2020 (9) TMI 181 - AT - Income Tax

Income from house property - ALV u/s 23(1)(a) - Municipal value of property or actual rent received - determining ALV to undertake and apply known method of working out the Annual Value - CIT-A adopting the rent paid by the earlier licensee for the earlier period as Annual value (ALV) for the present year for the purpose of section 23(1)(a) - determining reasonable expected rent of a house property - HELD THAT - As per section 23(1)(a), the annual value of any property shall be the sum for which the property might reasonably be expected to be let from year to year. It may neither be the actual rent derived nor the municipal valuation of the property. It is something like notional rent which could have been derived, had the property been let. In determining the reasonable rent, several factors have to be taken into consideration, such as, location of the property, annual ratable value of the property fixed by the municipalities, rents of similar properties in neighborhood, rent which the property is likely to fetch having regard to demand and supply, cost of construction of the property and nature and history of the property. These factors play vital role in determining reasonable expected rent of a house property. In the instant case, as mentioned earlier, the leave and license agreement dated 01.01.2010 for a period of 36 months i.e. from 01.01.2010 to 31.12.2013 and subsequent leave and license agreement dated 01.01.2014 for a further period of 36 months i.e. from 01.04.2013 to 31.03.2016 are exactly the same. In the instant case, as stated by the AO as per the website of MCA the assessee was a major shareholder and Director in the company to whom property has been rented i.e. Joseph Leslie Dynamiks Mfg. Ltd. We are of the considered view that the above principles in Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT are applicable to this case. Considering the facts and circumstances of this case, we admit the additional evidence filed by the assessee. Accordingly, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make an order afresh by examining the Leave and License Agreement dated 7.7.2012 between Shri Ganesh Vishwas and one Joshi and Sameer Thakoor - Assessee appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Determination of Annual Lettable Value (ALV) for the purpose of section 23(1)(a) of the Income Tax Act, 1961.
2. Consideration of Municipal value or actual rent received for determining ALV.
3. Application of the principles laid down in the Tip Top Typography case.
4. Admission of additional evidence for computing ALV.

Detailed Analysis:

1. Determination of Annual Lettable Value (ALV) for the purpose of section 23(1)(a) of the Income Tax Act, 1961:
The primary issue revolves around the determination of the ALV of the property for the assessment year 2014-15. The Assessing Officer (AO) noted a significant reduction in the rental income from the property compared to the previous year. The AO questioned the assessee on this reduction, who explained that the decrease was due to a change in management of the tenant company. The AO, however, was not convinced and adopted the rent from the previous year as the ALV, citing that the property was rented to the same company earlier at a higher rent and there was no evidence of reduced privileges or space.

2. Consideration of Municipal value or actual rent received for determining ALV:
The assessee argued that the ALV should be based on the municipal value or the actual rent received, whichever is higher, as per the provisions of section 23(1)(a) of the Act. The assessee also contended that the rent fixed by the Municipal Corporation should be considered as it takes into account all relevant factors. However, the AO rejected this argument, stating that the rent received earlier should be considered as the ALV due to the relationship between the assessee and the tenant company.

3. Application of the principles laid down in the Tip Top Typography case:
The AO referred to the Bombay High Court's decision in the Tip Top Typography case, which allows the AO to make other inquiries to determine the fair rent if there is cogent material to suggest that the rent is influenced by extraneous factors. The AO concluded that the rent in the current case was influenced by the relationship between the parties and thus adopted the higher rent from the previous year as the ALV.

4. Admission of additional evidence for computing ALV:
The assessee filed an application under Rule 29 of the Income Tax (Appellate Tribunal) Rules to admit additional evidence, including a leave and license agreement between third parties in the same area. The assessee argued that this agreement could provide a valuable guideline for determining the ALV. The Tribunal admitted the additional evidence, considering it crucial for a fair determination of the ALV.

Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the matter to the AO to re-examine the case, taking into account the additional evidence and following the principles laid down in the Tip Top Typography case. The AO was directed to provide a reasonable opportunity for the assessee to present their case before finalizing the order. The appeal was allowed for statistical purposes.