2003 (6) TMI 463 - AT - Income Tax

Determination of the ALV in respect of the house property - Payment of licence fees - towards the reimbursement of taxes and outgoings - HELD THAT - As the ALV on the basis of rateable value was not correctly mentioned as such the Assessing Officer proceeded to determine the value as per the mandate of the decision of the Hon ble jurisdictional High Court rendered in the case of M.V. Sonavala (supra) wherein it is laid down that the income from house property has to be computed on the basis of the sum for which the property might reasonably be let from year to year. In determining such value the Assessing Officer adopted the rent paid by the same tenant to the landlord. Thereafter he calculated the usufructus and determined the ALV. Various precedents were placed before us. We have considered all the precedents. Examined the text and context. A close similarity between one case and another is not enough. Even a single significant detail may alter the entire aspect. The facts of the present case are totally different from the facts of the cases referred. We have made it clear in the preceding Paras that no addition is possible with reference to the notional interest on interest free deposits. But if there is no rent paid and in lieu of that rent excessive deposit is being made the usufructus of the said deposit may be considered as rent. Normally the deposit is made as security of the payment of rent and the vacation of premises on the expiry of lease. Here the deposit is accepted in lieu of rent. As such in our opinion the revenue authorities were correct in considering the usufructus from the security as rent. We find no infirmity in the impugned orders. Accordingly we confirm the same on this count. Once it is accepted that the income in question is to be computed as income from house property and not as Business income then all the deductions permissible under the house property income should be given to the assessee while computing the income. We direct the Assessing Officer to compute the house property income in accordance with law after allowing all the permissible deductions. In the result appeals of the assessee stand partly allowed.

Summary

Issues Involved:
1. Determination of Annual Letting Value (ALV) for the assessment years 1990-91 and 1991-92.
2. Classification of the income as business income or income from house property.
3. Consideration of notional interest on interest-free deposits as part of the rent.

Summary:

1. Determination of Annual Letting Value (ALV):
The main issue was whether the revenue authorities correctly ascertained the ALV for the assessment years 1990-91 at Rs. 22,00,000 and 1991-92 at Rs. 22,69,000. The assessee owned premises at Sakhar Bhavan, Mumbai, and had an agreement with Citibank for a leave and licence basis. The agreement stipulated a monthly payment of Rs. 9,825 towards taxes and outgoings, which the assessee treated as licence fees. The Assessing Officer, however, determined the ALV based on the fair rent, considering the prevailing rate of rent in the area, and concluded that the rateable value provided by the assessee was incorrect and significantly low.

2. Classification of Income:
The assessee argued that the amount received should be treated as business income. However, this ground was not seriously pressed due to the Supreme Court's decision in United Commercial Bank Ltd. v. CIT, which held that income must be charged under the specific head it falls under. The Tribunal emphasized that the income derived from the exploitation of the property should be charged under the head "income from house property."

3. Consideration of Notional Interest:
The Tribunal discussed whether the value of benefits given in lieu of rent could be assessed as rent. It was concluded that no addition is possible with reference to notional interest on interest-free deposits. The ALV should be determined under section 23(1)(a) of the Income-tax Act, 1961, considering the fair rent. The Tribunal noted that the actual rent or real rent of the property was not stipulated in the agreement, and the amount of Rs. 9,825 was only reimbursement for taxes and outgoings, not licence fees. The usufructus of the deposit amount was considered the consideration for the user of the property, and the Assessing Officer correctly determined the ALV by considering the usufructus from the security deposit as rent.

Conclusion:
The Tribunal confirmed the revenue authorities' determination of the ALV and directed the Assessing Officer to compute the house property income in accordance with the law, allowing all permissible deductions. The appeals of the assessee were partly allowed.