ITO 3(1)(1), MUMBAI V. ASHITA TEXURISING P. LTD, MUMBAI

ITA 4524/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6278 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 31-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P KANT
• Assessee Lawyers: ARVIND DALAL
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 4524/MUM/2009 (ASSESSMENT YEAR: 2005-06) INCOME TAX OFFICER 3(1)(1), MUMBAI APPELLANT VS M/S ASHITA TEXTURISING PVT. LTD., MUMBAI RESPOND ENT (PAN: AAACA3418R) APPELLANT BY: SHRI O P KANT RESPONDENT BY: SHRI ARVIND DALAL O R D E R R V EASWAR, PRESIDENT: THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVEN UE IN THIS APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING ADDITIONS MADE ON ACCOUNT OF INTEREST TO INCOME FROM HOUSE PROPERTY WITHOUT APPRECIATING THE FACT THAT THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF M/S J K INVESTORS IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. WHILE DOING SO, THE LD. CIT(A) HAS ALSO IGNORED THE FACT THAT THE PROVISION OF THE RENT CONTROL ACT WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE ADDITIONS MADE ON ACCOUNT OF MAINTENANCE CHARGES WITHOUT APPRECIATING THE FACT THAT THE SAME ARE NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 24 OF THE I. T. ACT, 1961. ITA NO: 4524/MUM/2009 2 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN INVESTMENT BUSINESS. IT OWNED A PROPERTY WHICH WAS LET OUT TO M/S RELIANCE INFOCOMM LTD. FOR A RENT OF ` 2,40,000/- PER ANNUM. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3), THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD TAKEN INTERES T FREE SECURITY DEPOSIT OF ` 2,50,00,000/- FROM THE TENANT. HE, THEREFORE, CALL ED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE MARKET R ENT SHOULD NOT BE TAKEN AS THE ANNUAL LETTING VALUE AS AGAINST THE ANNUAL VALUE OF ` 2,40,000/- ADOPTED BY THE ASSESSEE WHILE COMPUTING THE PROPERTY INCOME. THE ASSESSEE SUBMITTED A DETAILED RESPONSE OBJECTING TO THE PROPOSAL TO ADD THE NOTIONAL INTEREST ON THE SE CURITY DEPOSIT TO THE RENTAL INCOME AND POINTED OUT THAT SECTION 23(1 )(B) OF THE INCOME TAX ACT, 1961, DID NOT PERMIT SUCH AN ADDITI ON. THE ATTENTION OF THE ASSESSING OFFICER WAS DRAWN TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J K INVESTORS (BOMBAY) LTD. (2001) 248 ITR 723 (BOM). ATTENTION WAS ALSO DRAWN TO THE ORDER OF THE DELHI BENCH OF THE TRIBUN AL IN THE CASE OF MIDLAND INTERNATIONAL LTD. VS. DCIT (2007) 109 ITD 198 (DEL). 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES SUBMISSIONS. HE OBSERVED THAT THE RENT CONTROL ACT WAS NOT APPLICABLE TO THE CASE BECAUSE THE TENANT COMPANY H AD A PAID UP SHARE CAPITAL EXCEEDING ` 1,00,00,000/-, WHICH MADE THE AFORESAID ACT INAPPLICABLE. HE WAS OF THE VIEW THAT THE RENT WAS KEPT AT A LOW FIGURE OF ` 20,000/- PER MONTH BECAUSE THE ASSESSEE HAD RECEIVE D AN INTEREST FREE SECURITY DEPOSIT OF ` 2,50,00,000/- FROM THE TENANT. HE HELD THAT THE REASONABLE RATE OF INTEREST CAN BE TAKEN AT 10% ITA NO: 4524/MUM/2009 3 WHICH CAN BE ADDED TO THE RENT RECEIVABLE UNDER SEC TION 23(1)(B). ACCORDINGLY HE ADDED ` 25,00,000/- AS NOTIONAL INTEREST ON THE SECURITY DEPOSIT TO THE RENT OF ` 2,40,000/- RECEIVED BY THE ASSESSEE. 4. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSE SSEE HAD RECEIVED ` 72,000/- AS REIMBURSEMENT OF MAINTENANCE CHARGES FR OM THE TENANT. HE OBSERVED THAT NO SEPARATE DEDUCTION CAN BE ALLOWED UNDER SECTION 24 IN RESPECT OF SUCH MAINTENANCE CHA RGES. HE ALSO HELD THAT AS PER THE PROVISIONS OF SECTION 23(1)(B) THE AMOUNT OF ` 72,000/- FORMED PART OF THE RENT RECEIVED BY THE AS SESSEE AND ACCORDINGLY ADDED THE SAME TO THE ANNUAL VALUE. 5. THE RENTAL INCOME WAS THUS COMPUTED AT 28,12,00 0/- AFTER MAKING AN ADDITION OF ` 25,72,000/- TO THE RENT OF ` 2,40,000/- RECEIVED BY THE ASSESSEE. 6. THE ASSESSEE APPEALED TO THE CIT(A) AND THE MAIN CONTENTION WAS THAT THERE WAS NO SCOPE FOR MAKING T HE ADDITIONS WHILE COMPUTING THE PROPERTY INCOME BY INVOKING SEC TION 23(1)(B) OF THE ACT. STRONG RELIANCE WAS PLACED ON THE JUDGMEN T OF THE HONBLE BOMBAY HIGH COURT CITED ABOVE AND THAT OF THE CALCU TTA HIGH COURT IN THE CASE OF CIT VS. SATYA CO. LTD. (1994) 75 TAX MAN 193 (CAL) AND CIT VS. HEMRAJ MAHABIR PRASAD LTD. (2005) 279 I TR 522 (CAL). THE CIT(A) HELD, FIRSTLY, THAT THE ASSESSING OFFICE RS OPINION THAT THE RENT CONTROL ACT WAS NOT APPLICABLE TO THE ASSESSEE S CASE WAS NOT CORRECT OR RELEVANT AND THAT THE OBJECT BEHIND THE PROVISION IN THE SAID ACT THAT PUBLIC LIMITED COMPANIES HAVING A PAI D UP SHARE CAPITAL OF ` 1,00,00,000/- AND ABOVE ARE EXEMPT FROM THE ACT HAS ITA NO: 4524/MUM/2009 4 NOTHING TO DO WITH THE COMPUTATION OF THE ANNUAL VA LUE UNDER THE INCOME TAX ACT AND THAT THE REAL OBJECT WAS THAT EV EN AFFLUENT PERSONS OR CORPORATE WERE NOT VACATING THE PREMISES CLAIMING PROTECTION UNDER THE RENT CONTROL ACT RESULTING IN ACUTE SCARCITY OF ACCOMMODATION AVAILABLE TO THE GENERAL PUBLIC. ACC ORDING TO THE CIT(A), THIS PROVISION IN THE RENT CONTROL ACT HAS NOTHING TO DO WITH THE PROVISIONS OF SECTION 23(1)(B) AND MADE NO DIFF ERENCE TO THE SAME. WITH REGARD TO THE ASSESSEES CONTENTION THA T NO NOTIONAL ADVANTAGE CAN BE ADDED TO THE RENT RECEIVED OR RECE IVABLE UNDER SECTION 23(1)(B), THE CIT(A) AGREED WITH THE SAME A ND ULTIMATELY HELD THAT THE NOTIONAL INTEREST OF ` 25,00,000/- CANNOT BE ADDED TO THE RENTAL INCOME. 7. AS REGARDS THE MAINTENANCE CHARGES OF ` 72,000/-, THE CIT(A) NOTED THAT THE ASSESSEE WAS MAKING THE PAYME NT TO THE SOCIETY AND GETTING IT REIMBURSED FROM THE TENANT A ND, THEREFORE, THERE IS NO ELEMENT OF ANY INCOME OR PROFIT IN THE SAME AND IF AT ALL THERE IS ANY ELEMENT OF PROFIT, THE SAME SHOULD BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND CANNOT BE ADDE D TO THE RENTAL INCOME WHILE APPLYING SECTION 23(1)(B) OF TH E ACT. HE NOTED THAT THE ASSESSEE, ON THE OTHER HAND, WAS ELIGIBLE FOR THE DEDUCTION OF ` 72,000/- BUT DID NOT DIRECT THE ASSESSING OFFICER T O ALLOW SUCH DEDUCTION FROM THE RENTAL INCOME OF ` 2,40,000/- AND ALL THAT HE DID WAS TO DELETE THE ADDITION OF ` 72,000/- TO THE RENTAL INCOME. 8. THE REVENUE IS IN APPEAL AND WE HAVE HEARD THE R IVAL CONTENTIONS. IT CANNOT BE DISPUTED THAT THE ASSESS ING OFFICER HAS APPLIED SECTION 23(1)(B) OF THE INCOME TAX ACT, 196 1, UNDER WHICH ITA NO: 4524/MUM/2009 5 THE ANNUAL VALUE OF THE PROPERTY SHALL BE DEEMED TO BE THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER, PROVIDED THE SAME IS IN EXCESS OF THE SUM FOR WHICH THE PROPERTY IS EXPECTE D TO LET FROM YEAR TO YEAR. IN THE PRESENT CASE THE ASSESSING OF FICER HAS PROCEEDED ON THE FOOTING THAT THE RENT RECEIVED OF ` 2,40,000/- IS IN EXCESS OF THE SUM FOR WHICH THE PROPERTY MIGHT REAS ONABLY BE EXPECTED TO LET FROM YEAR TO YEAR AND HAS COMPUTED THE PROPERTY INCOME UNDER SECTION 23(1)(B) OF THE ACT. HE HAS E XPLICITLY STATED SO IN THE ASSESSMENT ORDER ITSELF. THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J K INVEST ORS (BOMBAY) LTD. (SUPRA) IS AUTHORITY FOR THE PROPOSITION THAT WHILE COMPUTING THE INCOME UNDER SECTION 23(1)(B) THE NOTIONAL INTEREST ON SECURITY DEPOSIT TAKEN BY THE LANDLORD FROM THE TENANT WOULD NOT FORM PART OF THE ACTUAL RENT RECEIVED OR RECEIVABLE. WE ARE THE REFORE IN AGREEMENT WITH THE DECISION OF THE CIT(A) THAT THE NOTIONAL INTEREST OF ` 25,00,000/- CANNOT BE ADDED TO THE RENT RECEIVED OR RECEIVABLE WHILE APPLYING SECTION 23(1)(B) OF THE ACT. THE DE PARTMENT DID NOT DRAW OUR ATTENTION TO ANY PROVISION OF THE RENT CON TROL ACT WHICH WOULD IMPACT THE PROVISIONS OF SECTION 23(1)(B) OF THE ACT IN THE MANNER UNDERSTOOD BY THE ASSESSING OFFICER NOR WAS IT ABLE TO SHOW THAT THE VIEW TAKEN BY THE CIT(A) REGARDING TH E OBJECT OF THE AMENDMENT TO THE RENT CONTROL ACT WAS WRONG. AS RE GARDS THE MAINTENANCE CHARGES, WE SHOULD CLARIFY THAT THE EFF ECT OF THE DECISION OF THE CIT(A) IS MERELY THAT THE ADDITION OF ` 72,000/- MADE TO THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS DE LETED. THE CIT(A) HAS NOT DIRECTED THE ASSESSING OFFICER TO AL LOW DEDUCTION OF ITA NO: 4524/MUM/2009 6 ` 72,000/- UNDER SECTION 24 OF THE ACT. GROUND NO.2 OF THE DEPARTMENT DOES NOT THEREFORE APPEAR TO BE CORRECT. EVEN OTHERWISE HAVING REGARD TO THE RATIO OF THE JUDGMEN T OF THE HONBLE BOMBAY HIGH COURT CITED ABOVE, NO NOTIONAL ADDITION OF THE MAINTENANCE CHARGES CAN BE MADE TO THE RENT RECEIVE D WHILE APPLYING SECTION 23(1)(B) OF THE ACT. 9. FOR THE ABOVE REASONS WE AFFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER 2010. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 24 TH NOVEMBER 2010 SALDANHA COPY TO: 1. M/S ASHITA TEXTURISING PVT. LTD. 84-A, MITTAL COURT NARIMAN POINT, MUMBAI 400 021 2. ITO 3(1)(1) 3. CIT-3 4. CIT(A)-XXVIII 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI