2014 (7) TMI 898 - AT - Income Tax

Estimation of annual value of house property Rent received disregarded - tax authorities have considered the value of property only for determining the Annual Rental value - Held that - Charge u/s.22 is not on the market rent but is on the annual value and in the case of property which is not let out, municipal value would be a proper yardstick for determining the annual value - If the property is subject to rent control laws and the fair rent determined in accordance with such law is less than the municipal valuation, then only that can be substituted by the municipal value - the AO has determined the Fair rental value in both the years by considering the value of investment of the flat - CIT(A) has slightly reduced the same in AY 2006-07 and confirmed the same in AY 2007-08 - the tax authorities have considered the value of property only for determining the Annual Rental value Relying upon Dy. CIT Versus Reclamation Realty India Pvt. Ltd. 2010 (11) TMI 477 - ITAT, MUMBAI - the Standard rent / Municipal rateable value has to be considered as fair rental value - the rent received by the assessee is more than the municipal rateable value - the rent received by the assessee has to be taken as the Annual value u/s 23 of the Act order of the CIT(A) set aside Decided in favour of Assessee.

Summary

Issues:
Whether the taxing authorities can estimate the annual value of a house property at a hypothetical figure disregarding the rent received by the Assessee when it exceeds the municipal ratable value.

Analysis:
The appeals were filed by the Assessee against orders passed by Ld. CIT(A)-16, Mumbai for the assessment years 2006-07 and 2007-08. The Assessee co-owns a flat and declared rent received as the annual value. The Assessing Officer (AO) estimated the rental income at a higher figure based on the flat's investment value. The CIT(A) reduced the estimated value for 2006-07 but upheld it for 2007-08. The Assessee contended that the rent received should be considered the fair market value. The Tribunal considered various judicial pronouncements and held that municipal rateable value should be the basis for determining the annual value if the rent received exceeds it.

The Assessee relied on a Tribunal decision and High Court judgments to support their contention. The Tribunal emphasized that the charge under section 22 is on the annual value, not market rent. Municipal value should be the yardstick for properties not let out. The Tribunal distinguished other cases cited by the Department, stating that the municipal value should be adopted as the annual value under section 23(1)(a) of the Act. The Tribunal clarified that rent exceeding the municipal value should be considered the annual value.

The AO had estimated the fair rental value based on the flat's investment value. The Tribunal held that the rent received by the Assessee, exceeding the municipal rateable value, should be considered the annual value. Citing the precedent set by a previous case, the Tribunal directed the AO to delete the adjustment made to the annual value declared by the Assessee. Consequently, both appeals filed by the Assessee were allowed.

In conclusion, the Tribunal ruled in favor of the Assessee, emphasizing that the rent received should be considered the annual value when it exceeds the municipal rateable value. The decision was based on legal interpretations and precedents, directing the AO to delete the adjustments made to the annual value declared by the Assessee in both years.