2010 (3) TMI 1060 - AT - Income Tax

Summary

Issues Involved:
1. Determination of annual value u/s 23(1)(a) of the Income-tax Act, 1961.
2. Applicability of Municipal rateable value for determining annual value.

Summary:

1. Determination of Annual Value u/s 23(1)(a):
The primary issue in this appeal concerns the action of the Assessing Officer (AO) in determining the annual value u/s 23(1)(a) of the Income-tax Act, 1961. The assessee, owner of commercial premises, let out the property to M/s. Reliance Industries Ltd. for a monthly rent of Rs. 30,000, along with an interest-free security deposit of Rs. 5,25,00,000. The AO, after considering comparable cases and rejecting the applicability of certain Supreme Court decisions, determined the fair rent u/s 23(1)(a) at Rs. 88 per sq. ft., resulting in an annual value of Rs. 85,72,608. After allowing a deduction for repairs u/s 24(a), the income from house property was confirmed at Rs. 60,00,826.

2. Applicability of Municipal Rateable Value:
The assessee argued that the fair rent u/s 23(1)(a) should be based on the Municipal rateable value, relying on various judicial precedents, including the Supreme Court's decisions in Sultan Brothers P. Ltd. v. CIT and Dewan Dolat Rai Kapoor v. New Delhi Municipal Committee. The Tribunal noted that prior to the amendment in 1976, section 23 envisaged the sum for which the property might reasonably be expected to let from year to year, which was interpreted as the Municipal value. The Tribunal cited the decision in Parkpaper Industries Pvt. Ltd. vs. ITO, which supported the view that the Municipal valuation should be the basis for determining the annual value.

The Tribunal further referenced the Bombay High Court's decision in Smt. Smitaben N. Ambani vs. CWT, which held that the Municipal rateable value should be adopted for valuing property under Rule 1BB of the Wealth-tax Act, as the definition was similar to section 23(1)(a) of the Income-tax Act. The Tribunal concluded that the annual value u/s 23(1)(a) cannot exceed the Municipal valuation.

Conclusion:
The Tribunal set aside the order of the CIT(A) and remitted the matter back to the AO to verify the rateable value fixed by the Municipal Authorities. If the Municipal rateable value is less than Rs. 3,60,000, then the actual rent received should be taxed. Otherwise, the matter should be decided in accordance with the law. The appeal was allowed for statistical purposes.