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TMI Blog2005 (5) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration of the decision relied by the assessee in the case of CIT v. Indra Co. [2004] 268 ITR 240 (Cal.), wherein the Hon ble High Court held that if the agreement is found genuine in the case of property let out by the assessee and sublet by the tenant, the amount actually received constituted the annual value. 3. The assessee filed the return on 30-10-2001, declaring income at Rs. 31,90,100. The assessee is engaged in the business of trading in MS wire, business center and financing, i.e., bill discounting. Assessing Officer, during assessment proceedings noticed, in the Profit Loss Account and computation the assessee declared an amount of Rs. 1,23,80,168 as rent received under the head "Income from house property". Assessee claimed Rs. 10,12,923 as Municipal tax, Rs. 28,43,809 as 1/4th of rent being repairs and interest on loan amount of Rs. 26,03,355. The net income from house property was Rs. 59,13,340. Assessing Officer also noticed from the details furnished, the assessee received Rs. 1,20,00,000 from M/s. IIS Infotech Ltd. being rent; whereas the rent received from two Directors of the firm was only Rs. 3,80,160. 4. The facts leading to the dispute, bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by the Assessing Officer : ( i ) CIT v. Satya Co. Ltd. [1994] 75 Taxman 193 (Cal.) ( ii ) CIT v. M Ratanchand Chordia [1997] 228 ITR 626 (Mad.) ( iii ) CIT v. J K Investors (Bombay) Ltd. [2001] 248 ITR 723 (Bom.) and ( iv ) B A Plantation Ind. v. CIT [2001] 117 Taxman 323 (Gau.). 7. The next point, i.e., while fetching a rent of Rs. 1.2 crores for the second floor, the ground and first floor was fetching only Rs. 3,80,160, the Assessing Officer held. This is an absurd figure. If the rent fetched from second floor is taken as the basis, the ground and first floor independently should fetch the same rent, if not more. The commercial value of the ground and first floor is more. However, Assessing Officer noticed, the Directors are paying the company a very meagre amount and it is clear, he held, that the fair market rent is not shown from ground and first floor as required by virtue of section 23(1)( a ). He further noted from the files of Directors and the firms of company that the same property, which they have taken at Re. 1 per sq. ft., was sub-let to a third party for an annual value of Rs. 1.2 crores. This property has been let out to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the quantum of rent stipulated by agreement between the tenant and the landlord is to be considered as fair. By virtue of the said agreement the tenant is protected by the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, both against increase in rent and eviction. Therefore, the rent of ground and first floor cannot be compared with the recently rented second floor. It was further contended that the annual value of the house property should be determined in accordance with the Rent Control legislation where the property is situated in a place covered by such legislation and for the above proposition the assessee relied on the decisions of the Supreme Court in the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700 and in the case of Shiela Kaushish v. CIT [1981] 131 ITR 435 . However, the plea of the assessee was rejected by the Assessing Officer mainly for the following reasons:- ( a )He held that even in the year 1988, the reasonable price for letting out of the property would be more than Re. 1 per sq. ft. He held, the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, was in existence from 1947 onwards a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenancy on rent payable at the rate of Re. 1 per sq. ft., which was an over-riding condition. Ground and first floor of the building was let out and this position was accepted by the Department. The existing firm, viz. M/s. National Wire Products was dissolved on 31-12-1984 and the assessee company took over the business. It was on the occasion of this taking over the retiring partners stipulated the condition as mentioned above. Accordingly, the assessments were completed under section 143(3), for the assessment years 1989-90 to 1998-99, accepting the gross rental income declared. It was contended before the CIT(A) that there should be finality and certainty in litigations arising out of Income-tax Act and for the above proposition the assessee relied on the decision of the Hon ble Punjab Haryana High Court in the case of CIT v. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 and the decision of the Hon ble Calcutta High Court in the case of Russel Properties (P.) Ltd. v. A. Chowdhary, Addl. CIT [1977] 109 ITR 229. It was contended, the earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse and the decision has been arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the building has been let out. In the course of assessment proceedings, the Assessing Officer noted that the assessee had let out two of the units i.e., ground and first floor to the directors on rent of Rs. 3,80,160. The Assessing Officer gathered information from two directors that they have let out the said two units at much higher rent of Rs. 62,10,400. Therefore, the Assessing Officer has estimated a fair rent for four units at double the above rent which is Rs. 1,24,41,600 and held that the annual value of ground and first floor of the premises is assessable at Rs. 1,24,41,600 in the hands of the appellant. The appellant has objected to this addition and stated that it is not the first year that the premises have been let out or sub-let by the appellant. This position has been accepted by the Department from the inception. The aforesaid argument of the appellant is not acceptable because every year is a different year. Further, the Assessing Officer has estimated the fair rent of ground floor at Rs. 1,24,41,600 on the ground that two of the tenants who are present directors of the company have themselves let out the premises and are receiving rent of Rs. 62,20,800 on lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2000. Hence, the two rents cannot be compared and treated alike. The company entered into agreement with the Directors on the basis of dissolution in the year 1984, whereas the rent was fixed for the second floor only in 2000. At that point of time, assessee s representative submitted, one or two Rupees rent was prevailing in the market. Even if Rs. 2 was prevailing in the market, the assessee could not charge as it is because it was constrained by the Deed of Dissolution and this was the condition put by the retiring partners. Assessee s representative further submitted, the additions made by the Assessing Officer and confirmed by the CIT(A) are not justified because in the earlier years the Department itself accepted the position all along. Assessee company let out the premises as per the condition in the take over agreement, which has over-riding effect. Assessee also cannot increase the rent now as it will go against a protected tenant by virtue of the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947. Assessee s case is also supported by the decisions of the Hon ble Supreme Court in the cases of Dewan Daulat Rai Kapoor ( supra ) and Shiela Kaushish ( s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers retiring from the firm. It was one of the conditions of the dissolution of the firm that the building will be let out on construction to Marwah brothers, partners of the firm or their nominee, on rent at the rate of Re. 1 per sq. ft. per month. The company had no right to overlook this. This agreement is dated 1984. The Dissolution Deed was followed by; it is dated 1-1-1985. The premise was self-occupied for some time; but subsequently let out. It is also to be seen that two Marwah brothers i.e., Shri R.K. Marwah and Shri S.K. Marwah sub-let the premises on annual rent of Rs. 31,10,400. The firm has not let out it and it is being used for its own business. The second floor was built and completed in the year 2000. Now the question is whether the assessee had any power to increase the rent. It appears, the present assessee has no power to increase the rent. 16. If that be so, then the question is what should be the amount that expected to be "the sum for which the property might reasonably be expected to let" appearing in section 23(1)( a ). By virtue of section 5(10)( b )( iii ) of BRCA, the standard rent in the instant case would be the rent at which the premises were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into another agreement with State Bank of Bikaner and Jaipur for sub-letting it for a higher amount and the Hon ble High Court held, this is the amount received actually by the assessee construed the annual value of the property and not the subsequent amount which the first tenant rented out to a third party. The appeal by the assessee, hence, on this ground allowed. 20. Coming to the notional interest charged amounting to Rs. 16,20,000, this issue is squarely covered against the revenue by the decision of the Hon ble Jurisdictional High Court in the case of J.K. Investors (Bombay) Ltd. ( supra ). In this case the Hon ble High Court held that notional interest on interest free deposit received from the lessee would not form part of the actual rent under section 23(1)( b ) of the Income-tax Act, 1961. Thus, the addition made by the Assessing Officer and confirmed by the CIT(A) is to be deleted. It is deleted. 21. The third effective ground urged by the assessee is against the addition retained by the CIT(A) being accrued discounting charges amounting to Rs. 18,11,010. 22. During the assessment proceedings the Assessing Officer noticed, assessee has discounted bills o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scounting charges. The above argument of the appellant is not acceptable. The appellant is following mercantile system of accounting and it was supposed to offer this income on accrual basis which has not been done. The findings of the Assessing Officer on this point are very elaborate and self speaking. I am in agreement with the findings of the Assessing Officer and therefore, this ground of appeal is also dismissed." Aggrieved by the above order, the assessee is in appeal before the Tribunal. 24. It is submitted that M/s. Lok Housing and Construction Ltd. has been declared as Relief Undertaking under Bombay Relief Undertaking Act by the State Government vide Notification given at pages 111 and 112 of the Paper Book. According to this Notification, the liability of this party has been suspended and not enforceable. The recovery proceedings also stopped by the Government regarding discounting charges from M/s. Vitara Chemicals Ltd. It is the case of the assessee that the assessee filed a complaint under section 138 of the Negotiable Instrument Act before the Magistrate but the High Court stayed all the proceedings against the company as the company was passing through ..... X X X X Extracts X X X X X X X X Extracts X X X X
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