1999 (7) TMI 675 - AT - Income Tax

Summary

Issues Involved:
1. Whether the notional interest on the interest-free deposit received by the assessee from the tenant is assessable as part of the rent received or receivable within the meaning of section 23(b).

Summary:

Issue 1: Notional Interest on Interest-Free Deposit as Part of Rent u/s 23(b)

The appeal concerns the assessment year 1992-93, challenging the order dated 4-12-1995 of the Commissioner of Income-tax (Appeals)-XXXIII, Mumbai. The primary issue is whether the notional interest on the interest-free deposit received by the assessee from the tenant is assessable as part of the rent received or receivable within the meaning of section 23(b).

The relevant facts reveal that the appellant company purchased property and let it out to a sister concern, receiving substantial interest-free deposits. The Assessing Officer included the notional interest on these deposits as part of the annual value of the property u/s 23(1), relying on a precedent. The assessee contended that such notional interest should not be included as it is not part of the rent under section 23.

The CIT(A) upheld the Assessing Officer's view, interpreting "rent" to include notional interest based on section 105 of the Transfer of Property Act. The CIT(A) distinguished the case from the Calcutta High Court's decision in CIT v. Satya Co. Ltd., which held that notional interest on deposits is not assessable as part of rent under sections 22 or 23.

The Tribunal considered various precedents, including the Bombay Bench of the Tribunal's decisions in Dy. CIT v. Birla International Ltd. and Super Leasing Ltd. v. Asstt. CIT, which supported the assessee's contention. The Tribunal emphasized that section 23(1)(b) refers to actual rent received or receivable, not notional values. The Tribunal highlighted that assessing notional interest would lead to double taxation, as any benefit derived from the deposit would be taxed when it accrues.

The Tribunal rejected the revenue's argument that the definition of "rent" under the Transfer of Property Act should be applied to the Income-tax Act, noting that the context and legislative intent differ. The Tribunal also dismissed the applicability of Wealth-tax Act provisions to income-tax assessments, following the Bombay High Court's decision in CWT v. State Bank of India.

Ultimately, the Tribunal concluded that the revenue was not justified in including notional interest on the security deposit as part of the actual rent received or receivable u/s 23(1)(b). The appeal of the assessee was allowed, directing the Assessing Officer to recompute the income from house property accordingly.