INCOME-TAX OFFICER.12(2)(4), MUMBAI V. DURAIYA MANSUR PETIWALA, MUMBAI

ITA 7059/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78720 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI VIJAY PAL RA O, JM ./ I.T.A. NO. 7059/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) INCOME TAX OFFICER-12(2)(4), ROOM NO.123-B(H), 1 ST FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 / VS. DURAIYA MANSUR PETIWALA 2 ND FLOOR, FLAT NO. B1, CUFFE PARADE, MUMBAI-400 005 ./ ./PAN/GIR NO. AAGPP 0208 F ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ! $ % / APPELLANT BY : SHRI DEEPAK SUTARIYA '#! $ % / RESPONDENT BY : SHRI NITESH JOSHI & ' ( $ ) * / DATE OF HEARING : 05.02.2014 +,- $ ) * / DATE OF PRONOUNCEMENT : 09.04.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-23 MUMBAI (CIT(A) FOR SHO RT) DATED 11.08.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 30.12.2010. 2 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA 2. THE APPEAL RAISES TWO ISSUES RELATING TO THE DET ERMINATION OF THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, WHICH WE SHALL T AKE UP IN SERIATIM. FACTS IN BRIEF 3.1 THE ASSESSEE IS A OWNER OF AN OFFICE PREMISES A DMEASURING 1640 SQ. FT. AT 43, MAKER CHAMBER-VI, NARIMAN POINT, MUMBAI. THE ASSESS EE ENTERED INTO A LEAVE AND LICENSE AGREEMENT ON 07.11.2007, LICENSING HER SAID PROPERTY TO M/S. TAMRIND INDIA PVT. LTD. (AKAR CAPITAL ADVISORY PVT. LTD.), W.E.F., 01. 11.2007, ON A MONTHLY RENT OF RS.9,00,600/-. THE TENURE OF THE AGREEMENT WAS UPTO 31.10.2010, WITH BOTH THE PARTIES CONSTRAINED TO DETERMINE THE AGREEMENT PRIOR TO 31. 10.2009, I.E., BEFORE THE EXPIRY OF 24 MONTHS. THE SAME WAS ACCOMPANIED BY AN INTEREST FRE E DEPOSIT OF RS.1,08,07,200/-, WHICH WAS TO CONTINUE DURING THE LICENSE PERIOD, LI ABLE TO BE REFUNDED ON THE HANDOVER OF THE VACANT POSSESSION OF THE RENTED PREMISES. THE A SSESSEE RETURNED GROSS RENT AT RS.54,26,882/- ON THE BASIS OF THE RENT RECEIVED. THE ASSESSING O FFICER (A.O.), HOWEVER, APPLIED THE CONTRACTED RATE FOR THE PERIOD OF 12 MO NTHS, FURTHER ADDING NOTIONAL INTEREST @ 8% (P.A.) ON THE SECURITY DEPOSIT, ASSESSING THE GR OSS RENT AT RS.1,16,71,776/-. THE ASSESSEE HAD FURTHER CLAIMED DEDUCTION FOR RS.6 6,55,662/- ON ACCOUNT OF MUNICIPAL TAXES PAID, OF WHICH RS.65,74,551/- RELAT ED TO AN EARLIER PERIOD, I.E., FROM 2001 TO 2007. THE SAME WAS, THEREFORE, ALLOWED ONLY FOR THE PERIOD PERTAINING TO FINANCIAL YEAR 2007-08, I.E., RS.42,616/-. 3.2 THE ASSESSEE CHALLENGED THE ASSESSMENT ON ALL C OUNTS. THE LD. CIT(A) DECIDED THE SAME THUS: ISSUE NO. 1 DETERMINATION OF ANNUAL VALUE (AV) 2.3 THE ASSESSING OFFICER IS THUS DIRECTED TO DETERMINE THE FAIR RENT OR SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET OUT FROM YEAR TO YEAR AFTER CONSIDERING ALL FACTORS & BY CONSIDERING RENT OF SIMILARLY SITUATED PROPERTIES IN THE NEIGHBORHOOD W HERE NO INTEREST FREE DEPOSITS HAVE BEEN TAKEN. THE HIGHER OF THE FAIR RE NT & RENT ACTUALLY RECEIVED BE TAKEN AS THE INCOME FROM HOUSE PROPERTY . THE ASSESSING 3 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA OFFICER WILL ALSO ALLOW VACANCY ALLOWANCE FOR THE P ERIOD WHEN THE PROPERTY REMAINED VACANT. ISSUE NO. 2 DEDUCTION FOR MUNICIPAL TAXES 3.3 THE ASSESSMENT ORDER, SUBMISSIONS MADE FOR THE APPELLANT AND MATERIALS ON RECORD HAVE BEEN CONSIDERED. PROVISO T O S.23 STATES THAT PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RES PECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PRE VIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWN ER ACCORDINGLY TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. THE ASSESSING OFFICER IS THU S DIRECTED TO ALLOW DEDUCTION PROPERTY TAX PAID, SINCE TAXES ARE TO BE ALLOWED ACTUAL PAYMENT IN THE YEAR IN WHICH PAID. AGGRIEVED, THE REVENUE IS IN APPEAL, RAISING THE FO LLOWING GROUNDS: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD. CIT(A) IS RIGHT IN DIRECTING THE AO TO CONS IDER THE RENT OF THE PREMISES IN ACCORDANCE WITH THE INCOME RETURNED BY THE ASSESSEE INSTEAD OF FAIR MARKET RENT & ALV ARRIVED AT BY THE AO AS PER THE PROVISION OF SECTION 23(1)(A). (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD. CIT(A) IS RIGHT IN DIRECTING THE AO TO DETE RMINE THE FAIR RENT OR SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET OUT FROM YEAR TO YEAR AFTER CONSIDERING RENT OF SIMILARLY SITUATE D PROPERTIES IN THE NEIGHBORHOOD WHERE NO INTEREST FREE DEPOSITS HAVE B EEN TAKEN AND THE HIGHER OF THE FAIR RENT & RENT ACTUALLY RECEIVED BE TAKEN AS THE INCOME FROM HOUSE PROPERTY AND ALSO TO ALLOW VACANCY ALLOWANCE FOR THE PERIOD WHEN THE PROPERTY REMAINED VACANT. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) FAILED TO APPRECIATE THE FACTS THAT HAD THERE BEEN NO INTEREST FREE SECURITY DEPOSIT, THE ASSESSEE WOULD HAVE FETC HED HIGHER AMOUNT OF RENT AND THE ASSESSEE HAS ACCEPTED THE SECURITY DEP OSIT IN ORDER TO PAY THE HUGE AMOUNT OF MUNICIPAL TAXES OF EARLIER YEARS AND HAS COMPROMISED FOR LESSER RATE OF RENT TO COMPENSATE THE TAXES FROM SE CURITY DEPOSIT. (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD. CIT(A) IS RIGHT IN DIRECTING THE AO TO ALLO W DEDUCTION OF PROPERTY TAX OF EARLIER YEARS PAID WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS 4 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA NOT DECLARED ANY INCOME FROM THE IMPUGNED PROPERTY FOR THE A.YS. 2002-03 TO 2007-08. (V) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE PRIMARY FACTS, I.E., AS STATED, BEING NOT IN DOUBT OR DISPUTE, WE SHALL PROCEED DIRECTLY TO ADDRESS AND DECIDE THE TWO ISSUES RAISED BY THE REVENUE FOR OUR ADJUDICATION. ISSUE # 1(SUPRA) 4.1 SECTION 22 OF THE ACT BRINGS TO THE CHARGE OF T AX THE ANNUAL VALUE OF A HOUSE PROPERTY OF WHICH THE ASSESSEE IS THE OWNER, EXCEPT WHERE USED FOR THE PURPOSE OF HIS BUSINESS, UNDER THE HEAD OF INCOME FROM HOUSE PROP ERTY. SECTION 23 LAYS DOWN THE MANNER IN WHICH THE ANNUAL VALUE IS TO BE COMPUTED. SECTION 23, IN ITS RELEVANT PART, READS AS UNDER: ANNUAL VALUE HOW DETERMINED. 23. (1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALU E OF ANY PROPERTY SHALL BE DEEMED TO BE ( A ) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY B E 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 THER EOF 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 A ND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY T HE 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 RE SPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PRE VIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWN ER ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE 5 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. EXPLANATION. - FOR THE PURPOSES OF CLAUSE ( B ) OR CLAUSE ( 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 I N THIS BEHALF, THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALISE. 4.2 WITH REGARD TO THE NOTIONAL INTEREST ON INTERES T FREE DEPOSIT, THE LAW IN THE MATTER, AS CRYSTALLIZED OVER A SERIES OF DECISIONS, IS THAT THE RENT ACTUALLY RECEIVED OR RECEIVABLE FOR THE RELEVANT YEARS COULD ONLY BE RECKONED FOR T HE PURPOSE OF SECTION 23(1)(B) WHICH, THEREFORE, WOULD NOT INCLUDE ANY NOTIONAL INTEREST (I.E., ON THE INTEREST-FREE DEPOSIT). THIS IS IN VIEW OF THE ABSENCE OF ANY SPECIFIC PROVISION IN LAW TOWARD THE SAME IN-AS-MUCH AS THE SAME WOULD REQUIRE A DEEMING PROVISION, EVEN AS EXPLAINED IN THE CASE OF CIT VS. SATYA CO. LTD. [1994] 75 TAXMAN 193 (CAL). FURTHER, WHATEVER BENE FIT OR ADDITION MAY HAVE BEEN DERIVED BY THE ASSESSEE FROM THE SAID INT EREST-FREE DEPOSIT, WHETHER BY WAY OF SAVING ON THE INTEREST OR EARNING INTEREST OR MAKIN G PROFIT BY INVESTING THE DEPOSIT MONEY, ETC. WOULD FIND REFLECTION IN COMPUTING THE INCOME OF THE ASSESSEE UNDER OTHER HEADS OF INCOME. REFERENCE FOR THE SAME MAY ALSO BE MADE TO THE DECISION, INTER ALIA , IN THE CASE OF CIT VS. J. K. INVESTORS (BOMBAY) LTD. [2001] 248 ITR 723 (BOM.). NO CONSTRAINT, HOWEVER, IS APPLICABLE IN ARRIVING AT THE HYPOTHETICAL RENT U/S.23(1)(A), EXCEPT, AS AFORE-NOTED, OF IT BEING F AIR AND REASONABLE IN-AS-MUCH AS THE MANDATE OF THE PROVISION IS TO DETERMINE THE FAIR RENT. THAT WOULD THOUGH NOT IMPLY ADDING THE NOTIONAL INTEREST PER SE , SO THAT IT CANNOT BE ADDED AS SUCH, AS DONE BY TH E A.O., BUT BEING THE RELEVANT CONSIDERATION, DULY CO NSIDERED IN EVALUATING THE FAIR RENT. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISI ON, AMONG OTHERS, IN THE CASE OF DEWAN DAULAT RAI KAPOOR VS. NDMC [1980] 122 ITR 700 (SC), WHEREIN IT STANDS EXPLAINED THAT THE FAIR RENT IS TO BE ARRIVED AT BY TAKING INTO ACCOUNT ALL THE RELEVANT FACTORS, VIZ. THE LOCATION OF THE PROPERTY, INCLUDI NG THE DEMAND AND SUPPLY POSITION IN RELATION THERETO; THE RENT OF SIMILAR PROPERTY IN T HE NEIGHBOURHOOD; COST OF CONSTRUCTION, THE RATEABLE VALUE AS WORKED OUT BY THE MUNICIPAL A UTHORITIES, ETC. THE RENT IMPLICATION OF 6 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA THE INTEREST-FREE DEPOSIT CANNOT BE EITHER DENIED O R DISCOUNTED. THE TWO ARE INTERRELATED; THE MOVEMENT IN ONE BEING OPPOSITE TO THE OTHER, SO THAT THE TWO ARE INVERSELY RELATED. THE ASSESSEE IN THIS REGARD STATES OF THE DEPOSIT A S HAVING NO RENT IMPLICATION IN-AS-MUCH AS THE SAME IS GIVEN ONLY TO COVER THE RISK INCIDEN T TO THE PARTING OF THE POSSESSION. THE SAID ARGUMENT IS, TO OUR MIND, MISCONCEIVED. THIS I S AS THE SAID RISK COULD EQUALLY BE COVERED BY STIPULATING A PROVISION TOWARD INTEREST IN ITS RESPECT AT THE GOING RATE, WHICH, IT IS TO BE APPRECIATED, IS ONLY TOWARD THE OPPORTUNIT Y OR THE TIME COST OF FUNDS, WHILE THE DEPOSIT WOULD BE REFUNDABLE ONLY SUBJECT TO THE TER MS AND CONDITIONS OF THE AGREEMENT. RATHER, COMPLIANCE OF THE SAME COULD ALSO BE MADE A PRECONDITION FOR THE PAYMENT OF INTEREST. THE INTEREST-FREE DEPOSITS ARE SPECIFICAL LY SUITED OR PREFERABLE IN CASE OF CASH RICH TENANTS/LICENSEES, AS THE BANKS, WHO HAVE, BESIDES LIQUIDITY, ACCESS TO LOW COST FUNDS. THEN, AGAIN, THERE ARE CONSIDERATIONS SUCH AS SAVIN G ON THE PROPERTY TAX; HIGHER YIELD, AS WHERE THE FUNDS ARE INVESTED IN TAX-EXEMPT INSTRUME NTS, WHICH BECOME MORE ATTRACTIVE IN CASE SUCH INVESTMENTS ARE ALSO OTHERWISE MANDATED O R OBLIGED TO BE MADE, AND SO ON. THE BENEFIT OR ADVANTAGE ARISING OUT OF THE INTEREST FR EE DEPOSIT IS UNDENIABLE AND, THEREFORE, IS A FACTOR WHICH IS TO BE TAKEN INTO ACCOUNT. REFEREN CE IN THIS CONTEXT MAY BE MADE TO THE DECISIONS BY THE TRIBUNAL IN THE CASE OF ITO VS. BAKER TECHNICAL SERVICES (P.) LTD. [2010] 125 ITD 1 (MUM) (TM) AND TIVOLI INVESTMENT AND TRADING CO. PVT. LTD. VS. ACI T [2004] 90 ITD 163 (MUM), RENDERED UPON EXAMINING THE LEGAL POSITION OBTAINING IN THE MATTER. 4.3 THE QUESTION, HOWEVER, IS OF THE INTEREST BEING ADD ED PER SE , AS STANDS DONE IN THE INSTANT CASE. THE MANDATE OF THE PROVISION BEING TO ASSESS THE FAIR RENT, WE CONSIDER THAT THOUGH A RELEVANT CONSIDERATION, IT COULD NOT ORDIN ARILY BE ADDED AS SUCH U/S.23(1)(A). WE SAY ORDINARILY AS THERE IS NOTHING IN THE PROVISI ON OF SECTION 23(1)(A) TO EXCLUDE A CONSIDERATION FOR THE HIRE OF THE PROPERTY, WHICH I S RENT BY DEFINITION, A CONSIDERATION IN KIND, SO THAT IT MAY NOT NECESSARILY BE RESTRICTED ONLY TO CASH PAYMENTS. THE QUESTION, AS CLARIFIED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF J. K. INVESTORS (BOMBAY) LTD. (SUPRA), WAS KEPT SPECIFICALLY OPEN BY THE HONBLE COURT, EVEN AS NOTED BY THE A.O. AT PGS.3-4 OF THE ASSESSMENT ORDER, REPRODUCING THE LA ST PARA OF THE DECISION THEREAT. IF THE 7 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA COST OF LAND OR THE MARKET VALUE OF THE PROPERTY LE T, SO THAT A REASONABLE RETURN (OR YIELD) ON INVESTMENT COULD BE CONSIDERED AS A REASONABLE M EASURE OF THE RENT AT WHICH THE PROPERTY CAN REASONABLY BE REGARDED AS LET FROM YEA R TO YEAR, WE SEE NO REASON WHY THE SAME, I.E., THE INTEREST AT THE NORMATIVE RATE ON T HE DEPOSIT MONEY, COULD NOT BE TAKEN INTO ACCOUNT IN COMPUTING THE FAIR RENT U/S. 23(1)(A). R EFERENCE IN THIS REGARD MAY BE MADE TO THE DECISION IN THE CASE OF EMTICI ENGINEERING LTD. VS. ASST. CIT [1997] 58 TTJ 27 (AHBD.) WHEREIN 8% OF THE COST WAS CONSIDERED AS A REASONABLE MEASURE OF ANNUAL VALUE. THE MATTER IS PRINCIPALLY AND PRIMARILY FACTUAL. WH Y, IN A PARTICULAR CASE THERE MAY BE A DECLINE IN RENT OR EVEN CONSTANCY THEREIN ACCOMPANI ED BY INTEREST-FREE DEPOSIT IN SPITE OF THE PROPERTY PRICES SHOWING AN UPWARD TREND, SO THA T THE RENT IMPLICATION OF THE SAID DEPOSIT IS EMINENT OR PATENT. IN FACT, THE HONBLE PUNJAB & HARYANA HIGH COURT, NOTICING SUCH CLEAR INSTANCES, JUSTIFIED THE INFERENCE OF IN TEREST @ OF 9% AS A PART OF RENT RECEIVED (I.E., U/S. 23(1)(B)) IN THE CASE OF CIT VS. STREELITE ELECTRIC CORPORATION [2011] 336 ITR 348 (P&H), ADMITTING, WITH REFERENCE TO THE DECISIO N IN THE CASE OF J. K. INVESTORS (BOMBAY) LTD. (SUPRA), THAT NOTIONAL INTEREST ON INTEREST-FREE SE CURITY DEPOSIT COULD NOT ORDINARILY BE CONSIDERED AS A PART OF THE ACTUAL RE NT, BUT LIMITED TO CASES OF THE SAME BEING ADOPTED TO CIRCUMVENT THE REAL RENT. SUBSEQUENTLY, THE APEX COURT, ADMITTING THE SPECIAL LEAVE PETITION IN CIT VS. TRANSMARINE CORPORATION (SC) SLP CC 8999/09 IN CA NO. 5470/2011 DATED 15.07.2011, HELD THAT DISPROPORTION ATE DEPOSIT (I.E., IN RELATION TO THE MONTHLY RENT) ON INTEREST-FREE BASIS WOULD REQUIRE FURTHER INVESTIGATION ALONG THE LINES, INTER ALIA , AS TO WHETHER THE RENT HAS BEEN UNDER-STATED; WHE THER THE RENT HAS BEEN BROUGHT DOWN BY THE DEPOSIT; WHETHER THE ARRANGEMENT WAS EN TERED INTO WITH A VIEW TO EVADE TAXES, ETC., REMITTING THE MATTER BACK TO THE FILE OF THE HONBLE HIGH COURT. THE DECISION IN THE CASE OF STREELITE ELECTRIC CORPORATION (SUPRA) IS THUS IN CONFORMITY WITH THE LAW AS EXPLAINED BY THE APEX COURT. OUR CONCERN IN THE INSTANT CASE IS LIMITED TO THE RENT IMPLICATION, IF ANY, OF THE INTEREST-FREE DEPOSIT IN THE FACTS AND CIRCUMSTANCE S OF THE CASE, I.E., TOWARD ASSESSING THE FAIR RENT. UNDER THE CIRCUMSTANCES, IN OUR VIEW, TH E DIRECTION BY THE LD. CIT(A) TO THE A.O. IS IN CONFORMITY WITH THE LAW. WE MAY CLARIFY THAT THE FIELD IS CLEAR FOR THE A.O. AND 8 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA THERE ARE NO FETTERS ON HIM; HIS MANDATE UNDER LAW BEING TO ASSESS THE FAIR RENT, AND FOR WHICH ALL THE INFORMATION AND MATERIAL THAT IS RELE VANT COULD BE EMPLOYED. OUR OBSERVATIONS, IT WOULD BE NOTED, ARE CONFIRMATORY O F THE FINDINGS AND DECISION OF THE LD. CIT(A), ESTABLISHING IT TO BE ON A LEGALLY FIRM BAS IS. WE DECIDE ACCORDINGLY. 4.4 THE SECOND LIMB OF THE DIRECTIONS BY THE LD. CI T(A), I.E., FOR CLAIMING PROPORTIONATE RELIEF ON ACCOUNT OF VACANCY, IS ALSO IN ORDER. THE PROPERTY WITHOUT DOUBT IS LET FOR A PART OF THE YEAR ONLY. HOWEVER, SECTION 2 3(1)(C) WOULD STAND ATTRACTED ONLY WHERE THE FAIR RENT ASSESSED IS LOWER THAN THE ACTU AL RENT. WE MAY ILLUSTRATE THIS BY WAY OF A SIMPLE EXAMPLE, AS UNDER: ( AMT. IN RS.) SCENARIO FR AR AV REMARKS A 1200 (@ 100) 660 (@ 110) 660 U/S.23(1)(C) B 1320 (@ 110) 600 (@ 100) 1320 U/S.23(1)(A) FR => FAIR RENT, AR => ACTUAL RENT, AV => ANNUAL VA LUE, @ => MONTHLY RENT. THE RELIEF ON ACCOUNT OF VACANCY WOULD ENSUE ONLY I N SCENARIO A. THIS IS AS THE RENT CONTRACTUALLY RECEIVABLE (I.E., AT RS.100 PER MONTH ) WOULD UNDER SCENARIO B BE LESS THAN THE FAIR RENTAL VALUE (@ 110 PER MONTH) EVEN IN CAS E OF NON-VACANCY. THOUGH THIS MAY APPEAR INEQUITABLE, IT IS TO BE NOTED THAT THIS IS A CONCOMITANT OF THE SUBSTITUTION OF THE ERSTWHILE DEDUCTION BY WAY OF A VACANCY ALLOWANCE U /S.24 BY ALLOWING CORRESPONDING RELIEF IN COMPUTING THE ANNUAL VALUE (AV) ITSELF. T HE AV, AS EXPLAINED HEREINBEFORE, SEEKS TO BRING TO TAX THE INHERENT RENTAL CAPACITY OF A PROPERTY, WHICH MAY OR MAY NOT BEAR REFLECTION TO THE NET RENT RECEIVED IN THE FAC TS OF A GIVEN CASE. ON THE OTHER HAND, WE MAY HAVE AN INSTANCE OF A PROPERTY ACTUALLY LET ONL Y FOR A MONTH (SAY). AS SUCH, WHERE FALLING UNDER SCENARIO A, ITS AV WOULD STAND TO B E ASSESSED AT RS.110/- AS AGAINST THE FAIR RENT OF RS.1,200/- . IT IS ALSO TRITE THAT HARDSHIP IN A PARTICULAR CA SE IS NO REASON FOR NOT OBSERVING THE CLEAR MANDATE OF THE PROVISION. THE H ONBLE COURT IN THE CASE OF VIVEK JAIN VS. ASST. CIT [2011] 337 ITR 74 (AP), AS WELL AS THE TRIBUNAL IN CASES SUCH AS RAMESH 9 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA CHAND VS. ITO [2009] 29 SOT 570 (AGRA) AND SMT. INDRA S. JAIN VS. ITO [2012] 52 SOT 270 (MUM) HAS CLARIFIED THAT SECTION 23(1)(C) IS AN INCIDENT OF THE CONDITION OF ACTUAL LETTING, WHICH IS PRESENT IN THE INSTANT CASE. THE MATTER STANDS RESTORED BY THE LD. CIT(A) TO THE FILE OF THE A.O. TO DETERMINE THE FAIR RENT, WHICH MAY OR MAY NOT EXCEED THE MONTHLY RENT OF RS.9,00,600/- IN THE PRESENT CASE. SUBJECT, THEREFORE, TO THE SAME (I.E., THE FAIR RENT), BEING LOWER THAN THE SAID CONTRACTED RA TE, WE ENDORSE THE FINDING OF THE LD. CIT(A). THIS ANSWERS GROUND NOS. (I), (II) AND (III ) (PARTLY) OF THE APPEAL (ALSO REFER PARA 4.3 OF THIS ORDER). ISSUE # 2(SUPRA) 5. WE NEXT COME TO THE REVENUES GROUND NOS. (III) (PARTLY) & (IV); GROUND (V) BEING ONLY GENERAL IN NATURE, WARRANTING NO ADJUDICATION. THE MUNICIPAL TAX/ES PAID BY THE ASSESSEE, AS DISALLOWED, IS ADMITTEDLY FOR THE PERI OD RELATING TO THE PREVIOUS YEARS RELEVANT TO A.YS. 2002-03 TO 2007-08, I.E., PRIOR TO THE CUR RENT YEAR. THE SAME HOWEVER IS OF NO CONSEQUENCE IN VIEW OF THE PROVISO TO SECTION 23. THE LAW, AS WOULD BE EVIDENT, IS PATENTLY CLEAR AND, THEREFORE, THE FACT OF IT PERTA INING TO AN EARLIER PERIOD COULD NOT BE A GROUND FOR DENYING DEDUCTION. IT MAY HOWEVER WELL B E THAT THE PROPERTY WAS DURING THE SAID EARLIER PERIOD BEING USED FOR BUSINESS PURPOSE S, SO THAT INCOME THERE-FROM WAS NOT LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM H OUSE PROPERTY. THE LD. AUTHORIZED REPRESENTATIVE (AR), ON THIS QUERY BEING RAISED BY THE BENCH, CLARIFIED IT AS NOT SO, FURTHER SUBMITTING THAT THE WRITTEN SUBMISSIONS FIL ED BEFORE THE LD. CIT(A) SHALL MAKE THIS ABUNDANTLY CLEAR. THE SAME STAND FILED. AS A READIN G THEREOF REVEALS, TAX STANDS PAID AT 50% OF THE DEMAND RAISED BY THE MUNICIPAL CORPORATI ON OF GREATER MUMBAI (MCGM) ON THE DIRECTION OF THE HONBLE JURISDICTIONAL HIGH CO URT VIDE ITS ORDER DATED 11.04.2007 IN THE CASE OF MITTAL COURT CO. OP. SOCIETY VS. MCGM. THIS IN FACT FINDS MENTION IN BOTH, I.E., THE ASSESSMENT ORDER (AT PARA 4) AND THE IMPUGNED O RDER (AT PARA 3.1). CLEARLY, HOWEVER, THE ASPECT OF THE RELEVANT PROPERTY BEING USED OR R ETAINED FOR THE PURPOSES OF HIS BUSINESS DURING THE WHOLE OR A PART OF THE PERIOD RELEVANT T O A.YS. 2002-03 TO 2007-08, WHICH COULD DISQUALIFY THE TAX PAYMENT (TO THE PROPORTION ATE EXTENT) HAS NOT BEEN EXAMINED NOR 10 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA CONSEQUENTLY IS THERE ANY FINDING IN ITS RESPECT BY THE LOWER AUTHORITIES. THE SAME IS RELEVANT IN-AS-MUCH AS NO ANNUAL VALUE COULD POSSIB LY BE ASSESSED U/C. IV-C OF THE ACT IF THE SUBJECT PROPERTY (OR PART THEREOF) WAS BEING US ED OR RETAINED FOR THE PURPOSES OF HER BUSINESS BY THE ASSESSEE. IF SO, MUNICIPAL TAX COUL D NOT BE FACTORED IN COMPUTING THE AV FOR THE CURRENT YEAR. OUR SECOND OBSERVATION IN THE MATTER IS THAT THE D EMAND MAY INCLUDE, BESIDES TAX, INTEREST OR OTHER CHARGES AS WELL, HAVING BEEN RAIS ED FOR SEVERAL YEARS TOGETHER. THE PROVISO TO SECTION 23, HOWEVER, SPEAKS ONLY OF TAXES LEVIE D BY A LOCAL AUTHORITY. THE COMPOSITION OF THE DEMAND RAISED BEING NOT ON RECOR D, THE SAME WARRANTS BEING CONFIRMED ONLY IN RESPECT OF MUNICIPAL TAX AS INCLU DED THEREIN, I.E., TO THE EXTENT OF 50% IN-AS-MUCH AS ONLY 50% OF THE DEMAND HAS BEEN ACTUA LLY PAID. THE ASSESSEE COULD THOUGH PRESS THE OTHER CHARGES, IF SO DESIRED, UNDER ANY O THER PROVISION OF LAW RELATING TO THE ASSESSMENT OF INCOME AS INCOME FROM HOUSE PROPERTY. ACCORDINGLY, SUBJECT TO THESE VERIFICATIONS BY THE A.O., WE CONFIRM THE ORDER OF THE LD. CIT(A). FURTHER, WE FIND THAT THE AMOUNT ST ANDS PAID BY THE ASSESSEE IN PROTEST ON THE DIRECTIONS OF THE HONBLE COURT. THE SAME COULD PRESUMABLY BE ON THE GROUND OF UNREASONABLENESS OR ALSO FOR THE REASON OF THE PROP ERTY BEING RESTRAINED FOR BEING LET; THE PROPERTY UNDER REFERENCE BEING SUBJECT MATTER OF A DISPUTE IN THE CASE OF DURAIYA MANSUR PETIWALA AND ANR. VS. SHABBIR HUSSAIN T. PETIWALA A ND OTHERS (IN SUIT NO. 803 OF 2003). PURSUANT TO AN UNDERSTANDING ARRIVED AT BETW EEN THE PARTIES, THE HONBLE COURT VIDE ITS ORDER DATED 24.04.2007 ALLOWED THE PARTIES LIBE RTY TO GIVE THE PREMISES IN THEIR POSSESSION ON LEAVE AND LICENSE BASIS. THE AMOUNT P AID/DEPOSITED BEING IN DISPUTE, THE SAME THOUGH PAID IS INDETERMINATE. THE TAX LEVIED A S CONTEMPLATED U/S. 23 IS ONLY AS PER LAW. THE DEDUCTION QUA THE TAX PAID SHALL STAND TO BE WITHDRAWN (I.E., TO THE EXTENT OF THE DEDUCTION ALLOWED IN ITS RESPECT) ON ANY PART OF IT BEING DIRECTED TO BE REFUNDED TO THE ASSESSEE BY THE HONBLE COURT. WE SAY SO AS ONLY TH E AMOUNT AS FINALLY HELD AS NOT REFUNDABLE IS WHICH CAN BE SAID TO HAVE BEEN PAID B Y WAY OF TAX; THE BALANCE BEING ONLY IN THE NATURE OF AN ADVANCE PAYMENT OR DEPOSIT. WE DECIDE ACCORDINGLY. 11 ITA NO. 7059/MUM/2011 (A.Y. 2008-09) ITO VS. DURAIYA MANSUR PETIWALA 6. IN THE RESULT, THE REVENUES APPEAL IS DISPOSED OF IN THE ABOVE MENTIONED TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 09, 201 4 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & /( MUMBAI; 0' DATED : 09.04.2014 .'../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. & 1) ( ) / THE CIT(A) 4. & 1) / CIT CONCERNED 5. 4 5 ')'67 , * 67- , & /( / DR, ITAT, MUMBAI 6. 5 89 : ( / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , & /( / ITAT, MUMBAI