2018 (8) TMI 1064 - HC - Income Tax

Income from House Property - Additions towards notional interest on security deposit - Determination of Annual letting value (ALV) - assessee has offered interest on security deposits kept with banks is offered to tax as income under other heads - Held that - In the present facts, it is not the case of the Revenue that fixing of the rent was inflated/ deflated on extraneous consideration. Parties to the Agreement are at Arms Length. Therefore, the Municipal Rateable Value can be taken as a safe guide to determine the fair rent of the property. - In the present facts, the Assessing Officer has not carried out necessary exercise to determine the Municipal Rateable Value of the said property. Thus, he could not have come to the conclusion that the amount received/ receivable by the Assessee under Section 23(1)(b) of the Act is in excess of fair rent. - Decided against the Revenue. Appeal admitted on the substantial question of law at (b) Whether on the facts and in circumstances of the case and in law, the Tribunal was justified in holding that society maintenance charges are to be excluded from ALV u/s. 23(1) (b) without appreciating the fact that the actual rent received/ receivable is independent of such charges and that the only deduction allowable under the Act is per section 24?

Summary

Issues:
1. Whether adding notional interest on security deposits to ALV amounts to double taxation?
2. Whether society maintenance charges should be excluded from ALV u/s. 23(1)(b)?

Analysis:

Issue 1:
The first issue pertains to the addition of notional interest on interest-free security deposits to the rent received to determine the Annual Letting Value (ALV) of the property under Section 23(1)(b) of the Income Tax Act, 1961. The Revenue argued that interest on security deposits offered as income under other heads should not be added to ALV to avoid double taxation. However, the Tribunal, following the decision in CIT v/s. Tip Top Typography, held that the fair rent should be determined based on Municipal Rateable Value in the absence of standard rent. As the Assessing Officer did not assess the Municipal Rateable Value, the Tribunal allowed the Assessee's appeal, stating that interest on security deposits already taxed should not be taxed again as part of the rent. The Tribunal's decision was supported by the court's ruling in Tip Top Typography, concluding that no substantial questions of law arose, and the appeal was not entertained.

Issue 2:
The second issue concerns whether society maintenance charges should be excluded from ALV under Section 23(1)(b). The appeal was admitted on this substantial question of law, indicating that further consideration is required. The court directed the Registry to provide a copy of the order to the Tribunal for necessary action, allowing the Tribunal to keep the relevant papers and proceedings available for court review when requested.

This detailed analysis of the judgment from the Bombay High Court provides insights into the legal reasoning and application of relevant provisions in addressing the issues raised by the parties involved in the case.