2021 (9) TMI 597 - AT - Income Tax

Capital gain computation - Addition of capital gains by allowing further proportionate cost - assessee society constructed office premises for the commercial purpose on the land taken on lease for 99 years from MMRDA - CIT(A) while determining the capital gain at ₹ 3,92,000/- had categorically observed that the ld. AO had accepted the said computation in the remand proceedings which is quite evident from the fact that the ld. AO had no comments to offer in his remand report in respect of this issue - HELD THAT - On perusal of the remand report that the ld. AO had categorically stated that he has no comments to offer on the submissions made by the assessee before the ld. CIT(A). Hence, it could be safely concluded that the ld. AO had nothing adverse to state on the submissions made by the assessee. Having accepted the contentions of the assessee in the remand report, the Revenue ought not to have preferred any appeal on this issue before us. Reliance in this regard is placed on the decision of the Hon ble Madras High Court in the case of B Jayalakshmi vs. ACIT 2018 (8) TMI 208 - MADRAS HIGH COURT . Accordingly, the ground No.1 raised by the Revenue is dismissed. Income from house property - Fair rental value in respect of let out property - annual value for the purpose of taxability under the head income from house property - AR argued that in the year 2007, substantial development took place which had contributed for the enhanced rental value that could be derived by the assessee from a different tenant i.e. Trans Expo Trade Pvt. Ltd - HELD THAT - AO had adopted the annual rent derived by the assessee in A.Y.2007-08 for the similar extent of property let out to a completely different party i.e. Trans Expo Trade Pvt. Ltd., at ₹ 10,25,000/- per month and had discounted 25% from such value in order to arrive at the fair rental value of the property let out to M/s. Lupin Ltd., in A.Y.2004-05. This in our considered opinion, is not correct approach. AO ought to have determined the fair rental value in the year under consideration based on certain comparable data. Since that was not done by the ld. AO and also in view of the fact that the actual rent received by the assessee is also more than the municipal value for the year under consideration, which fact is not disputed by the Revenue before us, we hold that actual rent received by the assessee at ₹ 3,50,000/- per month in respect of property let out to M/s. Lupin Ltd., should be considered as annual value for the purpose of taxability under the head income from house property . This is the precise direction given by the ld. CIT(A) also by considering the provisions of the Act, on which we do not find any infirmity.Ground No.2 raised by the Revenue is dismissed. Determination of Annual Lettable Value (ALV) on vacant properties - Intention to let out - HELD THAT - Considering the fact that intention to let out is of no relevance and same cannot be equated with the word let in Section 23 of the Act. Hence, the argument advanced by the ld. AR in this regard that intention to let out is to be seen, stands dismissed, in the light of the decision of in the case of Vivek Jain 2011 (1) TMI 897 - ANDHRA PRADESH HIGH COURT Determination of annual value by the ld. AO in respect of vacant properties based on the actual rent received by the assessee for let out property in A.Y.2007-08 - As already held that the actual rent received by the assessee in respect of let out property to some other tenant in subsequent assessment year cannot be used as a fair rental value for an earlier assessment year in respect of property that is let out to different tenant. While that has been held for a let out property, the same principle would indeed be applicable for vacant property also. As also held in ground No.2 of the Revenue hereinabove that in such a scenario, municipal value should be adopted with the actual rent and higher of those two should be considered as the annual value. We find that the ld. CIT(A) has also directed the ld. AO to consider only the municipal value as the annual value in respect of vacant properties, on which finding, we do not find any infirmity - order of the ld. CIT(A) with regard to determination of annual value for the vacant properties is upheld. Accrual of income - Disallowance in respect of amount received on account of transfer fee from incoming member of the society - The issue in dispute before us is already decided by the Hon ble Apex Court in the case of ITO vs. Venkatesh Premises Co-operative Society Ltd. 2018 (3) TMI 675 - SUPREME COURT . Thus we hold that the receipt on account of transfer fee / amenities fee cannot be brought to tax as income of the assessee. Accordingly, the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Restriction of addition made in respect of capital gains.
2. Deletion of addition on account of fair rental value for let out property.
3. Determination of Annual Lettable Value (ALV) on vacant properties.
4. Taxability of transfer fee received from incoming members of the society.

Issue-wise Detailed Analysis:

1. Restriction of Addition Made in Respect of Capital Gains:
The Revenue challenged the action of the Commissioner of Income Tax (Appeals) [CIT(A)] in restricting the addition made in respect of capital gains by allowing further proportionate cost amounting to ?1,33,57,500/- claimed by the assessee. The assessee, a society registered under the Maharashtra Government Societies Act, 1960, sold one of its vacant premises to M/s. Khosla Investment Pvt. Ltd. for ?1,37,49,500/-. The Assessing Officer (AO) treated the amount received less the cost of construction as income from capital gains, arriving at ?92,04,500/-. The CIT(A) determined the capital gains at ?3,92,000/-, considering the cost of land and construction, and the AO had no adverse comments on this computation in the remand report. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal, citing the Madras High Court decision in B Jayalakshmi vs. ACIT.

2. Deletion of Addition on Account of Fair Rental Value for Let Out Property:
The Revenue challenged the deletion of an addition of ?50,25,000/- on account of fair rental value for a property let out to M/s. Lupin Ltd. The AO had determined the fair rental value based on rent received in a subsequent year from a different tenant, which was higher. The CIT(A) directed to adopt the municipal value or the actual rent received, whichever was higher, for taxation. The Tribunal upheld the CIT(A)'s direction, agreeing that the actual rent received should be considered as the annual value for tax purposes, dismissing the Revenue's appeal.

3. Determination of Annual Lettable Value (ALV) on Vacant Properties:
The AO determined the deemed rental income for vacant properties based on rent received in a subsequent year from a different tenant, applying a 25% discount. The CIT(A) directed the AO to adopt the municipal value for these vacant properties. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal for substituting municipal value with fair rental value and dismissing the assessee's appeal for determining the annual value at Rs. Nil under section 23(1)(c) of the Act. The Tribunal followed the Andhra Pradesh High Court decision in Vivek Jain vs. ACIT, which held that the intention to let out is irrelevant, and only actual letting out qualifies for section 23(1)(c).

4. Taxability of Transfer Fee Received from Incoming Members of the Society:
The AO treated ?5 lakhs received as transfer fee from an incoming member as taxable income, arguing it was tainted by commercial motive. The CIT(A) upheld this, citing Mumbai Tribunal's decision in Hatkesh Co-op Housing Society Ltd. The Tribunal, however, relied on the Supreme Court decision in ITO vs. Venkatesh Premises Co-operative Society Ltd., which held that transfer charges received from members, used for mutual benefits, are not taxable. The Tribunal concluded that the receipt of ?5 lakhs on account of transfer fee/amenities fee cannot be taxed, allowing the assessee's appeal.

Conclusion:
In the result, the Tribunal partly allowed the appeals of the assessee and dismissed the appeals of the Revenue, applying the principles laid down for determining annual value for let out and vacant properties consistently across the assessment years.