE FURTHER CONTENDED THAT AS PER SEC. 23(1)(A) OF THE I.T. ACT, THE ANNUAL VALUE OF HOUSE PROPERTY CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BEING EXPECTED TO LET. THE WORDS USED IN S EC. 23(1)(A) ARE THE SAME AS THE EXPRESSION USED IN THE MUNICIPAL STATUTE AND THEREFORE, THE ANNUAL VALUE OF THE PROPERTY AS DEFIN ED IN SEC. 23(1)(A) OF THE I.T. ACT IS THE MUNICIPAL VALUATION. THE ASSESSE E FURTHER CONTENDED THAT SEC. 23(A)(A) IS APPLICABLE WHEN THE ACTUAL RENT RECEIVED OR RECEIVABLE EXCEEDS THE MUNICIPAL VALUE O F THE PROPERTY. SINCE THE ACTUAL RENT RECEIVED IN THE CASE OF THE ASSE SSEE WAS GREATER THAN THE MUNICIPAL VALUATION, THE SAME I.E. THE AMO UNT OF `. 1,08,000/- HAS TO BE TREATED AS THE ANNUAL LETTING VALUE. 4. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, RENT CON TROL ACT IS NOT APPLICABLE TO THE PROPERTY OWNED BY THE ASSESSEE SIN CE THE CAPITAL OF THE TENANT EXCEEDED `. 1 CRORE. FURTHER, ACCORD ING TO HIM, BOTH THE TENANTS AND THE ASSESSEE COMPANY BELONGED TO THE SAME GR OUP OF COMPANIES BECAUSE OF WHICH THERE ARE CHANCES OF COLLUSI ON BETWEEN THE ASSESSEE COMPANY AND THE TENANT IN FIXING THE RENT AT MEAGER SUM OF `. 9,000/- PER MONTH. THEREFORE, HE PROCEEDED T O TREAT 10% OF THE INTEREST FREE SECURITY DEPOSIT OF `. 98,60,000/- AS A P ART OF THE RENTAL INCOME OF THE ASSESSEE. ACCORDINGLY, HE COMPUTED THE I NCOME FROM HOUSE PROPERTY BY TAKING THE ANNUAL LETTING VALUE OF THE PROPERTY AT `. 10,94,000/- (`. 1,08,000+ `. 9,86,000/-). ITA NO. 4519/M/07 3 5. THE LD. CIT(A) DELETED THE ADDITION OF `. 9,86,0 00/- MADE BY THE ASSESSING OFFICER TO THE ANNUAL LETTING VALUE OF THE PR OPERTY IN RESPECT OF NOTIONAL INTEREST WORKED OUT AT 10% ON INTEREST FR EE DEPOSIT OF `. 98,60,000/- TO THE ACTUAL RENT OF `. 1,08,000/- AND ADOPTED THE ANNUAL LETTING VALUE OF THE PROPERTY U/S. 23(1)(B) AT `. 10 ,94,000/- 6. AGGRIEVED, REVENUE PREFERRED AN APPEAL BEFORE US. 7. WE HEARD BOTH THE PARTIES. WE FIND THAT THE RECEN T DECISION OF THE (DELHI HIGH COURT)-FULL BENCH IN THE CASE OF CIT VS MONI KUMAR SUBHAS HAS HELD AS FOLLOWS: IF ASSESSING OFFICER FINDS THAT THE ACTUAL RENT RECEIVE D IS LESS THAN THE FAIR MARKET RENT BECAUSE THE ASSESSEE HAS RECEIVED ABNORMALLY HIGH INTEREST FROM SECURITY DEPO SIT, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. HOWEVER, BY NO STRETCH OF IMAGINATION THE NOTIONAL I NTEREST ON THE INTEREST FREE SECURITY CAN BE TAKEN AS DETERMIN ATIVE FACTOR TO ARRIVE AT THE FAIR RENT SEC. 23(1)(A) OF THE I.T. ACT, 1961 DOES NOT MANDATE THIS. THEREFORE, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES APPEAL. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH APRIL, 2011 RJ ITA NO. 4519/M/07 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4519/M/07 5 DATE INITIALS 1 DRAFT DICTATED ON: .0 4. 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: .0 4 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______