2013 (10) TMI 832 - AT - Income Tax

Annual Ratable Value income from house property - Held that - Facts of the case have to be analysed after considering the principles - Neither before FAA, nor before us, assessee has challenged the finding of fact - In these circumstances if AO decided to adopt reasonable rent for the year under consideration, then, in our opinion, he was justified - To oblige near and dear ones is a common human behavior - Assessee also tried to do the same - It was the result of the sustained investigation of the AO that all the facts came on record - Surrounding circumstances; higher rent of a flat of the same society for the same period, payment of deposits besides the higher monthly rent of the other property, close business relation of the tenant with the assessee-company, consent of the assessee to adopt higher rent;clearly prove that FAA had righty confirmed the orders of the AO the rent received by the assessee, in the AY under consideration, was abnormally low, as compared to the fair market rent, that it had decided to charge less rent because of some extraneous reasons. No assessee would agree for higher taxable income till the evidences, going against him, are collected and confronted to him by the AO - in the present case also same thing happened - Therefore, considering the peculiar facts of the case under consideration and keeping in mind the ratio laid down by the Hon ble Apex Court in the case of Commissioner of Income-Tax, West Bengal II Versus Durga Prasad More 1971 (8) TMI 17 - SUPREME Court and Sumati Dayal Versus Commissioner of Income-Tax 1995 (3) TMI 3 - SUPREME Court the order of the FAA does not suffer from any legal infirmity order of FAA upheld Decided against Assessee. Disallowance of Electricity Expenditure and Society Maintenance Charges Held that - Disallowance of professional fees, electricity expenses, society charges, miscellaneous expenses and salary, the AO was directed to allow statutory deduction u/s. 24(a) of the Act under the head Income from House Property @ 30% of the ALV - once the standard deduction @30% was allowed no further deduction could be allowed unless same was covered by the provisions of section 24(b) of the Act - the disallowance of electricity expenses and society charges confirmed. No commercial activity was carried out by the assessee - When the basic requirement of carrying out of commercial activity itself is missing question of complexity of such activities does not arise - Bill amount of Electricity expenses was allocated among various cabins that were rented out in a particular month - it is a plain and simple case of receiving rent from the house property owned by the assessee - AO has rightly held that basic ingredients of business were missing in the transactions carried out by the assessee with regard to the property-in-question - the order of the FAA confirmed Decided against assessee.

Summary

Issues Involved:
1. Determination of Annual Ratable Value (ARV) for Nepean Sea Road property.
2. Disallowance of Electricity Expenditure and Society Maintenance Charges.

Issue-wise Detailed Analysis:

1. Determination of Annual Ratable Value (ARV) for Nepean Sea Road property:

The assessee, engaged in the business of import, export, and trading of rough diamonds, declared an Annual Ratable Value (ARV) of Rs. 72,000 for its property at Nepean Sea Road. The Assessing Officer (AO) found discrepancies in the rent declared and the market rent for similar properties in the same building. The property was leased out for Rs. 6,000 per month, whereas another flat in the same building was rented out for Rs. 50,000 per month. The AO, after obtaining information from the society and considering the market rent, determined the ARV at Rs. 4,60,200 per annum (Rs. 38,350 per month).

The First Appellate Authority (FAA) upheld the AO's decision, noting that the assessee had accepted the higher ARV during the assessment proceedings. The FAA referred to several Supreme Court judgments, emphasizing that the ARV should be based on the reasonable rent a property might fetch, uninfluenced by extraneous circumstances. The FAA concluded that the AO's determination of ARV at Rs. 4.60 lacs was reasonable given the market conditions and the comparative rents in the same building.

The Tribunal also upheld the FAA's decision, noting that the rent declared by the assessee was abnormally low compared to the market rent. The Tribunal referred to the principles laid down in various judgments, including those of the Hon'ble Supreme Court in the cases of Durga Prasad More and Sumati Dayal, emphasizing the need to consider human probabilities and surrounding circumstances in determining the ARV. The Tribunal concluded that the AO was justified in adopting a higher ARV based on the market rent and the special relationship between the assessee and the tenant.

2. Disallowance of Electricity Expenditure and Society Maintenance Charges:

The AO found that the assessee had leased out a property at Pancharatna Co-operative Housing Limited (PCHSL) and declared the income under the head "Income from Business and Profession." The AO, however, assessed the income under the head "Income from House Property" (IFHP), disallowing the expenses related to the property, including electricity and society maintenance charges.

The FAA upheld the AO's decision, noting that the rental income from the property should be assessed under the head IFHP, as the primary intention of the assessee was to earn rental income without any element of business risk. The FAA relied on several judgments, including those of the Hon'ble Supreme Court, emphasizing that rental income should be assessed under the head IFHP, even if the property is held as a business asset.

The Tribunal also upheld the FAA's decision, noting that the assessee had rented out five cabins in the property and was carrying out its business from a different premises. The Tribunal emphasized that the primary object of the assessee was to earn rental income, and no complex commercial activities were carried out in the rented property. The Tribunal concluded that the AO was justified in disallowing the electricity and society maintenance charges, as these expenses were directly related to the rented property and not to the assessee's business activities.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the decisions of the AO and the FAA in determining the ARV of the Nepean Sea Road property and disallowing the electricity and society maintenance charges related to the rented property. The Tribunal emphasized the need to consider market conditions, human probabilities, and the primary intention of the assessee in determining the tax liability.