2011 (2) TMI 316 - AT - Income Tax

Applicability of section 23(1)(a) or 23(1)(b) - During the course of assessment proceedings the Assessing Officer asked the assessee to explain as to why the rental income should not be computed taking into account the huge deposit received - There is no dispute to the fact that the flat in which the assessee is the co-owner has been let out for a monthly rent of Rs. 40, 000/- with interest free deposit of Rs. 2.25 crores - Since the rent received by the assessee in the instance case is more than the municipal rateable value; therefore the same has to be taken as ALV of the property - since the municipal rateable value was not before the Assessing Officer and since the CIT(A) has not considered the same which was given before him for the first time - Appeal is allowed by way of remand to AO

Summary

Issues:
Appeal against CIT(A) orders for assessment years 2000-01 and 2001-02 regarding reopening of assessment, determination of income from property at NCPA, and adoption of municipal rateable value for assessing annual letting value (ALV).

Analysis:
1. Reopening of Assessment (AY 2001-02):
The appeal challenged the CIT(A)'s confirmation of the Assessing Officer's decision to reopen the assessment under section 147 of the Income Tax Act. The appellant did not press this ground, leading to its dismissal. This issue was disposed of as not pressed.

2. Determination of Income from Property at NCPA (AY 2001-02):
The Assessing Officer assessed the income from a flat at NCPA higher than declared due to accepting a large interest-free deposit. The CIT(A) upheld this decision, considering the quid pro quo relationship between concessional rent and the deposit. The appellant contended that interest on the deposit should not be considered for calculating ALV under section 23(1)(a). Citing precedents, the Tribunal ruled that municipal rateable value should be the basis for ALV, not including notional interest on the deposit. The Assessing Officer was directed to verify the municipal rateable value and consider actual rent if higher.

3. Adoption of Municipal Rateable Value for ALV (AY 2001-02):
The appellant contested the CIT(A)'s decision to assess income from the NCPA property using section 23(1)(a) instead of section 23(1)(b) and not adopting the municipal rateable value. The Tribunal, following the same reasoning as in the previous issue, decided in favor of the appellant, emphasizing the importance of municipal rateable value for determining ALV. The grounds raised in this appeal were also decided in favor of the appellant, similar to the previous issue.

The Tribunal's decision partly allowed the appeal for AY 2001-02 and fully allowed the appeal for AY 2000-01, directing the Assessing Officer to consider municipal rateable value for determining ALV. The judgment highlighted the significance of municipal rateable value in assessing property income and emphasized the exclusion of notional interest on deposits for ALV calculations.