ITO 7(2)-1, MUMBAI V. RARE ROSE P. LTD, MUMBAI

ITA 6088/MUM/2009

• Counselvise Citation: 608819914 RSA 2009
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Question of law; Fair market value; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.2575/MUM/2009 (ASSESSMENT YEAR: 2005-06) RARE ROSE PREMISES PVT. LTD., PENINSULA CHAMBERS, 5 TH FLOOR, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI -400 013 ....... APPELLANT VS INCOME TAX OFFICER -7(2)(1), MUMBAI ..... RESPONDENT ITA NO.6088/MUM/2009 (ASSESSMENT YEAR: 2005-06) INCOME TAX OFFICER -7(2)(1), MUMBAI ....... APPELLANT VS RARE ROSE PREMISES PVT. LTD., PENINSULA CHAMBERS, 5 TH FLOOR, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI -400 013 ..... RESPONDENT PAN: AABCR 7389 F ASSESSEE BY: MS AARTI VISSANJI REVENUE BY: SHRI C.G.K. NAIR O R D E R PER R.S. PADVEKAR, JM THESE ARE TWO CROSS APPEALS ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE IN WHICH THE IMPUGNED ORDER OF THE LD. CIT (A)-VII, MUMBAI DATED 19.02.2009 FOR THE A.Y. 2005-06 IS CHA LLENGED. ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 2 2. WE FIRST TAKE-UP THE ASSESSEES APPEAL BEING ITA NO.2575/MUM/2009. THE FIRST ISSUE IS IN RESPECT OF DISALLOWANCE OF SOCIETY CHARES OF RS 1,95,038/-. 3. WE HAVE HEARD THE PARTIES. THE ASSESSEE-COMPANY IS THE OWNER OF THE COMMERCIAL OFFICE PREMISES WHICH IS LET OUT AND ASSESSEE RECEIVES THE RENTAL INCOME. THE ASSESSEE HAS REDUC ED THE SOCIETY CHARGES OF RS 1,95,308/- FOR THE PURPOSE OF ARRIVIN G AT THE NET ANNUAL VALUE (ALV) OF THE PROPERTY. THE ASSESSEE CONTENDE D BEFORE THE A.O. THAT THE PROPERTY TAX AND SOCIETY CHARGES ARE DIREC T CHARGES TO BE DEDUCTED FROM GROSS RENT AND THOSE EXPENSES ARE IN THE NATURE OF EARNING THE INCOME. THE A.O. WAS NOT IMPRESSED WIT H THE CONTENTION OF THE ASSESSEE AND DECLINED TO GIVE THE SOCIETY CH ARGES OF RS 1,95,308/-. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. NOW, THE ASSESSEE IS IN APPEAL BE FORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. COUNSEL PUT HER RELIANCE ON T HE FOLLOWING DECISIONS:- I) SHARMILA TAGORE VS. JCIT -93 TTJ 483 (MUMBAI) II) BOMBAY OIL INDUSTRIES LTD. VS. DCIT -82 ITD 626 (MUMBAI) THE LD. D.R. RELIED ON THE DECISION IN THE CASE OF 83 ITD 467. THE SHORT CONTROVERSY IS IN RESPECT OF THE DEDUCTIBILIT Y OF THE SOCIETY CHARGES FROM THE GROSS RENT. AS PER THE PROVISIONS OF SECTION 23 OF THE ACT, THE ANNUAL LETTING VALUE OF THE PROPERTY IS DE TERMINED. AS PER THE FICTION CREATED IN CL(A) OF SECTION 23(1), THE FAIR MARKET VALUE ALSO CAN BE TREATED AS THE ANNUAL LETTING VALUE IF THE S AME IS MORE THAN ACTUAL RENT RECEIVED OR RECEIVABLE. SECTION 24 PRO VIDES THE RIGHTS OF THE ASSESSEE TO CLAIM THE DEDUCTION. AS PER THE LA W APPLICABLE FOR THE A.Y. 2005-06 FOLLOWING TWO DEDUCTIONS ARE AVAILABLE TO THE ASSESSEE:- (I) SOME EQUAL TO 30% OF THE ANNUAL VALUE AND ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 3 (II) INTEREST ON THE BORROWED CAPITAL IF THE SAME IS USE D FOR ACQUIRING, CONSTRUCTING OR RENOVATING THE PROPERTY. 5. OTHER THAN THIS, NO OTHER DEDUCTION IS ALLOWED. THE DECISIONS RELIED ON BY THE LD. COUNSEL WERE RENDERED IN THE C ONTEXT OF THE LAW APPLICABLE IN THE RESPECTIVE YEAR. IN OUR OPINION, THE A.O. HAS RIGHTLY DENIED THE DEDUCTION TO THE ASSESSEE. WE FIND NO R EASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). ACCORDINGLY, GR OUND NO.1 IS DISMISSED. 6. THE NEXT ISSUE IS WITH REGARDS TO THE DISALLOWAN CE OF RS 79,877/- WHICH IS CLAIMED AS RUNNING AND MAINTENANC E EXPENDITURE. 7. WE HAVE HEARD THE PARTIES. THERE IS NO DISPUTE ABOUT THE FACT THAT EXCEPT THE RENTAL INCOME AND THE INTEREST-INCO ME, THE ASSESSEE IS NOT CARRYING OUT ANY BUSINESS ACTIVITY. THE ASSESS EE HAS FILED PROFIT & LOSS ACCOUNT AND CLAIMED SOME EXPENDITURE LIKE SECR ETARY FEES, ACCOUNTING FEES, INCOME-TAX PROCEEDINGS FEES ETC. THE A.O. DECLINED TO ACCEPT THE PLEA OF THE ASSESSEE THAT THESE ARE RECU RRING EXPENDITURES AND ACCORDINGLY THEY ARE TO BE ALLOWED. THE ASSESS EE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS HENCE HE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. COUNSEL ARGUED THAT THESE ARE THE ROUTINE EXPENDITURES AND ASSESSEE-COMPANY IS BOUND TO INCUR THE SAME AND HENCE, THERE IS NO JUSTIFICATION TO DENY THE SAME. WE FIND THAT ADMITTEDLY THE ASSESSEE HAS NO BUSINESS INCOME OR A NY BUSINESS ACTIVITY IS CARRIED ON . IT IS WELL SETTLED PRINCI PLES OF LAW THAT INCOME UNDER EACH HEAD IS TO BE COMPUTED INDEPENDENTLY AS PER THE RESPECTIVE PROVISIONS ALLOWING OR RESTRICTING THE E XPENDITURE. OTHER THAN THE RENTAL INCOME AND INCOME FROM THE INTEREST , WHICH ARE ASSESSED AS INCOME FROM THE HOUSE PROPERTY AND INCO ME FROM OTHER ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 4 SOURCES, THE ASSESSEE DOES NOT HAVE ANY OTHER INCOM E. IN OUR OPINION, THE A.O. HAS RIGHTLY DECLINED TO GRANT THE DEDUCTIO N. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT (A). 9. NOW, WE TAKE-UP REVENUES APPEAL BEING ITA NO.60 88 OF 2009. 10. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE G ROUND:- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT (A) WAS RIGHT IN DELETING THE A DDITION MADE TO ANNUAL LETTING VALUE (ALV) IGNORING THE JURISDICTIONAL TRIBUNAL DECISION IN THE CASE OF DCI T VS. SMT. RITA PAREKH REPORTED IN 10 SOT 779 WHEREIN IT WAS H ELD BY THE TRIBUNAL THAT ALV CAN BE ESTIMATED IF THERE IS EVIDENCE FILED BY THE ASSESSEE WHICH ITSELF SPEAKS THAT THE PROPERTY WILL FETCH RENT AT HIGHER RATE IF INTEREST FREE DEP OSITS IS NOT ACCEPTED?. 11. BRIEFLY STATED, THE FACTS ARE AS UNDER. THE AS SESSEE-COMPANY HAS LET OUT ITS PREMISES AND RECEIVED THE RENTAL IN COME OF RS 55,20,000/- AND THE SAME HAS BEEN OFFERED AND ASSES SED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE HA S LET OUT ITS PREMISES SITUATED AT 6 TH FLOOR, PENINSULA CHAMBER, LOWER PAREL, MUMBAI -13, WHICH AREA IS 12,056 SQ.FT. TO M/S. KOT AK MAHINDRA OLD MUTUAL LIFE INSURANCE LTD. (IN SHORT KOTAK MAHINDRA ) VIDE LEASE AGREEMENT DATED 31.03.2003, ON THE MONTHLY RENT OF RS 4,60,000/- AND ALSO TAKEN INTEREST-FREE DEPOSIT OF RS 2.5 CROR ES FROM THE LESSEE M/S. KOTAK MAHINDRA. THE A.O. IS OF THE OPINION THA T AS INEREST FREE DEPOSIT IS PAID BY THE LESSEE/LICENSEE, THE RENT PA YABLE TO THE ASSESSEE WAS REDUCED AND RENT GREED BETWEEN THE PARTIES IS N OT TRUE RENT OF THE PROPERTY AS PER THE PREVAILING MARKET RATE. THE A. O. DID SOME RESEARCH ON THE INTERNET AND FOUND THE PREVAILING M ARKET RATES IN THE AREA IN RESPECT OF OTHER PROPERTIES. THE A.O., THE REFORE, WORKED OUT THE NOTIONAL INTEREST AT 12.25% ON RS 2.5 CRORES AN D ADOPTED ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 5 PREVAILING RATE AS PER THE RESEARCH AT 90 PER SQ. F T. PER MONTH. AFTER CONSIDERING THE NOTIONAL INTEREST, HE WORKED OUT AL V AT RS 1,30,20,480/-. THE ASSESSEE CARRIED THE ISSUE BEFO RE THE LD. CIT (A) AND FOUND FAVOUR AS THE LD. CIT (A) DIRECTED THE A. O. TO ACCEPT THE NOTE ON ANNUAL LETTING VALUE AS DISCLOSED BY THE AS SESSEE. NOW, THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD THE PARTIES. NOW, THE PRACTICE P REVALENT FOR ACCEPTING THE INTEREST-FREE DEPOSIT HAS BEEN CONSID ERED BY THE HONBLE HIGH COURT OF DELHI (FULL BENCH) IN THE CASE OF CIT VS. MONI KUMAR SUBBA 333 ITR 38. THE QUESTION OF LAW BEFORE THE H ONBLE HIGH COURT WAS WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS C ORRECT IN LAW IN HOLDING THAT NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT CAN NOT BE CONSIDERED FOR DETERMINING FAIR RENTAL VALUE OF HOUSE PROPERTY UNDER THE INCOME-TAX ACT. THE HONBLE HIGH COURT A LSO LAID DOWN CERTAIN GUIDELINES AS UNDER:- 18. ..(I) ALV WOULD BE THE SUM AT WHICH THE PROPER TY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLUENCED BY ANY EXTRA NEOUS CIRCUMSTANCES. (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCE S, WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED / DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION. (IV) SUCH ALV, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO T HE PROPERTY. ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 6 (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 O F RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT, IF TH E FAIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RE NT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 13. BOTH THE PARTIES AGREED THAT THE MATTER MAY BE SENT BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGH T OF THE PRINCIPLES AND THE GUIDELINES LAID DOWN BY THE HONBLE HIGH COURT OF DELHI (FULL BENCH) IN THE CASE OF MONI KUMAR SUBBA (SUPRA). WE , ACCORDINGLY, SET ASIDE THE ORDER OF THE LD. CIT (A) AND RESTORED THE ISSUE OF DETERMINATION OF THE ANNUAL LETTING VALUE OF THE PR OPERTY FOR FRESH ADJUDICATION WITH THE DIRECTION THAT HE SHOULD DECI DE THE SAME IN THE LIGHT OF THE PRINCIPLES AND GUIDELINES LAID DOWN IN THE CASE OF MONI KUMAR SUBBA (SUPRA). NEEDLESS TO SAY THE A.O. SHOUL D GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER T HE PRINCIPLES OF NATURAL JUSTICE. 14. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED A ND REVENUES APPEAL IS ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH JUNE 2011. SD/- SD/- ( R.S. SYAL ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 30TH JUNE 2011 COPY TO:- ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 7 1) THE ASSESSEE. 2) THE REVENUE. 3) THE CIT (A)VII, MUMBAI. 4) THE CIT-7, MUMBAI. 5) THE D.R. D BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 2575/MUM/2009 ITA 6088/MUM/2009 RARE ROSE PREMISES PVT. LTD. 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 23.06.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 23.06.2011 SR.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 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER