2014 (12) TMI 1304 - AT - Income Tax

ALV determination - basis on which a self-occupied property is valued - Held that - The issue is covered by the decision of the Hon ble Bombay High Court in the case of Smt. Smitaben N. Ambani Vs. CWT reported in (2009 (1) TMI 430 - BOMBAY HIGH COURT) as held that the basis on which a self-occupied property is valued under rule 1BB of the Wealth-tax Rules and municipal ratable value is arrived at under the municipal law is the same i.e. a reasonable amount of rent that can be expected by the owner from a hypothetical tenant . That while arriving at such reasonable amount of rent that can be expected by the owner from a hypothetical tenant the amount of statutory deduction if any permissible under the local municipal law must be added to the ratable value. Thus the Hon ble High Court held that while applying the provisions of rule 1BB for valuing the self-occupied property municipal rateable value with addition of statutory deductions if any may be adopted instead of standard rent for arriving at the gross maintainable rent. Respectfully following the order of jurisdictional High Court matter is restored back to the file of AO with a direction to recompute the ALV in terms of above decision

Summary

Issues:
1. Application of Standard Rent or Municipal Valuation while determining annual value u/s.23(1)(a) of the Income Tax Act.

Analysis:
The appeal was filed by the assessee against the order of CIT(A) for the Assessment Year 2009-2010. The primary contention was regarding the determination of annual value u/s.23(1)(a) of the Income Tax Act concerning the vacant house property. The assessee argued that the Standard Rent or Municipal valuation should be considered even when determining the notional rent u/s.23(1)(a) of the Act.

During the scrutiny assessment, it was noted that the property in question was purchased by the assessee and was self-occupied. The AO observed a significant difference between the stamp duty valuation and the actual purchase price. The AO questioned why income from the property was not offered for taxation u/s.23(4). The assessee explained that the municipal valuation is crucial in determining the bonafide value of the property, as per the Municipal Corporation Act. The assessee calculated the municipal valuation and notional taxable income, while the AO disregarded the standard rate of municipal valuation and assessed the letting value u/s.23(1)(a) at a specific amount per annum.

The CIT(A) upheld the AO's decision, leading the assessee to appeal further. The ITAT considered the issue in light of a decision by the Hon'ble Bombay High Court in a similar case. The High Court ruled that the valuation of self-occupied property under rule 1BB of the Wealth-tax Rules is akin to the municipal ratable value under municipal law, both aiming to determine a reasonable rent from a hypothetical tenant. The High Court emphasized adding statutory deductions to the ratable value. Following this precedent, the ITAT directed the AO to recompute the Annual Letting Value (ALV) based on the High Court's decision.

Conclusively, the appeal of the assessee was allowed, and the matter was remanded to the AO for recalculating the ALV in line with the High Court's ruling.