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TMI Blog2011 (5) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from 1-11-2002 on a monthly rent of Rs. 1 lakh. The assessee company also received interest free deposit of Rs. 5,25,00,000 from the licensee of M/s. Lucent Technologies (P.) Ltd. The assessee company declared the rental income at the rate of Rs. 1 lakh per month for the respective period for all the three assessment years. The Assessing Officer was of the view that the interest free security deposit received of Rs. 5,25,00,000 utilised for giving interest free loan and advances to the sister concerns has been received by the assessee to lower down the income from house property and enjoy indirectly the benefit of huge security deposit. The Assessing Officer determined the ALV under section 23(1)(a) by taking into account 10 per cent of the interest free deposit of Rs. 5.25 crores and at the rate of 10 per cent has been applied as basis of rate being the interest for long time fixed deposits. Though the Assessing Officer made some enquiries about the market rent in the locality and as per the Assessing Officer, the same is more than what the assessee has shown. However, the Assessing Officer while computing the ALV under section 23(1)(a) taken into consideration only 10 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has not altered any material meaning of the provision except for the first year of letting out or the property is not let out for full year. Thus, for determination of the ALV under section 23(1), the Assessing Officer has first to find out the reasonably expected rent which the property might fetch by letting out from year to year and then this reasonably expected rent has to be compared with the annual rent received or receivable by the owner and if annual rent received or receivable as contemplated under section 23(1)(b) is in excess of the reasonable rent expected from letting out the property from year to year as determined under section 23(1)(a) the amount so received or receivable would the annual value for the purpose of section 22 of the Act. The Income-tax Act does not define the term reasonable expected rent to be fetched by the property from letting out from year to year. No method for determination of such reasonable rent under section 23(1)(a) has been provided either in the Act or in the Rules framed there under. Only the judicial pronouncements on the issue have thrown some light as how to determine the sum for which the property may reasonably be expected to let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, in the case of CIT v. Moni Kumar Subba [IT Appeal No. 499 of 2010], ITA No. 803 of 2007, ITA No. 1113 of 2008, ITA No. 388 of 2010, ITA No. 516 of 2010, ITA No. 1034 of 2010 and ITA No. 1240 of 2010, after considering the decision of the Division Bench of the Hon'ble High Court in the case of CIT v. Asian Hotels Ltd. observed and held in paragraph 13 to 22 as under : 13. We approve the aforesaid view of the Division Bench of this Court and Operative words in section 23(1)(a) of the Act are "the sum for which the property might reasonably be expected to let from year to year". These words provide a specific direction to the revenue for determining the "fair rent". The Assessing Officer, having regard to the aforesaid provision is expected to make an inquiry as to what would be the possible rent that the property might fetch. Thus, if he finds that the actual rent received is less than the "fair/market rent" because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf. However, by no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on interest free security deposit could not be taken into consideration. It is clear from the following discussion therein : 6. With regard to question Nos. (5) and (6) which are only for the assessment years 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-clause (a) of sub-section (1) of section 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Under sub-clause (b) of section 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit, etc., in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Satya Co. Ltd. (supra) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income-tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if in the assessment year in question when assessment is to be made under Income-tax Act. The property is let-out at a much higher rent. Thus, the Assessing Officer in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the "fair rent" in the market and there is sufficient material on record for taking a different valuation. We may profitably reproduce the following observations of the Supreme Court in the case of Corporation of Calcutta v. Smt. Padma Debi AIR 1962 SC 151 : "A bargain between a willing le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at such assessment was rightly set aside by the CIT(A) and the Tribunal. Therefore, the orders would not call for any interference. These appeals are, thus, dismissed on this ground. Once we hold this, the very basis adopted by the Assessing Officer to fix annual letting value was wrong and therefore, no further exercise in fact is required by us in these appeals. 21. We would like to remark that still the question remains as to how to determine the reasonable/fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the "fair rent". The question would, therefore, be as to what would be circumstances which can be taken into consideration by the Assessing Officer while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand v. Bombay Municipal Corpn. AIR 1968 SC 441 : "It is well-recognized principle in rating that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial for determining fair rent in the market and there is a sufficient material on record for taking different valuation then the Assessing Officer can determine the fair rent by inflating or deflecting the Municipal Value or Standard Rent as the case may be by taking into account the relevant material in this regard. As observed by the Hon'ble Delhi High Court if the ratable value is correctly determined under the Municipal law the same can be taken as annual letting value under section 23(1)(a) of the Act. However, the ratable value is not a binding on the Assessing Officer if the Assessing Officer can show that the ratable value under Municipal law does not represent the correct fair rent. If the Assessing Officer finds that the actual rent received is less than the fair market rent/market rent because of the reason that the assessee has received abnormally high interest free security deposits and because of that reason actual rent received is less than the rent which the property might fetch he can undertake necessary exercise in that behalf. However, the notional interest on interest free security cannot be taken as determinative factor to arrive at fair rent. If the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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