2013 (12) TMI 1386 - AT - Income Tax

Determination of annual letting value u/s 23(1)(a) - Whether interest free deposit received is part of annual lettable value u/s 23(1)(a)- Held that - The assessee has himself declared the actual rent which is much higher than the municipal value of the property - The assessee, otherwise could have insisted the AO to adopt the municipal value which is less than the actual rent claimed by the assessee - This act of the assessee itself shows that the claim is bona fide in nature which prima facie appears that there is no concealment in respect of the actual rent received by the assessee and also the assessee has not inflated/deflated the rental income by reason of any extraneous consideration - Decided against Revenue.

Summary

Issues:
- Determination of annual letting value u/s 23(1)(a) of the Income Tax Act.

Analysis:
1. The appeals filed by the Revenue challenged the orders of the Ld.CIT(A) regarding the determination of annual letting value u/s 23(1)(a) of the Income Tax Act for the Assessment Years 2007-08 & 2008-09. The AO had determined the ALV based on fair market rent, while the Ld.CIT(A) directed to accept the actual rent declared by the assessee as the ALV since it was higher than the rateable value adopted by the municipal authorities. The Revenue contended that the rateable value is not binding if not properly determined by municipal authorities, citing a Delhi High Court judgment. The assessee argued that the actual rent declared was bona fide and higher than the rateable value, supported by various decisions of the Tribunal and High Courts.

2. The Tribunal noted that the actual rent declared by the assessee was significantly higher than the rateable value fixed by the municipal authorities. Referring to a Tribunal case, it was observed that as per the amended provisions, actual rent received should represent the annual value if higher than the expected property rent. The Tribunal also highlighted that the legislative intention clarified by CBDT Circular No.204 was to equate annual value with municipal valuation. Various decisions of the Bombay High Court supported this interpretation.

3. Regarding the Delhi High Court judgment cited by the Revenue, it was clarified that the annual value fixed by municipal authorities could be a yardstick if closely related to the assessment year. However, the AO could disregard municipal valuation if not based on relevant material for determining fair rent. The Tribunal emphasized that in cases where actual rent claimed was justified and supported by documents like lease agreements, resorting to fair market value by ignoring rateable value was unnecessary. As the actual rent declared by the assessee was significantly higher than the rateable value, the Tribunal upheld the Ld.CIT(A)'s decision to accept the actual rent as the income from house property.

4. Ultimately, the Tribunal dismissed the appeals filed by the Revenue, affirming the decision to accept the actual rent declared by the assessee as the income from house property due to its significant difference from the rateable value fixed by municipal authorities.

5. The judgment was pronounced on November 27, 2013, by Dr. S. T. M. Pavalan, JM.