9911796707
TMI Blog2008 (11) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 6,00,000 declared by the assessee. Briefly stated the facts are these. The assessee is a company which let out its two properties bearing unit No. 2 and flat No. 12 to Mrs. Resham Wadhwa who is wife of one of the Directors on monthly rent of Rs. 50,000 (including service charges) vide agreement dated 31-7-1999. However, Mrs. Resham Wadhwa sub-letted the said property to M/s. Angel Securities Ltd. on monthly rent of Rs. 2,28,000 i.e., Rs. 1,43,000 per month (including service charges) in respect of unit No. 2 and Rs. 85,000 p.m. in respect of flat No. 12. The said tenant had also received interest-free refundable deposit of Rs. 27,25,000 from the sub-tenant in respect of the aforesaid two parties. The assessee declared annual letting value of these properties at Rs. 6,00,000 p.a. in the return filed by it. On these facts, the Assessing Officer was of the prima facie view that the annual letting value declared by the assessee was not acceptable since it was depressed by reason of some extraneous consideration. Accordingly, the assessee was asked to show cause as to why the ALV should not be adopted at Rs. 27,36,000 which Mrs. Resham Wadhwa was getting from the sub-tenant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cygnus Negi Investment (P.) Ltd. [IT Appeal No. 3830 (Mum.) of 1991, dated 26-2-1998], Joint CIT v. Shaporjee Co. (Rajkot) (P.) Ltd. [IT Appeal No. 7051 (Mum.) of 1998, dated 29-7-2003], wherein it has been held that Municipal Valuation or Ratable value can be taken into consideration in determining the ALV and in case where actual rent received is more than Municipal Value then the actual rent should be adopted as ALV. He also drew our attention to the fact that appeals filed by the department in these cases have been dismissed by the Hon ble Bombay High Court. He also drew our attention to the Board Circular No. 204, dated 24-7-1976 wherein it has been explained as to why amendment was made in section 23 of the Act. Our attention was drawn to para 9 of the said circular to point out that the board considered various instances where actual rent received was more than the Municipal Valuation and therefore, the provisions of section 23(1) were amended so as to determine the ALV on the basis of actual rent received. In the course of hearing, the counsel for the assessee was informed that this aspect has been examined by the Mumbai Bench of the Tribunal in the case of ITO v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the fact that Mrs. Resham Wadhwa is the wife of one of the Directors of the assessee-company and the said property was sub-letted by her within a short span of four months at an abnormal rent along with the receipt of huge sum of Rs. 27 lakhs and odd by way of interest free deposits. It has been pleaded by him that no prudent person would let out the property at a rate which is abnormally less than the market rate. According to him, the assessee had deflated the rent on account of relationship and therefore, the transaction cannot be treated to be a genuine one. In support of his contention, he has relied on the decision of the Hon ble Madras High Court in the case of N. Nataraj v. Dy. CIT [2004] 266 ITR 277 wherein under the similar circumstances it was held that ALV was rightly adopted at the rent received from the sub-tenant. He also relied on the decision of the Tribunal in the case of Makrupa Chemicals (P.) Ltd. ( supra ) for the proposition that Municipal Valuation is not binding on the Assessing Officer if not correctly determined. According to him, considering the market trend, the Municipal Valuation had been determined incorrectly. 6. Rival submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it was held that human probabilities should be taken into consideration while deciding the issue. Considering the facts of the case and the test of human probabilities, it cannot be said that the agreement between assessee and Mrs. Resham Wadhwa was genuine one and the consideration by way of rent was correctly stated in the said agreement. In our opinion, the agreement dated 31-7-1999 between the assessee-company and Mrs. Resham Wadhwa was generated as a device not only to reduce the tax liability of the assessee-company but also with a view to allow the wife of one of the Directors to enjoy the fruits of the property of the assessee-company. If the assessee has adopted a device to reduce the tax liability then it is the duty of the Assessing Officer to unravel the device and to determine the true character of the transaction. The learned Counsel for the assessee had drawn our attention to the explanation of the assessee before the Assessing Officer that the premises were taken on lease with a view to open a beauty parlour in the said premises and not for sub-letting the same. The premises were sub-letted since she did not find the same to be feasible. This explanation is not s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the assessment of income in the hands of Mrs. Resham Wadhwa. The assessment of income in the hands of the assessee-company was not brought to the notice of the ITO assessing the income of Mrs. Resham Wadhwa for the reasons best known to the assessee. Now the assessee cannot take any advantage out of the assessment made in the hands of Mrs. Resham Wadhwa. 10. The learned counsel for the assessee has submitted that there is no evasion of tax since both the assessee and Mrs. Resham Wadhwa are assessed in highest bracket. We are unable to accept this contention also. Firstly, the income has to be assessed in right hands as already discussed and therefore there is avoidance of tax in the hands of the assessee. Further, the assessee-company is assessable at flat rate of 35 per cent while Mrs. Resham Wadhwa, being individual, is chargeable to lower rate of tax upto Rs. 1.5 lakh and thereafter at the rate of 30 per cent. Hence, rate of tax in hands of Mrs. Resham Wadhwa would in any case be much less. Hence this contention of the learned Counsel for the assessee is also rejected. 11. However, before parting with this issue, we would like to mention that if any transaction is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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