2013 (7) TMI 472 - AT - Income Tax

Notional interest - Whether notional interest on total security deposit should be added to the annual value of property - 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) - Following decision of COMMISSIONER OF INCOME TAX, Versus MONI KUMAR SUBBA & Miracle Exporters P. Ltd. 2011 (3) TMI 497 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues:
- Appeal against the deletion of addition in the annual letting value based on notional interest on interest-free deposit.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the deletion of an addition in the annual letting value by the CIT(A) for the assessment year 2006-07. The sole issue raised in the appeal was against the direction of the CIT(A) to delete the addition made by the Assessing Officer under section 23(1)(a) of the Income Tax Act, amounting to Rs.30 lakhs on account of notional interest on an interest-free deposit of Rs.3 crores.

The facts of the case revealed that the assessee owned a building in Mumbai, which was let out to various parties, including Tata Finance Ltd. The Assessing Officer added 10% notional interest on the total security deposit of Rs.3 crores to the annual letting value as income from house property. However, the CIT(A) relied on a Tribunal order in favor of the assessee, approved by the Bombay High Court, and overturned the assessment order on this point.

Upon hearing the arguments and examining the material on record, the Tribunal noted that the issue of adding notional interest on an interest-free deposit to the annual letting value was settled by a Full Bench judgment of the Delhi High Court in the case of CIT vs. Moni Kumar Subba. The High Court held that no addition could be made on account of notional interest on an interest-free deposit with the landlord under section 23(1)(a) of the Act. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition of Rs.30 lakhs.

Therefore, the Tribunal dismissed the appeal, affirming the decision of the CIT(A) and upholding the deletion of the addition in the annual letting value based on notional interest on the interest-free deposit. The judgment was pronounced on the 6th day of January, 2012.