Dr. Udham Singh, Jalandhar V. The Income-tax Officer, Jalandhar

ITA 458/ASR/2011

• Counselvise Citation: 45820914 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Gift; Depreciation; Transfer pricing; Opportunity of being heard; Deemed to accrue or arise in india

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.458(ASR)/2011 ASSESSMENT YEAR:2006-07 PAN :AACPH1462R DR. UDHAM SINGH VS. THE INCOME TAX OFFICER, JALANDHAR. WARD III(2), JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. Y.K.SUD, CA RESPONDENT BY:SH. TARSEM LAL, DR DATE OF HEARING: 27/11/2012 DATE OF PRONOUNCEMENT:11/12/2012 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 15.06.2011 RELATING TO ASSESSMENT YEAR 2006-07. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT CIT(A) WAS NOT JUSTIFIED IN SUSTAINING TH E ADDITION OF RS.9,72,000/- MADE BY THE AO ON ACCOUNT OF RENT REC EIVABLE. BOTH OF THEM FAILED TO APPRECIATE THAT NO INCOME CO ULD BE ASSESSED ON NOTIONAL INCOME. ITA NO.458(ASR)/2011 2 2. THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE FINDI NG OF THE A.O. THAT THE LEASE AGREEMENT IS NOT VALID IN LAW SINCE THERE WAS NO PROVISION OF SPECIFIC CONSIDERATION. 3. THAT BOTH CIT(A) AND A.O. FAILED TO APPRECIATE T HAT WHERE NO RENT IS RECEIVED OR RECEIVABLE IN CASE OF A PROPERT Y ONLY. ALV CAN BE BROUGHT TO TAX WHICH BOTH OF THEM FAILED TO WORK OUT. 4. THAT THE ORDER OF THE CIT(A) IS AGAINST LAW AND FACTS OF THE CASE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD GIVEN HIS HOSPITAL BUILDING ON RENT BUT HAD NOT CHARGED ANY RENT FOR T HE SAME, EVEN THOUGH SUCH RENT HAD BEEN CHARGED IN THE EARLIER YEARS TILL AY 2004-05. THE LAST RENT CHARGED WAS IN THE FINANCIAL YEAR 2003-04 AT RS.9,7 2,000/-. THE AO WAS NOT SATISFIED WITH THE ASSESSEES CONTENTION THAT AS PE R GOVT. NOTIFICATION DATED 07.07.2004 NO ADMISSION FOR GMM COURSE WERE ALLOWED IN A RENTED/HIRED BUILDING, SINCE HE NOTED THAT THE NOTIFICATION WAS NOT APPLICABLE TO INSTITUTIONS WHICH WERE IN EXISTENCE PRIOR TO SAID NOTIFICATION AS WAS TRUE IN THE ASSESSEES CASE. THE AO NOTED THAT THE ASSESSE E HAD EXECUTED AN AGREEMENT DATED 1.4.2004 FOR GIVING HIS PROPERTY ON LEASE TO THE TRUST M/S. SMT. RAM KAUR MEMORIAL EDUCATIONAL TRUST (REGD) RUN NING THE EDUCATIONAL INSTITUTION. HE WAS OF THE OPINION THAT THE LEASE A GREEMENT WAS INVALID SINCE IT DID NOT CONTAIN ANY MENTION OF THE LEASE MONEY TO BE PAID IN CONSIDERATION OF THE LEASE, WITHOUT WHICH THE LEASE AGREEMENT WOULD BE INCOMPLETE. THE AO FURTHER NOTED THAT THE NOTIFICAT ION OF THE PUNJAB GOV. ITA NO.458(ASR)/2011 3 PERMITTED EDUCATIONAL INSTITUTION TO OPERATE IN ANY PROPERTY TAKEN ON LEASE FOR 33 TO 99 YEARS AND THAT THE LEASE AGREEMENT DAT ED 1.4.2004 FOR A PERIOD OF 40 YEARS. HENCE, THE AO WAS OF THE OPINION THAT THE RE WAS NO BAR ON TAKING LEASE RENT FROM THE TRUST TO WHOM THE PROPERTY WAS GIVEN ON LEASE. THE ASSESSEE OBJECTED TO THE AOS CONTENTION AND SUBMIT TED BEFORE HIM THAT SINCE NO RENT HAS BEEN CHARGED, NO RENTAL INCOME CO ULD BE ASSESSED IN THE HANDS OF THE ASSESSEE ON NOTIONAL BASIS. IT WAS SUB MITTED THAT THERE WAS CLEAR UNDERSTANDING THAT NO RENT WAS PAYABLE AND THAT AS PER CLAUSES IN THE LEASE AGREEMENT, LEASE MONEY BECAME PAYABLE ONLY IF BOTH THE PARTIES AGREED TO PAYMENT OF RENT WITH MUTUAL CONSENT. IT WAS FURTHER STATED THAT CHARGING OF RENT COULD HAVE LEFT THE TRUST IN DANGER OF LOSING ITS AFFILIATION WITH THE STATE NURSING COUNCIL AS WELL AS THE INDIAN NURSING COUNC IL. THE AO WAS NOT SATISFIED WITH THE ASSESSEES EXPLANATION. HE NOTED THAT THE SMT. RAM KAUR MEMORIAL TRUST, TO WHOM ASSESSEE;S PROPERTY WAS GIV EN ON LEASE, WAS CONDUCTING NURSERY SCHOOL AND HAD TAKEN APPROVAL FR OM CONCERNED AUTHORITIES TO FUNCTION IN ANY BUILDING OWNED BY IT OR TAKEN ON LEASE. THE AO NOTED THAT ASSESSEE HAD EXECUTED A LEASE DEED WITH THE TRUST AND WAS ALSO THE CHAIRMAN OF THE TRUST TO WHOM THE PROPERTY WAS GIVE N ON LEASE. THE AO NOTED THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECI ATION ON THE HOSPITAL BUILDING WHICH HAD BEEN GIVEN ON LEASE, THOUGH IT W AS CLAIMED TO HAVE BEEN ITA NO.458(ASR)/2011 4 COMPLETED IN THE YEAR 2000 BUT WAS SHOWN AS UNDER C ONSTRUCTION IN THE DEPRECIATION CHART FILED WITH THE RETURN OF INCOME. SINCE THE PROPERTY HAD BEEN GIVEN ON LEASE EARLIER ALSO AND RENT WAS CHARG ED FOR THE SAME, THE AO HELD THAT THE ARRANGEMENT OF NOT CHARGING RENT WAS A DEVICE TO AVOID TAXES. HE HELD THAT AS PER SECTION 23 OF THE INCOME-TAX AC T THE RENTAL INCOME WAS SUBJECT TO TAX ON RECEIVABLE BASIS. THE AO HELD THA T THE RENTAL INCOME OF RS.9,72,000/- WAS CHARGEABLE AS ASSESSEES INCOME U /S 23 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME. 3. THE LD. CIT(A) VIDE PARA 4 TO 4.4 OF HIS ORDER H AS DISMISSED THE APPEAL OF THE ASSESSEE. THE FINDINGS OF THE LD. CIT (A) ARE RELEVANT AND THEREFORE, THE SAME ARE REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: 4. I HAVE CONSIDERED THE SUBMISSION CAREFULLY. TH E FACTUAL MATRIX IS MUCH IN DISPUTE. ADMITTEDLY, THE ASSESSEE HAD GI VEN HIS PROPERTY ON RENT IN EARLIER YEARS TO SMT. RAM KAUR MEMORIAL TR UST ON RENT AND HAD CHARGED RENT FOR THE SAME. THE ASSESSEE ENTERED INTO LEASE AGREEMENT DATED 01.04.2004 WITH THE TRUST WHICH CON TAINED AN OPTION NOT TO CHARGE ANY RENT OR TO CHARGE RENT AS MAY BE MUTUALLY AGREED BETWEEN TWO PARTIES, I.E. THE LESSOR AND THE LESSEE . IT IS CLEAR THAT THE ASSESSEE IS THE OWNER OF THE BUILDING WHICH WAS GIV EN ON RENT/LEASE TO THE TRUST. SECTIONS 22 AND 23 OF THE INCOME-TAX ACT READ AS UNDER : 22. INCOME FROM HOUSE PROPERTY THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUIL DINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OW NER, THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSE OF ANY BUSINESS OF PROFESSION CARRIED ON BY HIM THE PROFIT S OF WHICH ARE CHARGEABLE TO INCOME-TAX, SHALL BE CHARGEABLE TO IN COME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ITA NO.458(ASR)/2011 5 23. ANNUAL VALUE HOW DETERMINED. (1) FOR THE PURPOSE OF SECTION 22, THE ANNUAL VALU E OF ANY PROPERTY SHALL BE DEEMED TO BE- (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE; OR ( C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE: PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHAL L BE DEDUCTED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIA BILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE ME THOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMININ G THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHIC H SUCH TAXES ARE ACTUALLY PAID BY HIM. EXPLANATION- FOR THE PURPOSE OF CLAUSE (B) OR CLAUS E (C) OF THIS SUB- SECTION, THE AMOUNT OF ACTUAL RENT RECEIVED OR RECE IVABLE BY THE OWNER SHALL NOT INCLUDE, SUBJECT TO SUCH RULES AS MAY BE MADE IN THIS BEHALF, THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALIZE. (2) WHERE THE PROPERTY CONSISTS OF A HOUSE OR PART OF A HOUSE WHICH- (A) IS IN THE OCCUPATION OF THE OWNER OR THE PURPOS ES OF HIS OWN RESIDENCE: OR (B) CANNOT ACTUALLY BE OCCUPIED BY THE OWNER BY THE REASON OF THE FACT THAT OWING TO HIS EMPLOYMENT, BUSINESS OR PROFESSIO N CARRIED ON AT ANY OTHER PLACE, HE TO RESIDE AT THAT OTHER PLACE IN A BUILDING NOT BELONGING TO HIM THE ANNUAL VALUE OF SUCH HOUSE OR PART OF TH E HOUSE SHALL E TAKEN TO BE NIL. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL NOT AP PLY IF- (A) THE HOUSE OR PART OF THE HOUSE IS ACTUALLY LET DURING THE WHOLE OR ANY PART OF THE PERVIOUS YEAR; OR (B) THE ANNUAL VALUE OF THE HOUSE OR HOUSES, OTHER THAN THE HOUSE IN RESPECT OF WHICH THE ASSESSEE HAS EXERCISED AN OPTI ON UNDER CLAUSE (A), ITA NO.458(ASR)/2011 6 SHALL BE DETERMINED UNDER SUB-SECTION (1) AS IF SUC H HOUSE OR HOUSES HAD BEEN LET. 4.1 INCOME U/S. 22 OF THE ACT IS A CHARGE ON THE NO TIONAL OR ACTUAL RENT OF A PROPERTY SINCE, AS PER SECTION 23, THE AN NUAL VALUE HAS TO BE DETERMINED EVEN IF THE PROPERTY IS NOT GIVEN ON REN T. THE CHARGE U/S. 22 DOES NOT NECESSARILY ARISE ONLY IN RESPECT OF TH E RENT ACTUALLY RECEIVED OR RECEIVABLE FROM A TENANT BY THE ASSESSE E. EVEN THE OWNER OCCUPIED HOUSES ARE SUBJECT TO DETERMINATION OF THE IR ANNUAL VALUE AND CHARGING OF SUCH ANNUAL VALUE IN THE HANDS OF THE O WNER AS INCOME FROM HOUSE PROPERTY IN CERTAIN CIRCUMSTANCES. EVEN WHEN THE PROPERTY IS OCCUPIED BY THE TENANT FREE FROM RENT, THE LANDLORD IS ASSESSABLE ON NATIONAL INCOME WITH REFERENCE TO ANN UAL VALUE, AS HELD IN THE CASE OF CIT VS. DLF HOUSING CONSTRUCTION PVT . LTD, 128 ITR773 (DEL.). IN THE CASE OF CHELMSFORD VS. CIT 2 43 ITR 89 (SUPREME COURT), THE HON'BLE APEX COURT HELD THAT T HE CONJOINT READING OF SECTION 2,14,22 & 23 OF THE ACT MADE IT ABUNDANTLY CLEAR THAT WAS BEING TAX U/S. 22 WAS DEEMED INCOME OF A ASSESSEE FROM THE PROPERTY OWNED BY HIM. IN THE CASE OF RAM PARS HAD & SONS VERSUS CIT 81 TAXMAN 332 (DEL.) IT WAS HELD THAT WH AT WAS CHARGED U/S. 22 WAS ONLY THE VALUE OF THE OWNERSHIP OF PROP ERTY IRRESPECTIVE OF THE FACT THAT WHETHER OR NOT ANY INCOME WAS EITHER ACTUALLY RECEIVE OR IT ACCRUED TO THE ASSESSEE. IN LIGHT OF THIS SETTL ED POSITION OF LAW THAT INCOME U/S. 22 OF THE ACT WAS DEEMED INCOME IN RESP ECT OF ANNUAL VALUE OF THE PROPERTY EVEN IF THE PROPERTY WAS NOT GIVEN ON RENT, THE APPLICANTS CONTENTION THAT NO SUCH RENT WAS TAXABL E AS NO SUCH RENT WAS RECEIVABLE AS PER LEASE AGREEMENT IS NOT OF ANY CONSEQUENCE. THE INCOME U/S. 22 BECOMES CHARGEABLE BY THE MERE OWNER SHIP OF HOUSE PROPERTY. EVEN IF THE PROPERTY IS IN THE OWNERS O CCUPATION OR NO RENT IS PAYABLE BY THE TENANT OR THE LESSEE, THE INCOME FROM HOUSE PROPERTY IN RESPECT OF SUCH PROPERTY WILL STILL BE CHARGEAB LE TO TAX IN THE HANDS OF ASSESSEE/OWNER. I, THEREFORE, REJECT THE APPELL ANTS CONTENTION THAT NO INCOME FROM THE HOUSE PROPERTY WAS CHARGEABLE BE CAUSE OF THE PECULIAR ARRANGEMENT OF NOT CHARGING ANY LEASE RENT FOR THE PROPERTY GIVEN ON LEASE. 4.2 THE LEASE AGREEMENT DATED 01.04.2001 BETWEEN TH E LOSSOR AND THE LESSEE IN THE PRESENT CASE DOES APPEAR TO BE PE CULIAR IN AS MUCH AS IT DOES NOT PROVIDE FOR ANY SPECIFIC CONSIDERATION FOR GIVING THE PROPERTY ON LEASE. WHILE TWO PARTIES MAY BE FREE T O ENTER INTO ANY SORT ITA NO.458(ASR)/2011 7 OF ARRANGEMENT BETWEEN THEMSELVES FOR TRANSACTION O F BUSINESS, IF THE TRANSACTION IS NOT AT ARMS LENGTH PRICE THE TRANSA CTION CAN CERTAINLY BE ENQUIRED INTO FOR THE PURPOSE OF INCOME TAX. IN TH E PRESENT CASE THE ASSESSEE HAS ADMITTED THAT HE, AS CHAIRMAN OF TRUST WHICH TOOK THE PROPERTY ON LEASE BY THE TRUST FROM HIMSELF, DECIDE D ON NOT CHARGING ANY LEASE RENT. AS PER SECTION 5 OF THE INDIAN CON TRACT ACT, 1872, AN AGREEMENT MADE WITHOUT CONSIDERATION IS VOID, UNLES S IT IS EXPRESSED IN PARTIES, OR IS PROMISING TO COMPENSATE A PERSON WHO HAS DONE SOMETHING VOLUNTARILY FOR THE PROMISSORY OR IT WAS PROMISE TO PAY WHOLLY OR IN PART A DEBT WHICH THE CREDITOR MAY HAV E ENFORCED BUT FOR THE LAW OF LIMITATION OF SUITS. THE TRANSACTION OF GIVING THE PROPERTY ON LEASE BY THE ASSESSEE IS NOT A GIFT, SINCE THE A SSESSEE CONTINUES TO BE THE OWNER OF THE PROPERTY. I AM, THEREFORE, THE VI EW THAT SINCE SPECIFIC CONSIDERATION HAS NOT BEEN PROVIDED FOR IN THE LEAS E AGREEMENT, THE LEASE AGREEMENT IS NOT VALID IN LAW. THE APPELLANT S CONTENTION THAT NO CONSIDERATION WAS MENTIONED IN THE LEASE AGREEMENT BECAUSE OF THE FEAR OF NOT BEING ABLE TO ADMIT STUDENTS IN THE EDU CATIONAL COURSES IN BUILDING TAKEN ON RENT DOES NOT APPEAR TO BE VALID, WINCE THE GOVT. NOTIFICATION DATED 05.07.2004 WAS SUBJECT TO CERTAI N CONDITIONS. ALL THESE CONDITIONS WERE FULFILLED IN LEASE AGREEMENT DATED 01.04.2004. HENCE, I DO NOT THINK THAT THERE WAS ANY PROBLEM IN PAYMENT OF RENT AS PER THE LEASE DEED. 4.3 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT THE ANNUAL VALUE OF THE PROPERTY OWNE D BY THE ASSESSEE AND GIVEN ON LEASE TO SMT. RAM KAUR MEMORIAL TRUST WAS CHARGEABLE TO TAX U/S. 22 OF THE ACT. AS REGARDS OF DETERMINA TION OF THE ANNUAL VALUE THE APPELLANT HAS NOT CHALLENGED THE VALUE T AKEN BY THE ASSESSING OFFICER, EITHER IN GROUNDS OF APPEAL OR I N HE WRITTEN SUBMISSION. IT IS FURTHER SEEN FROM THE ASSESSMENT ORDER THAT FROM THE YEAR 1997-98 TILL 2003-04 THE ASSESSEE RECEIVED ANN UAL RENT OF RS. 9,96,000/- TO RS. 10.44.000/-. HENCE, THE RENT WHI CH THE PROPERTY MAY FETCH IS CLEARLY IN THE REGION OF AROUND RS. 10 LAC S P.A.. I, THEREFORE, HOLD THAT DETERMINATION OF ANNUAL VALUE OF PROPERTY OF RS. 9,72,000/- BY THE ASSESSING OFFICER UNDER CLAUSE (A) OF SECTIO N 23(1) OF THE ACT IS FAIR AND REASONABLE. GROUNDS NOS. 1 AND 2 ARE THERE FORE, REJECTED. 4.4 AS REGARDS GROUNDS NO. 3 OF APPEAL, THE APPELLA NTS CLAIM IS LEGALLY CORRECT AND ADMISSIBLE IN VIEW OF CLAUSE (A ) OF SECTION 24 OF THE ACT. THE ASSESSEE IS ENTITLED TO DEDUCTION OF 3 0% OF THE ANNUAL ITA NO.458(ASR)/2011 8 VALUE UNDER THIS CLAUSE. HENCE, THE ASSESSING OFF ICER IS DIRECTED TO ALLOW DEDUCTION OF 30% OF THE ANNUAL VALUE FOR DETE RMINING THE INCOME U/S. 22 OF THE ACT. GROUND NO. 3 IS ALLOWED. 4. THE LD. COUNSEL FOR THE ASSESSEE, SH. Y.K. SUD, RELIED UPON THE ARGUMENTS MADE BEFORE THE LD. CIT(A). 5. THE LD. DR, MR. TARSEM LAL, BY WAY OF WRITTEN SU BMISSION HAS SUBMITTED AS UNDER: THE FACTUAL MATRIX OF THIS CASE IS LIKE THAT THE ASSESSEE HAD GIVEN HIS PROPERTY ON RENT IN EARLIER YEAR TO SMT. RAM KAUR MEMORIAL TRUST AND HAD CHARGED RENT FOR THE SAME. THE ASSES SEE ENTERED INTO LEASE AGREEMENT DATED 01.04.2004 WITH THE TRUST WHI CH CONTAINED AN OPTION NOT TO CHARGE ANY RENT OR TO CHARGE RENT AS MAY BE MUTUALLY AGREED BETWEEN TWO PARTIES I.E. THE LESSER AND THE LESSEE. THE ASSESSEE IS THE OWNER OF THE BUILDING WHICH WAS GIVEN ON REN T/LEASE TO THE TRUST. WHEREAS IN THE EARLIER YEAR, THE ASSESSEE HAD BEEN DECLARING RENTAL INCOME FROM THE SAID TRUST TO ABOVE RS. 9,00,000/- FROM THE ASSESSMENT YEAR 1997-98 TO THE ASSESSMENT YEAR 2003 -04 THE ASSESSEE HAD DECLARED RENTAL INCOME FOR THE ASSESSMENT YEAR 2004-05 AT RS. 9,72,000/-. ON FINDING THAT THE ASSESSEE HAD VOLUN TARILY SURRENDERED RENTAL INCOME OF RS. 9,72,000/- IN FAVOR OF THE TRU ST, THE ASSESSING OFFICER BROUGHT TO TAX THE SAME. IT IS PERTINENT T O MENTION HERE THAT SECTION 22 OF THE INCOME TAX ACT, 1961 IS THE CHARG ING SECTION AND FOR THE PURPOSE OF CHARGING OF INCOME FROM HOUSE PROPER TY TO TAX, SECTION 23 PRESCRIBES AS TO HOW THE ANNUAL VALUE OF ANY PRO PERTY SHALL BE COMPUTED. HE HELD THAT THE REASON GIVEN FOR ENTERI NG INTO MUTUAL AGREEMENT HAS NO BEARING UPON THE TAXABILITY OF THE RENTAL INCOME IN THE HANDS OF THE ASSESSEE AND BY EXECUTING THE AGRE EMENT HE HAS ONLY APPLIED HIS INCOME WHICH HAD BECOME RECEIVABLE. THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY PASSING A WELL REASONED ORDER HIS SALIEN T FINDINGS OF THE LEARNED CIT(A) ARE AS UNDER : (A ) EVEN WHEN THE PROPERTY IS OCCUPIED BY THE TENA NT FREE FROM RENT THE LANDLORD IS ASSESSABLE ON NOTIONAL IN COME ITA NO.458(ASR)/2011 9 WITH REFERENCE TO ANNUAL VALUE AS HELD IN THE CASE OF CIT VS. DLF HOUSING CONSTRUCTION PVT. LTD 128 ITR 773 (DEL.). (B) SECTION 22 ENVISAGES CHARGING OF ANNUAL VALUE O F PROPERTY OWNED BY THE ASSESSEE IRRESPECTIVE OF THE FACT WHETHER THE SAME HAS BEEN LET OR NOT. HE HAS PLACE D RELIANCE ON THE JUDGMENT OF THE HON'BLE SUPREME COU RT IN THE CASE OF CHELMSFORD VS. CIT REPORTED AT 243 I TR 89 (SC). (C) HE FURTHER RELIED UPON THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF RAM PARSHAD & SONS VS. CI T REPORTED AT 81 TAXMAN 332 WHEREIN IT HAS BEEN HELD THAT WHAT WAS CHARGED UNDER SECTION 22 WAS ONLY THE VALU E OF THE OWNERSHIP OF THE PROPERTY IRRESPECTIVE OF THE F ACT WHETHER OR NOT ANY INCOME WAS EITHER ACTUALLY RECEI VED OR IT ACCRUED TO THE ASSESSEE. THE LEARNED CIT(A) OBSERVED AT PARA 4.3 THAT THE ASSESSEE RECEIVED ANNUAL RENT OF RS. 9,96,000/- TO RS. 10,44 ,000/- FROM THE ASSESSMENT YEAR 1997-98 TO 2003-04 AND FURTHER OBSE RVED THAT THE VALUE WHICH THE PROPERTY MAY FETCH IS CLEARLY IN TH E REGION OF AROUND OF RS.10 LACS P.A. AND THUS ASSESSING OFFICERS DET ERMINATION OF ANNUAL VALUE OF PROPERTY AT RS. 9,72,000/- BY THE A SSESSING OFFICER UNDER CLAUSE (A) SECTION 23(1) WAS FAIR AND REASONA BLE. IN VIEW OF THE ABOVE DISCUSSION, IT BECOMES CLEAR THAT NONE OF THE GROUNDS OF APPEAL ARE MAINTAINABLE. NON ETHELESS, A BRIEF DISCUSSION OF THE GROUND IS MADE HEREUNDER :- GROUND NO. 1. THIS GROUND IS NOT MAINTAINABLE IN V IEW OF THE JUDGEMENT AS CITED AT (A) ABOVE. IN FACT, CHARGING SECTION 22 IN ITSELF MAKES IT CLEAR THAT THE INCOME FROM HOUSE PROPERTY IS ASSESSABLE ON NOTIONAL BASIS AS PRESCRIBED IN SECTION 23 OF THE I NCOME TAX ACT, 1961. GROUND NO.2. THUS GROUND IS AGAINST THE PROVISIONS OF THE INDIAN CONTRACT ACT, 1872. SECTION 2(D) READ WITH SECTION 25 OF THE INDIAN CONTRACT ACT, 1872 STIPULATE THAT AGREEMENT WITHOUT CONSIDERATION IS VOID. ITA NO.458(ASR)/2011 10 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE LEASE A GREEMENT IS NOT VALID IN LAW SINCE THERE WAS NO PROVISION OF SPECIF IC CONSIDERATION. GROUND NO.3. IT IS SUBMITTED THAT IN THE FIRST PLACE THE RENT W AS RECEIVABLE AS THE AGREEMENT ONLY AMOUNTED TO APPLICATION OF INCOM E. NONETHELESS, IT IS INCORRECT TO SAY THAT BOTH THE ASSESSING OFFI CER AND THE LEARNED CIT(A) FAILED TO WORK OUT THE ALV. THE LEARNED CIT (A) HAS CLEARLY HELD AT PARA 4.3 THAT FROM THE ASSESSMENT YEAR 1997 -98 TILL 2003-04, THE ASSESSEE RECEIVED ANNUAL RENT OF RS. 9,96,000/- TO RS. 10,44,000/-. HENCE, THE RENT WHICH THE PROPERTY MAY FETCH IS CLE ARLY IN THE REGION OF AROUND RS. 10 LACS P.A. AND UPHELD THE ADOPTION OF ANNUAL VALUE OF PROPERTY OF RS. 9,72,000/- BY THE ASSESSING OFFICER UNDER CLAUSE (A) OF SECTION 23 (1) OF THE INCOME-TAX ACT, 1961. RELIANC E IN THIS REGARD IS ALSO PLACED ON THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF TARAPORE & CO. VS. CIT REPORTED AT 259 ITR 389 WHEREIN IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT WHEN T HE AMOUNT OF THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IS KNOWN THAT WOULD CONSTITUTE THE BASIS FOR DETERMINING THE ANNUAL VAL UE OF THE HOUSE PROPERTY. THUS, THIS GROUND IS ALSO NOT MAINTAINAB LE. IN VIEW OF THE ABOVE SUBMISSION, IT IS PRAYED THAT THE APPEAL OF THE ASSESSEE MAY BE DISMISSED AND THE ORDER OF THE LEARNED CIT(A) BE UPHELD. 6. THE LD. COUNSEL FOR THE ASSESSEE, SH. Y.K. SUD, CA, IN THE REJOINDER SUBMITTED THE WRITTEN SUBMISSIONS WHICH FOR THE SA KE OF CLARITY ARE REPRODUCED AS UNDER: THAT DEPARTMENT IN WRITTEN SUBMISSIONS DATED 15.1 0.2012 IN THE ABOVE SAID APPEAL HAS MADE THE FOLLOWING LIST OF SU BMISSIONS WHICH ARE REPORTED AS BELOW: I) IN THE SUBMISSIONS THE DEPARTMENT HA AGREED THAT LE ASE AGREEMENT IS DATED 1.4.2004 AND THEREFORE WAS EFFEC TIVE FROM A.Y. 2005-06. THUS, THE DEPARTMENT ACCEPTED T HIS ITA NO.458(ASR)/2011 11 LEASE DEED IN ASSTT. YEAR 2005-06 AND DID NOT MADE ANY ADDITIONS OF THE NOTIONAL RENT DURING THIS YEAR. TH E ALV HAS BEEN ACCEPTED AS NIL. AS PER THE RULE OF CONSIS TENCY THIS LEASE DEED MADE TO BE ACCEPTED IN THE YEAR 200 6-07 I.E. THE YEAR UNDER CONSIDERATION. II) THE DEPARTMENT HAS FURTHER MENTIONED THAT RENT RECE IVED BY THE ASSESSEE ON THIS BUILDING FROM A.Y.1997-98 T O 2003-04 WAS TO THE TUNE OF RS.9 LACS P.A. AND FOR A .Y. 2004-05 IT IS TO THE TUNE OF RS.972000/-. THE DR IS PURPOSELY SILENT FOR A.Y.2005-06 WHICH WAS THE FIRS T YEAR OF LEASE OF PROPERTY WHERE THE RENT IS NIL. III) THE DR HAS MENTIONED THAT CIT(A) IN PARA 4.3 OF HIS ORDER HAS SUSTAINED THE ACTION OF AO OF DETERMINATI ON OF ANNUAL VALUE AT RS.996000/- WHEREAS THE DR HAS NOT READ THE ENTIRE PARA 4.3 OF CIT(A) ORDER WHERE THE CIT(A) HAS SAID THAT ALV IS TO BE BROUGHT TO TAX BU T THE ALV DETERMINED BY THE AO HAS NOT BEEN CHALLENGED BY THE ASSESSEE IN THE GROUNDS OF APPEAL. IT IS AMAZIN G AND ALSO A CHALLENGE BEFORE THE ITAT BY THE APPELLANT I N GROUND NO.1 THAT AO HAS MADE THE ADDITION TO THE INCOME OF RENT RECEIVABLE IN PAGE 8 OF HIS ORDER. H ENCE THE FINDING OF CIT(A) IS INCORRECT TO THIS EXTENT. IV) THAT THE SUBMISSION OF THE DR THAT AO & CIT(A) HAS WORKED OUT THE ALV OF THE PROPERTY IS INCORRECT AND THE JUDGMENT RELIED BY HIM OF MADRAS HIGH COURT IS NOT APPLICABLE TO THE CASE. V) THAT THE DR HAS IN HIS SUBMISSIONS HAS ALTHOUGH ADMITTED THAT THERE IS A CLAUSE IN THE LEASE DEED D ATED 1.4.2004 THAT THERE IS A OPTION OF NOT CHARGING ANY RENT OR TO CHARGE RENT AS MAY BE MUTUALLY AGREED BETWEEN TW O PARTIES I.E. LESSOR AND LESSEE ITSELF IS A CONSIDER ATION CLAUSE HENCE HIS SUBMISSIONS THAT LEASE DEED IS NOT A PROPER DEED HAS NO LEGS TO STAND. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AD GIVEN THE HOSPITAL BUILDING ON RENT SINCE 1997-98 AND RENT HAD BEEN CH ARGED FOR THE FINANCIAL ITA NO.458(ASR)/2011 12 YEARS 1997-98 TO 2000-01 @ RS.9,96,000/- PER ANNUM. FOR THE FINANCIAL YEAR 2001-02, IT WAS RS.10,28,000/- PER ANNUM. FOR THE F INANCIAL YEAR 2002-03. IT WAS RS.10,44,000/- PER ANNUM AND FOR THE FINANCIAL YEAR 2003-04 I.E. FOR THE ASSESSMENT YEAR 2004-05, IT WAS RS.9,72,000/-. THE SAID FACTS ARE EMANATING FROM THE ORDER OF THE ASSESSING OFFICER. THE ASSES SEE WAS GIVEN OPPORTUNITY TO SHOW CAUSE WHY THE RENT HAS BEEN STOPPED FOR THE ASSESSMENT YEARS 2005- 06 & 2006-07. IT WAS SUBMITTED BEFORE THE AO BY TH E ASSESSEE THAT IN THE PRECEDING YEAR, THE HOSPITAL BUILDING WAS GIVEN ON RENT TO RAM KAUR MEMORIAL TRUST FOR RUNNING NURSING TRAINING INSTITU TE AND RENT WAS CHARGED FROM THEM UPTO ASSESSMENT YEAR 2004-05. NO RENT WAS CHARGED FROM THEM DURING THE YEAR AND IN EVENT OF CHARGING OR PAYMEN T OF ANY RENT, THE TRUST WOULD HAVE LOST ITS AFFILIATION WITH THE STATE NUR SING COUNCIL AS PER NOTIFICATION DATED 05.07.2004, COPY OF WHICH WAS SUBMITTED AND PLACED ON RECORD. IT WAS SUBMITTED THAT SINCE N O RENT WAS CHARGED NO RENTAL INCOME COULD BE ASSESSED IN THE HANDS O F THE ASSESSEE ON NOTIONAL BASIS. CONFIRMATION REGARDING NON-PAYMEN T OR ACCRUAL OF THE RENT BY RAM KAUR MEMORIAL TRUST WAS ALSO PLACED ON RECORD. IT WAS SUBMITTED THAT THERE IS NO REVENUE LOSS IN THIS CASE AS THE BENEFICIARIES OF RAM KAUR MEMORIAL TRUST HAVE NOT CLAIMED ANY DED UCTION FROM THEIR SHARES IN RESPECT OF THE RENT WHICH IS NEITHER PAID NOR PROVIDED. THE ASSESSEE ITA NO.458(ASR)/2011 13 ENTERED INTO AN AGREEMENT DATED 01.04.2004 WITH THE SAID TRUST WITH THE OPTION NOT TO CHARGE ANY RENT OR TO CHARGE RENT AS MUTUALLY AGREED BETWEEN THE TWO PARTIES I.E. LESSER AND LESSEE. THERE IS NO DISPUTE THAT INCOME UNDER SECTION 22 IS DEEMED INCOME WHICH IS CHARGED ON ACT UAL OR NOTIONAL RENT BASIS. AS PER SECTION 23, THE ANNUAL VALUE HAS TO B E DETERMINED EVEN IF THE PROPERTY IS NOT GIVEN ON RENT. THEREFORE, EVEN IF T HE PROPERTY IS OCCUPIED BY THE TENANT FREE FROM RENT, THE LAND-LORD IS ASSESSA BLE ON NOTIONAL INCOME. THIS PROPOSITION IS WELL COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF HOUSING CONSTRUCTI ON PVT. LTD. 128 ITR 773 (DEL.). THEREFORE, IT IS ONLY THE DEEMED INCOME OF THE ASSESSEE, WHICH IS CHARGED BY THE AO. THEREFORE, WHAT HAS TO BE CHARGE D U/S 22 IS ONLY THE OWNERSHIP OF THE PROPERTY IRRESPECTIVE OF THE FACT WHETHER OR NOT ANY INCOME WAS EITHER ACTUALLY RECEIVED OR ACCRUED TO T HE ASSESSEE. 8. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSE E HAD BEEN CHARGING RENT FROM THE SAID TRUST W.E.F. 01.04.1997 WHICH WAS STO PPED AFTER 31.03.2004. IT IS A MATTER OF SURRENDERING OF INCOME IN THE FORM O F RENT. THE AMOUNT AS A MATTER OF FACT IN THE FORM OF RENT IS RECEIVABLE WH ICH IN THE PRESENT CASE HAS BEEN SURRENDERED BY THE ASSESSEE. AS PER PROVISIONS OF SECTION 22 & 23, WHICH IS VERY CLEAR, SUCH NOTIONAL RENT HAS TO BE B ROUGHT TO TAX AS DEEMED INCOME AND THERE IS NO ESCAPE TO THAT. THE AO HAS GIVEN THE FINDINGS WITH REGARD ITA NO.458(ASR)/2011 14 TO THE ASSESSMENT YEARS 2005-06 & 2006-07 IN HIS O RDER WITH REGARD TO THE TAXABILITY OF RENTAL INCOME OF RS.9,72,000/- FOR EA CH YEAR AND THEREFORE, HAS RIGHTLY TAXED THE SAME TO BE DEEMED INCOME OF THE A SSESSEE FOR THE IMPUGNED YEAR. THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THESE ADDITIONS WERE NOT MADE FOR THE ASSESSMENT YEAR 200 5-06 WILL NOT HOLD GOOD AND CANNOT BE TREATED AS A PRECEDENT. 9. AS REGARDS THE ANNUAL VALUE WHICH SHALL BE THE D EEMED INCOME, IN THE PRESENT CASE, THE LD. AR HAS PLACED ON RECORD, THE COPY OF ANNUAL RENTAL VALUE OF MUNICIPAL CORPORATION JALANDHAR FOR THE YE AR 2005-06. THE LD. COUNSEL ARGUED ALTERNATIVELY THAT THERE ARE NO BAS IS OF VALUATION OF ALV BY EITHER OF AUTHORITIES BELOW. THE LD. DR ALSO IN HIS WRITTEN SUBMISSION SUBMITTED THAT CIT(A) FAILED TO WORK OUT THE ALV. 10. AFTER HEARING THE PARTIES AND MATERIAL AVAILABL E ON RECORD, WE ARE OF THE VIEW THAT EVEN IF THE RENT IS NOT RECEIVABLE IN THE PRESENT CASE, IT IS THE ALV WHICH HAS TO BE CHARGED TO TAX AS DEEMED INCOME U/S 22 OF THE ACT. AS REGARDS WHAT SHOULD BE THE ALV AS PER SECTION 23 OF THE ACT, THE LD. CIT(A) HAS NOT GIVEN COGENT REASONING REGARDING THE VALUE OF ALV. THE FINDINGS OF THE LD. CIT(A) WITH REFERENCE TO ALV IS THAT PROPER TY MAY FETCH CLEARLY IN THE REGION OF AROUND RS.10 LACS PER ANNUM AND THERE FORE, HE CONSIDERED RS.9.72 LACS BEING THE ALV FIXED BY AO AS REASONABL E. THE MATTER IS SET ITA NO.458(ASR)/2011 15 ASIDE TO THE FILE OF LD. CIT(A) WHO WILL VALUE THE ALV AS PER LAW AND ACCORDINGLY THE ALV SO DETERMINED SHALL BE THE DEEM ED INCOME FOR THE IMPUGNED YEAR BUT BY PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE LD. CIT(A) IS DIRECTED ACCORDINGLY. T HUS, GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.458(ASR)/2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH DECEMBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11TH DECEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:DR. UDHAM SINGH, JALANDHAR. 2. THE ITO III(2), JALANDHAR. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR. ITA NO.458(ASR)/2011 16