2011 (2) TMI 1299 - AT - Income Tax

Deletion on account of interest on security deposit made on notional basis - Actual rent received more than the rateable value determined Held that - Following Dy. CIT Versus Reclamation Realty India Pvt. Ltd. 2010 (11) TMI 477 - ITAT, MUMBAI - the rent received by the Assessee was more than the sum for which the property might reasonably be expected to let from year to year, the actual rent received should be the annual value of the property u/s 23(1)(b) of the Act - Notional interest on interest free security deposit/rent received in advance should not be added to the same - The order of the CIT(A) upheld deleting the additions made by the Assessing Officer on account of notional interest on security deposit for computing the annual value of the property Decided against Revenue.

Summary

Issues:
1. Addition of interest on security deposits for computing income from house property.

Analysis:
The judgment involves appeals by the Revenue against orders passed by the Commissioner of Income-tax (Appeals) for two assessment years. The issue revolves around the addition of interest on security deposits to the annual values of properties for computing the income of the assessee under the head "income from house property." The Assessing Officer relied on section 23(1)(a) of the Act to add interest on notional basis to the security deposits. However, the CIT(A) deleted these additions, citing that since the actual rent received exceeded the rateable value determined by Municipal Authorities, no addition on account of interest on security deposit could be made on a notional basis. The CIT(A) relied on a decision of the Bombay High Court in a similar case. The Tribunal noted that similar additions in earlier years were deleted by the CIT(A) and upheld by the Tribunal, based on judicial pronouncements. The Tribunal referred to various legal interpretations and decisions, emphasizing that the annual value should be based on actual rent received rather than notional interest on security deposits.

The Tribunal discussed the legislative amendments regarding the determination of annual value for income from house property. It referred to the interpretation of the expression "the sum for which the property might reasonably be expected to let from year to year" under section 23(1)(a) and subsequent amendments. The Tribunal also cited decisions of the Supreme Court and High Courts regarding the definition of annual value and the significance of actual rent received in computing income from house property. It highlighted that the annual value should be based on the rent actually received, considering standard rent determinable under Rent Control Acts. The Tribunal emphasized that the Municipal valuation and annual value under section 23(1)(a) are equivalent.

Ultimately, the Tribunal concluded that the issue was decisively covered in favor of the assessee by previous Tribunal decisions and legal precedents. It upheld the CIT(A)'s orders deleting the additions made by the Assessing Officer for notional interest on security deposits. The appeals of the Revenue were dismissed, affirming the CIT(A)'s decision.