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TMI Blog2012 (5) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... e is an individual engaged in the business of acquiring and letting out properties on leave and license basis. She also carried out the business as a Fashion Designer through her proprietary concern "M/s. Azzura International". The relevant facts for the adjudication of the issue involved are that, during the course of assessment proceedings, the Assessing Officer noted that the appellant had received huge amounts of deposits from the tenants, he therefore, required to show cause as to why the notional interest on the deposits should not be added on the rent amount received while determining the annual ratable value of the let out properties computed under the head "Income from house property". In response to the same, the appellant submitted that the amount of rent/license fee received far exceeds the Municipal ratable value of the premises and, therefore, the actual rent received should be taken as "annual value" u/s. 23(1). In support of this contention reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT v. Satya Co. Ltd. [1994] 75 Taxman 193 and also the decision of Birla International passed by the ITAT Mumbai Bench. 2.1 The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al value u/s 23(1)(b) of the Act. In the facts of the case, the question whether notional interest on interest free security deposits can be taken to be part of annual value u/s 23(1)(a) does not arise. However, this cannot be done even u/s 23(1)(a). CBDT Circular No. 204 dated 24.7.1976 (para 9) and the ratio of the decision of the jurisdictional bench of ITAT including the decision in the case of Parkpaper Industries Ltd. (25 SOT 406)(Mum) are clear authorities for the proposition that municipal ratable value needs to be considered for the purposes of S. 23(1)(a). Recently, the Mumbai Bench of ITAT has in the case of DCIT vs. Reclamation Realty India Pvt. Ltd. (ITA No. 1411/Mum/07, Asst Year 2004-05 order dated 26.11.2010), after considering all the decisions on this subject held that the annual value (also referred to as municipal valuation/rateable value) adopted by the municipal authorities in respect of the property at Rs. 27,50,835 should be the determining factor for applying the provisions of section 23(1)(a) of the Act. Since the rent received by the Assessee was more than the sum for which the property might reasonably be expected to let from year to year, the actual ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received or receivable then the same should be taken for the purpose of valuation. However, if the rent received or receivable is more than the municipal value then the actual rent received or receivable will be taken as annual letting value of the property within the meaning of section 23(1). So far as the merit of charging of notional interest on deposit over and above the rent received is concerned, we note that this issue is squarely covered by the judgment of Hon'ble Jurisdictional High Court in the case of J.K. Investors (Bombay) Ltd. (supra), wherein it has been held that if the actual rent received by the assessee was more than the fair rent, then the notional interest cannot form the part of the actual rent as contemplated u/s.23(1)(b). The Hon'ble High Court also considered the word "receivable" that it connotes the payment of actual annual rent. The ratio laid down by the Hon'ble High Court are as under :-"Held, that it was found that the actual rent received by the assessee was more than the fair rent even without taking into account notional interest. Generally, fair rent is fixed even under the Bombay Municipal Corporation Act and the Rent Act by taking into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Bombay High Court and the same cannot be followed. The relevant finding of the Hon'ble ITAT are being reproduced here under :- "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. CIT 101 ITR 810 (Patna). We find that the Bombay High Court which is the jurisdictional High Court has held that the rateable value under the municipal law has to be ..... 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