SITAKANT M WAGH, MUMBAI V. ACIT RG 8(1), MUMBAI

ITA 6826/MUM/2011

• Counselvise Citation: 682619914 RSA 2011
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: SUNIL R BHANDARI
• Keywords: Fair market value; Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NOS.1877 & 6826/MUM/2011 ( / ASSESSMENT YEARS :2006-07 & 2007-08) MR.SITAKANT M WAGH E-419, FLORAL DECK PLAZA, CENTRAL MIDC ROAD,ANDHERI (E), MUMBAI-400093 / VS. ASSTT. COMMISSIONER OF INCOME TAX-8(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( / APPELLANT) .. ( !' / RESPONDENT) ./ #$ ./PAN/GIR NO. : AAPW1725A % / APPELLANT BY : SHRI SUNIL R BHANDARI !' & % /RESPONDENT BY : SHRI PRAKASH L PATHADE ' & ( ) / DATE OF HEARING : 9.7.2014 *+ & ( ) /DATE OF PRONOUNCEMENT : 17.7.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THEY ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS DATED 28.12.2010 & 19.7.2011 PASSED BY LD. CIT(A)-16, MUMBAI AND THEY RELATE TO THE ASSESSMEN T YEARS 2006-07 AND 2007- 08 RESPECTIVELY. SINCE IDENTICAL ISSUE IS URGED IN BOTH THE APPEALS, THEY WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, THE SE APPEALS ARE BEING DECIDED BY THIS COMMON ORDER. 2. THE SOLITARY ISSUE URGED FOR OUR ADJUDICATION IN BOTH THE APPEALS IS THAT WHETHER THE TAXING AUTHORITIES ARE JUSTIFIED IN EST IMATING THE ANNUAL VALUE OF THE HOUSE PROPERTY AT A HYPOTHETICAL FIGURE DISREGARDIN G THE RENT RECEIVED BY THE ASSESSEE, WHEN IT IS MORE THAN THE MUNICIPAL RATAB LE VALUE. I.T.A. NOS.1877 & 6826/MUM/2011 2 3. THE FACTS RELATING TO THE ISSUE UNDER CONSIDERAT ION ARE STATED IN BRIEF. THE ASSESSEE IS A CO-OWNER OF THE FLAT LOCATED AT 1 2A. LOHTSE CO-OP HSG SOC. LTD, RUIA PARK, JUHU, MUMBAI-400049. THE ASSESSEE OWNS 50% SHARE AND OTHER 50% SHARE IS HELD BY HIS WIFE. IN BOTH THE YEARS T HE ASSESSEE DECLARED RENT RECEIVED FROM THE PROPERTY AS HIS ANNUAL VALUE. T HE ASSESSEE HAD RECEIVED A SUM OF RS.1,20,000/- AS HIS SHARE OF RENTAL INCOME . THE AO TOOK THE VIEW THAT THE RENTAL INCOME DECLARED BY THE ASSESSEE IS NOT R EPRESENTING FAIR MARKET VALUE (FMV) IN TERMS OF SECTION 23 OF THE INCOME TAX ACT , 1961 (THE ACT). BY CONSIDERING THE VALUE OF INVESTMENT MADE IN PURCHAS E OF FLAT, THE AO ESTIMATED THE RENTAL INCOME AT RS.12,00,000/- IN BOTH THE ASS ESSMENT YEARS AND ACCORDINGLY COMPUTED THE INCOME FROM HOUSE PROPERT Y. IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) REDUCED THE ANNUAL VAL UE ESTIMATED BY ASSESSING OFFICER IN ASSESSMENT YEAR 2006-07 TO RS.10 LAKHS, BUT CONFIRMED THE ORDER OF AO FOR ASSESSMENT YEAR 2007-08. AGGRIEVED BY THE O RDERS OF LD. CIT(A), THE ASSESSEE HAS FILED THESE APPEALS BEFORE US FOR BOTH THE YEARS. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. AT THE TIME OF HEARING THE LD. COUNSEL PLACED RELIANCE ON THE DECISION RENDERED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V/S RECLAMATION REALTY INDIA PVT.LTD REPORTED IN 2010(ID2)GJX-0869-TBOM AND CO NTENDED THAT THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SAID DECIS ION. WE ALSO HEARD THE LD. DR. WE NOTICE THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RECLAMATION REALITY INDIA PVT LTD (SUPRA) FOLLOWED THE DECISIONS RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF M V SONAV ALA V/S CIT, 177 ITR246(BOM) AND IN THE CASE OF SMT.SMITABEN N AMBANI V/S CWT (2 010)323 ITR 0104(BOM). I.T.A. NOS.1877 & 6826/MUM/2011 3 WE, ON A PERUSAL OF THE CASE LAW RELIED BY THE ASSE SSEE, OBSERVE THAT THE TRIBUNAL HAS CONSIDERED THE DECISIONS RENDERED BY H ONBLE SUPREME COURT, HIGH COURTS AND THE CO-ORDINATE BENCH OF MUMBAI TRI BUNAL. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER:- THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMITA BEN N AMBANI VS. CWT 323 ITR 104(BOM) IN THE CONTEXT OF RULE 1BB TO THE WEALTH TAX RULES, WHICH USES THE SAME EXPRESSION THE SUM FOR WHICH THE PROPERTY MIGHT BE REASONABLY EXPECTED TO LET FROM YEAR TO YE AR AS IS FOUND IN SEC. 23(1)(A) OF THE ACT, HELD THAT RATEABLE VALUE AS DE TERMINED BY THE MUNICIPAL AUTHORITIES SHALL BE THE YARDSTICK. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON SEVERAL OTHER JUDICIAL PRONOUNCE MENTS IN SUPPORT OF THIS CONTENTIION THAT THE MUNICIPAL VALUE SHOULD BE THE BASIS OF DETERMINING THE ANNUAL VALUE. WE ARE NOT MAKING REFERENCE TO T HOSE DECISIONS, SINCE, IN OUR OPINION THE AFORESAID PRONOUNCEMENT OF HONB LE BOMBAY HIGH COURT CONSIDERS THE DECISIONS OF HONBLE CALCUTTA H IGH COURT WHICH IN TURN HAS CONSIDERED THE LAW LAID DOWN BY THE HONBLE APE X COURT ON THE ISSUE. IT IS CLEAR FROM THE AFORESAID EXPOSITION OF LAW TH AT THE CHARGE U/S.22 IS NOT ON THE MARKET RENT BUT IS ON THE ANNUAL VALUE A ND IN THE CASE OF PROPERTY WHICH IS NOT LET OUT, MUNICIPAL VALUE WOUL D BE A PROPER YARDSTICK FOR DETERMINING THE ANNUAL VALUE. IF THE PROPERTY I S SUBJECT TO RENT CONTROL LAWS AND THE FAIR RENT DETERMINED IN ACCORDANCE WIT H SUCH LAW IS LESS THAN THE MUNICIPAL VALUATION, THEN ONLY THAT CAN BE SUBS TITUTED BY THE MUNICIPAL VALUE. THE DECISION IN THE CASE OF MRS. SHEILA KAUSHISH (131 ITR 435)(SC) MENTIONS STANDARD RENT UNDER THE RENT CONTROL ACT AS ONE OF THE YARDSTICKS. WE ALSO FIND FROM THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF SMT. PRABHABATI BANSALI (141 I TR 419) THAT STANDARD RENT, IF IT DOES NOT EXCEED THE MUNICIPAL VALUATION ALONE CAN BE ADOPTED IN THE PLACE OF MUNICIPAL VALUATION. AS FAR AS DECISIONS RELIED UPON BY THE LEARNED D.R, IN THE CASE OF BAKER TECHNICAL SERVICES (P) LTD 126 TTJ (MUMBAI)(TM) 455 , WE FIND THAT THE SAME IS BASED ON THE DECISION OF THE ITAT MUMBAI BE NCH IN THE CASE OF MAKRUPA CHEMICALS (108 ITD 95) (MUM.). IN THE CASE OF MAKRUPA CHEMICALS, IN PARA 14 OF THE DECISION IT HAS BEEN CLEARLY HELD THAT RATEABLE VALUE, IF CORRECTLY DETERMINED UNDER THE M UNICIPAL LAWS CAN BE TAKEN AS ALV U/S 23(1)(A) OF THE ACT AND IN THIS RE GARD THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHEILA KAUSHIS H (SUPRA) HAS BEEN FOLLOWED. IT HAS BEEN FURTHER OBSERVED THAT THE RA TEABLE VALUE IS NOT BINDING ON THE AO, IF THE AO CAN SHOW THAT THE RATE ABLE VALUE UNDER MUNICIPAL LAW DOES NOT REPRESENT THE CORRECT FAIR R ENT. IN COMING TO THE ABOVE CONCLUSION, THE BENCH HAS FOLLOWED THE DECISI ON OF PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARVKA V. CIT, (101 ITR 810) (PAT.). WE FIND THAT THE BOMBAY HIGH COURT WHICH IS THE JUR ISDICTIONAL HIGH COURT HAS HELD THAT THE RATEABLE VALUE UNDER THE MUNICIPA L LAW HAS TO BE ADOPTED AS ANNUAL VALUE U/S 23(1)(A) OF THE ACT AND THEREFORE THE I.T.A. NOS.1877 & 6826/MUM/2011 4 DECISION IN THE CASE OF MAKRUPA CHEMICALS (SUPRA) T O THE CONTRARY CANNOT BE FOLLOWED. FURTHER IN PARA 13 OF ITS DECISION IN THE CASE OF MAKRUPA CHEMICALS, THE TRIBUNAL HAS VERY CATEGORICALLY HELD THAT IF RATABLE VALUE IS LESS THAN THE STANDARD RENT (WHERE THE PROPERTY IS SUBJECTED TO RENT CONTROL LAWS) THEN ONLY STANDARD RENT HAS TO BE TAK EN. IN COMING TO THE ABOVE CONCLUSION THE TRIBUNAL HAS FOLLOWED THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF DEWAN DAULAT RAI KAPOO R (122 ITR 700). THUS THE DECISION IN THE CASE OF BAKER TECHNICAL SE RVICES (P) LTD. (SUPRA), BEING CONTRARY TO THE DECISION OF THE BOMBAY HIGH C OURT, IN OUR VIEW CANNOT BE FOLLOWED. THE DECISION RELIED UPON BY THE LEARNED D.R IN THE CASE OF FIZZ DRINKS LTD. (95 TTJ (DEL) 249) AND TIVOLI INVESTMENT & TRA DING CO. (P) LTD. (90 ITD 163) ARE DISTINGUISHABLE ON FACTS. THE FACTS I N THAT CASE WERE THAT THE AGREEED RENT WAS RE 1/- PER MONTH AND INTEREST FREE SECURITY DEPOSIT OF RS.1,62,36,000/- WAS TAKEN BY THE OWNER. IT WAS THIS FACTOR WHICH WEIGHED IN THE MIND OF THE TRIBUNAL AS IS EVIDENT F ROM THE OBSERVATIONS IN PARA 8 OF ITS ORDER WHERE THEY HAVE HELD THAT ANY FAIR JUDICIAL ADMINISTRATION WOULD NOT ALLOW SUCH THINGS TO HAPPE N. THE DECISION IN THE CASE OF TRIVOLI INVESTMENT & TRADING CO. (P) LTD (S UPRA) IS AGAIN DISTINGUISHABLE BECAUSE IT WAS A CASE WHERE THERE W AS NO RENT AND ONLY HUGE INTEREST FREE SECURITY DEPOSIT WAS TAKEN BY TH E OWNER. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE ANNUA L VALUE (ALSO REFERRED TO AS MUNICIPAL VALUATION/RATABLE VALUE) ADOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY AT RS.27,50, 835 SHOULD BE THE DETERMINING FACTOR FOR APPLYING THE PROVISIONS OF S . 23(1)(A) OF THE ACT. SINCE THE RENT RECEIVED BY THE ASSESSEE WAS MORE TH AN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FR OM YEAR TO YEAR, THE ACTUAL RENT RECEIVED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY U/S.23(1)(B) OF THE ACT. NOTIONAL INTEREST ON INTER EST-FREE SECURITY DEPOSIT/RENT RECEIVED IN ADVANCE SHOULD NOT BE ADDE D TO THE SAME IN VIEW OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CAS E OF J. K. INVESTORS (BOMBAY) LTD. WE HOLD ACCORDINGLY. 5. IN THE INSTANT CASES, WE NOTICE THAT THE AO HAS DETERMINED THE FAIR RENTAL VALUE AS RS.12,00,000/- IN BOTH THE YEARS BY CONSID ERING THE VALUE OF INVESTMENT OF THE FLAT. THE LD CIT(A) HAS SLIGHTLY REDUCED TH E SAME IN AY 2006-07 AND CONFIRMED THE SAME IN AY 2007-08. THUS, WE NOTICE THAT THE TAX AUTHORITIES HAVE CONSIDERED THE VALUE OF PROPERTY ONLY FOR DETE RMINING THE ANNUAL RENTAL VALUE. THE JUDICIAL PRONOUNCEMENTS THAT WERE CONSI DERED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF RECLAMATION REALIT Y INDIA PVT LTD (SUPRA) I.T.A. NOS.1877 & 6826/MUM/2011 5 CLARIFIES THAT THE STANDARD RENT / MUNICIPAL RATEAB LE VALUE HAS TO BE CONSIDERED AS FAIR RENTAL VALUE. IN THE INSTANT CASE, THERE IS N O DISPUTE THAT THE RENT RECEIVED BY THE ASSESSEE IS MORE THAN THE MUNICIPAL RATEABLE VALUE. HENCE, WE ARE OF THE VIEW THAT, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE RENT RECEIVED BY THE ASSESSEE HAS TO BE TAKEN AS THE ANNUAL VALUE U/S 23 OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LD CIT(A) IN BOTH THE Y EARS AND DIRECT THE AO TO DELETE THE ADJUSTMENT MADE TO THE ANNUAL VALUE DECL ARED BY THE ASSESSEE IN BOTH THE YEARS. 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH JULY, 2014 . *+ ' , -. / 0 17TH JULY, 2014 + & 2 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER - ' MUMBAI: JULY,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ' 5( ( ) / THE CIT(A)- CONCERNED 4. ' 5( / CIT CONCERNED 5. 67 2 !(8 , ) 8 , - ' / DR, ITAT, MUMBAI CONCERNED 6. 2 9 : / GUARD FILE. ; ' / BY ORDER, TRUE COPY < # (ASSTT. REGISTRAR) ) 8 , - ' /ITAT, MUMBAI