2013 (12) TMI 1365 - AT - Income Tax

Validity of determining the ALV by adding notional interest on the interest free deposit - Held that - When the actual rent declared by the assessee is more than the ratable value fixed by the municipal authorities, there is no reason to disbelieve the actual rent declared by the assessee - It is not warranted on the part of the AO to determine the income by taking the fair market rent of comparable properties let out in the localities by ignoring the ratable value fixed by the municipal authorities for arriving at the annual letting value - Decided in favour of assessee.

Summary

Issues:
Assessment of annual value of property based on rent and interest-free deposit.

Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai dealt with two appeals filed by an assessee against orders of Ld. CIT-(A)-4, Mumbai for assessment years 2006-07 and 2008-09. The common issues involved the estimation of the annual value (ALV) of a property let out by the assessee to a tenant. The property was rented to a bank at a monthly rent of Rs. 15,000/- and an interest-free deposit of Rs. 2,75,00,000/- was accepted. The Assessing Officer (AO) calculated the ALV by adding the rent received and notional interest on the deposit. The CIT(A) disagreed with the AO's approach, citing legal precedents, and determined the ALV based on the rent the property could fetch in the open market. The assessee challenged this decision before the Tribunal.

The Tribunal considered a similar case involving comparable facts and legal interpretations by a co-ordinate bench in the case of ITO Vs. M/s Tip Top Typography. The Tribunal referred to the legislative intent behind section 23(1)(b) and clarified that the actual rent received should represent the ALV if higher than the expected rent. It also discussed the decision of the Delhi High Court regarding notional interest on deposits and the relevance of municipal valuations in determining ALV. The Tribunal emphasized that when the actual rent declared by the assessee exceeds the ratable value fixed by municipal authorities, there is no reason to doubt the declared rent. Therefore, the AO was directed to consider the rent actually received by the assessee as the ALV, as it exceeded the municipal valuation.

In conclusion, the Tribunal allowed both appeals of the assessee, emphasizing the importance of considering the actual rent received when determining the ALV of a property. The judgment provided clarity on the legal principles governing the assessment of property income and highlighted the significance of municipal valuations and actual rental income in such assessments.