2013 (5) TMI 223 - AT - Income Tax

Computation of Annual Letting Value (ALV) of the rented property in a particular way - AO had made addition by determining ALV which included 12% interest on interest free earnest deposits received by the assessee - Held that - This issue is no more res integra in view of the judgment of CIT v. Moni Kumar Subba 2011 (3) TMI 497 - DELHI HIGH COURT in which it has been held that no addition to the annual letting value can be made on account of notional interest on interest free deposit with the landlord u/s.23(1)(a). Thus there is no basis for inflating the ALV with the amount of notional interest on interest free securities. Also CIT(A) has directed the AO to re-work out the ALV by obtaining data from three websites of internet and then adjusting it with a suitable cost inflation index. This direction was even after considering that the actual rent received by the assessee was higher than the Municipal ratable value representing the fair rent value. In our considered opinion, this direction for determining the ALV has no legal legs to stand out. As such, we cannot approve such direction which has no sanction of law.

Summary

Issues involved:
1. Computation of Annual Letting Value (ALV) of rented property based on interest free earnest deposits.
2. Validity of directions given by the Commissioner of Income-tax (Appeals) for determining ALV.
3. Treatment of co-owners' shares in ALV calculation.
4. Application of legal principles and consistency in ALV determination.

Issue 1: Computation of ALV based on interest free earnest deposits:
The appeal concerned the computation of ALV for a property leased to Canara Bank and ONGC. The Assessing Officer added 12% interest on interest free earnest deposits received by the assessee to determine ALV. However, the Tribunal referred to a Full Bench judgment of the Delhi High Court and Mumbai Tribunal decisions, stating that no addition for notional interest on interest free deposits should be made to ALV under section 23(1)(a) of the Income Tax Act. Consequently, the Tribunal held that the authorities' action in including notional interest in ALV was incorrect.

Issue 2: Validity of directions for determining ALV:
The Commissioner of Income-tax (Appeals) directed the Assessing Officer to re-calculate ALV using data from internet websites and adjusting it with a cost inflation index. The Tribunal found this direction lacking legal basis and disapproved of it, emphasizing that the direction did not align with legal requirements for determining ALV.

Issue 3: Treatment of co-owners' shares in ALV calculation:
The Tribunal noted that the assessee was a co-owner with a 15% share in the property. The Tribunal highlighted that the Assessing Officer did not make similar additions for other co-owners and upheld the principle of consistency. The Tribunal held that the ALV declared by the assessee should be accepted without any increase due to notional interest or other adjustments as suggested by the CIT(A).

Issue 4: Application of legal principles and consistency in ALV determination:
The Tribunal emphasized the importance of legal precedents and consistency in determining ALV. It overturned the CIT(A)'s order, stating that the ALV should be accepted as declared without any additional notional interest or adjustments. The Tribunal's decision was based on legal principles and the need for consistent treatment across co-owners.

In conclusion, the Tribunal allowed the appeal, emphasizing the correct interpretation of the law regarding ALV computation and rejecting any unauthorized adjustments or directions for determining ALV.