TMI Blog2005 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... s is as to whether notional interest or interest from deposit of Rs. 2.50 crores received by the assessee from the tenant will form part of fair rent under section 23(1)( a ). The assessee is aggrieved in assessment year 1997-98 that its property at NCPA was vacant throughout the year and, therefore, the CIT(A) has not taken the Annual letting value at nil or at best at Municipal rateable value at Rs. 20,974 as against Rs. 3,70,249 taken by CIT(A) being the rent receivable. 2. The facts of the case are that the assessee had two flats one at Neelambar and the other at NCPA. The former was self-occupied while the other was vacant during the assessment year 1997-98 but was given on rent during assessment year 1998-99 w.e.f. 25-9-1997 at a monthly rent of Rs. 50,000. The assessee had also taken an interest-free deposit of Rs. 2.50 crores from the tenant. During the assessment year 1999-2000, the rental income from this property was declared at Rs. 3,70,249. The Assessing Officer while determining the Annual letting value of the NCPA flat added the notional interest on the deposit of Rs. 2.50 crores under section 23(1)( a ). He observed as under : "I have considered the above s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case for the year under consideration, has been deleted by the CIT(A) vide his order dated 8-9-2000. In view of the aforesaid facts and the judgments of the Courts discussed above, the addition of Rs. 37,50,000 made to the annual value of the said flat on account of notional interest on deposit received is deleted." 4. The main grievance of the revenue as argued by the learned DR is that though the Assessing Officer calculated the fair rent under section 23(1)( a ), the CIT(A) decided the issue by presuming that the addition has been made under section 23(1)( b ). According to learned DR, the Assessing Officer is duty bound to determine fair rent under section 23(1)( a ) and compare it with annual rent received or receivable in case of a property let out and whichever is excess has to be adopted as Annual letting value under section 23(1). The CIT(A) failed to follow the mandate given by section 23(1) and adopted the rent received/receivable as the Annual letting value without finding out what is the fair rent as per section 23(1)( a ) and then comparing the same with rent received or receivable as per section 23(1)( b ). 5. On the other hand, the learned AR subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find out what is the sum for which property might reasonably be expected to let out from year to year which is called the fair rent. In the wisdom of the Assessing Officer, the fair rent was the actual rent received plus notional interest on interest- free deposit given by tenant to the assessee, while taking the flat on rent. So far as addition of notional interest on interest-free deposit under section 23(1)( b ) is concerned, we respectfully follow the decision of Hon ble Calcutta High Court in Satya Co. Ltd. s case ( supra ) and of Hon ble Bombay High Court in J.K. Investors (Bombay) Ltd. s Case ( supra ). There is absolutely no dispute or different view on the subject. The actual rent received or receivable as per section 23(1)( b ) excludes any other notional interest. Actual means actually what is received (cash received) or what is receivable (accrued, when not received in cash) on account of property being let out. However, Hon ble Bombay High Court has left the question open as to whether notional interest on interest-free deposit can be considered while determining fair rent under section 23(1)( a ). The last para of the said decision reads as under : "Before co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own or through the Assessing Officer. The CIT(A) did not examine and discuss as to whether there are other methods such as structural method to fix fair rent of the property in place of the fair rent as determined by the Assessing Officer. ( e )The CIT(A) did not examine and gave his verdict as upon whom lie the onus to prove that the actual rent received/receivable (on accrual basis) is more than the fair rent as determinable under section 23(1)( a ) before invoking section 23(1)( b ). ( f )Whether it was obligatory upon Assessing Officer to work out fair rent in terms of section 23(1)( a ) and whether the Assessing Officer has discharged that obligation. 9. The CIT(A) did not give any finding as to whether the actual rent received or receivable would be fair rent or not in terms of section 23(1)( a ) in the light of the fact that the tenant and the assessee became interested parties by virtue of transfer of interest-free deposit. The rent agreed upon between them cannot be said to be market rent fetchable from a disinterested landlord and disinterested tenant. In such a situation, factors like ( i ) location of the property, ( ii ) the built-up area, ( iii ) the rise in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20,974. The learned CIT(A) has erred in valuing the property income on the basis of the material available in the subsequent year under consideration to the effect that the flat has been given on rent in the assessment year 1998-99 at the net annual rent of Rs. 3,70,240. It is prayed that on the facts and circumstances of the case, annual value of the flat at NCPA may be computed at Rs. 20,974 as per the property working submitted by the appellant before CIT(A). 2. The learned CIT(A) has erred in not allowing long-term capital loss of Rs. 4,26,340 to be carried over to subsequent year as submitted by the appellant." 14. The first ground is covered by the decision on revenue s appeal. But so far as determination of Annual letting value of the vacant flat is concerned, we restore this matter again to the file of the CIT(A) to determine the fair rent in the same manner as laid down in our decision for the assessment year 1998-99. The issue will be decided afresh in the light of enquiries and finding on fair rent as per section 23(1)( a ). This is, therefore, set aside to the file of CIT(A). This ground is allowed for statistical purposes. 15. Regarding capital loss incur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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