2015 (10) TMI 1510 - AT - Income Tax

Nature of rent received from the company - benefit or perquisite or rent itself - Additions made u/s 2(24)(iv) - AO taxed under the same under the head Income From Other Sources - AO alleged that the property has been let out an exorbitant rent of ₹ 10,82,121/- per annum against which the assessee has also simultaneously obtained interest-free deposit which is adjustable towards rent charges. - Held that - Section 2(24)(iv) of the Act will normally come into play only when the company in which the directors or its relatives have taken advantage in respect of any obligation which the director and their relatives are expected to discharge. In the present facts, section 2(14)(iv) has no application. The agreement has been entered into with the company for which rent has been paid and hence the rent has been derived as a quid-proquo for letting out the property. Such receipt of rent cannot be characterized as benefit or perquisite under S. 2(24)((iv). This is not some kind of benefit bestowed gratuitous and without consideration. Accordingly, we subscribe to the view taken by the CIT(A) and decline to interfere with his order cancelling the addition made in taxing the rental income under section 2(24)(iv) of the Act. - Decided against revenue. Additions made u/s 2(24)(v) for Notional Interest - CIT(A) deleted the addition - Held that - Interest-free deposit in letting out the property is not anything unusual in common parlance and is attributable to decision taken based on exigencies involved. Such action of the assessee cannot be inferred adversely. The issue is squarely covered by the decision of the Hon ble Jurisdictional High Court in the case of J.K. Investors (2000 (6) TMI 9 - BOMBAY High Court) relied upon by the assessee and other spate of judicial decisions. We also find the Pune Bench of the Tribunal in the case of Shri Bhavarlal Hiralal Jain (2015 (10) TMI 1278 - ITAT PUNE) has decided the issue in favour of the assessee on similar facts. Respectfully following the binding precedents, this issue regarding the chargeability of notional interest on interest-free deposits is also decided in favour of the assessee.

Summary

Issues Involved:
1. Taxability of rent received under section 2(24)(iv) versus section 22 of the Income-tax Act, 1961.
2. Addition of notional interest on interest-free deposits received.

Issue 1: Taxability of rent received under section 2(24)(iv) versus section 22 of the Income-tax Act, 1961:

The appeal pertains to the taxability of rent received by the assessee under section 2(24)(iv) or section 22 of the Act. The Assessing Officer contended that the rent received was exorbitant and linked to interest-free deposits, thereby invoking section 2(24)(iv) to tax the rent income. However, the CIT(A) held that the rent income should be taxed under section 22 as it was derived from letting out a bungalow, not as a benefit or perquisite under section 2(24)(iv). The CIT(A) canceled the additions made by the Assessing Officer, emphasizing that the rent was correctly offered for taxation under section 22, and the standard deduction under section 24 was rightfully claimed by the assessee.

Issue 2: Addition of notional interest on interest-free deposits received:

Regarding the addition of notional interest on interest-free deposits received from the tenant, the CIT(A) observed that the rent payable was being adjusted annually against the deposit. Citing judicial decisions, the CIT(A) emphasized that only real income, not hypothetical income, should be taxed. The CIT(A) noted that in subsequent assessment years, no additions were made for notional interest by the same Assessing Officer. The CIT(A) concluded that there was no justification for adding notional interest on the interest-free deposits and canceled these additions as unwarranted. The Tribunal upheld the CIT(A)'s decision, relying on precedents and the principle of taxing real income, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order. The rent income was deemed taxable under section 22, not section 2(24)(iv), and the addition of notional interest on interest-free deposits was deemed unjustified based on legal principles and precedents. The judgment provides a detailed analysis of the taxability of rent income and interest-free deposits, emphasizing the importance of taxing real income and adhering to legal provisions.