KAIRA CAN COMPANY LTD, MUMBAI V. ASST CIT 6(2), MUMBAI

ITA 6268/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88600 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 28-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MILIN THAKORE
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 6268/MUM/2013 (ASSESSMENT YEAR: 2009-10) M/S. KAIRA CAN COMPANY LTD. VS. A C I T - 6(2) TIECICON HOUSE DR. E. MOSES ROAD MUMBAI 400011 ROOM NO. 504, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN - AAACK4319B APPELLANT RESPONDENT APPELLANT BY: SHRI MILIN THAKORE RESPONDENT BY: SHRI V.K. BORA DATE OF HEARING: 17.03.2015 DATE OF PRONOUNCEMENT: 17.03.2015 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE-COMPANY IS DIRECTED AGA INST THE ORDER PASSED BY CIT(A)-12, MUMBAI AND IT PERTAINS TO A.Y. 2009-10. 2. ASSESSEE-COMPANY, IN ITS COMPUTATION OF INCOME, SHO WED A SUM OF ` 3,58,310/- TOWARDS INCOME FROM HOUSE PROPERTY. DURI NG THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT ASSESSEE-C OMPANY RECEIVED RENT OF ` 6 LAKHS PER ANNUM ON THE FLAT SITUATED AT APSARA CO -OP. HOUSING SOCIETY, WHICH WAS GIVEN ON RENT TO TATA INDUSTRIES LTD. ASS ESSEE-COMPANY ENTERED INTO LEAVE & LICENCE AGREEMENT WITH TATA INDUSTRIES LTD. ON 01.01.2008. THE FLAT CONSISTS OF 2880 SQ.FT. (BUILT UP) AREA SI TUATED AT NARIMAN POINT, MUMBAI. THE AO NOTICED THAT IN A.Y. 2006-07 THE REN T RECEIVED BY THE ASSESSEE-COMPANY WAS SHOWN AT ` 2,40,000/- P.A. AND THE INTEREST FREE DEPOSIT WAS SHOWN AT ` 2,20,00,000/- (FOR A.Y. 2009-10 THE INTEREST FREE DEPOSIT WAS ` 3 CRORES). IN A.Y. 2006-07 THE AO DETERMINED THE GR OSS ANNUAL VALUE AT ` 28,80,000/-. SIMILARLY, FOR A.Y. 2007-08 IT WAS DET ERMINED AT ` 38,40,000/- AND FOR A.Y. 2008-09 AT ` 52,80,000/-. SIMILARLY, IN THIS YEAR ITA NO. 6268/MUM/2013 M/S. KAIRA CAN COMPANY LTD. 2 INTEREST @10% P.A. ON SECURITY DEPOSIT WAS TAKEN IN TO ACCOUNT TO ARRIVE AT GROSS ANNUAL VALUE AT ` 56 LAKHS AND ASSESSMENT WAS COMPLETED ACCORDINGLY. 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T ADDING NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT IS CONTR ARY TO LAW AND FURTHER SUBMITTED THAT THE RENT OF ` 50,000/- PER MONTH IS FAIR AND REASONABLE. 4. THE LEARNED CIT(A) OBSERVED THAT THE FLAT WAS PURCH ASED IN 1996 FOR ` 1,72,80,000/- WHEREAS THE ASSESSEE HAD TAKEN INTERE ST FREE DEPOSIT OF ` 5 CRORES FOR LETTING OUT THIS FLAT (IT WAS MENTIONED BY THE AO AS ` 3 CRORES). SINCE THE FLAT WAS LOCATED IN A POSH LOCALITY, AT N ARIMAN POINT, WITH FULL AMENITIES, THE LEARNED CIT(A) WAS OF THE OPINION TH AT MONTHLY RENT OF ` 50,000/- CAN HARDLY BE CONSIDERED AS MARKET RENT AN D THEREFORE HE CONCLUDED THAT FAIR LETTING VALUE IS HIDDEN UNDER T HE GARB OF INTEREST FREE SECURITY DEPOSIT. HE HAD ALSO TAKEN INTO CONSIDERAT ION THE INTEREST PAID BY GOVERNMENT OF INDIA ON DEPOSITS MADE AND ASSUMED TH AT ORDINARILY SUCH INTEREST COMPONENT SHOULD HAVE BEEN RECEIVED BY THE ASSESSEE ON THE CAPITAL COST INCURRED. HE HAD ALSO TAKEN INTO CONSIDERATION SEVERAL JUDICIAL PRONOUNCEMENTS IN THIS REGARD TO HOLD THAT THE RENT DISCLOSED BY ASSESSEE IS ILLUSORY AND DID NOT DISCLOSE CORRECT ANNUAL LETTIN G VALUE. THEREFORE, HE CONFIRMED THE ORDER OF THE AO. 5. FURTHER AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE ITAT CONTENDING, INTER ALIA, THAT THE CIT(A) ERRED IN CO NFIRMING THE ACTION OF THE AO, CONSIDERING THE RATE OF INTEREST AT 10% WHILE D ETERMINING NOTIONAL INTEREST, WHICH IS ADHOC AND WITHOUT ANY BASIS. DUR ING THE COURSE OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US COPY OF THE ORDER OF THE ITAT A BENCH, MUMBAI IN ASSESSEES OWN CASE FOR A .Y. 2004-05 TO A.Y. 2007-08 TO SUBMIT THAT SO LONG AS THE RENT RECEIVED IS MORE THAN THE MUNICIPAL RATEABLE VALUE NOTIONAL INTEREST SHOULD N OT BE INCLUDED WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY AND IN THI S REGARD THE BENCH RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF J.K. INVESTORS, ETC. THE RELEVANT OBSERVATIONS OF THE TR IBUNAL ARE EXTRACTED FOR READY REFERENCE: - ITA NO. 6268/MUM/2013 M/S. KAIRA CAN COMPANY LTD. 3 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF INCLUSION OF NOTIONAL INTEREST INCOME ON THE INTEREST FREE SECUR ITY DEPOSIT. IT IS A SETTLED PROPOSITION OF LAW BY VIRTUE OF THE JUDGMEN T OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF J.K. INVES TORS (BOMBAY) LTD (SUPRA) AND TIP TOP TYPOGRAPHY (SUPRA) THAT THE NOT IONAL INTEREST SHOULD NOT BE INCLUDED WHILE COMPUTING THE INCOME F ROM HOUSE PROPERTY UNDER SECTION 23(1)(A) AND (B) OF THE ACT. IT IS ALSO A SETTLED PROPOSITION THAT ACTUAL RENT RECEIVED OR RECEIVABLE BY THE LAND LORD CONSTITUTES A RELIABLE EVIDENCE TO ASCERTAIN THE PR OPERTIES CAPACITY TO EARN THE RENT IN OPEN MARKET. THE FORMS SHOULD BE A CCEPTED UNLESS THE ASSESSING OFFICER HAS CONTRARY EVIDENCE TO SUGGEST THE DEFLATION OF RENTAL INCOME BY EXTRANEOUS CONSIDERATION. THIS IS ALSO AN ADMITTED FACT IN THIS CASE THAT THE RENT RECEIVED IS MUCH HI GHER THAN THE MUNICIPAL RATEABLE VALUE OF THE PROPERTY. IT IS ALS O DISCOURAGED AND UNAPPROVED BY VARIOUS BENCHES OF THE TRIBUNAL THAT WHEN THE INTEREST INCOME EARNED BY THE ASSESSEE ON THE SAID SECURITY DEPOSITS DEPOSITED WITH THE BANKS THE SAME IS OFFERED TO TAX, THE INCL USION OF SUCH INTEREST ON THE SAID DEPOSITS FOR THE PURPOSE OF ALV AMOUNTS TO DOUBLE TAXATION. CONSIDERING THE FACTUAL MATRIX OF THE PRE SENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE RAISED BY THE ASSESSEE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. WE ORDER ACCORDI NGLY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND, EVEN OTHERWISE, PRINCIPLE OF CON SISTENCY APPLIES SINCE THERE IS NO CHANGE IN THE FACTUAL MATRIX OF THE CAS E. 6. ON THE OTHER HAND, THE LEARNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE TAX AUTHORITIES AND SUBMITTED THAT TH E SO CALLED RENT RECEIVED BY THE ASSESSEE WAS ILLUSORY WHEN IT IS COMPARED WI TH THE AMOUNT INVESTED IN PURCHASE OF THE PROPERTY AND IN SUCH CIRCUMSTANC ES IT WOULD BE APPROPRIATE TO ADOPT ANNUAL LETTING VALUE IN THE MA NNER WHICH WAS ADOPTED BY THE AO/CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFU LLY PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE RENT RECEIVED BY THE ASSESSEE EVEN IN THIS YEAR IS LESS THAN THE MUNICIPAL RATEABLE VALUE. UND ER IDENTICAL CIRCUMSTANCES THE ITAT A BENCH, MUMBAI (IN RESPEC T OF A.Y. 2004-05 TO A.Y. 2007-08) HAVING DECIDED THE MATTER IN FAVOUR O F THE ASSESSEE, FOR THE SAKE OF CONSISTENCY WE FOLLOW THE VIEW TAKEN BY THE ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS AND HOLD THAT NOTIONAL INTER EST RATE CANNOT BE TAKEN ITA NO. 6268/MUM/2013 M/S. KAIRA CAN COMPANY LTD. 4 INTO CONSIDERATION FOR THE PURPOSE OF COMPUTING ANN UAL LETTING VALUE. WE HOLD ACCORDINGLY 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH, 2015. SD/- SD/- (SANJAY ARORA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 17 TH MARCH, 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 12, MUMBAI 4. THE CIT 6, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.