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TMI Blog2010 (11) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... vable by the owner from the tenant irrespective whether tenant on such letting has received higher rent - The expression receivable cannot mean anything more than what is actually received - Held that: the annual value has to be adopted at the annual rent actually received by the Assessee from ICICI Ltd., viz., ₹ 1,12,64,400 - In the result, appeal by the Assessee is allowed while the appeal by the revenue is dismissed - ITA NO. 1411 to 1413, 1733 and 1734 (MUM)/2007 - - - Dated:- 26-11-2010 - N.V. VASUDEVAN AND PRAMOD KUMAR, JJ. ORDER PER BENCH ITA 1413/Mum/07: This is an appeal by the revenue against the order dated 5.12.2006 of CIT(A)-X, Mumbai, relating to A.Y.2004-05. 2. The grounds of appeal of the Revenue reads as follows: 1. On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred in directing the Assessing Officer to exclude the notional interest on advance rent received and security deposit while computing the annual value of the let out property by ignoring the fact that the Assessing Officer has correctly determined the annual value of the property u/s. 23(1)(a) of the Income Tax Act, 1961 by addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004) in terms of rate per sq.ft. worked out to ₹ 152.50Ps. Per month. 6. Under Sec.22 of the Income Tax Act, 1961 ('Act'), the charge to tax under the head 'income from house property' is on the annual value of the property. Sec.22 reads as follows: Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head Income from house property . 7. Section 23 of the Act lays down as to how the annual value has to be determined. The relevant portion of section 23 is as follows :- 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Assessee, the rent received was ₹ 2,87,87,660. The annual value (also referred to as municipal valuation) adopted by the municipal authorities in respect of the property was ₹ 27,50,835. According to the Assessee, the annual value (also referred to as municipal valuation or rateable value) adopted by the municipal authorities in respect of the property, reflects the sum for which the property might reasonably be expected to let from year to year. Since the rent received was more than the sum for which the property might reasonably be expected to let from year to year, the Assessee adopted the actual rent received as the annual value of the property. 10. The AO however did not accept the annual value as shown by the Assessee. According to the AO, the Municipal valuation as adopted by the Municipal authorities did not reflect the true sum for which the property might reasonably be expected to let from year to year. The AO was of the view that the property was located in a posh commercial area and the rent of ₹ 152.50 Sq.ft. was too low. He was of the view that such reduced rate of rent was due to the fact that the entire rent for the period of leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,69,314 should be excluded, cannot be accepted because the said interest income was an independent income and there was no provision for set off as claimed by the Assessee. For the above reasons, the AO, adopted the annual value of the property at ₹ 3,42,23,856 for the purpose of arriving at the income that has to be charged under the head Income from House Property . 12. Before CIT(A), the Assessee submitted that the Annual Value of property which is the subject of charge was originally defined in Sec.23(1) corresponding to Sec.23(1)(a) as the sum for which the property might reasonably be expected to let from year to year . This expression is aking to the language used in Sec. 154 of the Bombay Municipal Corporation Act (BMC Act) and corresponding legislation in various states and is the basis for determination of rateable value of the property for the purpose of levy of municipal taxes. Attention was drawn to the provisions of Sec. 154 of the BMC in this regard. It was submitted that under the BMC Act and Sec.23(1)(a) of the Act, the basis is the hypothetical rent which a owner can reasonably expect to receive. It was also submitted that fair rent fixed under the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Income-Tax Act, section 23(1)(b) provides that where the actual rent is more than the fair rent, the actual rent would be the annual value of the property. Therefore, the notional interest would not form part of actual rent received or receivable u/s. 23(1)(b). While deciding this issue, the Hon'ble Bombay High Court has also referred the decision of Calcutta High Court in the case of CIT v. Satya Co. Ltd. 75 Taxman 193(Cal.). In the aforesaid decision, the Hon'ble Calcutta High Court has held that notional interest on interest free deposit by the tenant cannot be added to the annual value u/s. 23(1). The same analogy will apply to advance rent received by the appellant and no notional interest can be added to annual value on advance rent also. In addition to the aforesaid decisions, the appellant has also relied on several case laws including the decision of Bombay ITAT in the case of DCIT v. Shripal S. Morakhia. In the present case, the actual rent received by the appellant is ₹ 2,87,87,660 as against the municipal valuation of the premises at ₹ 27,50,835 which is lower than the actual rent received. Therefore, in view of aforesaid decisions, notional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional interest on security deposit. It was further held in this decision that the fact that the interest received by the Assessee on investment of the interest free security deposit was offered to tax would not be relevant. Finally reference was made to the decision of the ITAT Mumbai Bench in the case of Tivoli Investment Trading Co. (P) Ltd. v. ACIT 90 ITD 163(Mum.). It was thus submitted by the learned D.R. that the estimation of annual value as done by the AO is correct and has to be accepted. 16. The learned counsel for the Assessee reiterated the plea as was put forth by the Assessee before the CIT(A). She relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Akshay Textiles Trading and Agencies Pvt. Ltd. 304 ITR 401(Bom.)., wherein it was held that the expression receivable as appearing in Sec.23(1)(b) cannot be given a wider meaning. The Hon'ble Court after noticing the amendment to Sec.23(1), whereby it was laid down that if rent received is more than the municipal rateable value then the actual rent received will be the yardstick for determining the annual value, held that the expression receivable means what is actual received an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Hon'ble Bombay High Court on the issue still hold good and they have to be followed. It was submitted that the actual rent received was ₹ 2,87,87,660. The annual value (also referred to as municipal valuation) adopted by the municipal authorities in respect of the property was ₹ 27,50,835 and that should be the determining factor for applying the provisions of Sec.23(1)(a) of the Act. Since the rent received was more than the sum for which the property might reasonably be expected to let from year to year, the actual rent received should be the annual value of the property u/s.23(1)(b) of the Act. Notional interest on interest free security deposit/rent received in advance should not be added to the same in view of the decision of the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra). 17. We have considered the rival submissions. Originally provisions of section 23 of the Act provided for determination of annual value of house property only on the basis of sum for which, the property might reasonably be expected to be let from year to year. The actual receipt of rent was irrelevant. By the Taxation Laws (Amendment) Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish v. CIT, 131 ITR 435 (SC), the question arose in the context of provisions of section 23 of the IT Act. The Hon'ble Supreme Court applying the decision of Hon'ble Supreme Court in the case of Dewan Daulat Rai Kapoor (supra) observed as follows :- Now this was a definition given on the interpretation of the definition of Annual value in the Delhi Municipal Corporation Act, 1957, and the Punjab Municipal Act, 1911, for the purpose of levy of house tax, but it would be eqully applicable in interpreting the definition of 'annual value' in sub-section (1) of section 23 of the IT Act, 1961, because these definitions are in identical terms and it was impossible to distinguish the definition of 'annual value' in sub-section (1) of section 23 of the IT. Act, 1961, from the definition of that term in the Delhi Municipal Corporation Act, 1957 and the Punjab Municipal Act, 1911. We must, therefore, hold on an identical line of reasoning, that even if the standard rent of a building has not been fixed by the Controller under section 9 of the Rent Act and the period of limitation prescribed by section 12 of the Rent Act for making an application for fixation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guide for this purpose and the rent actually received would not be of any relevance . 21. The Court in the aforesaid decision also relied on the provisions of section 154 of the Bombay Municipal Corporation Act, wherein the manner of determination of rateable value has been laid down. The said provisions also speak of annual rent for which, the property might reasonably be expected to let from year to year . Thus, the Court concluded that the Municipal valuation and the annual value u/s. 23(1)(a) are one of the same. The decision of Hon'ble Calcutta High Court has been followed by Hon'ble Bombay High Court in the case of M.V. Sonavala v. CIT, 177 ITR 246 (Bom.); wherein Hon'ble Bombay High Court has observed as follows :- However, the questions posed to us are not whether the annual value of the property for the purpose of section 23(1)(a) should be taken at the actual compensation received or on the basis of standard rent. The question is whether the annual value should be taken at the amount which is actual compensation received or at the amount fixed as municipal rateable value. Obviously, Municipal rateable value cannot be equated to standard rent. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s standard rent under the Rent Control Act as one of the yardsticks. We also find from the decision of Hon'ble Calcutta High Court in the case of Smt. Prabhabati Bansali (supra) that standard rent, if it does not exceed the municipal valuation alone can be adopted in place of municipal valuation. 23. As far as decisions relied upon by the learned D.R. in the case of Baker Technical Services (P) Ltd. (supra), we find that the same is based on the decision of the ITAT Mumbai bench in the case of ITO v. Makrupa Chemicals (P) Ltd. 108 ITD 95 (Mumbai). In the case of Makrupa Chemicals, in para-14 of the decision it has been clearly held that rateable value, if correctly determined under the municipal laws can be taken as ALV u/s.23(1)(a) of the Act and in this regard the decision of the Hon'ble Supreme Court in the case of Sheila Kaushish(supra) has been followed. It has further been observed that the rateable value is not binding on the AO, if the AO can show that rateable value under the municipal law does not represent the correct fair rent. In coming to the above conclusion, the Bench has followed the decision of the Patna High Court in the case of Kashi Prasad Katarvka v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue is dismissed. 26. ITA No. 1733/Mum/07 ITA No. 1412/Mum/07: 27. ITA No. 1733/Mum/07 is an appeal by the Assessee and ITA No. 1412/Mum/07 is an appeal by the Revenue. Both these appeals are directed against the order dated 5.12.2006 of CIT(A)-X, Mumbai, relating to A.Y. 2004-05. 28. The grounds of appeal of the Assessee reads as follows: 1. Being aggrieved by the order bearing No. CIT(A) X/IT/318/2005-06 dated December 5,2006 issued by the Commissioner of Income-tax (Appeals) X, Mumbai [hereinafter called the CIT(A)] issued under section 250 of the Income-tax Act, 1961 [hereinafter called The Act] and communicated to the Appellant on December 28, 2006 the Appellant appeals against and on the following amongst other grounds which are without prejudice to each other. (A) Re: Erroneously enhancing the annual value by adopting the rent received by associate company - ₹ 1,75,23,260[Pages 1 to 3 of the CIT(A) order.] 2. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the annual value/fair rent of ₹ 2,87,87,660 determined in the case of the associate company as against ₹ 1,12,64,400 actually receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be assessed under the head Income from House Property . The annual value (also referred to as municipal valuation) adopted by the municipal authorities in respect of the property was ₹ 27,50,835. The Assessee determined Income from House Property by adopting the annual value at ₹ 1,12,64,400 which is the actual rent received which is higher than the Municipal valuation. The Assessee had claimed that the annual value has to be determined in accordance with Sec.23(1)(b). 32. The AO after making a reference to the fact that the property owned by this Assessee was located in the same building and is of the same size as that of the Assessee M/S. Reclamation Real Estate Company India Pvt. Ltd.,( the Assessee in ITA No. 1413/Mum/2007, which we have decided in the earlier paragraphs) which was a group of this Assessee, was of the view that the annual value determined in the case of M/S. Reclamation Real Estate company India (P) Ltd. would be the the sum for which the property might reasonably be expected to let from year to year , viz., ₹ 3,42,23,856 He therefore adopted the annual value at the said figure applying the provisions of Sec.23(1)(a) of the Act. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y this Assessee of ₹ 1,12,64,400. The argument of the learned D.R. was that since the property is located in the same building and the area leased out are also identical, there was no reason for this Assessee to receive a lesser rent. The learned counsel for the Assessee besides reiterating the arguments as were made in the earlier case for adding notional interest on interest free security deposit further relied on the decision of the Hon'ble Bombay High Court in the case of Akshay Textiles (supra). It was also submitted that the quantum of rent is purely decided on the basis of mutual agreement between the parties. When the annual value is determined u/s.23(1)(b) of the Act, the actual rent received alone should be considered. 35. We have considered the rival submissions. In the case of Akshay Textiles (supra), the facts before the Hon'ble Bombay High Court was that A owner of the property let out the same to B. B sub-let the property to C. While determining the annual value of the property in the case of A, the AO substituted the rent paid by C to B because the rent paid by B to A was less compared to the rent paid by C to B. The Hon'ble Bombay high Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 234D of the Act. 40. The grounds of appeal of the Revenue read as follows: 1. On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred in directing the Assessing Officer to exclude the notional interest on advance rent received and security deposit while computing the annual value of the let out property by ignoring the fact that the Assessing Officer has correctly determined the annual value of the property u/s. 23(1)(a) of the Income Tax Act, 1961 by adding notional interest on advance rent received and interest on security deposit, that being essential component for arriving at such annual value. 2. On the facts and in the circumstances of the case as well as in law, the Learned CIT(A) has erred in directing the Assessing Officer not to calculate notional interest on advance rent received and security deposit while determining the annual value of the let out property by ignoring the fact that the decision given by the ld. CIT(A)on the same issue in the case of Reclamation Real Estate India Pvt. Ltd. has not been accepted by the department and further appeal has been filed to the Hon'ble ITAT. 41. The Assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (P) Ltd., from J.P. Morgan Chase Bank. He therefore substituted the actual rent received by this Assessee by the rent actually received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank, at ₹ 2,87,87,600 as against actual rent received by this Assessee of ₹ 1,12,64,400. Aggrieved by the relief granted to the Assessee the revenue is in appeal before the Tribunal. Aggrieved by the action of CIT(A) in substituting the actual rent received by it by the rent received by M/S. Reclamation Real Estate company India (P) Ltd., from J.P. Morgan Chase Bank, the Assessee is in appeal before the Tribunal. 44. We have heard the rival submissions, which are the same as was put forth in the case of M/S. Reclamation Real Estate Company India Pvt. Ltd.,( the Assessee in ITA No.l413/Mum/2007. For the details reasons given in that case, we hold that the annual the annual value (also referred to as municipal valuation/ rateable value) adopted by the municipal authorities in respect of the property at ₹ 27,50,835 should be the determining factor for applying the provisions of Sec.23(1)(a) of the Act. Since the rent received by the Assessee was mor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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