INCOME TAX OFFICER-9(3)(4), MUMBAI V. M/S. RAINDROP REAL ESTATE P.LTD., MUMBAI

ITA 5620/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49718 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 07-07-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 27-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P NAIK
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO. 5620/MUM./2007 (ASSESSMENT YEAR : 2001-02 ) DATE OF HEARING 7.7.2011 INCOME TAX OFFICER WARD-9(3)(4) AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S RAINDROP REAL ESTATES P. LTD. COOL IN APARTMENT WATER FIELD ROAD BANDRA (W), MUMBAI 400 020 PAN AAAC1984P .... RESPONDENT REVENUE BY : MR. P. NAIK ASSESSEE BY : NONE O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 8 TH JUNE 2007, PASSED BY THE COMMISSIONER (APPEALS)-IX, MUMBAI, FOR ASSESSMENT YEAR 2001-02, ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT CONFIRMING ADDITION UNDER SECTION 23(1)(A) OF THE ACT DETERMINING ANNUAL VALUE OF THE LEASED PROPERTY CONSISTING RENT INCOME ALONG WITH NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT. RAINDROP REAL ESTATE PVT. LTD. ITA NO.5620/M./2007 2 2. WITHOUT PREJUDICE TO GROUND NO.1, LEARNED CIT(A) ERRED IN NOT CONFIRMING ADDITION UNDER SECTION 23(1)(A) OF THE A CT ON THE LEASED PROPERTY, INSPITE OF COMMERCIAL LOCATION OF PROPERT Y ON WHICH AVERAGE RENT WAS KEPT LOW DUE TO HUGE INTEREST FREE SECURIT Y DEPOSIT. 3. WITHOUT PREJUDICE TO GROUND NO.1 & 2, LEARNED CI T(A) ERRED IN NOT APPRECIATING THAT THE JURISDICTIONAL HIGH COURT IN CASE OF CIT V/S J.K. INVESTORS, (BOMBAY) LTD. (2000) 112 TAXMAN 107 HAS HELD THAT THE QUESTION OF TAXING ON NOTIONAL INCOME UNDER SEC TION 23(1)(A) IS OPEN TO THE DEPARTMENT. 2. ON THE DATE OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, THE BENCH WAS OF THE VIEW THAT THE REVENUE S APPEAL CAN BE DISPOSED OFF IN THE ABSENCE OF THE RESPONDENT ASSES SEE AND, ACCORDINGLY, THE APPEAL WAS HEARD EX-PARTE, QUA THE RESPONDENT ASSES SEE. WE NOW PROCEED TO DISPOSE OFF THE APPEAL ON MERIT AFTER HEARING TH E LEARNED DEPARTMENTAL REPRESENTATIVE. 3. WE HAVE HEARD THE CONTENTIONS OF LEARNED DEPARTMENT AL REPRESENTA- TIVE. ON A CAREFUL CONSIDERATION OF THE FACTS AND C IRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- 4. THE FIRST APPELLATE AUTHORITY HAS RELIED ON THE DEC ISION OF THE HON'BLE BOMBAY HIGH COURT IN J.K. INVESTOR, 112 TAXMAN 107 (BOM.) AND HELD THAT NOTIONAL INTEREST INCOME ON SECURITY DEPOSIT CANNOT BE ADDED TO RENT RECEIVED, FOR DETERMINATION OF ANNUAL VALUE. THIS J UDGMENT HAS BEEN APPROVED BY THE FULL BENCH OF THE HON'BLE DELHI HIG H COURT IN CIT V/S MONI KUMAR SUBBA & ORS., IN ITA NO.499 OF 2008, ETC., VI DE JUDGMENT DATED 30 TH MARCH 2011, WHEREIN THEIR LORDSHIP, VIDE PARA-13, H ELD 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. THEREAFTER, THEIR LORDSHIPS VIDE PARA-14, HELD AS F OLLOWS:- RAINDROP REAL ESTATE PVT. LTD. ITA NO.5620/M./2007 3 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). NOW, WE COME TO PARAS-18 AND 19 OF THE SAID JUDGMEN T, WHICH READ 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 @ IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. 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: RAINDROP REAL ESTATE PVT. LTD. ITA NO.5620/M./2007 4 (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. 5. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF TH E HON'BLE DELHI HIGH COURT, WE UPHOLD THE ORDER OF THE COMMISSIONER (APP EALS) AND DISMISS THE GROUND RAISED BY THE REVENUE. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.7.2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 29.7.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, K BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI RAINDROP REAL ESTATE PVT. LTD. ITA NO.5620/M./2007 5 DATE INITIAL 1. DRAFT DICTATED ON 15.7.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 18.7.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 23.7.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 23.7.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.7.2011 SR.PS/PS 6. DATE OF PRONOUNCEMENT 29.7.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 29.7.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER